Hilb, Rogal & Hamilton Ins. Services v. Robb

• Decision Date: 06 April 1995
• Docket Number: No. B083345,B083345
• Citation: 33 Cal.App.4th 1812,39 Cal.Rptr.2d 887
• Court: California Court of Appeals Court of Appeals
• Parties: , 1995-1 Trade Cases P 70,986 HILB, ROGAL AND HAMILTON INSURANCE SERVICES OF ORANGE COUNTY, INC., Plaintiff and Appellant, v. Stanley R. ROBB, Defendant and Appellant.

Page 887

39 Cal.Rptr.2d 887

33 Cal.App.4th 1812, 1995-1 Trade Cases P 70,986

HILB, ROGAL AND HAMILTON INSURANCE SERVICES OF ORANGE COUNTY, INC., Plaintiff and Appellant, v. Stanley R. ROBB, Defendant and Appellant.

No. B083345.

Court of Appeal, Second District, Division 1, California.

April 6, 1995.

Rehearing Denied May 2, 1995.

Armstrong & Tabor and Stephen H. Tabor, Los Angeles, for plaintiff and appellant.

Stern, Neubauer, Greenwald & Pauly and Mark A. Neubauer, Santa Monica, for defendant and appellant.

MASTERSON, Associate Justice.

In the trial court, plaintiff-employer successfully sought a preliminary injunction precluding defendant, a former employee, from using its trade secrets. However, the trial court denied the employer's application for injunctive relief to enforce a covenant not to compete. Each party appeals. We conclude that the trial court properly declined to enforce the noncompetition covenant but erred in enjoining the former employee's alleged misuse of trade secrets.

BACKGROUND

In 1980, defendant Stanley Robb became employed by Infantino & Company (the "Agency"), an insurance brokerage firm. Together with Raymond Infantino ("Infantino") In 1991, Robb and Infantino reacquired the Agency from Transamerica through a new corporation in which Infantino owned 65 percent of the stock, and Robb owned the remaining 35 percent. They purchased the Agency from Transamerica for $1,000,000 by making a down payment of $50,000, assuming a promissory note for $700,000, and agreeing to purchase $250,000 of consulting services from Transamerica over a five-year period.

Robb was an owner of the Agency. In 1984, the Agency was acquired by Fairmont Insurance Company, and in 1987, Fairmont was acquired by Transamerica.

Shortly after reestablishing the Agency, Robb and Infantino learned that plaintiff's parent company--Hilb, Rogal and Hamilton Company ("HRH")--was interested in acquiring it. They received a document from HRH entitled, "Stock Purchase Proposal for Infantino & Company" (the "proposal"), which described the principal terms of a possible transaction. The proposal, dated June 13, 1991, provided in part: "Should negotiations progress to the state [where] HRH and [the Agency] are interested in executing an acquisition document, the final agreement will be structured based upon concepts summarized herein.... A typical HRH acquisition would provide for the acquisition of a prospective candidate by merger. In the cas[e] of [the Agency], the legal form of the transaction would be for HRH to acquire [the Agency's] outstanding stock in exchange for shares of HRH's common stock. The intent of both parties would be to structure a 'tax-free' exchange of stock. A value placed on [a] non-compete provision in the employment agreement for the principals would be separately agreed upon."

Under the heading "Pricing," the proposal specified the dollar value of the HRH shares Robb and Infantino would receive. It then stated that "the above pricing for the stock of the corporation [HRH] contemplates all [A]gency assets being purchased including goodwill, name, expiration rights, furniture, fixtures and equipment necessary to operate the agency." Under the heading "Compensation," the proposal stated that "the principals ... of [the Agency] will enter employment agreements ... with appropriate non-compete/non-piracy clauses." The proposal also contained a list of "key requirements in a possible acquisition," which included the following item: "All key executives and producers of [the Agency] would enter into an employment agreement, with appropriate non-compete and non-piracy clauses, satisfactory in form and substance to HRH."

After discussing HRH's proposal between themselves, Robb and Infantino entered into negotiations for HRH's acquisition of the Agency. Eventually, Robb received two documents--an "Agreement of Merger" and an "Employment Agreement And Covenant Not To Compete"--which Infantino asked him to sign.

The Agreement of Merger, dated August 1, 1991, stated that the Agency would be merged with one of HRH's wholly owned subsidiaries and that the surviving entity would then exchange all of its stock for shares in HRH. Pending the merger, Robb and Infantino were obligated by the merger agreement to "preserve for [HRH] the goodwill of [the Agency's] customers." The agreement also required Robb and Infantino to sign employment contracts with the surviving corporation on or before the date of closing.

