of her employment, including its length and her compensation. Indeed, she contends, AMI's failure to promise a specific period of employment in exchange for executing the noncompete alone strikes a fatal blow. Schmitt cites one case in her entire supporting memorandum, the First Appellate District's Creative Entertainment decision, in favor of this proposition. But AMI quite correctly points out that Creative Entertainment does not comprise the judicial universe on the validity of restrictive covenants, and, in fact, was called into serious question just one year later by the Fourth Appellate District in Abel v. Fox. The Abel court held that an oral at-will relationship is a valid employment "contract" or "relationship" that complies with the requirement of ancillary. 274 Ill. App. 3d at 820, 654 N.E.2d at 597. Written terms and conditions of employment, it decided, are unnecessary to support a noncompete. Id. Because Creative Entertainment and Abel are the only Illinois cases addressing ancillarity, the Court will briefly reprise their facts and reasoning.
In Creative Entertainment, the First District struck down a noncompete on ancillarity grounds, and dismissed the count on which it was based, because no written contract specified the defendant's terms and conditions of employment. Defendant Lorenz had been employed at will, and the only written agreement he executed was a noncompete signed eight months after he began working. When Lorenz left to form his own business, and began contacting his former employer's customers in violation of the agreement's provisions, the employer sued to enforce the covenant. Finding the noncompete unenforceable as a matter of law, the court stated that to be ancillary to a valid employment contract, the covenant had to be "subordinate to the contract's main purpose." 265 Ill. App. 3d at 346, 638 N.E.2d at 219. An at-will arrangement, subject to change at the whim of the employer, was not itself a valid employment contract. Id. at 348, 638 N.E.2d at 221. And no separate written provisions covered the grounds for termination, or promised a definite term of employment in exchange for not competing against the company. Id. at 348, 638 N.E.2d at 220. From this, the court concluded, "Clearly, the covenant was not ancillary to an employment contract"; rather, it was a "naked agreement" to restrain trade. Id. at 348-49, 638 N.E.2d at 221.
In contrast, Abel v. Fox held that an oral at-will arrangement is a valid contract or "relationship" that satisfies the ancillarity requirement. 274 Ill. App. 3d at 820, 654 N.E.2d at 597. Like Lorenz, defendant Fox was employed at will, and signed a covenant not to compete "sometime during her employment." Id. at 812, 654 N.E.2d at 592. After she left that job, Fox began soliciting her former employer's customers to patronize her newly formed business, even though the noncompete forbade her from doing so. Reversing the trial court's dismissal of the employer's breach of contract claim, the appellate court relied on persuasive authority and older state supreme court precedent to support its holding that courts may enforce noncompetition agreements in at-will relationships. Id. at 816-21, 654 N.E.2d at 595-598. The court roundly criticized Creative Entertainment as contrary to this authority and without basis in law or public policy. Id. at 818, 820, 654 N.E.2d at 596-97. Whether written or oral, an at-will arrangement "is nonetheless an agreement and relationship with numerous consequences, imposing rights and obligations on both parties." Id. at 820, 654 N.E.2d at 597. Even when supplemented by a noncompete, the primary purpose remains, as in term employment, establishing an employee-employer relationship. Id.
It is clear that these decisions create a split between two appellate districts over what kind of employment relationship is a valid foundation for a covenant not to compete. The Illinois Supreme Court has never addressed this issue, so this Court must choose between the appellate decisions. Two alternative approaches exist to facilitate this choice: predicting how the state supreme court would rule or applying the law of the appellate district in which the federal court sits.
III. Determining State Law When Appellate Decisions Conflict
Schmitt points out the irony that a second split exists, among judges in the Northern District of Illinois, over the appropriate method of determining state law under Erie when the state appellate districts are diametrically opposed on an issue and the supreme court is silent. Judge Shadur champions a geographical rule: following the district in which the federal court is located.
Judge Prentice Marshall, on the other hand, along with the majority of his peers, the Central District of Illinois, and arguably the Seventh Circuit, would make an effort to predict the state supreme court's stance.
Schmitt does not advocate one approach over the other, but maintains that either analysis would render the covenant unenforceable. This Court finds, however, that its Erie obligations are best discharged under the supreme-court-predictive approach, and further, that the supreme court would uphold the noncompete under the rule set forth in Abel.
