United States District Court, Northern District of Illinois, E.D
May 24, 1985
FLEMING SALES COMPANY, INC., PLAINTIFF,
JOSEPH W. BAILEY AND UNLIMITED SALES OF AMERICA, INC., DEFENDANTS.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Fleming Sales Company, Inc. ("Fleming") has filed a
five-count Verified Complaint (the "Complaint") against Joseph
Bailey ("Bailey") and Unlimited Sales of America, Inc.
("Unlimited"). Fleming charges Bailey (1) misappropriated
Fleming's trade secrets, (2) interfered with Fleming's
contractual relations, (3) slandered Fleming, (4) breached his
fiduciary duty to Fleming and (5) unfairly competed against
Fleming. Unlimited is alleged to be the vehicle through which
Bailey engaged in some or all of that activity.
Defendants have now moved under Fed. R.Civ.P. ("Rule") 56
for summary judgment on Complaint Counts I and III, the trade
secrets and slander claims. In addition defendants assert
those claims are neither "well grounded in fact" nor
by existing law or a good faith argument for the extension,
modification or reversal of existing law." Accordingly they
seek to recover their expenses on the Rule 56 motion in the
form of sanctions imposed on Fleming under Rule 11. For the
reasons stated in this memorandum opinion and order
defendants' motion for a summary judgment as to Counts I and
III is granted. Defendants' Rule 11 motion is granted to a
limited extent but denied in principal part.
Fleming, a family-owned manufacturers' representative
business, has an original equipment manufacturers ("OEM")
division headquartered in Elkhart, Indiana. Through its OEM
division, Fleming is engaged by recreational vehicle ("RV")
component manufacturers ("Fleming's principals") to market
their products to RV manufacturers ("Fleming's customers").
Bailey was hired as a salesman in the OEM division in March
1977. In July 1980 Bailey was made General Manager of the OEM
division, and in August 1983 he was placed on the Fleming
Board of Directors. In the meantime he had turned the OEM
division into a substantially better business operation for
Despite Bailey's relatively rapid rise at Fleming, he had
for some time been dissatisfied over what he perceived as his
limited freedom to run the OEM division without oversight by
Fleming management (he had been promised a "free hand" in that
respect) and his limited future prospects in its family-owned
structure. On April 27, 1984 Bailey wrote to Fleming Board
Chairman Jack Grady ("Grady") explaining his dissatisfactions
and announcing his decision to resign from Fleming and the
Board of Directors effective May 1, 1984 (Bailey Aff.Ex.). In
fact Bailey continued as OEM division head until May 18 and
continued to receive his salary and benefits until the end of
May (Bailey Dep. 84-87). Bailey had entered into no written
employment contract with Fleming, nor had he signed a
restrictive covenant of any kind in Fleming's favor.
In late 1983, several months before his resignation from
Fleming, Bailey joined with James Clipp ("Clipp") to form
Unlimited for the manufacture of a rigid blind product to be
sold as an accessory for RVs. Though formed in January 1984
Unlimited did not begin substantial operations before June
1984. It has yet to begin manufacture of the rigid blind
In late June Bailey and Clipp formed a second company,
Unified Sales of America, Inc. ("Unified"), to compete with
Fleming's OEM division in the representation of RV component
manufacturers. Bailey hired several Fleming salesmen to work
with him at Unified and began to develop Unified's business
with Fleming's principals and customers. Soon thereafter (in
August 1984) Fleming initiated this lawsuit.
Trade Secrets Claim
Fleming contends Bailey has misappropriated several kinds of
information, learned in the course of his employment and
protectible as trade secrets, that he is now using to compete
with the OEM division:
(1) the names and addresses of Fleming's
(2) other information about customers,
including the names of contact people and the
customers' prior purchasing and payment
histories, projected needs and buying procedures;
(3) information as to Fleming's principals and
other sources of supply, including the terms of
principals' contracts with Fleming.
Defendants argue none of that information properly qualifies
as a trade secret as a matter of law.
Before this opinion turns to the merits of Fleming's trade
secrets claim, it must deal with a threshold question: whether
Illinois' or Indiana's trade secrets law supplies the
applicable substantive rule. Of course under Klaxon Corp. v.
Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct.
1020, 1021, 85 L.Ed. 1477 (1941) this Court must look to
Illinois conflict-of-law rules. Since Ingersoll v. Klein,
46 Ill.2d 42, 48, 262 N.E.2d 593, 596 (1970), Illinois has used
the "most significant contacts" approach in torts cases.
