The opinion of the court was delivered by: Morton Denlow, United States Magistrate Judge.
MEMORANDUM OPINION AND ORDER
This case involves a breach of loyalty and theft of valuable trade secrets by a highly paid consultant to a small family business engaged in the sale of olive oil. Defendants vigorously defended this case until shortly before trial at which time their counsel withdrew. Defendants failed to appear at trial. The reason for their failure to appear is clear. They stole an important business opportunity from Plaintiff, misappropriated Defendants' valuable trade secrets for their own financial gain, and they do not wish to face the consequences.
The Court conducted a bench trial on February 24-25, 2003 in connection with the complaint brought by Plaintiff, Lucini Italia Company ("Lucini" or "Plaintiff") alleging that Defendants Giuseppe Grappolini ("Mr. Grappolini") and Grappolini G. s.r.l. ("Grappolini Company") (collectively "Defendants"), seized an exclusive contract with a key supplier for their own benefit and began marketing a new product by means of misappropriating trade secrets from Plaintiff. The Court has carefully considered the testimony of the three witnesses who appeared at trial, the witnesses who appeared through depositions, the Plaintiff's trial exhibits, the Plaintiff's written submissions and arguments.
The following constitute the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure. To the extent certain findings may be deemed conclusions of law, they shall also be considered conclusions. Similarly, to the extent matters contained in the conclusions of law may be deemed findings of fact, they shall also be considered findings.
1. Lucini alleges that Defendants promised to obtain an exclusive contract with a key supplier, Vegetal Progress ("Vegetal"), but instead signed Vegetal to an exclusive contract with defendant Grappolini G. s.r.l. Lucini claims that after usurping Lucini's business opportunity with Vegetal, Defendants began marketing a new olive oil product substantially similar to the one Lucini had planned to market after securing the supply contract. In developing, producing, packaging, and marketing this new product, Defendants are accused of using trade secrets misappropriated from Lucini. Following Lucini' s discovery of Defendants' activities, Lucini terminated its relationship with Defendants and pulled out of negotiations over a more expanded relationship. The parties dispute whether Lucini had good cause to terminate the contracts. At trial, Lucini asserted five causes of action: (1) breach of fiduciary duty; (2) fraud; (3) promissory estoppel; (4) violation of the Illinois Trade Secret Act, 765 ILCS 1065/1 et seq.; and (5) declaratory judgment. Lucini had earlier asserted two other alternative legal theories for recovery, constructive fraud and unjust enrichment, but elected to withdraw these without prejudice at the time of trial.
2. Plaintiff Lucini was an Illinois corporation at the time this action was filed and has since reincorporated in Florida. Plaintiffs principal place of business was in Chicago, Illinois at the time the lawsuit was filed. Lucini imports and sells premium extra virgin olive oil and other products of Italy. It was formed (under its former name, IGOPLX Incorporated) by Arthur Frigo, a Chicago entrepreneur and adjunct professor of management and strategy at Northwestern University's Kellogg Graduate School of Management. The Court will refer to Plaintiff by its current name, Lucini, even though it was named IGOPLX in its early years. Mr. Frigo is the Chairman of the Board of Lucini. The company's CEO is Mr. Frigo's daughter, Renee Frigo, and its President is Renee Frigo's husband, Daniel Graeff. Arthur Frigo, Renee Frigo, and Daniel Graeff testified in person at trial and their testimony was credible and consistent with the documentary evidence.
3. Defendant Giuseppe Grappolini is a resident of Loro Ciuffenna, Italy. Mr. Grappolini sewed as a consultant to Lucini pursuant to a Consulting Contract dated December 22, 1997. (Px 17). Under the Consulting Contract, Mr. Grappolini worked on behalf of Lucini to develop Lucini Premium Select extra virgin olive oil as well as to develop a number of flavored olive oil products utilizing essential oils. Defendant Grappolini G. s.r.l. (the "Grappolini Company") is an Italian limited liability company, with its principal place of business in Arezzo, Italy. Mr. Grappolini is the sole owner and operator of the Grappolini Company. The Grappolini Company distributes small volumes of extra-virgin olive oil in Chicago and other markets throughout the United States, and larger volumes in Europe. Between December 1997 and June 2000, the Grappolini Company sewed as Lucini's supplier of extra virgin olive oil pursuant to a December 1997 Supply Agreement.
