Metal Lubricants Co. v. Engineered Lubricants Co.

• Decision Date: 06 June 1969
• Docket Number: No. 19400.,19400.
• Citation: 411 F.2d 426
• Parties: METAL LUBRICANTS CO., an Illinois Corporation, Appellant, v. ENGINEERED LUBRICANTS CO., a Missouri Corporation, Donald A. Wachter, Fred Fleschner, Mel Kohl, Jr., and Charles Weston, Jr., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

411 F.2d 426 (1969)

METAL LUBRICANTS CO., an Illinois Corporation, Appellant, v. ENGINEERED LUBRICANTS CO., a Missouri Corporation, Donald A. Wachter, Fred Fleschner, Mel Kohl, Jr., and Charles Weston, Jr., Appellees.

No. 19400.

United States Court of Appeals Eighth Circuit.

June 6, 1969.

Donald W. Bird, of Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., for appellant.

Alphonso H. Voorhees, of Fordyce, Mayne, Hartman, Renard & Stribling, St. Louis, Mo., for appellees.

Before MATTHES, MEHAFFY and LAY, Circuit Judges.

LAY, Circuit Judge.

This is an appeal from a district court's interlocutory judgment, pursuant to 28 U.S.C. § 1292(a) (1), denying relief against defendants for allegedly appropriating plaintiff's trade secrets, as well as conspiring to leave plaintiff's employment and entering into unlawful competition in violation of Section 1 of the Sherman Anti-Trust Act, (15 U.S.C. § 1). Plaintiff's applications for preliminary and final injunctions were consolidated and Chief Judge Harper held that the defendants did not wrongfully appropriate any trade secrets and that defendants' employees did not enter into a conspiracy to restrain trade in violation of Section 1 of the Sherman Act. We affirm.

The facts are detailed in the opinion of the district court found in 284 F.Supp. 483 (E.D.Mo.1968). Briefly summarized, the evidence shows that the plaintiff, Metal Lubricants Company, manufactures and sells lubricating oils and compounds. In 1961, plaintiff hired defendant Wachter as its Division Manager in the St. Louis area. Wachter was originally an independent distributor in St. Louis and sold plaintiff's products. He brought with him several large customers when he became Division Manager. In the spring of 1967, Wachter told plaintiff's officers that he thought many conflicts between the St. Louis division office and the home office in Chicago could be resolved if he once again became an independent distributor. The idea was rejected by plaintiff's officers. In September of 1967, Wachter told plaintiff's Vice President, Art Hinkle, that he intended to resign and that he planned to go into competition with plaintiff's company. He also stated that the other employees of the St. Louis division were aware of his plans and that in all probability they would come with him. Wachter then submitted a letter of resignation effective November 30, providing sixty days notice pursuant to his employment contract.

Thereafter plaintiff's officers initiated discussion with Wachter as to the feasibility of an exclusive dealership to handle Metal Lubricants products. Because of this it was orally agreed that Wachter's resignation be extended to December 31. These negotiations were broken off by Metal Lubricants Company after an exchange of proposed contracts with Wachter. On December 10, plaintiff hired one of the other St. Louis salesmen, Jack Thacker, to assume Wachter's position as Division Manager. Wachter received notice of this fact on December 20. All of the other employees learned of Thacker's new appointment and prior to the time that Wachter was notified, they resigned. Plaintiff, upon learning this, notified Wachter on December 20 that his resignation would be accepted immediately.

Thereafter, defendants established Engineered Lubricants Company and went into direct competition with the plaintiff. One of plaintiff's salesmen, Fred Fleschner, became Vice President of Engineered Lubricants Company. He had previously been employed by plaintiff for approximately three years. When Wachter first gave notice of his intention to resign in September, plaintiff called Fleschner to Chicago and offered him Wachter's position. Fleschner declined and told plaintiff that he wanted to go with Wachter in his new enterprise whatever it might be.

Besides Fleschner, Wachter and Thacker (plaintiff's new Division Manager) the only other administrative employees were Mel Kohl, Jr. and Charles Weston. The latter was an administrative employee on salary. Kohl was a salesman working on commission basis. Both had been with plaintiff company for only one year.

In addition to the above employees, four secretaries resigned and went with Wachter. Three of these girls had been with Wachter prior to 1961 when he operated independently before going with Metal Lubricants. These girls were part-time employees. Plaintiff company had long expressed dissatisfaction with the employment of the part-time girls and had asked Wachter to terminate them. Art Hinkle had felt since the employment of Weston, as the Administrative Assistant, that part-time help in administration was no longer necessary. The fourth girl was a new full-time secretary whom Wachter had hired only a few weeks previous to his resignation. She, too, went with the new company.

