IN THE SUPREME COURT OF CALIFORNIA
ROBERT L. REEVES et al.,
Plaintiffs
and
Respondents,
S114811
v.
Ct.App. 2/4 B151460
DANIEL P. HANLON et al.,
Los Angeles County
Defendants and Appellants.
Super. Ct. No. GC023679
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 (Korea Supply))—that induced the at-will employee to
leave the plaintiff.
1
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.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs Robert L. Reeves and Robert L. Reeves & Associates, A
Professional Law Corporation, brought the instant lawsuit against defendants
Daniel P. Hanlon, Colin T. Greene, and Hanlon & Greene, A Professional
Corporation (H&G). The operative complaint included the following allegations:
In 1995, Reeves’s law firm, which emphasized immigration law and litigation,
employed Hanlon as an attorney. In 1997, the firm employed Greene as an
associate attorney. In 1998, Reeves entered into an agreement with Hanlon
whereby Hanlon could earn an equity position in a law firm to be formed;
thereafter, the firm’s name was changed to “Reeves and Hanlon, Professional Law
Corporation.” On or about June 30, 1999, both Hanlon and Greene resigned from
Reeves’s firm without notice or warning. They improperly persuaded plaintiffs’
employees to join H&G, personally solicited plaintiffs’ clients to discharge
plaintiffs and to instead obtain services from H&G, misappropriated plaintiffs’
trade secrets, destroyed computer files and data, and withheld plaintiffs’ property,
including a corporate car. The complaint asserted 14 causes of action, including
2
intentional interference with contractual relationships, interference with
prospective business opportunity, conspiracy to interfere with prospective
economic advantage, misappropriation of confidential information in violation of
the UTSA, unauthorized use of a corporate car, and destruction of corporate
property.1
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
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.
3
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.
4
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.
DISCUSSION
A. Intentional Interference with At-Will Employment Relations
Preliminarily, we state what is not at issue here. We have not been asked to
review the propriety of the determinations by the trial court and the Court of
Appeal that defendants are liable to plaintiffs for their tortious interference with
plaintiffs’ client relations and prospective client opportunities. Accordingly, we
accept in full the Court of Appeal’s conclusion that “[t]here is direct evidence that
[Hanlon’s and Greene’s] departure was calculated to cripple the Reeves firm’s
ability to provide legal services: they left abruptly, damaged computer files,
removed firm property, and failed to provide adequate guidance concerning their
open cases. [¶] There is also evidence indicating that Hanlon and Greene phoned
far more clients than the 40 or so clients they admitted to contacting, and [that]
they exploited these clients’ lack of facility with English and ignored their rights
concerning the selection of counsel [citation].”
While the issue here does concern defendants’ interference with plaintiffs’
employee relations, we emphasize the following matters also are not in dispute.
First, it is not disputed that the nine employees who left Reeves’s firm, including
the six who joined H&G, had employment relationships with plaintiffs that they
could terminate at will. Second, we accept as undisputed the Court of Appeal’s
conclusion that the record contains substantial evidence that defendants “mounted
5
a campaign against the Reeves firm involving destruction of computer records,
misuse of confidential information, and unethical conduct, of which the cultivation
of employee discontent was only a component. This campaign unfairly impaired
the Reeves firm’s ability to retain its employees.” Third, we accept the Court of
Appeal’s additional determination that the record contains substantial evidence
that plaintiffs incurred expenses, above the historical baseline, of $20,009.19 for
employee recruitment to mitigate damages.2
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 (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.
We start by observing that, in California, the law is settled that “a stranger
to a contract may be liable in tort for intentionally interfering with the
performance of the contract.” (Pacific Gas & Electric Co. v. Bear Stearns & Co.
(1990) 50 Cal.3d 1118, 1126, and cases cited.) To prevail on a cause of action for
intentional interference with contractual relations, a plaintiff must plead and prove
(1) the existence of a valid contract between the plaintiff and a third party; (2) the
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.
