Hollingsworth Solderless Terminal Co. v. Turley, 75-2500

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation622 F.2d 1324
Docket NumberNo. 75-2500,75-2500
PartiesHOLLINGSWORTH SOLDERLESS TERMINAL CO., a corporation, Plaintiff-Appellant, v. William TURLEY, an Individual; and Hoffman Electronics Corporation, a corporation, Defendants-Appellees.
Decision Date02 June 1980

Joseph R. Evanns, Beverly Hills, Cal., for plaintiff-appellant.

Robert W. Fischer, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before SNEED and KENNEDY, Circuit Judges, and KRAFT, * District Judge.

KENNEDY, Circuit Judge:

This diversity action principally concerns the circumstances in which California law permits a salesman who leaves his employer to solicit the employer's customers by using various kinds of information acquired in his first position. Plaintiff-appellant Hollingsworth Solderless Terminal Company competes, in California and nationwide, with defendant-appellee Hoffman Electronics Corporation. Hoffman hired a former Hollingsworth salesman to work for it, and Hollingsworth then sued both Hoffman and the salesman, defendant-appellee William Turley. After some discovery, all parties filed for summary judgment and Hollingsworth moved for a preliminary injunction. The trial court ruled against Hollingsworth on all aspects of the case, and Hollingsworth now appeals.

We affirm portions of the district court's judgment, but we also hold that summary judgment should not have been granted as to most aspects of the action. We therefore remand these claims for further proceedings. Finally, we vacate the court's denial of plaintiff's motion for a preliminary injunction and remand for reconsideration in light of the principles discussed in this opinion.

FACTS

We state the facts most favorably to Hollingsworth. Hollingsworth and Hoffman compete in the manufacture and sale of solderless terminals and associated tools. Solderless terminals are devices for making electrical connections mechanically, that is, without use of chemical bonding such as soldering. Hand tools, such as crimping tools, are used to effect solderless terminal connections; automatic tools can also be used in some circumstances.

Turley began working as a salesman with Hollingsworth on October 1, 1963. He had an exclusive sales territory and was paid a fixed salary plus a commission based on sales. Turley called on Hollingsworth's customers in his territory at various intervals depending on the customer's volume and needs. The initial meetings with a potential customer were usually conducted in person. If a business purchased Hollingsworth's products, later contacts were mostly by telephone, although Turley at times took customers to lunch. The telephone calls were to obtain orders, show a continuing interest, and monitor customers' needs. Turley was encouraged to service existing customers and find new prospects.

At Hollingsworth, Turley acquired information concerning various aspects of his employer's operations. According to plaintiff, this information included: identities of customers, names of buying influences (agents) and their particular methods of doing business, particular requirements and characteristics of the customer, quantities of goods purchased and dates of purchases, prices charged, discount arrangements given to some customers, 1 and dates of calls upon the customers. Hollingsworth required salesmen to write down all relevant information regarding customers. According to Hollingsworth, through these and other efforts involving substantial amounts of time, effort, and money, it was able to develop a detailed customer information file. Salesmen were also given copies of invoices which reflected the actual prices charged to customers and the discount arrangement, indicated in a confidential code, given to that particular customer. At least one reason for this practice was to verify the accuracy of the data for purposes of paying salesmen their commission. According to Hollingsworth, salesmen were required to return these invoices to the company. Turley, like other salesmen, kept customer information on 3 X 5 cards.

Three years after Turley began work for Hollingsworth, he signed a document entitled "Employee's Restrictive Covenants." The agreement required that the information described above be kept confidential, that upon termination of employment the lists were to be returned, and that Turley would refrain from soliciting Hollingsworth's customers for one year. 2 The document recited that in consideration for these promises, Turley was to receive future employment, prospective assignments to work on confidential matters, and one dollar, and stated that Hollingsworth was reluctant to continue to employ Turley unless he signed the restrictive covenant. A notary's seal appeared next to Turley's signature at the end of the document and the word "Seal" appeared in brackets next to Turley's name. The agreement stated that it was to be construed under Pennsylvania law.

