Dicks v. Jensen, No. 00-102.

• Docket Nº: No. 00-102.
• Citation: 768 A.2d 1279
• Case Date: February 09, 2001
• Court: United States State Supreme Court of Vermont

768 A.2d 1279

James DICKS and Condotel Properties, Inc.
v.
Cary and Brenda JENSEN

No. 00-102.

Supreme Court of Vermont.

February 9, 2001.

768 A.2d 1281

Kristen P. Swartwout of Crispe & Crispe, Brattleboro, for Plaintiffs-Appellants

Kirsten A. Beske, Potter Stewart, Jr. Law Offices, Brattleboro, for Defendants-Appellees.

Present AMESTOY, C.J., DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

JOHNSON, J.

Plaintiff James Dicks appeals from an order of the Windham Superior Court granting summary judgment to defendants Cary and Brenda Jensen. Plaintiff claims that defendants violated the Vermont Trade Secrets Act, 9 V.S.A. §§ 4601-4609, when they left plaintiff's employ at the Lodge at Mount Snow and solicited the Lodge's bus tour customers to start their own lodge in Bennington, Vermont. Plaintiff also alleges that defendants breached a fiduciary duty, the covenant of good faith and fair dealing, and intentionally interfered with business relations. We affirm.

Plaintiff has owned the Lodge at Mount Snow (Lodge) in Dover, Vermont since 1971. During the nonwinter months, the Lodge relies heavily on business from bus tours of senior citizen groups. These tours are run by organizers who return to the Lodge year after year. The bus tour industry is highly competitive with various hotel owners in the region aggressively soliciting business from the tour groups. In 1991, plaintiff hired defendants to manage the Lodge and market and run a bus tour business at the Lodge. The defendants worked without an employment agreement and ran most aspects of the Lodge's business. They were responsible for advertising, soliciting, and organizing the Lodge's bus tours. Securing tour groups to visit the Lodge involved mass mailings to lists of senior citizen tour groups collected through chambers of commerce, agencies on aging, and mail order catalogs throughout the Eastern United States. Because these mass mailings typically have a very low response rate, defendants had to send additional promotional material, followed by direct telephone solicitation. The telephone solicitations resulted in twenty to sixty actual bookings from an initial mailing of ten to fifteen thousand. Booking a tour required about six months of lead time.

In 1997, defendants left the Lodge to open their own competing lodge, the Autumn Inn, in Bennington. Defendants contacted Lodge customers to inform them of the move. They also solicited business from the Lodge's regular bus tour customers. Nine of eleven tours booked by defendants their first season were with customers who had reservations booked at the Lodge who canceled their reservations and rebooked with defendants.

Plaintiff filed suit alleging, inter alia, that defendants had misappropriated the Lodge's customer list, violating the Vermont Trade Secrets Act; that, in soliciting the Lodge's customers, defendants had breached their fiduciary duty and the covenant of good faith and fair dealing to plaintiff; and that defendants had tortiously interfered with the Lodge's business relations. The trial court, on a motion for summary judgment by defendants, ruled that defendants did not violate the Trade Secrets Act. The court noted that a customer list could not be a trade secret if the content was readily ascertainable from publically available sources. Because the court found that the Lodge's customer list was not developed by "extraordinary effort," it was, therefore, readily ascertainable and not protected. As to the breach of fiduciary duty claim, the court held that this claim was more properly analyzed as a

768 A.2d 1282

matter of tortious interference with business relations, and these claims were tried, resulting in a verdict for defendants

On appeal, plaintiff alleges that summary judgment on the trade secrets claim was inappropriate because there were genuine issues of material fact as to whether the list is a trade secret. Plaintiff also claims that the court erred in treating his claim for breach of fiduciary duty, good faith and fair dealing as substantially the same as his claim for tortious interference with business activity.

I. Vermont Trade Secrets Act

The Vermont Trade Secrets Act, 9 V.S.A. §§ 4601-4609, was enacted in 1996 to prevent the misuse of business information. The statute allows injunctive relief and damages for misappropriation of trade secrets. 9 V.S.A. §§ 4602, 4603. The Act was explicitly designed to displace other common law remedies for misappropriation of trade secrets. Id. § 4607. A "trade secret" is defined as:

[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that: (A) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Id. § 4601(3).

We have not yet had occasion to consider the extent of trade secret protection in this context. The statute, however, is based on the Uniform Trade Secrets Act (amended 1985), 14 U.L.A. 437 (1990), which has been adopted in some form in forty-one states. See, e.g., S.D. Codified Laws § 37-29-1(4) (2000) (definition of trade secret); Wash. Rev.Code § 19.108.010(4) (2000) (same). Thus, in interpreting this statute we draw from the decisions of our sister states. See 9 V.S.A. § 4608 (the act shall be "construed to effectuate its general purpose to make uniform the law . . . among states enacting it"). Further, because the Uniform Act codifies the basic principles of common law trade secret protection, see Ed Nowogroski Ins., Inc. v. Rucker, 137 Wash.2d 427, 971 P.2d 936, 942 (1999), cases decided in the absence of a statute are also relevant.

As indicated by the statutory definition of trade secret, there are two components to the test for whether some information deserves trade secret protection. The first is whether the information has independent economic value that is not readily ascertainable to others; the second is whether reasonable efforts were made to maintain the information's secrecy. American Credit Indem. Co. v. Sacks, 213 Cal.App.3d 622, 262 Cal.Rptr. 92, 97 (1989). Although the trial court based its decision primarily on the first element, plaintiff must satisfy both elements for his list to be protected under the statute.

It is not disputed that the customer list has independent economic value. Brenda Jensen admitted that at the time defendants opened their inn, they did not have the money to extend their marketing. By directly soliciting the Lodge's customers, defendants saved themselves the six months lead time that all parties agree is required to book a tour "from scratch." The issue between the parties on the first prong of the test is over the availability of the information. Defendants claim that because all the customers' names were available in public documents, the information was readily ascertainable. Plaintiff counters that securing an actual paying customer required considerable time and expense that defendants saved when they solicited the Lodge's customers.

A customer list can be a protected trade secret. As the Ninth Circuit recognized, a list of people who have already purchased a product is substantially more valuable than a list of people who might only be interested in purchasing. Hollingsworth

768 A.2d 1283

Solderless Terminal Co. v. Turley, 622 F.2d 1324, 1333 (9th Cir.1980). The process of parsing a customer list from a directory of potentially profitable customers from entries not worth pursuing injects that list with value. See id. at 1332. But, the threshold amount of time and money that must be invested before a customer list is accorded statutory protection varies considerably. See Republic Sys. & Programming, Inc. v. Computer Assistance, Inc., 322 F.Supp. 619, 627 (D.Conn.1970) (list of software purchasers must result from years of business effort and advertising and expenditure of time and money to be protected); Lincoln Towers Ins. Agency v. Farrell, 99 Ill.App.3d 353, 54 Ill.Dec....