Fred Siegel Co., L.P.A. v. Arter & Hadden , 85 Ohio St. 3d 171 ( 1999 )

Moyer, C.J.

The determinative issues in this case are (1) whether it was error for the trial court to grant summary judgment in favor of Karen Bauernschmidt and Arter & Hadden as to Siegel’s claim of tortious interference with contract, and (2) whether it was error for the trial court to grant summary judgment in favor of Karen Bauernschmidt and Arter & Hadden as to Siegel’s claim of misappropriation of trade secrets.

Tortious interference with contract. We reaffirm the elements of the tort of tortious interference with contract as enumerated in paragraph two of the syllabus of Kenty v. Transamerica Premium Ins. Co. (1995), 72 Ohio St.3d 415, 650 N.E.2d 863. They are (1) the existence of a contract, (2) the wrongdoer’s knowledge of the contract, (3) the wrongdoer’s intentional procurement of the contract’s breach, (4) the lack of justification, and (5) resulting damages.

In Kenty we quoted with approval 4 Restatement of the Law 2d, Torts (1979), Section 766, which provides: ‘Une who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or othenvise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.” (Emphasis added.) Kenty at 418-19, 650 N.E.2d at 866. Only improper interference with a contract is actionable, as reflected in the fourth element of the tort as set forth in the Kenty syllabus. Thus, even if an actor’s interference with another’s contract causes damages to be suffered, that interference does not constitute a tort if the interference is justified. “The issue in each case is whether the interference is improper or not under the circumstances; whether, upon a consideration of the relative significance of the factors involved, the conduct should be permitted without liability, despite its effect of harm to another.” 4 Restatement of the Law 2d, Torts, at 28, Section 767, Comment b. We today reaffirm Kenty and hold that establishment of the fourth element of the tort of tortious interference with contract, lack of justification, requires proof that the defendant’s interference with another’s contract was improper.

Bauernschmidt and Arter & Hadden contend that the record creates no genuine issue of material fact, and that they are entitled to summary judgment in that they were justified in contacting clients of Fred Siegel and soliciting them to change legal representation. They cite several Disciplinary Rules contained in the Code of Professional Responsibility and argue that their actions fall within those rules. They further assert that they are entitled to summary judgment because a client has a legal right to terminate an existing attorney-client relationship, with or without cause, and to hire a new attorney. Reid, Johnson, Downes, Andrachik & Webster v. Lansberry (1994), 68 Ohio St.3d 570, 629 N.E.2d 431, paragraph two of the syllabus.

Appellants argue that DR 2-102(A)(2) authorizes a lawyer to distribute professional announcement cards stating “new or changed associations or addresses, change of firm name, or similar matters pertaining to the professional offices of a lawyer or law firm.” However, in this case, appellant Bauernschmidt exceeded the authorization of DR 2-102. In her letters to Siegel clients she not only provided information as to her change of law firms, but also expressed a willingness to continue providing legal services at the new firm (“I would like for us to continue our professional relationship. When you need assistance or have questions, please contact me.”). She thereby solicited Siegel clients to change legal representation.

We note that American Bar Association Model Rule of Professional Conduct 7.3(c) implies that an attorney may solicit professional employment by making a direct written communication to persons with whom the lawyer has a “family or prior professional relationship,” without labeling it “Advertising Material.” However, the corresponding Ohio rule, DR 2 — 101(F)(2)(e), provides that where written direct mail solicitations are made to persons who may be in need of specific legal services, the mailing must include the recital “ADVERTISEMENT ONLY,” of specified size and color, both in the text and on the envelope. No exception from this requirement is expressly included in DR 2-101 for communications to family and past clients. However, the Board of Commissioners on Grievances and Discipline in Opinion No. 98-5 (Apr. 3, 1998) expressed the view that a departing attorney may notify clients of his or her departure from a law firm, identify his or her new location of practice, and indicate a willingness to provide services at the new location without violating ethical standards.

Appellants further argue that Bauernschmidt not only was permitted but had an ethical duty to inform clients with whom she had worked of her departure from Siegel. They cite DR 2 — 110(A)(2), which imposes a duty upon an attorney who intends to “withdraw from employment” to first “take[ ] reasonable steps to avoid foreseeable prejudice to the rights of his client, including giving due notice to his client, allowing time for employment of other counsel, delivering to the client all papers and property to which the client is entitled, and complying with applicable laws and rules.” However, we do not accept appellants’ contention that this rule is applicable to the case at bar.