Applying the Ingersoll rule in the trade secrets context, the
Illinois Appellate Court has concluded (Mergenthaler Linotype
Co. v. Leonard Storch Enterprises, Inc., 66 Ill. App.3d 789,
803, 23 Ill.Dec. 352, 363, 383 N.E.2d 1379, 1390 (1st Dist.
1978), confirming Illinois' adoption of the position taken in
the Restatement (Second) of Conflict of Laws 2d (1971) and
quoting this passage from Restatement § 145 comment f):
[T]he principal location of the defendant's
conduct is the contact that will usually be given
the greatest weight in determining the state
whose local law determines the rights and
liabilities that arise from false advertising and
the misappropriation of trade values.
Not surprisingly, Fleming and defendants agree Indiana law
should supply the substantive rule. Bailey's operational site
since resigning from Fleming has been Elkhart, Indiana. Both
Unlimited and Unified*fn2 are Indiana operations with their
principal bases of operations in Elkhart. And because Bailey
has entered into competition with Fleming's
Elkhart-headquartered OEM division, the harm to Fleming of any
misappropriation of trade secrets is focused in Indiana.
Accordingly this Court will look to Indiana trade secrets
In 1982 Indiana adopted the Uniform Trade Secrets Act,
Ind.Code §§ 24-2-3-1 to 24-2-3-8 (the "Act"), which authorizes
injunctive relief, damages and recovery for unjust enrichment
in trade secret misappropriation cases. Where the
misappropriation was willful and malicious, the Act also allows
an award of exemplary damages. Section 2 defines the Act's
"Improper means" includes theft, bribery,
misrepresentation, breach or inducement of a
breach of a duty to maintain secrecy, or
espionage through electronic or other means.
(1) acquisition of a trade secret of another by
a person who knows or has reason to know that
the trade secret was acquired by improper
(2) disclosure or use of a trade secret of
another without express or implied consent by a
(A) used improper means to acquire knowledge of
the trade secret;
(B) at the time of disclosure or use, knew or
had reason to know that his knowledge of the
trade secret was:
(i) derived from or through a person who had
utilized improper means to acquire it;
(ii) acquired under circumstances giving rise
to a duty to maintain its secrecy or limit its
(iii) derived from or through a person who owed
a duty to the person seeking relief to maintain
its secrecy or limit its use; or
(C) before a material change of his position,
knew or had reason to know that it was a trade
secret and that knowledge of it had been
acquired by accident or mistake.
"Person" means a natural person, corporation,
business trust, estate, trust, partnership,
association, joint venture, government,
governmental subdivision or agency, or any other
legal or commercial entity.
"Trade secret" means information, including a
formula, pattern, compilation, program, device,
method, technique, or process, that:
(1) derives independent economic value, actual
or potential, from not being generally known
to, and not being readily ascertainable by
proper means by, other persons who can obtain
economic value from its disclosure or use; and
(2) is the subject of efforts that are
reasonable under the circumstances to maintain
What the parties' dispute really boils down to is whether or
not the items of information defendants allegedly
misappropriated qualify as "trade secrets" under the Act. If
they do not, Fleming has no action against defendants for
their use of the information, for Fleming did not elect to
bind Bailey by a restrictive covenant of any kind. See
Steenhoven v. College Life Insurance Co. of America,
460 N.E.2d 973, 975 n. 7 (Ind. App. 1984).
After extensive discovery defendants assert there is no
reasonable predicate for inferring the information (1) derives
independent economic value by virtue of its confidentiality or
(2) was the subject of efforts reasonably calculated to
maintain its secrecy. Defendants contend each item of
information was rather (1) general business knowledge bred of
experience (and consequently lacking "independent economic
value") or (2) information "readily ascertainable by proper
means" or (3) both. In addition defendants say Fleming did not
make reasonable efforts to maintain the secrecy of the
information. Fleming retorts genuine fact issues exist as to
each of those contentions.
This opinion will consider the parties' arguments as to each
item of information in turn, but it is first worth taking a
step backward to gain a perspective that might otherwise get
lost in the welter of citations to cases, affidavits and
depositions the parties have set out against one another.
Trade secrets law in general and the Act in particular were
never intended "to act as a blanket post facto restraint on
trade." Steenhoven, 460 N.E.2d at 975 n. 7. Thus the identity
of a business' customers is no doubt a legitimate business
interest protectible by a restrictive covenant (see American
Hardware Mutual Insurance Co. v. Moran, 545 F. Supp. 192, 195-96
(N.D.Ill. 1982), aff'd, 705 F.2d 219 (7th Cir. 1983)), and the
same may perhaps be true of other knowledge a company has
amassed simply by virtue of having been in a particular line of
business for a long period of time. But that right to impose
contractual restraints does not render the same knowledge
"trade secrets" in the absence of such restraints. Knowledge
derived from experience does not automatically carry with it
the ability to forestall others who have shared that experience
(and thus that knowledge).