6
defendant’s knowledge of that contract; (3) the defendant’s intentional acts
designed to induce a breach or disruption of the contractual relationship; (4) actual
breach or disruption of the contractual relationship; and (5) resulting damage.
(Ibid.) To establish the claim, the plaintiff need not prove that a defendant acted
with the primary purpose of disrupting the contract, but must show the defendant’s
knowledge that the interference was certain or substantially certain to occur as a
result of his or her action. (Quelimane Co. v. Stewart Title Guaranty Co. (1998)
19 Cal.4th 26, 56.)
May the tort of interference with contractual relations be predicated upon
interference with an at-will contract? Historically, the answer is yes. A third
party’s “interference with an at-will contract is actionable interference with the
contractual relationship” because the contractual relationship is at the will of the
parties, not at the will of outsiders. (Pacific Gas & Electric Co. v. Bear Stearns &
Co., supra, 50 Cal.3d at p. 1127; Speegle v. Board of Fire Underwriters (1946) 29
Cal.2d 34, 39.)
More specifically, may such tort be based on interference with an at-will
employment relationship? Again, historically, the answer is yes. (E.g., Savage v.
Pacific Gas & Electric Co. (1993) 21 Cal.App.4th 434, 448 [tort of interference
with contractual relations may be based on an at-will employment contract];
Kozlowsky v. Westminster Nat. Bank (1970) 6 Cal.App.3d 593, 598 [“the fact that
the Bank was privileged to discharge plaintiff at any time does not necessarily
privilege a third party unjustifiably to induce the termination”].)
As reflected in our decisional and statutory law, however, it has long been
the public policy of our state that “[a] former employee has the right to engage in a
competitive business for himself and to enter into competition with his former
employer, even for the business of . . . his former employer, provided such
competition is fairly and legally conducted.” (Continental Car-Na-Var Corp. v.
7
Moseley (1944) 24 Cal.2d 104, 110; Bus. & Prof. Code, § 16600 [generally
recognizing as void any agreement “by which anyone is restrained from engaging
in a lawful profession, trade, or business of any kind”].) Consistent with this
policy favoring competition, decisions involving parties in competition readily
indicate that certain competitive conduct is nonactionable when it interferes with
the at-will contract relations of another. Buxbom v. Smith (1944) 23 Cal.2d 535
(Buxbom), for example, explained that “where the means of interference involve
no more than recognized trade practices such as advertising or price-cutting, the
plaintiff’s loss as a result of the competitive strife is deemed damnum absque
injuria.” (Id. at p. 546; see San Francisco Design Center Associates v. Portman
Companies (1995) 41 Cal.App.4th 29, 41 [the privilege of competition is
inapplicable to interference with an existing contract unless the contract is
terminable at will].)
More to the point here, Buxbom observed that “it is not ordinarily a tort to
hire the employees of another for use in the hirer’s business.” (Buxbom, supra, 23
Cal.2d at p. 547.) As Buxbom explained, however, this general rule is subject to
one significant limitation: “This immunity against liability is not retained . . . if
unfair methods are used in interfering in such advantageous relations.” (Ibid.) In
Buxbom, the record established that the defendant gained an unfair advantage over
the plaintiff through “deceptive dealings” (ibid.) and “false promises” made in
connection with a distribution contract between the parties that the defendant had
no intention of performing (id. at p. 548).3 He “deliberately induced the plaintiff
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.) Although the Buxbom opinion refers sometimes to both defendants, and at
(footnote continued on next page)
8
to build up his distributing organization” to perform the contract and in a matter of
weeks became the plaintiff’s sole customer. (Id. at p. 547.) Once the defendant
acquired this strategic position, he breached the distribution contract “to cut off the
work required to sustain plaintiff’s organization” and “to prevent plaintiff from
competing effectively for the retention of [his] employees.” (Id. at p. 548.)
