The United States Department of Labor has an excellent website which provides detailed information on fair labor laws including the requirement that employers pay time and half for overtime work for non-exempt employees.
The website is located here. With regard to federal overtime laws, the website states:
Overtime Pay
As Illinois shareholder dispute and shareholder squeeze out and freeze out litigation attorneys, we were interested in a state appellate decision affirming that corporate bylaws may be abrogated by years of contrary practices. Kern v. Arlington Ridge Pathology, S.C., No. 1-07-2615 (Ill. 1st. Dist. Aug. 7, 2008) arose from corporate governance problems at medical corporation Arlington Ridge Pathology. Dr. Susan Kern was an original shareholder of Arlington when it was incorporated in 1994. Arlington had six shareholders originally, but that number dropped to three in 1999 and stayed there through most of the time until this suit was filed in 2005. The other shareholders and directors were Dr. Richard Regan, elected president of the board in 2005, and Dr. Kishen Manglani. Arlington had an exclusive agreement with Northwest Community Hospital, and its shareholders had offices and practiced there.
Arlington’s original articles of incorporation are silent on the issue of a quorum for doing business or configuration of the board. However, its bylaws say a quorum is a majority of directors and the board should be made up of four to nine directors who are shareholder employees and doctors. Similarly, the articles of incorporation do not specify requirements for board actions, but the bylaws say the board may remove a director with a vote of 80% of shares. They also require an 80% vote to adopt new bylaws. Despite the board requirement, Arlington operated with a three-member board for most of the time since 1999. According to Kern, there were no regular meetings, no changes to bylaws and only two special board meetings. All actions of the board were unanimous.
Conflicts arose between Kern and Bruce Crowther, chief executive officer at Northwest. She alleges that their relationship was never good, but it became worse after a dispute that led to filing an incident report with Northwest on Sept. 12, 2001. Later, in June of 2005, an Arlington employee filed a report with Northwest accusing Kern of unprofessional and improper behavior. Kern alleged that this led to a “circus investigation,” but Regan met with Crowther to say Arlington would handle it internally. Nonetheless, Kern said, Crowther sent Regan a letter around the same time threatening to end the hospital’s contract with Arlington if it didn’t either fire Kern or send her to professional counseling.
Regan called a special board meeting for Oct. 21, 2005 at 1:30 p.m. — but he and Manglani met beforehand with Arlington’s attorney. They voted to change the articles of incorporation to allow an alternation or amendment of the bylaws with a two-thirds vote. When Kern arrived for the meeting and connected her attorney by speaker phone, she was given the minutes of the earlier meeting and a required five-day notice of the change. Kern and her attorney objected to the earlier meeting, but Arlington’s attorney said they weren’t needed because the directors already knew her position. When the resolution came into force, Manglani and Regan made several more bylaw changes, including one that required a two-thirds vote to remove a director and terminate an employee.
Two days later, Kern filed this action against Arlington and Regan, later amended to include damages for conspiracy and breach of fiduciary duty. At trial, the court granted summary judgment to the defendants and denied Kern’s motion to reconsider. It found that, by operating for years with only three shareholders, Arlington had abrogated its bylaws. Thus, a quorum was present at the Oct. 21 pre-meeting meeting at which Manglani and Regan made their decision, and the amendment was proper, the trial court said. Kern appealed the summary judgment ruing.
On appeal, one controlling issue emerged: whether the trial court was correct to find that the Oct. 21 meeting between Regan and Manglani had a quorum. Kern argued that it did not, according to Arlington’s articles of incorporation and bylaws as well as Illinois caselaw and the Business Corporations Act. Illinois courts have found that articles of incorporation are enforceable contracts between corporations and their shareholders, she said. Furthermore, previous decisions by Arlington’s board had been made unanimously, with all members present. Thus, the absolute minimum number of shareholders for a quorum on Oct. 21 should have been three, she argued, because the bylaws set a minimum number at four. And because the bylaws specified an 80% vote for any change of the bylaws, Kern argued, the shareholders clearly wanted a supermajority.