In other words, a court called on to define boundaries in
this area must take care to strike a balance between (1) the
underlying purposes of trade secrets law (to maintain
standards of commercial ethics and to encourage research and
innovation, see M. Jager, 1982 Trade Secrets Law Handbook §§
1.01-1.02) and (2) the equally strong policy against inhibiting
in the marketplace.*fn4 Analysis of Fleming's claims
discloses it has sought to stifle legitimate competition
rather than to resist unwarranted encroachment on its property
1. Customer Lists
Fleming says Bailey, through his employment as general
manager of its OEM division, had access to a comprehensive
list of Fleming's customers. While there is no allegation
— and no evidence — Bailey took a copy of the list with him
when he left his employment,*fn5 Fleming does assert he took
with him knowledge of the customers' names — knowledge he
later used to compete (unfairly) against Fleming. Defendants do
not deny Bailey came away from Fleming with a knowledge of who
its customers were, but defendants argue (1) Fleming did not
exert reasonable efforts to maintain the secrecy of that
information and (2) the information was readily ascertainable
by other means.
Fleming has offered affidavit and deposition evidence
indicating a policy of maintaining the confidentiality of the
customer list and virtually all other business information.
Grady Aff. ¶ 11 says he "has given directions and established
the policy that as much information as possible of Fleming is
to remain confidential." Each Fleming employee received a
"Rules and Regulations" letter specifying as one basis for
termination "[c]ommunication or action detrimental to Fleming
Sales Company, including but not limited to, exposing
confidential information" (Grady Aff.Ex. A). As for customers'
identity in particular, Fleming has tendered a showing its
complete list of customers was available to only a few top
Fleming employees, though OEM division salesmen and office
personnel had access to lists identifying all of Fleming's
Elkhart customers and some, but not all of, its customers
outside Indiana. Fleming claims no other employee had access to
Defendants acknowledge there is at least a fact issue as to
how widely the customer lists were distributed within Fleming.
Defendants point out, however, (1) account lists were provided
to Fleming's principals from time to time and (2) Fleming has
no written policy and no clearly articulated procedures to
ensure the confidentiality of the customer lists. For example
the lists are not kept under lock and key or marked
"confidential," and salesmen routinely keep copies in their
offices. Moreover customer list information necessarily
appeared on shipping documents stored in Fleming's warehouses.
Of course the absence of specific confidentiality procedures
(whether written or unwritten) does not itself negate the
existence of "reasonable" efforts to maintain secrecy — all
the Act requires. Fleming's OEM division was, after all, a
sales organization. Constant dealings with its customers —
whether by phone, letter or in person — was the essence of the
business. Naturally Fleming employees whose business it was to
maintain that contact needed ready access to customer
information. By the same token, distribution of account list
information to principals or on occasion to other customers may
well have been necessary to the pursuit of Fleming's business.
Fleming was plainly not required to shoot itself in the foot to
meet the "reasonable efforts" requirement of the Act. So long
as Fleming scrupulously limited distribution of customer list
information to employees and outsiders whose access was
necessary to Fleming's successful pursuit of its business, it
must be deemed to have satisfied the "reasonable efforts"
requirement, particularly if those given access to the
information were also advised to preserve its confidentiality,
as Fleming indicates
they were (Grady Aff. ¶¶ 13, 16).*fn6 Were that the critical
issue, the factual dispute as to Fleming's efforts in that
regard (a dispute defendants acknowledge) would compel denial
of defendants' motion.
But there is more to the story. All the efforts in the world
to preserve confidentiality of information will not suffice if
the information is not secret in the first place — if it is
"readily ascertainable" by other proper means. Defendants point
to several pieces of evidence demonstrating the customer list
information could be procured by such other means:
1. Grady stated that as a rule Fleming's
principals know "the customers purchasing its
products, the amount of product purchased, and
the prices paid for those products" (Grady Aff.
2. Many of Fleming's customers are listed
either in telephone directory Yellow Pages or in
the trade publication RV Business.
3. Others in the business testified (a)
competing sales companies generally know who each
other's customers are (Kenneth Lail Dep. 225) and
(b) it is generally easy for a principal's
competitor to find out who that principal's
customers are (Roger Smith Dep. 54).
Fleming counters only by arguing defendants are unlikely to be
able to reproduce Fleming's customer list from those sources.
