Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Delta Medical Systems v. Mid-America Medical Systems

June 6, 2002


Appeal from the Circuit Court of Cook County. No. 01 CH 12496 Honorable Bernetta Bush, Judge Presiding.

The opinion of the court was delivered by: Justice Theis

Plaintiff Delta Medical Systems (Delta), filed a multicount complaint in the circuit court of Cook County seeking injunctive relief to prevent defendants, Mid-America Medical Systems, Inc., Michael Donati, and John Ottum (collectively Mid-America), from using Delta's alleged trade secret information and from soliciting and servicing its customers. Following an evidentiary hearing, the circuit court issued a preliminary injunction restraining Mid-America from soliciting and servicing certain Delta customers, and ordered Mid-America to remove its service tags from certain Delta customer equipment. Mid-America now appeals from this interlocutory ruling pursuant to Supreme Court Rule 307(a)(1). 188 Ill. 2d R. 307(a)(1). They contend that (1) plaintiff was not entitled to a preliminary injunction; (2) Delta's customer list and data are not trade secrets that were misappropriated; (3) the trial court improperly denied consideration of Mid-America's motion to dissolve the temporary restraining order, issued a written order that does not comport with its oral ruling, and refused consideration of its motion to modify the order; and (4) the trial court made various errors regarding the admission of evidence. Delta cross-appeals contending that it was entitled to broader relief than the court afforded. For the following reasons, we reverse and remand for further proceedings.


Delta is a Wisconsin corporation founded in 1979 that sells and services various types of medical diagnostic equipment utilized by hospitals and clinics. The company conducts business in Wisconsin, Minnesota, and Illinois, has approximately 40 employees, and generates revenues of about $18 million per year. In 1995, it opened a Schaumburg, Illinois, office with eight field employees, including defendant Michael Donati as the service manager and defendant John Ottum as one of the service engineers. As part of their job duties, Donati and Ottum were responsible for soliciting new sales and servicing equipment.

Prior to joining Delta, Ottum had worked for Advanced Diagnostic Systems, Inc. (ADS), a company owned by his father, Robert Ottum. During 1995, Delta acquired ADS. The acquisition gave Delta a customer base upon which it could expand its equipment sales in Illinois, including some mammography equipment sales. The asset purchase agreement identified ADS' assets as including its "customer lists and information including sales history, service records, and related information." After selling his ADS business, Robert Ottum worked for Delta from 1995 to 1998.

At the time of the ADS acquisition, Delta was a dealer of mammography equipment manufactured by Hologic Systems Division, formerly known as the Lorad Division of Trex Medical Group (Lorad), in the Wisconsin, Minnesota, and northern Illinois area. However, in February 2001, Delta terminated its dealership agreement with Lorad and announced that it would become a dealer for Siemens Medical Systems, Inc., a medical equipment competitor in the same markets. When Delta terminated its dealership agreement with Lorad it was aware that it would experience some erosion of the Lorad service business and expected that another dealership would enter its territory to compete.

Sometime in February or March of 2001, Robert Ottum began discussing the formation of a new company with defendants Donati and Ottum, and began discussions with Lorad about the possibility of securing a Lorad dealership. On May 9, 2001, Mid-America was incorporated; its shareholders included Robert Ottum, Allan Pozdol, and defendants Donati and Ottum. At that time, Lorad informed Mid-America that it would be granting it a dealership. The next day Robert Ottum announced the formation of his new company to his long-time friend Paul Andresen, the diagnostic imaging director at Kishwaukee Community Hospital, and told him that defendants Ottum and Donati would be joining the company. Robert Ottum also informed him that Mid-America had become the exclusive Lorad dealer in northern Illinois.

Thereafter, on June 1, 2001, Lorad executed a dealership agreement with Mid-America for the sale and service of mammography equipment in northern Illinois. Defendants Donati and Ottum gave notice to Delta of their intent to leave the company and resigned from their employment with Delta on June 15, 2001. Soon after Mid-America began business operations, several Delta customers with Lorad equipment terminated their relationship with Delta in favor of doing business with Mid-America.

On August 1, 2001, Delta filed a complaint for injunctive relief against its former employees, Donati and Ottum, along with the newly formed company, essentially alleging that they misused trade secret information in order to set up and operate a competing business and raid Delta's customer base. It further alleged that they misappropriated its confidential customer data encompassing the following: "the identities of customers, the needs and preferences of customer contact persons and decision-makers, the model numbers, identification numbers, and service histories of equipment located at each customer site, the terms of contracts for ongoing maintenance services, time and materials pricing to customers without service contracts or for services that went beyond those contracted for, information concerning customers' evolving needs, * * * contract expiration dates, and costs and profit margins for parts and services."

Delta's complaint included causes of action for breach of the common law duty of loyalty and misappropriation of corporate opportunities, a violation of the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq. (West 2000)), tortious interference with contract, tortious interference with prospective economic advantage, and unfair competition. On August 3, 2001, the circuit court entered a temporary restraining order prohibiting Mid-America from continuing to solicit Delta's customers and from using or disclosing its customer data. Thereafter, an evidentiary hearing was held on Delta's petition for a preliminary injunction. The evidence adduced at that hearing is summarized below.

