Chicago Business Litigation Lawyer Blog

Every business has employees, and as business litigators, the attorneys at DiTommaso-Lubin pride ourselves on being knowledgeable about all the areas of law that affect our clients, including employment laws. Our Orland Park business attorneys recently discovered a case that has an impact on companies who utilize employment non-competition agreements with their employees.

Reliable Fire Equipment Company v. Arredondo pits an employer against two former employees, Defendants Arredondo and Garcia, who worked as fire alarm system salesmen for Plaintiff. Each Defendant signed an employment agreement where Defendant's would allegedly earn commissions of varying percentages of the gross profits on items or systems sold. After working for Plaintiff for several years, Defendants created Defendant High Rise Security Systems, LLC., which was allegedly a competitor to Plaintiff's business. Plaintiff eventually became aware that Defendants were starting an alleged competitor company, and asked Defendants if in fact they had created a fire alarm business. Defendant Arredondo allegedly denied that he was starting such a business, and resigned shortly afterward, with Defendant Garcia tendering his resignation two weeks after Arredondo.

Plaintiff then filed suit alleging breach of the duty of fidelity and loyalty, conspiracy to compete against Plaintiff and misappropriation of confidential information, tortious interference of prospective economic advantage, breach of the employment agreements, and unjust enrichment. The trial court held that the employment agreements were unenforceable because of unreasonable geographic and solicitation restrictions and the fact that language of the agreements was unclear. A trial on the issues unrelated to the employment agreement ensued, and Defendants successfully moved for a directed verdict because there was insufficient evidence that Defendants competed with Plaintiffs prior to Arredondo's resignation.

Plaintiff then appealed the trial court's ruling that the employment agreements in question were unenforceable and the directed jury verdict. The Appellate Court affirmed the trial court's directed verdict, stating that the lower court had properly weighed the evidence in finding a total lack of competent evidence. The Court then analyzed the restrictive covenants under the legitimate business interest test and found that the geographic restrictions were not reasonable and therefore the trial court did not err in ruling that the restrictive covenants were unenforceable.

Reliable Fire Equipment Company v. Arredondo illustrates why it is so important for business owners to keep an eye on their employees, and serves as a warning for companies wanting to sue former employees based upon non-competition agreements. Furthermore, the case shows that courts frown upon the use of vague language in such agreements, and it is always in your best interests to keep the terms of employment agreements reasonable.

Continue reading "Business Owners Beware, Make Sure Your Employment Agreements are Clearly Written and Reasonable" »

In order to hold an employee or former employee liable under an agreement not to compete, an employer must offer the employee some form of consideration in exchange for the employee’s promise not to compete with the employer. The Northern District of Illinois tackles the difficult question of how much consideration is enough in LKQ Corporation v. Thrasher.

Plaintiff LKQ Corporation is a national automobile parts supplier. In January 2010, Plaintiff hired Defendant Corey Thrasher as a Sales Representative, handling accounts in the Northwest United States. Defendant signed a noncompete agreement shortly after he was hired, allegedly stating that he would not compete with Plaintiff nor solicit Plaintiff’s customers during his employment and for one year following the end thereof. The noncompete agreement also included a forum selection clause designating that any actions related to the contract be raised in Illinois and considered under Illinois law.

One year later, Defendant resigned from his position, effective February 2011. On the day he resigned, Defendant allegedly contacted a number of Plaintiff’s customers via email, telling them that he had taken a similar position with B&R Auto Wrecking, Inc. and that he was looking forward to continuing to work with these customers. Plaintiffs allege that Defendant has continued to solicit LKQ customers to purchase B&R merchandise and that several LKQ clients have decreased their business with LKQ as a result.

Plaintiff filed suit alleging that Defendant breached the non-compete agreement. The court denied Defendant’s motion to dismiss the action, in which he argued that the agreement lacked sufficient consideration to be enforceable. The court concluded that Plaintiff received continued employment for a "substantial period" following the execution of the agreement, which constituted adequate consideration, and therefore the agreement was enforceable.

In order for a contract to be enforceable, the promises therein must be given in exchange for consideration. Typically, consideration is anything of value received in exchange for a promise. In the employment context, however, a party seeking to enforce an noncompete agreement must prove that sufficient consideration was given in exchange for the promise not to compete because the simple benefit of continued employment is illusory: employment is at will and a person who signs a noncompete agreement can still be fired at any time. Thus, only continued employment for a “substantial period” or some other form of consideration is sufficient to support a noncompete agreement.

Continue reading "Consideration in Illinois Noncompete Agreements: How Much Is Enough? LKQ Corporation v. Thrasher" »

Continue reading "Video Discussing Non-Compete Agreements" »

After hiring someone, businesses expect not only that their new employee will perform his job adequately, but also that he will do no harm to the company or its ability to do business. Employers know that their expectations are not always met by those employees, which is why the use of employment contracts with non-compete clauses are quite common these days. Our Chicago restrictive covenant attorneys just discovered a recent court decision that details a dispute between an employer and an ex-employee regarding one such employment agreement.

