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Capsonic Group, Inc. v. Plas-met Corp.





APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.


Plaintiff, Capsonic Group, Inc., filed a suit in the circuit court of Cook County against defendants, Plas-Met Corporation, Richard J. Balaguer, John L. Kelly, and Raymond H. Hilgers, seeking to enjoin defendants from competing with Capsonic. After a full evidentiary hearing covering three specified combination metal and plastic items, a preliminary injunction was entered against defendants halting the production of these three products. Defendants appeal, arguing that plaintiff failed to meet its burden of proof in establishing the criteria for granting a preliminary injunction.

Order vacated and cause remanded.

The record discloses the following pertinent facts, briefly summarized herein. Capsonic Group, Inc., was engaged in the business of designing and engineering molds to be used to produce metal and plastic parts. The individual defendants, Balaguer, Kelly and Hilgers, were employed by Capsonic in various positions of responsibility. On December 22, 1975, the individual defendants resigned their positions with Capsonic. On December 29, 1975, the Illinois Secretary of State issued a certificate of incorporation to Plas-Met Corporation. Thereupon, Balaguer, Kelly and Hilgers operated Plas-Met Corporation in direct competition with Capsonic. Plas-Met was a successful competitor and did business with some of Capsonic's customers. Capsonic sought an injunction to prevent alleged irreparable injury to its business operations.

• 1 In Ellis & Marshall Associates, Inc. v. Marshall (1973), 16 Ill. App.3d 398, 306 N.E.2d 712, we reiterated the general rule that in the absence of a covenant not to compete, the taking of a customer list, the taking of a trade secret, or fraud, a former employee may not properly be enjoined from competing with his former employer.

Defendants note that there was no covenant not to compete. Rather, during their course of employment, defendants Balaguer and Kelly entered into a profit sharing agreement with Capsonic which contained the following clauses:

"As and for consideration for the above agreement, the employee agrees that following his termination of employment with the corporation for whatever reason, the employee will not accept employment with a competitor of the corporation for a period of three years following that termination, without repaying all payments made under this agreement.

A competitor, for the purpose of this clause shall be described and defined as a company that directly competes with Capsonic and where the employment of the employee directly results in the loss of sales or profits to Capsonic. A competitor will also include any company that currently has accounts with Capsonic where the hiring of this employee causes the loss of any or all of those accounts."

Notwithstanding these arguments, Capsonic sought an injunction.

• 2 In order for a preliminary injunction to properly issue, the petitioner must establish a likelihood of ultimate success on the merits of the case (Kable Printing Co. v. Mount Morris Book-binders Union Local 65 — B (1976), 63 Ill.2d 514, 349 N.E.2d 36), and that there is a need to preserve the status quo to prevent an irreparable injury for which there is no adequate remedy at law. (Armour and Co. v. United American Food Processors, Inc. (1976), 37 Ill. App.3d 132, 345 N.E.2d 795.) In showing a likelihood of success on the merits, however,

"* * * a party is not required to make out a case which will in all events warrant relief at the final hearing. All that is necessary is that the petitioning party raise a fair question as to the existence of the right claimed, * * *." (Grillo v. Sidney Wanzer & Sons, Inc. (1975), 26 Ill. App.3d 1007, 1013, 326 N.E.2d 180, 185.)

The precise issue is whether plaintiff has raised a fair question as to the existence of its right to enjoin defendants Balaguer and Kelly from competing with plaintiff.

• 3 Defendants argue that the language of the profit sharing agreement demonstrates that Capsonic was interested only in recapturing profit sharing should an employee leave its employment, and that such a recapture was the intended exclusive remedy in such a case. We agree with defendants. By entering into the above quoted agreement with two of the three individual defendants prior to their departure, Capsonic impliedly agreed that these individuals were free to later compete with Capsonic, subject only to the repayment provision. Having thus determined its rights under the agreement, Capsonic may not later assert a right to enjoin its former employees from engaging it in competition. In our opinion, plaintiff has not shown the existence of a right to enjoin defendants Balaguer and Kelly.

• 4 The record does not indicate that defendant Hilgers signed the above-mentioned profit sharing agreement. Prior to his resignation in December 1975, Raymond H. Hilgers was plaintiff's chief design engineer. Plaintiff contends that Hilgers, by nature of his intimate knowledge of plaintiff's manufacturing techniques, processes, and know-how, was a fiduciary of the plaintiff corporation in possession of confidential information. The use of this confidential information on behalf of Plas-Met, plaintiff argues, constitutes a breach of the confidential, fiduciary relationship. This argument is consistent with the general rule that a former employee may be enjoined ...

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