Title: J T MILLER CO v MADEL
Citation: N/A
Docket Number: 13796
State: Montana
Issuer: Montana Supreme Court
Date: March 1, 1978

No. 13796 I N THE S U P R E M E COURT O F THE STATE O F M O N T A N A THE J. T. MILLER C O M P A N Y , a p a r t n e r s h i p and UPPER N O R T H W E S T P A Y M E N T PLAIJS C O M P A N Y , a Minnesota corporation, P l a i n t i f f s and Appellants, JAMES Defendant and Respondent. Appeal from: D i s t r i c t Court of t h e Thirteenth J u d i c i a l ~ i s t r i c t , Honorable Charles Luedke, Judge presiding. Counsel of Record: For Appellants: Crowley, Baughey, Hanson, Gallagher and Toole, B i l l i n g s , Montana H. Elwood English argued, B i l l i n g s , Montana Daniel R. Shulman argued, Minnesota For Respondent: Berger, Anderson, S i n c l a i r , Murphy, Nelson & Edwards, B i l l i n g s , Montana A C l i f f o r d Edwards argued, B i l l i n g s , P4ontana Submitted: January 23, 1978 Decided: MAR - 1 1 9 7 8 a & ! / l e r k M r . 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 i n the employment agreement between the parties was ineffective i n the s t a t e of Montana because it was violative of the public policy of t h i s s t a t e and therefore unenforceable. The material facts were stipulated t o for the purpose of appeal. P l a i n t i f f s J. T . Miller Co. and Upper Northwest Payment Plans Co. are engaged in the business of operating and managing a general insurance agency i n Minneapolis, Minnesota. Defendant entered into an employment agreement with p l a i n t i f f s on July 6 , 1971. Defendant was employed t o a c t as Miller Company's f i e l d agent for the purpose of selling "credit life" insurance. Pursuant t o t h i s agreement, defendant did act as a salesman for plaintiff Miller Co. i n the Minnesota area u n t i l 1973. I n 1973, defendant was transferred t o North Dakota. After one year in North Dakota, defendant was moved t o Montana as of August 1974. During the following August (1975), defendant terminated employment with plaintiffs. Defendant immediately commenced employment with a competing insurance company. P l a i n t i f f s f i l e d s u i t on March 10, 1976, praying for an order restraining defendant from contacting o r soliciting any of p l a i n t i f f s ' customers with whom defendant had a t any time dealt with on behalf of plaintiffs. The District Court issued, upon p l a i n t i f f s ' ex parte application and affidavit, a temporary restraining order. T r i a l was held on t h i s matter October 5, 1976. Following t r i a l , the District Court dissolved the temporary restraining order on the grounds the r e s t r i c t i v e agreement was contrary t o the declared public policy of Montana and section 13-807, R.C.M. 1947. From t h i s judgment, p l a i n t i f f s appeal. The dispute centers on the legal question: Is the restric- tive covenant contained i n the employment agreement between p l a i n t i f f s and defendant enforceable under the laws of Montana? The pertinent part of the restrictive covenant contained i n the employment agreement reads: "* * * The Employee agrees and covenants that for a period of five (5) years a f t e r the termination of t h i s Agreement, he w i l l not directly or indirectly own, manage, operate, control, be employed by, participate i n o r be connected i n any manner with the ownership, management, operation or control of any business which s e l l s credit l i f e , credit accident, health or other insurance t o any customer of the Employer with whom the Employee has a t any t i m e had any dealings on behalf of the Employer; contact or s o l i c i t any customers of the Employer with whom the Employee has a t any time had any dealings on behalf of the Employer; or s e l l or de- l i v e r t o any customers of the Employer any insurance sold by the Employee while an Employee of the EmpLoyer as s e t out i n t h i s contract. 11 P l a i n t i f f s challenge the applicability of section 13-807, R.C.M. 1947, t o the restrictive covenant contained i n the employ- ment 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 t o that extent void." Section 13-807 was f i r s t enacted i n 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' r e s t r i c t i v e covenant, i n t h e i r employment agreement, clearly does not qualify under either statutory exception t o section 13-807. Accordingly, the directness of section 13-807 i n its structure and the broadness of i t s terms I commands the conclusion that it applies t o the facts of t h i s case and prohibits the restraint asserted. Second Plaintiffs1 contention also f a i l s for the reason once section 13-807 i s found t o be the applicable law it is p l a i n t i f f s ' burden t o show that the r e s t r i c t i v