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02/22/88 Federated Equipment and v. Miro Mold & Duplicating

February 22, 1988

FEDERATED EQUIPMENT AND SUPPLY COMPANY, INC., ET AL., PLAINTIFFS-APPELLEES

v.

MIRO MOLD & DUPLICATING CORPORATION ET AL., DEFENDANTS-APPELLANTS



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

520 N.E.2d 80, 166 Ill. App. 3d 670, 117 Ill. Dec. 90 1988.IL.246

Appeal from the Circuit Court of Du Page County; the Hon. John S. Teschner, Judge, presiding.

APPELLATE Judges:

JUSTICE NASH delivered the opinion of the court. DUNN and REINHARD, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH

Defendants, Miro Mold & Duplicating Corporation , Co-Op Mold & Engineering, Inc. , and Jules Stein, appeal from a judgment entered in a bench trial awarding compensatory and punitive damages totaling $1,071,080 to plaintiffs, Federated Equipment and Supply Company, Inc. , and Lukas American, Inc. . Defendants contend that the trial court erred: (1) in striking their sixth affirmative defense, which was based upon a claimed arbitration which was alleged to have resolved the dispute between the parties; (2) in issuing an injunction against defendants as the evidence failed to establish that plaintiffs had protectable trade secrets; (3) in finding there was sufficient evidence that defendant Jules Stein conspired with George Rademacher to misappropriate trade secrets; and (4) in awarding compensatory and punitive damages.

In February 1983, plaintiffs filed a five-count complaint against the defendants who have brought this appeal, and also against Viking Rescue Systems, Inc. , Rad Engineering Co., Inc. , and George Rademacher. Count I alleged misappropriation of plaintiffs' confidential trade information and sought injunctive relief and damages. Count II sought damages alleging that MIRO and Jules Stein breached a contract with FEDESCO relating to the development of certain rescue tools. Count III alleged that a civil conspiracy existed between Jules Stein and

MIRO, CO-OP, and Stein filed their answer and set forth several affirmative defenses in the sixth of which they alleged the following: (1) that plaintiffs, through George Weigand, initiated an arbitration proceeding with the East Bolingbrook Congregation of Jehovah's Witnesses against Jules Stein based upon the March 24, 1981, agreement between FEDESCO and MIRO concerning the development of rescue tools; (2) the matters raised in the arbitration were the same as those in the present litigation; (3) hearings were conducted in the arbitration; (4) in June 1982 the arbitration committee ruled in favor of plaintiffs and held that MIRO and Stein were precluded from disclosing, manufacturing, or selling the rescue tools; (5) to effectuate the decision, in June 1982, Stein executed a covenant not to develop the rescue tools, and Weigand executed a promissory note in favor of Stein in the amount of $14,434; (6) Stein and MIRO appealed the arbitration decision and a special committee of the Watch Tower Bible and Tract Society was appointed to consider the appeal; (7) on January 17, 1983, the appeals committee reversed the arbitration decision, and ruled that the covenant executed by Stein was unenforceable, that Stein and MIRO had the right to develop the rescue tools, and that Weigand must pay the balance of the promissory note; and (8) Weigand agreed that the arbitration decision would be final and binding.

On January 23, 1984, plaintiffs filed a motion to strike the affirmative defenses, which was designated as made pursuant to section 2-619(a)(9) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-619(a)(9)), and presented a memorandum in support of their motion. In their memorandum, plaintiffs stated, inter alia, that the elders of the church of Jehovah's Witnesses only entertain moral issues, and that the only sanction the elders could impose was expulsion from the congregation. On March 1, 1984, plaintiffs filed an affidavit of John H. Ponting, an ordained minister and elder of the Kankakee Congregation of Jehovah's Witnesses, who was identified as the chairman of the congregational committee which had considered the actions of Jules Stein. According to the affiant, the hearings conducted by the Jehovah's Witnesses church were concerned only with moral and not business matters and were not binding on the parties.

On March 13, 1984, at a hearing of the parties' motions relating to the affirmative defenses, defendants' counsel argued that well-pleaded facts in the affirmative defenses must be taken as true for purposes of plaintiffs' section 2 -- 619 motion, and that it was improper for the trial court to strike the sixth affirmative defense relating to arbitration without considering evidence. Plaintiff's counsel read to the court an excerpt from "Aid to Bible Understanding, Watch Tower Bible and Tract Society," which indicated that the church considered doctrinal and moral matters in deciding excommunication issues, and argued that the church considered only the morality of Stein's conduct. The trial court inquired whether an arbitration agreement between the parties existed, and, when defendants' counsel replied that there was no arbitration clause involved in this case, the court found that there had been no arbitration of the issues in the case and granted plaintiffs' motion to strike defendants' sixth affirmative defense. During the subsequent trial, defendants requested that the trial court reconsider its order striking the sixth affirmative defense and made an oral offer of proof; the trial court denied reconsideration.

The evidence at trial, which was quite voluminous, disclosed that FEDESCO and LUKAS were in the business of manufacturing and distributing tools used in rescue operations. In 1979, one of the principal owners of FEDESCO and LUKAS, George Weigand, engaged Jules Stein, a machinist and a principal owner of MIRO and CO-OP, to prepare replacement parts for the rescue tool distributed by LUKAS. Stein began experimenting with different designs and materials for rescue tools which eventually resulted in the execution of a contract on March 24, 1981, between FEDESCO and MIRO for the development of a spreader arm and cutter for the rescue tool. The contract provided, inter alia, that: MIRO was to produce prototypes of the spreader and cutter; all prototype materials, drawings, and samples were to be the property of FEDESCO; MIRO was not to compete with FEDESCO and would treat trade information confidentially; if FEDESCO chose to produce the rescue tools all samples, drawings, and other related items would be turned over to FEDESCO.

In the summer of 1981 George Rademacher, president of RAD and VIKING, became involved in the development of the spreader arm of the rescue tool through his association with Stein, who produced it for FEDESCO. After a prototype spreader arm was tested in September 1981, negotiations concerning production of the rescue tool began. Weigand wished to produce the rescue tool as cheaply as possible, and, when negotiations broke down in December 1981, Weigand sent Stein a letter withdrawing all prior offers and requesting the return of the drawings and other materials related to the project. Further attempts to resolve the differences between Weigand and Stein were unsuccessful. In June 1982, Weigand learned that VIKING was promoting a spreader and cutter which were the same as those developed for FEDESCO by Stein, and that a pamphlet promoting the VIKING rescue tools was published by RAD.

The trial court found for plaintiffs and, after a hearing on damages, awarded compensatory damages under counts I, II, III, and IV in the amount of $188,000 and, in addition, awarded plaintiffs $883,080 in punitive damages under counts III and IV. Defendants were enjoined from making or selling rescue tools which utilized the parts or features claimed by plaintiffs.

Defendants contend first that the trial court erred in striking their sixth affirmative defense, which was based upon the alleged arbitration proceeding. They argue that none of the plaintiffs' arguments made in the trial court preclude the sixth affirmative defense, and the court should not have made a determination of factual issues without proper evidence. The plaintiffs respond that the church proceedings did not involve Rademacher and thus could not have been an arbitration of all the matters in this case. The plaintiffs also point to the affidavit of John H. Ponting, which they filed in ...


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