Byrne v. Barrett

Untermyer, J. The plaintiffs are the members of a firm of real estate brokers. The defendant is a former employee engaged by the plaintiffs in 1926 as a real estate salesman under an agreement by which he was to receive fifty per cent of any commissions earned as the result of negotiations conducted by him. The employment was oral and was terminable at the will of either party. There is no claim by the plaintiffs of any express agreement at that time that, if the defendant should leave their employment, he might not continue to work on pending business for his own account. There is no claim on the part of the defendant of any express agreement made at the time of his employment, that if he should leave, he might continue to work on pending deals. In the latter part of February, 1929, the defendant initiated negotiations for the sale or assignment to one Max Natanson of a leasehold held by the New York Trust Company, or by its subsidiary, Seven Forty-one Fifth Avenue Corporation, on property at the northeast corner of Fifth avenue and Fifty-seventh street. In this the defendant was acting as the representative of the plaintiffs and it is entirely clear that his principals, the plaintiffs, were, therefore, the parties employed as brokers in the transaction. The employment of the plaintiffs by the New York Trust Company, however, was not an exclusive one and did not preclude the trust company from employing other brokers in relation to the disposition of the leasehold. If several brokers were employed, as there may well have been, only that broker who was the procuring cause of any sale would, of course, become entitled to commissions. The defendant conducted on behalf of the plaintiffs the negotiations between the trust company and Natanson for the sale of the leasehold until March 26, 1929. Then, in consequence of a dispute concerning a transaction in no way related to the subject-matter of the present action, he severed his relations with them. On March 25, 1929, he wrote the plaintiffs offering to resign, but stating, “ I would like a release on anything that I may be working on.” At the trial the defendant testified that although the plaintiffs — 586 — refused to execute such a letter of release, the condition was verbally accepted by them. The trial court has found, however, upon evidence which abundantly sustains the finding, that the plaintiffs rejected the proposed condition and that thereupon the defendant tendered, and the plaintiffs accepted, an unconditional resignation. Had the defendant been able to establish that the plaintiffs had consented that he continue to work on transactions on which he was then engaged, it would necessarily have been a complete answer to the plaintiffs’ claim. Even failing in this, the situation of the parties remained unchanged by anything that occurred at the time the defendant resigned. The defendant relinquished nothing by requesting permission to do that which he had a right to do, assuming that he had that right. The plaintiffs acquired nothing by their refusal to comply with his request. Both parties may, it is true, have misconceived their rights, but such a misconception did not augment or curtail the rights of either. After leaving the plaintiffs’ employment, the defendant first informed the New York Trust Company and later Natanson that he had severed his relations with the plaintiffs and obtained from each permission to continue the negotiations in his own name. Such permission was readily given, for probably these parties were indifferent whether the negotiations were conducted by the defendant for his own account or as the plaintiffs’ employee. Thereafter the defendant pursued the negotiations in his own name to a point where Natanson offered to close the deal on terms satisfactory to the trust company, and where, therefore, the trust company became hable for commissions. This occurred on April eighteenth, but on the following day the trust company refused to proceed with the deal or to recognize the defendant’s right to brokerage. The defendant then began an action for commissions against the trust company, in which he eventually recovered judgment for $71,459.85. After the defendant left the plaintiffs’ employment the plaintiffs made no attempt whatever to continue the negotiations between the trust company and Natanson, as they might have done since, as already stated, they were the brokers in the deal. This probably was due to want of confidence in the success of the negotiations. When they learned of the pendency of the defendant’s action against the New York Trust Company they manifested no interest whatever therein, also because, as the court below observed in its opinion, they seem to have considered the defendant’s claim to be without foundation. In fact, they appear even to have co-operated with the trust company in an effort to defeat his claim. However, as soon as judgment was recovered against the trust company, this action was commenced to impress a trust upon the judgment, for — 587 — a decree “ that it be adjudged and decreed that the plaintiffs are entitled to receive the amount of the judgment recovered by the said Thomas F. Barrett against the said New York Trust Company on his action for brokerage commissions as alleged herein, subject to defendant’s right to receive the portion thereof from plaintiffs due him as compensation,” and for an accounting. The trial court has sustained the contention of the plaintiffs that after leaving their employment the defendant could not, without their consent, accept employment as broker in the transaction then pending between the New York Trust Company and Natanson without dividing any commissions in accordance with the original contract of employment. The court found upon sufficient evidence “ that the negotiations instituted by the said defendant prior to the 26th day of March, 1929, and consummated thereafter, constituted one continuous transaction involving the assignment or sale of the said lease.” There is no finding, however, and upon the evidence none would have been justified, that the deal between the trust company and Natanson had been consummated, or appeared at all to be certain of consummation, when the defendant resigned on March• twenty-sixth. On the contrary, the court found as to this “ that prior to March 26, 1929, the said Max N. Natanson had made an offer as to the terms of the assignment of the said lease which was not acceptable to the New York Trust Company and said Number Seven Forty-One Fifth Avenue Corporation and which was thereafter rejected by the said Number Seven Forty-One Fifth Avenue Corporation and the New York Trust Company.” There is, furthermore, neither finding nor proof, nor is there any allegation in the complaint, that the defendant left the employment of the plaintiffs in bad faith and for the purpose of earning the full commission by concluding thereafter the pending deal between the New York Trust Company and Natanson. Indeed, the trial court found that the defendant resigned for reasons in no way connected with that deal. There