Breach of Contract

How to Read a Business Contract — Our Chicago Business Lawyers Prosecute or Defend Business Contract Lawsuits

June 15, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Oak Brook and Chicago business lawyers prosecute and defend contract dispute lawsuits. Our top attorneys each have over 25 years of experience handling business trials. You can look at our Chicago business lawyers’ record in business lawsuits and see our cases covered by the press at our website. Our Chicago business law attorneys have also been selected by Super Lawyers and the Leading Lawyer Network as among the top 5% of Illinois attorneys as rated by their peers in business litigation and class action litigation.

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Video Regarding Covenants Not to Compete in Dental Practice Purchase Agreements — Our Chicago Business Law Attorneys Handle Non-Compete Agreement Lawsuits

May 29, 2010 | Peter S. Lubin and Patrick Austermuehle

Lubin Austermuehle 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 630-333-0333.

Covenant Not to Compete Unenforceable Because Contract Violated Illinois Law — Our Chicago Business Law Attorneys Defend and Prosecute Trade Secret Theft and Covenant Not Compete Lawsuits

May 27, 2010 | Peter S. Lubin and Patrick Austermuehle

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.

A Video Providing Some Tips From Attorneys on How to Fire an Employee — Our Chicago Business Law Attorneys Represent Employers and Employees in Wrongful Termination Suits

May 16, 2010 | Peter S. Lubin and Patrick Austermuehle

How to fire someone

Our Chicago business law lawyers at Lubin Austermuehle are dedicated to helping businesses and business people in pursuing and protecting their rights in business lawsuits. To see the the wide variety of business lawsuits our Chicago business trial attorneys have handled click here. You can contact one of our Oakbrook and Chicago business law attorneys through our website by clicking here.

Contract Enforceable Despite Unenforceable Covenant Not to Compete, Wisconsin Appeals Court Rules

April 29, 2010 | Peter S. Lubin and Patrick Austermuehle

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.

Fifth District Allows New Trial for Insurance Customer Unhappy With Arbitration Award

April 21, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Illinois insurance bad faith attorneys were pleased to see a recent decision from the Fifth District Court of Appeals that upheld a driver’s right to fair treatment from her auto insurance company. American Family Mutual Insurance Company v. Stagg, Ill. 5th No. 5-08-0088 (Aug. 10, 2009) Diane Stagg had an insurance policy with American Family that included uninsured and underinsured motorist coverage. That part of the policy had a provision stating that the parties could demand arbitration if they couldn’t agree on the existence or amount of coverage. It also said that arbitration awards would be binding and could be entered as judgments in court if they did not exceed the minimum limits set by the Illinois Safety Responsibility Law. If they did exceed that limit, either party has the right to a trial. The limit for bodily injury at the time was $20,000.

Stagg was later hit by an at-fault driver with a very small amount of insurance. She collected the $25,000 available in liability insurance from the at-fault driver, but requested more under her uninsured motorist coverage. She and American Family went to arbitration and she was awarded $36,340.75. However, the arbitrators set off $25,000 for the at-fault driver’s payment and $5,000 in expenses American Family had paid, leaving her with an award of just $6,340.75. Four months later, American Family filed a complaint to enforce that judgment, saying Stagg hadn’t objected to the award within time limits set by the Illinois Uniform Arbitration Act. The next month, Stagg filed a separate action against American Family, seeking a new trial.

The parallel claims may have caused some conflicting decisions by the court, but it eventually clarified that it intended to grant Stagg’s motion to dismiss American Family’s complaint. American Family appealed, arguing that the arbitration award was $6,340.75, too low to meet the contract’s threshold for going to court. Stagg argued that the arbitration award was actually 36,340.75, making it larger than the minimum limit cited in the contract. In its analysis, the court found that the term “arbitration award” as used in the contract was subject to more than one interpretation. Under American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479 (1997), the court said, ambiguous language in an insurance policy should be construed against the drafter. Thus, Stagg is entitled to a new trial under the contract.

