Sanitary Farm Dairies, Inc. v. Wolf

• Decision Date: 13 October 1961
• Docket Number: No. 38452,38452
• Parties: SANITARY FARM DAIRIES, INC., Appellant, v. Donald F. WOLF and Maple Island, Inc., Respondents.
• Court: Minnesota Supreme Court

Page 42

112 N.W.2d 42

261 Minn. 166

SANITARY FARM DAIRIES, INC., Appellant, v. Donald F. WOLF and Maple Island, Inc., Respondents.

No. 38452.

Supreme Court of Minnesota.

Oct. 13, 1961.

Upon Appeal from Clerk's Taxation of

Costs Dec. 8, 1961.

SYLLABUS BY THE COURT

1. Absent a restrictive covenant, and subject to equitable protection against unfair competition, after terminating his employment a driver-salesman may not be enjoined by his employer from soliciting the patronage of former customers on a milk route if he has enhanced the goodwill of the business or added new customers.

2. If a driver-salesman on a milk route, while still an employee, has solicited customers in contemplation of commencing his own business, his employer is entitled to enjoin him from further soliciting or selling to such customers for a sufficient length of time to permit the employer to compete on even terms.

Oppenheimer, Hodgson, Brown, Baer & Wolff, Horace W. Mohn, Richard G. Lareau, St. Paul, for appellant.

Neumeier, Rheinberger & Eckberg, John H. Rheinberger, Stillwater, for respondents.

OTIS, Justice.

The plaintiff, Sanitary Farm Dairies, Inc., appeals from an order of the District Court of Washington County denying its motion for a temporary injunction and vacating a restraining order issued by the District Court of Ramsey County prior to a change of venue. The relief sought being interlocutory and the lower court having entered no findings, we are obliged to resolve the issues of fact on the basis of what appears from the pleadings to be undisputed and the admissions of the parties as disclosed by their affidavits.

The plaintiff is in the business of producing and selling dairy products in an area which includes Washington County. In December 1955 the plaintiff employed defendant Donald F. Wolf as a driver to solicit customers and sell its products. To that end, plaintiff furnished Wolf with a truck, assumed the expense of its maintenance, supplied the dairy products for Wolf to sell, and paid him a salary and commissions. Plaintiff claims that over half of the patrons Wolf served were obtained by plaintiff's efforts and at its expense, while defendant Wolf asserts that nearly all of the customers here involved were obtained through his solicitation. According to Wolf's affidavit, he advised defendant Maple Island, Inc., a competitor of plaintiff, in February 1961 that he planned to terminate his employment with plaintiff but that he thereafter changed his mind. However, Wolf states that on March 24, 1961, he gave plaintiff notice of termination as of April 7, 1961, and disclosed his intention of going into business for himself with a view to selling products of the defendant Maple Island. It is Wolf's further contention that the plaintiff thereupon assigned another employee to his routes for a period of 4 days for the purpose of permitting him to become familiar with the list of customers. Wolf asserts that thereafter pressure was brought to bear on him by plaintiff and he advised plaintiff he would reconsider his decision. On April 4, 1961, at the end of the day, he returned the truck, the list of customers, and all other property to plaintiff and advised plaintiff's supervisor that he was quitting his job effective that date, and would begin distributing Maple Island dairy products on his own behalf the following day.

In his answer defendant Wolf states that he was successful in soliciting for himself the patronage of 59 customers he had previously served on plaintiff's behalf, all but 18 of whom he was solely responsible for originally acquiring. Of the 59 customers whom he retained, Wolf claims 90 percent were personal acquaintances prior to his employment with plaintiff.

In its answer Maple Island states that it leased a delivery truck to Wolf and sold Wolf its dairy products on a wholesale basis but otherwise had no connection whatever with Wolf's customers.

It is the contention of plaintiff that the names of its customers constitute a confidential list which Wolf had no legal right to utilize after his employment ended and that Wolf violated his duty of undivided loyalty to his employer by soliciting plaintiff's customers prior to the termination of his employment. Wolf alleges that on April 3 and 4 he advised approximately 50 percent of the customers on his routes that he would not thereafter be selling plaintiff's products and that he would at a later time solicit their patronage on his own behalf. He admits that he distributed no more than six printed announcements on April 3 and 4 in words and figures as follows:

'ANNOUNCING * * * .....