Buxbom first indicated that the defendant’s breach of the distribution
contract was “a wrong and in itself actionable,” but then proceeded to find the
breach also constituted “an unfair method of interference with advantageous
relations.” (Buxbom, supra, 23 Cal.2d at p. 548.) Its reasoning was this:
“Although defendant’s conduct may not have been tortious if he had merely
broken the contract and subsequently decided to hire plaintiff’s employees,” he
was “guilty of a tortious interference in the relationship between the plaintiff and
his employees” because he “intentionally utilized” the breach of the distribution
contract “as the means of depriving plaintiff of his employees.” (Ibid.)
Subsequent to Buxbom, the court in Diodes, Inc. v. Franzen (1968) 260
Cal.App.2d 244 (Diodes) reiterated the so-called privilege of competition, as
applied in the context of employment relations, as follows: “Even though the
relationship between an employer and his employee is an advantageous one, no
actionable wrong is committed by a competitor who solicits his competitor’s
employees or who hires away one or more of his competitor’s employees who are
not under contract, so long as the inducement to leave is not accompanied by
unlawful action.” (Id. at p. 255.) “However, if either the defecting employee or
(footnote continued from previous page)
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.
9
the competitor uses unfair or deceptive means to effectuate new employment, or
either of them is guilty of some concomitant, unconscionable conduct, the injured
former employer has a cause of action to recover for the detriment he has thereby
suffered.” (Ibid.; see also Metro Traffic Control, Inc. v. Shadow Traffic Network
(1994) 22 Cal.App.4th 853, 860 (Metro) [“[a]s a competitor of Metro, absent a
showing of unlawful purpose or means, Shadow is privileged and not liable for
inducing Metro’s employees to leave and move to Shadow”].)
Strictly speaking, the foregoing authorities did not address the matter of
competition in suits involving causes of action for intentional interference with at-
will employment relations; rather, those cases involved breach of fiduciary duty
claims (Diodes), claims for injunctive relief based on contractual noncompete
clauses and trade secrets allegations (Metro), or claims for damages sustained in
conjunction with a breach of contract (Buxbom).4
Nonetheless, the same considerations support similar limitations for actions
alleging interference with an at-will employment relation. Where no unlawful
methods are used, public policy generally supports a competitor’s right to offer
more pay or better terms to another’s employee, so long as the employee is free to
leave. As Judge Learned Hand observed long ago, if the law were to the contrary,
the result “would be intolerable, both to such employers as could use the
employe[e] more effectively and to such employe[e]s as might receive added pay.
4
Although the plaintiff in Buxbom was awarded damages of $4,000 for the
loss of his trained organization, supervisors, goodwill, and general damages to his
business, the decision observed that such items could not be a proper element of
damages for the defendants’ breach of the distribution contract at issue. (Buxbom,
supra, 23 Cal.2d at pp. 540-541.) Nonetheless, Buxbom affirmed the damages
award because the plaintiff’s complaint sufficiently alleged “loss occasioned by
the [defendants’] tortious acts” and the relief awarded was “commensurate with
the injuries shown to have been sustained.” (Id. at p. 543.)
10
It would put an end to any kind of competition.” (Triangle Film Corp. v. Artcraft
Pictures Corp. (2d Cir. 1918) 250 F. 981, 982.) Or as Diodes put it: “The
interests of the employee in his own mobility and betterment are deemed
paramount to the competitive business interests of the employers, where neither
the employee nor his new employer has committed any illegal act accompanying
the employment change.” (Diodes, supra, 260 Cal.App.2d at p. 255.)
Moreover, the economic relationship between parties to contracts that are
terminable at will is distinguishable from the relationship between parties to other
legally binding contracts. We have explained the policy generally protecting
contracts this way: “The courts provide a damage remedy against third party
conduct intended to disrupt an existing contract precisely because the exchange of
promises resulting in such a formally cemented economic relationship is deemed
worthy of protection from interference by a stranger to the agreement. Economic
relationships short of contractual, however, should stand on a different legal
footing as far as the potential for tort liability is reckoned.” (Della Penna v.
Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392.)
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
11
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.
We observe that in California, both of these torts protect the public interest
in stable economic relationships and both share the same intent requirement.