Not all principals will necessarily be willing to identify
their existing customers to new sales companies. Similarly
RV Business and the Yellow Pages list only a relatively small
proportion of the customers on Fleming's list. So, too, a
general knowledge of a competitor's customers is something
significantly less than access to the customer list itself.
Those assertions may perhaps create a factual issue as to
defendants' ability to reproduce the entire customer list
precisely from other sources. But what Rule 56 requires is a
"material" (that is, outcome-determinative) factual issue.
Here it is undisputed that substantial information as to the
identity of Fleming's customers is available from other
sources. And Fleming has come forward with no evidence at all
showing defendants have sought to pursue customers they would
not have discovered even without Bailey's exposure to the
Fleming list.*fn7 Especially in a market where customers did
business with more than one sales company or were open to the
possibility of shifting business from one company to another
(see Magee Dep. 93, Grady April 2, 1985 Aff. ¶ 5), it is simply
unreasonable to construe the Act's "readily ascertainable"
standard as requiring exact duplication of the information on
the customer list. See Steenhoven, 460 N.E.2d at 974 n. 5.
One other aspect of the problem bears mentioning — an aspect
that bears not only on the customer-list issue but on each of
the other claimed "trade secrets" categories. Fleming Mem. 5
(emphasis in original) urges "Bailey alone could not have taken
Fleming's principals from it; he had to have the help of
Fleming's salesmen."*fn8 But absent some independent tort
(such as actionable interference with advantageous
relationships) or extraordinary circumstances (such as in the
unique factual matrix of Duane Jones v. Burke, 306 N.Y. 172,
117 N.E.2d 237 (1954)), it is perfectly permissible to build an
organization by hiring a competitor's personnel. And if the
consequence is that the individual employees' knowledge of
pieces of the competitor's business is aggregated to provide a
more comprehensive view of the total picture, that too can
legitimately serve as the source of "readily ascertainable"
information in the sense of the Act. Even the proverbial six
blind men, if they pooled their information, might well produce
a reasonably good description of the elephant.
Thus no genuine issue of material fact exists as to the
availability of the substance of Fleming's customer list from
other legitimate sources. Defendants are part way home on their
2. Other Information As to Customers
Fleming also claims trade secret protection for other types
of customer information including (Mem. 10-11):
knowledge of the individual persons at these
customers to contact in order to effectuate
sales; the prior purchasing history of the
customers; the product and service requirements;
their present and future projected needs; the
packages that Fleming must put together in order
to sell particular products; their payment
histories; and their buying procedures.
Fleming does not assert any of that information was
systematically recorded or compiled in any way, though it says
much of the information was supplied to Fleming salesmen in
the course of their training (Richard Dotson Aff. ¶ 6). Again
Fleming claims to have exerted reasonable efforts to maintain
Once more that represents only part of the story, and a
skewed version at that. Fleming seeks to make the "trade
secrets" label carry too much baggage. All the information it
tries to wrap in the Act's mantle is nothing more than the
kind of knowledge any successful salesman necessarily acquires
through experience. In the Act's terms, it is information
"readily ascertainable by proper means" over the course of
time without efforts beyond those ordinarily exerted by
salesmen in developing customers.*fn9
That is not to say Bailey may not have derived some benefit
from his access to the collective experience of Fleming's OEM
division (experience to which Bailey himself doubtless
contributed significantly during the course of his
employment). It is rather to say such information comprises
general skills and knowledge acquired in the course of
employment. Those are things an employee is free to take and
to use in later pursuits, especially if they do not take the
form of written records, compilations or analyses. See MBL
(USA) Corp. v. Diekman, 112 Ill. App.3d 229, 236-37, 67
Ill.Dec. 938, 944, 445 N.E.2d 418, 424 (1st Dist. 1983).
Any other rule would force a departing employee to perform
a prefrontal lobotomy on himself or herself. It would disserve
the free market goal of maximizing available resources to
foster competition. Or to frame the issue in the way discussed
earlier in this opinion, it would not strike a proper balance
between the purposes of trade secrets law and the strong
policy in favor of fair and vigorous business competition.
All this does not render helpless an employer worried that
the skills and knowledge an employee acquires during the
course of employment will give him or her an undue competitive
advantage. Nothing prevents such an employer from guarding its
interests by a restrictive covenant.*fn10
But it would really be unfair competition to allow the
employer without such a covenant to obtain trade secret status
for the fruits of ordinary experience in the business, thus
compelling former employees to reinvent the wheel as the price
for entering the competitive market. Once again defendants must
3. Information As to Principals
Fleming Mem. 16 concedes the identity of its principals is
widely known and therefore not a trade secret, but it says
other principal-related information is: the identity of the
contact people, the sales volumes for particular products, the
existence of "minor" items provided by principals or other
suppliers for use with a principal's products or necessary to
permit use of the products, and the terms of Fleming's
contracts with principals. No elaboration is required here:
All the earlier analysis as to customer-related information
applies with equal force. Once more the information is part
and parcel of a salesman's experience in the RV business.
