Emergency Commercial Litigation

Reuter’s Reports: “Kraft Loses Bid to Keep Distributing Starbucks”

February 6, 2011 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

It is very difficult to obtain an injunction when monetary damages can compensate for a business’s losses. A recent article in Reuter’s regarding Kraft Food’s bid to require Starbucks to allow it to continue to distribute Star Buck’s coffee illustrates the point. Reuter’s reports:

A federal judge rejected Kraft Foods’ bid to force Starbucks Corp to keep using Kraft to distribute packaged coffee to supermarkets in North America and Europe, a decision that allows Starbucks to move ahead with a new partner.

In a ruling from the bench, U.S. District Judge Cathy Seibel in White Plains, New York, on Friday also noted that Starbucks could end up owing Kraft “a boatload of money” if an arbitrator decided the coffee chain breached a 1998 agreement with Kraft.

Fourth District Reverses Trial Court for Second Time in Case Pitting Farm Against Neighbors

February 2, 2011 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Our Chicago business emergency attorneys were interested to read an appellate opinion in which the Fourth District Court of Appeal reversed a Sangamon County judge for the second time in the same case. The Rochester Buckhart Action Group v. Young, No. 4-09-0037 (Ill. 4th Sept. 8, 2009) is a lawsuit filed by a community group attempting to stop Robert Young from building a hog farm on his property. The Rochester Buckhart Action Group, a nonprofit that opposes activities it feels decreases the quality of life in its area, sued to stop Young, arguing that the hog farm should be regulated as a new farm rather than an extension of Young’s existing dairy farm. The trial court granted the group’s request for a preliminary injunction, but the Fourth District Court of Appeal reversed it. On remand, Young asked for costs and damages stemming from that injunction, but the trial court denied it — only to be reversed again by the Fourth.

Young’s property already had a 40-cow dairy farm, and had once had a 2,300-animal hog confinement operation that was demolished in 2004. He notified the Illinois Department of Agriculture of his intention to add a 3,750-hog finishing operation, which is where piglets are grown into adult pigs. In that notification, he told the state that this would be an expansion of an existing operation, not a new operation. The Rochester Buckhart Action Group disagreed and sued for a declaratory judgment under the Livestock Management Facilities Act, which requires public notice, comment and hearing for new facilities. The lawsuit also included counts for nuisance and public nuisance. It moved for a preliminary injunction stopping construction of the hog farm. That order also required the plaintiff to post a $60,000 bond. The trial court then declined to vacate its decision and the defendant successfully appealed to the Fourth.

On remand, the defendant requested costs and damages, pursuant to the Code of Civil Procedure on a “wrongfully entered injunction.” He requested the proceeds of the $60,000 bond to set off the $294,159.01 that he said the injunction cost him. The plaintiff moved to strike that motion, claiming there was no adjudication of the injunction as “wrongful.” The trial court granted that motion to strike, saying it did not believe the injunction was wrongful and thus, the defendant could not recover costs. This appeal followed, arguing that the defendant’s situation met the definition of “wrongful” in the Code of Civil Procedure.

The Fourth agreed. It noted that Illinois Supreme Court precedent allows damages only when judgment has been entered that a preliminary injunction or temporary restraining order was entered wrongfully. The plaintiff argued that there was no such adjudication, but the Fourth was not convinced. It said its prior opinion was a legal determination that the injunction was wrongfully issued. “It is hard to fathom what the appeal in Rochester I was all about if it was not a determination of whether the trial court rightfully or wrongfully enjoined defendant from continuing the construction on his hog farm. The sole issue in Rochester I was whether the trial court erred in declining to vacate the preliminary injunction.” Furthermore, the court noted, Jefco Laboratories, Inc. v. Carroo, 136 Ill. App. 3d 826, 829, 483 N.E.2d 1004, 1006 (1985) specifically said there was only a semantic distinction between “in error” and “wrongfully issued.”
The plaintiffs next argued that the preliminary injunction order was the law of the case because the defendant did not appeal that order — he appealed the trial court’s refusal to vacate it. However, the Fourth said, the issue of the injunction itself was before the court when the issue of whether to vacate the order for an injunction was before it. Thus, it wrote, the defendant cannot be said to have waived the issue of whether the injunction was properly issued.

Finally, the plaintiffs said damages should not be awarded because it is a nonprofit “seeking to vindicate public rights.” It supported that argument by citing Save the Prairie Society v. Greene Development Group, Inc., 338 Ill. App. 3d 800, 801, 789 N.E.2d 389, 390 (2003), in which the First District Court of Appeal found that the trial court should not have imposed a $200,000 bond on a nonprofit seeking to serve the public interest. It is true that the Code of Civil Procedure gives trial courts discretion not to impose bond if it would be a hardship, the Fourth said, but no rule of law says this must be done in every case. The plaintiff did not object to the bond as a hardship at the time, it noted. And the state Supreme Court noted in Buzz Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 384, 483 N.E.2d 1271, 1276 (1985) that it would be “inequitable and would invite spurious litigation” to allow parties to interfere with legal activities without being held liable for wrongful interference.

That is the situation in this case, the Fourth said. It reversed and remanded the trial court, saying the defendant is entitled to damages and the trial court must allow him an opportunity to prove any damages.

Enforcing Noncompetition Agreements is Tricky Business

December 8, 2010 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

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.

