Colonial Laundries, Inc. v. Henry

• Decision Date: 23 June 1927
• Docket Number: No. 781.,781.
• Citation: 138 A. 47
• Parties: COLONIAL LAUNDRIES, Inc., v. HENRY et al.
• Court: Rhode Island Supreme Court

138 A. 47

COLONIAL LAUNDRIES, Inc.,

v. HENRY et al.

No. 781.

Supreme Court of Rhode Island.

June 23, 1927.

Appeal from Superior Court, Providence and Bristol Counties; Willard B. Tanner, Presiding Justice.

Bill by the Colonial Laundries, Inc., against John J. Henry and another. From a decree for complainant, granting a preliminary injunction, respondents appeal. Appeal dismissed, and cause remanded.

Hogan & Hogan, of Providence, for appellants.

Littlefield, Otis & Knowles and James B. Littlefield, all of Providence, for appellee.

BARROWS, J. This case is heard on appeal from a decree granting a preliminary injunction restraining respondents from soliciting laundry business from certain people from whom respondents as drivers for complainant had collected laundry.

It is agreed that for several years the respondents were employed at will by complainant or its predecessors as drivers of laundry wagons; that upon entering into employment they were given the names of certain regular customers upon whom to make periodical calls for the solicitation and collection of laundry to be done by complainant; that such customers constituted what is called a route, and the number of customers on the routes increased during respondents' employment; that in May, 1927, both respondents voluntarily left complainant's employ; that during the last week of their employment they notified complainant's customers that respondents were about to go into the laundry business for themselves and received assurance that the customers would be willing to give them their laundry work; that in the following week they called upon and received from 80 per cent. of the customers on their respective routes bundles of laundry which they took to respondents' new business; that the respondents copied no list of customers, but simply carried the names and addresses of said customers in their memories; that respondents' contracts with complainant did not forbid the former from engaging in a competitive business.

The superior court, conceding that it hitherto had refused to enjoin such conduct, recognized "the growing tendency in courts to grant equitable relief under such circumstances," and expressing its own feeling "that perhaps respondents should not, under such circumstances, be allowed to take advantage of the knowledge they had gained in confidential relationship," granted the injunction. Respondents admit that, if there had been an express contract not to compete after termination of the employment, an injunction would have been proper. Witkop & Holmes Co. v. Boyce, 61 Misc. Rep. 126, 112 N. Y. S. 874, affirmed in 131 App. Div. 921, 115 N. Y. S. 1150.

Equitable jurisdiction, however, does not depend on such an express contract. Stevens & Co. v. Stiles, 29 R. I. 399, 71 A. 802, 20 L. R. A. (N. S.) 933, 17 Ann. Cas. 140; Empire Steam Laundry Co. v. Lozier, 165 Cal. 95, 130 P. 1180, Ann. Cas. 1914C, 628. And see note in 44 R. L. A. (N. S.) 1159. Specific performance of a contract in its true sense is not sought. Prevention of unfair competition is the reason for seeking equitable interference. Authorities generally agree that an employee lawfully entering upon a competing business may be enjoined from the use of trade secrets or processes, knowledge of the employer's business surreptitiously obtained, or copied lists of customers or information about them. Stevens & Co. v. Stiles, 29 R. I. 399, 71 A. 802, 20 L. R. A. (N. S.) 333, 17 Ann. Cas. 140. The wrong prevented is variously stated, viz. violation of complainant's property rights, or misuse of confidential information given by principal to agent, or violation of a contract implied in law. In the latter some courts import a term into the employee's contract of service that:

"He will not, after the service is determined, use information which he has gained while the service has been subsisting to the detriment of his former employer." Essex Trust Co v. Enright, 214 Mass. 507, 511, 102 N. E. 441, 442, (47 L. R. A. [N. S.] 567).

The two latter grounds are in substance only an application of equitable doctrines to prevent fraud or overreaching.