Bailey naturally carried away from his years at Fleming a
familiarity with the contracts, products and personnel of the
principals he did business with, not to mention an awareness
of what products sold best. For reasons already surveyed the
Act's "trade secret" definition simply does not embrace that
kind of information.
Fleming tries to bolster its claim by pointing to
defendants' possession of some papers containing information
about Fleming's relationship with its principals and other
suppliers. Bailey discovered those documents, all from the
1981-83 period, in his garage well after this litigation
began, and he produced them in response to a Fleming document
request. Bailey has explained he periodically carried papers
home during the course of his employment and at one point,
well before his resignation, stored them all in a box in his
garage (Bailey March 25, 1985 Aff. ¶¶ 3-4). Fleming has offered
nothing to contradict that explanation. What really controls,
however, is that the specific documents Fleming points to do
not — even with all inferences in Fleming's favor as Rule 56
requires — create a material fact issue. One of them compiles
basic information about a number of Fleming principals,
including the commissions each pays to Fleming. But because
that information is of the sort Bailey was likely to know
anyway, and because there is no evidence to indicate defendants
made use of the document,*fn11 Bailey's mere possession is
insufficient to raise a genuine issue of fact.
Also among the papers in the box Bailey found in his garage
were invoices with the names of two suppliers who provide
Fleming with products for resale. Fleming argues the identity
of those suppliers is secret, yet Bailey approached one of
them — Runglin International ("Runglin") — in an effort to
obtain goods for his new sales company. Fleming says that shows
Bailey was making use of information gleaned from the documents
he had retained. Defendants, however, point to Grady's own
deposition testimony (Grady Dep. 532-35) that he and Bailey
traveled to the Orient in 1984 with a Runglin representative to
explore foreign supplier sources. Bailey thus knew of Runglin
independently of the documents. Again there is nothing to
Bailey's retention of the documents was anything but the
oversight he claims it was.
There is a telling passage at Fleming Mem. 17:
[T]he RV Business Directory reveals a most
important fact concerning Defendants' actions
relative to Fleming. The directory lists several
hundred manufacturers of equipment utilized by
the RV industry. Bailey could easily have
undertaken to represent these other
manufacturers. Furthermore, Bailey could have
solicited the many thousands of manufacturers of
equipment not currently involved with the RV
business to bring them into that industry as did
Ken Lail (Lail Dep., pgs. 227 to 229). However,
Bailey chose not to follow this course of action;
rather, he went after those principals whom he
had personal contact with because of his position
with Fleming, that is, Fleming's principals
(Bailey Dep., pg. 299).
Fleming unconsciously reveals something of itself: Its desire
to attach a "trade secrets" label to its own generalized
business skills, and to the skills acquired by Bailey while in
its employ, simply to prevent competition by its former
But as the Indiana Court of Appeals stated in
Steenhoven, 460 N.E.2d at 975 n. 7:
Insofar as College Life attempts to merely
restrain Steenhoven's competition, we believe the
Uniform Trade Secrets Act to be an improper
vehicle therefor. The fact that Steenhoven
possesses certain knowledge acquired within the
course of his employment does not mandate that,
upon his departure, Steenhoven must wipe clean
the slate of his memory.
So here Fleming may not look to the Act to restrain
competition from Bailey, especially given the nature of the
information in issue here. Fleming has come forward with
nothing to indicate that the allegedly misappropriated
information rose to the "trade secrets" level. Business
experience and know how as reflected in that information,
however valuable, are not something the law protects from the
rigors of the marketplace.*fn12 Defendants' motion is granted
as to Count I and its trade secrets claims.
Fleming's slander claim against defendants is based on
evidence of five statements made by Bailey or those associated
1. In June 1984 John Becker (a Fleming salesman
who later joined Unified) told Richard Dotson
(who was then or was shortly to become a Fleming
employee) Fleming would be out of business before
much longer (Dotson Dep. 40-44).
2. Sometime after May 1984 Bailey told Magee he
"didn't feel [Fleming] could exist after that
time" (Magee Dep. 17).
3. In July 1984 Scott Bailey (Bailey's son and
a warehouse employee at Unified) told a truck
driver for Fleetwood Industries, Inc. Unified
would take away all of Fleming's principal lines
and Fleming would be out of business within a
year (Duane Conrad Aff. ¶ 6).