The court then addressed American Family’s contention that Stagg missed the deadline to appeal the arbitration award under the Uniform Arbitration Act. The Fifth agreed with Stagg, who argued that the limitation didn’t apply because she isn’t challenging the award through the Act, but instead requesting a new trial. The arbitration award was never binding under the contract’s language, the court said, meaning that Stagg had no obligation to state any grounds for overturning it. Thus, the court’s decision to dismiss American Family’s complaint was upheld.

Federal District Court Rejects State Interpretation of Legitimate Business Interests Test

April 1, 2010 | Peter S. Lubin and Patrick Austermuehle

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.

Business Not Entitled to Injunctions for Alleged Trade Secrets Act and Fiduciary Duty Violations — Our Chicago Business Law Attorneys Have Substantial Experience in Emergency Business Litigation Involving TROs and Injunctions

March 24, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Illinois trade secrets attorneys were pleased to see an evenhanded ruling handed down by the Second District Court of Appeal. In Stenstrom Petroleum Services Group, Inc. v. Mesch, No. 2-07-0504 (Ill. 2nd Sept.7, 2007), Stenstrom sued former employee Robert Mesch for breach of a noncompete clause, breach of fiduciary duty and violations of the Illinois Trade Secrets Act. The case arises out of Mesch’s decision to leave Stenstrom and join Precision Petroleum Installation Inc., a competitor with nearly the same name as a company that Stenstrom bought. The trial court granted Stenstrom a preliminary injunction on its breach of contract claim, but denied injunctions on the other claims.

Mesch had worked in the petroleum industry since 1974, eventually becoming a project manager and salesman. Stenstrom installs, maintains and repairs petroleum equipment, such as tanks, pumps and electronics. Mesch had been working for Precision Petroleum Inc. when Stenstrom bought it in 2003. Mesch was hired during the acquisition to do the same work, and signed noncompete and confidentiality agreements. The noncompete agreement restricted Mesch from working in excavation or equipment repair in Winnebago and Boone counties for six months after his employment ended. When estimating and making bids for Stenstrom, Mesch testified that he used a crude spreadsheet inherited from his old company, rather than the estimating software other project managers at Stenstrom used.

In December of 2006, Mesch left Stenstrom and joined Precision Petroleum Installation Inc., a new company at which he had the opportunity to earn a share of profits as well as a salary. He acknowledged that PPI has bid on and discussed jobs only for Stenstrom customers, and its one client as of the hearing was a Stenstrom customer. He testified that he uses the same Excel spreadsheet and other Stenstrom data to estimate bids for PPI, but said purchasing differences between the companies mean he uses different information to calculate the bids. He also said PPI does not do excavation or repair work, relying on subcontractors. He acknowledged copying Stenstrom’s files for PPI’s use while he was at Stenstrom, but destroyed some data and handed over other data as part of the case. It would not be difficult to recreate the spreadsheet from memory, he said, because he created it, had Stenstrom discounts committed to memory and could get manufacturer prices from public knowledge.

Stenstrom president David Sockness testified at trial that the Excel spreadsheet was acquired in the 2003 purchase, is full of valuable Stenstrom information and is being used by other project managers. He said PPI had bidded on work for some of its best clients, but acknowledged that there was no exclusive agreement with several of these clients and that some take competitive bids. Stenstrom IT manager Brian Cotti testified that records show Mesch tried unsuccessfully to print a bidding report to which he did not have access. Two clients testified that their lengthy relationships with Mesch influenced their bidding decisions. At the conclusion of all of this, the trial court issued a preliminary injunction to enforce the noncompete covenant Mesch had signed until the end of the six-month period, saying it was reasonable. However, it found on the other counts that Stenstrom had failed to show it was likely to win at trial or that there was no other legal remedy available. Stenstrom and Mesch both appealed.