The employment contract, dated August 27, 1991, provided that Robb would be employed by the new corporation created "under that certain merger agreement dated August 1, 1991." The contract established an initial, three-year term of employment with possible one-year renewals thereafter. It also contained a covenant not to compete, which provided that for a three-year period after the termination of employment, Robb would not solicit or accept the business of his employer's customers or prospective customers and would not engage in any competing business in the counties of Los Angeles, Ventura, San Bernardino, Riverside, San Diego, and Orange. As compensation for the covenant not to compete, the contract stated that Robb would receive $52,500.

Robb signed both the merger agreement and the employment contract.

Effective September 1, 1991, the Agency merged with a wholly owned subsidiary of In February 1994, Robb resigned his employment with Hilb and went to work for a competing firm, Pettit-Morry Co. ² By letter dated February 23, 1994, Hilb informed Pettit-Morry that Robb's employment with it violated the provisions of his employment contract with Hilb. Robb's employment with Pettit-Morry terminated on March 2, 1994, apparently as a result of Hilb's letter.

                HRH.  As contemplated by the merger agreement, Robb transferred all of his shares in the Agency to HRH, and, in exchange, he received HRH stock having a market value of $245,000.  He also received $52,500 as [33 Cal.App.4th 1818] consideration for the covenant not to compete. 1  The entity created by the merger--Hilb, Rogal and Hamilton Insurance Services of Orange County, Inc.  ("Hilb")--became Robb's new employer and is the plaintiff in the action below
                

On March 11, 1994, Hilb filed the action below alleging, among other things, that Robb had unlawfully used its trade secrets and had violated the covenant not to compete. On March 15, 1994, Hilb applied for a temporary restraining order and preliminary injunction to stop Robb's alleged misuse of trade secrets, i.e., his alleged use of Hilb's customer information to solicit its business. Hilb also sought to enjoin Robb's violation of the covenant not to compete. The trial court denied the temporary restraining order but issued an order to show cause as to whether a preliminary injunction should issue.

After briefing and oral argument, the court issued a minute order on March 30, 1994, granting in part and denying in part Hilb's application for a preliminary injunction. The court enjoined Robb, in pertinent part, from "making any use whatsoever of the following trade secrets of [Hilb]: [p] A. The amounts and types of insurance purchased by [Hilb's] customers and accounts; [p] B. Expiration and/or renewal dates on all policies of insurance maintained by [Hilb's] customers and accounts; [p] C. All information relating to leads for potential customers; [p] D. Information relative to the needs and anticipated needs of [Hilb's] customers and accounts as communicated to [Hilb] by said customers and accounts; and [p] E. Information regarding the history of [Hilb's] customers and accounts." ³

The court denied injunctive relief on the covenant not to compete because it found that Hilb was not likely to prevail in "asserting the viability of the covenant." The court noted that there were "unanswered factual issues as to the intent of the parties in constructing the merger." It also stated that the covenant might be invalid because it was contained in the employment contract, not in the merger agreement.

Robb timely appealed from the portion of the order granting a preliminary injunction on the trade secret claim. Hilb timely appealed from the portion of the order denying a preliminary injunction to enforce the covenant not to compete.

DISCUSSION

"The law is well settled that the decision to grant a preliminary injunction rests in the sound discretion of the trial court. [Citations.]" (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69, 196 Cal.Rptr. 715, 672 P.2d 121.) "A trial court will be found to have abused its discretion only when it has ' "exceeded the bounds of reason or contravened the uncontradicted evidence." ' [Citations.]" (Ibid.) "Further, the burden rests with the party challenging the [trial court's ruling on the application for an] injunction to make a clear showing of an abuse of discretion. [Citations.]" (Ibid.)

"[T]rial courts should evaluate two interrelated factors when deciding whether or not to issue a preliminary injunction. The first is the likelihood that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued." (Id. at pp. 69-70, 196 Cal.Rptr. 715, 672 P.2d 121.)

An appeal from an order granting a preliminary injunction involves a limited review of these two factors--likelihood of success on the merits and interim harm. If the trial court abused its discretion on either factor, we must reverse. (Carsten v. City of Del Mar (1992) 8 Cal.App.4th 1642, 1649, 11 Cal.Rptr.2d 252.)

On the other hand, when a trial court denies an application for a preliminary injunction, "it implicitly determines that the plaintiffs have failed to satisfy either or both of the 'interim harm' and 'likelihood of prevailing on the merits' factors. On appeal, the question becomes whether ...