North Pac. Lumber Co. v. Oliver

• Decision Date: 05 September 1979
• Docket Number: No. 25090,No. A76,A76,25090
• Citation: 286 Or. 639,596 P.2d 931
• Parties: NORTH PACIFIC LUMBER CO., an Oregon Corporation, Appellant/Cross-Respondent, v. Les A. OLIVER, Respondent/Cross-Appellant, Tree Products Company, an Oregon Corporation, Defendant. 05 07297; SC
• Court: Oregon Supreme Court

Page 931

596 P.2d 931

286 Or. 639

NORTH PACIFIC LUMBER CO., an Oregon Corporation, Appellant/Cross-Respondent, v. Les A. OLIVER, Respondent/Cross-Appellant, Tree Products Company, an Oregon Corporation, Defendant.

No. A76 05 07297; SC No. 25090.

Supreme Court of Oregon, Department 1.

Argued and Submitted Jan. 5, 1979.

Decided June 19, 1979.

Rehearing Denied Sept. 5, 1979.

Jack H. Dunn of Morrison, Dunn, Cohen, Miller & Carney, Portland, argued the cause and filed briefs for appellant/cross-respondent. Also arguing the cause was Robert L. Allen, Portland.

John D. Ryan, Portland, argued the cause for respondent/cross-appellant. On the briefs was Henry A. Carey, Jr., Portland.

Before DENECKE, C. J., and HOLMAN, HOWELL and LENT, JJ.

HOLMAN, Justice.

Plaintiff, North Pacific Lumber Co., is a wholesaler of lumber products. Plaintiff's employees conduct almost all of its trading activities over the telephone from its principal office in Portland, Oregon. In February 1967 plaintiff hired defendant Oliver as a lumber trader in its hardwood division. As part of his employment contract, defendant agreed to refrain from competing with plaintiff for two years following termination of his employment. ¹ The contract contained an extensive description of the type of competition prohibited. ² It authorized plaintiff to sue for an injunction and damages if Oliver violated the agreement; ³ it also contained a clause authorizing recovery of attorney fees if plaintiff successfully maintained a suit or action to enforce the covenant. ⁴ In 1969 plaintiff promoted defendant to the position of assistant manager in its hardwood division. In April 1976 defendant voluntarily terminated his employment. Soon thereafter he went to work for Tree Products Company. Tree Products competes with plaintiff, under the terms of the contract.

In May 1976 plaintiff filed suit in circuit court, naming Oliver and Tree Products as defendants. Plaintiff failed to serve Tree Products so it never became an actual party to the litigation. Plaintiff sought a decree enjoining defendants from engaging in employment in violation of Oliver's employment contract, using plaintiff's confidential business information, and soliciting plaintiff's customers and suppliers. Plaintiff requested judgment for damages in an amount to be ascertained by the court at trial, costs and disbursements including a reasonable sum for attorney fees, and such other relief as the court deemed just and equitable. Once Oliver learned of plaintiff's suit, he stopped actively soliciting sales for Tree Products. In his responsive pleadings, Oliver challenged the validity of the covenant, contending it was unreasonable. As a defense to its enforcement, defendant asserted that plaintiff had "unclean hands." Defendant counterclaimed for attorney fees, costs and disbursements, and such other relief as the court deemed equitable.

After a lengthy trial, the court found the employment contract was valid but refused to enforce the covenant because of plaintiff's unclean hands. The court dismissed plaintiff's complaint with prejudice. The court rejected defendant's argument at trial that the contract was oppressive and refused to award him wages on a theory on quantum meruit. Since the employment contract permitted plaintiff to recover attorney fees in a suit to enforce the covenant, the court awarded defendant attorney fees pursuant to ORS 20.096 ⁵ in the amount of $105,000. Plaintiff appeals the dismissal of its complaint and the award of attorney fees to defendant, while defendant cross appeals the size of the attorney fees award.

As a suit in equity, the case is before this court de novo. ORS 19.125(3). While the trial court's findings are not binding on this court, they are persuasive. Carlson v. Pryor, 262 Or. 131, 134, 497 P.2d 202 (1972). At the outset, it is necessary to determine what issues remain for this court to consider on appeal. It is apparent from defendant's contract that if plaintiff had prevailed below, the effective period of the injunction would have ended in April 1978, two years after termination. Since the appeal was not argued until January 5, 1979, the two-year period during which defendant agreed not to compete under the covenant had expired by its own terms and the suit for an injunction is moot. Professional Business Services v. Gustafson, 285 Or. 307, 590 P.2d 729 (1979). However, the trial court also denied plaintiff's claim for damages and attorney fees and awarded attorney fees to defendant. These issues remain in controversy, and this court must examine the merits of the underlying suit in order to determine whether the trial court was correct. E. g., Pacific N. W. Dev. Corp. v. Holloway, 274 Or. 367, 370, 546 P.2d 1063 (1976).

