No. 13796 INTHE SUPREME COURT OF THE STATE OF MONTANA

THE J. T. MILLER COMPANY, a partnership and UPPER NORTHWEST PAYMENT PLAIJS COMPANY, a Minnesota corporation, Plaintiffs and Appellants,

JAMES Defendant and Respondent.

Appeal from: District Court of the Thirteenth Judicial ~istrict 

## , Honorable Charles Luedke, Judge presiding. Counsel of Record: For Appellants: Crowley, Baughey, Hanson, Gallagher and Toole,

Billings, Montana H. Elwood English argued, Billings, Montana Daniel R. Shulman argued, Minnesota For Respondent: Berger, Anderson, Sinclair, Murphy, Nelson &

Edwards, Billings, Montana A Clifford Edwards argued, Billings, P4ontana

Submitted: January 23, 1978 Decided: 

# MAR

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a&!/ lerkMr. JusticeGene B. Daly delivered the Opinion of the Court.

This 

### is an appeal from the findings, conclusions and order forjudgment entered by the District Court, Yellowstone County. The court ruled the restrictive covenant contained in the employment agreement between the parties was ineffective in the stateof Montana because it was violative of the public policy of this stateand therefore unenforceable. The material factswere stipulated to for the purpose of appeal. PlaintiffsJ. T. Miller Co. and Upper Northwest Payment Plans Co. are engaged in the business of operating and managing

a general insurance agency inMinneapolis, Minnesota. Defendant entered intoan employment agreement with plaintiffs on July 

### 6, 1971. Defendant was employed toact asMiller Company's field agent for the purpose of selling "credit life" insurance. Pursuant to this agreement, defendant did act as a salesman for plaintiff Miller Co. inthe Minnesota area until 1973. In 1973, defendant

was transferred toNorth Dakota. After one year inNorth Dakota, defendant was moved toMontana as of August 1974. During the followingAugust (1975), defendant terminated employment with plaintiffs. Defendant immediately commenced employment with a competing insurance company. Plaintiffs filed suiton March 10, 1976, praying for an order restraining defendant from contacting or solicitingany of plaintiffs' customers withwhom defendant had atany time dealt with on behalf of plaintiffs. The District Court issued, upon plaintiffs' ex parte application and affidavit, a temporary restraining order. Trialwas held on thismatter October 

### 5, 1976. Following trial, the District Court dissolved the temporaryrestraining order on the grounds the restrictive agreement was contrary to the declared public policy of Montana and section 13-807, R.C.M. 1947. From thisjudgment, plaintiffs appeal. The dispute centers on the legalquestion: Is the restrictive covenant contained in the employment agreement between plaintiffs and defendant enforceableunder the laws of Montana? The pertinent part of the restrictive covenant contained inthe employment agreement reads: 

### "*

# * * The Employee agrees and covenants that for a period of five (5) years after the termination of thisAgreement, he 

### willnot directly or indirectly own, manage, operate, control, be employed by, participate inorbe connected inany manner with the ownership, management, operation or control of any business which sells credit life, credit accident, health or other insurance toany customer of the Employer withwhom the Employee has atany 

### timehad any dealings on behalf of the Employer; contact or solicitany customers of the Employer with whom the Employee has atany time had any dealings onbehalf of the Employer; or sellor deliver toany customers of the Employer any insurance soldby the Employee while an Employee of the EmpLoyer as setout inthis contract.11 Plaintiffs challenge the applicability of section 13-807, R.C.M. 1947, to the restrictive covenant contained in the employment agreement. Section 13-807 states: "Any contractby which anyone 

### is restrained from exercising a lawful profession, trade, orbusiness of any kind, otherwise than isprovided forby the next two sections, 

### is tothat extent void." Section 13-807 was firstenacted inMontana as Sec. 2246, 1895 Civil Code and was adopted from the califom-iaCivil Code, Business and Professions 516600. Prior thereto, the California Supreme Court construed 

### its effect asvoiding restraints other than thoseauthorized by companion sections. Vulcan

### Powder Ea. 

### u. Hercules Powder Co., (1892), 96 Cal. 510, 31P. 581. Also see:

### Monogram Industries,Inc. v. Sar Industries, (1976), 134Cal. Rptr. 714, 718, 64C.A.3d 692. Thuswe apply the presumption of statutory construction where inborrowing a statute from a 