4. In September 1984 Scott Bailey made a
similar remark to another Fleetwood truck driver
(Jerry Wright Aff. ¶ 4).
5. In November 1984 Bailey told Harold Stewart
that Sportscoach, a Fleming customer, would be
making future purchases from Unified rather than
Fleming argues those statements are per se defamatory, so the
evidence of their having been made more than withstands
defendants' Rule 56 motion. Defendants respond in two ways:
1. Viewed both s`ingly and in the aggregate,
the statements are not defamatory per se.
2. Fleming has made no effort to make out a
claim of slander per quod by showing special
As with Fleming's trade secrets claim, at the threshold this
Court must determine the applicable law. Because this too is
a tort claim, Ingersoll's "most significant contacts" test
again applies (see, e.g., Velle Transcendental Research
Association, Inc. v. Esquire, Inc., 41 Ill. App.3d 799, 802,
354 N.E.2d 622, 625 (1st Dist. 1976)). For the most part the
assertedly defamatory statements were made in Indiana. More
important, given the conceptual nature of defamation as an
injury to reputation (id.), is the fact Indiana was the site of
Fleming's OEM division (the target of the allegedly slanderous
statements). Against that the fact that Fleming itself is an
Illinois corporation with its general business headquarters in
Chicago would seem to carry little weight.*fn14
this Court concludes the defamation claim is substantially
Indiana-based and will look to Indiana defamation law.
Indiana, like most jurisdictions, holds statements
slanderous per se if they injure another in his profession or
business by imputing lack of ability or unfitness to perform.
18 I.L.E. Libel and Slander § 26 (1959 ed. and 1984 pocket
part*fn15). Martin v. Indiana Bell Telephone Co.,
415 N.E.2d 759, 761 (Ind. App. 1981) teaches:
Whether a statement possesses a defamatory
meaning or implication is initially a question of
law to be determined by the trial court.
Where the entity asserting a per se defamation claim is a
corporation rather than an individual, Illinois courts have
held (Garber-Pierre Food Products, Inc. v. Crooks, 78 Ill. App.3d 356,
360, 33 Ill.Dec. 878, 881, 397 N.E.2d 211
, 214 (1st
Since no question of personal reputation is
involved where a plaintiff is a corporation, the
alleged defamation must assail the corporation's
financial position or business methods, or accuse
it of fraud or mismanagement.
Indiana appears to take a similar view. See Wayne Works v.
Hicks Body Co., 115 Ind. App. 10, 55 N.E.2d 382, 386 (1944).
It is true Indiana has not adopted the "reasonable innocent
construction" rule, Chapski v. Copley Press, 92 Ill.2d 344,
351-52, 65 Ill.Dec. 884, 887-88, 442 N.E.2d 195, 198-99 (1982),
applicable to Illinois defamation cases. But even without
giving defendants the benefit of that rule, the complained-of
statements cannot be found actionable. Scott Bailey's remarks
reflect a combative spirit toward Fleming but do not assail its
business methods, management or financial position. John
Becker's statements to Dotson and Bailey's remark to Magee are
no more than general predictions about Fleming's future, but
again they indicate nothing specific about Fleming's business.
And Bailey's November 1984 statement says nothing about why the
customer is ceasing to do business with Fleming. Grady's own
characterization of the RV business as volatile precludes a
defamatory reading of the mere statement a former Fleming
customer will now purchase from Bailey. Moreover Fleming has
come forward with no evidence to show
Bailey's November 1984 statement was false — a burden it bears
in the face of defendants' Rule 56 motion. As for the other
statements, which purport to be no more than predictions, no
material fact issue is posed by the present uncertainty whether
or not they will come true.*fn16
Wayne Works, 55 N.E.2d at 386 describes statements there
found defamatory per se as to a corporation:
The letters complained of, imputing as they do
that this corporate appellee was in serious
financial difficulties, lacked credit, had
practically suspended operations, was out of
production, had made no commitments for materials
for further production and would be unable to
fill its orders were, to the extent that they
were false, libelous per se, and will support an
action for libel without allegation or proof of
By contrast, the statements ascribed to defendants are
altogether lacking in such specific attacks on Fleming's
business position. They just do not fit the categories
defining per se defamation of a business enterprise.
Defendants' motion must be granted as to the Count III
Defendants urge no lawyer, after the reasonable inquiry now
required by Rule 11, would have filed a complaint on Fleming's
behalf containing Counts I and III. Defendants conclude those
charges of trade secrets violation and of slander were
included in the Complaint in hopes (Mem. 1):
of destroying defendant Bailey's fledgling sales
representative business through the imposition of
costly attorneys' fees.