4. Both Defendants appeared in this case through Chicago counsel and actively participated in motion practice and discovery. They gave limited deposition testimony, but Giuseppe Grappolini and the Grappolini Company's bookkeeper, Morena Botti, refused to sit for continuations of their depositions ordered by this Court. Defendants' counsel was permitted to withdraw shortly after the close of discovery. Neither Defendants nor any counsel representing them appeared at the pretrial conference or at trial, although notice was sent directly to Defendants. Prior to trial, Defendants sent a letter to the Court indicating that they would not attend the trial or be represented. The Court draws an adverse inference by reason of Defendants' failure to appear at trial to rebut statements attributed to them or to explain, under oath, their position on key events. Although defendants did not appear, Lucini offered deposition designations from the depositions of (i) Giuseppe Grappolini, appearing individually and as a 30(b)(6) representative of the Grappolini Company, (ii) Morena Botti, the bookkeeper from the Grappolini Company, and (iii) Marco Milandri, the former assistant to Mr. Grappolini. (Px 301-303). Defendants' deposition testimony supports several elements of Lucini's claims.
C. Background of the Relationship Between Lucini and Defendants
5. Arthur Frigo is an experienced self-made businessman who began his business career working as a youth in his father's Italian food store. Following college and a brief attempt as a pool table designer, he enjoyed a successful business career as a sales engineer, a management consultant and the operator and owner of a consumer products company which he eventually sold. Mr. Frigo formed Lucini in 1996. Lucini's first project was Italian premium select extra-virgin olive oil. After performing an initial category analysis and select market research, Mr. Frigo perceived a lucrative, high-end niche market for the olive oil. Along with Renee Frigo and Daniel Graeff, Mr. Frigo developed a plan to fill the niche. The success of the company and its product was to be based on extensive research and development and a substantial investment in advertising, packaging and targeted marketing, and a high-quality product. Because the olive oil market is highly competitive, Lucini felt it was essential that Lucini's product have an appearance designed to attract customer interest even in a supermarket full of divergent olive oil products. It was equally important to have a superior olive oil so that the customer would return to buy more.
6. While Lucini was searching for a supplier of high quality extra virgin olive oil in Italy, it began market research in the United States including: product names, bottle shapes and sizes, and marketing approaches. Lucini's intention was to leave nothing to chance, testing every aspect of its products with focus groups and consumer trials before launching its products nationally. Before Mr. Grappolini agreed to be Lucini's consultant, Lucini had spent in excess of $300,000 researching and laying the groundwork for its future products.
7. After Lucini's representatives investigated and met with many potential olive oil suppliers and consultants, Lucini's officers focused on Giuseppe Grappolini and his company. On June 1, 1997, Mr. Grappolini entered into a non-disclosure agreement with Lucini. (Px 15). Lucini then shared with Mr. Grappolini many of the details of its ongoing research and solicited from Mr. Grappolini his views on the direction Lucini's initial product should take. Lucini believed Grappolini shared its goals to develop high quality Italian olive oil products.
