GEORGE ET AL v. BURDUSIS ET AL

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District Court of Appeal, Third District, California.

GEORGE ET AL. v. BURDUSIS ET AL.*

Civ. 6630.

Decided: March 13, 1942

Joseph A. Brown and A. E. Cross, both of San Francisco, for appellants. Marvin E. Lewis, of San Francisco, for respondents.

Plaintiffs and defendant, Aleck Burdusis, were at one time co–partners, but are now rivals in business. Defendant, Tom Burdusis was formerly in the employ of plaintiffs, but at the commencement of this action he was an employee of his co–defendant, Aleck Burdusis.

In the complaint herein, plaintiffs charge defendants with unfair competition, and seek injunctive relief, and damages. The defendant, Aleck Burdusis, interposed a cross–complaint, alleging that due to certain activities on the part of plaintiffs, and false representations made by them, he suffered loss of business and consequent damage. The trial court denied plaintiffs' prayer for an injunction and damages, and also denied relief on the cross–complaint. Plaintiffs alone appeal.

The record discloses that for some years prior to November 16, 1934, the plaintiffs and the defendant Aleck Burdusis were co–partners, operating under the trade name of “Stone's Linen Supply Company,” and engaged in the business of supplying to meat markets, grocery stores and similar establishments, laundered aprons, gowns and towels, delivery of which was made at the customers' place of business at regular intervals, and over designated routes, by employees of the company. On November 16, 1934, defendant Tom Burdusis, a brother of said co–defendant, was, and for some three years prior thereto had been, one of the employees so engaged. Differences between the members of the co–partnership culminated, on or about November 16, 1934, in a sale by Aleck Burdusis, to plaintiffs, of his interest in the firm. The bill of sale evidencing the transaction included among the property transferred, the good–will of the business, and also the vendor's interest in four route books. Apparently one of these books was assumed to be in the possession of the vendor, for the bill of sale required him “to deliver up the route book in his possession.” In the bill of sale was also a provision, as follows:

“The vendor does not agree not to engage in the same or a similar business in San Francisco, Oakland, or elsewhere, nor that he will not solicit former customers of said firm for business.”

Following the transfer by Aleck Burdusis to plaintiffs, the latter carried on under the same firm name the enterprise in which Stone's Linen Supply Company had theretofore been engaged. Defendant Aleck Burdusis entered into a similar business under the name of “A B C Linen Supply Company.” Defendant Tom Burdusis, however, continued in the employ of plaintiffs until January 18, 1935. On the following day, he accompanied his brother Aleck Burdusis over the route that the former had theretofore served for plaintiffs. They together called upon certain of plaintiffs' customers on that route, and on succeeding days defendant Tom Burdusis alone called on other customers on the route. On the calls so made by defendants, the customers of plaintiffs were solicited to give their business to defendant Aleck Burdusis. Such solicitation resulted in the loss of customers to plaintiffs.

It is obvious that the same principles of law do not apply to both defendants here. The obligations of defendant Aleck Burdusis arise out of his membership in the firm, and the sale of his interest therein to plaintiffs, while the obligations of defendant, Tom Burdusis, arise out of his relationship to plaintiffs as an employee.

The sale of the good-will of the business by defendant, Aleck Burdusis, to the plaintiffs, carried with it the expectation on the part of the latter of continued public patronage. Business & Professions Code, St.1937, p. 1229, § 14100, as added by St.1941, p. 702. In the absence of a restrictive agreement, the seller had the right to engage in a rival business. Diller v. Schindler, 88 Cal.App. 250, 263 P. 277. This included the right to seek trade by any honest method, and to deal with old customers who chose to come and trade with him. He would not be permitted to canvass directly the old customers, endeavoring to dissuade them from dealing with the purchaser of the good–will and soliciting them to trade with him. 24 Am.Jur. 817; Gibbons v. Hansch, 185 Minn. 290, 240 N.W. 901, 82 A.L.R. 1027; 13 Cal.Jur. 53.

