Operations Research, Inc. v. Davidson & Talbird, Inc.

⁵⁵⁴ Oppenheimer, J., delivered the opinion of the Court. This case involves another balancing of the duties of loyalty owed by employees to their employers and the rights of individuals to use their skills for their own benefit. The appellant, Operations Research, Inc. (ORI) filed a bill in the Circuit Court for Montgomery County to restrain former employees and the two corporations which they had organized from taking advantage of alleged breaches of trust and fidelity while they were in ORI’s employ. ORI also’ asked for consequential damages.

After 17 days of testimony, reflected in over 1000 printed pages of record extract and appellees’ appendix filed with this Court, Judge Pugh filed an opinion and decree dismissing the bill of complaint. This appeal ensued. ORI was organized in 1954 by two men, one of whom was Dr. Emory Cook, its president and majority stockholder. Cook is a graduate of Illinois University and a former member of the staff of the Applied Physics Laboratory of Johns Hopkins University.

Since its incorporation, ORI has been engaged in performing operations research services for governmental agencies and private industry. Dr. Harold O. Davidson (Davidson), one of the appellees, is a professional engineer with degrees from the Georgia Institute of Technology and The Ohio State University. He taught at both institutions and from 1948 to 1953 was a consultant to the United States Air Force, Air Traffic Control. From 1953 to 1958 he was a scientist at the Operations Research Office of Johns Hopkins University, working almost entirely on problems for the Army.

In 1958, he returned to Georgia Institute as a professor in charge of graduate programs in industrial engineering. He was employed by ORI in 1959, became its vice-president, was elected to the board of directors in 1962, and by 1964, was receiving an annual salary of $30,000 with fringe benefits. The appellee, Joseph A. Talbird (Talbird) joined ORI in 1959 and became a program director. In 1964, his salary was $18,000.

The other individual appellees were all employees of ORI in 1964, with substantial salaries. The two corporate appellees were formed shortly after the individual appellees had resigned from ORI. Davidson resigned as a member of ORI’s board of directors in September 1964, in a letter expressing his dissatisfaction ⁵⁵⁵ with ORI’s policies. On Friday, December 4, 1964, he resigned from the company.

The next morning, December 5, Talbird resigned. Cook called a meeting of the employees of the division previously directed by Davidson, announced the resignations of Davidson and Talbird and made some critical remarks about the business abilities of both men. The afternoon of the same day, a number of employees who had attended the meeting called by Cook went to Davidson’s home and were told that he and Talbird intended to form a new firm. A number of these men signed informal applications for employment with the new company.

On December 7 and within a few days thereafter, the other individual appellees and other ORI employees who had worked with Davidson and Talbird resigned from ORI. None of the individual employees had any written or oral term agreements of employment with ORI; all of the employments were terminable at will, either by ORI or the employee, and there were no written restrictive covenants of any kind. The corporate appellee, Davidson & Talbird, Inc., was incorporated under the laws of Maryland on December 7, 1964 with Davidson and Talbird as its principal officers, and with its office in Bethesda. Immediately after their resignations, Davidson and Talbird solicited business for the new company to be formed from the Coca-Cola Company and the Southern Railway System, which had been two of ORI’s most important clients.

For the fiscal year ending November 30, 1964, approximately one-quarter of ORI’s net operating profit before taxes had come from these two companies. While with ORI, Talbird had worked closely with Southern Railway and Davidson had had a similar relationship with Coca-Cola. Davidson had been a part-time consultant with Coca-Cola before he was( employed by ORI and testified he brought that company to ORI as a customer. The new company received substantial business from both Southern Railway and Coca-Cola.

Davidson, through ORI, had been employed as a scientific adviser to the Advanced Tactics Project, Combat Developments Command of the United States Army; after his resignation from ORI, his services witli the Army were continued under a contract with Duke University. Davidson and Talbird, before their resignations, had told the officials of Southern Railway, Coca-Cola and the Tac ⁵⁵⁶ tics Project with whom they dealt that they were dissatisfied at ORI and might, or intended to, resign. Whether or not there was solicitation of business for the new enterprise before the resignations is one of the factual issues on which voluminous testimony was taken. In addition to testimony in support of its contention that Davidson, Talbird and the other individual appellees solicited ORI’s customers while in its employ, in violation of their fiduciary duties, ORI endeavored to prove that the appellees wrongfully recruited other key employees and, in their alleged conspiracy, used information of a confidential nature gained by them as ORI employees and diverted business opportunities from ORI to themselves.

