Corroon & Black-Rutters & Roberts, Inc. v. Hosch, BLACK-RUTTERS

• Court: United States State Supreme Court of Wisconsin
• Citation: 325 N.W.2d 883,109 Wis.2d 290
• Docket Number: BLACK-RUTTERS,No. 80-2337,80-2337
• Parties: CORROON && ROBERTS, INC., Plaintiff-Respondent-Petitioner, v. Jack HOSCH, Defendant-Appellant.
• Decision Date: 02 November 1982

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325 N.W.2d 883 109 Wis.2d 290 CORROON & BLACK-RUTTERS & ROBERTS, INC.,
Plaintiff-Respondent-Petitioner,
v.
Jack HOSCH, Defendant-Appellant. No. 80-2337. Supreme Court of Wisconsin. Argued Sept. 7, 1982.
Decided Nov. 2, 1982.

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Kenneth M. Kenney, Milwaukee, argued, for plaintiff-petitioner; Kenney, Krembs & Fellows, Milwaukee, on brief.

William A. Stearns of Quarles & Brady, Milwaukee, argued, for defendant-appellant; Tom E. Hayes, M. Susan Maloney and Hayes & Hayes, Milwaukee, on brief.

[109 Wis.2d 291] CECI, Justice.

The question presented is whether it is unfair competition for an insurance agent to use his former employer's customer lists to direct clients to the agent's new insurance agency.

A jury found that the defendant, Jack Hosch, had unfairly used confidential information to compete with the plaintiff, Corroon & Black-Rutters & Roberts, Inc. The court of appeals reversed and remanded for judgment notwithstanding the verdict, holding that the verdict was not supported by credible evidence and was contrary to public policy. We conclude that the information gleaned by the defendant from the plaintiff's files does not constitute a trade secret under Wisconsin law and, therefore, affirm the decision of the court of appeals, 105 Wis.2d 755, 315 N.W.2d 728.

Jack Hosch has been an agent licensed to sell insurance since 1958. In that year, he began his employment with the Roberts Company, a general insurance agency. In 1973, the business and assets of Roberts, including all of its insurance accounts, were acquired by Corroon & Black through an exchange of the stock of Roberts with the stock of Corroon & Black.

During his employment, Hosch was responsible for procuring and servicing insurance accounts for a large number of Corroon & Black's customers. Hosch himself brought about half of these accounts to Corroon & Black. Servicing an account involved, among other things, contacting a customer when the policy was about to expire and reviewing and updating the coverages before renewing the policy.

When the two agencies merged in 1973, Hosch and other employees of Roberts who joined Corroon & Black were required to sign a covenant not to compete. Hosch's covenant not to compete terminated on December 31, 1977. He entered into no other such agreement.

When the term of the covenant not to compete ended, Hosch left Corroon & Black to work for a competitor. [109 Wis.2d 292] Shortly thereafter, in January of 1978, Corroon & Black's president learned that numerous agent-of-record letters had been issued in favor of Hosch and his new agency. These letters notified insurance companies that certain accounts were being switched to a different agency. This resulted in substantial losses of commissions for Corroon & Black, since approximately two-thirds of Hosch's Corroon & Black customers changed to his new agency.

It is clear that Hosch actively solicited his former Corroon & Black clients. That he utilized information gained during his employment with Corroon & Black is not in dispute. This information was of help to him in contacting former customers. Corroon & Black presented testimony that Hosch may have taken detailed information in the expiration lists. Such lists contain names and addresses of policyholders, key personnel to contact, renewal dates and amounts of coverage. Hosch disputes this. ¹ While we recognize the dispute in the evidence on this issue, we can accept Corroon & Black's statement of facts on this point and still reach a conclusion adverse to them.

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Corroon & Black's customer files were kept in filing cabinets, which were never locked. Expiration lists were kept in cabinets which were locked on rare occasions. There were approximately 75 employees, all of whom had access to these files.

Corroon & Black commenced an action against Hosch, alleging that Hosch had unlawfully used "privileged and confidential information in the nature of trade or business secrets" from Corroon & Black's files to solicit his former customers.

The complaint demanded compensatory damages in the amount of the commissions for the diverted accounts and further demanded punitive damages. Corroon & Black [109 Wis.2d 293] also asked for an order enjoining any future solicitation by Hosch of his former Corroon & Black clients. The jury found that the files were confidential and that Hosch had made unauthorized use of them. It awarded Corroon & Black $50,000 compensatory damages and $4,000 punitive damages. The trial court approved the verdict.

