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Ellis & Marshall Associates, Inc. v. Marshall

DECEMBER 6, 1973.

ELLIS AND MARSHALL ASSOCIATES, INC. ET AL., PLAINTIFFS-APPELLANTS,

v.

AUSTIN C. MARSHALL, JR., DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. JAMES J. MEJDA, Judge, presiding.

MR. JUSTICE MCGLOON DELIVERED THE MODIFIED OPINION OF THE COURT ON DENIAL OF PETITION FOR REHEARING:

This appeal is from an action brought by the plaintiffs for injunctive relief and damages seeking to prevent the defendant, a minority shareholder and former officer, director and employee of the plaintiff corporation, from competing with it for the representation of plaintiff's clients. Prior to a full trial on the complaint, the trial court heard evidence on plaintiffs' motion for preliminary injunction. At the close of the plaintiffs' evidence the trial court denied the preliminary injunction when it granted the defendant's motion for a finding in his favor.

In this interlocutory appeal, the plaintiffs contend they were improperly denied the relief sought because the evidence proved that the defendant, now actively engaged in a competing business, began his new enterprise by breaching his fiduciary duty to the plaintiff corporation in that he solicited certain clients and employees of the plaintiffs while he was still an officer, director and employee of the plaintiff corporation. The defendant responds that the trial court was correct in finding that plaintiffs' evidence does not show any reason to enjoin the defendant's post-employment activities.

We affirm.

The plaintiff corporation, Ellis and Marshall Associates, Inc. (hereinafter Ellis and Marshall) was engaged in business as the manufacturer's representative for ten toy companies. Plaintiff, Henry Ellis, owns 30% of the stock of Ellis and Marshall; plaintiff Laura Ellis, owns 30%, plaintiff, Robert Magers, own 5%; and defendant Austin Marshall, owns 35% of the stock.

For some ten years prior to February, 1973, the defendant and Henry Ellis had been associated together, first as partners in a similar business, and then as the two principal officers and directors of the plaintiff corporation. In 1973 the plaintiff corporation employed other individuals as salesmen. It is also apparent from the record that sometime prior to February, 1973, Mr. Ellis and Mr. Marshall had some serious disagreement as to how the business should be run, eventually culminating in Mr. Marshall's resignation from the corporation and the formation of a competing business.

The pertinent facts surrounding the defendant's termination of employment with the plaintiff corporation, and which the plaintiffs contend support their prayer for an injunction, are as follows. In February, 1973, Henry Ellis and the defendant were in New York City to attend a trade show commonly known as "Toy Fair". The defendant testified that on the 26th of that month there was a conversation between the two in which the defendant told Ellis that he resigned as an officer, director and employee of the plaintiff corporation. Mr. Ellis testified that the defendant merely said he was "thinking of leaving". Ellis further testified that the two had a further conversation regarding their business on March 2, 1973, at which time the defendant said, "We're together". The defendant denied making this statement.

In any event, both Ellis and the defendant agree that as of March 9, 1973, the defendant was no longer an officer, director or employee of the corporation. Ellis testified that on that date he informed all the toy manufacturers which the corporation represented that the defendant had left the business.

Mr. Thomas G. Murtaugh testified that he was the president of Rotadyne, Inc. a toy manufacturer that was represented by Ellis and Marshall. On February 17, 1973, he was in New York City at "Toy Fair" and had a conversation with the defendant. At that time the defendant told him he was planning to leave Ellis and Marshall in order to form a new company to carry on the same type of business and would very much like to represent Rotadyne, Inc., but was not pressing him for an answer. Murtaugh further testified that within four days he had another conversation with the defendant in which the defendant stated that he was definitely leaving the business and that two salesmen from Ellis and Marshall would be joining him in his new business. On cross-examination the witness testified that, as of the date of the hearing Ellis and Marshall was still the manufacturer's representative of Rotadyne.

Mr. Steven Siegert testified through the introduction of his evidence deposition that he also attended the "Toy Fair" in New York as a representative of Wonder Products Co., a toy manufacturer represented by Ellis and Marshall. On February 22, 1973 he had a conversation with the defendant in which the defendant told him he was leaving Ellis and Marshall and forming a new company. The defendant also told Siegert that he would like to talk to Wonder Products at some later date about becoming their manufacturer's representative. On cross-examination it was brought out that as of the date of the deposition, March 29, 1973, Ellis and Marshall was still the representative of Wonder Products.

Fritz Carlson testified that he was an employee of Ellis and Marshall and he also attended the "Toy Fair" trade show from February 14 to March 3 in that capacity. On February 15, 1973, in New York, he and the defendant had a conversation in which the defendant said he was "possibly" going to form a new company in the manufacturer's representative business and would be interested in knowing whether Carlson would leave Ellis and Marshall and join him as a partner in the new business. However, at the time of the hearing Carlson had not left the employ of the plaintiff corporation.

Steven Magers testified that he was an exemployee of Ellis and Marshall presently employed by Marshall Associates, Inc., the company that the defendant set up when he left the plaintiff's employ. Magers testified that the first time he talked to the defendant about leaving Ellis and Marshall and joining his new business was on March 10, 1973. Magers resigned from his position at Ellis and Marshall on March 11, during a phone conversation with Henry Ellis. Magers also stated that at the time of the hearing he was representing Munro Games for Marshall Associates, Inc. Munro Games is a toy manufacturer, and formerly one of the ten manufacturers that was represented by Ellis and Marshall, however, Magers testified that he had not begun to represent Munro for Marshall Associates, Inc. until April 10, 1973.

John Kazmer also testified that he was an exemployee of Ellis and Marshall presently working as a salesman for Marshall Associates, Inc. Kazmer stated that sometime during the week of February 26, while in New York at "Toy Fair" and employed by Ellis and Marshall, he had a conversation with the defendant in which the defendant told him that he had resigned from Ellis and Marshall and wanted the witness to join him in a new business he was about to start. Kazmer resigned from Ellis and Marshall on March 9, 1973 and immediately thereafter began his employment with the defendant.

Further evidence adduced during the hearing showed that on March 12, 1973 the defendant caused Articles of Incorporation to be filed creating Marshall Associates, Inc. Marshall also testified that only on March 12, 1973, did he begin calling on clients in his new capacity. Marshall admitted that some of the clients on ...


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