Business Disputes

Northern District of Illinois Federal Court Grants Injunction in Misappropriation of Trade Secrets Case

May 10, 2011 | Peter S. Lubin and James V. DiTommaso

Trade secrets are the lifeblood of many companies these days, and protecting those secrets is always of the utmost importance. Through our years of experience advising and representing companies, we here at DiTommaso Lubin know how to maintain the security of your trade-secret portfolio and prosecute those who attempt to misappropriate any of your trade secrets. Because employees with trade-secret knowledge come and go with such frequency these days, our Des Plaines trade-secret attorneys wanted to share a recent court decision that illustrates the perils companies face due to departing employees.

In Mintel International Group LTD v. Neergheen, Plaintiff Mintel initially employed Defendant in its London-based marketing department, and upon his hiring, Defendant signed an employment contract that included non-compete and confidentiality restrictive covenants. Defendant was then transferred to Plaintiff’s Chicago office where he signed a second employment contract containing non-compete and confidentiality clauses similar to those in the first agreement. This second contract also contained a clause prohibiting the solicitation of Plaintiff’s employees and customers – all of the clauses were in effect for one year after the cessation his employment with Plaintiff. Defendant eventually left the employ of Plaintiff and began working for a competitor company in a different product area in order to comply with his non-compete. Plaintiff failed to ask Defendant to return the laptop given to him by the company during his exit interview, and also failed to ask him about proprietary information he had emailed to himself prior to his departure – despite knowing that he had taken possession of the information before he left.

Eventually, Plaintiff filed suit against Defendant alleging violations of the Computer Fraud and Abuse Act (CFAA), the Illinois Trade Secrets Act (ITSA), and breach of the non-disclosure, non-compete, and non-solicitation provisions in his employment contract with Defendant. Plaintiff sought injunctive relief and money damages. After a bench trial, the Court found that Defendant had not violated the CFAA because he had only emailed copies of Plaintiff’s files to a private email address, which did not satisfy the damage requirement of the statute. The Court next held that, while the copied files qualified as trade secrets, Defendant did not violate the ITSA because there was no proof that he had or would use the information in his position at a competing company. Finally, the Court found that the restrictive covenants were not invalid as a matter of law, and enjoined Defendant from: ever using any of Plaintiff’s proprietary info, contacting any of Plaintiff’s customers for nine months, or working for his new employer in the same area as he had with Plaintiff for a period of six months.

Employers Should Ensure They Have Adequate Evidence Before Filing Suit Against Former Employees

May 4, 2011 | Peter S. Lubin and James V. DiTommaso

Most employers at some point will face the prospect of an employee failing to perform their job adequately. Additionally, some employees breach fiduciary duties owed the company or commit fraud and other harmful acts during the course of their employment. Hytel Group, Inc. v. Butler is a recent case out of the Appellate Court of Illinois that is just such a dispute between a Plaintiff employer and its Defendant ex-employee. Our Schaumburg business litigation attorneys discovered this decision and want to pass along the information to our readers.

In Hytel Group, Inc. v. Butler, Plaintiff Hytel Group initially hired Defendant Butler as comptroller for the company in February of 2008 and fired Butler four months later in June of that year. During Butler’s employment, Hytel’s lender, GBC Funding, filed suit in response to Hytel allegedly defaulting on several obligations under their loan agreement and Hytel’s failure to respond to the notices of default sent to them by GBC. Furthermore, GBC alleged that Hytel failed to cooperate with a restructuring officer approved by GBC pursuant to another agreement. This agreement was for GBC to refrain from exercising their rights under the loan agreement in exchange for Hytel’s cooperation with the restructuring officer. Hytel then filed the action in question in December 2008 against Defendant Butler alleging that she breached her fiduciary duty of loyalty and committed fraud when she failed to perform certain job duties because of a relationship she developed with GBC.