Judge Marshall favors the predictive approach over the geographical approach for a number of reasons. First, he interprets Erie to require that federal courts sitting in diversity obey the state law that would ultimately apply were the case litigated to its fruition before the highest state court. Roberts, 568 F. Supp. at 539-40. Consequently, federal courts should not blindly follow an intermediate appellate ruling if convinced that the supreme court would disagree with it. Id. at 540. Second, the geographical approach has the effect of according state intermediate appellate decisions more weight in the federal system than in the state system. While a state appellate court can feel free, as it did here, to disagree with its sister court in another district, a federal court would be bound to the district in which it sits. Id. at 540-41. Moreover, a state appellate court may reexamine and overrule an earlier decision that later proved to be unsound. But a federal district court constrained by the geographic approach would be forced to adhere to the earlier erroneous opinion.
Id. at 542-43.
Ultimately, the geographical approach leads to forum shopping, precisely the evil Erie sought to prevent. Id. at 540-41; Kelly, 552 F. Supp. at 644-45. The Northern District's jurisdiction encompasses several counties, which in turn span more than one appellate district. Kelly, 552 F. Supp. at 644. Under the geographical approach, the federal court in the Northern District would have to apply caselaw from the First Appellate District, its neighbor in Cook County. Id. As a result, a litigant could "remove to federal court actions, brought in non-Cook County areas of the Northern District of Illinois, in which it wants to avail itself of the law of the First District." Id. at 645. Besides facilitating such forum-shopping, this methodology deprives federal courts of their power to reason:
When the rights of a litigant are dependent upon the law of a particular state, the court of the forum must do its best (not its worst) to determine what that law is. It must use its judicial brains, not a pair of scissors and a paste pot. Our judicial process is not mere syllogistic deduction, except at its worst.
Id. (quoting Arthur Corbin, The Laws of Several States, 50 YALE L.J. 762, 775 (1941), cited in Warner v. Gregory, 415 F.2d 1345, 1346 (7th Cir. 1969)).
Judge Shadur is concerned that the predictive approach has the potential to defeat litigants' justified expectations. Commercial Discount, 552 F. Supp. at 851. For example, a diversity plaintiff could sue in the Northern District, expecting the benefit of favorable law in the state's First Appellate District, only to be unfairly surprised when the federal court renders an adverse "prediction." Id. Nonetheless, we observe that if the case stayed in state court and its judgment was appealed by the defendant, the appellate court, equally able to change course, could likewise frustrate the plaintiff. Moreover, in the instant case, the predictive approach would not rob the plaintiff of substantive rights; surely AMI did not hope for this Court to apply the First District's law of restrictive covenants, since it is highly unfavorable to the company.
While Judge Shadur does make a well-reasoned case for the geographic approach in his Commercial Discount and Abbott Laboratories v. Granite State Insurance Co. opinions, we consider the predictive method more faithful to Erie. We think the Seventh Circuit would agree, given its statement that state appellate court decisions on questions of state law "provide us with data for ascertaining the relevant Illinois law, but may be disregarded if we are 'convinced by other persuasive data that the highest court of the state would decide otherwise.'" Gates Rubber Co., 509 F.2d at 607 (quoting West v. AT&T, 311 U.S. 223, 237, 85 L. Ed. 139, 61 S. Ct. 179 (1940)). Because we find that Abel v. Fox supplies such persuasive data, we predict that the state supreme court would follow its holding that an at-will employment relationship can serve as the basis for a covenant not to compete.
IV. The Supreme Court Would Enforce the Restrictive Covenant
Guidelines do exist to aid the Court in predicting how the state supreme court would rule in this case. We begin with supreme court precedent, and examine authority on point, analogous cases, the policies and doctrinal trends that influenced those decisions, and the court's "considered dicta," in that order. Roberts, 568 F. Supp. at 544 (quoting McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 662 (7th Cir. 1980)). "Of somewhat less importance" are decisions of lower state courts and other federal courts, which "should be accorded proper regard, of course, but not conclusive effect." Id. (internal quotations omitted). Research has revealed no supreme court decisions on point, but a number of cases evincing policy and doctrine that would inform the court's decision if faced with the issue before us. Moreover, the appellate court's opinion in Abel provides a compelling analysis grounded in this precedent and in persuasive authority.
As discussed in Abel, the Illinois Supreme Court has expressed its approval of restrictive covenants that protect the fruits of one party's efforts from unjust use by the other party. In More v. Bennett, 140 Ill. 69, 29 N.E. 888 (1892), the supreme court struck down a noncompetition and price-fixing agreement among stenographers in the city of Chicago. But in doing so, the court observed that:
An analogy is thereby sought to be raised between the contract in this case and those contracts in partial restraint of trade, which the law upholds. . . . Contracts in partial restraint of trade which the law sustains are those which are entered into by a vendor of a business and its goodwill with his vendee . . . . But in the present case there is no purchase or sale of any business, nor any other analogous circumstance giving to one party a just right to be protected against competition from the other.