Source: https://caselaw.findlaw.com/ca-supreme-court/1445534.html
Timestamp: 2019-04-18 17:34:01+00:00

Document:
Robert L. REEVES et al., Plaintiffs and Respondents, v. Daniel P. HANLON et al., Defendants and Appellants.
Dwyer, Daly, Brotzen & Bruno, Toni Rae Bruno, Los Angeles, Marlin D. Wall and Ilan A. Charnelle, for Defendants and Appellants. Deborah J. La Fetra, Sacramento, and Timothy Sandefur, Rialto, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendants and Appellants. Ballard, Rosenberg, Golper & Savitt, John J. Manier, Linda C. Miller Savitt, Universal City; Arter & Hadden, David Gurnick, Sue Bendavid-Arbiv; Robert L. Reeves & Associates, Robert L. Reeves, Robert J. DuPont, Pasadena, and Richard M. Wilner, Long Beach, for Plaintiffs and Respondents.
The primary issue presented is whether a defendant may be held liable under an intentional interference theory for having induced an at-will employee to quit working for the plaintiff. Because an interference as such is primarily an interference with the future relation between the plaintiff and the at-will employee, we hold that inducing the termination of an at-will employment relation may be actionable under the standard applicable to claims for intentional interference with prospective economic advantage. Accordingly, to recover for a defendant's interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act-i.e., an act “proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159, 131 Cal.Rptr.2d 29, 63 P.3d 937 (Korea Supply ))-that induced the at-will employee to leave the plaintiff.
Adopting this standard of recovery in the context of at-will employment relations is particularly appropriate. Not only will it guard against unlawful methods of competition in the job market, but it will promote the public policies supporting the right of at-will employees to pursue opportunities for economic betterment and the right of employers to compete for talented workers. In this regard, it is clear from the standard that one commits no actionable wrong by merely soliciting or hiring the at-will employee of another.
Another issue presented in this case concerns the propriety of the trial court's award for violations of the Uniform Trade Secrets Act (UTSA) ( Civ.Code, § 3426 et seq.). We find the award was proper, and affirm the judgment of the Court of Appeal in its entirety.
Pursuant to a stipulated order, plaintiffs agreed to proceed to trial only on the foregoing causes of action. As pertinent here, the stipulated order specified that plaintiffs' claims would be resolved by a bench trial and that any recovery following trial would be limited to $150,000.
Trial of the matter commenced in January 2001. Following the presentation of briefing, evidence, and arguments, the trial court issued a statement of decision concluding that Hanlon and Greene had assumed fiduciary duties to plaintiffs and that they had engaged in interference with contracts and prospective business opportunity, and misappropriation of trade secrets. The court determined that, for more than five months prior to their departure, Hanlon and Greene had accessed plaintiffs' password-protected computer database to print out confidential name, address, and phone number information on 2,200 clients and had fomented dissatisfaction among plaintiffs' personnel. Although Greene had been chair of plaintiffs' litigation department and Hanlon had been responsible for over 500 client matters when they abruptly resigned without notice, they left no status reports or list of matters or deadlines on which they had been working. Nor did they attempt to cooperate with plaintiffs on a notice to clients. Shortly before resigning, Greene intentionally erased extensive computer files in plaintiffs' computer server containing client documents and form files used by plaintiffs. The evening of their resignations, defendants personally solicited plaintiffs' key employees. As a result, plaintiffs lost nine employees over the next 60 days, six of them joining defendants' new firm. Defendants also began a campaign to solicit plaintiffs' clients, contacting at least 40 clients by telephone without offering them a choice of counsel. All of this had been “intentionally done ․ to disrupt [plaintiffs'] ongoing business.” Although historically, plaintiffs typically lost only one or two clients a month, plaintiffs lost 144 clients to defendants over the next 12 months.