After Butler was fired by Hytel, but before Hytel filed suit, she filed a claim with the Illinois Department of Labor for unpaid final wages, and she moved to dismiss Hytel’s lawsuit under the Citizen Participation Act. The motion was based upon the allegation that Hytel was suing her in retaliation for filing the wage claim. Butler also moved to dismiss Hytel’s suit on procedural grounds because Hytel failed to properly state a cause of action for breach of fiduciary duty or for fraud. In dismissing Hytel’s claims, the trial court found that the Citizen Participation Act did apply to Butler’s wage claim, that she did not have a fiduciary relationship with Hytel, and that Hytel did not sufficiently allege all the elements of fraud. Plaintiff Hytel appealed the trial court’s ruling on the basis that Butler’s wage claim was a private dispute and the Citizen Participation Act is concerned with protecting free speech and citizen participation in government.

The Appellate Court reviewed the legislative intent behind the Citizen Participation Act and found that the state of Illinois intended the law to be construed broadly. As such, the Court found that Butler’s wage claim was an exercise of her right to petition for redress of grievances and therefore fell within the express language of the Act that protects actions taken in furtherance of a citizen’s right to petition. The Court went on to hold that the Act contains no public concern requirement and the fact that the wage claim was a private dispute did not matter. Finally, the Court found that Hytel’s suit was retaliatory in nature and upheld the trial court’s dismissal of the action and the award of attorneys fees under the Act.

This case provides a warning for business owners who file suit against former employees for a breach of duty, particularly if there is an existing wage or other employment dispute between the parties. Hytel Group, Inc. v. Butler shows that Illinois courts will dismiss such claims pursuant to the Citizen Participation Act if there evidence that the suit filed by the employer is retaliatory in nature. As such, employers should ensure that they have ample evidence to show the legitimacy of their claims before filing, as they may be on the hook for the opposing party’s attorneys fees should the court find a retaliatory impetus for the action.

Video on Illinois Covenant Not to Compete Law

May 1, 2011 | Peter S. Lubin and James V. DiTommaso

https://www.youtube.com/watch?v=HLvhcNrJ3u8

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.

Northern District of Illinois Federal Court Grants Motion to Strike Plaintiff’s Request for Injunctive Relief in Breach of Contract Case

April 26, 2011 | Peter S. Lubin and James V. DiTommaso

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.

A Guarantor is Not a Surety Under the Illinois Sureties Act

April 13, 2011 | Peter S. Lubin and James V. DiTommaso

At DiTommaso Lubin, we pride ourselves on staying abreast of changes in the law that may affect our clients, especially those rendered by the highest court in the state. The Supreme Court of Illinois released a new decision not long ago that was picked up by our Lombard business litigation attorneys, and the case is of particular interest to business owners who have personally guaranteed a business loan. In JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. the Court addressed the meaning of the term surety and whether a guarantor falls within that definition under the Illinois Sureties Act.

The initial dispute in JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. arose from a line of credit extended by Plaintiff JP Morgan Chase Bank to Defendant Earth Foods. The loan was personally guaranteed by the three co-owners of Earth Foods, and three years after the line of credit was first extended, Earth Foods defaulted on the loan. Plaintiff then filed a lawsuit against both the company for breach of contract and the co-owners as guarantors of the defaulted loan. The individual Defendants asserted an affirmative defense that the guaranty obligation was discharged under the Sureties Act because the Act applies to both guarantors and sureties and the law does not distinguish between the two. Plaintiffs then filed a motion for summary judgment, which was granted by the trial court. In granting the motion, the court held that the individual Defendants were guarantors and the Act only applied to sureties. Defendants appealed the trial court’s decision, and the appellate court held that the term surety encompassed both a surety and a guarantor under the Act and remanded the case. Plaintiffs petitioned the Supreme Court to review the appellate court’s reversal.

