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Mcrand, Inc. v. Van Beelen

OPINION FILED NOVEMBER 13, 1985.

MCRAND, INC., PLAINTIFF-APPELLANT,

v.

JACOB VAN BEELEN ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.

JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Rehearing denied December 26, 1985.

Plaintiff, McRand, Inc., brought this action for injunctive relief against defendants Jacob van Beelen, Larry T. Nelson and Gavel International Corporation, seeking to enforce restrictive covenants in an employment agreement. McRand appeals from the order of the trial court denying plaintiff's motion for preliminary injunction.

McRand is a Delaware corporation formed in 1971 and licensed to do business in Illinois. It is engaged in the business of designing and coordinating management and incentive award programs for major corporations and businesses. It prepares agendas and schedules, secures necessary transportation, locates and books hotels and conference facilities, arranges banquets, makes recreational facilities available to participants, and generally coordinates all activities with an on-site representative.

In order to develop and maintain long-standing customers, McRand must first identify potential customers, then develop an in-depth awareness of the client's history, its structure and organization, its key decision makers, and its specialized needs and preferences. Once obtained, the information constitutes an important competitive advantage to McRand. Michael McClure, McRand's president, offered uncontradicted testimony that each major account takes one to three years and approximately $200,000 to develop before any bookings are made for the client. McClure also stated that McRand maintains continued business relations with its customers. McClure further testified that McRand had approximately five major accounts, and each year its account personnel could hopefully obtain one new major account. In contrast, van Beelen testified that there was no set pattern in customer relationships, yet stated that many of McRand's customers repeatedly return with new business.

Van Beelen was hired by McRand in December 1973. At various times he was a vice-president, a stockholder, and a director of McRand. His responsibilities included operating programs, developing proposals, and working closely with major accounts. Nelson, who was hired in 1976, was first a program manager and then a senior accounts manager. He operated incentive programs for customers. Each man was assigned to specific McRand accounts, and acted as the key contact between McRand and the customer. McClure testified that van Beelen and Nelson had access to all of McRand's information, which included program design, product information, customer needs, customer buying habits and purchasing requirements, customer discount information, McRand's profit margin and pricing analysis, and its future business plans with respect to its customers. Van Beelen and Nelson testified that this information is not helpful to them in their new business, but stated that its new business, Gavel International Corporation, offered the same services as McRand, and sometimes even provides these same services to McRand customers.

Both men entered their resignation on March 15, 1985. McClure testified that they told him the simultaneous resignations were a coincidence and that their future plans remained uncertain. McClure also testified that in 1983 and 1984, van Beelen solicited and obtained orders from, or had some responsibility for 79 client programs, and that billings to those clients represented 45% of McRand's gross revenues for those years. During that time, Nelson had responsibility for 21 client programs.

The employment agreements at issue were dated March 1, 1983, and replaced agreements which also contained restrictive covenants which were signed by Nelson in 1976 and by van Beelen in 1977. The 1983 agreement provided in part:

"For a period of two years following his termination of employment, the employee shall not solicit business relating to the services or products of the kind generally rendered or furnished by McRand * * * or render or furnish such services and products to any of McRand's past or current clients for which McRand or its employees have rendered services billed to any such client at any time during the two-year period immediately prior to his termination of employment.

For a period of one year following his termination of employment, the employee shall not solicit business from any of McRand's prospective accounts for which he has, during the two-year period immediately prior to his termination of employment, recorded business development time."

The agreement also provided that the employee must pay McRand 30% of all fees and commissions earned with respect to any client or prospective client of McRand for which the employee subsequently renders services. McRand was required to give 30 days notice of intent to terminate either employee.

Nelson and van Beelen testified that, prior to signing the agreement, each of them had discussed the restrictions with McClure, and each understood the restrictions. Van Beelen testified further that he discussed with McClure whatever was unclear and that he understood at the time of signing that certain harm would result from breaking the agreement. He also realized that signing the agreement was a precondition to his continued employment and participation in the bonus and profit sharing plans. Nelson testified that he understood that he would be dismissed if he did not sign the agreement. McClure testified that at the time of the signing, van Beelen desired that the two-year restriction be even longer, but stated that he would learn to live with a maximum restriction of two years, in reliance upon a recommendation by McRand's legal counsel.

In October 1983, 18 months before resigning from McRand, van Beelen incorporated Gavel, which had the purpose of providing the same services as McRand. At about the same time, van Beelen offered to buy McRand, but McClure declined. Gavel's 1984 annual report, filed with the Illinois Secretary of State, stated that Gavel engaged in business during the previous year.

In 1984, while still employed by McRand, van Beelen prepared a funding proposal for Gavel, naming Nelson as vice-president, and circulated the proposal to a group directly affiliated with a McRand client. While still employed by McRand, van Beelen performed services for a McRand client, and sent that client an invoice on Gavel stationery. Van Beelen testified that he intended to reimburse McRand for the money received by Gavel.

After the two employees left McRand, a mailing went out from Gavel to McRand customers announcing van Beelen's and Nelson's association with Gavel. At the time of the preliminary injunction hearing, proposals were being prepared for at least three of McRand's customers, and services had been performed by Gavel for at least one McRand client. Van Beelen and Nelson testified that they would perform services for any McRand customer stating that it no longer wished to do business with McRand. McClure testified that a McRand client told him that the customer was aware of the possible breaches of the restrictive covenants, ...


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