Town & Country House & Home Service, Inc. v. Newbery
3 N.Y.2d 554 (1958)
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Rule of Law:
A list of customers is a protectable trade secret if the customers are not readily ascertainable through public means and were discovered only through the employer's considerable investment of time, effort, and money.
Facts:
- Town & Country House & Home Service, Inc. (Town & Country) operated a specialized home cleaning business using teams of workers.
- Town & Country developed its customer base through a laborious and expensive screening process, involving random telephone calls to find households interested in its unique service; for example, 200-300 calls would yield only 8-12 customers.
- Percy Newbery, Colagrande, and Sordini (the individual appellants) were at-will employees of Town & Country for approximately three years.
- While still employed by Town & Country, but during their off-hours, the employees met to plan the formation of a competing house cleaning business.
- Before resigning, the employees formed a corporation and purchased equipment for their new venture.
- After terminating their employment with Town & Country, the former employees began their competing business.
- The only customers the former employees solicited were those on Town & Country's list, and they successfully persuaded approximately 13 of these customers to switch their patronage.
Procedural Posture:
- Town & Country House & Home Service, Inc. sued its former employees and their new corporation in the New York Supreme Court, Special Term (the trial court of first instance), alleging unfair competition and seeking an injunction and damages.
- The Special Term dismissed the complaint in its entirety.
- Town & Country, as appellant, appealed the dismissal to the Appellate Division of the Supreme Court (the intermediate appellate court).
- The Appellate Division reversed the trial court's order, finding that the defendants had conspired against their employer, and directed judgment in favor of the plaintiff.
- The defendants, now as appellants, appealed the Appellate Division's reversal to the Court of Appeals of New York (the state's highest court).
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Issue:
Does a list of customers, developed through significant and costly screening efforts and not publicly ascertainable, constitute a protectable trade secret that former at-will employees are prohibited from soliciting for a competing business, even in the absence of a non-compete agreement?
Opinions:
Majority - Van Voorhis, J.
Yes. A customer list constitutes a protectable trade secret when its patrons are not readily ascertainable and were secured through significant business effort and expense. The court reasoned that while former employees are generally free to compete with a former employer, they may not do so using confidential information that amounts to a trade secret. A key distinction is made between customers who are openly engaged in business at advertised locations and those, like Town & Country's, who were 'screened' at great effort and expense and whose willingness to purchase the service could not otherwise be known. This laborious discovery process imbued the customer list with the quality of a trade secret, representing the company's goodwill. The court distinguished this case from Duane Jones Co. v. Burke, finding that the employees' actions of planning their new business on their own time did not rise to the level of a conspiracy to destroy their employer's business. Therefore, while the employees could not be enjoined from competing altogether, they could be enjoined from soliciting the specific customers on their former employer's confidential list.
Analysis:
This decision solidifies the principle that a customer list can be a legally protectable trade secret under common law, even without an express contractual non-solicitation clause. The case establishes that the key determinant is not the list itself, but the manner in which it was created. By focusing on the significant effort and resources invested to identify customers who are not 'readily ascertainable,' the court created a durable standard that protects a company's goodwill and investment. This precedent forces courts to analyze the nature of the customer base in unfair competition cases, differentiating between easily found commercial clients and specially cultivated, non-public ones, thereby balancing an employee's right to earn a living with an employer's right to protect valuable, confidential assets.
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