On appeal, the Supreme Court performed an extensive statutory analysis of the Illinois Sureties Act. In performing this analysis, the Court first determined that dictionaries, treatises and past court decisions recognize a clear legal distinction between guarantors and sureties. They then went on to determine the legislative intent behind the Sureties Act through a discussion of other laws related to the same subject matter. Through their discussion, the Court held that a suretyship differs from a guaranty in that a suretyship is a primary obligation to ensure the debt is paid, while a guaranty is an obligation to pay the debt if the principal does not pay. The Court went on to say that the plain language of the Act indicates that the protections of the Sureties Act are not applicable to guarantors. Despite this ruling, the Court held that summary judgment was improperly granted in JP Morgan Chase Bank’s favor and remanded the case to the trial court due to genuine issues of fact regarding whether the parties intended the individual Defendants to be guarantors or sureties for the loan in question.

JP Morgan Chase Bank, N.A. v. Earth Foods, Inc. unequivocally answered the question whether the terms surety and guarantor are interchangeable for the purposes of the Illinois Sureties Act. Despite the fact that there is a clear distinction between the two, the Supreme Court allows for the intent of the parties to rule when including either term in a loan agreement. Therefore, business owners should be careful when drafting and negotiating the terms of a guarantor or a surety and be clear which role is intended by the parties to avoid a potential lawsuit down the road.

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

April 12, 2011 | Peter S. Lubin and James V. DiTommaso

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.

Illinois Appellate Court grants Preliminary Injunction in Action to Enforce Non-Competition Clause in Employment Contract

March 29, 2011 | Peter S. Lubin and James V. DiTommaso

While most businesses strive to maintain employee stability, the fact of the matter is that during the course of any company’s existence there will be a certain amount of turnover. In states like Illinois, many employers utilize employment contracts that contain non-compete clauses and other restrictive covenants to protect themselves when employees depart. In spite of these precautionary measures, disputes will often still occur, which is why our Aurora non-compete lawyers are always watching developments in this area of the law.

In Steam Sales Corp. v. Summers, Defendant Summers worked for Plaintiff soliciting and servicing customer accounts pursuant to a written employment agreement that contained both non-compete and liquidated damages clauses. The clauses were to be effective for two years after the cessation of Defendant’s employment with Plaintiff. Plaintiff had several exclusive relationships with manufacturers, which gave it access to information not available to its competitors that served as an advantage in the marketplace. Defendant had access to this information, and after working for Plaintiff for almost two years, he quit to form a competing company and subsequently obtained the business of two of Plaintiffs (now) former clients.

In response, Plaintiff filed suit for Defendant’s violation of the restrictive covenant contained in the employment agreement between the parties and demanded injunctive relief pursuant to the liquidated damages clause in the contract. The circuit court granted the preliminary injunction based upon the non-compete clause and enjoined Defendant from soliciting or selling any service or product similar or identical to Plaintiff’s. Defendant then filed an interlocutory appeal. The Appellate Court found that Plaintiff had not breached the parties’ contract and that the restrictive covenant was enforceable because it was reasonable in its geographic (Defendant’s sales territory when he worked for Plaintiff) and temporal scope and in its application.

Wall Street Joural Reports Apple Sues HTC

March 28, 2011 | Peter S. Lubin and James V. DiTommaso

Our Chicago commercial litigation attorneys at DiTommaso Lubin handle complex class action lawsuits and other commercial disputes. You can contact us on the internet by clicking here or call us at our toll free number 630-333-0333.

Wall Street Journal Reports: “Howard Stern Sues Sirius XM”

March 28, 2011 | Peter S. Lubin and James V. DiTommaso

In a very informative short piece, the Wall Street Journal reports that Howard Stern has filed suit regarding Sirius/XM’s failure to pay Stern and his agent stock bonus payments that were part of Stern’s compensation package. Stern initially did not press for the payments for a few years but has now filed suit for non-payment. The main issue in the dispute is whether XM subscribers post merger can be included in the target subscriber base numbers which trigger stock bonus payment obligations. The article states:

Howard Stern, who seems to be in a perpetual fight with his bosses, is at it again.