Delta's Customer Data

Both parties agreed that their industry is highly competitive. Delta introduced several witnesses to testify regarding information that the company believed to be trade secrets. Anthony Krause testified that he was the Wisconsin area service manager for Delta from 1993 to 1999, and thereafter was a technical specialist based in Illinois. He explained that in 1993, before the opening of the Schaumburg office, Delta used a generic service contract that provided only a minimum level of service. Over time, through input from him and other employees, several changes were made in an effort to separate its service contract from the competitor. The contract incorporated multiple service level options, a regulatory compliance program, exceptions from coverage for certain parts and services, margins for time waited and overtime, and an automatic-renewal feature with a predetermined price increase. The contract had been uniquely customized to serve client needs and preferences.

Krause further testified about contract pricing and the service history of customer equipment. He, along with Paul Wunsch, the president of Delta, and James Ziebart, executive vice president and general manager of Delta, testified that pricing is a function of knowing the service history of a customer's equipment. Krause explained that the service history refers to the age, usage, problems, and maintenance relating to a particular piece of medical equipment. Krause noted that Delta considers the following factors in pricing a service contract: the type of equipment, the usage of the equipment, the age of the equipment, the service history, and customer preferences. The data enables the service provider to gauge the probable time and material that will be necessary to meet its obligations under a long-term service contract and make a profit. Donati testified that he did not know what the competitors charged for their services and did not know the specific terms of their contracts. He also stated that while it would be helpful to have the service history information on a particular piece of equipment, it was not necessary in soliciting new business.

Krause also testified that prospecting for customer contacts is time-consuming, and gaining an audience with the decision-maker can take months of exposure because the service provider may discover that a manager at a different level is actually the person with the authority to select the service provider and approve the purchases of new equipment. Donati denied that it was difficult for him to obtain contact information when soliciting new business. Ronn LaBrasca, Delta's former vice president for sales and service, testified that experience in the industry is helpful in identifying customer contacts.

Jacqueline Szymanski, the practice administrator for Randallwood Radiology and a former customer of Delta, stated that this information could be ascertained at her facility by simply making a phone call. She explained that as the customer, she works closely with the technicians and develops a relationship with the service engineer. Additionally, she testified that if a dealer did not know the service history and she wanted it to service her equipment, she would share that history with it. Krause also acknowledged that sometimes the basis upon which a customer relies in deciding who is going to service its equipment is the relationship it has developed with the service engineer.

Mid-America introduced evidence to support its position that Delta's customer information is readily obtainable through public means. When new diagnostic equipment is installed, the installer is required to record certain information with the Illinois Department of Health and Human Services and the Illinois Department of Nuclear Safety. Form 2579 provides the name, address, and phone number of the customer where the equipment was installed; the name, address, and phone number of the company that installed the equipment; the type, serial number, and date of manufacture of the equipment installed; the name of the individual that installed the equipment; and the date of installation. Donati testified that Mid-America obtained this information through a Freedom of Information Act (FOIA) request. 5 ILCS 140/1 (West 2000).

In addition, the Lorad manufacturer provides its dealers like Mid-America with similar information. Mid-America introduced a list produced by Lorad of all its customer base in Illinois with Lorad equipment. The Lorad list includes the company that installed the equipment; the customer name; the customer's medical specialty; the model number of the equipment; and the date on which the equipment was shipped. Ziebart testified that these reports do not provide information on the service history of the equipment, do not identify who is currently servicing the equipment, who the decision-maker is who chooses the service provider, or how much the service provider is charging for its services.

Robert Ottum testified that one can subscribe to various Internet subscription services that compare equipment types and prices. He stated that for a fee, these services provide information regarding equipment specifications and the range of prices charged for equipment. According to Ottum, they will also review service contracts. However, Paul Wunsch stated that these services only publish the prices charged for new equipment, not the price of equipment services.

Confidentiality of Customer Data

During their period of employment, neither Donati nor Ottum signed a confidentiality agreement or a restrictive covenant limiting his right to compete with Delta upon leaving the company. Delta issued an employee handbook in 2000. It generally admonishes employees that customer data is not to be shared with outsiders or other employees except on a "need-to-know" basis. Both Donati and Ottum acknowledged reading this provision and understood that it applied to "customer data." However, customer data was not specifically defined in the handbook or explained to them by Delta. Donati was not asked if he understood what that term "customer data" meant. Ottum agreed that service history, pricing, and identities of contact persons were customer data. While he understood that service history and prices could be found in the company database housed in Milwaukee, he stated that he never received any documents with that information on it in his role as a service engineer.

Donati stated that there were no procedures for maintaining the confidentiality of customer data. All of the employees required access to some customer data in order to perform their job duties. Everyone had access to his desktop computer for e-mailing purposes, and the password was the same for everyone. He explained that the customer service contracts were maintained in the Milwaukee office, but that copies were also frequently sent to the Schaumburg office by e-mail, fax, and regular mail. They were not kept in a specific place. Rather, Donati stated that he tried to give them to the employee that would be presenting the contract. Sometimes he kept a copy for himself on his desk. He further testified that the only information maintained in the file cabinets was ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.