8. Working closely with Defendants, Lucini sought to develop a distinctive extra virgin olive oil that would become its signature product and sell in the range of $10-$12 per bottle at retail. Arthur Frigo, Renee Frigo and Daniel Graeff tasted numerous different blends of extra virgin olive oils before pinpointing a flavor profile that they and Grappolini agreed would be exceptional and likely to appeal to Lucini's target audience in the United States and around the world. The resulting olive oil had a deep green color, unique taste, medium body, acidity of less than 0.4%, and a variety of other trade secret chemical-analytical characteristics. Because the flavor of an olive oil is impacted by such factors as the types of olives used, the soil content, weather, climate, method of picking the olives, the ripeness of the olive when picked, method of pressing, the time between harvest and bottling, and its exposure to light and air, the exact techniques Lucini developed and uses to produce a consistent product from year to year are also secret. The difficulty in reproducing Lucini's olive oil by persons not versed in Lucini's trade secrets is evidenced by the fact that experienced olive oil purveyors and cultivators — who were solicited to replace the Grappolini Company after the Supply Contract was terminated — could not recreate Lucini Premium Select until Lucini disclosed its methodology and techniques.
9. After forming a friendship with Mr. Grappolini and developing a respect for his ability to taste olive oil, the Frigos and Graeff chose Grappolini and his company to become their primary consultant and supplier. On December 22, 1997, Lucini entered into an Extra-Virgin Olive Oil Supply Agreement with the Grappolini Company and a Consulting Agreement with Grappolini. In these agreements, Defendants acknowledged the valuable and confidential nature of Lucini's customer information, product development plans, marketing plans and strategies, and design products. Grappolini was generously compensated for his consulting efforts on Lucini's behalf. Lucini paid him $12,500 per month in November and December of 1997, $12,500 per month in 1998, $15,000 per month in 1999, and $16,500 per month in 2000 until termination in June 2000. Apart from the hundreds of thousands of dollars in consulting fees paid to Grappolini, Lucini also reimbursed him for all of his travel and related expenses. Lucini also paid the Grappolini Company for the oil it supplied. In respectively becoming Lucini's consultant and supplier, Grappolini and the Grappolini Company entered into an agency relationship with Lucini, the principal.
10. To succeed and distinguish their company in the market, the Frigos created Lucini as a distinctive brand, and also "branded" Grappolini — spending substantial time and money promoting and marketing Giuseppe Grappolini as an olive oil expert and dubbing him a "master cultivator" in its literature, commercials, and in person at speaking engagements with food sector experts. Lucini paid for Grappolini to take courses to make him a better public speaker. He became Lucini's public face. In exchange, Lucini insisted on exclusive rights and confidentiality.
11. At great expense, Lucini also commissioned marketing firms using psychological research techniques to create a marketing plan to target both emotional and intellectual responses from consumers. Lucini engaged in traditional and non-traditional advertising and promotion and refined its marketing message. Lucini shared the results of its extensive research as well as its business plans with Defendants; it did not disclose its plans or the results of its studies with anyone who was not working for Lucini or subject to a confidentiality agreement. In total, Lucini spent more than a million dollars in research and development and other expenses before selling its first bottle of olive oil.
12. After making its first sale of its Lucini Premium Select product in August 1998, Lucini worked to create a brand identity and market the product into the specialty and grocery stores it had targeted. Lucini's efforts paid off. According to A.C. Nielsen's Olive Oil Item Rating Report, in less than five years, Lucini has become the number three (of 40) selling brand of premium olive oil in the United States.
13. In early 1998, Lucini and Grappolini discussed adding a line of extra virgin olive oils blended with "essential oils" (i.e., natural extracts such as lemon or garlic). Grappolini agreed to be primarily responsible for the food-related study (taste, smell) of the new products, and Lucini agreed to be responsible for the advertising, distribution, and marketing. They termed the project the "LEO Project," which stands for Lucini Essential Oils.
14. Lucini extensively researched the potential market for natural extract premium olive oil products by empaneling focus groups and commissioning other studies. These studies analyzed all elements of packaging, product positioning, label colors, label textures, language and titles. In March of 1998, Lucini received a very strong positive response to the products and was eager to move quickly to develop and market this new product.
15. In a March 11, 1998 letter to Mr. Frigo, Grappolini enthused that he was "really happy to hear that you received a strong interest in the essential oil . . . I know that Renee [Frigo] and Daniel [Graeff] told you how much I desire to put my energy in this project." (Px 43).