The trial court found that defendants' conduct caused damage to plaintiffs in the total amount of $182,180.18, as follows: (1) 144 of plaintiffs' clients who transferred to H & G did not pay $62,540.50 in fees that they owed to plaintiffs; (2) plaintiffs suffered $36,000 in lost future business revenue; (3) plaintiffs incurred $61,639.68 in expenses to mitigate damages, including $41,630.49 for informing clients that the firm was still in business and $20,009.19 for recruiting replacement employees; and (4) defendants were unjustly enriched in the amount of $22,000 due to the misappropriation of confidential client information. The court, however, declined to award punitive damages, finding that defendants did not act with malice, oppression or fraud, but instead acted out of “immaturity” and “an apparent get-rich-quick mentality at the expense of [plaintiffs].” The court reduced the damages award to $150,000 pursuant to the parties' stipulation, and thereafter awarded plaintiffs $47,427.63 in costs after granting in part and denying in part a motion to tax costs. Judgment was entered accordingly.
The Court of Appeal reversed the trial court's order denying in part the motion to tax costs and remanded for entry of a new order regarding costs. It affirmed the judgment in all other respects. As relevant here, the appellate court concluded that plaintiffs' interference claims were legally sound and substantially supported by the record, and also that their misappropriation of trade secrets claim was substantially supported.
What is disputed is the Court of Appeal's legal conclusion that “an employer may recover for interference with the employment contracts of its at-will employees by a third party when the third party does not show that its conduct in hiring the employees was justifiable or legitimate.” Relying primarily on GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000) 83 Cal.App.4th 409, 99 Cal.Rptr.2d 665 (GAB ), defendants argue California law does not and should not recognize a cause of action in favor of an employer against another employer for interference with contractual relations by virtue of an offer of employment to an at-will employee.
But as the Restatement Second of Torts explains, if a party to a contract with the plaintiff is free to terminate the contractual relation when he chooses, “there is still a subsisting contract relation; but any interference with it that induces its termination is primarily an interference with the future relation between the parties, and the plaintiff has no legal assurance of them. As for the future hopes he has no legal right but only an expectancy; and when the contract is terminated by the choice of [a contracting party] there is no breach of it. The competitor is therefore free, for his own competitive advantage, to obtain the future benefits for himself by causing the termination. Thus, he may offer better contract terms, as by offering an employee of the plaintiff more money to work for him or by offering a seller higher prices for goods, and he may make use of persuasion or other suitable means, all without liability.” (Rest.2d Torts, § 768, com. i.) 5 Under this analysis, an interference with an at-will contract properly is viewed as an interference with a prospective economic advantage, a tort that similarly compensates for the loss of an advantageous economic relationship but does not require the existence of a legally binding contract.
Consistent with the decisions recognizing that an intentional interference with an at-will contract may be actionable, but mindful that an interference as such is primarily an interference with the future relation between the contracting parties, we hold that a plaintiff may recover damages for intentional interference with an at-will employment relation under the same California standard applicable to claims for intentional interference with prospective economic advantage. That is, to recover for a defendant's interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act-i.e., an act “proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard” (Korea Supply, supra, 29 Cal.4th at p. 1159, 131 Cal.Rptr.2d 29, 63 P.3d 937)-that induced an at-will employee to leave the plaintiff.7 Under this standard, a defendant is not subject to liability for intentional interference if the interference consists merely of extending a job offer that induces an employee to terminate his or her at-will employment.
We now turn to defendants' contention, supported by GAB, supra, 83 Cal.App.4th 409, 99 Cal.Rptr.2d 665, that an employer should not, as a matter of law, be permitted to maintain a cause of action against another employer for intentional interference with an at-will employment contract. In GAB, the plaintiff's regional vice-president obtained an employment offer from a competitor. (83 Cal.App.4th at pp. 413-414, 99 Cal.Rptr.2d 665.) Before leaving the plaintiff, he successfully recruited several of the plaintiff's employees to join the competitor with him. (Id. at pp. 414-415, 99 Cal.Rptr.2d 665.) At trial, a jury rendered verdicts in favor of the competitor and the plaintiff's former regional vice-president on the plaintiff's claims for breach of fiduciary duty, unfair competition, misappropriation of trade secrets, and interference with contract.