The cases concerning lists of customers have been annotated in 23 A. L. R. 423, and 34 A. L. R. 399. They are not in accord, but careful examination discloses that the difference among the decisions is not so much one of principle as whether in a given case the list was confidential, and, if so, whether the fact should be submerged in the interest of free competition. Cf. Fulton Laundry Co. v. Johnson, 140 Md. 359, 117 A. 753, 23 A. L R. 420; K. C. Laundry Service Co. v. Jeserich, 213 Mo. App. 71, 247 S. W. 447. Says Nims on Unfair Competition (2d Ed.) § 151, p. 311:

"For an employee to quit the employment, and then use in the service of a rival information of a confidential nature gained in the prior employment, is contrary to good faith and fair dealing."

Our court in Stevens & Co. v. Stiles, supra, is committed to this view. The court, therefore, must determine, first, whether the knowledge or information, the use of which complainant seeks to enjoin, is confidential; and, second, whether, if it be confidential in whole or in part, its use ought to be prevented.

While the relation of employer and employee is a confidential one (Stevens & Co. v. Stiles, supra), all knowledge acquired by the employee is not of a confidential nature. Some clearly is of so general a nature that equity ought not to attempt to restrict its subsequent use. At page 318, Nims says that a former employee—

"is not entitled to avail himself of his acquaintance with the customers to canvass their trade for a new employer. This rule should be applied with caution. Much depends on the special facts of the case.* * * "

If information be imparted privately, the character of the secret is immaterial, if it is one important to the business of the employer, and one to which the employment relates. That a list of customers who wish the drivers to call for laundry is of special importance to the employer is hardly open to dispute. When a selected list has been built up by labor and expense on the part of the employer, and is secretly imparted to a specific employee for a specific purpose, it is not a part of the employee's general knowledge, which may be freely used anywhere. It is as confidential as would be a formula showing how to mix certain ingredients to produce an article of commerce made only by the employer. Just where to draw the line between usable and nonusable knowledge is a matter of difficulty. There is always the question whether encouragement of individual initiative and competition should outweigh whatever unfairness seems to be involved in the use of the information.

The right to engage in any legitimate business is in the nature of a property right. Dent v. W. Va., 129 U. S. 114, 9 S. Ct. 231, 32 L. Ed. 623. Those who support the right of an employee to use knowledge like the present do not defend its use as entirely fair. They described respondents' conduct as did Lord Kenyon, as "not handsome," but yet not contrary to law. Nichols v. Martyn, 2 Esp. 732. They assert that the use of such a list is one of the chances taken by the employer, if he does not protect himself by contract forbidding the employee to compete. Some justify its use by assertion that the information cannot be confidential, because it may be secured by any one who cares to follow a driver around his route and observe his places of call. Fulton Laundry Co. v. Johnson supra. Some say that the route has no property value; that it is only a part of the general public good will, for which any one may strive. K. C. Laundry Service Co. v. Jeserich, supra. Some hold that a written list of customers may have property value, entitled to protection, but that mere knowledge of the names cannot have such property value. Garst v. Scott, 114 Kan. 676, 220 P. 277, 34 A. L. R. 395; Federal Laundry Co. v. Zimmerman, 218 Mich. 211, 187 N. W. 335, following Grand Union Tea Co. v. Dodds, 164 Mich. 50, 128 N. W. 1090, 31 L. R. A. (N. S.) 260.

In our opinion, knowledge of the names of complainant's customers, furnished to respondents at the time the employment began, was confidential information. Both counsel concede that subsequent additions to the list created no change in this respect. The Witkop Case, at page 878 (61 Misc. Rep. 131), says:

"The names of customers of a business concern, whose trade and patronage have been secured by years of business effort and advertising, and the expenditure of time and money, constituting a part of the good will of a business which enterprise and foresight have built up, should be deemed just as sacred and entitled to the same protection as the secret of compounding some article of manufacture and commerce."

Knowledge of these names is not tangible property, but neither is knowledge of a secret formula. The jurisdiction of equity to restrain the use of such knowledge is based upon the misuse of something of value belonging to the employer, namely, the good will of his customers. Such good will is sufficiently in the nature of property to be entitled to protection against unfair solicitation. Zanturjian v. Boornazian, 25 R. I. 151, 55 A. 199; Ferris v. Pett, 42 R. I. 48, 105 A. 369, 2 A. L. R. 768; Von Bremen v. MacMonnies, 200 N. Y. 41, 93 N. E. 186, 32 L. R. A. (N. S.) 293, 21 Ann. Cas. 423 ...