Illinois Supreme Court Upholds Noncompetition Agreements

RELIABLE FIRE EQUIPMENT COMPANY v. Arredondo, Ill: Supreme Court 2011 - Google Scholar:

This case was recently decided by the Illinois Supreme Court to "correct" a misconception that Illinois no longer recognizes that a noncompetition agreement must support a legitimate business interest of the employer.

The Court described the three-prong test as follows: "¶ 17 "The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test." BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999). A restrictive covenant, assuming it is ancillary to a valid employment relationship, is reasonable only if the covenant: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor, and (3) is not injurious to the public. Id.;Restatement (Second) of Contracts § 187 cmt. b, § 188(1) & cmts. a, b, c (1981).^[2] Further, the extent of the employer's legitimate business interest may be limited by type of activity, geographical area, and time. Restatement (Second) of Contracts § 188 cmt. d (1981). This court long ago established the three-dimensional rule of reason in Illinois and has repeatedly acknowledged the requirement of the promisee's legitimate business interest down to the present day."

The Court explained that Illinois recognizes the legitimate business interest test. It noted: "¶ 43 In sum, the legitimate business interest test is still a viable test to be employed as part of the three-prong rule of reason to determine the enforceability of a restrictive covenant not to compete. However, the two-factor test created in Kolar, in which a near-permanent customer relationship and the employee's acquisition of confidential information through his employment are determinative, is no longer valid. Rather, we adopt the position of Justice Hudson's special concurrence, which is: whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee's acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case."

The court then remanded the case to the Circuit Court to allow that court to apply the proper test.

Comment: it appears that this opinion resolves a debate in the caselaw concerning the legitimate business interest test. Although it is far from certain, considering the legitimate business interest of the employer would appear to strengthen the employer's ability to enforce a reasonable noncompetition agreement.

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Illinois Company Held Liable For Agent Who Wrongfully Obtained Employee's Phone Records

Lawlor v. North American Corp. of Illinois, 949 NE 2d 155 - Ill: Appellate Court, 1st Dist., 4th Div. 2011 - Google Scholar:

This is an Illinois case in which the plaintiff, Kathleen Lawlor, obtained an award of compensatory and punitive damages against her former employer.

The court characterized Lawlor's claim as follows: "The parties engaged in four years of bruising discovery, but the testimony at the six-day trial was relatively uncomplicated. Lawlor was aggrieved that North American, through surreptitious means, acquired her mobile and home phone records in a failed effort to prove that she breached the company's noncompetition agreement. Painted with a broad brush, Lawlor presented evidence at trial to the effect that North American, through counsel and at least two independent investigators, set about the tasks of personal surveillance and getting her private phone records."

Again the bad conduct of the defendant supported the Appellate Court's decision to reinstate the punitive damages award of $1.75 million.

The court wrote: "Here, we conclude that the jury's award of $1.75 million was reasonable given North American's reprehensible conduct. The nature and the inappropriateness of the intrusive conduct in meddling with plaintiff's personal records was sufficiently malevolent to warrant punitive damages, especially considering that North American on multiple occasions, over a five-month period, specifically utilized the wrongfully obtained phone records. While several of its officers and employees testified that they were unaware of the methodology of how the records were obtained and whether unethical or illegal means were utilized, North American points to no evidence showing it was uncomfortable with the receipt or the use of this private information. To the contrary, North American employees testified that they had no hesitancy in using the phone records and that they never inquired how they were obtained. In terms of the size of the award, the jury heard that North American's net worth was approximately $50 million. It can scarcely be argued that the amount awarded by the jury was egregiously high, given both the nature of the conduct and the extent of defendant's net worth."

Edward X. Clinton, Jr.

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Seventh Circuit Weighs In On Unjust Enrichment Debate

Cleary v. PHILIP MORRIS INCORPORATED, Court of Appeals, 7th Circuit 2011 - Google Scholar:

The Seventh Circuit recently affirmed the dismissal of an "unjust enrichment" class action against Philip Morris. Plaintiffs alleged that Philip Morris was unjustly enriched because it conspired to conceal the facts about the addictive and dangerous nature of cigarettes.