We are not convinced. First, it is firmly established in California that intentionally interfering with an at-will contractual relation is actionable in tort, and we perceive no legal, logical, or policy basis for restricting the availability of this tort to employees. Significantly, neither GAB nor defendants here point to any empirical or evidentiary support for the conclusion that employer claims requiring a showing of unlawful conduct would prompt innumerable lawsuits and chill employment opportunities.
If anything, GAB's assertion that another tort presently addresses the problem of unlawful conduct among employers supports, rather than undermines, the idea that employers should be able to invoke the interference tort. The fact that such interference may already be actionable reinforces the point that employers deserve protection from other employers who engage in such wrongful conduct. Moreover, there is no indication that current litigation over such matters is rampant or has had the chilling effect GAB describes. Hence, such concerns appear unfounded and speculative at best.
Second, as discussed, case law in analogous contexts shields those employers who hire a competitor's at-will employees without engaging in unlawful conduct. (E.g., Metro, supra, 22 Cal.App.4th 853, 27 Cal.Rptr.2d 573; Diodes, supra, 260 Cal.App.2d 244, 67 Cal.Rptr. 19; see Buxbom, supra, 23 Cal.2d 535, 145 P.2d 305.) By recognizing similar restrictions in interference actions, we respect both the right of at-will employees to pursue opportunities for economic betterment and the right of employers to compete for talented workers, and in doing so strike the proper balance between society's interest in fostering robust competition in the job market and its interest in protecting against unlawful methods of competition.
Accordingly, we reject GAB's categorical holding that an employer may never maintain a cause of action against a competitor for intentional interference with its at-will employment relations. We disapprove GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc., supra, 83 Cal.App.4th 409, 99 Cal.Rptr.2d 665, to the extent it conflicts with the views expressed herein.
We now address whether application of the principles we announce today calls for affirmance of the $20,009.19 award against defendants. We conclude it does. Here, it is undisputed that Hanlon and Greene engaged in unlawful and unethical conduct in mounting a campaign to deliberately disrupt plaintiffs' business. (See ante, 17 Cal.Rptr.3d at pp. 293- 294, 95 P.3d at pp. 516-517 & fn. 2.) Greene had been chair of plaintiffs' litigation department, and Hanlon had been responsible for over 500 client matters, and both had assumed fiduciary duties to plaintiffs. When the two abruptly resigned without notice, they left no status reports or list of pending matters or deadlines on which they were working. Not only did they leave without providing such information, they acted unlawfully to delete and destroy plaintiffs' computer files containing client documents and forms. Additionally, Hanlon and Greene misappropriated confidential information (see post, pt. B), improperly solicited plaintiffs' clients, and cultivated employee discontent. While the computer files and the confidential information all appear to have pertained to plaintiffs' clients, not their employees, and while Hanlon and Greene waited until after their resignations to offer jobs to plaintiffs' employees, we cannot conclude the trial court abused its discretion in finding that defendants' unlawful and unethical actions were designed in part to interfere with and disrupt plaintiffs' relationships with their key at-will employees.
In short, defendants did not simply extend job offers to plaintiffs' at-will employees. Rather, defendants purposely engaged in unlawful acts that crippled plaintiffs' business operations and caused plaintiffs' personnel to terminate their at-will employment contracts. Accordingly, the Court of Appeal properly upheld the award of $20,009.19 for damages attributable to that wrongful conduct.
At trial, the court found that defendants violated the UTSA (Civ.Code, § 3426 et seq.) by misappropriating plaintiffs' confidential client list and, pursuant to Civil Code section 3426.3, subdivision (b), awarded plaintiffs $22,000 (representing a royalty fee of $10 for each of the 2,200 clients on the list). Defendants argue the Court of Appeal erroneously affirmed the trial court on this matter.