Fleming's prosecution of this lawsuit certainly does not
reflect the highest standards of lawyering. For example, the
Complaint also included the claim that defendants
misappropriated a sample product — a dashboard — placed "in
the care of Fleming by a company called Georgie Boy [a Fleming
customer]" (Complaint ¶ 27). As Fleming well knew, it had no
proprietary interest in the dashboard, for it had no hand in
developing the product and no contractual arrangement with
Georgie Boy. In fact Georgie Boy had shown the sample dashboard
to others in the industry before the Complaint was filed.
Moreover the Complaint alleged another company, Nu Concepts,
which began to manufacture a virtually identical dashboard at
about the time the Complaint was filed, had obtained the plans
from Bailey. Yet Nu Concepts President Daniel Rothbauer Aff. ¶
7 says Grady had been informed as early as July 1984 — a month
before the Complaint was filed — that Nu Concepts had not
received the dashboard model from Bailey. In December 1984
Fleming informed defendants it was withdrawing its allegations
concerning the dashboard.
That sequence of events must be viewed as reflecting bad
faith on Fleming's part — conduct that justifies the
imposition on Fleming of defendants' attorneys' fees (and any
other expenses incurred) on that issue. There was no way in
which Fleming could have advanced that claim in good
conscience, given what it knew when the Complaint was filed.
And there is equally no justification for forcing defendants to
spend time and money to discover what Fleming knew, thus
keeping the claim alive for some four months.
Even on the most charitable view, the same conduct a
fortiori supports such imposition on Fleming itself under Rule
11's new standards. And it also discloses (at a minimum) its
counsel's noncompliance with Rule 11's mandate:
The signature of an attorney or party constitutes
a certificate by him that he has read the
pleading, motion, or other paper; that to the
best of his knowledge, information, and belief
formed after reasonable inquiry it is well
fact and is warranted by existing law or a good
faith argument for the extension, modification or
reversal of existing law, and that it is not
interposed for any improper purpose, such as to
harass or to cause unnecessary delay or needless
increase in the cost of litigation.
Accordingly Fleming and its counsel are held jointly and
severally liable for defendants' reasonable expenses
(including attorneys' fees) incurred in dealing with the
groundless claim regarding the dashboard. This Court will
leave it to the lawyers in the first instance to deal with the
amounts involved, in hopes of minimizing any pyramiding of
fees on fees via an evidentiary hearing.
Matters are not as clear as to the bulk of Fleming's Counts
I and III, which form the main predicate for defendants' Rule
11 motion. Litigation lawyers have a broad responsibility
under Rule 11 and the Code of Professional Responsibility (now
the Model Rules of Professional Conduct): to confer with the
client about the facts — and not to accept the client's
version on faith, but to probe the client in that respect
("reasonable inquiry"); to do the lawyers' homework on the law;
and then to counsel the client about just which claims the law
reasonable supports in terms of the facts the lawyers' proper
investigation has disclosed. That often involves counseling the
client — sometimes against the tide of the client's
displeasure — as to how best to vindicate the client's
interests without abusing another's. In some instances that may
involve advising a client not to pursue a claim or a theory of
recovery that in a technical sense (of surviving a Rule
12(b)(6) motion) might perhaps go forward, but by rights should
not. When a lawyer fails in that respect — when a lawyer
accepts or even encourages the role of a "hired gun" in the
worst sense — the costs to the parties and to the courts are
often substantial, as they have been here.
But Rule 11 should be applied with some caution, given its
potential for chilling legitimate advocacy. Even in its more
expansive form as amended in 1983, it was not designed to
penalize litigants because they choose to fight uphill
battles, as Fleming has opted for here. Rule 11 does not
require a litigant to forego recovery on a particular theory
merely because its lawyer may believe there is a good chance
of losing (that is one reason for the Rule's reference to "a
good faith argument for the extension, modification or
reversal of existing law").
This Court has given serious thought to mulcting Fleming and
its counsel with all the expenses (including lawyers' fees)
incurred by defendants on the current questions. Though the
issue is a close one, this Court has decided it will not
impose overall sanctions under Rule 11.