ORI also offered evidence to show that its method of doing business was a trade secret, which the appellees wrongfully used in their own behalf. The appellees denied all these allegations and produced testimony in corroboration of their denials. In his opinion, after summarizing the respective contentions and the conflicting evidence, Judge Pugh concluded that there was no trade secret involved, that the appellees had not violated any trust or breached any duty of fidelity which they owed ORI and that there was no conspiracy between the appellees. These conclusions were based on findings of fact to which we shall refer in the discussion which follows.

Our consideration of the facts is based on Maryland Rule 886 a, which provides that when an action has been tried by the lower court without a jury, the judgment of the lower court will not be set aside on the evidence unless clearly erroneous and due regard will be given the opportunity of the lower court to judge the credibility of the witnesses. We also keep in mind the principle that if there is substantial evidence to support the court’s factual conclusions, those findings must be reviewed in the light most favorable to the prevailing party below. Space Aero Products Co. v. R. E. Darling Co., 238 Md. 93, 106 , 208 A. 2d 74 , cert, denied 382 U. S. 843 (1965) and cases therein cited. The Trade Secret Question Whether there was a trade secret is a conclusion of law upon the applicable facts.

Space Aero, supra, at 105-06 , and authorities therein referred to. ⁵⁵⁷ In his opinion, Judge Pugh said, on this matter: “The plaintiff’s business is operations research. This is generally defined as analyzing operations of governmental as well as commercial problems. It is concerned with the design, improvement and installation of integrated systems of men, materials and equipment or an analysis of operations and systems and a prediction of systems performance and reliability. As a practical definition, it is a group of highly skilled engineers and scientists gathered together under a corporation or partnership, who analyze a business, be it the government or a commercial business, in order to devise methods to improve its operation with efficiency and at the least cost.” Cook, in claiming that Davidson and Talbird took ORI’s trade secrets, testified that the secrets consisted of “the grand design” for work to be done for the various companies, that the design is on paper, “in pieces and snatches,” that to duplicate work theretofore done by ORI, a competitor “would have to get this designing into his own mind so he could begin to implement.” In the construction of the design, he said, “all the sciences that are applicable are used.” “We do jobs, and by jobs most of us mean we construct a system that meets a stated need.” “It is kind of like—well, if you have designed a chair that is particularly pretty and particularly comfortable, that design, where it is not secret it is certainly a product of the creative effort, and there are some proprietary rights.” However, Dr. George E. Kimball, vice-president of Arthur D. Eittle, Inc., another company engaged in operations research, who testified on behalf of ORI, in answer to a question of the court, said that the methods used to make the determinations are not usually referred to as trade secrets.

He testified that mathematical models, which involve equations and other mathematical techniques, are the heart of the work. “Generally speaking, an operations research study involves a rather complex system, and one has to do an analysis of how the entire system works. To make that analysis properly, it is necessary first of all to tear it apart and do its pieces, the fundamental units, and find out how each one of these works by itself; and then ⁵⁵⁸ as a second phase to study the interrelationships between those units to finally work up to the entire system.” While his company tries to avoid public disclosure, even if a competitor had Little’s unpublished data “* * * it might put him in a more favorable position than otherwise, though I don’t believe it would be very favorable since it was our work he was trying to use.” Major General Lipscomb of the Army Combat Developments Command, a graduate of the Military Academy and the National War College with a master’s degree in engineering from Cornell University, has dealt with a number of operations research firms. He testified that no trade secrets were involved in his engaging Davidson through ORI as scientific advisor. In Space Aero, 238 Md. at 105-13 , we considered the nature of a trade secret.

Restatement, Torts § 757 comment b (1939) states that “[a] trade secret is a process or device for continuous use in the operation of the business. * * * [T]he subject matter of a trade secret must be secret.” We agree with Judge Pugh that operations research, from the evidence, involves the coordinated approach of skilled engineers and scientists to a particular problem, rather than a process or device. In any event, in our opinion, ORI did not prove the essential element of secrecy. Mycalex Corp. of America v. Pemco Corp., 64 F. Supp. 420 (D. C. Md. 1946) aff’d. 159 F. 2d 907 (4th Cir. 1947) and cases therein cited. See also Turner, Trade Secrets (London 1962) 24-31.

