Rector-Phillips-Morse, Inc. v. Vroman, RECTOR-PHILLIPS-MORS

• Decision Date: 15 January 1973
• Docket Number: RECTOR-PHILLIPS-MORS,INC,No. 5--6136,5--6136
• Citation: 61 A.L.R.3d 391,489 S.W.2d 1,253 Ark. 750
• Parties: , 61 A.L.R.3d 391, 177 U.S.P.Q. 89 , Appellant, .v George Richard VROMAN, Appellee.
• Court: Arkansas Supreme Court

Page 1

489 S.W.2d 1

253 Ark. 750, 61 A.L.R.3d 391, 177

U.S.P.Q. 89

RECTOR-PHILLIPS-MORSE, INC., Appellant, .v George Richard VROMAN, Appellee.

No. 5--6136.

Supreme Court of Arkansas.

Jan. 15, 1973.

House, Holmes & Jewell, by Robert L. Robinson, Jr., Little Rock, for appellant.

Edward L. Wright, Jr., Little Rock, for appellee.

GEORGE ROSE SMITH, Justice.

The appellant, referred to by the parties as RPM, brought this suit to enjoin George Richard Vroman, a former RPM employee, from competing with RPM in Pulaski county for a period of three years after the termination of Vroman's employment with RPM. This appeal is from a decree denying relief, upon the ground that Vroman's employment involved no trade secrets and that the three-year restriction was unreasonably long.

Vroman, a real estate salesman, had been in RPM's employ for a few years when the contract in issue was signed on February 1, 1969. RPM when had some 31 salesmen. W. F. Rector, RPM's principal officer and stockholder, testified that eight of the best salesman, including Vroman, were offered employment contracts as an inducement for them to stay with RPM. Those men were allowed to buy RPM corporate stock. Vroman, for example, bought $2,583.33 worth of stock, which he resold to RPM for $3,750 when he left the company.

By the contract RPM employed Vroman upon a commission basis for five years, subject to either party's right to end the relationship upon 30 days notice. Vroman agreed that upon the termination of the contract for any reason other than its expiration he would not compete with RPM in Pulaski county in any way for three years. After two years and ten months of the five-year term Vroman resigned and went into the real estate business for himself, with two associates. This suit followed.

Our study of the record persuades us that there are compelling reasons for sustaining the trial court's refusal to grant injunctive relief.

First, the chancellor's conclusion that no trade secrets were involved is not against the weight of the evidence. Rector testified that valuable secret information was recorded upon indexed cards for about 350 commercial properties, 929 potential investors in land, about 2,500 residential units, and from 6,000 to 7,000 sales previously closed by RPM, making a total of about 10,000 cards of files. All RPM salesmen had access to the information, as needed in their work.

A trade secret may be defined as a 'secret formula, method, or device that gives one an advantage over competitors.' Miller v. Fairfield Bay, 247 Ark. 565, 446 S.W.2d 660 (1969). Here most of the information upon the cars cannot fairly be said to have been secret. With respect to commercial and residential property the cards showed data such as description, location, zoning, taxes, access to utilities and transportation, rentals, and similar facts. According to the proof, much of the information is always available from public sources, though not in such accessible and concentrated form as the RPM data. We conclude, as did the chancellor, that the card-indexed information was not secret. At best it was confidential, in the sense that no company engaged in business for profit voluntarily opens its records to examination by its competitors.

Secondly, the contractual restriction upon Vroman's engaging in a rival business for three years was not reasonably necessary to protect RPM from unfair competition and would not actually achieve that result. About 10,000 cards were accessible to RPM salesmen. If each card contained five items of information--a conservative figure--Vroman had access to some 50,000 assorted facts. There is no suggestion that Vroman, in leaving RPM, either took any written data with him or attempted to memorize it. In fact, Vroman's uncontradicted testimony is that he did neither. Needless to say, there is no showing, as there was in All-State Supply v. Fisher, 252 Ark. 962, 483 S.W.2d 210 (1972), that the departing employee was able to use his former employer's information to gain an unfair competitive advantage.

Moreover, there were no restrictions upon the right of 23 of RPM's 31 salesmen to resign and enter into competition with RPM in Pulaski county. When Vroman left RPM he went into business with two other former RPM employees, who are not shown to have signed a contract like Vroman's. Those two men had had access to the RPM cards. Thus an injunction against Vroman would not have protected RPM against the possibility that its data might be legitimately used by the newly organized real estate firm.

Thirdly, the three-year restriction was too long. Rector testified that a three-year period was selected because at the end of that time most of the information would be so out of date as to be relatively useless to a former employee. Rector, however, did not say that the data would actually be useful for three years or for anything approaching that length of time. The record suggests that the useful life of the information was far below three years. The cards were constantly being brought up to date to reflect changing conditions. It is not argued that a departing employee could retain 50,000 items of fact in his mind for three years, or even for three months. It is thus apparent that the three-year limitation was unreasonably long, and this is especially true in view of RPM's power to terminate the agreement upon short notice. See Miller v. Fairfield Bay, supra.

Even though the three-year restriction is excessive the appellant argues that it is entitled to some lesser relief, a six-month injunction being suggested. This argument is based in part upon certain recent cases in other jurisdictions, to be discussed in a moment, and in part upon the following language in the Vroman contract:

'It is the intent of the parties to restrict the activities of Vroman only to the extent necessary for the protection of legitimate business interests of RPM and they specifically covenant and agree that should the above provisions, under any set of circumstances not now foreseen by the parties, be deemed too broad for that purpose that said provisions will, nevertheless, be valid and enforceable to the extent necessary...