The Second District started by rejecting Stenstrom’s argument that the six-month restrictive covenant should have been calculated from the date Mesch ceased breaching it. The court flatly rejected this, saying the contract’s language clearly pegged the period from the day Mesch left his job at Stenstrom. It also rejected Stenstrom’s claim that it should have received a preliminary injunction based on Trade Secrets Act violations. This is based on the Excel spreadsheet Mesch used to create bids at Stenstrom and later at PPI, which Stenstrom said were full of protectable information and the result of significant investment. However, the appeals court said, Stenstrom failed to rebut Mesch’s testimony that the spreadsheet was based on publicly available information and memory, so it failed to raise a fair question about whether the information was secret enough to qualify as a trade secret.

Next, Stenstrom argued that the trial court should have granted an injunction against Mesch based on his alleged breach of fiduciary duty, a claim it said it made to avoid Stenstrom’s solicitation of its customers. Mesch was working for PPI when he copied Stenstrom’s files, the company said, and used it for PPI’s benefit. However, the Second District wrote, much of Stenstrom’s argument on breach of fiduciary duty rests on its Trade Secrets Act claim. That issue was settled above, the court said. Furthermore, Stenstrom waived its breach of fiduciary duty claim by failing to argue it clearly, the court said.

Finally, the court rejected Mesch’s argument that the trial court should have entered no preliminary injunction at all on the breach of restrictive covenant claim. Mesch is wrong to argue that the enforcement of the restrictive covenant will affect the independent Trade Secrets Act and breach of fiduciary duty claims, the court wrote. But in any case, it said, the issue is moot because the preliminary injunction period ended before the case came to the Second District. And thanks to the court’s decision on Stenstrom’s argument to change the period when the restrictive covenant applies, there’s no need to consider it. Thus, all of the trial court’s decisions were affirmed.

Motorola Sues Former Executive for Moving to Competitor Nokia — Our Chicago Covenant Not to Compete Lawyers Defend and Prosecute Non-Compete and Trade Secret Lawsuits Throughout Illinois

March 4, 2010 | Peter S. Lubin and Patrick Austermuehle

Our Oak Brook covenant not to compete attorneys were interested to see a major non-compete lawsuit happening right here in Chicago. FierceWireless.com reported Jan. 19 that wireless telephone giant Motorola sued former executive David Hartsfield in federal court, claiming he will inevitably disclose Motorola’s confidential business information if he is allowed to take a new job at Finnish wireless phone company Nokia. Motorola is seeking a restraining order to prevent Hartsfield from taking the job.

Hartsfield resigned in December from a job developing CDMA technology at Motorola to take the position of vice president of CDMA at Nokia. In its lawsuit, Motorola claims that the non-disclosure agreement in Hartsfield’s employment contract will be violated if he takes the job. In particular, Motorola claims that it needs to protect product and pricing strategies. Hartsfield has filed a motion to dismiss the suit, arguing that it unreasonably interferes with his ability to make a living, and that Motorola has not identified any wrongdoing on his part. He also plans to argue that the non-disclosure agreements common in the wireless industry are not legitimate. Motorola has aggressively pursued non-compete and non-disclosure lawsuits in the past, including a 2008 non-compete lawsuit against an executive who left for Apple’s iPhone sales business. That case was dismissed in 2009.

Lubin Austermuehle is not involved in this case. However, our Northbrook, Evanston, Waukegan, Joliet, Lisle, Downers Grove, Wheaton, Naperville, Aurora, Elgin, and Chicago non-compete contract attorneys believe Hartsfield could build a strong defense, if his claims are true. Although the federal court has diversity jurisdiction, it must apply Illinois law, which requires it to identify a legitimate business interest behind non-disclosure and non-compete agreements. If there is none, the law says Motorola may not restrain the otherwise legal business activity of Hartsfield moving to a competitor. Hartsfield claims CDMA is an industry-wide standard, not a technology proprietary to Motorola. Similarly, at least some of Motorola’s pricing information must be public knowledge. That means the company may have an uphill battle proving that this knowledge, at least, is a trade secret worthy of protection.