We hold that there was no trade secret. Solicitation of ORI Customers This Court has consistently held that during the term of employment, an employee’s duty of fidelity and trust bars him from soliciting his employer’s customers, although he may advise the customers with whom he has been in contact of the proposed termination of his employment. C-E-I-R, Inc. v. Computer Dynamics Corp., 229 Md. 357, 366, 183 A. 2d 374 (1962); Ritterpusch v. Lithographic Plate Service, Inc., 208 Md. 592, 604-05 , 119 A. 2d 392 (1956) and authorities therein cited. Whether there was such an improper solicitation in this case is a question of fact. ⁵⁵⁹ Judge Pugh found that ORI had not proved such solicitation as to any of the three organizations involved, the Combat Developments Command, Coca-Cola and Southern Railway.

In making this factual finding, Judge Pugh stressed the denials of the appellees and the denials by representatives of two of the organizations. General Lipscomb testified that Davidson had made no solicitation prior to December 5, 1964. Fillmore E. Eisenberg, controller of the Coca-Cola Company, under whom Davidson worked while with ORI and before, stated in his deposition that when he first learned Davidson might resign from ORI, he, Eisenberg, made it clear he wanted no proposals from them “until such time as this whole problem was completely resolved,” and Davidson did not tell him that he, Davidson, was setting up a new organization until after his resignation. ORI contends that, while General Lipscomb denied any solicitation prior to December 5, 1964, the General also testified that before Davidson’s resignation, “he advised me that he might be fired or he might resign, and he wanted to assure me that whatever happened that I could count on him to give me whatever support I required.” This statement, however, is to be taken in the context of the military services involved.

The General testified that Davidson had been employed through ORI when Dr. Rumbaugh, the chief scientific advisor to the Combat Developments Command, had suddenly died; and that “the most competent individual that I could find in the country for my needs was Dr. Davidson.” Shortly after his resignation,, Davidson entered into a consulting agreement with ORI to complete the work for the Government then in progress, and thereafter, continued to work for the Army though Duke University. Cook testified that he would have expected Davidson to have volunteered to complete his obligation with the United States Government. He said: “Dr. Davidson has no choice but to complete that obligation. It is a terribly important National Defense job; he is senior scientist in it.

He is critical to the completion of that project. It would be an utter act of irresponsibility not to complete that contract.” An expression of willingness to continue vital defense work for the nation is not an improper solicitation of business. See Space Aero at 128 and 130. ⁵⁶⁰ ORI’s work for Coca-Cola, from 1962 through the end of its fiscal year in 1964, was on a year to year basis. Before the beginning of each year.

Eisenberg decided what, if anything, he wanted done for the next year, ORI was working on proposals to Coca-Cola for the coming year when Davidson, Talbird and the other employees resigned. In attacking the lower court’s finding that none of the individual appellees solicited Coca-Cola while employees of ORI, the attorneys for the appellant, in their able and comprehensive brief, list 27 items of what they designate as “admitted or undisputed evidence,” which, they submit, lead to a contrary conclusion and which, they suggest, the lower court did not consider in making its finding. It is true that, in his opinion, Judge Pugh did not attempt to set forth all the testimony adduced in the 17-day trial and the numerous exhibits which were offered. But that the Judge, in making his findings, was thoroughly familiar with all the evidence is demonstrated, if indeed demonstration were necessary, by the cogent questions he addressed to the witnesses on the vital issues.

This Court has considered all the evidentiary matters to which ORI refers; to recapitulate and discuss them in detail would extend this opinion to an inordinate length. We shall confine our discussion to several of the matters which ORI stresses. Early in November, 1964, Roger C. Eyler (the project leader in charge of the governmental work assigned to Davidson’s division in ORI) approached the president of the Union National Bank in Westminster as to a proposed loan for a contemplated research and engineering firm. A few days later, Eyler submitted to the bank financial statements of Davidson, Talbird and himself, and told the president of the bank that the proposed corporation hoped to obtain work from Coca-Cola.

