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Lamorte Burns & Co., Inc. v. Walters

May 14, 2001


The opinion of the court was delivered by: LaVECCHIA, J.

Chief Justice Poritz PRESIDING

Argued March 12, 2001

In this case, we consider whether an employee has incurred liability for activities undertaken to plan and prepare for future employment in a newly created business entity established by the employee to compete directly with his current employer. Plaintiff, Lamorte Burns & Co. (Lamorte), filed suit against two of its former employees, Michael Walters and Nancy Nixon, in connection with their conduct in establishing a competing business. Plaintiff's complaint charged that Walters breached the restrictive covenant clauses of his employment agreement, and that both Walters and Nixon breached their duty of loyalty, tortiously interfered with Lamorte's economic advantage, misappropriated its confidential and proprietary information, and competed unfairly.

The trial court granted plaintiff's motion for summary judgment as to liability only. After a hearing, the trial court awarded $232,684 in compensatory damages and an additional $62,816.23 in punitive damages covering counsel fees and costs. In an unpublished opinion, the Appellate Division agreed that Walters had breached his employment contract, but reversed that part of the decision that granted plaintiff summary judgment on its tort claims. The court reasoned that there were disputed facts concerning the confidential and proprietary nature of the information defendants had taken from plaintiff, as well as issues concerning whether defendants' conduct was acceptable competitive behavior or malicious and in violation of the "rules of the game" of the parties' business. We granted certification, 165 N.J. 605 (2000), and now reverse, in part, and reinstate the trial court's judgment sustaining plaintiff's tort claims.



We regard the facts as not significantly in dispute. Where they are, we accord all inferences in favor of defendant as this matter is before us on an appeal from a motion for summary judgment. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 (1995). Lamorte has been in the business of investigating and adjusting claims for both marine and nonmarine liability insurers, their associations, and owners, in the United States and abroad since 1938. Incorporated in Delaware, Lamorte has its principal place of business in Wilton, Connecticut, and maintains a New Jersey office in Clark. The Clark office opened in 1986 chiefly to handle two types of marine insurance claims: protection and indemnity claims (P & I claims) consisting essentially of personal injury claims and federal longshore and harbor workers' compensation claims.

Walters met Nixon in the Clark office, where they both worked on P & I claims. When Walters arrived at Lamorte in 1990, Nixon had already established herself at the company. Walters, on the other hand, was recruited from out of state by Lamorte's President, Harold J. Halpin, to manage the Clark office, handle P & I claims, and supervise other employees, including Nixon. Walters, an attorney, had experience in the field. He previously had been employed in the P & I division of St. Paul Fire & Marine Insurance Company in Ohio, and before that, in the admiralty department of a Florida law firm.

Lamorte entrusted Walters with substantial responsibility. Lamorte introduced Walters to many of its existing clients, but expected him to locate, establish, and maintain new clients. Because of his prior work, Walters knew many insurance carriers and P & I associations that offered P & I coverage. As it turned out, Walters proved successful at soliciting and establishing new business; he claims to have brought in thirty new clients to Lamorte.

Approximately one month after Walters's arrival at Lamorte, Halpin asked him to sign an employment agreement. The relevant paragraphs of that agreement stated as follows:

2. You agree to devote your full time and best efforts to the performance of your duties for the Company and not to engage in any other business activities without the prior written consent of the Company.

4. You agree to maintain in confidence all proprietary data and other confidential information (whether concerning the Company, or any of its affiliated companies, or any of their respective clients or cases being handled for clients) obtained or developed by you in the course of your employment with the Company. Such information and data shall include, but not be limited to, all information covering clients and cases being handled for clients. All such information and data is and shall remain the exclusive property of the Company and/or affiliated companies. In addition you assign to the Company all right, title, and interest in and to any and all ideas, inventions, discoveries, trademarks, trade names, copyrights, patents and all other information and data of any kind developed by you during the entire period of your employment with the Company and related to the work performed by you for the Company.

You covenant and agree that upon termination of this Agreement for whatever reason, you will immediately return to the Company any and all files, documents, records, books, agreements or other written material belonging to or relating to the Company or its affiliated companies and any of their respective clients, together with all copies thereof in your possession or control . . . .

Your obligation under this paragraph shall survive any termination of your employment.

