Knudsen Corporation v. Ever-Fresh Foods, Inc.

Citation336 F. Supp. 241
Decision Date16 December 1971
Docket NumberNo. 71-641.,71-641.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
PartiesKNUDSEN CORPORATION, a California corporation; and Dairy Fresh, Inc., a California corporation, Plaintiffs, v. EVER-FRESH FOODS, INC., a California corporation, et al., Defendants.

COPYRIGHT MATERIAL OMITTED

LaFollette, Johnson, Horgan & Robinson, and L. David Cole, Los Angeles, Cal., for plaintiffs.

Frieman, Rosenfeld & Zimmerman, Beverly Hills, Cal., for defendants.

ORDER DENYING PRELIMINARY INJUNCTION

DAVID W. WILLIAMS, District Judge.

This is a civil action for a preliminary injunction. Plaintiff complains that defendants have engaged in a course of competitive business conduct which is unfair and in restraint of trade in violation of 15 U.S.C. §§ 15 and 26. The jurisdiction of this Court is invoked under 28 U.S.C. § 1337. This Court also has jurisdiction over plaintiff's pendent state claim for unfair competition.

Knudsen Corporation primarily engages in the processing and distribution of fluid milk and other dairy products. Dairy Fresh, Inc. (hereafter DFI) is Knudsen's wholly owned subsidiary and is engaged in purchasing delicatessen products from manufacturers and processors and distributing same to grocery chains and other buyers under its label.

Defendant Morris Rosenfeld was one of the principal owners of a shell egg and delicatessen distribution company named Dairy Fresh Products Company prior to January 15, 1968. On that date the company's assets used in the delicatessen business were purchased by Knudsen which subsequently organized it into a wholly owned subsidiary named Dairy Fresh, Inc. Part of the purchase agreement was a license which left Dairy Fresh Products Company free to continue its shell egg business.

Knudsen employed Rosenfeld in the capacity of vice-president for the newly acquired delicatessen subsidiary and placed him in charge of salesmen, warehousing activities and contact with customers. Rosenfeld remained in this position until November 16, 1970, when, after giving two weeks notice, he terminated his employment. At no time prior to his termination did Rosenfeld solicit any Knudsen or DFI employee to terminate their employment. Rosenfeld joined defendant George Rabinoff in a company which was destined to compete with the delicatessen distributing portion of Knudsen's business. The name of the competing company was Ever-Fresh Foods, Inc., a name that had been in trade existence and used by Dairy Fresh Products Company and its predecessor since 1948. Ever-Fresh was a wholly owned subsidiary of Cal-Maine Foods, Inc. of Mississippi. Cal-Maine was formed as a result of the corporate recapitalization of Dairy Fresh Products Company's shell egg business.

NATURE OF DELICATESSEN BUSINESS

DFI and Ever-Fresh Foods, are competitors in the delicatessen business. Delicatessen products are perishable food and grocery items normally kept under refrigeration. They include cooked meats, cheese, salads, relishes and other specialty food items, some of which are processed in this country and others imported from other countries. These products find their way from the manufacturers, processors and importers to grocery stores through distributors and cooperatives. Some manufacturers and processors sell their products directly to large chains of super markets by delivering the product to the chain's warehouse.

Delicatessen product distributors are firms which usually purchase the products for resale for their own account. They ordinarily warehouse an inventory of a substantial number of such products and employ a sales force which calls upon and solicits business from grocery stores and restaurants. Because of the perishable nature of the product the distributor will generally confine his activity to a certain geographical area such as Southern California.

TRADE SECRETS

Plaintiff alleges that Rosenfeld, who was for three years vice president of DFI, is possessed of an intricate knowledge of trade secrets and confidential information regarding Knudsen's handling of DFI pricing, marketing and sales strategy. Plaintiff further complains that Rosenfeld knows DFI customer lists and how it deals with its customers and is using this information in the development of Ever-Fresh Foods, Inc.

There is no evidence of specific misuse of confidential information or trade secrets. On the contrary defendants have introduced evidence in the form of trade journals, reports of the proceedings of the Delicatessen Council of Southern California which shows that pricing and marketing strategies are matters of general knowledge in the delicatessen industry. Trade journals such as the Grocery Bulletin and the Grocer's Journal regularly print the names of all grocery stores, their delicatessen buyers and the prices on some delicatessen items. It is uncontroverted that competitors look at each other's price list in determining the price they will set. Thus the evidence clearly shows that those matters plaintiff refers to as confidential or trade secrets are within the purview of members of the delicatessen industry.

It is beyond question that the unauthorized use of trade secrets is enjoinable, but that which constitutes a trade secret must be determined from the facts of each case. Sarkes Tarzian, Inc. v. Audio Devices, Inc., 166 F.Supp. 250 (S.D.Cal.1958). "The subject of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret." Restatement Torts § 757, Comment b at 6-7 (1939); accord, Sarkes Tarzian, supra; Aetna Building Maintenance Co. v. West, 39 Cal.2d 198, 246 P.2d 11 (1952). Stated differently, "the knowledge cannot be placed in the public domain and still be retained as a `secret.'" Smith v. Dravo Corp., 203 F.2d 369 (7th Cir. 1953). In the case at bar the knowledge was clearly within the public domain. Neither customer lists, nor pricing practices, nor marketing and sales designs were purely confidential matters known to no other members of the delicatessen business. The mere fact that Rosenfeld worked for Knudsen at one time does not preclude him from competing on the basis of information generally available to members of the delicatessen industry. Alex Foods v. Metcalfe, 137 Cal.App.2d 415, 290 P.2d 646 (1955); Sarkes Tarzian, supra. As noted in Restatement, Torts § 757, Comment a, "the significant difference of fact between trade secrets and those which are not secret is that knowledge of the latter is available to the user without use of improper means to procure it, while knowledge of the former is usually available to him only by such means." As evidence of availability Judge Yankwich wrote, "where it appeared that the buyers are persons, such as wholesalers, whose names are readily known to the trade through directories, trade catalogues or otherwise, an employer's list which duplicates them is not necessarily secret or confidential (citing cases)." Sarkes Tarzian, supra 166 F.Supp. at 257. Defendant Rosenfeld who, during his 37 years in the delicatessen business helped to create the Delicatessen Council of Southern California had access to all the trade journals and knowledge of the trade practices involved in this action. The availability of this information to him obviates any need he might have to use improper means to procure it. The facts show the existence of no trade secret.