In Zep Inc. v. First Aid Corp., Plaintiff Zep employed the individual Defendants as sales representatives for its industrial cleaning products business pursuant to an employment agreement that contained non-disclosure, non-solicitation, and non-compete provisions. During their employment, Defendants had access to Plaintiff's customer lists, supplier lists, pricing information, and other proprietary information. Eventually, a competitor, Defendant First Aid, hired the other named Defendants away from Plaintiff and subsequently solicited Plaintiffs clients and other employees.

As a result, Plaintiff filed suit for breach of contract, trade secret misappropriation under the Illinois Trade Secrets Act (ITSA), and tortious interference with contract. Plaintiff contends that First Aid induced the other Defendants to breach the employment agreements they signed with Plaintiff and that the other Defendants used and disclosed Plaintiffs trade secrets. In response, Defendants filed motions to dismiss the claims, which were granted as to three of the individual defendants due to a lack of personal jurisdiction. The Court found that because three of the individual Defendants were residents of Michigan and Ohio, Plaintiff is located in Georgia, and the employment agreements were signed outside of Illinois, they did not have the requisite minimum contacts to give an Illinois court jurisdiction over the matter. Furthermore, Plaintiff had not alleged that any of Defendants' actions were aimed at Illinois, and neither had their actions caused harm to Plaintiff in Illinois, so specific personal jurisdiction was also improper. The Court denied the remaining motions to dismiss – finding that the non-compete provisions were enforceable because the geographic limitations were reasonable and the non-solicitation clause was limited in scope to Plaintiff's competitors for a span of one year. Plaintiff's allegations were also found to be sufficient to support a claim under the ITSA because it had identified a list of confidential information and trade secrets in its pleadings.

Continue reading "Northern District of Illinois Grants Motion to Dismiss in Trade Secrets Case Due to Lack of Personal Jurisdiction" »

The above video provides an excellent overview of Illinois non-compete contract law.

Our Chicago non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain's Chicago business. You can view that article by clicking here.

DiTommaso-Lubin handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business law firm represent both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Schaumburg noncompete clause lawyers take cases from Naperville, Wheaton, Vernon Hills, and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact us through the Internet or call toll-free at 1-877-990-4990 today.

DiTommaso-Lubin has successfully litigated many business disputes, and in our many years of experience we have found that contract claims are among the most contentious conflicts. Because so many of our clients deal with breach of contract issues, our Elmhurst business attorneys are always mindful of new court decisions issued in this area of the law. In fact, our lawyers just discovered one such case, Jumpfly Inc. v. Torling, in the US District Court for the Northern District of Illinois.

Jumpfly Inc. v. Torling pits a Plaintiff employer against two former employees who allegedly violated the non-compete agreements signed when they were hired by Plaintiff. Plaintiff contends that Defendant Torling started a competing pay-per-click internet advertising side-business while in Defendant's employ, and upon discovering its employee's side-business, fired him and sent a cease and desist letter demanding that he stop violating the non-compete. The parties eventually negotiated a settlement allowing Torling to continue his business, but the agreement prohibited him from soliciting any of Plaintiff's employees. Torling allegedly solicited Defendant Burke -- who was working for Plaintiff at the time under a similar non-compete agreement -- and got him to quit his position with Plaintiff to work for Defendant Torling.

Plaintiff then filed suit against the two individuals and the new company (Windy City) that they worked for -- alleging rescission of a settlement agreement, breach of contract, violations of the Lanham Act and Illinois Deceptive Trade Practices Act, and intentional interference with contract based upon non-compete agreements between the parties. Plaintiff's requested the Court to enjoin Defendants' competitive business conduct and for monetary damages. In response, Defendants filed a motion to strike Plaintiff's request for injunctive relief and filed a motion to dismiss under 12(b)(6).

The Court granted the motion to strike as to the breach of contract claim because the two year term of the non-compete agreement had already expired and an injunction would result in an unreasonable restraint of trade. The Court also noted that Plaintiff's seven-month delay -- after discovery of the illicit conduct -- in asking for an injunction also weighed in favor of Defendants. The Court denied the motion to strike as to the statutory claims, however, because injunctive relief is provided by both laws which rendered the motion premature.

Next, the Court granted Defendants' motion to dismiss the breach of contract and intentional interference with contract claims due to pleading insufficient facts that Defendant Windy City induced either of the individual Defendants to breach their contracts with Plaintiff. In dismissing Plaintiffs conspiracy to interfere with contract, the Court applied the Intracorporate Conspiracy Doctrine and declined to agree with Plaintiff's argument that Defendants' conduct fell with in an exception to the rule. Finally, the Court denied the motion to dismiss the settlement agreement breach claim as the effect of Defendants' breaches had yet to be determined.

