C-E-I-R, Inc. v. Computer Dynamics Corp.

Sybsrt, J., delivered the opinion of the Court. This appeal requires us to determine whether the Chancellor erred in denying a corporate employer injunctive relief and consequential damages sought against certain of .its former employees and a competing corporation formed' by them, the employer contending that the employees, while still in its employ, had solicited business from a customer of the employer, and had committed other acts in derogation of the duty of fidelity owed to their employer. The appellant, C-E-I-R, Inc. (plaintiff below), is a service corporation, with its principal office at Arlington, Virginia, providing, among other things, expert consultants to business, industry and government to assist in the analysis, design, coding and programming of data processing systems employing modern high speed electronic computers. In an effort to expand its business with the federal government, appellant in early 1961 hired Vincent R. Grillo (one of the appellees, defendants below), as director of government liaison at its Arlington center, at an annual salary of $18,000.

He was employed under an agreement terminable at the will of either party. In addition, he executed an agreement acknowledging the corporation’s right of ownership of any inventions made or conceived by him resulting from his employment, as well as of any of his writings done in the performance of his work, and providing that he would not during or after his employment “* * * publish, disclose or authorize anyone else to publish or disclose any data or information relating to my work for C-E-I-R or any other work of C-E-I-R of which I have knowledge.” The agreement stated that the term “inventions” should include “methods or any discoveries of any methods, whether patentable or not”. Soon after Grillo’s employment, the need was recognized by the corporate management to develop a capability for business data processing work at the Arlington center, and in ³⁶¹ May, 1961, the appellee, Joseph E. Sberro, a systems analyst experienced in such work, was hired to organize and become manager of the new commercial systems department at an annual salary of $15,100. His employment was terminable at will and he also executed an agreement identical to that signed by Grillo, set out above.

The division of claims control of the Bureau of Old Age and Survivors Insurance issues some thirteen million payment checks each month to beneficiaries of Social Security. In the summer of 1961 it was engaged in replacing the punch card processing methods then in use with electronic computers already acquired and installed. However, a division of opinion arose among the Bureau’s planners as to whether the electronic data processing system they had begun to use was producing the desired results, and it was decided to employ a firm of expert consultants in the field of computer services to analyze the new procedure as well as an alternative approach being urged within the Bureau, and to make a recommendation as to which system was deemed preferable. C-E-I-R learned through one of its salesmen of the need of the Bureau for consulting service and assigned Grillo, as its director of government liaison, to negotiate with the Bureau for a contract.

Largely through Grillo’s efforts a contract was executed on August 30, 1961, whereby the corporation would provide the services of four or five computer systems analysts to the Bureau for a period of 90 days, at a cost not to exceed $30,000, with the purpose of developing the approach and methods best suited for attaining the most efficient application of electronic data processing in the Bureau’s division of claims control. Though this contract was one of short duration, it was recognized at the time by the officers of C-E-I-R and Grillo that the contract might prove to be an important step in obtaining continuing work at the Bureau for several years. Work under the contract commenced in early September, 1961, when a project team, with Sberro as its leader, was sent to Bureau headquarters in Baltimore. Included among the four other members of the team were Michael W. Pulscak (a defendant below and an appellee here) and Sidney I. Riskin, ³⁶² both of whom had been hired for work on the Bureau contract and had signed employment agreements and agreements concerning inventions, etc., identical with those of Grillo and Sberro.

As a result of the intensive study made by the project team, C-E-I-R submitted a recommendation to the Bureau on October 18, 1961, which proposed that the Bureau abandon the changeover plan it was then using and in its place develop details of an alternative electronic data processing system, the rough outline of which had earlier been formulated by the Bureau. The recommendation was accepted by the Bureau. Since C-E-I-R had consumed only half of the time anticipated under its contract with the Bureau to complete its study and formulate a recommendation, the Bureau decided to use the remainder of the funds available under this contract to begin the task of designing an overall data processing system in accordance with the C-E-I-R recommendation. It was recognized, however, by Grillo, Sberro and the government officials concerned that additional consulting service far beyond the termination of C-E-I-R’s existing contract with the Bureau would be necessary, and that any future contracts for such service would be let out on bids.

The direction of the work being performed by the C-E-I-R team therefore changed after October 18, 1961, and, in conjunction with Bureau personnel, an intensive study of the Bureau’s operation and requirements in regard to the claims division commenced. Such knowledge was recognized as a basic foundation for beginning any design of a new data processing system for the Bureau. An “ad hoc systems committee”, recommended by C-E-I-R, was set up to assimilate this vital information, with Sberro as its acting chairman. The appellee Pulscak, as well as certain Bureau employees, were members.

