Articles Posted in Best Business And Class Action Lawyers Near Chicago

In Peerless Industries, Inc. v. Crimson AV, Llc., the Northern District of Illinois makes clear that while noncompete agreements may be valid and enforceable in Illinois, the terms of an agreement must nevertheless be reasonable.

Plaintiff Peerless Industries Inc. is an audio-visual mount equipment manufacturer that does business around the world. The plaintiff sells its products to distributors who then install them in stadiums, schools and airports, among other structures. In 2007, The plaintiff entered into a supply contract with Chinese manufacturer Sycamore Manufacturing Co., Ltd. The agreement included a noncompete provision, which provided that Sycamore would not make or distribute “Peerless Products”: those designed by the plaintiff or normally sold by the plaintiff under any of its trademarks. The agreement further prohibited Sycamore from selling a “similar product” – one that “in [the plaintiff’s] reasonable judgment, has substantially the same appearance as or reflects or contains any part of the design of any Peerless Product” – for the length of the agreement and one year thereafter.

The agreement terminated in March, 2010. The following May, Defendant Crimson AV, LLC incorporated in Illinois. According to the court, Sycamore pays the salaries of the defendant’s executives as well as their expenses. Defendant Vladimir Gleyzer, Crimson’s managing director, is a former Peerless employee. Later that summer, the plaintiff filed the present action, alleging that the defendants tortuously interfered with the plaintiff’s contract with Sycamore by purchasing “similar products” from Sycamore and offering them for sale on Crimson’s website. Plaintiff sought a preliminary injunction to enjoin the defendants from selling or offering to sell products received in breach of the supply agreement.

Following a hearing on the matter, the court denied the plaintiff’s injunction request, finding that the “similar products” provision of the supply agreement with Sycamore was overly broad and beyond that necessary to protect the plaintiff’s legitimate business interests. In Illinois, the court noted, a noncompete agreement is valid only to the extent that is reasonable. That is, the agreement’s terms must not: (1) be greater than necessary to protect the business; (2) be oppressive to the entity restricted; nor (3) injure the general public.

In this case, however, the agreement at issue barred Sycamore from selling certain equipment, even if the feature of the plaintiff’s product that appears in the similar product is not aesthetically or functionally significant to either the plaintiff’s product or the similar product. The agreement also applies even where it is unlikely that one product could not be distinguished from the other in the marketplace.

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Toxic contamination class actions often include claims by plaintiffs asserting a whole host of problems, from serious health and medical conditions to wide-scale property damage. In Osarczuk v. Associated Univs. Inc., the New York Supreme Court for Suffolk County considered the additional economic damages caused when drinking water is contaminated.

The plaintiffs, a number of people living near the Brookhaven National Laboratory in Upton, New York, brought an action against the defendant, the laboratory’s owner and operator, alleging that the defendant unlawfully emitted toxic substances such as trichloroethane, tritium, strontium-90, uranium, argon-41 and cesium-137 into the air, soil and ground water near the lab. This, according to the plaintiffs, caused health problems, including cancer, nausea, headaches, and various immune conditions, to people living in the surrounding area as well as property damage and economic damage as a result of being forced to switch water sources. The plaintiffs sought both compensatory and punitive damages for the injuries incurred.

The plaintiffs also asked the court to certify a plaintiff class (broken into various sub-classes) consisting of people who live or work within a 10-mile radius of the lab and who have suffered personal injury or property damage as a result of the alleged pollution.

Class certification allows one or more members of a class of similarly situated plaintiffs to sue on behalf of all class members. Under New York law, a class may be certified only where: (1) the class is so numerous that joinder of all members is impracticable; (2) the class shares common questions of law or fact which predominate over any questions affecting only individual members; (3) the class representatives’ claims are typical of those of the class; (4) the representative parties will fairly and adequately protect the interests of the class; and (5) a class action is superior to other available methods for the fair and efficient adjudication of the controversy. A plaintiff seeking class certification bears the burden of proving that these requirements have been met, but need not prove that it is likely to succeed on the actual merits of the lawsuit.

