Operations Research, Inc. v. Davidson & Talbird, Inc.

• Decision Date: 04 March 1966
• Docket Number: No. 234,234
• Citation: 241 Md. 550,217 A.2d 375
• Parties: OPERATIONS RESEARCH, INC., v. DAVIDSON & TALBIRD, INC., et al.
• Court: Maryland Court of Appeals

Page 550

241 Md. 550

217 A.2d 375

OPERATIONS RESEARCH, INC., v. DAVIDSON & TALBIRD, INC., et al.

No. 234.

Court of Appeals of Maryland.

March 4, 1966.

H. Hughes Spragins, Silver Spring, and Robert F. Fuchs, Chicago, Ill. (Everngam, Tomes & Spragins, Silver Spring, and Schapiro & Fuchs, Chicago, Ill., on the brief), for appellant.

James J. Bierbower, Washington, D. C., for appellees.

Before PRESCOTT, C. J., and HAMMOND, HORNEY, OPPENHEIMER and McWILLIAMS, JJ.

OPPENHEIMER, Judge.

This case involves another balancing of the duties of loyalty owed by employees to their employers and the rights of individuals to use their skills for their own benefit. The appellant, Operations Research, Inc. (ORI) filed a bill in the Circuit Court for Montgomery County to restrain former employees and the two corporations which they had organized from taking advantage of alleged breaches of trust and fidelity while they were in ORI's employ. ORI also asked for consequential damages. After 17 days of testimony, reflected in over 1000 printed pages of record extract and appellees' appendix filed with this Court, Judge Pugh filed an opinion and decree dismissing the bill of complaint. This appeal ensued.

ORI was organized in 1954 by two men, one of whom was Dr. Emory Cook, its president and majority stockholder. Cook is a graduate of Illinois University and a former member of the staff of the Applied Physics Laboratory of Johns Hopkins University. Since its incorporation, ORI has been engaged in performing operations research services for governmental agencies and private industry. Dr. Harold O. Davidson (Davidson), one of the appellees, is a professional engineer with degrees from the Georgia Institute of Technology and The Ohio State University. He taught at both institutions and form 1948 to 1953 was a consultant to the United States Air Force, Air Traffic Control. From 1953 to 1958 he was a scientist at the Operations Research Office of Johns Hopkins University, working almost entirely on problems for the Army. In 1958, he returned to Georgia Institute as a professor in charge of graduate programs in industrial engineering. He was employed by ORI in 1959, became its vice-president, was elected to the board of directors in 1962, and by 1964, was receiving an annual salary of $30,000 with fringe benefits. The appellee, Joseph A. Talbird (Talbird) joined ORI in 1959 and became a program director. In 1964, his salary was $18,000. The other individual appellees were all employees of OIR in 1964, with substantial salaries. The two corporate appellees were formed shortly after the individual appellees had resigned from ORI.

Davidson resigned as a member of ORI's board of directors in September 1964, in a letter expressing his dissatisfaction with ORI's policies. On Friday, December 4, 1964, he resigned from the company. The next morning, December 5, Talbird resigned. Cook called a meeting of the employees of the division previously directed by Davidson, announced the resignations of Davidson and Talbird and made some critical remarks about the business abilities of both men. The afternoon of the same day, a number of employees who had attended the meeting called by Cook went to Davidson's home and were told that he and Talbird intended to form a new firm. A number of these men signed informal applications for employment with the new company. On December 7 and within a few days thereafter, the other individual appellees and other ORI employees who had worked with Davidson and Talbird resigned from ORI. None of the individual employees had any written or oral term agreements of employment with ORI; all of the employments were terminable at will, either by ORI or the employee, and there were no written restrictive covenants of any kind.