### sister state the legislatureborrows the constructionplaced upon it by the highest court of the state fromwhich it is borrowed. State ex rel. Mankin v. Wilson, (1977), Mont

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### 569 P.2d 922,34 St.Rep. 1075, 1078. This Court requires strict compliance with the statutoryprovisions of section 13-807and companion sections 13-808and 13-809,R.C.M. 1947. Bauer v. Chaussee, (1977)

## , Mont

# . , 567

### P.2d 448, 34 St.Rep. 778, 780. In their challengeplaintiffs contend the prohibition of section 13-807 is not absolute,but permits restraints which are reasonable under the circumstances. We find this contention fails for two reasons: First Section 13-807 is clear in its prohibition against restraint of a lawful profession, trade or business, except where the restrictive covenant involves the sale of the goodwill of the business (section 13-808), or a partnership dissolution agreement

(section 13-809). Montana follows those jurisdictionsmaking a distinction between covenants incident to an employment contract and those ancillary to a sale or other transfer of a business, practice or property. Where distinctionshave been made, courts

are less prone to enforce restrictive covenantsbetween employer and employee thanwhere the restriction ispart of a contract for sale of a business inwhich goodwill may be a part of the property sold. 

### H & 

### R-Block,Inc. v. Lovelace, (1972), 208Kan. 538, 493 P.2d 

### 205, 50ALR3d 730; Monogram Industries,Inc. v. 

### Sar Industries, supra.Plaintiffs' restrictive covenant, intheir employment agreement, clearly does not qualify under either statutory exception to section 13-807. Accordingly, the directness of section 13-807 in 

### its structure and the broadness of itsterms I commands the conclusion that it applies to the facts of this

case and prohibits the restraint asserted. Second Plaintiffs1contention also fails for the reason

once section 13-807 is found tobe the applicable law it 

### is plaintiffs' burden to show that the restrictive covenant did not violate this section. To meet thisburden plaintiffs.relied

on numerous California cases and one Montana case

# -- Best Dairy Farms v. Houchen, (1968), 152Mont. 194, 448 P.2d 158. We focus our attention on theMontana case as the California cases relied on by plaintiffswere previously reviewed by this Court inHouchen, theMontana case. Plaintiffs contend this Court gave no indication whatsoever inHouchen that section 13-807 would bar an injunctionunder the proper circumstancest 

### and

### /proper case for injunctive relief 

### ispresented by the factual setting of the case athand. 

### We find no merit in that speculation. InHouchen, the issue raised

was whether the customer information, contained inthe memory of the employee, was a property right or trade secret of the employer, such as toallow injunctive relief against the exemployee's later solicitation of his former employer's customers, the Court stated: "However, even inCalifornia where the court has gone as far as it did inGloria Ice Cream, supra, inGordon v. Schwartz, 147 Cal.App.2d 213, 305 P.2d 117, 121 (1957), the California Court listedasone I criterion in trade route1cases that the information 

### was confidentialand not readily accessible tocompetitors."Also inRestatement of Agency 2d, 3396, the Comment on Clause (b) indicaks that there 

### isno 

# 'trade secret' if the informationwas not confidential and was readily accessible to others.I' (Emphasis added.) 152Mont. 199. Houchen was not enjoined from solicitingcustomers of his former employer. The information of customer's names and addresseswas not confidential and was readily accessible to anyone. Inthe instant case, defendant didnothing more than to contact banks which were obviously known and open toallvendors of credit lifeinsurance. No privileged informationwas required by defendant to locate thebanks which he solicited. The knowledge of thebanks was clearly within the public domain. In fact, to locatebanks inMontana would be a much easier task than toproduce customer names on a milk route as inHouchen. Finally, plaintiffs contend the key question in this case 

### iswhether the former employee acted unfairly and utilizedhis past employer's customer information. Inanswer, we note the agreed statement of facts found inHouchen: 

# "**

# * the corporation employed the driver as a route salesman, gave him a 

### list of customers to sellto, paid him fornew customers, paid him forhis services, and that the driverupon terminationof hisemployment with the corporation utilized the knowledge obtained while employed by the corporation to sellproducts of another dairy to corporation's customers.I1 Under this factual setting, no injunction against kolicitation

was granted. Mathews Paint Co. 