(Korea Supply, supra, 29 Cal.4th at p. 1157 [defendant must know that
interference was certain or substantially certain to occur as a result of its action].)
But while many of the elements of the two torts are similar,6 a plaintiff seeking to
recover for interference with prospective economic advantage must also plead and
prove that the defendant engaged in an independently wrongful act in disrupting
the relationship. (Korea Supply, supra, 29 Cal.4th at p. 1158.) In this regard, “an
act is independently wrongful if it is unlawful, that is, if it is proscribed by some
5
We have in the past acknowledged the Restatement’s view and observed
that certain judicial and other authorities also have treated claims of interference
with contracts terminable at will (and with voidable contracts) as coming within
the cause of action for interference with prospective advantage. (Pacific Gas &
Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d at p. 1128, fn. 4.) Although
we suggested it may be preferable not to distinguish the two as separate torts, we
left the matter open. (Ibid.)
6
To prevail on a cause of action for intentional interference with prospective
economic advantage in California, a plaintiff must plead and prove (1) an
economic relationship between the plaintiff and some third party, with the
probability of future economic benefit to the plaintiff; (2) the defendant’s
knowledge of the relationship; (3) the defendant’s intentional acts designed to
disrupt the relationship; (4) actual disruption of the relationship; and (5) economic
harm to the plaintiff proximately caused by the defendant’s acts. (Youst v. Longo
(1987) 43 Cal.3d 64, 71, fn. 6.)
12
constitutional, statutory, regulatory, common law, or other determinable legal
standard.” (Ibid., fn. omitted.)
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)—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, 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.) Before leaving the plaintiff, he successfully recruited several of the
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.
13
plaintiff’s employees to join the competitor with him. (Id. at pp. 414-415.) 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.
Finding that the trial court erred prejudicially in refusing to instruct the jury
that the regional vice-president was a fiduciary of the plaintiff as a matter of law,
GAB reversed the judgment with respect to both the breach of fiduciary duty and
unfair competition causes of action. But GAB further held that the plaintiff could
not, as a matter of law, maintain a cause of action for interference with its at-will
employment contracts, even though breaches of fiduciary duty and unfair
competition may have occurred. Although previous decisions had recognized
tortious interference claims brought by employees to redress interference with their
at-will employment relationships, GAB found significant the apparent lack of case
law expressly authorizing employers to assert such claims. (GAB, supra, 83
Cal.App.4th at p. 427; but see Buxbom, supra, 23 Cal.2d 535.) GAB concluded
that to “expand” the tort to include employer claims would “invite innumerable
lawsuits,” undermine California’s strong public policy supporting the mobility and
betterment of employees, and chill employment opportunities. (83 Cal.App.4th at
pp. 427-428.) Although GAB professed its reluctance “to condone unfair or
unlawful conduct among employers competing for talented employees,” it
believed the “tort of unfair competition” could adequately address that problem.8
(GAB, supra, at p. 428.)
8
It may be inferred from the facts of GAB and the authority to which GAB
cites (Bancroft-Whitney Co. v. Glen (1966) 64 Cal.2d 327) that the “tort of unfair
competition,” so indicated, refers to a theory of liability premised upon an
employee’s breach of fiduciary duty to the plaintiff. (GAB, supra, 83 Cal.App.4th
at p. 425; Bancroft-Whitney Co. v. Glen, supra, 64 Cal.2d at pp. 352-353.)
14
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; Diodes, supra, 260
Cal.App.2d 244; see Buxbom, supra, 23 Cal.2d 535.) 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.
15
v. Lindsey & Newsom Claim Services, Inc., supra, 83 Cal.App.4th 409, 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, at pp. 5-6 & 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.
16
B. Violations of the UTSA
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.) 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 (American
Credit)) or to otherwise attain an unfair competitive advantage (see Morlife, supra,
56 Cal.App.4th at p. 1523).
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.
