LCI Communications, Inc. v. Wilson

• Decision Date: 08 December 1988
• Docket Number: Civ. A. No. 88-2327.
• Citation: 700 F. Supp. 1390
• Parties: LCI COMMUNICATIONS, INC., and Litel Telecommunications Corporation, Plaintiffs, v. Matthew G. WILSON, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

700 F. Supp. 1390

LCI COMMUNICATIONS, INC., and Litel Telecommunications Corporation, Plaintiffs, v. Matthew G. WILSON, Defendant.

Civ. A. No. 88-2327.

United States District Court, W.D. Pennsylvania.

December 8, 1988.

COPYRIGHT MATERIAL OMITTED

Arthur Schwab, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for plaintiffs.

James D. Morton, Buchanan, Ingersoll, P.C., Pittsburgh, Pa., for defendant.

MEMORANDUM OPINION

COHILL, Chief Judge.

Presently before us is plaintiffs' Motion for Preliminary Injunction and defendant's Motion for Summary Judgment. On November 9, 1988, we conducted a hearing on plaintiffs' motion and consolidated the trial on the merits with the hearing pursuant to Federal Rule of Civil Procedure 65(a)(2). For the reasons provided below, we will grant plaintiffs' motion, deny defendant's motion, and enter judgment for the plaintiffs. Pursuant to Rule 52 of the Federal Rules of Civil Procedure, we make the following Findings of Fact and Conclusions of Law.

I. FINDINGS OF FACT

The plaintiffs, LCI Communications, Inc. ("LCI") and LiTel Telecommunications Corporation ("LiTel"), brought this action to enjoin the defendant, Matthew G. Wilson, from violating the provisions of an employment contract that he signed at the commencement of his employment with LiTel.

LCI is a corporation organized under the laws of Delaware with its principal place of business in Ohio. LiTel is a wholly-owned subsidiary of LCI, and is also organized under the laws of Delaware with its principal place of business in Ohio. The defendant, Matthew G. Wilson, is an Allegheny County resident and a citizen of Pennsylvania. The amount in controversy, exclusive of interest and costs, exceeds $10,000.

LCI, through its wholly-owned subsidiary, LiTel, is in the business of operating a common carrier telecommunications service. LCI has no sales force and conducts its operations solely through LiTel. LiTel operates its network in the midwest region of the United States, including Western Pennsylvania, and does not compete with other telecommunication companies on a nationwide level.

LiTel employs account executives to sell its products and services. The account executives' customer contacts are frequent and regular; this is the primary means by which the corporation develops good will. LiTel invests substantial amounts of money and time in programs and training to ensure that its account executives are properly trained and informed regarding LiTel's products and services.

As a result of LiTel's training methods, the account executives establish a permanent and exclusive relationship with the customers they service. LiTel compiles and distributes customer lists and information to the account executives in order to assist them in sales. This information is highly confidential and constitutes a valuable asset of LiTel.

LiTel utilizes various devices to protect its customer lists and files from disclosure to non-employees. LiTel restricts access to customer lists, marks certain documents "confidential," and instructs the account executives during the training seminars and staff meetings that all customer information is confidential. In addition, at the commencement of employment, each account executive signs a five page employment contract which consists of a letter agreement and a noncompetition agreement.

The letter agreement outlines the position, duties, compensation and benefits of a LiTel account executive. In addition, it states, "As a condition of employment you will agree to sign and abide by the terms of the attached Competition/Confidentiality Statement."

The noncompetition agreement, attached to the letter agreement, is captioned "LCI Communications, Inc.," and it provides in relevant part:

As a condition of my employment or continued employment (whichever is applicable) by LCI Communications, Inc., a Delaware corporation (the "Company"), and of the salary or other compensation to be paid to me during the term of such employment, I hereby agree as follows:

1. Confidential Information

I will not, while in the employment of the Company or at any time thereafter, disclose to any person or entity or use for the benefit of myself or any other entity any Confidential Information (as hereinafter defined) that may be communicated to, acquired by or learned of by me in the course of or as a result of my employment with the Company. I further agree that all records, files, memoranda, reports, business plans, customer lists and other property relating to the Business of the Company (as hereinafter defined) which I will use, prepare or come into contact with will be and remain the sole property of the Company, will be returned by me to the Company upon the termination of my employment and will not be copied or used by me except to the extent required in the course of my employment by the Company.

