[No. 61674-9-I. Division One. August 3, 2009.]
April 15, 2009, Oral Argument
Mark D. Kimball and Alex T. Larkin (of MDK Law Associates: The Law Offices of Mark Douglas Kimball, PS), for appellant.
Jacob M. Downs and Paul A. Harrel (of Williams Kastner & Gibbs, PLLC), for respondents.
¶1 LEACH, J. -- MP Medical Inc. appeals the trial court's refusal to stay the execution sale of its appeal in this case, the court's summary dismissal of its claims for breach of contract and tortious interference with a contractual relationship, and the court's judgment against MP Medical on the award of attorney fees. Background ¶2 MP Medical, a California corporation, sells, delivers, and repairs durable medical equipment (DME) and home medical equipment. The company was formed in 1993 by Madelyn Phillips. It expanded its operations to Federal Way, Washington, in 2004 with Philip Wegman as its employee. Wegman signed an employment agreement with MP Medical, which provided that it was to be "governed by, construed, and enforced in accordance with the laws of the State of California." The agreement also provided that Wegman would not disclose any trade secrets or confidential information and, following his termination, would not contact or solicit any of MP Medical's customers. The agreement further stated that the prevailing party in any litigation would be entitled to recover all reasonable attorney fees, costs, and necessary expenses. ¶3 MP Medical's corporate revenues declined and Phillips considered selling the Federal Way business to Wegman in early 2006, but they never reached an agreement. Wegman told his former employer, Warren Hall, about Phillips's offer, which lead to discussions between Hall and Phillips in January and February 2006. ¶4 At the end of that month, Wegman gave his 30-day resignation notice; his last day of employment was at the end of April 2006. MP Medical did not attempt to find a replacement manager for Wegman. Shortly afterwards, Wegman returned to work as a DME salesperson for Hall. ¶5 On August 4, 2006, MP Medical filed this lawsuit, naming Wegman, Warren Hall and his wife, Ruth Ann Hall, and Halls Pharmacy Services Inc. as defendants. ¶6 On December 7, 2007, the parties filed cross motions for summary judgment. The trial court denied MP Medical's motion for summary judgment on January 8, 2008. On January 25, 2008, the trial court partially granted Wegman's motion for summary judgment, dismissing the breach of contract claim because its nonsolicitation provisions violated section 16600 of the California Business and Professions Code. Wegman filed a motion for reconsideration, arguing that Hall could not have interfered with an agreement that was unenforceable. The trial court granted the motion and dismissed the tortious interference with a contractual relationship claim. MP Medical's two remaining claims were tried to a jury in April 2008. The jury returned verdicts in favor of Wegman on both claims. In a special verdict, the jury found that MP Medical had no trade secrets. ¶7 After trial, Wegman renewed a motion for attorney fees, which the court granted on May 8, 2008. On the same day, the court entered judgment on the verdict for Wegman. On June 6, 2008, the court awarded Wegman $ 109,157.17 in attorney fees and costs and entered supporting findings of fact. In its written findings of fact, the court explained the award: The attorneys' fees and costs associated with the defense of the four claims are intertwined to the point where segregation of each billing entry to a specific claim is not possible. However, an equal amount of time, effort, and resources was spent on defending each of the four claims. Therefore, the attorneys' fees and costs incurred in defending the two claims under which Defendants are entitled to an award of attorneys' fees and costs equates to one-half of the total amount of attorneys' fees and costs incurred at the time Plaintiff's claim of tortious interference with contractual relations was dismissed, which totals $ 109,157.17 ($ 96,234.00 in attorneys' fees and $ 12,717.73 in costs). ¶8 MP Medical appealed the trial court's dismissal of its claims for breach of contract and tortious interference with a contractual relationship, as well as the award for attorney fees and costs. MP Medical did not supersede the judgment. ¶9 Wegman sought to enforce the judgment through a writ of execution on MP Medical's pending appeal. MP Medical filed a motion to controvert wrongful seizure by writ of execution, which the trial court denied on November 26, 2008. MP Medical filed an emergency motion with this court, seeking immediate review of the trial court's denial of its motion. On December 10, 2008, a commissioner of this court granted the emergency motion and stayed the pending December 19, 2008, sale. Standard of Review ¶10 This court reviews an order granting summary judgment de novo, engaging in the same inquiry as the trial court. Discussion A. Levy on Appeal ¶11 We first must decide whether the trial court properly determined that the sale of MP Medical's appeal should go forward in light of Wegman's admission that he sought to dismiss MP Medical's case by purchasing its appeal. Wegman contends that levying on MP Medical's appeal is authorized by RCW 6.17.090, which broadly provides that "[a]ll property, real and personal, of the judgment debtor that is not exempted by law is liable to execution." Wegman further cites our Supreme Court's decision in Johnson v. Dahlquist, ¶12 Neither argument is entirely correct since we construe Paglia as an exception to the Johnson rule that "all property" is subject to execution. In Paglia, Breskovich filed a breach of contract action against Martinolich Shipbuilding Corporation. [1-3] ¶13 We are bound by the decisions of our state Supreme Court and err when we fail to follow them. B. Claims for Breach of Contract and Tortious Interference ¶14 The trial court dismissed MP Medical's breach of contract claim on grounds that the employment agreement violated section 16600 of the California Business and Professions Code. [4] ¶15 Section 16600 states that "[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The restrictions of this section apply to nonsolicitation provisions. ¶16 In this case, provisions 7.1 and 7.4 of the agreement provide as follows: 7.1 Preservation. Employee expressly acknowledges that during the course of his employment with Employer, he will have access to trade secrets, proprietary information and confidential information of Employer including, but not limited to, customer lists, customer information as well as methods of doing business of Employer. Employee expressly agrees that all such information is and shall remain the property of Employer, and that Employee shall not duplicate, photocopy, transcribe or remove any such information, records or property from the premises of Employer. Employee further agrees that both during and after his term of employment, Employee shall protect and preserve the confidential and proprietary nature of all such information and shall not: (i) disclose such information to any other person or entity with [sic] Employer's express authorization; (ii) use such information to the advantage of himself or any other person or entity; or (iii) following the termination of Employee's employment in any way contact or solicit any existing or previous client or customer of Employer. . . . . 