NO. 82-362
I N THE SUPREME COURT OF THE STATE OF MONTANA
1983
FIRST AMERICAN INSURANCE AGENCY,
Plaintiff and A p p e l l a n t ,
VS.
CAROL L. GOULD,
Defendant and Respondent.
Appeal from: D i s t r i c t Court of the ~ i g h t h u d i c i a l D i s t r i c t ,
J
I n and f o r t h e County o f Cascade
Honorable John McCarvel, Judge p r e s i d i n g .
Counsel o f Record:
For Appellant:
James, Gray and M c C a f f e r t y , Great F a l l s , Montana
For Respondent:
Church, Harris, Johnson & Williams, Great Falls, Montana
S u b m i t t e d on b r i e f s : January 27, 1983
Decided: March 2 4 , 1 9 8 3
Filed: MAR 2 4 1983
---_-- Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of
the Court.
First American Insurance Agency appeals from two orders
entered in the District Court of the Eighth Judicial
District, Cascade County. The first order dissolved a
temporary restraining order which enjoined Carol L. Gould
from engaging in her insurance business in the Great Falls
area. The second order awarded attorneys' fees to Carol
Gould.
Carol L. Gould was initially employed in 1973 as a
clerical worker for the Yeoman Insurance Agency of Great
Falls, Montana. First American Insurance Agency acquired
that agency on March 1, 1977. Carol continued as a clerical
worker. At the urging of her employer, Carol took the
licensing exam and began selling insurance in January of
1979. She was assigned a book of business customers to
service in exchange for a guaranteed salary. The list of
customers consisted primarily of people she knew and with
whom she had already had substantial contact.
On February 16, 1981, Carol signed an employment
contract with First American. The contract provided for a
$7,000 a year increase in sa1a.r~. It contained the following
pertinent clause:
''8, In the event of termination of this contract,
the Employee agrees that he will not engage
directly or indirectly, either personall-y or as an
employee, associate, partner, manager, agent or
otherwise, or by means of any corporate or other
legal entity or device, in the same business as
that of the Employer, or in any casualty insurance
sales business, or occupation, or in any way
compete with the Employer, or the Employer's
successor, if any, within the City of Great Falls,
Montana, or within a radius of twenty-five (25)
miles from the City of Great Falls, Cascade County,
Montana, for a period of ten (10) years from the
date of such termination. The Employee agrees that
in consideration for his continued employment with
the Employer, this provision shall be deemed
renewed as of January 1 of each year hereafter, for
so long as he remains in the employ of the
Employer. The Employee acknowledges that because
of this employment and the nature thereof, he will
be given and will have access to information as to
renewal dates of insurance policies and as to
prospective customers, which is usually and
ordinarily kept confidential by the Employer, and
the Employee acknowledges that he understands that
competition with the Employer in the event of
termination of this agreement, would be unfair due
to the disclosure of confidences involved in the
employment of this nature, and the Employee
specifically further acknowledges receipt of good
and valuable consideration sufficient to support
the provision of this agreement and specifically
further agrees that any violation or breach of this
part of this contract of employment, or any part
thereof, shall be a proper subject for injunctive
relief in addition to any other remedy available in
equity or at law. The Employee further agrees
that he will not reveal any information concerning
any policy or policies of insurance, or the
expiration dates thereof, to any person whomsoever,
except to officers of the Employer, and he will not
solicit renewals of any insurance that is for any
person or organization other than the Employer.
The Employee further agrees that upon the
termination of his employment for any cause
whatsoever, he will not directly or indirectly
solicit the insurance customers of the Employer,
either verbally or in writing, nor will he keep in
his possession a list of the customers of the
Employer, nor contact the customers of the Employer
in any manner, nor use the names and addresses of
the customers of the Employer for solicitation by
him or his agent after the termination of his
employment. The Employee further agrees that upon
termination of his employment for any cause
whatsoever, he will surrender to the Employer in
good condition, any and all records kept and
maintained by him showing the names, addresses or
other information with regard to the insurance
customers or the conditions of this paragraph shall
be a proper subject for injunctive relief in
addition to any other remedies available in equity
or in law. "
Carol became dissatisfied with her job and terminated
her employment on June 21, 1981. She opened her own
insurance business in Great Falls on July 1, 1981.
First American filed a complaint against Carol in the
Eighth Judicial District Court of Montana on August 6, 1981,
seeking injunctive relief. Among other things, the complaint
alleged Carol to be in breach of Paragraph 8 of her
employment contract. Specifically, First American alleged
that Carol is engaged in the same business as her former
employer in Great Falls and has in her possession a
confidential list of First American's customers containing
names, addresses and the renewal and expiration dates of
policies. Further, Carol has contacted customers on that
confidential list to solicit renewals on her own behalf.
Other allegations in the complaint have since been resolved
by the parties.
In response to the complaint, a temporary restraining
order was issued August 10, 1981, ordering that Carol not
engage in the insurance business in the Great Falls area nor
contact or solicit insurance husiness with First American's
customers and that Carol surrender any lists or records of
First American's customers in her possession. A show cause
hearing was scheduled for August 20, 1981.
Carol testified at the hearing that she had solicited
approximately 91 accounts for her new insurance business.
