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Thomas F. Fox; Target Holdings, Inc. D/B/A Target Industries v. Jean Millman

June 20, 2012

THOMAS F. FOX; TARGET HOLDINGS, INC. D/B/A TARGET INDUSTRIES, PLAINTIFFS-APPELLANTS AND CROSS-RESPONDENTS,
v.
JEAN MILLMAN, DEFENDANT, AND POLYMER PACKAGING INC; LARRY LANHAM; BILL LANHAM, DEFENDANTS-RESPONDENTS AND CROSS-APPELLANTS.



On certification to the Superior Court, Appellate Division.

The opinion of the court was delivered by: Justice Hoens

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Thomas F. Fox v. Jean Millman

(A-39/40) (066564)

Argued October 12, 2011 -- Decided June 20, 2012

HOENS, J., writing for a unanimous Court.

In this appeal, the Court considers whether the equitable doctrine of laches may be used to foreclose a claim filed in compliance with an applicable statute of limitations.

Jean Millman worked as a sales representative for plaintiff Target Industries, an industrial bag company. Plaintiff Thomas F. Fox was Target's director of development and purchased all of its assets after Target filed for Chapter 11 bankruptcy protection in 1999. Plaintiffs asserted that Millman signed a confidentiality agreement when hired. Target terminated Millman on September 7, 2000. Several days later, defendant Polymer Packaging Inc., an industrial bag company owned by defendants Larry and William Lanham, hired Millman knowing that she had previously worked for Target. The Lanhams asserted that Millman assured them that she was not subject to the terms of either a confidentiality agreement or a non-compete clause. The Lanhams did not verify independently the truth of that assertion. The Lanhams conceded that Millman provided Polymer with a list of customers, but contended that she described it as a customer base that she had developed over the years, thereby implying that she had generated the list on her own. The list did not identify Target or bear any indication that it was not Millman's own, and the Lanhams did not further inquire into the genesis of the list. Millman sold products for Polymer to former Target customers and, before leaving Polymer in October 2004, was responsible for generating substantial sales for the company.

On January 20, 2004, plaintiffs filed a complaint asserting claims arising out of the use of their customer list, and amended it a year later to substitute Polymer and the Lanhams, individually, as defendants for fictitious parties previously named in place of Millman's subsequent employer. Following discovery, the parties filed cross-motions for summary judgment. Plaintiffs asserted that the customer list was proprietary and confidential material and that defendants must have been aware that it was Target's property. The trial court denied plaintiffs' motion, concluding that there were genuine issues of material fact concerning what defendants knew or should have known about the origin of the customer list and concerning whether the list was confidential or proprietary. The trial court also declined to impose upon defendants an affirmative duty to inquire independently as to the source or ownership of the information contained in the list. Defendants' motion for summary judgment asserted that plaintiffs' claim was barred by the affirmative defense of laches. In opposition, plaintiffs argued that (1) their complaint was filed within the applicable six-year statute of limitations, N.J.S.A. 2A:14-1, and (2) defendants could not prove undue delay or prejudice, largely because, by failing to inquire independently about the customer list, they had not acted in good faith. Although the trial court acknowledged that plaintiffs' complaint was filed within the applicable statute of limitations, it concluded that defendants could invoke the defense of laches because plaintiffs' delay was unreasonable and prejudicial. Nevertheless, the trial court declined to grant summary judgment because it found genuine issues of material fact with respect to whether defendants acted in good faith. At trial, disputed issues were presented to the jury through a series of special interrogatories. After receiving the jury's answers to the special interrogatories, the trial court concluded that defendants had proven the defense of laches and dismissed plaintiffs' complaint with prejudice. The Appellate Division affirmed. The Court granted certification. 205 N.J. 16 (2010).

HELD: The equitable doctrine of laches cannot be utilized to bar an action at law that was commenced within the time constraints of an applicable statute of limitations.