7.4 Non-Solicitation of Clients and Customers. Employee shall not solicit any of Employer's customers or clients either during or after termination of Employee's employment. MP Medical contends that these nonsolicitation provisions, despite the lack of geographic restriction, do not violate section 16600 because they do not constitute a noncompetition agreement. MP Medical asserts, "These provisions do not bar Wegman from working for a competitor, from being employed within his field of expertise, or from pursuing any potential customers who were not customers of MP Medical." ¶17 But in Thompson v. Impaxx, Inc., ¶18 In rejecting these arguments, the Thompson court stated, "This clause is less restrictive, and less anticompetitive, than the broad, traditional anticompetitive clauses [respondents] compare it to. It is nevertheless anticompetitive--why else would they ask employees to sign it?" [5] ¶19 MP Medical argues that this trade secrets exception to section 16600 applies to its nonsolicitation provisions. Under the California UTSA, information is protected as a trade secret if it (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. While the existence of a trade secret is a factual question, "summary judgment may be appropriate in cases where a party has failed to meet its burden of proof for the purposes of a summary judgment motion by generating through evidentiary submissions a genuine issue of material fact." [6] ¶20 MP Medical asserts that its customer list is a trade secret. [7] ¶21 California courts have held that "information which is not exclusive or is generally in use by good faith competitors . . . cannot be classified as a trade secret." ¶22 The jury's special verdict on the trade secrets claim supports the conclusion that the customer list does not constitute a trade secret. ¶23 MP Medical compares its customer list to the one held to be a protectable trade secret in Gordon v. Landau. ¶24 MP Medical also compares its customer list to the one in San Jose Construction, Inc. v. S.B.C.C., Inc., [8] ¶25 MP Medical relies heavily on the language in its employment agreement and confidentiality agreement with Wegman to support its argument that the customer list is a trade secret. MP Medical also points to similar language in Hall's employee policy manual and Hall's employment agreement with Wegman. While confidentiality is a factor in assessing the value placed on that information by the employer, "[l]abeling information as a trade secret or as confidential information does not conclusively establish that the information fits this description." [9] ¶26 Alternatively, MP Medical appears to assert that, even if the customer list does not qualify as a trade secret, the challenged nonsolicitation provisions are still valid under section 16600 because they protect the customer list as confidential information. ¶27 Moreover, the record does not support allegations that Wegman used the customer list to compete with MP Medical. MP Medical essentially relies on the same evidence it produced to support its breach of contract claim: the deposition testimony of Wegman and former Hall's employees Debbie Smith-Harris and Jason Rotz. But MP Medical concedes that Wegman "referred" customers to Hall's during the last month of his employment, Smith-Harris "believed" that Wegman's new customers were previously MP Medical's customers, and Rotz "believed" that the van into which he loaded inventory from a Hall's facility belonged to MP Medical. In addition, MP Medical concedes that it did not attempt to hire a replacement manager for Wegman, which undermines its claim that Wegman gained valuable referral source information that he used to Hall's advantage. Wegman and Warren Hall further stated in their depositions that they developed their relationships with referral sources through their own efforts, personal knowledge, and contacts. Thus, the record does not support MP Medical's allegations of unfair competition or raise a question of fact precluding summary judgment on its breach of contract claim. [10] ¶28 We similarly conclude summary judgment was appropriate on MP Medical's claim for tortious interference with a contractual relationship. To establish a cause of action for intentional interference with contractual relations, a plaintiff must demonstrate (1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. In light of the breach of contract claim analysis, MP Medical fails to establish the first element because the agreement was invalid under section 16600. C. Attorney Fees [11] ¶29 MP Medical argues that the trial court erred in awarding attorney fees to Wegman because he failed to expressly plead a contractual right for fees. But Wegman requested fees in his answer, which was sufficient to notify MP Medical that he was seeking attorney fees under the agreement. [12, 13] ¶30 MP Medical next argues that the trial court abused its discretion in determining the amount of fees because it did not segregate fees between MP Medical's four claims. An award for attorney fees is reviewed for an abuse of discretion. ¶31 Here, the trial court found that the fees and costs associated with the defense of the four claims were "so intertwined" that segregation was not possible. [14, 15] ¶32 On appeal, Wegman requests fees under RAP 18.1. Because Wegman has prevailed on appeal and complied with RAP 18.1, he is entitled to an award of reasonable costs and attorney fees incurred in this appeal. Conclusion ¶33 We affirm the trial court's dismissal of MP Medical's claims for breach of contract and tortious interference with a contractual relationship and its award of attorney fees to Wegman. We award Wegman additional attorney fees on appeal, with the amount to be set by a commissioner of this court upon Wegman's compliance with RAP 18.1(d). DWYER, A.C.J., and APPELWICK, J., concur.