Continue reading "Northern District of Illinois Federal Court Grants Motion to Strike Plaintiff's Request for Injunctive Relief in Breach of Contract Case" »

Business litigation is necessarily an adversarial process – the stakes are high and as such the opposing parties in most lawsuits will fight over many issues during the case. One of the most contentious segments of any case is the discovery process. Because the information obtained during discovery can make or break a case, it is important to understand the law in this area. In that vein, our Berwyn business attorneys would like to share a recent Illinois Appellate Court decision that may affect many of our clients the next time they go to court.

In Mueller Industries Inc. v. Berkman, Defendant Berkman worked for Plaintiff as president of a company owned by Plaintiff pursuant to an employment contract. During his employment, Defendant formed an investment partnership and obtained a 10% ownership interest in a company that was one of Plaintiff's primary suppliers. Defendant's lawyer – whose firm was also counsel for Plaintiff – advised him how to structure the investment venture so as to not run afoul of his employment contract with Plaintiff. The initial employment agreement subsequently expired, and a new open-ended agreement was consummated that contained a non-compete clause and other restrictive covenants governing outside financial interests and business opportunities. Defendant then had his attorney form a new company to compete with Plaintiff, and Defendant subsequently resigned his position with Plaintiff.

Plaintiff filed suit for breach of his employment contract and breach of fiduciary duty, alleging Defendant profited personally at the expense of Mueller through his investment partnership. A discovery dispute ensued when Defendant refused to produce documents related to his investment in the supply company and his creation of the competing company. Defendant refused production based upon the 5th amendment and attorney-client privileges. Plaintiff filed a motion to compel production, which was granted by the trial court.

Defendant appealed the trial court's grant of the motion, and reasserted that the documents were privileged. The Appellate Court reversed in part, holding that Defendant's pre-existing relationship with his lawyer kept all communication prior to the attorney's firm's representation of Plaintiff privileged. However, all communications after the dual representation began were no longer so protected because Defendant no longer had any reasonable expectation of confidentiality. Finally, the Court found that Defendant had failed to demonstrate that producing the requested documents would amount to incriminating testimony, but remanded the case with orders for the lower court to perform an in camera review of the disputed documents and urged the trial court to make a detailed record of its findings.

Continue reading "Appellate Court of Illinois Orders in Camera Review of Potentially Privileged Documents in Action for Breach of Fiduciary Duty" »

Our Chicago trade secrets attorneys were interested to see a recent trade secrets lawsuit coming from the high-dollar world of professional sports. Palace Sports & Entertainment, owner of the Detroit Pistons basketball team, is suing rival venue and sports company Olympia Entertainment Inc., plus nine ex-employees who moved to Olympia, for alleged theft of its confidential trade secrets. Crain’s Detroit Business reported that the claim stems from the movement of ten Palace employees to Olympia, starting in February when Palace president Tom Wilson left to run a new venture for Olympia and its parent company, Ilitch Holdings. This venture was to look into a new venue for the Detroit Red Wings, also owned by Ilitch. Nine people followed Wilson, including two executive vice presidents. In Michigan state court, Palace accuses them of breach of contract, breach of fiduciary duty, unfair competition, conspiracy, conversion, tortious interference and misappropriation of trade secrets.

According to the complaint in Palace Sports & Entertainment Inc. v. Olympia Entertainment Inc., dated June 8, 2010, Palace is accusing the ex-employees of taking and misusing trade secrets, despite having signed different versions of a confidentiality agreement that gave them a fiduciary role in Palace’s confidential information. The contract also contained restrictive covenants not to disclose such information to people outside the company, or use it for their own or anyone else’s gain. Confidential information was defined broadly, including “any technical, economic, financial, marketing or other information, which is not common knowledge.” Palace alleges that the ex-employees misappropriated information including suite prices, customer and prospect lists and sales notes, a business plan, marketing plans, suite assignments, appointment logs, proposals, vendor lists and at least one contract. When Palace notified Olympia of the first theft, it said, Olympia provided physical documents and lists of files. But Olympia did not provide the electronic data behind those files, Palace alleged and has even put some of the data on its own computers.

Palace demanded that Olympia return all of the electronic files and physical documents; that each ex-employee swear an oath that all of the information has been returned; and that a third-party expert be allowed to comb Olympia’s computers and the ex-employees’ personal computers for the information. Olympia has not complied. In its lawsuit, Palace said this caused it immediate and irreparable harm by enabling unfair competition. Olympia said publicly that it believed Palace simply did not like losing its employees. No further court documents are freely available, but trial is set for May 27, 2011.

