McCall Co. v. Wright

• Decision Date: 22 March 1910
• Citation: 91 N.E. 516,198 N.Y. 143
• Parties: McCALL CO. v. WRIGHT.
• Court: New York Court of Appeals Court of Appeals

198 N.Y. 143

91 N.E. 516

McCALL CO.

v.WRIGHT.

Court of Appeals of New York.

March 22, 1910.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the McCall Company against John H. Wright. From an order of the First Appellate Division (133 App. Div. 62,117 N. Y. Supp. 775) reversing an interlocutory judgment of the Supreme Court sustaining defendant's demurrer to plaintiff's amended complaint, defendant by permission appeals, and the Appellate Division certifies a question. Affirmed, and question certified answered in the affirmative.

See, also, 119 N. Y. Supp. 1011.

The question certified to us is the one whether plaintiff's complaint states facts sufficient to constitute a cause of action. The action was brought to restrain defendant, who had acquired full knowledge of plaintiff's business methods and secrets while in its employ, from associating himself with a rival business company in violation of the terms of his contract.

The complaint, amongst many others, sets forth in substance the following facts:

The plaintiff was a corporation engaged in a very extensive business of designing and making, printing, publishing, circulating, and advertising dress patterns, and in printing and publishing various fashion publications. Tne defendant entered its employ about April 1, 1901, and continued therein until December, 1908, and from a subordinate position had been advanced to one wherein his authority, acquaintance with the business, and general importance was second only to that of the president of the company. In the month last named it was discovered that in violation of his contract he was engaged in other enterprises, and had been deceiving the plaintiff, and after some controversy he was discharged. As the result of his urgent and repeated pleas he was taken back into the employment of the plaintiff under temporary contracts, which were finally superseded by a contract on January 2, 1909, which is made the basis of this action. Said contract hired defendant to render such services as should be assigned to him from time to time for a term of six years from January 1, 1909, at a large and continuously increasing rate of compensation, but it gave plaintiff the right to terminate the agreement ‘at any time upon giving to the party of the second part not less than thirty (30) days' notice of its intention to exercise such right and option.’ It contained the following recital and additional provisions: ‘Whereas, in the course of such employment, the party of the second part may be assigned to duties that may give him knowledge or information of such confidential or other matters relating to the conduct and details of the business of the party of the first part as to result, in the opinion of the president of said company, in irremediable injury to it for which no money damages could adequately compensate if said party of the second part should enter into the employment of a rival concern while this contract was still in effect: * * * The party of the second part covenants to engage in no other occupation during said period (of six years) and to use his best endeavors to promote the business and the business interests of the party of the first part. * * * If the party of the second part [defendant], while this contract remains in effect, shall, in violation of its terms, enter into the employ or service, or otherwise act in aid of the business of any rival company or concern engaged in the same or a similar general line of business, the party of the first part shall be entitled to an injunction, to be issued by any competent court of equity, enjoining and restraining the party of the second part, and each and every other person concerned therein, from the continuance of such employment, service or other act in aid of the business of such rival company or concern.’

During his employment, both under prior contracts and the one above set forth, until he violated the same, defendant obtained a thorough and comprehensive knowledge of all of the details of plaintiff's business and business methods, including special systems employed by it in building up and managing its business, acquaintance with its selling agents scattered over a large extent of territory, and the business being done by each of them, and an acquaintance with plaintiff's customers, and also with a certain formula, not patented, used in the preparation of some of its patterns. He had also prepared a list of plaintiff's customers and a list of the dates of the expiration of their respective contracts, and this list has now disappeared from plaintiff's possession.

Defendant intended to violate his last contract with plaintiff when he made it, and while he was in the latter's employ under it he surreptitiously engaged in negotiations with rival concerns for the purpose of securing employment therefrom, and on January 3, 1909, without cause or provocation, abandoned his contract with plaintiff, and agreed and undertook to serve as the president of a corporation engaged in a similar general line of business to that carried on by plaintiff, and directly and actively competing with the latter. He also hired away from plaintiff other of its employés. Defendant used his knowledge of plaintiff's business as a means of securing employment with said rival company, and at the time of the commencement of this action was devoting, and threatening to continue to devote, the skill and qualifications and the knowledge of plaintiff's business secrets gained by him during his employment with the latter to the service of the rival and competitive business carried on by the corporation with which he had taken employment in violation of his contract. In addition to the general allegations it is specifically alleged that defendant's qualifications for employment by plaintiff were ‘special, unique, and extraordinary.’ The demand for relief is that defendant be enjoined from entering the service of a rival, competing business.Louis Marshall, for appellant.

William P. Chapman, Jr., for respondent.

HISCOCK, J. (after stating the facts as above).

At the outset of the inquiry which has been certified to us whether plaintiff's complaint states a cause of action it will be well to rid that inquiry of some confusion in which it has become involved and to understand clearly the precise question which is presented by the allegations of the complaint as admitted in fact and challenged in law by the demurrer. That question is whether the proprietor of a large business, on hiring for a fixed period, subject to sooner termination on notice, an employé to occupy a superior and managerial position, wherein he will be possessed of all of his employer's trade secrets, may lawfully provide that during the term of said employment said employé shall not enter the service of a competing concern; and, further, whether such employer when said employé has flagrantly violated such an agreement while still in force and entered the employ of a rival concern, intending to use his knowledge of his former employer's business secrets for the purpose of aiding the competing business, may restrain such conduct by injunction.

There has been considerable discussion of this case from the standpoint that plaintiff was indirectly seeking to secure specific performance of a contract for services by enjoining defendant from entering the employ of any other person. Whether or not plaintiff originally entertained the idea that it could establish that defendant's proposed services to it were of such a special and unique character that it could indirectly by injunction hold him to specific performance of his contract, that is distinctly not the present theory of the action, and may be dismissed from consideration. There is no attempt generally to restrain him from taking employment elsewhere than with plaintiff. While there is in plaintiff's contract with defendant a clause prohibiting the latter from entering the employ of any one else during the term of the contract, it is conceded, for the purposes of this appeal, that plaintiff is not entitled to any such broad relief as that. But under the general clause referred to, as modified both by another clause against defendant's entering the employment of a rival concern and by general principles of law, plaintiff simply insists upon the right to restrain defendant during the term of his contract from becoming associated with a competing concern where he may use, to special disadvantage of the former, the business information which he has acquired while in its employ.

The inquiry to which we thus come, in my opinion, must be determined in favor of the plaintiff on the facts presented in this case, and which have been quite fully recited in the appended statement of facts. The principle has been established in this state, and I think remains unimpaired up to the present time, that security from and limitation of competition in a given business is a valuable right in connection with said business, and that there are some contracts which, although they curtail competition to a limited extent, are valid and may be enforced. This question, perhaps, has most frequently come up in connection with the sale of a business under an agreement not to start a competing one, and amongst the leading cases is that of Diamond Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419,60 Am. Rep. 464, where it was held that an agreement by the vendor on the sale of a business that he would not at any time within 99 years engage in the manufacture or sale of competitive goods, except in two states, was valid and enforceable. Still later it was held that a similar contract against competition by a vendor was valid although unlimited as to time and territory. Tode v. Gross, 127 N. Y. 480, 28 N. E. 469, 13 L. R. A. 652, 24 Am. St. Rep. 475; Wood v. Whitehead Bros. Co., 165 N. Y. 545, 59 N. E. 357.

It would seem that there is no fundamental principle in favor of...