Developer’s Lawsuit Accuses Grocery Chain of Using ‘Dirty Tricks’ to Keep Wal-Mart Out of Town

September 30, 2010 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Our Illinois business and commercial emergency attorneys were interested to read an article about a lawsuit suggesting corporate “dirty tricks” by the parent company of the Jewel-Osco chain of grocery stores. Rubloff Development Group Inc., a commercial real estate developer, made that accusation in a lawsuit filed in Chicago federal court in June. According to the Chicago Tribune’s Chicago Breaking Business blog, Rubloff believes Jewel-Osco hired Saint Consulting, a Massachusetts company, in secret to “harass and interfere” with a shopping center Rubloff was trying to develop in Munedelin, Ill., with a Wal-Mart as its “anchor.” Rubloff and other developers are seeking a declaratory judgment that documents in its possession do not contain confidential trade secrets belonging to Saint, as Saint has alleged.

According to Rubloff’s complaint (PDF), file in late June, Rubloff has documents it believes show that Jewel-Osco “secretly retained” Saint to delay or stop development of shopping centers slated to contain Wal-Mart stores, which might compete with Jewel-Osco. The complaint alleges that Saint is responsible for “false statements and sham litigation” against several of the plaintiffs’ developments, particularly the one in Mundelin. Sometimes, this was enough to make the Wal-Mart pull out, causing tens of millions of dollars in costs to the developers, it says. Rubloff claims it sent SuperValu a letter in early May with these accusations. Although that letter did not name Saint and was not sent to Saint, the complaint said, Saint responded a week later with a threat to sue Rubloff for “wrongful possession of … confidential, proprietary business information.”
Rubloff and its co-plaintiffs responded with this lawsuit. In it, they ask the court for a declaratory judgment that the information at issue is not privileged, confidential or trade secrets. They also ask the court to enjoin the defendants from spoiling any evidence, something they claim the defendants do routinely, and request damages for any evidence already spoiled. If permitted to submit the controversial information to the court under seal, they say they can raise claims of racketeering, tortious interference with business opportunities, fraud, antitrust claims and more, with tens of millions in potential damages.

As Chicago business emergency lawyers, we believe a declaratory judgment is a smart way for Rubloff and the other plaintiffs to strike first and avoid potentially damaging litigation in Massachusetts. A declaratory judgment is a court order declaring the legal relationships and obligations between the parties. In this case, it is likely to be a judgment declaring whether the documents at issue are trade secrets that deserve protection under Illinois law. If Saint is bluffing about this, filing for a declaratory judgment allows Rubloff to establish that fact without fighting a frivolous lawsuit, and in its own home court rather than halfway across the United States. A declaratory judgment in Rubloff’s favor would also allow the developer to go forward with its own business lawsuit against Saint and Jewel-Osco.

Clothing Retailer Sues Competitor and Former Employees Alleging They Stole Secret Designs

August 26, 2010 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

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.

Chicago Federal Judge Denies Injunction in Insurance Brokerage Restrictive Covenant Case

July 30, 2010 | Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

Our Chicago noncompete agreement lawyers were interested to read about a significant ruling in a covenant not to compete case. According to insurance industry journal National Underwriter Property & Casualty, a federal district judge for the Northern District of Illinois ruled in June that former employees of CRC Insurance Services Inc. may continue in their new jobs at Ryan Specialty Group Inc. while the courts hear the two companies’ legal dispute. The companies, both of which are specialty insurance brokers, are fighting over employees who left CRC in May to move to Ryan’s R-T Specialty of Illinois, a new company founded by Pat Ryan, the CEO of Aon Corporation and a Chicago philanthropist. The judge’s preliminary ruling means the employees can stay in their jobs at least until the lawsuit by CRC has been decided.

According to the article, the exodus started when Tim Turner resigned as co-president of CRC in January. In February, Ryan announced that it was starting RTS with Turner in the role of managing director. He was joined by a former outside counsel to CRC, Ed McCormack. CRC’s complaint alleges that McCormack solicited CRC employees to join RTS. In all, 120 employees made that switch, including 39 who had signed covenants not to compete. After a large group of resignations on May 4, CRC sued RTS to enforce employees’ agreements not to compete, not to solicit former colleagues or customers for two years, and not to disclose certain company information. RTS told the court it is taking steps to obey the confidentiality agreements, but disagrees with CRC about the non-compete agreement and the scope of the non-solicitation agreement.

In the ruling, the Chicago federal court declined to grant a preliminary injunction to CRC, which would have stopped all 120 employees from working at RTS or any other competitor. In the ruling, the court said allowing the employees to continue working at RTS will harm CRC, but declining to allow them to keep working would put RTS out of business and harm the livelihoods of the employees. Crain’s Chicago Business noted that CRC has also filed suit in Alabama and California.

This ruling is a major victory for RTS and its new employees. RTS is backed by the wealth of Pat Ryan, but it can’t do business if none of its new employees are allowed to work for it. As the judge noted in the article, even CRC agreed that RTS would not survive without the 120 employees at issue — 81 of whom do not have a non-compete agreement. By contrast, the judge noted that CRC would not go out of business for lack of this preliminary injunction. Rulings like this can be appealed, of course, and our Illinois emergency business litigation attorneys may be able to offer other options to clients in CRC’s situation. In fact, as a CRC spokesman said in the article, this is likely to be just the first step in a long dispute between the two companies.