This case generated great interest in the Detroit press, in part because Ilitch was considering buying the Pistons from Palace. But as Illinois business lawyers, we would like to discuss the strength of Palace’s case, judging by the allegations made in its complaint. Specifically, we suspect that the defendants could consider a defense based on whether the information they are accused of stealing was actually confidential trade secrets. Under the laws of Michigan, Illinois and other states, some information is not a trade secret because it is widely available to the public and not valuable. Thus, a trade secrets lawsuit cannot survive if it is based on the use of information such as lists of businesses copied from a phone book. Even if Palace’s confidentiality agreement defines such information as confidential, employees would be under no obligation to comply. The agreement cited in the complaint may also be subject to a challenge for being overly broad or vague because its definition of confidential business information includes “any information, not known to the general public.” This could easily include information with no special economic value.

Continue reading "Detroit Pistons Owner Sues Competitor and Ex Employees for Alleged Trade Secrets Theft" »

Any business owner should keep abreast of laws and court rulings that can affect the way they conduct their operation and interact with employees. The law constantly evolves, and that is why our lawyers are vigilant in tracking changes that affect our clients. Citadel Investment Group v Teza Technologies is one such ruling that provides clarity regarding noncompetition agreements between employees and employers.

In this case, Defendants Malyshev and Kohlmeier worked for Plaintiff Citadel Investment Group until February of 2009, when they resigned. When Malyshev and Kohlmeier were initially hired by Citadel, they each signed a nondisclosure agreement and an employment agreement containing a noncompetition clause. The noncompetition clauses contained language giving Citadel the discretion to set the length of the restrictive period at zero, three, six, or nine months. Citadel elected for a nine month restricted period for both Malyshev and Kohlmeier upon their resignation.

Malyshev and Kohlmeier formed Defendant Teza Technologies two months after leaving Plaintiff Citadel in April of 2009. When Citadel discovered the existence of Teza and its status as an entity performing similar high frequency trading in July of 2009, the present legal proceedings began. Plaintiffs initially sought a preliminary injunction against Defendants based upon the noncompetition agreements signed by Malyshev and Kohlmeier. This injunction was granted in October 2009 for relief through November of 2009. The trial court made its decision based upon the agreed upon nine month period contained in the noncompete and calculated the time from February of 2009 when Malyshev and Kohlmeier resigned.

Citadel appealed the decision, and asked the appellate court to grant the injunction for nine months from October until July of 2010. Citadel argued that they had not received the benefit of the restricted period prior to the preliminary injunction being entered, and the Court should adjust the start date of the restricted period accordingly. The Court did not find the Plaintiff's argument persuasive and denied the appeal because the plain language of the agreements signed by Malyshev and Kohlmeier contained no provision allowing for an extension of time or modification of the commencement date. Thus, the restrictive covenant properly ended in November as was required by the agreement signed by both parties.

Citadel Investment Group v. Teza Technologies serves as a warning to business owners who utilize noncompetition agreements and a potential boon to employees who sign them. Whether you are a business already in a dispute over a noncompetition agreement or a former employee seeking employment with a new company in the same field, you should contact a Chicago business litigation attorney to be apprised of your rights.

Continue reading "Enforcing Noncompetition Agreements is Tricky Business" »

Our Chicago non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain's Chicago business. You can view that article by clicking here.

DiTommaso-Lubin handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business law firm represent both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Schaumburg noncompete clause lawyers take cases from Naperville, Keniworth, Aurora, Lake Forest, and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact us through the Internet or call toll-free at 1-877-990-4990 today.

HP Sues Ex-CEO Hurd Over Oracle's Job Offer
by Richard Gonzales
NPR reports:

Mark Hurd recently was fired from his job as CEO of Hewlett-Packard after a scandal involving an extra-martial relationship. One of HP's main tech rivals -- Oracle -- wants to make Hurd its co-president. That's prompted HP to sue, claiming Hurd can't possibly perform the new job without tapping into HP's trade secrets.

Our Chicago non-compete agreement lawyers have defended high level executives in cases with similar claims to the Hurd case. A case in which our firm defended a former Motorola executive was covered in Crain's Chicago business. You can view that article by clicking here.

DiTommaso-Lubin handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business litigation attorneys have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business law firm represent both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Schaumburg noncompete clause lawyers take cases from Wheaton, Lake Forest, Hinsdale and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact us through the Internet or call toll-free at 1-877-990-4990 today.

H-P Sues to Stop Ex-Chief's Job
By ROBERT A. GUTH, BEN WORTHEN And JOANN S. LUBLIN .

The Wall Street Jornal Reports:

Hewlett-Packard Co. sued to block its former chief executive from joining rival Oracle Corp. as a senior executive, alleging Mark Hurd's hiring breaches his exit agreement and will inevitably lead to a transfer of its trade secrets to a competitor. ... While it isn't unusual for companies to sue departing executives to enforce exit agreements, H-P's suit Tuesday against Mr. Hurd is atypical in that former CEOs are rarely subject to such legal actions, experts said.

H-P's suit focuses on a confidentiality agreement, which restricts Mr. Hurd from disclosing sensitive information about his former employer.