The production company for the radio personality is suing Sirius XM, claiming the satellite radio company has refused to pay stock awards it owes to him based on subscriber targets in Stern’s contract. The lawsuit also says Sirius owes money to Stern’s agent under a consulting agreement.

“World-renowned radio personality Howard Stern (“Stern”) put Sirius on the map,” the lawsuit says. “But, with the exception of a stock award that Sirius paid for the initial year of Stem’s contract, Sirius has refused to pay One Twelve [the production company for Stern’s show] the additional performance-based stock awards to which One Twelve is entitled.”

You can read the full article by clicking here. You can read the Complaint in the lawsuit by clicking here.

Another interesting article on the dispute appeared in Forbes. That article provides some speculation on the behind the scenes motives driving the case and can be read by clicking here.

If You Have a Business Agreement, Get It in Writing!

March 10, 2011 | Peter S. Lubin and James V. DiTommaso

The issues faced by our clients, and particularly our business clients, are often complex both factually and legally. Our Palatine business lawyers recently discovered a case filed in Du Page county that illustrates how business legal issues can, and often do, dovetail with personal legal issues. Prignano v. Prignano demonstrates the importance of obtaining legal advice before making business agreements and contracts that include will and probate issues.

In Prignano v. Prignano, the widow of George Prignano, a man who owned several businesses with his brother Louis, sued that brother for allegedly failing to honor an agreement that the survivor of the two brothers would buy the decedent brother’s share of their co-owned businesses. The Prignano brothers jointly owned two corporations, Sunrise Homes and Rainbow Installations, and were equal partners in 710 Building Partnership. The Plaintiff widow alleged that the Defendant had an oral agreement with her deceased husband George whereupon Louis would purchase George’s share of their three businesses with the proceeds from life insurance policies purchased for that purpose. Plaintiff also alleged that she and Defendant had an oral agreement that Defendant would purchase his brother’s share of the businesses from Plaintiff.

After George’s death, Defendant, who was the executor of George’s estate, allegedly kept George’s share of the businesses and the life insurance payments for himself unbeknownst to Plaintiff. When Plaintiff discovered this, she filed suit against him for fraud, breach of fiduciary duty, breach of contract, and unjust enrichment. The trial court ruled in her favor on all counts and awarded her damages and prejudgment interest. Defendant then appealed the trial court’s finding of liability and the award of prejudgment interest.

On appeal, the Second District of the Appellate Court of Illinois reaffirmed the trial court’s finding that both oral agreements (between the brothers and between Plaintiff and Defendant) were valid and enforceable due to the testimony of third parties who were aware of the oral agreement between the brothers, and the existence of a written agreement that was drawn up after the oral contract between Plaintiff and Defendant was initially formed. The Court also found that Defendant owed a fiduciary duty to Plaintiff as he was a corporate officer and partner in the businesses, and upon George’s death, his interest in the businesses was transferred to Plaintiff. As such, the Court held that Defendant owed Plaintiff a duty to exercise “the highest degree of honesty and good faith” in dealing with Plaintiff, and Defendant breached that duty. The Court then vacated the trial court’s judgment on the unjust enrichment claim because Plaintiff was victorious on her breach of contract claim. The Court stated that unjust enrichment does not apply when there is a breach of contract under Illinois law. Finally, the Court reaffirmed the award of prejudgment interest because Plaintiff had been deprived of money that was rightfully hers, and Defendant should not profit from his wrongful retention of the funds.

Prignano v. Prignano exemplifies why business owners should have all of their business agreements and contracts reviewed by a trained legal professional. Family business owners, in particular, should guard against casual or oral agreements, as personal relationships can be strained when there is a misunderstanding regarding such agreements. If you are unsure about the legality or legitimacy of your business agreements, or are currently in a dispute, you should consult a discerning Chicago and Naperville business attorney to determine your rights.