17
Under defendants’ authorities, although an individual may violate the
UTSA by using a former employer’s confidential client list to solicit clients, the
UTSA does not forbid an individual from announcing a change of employment,
even to clients on a protected trade secret client list. (American Credit, supra, 213
Cal.App.3d at pp. 634-636; see Hilb, Rogal & Hamilton Ins. Services v. Robb
(1995) 33 Cal.App.4th 1812, 1821; accord, MAI Systems Corp. v. Peak Computer,
Inc. (9th Cir. 1993) 991 F.2d 511, 521-522 [applying California law].) As one
decision explains, merely announcing a new business affiliation, without more, is
not prohibited by the UTSA definition of misappropriation because such conduct
is “basic to an individual’s right to engage in fair competition.” (American Credit,
supra, 213 Cal.App.3d at p. 636; cf. Aetna Bldg. Maintenance Co. v. West (1952)
39 Cal.2d 198, 204 [stating the common law rule].)
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
18
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.
DISPOSITION
The judgment of the Court of Appeal is affirmed.
BAXTER, J.
WE CONCUR:
GEORGE, C.J.
KENNARD, J.
WERDEGAR, J.
CHIN, J.
BROWN, J.
MORENO, J.
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.
19
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Reeves v. Hanlon
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 106 Cal.App.4th 433
Rehearing Granted
__________________________________________________________________________________
Opinion No.
S114811Date Filed: August 12, 2004
__________________________________________________________________________________
Court:
SuperiorCounty: Los Angeles
Judge: Jan A. Pluim
__________________________________________________________________________________
Attorneys for Appellant:
Dwyer, Daly, Brotzen & Bruno, Toni Rae Bruno, Marlin D. Wall and Ilan A. Charnelle for Defendants andAppellants.
Deborah J. La Fetra and Timothy Sandefur for Pacific Legal Foundation as Amicus Curiae on behalf of
Defendants and Appellants.
__________________________________________________________________________________
Attorneys for Respondent:
Ballard, Rosenberg, Golper & Savitt, John J. Manier, Linda C. Miller Savitt; Arter & Hadden, David
Gurnick, Sue Bendavid-Arbiv; Robert L. Reeves & Associates, Robert L. Reeves, Robert J. DuPont and
Richard M. Wilner for Plaintiffs and Respondents.
20
Counsel who argued in Supreme Court (not intended for publication with opinion):
Toni Rae BrunoDwyer, Daly, Brotzen & Bruno
550 South Hope Street, Suite 1900
Los Angeles, CA 90071-2632
(231) 627-9300
John J. Manier
Ballard, Rosenberg, Golper & Savitt
10 Universal City Plaza, Sixteenth Floor
Universal City, CA 91608-1097
(818) 508-3700
21
Date: | Docket Number: |
Thu, 08/12/2004 | S114811 |
1 | Hanlon, Daniel P. (Defendant and Appellant) Represented by Toni Rae Bruno Dwyer Daly Brotzen & Bruno, LLP 550 S Hope St #1900 Los Angeles, CA |
2 | Hanlon, Daniel P. (Defendant and Appellant) Represented by Ilan Adam Charnelle Attorney at Law 550 S. Hope St #1900 Los Angeles, CA |
3 | Reeves, Robert L. (Plaintiff and Respondent) Represented by John J. Manier Ballard Rosenberg Golper & Savitt, LLP 10 Universal City Plz #1650 Universal City, CA |
4 | Reeves, Robert L. (Plaintiff and Respondent) Represented by Linda Johnson Savitt Ballard Rosenberg Golper & Savitt, LLP 10 Universal City Plz 16FL Universal City, CA |
5 | Pacific Legal Foundation (Amicus curiae) Represented by Deborah Joyce Lafetra Pacific Legal Foundation 3900 Lennane Drive, ste. 200 Sacramento, CA |
6 | Pacific Legal Foundation (Amicus curiae) Represented by Timothy Mason Sandefur Pacific Legal Foundation 3900 Lennane Drive, Ste. 200 Sacramento, CA |
