Chamberlain v. Hemingway

By the express order of the court, the receiver who wound up the affairs of the firm of Chamberlain Hemingway did not include any supposed good-will of the business among the assets sold. It is therefore conceded, independently of the rule announced in Cottrell v. Babcock P. P. Mfg. Co., 54 Conn. 122,6 A. 791, that the defendant was left free to solicit for himself the business of former customers of the firm. It seems to us to follow that the defendant had a right to make and use a list of such customers; and the finding indicates that such was the belief of the parties at the time of the dissolution, for both the plaintiff and the defendant openly made such copies before the date of the receiver's sale, and neither of the prospective purchasers of the records of the firm objected thereto. "Included in good-will is the right to use lists of customers. The sale of good-will passes to the purchaser such a list of customers and correspondents of the house." Nims on Unfair Competition Trademarks (2d Ed.) p. 34. Upon the other hand, if the good-will is not sold, or from the nature of the business is not assignable, the same right to use a list of customers must remain in the former owners of the business after a sale of the other assets — unless they have agreed not to compete with the purchaser. Cottrell v. BabcockP. P. Mfg. Co., supra.

As to the alleged wrongful use of the information contained in the carbon copies of the written portions of policies, which copies the firm was required to furnish to its principals, it is apparent that the information contained in any one carbon copy did not belong exclusively to the firm of Chamberlain Hemingway. By turning over these carbon copies to the insurance companies the firm lost control of the information contained therein in point of form as well as of substance. And since the court has expressly declined to find any custom to the contrary, the companies had the right to impart the information to others in the form in which they had demanded and received it. Besides, it was for their interest to assist the defendant in getting or keeping the renewal business of such former customers of the firm as might not choose to do business with the plaintiff.

The common-law property in unpublished compilations of items of information derived from sources open to others, rests upon the right of the compiler to retain for himself the exclusive benefit of the mental labor expended in making the compilation more valuable for consultation than the original sources of information. The plaintiff, as purchaser of the records of the firm, bought that advantage over his former partner and prospective competitor, and he is entitled to retain it. It is, however, clear that the defendant, in getting his information piecemeal from these carbon copies in the hands of the insurance companies, made use of the original sources of information, and did not infringe upon the exclusive right of the plaintiff, as purchaser of the records of the firm, to the benefit of the mental labor expended in collecting and arranging the identical items of fact into a compilation more convenient and advantageous for use.

The use by the defendant in competition with the plaintiff of memoranda taken directly from the compiled expiration records of the firm, presents an entirely different question. It is true that these memoranda, being taken by the defendant without any reference to the dissolution of the firm, and for use in the partnership business, were not wrongfully made. Nevertheless, to the extent that they possess the quality of being more useful for consultation than the original sources of information, they remained the property of the firm until it was wound up. The defendant could not rightfully have sold these memoranda to a rival insurance agency before the dissolution and winding up of the firm. After the receiver's sale, the defendant stood toward the plaintiff in the position of a vendor of the original compilations. The sale was by order of court, but the receivership proceeding was instituted by the defendant for the very purpose of having such a sale made; and the finding makes it clear that both plaintiff and defendant, in bidding against each other at the receiver's sale, recognized that the owner of these records would have a substantial advantage over the other partner in the anticipated competition between them as individual agents for the insurance companies formerly represented by the firm. This advantage consisted as much in the right of the owner to exclude his competitor from the use of the compilation, as in his right to use it himself.

Under these circumstances the defendant could not equitably have been permitted to bid up the price of the original, pocket his share of the price, and at the same time hold out a complete copy of the compilation for his own use in competition with the purchaser. And this would be true, though the copy were originally made for a proper purpose. Since he could not do this in whole, it must follow that he cannot do it in part.

The case of Armstrong v. Bitner, 71 Md. 118,17 A. 1054, 20 id. 136, is especially relied on as authority for the proposition that one partner has a right to make extracts from the books of the firm and to use them after dissolution of the firm in competition with the purchaser of the partnership records. As applied to the facts before the court in that case the proposition was sound, and entirely in accord with the views already expressed; for the point decided was, that since the defendant was entitled by the terms of his contract with the purchaser to solicit the business of the old customers of the firm after the expiration of two years, he was entitled to use for that purpose a list of customers taken from the firm books before its dissolution.

We conclude that the trial court erred in not awarding some relief to the plaintiff in respect of the wrongful use which the defendant made of memoranda copied from the expiration records of the firm. Whether the defendant is still making any substantial use of these memoranda, or of copies of them written into his own expiration records, does not clearly appear from the finding; but it does appear that the plaintiff is entitled to an accounting in respect of business obtained by the wrongful use of these memoranda in their original form or as copied into his own expiration records.

There is error in part, and a new trial is ordered as to the cause of action stated in the first count of the complaint, in so far only as the same is based upon the use by the defendant of memoranda or copies taken from the expiration records purchased by the plaintiff at the receiver's sale.

In this opinion the other judges concurred.