### v. Seaside Paint & Lacquer Co., (1957), 148C.A,2d 168, 306 P.2d 113,117, adds additional clarity to the question of unfair utilization of a past employer's customer information. InMathews

## ,plaintiff sued toenjoin defendants,former employees of plaintiff, from selling lacquer products to plaintiff's former customers. Itwas alleged that defendants, while inthe employ of plaintiff, learned the names and addresses of the customers forplaintiff's products and the individual requirements and needs of the customers, and defendants were making use of this information to sellother lacquer products incompetitionwith plaintiff. The court found the complaint insufficent to statea cause of action for the reason that it failed toallege the use by defendants of secret and confidential in£ ormation pertaining toplaintiff

## 's business. Inthe instant case, defendant, a salesman, left the employment of plaintiffs, possessed of information gained in that employment. The employee, having lefthis employment, 

### is free tomake use of his experience, as long ashe does not violatehis employer's confidence. King v. Pacific Vitamin Corporation, (1967), 64 Cal.Rptr. 486, 489, 256 C.A.2d 841; Anno. 28 ALR3d 29; 42 Am Jur 2d, Injunctions, $112, pp. 860,861. Here, defendant didnothing more than tocontactbanks which were known and open to all. No privileged information

was required by defendant to locate thebanks he solicited. Under the standards set forth inHouchen and Mathews, the information

was not confidential, Defendant 

### is accused of nothing, except sellingto former customers of plaintiffs ina field that 

### is known and open toallcompetitors of plaintiffs. The judgment of the Di 

### is affirmed. 

# /~ustice.We Concur:Mr. Justice Daniel J. Shea concurring:

I concur with the opinion herein, but I feel the general matter of credit life insurance, as itwas explained to this Court during oral argument, should be put in perspective from the standpoint of the consumer. It is clear the present statutes and practices of the banks and credit life insurance companies have anything but the interests of the consuming public in mind. It appears that section 40-4214 (1959), R.C.M. 1947, of Montana's insurance codes authorizes credit life insurance "asadditional security for any indebtedness." The statute provides in full: "Existing insurance--choiceof insurer. When credit life insurance or credit disability insurance is required as additional security for any indebtedness, the debtor shall, upon request 

### -- to the creditor, have the option of furnishing the required amount of insurance through existing policies of insurance owned or controlled by him or of procuring and furnishing the required coverage through any insurer authorized to transact an insurance business within this state." (Emphasisadded.) By this statute the borrower is allowed the option of further securing the bank by naming the bank as a beneficiary

on existing life insurance policies on the borrower's life, or of going to an insurance company of the borrower's choice to procure the required insurance. Unfortunately, no duty is placed upon the bank to inform the borrower of these rights. It is highly unlikely that the average borrower would know of the existence of this statute so that he could make his wishes known to the bank. It is equally obvious that the banks are not going to take it upon themselves to inform the borrower of the existence of this statute and of his rights under the statute. Accordingly, the statute is-- from the standpoint of effectively conferring rights upon the consuming public--meaningless.I believe that because of the weakness of this statute, the situation developed in this case. From the life insurance company's standpoint, credit life insurancewas a highly lucrative business. Itwas in its interest to corner the market, more or less to have an exclusive franchise from the banks to provide the credit life insurance required by the bank of its borrowers. Accordingly, the insurance company spent large sums of money wining and dining appropriate bank personnel to become the exclusive agent selling credit life insurance. If the insurance company won the bank's favor, they had in effect a monopoly on the credit life insurance policies of the bank. The essence of the insurance company's claim here is that it is fighting to retain exclusive control of its territory. There is also an inherent danger that the bank choosing the life insurance company will, in exchange for this business, be getting favors from the insurance company. They could, of course, take any form. At the least, the lavishing of large sums of money wining and dining the appropriate bank personnel involved, can only have the effect of increasing the ultimate cost to the consumer. Moreover, there is another angle that the bank, through its board of directors

or officers, could form an insurance company or acquire an interest in an insurance company handling credit life insurance for the bank. In this fashion, the insurance company would have a built-in clientele, and the bank officers, etc., would have a built-in source of additional income-- that produced from also having an interest in the insurance company. It should be noted that this kind of cozy relationship is specifically prohibited to banks chartered under the National Banking Act. In such situations banks may not engage in the insurancebusiness or act as agents. 12 u.S.C. Section 92.It is unfortunate that the burden is placed on the borrower in a situation where he is obviously in no position to either know the law or to bargain with the banks and insurance companies who have already decided how the spoils

are to be divided.