Approximately fifty percent (50% ) of those prospectj-ve
accounts were customers of First American. Approximately
one-half of those customers had initiated contact with Carol
themselves. Carol actually wrote insurance for one-third of
the First American customers with whom she had been in
contact.
Carol testified that she has never, since leaving First
American, had any list of customer's names, addresses or
insurance expiration dates. Rather, any information of that
nature utilized by her in her own business came from general
knowledge acquired during her employment.
Only two letters sent by Carol to prospective customers
contained a reference to the expiration date of the
addressee's insurance policy. One letter wa.s to an
individual who had never been a customer of First American.
The other letter mentioned an expiration date, but the date
quoted was not correct.
First American offered no evidence at the hearing in
support of its claim that Carol had taken a customer list
with her when she left the agency. John Watson, Manager of
First American, testified that he did not know, of his own
personal knowledge, that Carol had taken any written customer
information when she left the agency.
In its findings of fact, conclusions of law and order of
September 10, 1981, the District Court found no evidence that
Carol had any customer lists belonging to First American.
Further, no privileged information was used in contacting
First American's customers. The court found that Carol had
"relied only upon her memory and experience, together with
public information" to contact First American's customers.
The provisions of the employment contract which restrict
competition or prohibit Carol from contacting customers of
First American were found to be void as a matter of law under
section 28-2-703, MCA. Judgment was granted to Carol against
First American with respect to all portions of the complaint.
The matter was then continued for hearing on a motion by
Carol for attorneys' fees.
That hearing was held June 3, 1982. Carol presented
witnesses and exhibits in support of her claim for $2,274.00
in attorneys' fees and $2.25 in costs. First American
submitted no witnesses or exhibits. Judgment granting Carol
$2,276.25 was issued July 16, 1982.
First American now appeals those judgments and presents
this Court with the following issues:
1. Did the District Court err in denying injunctive
relief and damages to First American for Carol's use of
information obtained in her employment?
2. Did the District Court err in the award and
determination of the amount of attorneys' fees to Carol?
Because of the specific facts of this case, both
judgments of the District Court are affirmed.
Section 28-2-703, MCA states:
"Contracts in restraint of trade generally void.
Any contract by which anyone is restrained from
exercising a lawful profession, trade, or business
of any kind, otherwise than is provided for by
28-2-704 or 28-2-705, is to that extent void."
(Both parties have agreed that neither section
28-2-704, MCA nor section 28-2-705, MCA, is
applicable to this case.)
Contracts in restraint of trade generally are covenants
not to compete. Covenants not to disclose customer
information can be valid but the information must be
"confidential and not readily accessible to competitors."
Best Dairy Farms, Inc. v. Houchen (1968), 152 Mont. 194, 199,
448 P.2d 158, 161, citing Gordon v. Schwartz (1957), 147
Paragraph 8 of the employment contract between Carol
Gould and First American contains covenants not to compete
and covenants not to disclose confidential or public
information. It also contains a provision prohibiting Carol
from retaining in her possession any customer records upon
the termination of her employment with First American.
The covenants not to compete were correctly determined
by the District Court to be unenforceable. They are
covenants in restraint of trade and are therefore void under
section 28-2-703, MCA.
First American had the burden of proving that the
covenants not to disclose do not also violate section
28-2-703, MCA. J.T. Miller Co. v. Made1 (1978), 176 Mont.
49, 53, 575 P.2d 1321, 1323. First American failed to meet
that burden.
No evidence was presented at the hearing that Carol
retained in her possession any records or lists of First
American's customers upon leaving its employ. However,
violations of covenants not to disclose do not require a
physical taking of customer records. Such covenants can also
be violated, when an employee memorizes the privileged
information and uses it elsewhere.
Carol testified that any knowledge of names, addresses,
insurance expiration dates and other information concerning
her customers was solely the result of her work experience at
First American. She committed no lists to memory. In fact,
she knew most of the customers before she was ever given a
list.
The governing rule of law is settled. "The employee,
having left his employment, is free to make use of his
experience, so long as he does not violate his employer's
confidence." J. T. Miller Co. v. Madel, supra at p. 55, 575
P.2d at 1324, citing King v. Pacific Vitamin Corporation
(1967), 256 Cal.App.2d 841, 64 Cal.Rptr. 486.
There is substantial credible evidence to support the
trial court's findings that Carol took no property from the
employer nor did she violate any confidence.
The judgment of the District Court denying injunctive
relief and damages to First American is affirmed.
Finally, the order granting Carol Gould attorneys1 fees
and costs in the amount of $2,276.25 is affirmed. We held in
Marta v. Smith (1981), Mont . ,
- 622 P.2d 1011,
1015-1016, 38 St.Rep. 28, 33, that " . . . attorney fees and
costs are recoverable under section 27-19-306, MCA, as
elements of the damages sustained by reason of the injunction
. . ." The costs for an injunction are limited to $100.00.
Section 27-19-406, MCA. Carol's costs were $2.25. The
attorney fees must be reasonable. Marta v. Smith, supra.
Sufficient evidence was presented at the June 3, 1982,
hearing to support the District Court's award of attorneys'
fees as reasonable.
The judgments of the Distr ourt are affirmed.
We concur:
Chief Justice