Appeals Court Upholds Verdict in Case Over Storage Company Incorrectly Selling Property

December 29, 2009 | Peter S. Lubin and Patrick Austermuehle

Our Chicago consumer protection attorneys were pleased to see a pro-consumer decision from the First District Court of Appeal recently. In Dubey v. Public Storage Inc., Ill. 1st No. 1-09-0094 (Oct. 23. 2009), the appeals court upheld a decision in favor of a woman who lost everything in her storage unit due to a record-keeping error. Varitka Dubey made all of her payments for a rented storage unit on time, but Metropublic Storage Fund repossessed all of the property in her unit and sold it at auction for “nonpayment.” The problem that turned out to apply to a different unit. This decision upholds a jury’s award in Dubey’s favor, but reduces the amount to conform to her agreement to store no more than $5,000 worth of property.

Dubey entered the storage unit rental agreement in September of 2002. At that time, she signed an agreement that the property she would store would be worth no more than $5,000 and that Metropublic wouldn’t be responsible for losses of more than that amount. The agreement also said that Metropublic could pursue all legal remedies if Dubey failed to meet her obligations under the agreement. Dubey testified in court that she did not notice the unit listed on her rental agreement, nor was it emphasized by the Metropublic employee who helped her. She then moved personal property into the unit that she claimed was worth $150,000. She visited the unit several more times through the end of 2002. Her rent was automatically charged to a credit card and always paid on time.

In February of 2003, Dubey returned to her unit and discovered that her key didn’t work. A Metropublic employee told her that the unit was not hers. The employee opened the unit and Dubey discovered that nearly all of her property was gone except for some broken toys belonging to her daughters. Further investigation showed that records showed someone else was listed as the owner of the unit Dubey had used, and that Dubey’s rental agreement listed a different unit. At trial, testimony showed that the unit had already been rented to someone else. The employee told Dubey her property had been auctioned off in January for non-payment of the rent, for total proceeds of $99,145. Dubey asked about personal items like family photos and was told that they were probably thrown out, but denied permission to search the garbage.

Dubey sued Metropublic for breach of contract, conversion and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. Metropublic countersued for breach of contract because Dubey stored property worth more than $5,000 in her unit. At trial, the jury found for Dubey on all counts, awarding her
$755,000 in compensatory and punitive damages on the common-law claims and $276,580 in compensatory and punitive damages for the Consumer Fraud Act claims. She was also awarded attorney fees. Both parties appealed, with Dubey asking for more compensatory damages to reflect the true value of the lost property, and Metropublic arguing that Dubey shouldn’t have been awarded three different recoveries for the same injury and that she shouldn’t have been awarded more than the $5,000 listed in the contract. It also disputed the decision, the punitive damages and the attorney fees.

The First’s analysis started by agreeing that, under Illinois law, Dubey may recover only once for the breach of contract and conversion claims. Thus, it reduced the compensatory damages for those claims to $5,000 from $10,000. However, its analysis did not extend to the Consumer Fraud Act, and it let the $69,145 awarded under that count stand. The court then addressed the claim that the Consumer Fraud Act award should not have been larger than $5,000. The court found that Metropublic had waived that issue by ignoring chances to bring it up before and during trial. But even if it were not waived, the court declined to reconsider the trial court’s finding that the clause was an exculpatory clause invalid under the Landlord and Tenant Act. In addition to dismissing Metropublic’s arguments, the court found the contract unconscionable because Dubey had no time to read it closely and Metropublic didn’t stress the $5,000 limit.

The court then dispensed with every argument Metropublic made except its argument that the punitive damages award is unconstitutional. Among the tests for whether a punitive award is unconstitutionally excessive is the ratio of punitive to compensatory damages. The U.S. Supreme Court said in State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408, 425, 155 L. Ed. 2d 585, 605-06, 123 S. Ct. 1513, 1524 (2003) that very few ratios significantly exceeding single digits will satisfy due process. The ratio for the conversion award was 149 to 1, a disparity the First found disturbing. It also found that Dubey may be entitled to more compensatory damages for her losses, since the it had found the rental contract invalid. Thus, it vacated those two damages awards and sent them back to trial court for reconsideration.