The appeals court disagreed. It found authority for the trial court’s decision that the Arlington board had abrogated its quorum rule in Johnson v. Sengstacke, 334 Ill. App. 620 (1948) and The First Church of Deliverance v. Holcomb, 150 Ill. App. 3d 703 (1986). In both of those cases , courts found that years of practices that did not follow the bylaws abrogated those laws by implying the board members’ consent. The same is true in this case, the court said.
This formed the basis of its decision in favor of Arlington and Regan on almost all issues. Past practices and the Business Corporation Act dictated that there was a quorum; that a two-thirds rather than 67% vote was appropriate; and that summary judgment on the conspiracy and breach of fiduciary duty claims was proper because the other directors had taken no illegal actions. It also dismissed her conflict of interests claim against Regan and Manglani, saying the relevant section of the law applies only to outside corporate actions, not internal governance matters. The First affirmed the trial court’s rulings on all counts.
As Illinois online trademark infringement attorneys, our interest was piqued when we saw an Aug. 4 article in the New Jersey Star-Ledger about civil and criminal charges against a man accused of outright stealing a domain name. P2P.com, LLC v. Goncalves et al, pending in New Jersey federal court, accuses Union, N.J. man Daniel Goncalves of hacking into an email account owned by Albert and Lesli Angel in order to illegally gain control of three of their domain names. These are p2p.com, drugoverdose.com and profreedom.com, which are co-owned by investor Marc Ostrofsky. Goncalves, a 25-year-old who runs a Web hosting business, was arrested in late July for the same alleged actions, in what the newspaper said may be the first criminal case over the theft of a domain.
A domain name is the unique identifier for a Web site — for example, chicagobusinesslawfirm.com is the domain name for one of our own Web sites. Some investors buy domain names they believe will be in demand and therefore valuable someday. That was the case when the Angels and Ostrofsky bought p2p.com for $160,000 from a Wisconsin company called Port 2 Print, believing they could resell it to a business related to peer-to-peer software. On the Internet, peer-to-peer software is frequently referred to as p2p. Similar thinking went into the purchases of profreedom.com and drugoverdose.com. They paid to register and “lock” p2p.com for ten years with registrar GoDaddy.com.
But in 2006, the investors’ complaint alleges, Goncalves and possible others intentionally and knowingly gained illegal access to the Angels’ AOL email account, allowing them to transfer the domains from the Angels’ GoDaddy hosting account to another hosting account they controlled. They then allegedly re-registered the domains under false names and addresses and redirected traffic away from the sites. A few months later, the complaint says, the defendants put p2p.com up for sale on auction Web site eBay, where NBA player Mark Madsen paid more than $111,000 for it. Drugoverdose.com has also been resold. The complaint also accuses Goncalves of falsifying records showing that the Angels sold the domains to Goncalves. An attorney for Goncalves told the Star-Ledger that Goncalves bought p2p.com for $1,500, through a third party he believed represented the Angels.
The lawsuit accuses Goncalves and others of breaking state and federal racketeering laws with their conspiracy to steal the domains; fraud; tortuous interference in the investors’ business opportunities and unauthorized access prohibited by the federal Computer Fraud and Abuse Act. More recently, the plaintiffs asked to add GoDaddy.com as a defendant for allegedly allowing Goncalves to transfer the domain. In addition to financial damages, the investors seek the return of all three domains and an order stopping the defendants from selling their domains. The new owners of the allegedly stolen domain names were named as defendants in the original suit, but according to news reports, Madsen claims to be a good faith buyer and the Star-Ledger said he has had civil discussions with the investors.