Hosch appealed, contending that there was no trade secret involved. He also challenged the damages award. The court of appeals concluded that no liability existed because no trade secrets were involved. Therefore, the court did not address the damages issues.

The jury determined that it was unfair competition for Hosch, an insurance agent, to use customer lists of his former employer to divert clients to his new insurance agency. Corroon & Black emphasizes the unfairness of this situation and asserts that Hosch was untrustworthy. The plaintiff in Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis.2d 202, 267 N.W.2d 242 (1978), made a similar argument. However, any perceived unfairness should not be the determining factor. As we stated in Van Zeeland:

"[S]o long as a departing employee takes with him no more than his experience and intellectual development that has ensued while being trained by another, and no trade secrets or processes are wrongfully appropriated, the law affords no recourse." Id. at 214, 267 N.W.2d 242.

We also feel compelled to point out that there was no covenant not to compete in effect when Hosch began working for a competitor of Corroon & Black.

Since the protection of a covenant not to compete is not available to Corroon & Black, the outcome in this case necessarily turns on the question of whether the information taken by Hosch was a trade secret.

At the outset, we must address Corroon & Black's contention that the jury's verdict was supported by credible evidence. The court of appeals properly characterized [109 Wis.2d 294] the issue of whether a trade secret exists as a mixed question of law and fact. In Department of Revenue v. Exxon Corp., 90 Wis.2d 700, 281 N.W.2d 94 (1979), we stated that when a mixed question of law and fact is presented to this court, there are two component questions which must be answered. The first question is what, in fact, actually happened. The second question, whether those facts as a matter of law fulfill a particular legal standard, is a question of law. Id. at 713, 281 N.W.2d 94. Thus, we hold that whether the information taken by Hosch constitutes a trade secret is a question of law for the court. ² This court need not give special deference to the determinations of the trial court on an issue of law. Compton v. Shopko Stores, Inc., 93 Wis.2d 613, 287 N.W.2d 720 (1980); First Nat. Leasing Corp. v. Madison, 81 Wis.2d 205, 260 N.W.2d 251 (1977).

The conclusion that an insurance agency's customer list is not a trade secret is consistent with current Wisconsin law, as enunciated in our decisions in Abbott Laboratories v. Norse Chemical Corp., 33 Wis.2d 445, 147 N.W.2d 529 (1967), and Gary Van Zeeland Talent, Inc. v. Sandas, 84 Wis.2d 202, 267 N.W.2d 242 (1978).

In Abbott, an employee took, among other things, a customer list for artificial

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sweeteners and used it to compete against his former employer. In the Abbott opinion, we noted that the law concerning trade secrecy features two basic themes. Some courts have emphasized the breach of confidence aspect of the law of unfair competition. ³ Usually, however, such cases also involve an [109 Wis.2d 295] assumed trade secret. The second theme is the requirement of the existence of an actual trade secret as the sine qua non of a cause of action for unfair competition. The emphasis is on the nature of the ideas and concepts which employees take with them to their new jobs. 33 Wis.2d at 455-56, 147 N.W.2d 529.

Corroon & Black's analysis in the instant case bears close resemblance to the first theory in trade secret law discussed in Abbott. As mentioned previously, Corroon & Black emphasizes the alleged confidentiality of its customer lists and apparently equates confidentiality of information with trade secret status. We find this to be an inaccurate statement of existing law. This court in Abbott adopted the Restatement view of the law of trade secrets, finding that it:

"... gives proper balance to the two factors that have cropped up throughout the development of the law of trade secrets." Id. at 456, 147 N.W.2d 529.

In discussing the definition of a trade secret, we quoted with approval the following language from Restatement, 4 Torts, § 757, comment b (1939):

"Some factors to be considered in determining whether given information is one's trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others." Id. at 463-64, 147 N.W.2d 529.

Applying the Restatement definition, this court held that Abbott's customer list was not a trade secret, because it was not sufficiently secret or confidential and because it contained only the names and addresses of the [109 Wis.2d 296] individual to be contacted, rather than complicated marketing data concerning the customer's projected market needs or the customer's market habits.

We also noted that customer lists are the periphery of the law of unfair competition. ⁴ This is because legal protection would not provide the incentive to compile such...