Just last week our Court of Appeals decided to issue as an
opinion the previously unreported (and hence unciteable, see
its Circuit Rule 35) order in Lepucki v. Van Wormer,
765 F.2d 86 (7th Cir. 1985) (per curiam). Lepucki, at 87 illustrates why
Rule 11 applies to part, but does not quite cover the bulk, of
Fleming's Count I and III claims (including the involvement of
Fleming's counsel in those claims):
Our system of jurisprudence is designed to insure
that all disputants with colorable claims have
access to the courthouse. Relatively low barriers
to entry have, however, generated an undesirable
result — a deluge of frivolous or vexatious claims
filed by the uninformed, the misinformed, and the
unscrupulous. These claims clog court dockets and
threaten to undermine the ability of the judiciary
to efficiently administer the press of cases
properly before it. Perhaps the greatest safeguard
against this danger is the integrity and good sense
of practicing lawyers who, as officers of the
court, have both an ethical and a legal duty to
screen the claims of their clients for factual
veracity and legal sufficiency. Model Rule of
Professional Conduct 3.1 (1983); Fed.R.Civ.P. 11.
Lawyers have a unique opportunity to counsel
restraint or recklessness, to craft imaginative
arguments or to press empty challenges to
well-settled principles. Because of our reluctance
to constrain the discretion of attorneys in the
vigorous advocacy of their clients' interests, we
penalize them only where they have failed to
maintain a minimum standard of professional
responsibility. But we will not overlook such a
failure when it occurs, in part because it
evidences disdain for the public, whose claims
lie dormant because frivolous suits have diverted
away scarce judicial resources, disdain for
adversaries, who must expend time and money to
defend against meritless attacks, and disdain for
clients, whose trust is rewarded with legal
bills, dismissals, and court-imposed sanctions.
Even had this Court concluded Counts I and III did pose
material fact issues, the thinness of Fleming's case on those
claims — plus Fleming's apparent use of this lawsuit itself as
a competitive weapon — would make this case a powerful
argument for a greater shift toward the British system of
taxing fees as part of costs (if not as a matter of course,
then under expanded standards). But we are not there yet, and
this Court may not pioneer that extra step.
There is no genuine issue of material fact as to Fleming's
trade secret and defamation claims, and defendants are
entitled to a judgment as a matter of law on those claims.
Complaint Counts I and III are therefore dismissed with
prejudice. Defendants' Rule 11 motion is granted with respect
to Fleming's claims concerning the Georgie Boy dashboard and
denied in all other respects.
Fleming has adduced considerable testimony indicating people
in the RV business maintain some confidentiality as to the
kind of information described at its Mem. 10-11. That reflects
nothing more than a truism: No business will gratuitously
expose information about its internal affairs. But it is
equally true customers seeking the best product at the best
price have a clear interest in providing competitors with at
least basic information. Indeed the process is well depicted
by a deposition excerpt (Kenneth Lail Dep. 78-80) advanced by
Q. Have you ever attempted to obtain pricing
information on competitors' products from
Q. Have you generally succeeded in obtaining
A. Oh, generally.
Q. Was the information you received correct?
A. I liked to think so. I would say in most
cases I feel reasonably certain that it was
Q. Have you generally asked customers what
their prices they were paying competitors is
A. We do.
Q. Do they generally answer you?
A. In some cases they do. They provide the
information. They provide copies of invoices,
copies of quotations. In some cases they do not.
In other cases you don't ask, and in some cases,
you know, they will distort the facts.
Q. Why do you not ask in some cases?
A. Because, you know, it is a fruitless effort
to ask. You know, they are not going to provide
you the information.
Q. Why did they not provide you the
A. Through company policy they don't like to;
they don't have the information available; and
I'm sure there are other reasons.
Q. Is it prevalent that people or customers
will not reveal the prices that they are paying?
A. I would say it is prevalent that you will
not get specific pricing terms, conditions and
"the" entire competitive profile. I think,
however, that you normally get some good, firm
information, including all of the above, plus you
get ballpark figures that you use to judge the
integrity of the other detailed information.
Q. The information that you do not obtain
— would that be helpful in order to
compete against the competitors' products?
Q. All right.
A. Any information.
Q. Is there a general understanding in the
Industry that this type of information should not
be available from the customer?
A. Is there a general understanding? I really
cannot — I can answer only my experience and my
experience is that I have never gone out for
pricing that I didn't get some sort of — some sort
of ballpark competitive feedback. But, again, I
never go to those people that I know are not going
to cooperate. I naturally go immediately to those
that I know will cooperate.
That testimony describes in summary form (and with obvious
credibility) how a salesman in the ordinary course of his or
her affairs develops information about customers and the
market in general. Fleming has offered no evidence indicating
its own customer information could not be substantially
duplicated by similar means. In terms of the determinative
issue on the current motion, such information cannot fairly be
subsumed under the "trade secrets" rubric.