The corporate appellee, Davidson & Talbird, Inc., was incorporated under the laws of Maryland on December 7, 1964 with Davidson and Talbird as its principal officers, and with its office in Bethesda. before taxes had come from these two companies. and Talbird solicited business for the new company to be formed from the Coca-Cola Company and the Southern Railway System, which had been two of ORI's most important clients. For the fiscal year ending November 30, 1964, approximately one-quarter of ORI's net operating profit before taxes had come form these two companies. While with ORI, Talbird had worked closely with Southern Railway and Davidson had had a similar relationship with Coca-Cola. Davidson had been a part-time consultant with Coca-Cola before he was employed by ORI and testified he brought that company to ORI as a customer. The new company received substantial business from both Southern Railway and Coca-Cola. Davidson, through ORI, had been employed as a scientific adviser to the Advanced Tactics Project, Combat Development Command of the United States Army; after his resignation from ORI, his services with the Army were continued under a contract with Duke University. Davidson and Talbird, before their resignations, had told the officials of Southern Railway, Coca-Cola and the Tactics Project with whom they dealt that they were dissatisfied at ORI and might, or intended to, resign. Whether or not there was solicitation of business for the new enterprise before the resignations is one of the factual issues on which volumious testimony was taken.

In addition to testimony in support of its contention that Davidson, Talbird and the other individual appellees solicited ORI's customers while in its employ, in violation of their fiduciary duties, ORI endeavored to prove that the appellees wrongfully recruited other key employees and, in their alleged conspiracy, used information of a confidential nature gained by them as OIR employees and diverted business opportunities from ORI to themselves. ORI also offered evidence to show that its method of doing business was a trade secret, which the appellees wrongfully used in their own behalf. The appellees denied all these allegations and produced testimony in corroboration of their denials.

In his opinion, after summarizing the respective contentions and the conflicting evidence, Judge Pugh concluded that there was no trade secret involved, that the appellees had not violated any trust or breached any duty of fidelity which they owed ORI and that there was no conspiracy between the appellees. These conclusions were based on findings of fact to which we shall refer in the discussion which follows. Our consideration of the facts is based on Maryland Rule 886 a, which provides that when an action has been tried by the lower court without a jury, the judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given the opportunity of the lower court to judge the credibility of the witnesses. We also keep in mind the principle that if there is substantial evidence to support the court's factual conclusions, those findings must be reviewed in the light most favorable to the prevailing party below. Space Aero Products Co. v. R. E. Darling Co., 238 Md. 93, 106, 208 A.2d 74, cert. denied 382 U.S. 843, 86 S.Ct. 77, 15 L.Ed.2d 83 (1965) and cases therein cited.

The Trade Secret Question

Whether there was a trade secret is a conclusion of law upon the applicable facts. Space Aero, supra, 238 Md. at 105-106, 208 A.2d 74 and authorities therein referred to.

In his opinion, Judge Pugh said, on this matter:

'The plaintiff's business is operations research. This is generally defined as analyzing operations of governmental as well as commercial problems. It is concerned with the design, improvement and installation of integrated systems of men, materials and equipment or an analysis of operations and systems and a prediction of systems performance and reliability. As a practical definition, it is a group of highly skilled engineers and scientists gathered together under a corporation or partnership, who analyze a business, be it the government or a commercial business, in order to devise methods to improve its operation with efficiency and at the least cost.'

Cook, in claiming that Davidson and Talbird took ORI's trade secrets, testified that the secrets consisted of 'the grand design' for work to be done for the various companies, that the design is on paper, 'in pieces and snatches,' that to duplicate work theretofore done by ORI, a competitor 'would have to get this designing into his own mind so he could begin to implement.' In the construction of the design, he said, 'all the sciences that are applicable are used.' 'We do jobs, and by jobs most of us mean we construct a system that meets a stated need.' 'It is kind of like--well, if you have designed a chair that is particularly pretty and particularly comfortable, that design, where it is not secret it is certainly a product of the creative effort, and there are some proprietary rights.'

However, Dr. George E. Kimball, vice-president of Arthur D. Little, Inc., another company engaged in operations research, who testified on behalf of ORI, in answer to a question of the court, said that the methods used to make the determinations are not usually referred to as trade secrets. He testified that mathematical models, which involve equations and other mathematical techniques, are the heart of the work. 'Generally speaking, an operations research study involves a rather complex system, and one has to do an analysis of how the entire system works. To make that analysis properly, it is necessary first of all to tear it apart and do its pieces, the fundamental units, and find out how each one of these works by itself; and then as a second phase to study the interrelationships between those units to finally work up to the entire system.' While his company tries to avoid public disclosure, even if a competitor had Little's unpublished data '* * * it might put him in a more favorable position than otherwise, though I don't believe it would be very...