Continue reading "The Wall Street Journal Reports: H-P Sues to Stop Ex-Chief's Job " »

As Illinois trade secrets litigation attorneys, we were interested to see a trade secrets lawsuit arise out of the time-sensitive and competitive world of women’s fashion. As the Naples Daily News reported in July, Florida clothing company Chico’s FAS Inc. has sued competitor Cache Inc. and two former employees who moved to Cache, Rabia Farhang and Christine Board. Chico’s alleges that Farhang and Board shared designs from Chico’s White House/Black Market line with Cache, resulting in nearly identical spring and summer collections from the two brands. The lawsuit’s complaint includes exhibits of pictures of both collections. It accuses the women of breach of their nondisclosure agreements and legal duties, and Cache of inducing them to breach those agreements, and all defendants of tortious interference with contractual relations, misappropriation of trade secrets, unfair competition, theft, unjust enrichment and civil conspiracy.

According to the complaint in the case (PDF), which was filed in New York state court, Cache has not been financially successful in the past four or five years, during which time Chico’s White House/Black Market line has done well. Chico’s alleges that Cache tried to fix this by inducing Farhang and Board to leave Chico’s in the fall of 2009, taking their knowledge of design plans for 2010 clothing lines along with other trade secrets and confidential information. At Chico’s, Farhang and Board both participated in the designs of the 2010 lines, Farhang as a senior officer. Using the allegedly stolen designs, the complaint says, Cache saw an increase in sales in spring of 2010, and Chico’s alleges that Cache will use stolen designs in its fall line as well. Because of this, it requested preliminary and permanent injunctions stopping Cache from selling clothes from its spring, summer and fall lines, as well as a recall of the spring and summer lines. It also asked for financial damages and court orders protecting its trade secrets and confidential information.

Our Chicago business emergency lawyers believe this case is a good example of a situation in which swift action is necessary. If the allegations by Chico’s are true, its intellectual property and brand have already been somewhat diluted by Cache’s use of very similar designs in its spring and summer lines. This would be ongoing damage to the company that includes difficult-to-measure non-financial harm to its identity and customer loyalty, as well as actual financial damages from infringement. Furthermore, the tight schedules of fashion and retail companies mean that they bring out their fall lines in mid-summer, which means the court must take quick action on the July 29 lawsuit to stop the infringing on the fall line. This also means that Cache’s fiscal health could be in serious trouble if the count chooses to grant the injunction against the fall line and the recall order for the spring and summer lines. For both sides, this claim represents a legal emergency requiring quick action to protect their business.

Continue reading "Clothing Retailer Sues Competitor and Former Employees Alleging They Stole Secret Designs" »

Our Chicago trade secrets litigation attorneys were interested to see that a trade secrets and breach of restrictive covenant case was responsible for clarifying a point of procedure at the trial level. In Vision Point of Sale v. Haas et al., No. 103140 (Ill. Sup. Co. Sept. 20, 2007), the Cook County trial court certified a question of law having to do with unintentional noncompliance with a procedural requirement. In such a case, the court asked, may courts consider information of record that goes beyond the reasons for the noncompliance? The First District Court of Appeal said yes, but the Illinois Supreme Court reverse that decision.

The case arises from a Trade Secrets Act, breach of fiduciary duty, tortious interference and unjust enrichment claim filed by Vision Point of Sale, Inc. against Ginger Haas and Legacy Inc. Haas was an executive assistant at Vision before resigning and immediately taking a job at Legacy. Vision contended that Haas, at Legacy’s direction, stole confidential and proprietary information as she left, with the goal of soliciting Vision’s customers. Both companies refurbish and sell used point-of-sale equipment. Vision requested and received a preliminary injunction as well as a permanent injunction. Discovery on the permanent injunction included a request for admissions from defendants. When Vision returned its responses, the final page was signed by its attorney, but the final page of the document was signed by Vision CEO Frank Muscarello. This violated the Illinois Code of Civil Procedure, which required Muscarello’s signature on the final page of responses as well.

The defendants immediately moved to strike the document as defective and deem all of its facts admitted because of the missing signature. The trial court granted that motion. Vision moved for more time to file a set of amended responses. That motion argued that a good-faith reading of the rules was enough “good cause” to allow the amendment. It was denied, but after the case proceeded and the court became frustrated with the defendants’ noncompliance with the preliminary injunction, it vacated that denial and allowed Vision to amend its responses. Not surprisingly, the defendants objected and asked the court to certify the question in the instant appeal. The appellate court found that courts may consider information in the record beyond the reasons for the noncompliance, writing that in this situation, the circuit court may consider any facts that “strike a balance between diligence in litigation and the interests of justice.” The defendants appealed to the Illinois Supreme Court.