Under the UTSA, a client list qualifies as a “[t]rade secret” if it “[d]erives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use” and “[i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” (Civ.Code, § 3426.1, subd. (d); see, e.g., Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1520-1522, 66 Cal.Rptr.2d 731.) A violation of the UTSA occurs when an individual misappropriates a former employer's protected trade secret client list, for example, by using the list to solicit clients (American Credit Indemnity Co. v. Sacks (1989) 213 Cal.App.3d 622, 632-633, 262 Cal.Rptr. 92 (American Credit )) or to otherwise attain an unfair competitive advantage (see Morlife, supra, 56 Cal.App.4th at p. 1523, 66 Cal.Rptr.2d 731).
Here, defendants do not dispute that plaintiffs' client list derived independent economic value from not being generally known or that plaintiffs took reasonable efforts to maintain the list's secrecy under the circumstances. Instead, defendants claim the trial court erroneously found violations of the UTSA based on their mailing of a professional announcement to the clients appearing on that list.
We have no quarrel with defendants' authorities, but find they support the trial court's determinations that defendants violated the UTSA by using the trade secret client data in an improper manner “to directly solicit clients” and for defendants' “own pecuniary gain to the detriment and damage of” plaintiffs. There is substantial evidence in the record supporting these findings, including testimony that defendants used the data to solicit a number of plaintiffs' clients directly by telephone. Additionally, there is substantial evidence showing that defendants' business announcement caused plaintiffs' clients, many of whom lacked fluency in English, to believe Reeves had died or his firm had gone out of business, and that plaintiffs had to conduct their own mail campaign to reassure clients their firm remained able to serve them.9 Because defendants' conduct as such was not in furtherance of their right to engage in fair competition, the authorities they cite do not support a different result.
1. Hanlon and H & G filed a separate action against plaintiffs, and the two actions were consolidated. Greene then filed a separate cross-complaint against plaintiffs in the consolidated action. Hanlon and H & G alleged that plaintiffs had improperly withheld files and other materials belonging to H & G's clients after Hanlon resigned, and that plaintiffs had converted Hanlon's car. Greene, in turn, alleged that plaintiffs had failed to pay him commissions in accordance with his employment contract. These claims and cross-claims were either settled or arbitrated and are not at issue here.
2. Defendants did not petition the Court of Appeal for a rehearing regarding these factual matters, nor did they petition this court for their review. We therefore shall disregard any attempts defendants make in their briefing to expand the scope of review to include such matters.
3. There were two defendants in Buxbom, defendant Smith and defendant Wright. Buxbom sustained the judgment against Smith, who was a party to the distribution contract at issue, but reversed the judgment against Wright, finding that Wright acted merely as Smith's agent. (See Buxbom, supra, 23 Cal.2d at p. 540, 145 P.2d 305.) Although the Buxbom opinion refers sometimes to both defendants, and at other times only to Smith, in describing the same wrongful conduct, our opinion simply will refer to “defendant” in the singular for the sake of consistency.
7. Because the wrongful conduct in this case pertains only to the termination of at-will contracts, we need not and do not express an opinion whether an independent wrongfulness requirement would be appropriate for cases in which a defendant allegedly induces the breach of an otherwise enforceable term of an at-will contract.
9. Prior to defendants' departure, plaintiffs' firm went by the name of “Reeves and Hanlon, Professional Law Corporation.” The business announcement defendants mailed out informed plaintiffs' clients of the formation of “Hanlon & Greene, A Professional Corporation,” but made no mention of Robert Reeves's continuing practice.In recognition of the principle that the professional obligation of attorneys to their clients requires attorneys to provide for an orderly transition in the event of an employment change, Formal Opinion No. 1985-86 of the State Bar Standing Committee on Professional Responsibility and Conduct provides that departing attorneys should cooperate with their former employers to arrange for the issuance of a joint notice to clients. Here, defendants prepared and distributed their business announcement without seeking plaintiffs' input or approval.
WE CONCUR: GEORGE, C.J., KENNARD, WERDEGAR, CHIN, BROWN and MORENO, JJ.

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