As Chicago online trademark infringement attorneys, we are very interested in the outcome of this case. As we noted, this may be the first case of criminal charges in a domain name theft. According to DomainNameNews.com, it may also break new ground if it holds GoDaddy legally liable for allowing the theft. According to that article, the Angels claim GoDaddy stonewalled their attempts to investigate and blamed them for inadequate security — despite evidence implicating Goncalves in earlier domain name thefts. Registrars are generally not found liable for allowing domain name theft, though there are notable exceptions. The decision(s) in this case could change that, at least in cases with clear negligence.
As Chicago ATM fee fraud attorneys, we were extremely interested to see an ATM fee fraud lawsuit filed right here in the Northern District of Illinois. According to an Oct. 29 post from the Chicago Bar-Tender blog, Frederick Brill is suing Marriott International Inc. over alleged violations of the Electronic Funds Transfer Act. The case stems from ATM fees incurred by Brill’s use of an ATM in the lobby of the Marriott Lincolnshire, in the Chicago suburbs, in December of 2008. Brill and his attorneys are seeking class action status for the case, which they say could include hundreds of people.
The complaint in the case says Brill found no notice on the outside of the machine, but he was nonetheless charged a $2.50 fee to use it. This alleged conduct violates the EFTA, a federal law governing consumers’ rights when withdrawing, paying or moving money electronically, including through ATMs. ATM fees are legal under the EFTA, but ATM operators are required to post notices of the fees and their amounts on the outside of the machines. They must also put an additional notice on the screen of the ATM itself, or on a paper receipt, a requirement not at issue in the lawsuit. If ATM operators fail to meet these requirements, the EFTA allows injured consumers to sue to recover the fee, as well as statutory damages of a set amount per violation. If the case is a class action, as proposed here, injured consumers may recover attorney fees and statutory damages of up to $500,000, or one percent of the company’s net worth, whichever is lesser.
As consumer rights attorneys for more than two decades, we are pleased to see growing consumer awareness of this problem. ATM fees themselves caused a lot of grumbling when they were first introduced, but court rulings made it clear that it’s not illegal simply to charge an ATM fee. This has trained many consumers to shrug and accept outrageously high fees. By contrast, the language of the EFTA is very clear about the requirement to give notice of ATM fees on both the outside of the machine and on the screen itself. The law is designed to give consumers the opportunity to opt out of fees they don’t agree with — something that’s much less likely once they’ve already inserted their cards. Consumers have the right to make decisions about these fees with full information, and ATM operators shouldn’t be able to end-run around their legal obligations, whether out of negligence or deliberate choice.
In an unusual Illinois insurance fraud lawsuit, the First District Court of Appeal has ruled that two insureds are entitled to attorney fees, sanctions and other relief under section 155 of the Illinois Insurance Code. Siwek v. White, No. 1-07-2600 (Ill. 1st Feb. 27, 2009) pits drivers Christine Siweck and Jerrold Erickson against their former auto insurer, which the court found improperly canceled their insurance policy.
Siwek was in an auto accident while using Erickson’s vehicle in the summer of 2003. Erickson was insured by American Access Casualty Company, with Siweck on the policy as a co-operator. They notified the state of Illinois of the accident and named American as their insurer, but American told the state in September of that year that the policy had been canceled in May of that year. This led IDOT to certify both Siweck and Erickson as drivers who had been involved in an accident without auto insurance. At a hearing, Erickson successfully defended his license. Siweck testified at the same hearing that she had no notice of cancellation and presented paperwork showing that American had issued her a new declaration of coverage on the day after the supposed cancellation.
The state suspended Siweck’s driver’s license nonetheless. Siweck and Erickson sued for administrative review of the decision to suspend Siweck’s license and declaratory judgments against American. They sought a declaration that their policy was improperly canceled, meaning Siweck was insured at the time of the accident.