In considering this appeal, the high court said it was considering Supreme Court Rule 183, and to a lesser extent, Rule 216. Rule 183 says that courts may extend deadlines if one party makes a motion requesting the extension and shows good cause. The relevant parts of Rule 216, which deals with requests for admissions, say that recipients must respond within 28 days with a sworn statement denying the objections or a written statement saying they are improper in some way. Otherwise, every fact in the document is deemed admitted. The court started with a detailed discussion of Bright v. Dicke, 166 Ill. 2d 204 (1995), the last Illinois Supreme Court case interpreting the good-cause requirement. In that case, the high court found that circuit courts have the discretion to extend the 28-day deadline for responses to requests to admit.

However, the Bright court upheld the trial court’s decision to deny an extension in that particular case, because the movant had failed to show good cause. That court said the “mere absence of inconvenience or prejudice to the opposing party is not sufficient to establish good cause under Rule 183,” and that the burden of establishing good cause should be on the movant. Thus, the rule established by Bright says that trial courts may extend deadlines for responses to requests for admissions if the movant can show good cause. The defendants argue that this is inconsistent with the appellate court’s ruling in the instant case -- and the Supreme Court agreed. The appellate court’s analysis focused on issues other than why the plaintiffs failed to meet their deadline, the high court wrote, making it at odds with Bright. Allowing courts to consider the totality of the circumstances, the court wrote, would allow too many irrelevant issues to enter into the analysis.

However, the court did agree with plaintiffs that the cases subsequently arising from Bright created an unduly harsh discovery rule. Cases like Hammond v. SBC Communications, Inc. (SBC), 365 Ill. App. 3d 879, 893 (2006) expanded the rule in Bright to create “a second, broader, harsher, and apparently inflexible standard that ‘mistake, inadvertence, or attorney neglect’ on the part of the moving party can never serve as the sole basis for establishing good cause[.]” This can be fatal to cases and is unnecessarily severe, the high court said, but the appellate court’s decision is not the answer. Rather, the Supreme Court clarified that it never intended such a result in Bright and overruled cases creating that result. This analysis was enough for the Supreme Court to overrule the trial court’s ruling on the discovery motion in this case. However, the high court also found that the plaintiffs’ response was not deficient because the appellate ruling on which it is based, Moy v. Ng, 341 Ill. App. 3d 984 (2003), has no basis in Rule 216 or the Code of Civil Procedure. Thus, the appellate court was reversed and the case was remanded.

Continue reading "Illinois Supreme Court Resolves Question on Unintentional Missed Deadlines in Trade Secrets Case" »

As Illinois non-compete contract lawyers we were interested in a lengthy but substantial ruling from the Third U.S. Circuit Court of Appeals in January. In Zambelli Fireworks Mfg. Co. v. Wood, No. 09-1526, 2010 WL 143682 (3d Cir. Jan. 15, 2010), the appellate court upheld a preliminary injunction to enforce a covenant not to compete against Matthew Wood, a former pyrotechnician and choreographer for Zambelli, and his new employer, Pyrotechnico. Wood left Zambelli after seven years and a substantial amount of training from the company. In the course of his employment, he signed two non-compete agreements, the second of which superseded the first. However, Zambelli changed from a family business to an investor-owned corporation in 2007, and asked Wood to assume substantial new duties. He declined, and left for Pyrotechnico in early 2008.

Wood’s second non-compete agreement with Zambelli said he would not be involved in the pyrotechnic business in any way for two years after leaving the company; and would provide three months’ notice before leaving. When he left for Pyrotechnico, Wood provided 11 days’ notice. He and Pyrotechnico say they tried to avoid work that would constitute a breach of the non-compete clause, which restricted Wood to duties like training and music editing. Nonetheless, Zambelli sued in Pennsylvania district court and obtained a preliminary injunction keeping Wood from designing or choreographing fireworks displays, or promoting Wood’s accomplishments at Zambelli. Wood and Pyrotechnico appealed, arguing that the 2007 sale of the company canceled Wood’s non-compete agreement; that the restrictive covenant does not protect a legitimate business interest; and arguing some technical issues.

On appeal, the Third maintained its diversity jurisdiction by dropping Pyrotechnico, an LLC that it determined had Pennsylvania citizenship, as a party. It then turned to Wood’s assertion that the 2007 stock sale changed Zambelli enough to make it a separate “purchasing business entity.” Wood argued that Zambelli’s failure to assign his agreement to the “new entity” invalidated the agreement. The Third rejected this argument, saying that a sale of stock is not the same as a wholesale transfer of assets under Pennsylvania law.

Wood had no more luck with his argument that the agreement itself was unenforceable because it did not protect Zambelli’s legitimate business interests. Previous Third Circuit decisions have held that legitimate business interests include trade secrets, confidential information, specialized training, extraordinary skills and customer goodwill. Victaulic Co. v. Tieman, 499 F.3d 227, 235 (3d Cir. 2007). This allowed the Third to agree with the district court that Zambelli had a legitimate business interests to protect with an injunction. Wood had a longstanding relationship with Zambelli’s customers, the court said, and they viewed him as an expert in the industry. Similarly, Zambelli had provided Wood specialized training and skills, and had a legitimate business interest in protecting it. However, because the district court had failed to require Zambelli to post a bond, the Third vacated the injunction and remanded the case with instructions to require a bond if the court decides to reimpose the injunction.

