Ed Nowogroski Ins., Inc. v. Rucker, 66224-0

• Court: United States State Supreme Court of Washington
• Citation: 971 P.2d 936,137 Wn.2d 427
• Decision Date: 20 April 1999
• Docket Number: No. 66224-0,66224-0
• Parties: , 50 U.S.P.Q.2d 1268 ED NOWOGROSKI INSURANCE, INC., a Washington corporation, Respondent, v. Michael RUCKER and Monica Rucker, and their marital community, Defendants, Darwin Rieck and Mary Rieck, and their marital community; Jerry Kiser and Jana Kiser, and their marital community; and Potter Leonard and Cahan, Inc., a Washington corporation, Petitioners.

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137 Wn.2d 427 971 P.2d 936, 50 U.S.P.Q.2d 1268 ED NOWOGROSKI INSURANCE, INC., a Washington corporation, Respondent,
v.
Michael RUCKER and Monica Rucker, and their marital
community, Defendants,
Darwin Rieck and Mary Rieck, and their marital community;
Jerry Kiser and Jana Kiser, and their marital
community; and Potter Leonard and
Cahan, Inc., a Washington
corporation, Petitioners. No. 66224-0 Supreme Court of Washington,
En Banc. Argued Oct. 20, 1998.
Decided Feb. 25, 1999.
Reconsideration Denied April 20, 1999.

[971 P.2d 937]

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Oseran, Hahn, Van Valin & Watts, Charles E. Watts, Bellevue, for petitioners.

Winterbauer & Associates, Steven Mill Winterbauer, Seattle, for respondent.

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GUY, C.J.

FACTS

This case is a trade secrets misappropriation action brought under the Uniform Trade Secrets Act, RCW 19.108, by an employer against former employees. The employer, Ed Nowogroski Insurance, Inc. (Nowogroski Inc.), owned by the Rupp family, sued its former employees, Michael Rucker, Darwin Rieck and Jerry Kiser, for soliciting its clients using confidential information. The employees had worked for Nowogroski Inc. as insurance salesmen and servicers of insurance business. Nowogroski Inc. also sued Potter, Leonard and Cahan, Inc., a rival insurance agency, for which employees Rucker, [971 P.2d 938] Rieck and Kiser commenced work when they terminated their employment with Nowogroski Inc.

Following a bench trial, the trial court found that the employees had misappropriated Nowogroski Inc.'s trade secrets by retaining and using confidential client lists and other information. However, it awarded no damages for one employee's solicitation of clients through the use of memorized client information. None of the factual findings has been challenged in this Court.

The history of the relationship among the parties is necessary to understand the nature of the lawsuit. In the early 1970s, Joan and Don Rupp came to Seattle and purchased Nowogroski Inc. for $527,000. In 1982, the Rupps purchased the Stan Olsen Agency for $275,000, which price represented more than two times the commissions on its insurance business. In 1984, they purchased the James Cain Agency for $135,000, which constituted 2.14 times its

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annual commissions. All of the businesses were purchased and financed over a long period of time. In subsequent years, other "small books of business" were purchased by Nowogroski Inc. for two times the commissions.

In 1982, Nowogroski Inc. hired Mr. Rieck to service the Olsen accounts. Mr. Rieck had no accounts of his own when he started working at Nowogroski Inc. At the time of the purchase of the Cain Agency, the Rupps and Mr. Rieck guaranteed payment and Mr. Rieck was awarded 5.14 percent of the shares of Nowogroski Inc. for his guarantee on this debt. In 1986, Don Rupp hired Jerry Kiser. Both Mr. Rieck and Mr. Kiser expected to be able to purchase the business from the Rupps eventually. However, in 1988, Don Rupp died suddenly before any buy-in plans were formulated. The following year Nowogroski Inc. hired Mike Rucker.

Several years later, after Joan Rupp's daughter had joined the management team, friction developed between the Rupps and the three employees. In the Spring of 1992, Joan Rupp told Rieck, Kiser and Rucker to buy their business and leave the company. The three employees made an unsecured offer of 0.4 times the commissions on the business they worked on. Mrs. Rupp considered this monetarily inadequate and rejected the offer. Although Mrs. Rupp hired a counselor to attempt to restore peace, the effort was unsuccessful. On August 18, 1993, the three employees informed Mrs. Rupp and her daughter of their intent to leave on August 31, 1993. Another offer of purchase was submitted on August 24, which Mrs. Rupp rejected. The court found that none of the writings that evidenced the men's employment contracts obligated Mrs. Rupp to sell the business to them under the terms they suggested.