Our Illinois noncompete clause attorneys recently noted an important case addressing the standards for a preliminary injunction in Illinois lawsuits over covenants not to compete. In Lifetec, Inc. v. Edwards, No. 4-07-0300 (Ill. 4th Nov. 6, 2007), Lifetec sued former salesman Peter Edwards for breach of three restrictive covenants in his employment contract. It also sued his wife, Carol Edwards, and new employer, Patterson Medical Supply Inc., for tortious interference with the contract. Trial court granted Lifetec a preliminary injunction, and Edwards filed the instant appeal.
Lifetec sells medical devices and products. When Edwards began working there as a salesman, he signed a contract agreeing not to:
The restrictive covenant applied for 24 months after the employment agreement was terminated.
Edwards left Lifetec for Patterson, a larger competitor, after 10 years. According to the opinion, he knew the move could cause Lifetec to sue and gave Patterson a copy of the agreement, but Patterson said it would take care of him in any lawsuit. Several months later, he admitted to a former colleague that he was working for Patterson. Months later, Lifetec sued him for breach of contract and requested a preliminary injunction. At an evidentiary hearing, evidence was introduced that Edwards had solicited Lifetec customers, but he said all Lifetec customers were also Patterson customers because the bulk of Patterson’s business was from national contracts. On the basis of the evidence at this hearing, the trial court granted a preliminary injunction stopping Edwards from violating the contract.
Edwards appealed, asking only for a decision on whether there was enough evidence to support the granting of the injunction. The appeals court said there was. The question, the court wrote, was whether Edwards had used protectable confidential information gained at Lifetec for his own gain. Lifetec contended that its “open quotes” to buyers constituted protectable information, although not all open quotes necessarily resulted in sales. The court took it one step further, saying the way those quotes were calculated was the real confidential information, as the quotes themselves were not secret once submitted to customers. Edwards’ knowledge of the reasoning behind the bids could give Patterson an advantage in the competitive medical supply industry. The defendants’ arguments that Lifetec should have alleged that Edwards misappropriated its trade secrets also fail, the court wrote, since Lifetec is making no such claim. All of this is sufficient to raise fair questions of fact, the court said, so an injunction was proper until the merits of the case could be decided.
A special concurrence filed by Presiding Justice Robert Steigmann agreed with the outcome, but said the court was incorrect to use the “legitimate business interests” test. This test is three decades old, the justice wrote, but the Illinois Supreme Court had never embraced it and in fact failed to use it at all in its 2006 decision in Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 866 N.E.2d 85 (2006). Because of this, he wrote, the court should have stopped its analysis after finding that the time and territory restraints in the covenant were reasonable. The majority noted, however, that the parties made no argument on this basis.
As Illinois limited partnership litigation attorneys, we were pleased to note a recent ruling clearing up a potential conflict between Illinois and Delaware limited partnership law. Delaware law time-bars claims in a limited partnership dispute even though Illinois law typically controls statute of limitation issues, the First District Court of Appeal ruled. Freeman v. Williamson, No. 1-07-2058 (Ill. 1st Dist. June 24, 2008). The case is a victory for members of the Freeman family, who are former investors in a fund set up as a Delaware limited partnership. The plaintiffs invested in the Lipper Fixed Income Fund in 1993 and withdrew in 1999.
In 2002, the fund’s general partner realized that a former manager had overstated its returns, leading to overpayments to partners. It liquidated the partnership and appointed Richard Williamson as the trustee of the fund. In 2006, Williamson demanded that the Freemans return those overpayments. In response, the Freemans filed a lawsuit in Illinois, asking for a declaratory judgment that they were not obligated to repay the overpayments because Delaware law time-barred any claim by Williamson. They also argued that the partnership agreement for the fund specifically said partners had no obligation to restore a negative balance in the fund’s capital account. Williamson countersued for unjust enrichment, conversion and money had and received.
The trial court granted the declaratory judgment and dismissed all of Williamson’s claims with prejudice, all on summary judgment. It agreed that the Delaware Revised Uniform Limited Partnership Act applied to both the partnership agreement and Williamson’s counterclaims, and that its three-year limit for bringing claims had already expired. Williamson appealed to the First District on all of the claims but conversion.