It is claimed that the defendants have wrongfully appropriated trade secrets of plaintiff company. Basically the alleged "trade secrets" consist of (a) customer lists, (b) price lists and (c) secret formulas of plaintiff's lubricants. Chief Judge Harper found that no proof of wrongful appropriation of any trade secrets has been shown to justify injunctive relief. The record amply supports this finding. The names of customers, as well as plaintiff's pricing policy, were contained in commission invoices which were authorized by plaintiff's officials to be taken by the individual defendants when they left the company. This case is not factually comparable to those where customer lists are secretly maintained. Cf. Heyman v. AR. Winarick, Inc., 325 F.2d 584 (2 Cir. 1963). The consumers of lubricating oils are of general knowledge in the field and as such plaintiff posseses no proprietary interest as to the names of its customers. Cf. E. W. Bliss Co. v. Struthers-Dunn, Inc., 408 F.2d 1108 (8 Cir. 1969).

The price lists were likewise published information and were generally known. Defendants' use of these prices for comparative purposes reflects nothing more than ordinary business acumen with the desire to be competitive. Nor is there proof that defendants have acquired any secret formulas of plaintiff's products. There exists only evidence of attempted physical emulation by selling similar items supplied by other sources. During the trial defendants produced a list of their new products showing comparative utility to plaintiff's products. This evidence hardly demonstrates any attempt to disparage plaintiff's product unfairly.

Our consideration of this issue is controlled by Missouri law. In National Rejectors, Inc. v. Trieman, 409 S.W.2d 1 (Mo.1966), the Supreme Court of Missouri set up strict standards of proof to sustain a claim for wrongful appropriation of trade secrets. In that case the court denied relief where it was alleged that defendants had misappropriated designs of coin rejectors. The court stated that the defendants could have obtained the information by measuring the devices and arriving at their dimensions by trial and error and noted that no effort had been made to conceal any of the parts of the finished product.

The Restatement of Torts § 757, comment a, relates that a trade secret is protected against "employment of improper means to procure the trade secret * * *." Cf. Tlapek v. Chevron Oil Co., 407 F.2d 1129 (8 Cir. 1969). There exists no showing under Missouri law that the information obtained by the defendants was in any way given to them in confidence or that it was appropriated by them through "improper means." In fact, the evidence supports just the contrary.

Complaint is also made that defendants violated their duty of loyalty to the plaintiff company by inducing all of its St. Louis employees away from the St. Louis division in order to harm plaintiff's competitive standing in that area. The district court relied upon the National Rejectors case, quoting therefrom:

"`The law recognizes that employees may agree among themselves to compete with their then employer upon termination of their employment. Restatement, Agency (2d) § 393, comment e. Such employees are not limited merely to so agreeing during their employment with the employer with whom they intend to compete. They may plan and prepare for their competing enterprises while still employed. Keiser v. Walsh, 73 App.D.C. 167, 118 F.2d 13, 14. If such right is to be in any way meaningful for an employee not under contract for a definite term, it must be exercisable without the necessity of revealing the plans to the employer. See Midland-Ross Corporation v. Yokana, 3 Cir., 293 F.2d 411, 413 3.\'" 284 F.Supp. at 489.

In National Rejectors, the court found there was no attempt by the defendants to lure plaintiff's employees away. The Missouri Supreme Court stated that the evidence showed that the employees who left plaintiff company terminated their relationship for personal reasons. The court held: "The only inducement at all, shown by the evidence, was for employment, and not to join a conspiracy." 409 S.W.2d at 34. As noted by the Missouri Supreme Court, we are dealing with two conflicting public policies. One policy seeks to protect a business from unfair competition. The other policy favors free competition in the economic sphere. The court explained:

"`It is necessary that there be a balancing of the equities between these two rights, for if the former is carried to its extreme it will deprive a man of his right to earn a living; while conversely, the latter right if unchecked, would probably make a mockery of the fiduciary concept, with its concomitants of loyalty and fair play.\' Comment, The Obligation of a High-Level Employee to his Former Employer; The Standard Brands Case, 29 University of Chicago Law Review 339, 351-352. See Wexler v. Greenberg, 399 Pa. 569, 160 A.2d 430. In that case the court stated (160 A.2d 435): `Were we to measure the sentiment of the law by both English and American decisions in order to determine whether it favors protecting a businessman from certain forms of

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