Disposition | |
Aug 12 2004 | Opinion: Affirmed |
Dockets | |
Apr 1 2003 | Petition for review filed appellants Daniel P. Hanlon, Colin T. greene and Hanlon & Greene |
Apr 4 2003 | Record requested |
Apr 7 2003 | Received Court of Appeal record one doghouse. |
May 16 2003 | Time extended to grant or deny review to and including June 30, 2003, or the date upon which review is either granted or denied. |
Jun 11 2003 | Petition for Review Granted (civil case) Votes George, C.J., Kennard, Baxter, Werdegar, Chin, Brown, Moreno, JJ. |
Jun 23 2003 | Certification of interested entities or persons filed counsel for appellant, firm of Dwyer, Daly, Brotzen & Bruno, LLP. |
Jun 30 2003 | Request for extension of time filed counsel for appellant (Hanlon) requests extension to July 31, 2003 to file the opening brief. *** granted *** |
Jul 9 2003 | Extension of time granted appellant's time to serve and file the opening brief is extended to and including July 31, 2003. |
Jul 23 2003 | Filed: by counsel for Respondents (Reeves) Substitution of Co-Counsel |
Aug 1 2003 | Opening brief on the merits filed by counsel for appellants Daniel P. Hanlon, et al. (40K) |
Aug 19 2003 | Request for extension of time filed for resps to file the answer brief on the merits, to 10-2-03 |
Aug 22 2003 | Extension of time granted Respondent's time to serve and file the answer brief is extended to and including October 2, 2003. No further extensions are contemplated. |
Oct 2 2003 | Answer brief on the merits filed respondents Robert L. Reeves, etal |
Oct 16 2003 | Request for extension of time filed reply brief/merits to 11-6-03>>appellants Daniel P. Hanlon, etal |
Oct 23 2003 | Extension of time granted Appellant's time to serve and file the reply brief on the merits is extended to and including November 6, 2003. |
Nov 7 2003 | Reply brief filed (case fully briefed) appellants Daniel P. Hanlon [40k} |
Nov 12 2003 | Received: notice of errata to reply brief/merits>>appellants Daniel P. Hanlon, etal |
Dec 1 2003 | Received application to file amicus curiae brief; with brief Pacific Legal Foundation |
Dec 4 2003 | Amicus curiae brief filed Pacific Legal Foundation. An answer thereto may be served and filed by any party within twenty days of the filing of the brief. |
Dec 4 2003 | Permission to file amicus curiae brief granted Pacific Legal Foundation in support of appellants |
Dec 24 2003 | Response to amicus curiae brief filed respondents Robert L. Reeves, etal |
Mar 3 2004 | 2nd record request remaining records (2 doghouses) |
Mar 3 2004 | Received Court of Appeal record 2 doghouses |
Apr 28 2004 | Case ordered on calendar 6-2-04, 9am, L.A. |
Apr 29 2004 | Change of contact information filed for: counsel for amicus curiae Pacific Legal Foundation |
May 20 2004 | Filed letter from: counsel for appellant Hanlon, of supplemental authority. |
May 21 2004 | Filed: supplemental authorities by counsel for resp. (Robert Reeves, etal.,) |
Jun 2 2004 | Cause argued and submitted |
Aug 12 2004 | Opinion filed: Judgment affirmed in full OPINION BY: Baxter, J. --- joined by: George, C. J., Kennard, Werdegar, Chin, Brown, Moreno, JJ. |
Sep 7 2004 | Received: from counsel for resp. (Reeves) Letter re: possible typographical error in the opinion. |
Sep 14 2004 | Remittitur issued (civil case) |
Sep 21 2004 | Received: receipt for remittitur from CA 2/4 |
Briefs | |
Aug 1 2003 | Opening brief on the merits filed |
Oct 2 2003 | Answer brief on the merits filed |
Nov 7 2003 | Reply brief filed (case fully briefed) |
Dec 4 2003 | Amicus curiae brief filed |
Dec 24 2003 | Response to amicus curiae brief filed |