The Seventh Circuit frames the issue as follows: "A preliminary matter argued by the parties is whether Illinois law recognizes an independent cause of action for unjust enrichment, or whether unjust enrichment must always be tied to another underlying claim found in tort, contract, or statute."

The Court then notes that the Illinois cases are not entirely clear on whether unjust enrichment is a separate cause of action or whether it must be tied to an underlying cause of action, such as fraud or breach of fiduciary duty.

The Seventh Circuit summarizes the conflicting cases as follows: "The Illinois Supreme Court appears to recognize unjust enrichment as an independent cause of action. In Raintree Homes, Inc. v. Vill. of Long Grove, 807 N.E.2d 439, 445 (Ill. 2004),the plaintiffs were seeking the refund of overpaid fees under an unjust enrichment theory. No other underlying cause of action was alleged. The Court noted: "Here, plaintiffs have no substantive claim grounded in tort, contract, or statute; therefore the only substantive basis for the claim is restitution to prevent unjust enrichment." Id. Similarly, in another case before theIllinois Supreme Court, Indep. Voters v. Ill. Commerce Comm'n, 510 N.E.2d 850, 852-58 (Ill. 1987), the plaintiffs had filed suit to recover refunds for excessive utility charges and their claim for restitution of the charges was not tied to another cause of action. Finally, the IllinoisSupreme Court has articulated the elements of unjust enrichment without reference to a separate underlying claim in tort, contract, or statute. See HPI Health Care Servs., 545 N.E.2d at 679; see also Peddinghaus v. Peddinghaus, 692 N.E.2d 1221, 1225 (Ill. App. Ct. 1998)(ruling that Illinois recognizes an independent cause of action for unjust enrichment based on HPI Health Care Services). From these cases, it appears that the Illinois Supreme Court recognizes unjust enrichment as an independent cause of action.

In contrast to this case law, there is a recent Illinois appellate court that suggests the opposite, namely, that an unjust enrichment claim cannot stand untethered from an underlying claim. See Martis v. Grinnell Mut. Reinsurance Co., 905 N.E.2d 920 (Ill. App. Ct. 2009). The Martis court stated the following:

The doctrine of unjust enrichment underlies a number of legal and equitable actions and remedies. Unjust enrichment is not a separate cause of action that, standing alone, will justify an action for recovery. Rather, it is a condition that may be brought about by unlawful or improper conduct as defined by law, such as fraud, duress, or undue influence, and may be redressed by a cause of action based upon that improper conduct. When an underlying claim of fraud, duress or undue influence is deficient, a claim for unjust enrichment should also be dismissed.

Id. at 928 (internal quotation and citations omitted) (emphasis added)."

The Seventh Circuit then offers its own suggested resolution to the debate: "Without setting out a comprehensive treatise on Illinois unjust enrichment law in an attempt to resolve the apparently conflicting language of the Raintree Homes and Martis cases, we suggest one way to make sense of it. Unjust enrichment is a common-law theory of recovery or restitution that arises when the defendant is retaining a benefit to the plaintiff's detriment, and this retention is unjust. What makes the retention of the benefit unjust is often due to some improper conduct by the defendant. And usually this improper conduct will form the basis of another claim against the defendant in tort, contract, or statute.^[2] So, if an unjust enrichmentclaim rests on the same improper conduct alleged in another claim, then the unjustenrichment claim will be tied to this related claim—and, of course, unjust enrichment will stand or fall with the related claim. See, e.g., Ass'n Benefit Servs. v. Caremark Rx, Inc., 493 F.3d 841, 855 (7th Cir. 2007) ("[W]here the plaintiff's claim of unjust enrichment is predicated on the same allegations of fraudulent conduct that support an independent claim of fraud, resolution of the fraud claim against the plaintiff is dispositive of the unjust enrichment claim as well.")."

After offering this suggestion to resolve the conflicting cases, the Seventh Circuit affirms the dismissal of the unjust enrichment claim on the ground that the plaintiffs failed to state a claim because they failed to allege a detriment tied to the wrongful conduct of the defendant.

The Illinois Supreme Court may ultimately weigh in on this issue. The Seventh Circuit's opinion offers a possible resolution to the debate.

Edward X. Clinton, Jr.

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Warning Extortion Scam - "Sam Wilson"

This is another warning from this firm that a criminal extortion ring is using our name to threaten people to collect nonexistent debts.

