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Frank B. Hall & Co. v. Payseur

OPINION FILED NOVEMBER 1, 1979.

FRANK B. HALL & CO., INC., ET AL., PLAINTIFFS-APPELLEES,

v.

JAMES C. PAYSEUR ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of Cook County; the Hon. ARTHUR L. DUNNE, Judge, presiding.

MR. JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:

Plaintiffs-appellees, Frank B. Hall & Co., Inc. (Hall), a Delaware corporation, and Frank B. Hall & Co. of Illinois, Inc. (Hall of Illinois), an Illinois corporation, a subsidiary of Hall, filed this action in the circuit court of Cook County on June 26, 1978, for declaratory judgment, injunctive relief, and damages arising out of a covenant not to compete signed by plaintiffs' former officer-employee, James C. Payseur, defendant-appellant. Bayly, Martin & Fay of Illinois, Inc. (Bayly of Illinois), an Illinois corporation, owned 50 percent by Payseur and 50 percent by Bayly, Martin & Fay International (Bayly International), was also named as a defendant. In addition to the defendants participating in this appeal, Lorraine Grenvich and Bayly, Martin & Fay, Inc., a Delaware corporation, were named as defendants. Grenvich was later dismissed from the trial court case insofar as it related to the equitable relief sought by plaintiffs. On June 27, 1978, the trial court entered a temporary restraining order, and on August 9, 1978, a preliminary injunction was entered from which this appeal is taken. We affirm.

Plaintiff Hall is a holding company of approximately 30 subsidiary corporations, engaged in the insurance brokerage business, with over 100 offices in the United States and foreign countries. Hall employs approximately 2900 people and services approximately 200,000 customers. In 1977, its income was approximately $150 million.

In 1975, Hall of Illinois, which previously had one office in Chicago, Illinois, opened a second office in Des Plaines, Illinois, specializing in packaged group insurance. The Des Plaines office, prior to the events of which plaintiffs complain, had approximately 800 customers, 12 employees, and an annual income of about $1,350,000.

Prior to his resignation in May 1978, defendant Payseur was a director and vice-president of Hall of Illinois and was in charge of the Des Plaines office. He was a full-time employee, earning $150,000 annually for his services. Payseur is president of Bayly of Illinois which was incorporated May 16, 1978.

Prior to her resignation, defendant Grenvich was second in command under Payseur in the Des Plaines office of Hall of Illinois. She was a vice-president and an account executive and office manager of that office. In 1977, she received $32,000 in salary and $12,000 in bonus from the company.

The packaged group insurance sold by Hall of Illinois is an insurance program involving several types of coverage, e.g., casualty, fidelity, property, marketed with one insurance carrier for several customers with common insurance needs, i.e., trade associations, quasigovernmental agencies, and clubs. Prior to the events of which plaintiffs complain, approximately 110 Illinois park districts and 300 laundromats were insurance customers of Hall of Illinois.

In 1972, Hall acquired the business and customers of the Archer & Company Insurance Agency (Archer Agency) for approximately $7 million. Most of the packaged group insurance customers involved in this litigation were acquired at that time. Defendants Payseur and Grenvich were employees of the Archer Agency and became Hall of Illinois employees. Payseur received approximately $400,000 for the stock he held in the Archer Agency. He also executed a covenant not to compete, the pertinent provisions of which read as follows:

"3. In addition to the covenants set forth above, Stockholder covenants and agrees that for the period commencing as of the date of termination of his employment with Hall of Illinois and ending three (3) years from such date, he will not compete directly or indirectly in any way with the business of Hall or Hall of Illinois. For the purpose of this paragraph, the term `compete in any way with the business of Hall or Hall of Illinois' shall mean the entering into or attempting to enter into any similar business with that carried on by Hall or Hall of Illinois with any individual, partnership, corporation or association that was a client or customer of Hall or Hall of Illinois within the six (6) calendar months immediately preceding the date of termination of his employment or who becomes a client or customer of Hall or Hall of Illinois within the six (6) calendar months immediately following the date of termination. As used herein `client' or `customer' shall mean any entity listed on the books of Hall or Hall of Illinois.

5. Stockholder hereby agrees not to induce any person who is an employee of Hall, or a subsidiary of Hall, including Hall of Illinois during the term of the covenants set forth herein to leave the employ of Hall, or a subsidiary of Hall, as the case may be.

6. Stockholder hereby agrees that the remedy at law for any breach by him of the covenants set forth herein will be inadequate and that Hall or Hall of Illinois shall be entitled to injunctive relief. In addition, Stockholder agrees to indemnify Hall and Hall of Illinois and to hold them harmless against any loss, cost, liability or expense (including reasonable attorney's fees) incurred by Hall or Hall of Illinois by reason of the breach or non-fulfillment of any agreement, representation or warranty herein contained.

7. This Covenant Not to Compete shall be construed and enforced in accordance with the laws of the State of Illinois. The covenants set forth herein shall be construed as separate covenants covering competition in the entire State of Illinois."

Payseur and Bayly International executed an agreement on May 12, 1978, to form a new corporation, Bayly of Illinois. Bayly International agreed to loan Bayly of Illinois up to $200,000 to meet operating expenses and to insure Payseur's salary which would be $150,000 per year for a period of 3 years, plus a bonus not to exceed 20 percent of the annual net profits of Bayly of Illinois. Payseur testified that Bayly International was furnished a copy of the covenant not to compete prior to the execution of the agreement signed on May 12, 1978. Payseur and Bayly International would each subscribe to 50,000 shares of stock for $50,000. On May 13, 1978, Payseur announced his plans to resign from Hall of Illinois in 2 weeks. At that time, he offered to purchase some of the Hall of Illinois Des Plaines office customers and to take over the lease on the Des Plaines office space and purchase the fixtures and furniture. His offer was rejected. Lorraine Grenvich resigned from Hall of Illinois in June 1978 and agreed to work for Payseur in Bayly of Illinois.

On June 26, 1978, Bayly of Illinois opened for business in an office approximately 200 yards away from the Hall of Illinois Des Plaines office with 8 employees, all of whom had resigned from Hall of Illinois during the week of June 19, 1978, leaving the Des Plaines office with 3 out of 12 employees. On that same day, defendants began to advertise its business with the Illinois park districts and laundromats. According to Payseur, the letters were not sent exclusively to Hall of Illinois customers. One type of letter was sent to 200-300 of the park districts listed in the Illinois Park District Association directory. Another type of letter, announcing the VIP plan, was sent to 5000 laundromats across the country from a list obtained from a laundromat manufacturer in Texas. In pertinent part, the letter sent to the park districts appeared as follows:

"We are very pleased to announce the formation of our new insurance brokerage firm and our association with Bayly, Martin and Fay. Our new offices are in operation now and we are asking you for the opportunity to continue to represent you in all your insurance matters, as we have in the past.

We are proud of the credentials that we can bring you in our new connection:

1. Most all of the same people with whom you have been dealing on your insurance matters are a part of our team. They have expertise in your needs insurance-wise and are committed to superb service.

2. We will be placing coverage and issuing policies in the same insurance companies that provide your protection now. We think it is very important to maintain this continuity because you can take advantage of your good record on an on-going basis.

3. Our connection with Bayly, Martin and Fay gives us additional avenues to expand our buying ...


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