He applied for a loan of $62,000, asking that $22,000 be granted immediately to the three individuals and that the remaining $40,000 be granted “around January.” On November 10, 1964, the bank’s board of directors approved a loan of $62,000 to the three men and their wives, “provided they get a Coca-Cola contract.” J. Pearre Wantz, Jr., the president of the bank, called as a witness by the appellant, when asked what representations, if any, were made by any of the three individuals as to ⁵⁶¹ what contracts would be available, answered, “They said possibly a Coca-Cola contract, * * * And if they couldn’t get a Coca-Cola contract, it would be some other national corporation.” The $22,000 was lent to the individuals, but the $40,000 loan was not consummated because no contract was assigned. Stanley R. Parent, one of the appellees, testified that on December 2nd or 3rd, he had a conversation with Talbird, his supervisor on the Coca-Cola work, in which he, Parent, said “I’m pretty tired. I don’t know how tired I am,” and Talbird said “There are a lot of us getting tired.” Talbird said there was the probability that he and Davidson were going to leave ORI and start a new corporation. Parent asked if he could help, and Talbird asked him to find out about the installation of telephones for the prospective new company.

Parent made inquiries and made a deposit with the telephone company after he, Talbird and Davidson had resigned from ORI. Reviewing this testimony, and the other testimony marshalled by ORI, in the light most favorable to the appellees, it can be taken as meaning no more than that Davidson and Talbird, prior to their resignations, had formed an intent to resign from ORI and to form a competing company. Because of their close professional associations with Coca-Cola and Southern Railway, and the personal nature of operations research, they had strong hopes, which later materialized, of getting work from these concerns after the resignations. Application for a bank loan based on such hopes or inquiries looking to the establishment of an office do not necessarily mean that any assurance had been received from any ORI customers that this work would be forthcoming or that any solicitation whatever had been made.

The judge believed the express denials of the appellees involved. He had ample opportunity to judge the credibility of these witnesses, and he also had before him the deposition of Eisenberg, the representative of Coca-Cola in charge of the work, who expressly denied there had been any solicitation before the resignations. The reliance of the lower court on this testimony is not to be deemed erroneous because other testimony is susceptible of a contrary inference. ORI suggests that the deposition of Laurence Rambo Co-wart, another employee of Coca-Cola, does not negative a so ⁵⁶² licitation.

Cowart had been an employee of ORI, working under Davidson and Talbird, until in October, 1963 he left ORI to take a position with Coca-Cola with ORI’s knowledge and consent. Cowart’s deposition was taken by ORI. He testified that in July or August of 1964 he was present in the Coca-Cola offices in Atlanta at a conference with Eisenberg, Davidson and Talbird. Talbird and Davidson said that they were generally dissatisfied with ORI.

Cowart did not remember if they said they intended to resign. He first learned that Davidson and Talbird were setting up their own firm after they resigned from ORI. The effect of the deposition is, as Judge Pugh stated, that Cowart, like Eisenberg, was not solicited prior to the resignations of both Davidson and Talbird. During the fall of 1964, ORI was completing its current work for Southern Railway, as it was for Coca-Cola.

All ORI work for Southern had been under Talbird’s supervision in his capacity as program director for ORI’s commercial work. Southern had wanted Talbird to take personal employment with it. Talbird denied any solicitation of Southern Railway while he was working for ORI and Judge Pugh found that ORI had not proved any such solicitation. ORI attacks this finding as inconsistent with the admitted circumstances, as it does in respect of the finding that there was no solicitation of Coca-Cola, and relies on some of the same items of evidence, as well as others.

Among other matters, ORI stresses the timing of Davidson’s and Talbird’s resignations just as ORI’s 1964 work for Southern had been completed. Viewed in the aspect most favorable to the appellees, this testimony may be interpreted as an endeavor by Davidson and Talbird not to interfere with ORI’s existing contracts. ORI points to Talbird’s written proposal to Southern and to Talbird’s telephone call to Southern’s Assistant Vice-President Thorpe immediately after Talbird’s resignation, and Thorpe’s request for a proposal, which was promptly delivered by Talbird on behalf of the new enterprise. ORI argues the probability of some pre-arrangement because of Thorpe’s availability in person late on a Saturday afternoon and his failure to ask any questions about the non-existent corporation.

