No. 13796 

IN THE 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 - 1 1978 

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Mr. Justice Gene B. Daly delivered the Opinion of the Court. 

This is an appeal from the findings, conclusions and 

order for judgment 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 state of Montana because it was violative of the public policy 

of this state and therefore unenforceable. 

The material facts were stipulated to for the purpose of 

appeal. Plaintiffs J. T. Miller Co. and Upper Northwest Payment 

Plans Co. are engaged in the business of operating and managing 

a general insurance agency in Minneapolis, Minnesota. Defendant 

entered into an employment agreement with plaintiffs on July 6, 

1971. Defendant was employed to act as Miller 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. in the Minnesota area until 1973. In 1973, defendant 

was transferred to North Dakota. After one year in North Dakota, 

defendant was moved to Montana as of August 1974. During the 

following August (1975), defendant terminated employment with 

plaintiffs. Defendant immediately commenced employment with a 

competing insurance company. 

Plaintiffs filed suit on March 10, 1976, praying for an 

order restraining defendant from contacting or soliciting any 

of plaintiffs' customers with whom defendant had at any time 

dealt with on behalf of plaintiffs. The District Court issued, 

upon plaintiffs' ex parte application and affidavit, a temporary 

restraining order. Trial was held on this matter October 5, 1976. 

Following trial, the District Court dissolved the temporary 
restraining 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 this judgment, plaintiffs appeal. 

The dispute centers on the legal question: Is the restrictive covenant contained in the employment agreement between 

plaintiffs and defendant enforceable under the laws of Montana? 

The pertinent part of the restrictive covenant contained 

in the employment agreement reads: 

"* * * The Employee agrees and covenants that 

for a period of five (5) years after the termination 

of this Agreement, he will not directly or indirectly 

own, manage, operate, control, be employed by, 

participate in or be connected in any manner with 

the ownership, management, operation or control of 

any business which sells credit life, credit 

accident, health or other insurance to any customer 

of the Employer with whom the Employee has at any 

time had any dealings on behalf of the Employer; 

contact or solicit any customers of the Employer 

with whom the Employee has at any time had any 

dealings on behalf of the Employer; or sell or deliver to any customers of the Employer any insurance 

sold by the Employee while an Employee of the 

EmpLoyer as set out in this 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 contract by which anyone is restrained from 

exercising a lawful profession, trade, or business 

of any kind, otherwise than is provided for by the 

next two sections, is to that extent void." 

Section 13-807 was first enacted in Montana as Sec. 2246, 

1895 Civil Code and was adopted from the califom-ia Civil Code, 

Business and Professions 516600. Prior thereto, the California 

Supreme Court construed its effect as voiding restraints other than 

thoseauthorized by companion sections. Vulcan Powder Ea. u. 

Hercules Powder Co., (1892), 96 Cal. 510, 31 P. 581. Also see: 
Monogram Industries, Inc. v. Sar Industries, (1976), 134 Cal. 

Rptr. 714, 718, 64 C.A.3d 692. Thus we apply the presumption of 

statutory construction where in borrowing a statute from a sister 

state the legislature borrows the construction placed upon it 

by the highest court of the state from which it is borrowed. 

State ex rel. Mankin v. Wilson, (1977), Mont . -9 569 P.2d 

922, 34 St.Rep. 1075, 1078. This Court requires strict compliance 

with the statutory provisions of section 13-807 and companion 

sections 13-808 and 13-809, R.C.M. 1947. Bauer v. Chaussee, 

(1977) , Mont . , 567 P.2d 448, 34 St.Rep. 778, 780. 

In their challenge plaintiffs 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 jurisdictions making 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 distinctions have been made, courts 

are less prone to enforce restrictive covenants between employer 

and employee than where the restriction is part of a contract 

for sale of a business in which goodwill may be a part of the 

property sold. H & R-Block, Inc. v. Lovelace, (1972), 208 Kan. 

538, 493 P.2d 205, 50 ALR3d 730; Monogram Industries, Inc. v. 

