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UNISOURCE WORLDWIDE, INC. v. CARRARA

February 19, 2003

UNISOURCE WORLDWIDE, INC., PLAINTIFF,
V.
CHESTER D. CARRARA, RICHARD W. MCCORMICK, MICHAEL J. MCCORMICK, DANIEL J. CADY, DAVID M. SCHAIDLE, PAUL F. HETMAN, JEFFREY W. LICHTENBERGER, AND BRENDA L. BAKER, DEFENDANTS.



The opinion of the court was delivered by: Mihm, District Judge.

  ORDER

Plaintiff Unisource Worldwide, Inc. (Unisource) has sought a preliminary injunction in this case to prevent the Defendants from breaching their covenants not to compete with Unisource and disclosing Unisource's trade secrets and confidential information.

A preliminary injunction is warranted if the movant can demonstrate: (1) a reasonable likelihood of success on the merits, (2) no adequate remedy at law, (3) irreparable harm if preliminary relief is denied that outweighs the irreparable harm the nonmoving party will suffer if the injunction is granted, and (4) public interest. Mil-Mar Shoe Co., Inc. v. Shonac Corp., 75 F.3d 1153, 1156 (7th Cir. 1996).

The Court finds that Unisource has not established a reasonable likelihood of success on the merits. Therefore, the other factors are moot, and the Motion for a Preliminary Injunction [#3-2] is DENIED, and the Temporary Restraining Order previously entered by the Court is dissolved.

Background

Unisource is a national distributor of printing and imaging papers, packaging, and facility supplies and equipment with over two hundred locations. It operates a sales facility in Morton, Illinois, and a customer service facility in St. Louis, Missouri.

The printing and paper products sales business is intensely competitive. Many companies offer products and services similar to Unisource. Unisource relies upon its sales force to provide face-to-face service to its customers before and after the sale. Unisource's sales representatives and customer service employees develop personal acquaintances with Unisource's current and prospective customers. The sales representatives analyze the customers' unique printing and paper needs, and tailor their services to solve each individual customers needs.

Defendants Chester Carrara (Carrara), Richard McCormick, and Michael McCormick were Unisource sales representatives employed at Unisource's Morton, Illinois facility. Their duties included soliciting existing and prospective Unisource customers to determine their needs, generating new sales opportunities, tracking customer purchasing over time to anticipate customers' future requirements, and following up with customers after sales.

Defendants David Schaidle (Schaidle) and Daniel Cady (Cady) were Unisource customer service employees operating out of Unisource's St. Louis, Missouri facility. They were responsible for executing orders generated by Unisource's sales representatives. Unisource customers frequently call customer service employees directly with their paper and printing needs.

Defendant Jeffrey Lichtenberger (Lichtenberger) was a Unisource product specialist operating out of Unisource's St. Louis, Missouri, facility. He was responsible for dealing with the vendors from whom Unisource purchased many of its products.

Defendant Paul Hetman (Hetman) was a Unisource packaging equipment technician operating out of Unisource's Morton, Illinois, facility. His primary responsibility was to visit Unisource customers to ensure that their Unisource products were functioning properly.

Finally, Defendant Brenda Baker (Baker) was a Unisource administrative assistant at Unisource's Morton, Illinois, facility. She assisted Carrara and others.

Baker resigned from Unisource effective December 20, 2002. Carrara, Richard McCormick, and Michael McCormick resigned from Unisource effective December 31, 2002. Cady and Schaidle resigned from Unisource effective January 3, 2003. Each of these Defendants subsequently commenced working for Midland Paper Company — a competitor of Unisource in Bloomington, Illinois — where at least some of the Defendants, including Carrara, Michael McCormick, and possibly Richard McCormick, began soliciting and calling upon customers they had worked with while employed at Unisource.

Each of the Defendants had signed employment agreements with Unisource. Four contained covenants not to compete. All eight contained provisions restricting disclosure of Unisource' confidential information. Two contained provisions prohibiting the Defendants from soliciting or hiring Unisource employees.

Unisource asserts that the Defendants' conduct is in breach of their respective employment contracts. Unisource also argues that all eight of the Defendants were privy to confidential information and trade secrets while employed at Unisource, which they are now misappropriating to obtain the business of Unisource's former customers.

On January 21, 2003, this Court entered a temporary restraining order prohibiting the Defendants from soliciting business or taking new orders from certain customers. On February 11-12, 2003, the Court held a preliminary injunction hearing. This Order follows.

Discussion

I. Defendants' Employment Contracts with Unisource

A. Choice of Law

The parties agree that Illinois law governs the contracts with Carrara, Richard McCormick, David Schaidle, Daniel Cady, Jeff Lichtenberger, and Paul Hetman. The parties agree that Missouri law governs the contract with Michael McCormick. Finally, the parties agree that Georgia law governs the contract with Baker.

B. Assignability

Carrara and Michael McCormick each had an employment contract with a company called Distribix, which subsequently merged with Unisource. They argue that their contracts with Distribix were never assigned to Unisource, and therefore that Unisource cannot enforce them.

The Court adopts the rationale regarding this issue applied in AutoMed Techs, Inc. v. Eller, 160 F. Supp.2d 915, 924 (N.D. Ill. 2001). In that case, Judge Moran noted that, since courts scrutinize restrictive covenants closely and will uphold them only to the extent they are reasonable and necessary to protect an employer's legitimate business interest, an employee will not be prejudiced by having the contract assigned to a successor business.

Carrara and Michael McCormick are primarily concerned with the fact that Unisource has a vastly greater number of product lines and locations than Distribix had, which would impose much greater limitations on their freedom to compete under the terms of their contracts.*fn1 Because this Court will only uphold the provisions to the extent they are reasonable and necessary, however, Carrara's and Michael McCormick's concern is adequately addressed.

Furthermore, where an employment contract is silent on this issue — as Carrara's and Michael McCormick's are — courts generally find that an acquiring corporation can enforce the acquired company's restrictive covenants. See Hexacombe Corp. v. GTW Enters, 875 F. Supp. 457, 464 (N.D. Ill. 1993). Therefore, the Court finds that Unisource can enforce Carrara's and Michael McCormick's contracts with Distribix.

C. Enforceability of Covenants Not to Compete

The employment agreements of four Defendants — Carrara, Richard McCormick, Michael McCormick, and Hetman — contain covenants not to compete. As a general rule, restrictive covenants must be reasonable in terms of time and scope in order to be enforceable. Eichmann v. Nat'l Hosp. and Health Care Servs. Inc., 719 N.E.2d 1141, 1148 (Ill.App. Ct. 1999); Schmersahl, Treloar & Co. v. McHugh, 28 S.W.3d 345, 349 (Mo. Ct. App. 2000). Furthermore, the essential terms of a contract must be intelligible. Anderson v. Fel-Pro Chem. Prods., 1996 U.S. Dist. LEXIS 19551, *20-*21 (N.D. Ill. 1997); see ...


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