This is inference, not proof. Southern knew, previously, ⁵⁶³ that Talbird and Davidson were dissatisfied with their employment and might resign; under the law, the communication of this information of itself was not improper. On December 7, Thorpe accepted the proposal insofar as it applied to Talbird and Albert Jankowitz, another appellee and former ORI employee, who had been engaged on the Southern Railway work, and, on the same day, Talbird went to Southern’s Atlanta office where Jankowitz joined him. Business energy and initiative by former employees in securing work after their employment has been terminated are not synonymous with treachery during the employment.

It is clear, from the record, that Southern Railway, like Coca-Cola, worked closely with the particular individuals whom they felt most capable of dealing with their problems and that, in a sense, ORI had only been a conduit through which those services were rendered. Prompt acceptance of the services in a more direct relationship after the former arrangement had been terminated falls short of proof that the acceptance was pre-arranged. ORI contends that instead of considering these and other circumstances on the issue of prior solicitation by Talbird of Southern’s business, the court below relied on a letter from Southern’s president, D. W. Brosnan, written to Cook on July 26, 1965, which ORI argues was improperly admitted over timely objection. The letter is a polite refusal, on advice of counsel, voluntarily to make available either testimony or documentary material to either side in the litigation and a statement of intent to work with either or both groups, as may appear to be in Southern’s interest.

The letter refers to Southern’s decision in the fall of 1964 to take a different approach to the car distribution problem on which ORI had been working for it, and to Southern’s interest in the service of particular individuals; there is ample testimony, apart from the letter, to the same effect. Assuming, arguendo, that the letter was improperly admitted as a part of ORI’s business records, it is apparent to us, from Judge Pugh’s opinion, that it was not the letter (which he did not include in his consideration of the sworn testimony) but the lack of affirmative proof of prior solicitation and the denials by the appellees upon which he basically relied in making his factual finding. ⁵⁶⁴ Our review of the record fails to convince us that the lower court, in finding that none of the appellees, prior to their resignations, solicited any customers of ORI, was clearly erroneous. ORI argues that the findings of the lower court on both the issues of solicitation of customers and other key employees are in conflict with the decisions in C-E-I-R and other cases. This argument will be considered in a subsequent portion of this opinion.

Solicitation of Employees The court below found as a fact that the individual appellees did not solicit ORI’s employees either while Davidson and Talbird were employed by ORI or after their employment ended, but that “such employees sought out Davidson and Talbird and were anxious to work for them.” Again, we! find that these factual conclusions were supported by substantial evidence and were not clearly wrong. Davidson was in charge of ORI’s Logistics and Operations Division, to which substantially all of its commercial work was assigned; Talbird was program director of that division. Davidson resigned from ORI at the conclusion of a management control meeting on Friday afternoon, December 4, Talbird resigned the next morning, Saturday, December 5. Cook called a meeting of all ORI’s commercial section employees within two hours; the nature of that meeting has been set forth.

That afternoon, most of the other individual appellees and nearly all the other employees in ORI’s commercial section gathered at Davidson’s residence. Jankowitz asked whether the new concern would accept employment applications and was given an affirmative answer. All but two of those who came wrote employment applications to the new firm; those two, who are among the individual appellees, became employees of the new concern within a few days. With the exception of one man who was not called by either ORI or the appellees, each applicant testified that no appellee solicited his application.

Davidson and Talbird testified to the same effect. The applications were made without specifications as to salary or type of work. ORI points to the fact that virtually all the employees of its commercial division came to Davidson’s house immediately after he and Talbird had resigned and asked for employment with ⁵⁶⁵ the proposed new enterprise as strong evidence that there must have been prior solicitation by the individual appellees of other key employees before the resignations. But the argument cuts both ways.

The mass resignations and the requests for employment with Davidson and Talbird in the company they were going to form can also be interpreted as evidencing concern of the employees about their future with ORI wdthout Davidson and Talbird and confidence in the ability of those two men to form and conduct a successful new operation in which the prospects of the employees would be brighter. There is much testimony in the record to support this interpretation. Clearly, the other employees in the commercial division had known, for some months, of Davidson’s and Talbird’s dissatisfaction with the ORI management. During the fall of 1964, ORI had no