1. The application of equitable doctrines, such as the discovery rule, the continuing violation doctrine, and the doctrine of laches, has resulted in extensions of the time to pursue causes of action that would otherwise be barred. The issue raised in this appeal is whether laches may be used to shorten the time for filing a claim at law. Laches is an equitable doctrine, not governed by fixed time limits, that is invoked to deny a party enforcement of a known right when the party engages in an inexcusable and unexplained delay in exercising that right to the prejudice of the other party. Traditionally, in cases governed by statutes of limitations, the application of laches depends on whether it is a suit in equity or an action at law. The United States Supreme Court has observed that if a suit in equity raises claims as to which there is an applicable statute of limitations, it does not preclude the defense of laches, provided there has been unreasonable delay within the time limited by the statute. Patterson v. Hewitt, 195 U.S. 309, 318 (1904). On the other hand, if the suit is an action at law, the United States Supreme Court has held that applying laches within the term of the governing statute of limitations is no defense at law. United States v. Mack, 295 U.S. 480, 489 (1935). This Court has traditionally conformed to this distinction between law and equity in considering the application of laches. (pp. 15-24)

2. Although Lavin v. Hackensack Bd. of Educ., 90 N.J. 145 (1982), was limited to applying laches to a claim not governed by any statute of limitations, the trial and appellate courts relied on a footnote in Lavin, which discussed applying laches to defeat a claim despite the fact that the time fixed by an analogous statute of limitations had not passed, to conclude that it was appropriate to utilize laches in this case. The Court disagrees. Causes of action brought at law are governed in the first instance by statutes of limitations that have been fixed by the Legislature to create defined and regularly applicable periods against which to determine timeliness. Laches, on the other hand, remains an equitable doctrine, utilized to achieve fairness. As such, in matters as to which no statute of limitations is directly applicable, courts first look to see whether there is an analogous statute that might appropriately fix the period of timeliness as to the equitable remedy. If there is, then that period can be applied to the equitable claim, unless there is an overriding reason why that application would be inequitable. To the extent that the trial and appellate courts understood the footnote in Lavin to suggest that an action at law otherwise governed by a statute of limitations can be barred by application of laches, they were in error, because the footnote itself refers to the use of laches only in the context of an equitable claim. (pp. 24-28)

3. Even if the Court were to agree in principle that laches might be applied so as to shorten an otherwise permissible period for initiation of litigation, it would nonetheless conclude that only the rarest of circumstances and only overwhelming equitable concerns would allow for that result. An extension of laches broadly to cases governed by statutes of limitations would replace the regular and predictable time limits fixed by our Legislature with a system in which no lawyer or litigant could be confident of the time that would govern the initiation of litigation. The Court sees no reason to conclude that our regular, predictable, and uniform system of fixing timeliness through application of the statutes of limitations should be replaced with such an approach. Finally, the trial court erred in using laches to combat plaintiffs' claim to an increase in damages resulting from the delay in filing the litigation. (pp. 28-32)

4. The Court does not agree with plaintiffs' assertion, relying on Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285 (2001), that the customer list that defendants secured from Millman was confidential as a matter of law. In Lamorte, the individuals being pursued on theories of tortious interference based on their taking of the customer lists were the plaintiff's employees. In that context, there could be no doubt that the employees were aware that the lists that they had taken were the property of their former employer. Here, however, plaintiffs seek redress not from Millman, but instead from her subsequent employer. In the context of that claim, even though the customer list would be considered to be confidential, there remained a genuine issue of material fact concerning whether these defendants were aware that Millman's list was Target's proprietary information. In addition, the Court does not find a basis on which to impose an affirmative duty of independent inquiry upon an employer, like Polymer, faced with an otherwise unremarkable representation by a prospective employee, like Millman, that a list of contacts is her own. Finally, the Court rejects defendants' challenges to the denial of portions of their motion for summary judgment and defendants' argument that they were entitled to an order of involuntary dismissal of plaintiffs' claims. (pp. 32-38)

The judgment of the Appellate Division is REVERSED, and the matter is REMANDED for a new trial.

CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA, ALBIN, and PATTERSON; and JUDGE WEFING (temporarily assigned) join in JUSTICE HOENS's opinion.

Argued October 12, 2011 --

JUSTICE HOENS delivered the opinion of the Court.

This appeal concerns a dispute between business competitors that arose after one of them hired an employee who had been terminated by the other. The dispute centers on allegations that the new employer thereafter benefited because that employee used a list of customers she implied was her own to generate business for her new employer when the list was instead the property of the former employer. That core dispute gave rise to a series of rulings by the trial court prior to and following a jury verdict based on special interrogatories, all of which was affirmed by the Appellate Division.

The parties have, through their cross-petitions, presented this Court with questions concerning: the interplay between the statute of limitations, the doctrine of laches, and the continuing wrong theory; the presumptive confidentiality of customer lists and whether a new employer should be charged with an affirmative duty of inquiry; the scope and availability of attorneys' fees; and the sufficiency of evidence that supported the jury's findings.