Riskin continued to work with the Bureau’s computer technicians. All the C-E-I-R employees involved, including those named above, thus became thoroughly familiar with basic operations and requirements of the Bureau’s claims division and although future contracts would be let out by competitive bids, C-E-I-R had a reasonable basis for expecting to be in a fa ³⁶³ vored position in light of the experience it had already gained with the Bureau. However, in early November, C-E-I-R learned of Grillo’s plans to resign in order to become president of Computer Dynamics Corporation (one of the appellees here), incorporated on November 7, 1961, through the efforts of Grillo. Its purpose was to provide services in the field of business data processing similar to those afforded by the new commercial systems department set up by C-E-I-R, and thus in this area it would be a direct competitor of C-E-I-R. The date when Grillo made known his intention to resign was in dispute.

Grillo believed that it was November 7. There was strong evidence introduced, however, indicating that he informed his superior, Dr. James P. Walsh, a vice-president of C-E-I-R, of his plans to leave on November 9, 1961. At the trial certain acts of Grillo were established as taking place before that time. Soon after the Bureau had accepted C-E-I-R’s recommendation on October 18, 1961, to design a new data processing system, which would require consulting service far into the future, Grillo approached Sberro with his plans to form a new company, obviously with designs on the future contracts which he knew would emanate from the Bureau.

Sberro accepted the offer to join with him in this effort. With a flurry of activity, they performed all the prerequisites necessary to bring the corporation into existence by November 7, 1961, with no knowledge on the part of their employer. Around November 1, 1961, according to the testimony of George E. Rawson, director of the Central Planning Staff of the Bureau, who was concerned with the C-E-I-R project, he was approached by Grillo who informed him of his plans to form Computer Dynamics. The official stated that Grillo “said he hoped when they got organized and got in business they’d have an opportunity to compete for the Bureau’s business,” and that “Computer Dynamics would be interested in any subsequent technical support requirements that might be generated by the Bureau.” In answer to a query by Rawson, Grillo admitted that C-E-I-R did not know of his plans as yet.

Raw-son called the matter to the attention of his superior, Roy E. ³⁶⁴ Touchet, who also talked with Grillo a day or two later in Rawson’s presence. Grillo admitted at the trial that he again expressed his hope for consideration of Computer Dynamics for future Bureau business. Both Touchet and Rawson then told Grillo they didn’t feel they should become involved in something that was being kept secret and they urged him to-clear up his relationship with C-E-I-R. As a result of this conversation, several days later Grillohand-delivered a letter to Touchet, dated November 7, 1961, announcing his resignation from C-E-I-R and acceptance of the presidency of Computer Dynamics. In the letter he again expressed his interest in servicing the needs of the Bureau with a staff which would be “composed of thoroughly competent computer systems analysts and programmers * * Grillo stated that he delivered the letter on the 7th or 8th of November, which was prior to the date upon which his superior testified he actually resigned — November 9th.

Sberro admitted that he, too, spoke to Rawson and Touchet about obtaining Bureau business, before he resigned from C-E-I-R. In addition to his activities at the Bureau in behalf of Computer Dynamics, Grillo also successfully (and secretly) recruited two other employees of C-E-I-R in early November, Pulscak and Riskin, both of whom had been directly involved in the project at the Bureau, and who continued to take part in C-E-I-R’s work there up to the time they actually left their positions. At least two other employees and a prospective employee of C-E-I-R were also approached unsuccessfully by Sberro and Grillo, who spoke of the contract with the Bureau that Computer Dynamics expected to obtain. All of this activity took place secretly while Grillo and Sberro were still in the employ of C-E-I-R. When Grillo finally did make known his plans to resign he admittedly told his superior, Dr. Walsh, that no one other than himself was involved, although he had already spoken to Sberro, Pulscak and Riskin, and had told Rawson that Sberro was joining Computer Dynamics. There was testimony which indicated that Sberro had also misinformed his superior about his plans to leave when questioned concerning rumors about ³⁶⁵ the matter.

Grillo remained with C-E-I-R until November 15, and Sberro, Pulscak and Riskin submitted resignations on November 20. On December 4, 1961, Computer Dynamics formally began operations. Anticipating an invitation to bid for the projected Bureau business, Sberro ordered Pulscak, upon his reporting to work for Computer Dynamics, to draft a proposal for the Bureau, which was introduced into evidence. Pulscak conceded, in his testimony, that he could not have composed the proposal in the style and detail shown therein without having had the knowledge which he acquired at the Bureau while employed by C-E-I-R. On December 12, 1961, Computer Dynamics received a letter from the Bureau as one of six companies (including C-EI-R) invited to submit bids for