The trial court found that Mr. Kiser had agreed not to compete with Nowogroski Inc. if he left the agency. Mr. Kiser, at the request of Don Rupp, had written Mr. Rupp a letter at the commencement of his employment, which stated:

Accepting this [employment] opportunity means that my

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employer will be the agency known as Nowogroski Insurance Associates. That being, my allegiance will solely be to this employment. If that relationship should change, certain obligations to Nowogroski Insurance Associates should be recognized for their contributions to my employment. Basically, those obligations should be those of non-compete on that business of Nowogroski Insurance Associates that I was associated with while in that employment. This non-compete should be a negotiable situation based on a certain time limit, and should have other terms where certain business may be negotiated with other options agreed upon by interested parties.

Ex. 20. The trial court found this agreement to be an enforceable obligation not to compete.

When Michael Rucker joined the insurance agency in 1989, he signed a Memorandum of Understanding. Under that memorandum, in the event Mr. Rucker terminated his employment with Nowogroski Inc., Mr. Rucker agreed to purchase the accounts he had produced at an agreed multiple of 1.5 times the annual commissions. He also agreed not to solicit any of Nowogroski Inc.'s business that he did not produce for two years in King County and "understood and agreed that customer[971 P.2d 939] lists and information pertinent to each file are considered to be trade secrets protected by law." Ex. 34. Mr. Rieck signed on behalf of Nowogroski Inc., Mr. Rucker signed on his own behalf and Joan Rupp witnessed the contract. The trial court concluded that Mr. Rucker had breached this contract with Nowogroski Inc. and that he had also misappropriated the employer's trade secrets. The trial court awarded damages against Mr. Rucker at the multiple of 1.5 times commissions of $58,775.80, for a total of $88,163.70. Because of the contract damages, the trial court found it unnecessary to calculate damages based on Mr. Rucker's violation of the Uniform Trade Secrets Act. Mr. Rucker did not appeal the trial court's decision, was not a party at the Court of Appeals, and is not a party in this Court.

With regard to the trade secrets cause of action, the trial court stated in its findings:

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I find that insurance summaries, customer lists and other documents containing customer names, expiration dates, coverage information and related information produced by the agency or by the insurance company and kept by the agency, as opposed to information retained in their heads, are trade secrets. I find that the above information derives independent economic value from not being known or readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use.

Clerk's Papers at 262F.

The trial court also found that the insurance company had maintained the secrecy of its customer files by educating its staff and by providing employment manuals and employment agreements and that Nowogroski Inc.'s efforts in this regard had been reasonable. The trial court found:

1.15 Rieck, Kiser and Rucker all had an obligation under the personnel manual and common law to maintain secrecy of the above-described information. Their taking this information and taking or refusing to return summaries of insurance, customer lists and other documents containing customer information produced or commonly retained by plaintiff constitutes misappropriation.

1.16 Rieck, Kiser and Rucker all three misappropriated their employer's trade secrets, either by taking company records, summaries and other information, or by retaining them after plaintiff demanded their return.

1.17 Rucker, Rieck and Kiser all solicited the customers of plaintiff and many of those customers transferred their business to the defendants. The solicitation was knowingly and wilfully aided and abetted by Potter, Leonard and Cahan, Inc.[ ¹

Clerk's Papers at 262G.

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The trial court concluded that the noncompetition agreement between Mr. Kiser and Nowogroski Inc. was binding, and that Mr. Kiser was obligated to pay for the business he solicited from the plaintiff based upon "this contract and upon his violation of the Trade Secrets Act." Clerk's Papers at 262H. The court then considered conflicting evidence on the value of the insurance business which had been misappropriated and determined the value to plaintiff of what was lost by calculating a multiple of 0.5 of the commissions. The court awarded plaintiff $73,306 from Mr. Kiser.

However, the court found that Mr. Rieck had

[971 P.2d 940] testified he knew his top fifty clients well enough that he needed no summaries or other aids to work from to solicit business. He had that information in his head. He does indicate that to some extent he used summaries to construct his customer list, but other than this admission, plaintiff hasn't shown the extent of such use. Therefore, I do not award damages for solicitation of the fifty largest customers. I approach the value of Rieck's commissions in the same way as Kiser. The commissions regarding the customers other than the fifty largest were a total of $11,939.00, and one-half of that is $5,969.50....

Clerk's Papers at 262I.

The trial court declined to award any damages based on unjust enrichment, emotional damages, exemplary damages or attorney fees. The court found that the employees' new employer, Potter, Inc., had knowingly and willfully assisted the employees in their solicitation of business and awarded damages against Potter, Inc.

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In its conclusions of law, the court found that Rieck, Rucker and Kiser, assisted by Potter, Inc., had violated the Uniform Trade Secrets Act, RCW 19.108, because of their wrongful use and retention of Nowogroski Inc.'s confidential information and trade...