Here, the bill of sale, however, provided in effect that the vendor reserved the right to “solicit former customers of said firm for business.” To that extent, the implied obligation arising out of the sale of the good–will was modified. Appellants contend that the word “former” as used in the bill of sale, includes only those who had been customers at one time, but were no longer such at the date of the transfer. We cannot agree with this contention. Here, the partnership was dissolved by the withdrawal of defendant Aleck Burdusis therefrom, and while this would not ordinarily effect a termination of the partnership, it did so in this case. Here, the withdrawal brought about not only a dissolution of the partnership, but wound up the partnership affairs, and therefore terminated the relationship. Civil Code, § 2424. The entity having gone out of existence, those who had theretofore patronized it were its “former customers.” Any other construction would render meaningless the reservation of the right to solicit. As so construed, the word “former” is used in 24 Am.Jur. 817, note 1, and at page 811, note 12; also by the Supreme Court of California in Langendorf United Bakeries v. Phillips, 5 Cal.2d 150, at page 153, 53 P.2d 363.

In view of the express language of the bill of sale, reserving the right to solicit former customers, it cannot be said that the transfer of the route books was inconsistent with the right reserved.

It is our conclusion that respondent, Aleck Burdusis, was within his rights when he solicited the former customers of Stone's Linen Supply Company on behalf of his rival business. From the conclusion thus arrived at, it does not follow, however, that defendant, Tom Burdusis, had a right to do likewise. He had been an employee of the firm before his brother's withdrawal therefrom, and thereafter so continued. As such employee, and in the course of such employment, and by virtue thereof alone, he gained certain information concerning the patrons of his employer, and this information he used to the latter's prejudice. The information which he so acquired was property of his employer. Section 2860, Labor Code, St.1937, p. 260, provides that aside from compensation due him from the employer, everything which an employee acquires by virtue of his employment belongs to the employer.

The leading case upon the question here involved is Empire Steam Laundry v. Lozier, 165 Cal. 95, 130 P. 1180, 44 L.R.A.,N.S., 1159, Ann.Cas.1914C, 628, where the court held that an agent has no right to use information obtained by him in the course of his employment and for the benefit of his employer, against the interest of the latter. Such use, the court said, was contrary to the good faith of the employment. There, the court quoted with approval from Witkop & Holmes Co. v. Boyce, 61 Misc. 126, 112 N.Y.S. 874, 878, where it was said that equity will restrain acts such as those here committed by defendants, and that this jurisdiction “arises out of a violation of duty having its origin in the relation of employer and employed, and an implied contract that an employé will not divulge confidential knowledge gained in the course of his employment, or use such information to his employer's prejudice.”

In 14 Cal.Jur., at page 198, it is said: “If a person establishes a trade or business which depends for its continuance upon keeping secret the names of customers * * * no agent or employee having been intrusted with such secrets in the course of his employment may thereafter utilize his secret knowledge against the interests or to the prejudice of such person. If he does so, he is said to rob his employer.”

In Santa Monica Ice & Cold Storage Co. v. Rossier, 42 Cal.App.2d 467, 109 P.2d 382, 384, the case of Empire Steam Laundry v. Lozier, supra, was referred to, and the court said: “The leading case in this state on the subject, Empire Steam Laundry v. Lozier * * * has been followed repeatedly, and no authority to the contrary is cited. The later cases, such as Gloria Ice Cream, etc., Co. v. Cowan, 2 Cal.2d 460, 41 P.2d 340, and Langendorf United Bakeries v. Phillips, 5 Cal.2d 150, 53 P.2d 363, complete an unanimous adherence to the rule.”

Other cases, in addition to those contained in the above quotation, which follow the rule laid down in the Empire Steam Laundry case, are: Cornish v. Dickey, 172 Cal. 120, 155 P. 629; New Method Laundry Co. v. MacCann, 174 Cal. 26, 161 P. 990, Ann.Cas.1918C, 1022; Mackechnie Bread Co. v. Huber, 60 Cal.App. 539, 213 P. 285; Pasadena Ice Co. v. Reeder, 206 Cal. 697, 275 P. 944, 276 P. 995; Golden State Milk Products Co. v. Brown, 217 Cal. 570, 20 P.2d 657; Dairy Dale Co. v. Azevedo, 211 Cal. 344, 295 P. 10; Scavengers' Protective Ass'n v. Serv–U–Garbage Co., 218 Cal. 568, 24 P.2d 489.

The factual situation in Gloria Ice Cream & Milk Co. v. Cowan, 2 Cal.2d 460, 41 P.2d 340, is similar to that in the case at bar. The decision there also disposes adversely to respondents of their contention, based on the case of Avocado Sales Co. v. Wyse, 122 Cal.App. 627, 10 P.2d 485, that knowledge of customers obtained under the circumstances shown here does not constitute information of a secret or confidential nature.