Bauernschmidt herself acknowledged that the parties for whom she worked while an associate at the Siegel firm were not “her” clients but were clients of Fred Siegel Co., L.P.A. Although her work as an employee of that firm resulted in the establishment of an attorney-client relationship with Siegel clients, Bauernschmidt had never entered into a contractual agreement with those clients under which she personally was obligated to provide legal services. DR 2-110 is designed to avoid the danger of a client being left unrepresented upon an attorney’s withdrawal. These dangers were not generated when Bauernschmidt left the Siegel firm. Because Bauernschmidt was never employed by Siegel clients, she did not withdraw from employment by them, and 'DR 2-110 is simply not applicable.

Moreover, the fact that a client has a right to discharge his or her attorney, pursuant to Reid, Johnson, does not, of itself, provide a competing attorney with justification for encouraging the client to exercise that right, and thus does not necessarily preclude a finding that a tortious interference with contract has occurred.

We thus reject appellants’ arguments that the Disciplinary Rules they cite provide justification for their actions.

In any event, we reject the suggestion that the propriety of an attorney’s conduct for purposes of a tortious interference analysis should be determined solely by application of the Disciplinary Rules. The purpose of disciplinary actions is to protect the public interest and to ensure that members of the bar are competent to practice a profession imbued with the public trust. Disciplinary Counsel v. Trumbo (1996), 76 Ohio St.3d 369, 667 N.E.2d 1186. These interests are different from the purposes underlying tort law, which provides a means of redress to individuals for damages suffered as a result of tortious conduct. Accordingly, violation of the Disciplinary Rules does not, in itself, create a private cause of action. Am. Express Travel Related Serv. Co. v. Mandilakis (1996), 111 Ohio App.3d 160, 675 N.E.2d 1279. The lower courts in this case correctly recognized that improper solicitation of clients in violation of the Disciplinary Rules does not independently constitute a tort.

Moreover, the power to determine violations of the Disciplinary Rules is reserved to this court. Melling v. Stralka (1984), 12 Ohio St.3d 105, 12 OBR 149, 465 N.E.2d 857. Were we to hold that a lawyer’s compliance with the Code of Professional Responsibility is an absolute defense to a claim of tortious interference with contract, we would effectively be delegating our authority to determine violations of the Disciplinary Rules to the trial courts. Rather, consistent with our adoption in Kenty of Restatement Section 766, which sets forth the elements of tortious interference with contract, the propriety of the appellants’ conduct in contacting Siegel’s clients and suggesting that they follow Bauernschmidt to Arter & Hadden should be determined by applying relevant legal tests as defined in Section 766 et seq. of the Restatement.

We therefore adopt Section 767 of the Restatement, which provides guidelines to be followed in determining whether an actor’s interference with another’s contract is improper. Accordingly, in determining whether an actor has acted improperly in intentionally interfering with a contract or prospective contract of another, consideration should be given to the following factors: (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests of the other with which the actor’s conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s conduct to the interference, and (g) the relations between the parties. Id.

Within this framework the standards defined in the Disciplinary Rules, which govern the conduct of all attorneys, are relevant in determining the propriety of an attorney’s conduct in a tortious interference claim pursuant to the Restatement. See Comment c to Section 767, at 32 (“Violation of recognized ethical codes for a particular area of business activity or of established customs or practices regarding disapproved actions or methods may also be significant in evaluating the nature of the actor’s conduct as a factor in determining whether his interference with plaintiffs contractual relations was improper or not.”).

The standards of the Disciplinary Rules are relevant to, but not determinative of, the propriety of an attorney’s conduct for purposes of a tortious interference with contract claim. Similarly relevant are the interests of clients in being fully apprised of information relevant to their decisionmaking in choosing legal representation and appellants’ interests in engaging in constitutionally protected free speech.

Moreover, Section 768 of the Restatement provides that fair competition may constitute a proper ground, or justification, for an interference with an existing contract that is terminable at will.¹ Thus, where an existing contract is terminable at will, and where all the elements of Section 768 of the Restatement are met, a competitor may take action to attract business, even if that action results in an interference with another’s existing contract. Where a defendant in an action for tortious interference with contract establishes that his or her conduct falls within Section 768, the factfinder need not balance the factors set forth in Section 767. See Section 767, Comment a, at 27 (“The specific applications in [Section 768] supplant the generalization expressed in [Section 767].”).