The court determined that the plaintiffs satisfied each of the requirements for class certification, but limited the class to those persons living in the proscribed radius who allege to have suffered either property damage as a result of the contamination or financial loss when they were forced to switch from free local well water to that provided by the local water authority when the wells allegedly became contaminated. In so doing, the court noted that these class members share common questions regarding both their damages, including the costs attendant with switching to another water source, as well as the defendant’s legal liability for these and other injuries.

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A noncompete agreement typically protects a business that discloses confidential information or business practices to another business or individual from having that information later used against it in competition. Such agreements are generally enforceable and even standard in a wide variety of industries. However, just because a business can prove that someone violated a noncompete agreement does not mean that the business can prevent that person or entity from continuing to do so. In EBN Enterprises, Inc. v. CL Creative Images, Inc., the Northern District of Illinois explains the additional hoops that a party to a noncompete agreement must jump through in order to get an injunction preventing another party from continuing to breach the agreement.

Defendants owned a hair salon and operated it under a franchise agreement with Plaintiffs, the owners of the “Fantastic Sams” salon trade name and operation. The 10-year agreement allegtedly allowed Defendants to use the Fantastic Sams name and trademarks for Defendants’ salon. In return, Defendants agreed to pay a weekly royalty fee and a portion of certain costs. Defendants also agreed that they would not have any connection with a hair care business located within five miles of any Fantastic Sams salon for two years following the agreement’s termination.

The parties allegedly repudiated the agreement shortly before its termination and Defendants continued to operate a salon – now under the name “Corda’s Hair Salon” – at the same location. Plaintiffs filed suit, seeking an injunction preventing Defendants from operating a hair salon within five miles of the Fantastic Sams salon that Defendants previously operated. In order to obtain such relief, the court stated that Plaintiffs must show that: 1) they will suffer irreparable harm without a preliminary injunction; 2) traditional legal remedies will not adequately remedy the harm; and 3) their claim has some likelihood of success on the merits.

Plaintiffs made the requisite showing of success on the merits – a “greater than negligible chance of winning,” according to the court – because Defendants’ continued operation of their salon is in an alleged breach of the franchise agreement. Nevertheless, Plaintiffs failed to show that they will be irreparably harmed unless Defendants are enjoined from operating the salon. The court declined to presume such harm based solely on the breach of the agreement. Instead, it found that Plaintiffs failed to show that the injunction was necessary to prevent use of Plaintiffs’ confidential information, unfair appropriation of other proprietary or unique aspects of Plaintiffs’ business or consumer confusion or to preserve any relationships Plaintiffs would have with customers. Accordingly, the court denied Plaintiffs’ injunction request.

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A recent ruling out of Louisiana makes clear that in determining whether a group of plaintiffs in a toxic contamination case should be permitted to bring their claims as a class action, the question is not whether the plaintiffs can ultimately win the case, but whether they’ve simply met the basic requirements for class certification.

Price v. Martin, Louisiana’s Third Circuit Court of Appeal affirmed a trial court’s certification of the plaintiff class in an action alleging that the defendants – local railroad tie manufacturers – contaminated the property surrounding their operation, finding that the plaintiffs met the certification requirements regardless of the likelihood of their success on the merits of their claims.

The plaintiffs are persons residing in Alexandria, Louisiana, near the Dura-Wood Treating Company facility, owned by defendants at various times over a 66-year period. They claim that Dura-Wood’s creosote-treated railroad tie operation contaminated soil, sediments, groundwater and buildings in the surrounding area, damaging the plaintiffs’ property. Following a flurry of motions, the trial court granted certification of the plaintiffs’ class action, allowing representative parties to sue on behalf of roughly 4,700 landowners in the allegedly contaminated area. The appeals court upheld the decision, finding that “[t]he trial court applied the correct legal standard in deciding to certify this class.”
The court quoted the state Supreme Court’s decision in Dukes v. Union Pacific R.R. Co. in describing the nature of class action lawsuits in Louisiana:

A class action is a nontraditional litigation procedure which permits a representative with typical claims to sue or defend on behalf of, and stand in judgment for, a class of similarly situated persons when the question is one of common interest to persons so numerous as to make it impracticable to bring them all before the court. Ford v. Murphy Oil U.S.A., Inc., 96-2913 (La. 9/9/97), 703 So.2d 542, 544. The purpose and intent of class action procedure is to adjudicate and obtain res judicata effect on all common issues applicable not only to persons who bring the action, but to all others who are “similarly situated.” Id.

The court further determined that the plaintiffs satisfied Louisiana’s numerosity, commonality, typicality, adequacy and class definition requirements for certification. Although the facility at issue had three owners who engaged in varying operations using different chemicals over the 66-year period during which the contamination allegedly took place, the court held that “one factual issue is common to the potential class—whether defendants’ off-site emissions caused property damage to the residences in the area surrounding the plant. This issue will not be resolved by examining individual residences in the area. Rather, the elevated toxin levels must be shown on an area-wide basis as emanating from the defendants’ facility.”

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Our Blog contained a post regarding the Illinois Appellate case Janowiak v. Tiesi. The post described the allegations in the pleadings recited in the Appellate Court opinion. Our blog writer at Justía did not intend and the post did not describe the facts of that case as anything other than allegations. However, we received a letter from counsel for the Janowiak parties stating that they believe the post states that the allegations are presented as facts. We have therefore deleted that post from the blog. Per the request of the Janowiak parties, we state that the allegations in that case are allegations not facts as stated in the Appellate Court opinion and as the blog post previously stated. To the extent the blog post can be misinterpreted as stating that the claims in Janowiak v. Tiesi are facts, we retract those statements and apologize to the Janowiak parties for the misunderstanding. We regret this misunderstanding. Our blog writer at Justía simply intended to report allegations in a case and had no intent to report those allegations as facts.

The District Court for the Northern District of Illinois’ recent opinion in Nortek Products Ltd v. FNA Group, Inc. provides a basic overview of how courts consider whether to enforce the terms of a noncompete agreement.

Plaintiffs began manufacturing pressure water products for Defendants in 2003. Five years later, the parties entered into a “License Contract” under which Plaintiffs would manufacture pressure washers that included specific hoses that Defendants held a patent on and/or involved specific technology for which Defendants had applied for a patent.

They also entered into a “Nondisclosure, Noncompetition and Non-solicitation Agreement” (NDA) prohibiting Plaintiffs from the “manufacture, assembly, use, sale, marketing, after-sale service or other disposition of any Licensed Product, any related ancillary activities and any other business [Defendants] may license (or co-operate with) [Plaintiffs] or consider licensing (or co-operating with) [Plaintiffs],” for three years after the expiration of the License Contract. The NDA also included a non-solicitation provision, barring Plaintiffs from soliciting Defendants’ customers for 10 years after the Licensing Contract’s expiration. Finally, the NDA’s nondisclosure provision stated that Plaintiffs would not disclose Defendants’ trade secrets or confidential information. The NDA did not include a geographic limitation.

Plaintiffs filed suit against Defendants for breach of contract. Defendants, in turn, filed a counterclaim alleging that Plaintiffs breached the NDA by soliciting business from Defendants’ customers and engaging in unauthorized business activities using Defendants’ confidential and proprietary business information.

In denying Plaintiffs’ motion to dismiss the counter claim, the court first determined that the NDA should be considered under an employee-employer framework, rather than in the context of a sale of business. “[B]ecause the covenants in the License Contract serve to protect confidential customer information and customer relationships, they are more akin to covenants ancillary to an employment contract than to a sale of a business,” the court ruled.

