Tabs Associates, Inc. v. Brohawn
1984 Md. App. LEXIS 370, 59 Md.App. 330, 475 A.2d 1203 (1984)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Maryland law protects a business process as a trade secret even if it combines publicly known steps, provided the specific combination is unique, results from significant effort, provides a competitive advantage, and is kept secret. Restrictive covenants not to compete are enforceable against former employees, even without geographic limits, if they are reasonably necessary to protect the employer’s business interests, such as preventing the misuse of trade secrets or client lists, and do not impose undue hardship.
Facts:
- Tabs Associates, Inc. (Tabs) began operating a mail presorting business in Baltimore in 1977 and initially incurred significant operating losses.
- Over several years, Tabs developed a profitable business system, including a market selection process targeting specific banks and local governments, and an efficient physical mail sorting technique called the “kill-sort” method, which made it one of the few profitable presort mail businesses nationally.
- In 1980, Tabs documented its entire profitable operating system in a Standard Operating Procedures Manual, which it marked as a “trade secret” and kept in locked drawers.
- Tabs required its management employees, including Mary Brohawn who started as a mail clerk in 1980 and became an assistant supervisor, to sign an employment contract containing a covenant not to compete for three years (without geographic limitation) and a trade secrets agreement, and she had full access to Tabs' operations and customer information.
- Mary Brohawn was demoted on July 7, 1982, and immediately resigned from Tabs, and her husband, George Brohawn, who also worked for Tabs, resigned on the same day, although there was no evidence he signed an employment contract or trade secrets agreement.
- In the fall of 1982, George and Mary Brohawn started a competing mail presort business called PSM Associates (PSM), targeting the same types of customers (banks and local governments with high-density mailings) as Tabs.
- PSM contacted Tabs' customers, including First National Bank and Maryland National Bank, with George Brohawn representing PSM to offer competing presort mail services.
- Private investigators hired by Tabs observed George and Mary Brohawn directing or participating in mail presorting at PSM's office, including sorting mail for Maryland National Bank.
Procedural Posture:
- Tabs Associates, Inc. (Tabs) filed a petition in the Circuit Court for Anne Arundel County, in equity, seeking injunctive relief and damages against Mary Brohawn, George Brohawn, and PSM Associates (PSM).
- On May 9, 1983, the Circuit Court for Anne Arundel County issued an ex parte (one-sided) order enjoining all three appellees from operating PSM.
- On May 17, 1983, following a closed hearing, another judge in the Circuit Court for Anne Arundel County signed an interlocutory injunction order (temporary order) against Mary Brohawn only, preventing her from contacting PSM, and ordered that testimony and exhibits from the hearing be sealed.
- On May 27 and 29, 1983, a final hearing was held before a third circuit court judge.
- At the close of Tabs’ presentation of its case, the appellees’ motion to dismiss was granted by the trial court.
- Tabs’ subsequent motion for reconsideration was denied.
- Tabs, as appellant, filed an appeal to the Maryland Court of Special Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
1. Did the trial court err in ruling that Tabs Associates, Inc. (Tabs) failed to establish a prima facie case based on a violation of a legally enforceable covenant not to compete by Mary Brohawn? 2. Did the trial court err in ruling that Tabs failed to establish a prima facie case based on a violation of a legally enforceable trade secrets agreement by Mary and George Brohawn? 3. Did the trial court err by relying on evidence not on the record when granting the appellees’ motion to dismiss?
Opinions:
Majority - Liss, Judge
1. Yes, the trial court erred in ruling that Tabs failed to establish a prima facie case based on a violation of a legally enforceable covenant not to compete. Maryland law upholds restrictive covenants in employment contracts if they are supported by adequate consideration, are ancillary to the employment, and are no wider in area and duration than reasonably necessary for the employer's business protection without imposing undue hardship on the employee or disregarding public interest. Mary Brohawn, as an assistant supervisor, had unique services or the potential to misuse trade secrets and client lists, which are valid grounds for enforcement. The unrebutted testimony indicated that PSM, founded by the Brohawns, contacted Tabs' customers, including Maryland National Bank. The trial court's unsupported inference that PSM and Tabs served different branches of the same bank, or that Mary Brohawn's business was in a non-competitive location, was contrary to the evidence presented. The lack of an explicit geographic limitation in the covenant is not fatal if it reasonably protects the employer's rights without unduly burdening the employee, especially when direct customer contact and potential client diversion are involved. 2. Yes, the trial court erred in ruling that Tabs failed to establish a prima facie case based on a violation of a legally enforceable trade secrets agreement. Maryland courts recognize a common law fiduciary duty for former employees not to disclose proprietary information, even without a specific contract. Tabs presented substantial evidence that its two-pronged system (market selection and 'kill-sort' method) constituted a protectable trade secret. This process was unique, developed with significant investment, kept secret through various measures (manuals, employee agreements, facility security), and was the source of Tabs' profitability in a struggling industry. A combination of publicly known steps can form a trade secret if their selection, order, and conjunction are unique and provide a competitive advantage. The trial court erroneously dismissed this claim by labeling the process as 'common sense' without properly applying the established six-factor test for trade secret determination. The evidence showed PSM was utilizing an identical process and targeting Tabs' customers, implying misuse of Tabs' proprietary information acquired by Mary Brohawn. 3. Yes, the trial court erred by relying on evidence not on the record when granting the appellees’ motion to dismiss. When ruling on a motion to dismiss, the trial judge must consider all evidence and all logical and reasonable inferences in the light most favorable to the plaintiff. The trial judge's conclusions that Tabs' process was widely used, taught by the Post Office, or performed by bigger companies independently, or that there was no competition between Tabs and PSM (except for Maryland National Bank), were factual assertions not supported by the record presented during Tabs' case. Such reliance on extra-record information constituted clear error.
Analysis:
This case significantly clarifies the breadth of trade secret protection in Maryland, particularly for business processes that are not inherently innovative in each individual step but become unique and valuable through their specific combination and application. It emphasizes that substantial investment, efforts to maintain secrecy, and demonstrated competitive advantage can elevate seemingly 'common sense' methods into protectable trade secrets. Furthermore, the decision underscores the judiciary's obligation to rule on motions to dismiss based strictly on the evidence presented in the record, preventing judges from injecting their own unsupported factual conclusions. It also reinforces the enforceability of reasonable restrictive covenants designed to protect such proprietary information and customer relationships, even when lacking explicit geographic limits, if the employee's role involved unique access to the employer's core business assets.
