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Morlife, Inc. v. Perry

California Court of Appeal
56 Cal. App. 4th 1514, 97 Daily Journal DAR 10589, 66 Cal. Rptr. 2d 731 (1997)
ELI5:

Rule of Law:

A customer list constitutes a protectable trade secret under the Uniform Trade Secrets Act (UTSA) if it holds independent economic value from not being generally known and is subject to reasonable efforts to maintain its secrecy; a former employee's use of such a list to actively solicit customers for a competing business is an illegal misappropriation.


Facts:

  • Morlife, Inc. was in the specialized business of commercial roof repair and maintenance.
  • Lloyd Perry, a sales representative, and Carl Bowersmith, a production manager, were key employees at Morlife.
  • During his employment, Perry signed an agreement promising not to disclose or use confidential information about Morlife's customers after his employment ended.
  • In October 1993, Perry and Bowersmith resigned from Morlife to form a competing company, Burlingame Builders, Inc.
  • Upon leaving, Perry took his collection of customer business cards, which represented approximately 75 to 80 percent of Morlife's customer base.
  • Perry and Bowersmith used the information from the business cards to actively solicit Morlife's customers for their new company through letters, phone calls, and personal visits.
  • As a result of their solicitation, 32 of Morlife's former customers transferred their business to Burlingame.

Procedural Posture:

  • Morlife, Inc. sued its former employees, Lloyd Perry and Carl Bowersmith, along with their new company, Burlingame Builders, Inc., in a state trial court.
  • The complaint alleged misappropriation of trade secrets under the UTSA and unfair competition.
  • Following a nonjury trial, the trial court found in favor of Morlife.
  • The trial court determined the customer list was a trade secret, awarded Morlife $39,293.47 in damages for unjust enrichment, and granted a permanent injunction against the defendants.
  • Perry, Bowersmith, and Burlingame, as appellants, appealed the trial court's judgment to the California Court of Appeal.

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Issue:

Does a former employee's use of a confidential customer list, developed through the employer's time and effort, to solicit business for a new competing company constitute misappropriation of a trade secret under the Uniform Trade Secrets Act (UTSA)?


Opinions:

Majority - Ruvolo, J.

Yes, a former employee's use of a confidential customer list to solicit business for a new competing company constitutes misappropriation of a trade secret. The court affirmed the trial court's decision, holding that Morlife's customer list qualified as a trade secret under the UTSA's two-prong test. First, the list derived independent economic value from not being generally known, as Morlife had expended considerable time and money to identify specific customers with particular needs, which was not readily ascertainable public information. Second, Morlife took reasonable steps to maintain the list's secrecy through restricted-access computer storage, confidentiality agreements, and an employee handbook. The court found that appellants' active solicitation of these customers constituted 'use' and therefore misappropriation under the UTSA, distinguishing it from merely announcing a change of employment. The court explicitly rejected the reasoning in Moss, Adams & Co. v. Shilling, which suggested an employee's personal relationship with a customer negates trade secret status, instead endorsing the view that such information is the property of the employer who invested in its development.


Concurring - Haerle, J.

Yes, but reluctantly. The author concurred with the majority's conclusion only because the trial court's finding that the customer list was a trade secret was supported by substantial evidence, albeit by a 'very slim margin.' He expressed significant trepidation that the ruling could infringe upon the fundamental right of employees to leave and fairly compete with a former employer. The author was troubled by the breadth of the injunction, which was based on testimony from only a few of the 32 customers who switched, and by its permanent nature. He noted that Perry only took business cards and his memory, not a formal computer database, and suggested that the evidence of secrecy and non-public knowledge was weak.



Analysis:

This decision solidifies that customer lists developed through an employer's significant effort are protectable trade secrets under the UTSA, even if the information exists in an employee's memory or on collected business cards. By explicitly rejecting the Moss, Adams precedent, the court strengthened employers' ability to protect their client base from departing employees, clarifying that a personal service relationship with a customer does not grant the employee the right to solicit them using proprietary information. This case establishes a clearer boundary between permissible competition (using general skills) and unlawful misappropriation (using protected customer data for active solicitation), influencing how non-compete and confidentiality agreements are litigated in California.

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