5. Employee agrees that so long as you are an employee of the Company, and for a period of twelve (12) month after your termination, whether voluntary or involuntary, you will not solicit or accept any claim, case or dispute which is being handled or directed by the Company or any of its affiliated companies during the term of your employment with the Company. You agree that you will not solicit or accept any such claim, case or dispute directly in your individual capacity, nor indirectly as a partner of a partnership, and as an employee of any other entity nor as an officer, director, or stockholder of a corporation, a joint venturer, a principal or in any other capacity.

You further agree not to solicit or induce any employee of the Company or any of its affiliated companies to leave its employ, nor to hire or attempt to hire any such employee . . . .

Walters signed the contract, but he never believed it was enforceable against him. He reasoned that because he was an at-will employee, the employment contract lacked consideration for its restrictive covenant clauses. Also, the agreement was never signed by Lamorte. A Florida attorney privately corroborated his view. Walters never expressed his beliefs to anyone at Lamorte, however, out of fear that he would be fired.

In the Spring of 1996, Walters quietly began entertaining the idea of resigning and starting a competing business. By that time, Halpin had informed defendants that Lamorte would be de-emphasizing P & I work and increasing the workers' compensation area of the practice. For Walters, that constituted the impetus for his decision to start a competing business. Also about that time, two other employees departed the P & I department because there was not enough work to support the staff.

Walters spoke only with co-employees Nixon and John Treubig about his idea of starting a competing business. Walters showed Nixon some financial estimates he had developed, suggesting that she would improve her position if she were to join in his enterprise. Eventually, Walters lost interest in Treubig. Soon after, Halpin directed Walters to fire Treubig based on allegations that Treubig had tried to solicit a Lamorte client for his private benefit.

On July 17, 1996, Walters incorporated the new business, "The Walters Nixon Group" (WNG). Thereafter, even while Walters and Nixon attended to their duties at Lamorte, they secretly worked on the commencement of their new business venture. Each time they worked on a Lamorte P & I claim file, they added to a target solicitation list they were compiling using information from their employer's client files. That information included client names, addresses, phone and fax numbers, file numbers, claim incident dates, claim contact information, and names of the injured persons. In total, the list included approximately thirty of Lamorte's clients, all but one or two of the company's P & I clients. As that information was gathered, it was transferred to Walters's home computer.

Walters testified that he did not believe the names of Lamorte's clients and information concerning pending claims was Lamorte's proprietary and confidential information. He reasoned that the information, although not generally available to the public, was not secret. He asserted that the discrete information could be obtained by calling directly and inquiring of insurance companies and vessel owners. Further, other than the reference to "confidential and proprietary information" in his employment agreement that Walters believed was unenforceable, he never had been told by Lamorte that any of the specific information he was gathering in connection with his P & I work was confidential and proprietary. Halpin, himself, never discussed the confidentiality of the information. During Walters's deposition, however, he answered "No" to the following question:

Would you have given that information to a competitor if he walked in the door and said, I want to go after your customers [?] Give me a complete listing of their files, reference numbers, adjusters and fax numbers and I will use that to solicit them. You would have given that information to them?

In September 1996, Halpin confronted defendants concerning rumors that they were thinking of leaving to start a competing business. They reassured Halpin the rumors were untrue. Walters testified that he feared he would be fired if Halpin knew the truth. The truth was that Walters and Nixon were well on their way to establishing a competing business. By October 1997, they signed a three-year lease to commence December 1, 1997 for office space in Cranford, New Jersey. As December approached, they purchased office equipment, leased computers, and obtained telephone and fax lines for the new WNG office. They agreed that they would resign on the weekend of December 20-21, 1997, a date selected so that each would be eligible to collect Christmas bonuses from Lamorte. They planned that over the same weekend they would send to Lamorte's clients solicitation letters and forms directing the transfer of claim files.

Just prior to resigning, Walters was asked by Halpin to sign a new and more restrictive employment agreement. The proposed agreement included a clause prohibiting him from working for any of plaintiff's customers for a full year, no longer just prohibiting him from working on claim files with which he was actively involved at Lamorte. Nixon also was asked to sign a corresponding employment agreement. Defendants avoided signing those agreements before their resignations.

On Thursday and Friday, December 18 and 19, 1997, Walters called in sick. In fact, Walters was at WNG's office installing computers, setting up furniture, and preparing to activate the business solicitation plan over the coming weekend. Telephone records showed that on December 19, 1997, calls were placed to several of Lamorte's clients from WNG's office. Walters, however, denies that during those conversations he ...

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