Respondents here place much stress upon the finding of the trial court that Tom Burdusis did not receive a list of customers from his employer. We find in none of these cases, as a requisite to relief, that the employee must have received directly from the hands of the employer a list of customers. While in many of the cases that have come before the courts, such a list was furnished the employee, none of these cases have turned upon that circumstance. In Pasadena Ice Co. v. Reeder, supra, the decision rested entirely upon the fact that the information was received by the employee in the course of his employment. In Dairy Dale Co. v. Azevedo, supra, it does not appear that a list of customers was furnished the employee, yet he was restrained. The same was true in Gloria Ice Cream & Milk Co. v. Cowan, supra. The case of Woolley's Laundry, Inc., v. Silva, 304 Mass. 383, 23 N.E.2d 899, 126 A.L.R. 752, cited by respondents, is recognized by the author of the note following it to be at variance with the rule in this state.

Furthermore, the finding that defendant, Tom Burdusis, did not receive any confidential knowledge or information as to the customers of plaintiffs from his employers, is not borne out by the evidence. We are not unmindful of the well established rule that where, upon a question of fact, there is a substantial conflict in the evidence, the action of the trial court will not be disturbed. Clark v. Abrams, 49 Cal.App.2d 497, 121 P.2d 750. Here, however, there is no conflict in the evidence. The defendants themselves testified, and this was not contradicted, that when defendant, Tom Burdusis, was first employed by Stone's Linen Supply Company, his brother, Aleck Burdusis, one of his employers, took him over the route for a period of two weeks and taught him the names of the customers. Some of these customers subsequently were lost, but others were added through the efforts of Tom Burdusis while in the employ of Stone's Linen Supply Company, under which name plaintiffs continued to operate after the withdrawal of Aleck Burdusis from the firm.

It is also the contention of respondents that because the names of the customers solicited by Tom Burdusis were to be found in the telephone directory, and were otherwise available to the general public, their identity is not of a confidential nature. But this contention is disposed of by our Supreme Court in Dairy Dale Co. v. Azevedo, supra, quoting in part from Pasadena Ice Co. v. Reeder, supra, in the following language:

“Obviously it is not merely the knowledge of the identity of the customers, but the friendly contact with them, which is important to the solicitors: ‘* * * They became personally acquainted with the customers * * * their respective places of residence, their peculiar likes and fancies and other characteristics, a knowledge of which would greatly aid them in securing and retaining the business of said former customers.’ ”

It is to be noted, too, that the trial court here found that “the business of serving customers is purely personal to the route man, and is obtained and held chiefly as a matter of friendly feeling between the customers and the man on the route.”

The finding challenged by appellants, that respondents did not enter into a conspiracy to deprive plaintiffs of their customers, was based by the trial court upon conflicting evidence. We are therefore bound by it. It follows that respondent Aleck Burdusis is not to be held responsible for the acts of Tom Burdusis.

The judgment as to respondent, Tom Burdusis, must be reversed.

Respondents contend, also, that in an action such as this, damages may not be recovered. They cite Olschewski v. Hudson, 87 Cal.App. 282, 262 P. 43, and Adkins v. Model Laundry Co., 92 Cal.App. 575, 268 P. 939, 941. Neither of these cases support their contention. In the former case it was held that section 3336, Civil Code, merely purports to fix the measure of damages in a proper case, but does not give a right of action where none existed otherwise. In the Adkins case, it is expressly stated that the case “was not an equitable action for injunctive relief to prohibit interference with the good will of a business, or confidential business relations affecting individual customers of a particular laundry route, under which circumstances damages are merely incidental to the injunctive relief which is sought.” The case here is just such an action as the Adkins case was not. Damages are incidental to the injunctive relief sought. Union Oil Co. v. Reconstruction Oil Co., 20 Cal.App.2d 170, 66 P.2d 1215.

The findings of the trial court that plaintiffs suffered no damage is not supported by the evidence, in view of the undisputed testimony that through the efforts of respondent, Tom Burdusis, alone, plaintiff lost over one hundred customers, on the route serving one hundred and fifty. It is inconceivable that this loss of business resulted in no financial loss to appellants.

The judgment as to respondent, Aleck Burdusis, is affirmed, and as to respondent, Tom Burdusis, the judgment is reversed, and remanded to the trial court, with directions to issue the injunction against respondent, Tom Burdusis, as prayed for, and to try the issue as to the amount of damages suffered by appellants by reason of the acts of said respondent, Tom Burdusis.

HELD, Justice pro tem.

THOMPSON, Acting P. J., and TUTTLE, J., concurred.