On appeal, the court started by noting that the sole issue at stake was whether the Delaware Act applies to the dispute. Williamson argued that it did not, but the First District found this unpersuasive. The partnership agreement expressly incorporates a relevant section of the Delaware Act, the court said, and also explicitly says the same law governs the partnership aspects of the agreement. Under the Delaware Act, partners are liable for knowingly accepting payments that make the partnership unable to meet its obligations to creditors — but if they innocently accept such payments, they are not liable. Furthermore, the law applies a three-year limit to any liability “under this chapter or other applicable law” for receiving such payments, regardless of whether it was received knowingly. Thus, the court said, the three-year period applies as long as the time limitation in the Delaware Act applies to the payments the plaintiffs received.
The court rejected Williamson’s argument that Illinois law, which would not time-bar his claims, applies because the relevant part of the Delaware Act is a statute of limitations. Using Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill. 2d 325, 770 N.E.2d 177 (2002), the trustee argued that the Illinois law applies when a statute of limitations is at issue because a statute of limitations is procedural rather than substantive. The plaintiffs argued that the provision is actually a statute of repose, a substantive issue that places the matter under Delaware law through the limited partnership agreement. The court agreed, saying that the Delaware Act extinguishes liability regardless of whether plaintiffs know their cause of action, making it an issue of substantive rights.
Finally, the court rejected Williamson’s argument that the partnership agreement does not apply. It agreed that the plaintiffs are also wrong to argue that the sections on partners’ obligations apply to them, because they are former partners and the agreement clearly differs between former and current partners. However, the court said there was no question that the distributions the plaintiffs received were made pursuant to the terms of the agreement. And again, the agreement specifically says the Delaware Act applies. Thus, First District said the Delaware Act applies even though the plaintiffs are now former partners. It affirmed the summary judgment rulings by the trial court.
An interesting case involving enforcement of an employment contract’s restrictive covenant was recently noted by our Illinois covenant not to compete attorneys. Cambridge Engineering Inc. v. Mercury Partners 90 BI, Inc., No. 1-06-0798 (Ill. 1st Dec. 7, 2007). The suit stems from an earlier lawsuit concluded in Missouri in 2001, in which Cambridge Engineering Inc. successfully sued former employee Gregory Degar and his new employer, Brucker Company (legally Mercury Partners 90 BI), to enforce a covenant not to compete signed by Degar. Cambridge then filed this suit against Brucker to recover punitive damages and attorney fees. Cambridge and Brucker compete in the residential and business heating market in the Midwest.
Degar worked at Cambridge as a sales representative starting in 1996, and signed a contract including noncompete and nonsolicitation covenants. The contract restricted him from competing in any way with Cambridge, or soliciting its employees or customers, anywhere in the United States or Canada, for 24 months after leaving. He was terminated in 2001 and was hired by Brucker about a month later as an inside support person rather than a salesperson. Nonetheless, he admitted to using customer contacts developed at Cambridge. Cambridge sued Deger, but not Brucker, in St. Louis and was granted a permanent injunction enforcing the noncompete clause. (At that time, Brucker fired Degar.)
Cambridge then sued Brucker in Illinois for compensatory and punitive damages, for tortious interference with contract. The parties stipulated to limit compensatory damages to attorney fees but said nothing about the punitive damages. The trial court directed a verdict against Cambridge on punitive damages, saying Cambridge hadn’t proven that Brucker’s actions were so outrageous that punitive damages were appropriate. At trial, the president of Cambridge testified that the company believed the contract would prevent Degar from holding any job, even a janitorial position, with any competitor, including in areas where Cambridge does not do business. The jury found for Cambridge on compensatory damages in the amount of $50,000, but Brucker successfully moved for judgment notwithstanding the verdict on the basis that the noncompetition clause was overly broad and unenforceable. Cambridge appealed both judgments against it.
