Jerrold-Stephens Co. v. Gustaveson, Inc., 10025.

• Decision Date: 15 February 1956
• Docket Number: No. 10025.,10025.
• Citation: 138 F. Supp. 11
• Parties: JERROLD-STEPHENS CO., Inc., Plaintiff, v. GUSTAVESON, Inc., et al., Defendants.
• Court: U.S. District Court — Western District of Missouri

138 F. Supp. 11

JERROLD-STEPHENS CO., Inc., Plaintiff, v. GUSTAVESON, Inc., et al., Defendants.

No. 10025.

United States District Court W. D. Missouri, W. D.

February 15, 1956.

Margolin & Kirwan, Kansas City, Mo., for plaintiff.

Terence M. O'Brien, Kansas City, Mo., and Joseph A. Hoskins, of Morelock, Hoskins & King, Kansas City, Mo., for defendants.

WHITTAKER, District Judge.

This matter is now before me upon the several motions of defendants for a summary judgment, asserting that the pleadings and admissions on file show, as a matter of law, both, that plaintiff has no right to maintain this suit and that it has no cause of action against the defendants or any of them.

This is an action in equity, claiming that plaintiff, a Minnesota corporation, while carrying on a metal furniture manufacturing business in Missouri, there employed, on January 19, 1955 (the date it was incorporated in Minnesota), the defendant, Walters, to set up its production procedures and to supervise and manage the acquisition of materials for, and the manufacture, packaging and shipping of, its established metal furniture products, and to assist in designing and developing new metal furniture products to be manufactured by plaintiff; that pursuant to this arrangement, defendant, Walters, then entered plaintiff's employ in Missouri, in the capacity and for the purposes stated, and so continued until July 25, 1955, during which time he was a trusted employee of plaintiff and became thoroughly acquainted with its "trade secrets" in respect to the acquisition of materials for, and the design, manufacture, packaging, advertising and sale of, its metal furniture products and with its customer lists; that on July 25, 1955, plaintiff learned that in April, 1955, defendant, Walters, and the other individual defendants — being officers and employees of defendant, Gustaveson, Inc. — acting for themselves and for Gustaveson, Inc. (which had theretofore been engaged in the business of manufacturing electrical switchboards and kindred items, and selling them to utilities), conspired to enter the metal furniture business as a rival of plaintiff and to appropriate and use in their competing business plaintiff's "trade secrets" and customer lists; that, in furtherance of the conspiracy, the individual defendants (other than Walters), acting for themselves and for defendant, Gustaveson, Inc., induced Walters to disclose to them plaintiff's "trade secrets" pertaining to its metal furniture business, and its customer lists, and said defendants, whom Walters then joined, made, and continue to make, use of plaintiff's "trade secrets" and customer lists in manufacturing and selling to the public, including plaintiff's customers, metal furniture embodying plaintiff's "trade secrets" to their profit and to plaintiff's damage, and that Walters, though actually working with the other defendants from April, 1955, in their use of plaintiff's "trade secrets" and customer lists in their competing business — all without the knowledge of plaintiff — remained in plaintiff's employ until July 25, 1955; that as a result of defendants' use of plaintiff's "trade secrets" and customer lists plaintiff has lost large amounts of business and profits, and its market has become demoralized, and it has been irreparably injured.

Plaintiff prays for an injunction against further utilization by defendants of its "trade secrets" and customer lists, and for an accounting of profits and for damages for use thereof, and for a further judgment against Walters for the salary he received from plaintiff from April 1, to July 25, 1955.

Depositions, answers to interrogatories, and other admissions on file, show that at the time of, and as a condition of, his employment by plaintiff, Walters agreed not to disclose plaintiff's "trade secrets" to others, and that, though plaintiff was doing business in Missouri from the time it was incorporated in Minnesota on January 19, 1955, and at the time of the making of the employment contract with Walters in Missouri on the same date, plaintiff did not become licensed or qualified to do business in Missouri as a foreign corporation until August 4, 1955. It is upon these bases that defendants claim to be entitled to a summary judgment in their favor.

They say, first, that this action is founded upon the contract of employment which plaintiff made with Walters in Missouri on January 19, 1955, when it was doing business in Missouri without a license, and that the making of this contract, itself, constituted "doing business" in Missouri, and that, therefore, the Courts of Missouri, including Federal courts sitting in Missouri (because of the doctrine of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188), are closed to the plaintiff in an action upon that contract, under the provisions of Section 351.635, RSMo 1949, V.A.M.S., and, hence, this court may not entertain this action; and, second, even if that be wrong and this court may entertain this action, yet, the employment contract is "void", for the reasons stated, under the statutes and decisions of Missouri, and that the subsequent licensing of plaintiff to do business in Missouri did not "validate" the "void" contract, and, therefore, plaintiff cannot recover in this action founded thereon; and, third, that plaintiff could protect its business ideas and "trade secrets" only by a valid contract against disclosure, and that inasmuch as the employment contract with Walters was "void", for the reason stated, plaintiff's "trade secrets" were, thus, surrendered to the public domain and may be used by defendants without liability to plaintiff.

As to plaintiff's first claim, it is true that under a former section of the Missouri statute, enacted many years ago and last contained in the 1939 revision as Section 5077, the Missouri courts had held that a contract, made in Missouri by an unlicensed foreign business corporation doing business in Missouri and which contract was an integral part of its "unlawful business" in Missouri, was void, and any action thereon was barred from a forum in its courts¹. But in 1943 Missouri adopted a new corporation code (said to have been largely taken from, but not to be identical with, the 1933 Corporation Code of Illinois, S.H.A. ch. 32, § 157.1 et seq.) which is now Chapter 351, RSMo 1949, V.A.M.S. Section 351.635 of that Code covers the same subject matter as old Section 5077, R.S.Mo.1939. Both say, in effect, that a foreign corporation, doing business in Missouri without a license, shall be subject to a fine. Then old Section 5077 said "in addition to which penalty, on and after the going into effect of said sections (Sections 5072 to 5078, R.S.Mo. 1939) no foreign corporation, as above defined, which shall fail to comply with said sections, can maintain any suit or action, either legal or equitable, in any of the courts of this state, upon any demand, whether arising out of the contract or tort." Whereas, new Section 351.635, RSMo 1949, V.A.M.S., says "in addition to which penalty, no foreign corporation, failing to comply with this chapter, can maintain any suit or action, either legal or equitable, in any of the courts of this state, upon any demand, whether arising out of the contract or tort, while the requirements of this chapter have not been complied with." (Emphasis supplied.)

From this it will be seen that, upon the point here considered, old Section 5077 and new Section 351.635 are practically identical down to the words, contained in the new, but not in the old, section, reading: "while the requirements of this chapter have not been complied with." Thus, it is obvious, that the new act made a change in the statute, and the question is: What was its purpose and legal effect?

Defendants, as a part of their argument — that this is an action on a contract made by an unlicensed foreign corporation as an integral part of its unlawful business" in Missouri, and that, therefore, the Missouri courts are closed to plaintiff in this action — urge a construction that would, in effect, require addition, at the head of the new clause added in Section 351.635, of the words "founded upon a contract made or a tort committed" so that the analysed portion of the questioned section would say "* * * no foreign corporation, failing to comply with this chapter, can maintain any suit or action, either legal or equitable, in any of the courts of this state, upon any demand, whether arising out of...