Non-Compete Agreement / Covenant Not to Compete

Fifth District Allows Non-Compete Lawsuit by Madison County Doctors to Go Forward

November 11, 2010 | Peter S. Lubin and James V. DiTommaso

Our Illinois covenant not to compete attorneys were interested to see a ruling in a long-running contract dispute between three Madison County doctors. The Fifth District Court of Appeals has given a green light to a lawsuit over a covenant not to compete. The Madison St. Clair Record reported July 1 that the court allowed Dr. Tina Gingrich to pursue a non-compete lawsuit against her former business partner, Dr. Christina Midkiff. At issue is a covenant in the stock purchase agreement of their former corporation, Tina M. F. Gingrich, M.D., P.C., doing business as Maryville Women’s Center, an ob-gyn practice. The covenant said Midkiff and a third partner, Dr. Marlene Freeman, were not permitted to open a competing ob-gyn practice within 20 miles of Maryville Women’s Center for five years.

The underlying facts are complicated. Midkiff and Freeman joined Gingrich’s practice in the late 1990s, entering into a stock purchase agreement that gave them one-third of the shares each. That agreement also contained the covenant not to compete at issue here, as well as a provision giving Gingrich veto power. The three doctors later disagreed over issues not specified, and in 2002, Midkiff and Freeman sued Gingrich for several causes of action, including shareholder relief and a declaratory judgment that the covenant not to compete was unenforceable. Gingrich countersued and later filed a notice of stock sale offering to buy out the shares owned by the other two. That offer used a formula rather than a dollar amount to determine what she would pay for the shares. For that reason, the trial court granted a motion to strike her notice.

Gingrich filed an interlocutory appeal, and the resulting 2005 Fifth District opinion established that a formula is a valid way to offer to buy stock under the Business Corporations Act. The case was sent back to trial court, but before the court could complete its bench trial, Midkiff and Freeman sold Gingrich their shares. Midkiff started her own practice in Maryville on the first day of 2007, bringing her staff from the Maryville Women’s Center. Later that January, the trial court determined how much Gingrich should pay for Midkiff’s shares. It also refused to enforce the covenant not to compete against Midkiff, as to work she had done at a local hospital. Shortly afterward, Gingrich filed the instant lawsuit, seeking to enforce the covenant not to compete as to both the hospital and Midkiff’s new office in Maryville. The trial court dismissed the case, saying the issue had already been decided, and Gingrich appealed to the Fifth District again.

According to the Record, the Fifth District reversed that trial court ruling in June. For the majority, Justice Wexstten wrote that Gingrich’s breach of contract claim had not been decided in the prior suit, which he said had to do with the valuation of the stock shares Gingrich was trying to purchase. The decision did not enforce the non-compete clause, and in fact, the justices specifically said they made no ruling as to whether the clause was reasonable. Instead, their ruling sends the case back down to the trial court for a decision.

Video Explaining that an Employer’s Material Breach of an Employment Agreement Can Invalidate a Non-Compete Agreement

November 7, 2010 | Peter S. Lubin and James V. DiTommaso

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 630-333-0333 today.

Federal Lawsuit Asks Judge to Rule That Social Media Contact Violates Non-Compete Clause

October 27, 2010 | Peter S. Lubin and James V. DiTommaso

The U.S. District Court for Minnesota is hearing a test case for how restrictive covenants are affected by social media. Our Chicago restrictive covenant litigation lawyers were extremely interested to read about TEKSystems, Inc. v. Hammernick in a June 15 ComputerWorld article. According to the article, information technology staffing firm TEKSystems is suing a former employee who once helped recruit IT professionals for the company to place at other businesses. That former employee, Brelyn Hammernick, is accused of violating her non-solicitation, non-compete and non-disclosure agreements with TEKSystems through her use of the social media website LinkedIn. The company claims Hammernick violated her agreements by connecting with at least 20 TEKSystems contract employees, among other things. Other defendants are Horizontal Integration, Hammernick’s new company, and two colleagues who moved there from TEKSystems, Quinn VanGorden and Michael Hoolihan.

According to the federal complaint, Hammernick signed an agreement not to work for a competitor of TEKSystems for 18 months after leaving her job there and within a 50-mile radius of the company’s Edina, Minnesota office. The agreement also restricted her from recruiting employees and clients of TEKSystems for the same 18-month period, including people who had been contract employees for up to two years beforehand, and from revealing the company’s confidential information. The complaint accuses Hammernick of violating all three provisions after moving to Horizontal Integration, a direct competitor. In addition to connecting with former colleagues on LinkedIn, the company accuses her and her two colleagues of using their knowledge of TEKSystems’ clients to solicit them for Horizontal Integration and soliciting several contract employees to move to Horizontal Integration. TEKSystems asked for substantial financial damages as well as injunctions enforcing the restrictive covenants.

This case contains numerous more conventional restrictive covenant issues, but our Illinois non-compete litigation attorneys are also very interested in the novel issue of whether social media contact is in itself a violation of a non-solicitation clause. Without knowing more about the situation, we suspect that the district court will not accept this argument. In itself, connecting with someone on LinkedIn or another social networking site does nothing more than give both people access to each other’s contact information. This could be considered an “electronic Rolodex,” and no court would uphold a non-solicitation agreement that requires an ex-employee to discard her Rolodex. In fact, the language of the agreement, as laid out in the complaint, prohibits contact with TEKSystems employees only for the purpose of soliciting them away from the company. For this reason, we think TEKSystems will have an uphill battle on that claim.

NRP Reports: “HP Sues Ex-CEO Hurd Over Oracle’s Job Offer”

September 11, 2010 | Peter S. Lubin and James V. DiTommaso

HP Sues Ex-CEO Hurd Over Oracle’s Job Offer

by Richard Gonzales

NPR reports:

The Wall Street Journal Reports: H-P Sues to Stop Ex-Chief’s Job

September 11, 2010 | Peter S. Lubin and James V. DiTommaso

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.

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

August 26, 2010 | Peter S. Lubin 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.

Illinois Supreme Court Resolves Question on Unintentional Missed Deadlines in Trade Secrets Case

August 11, 2010 | Peter S. Lubin and James V. DiTommaso

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.

Third Circuit Upholds Non-Compete Clause But Changes Unreasonable Restriction on Activity

July 22, 2010 | Peter S. Lubin and James V. DiTommaso

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.

How to Protect Your Company’s Trade Secrets, and Customer Lists — Our Chicago Business Attorneys Can Help You Draft and Enforce Covenants Not to Compete and Confidentiality Agreements and Pursue Litigation to Enforce Them If Necessary

June 15, 2010 | Peter S. Lubin and James V. DiTommaso

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.

Peter S. Lubin

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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 James V. DiTommaso

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 630-333-0333.