The analysis by the First started by noting that the dispute centered around whether the covenant not to compete was unenforceable under Illinois law. Cambridge argued that the covenant was reasonable on both geographic and activity (despite testimony disputing this), and that the trial court improperly excluded testimony that would show this reasonableness. The court disagreed on all counts. The geographic scope was unreasonable, the court wrote, because it restricted Degar from taking a job with a competitor anywhere in Canada even though Cambridge only had a small amount of business in Canada. This restriction did nothing to protect Cambridge from competitors gaining unfair advantage at its expense, the court wrote. And the evidence Cambridge said was incorrectly excluded would not have changed the court’s decision. Thus, the scope of the covenant was indeed unreasonable.
It next examined the question of the activities prohibited by the noncompete clause, which turned on the interpretation of the contract. However, the court found that the plain language of the contract supports Brucker’s assertion that the contract was overly broad: that Degar may not “engage in any activity for or on behalf of Employer’s competitors,” a phrase that could theoretically bar Degar from taking a job filing papers for a competitor. Furthermore, testimony from Cambridge’s president at trial confirmed this interpretation; he “agreed with counsel’s contention that the St. Louis action was brought to prevent Degar from working for a competitor in any capacity.” Thus, the clause was overly broad and not reasonable, and the trial court’s decision on that issue was also correct.
Our Illinois partnership dispute attorneys noted with interest a recent case addressing the obligations of deceased partners’ estates to honor a debt not yet due before the death. In In re Estate of Gallagher, No. 1-07-1744 (Ill. 1st Dist. June 30, 2008), the First District Court of Appeal ruled that a trial court should not have dismissed the creditors’ claim against the estate of Robert E. Gallagher. Gallagher was managing partner for several companies — referred to collectively as G&H Entities in the opinion — and the petitioners are former partners, shareholders and members of G&H Entities.
Gallagher issued promissory notes to the petitioners are part of a settlement of underlying litigation, in which he agreed to buy out their share of the companies. As part of this settlement, petitioners released Gallagher from all liability except “any claims arising out of or related to the rights and obligations reflected in this Agreement or documents created in connection with it.” Gallagher died May 13, 2005, before the promissory notes were fully paid. His estate continued to make payments, which the petitioners accepted. However, they also filed suit against the estate to get the balance of the payments owed. The trial court dismissed their claim, believing it was barred by Sec. 2-619 of the Illinois Code of Civil Procedure.
On appeal, Gallagher’s estate argued that the promissory notes were not yet due and thus, the estate had not yet defaulted on them. That makes the claims contingent, it said, which violates the rule of law that claims not yet due cannot be contingent. However, the First District quickly dismissed that argument. It pointed out that In re Estate of Mackey, 139 Ill. App. 3d 126, 128, 487 N.E.2d 81 (1985) held that a contingent claim depends on “the uncertain occurrence of a future event… which is not under the control of either party” That was not the case here, the court said — liability on the notes was not contingent on a future event.
The court moved on to considering whether Gallagher’s estate can be held liable on the claims. The petitioners argued that Illinois law makes Gallagher jointly liable for the companies’ debts as a partner in G&H Entities, which makes the estate liable. To address that, the court turned to the Illinois Supreme Court’s ruling in Sternberg Dredging Co. v. Estate of Sternberg, 10 Ill. 2d 328, 140 N.E.2d 125 (1957), a similar case except that the promissory notes were already due. In Sternberg, the state Supreme Court held that creditors may make their claims against deceased partners for debts owed by the partnership. This makes it clear, the First District said, that Gallagher’s estate can be held liable for the promissory notes. Furthermore, it said, Illinois partnership law backs it up by holding that the death of a partner dissolves the partnership, that dissolution does not discharge partners’ liability, and that a deceased partner’s individual property is liable for partnership obligations.