If you are contacted by a "Sam Wilson" please note that we employ no such person.

These are criminals who are using our name wrongfully and using throw away cell phones.  We have contacted law enforcement to no avail.  We will continue to do everything in our power to stop these people.

The number they use is 872-213-9369.

Please contact law enforcement immediately if these people contact you.

Ed Clinton, Jr.

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Criminal Case Glut Impedes Civil Suits - Consider Mediation

Criminal Case Glut Impedes Civil Suits - WSJ.com:

In Chicago, civil cases still move faster in federal court.  However, they are often bumped to make room for federal criminal cases.  This results in somewhat long delays if you insist on going to trial.

What the federal court does a great job of is mediating cases - many cases are resolved by the magistrate judges who do a great job of holding mediations and forcing the parties to attend.

I haver participated in numerous federal mediations over the years - only one case failed to reach a settlement.  That case settled one week later.  The Magistrate Judges of the Northern District of Illinois do a great job in resolving disputes.

The Seventh Circuit also does mediations - it too does a great job in getting rid of small cases and cases that are not worth the effort of the judges.

In my opinion, the mediation programs of the Northern District of Illinois and the Seventh Circuit are among the most useful tools for litigators in the world of litigation.  They also save clients lots of legal fees.

Edward X. Clinton, Jr.

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Under Uniform Commercial Code Supplier Can Terminate Distributor

ECHO, INCORPORATED v. TIMBERLAND MACHINES & IRRIGATION, INC., Court of Appeals, 7th Circuit 2011 - Google Scholar:

This is a commercial case in which Echo terminated its business relationship with Timberland Machines & Irrigation, Inc. (TMI) a distributor. Echo then turned that particular sales territory over to another distributor.

Echo sued TMI to recover on unpaid invoices and TMI sued Echo claiming that the distributor agreement was improperly terminated.

The easy issue is the unpaid invoices. Echo brought an account stated claim under Illinois law. The district court granted summary judgment in favor of Echo. As is typical in these cases, the issue was delivery and acceptance. Because the goods were delivered to TMI and accepted by TMI, TMI was obligated to pay under the UCC. As the court holds:

"TMI accepted the goods at issue, and thus is contractually obligated to pay the interest stated on the invoice under the Uniform Commercial Code, codified at 810 Ill. Comp. Stat. 5/2-207 (West 2011); See K-Koncrete, Inc. v. Mack Trucks, Inc., No. 85 C 9538, 1987 WL 9337, at *7 (N.D. Ill. Apr. 3, 1987) ("Illinois law . . . impose[s] a contractual duty to pay interest on a party who (1) accepts goods accompanied by an invoice stating an interest obligation and (2) offers no objection to the stated terms") (referencing U.C.C. § 2-207(2)(c)); Inspec Foams, Inc. v. Claremont Sales Corp., No. 01 C 8539, 2002 WL 1765630, at *3 (N.D. Ill. July 30, 2002) (under section 5/2-207, "overdue payment interest penalty clauses in a seller's shipping documentation are not considered material alterations of the parties' contract and thus are incorporated into the parties' contract terms"); Extel Corp. v. Cermetek Microelectronics, Inc.,539 N.E.2d 320, 323 (Ill. App. Ct. 1989) (buyer required to pay interest pursuant to the terms set forth in seller's invoices where "there was no showing that acceptance was limited to the terms of the offer or that plaintiff objected to the interest provision within a reasonable time"). We affirm the interest award."

Comment: as always, the account stated claim is very difficult to resist when the buyer takes delivery of the goods and uses them in its business.

Edward X. Clinton, Jr.
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AGRI-BEST HOLDINGS, LLC v. ATLANTA CATTLE EXCHANGE, INC, Dist. Court, ND Illinois 2011 - Google Scholar

AGRI-BEST HOLDINGS, LLC v. ATLANTA CATTLE EXCHANGE, INC, Dist. Court, ND Illinois 2011 - Google Scholar:

The District Court for the Northern District of Illinois has held that a secured creditor has the right - under the Uniform Commercial Code - to step into the shoes of the debtor and pursue collection of outstanding receivables.

This entry cannot begin to do proper justice to the excellent opinion of the District Judge.

Edward X. Clinton, Jr.
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