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As a firm of Chicago and Orland Park business attorneys, Lubin Austermuehle handles litigation for companies in a wide range of industries. Our Schaumburg business lawyers recently came across a case from St. Clair county that is of interest to LLC’s and those businesses who include arbitration clauses in their business agreements.

The Plaintiff in Trover v. 419 OCR, Inc. was a member of a limited liability company, Fair Oaks Development Group LLC (FODG) that planned to develop the land owned by FODG. Plaintiff was advised by counsel that the company would benefit from a tax perspective should the company transfer its interest in the land to Defendant 419 OCR, Inc. and allow that company to develop the land. Relying upon that alleged tax advice and the representations of Defendant, Plaintiff allegedly allowed FODG to sell and assign its interest in the land to Defendant 419 OCR, Inc., who later transferred parts of the land to Defendant O’Fallon Group. The sale was executed by a written agreement, but Plaintiff alleged that there was an additional oral agreement between the parties that was never put in writing. Under this oral agreement, Defendants were allegedly to pay Plaintiff a to-be-determined sum of money in addition to the price of the land. Defendants eventually developed the land and made a profit, but allegedly never paid any of the sums from the oral agreement.

Plaintiff then filed a shareholder derivative action on behalf of FODG alleging breach of contract, fraud, breach of fiduciary duty, and corporate waste. Defendants filed a motion to compel binding arbitration based upon the arbitration provisions contained within the operating agreement governing FODG. The trial court denied the Defendants’ motion to compel arbitration, and in response, Defendants filed for an interlocutory appeal on the arbitration issue.

The Appellate Court performed a de novo review of the motion to compel arbitration because the trial court did not hold an evidentiary hearing or make any factual findings. The Court examined the operating agreements that contained the arbitration provisions and found that, while the land transaction in question fell within the scope of the provisions, Defendants 419 OCR and the O’Fallon Group were not parties to those agreements and therefore were not bound by them. Thus, the Court upheld the trial court’s denial of arbitration for the breach of contract claims as to those two Defendants.

Next, the Court examined whether the claims for breach of fiduciary duty brought on behalf of FODG were bound by the arbitration clauses. The Court found that FODG was not a party to its own operating agreement because no signatories on the agreements indicated that they were signing on behalf of the LLC. As such, the claims brought on behalf of FODG were not bound by the arbitration clause and the Court denied the motion as to the breach of fiduciary duty claims. The Court then reversed the trial court’s denial as to the fraud cause of action because the individual Defendants and Plaintiff both signed the operating agreement and were bound by the arbitration provision contained therein.

Trover v. 419 OCR, Inc. contains important information for limited liability companies and the members of those organizations. The holding in this case indicates that an arbitration clause in the operating agreement of an LLC can only be enforced against those who were party, or are successor in interest to a party to the agreement. Additionally, it is important to note that an LLC itself is not a party to its own operating agreement without express language indicating that it is.

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This is a very interesting and thought provoking story.

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https://www.youtube.com/watch?v=kdfJ8QniDC4

An excellent overview of Illinois law describing various legal entities that a business can choose to use when it forms.

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Lubin Austermuehle is a commercial law firm based in Chicago and Oakbrook Terrace, Illinois that focuses on handling all of the legal issues confronting businesses in today’s world. We represent both plaintiffs and defendants, and we have experience representing clients in matters ranging from contract disputes to fraud. Our Chicago business law attorneys have over two and half decades of experience in business lawsuits and have won favorable verdicts in “bet the business” lawsuits. Lubin Austermuehle has Chicago business litigation attorneys who can identify and understand the legal issues in a dispute, no matter how complex they may be. We will use our resources and knowledge to formulate a plan of action that will help further your interests, resolve your problems, and get you back to growing your business. Our focus with each client is to resolve the legal issues efficiently and with minimal costs, while still providing outstanding representation. If your business is being sued or you are seeking advice to stay out of court, call our Naperville business lawyers to discuss what Lubin Austermuehle can do for you. For a consultation, call 630-333-0333 or send us an email through our website.