ENTICEMENT OF PLAINTIFF'S EMPLOYEES

Plaintiff also complains that defendant has unlawfully and illegally enticed several of its key employees to terminate their employment with DFI and join Ever-Fresh. Rosenfeld admits offering several DFI workers employment with Ever-Fresh, but states that he engaged in no solicitation of them while he was DFI's vice-president.

There is no evidence that Knudsen or DFI had an employment contract with any of the employees who terminated in order to work for Ever-Fresh. The evidence is persuasive that Rosenfeld did not solicit any DFI employee until after he terminated employment with plaintiff. There also is no evidence that the resigning employees tried to gain for Ever-Fresh the business of DFI customers while they were still in DFI's employ.

The mere solicitation of an employee, under no contract of employment, to leave and associate with another firm is not illegal. Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 49 Cal.Rptr. 825, 411 P.2d 921 (1966). The employee is free to inform his business contacts of his new association and to compete with his former employer if his knowledge of the customer's identity was a matter of general knowledge in the trade and not based on specialized or confidential information. Alex Foods v. Metcalfe, supra. Though plaintiff alleges that Rosenfeld solicited key employees merely to use the confidential information they possessed, the evidence shows no use of confidential information. It appears that the employees who resigned were possessed of wide experience in the trade and became knowledgeable as a concomitant of that experience. As long as the knowledge acquired is not based on confidential information, there is nothing to "prevent the employee from using the knowledge he has acquired while in one man's employ after he leaves that employ. The law does not require the employee to make a tabula rasa of his mind, by erasing from it the knowledge he has acquired." Sarkes Tarzian, supra 166 F.Supp. at 278; Accord, King v. Pacific Vitamin Corp., 256 Cal.App.2d 841, 64 Cal.Rptr. 486 (1967).

There is no showing that confidential information has been used or that the solicited employees left DFI with the intention of giving Ever-Fresh confidential information. On the contrary the evidence shows that the defecting employees perceived better opportunities with Ever-Fresh and terminated their employment with DFI for that reason. The importance of the employee's right to seek better employment was observed in a recent case:

"The interests of the employee in his own
...

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6 cases
  • Competitive Technologies v. Fujitsu Ltd.
    • United States
    • U.S. District Court — Northern District of California
    • February 25, 2003
    ...from constituting a trade secret. Nor do the cases cited by UI support such a conclusion. For example, in Knudsen Corp. v. Ever-Fresh Foods, Inc., 336 F.Supp. 241, 244 (C.D.Cal.1971), the court did not hold generally that information regarding pricing, marketing and sales strategy of a comp......
  • Woodward Ins., Inc. v. White
    • United States
    • Indiana Supreme Court
    • July 19, 1982
    ...application of these factors, some courts have found customer lists did not constitute trade secrets, see Knudsen Corp. v. Ever-Fresh Foods, Inc., (C.D.Calif.1971) 336 F.Supp. 241; Republic Systems & Programming, Inc. v. Computer Assistance, Inc. , supra; Holiday Food Co. v. Munroe, (1981) ......
  • Cambridge Filter v. Intern. Filter Co., Inc., CIV-R-82-235-ECR.
    • United States
    • U.S. District Court — District of Nevada
    • September 15, 1982
    ...includes the identities of prospective customers which can be obtained from directories or catalogues. Knudsen Corporation v. Ever-Fresh Foods, Inc., 336 F.Supp. 241, 244 (C.D.Cal.1971); Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 246 P.2d 11, 15 (1952). Likewise, the characteristic......
  • Woodward Ins., Inc. v. White, 1-1280A372
    • United States
    • Indiana Appellate Court
    • September 9, 1981
    ...application of these factors, some courts have found customer lists did not constitute trade secrets, see Knudsen Corp. v. Ever-Fresh Foods, Inc., (C.D.Calif.1971) 336 F.Supp. 241; Republic Systems & Programming, Inc. v. Computer Assistance, Inc., supra; Holiday Food Co. v. Munroe, (1981) 3......
  • Request a trial to view additional results
1 books & journal articles
  • Should a Trade Secrets Misappropriation Claim Lie in the Procrustean Antitrust Bed?
    • United States
    • Antitrust Bulletin No. 22-1, March 1977
    • March 1, 1977
    ...(3d Cir. April 4, 1974);Fashion TwoTwenty,Inc. v. Steinberg, 339 F. Supp. 836 (E.D.N.Y. 1971);KnudsenCorp. v. Ever-Fresh Foods, Inc., 336 F. Supp. 241 (C.D. Cal. 1971).8See, e.g., VanDykeFord, Inc. v. FordMotorCo., 399 F. Supp. 277(KD. Wis. 1975); Mr. Hanger, Inc. v. Rizzuto, 410 F. Supp. 1......

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