Continue reading "Third Circuit Upholds Non-Compete Clause But Changes Unreasonable Restriction on Activity" »

Our Chicago covenant not to compete and trade secret attorneys can assist your company or business in drafting agreements to protect your business from rogue former employees who engage in unfair competition. Our Chicago business lawyers and Chicago business trial attorneys can file lawsuits seeking a TRO, injunction and actual damages to protect your business from employees who steal customer information and violate non-compete agreements. To see the types of cases our Chicago business law lawyers handle you can look at our website. To contact one of our Chicago business law attorneys, click here. You can also view our Chicago business attorneys listings in Super Lawyers.

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DiTommaso-Lubin prosecutes and defends cases involving controversies over a covenant not to compete, or other restrictive covenants and other business law issues. Our Illinois restrictive covenant attorneys represent clients in active litigation over the validity and enforcement of these covenants, as well as helping to evaluate whether litigation may arise over such a contract. With more than 25 years of experience, we have handled these claims for businesses of every size, from large corporations to family-owned businesses, as well as individual employees. Based in downtown Chicago and in Oak Brook near Naperville, Hinsdale, Wheaton and Downers Grove, our Chicago business law lawyers represent clients throughout the state of Illinois, as well as in Indiana and Wisconsin. To learn more about how our Illinois covenant not to compete lawyers can help you, please do not hesitate to contact us through our Web site or call toll-free at 1-877-990-4990.

As Chicago business law attorneys, we were interested to see a recent appellate opinion reminding Illinois businesses that severability clauses won’t necessarily protect contract provisions from other clauses that have been voided. That was what happened in Kepple and Company, Inc. v. Cardiac, Thoracic and Endovasclar Therapies, S.C., No. 3-09-0033, Ill. 3rd. Dec. 16, 2009. In that case, the Third District Court of Appeal upheld a Peoria trial court’s ruling that an entire services contract between a medical biller and a medical corporation was void, because a fee-sharing provision violated the Medical Practice Act of 1987.

Kepple is a medical billing and collection services company. Cardiac, a medical corporation run by a single doctor, hired Kepple in 2003. Their services contract contained a fee-sharing clause allowing Kepple to retain 5% of all the money it collects for Cardiac. It also had non-compete, non-solicitation and no-hire clauses forbidding either company to solicit or hire away the other company’s employees without a release. And it had a severability clause specifying that if one part of the contract was found void, other parts should still be enforceable.

Cardiac became unhappy with Kepple’s services in mid-2006 and called a meeting on Aug. 3, 2006. Two days later, Kepple’s vice president, Debra Hawley, gave notice that she would leave on Nov. 3. Hawley was the sole person handling Cardiac’s work. Her employment contract had a non-compete clause preventing her from joining a company with 50% or more of its business from medical billing within one year of leaving Kepple. On Sept. 13, Cardiac gave notice that it was terminating its contract with Kepple as of Nov. 10. On Nov. 13, Hawley started working for Cardiac.

Kepple sued both of them when it found out and requested a preliminary injunction keeping Hawley from working at Cardiac. The trial court turned this down, finding that Hawley’s employment contract didn’t apply, since Cardiac is not a competitor to Kepple, and that the non-compete clause of the services contract was unenforceable because it had no time limit. It also found that Hawley was solicited, but not hired, while she was at Kepple, but that suing was an adequate remedy for this. An interlocutory appeal to the Third District upheld these findings.

On remand, the defendants promptly filed for summary judgment based on both courts’ findings. The trial court granted it, saying that the service contract’s fee-sharing clause violated the Act, which prohibits physicians from sharing fees with anyone other than physicians practicing in the same business. Thus, the court said, the contract was void in its entirety. And even if the contract was severable, the trial court had already found that Cardiac did not induce Hawley to leave her job at Kepple. Thus, there was no violation of the non-solicitation clause, the trial court found. Kepple appealed, arguing only the severability issue. It agreed that the Medical Practice Act banned the fee-sharing agreement, but said other provisions are severable and enforceable.

In its opinion, the Third District said that under the Second Restatement of Contracts, the essential issue was whether the voided part of the contract was an essential part of the contract. In this case, the court said “there can be no dispute” that it was. The fee-sharing clause is “the very essence” of the agreement, the court said, and thus the entire contract is void and unenforceable. That means the trial court was correct to grant summary judgment in Cardiac’s favor. With that settled, the appeals court noted that it did not have to consider the remainder of either side’s arguments. It also dismissed an argument by Kepple as waived on appeal because it was not raised in trial court.

