Tawney v. Mutual System of Md., Inc.

• Decision Date: 17 May 1946
• Docket Number: 137.
• Citation: 47 A.2d 372,186 Md. 508,70 U.S.P.Q. 7
• Parties: TAWNEY et al. v. MUTUAL SYSTEM OF MARYLAND, Inc., et al.
• Court: Maryland Court of Appeals

47 A.2d 372

186 Md. 508, 70 U.S.P.Q. 7

TAWNEY et al. v. MUTUAL SYSTEM OF MARYLAND, Inc., et al.

No. 137.

Court of Appeals of Maryland

May 17, 1946

Appeals from Circuit Court of Baltimore City; Joseph Sherbow, Judge.

Action by the Mutual System of Maryland, Inc., and another against Chester W. Tawney, Marian V. Brewer, the Tawney Loan Service Inc., and others, for an injunction and an accounting. From an adverse decree, the named defendants appeal.

Decree affirmed in part, reversed in part, and case remanded.

Hilary W. Gans and Leon H. A. Pierson, both of Baltimore (John L Sanford, of Baltimore, on the brief), for appellants.

Leo M Alpert, of Baltimore (Reuben Shiling and Makover & Kartman, all of Baltimore, on the brief), for appellees.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, GRASON, and HENDERSON, JJ.

HENDERSON Judge.

The Mutual System of Maryland, Inc., a small loan company, and Management Service, Inc., a holding company, filed a bill for an injunction and accounting against Chester W. Tawney, Marian V. Brewer, and others, in the Circuit Court of Baltimore City. The bill alleged that the respondent, Tawney, on January 30, 1941, and the respondent, Brewer, on May 11, 1942, entered into employment contracts with the complainants, whereby the employees agreed: (J) to keep secret the names of or any information relative to any past, present or prospective borrowers from and customers of their employers; (K) to refrain from using any information relative to such borrowers and customers and not to persuade any such borrowers or customers to do anything that might be to the disadvantage of their employers; (L) to so keep secret and to so refrain for a period of three years from the date of termination of the employment; and (M) to refrain from engaging directly or indirectly in any business competitive with that of their employers in the Baltimore City trading area for a period of two years from the date of termination of the employment. The contracts were on printed forms and of indefinite duration; each contained a clause (Q) permitting termination by either party upon five days written notice, and a severability clause (R). The bill alleged that Tawney, who was employed as manager of Mutual, and Brewer, who was employed as cashier, resigned in June 1945, and immediately engaged in a competing business under the style of The Tawney Loan Service, Inc., and that they systematically solicited borrowers and customers of Mutual, making use of the confidential information gained from their previous employment.

After preliminary proceedings that need not be detailed, answers were filed and after extended hearings the court passed a decree, I. dismissing the bill as to the respondents DeMarco and Hundertmark, II. (a) enjoining Tawney and Brewer from engaging, whether as principals, copartners, officers, employers or employees, directly or indirectly, in the small loan business (as defined in Art. 58A of the Code) in the trading area of Baltimore City (including defined suburban areas in Baltimore and Howard Counties) for a period of two years from June 8, 1945, as to Tawney, and June 16, 1945, as to Brewer; (b) enjoining the respondents (1) from using or causing to be used or divulging or causing to be divulged the names of, or any other information relative to any past, present or prospective (in the sense that the same were on any list of prospects existing as of June 2, 1945) security holders or borrowers or business customers or associates of Mutual, in so far as such knowledge and information were acquired during their employment by Mutual, and (2) from using or causing to be used any papers, records or other information relative to the matters set forth in Section (1) hereof; and (3) from engaging or taking any part, in any endeavor to persuade any of the borrowers or customers of Mutual or Management to discontinue their accounts with Mutual for a period of three years accounting from June 8, 1945, as to Tawney, and from June 16, 1945, as to Brewer; III. enjoining The Tawney Loan Service, Inc. (a) from participating with Tawney and Brewer in the small loan business (as defined) within the area and for the time stated, and (b) from interfering with the operation of the contracts of employment between Tawney and Brewer on the one hand and Mutual and Management on the other; and IV. requiring Tawney, Brewer and The Tawney Loan Service, Inc., to account to Mutual for business and profits if any, solicited or procured from the customers of Mutual, and damages, if any, arising out of loss of profits to Mutual, to which end the cause was referred to a standing auditor. From that decree the appeal to this Court was taken.