Sar Industries, supra. 
Plaintiffs' restrictive covenant, in their 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 its terms I 

commands the conclusion that it applies to the facts of this 

case and prohibits the restraint asserted. 

Second Plaintiffs1 contention also fails for the reason 

once section 13-807 is found to be the applicable law it is 

plaintiffs' burden to show that the restrictive covenant did 

not violate this section. To meet this burden plaintiffs.relied 

on numerous California cases and one Montana case -- Best Dairy 

Farms v. Houchen, (1968), 152 Mont. 194, 448 P.2d 158. 

We focus our attention on the Montana case as the California cases relied on by plaintiffs were previously reviewed by 

this Court in Houchen, the Montana case. 

Plaintiffs contend this Court gave no indication whatsoever 

in Houchen that section 13-807 would bar an injunction under 

the 

proper circumstancest and / proper case for injunctive relief 

is presented by the factual setting of the case at hand. We 

find no merit in that speculation. In Houchen, the issue raised 

was whether the customer information, contained in the memory 

of the employee, was a property right or trade secret of the 

employer, such as to allow injunctive relief against the exemployee's later solicitation of his former employer's customers, 

the Court stated: 

"However, even in California where the court has 

gone as far as it did in Gloria Ice Cream, supra, 

in Gordon v. Schwartz, 147 Cal.App.2d 213, 305 P.2d 

117, 121 (1957), the California Court listed as one 

I criterion in trade route1 cases that the information 

was confidential and not readily accessible to competitors. 
"Also in Restatement of Agency 2d, 3396, the 

Comment on Clause (b) indicaks that there is no ' trade secret' if the information was not confidential and was readily accessible to others .I' 

(Emphasis added.) 152 Mont. 199. 

Houchen was not enjoined from soliciting customers of his 

former employer. The information of customer's names and 

addresses was not confidential and was readily accessible to 

anyone. 

In the instant case, defendant did nothing more than to 

contact banks which were obviously known and open to all vendors 

of credit life insurance. No privileged information was required 

by defendant to locate the banks which he solicited. The 

knowledge of the banks was clearly within the public domain. 

In fact, to locate banks in Montana would be a much easier task 

than to produce customer names on a milk route as in Houchen. 

Finally, plaintiffs contend the key question in this case 

is whether the former employee acted unfairly and utilized his 

past employer's customer information. In answer, we note the 

agreed statement of facts found in Houchen: 

"* * * the corporation employed the driver as 

a route salesman, gave him a list of customers 

to sell to, paid him for new customers, paid him 

for his services, and that the driver upon termination of his employment with the corporation utilized 

the knowledge obtained while employed by the corporation to sell products 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), 

148 C.A,2d 168, 306 P.2d 113,117, adds additional clarity to 

the question of unfair utilization of a past employer's customer 

information. In Mathews , plaintiff sued to enjoin defendants, 
former employees of plaintiff, from selling lacquer products to 

plaintiff's former customers. It was alleged that defendants, 

while in the employ of plaintiff, learned the names and addresses 

of the customers for plaintiff's products and the individual 

requirements and needs of the customers, and defendants were 

making use of this information to sell other lacquer products 

in competition with plaintiff. The court found the complaint 

insufficent to state a cause of action for the reason that it failed 

to allege the use by defendants of secret and confidential 

in£ ormation pertaining to plaintiff ' s business. 

In the instant case, defendant, a salesman, left the 

employment of plaintiffs, possessed of information gained in 

that employment. The employee, having left his employment, 

is free to make use of his experience, as long as he does not 

violate his 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 did nothing more than to contact banks 

which were known and open to all. No privileged information 

was required by defendant to locate the banks he solicited. Under 

the standards set forth in Houchen and Mathews, the information 

was not confidential, Defendant is accused of nothing, except 

selling to former customers of plaintiffs in a field that is 

known and open to all competitors 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 it was 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 

"as additional security for any indebtedness." The statute 

provides in full: 

"Existing insurance--choice of 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." (Emphasis added.) 

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 insurance was a highly 

lucrative business. It was 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 insurance business 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.