3. Interfere with Relationships with Employees, Suppliers and Customers

During the term of my employment by the Company and for a period of one (1) year following the termination of such employment, I will not, directly or indirectly, disturb, hire, entice or in any other manner persuade or induce or attempt to persuade or induce any employee, customer principal or supplier of the Company to discontinue his or its relationship with the Company.

4. Agreement Not to Compete

During the term of my employment with the Company and for a period of one (1) year following the termination of such employment, I will not, for myself or on behalf of any other person or entity, directly or indirectly compete with the Business of the Company with respect to any customer of the Company or in any county in which the Company is conducting its business. The foregoing restriction on competition will preclude, without limitation,

A. my selling or soliciting sales of products and services which compete with the Business of the Company, and

B. my accepting employment with or acting as a representative or agent of or a consultant to a customer of the Company or any other person of entity which competes with the Business or the Company if as a result thereof, I would be engaged in activities which compete with the Business of the Company.

9. This Agreement shall be construed under the laws of the State of Ohio.

On April 1, 1986, LiTel hired defendant Matthew Wilson as an account executive in the Pittsburgh office. At that time, Mr. Wilson signed both the letter and noncompetition agreements. Previously, Mr. Wilson worked for LiTel as an independent contractor "sales representative." This was Mr. Wilson's first experience in telecommunications marketing.

LiTel assigned Mr. Wilson the sales territory consisting of the Pennsylvania counties in the 412 area code ("412 sales territory"). The Court has taken judicial notice that the counties in the 412 sales territory consist of: Allegheny; Armstrong; Beaver; Butler; Fayette; Greene; Indiana; Lawrence; Mercer; Washington; and Westmoreland. As an account executive, Mr. Wilson solicited new customers and continuously monitored their needs for additional products and services.

During his employment, the defendant received confidential information from the plaintiff. For example, Mr. Wilson developed close personal contacts with the customers he serviced and obtained an awareness of their particular needs and requirements. Furthermore, he received from plaintiff product literature and advice in training seminars and weekly staff meetings about how to approach sales and improve sales techniques. Finally, Mr. Wilson had access to customer lists and files which detailed LiTel's actual and prospective customers in the 412 sales territory. This confidential information was customer-specific and included the name of the customer's decision maker, the likelihood of a sale, the existing products and services of the customer, the cost of existing products and services, the status of potential sales, and the products and services in which the customer might be interested.

The defendant was responsible for over 30% of the total sales in the Pittsburgh office, making him one of the most successful LiTel account executives.

In late August, Mr. Wilson interviewed with MCI Telecommunications, Inc., ("MCI"). MCI is a nationwide provider of telecommunications services and is a competitor of LiTel. On September 8, 1988, Mr. Wilson submitted his resignation to LiTel and shortly thereafter began working for MCI. Before he left LiTel, Mr. Wilson secretly copied customer lists and files. In addition, he retained most of the product literature, training materials and personal files that he had accumulated while an employee of LiTel. Mr. Wilson took all of this confidential information with him to MCI and kept it in his desk at MCI where he freely allowed MCI's employees to use it.

LiTel asked Mr. Wilson to return all of its documents when he went to work for MCI. However, the defendant lied and stated that he did not retain any of LiTel's confidential information. When later questioned about his possible retention of LiTel information, the defendant again emphatically denied that he had any such information. In fact, LiTel only learned of Mr. Wilson's secretive copying and the extent of his possession of LiTel documents through the discovery process associated with this lawsuit.

As an employee of MCI, Mr. Wilson has made sales or attempted sales to his former LiTel customers. In fact, the defendant's daily log at MCI revealed that 45% of the contacts he made on behalf of MCI were to LiTel customers or prospective customers that he had learned of through his work with LiTel. The evidence demonstrates that LiTel has lost at least 3 customers to Mr. Wilson and MCI, and that other MCI account executives have contacted LiTel customers based on information that they received from Mr. Wilson. In addition, Mr. Wilson has provided MCI's Director of Customer Service with the price list of LiTel's products and services.

The plaintiffs...