Chicago Business Litigation Lawyer Blog
Chicago Federal Judge Denies Injunction in Insurance Brokerage Restrictive Covenant Case
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.
NPR Reports: Madoff Investors Who Gained May Face Lawsuits
NPR reports:
Investors who entrusted their money to Bernard Madoff and actually made money may be in for some unwelcome news. According to the Wall Street Journal, the man in charge of recovering money for Madoff’s victims is preparing to file a wave of new lawsuits aimed at wresting money away from investors who withdrew money from their Madoff accounts and made a profit.
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NPR Reports Trial-Bound Companies Learn Lesson: Save E-Mail
NPR reports:
A number of recent high-profile lawsuits suggest that companies must preserve important email documents on their computer systems, or risk major court sanctions. Increasingly, companies are turning to outside vendors to ensure they don’t accidentally destroy electronic documents that could come up in a lawsuit
Lawsuits Can Require Businesses to Keep Massive Amounts of Emails and Computer Stored Records
NPR reported a few years ago:
New rules take effect that help companies decide how many e-mails and other digital items they have to keep in case someone sues them and demands the documents be brought to court. Even small companies can generate millions of digital documents in a very short time, and systems for managing them can be expensive.
New Law Protects Consumers From Non-Bank Lenders
Our Oak Brook, Illinois consumer rights private law firm handles individual and class action predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocates, the National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at DiTommaso Lubin are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.
Our Wheaton and Evanston consumer lawyersrovide assistance in fair debt collection, consumer fraud and consumer rights cases including in Illinois and throughout the country. You can click here to see a description of the some of the many individual and class-action consumer cases we have handled. A video of our lawsuit which helped ensure more fan friendly security at Wrigley Field can be found here. You can contact one of our Chicago consumer protection lawyers can assist in consumer fraud, consumer rip-off, lemon law, unfair debt collection, predatory lending, wage claims, unpaid overtime and other consumer, or consumer class action cases by filling out the contact form at the side of this blog or by clicking here.
Third Circuit Upholds Non-Compete Clause But Changes Unreasonable Restriction on Activity
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.
Generic Drugs Not Misbranded Under Lanham Act, Seventh Circuit Rules
A recent decision by the Seventh Circuit caught the notice of our Illinois trademark infringement litigators. Schering-Plough Healthcare Products Inc. v. Schwarz Pharma, Inc. et al, Nos. 09-1438, 09-1462, 09-1601 (7th Cir. Oct. 29, 2009) is a dispute between the original maker of a laxative whose patent has expired and the companies that now manufacture a generic version. Schering, the original patent holder, sued four companies for claiming that the drug’s active ingredient is not available over the counter, when Schering does manufacture an over-the-counter version. The trial court in the case dismissed Schering’s complaint, a decision the Seventh Circuit upholds here.
The laxative in question was originally sold as the prescription drug MiraLAX. After its patent expired, the four defendants were authorized to sell generic prescription versions, either as GlycoLax or under the chemical name polyethylene glycol 3350. All four defendants’ drugs have labels stating that the active ingredients in their drugs are sold only by prescription. This is a requirement of the federal Food, Drug and Cosmetics Act, but it is no longer entirely true. After the generic versions were approved, Schering won approval for an over-the-counter version of MiraLAX. It brought a trademark lawsuit against the defendants, claiming their labeling makes false and misleading statements that misrepresent the nature of their own and Schering’s products, and constitute misbranding under the FD&C Act.
Importantly, the FDA is conducting its own investigation into whether the generic drugs are now misbranded. Simultaneous sales of the same active ingredient in generic and over-the-counter versions violates federal law, which the FDA is also trying to resolve. The Seventh Circuit noted that the FDA may resolve Schering’s lawsuit by finding that the generic drugs may no longer be sold, or that their labels are not false and misleading under the FD&C Act. In either case, the court wrote, it would rather defer that decision to the FDA. This was also the decision of the trial court in the case, which dismissed Schering’s case without prejudice, suggesting that the company re-file after the FDA’s decision, if necessary. Schering appealed, asking for a judgment in its favor rather than a trial. The defendants cross-appealed, arguing that the case should have been dismissed with prejudice.
