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Lawter International, Inc. v. Carroll

OPINION FILED JULY 7, 1983.

LAWTER INTERNATIONAL, INC., PLAINTIFF-APPELLEE AND CROSS-APPELLANT,

v.

JOHN R. CARROLL ET AL, DEFENDANTS-APPELLANTS — (JAMES A. CARROLL, ET AL, DEFENDANTS-CROSS-APPELLEES).



Appeal from the Circuit Court of Cook County; the Hon. Harold A. Siegan, Judge, presiding.

JUSTICE JIGANTI DELIVERED THE OPINION OF THE COURT:

These consolidated appeals and cross-appeal involving preliminary injunctive relief derive from an action instituted by the plaintiff, Lawter International, Inc. (Lawter), to restrain the defendants, John R. Carroll, James A. Carroll, Richard M. Bradley and Carroll Scientific, Inc., from competing with Lawter and from disclosing trade secrets. Three broad issues are raised by the parties on appeal: by John R Carroll, whether the trial court erred in issuing a preliminary injunction against John Carroll on November 16, 1982; on cross-appeal by Lawter, whether the trial court erred in failing to extend preliminary injunctive relief to include James Carroll and Richard Bradley on November 16, 1982; and a subsequent cross-appeal by Carroll Scientific as to what is the legal effect of the preliminary injunction which the court issued against Carroll Scientific on January 11, 1983.

The original complaint filed by Lawter in this action arose out of the fact that John Carroll was vice-president of manufacturing of Dyall Products, Inc., a company which made wax compounds for printing ink. John Carroll also owned an option to purchase 25% of the stock in Dyall.

In 1977, Dyall began to negotiate a sale to Lawter. Pursuant to these negotiations, Lawter demanded that John Carroll enter into an employment agreement with Dyall which would become part of the sale to Lawter. The agreement contained a non-competition covenant, which forbade competition with Lawter for the longer of five years from the date of the contract or three years after termination of employment, and a trade secrets covenant with no apparent time limit, which forbade the use or disclosure of Lawter's trade secrets.

Specific relevant language in the non-competition covenant is the following:

"Non-competition

A. Employee * * * shall not, directly or indirectly, engage in competition with * * * Lawter Chemicals, Inc. or any of its subsidiaries:

(i) In any line of business which any of such corporations is presently conducting, or

(ii) In any line of business which any of such corporations may conduct in the future with respect to which employee may become personally involved pursuant to his employment hereunder and employee shall not render assistance of any kind to any person, firm or any corporation who or which may be in such competition." (Emphasis added.)

The covenant then contains a detailed description of the business presently being conducted by Lawter. This covenant closes with language which states: "Employee shall not be bound by the provisions of this subparagraph A in the event of termination of his employment hereunder by the company without a breach hereof by the Employee." (Emphasis added.)

Specific relevant language in the trade secrets covenant is the following:

"Trade Secrets

B. Employee recognizes and acknowledges the value to the Company of its business secrets, including the methods, processes, formulae, inventions, research, know-how, technical data, marketing information, and other proprietary information developed by it and to be developed by it in the future in the conduct of its business in the production of chemicals and other products. Employee agrees * * * that such shall be and remain in the exclusive property of the Company and that he shall have no rights thereto or interest therein. Employee agrees that * * * he will hold such trade secrets confidential and will not disclose the same to any other person, firm or corporation * * *.

Employee agrees that upon any termination of his employment by the Company * * * Employee will deliver to the Company all documents, records, notebooks and similar material containing any of such trade secrets which are at that time in his possession." (Emphasis added.)

John Carroll exercised his option to purchase the Dyall stock and upon closing of the sale of Dyall to Lawter on January 3, 1978, received payment from Lawter in the amount of $550,000. On this date, John Carroll executed a letter to Dyall in which he resigned as vice-president-manufacturing of Dyall, but specifically reaffirmed the fact that the letter did not constitute "a resignation from my position as an Employee * * * under the Employment Agreement * * *." John Carroll was then employed by Lawter in various capacities including Lawter's National Sales Manager from January 3, 1978, until he resigned four years later.

Sometime in August 1981 while still employed by Lawter, John Carroll began planning to go into business to manufacture wax compounds for printing ink. Toward this end, John Carroll joined with his brother James Carroll, who was also employed by Lawter, to form Carroll Scientific, Inc. A loan for $315,000 was procured from the New Lenox State Bank. In order to procure the loan, the president of the New Lenox Bank was taken on tour of Lawter's Dyall plant. James Carroll then began to purchase equipment for Carroll Scientific and also began designing a plant. Over the next few months, the Carrolls devised a marketing plan for Carroll Scientific and a sales effort was commenced by John Carroll which included calls on Lawter/Dyall customers. As part of the planning process, John Carroll also consulted with an attorney who advised him that the non-competition covenant in his employment agreement with Lawter was unenforceable.

On January 15, 1982, John Carroll resigned from Lawter and on January 26, 1982, James Carroll also resigned. Richard M. Bradley, a chemist with Lawter/Dyall, also resigned from Lawter at that time and became affiliated with Carroll Scientific.

On March 4, 1982, Lawter commenced the immediate action against defendants John Carroll, James Carroll, Richard Bradley and Carroll Scientific, Inc. Lawter filed a verified complaint for injunctive relief, an accounting and damages; an emergency motion for a temporary restraining order and preliminary injunction; and a motion for expedited access to the premises of Carroll Scientific, Inc. In the underlying action, Lawter prayed that the defendants be enjoined from using the confidential proprietary business information of Lawter which the defendants had obtained or learned while in its employ; that the defendants be enjoined from soliciting and contacting Lawter/Dyall's customers for possible sale of competitive products and that the defendants be enjoined from competing with Lawter/Dyall. The temporary restraining order also directed the defendants to return any and all Lawter documents in their possession.

On the same day, March 4, 1982, and prior to the hearing on the motion for the temporary restraining order, the defendant filed a verified answer denying the material allegations of the complaint and also interposing an affirmative defense that John Carroll's non-competition covenant was unenforceable under Illinois law because among other things it had no geographical limitations.

The trial court entered the temporary restraining order against all defendants on March 4, 1982. The order specifically stated that its purpose was "to maintain defendant's status quo" until the motion on a preliminary injunction could be fully considered. The order also set specific dates for the hearing on the motion for preliminary injunction. This order was appealed by the defendants on procedural grounds and affirmed in Lawter International, Inc. v. Carroll (1982), 107 Ill. App.3d 938, 438 N.E.2d 590.

In substance, the temporary restraining order stated that Lawter had a clear right to the protection of its confidential proprietary business information; that Lawter had a clear right to protection under the non-competition and confidential proprietary business information covenants in John Carroll's employment agreement; and that John Carroll and James Carroll possessed certain confidential proprietary business information belonging to Dyall which might be used by Carroll Scientific when it competed with Dyall. The court also concluded that Lawter was likely to prevail on the merits of its claim that John R. Carroll had breached valid non-competition and confidential business information covenants in the employment agreement and on its claim that the defendants James Carroll, Bradley and Carroll Scientific had joined with John Carroll in conspiring to breach their fiduciary duties to Lawter and to misappropriate ...


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