'On or before April 7, 1961, I will be in business for myself distributing Maple Island Dairy Products.

'I am asking for the opportunity to continue serving you with a complete line of Finest Quality dairy items from Maple Island.

'Thank you very much.

'DON WOLF, Stillwater, Minn.

'Res. Tel. He 9--4771

'Bus. Tel. He 9--2330'

In his affidavit Wolf states that prior to April 3 he discussed with no more than twelve customers the possibility of changing his employment.

The relief sought by plaintiff is as follows: A permanent injunction restraining defendants from interfering with plaintiff's patrons or former patrons on the routes Wolf serviced prior to his quitting, enjoining the defendants from inducing plaintiff's patrons or former patrons to purchase dairy products from defendants, enjoining defendants from using the names and addresses of plaintiff's patrons obtained by Wolf while working for plaintiff, and enjoining defendants from serving plaintiff's former customers solicited by Wolf for his own benefit and the benefit of Maple Island while Wolf was still employed by plaintiff; an accounting for sales made to plaintiff's former patrons; and $2,500 actual damages and $10,000 punitive damages.

On April 7, 1961, this action was begun and contemporaneously a restraining order was issued by the District Court of Ramsey County enjoining defendants until further order of the court from selling to those patrons or former patrons of plaintiff who had previously been handled by Wolf. A change of venue to Washington County was demanded and effected on April 10, and on April 13 the District Court of Washington County denied plaintiff's motion for a temporary injunction and vacated the restraining order of April 7. The following day plaintiff appealed to this court and secured the reinstatement of the original restraining order of April 7 pending the determination by this court of the appeal from the order denying a temporary injunction.

1. We are of the opinion that our decision hinges on principles of unfair competition rather than on the question of whether plaintiff has a property right in the names and addresses of the customers who were served by defendant Wolf. At the outset it should be noted that the authorities distinguish so-called 'route' cases from other types of employment involving solicitations and sales. In actions of this kind the rights and obligations of the employer and employee are to be determined on the basis of the contribution each party has made to building the business and to enhancing the goodwill of the patronage involved. We believe the trial court's decision must rest on what, in equity and good conscience, each party has earned at the termination of the employment relationship. Thus, where an employee has obtained from his employer at the inception of their relationship a list of customers on a given route, or the names of customers who have no particular geographical continuity, and the employee has made no contribution for their common benefit either by acquiring additional customers or by adding appreciably to the goodwill of the business, it would seem manifestly unjust to permit the employee to pirate the employer's business by raiding the customer list on his own behalf or on behalf of some third person.

At the other extreme, if an employee has built up patronage either on a specific milk, tea, ice, laundry, or bakery route, or among geographically unrelated prospects, he may share with the employer the right to solicit and enjoy the fruits of his labors after the termination of his employment. In either instance both employer and employee are governed by principles of equity and fair play as a prerequisite to competing openly for their customers' business.

In support of plaintiff's claim that it has a proprietory interest in the names and addresses of the customers defendant Wolf served, it cites, as controlling, three cases. Colonial Laundries, Inc. v. Henry, 48 R.I. 332, 138 A. 47, 54 A.L.R. 343, decided in 1927, held that a list of route customers, built up by the labor and expense of a laundry, is confidential information which cannot be exploited by the employee after his job terminates. In that case the court observed that the knowledge of the customer list came to the employee only from the employer. It stated that the identity of the patrons was nonetheless confidential (48 R.I. 337, 138 A. 49) 'because an energetic spy might have acquired the same information.' The court distinguished the protection afforded an employer in milk, ice, laundry, and tea routes from the situation where a traveling salesman calls on customers whose identity and location could easily be determined by reference to a trade journal or index. This case and others base their reasoning on the likelihood of route customers continuing their patronage with the same distributor, absent interference, in contrast to customers whose special needs require initiative and resourcefulness on the part of the salesman in completing individual sales transactions.

Plaintiff also relies on Town & Country House & Home Service, Inc. v. Newbery, 3 N.Y.2d 554, 170 N.Y.S.2d 328, 147 N.E.2d 724, which involved a list of customers who utilized plaintiff's house-cleaning services. Unlike the route cases, these customers were not geographically integrated, and each...