In his pleadings, defendant accused plaintiff of the following improper business practices which defendant contends justified his termination of his employment.

1. The use by plaintiff of false and fictitious personal and business names, particularly in dealing with dissatisfied customers of plaintiff.

2. The use by plaintiff of fraudulent and deceptive practices in the settlement of claims and the realization of illegal profits from such settlements.

3. The use by plaintiff of illegal and secret recording of telephone conversations and personal conversations involving both plaintiff's customers and plaintiff's employes, including defendant Oliver.

4. The misrepresentation by plaintiff of the nature of plaintiff's business, and, in particular, misrepresenting to plaintiff's customers that plaintiff is a manufacturer of hardwood.

5. The assessing by plaintiff of additional charges of $15 per thousand board feet for resurfacing lumber, which resurfacing in fact is not done or required.

6. The realization by plaintiff of illegal profits form freight overcharges.

7. The use by plaintiff of deceptive descriptions of products and delivery of orders which have been shorted or lowered in quality.

During the course of trial, defendant expanded the list of claimed instances of misconduct to include:

1. Illegal and secret monitoring of employee telephones.

2. Grossly underpaying its employees.

3. The use of unauthorized truckers in violation of ICC regulations.

4. Denial of rights to its employee stockholders.

At trial, both parties introduced numerous exhibits and extensive testimony relating to these charges. On appeal, defendant also argues that the record shows that plaintiff behaved inequitably by:

1. Invading prospective employees' privacy with a lengthy questionnaire about their personal lives.

2. Attempting to regulate employees' personal lives during non-working hours.

3. Discriminating against inexperienced new employees by requiring them to sign a non-competition covenant while not requiring it of experienced new employees.

4. Utilizing an arbitrary and secretive bonus system.

After examining the evidence relating to defendant's charges, the trial judge made the following findings:

" * * * defendant introduced evidence in support of a contention that plaintiff's traders were grossly underpaid. These traders were certainly paid upon an ill-defined system. They were certainly paid under conditions of secrecy guaranteed to produce suspicion and unrest. They may not have been paid as much as they might have been paid under some other system by comparable businesses with comparable resources, but underpaid as a class they were not, if one bears in mind the educational background and training required of them in comparison to doctors, lawyers, scientists and civil servants with substantial professional responsibilities. In any event, Oliver was compensated by a fixed salary and a fixed percentage of the department profit under which he appears to have done rather handsomely. ( ⁶ ) The method of payment of traders and the amount of their compensation, however, is relevant insofar as it does, in conjunction with other factors, contribute to an atmosphere of restraint and oppressiveness.

"11. With respect to the charge that plaintiff's traders posed as a manufacturer of hardwood and deceived customers as to whether lumber had to be resurfaced, such practices occurred in the Hardwood Department and were, at most, rather shabby minor deceptions. They occasioned no loss to customers. With respect to the charge of coercing sawmills, the evidence suggests at most that where North Pacific loaned money to keep a mill afloat it then occupied the position of a preferred buyer. There is no reason why it should not have asserted such a position. With respect to the charge of using illegal haulers, I am satisfied it occurred in several departments, including Hardwood, that management discovered the practice in 1974, and that the practice largely, if not wholly, ceased thereafter with circulation of Mr. Fleischman's memorandum, Exhibit # 94.

"12. With respect to telephone eavesdropping, this practice appears to have occurred in three ways. First, as a training device to enable one inexperienced trader to listen to the conversation of another experienced trader by removing the mouthpiece of the listener's telephone. I see nothing illegal or improper about that. Under ORS 165.540, the trader who was overheard can be considered to have given his express or implied consent to a reasonable practice. Second, four managers had special telephones which enabled them to plug into conversations on certain other telephones, usually in their department. There is nothing illegal or improper about such "so-called" training telephones, provided the trader knew it was being done and thereby impliedly consented to it. To the extent that such surveillance capacity was unknown, it would be and was illegal under ORS 165.540 and improper. It was unknown in Hardwood. In one department the evidence shows that traders knew of this capacity. However, the corporation's own mode of secrecy no doubt precluded any rapid spread of such information; "gossip" under...