Turley resigned from his position with Hollingsworth in 1974. He turned in some of the cards but retained many of them together with invoices, printouts listing sales volume, and other documents. 3 After attempting to make a living for about three months in an unrelated field, Turley was hired by Hoffman as a salesman. Either shortly before or after hiring Turley, Hoffman was informed of the "Employee's Restrictive Covenants" which Turley had signed. Turley was nevertheless assigned to a territory he had worked for Hollingsworth. He called upon many of his former accounts and obtained business from several of them.

While with Hoffman, Turley allegedly created a customer list and information file on 4 x 6 cards based on his memory and the information retained from his employment with Hollingsworth. According to Hollingsworth, Turley used this information to obtain accounts for Hoffman. Plaintiff also claimed that many of these accounts had looked to plaintiff for the bulk of their needs for a number of years, and some or many of plaintiff's customers which had been serviced by Turley had not been approached by competitors prior to Turley's becoming an employee of Hoffman.

In 1973 Hoffman had hired two other former Hollingsworth salesmen, J. Donald Reed and Warren Smith. These two men were contacted by Hoffman while they were still employed by Hollingsworth. Both of them had signed restrictive covenants with Hollingsworth and both were eventually assigned by Hoffman to sales territories which included areas they had serviced while employed by Hollingsworth. One of the men, while still employed by Hollingsworth, discussed with Hoffman officials the volume of Hollingsworth's sales and furnished Hoffman with invoices showing the prices charged some of Hollingsworth's larger customers and prospects. 4

Hollingsworth's action alleged: (1) Turley and Hoffman were liable in tort for unfair competition based on Turley's solicitation of Hollingsworth customers and use of confidential information; (2) Turley and Hoffman induced Hollingsworth's customers to breach their contracts with Hollingsworth; (3) Hoffman engaged in unfair competition by soliciting Hollingsworth employees in order obtain confidential information; (4) Turley breached the restrictive covenant he had signed while employed with Hollingsworth; and (5) Hoffman sold its products below cost for the purpose of stifling competition in violation of Cal.Bus. & Prof.Code § 17043 (West 1964). The district court granted defendants' motion for summary judgment and denied plaintiff's motion for a preliminary injunction.

The court held, among other things: "Any and all information acquired by Hoffman from (Turley) relating to Hollingsworth's business and customers is not confidential, proprietary or a trade secret of Hollingsworth." Among the district court's Findings of Fact were the following:

10. Hollingsworth terminal salesmen, including Mr. Turley (when he was employed by Hollingsworth), do not follow a prescribed route, calling on specified customers at regular intervals.

11. Hollingsworth terminal salesmen, including Mr. Turley, do not make deliveries of the items which they sell.

12. Hollingsworth terminal salesmen, including Mr. Turley, locate many customers on their own. The types of firms that purchase terminals are commonly known to the trade and the identities of these firms can be ascertained through sources which are available to the public.

13. Salesmen of terminals, including Mr. Turley, can learn the name of the purchasing influence of a potential customer from manufacturer's guides or by direct inquiry at the office of the potential customer.

14. There are a large number of firms competing in the same geographical areas for sales of terminals. Accordingly, such firms do not have any assurance that dealings with customers will continue, without interference. Purchasers of terminals frequently do business with more than one seller of such products.

15. The ability to sell terminals depends primarily upon price, quality, delivery and service and these factors vary among competitors.

16. Salesmen of terminals, including Mr. Turley, deal with employees of purchasers of such products who have been assigned the responsibility to make purchasing decisions among various competitors.

17. Purchasers of terminals purchase these products as they are needed, almost always reordering by phone.

18. Salesmen of terminals, including Mr. Turley, necessarily acquire, in carrying out the duties of their employment, information which is useful to them in their profession, including the following:

a. Knowledge of the identity and particular characteristics of customers.

b. Knowledge concerning the identities of buying influences for customers.

c. Knowledge concerning the particular needs of customers.

d. Knowledge concerning the dates and amounts of purchases made by customers.

e. Knowledge concerning competitive prices for terminals and...

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