The appeals court then dismissed the estate’s claim that the release Gallagher and the petitioners signed took away Gallagher’s individual liability. As already noted, the court said, Illinois partnership law holds partners jointly liable for debts taken on by the partnership — so claims that Gallagher cannot be held individually liable are not valid. Furthermore, the court said, the release plainly carves out an exception for claims arising out of the promissory note agreement. It is undisputed that the instant claim arises out of that agreement, the court wrote, and thus Gallagher must be liable.
Finally, the court dismissed the estate’s argument that the petitioners impliedly discharged the debt when they accepted partial payment from the estate. It cited a 115-year-old case, Hayward v. Burke, 151 Ill. 121 (1894), in which a partner in a bank died before debts on a certificate of deposit came due. As in this case, the creditor accepted partial payments from the living partners’ new firm. The estate of the deceased partner argued that this impliedly agreed that the new firm was liable for the debt. The court disagreed, holding that the mere fact that a creditor accepted payments was not enough to absolve the deceased partner from his responsibilities.
The First District took its cue from Hayward in the instant case, holding that Gallagher’s estate was not released from liability just because the petitioners accepted partial payment. Thus, the court reversed the dismissal of the case and remanded it back to trial court for consideration of the reinstated claims.
A First District Court of Appeal ruling had an interesting lesson for our Chicago noncompete clause attorneys. In Baird and Warner Residential Sales Inc. v. Mazzone, No. 1-07-2179 (Aug. 15, 2008), the First ruled that a trial court needed more evidence in a dispute about a covenant not to compete before it could correctly grant a motion to dismiss. The case arose when Baird & Warner Residential Sales sued former employee Patricia Mazzone and her new employer, Midwest Realty Ventures (doing business as Prudential Preferred Properties). Both real estate companies have multiple branches and more than 1,000 employees in the Chicagoland area.
Mazzone was office manager for B&W’s Lincoln Park office for about 11 years before leaving for Prudential. During that time, she signed a contract that included a covenant not to solicit services from any B&W employees or independent contractors, or people who had left those jobs within the last six months, for up to a year after leaving. This contract contained a severability clause, and the “preface” to the contract specified that it applied “regarding the Lincoln Park office,” although the restrictive covenant referred to “Company.” In 2007, Mazzone resigned from her job and took another running Prudential’s Michigan Avenue office. About a month later, B&W sued for a temporary restraining order and injunction seeking to enforce the covenant and keep Mazzone and Prudential from soliciting B&W employees, alleging breach of contract by Mazzone, tortious interference with contract by Prudential, and tortious interference with prospective economic advantage by both parties.
After an injunction and expedited discovery, defendants moved to dismiss because the covenant was overly broad, alleging that it would keep any Prudential employee from soliciting any B&W employee or contractor from any office. B&W contended that the preface restricted the covenant to the Lincoln Park office and affirmatively stated that it did not seek to enforce it beyond that office. In the alternative, they argued that the severability clause should allow that portion to be separated from the rest of the agreement. The trial court granted the motion to dismiss, saying the contract’s plain language related to all of B&W’s offices. Plaintiffs appealed this ruling.
The appeals court started its opinion by considering B&W’s claim that the nonsolicitation contract was not improper under the law. It noted that motions to dismiss are not necessarily appropriate in fact-intensive situations like this one, since the rules limit courts to consideration of facts in the complaint. It then turned to the controversy over whether the contract applied to all offices or just the Lincoln Park office and found that there was insufficient evidence. The record does not show enough evidence to determine whether the contract, as written, is overly broad and poses an undue hardship on Mazzone, the court wrote, or negative effects on the public from the restraint of trade. It also disagreed that enforcing the contract would “render Mazzone unemployable,” since she would be free to solicit employees of non-B&W brokers, even within the limited one-year period specified. Thus, the trial court should not have dismissed it without hearing more evidence, the court wrote. It reversed and remanded the case for more proceedings.
Chicago Business Litigation Lawyer Blog