e covenant did not violate t h i s section. To meet t h i s burden p l a i n t i f f s . r e l i e d on numerous California cases and one Montana case -- Best Dairy Farms v. Houchen, (1968), 152 Mont. 194, 448 P.2d 158. W e focus our attention on the Montana case as the Califor- nia cases relied on by p l a i n t i f f s were previously reviewed by t h i s Court i n Houchen, the Montana case. P l a i n t i f f s contend t h i s Court gave no indication whatsoever i n Houchen that section 13-807 would bar an injunction under the proper circumstancest and / proper case for injunctive r e l i e f i s presented by the factual setting of the case a t hand. We find no merit in that speculation. I n Houchen, the issue raised was whether the customer information, contained i n the memory of the employee, was a property right or trade secret of the employer, such as t o allow injunctive r e l i e f against the ex- employee's l a t e r solicitation of h i s former employer's customers, the Court stated: "However, even i n California where the court has gone a s f a r a s it did i n Gloria Ice Cream, supra, i n Gordon v. Schwartz, 147 Cal.App.2d 213, 305 P.2d 117, 121 (1957), the California Court l i s t e d a s one I criterion i n trade route1 cases that the information w a s confidential and not readily accessible t o com- petitors. "Also i n Restatement of Agency 2d, 3396, the Comment on Clause (b) i n d i c a k s that there is no ' trade secret' i f the information was not confi- dential and was readily accessible t o others .I' (Emphasis added.) 152 Mont. 199. Houchen was not enjoined from soliciting customers of h i s former employer. The information of customer's names and addresses was not confidential and was readily accessible to anyone. I n the instant case, defendant did nothing more than t o contact banks which were obviously known and open t o a l l vendors of credit l i f e insurance. N o privileged information was required by defendant t o locate the banks which he solicited. The knowledge of the banks was clearly within the public domain. In fact, t o locate banks i n Montana would be a much easier task than t o produce customer names on a milk route as i n Houchen. Finally, p l a i n t i f f s contend the key question i n t h i s case is whether the former employee acted unfairly and utilized h i s past employer's customer information. I n answer, w e note the agreed statement of facts found i n Houchen: "* * * the corporation employed the driver as a route salesman, gave him a l i s t of customers t o s e l l to, paid him for new customers, paid him for h i s services, and that the driver upon termina- tion of h i s employment with the corporation utilized the knowledge obtained while employed by the corpora- tion to s e l l products of another dairy t o corporation's customers .I1 Under t h i s 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 c l a r i t y t o the question of unfair utilization of a past employer's customer information. I n Mathews , plaintiff sued t o enjoin defendants, former employees of p l a i n t i f f , from selling lacquer products t o p l a i n t i f f ' s former customers. It was alleged that defendants, while i n the employ of p l a i n t i f f , learned the names and addresses of the customers for p l a i n t i f f ' s products and the individual requirements and needs of the customers, and defendants were making use of t h i s information to s e l l other lacquer products i n competition with plaintiff. The court found the complaint insufficent t o s t a t e a cause of action for the reason t h a t it failed t o allege the use by defendants of secret and confidential in£ ormation pertaining t o plaintiff ' s business. I n the instant case, defendant, a salesman, l e f t the employment of p l a i n t i f f s , possessed of information gained i n that employment. The employee, having l e f t h i s employment, is free t o make use of h i s experience, a s long as he does not violate h i s 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 t o contact banks which were known and open t o a l l . N o privileged information was required by defendant t o locate the banks he solicited. Under the standards s e t forth i n Houchen and Mathews, the information was not confidential, Defendant i s accused of nothing, except selling t o former customers of p l a i n t i f f s i n a f i e l d that is known and open t o a l l competitors of plaintiffs. The judgment of the D i is affirmed. / ~ u s t i c e . W e 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 indebted- ness, 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 insur- ance 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 rela- tionship 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.