are, it is true, findings to the effect that after the defendant left the plaintiffs’ employment he willfully concealed his connection with the negotiations between the New York Trust Company and Natanson and that he was prosecuting an action for commissions against the trust company. But if the defendant had the right to act as a broker in the transaction after March twenty-sixth, even in competition with his former employers, then he was under no duty to make disclosure of that fact, especially to parties who were in the position of competitors. The question then is whether the defendant, who in the course of his employment had conducted negotiations for the plaintiffs between the trust company and Natanson, might after leaving the — 588 — employment compete "with Ms employers by contmuing for Ms own account negotiations so begun. Until that time, at least, he had in all respects discharged Ms duty of -undivided loyalty. Was he, even after all relations between him and Ms employers were severed, precluded from acting in competition with them in relation to business of the firm on wMch he had been engaged. Even as between partners and joint adventurers the duty of -uncompromising loyalty, exemplified by such decisions as Meinhard v. Salmon (249 N. Y. 458) and Mitchell v. Reed (61 id. 123), terminates with the dissolution of the fiduciary relationsMp wMch brought it into operation. (Hammond Oil Co. v. Standard Oil Co., 259 N. Y. 312, at p. 322, and authorities cited.) Certainly tMs must be true where the relation is that of employer and employee, as it was here {Gordon Co., Inc., v. Garcia Sugars Corp., 241 App. Div. 155; Hutchinson v. Birdsong, 211 id. 316; Mariner, Inc., v. Hughes, 235 id. 143; Byrne v. Blaker Advertising Agency, Inc., 239 id. 395), to which less drastic principles apply. (Schantz v. Oakman, 163 N. Y. 148.) What right of the plaintiffs is it then that the defendant violated or what property did he appropriate when he undertook to negotiate as broker for the trust company after March 26, 1929? In examining that question it is to be remembered that there was nothing to prevent the plaintiffs from continuing as brokers after March twenty-sixth the negotiations wMch the defendant had theretofore imtiated for them. With that employment the defendant did not interfere. The plaintiffs’ employment not being exclusive, any other broker employed by the trust company was at liberty to conclude a deal. The defendant accordingly did not disturb by anytMng he did the relations existing between the trust company and the plaintiffs. What the defendant may be said to have impaired was the probability or expectation that the plaintiffs would be the brokers to conclude the deal. But such a “ reasonable expectation ” is not a right or asset wMch is entitled to protection under the circumstances here. (Stem v. Warren, 227 N. Y. 538; Stearns v. Blevins, 262 Mass. 577; 160 N. E. 417.) Otherwise, upon the dissolution of a partnership or jomt adventure, or upon the termination of such an arrangement as existed here, neither party could pursue the negotiations further without accountability to the other. The effect of this would be to continue the relationsMp against the will of both the parties and “ thus prolong by indirection its responsibilities and duties.” (Meinhard v. Salmon, supra.) That rule seems especially applicable here, where the claim is asserted by parties who refrained from making any effort to convert the “ reasonable expectation ” into a reality against the party whose endeavors succeeded in causing it to fructify. — 589 — (See Brady v. Powers, 112 App. Div. 845; modfd. on other grounds, and affd., 188 N. Y. 626.) Had the defendant failed in his endeavors he would have had no right to contribution or reimbursement from the plaintiffs for the time consumed or the expense incurred in attempting to conclude the deal. The defendant, therefore, appropriated no property belonging to the plaintiffs. What he took with him were attributes which he had the right to take. He took with him his knowledge of the situation — knowledge of the requirements of the trust company and of Natanson, and no doubt other general information pertaining to the deal. This was knowledge and information which in the absence of a restrictive covenant the defendant was entitled to use for his own advantage precisely as he might have used any other information, not in the nature of a trade secret, acquired in the course of his employment, extending even to the names of customers or clients. (Boosing v. Dorman, 148 App. Div. 824; affd., 210 N. Y. 529; Scott & Co., Inc., v. Scott, 186 App. Div. 518; Peerless Pattern Co. v. Pictorial Review Co., 147 id. 715.) “ Equity has no power to compel a man who changes employers to wipe clean the slate of his memory.” (Peerless Pattern Co. v. Pictorial Review Co., swpra.) And in Gossard Co. v. Crosby (132 Iowa, 155, 177; 109 N. W. 483, cited with approval in Boosing v. Dorman, supra) the court likewise said: “ The employee leaving an employer’s service cannot leave the experience or knowledge there acquired, and, savingjthe matter of trade secrets already mentioned, these are legitimate additions to her personal equipment which she has a perfect right to use for her own benefit.” What the plaintiffs really complain of is that the defendant was enabled to avail himself of a connection which rendered possible more effective competition with them, if they had undertaken to compete. But there was no express covenant and, as I have said, there was none implied in the contract of employment that at its termination the defendant would not avail himself of a connection which he had established, and of information which he had acquired in the course of his employment. If the plaintiffs intended to exclude him from that advantage after he had severed his relations in good faith with the firm, they should have provided against the contingency by a suitable restrictive covenant. Of course, if either party here, realizing that the deal was about to close, had terminated the relationship in order to secure the full commission to the exclusion of the other, different considerations would apply. (Goodman v. Mar col, Inc., 261 N. Y. 188; Sibbald v. Bethlehem Iron Co., 83 id. 378.) The order as resettled September 15, 1933, giving defendant leave to settle and compromise the judgment entered in his favor against — 590 — the New York Trust Company and fixing the hen of Pfeiffer & Crames, which by plaintiffs’ notice of appeal herein is brought up for review, was separately appealed from and affirmed by the court by order entered November 3, 1933 (240 App. Div. 870). The appeal in so far as it seeks to review said order should be dismissed. The order dated November 21, 1933, brought up for review on plaintiffs’ appeal, directing payment of Pfeiffer & Crames’ fee by the chamberlain, should be affirmed. • The judgment should be reversed, with costs to the defendant, and the complaint dismissed, with costs. Finch, P. J., and O’Malley, J., concur; Merrell and Townley, JJ., dissent and vote for affirmance.