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Our Chicago non-compete contract litigators also practice in Wisconsin, so we were interested in a decision from that state’s Court of Appeals on the severability of a covenant not to compete. In Frank D. Gillitzer Electric Co., Ltd. v. Marco Anderson et. al., 2010 WI App. 31 (Jan. 20, 2010), the court reversed a grant of summary judgment for five former employees of an electrical contractor in Milwaukee. All of them had enrolled in a training program to become licensed electricians, and signed an agreement with Gillitzer that they would reimburse the company for the cost of schooling if they failed to finish it, or left Gillitzer within four years of completing it. The same contract said they also agreed not to join a competing business in the counties where Gillitzer does business within four years of leaving the company.

All five defendants dropped out or were kicked out of the apprenticeship program before finishing, but remained with Gillitzer until voluntarily resigning. After they left, Gillitzer sued them for the cost of the training. In trial court, the defendants moved for summary judgment. They argued that the non-compete portion of the agreement was unenforceably broad and inextricably linked to the repayment portion, making the entire agreement unenforceable. They also argued that the repayment provision was a restrictive covenant under Wisconsin law. The trial court granted the summary judgment and dismissed the case, triggering an appeal from Gillitzer.

On appeal, Gillitzer conceded that the non-compete part of the agreement was unenforceable. Wisconsin law favors former employees when examining the reasonableness of covenants not to compete. Streiff v. American Family Mutual Insurance Co., 118 Wis. 2d 602, 348 N.W.2d 505 (1984). Thus, the appeals court said, the issue was whether the training reimbursement part of the agreement was enforceable. The defendants argued that it was indivisible from the rest of the agreement, and thus, the entire agreement was indivisible under Wisconsin statutes sec. 103.465. Gillitzer argued that the two covenants are individual and divisible, and that the reimbursement portion is not a restrictive covenant under Wisconsin law.

The appeals court sided with Gillitzer. Using the divisibility test fashioned by the Wisconsin Supreme Court in Streiff, it looked at whether the reimbursement provision and the non-compete provision are interdependent and must be read together to be understood. In this case, they are not, the court said; they are “distinct, mutually exclusive [and] independent” under Streiff and can be separated with no loss of meaning. This would also be true under the more recent precedent set by Star Direct, Inc. v. Dal Pra, 2009 WI 76, 319 Wis. 2d 274, 767 N.W.2d 898, the court said, although it declined to reach the issue of whether Star Direct set a new divisibility test. Thus, it reversed the Milwaukee circuit court’s summary judgment order.

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Our Chicago covenant not to compete lawyers wrote a blog post last autumn about an interesting case from the Illinois Fourth District Court of Appeal. In Sunbelt Rentals v. Ehlers, No. 4-09-0290 (Ill. 4th Sept. 23, 2009), the appeals court rejected the “legitimate business interests” test used by Illinois courts to determine whether a contract’s non-compete clause is enforceable against a former employee. It said the test had never been valid, particularly in light of Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 866 N.E.2d 85 (2006). This was a departure from previous rulings and created a split with other state appeals courts, but has not yet been challenged in the Illinois Supreme Court. However, the U.S. District Court for the Northern District of Illinois rejected the Fourth District’s reasoning in a December decision.

In Aspen Marketing Services, Inc. v. Russell and Eventnext Marketing, Inc., 2009 WL 4674061 (N.D. Ill. Dec. 3, 2009), defendant Yvon Russell and his new business, Eventnext, were sued by Russell’s former employer, Aspen. Russell had formerly been Group President for Aspen, after it bought a previous marketing company of his. When that purchase took place, Russell signed a contract with non-compete, non-solicitation and non-disclosure covenants. It barred Russell from disclosing any non-public information about Aspen, ever; soliciting Aspen clients, former clients or prospects for a year and a half after leaving; and competing with the company in any business for six months after leaving.

Russell was terminated on June 27, 2007, and started Eventnext on November 27, 2007. Aspen sued, claiming Russell successfully solicited at least one Aspen client shortly afterward. In federal district court, Russell moved to dismiss all counts, saying the restrictive covenants were overly broad and thus unenforceable. In particular, he argued that the geographic limit of the non-compete clause was overbroad because it covered the entire United States. The court found that this was not unreasonable in scope, given the nationwide nature of Aspen’s business.

It went on to consider the second half of the Illinois test of enforceability of covenants not to compete: whether the restriction serves a legitimate business interest. In a footnote, the court acknowledged the Sunbelt ruling, but said it was not binding because it had not been taken up by the Illinois Supreme Court, the Seventh Circuit or the federal district court. Aspen alleged that Russell had “near exclusive” knowledge of its business, had confidential information and used it in Eventnext. Taking those assertions as true, the district court concluded that the geographic scope was reasonable. It also rejected an argument about scope of competition barred, noting that the clause barred all competition for only six months. For those reasons, Russell’s motion to dismiss on that count was denied. The court also rejected several other motions, though it granted one as to tortious interference. The case continues.

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