I.

Although the essential facts that gave rise to the dispute can be succinctly stated, the complex procedural history of the litigation relating to the employee's work for her former employer, her termination, and its implications for the initiation of the matter now before this Court requires us to include a detailed factual recitation that will make our reasoning and our analysis of the issues clear.

A.

Plaintiff Thomas F. Fox became the director of development for Target Industries, a corporation that manufactured and sold industrial plastic bags, in 1993. Target had been founded in 1975 by Martin Goz, and Fox was a long-time investor prior to assuming the director's position. After Target filed for Chapter 11 bankruptcy protection in 1999, Fox purchased all of its assets, including Target's "customer lists, price lists and other confidential and proprietary information and trade secrets." The assets were conveyed to Fox "AS IS, WHERE IS, without any warranty or representation of any kind" on May 15, 2001.

Defendant Jean Millman, who for reasons not relevant to this appeal did not participate in the trial, worked as a sales representative for Target beginning in 1988. Plaintiffs Fox and Target asserted that when Millman was hired, she signed a confidentiality agreement, which they contended could be found in a document that contained the following language:

Upon leaving . . . [Target], a Sales Professional shall promptly return all equipment, correspondence, and other papers/materials in his/her possession which relate to the business of Target Industries and shall not retain any copies of same. Target Industries may withhold commissions or salary until this condition is fulfilled.

By way of further explanation about the company's position concerning Millman's obligations to it, Target's former CEO Goz testified that he considered the company's sales files to be Target's property, and that salespeople were not allowed to take sales files with them when they left the company's employ. Goz testified that he based his belief that the sales files were proprietary and confidential on the fact that Target "expended substantial time and resources to establish its customer accounts."

Millman's employment was terminated by Target on September 7, 2000, because Goz believed that she was disparaging Target and selling products on behalf of competitors during the pendency of Target's bankruptcy proceedings. The day after Millman's termination, Target's Bankruptcy Trustee sent Millman a cease-and-desist letter, which stated: "We understand that you have advised some of Target's customers that Target is no longer in business and . . . have attempted to solicit those customers' business for your own account." The letter further warned Millman that her actions might violate her "obligation to Target Industries under the terms of [her] employment," and that her "misrepresentations and statements are tortious and are interfering with the ongoing operations of Target's business." Finally, the letter asked Millman to return "all office equipment" and "original files" she had obtained while working for Target.

Three days later, on September 11, 2000, defendant Polymer Packaging Inc. hired Millman. Polymer, which is owned by defendants Larry and William Lanham, is located in Ohio. At all times relevant to the issues before this Court, Polymer also distributed industrial plastic bags, but unlike Target had no manufacturing facility.

When the Lanhams hired Millman, they knew that she had previously worked for Target. They asserted that they inquired of her as to whether she was subject to the terms of either a confidentiality agreement or a non-compete clause and that she assured them that she was not. Although Polymer required all of its employees, including Millman, to sign a confidentiality agreement, the Lanhams did not undertake to verify independently Millman's assertion that Target had not required her to do so.

The Lanhams conceded that Millman provided Polymer with a list of customers, but contended that she described it as a substantial customer base that she had developed over the years, thereby implying that she had generated the list on her own. The list, which was given to Polymer and referred to in a confirming email, did not identify Target or bear any indication that it was not Millman's own. The Lanhams did not, therefore, undertake any further inquiry about the genesis of the customer list nor did they seek information about the list from Target.

After she was hired by Polymer, Millman solicited sales for that company from her home in Florida, receiving commissions on sales but no salary. During her deposition, Millman conceded that all of the sales contacts she had in the plastics industry when she began selling for Polymer had been derived from her work at Target. She admitted that she sold products for Polymer to former Target customers, but, consistent with her representations to the Lanhams before she was hired, she denied that she was bound by any confidentiality or non-compete agreement with Target.

Millman left Polymer in October 2004 for reasons unrelated to the matters in dispute. Prior to her separation from Polymer, however, she was responsible for generating substantial sales for the company. One of plaintiffs' experts at trial quantified Millman's sales for Polymer as totaling $5.1 million for the period from the start of her employment through 2005.

B.

Plaintiffs initially filed their complaint on January 20, 2004, naming as defendants Millman and fictitious parties in place of her subsequent employer. That complaint asserted claims of misappropriation of proprietary and confidential information; tortious interference with business relations and prospective economic advantage; unfair ...


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