We today adopt Section 768 of the Restatement and accordingly hold that establishment of the privilege of fair competition, as set forth in Section 768 of the Restatement, will defeat a claim of tortious interference with contract where the contract is terminable at will.

The fact that Siegel clients had a legal right to change their legal representation pursuant to Reid, Johnson, 68 Ohio St.3d 570, 629 N.E.2d 431, triggers availability of the justification of fair competition provided by Section 768 of the Restatement, as, by law, their contracts with Siegel were terminable at will. The privilege of fair competition has been recognized in the context of the legal profession. Ramirez v. Selles (1989), 308 Ore. 609, 784 P.2d 433; Koeppel v. Schroder (1986), 122 A.D.2d 780, 782, 505 N.Y.S.2d 666, 669. See, also, Hillman, Law Firms and Their Partners: The Law and Ethics of Grabbing and Leaving (1988), 67 Tex.L.Rev. 1, 22 (“[I]f the interfering party is a competitor and ‘does not employ wrongful means,’ interference with an existing terminable-at-will contract, or a prospective contractual relation, is not improper.”); Johnson, Solicitation of Law Firm Clients by Departing Partners and Associates: Tort, Fiduciary, and Disciplinary Liability (1988), 50 U.Pitt.L.Rev. 1, 86 (“Once the attorney-client contract is recognized as terminable at will, there can be little doubt as to the applicability of section 768 to departure-based solicitation.”).

Pursuant to Section 768, competition is proper if (a) the relation between the actor (here Bauernschmidt and Arter & Hadden) and his or her competitor (here Siegel) concerns a matter involved in the competition between the actor and the other, and (b) the actor does not employ wrongful means, and (c) his action does not create or continue an unlawful restraint of trade, and (d) his purpose is at least in part to advance his interest in competing with the other. Thus, appellants would be entitled to summary judgment pursuant to Section 768 only if the record establishes that each of those elements was met.

We do not find the existence of any genuine issue of fact in this case as to the establishment of elements (a), (c), and (d) as outlined above. We find, however, that the record before us reflects unresolved issues of fact as to whether Bauernschmidt and Arter & Hadden employed wrongful means in competing with Siegel. The evidence is ambiguous as to whether Bauernschmidt and Arter & Hadden used information acquired through improper means in their competitive efforts, e.g., information protected as trade secrets, or information as to Siegel’s fee arrangements with clients that may have been wrongfully disclosed. Further proceedings are required to determine whether appellants employed wrongful means within the contemplation of Restatement Section 768 in competing against Siegel.

We therefore reject appellants’ argument that the record demonstrates the existence of justification beyond any genuine issue of material fact so as to defeat Siegel’s claims of tortious interference with contract. We affirm the judgment of the court of appeals and remand those claims to the trial court for disposition according to the legal principles set forth herein.

Misappropriation of Trade Secrets. Misappropriation of trade secrets is a recognized tort in Ohio for which damages may be obtained. Wiebold Studio, Inc. v. Old World Restorations, Inc. (1985), 19 Ohio App.3d 246, 19 OBR 398, 484 N.E.2d 280.

In her deposition Bauernschmidt did not deny using the Siegel client list to identify recipients and addresses for solicitation mailings. The appellants conceded in the trial court that Bauernschmidt “does not know if she consulted the client list.” Appellants nevertheless argue that they were entitled to summary judgment on Siegel’s claim of misappropriation of trade secrets because Siegel did not take adequate steps to protect the confidentiality of the information in the client list.

During 1992, former R.C. 1333.51(A)(3)² provided the definition of a “trade secret.” The statute provided that a “trade secret” included any “listing of names, addresses, or telephone numbers, which has not been published or disseminated, or otherwise become a matter of general public knowledge.” . 132 Ohio Laws, Part I, 676. The statute provided that such a listing was “presumed to be secret when the owner thereof takes measures designed to prevent it, in the ordinary course of business, from being available to persons other than those selected by the owner to have access thereto for limited purposes.”

A possessor of a potential trade secret must take some active steps to maintain its secrecy in order to enjoy presumptive trade secret status, and a claimant asserting trade secret status has the burden to identify and demonstrate that the material is included in categories of protected information under the statute. State ex rel. The Plain Dealer v. Ohio Dept. of Ins. (1997), 80 Ohio St.3d 513, 525, 687 N.E.2d 661, 672.