There is little dispute as to the facts. Prior to his employment by Mutual, Tawney, a native of Maryland, had been engaged in the small loan business in Baltimore, first with Household Finance Co., for about six years, and later with Lincoln Loan Service, Inc., as manager, for about three years. He had graduated from the School of Business Administration, University of Maryland, in 1931. In December 1940, he wrote to Fred H. Lovegrove, President of Management Service, Inc., which operated a national chain of loan companies, applying for the position of manager of its new Maryland branch, and obtained the position at a salary of $225. per month, the same amount he had been getting as manager of Lincoln. The respondent, Brewer, was cashier of Lincoln Loan Service, Inc., and came with Mutual in a similar capacity shortly after the new branch was opened. All of her previous experience had been in the small loan business. The record does not disclose the amount of her salary. There was testimony that Tawney brought with him from Lincoln a list of its customers, and solicited them by letter, and by advertisement. Lovegrove denied knowledge of the solicitation in the first instance, and claimed to have objected to it when brought to his attention; however, it was stated by Tawney that in the first three months after the office opened, $72,000 in loans was put on its books, $12,000 of which came from the purchase of Bankert Loan Service, and the remainder from former customers of Lincoln. When Tawney and Brewer left the employ of Mutual there were about 200 former borrowers of Lincoln on its books.

There was no dispute of the fact that Tawney and Brewer each signed the contracts relied on, although Tawney testified that his contract was signed several months after its date and after he began to work for Mutual. Their resignations relied upon clause (Q) therein permitting termination by either party upon five days notice. We see no force in the contention that the covenants were not ancillary to the employment; the weight of the evidence supports the conclusion that the execution of contracts containing such covenants was a prerequisite of the employment in each case. Likewise, we see no force in the contention that there was a want of consideration or that the consideration was inadequate, even if the latter inquiry were open.

Much of the testimony revolved around a contention by Tawney that Lovegrove knew that he had solicited Lincoln accounts, apparently upon the doctrine of 'unclean hands' to raise an equitable estoppel. But it was not shown that there was any contract between Tawney and Lincoln, and we find no basis for the application of that doctrine in this case. Compare Bennett v. Westfall, Md., 46 A.2d 358, 361. It is not disputed that Mutual purchased not only Bankert's Small Loan Service, at a cost of $14,032, but also 257 accounts from Fidelity Acceptance Corporation for $23,632, People's Loan Service, Inc., for $11,476, St. Paul Finance for $23,216, County Finance Corporation for $27,244, 80 accounts from The Globe Finance Co. for $10,707, Major Loan Service for $35,763, and Fidelity Acceptance Corporation for $67,000. All of these purchase contracts contained restrictive covenants against engaging in business or soliciting patronage for five years. There was also testimony that patronage was attracted in some instances by a reduction in interest rates below the maximum allowed by law.

Tawney was the sole manager of Mutual; Mrs. Brewer was the sole cashier. As such, they were the principal points of contact between Mutual and its customers. Although Tawney was receiving $275 a month in salary and seemed on good terms with his employer, in April, 1945, he laid plans to go into business for himself, with the financial backing of Hundertmark and DeMarco. In May, he negotiated a lease at a location only two blocks from Mutual's office, and arranged for telephone service. A few weeks later he, Mrs Brewer and DeMarco executed a certificate of incorporation of The Tawney Loan Service, Inc. On June 1, he obtained a license, and on the following day tendered his resignation. Mrs. Brewer resigned a week later. From June 19, 1945 through July 10, 1945, when a temporary restraining order became effective, 101 open accounts of Mutual customers, totaling $18,994.99, were paid off by The Tawney Loan Service, Inc. Of these, 38, totaling $6,963.47, had been originally acquired by Mutual through purchase of other small loan companies. Tawney denied active solicitation of the customers of Mutual, except in some instances where the customers had previously been customers of Lincoln, but it was admitted that both he and Mrs. Brewer telephoned and wrote customers to get their business, on an extensive scale. He admitted telling whomever he saw that he was in business for himself, and offering to refinance them. A number of witnesses testified that they were solicited by Tawney, even though they first met him at Mutual. The appellants' counsel concede in their brief that 'some customers' were...