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IDS FIN. SERVS. v. SMITHSON

February 4, 1994

IDS FINANCIAL SERVICES, INC. and IDS LIFE INSURANCE COMPANY, Plaintiffs,
v.
STEVEN F. SMITHSON, Defendant.



The opinion of the court was delivered by: CHARLES RONALD NORGLE, SR.

 CHARLES R. NORGLE, SR., District Judge:

 Before the court is the motion of plaintiffs IDS Financial Services, Inc. and IDS Life Insurance Company (collectively, "IDS") for a preliminary injunction. The motion is granted for reasons that follow.

 FACTS

 Defendant Steven F. Smithson ("Smithson") resigned from his position as a personal financial planner representing IDS, a Delaware Corporation with its principal place of business in Minneapolis, Minnesota. Smithson's resignation from IDS's Lombard, Illinois office came after IDS confronted Smithson regarding evidence that Smithson had been copying IDS's confidential files and customer lists, soliciting business for himself from existing IDS customers, and diverting IDS's business. Smithson had also affiliated himself with an IDS competitor, SunAmerica Securities, Inc. ("SunAmerica"), while he was associated with IDS. After Smithson left IDS, he continued his investment, financial planning, and insurance practice through SunAmerica.

 Smithson developed a financial planning business in the summer of 1990 and was certified as a financial planner in the summer of 1992. Nevertheless, Smithson had entered into a contractual affiliation with IDS to sell IDS products and services as an independent contractor through two agreements dated August 9, 1989. Smithson leased his office space and the majority of his equipment from IDS, but employed his own staff and paid his own overhead and operating expenses. The agreements with IDS prohibited Smithson from procuring or servicing investment products or insurance products that were not acquired through IDS.

 Smithson's agreements with IDS also prohibit him, for a period of one year after leaving IDS, from, inter alia, "directly or indirectly offering for sale, selling or seeking an application for any Product or Service issued or provided by any company to or from a Client [Smithson] contacted, dealt with or learned about while [Smithson] represented IDS or an Affiliate or Issuer or because of that representation." Verified Complaint, Exhibit A at § IV 1(g). This restriction applies for the territory wherein Smithson "sought applications for Products or Services" pursuant to the agreements. Id. The agreements define "Client" to mean:

 
person or entity who (1) purchases or holds a Product or Service acquired from or through IDS or an Affiliate or one of their Planners with the consent of IDS or the Affiliate, or (2) authorized IDS, an Affiliate or one of their Planners to make personal financial planning presentations to it or its employees or members, or (3) is a member of a Client's household.

 Verified Complaint, Exhibit A at § I 1(p) & Exhibit B at § I 1(m).

 In September 1993, Smithson and SunAmerica discussed the prospects of Smithson selling financial products and services for SunAmerica. Smithson resolved to quit IDS and signed an agreement with SunAmerica in November 1993. In preparation for his move to represent SunAmerica, Smithson compiled a list of IDS customers with whom he had discussed his plans to leave IDS. He believed some would follow him to SunAmerica. Subsequently, Smithson contacted these IDS clients and informed them of his intention to leave IDS and the reasons for the move. Among the reasons Smithson provided was that he found it difficult to address his client's needs as a financial adviser "when all the business that I placed had to be with one company . . . ." Smithson Dep. at 151-52. Smithson further felt that the market value of his business was low because of his contractual relationship with IDS. Smithson Dep. at 152-53.

 Smithson then copied, first at the IDS office and later at his new office, the files of those he considered his best customers. Smithson has also produced at least nine boxes of IDS customer documents, consisting of entire files or major portions of files, which include insurance contracts and wills. Many of the documents in Smithson's possession are originals.

 Smithson knew that he would lose his clients if he left IDS because of his agreements with IDS, and was afraid that his business would be adversely impacted if he could not remain in contact with his former clients. Therefore, on December 14, 1993, Smithson mailed a letter on IDS letterhead to the IDS customers to whom Smithson was assigned -- at least 250 people. The mailing included a map to Smithson's new office. The letter read, "The purpose of this letter is to notify you of the relocation of our office facilities." Verified Complaint, Exhibit E. It continued, "We are moving into space that will allow us to better serve your needs over the coming years" and "we look forward to our continuing relationship and wish you a prosperous new year. Please call on us if you have any questions." Id. What is most telling about the letter is the absence of any statement informing the clients of Smithson's intention to leave IDS for SunAmerica.

 Many of the clients contacted by Smithson responded by calling IDS. On December 17, 1993, IDS's Division Vice President approached Smithson about the phone calls and Smithson resigned. There is evidence that contact between IDS customers and Smithson has continued subsequent to the termination of Smithson's relationship with IDS.

 IDS filed a verified complaint on December 30, 1993 seeking a temporary restraining order, a preliminary injunction, a permanent injunction, damages, and other relief against Smithson. A temporary restraining order was issued on January 5, 1994 and later extended by agreement. IDS contends that Smithson violated the terms of his personal financial planner's agreements, his fiduciary duties, the Lanham Act, the Illinois Deceptive Trade Practices Act, the Illinois Trade Secrets Act, and his common law tort duties by soliciting and continuing to solicit IDS customers acquired through his affiliation with IDS; by converting and continuing to convert IDS trade secrets and confidential IDS customer information for his own use; and by diverting IDS customers to himself. IDS seeks to prevent Smithson from using IDS's trade ...


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