The question whether a particular knowledge or process is a trade secret is, however, a question of fact to be determined by the trier of fact upon the greater weight of the evidence. Valco Cincinnati, Inc. v. N & D Machining Serv., Inc. (1986), 24 Ohio St.3d 41, at 47, 24 OBR 83, at 88, 492 N.E.2d 814, at 819.

Accordingly, we hold that, pursuant to former R.C. 1333.51(A)(3), listings of names, addresses, or telephone numbers that have not been published or disseminated, or otherwise become a matter of general public knowledge, constitute trade secrets if the owner of the list has taken reasonable precautions to protect the secrecy of the listing to prevent it from being made available to persons other than those selected by the owner to have access to it in furtherance of the owner’s purposes.

Siegel claims that Bauernschmidt and Arter & Hadden tortiously misappropriated the information contained in Siegel’s client list and used it for their own economic gain. We find that genuine issues of material fact exist precluding entry of summary judgment in appellants’ favor on this claim.. The record demonstrates that the Siegel client list was maintained on a computer that was protected by a password. Hard copies of the list were stored within office filing cabinets, which were sometimes locked. Fred Siegel testified during deposition that he “probably” had told employees that the -client list information was confidential and not to be removed from the office.

These facts raise a genuine issue of material fact as to whether Siegel took reasonable actions to ensure that only authorized persons had access to his client list for authorized uses. Cf. Valco, 24 Ohio St.3d 41, 24 OBR 83, 492 N.E.2d 814 (finding of trade secret status justified where employer, e.g., kept plant locked, screened all visitors, and disclosed drawings contended to be trade secrets only to suppliers for bidding purposes and only to employees with specific need for them).

Bauernschmidt and Arter & Hadden further contend that all of the information in Siegel’s client lists was a matter of public record, capable of being independently assembled into a list, and that this fact precluded a finding that the Siegel list qualified as a trade secret.

In Valeo we acknowledged, in dicta, that a competitor could obtain and use a trade secret where the competitor itself discovered the information by independent invention or “reverse engineering,” i.e., starting with a known product and working backward to find the method by which it was developed. Id., 24 Ohio St.3d at 45-46, 24 OBR at 86, 492 N.E.2d at 818. In this case, a question of fact exists as to whether the appellants, in effect, “independently invented” their own list of property owners, resulting in a list similar to the Siegel list, or, whether they simply used Siegel’s computer-generated client list.

Where information is alleged to be a trade secret, a factfinder may consider, e.g., the amount of effort or money expended in obtaining and developing the information, as well as the amount of time and expense it would take for others to acquire and duplicate the information. Plain Dealer, 80 Ohio St.3d at 524-525, 687 N.E.2d at 672. The Siegel client list was sixty-three pages in length and included the names of property owners, contact persons, addresses, and telephone numbers of hundreds of clients. The extensive accumulation of property owner names, contacts, addresses, and phone numbers contained in the Siegel client list may well be shown at trial to represent the investment of Siegel time and effort over a long period.

The purpose of Ohio’s trade secret law is to maintain commercial ethics, encourage invention, and protect an employer’s investments and proprietary information. Levine v. Beckman (1988), 48 Ohio App.3d 24, 28, 548 N.E.2d 267, 271. That purpose would be frustrated were we to except from trade secret status any knowledge or process based simply on the fact that the information at issue was capable of being independently replicated.

The court of appeals correctly determined that the trial court erred in granting summary judgment to Bauernschmidt and Arter & Hadden on Siegel’s claim of the tort of misappropriation of trade secrets.

For the foregoing reasons, the judgment of the court of appeals is affirmed.

Judgment affirmed and cause remanded.

Resnick, F.E. Sweeney and Lundberg Stratton, JJ., concur. Douglas, J., dissents. Pfeifer, J., concurs in the dissenting opinion of Cook, J., except for the section entitled “Modification of the Kenty Test.” Cook, J., dissents.

1 . Section 768 of the Restatement of the Law 2d, Torts (1979), provides:

“(1) One who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other’s relation if

“(a) the relation concerns a matter involved in the competition between the actor and the other and

“(b) the actor does not employ wrongful means and

“(c) his action does not create or continue an unlawful restraint of trade and

“(d) his purpose is at least in part to advance his interest in competing with the other.

“(2) The fact that one is a competitor of another for the business of a third person does not prevent his causing a breach of an existing contract with the other from being an improper interference if the contract is not terminable at will.”

2 . R.C. 1333.51 was repealed, effective July, 1,1996. 146 Ohio Laws, Part IV, 7809. “Trade secret” is now defined at R.C. 1333.61(D).