The Seventh started by noting that a dismissal without prejudice is appealable unless the defect leading to it is immediately curable. It then turned to the merits of Schering’s claim. Letters from FDA regulators the company cited are irrelevant, the court said, because they did not determine the final outcome of the agency’s review. It also dismissed Schering’s argument that the generic drugs were misbranded under the FD&C Act because their labels say “prescription only,” noting that prescription drugs are required to carry this warning. And it noted that federal courts have previously resolved conflicts between FDA labeling requirements and intellectual property law, including in SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharmaceuticals, Inc., 211 F.3d 21 (2d Cir. 2000).
Schering has been “coy” about what kind of labeling it would find sufficient on the generic drugs, the court wrote, leaving suggested wording out of its briefs entirely and agreeing with suggested wording only under pressure at oral arguments. That reticence, the court wrote, made it believe this is not a matter that “can be resolved intelligently without a decision by the FDA.” Because it has more experience with how consumers interact with drug labeling, the court said, the FDA should decide on proper labeling before a Lanham Act claim is filed. Thus, the Seventh Circuit upheld the trial court’s decision to dismiss Schering’s claim in anticipation of the FDA’s ruling. For the same reason, however, it also upheld the district court’s decision to dismiss without prejudice — so Schering can re-file its claim, if necessary, in the future.
Automated Debt-Collection Lawsuits Engulf Courts
Small Businesses File Several Alleged Extortion Lawsuits Against Review Site Yelp
Our Chicago online business libel attorneys were interested to see a series of articles about several ongoing lawsuits against online review website Yelp.com. According to a March 19 article from the Associated Press, multiple businesses allege the site demanded advertising dollars from them in exchange for control over negative and positive reviews. When potential advertisers declined, the lawsuits say, negative reviews appear or reappear. At least ten small businesses are part of a putative class action lawsuit filed in Los Angeles federal court — among them a Chicago bakery and a Washington, D.C. restaurant. At least two similar claims have been filed, both in California.
The ten-plaintiff lawsuit alleges extortion and attempted extortion by Yelp, saying it gained money “by means of wrongful acts and practices.” For example, the owner of Chicago’s Bleeding Heart Bakery said Yelp employees told her they would push bad reviews to the end of the list of reviews on the bakery’s Yelp page, in exchange for a paid sponsorship. The owner of a Long Beach, Calif. animal hospital said when he declined to pay for a sponsorship, a bad review that had previously disappeared from the page reappeared. A second bad review appeared later. Yelp CEO Jeremy Stoppelman said reviews come and go because the company uses a computer program to automatically remove reviews flagged as suspicious, such as negative reviews by a direct competitor. He claimed the only manipulation Yelp does is allowing companies to pick a positive review to place at the top of the site.
On April 6, Yelp called a news conference to announce changes it made to its site in response to the allegations. The site removed its “favorite review” feature that allowed business owners to choose a positive review for the top of the site. It will also allow users to see which reviews were filtered out, either because they were suspicious or because they violated review guidelines or terms of service. At the conference, Yelp announced future plans to form a Small Business Advisory Council to address these issues. Attorneys involved in the Yelp lawsuits said these were a step in the right direction, but declined to drop their claims.
As Highland Park, Ill. Internet product disparagement attorneys and Chicago business law lawyers, we’re not surprised that these businesses are claiming extortion rather than product disparagement. Under the federal Communications Decency Act, websites that host content provided by third-party users are not legally responsible for any content that is defamatory, negligent or otherwise legally actionable. That means Yelp is not responsible for defamatory postings by its users, even if it exercises editorial control over those postings. However, it may be responsible for content it provides itself. For that reason, small businesses like these plaintiffs have limited recourse in mnay instances to recover for online trade libel, even if they otherwise have strong cases. The extortion claims offer no such legal problem.