16. Grappolini ostensibly did put his energy into the LEO project. He attended meetings in Chicago concerning the LEO project in the summer of 1998. Grappolini told the Frigos about the "only" company in Italy that could supply Lucini with the quantity and quality of natural essential oils Lucini would need. This company, Vegetal-Progress s.r.l. ("Vegetal"), was run by the Perotti family. Subsequently, Lucini did its own extensive research looking for an alternative supplier of essential oils, but could find no company in Italy other than Vegetal that was capable of producing the superior product Lucini sought and the variety of flavors needed.
E. Lucini's Efforts To Obtain an Exclusive Supply Agreement With Vegetal
17. In the summer of 1998 Lucini asked Grappolini to approach Vegetal on Lucini's behalf and propose an exclusive worldwide supply arrangement. Although Grappolini told Renee Frigo that he did not believe Vegetal would ever consider an exclusive arrangement with anyone, he agreed to ask Vegetal for an exclusive contract on Lucini's behalf Lucini explained that it could make the capital commitment necessary to finance the LEO project only if it knew that Vegetal had agreed to an exclusive relationship for the supply of its essential oils for use in the olive oil industry. Lucini explained to Grappolini that exclusivity was crucial for the LEO project. Lucini could not justify the start-up costs necessary to bring this new and unique product to market and to create consumer demand if, after Lucini had succeeded in creating the demand for the product, the Perottis were free to switch their supply of essential oils to one of Lucini's competitors. Lucini did not seek to limit Vegetal from supplying its essential oils to other industries such as perfumes and cosmetics.
18. In the summer of 1998, Grappolini reported back to Lucini that he had a very positive response from his meeting with the Perottis. He stated that Vegetal was uniquely equipped — from technical and quality standpoints — for the LEO project. On August 8, 1998, he further reported that the Perottis "will work with us exclusively and are ready to sign a contract stating as much." (Px 61). Renee Frigo told Grappolini to have the Perottis send them a contract they had used in the past, and they would work with it.
F. Grappolini Misleads Lucini About the Status of the Vegetal Negotiations
19. Grappolini attended a meeting in Chicago in December 1998 to further discuss and plan the LEO project. In addition, Grappolini regularly communicated by telephone and fax with Lucini as the project moved forward. Lucini spent hundreds of thousands of dollars testing flavors, designing labels and packaging, creating recipes for the new products, determining a pricing strategy, selecting the types of essential oil products that would be best sold in grocery stores, speciality stores, and to those in the food service industry, and testing everything in focus groups. As it had with Lucini Premium Select, Lucini shared its results with Defendants and regularly included Mr Grappolini in high level discussions of strategy and plans. Lucini included Grappolini in meetings to discuss feedback regarding its products from world-renowned chef Charlie Trotter (whose company signed a non-disclosure agreement). Chef Trotter advised Lucini on potential flavor possibilities for the LEO products for the line of products Lucini intended to market to the food service industry (the chefs line) as well as for the lines of products Lucini intended to market in specialty stores (the gourmet line) and grocery stores (the grocery line).
20. In December 1998, Grappolini wrote to Arthur Frigo, Renee Frigo, and Daniel Graeff that Vegetal wanted Lucini to provide a draft "world exclusive" contract as soon as possible. (Px 72). The same day, Lucini wrote back that it would begin to draft an agreement. (Px 73). On February 24, 1999, Renee Frigo wrote to Marco Milandri, Grappolini's assistant, stating, "We are ready with the essential oil agreement for Mr. P . . . family's company. Let me know if Mr. Grappolini would like it sent to him to give to Mr. P or if he would like us to fax it directly." (Px 76). Mr. Milandri wrote back that Grappolini would prefer to personally deliver the agreement to the Perottis because he has the relationship with Mr. P. (Px 77). Mr. Milandri testified that Mr. Grappolini had specifically directed him to make this response. (Px 302, pgs. 145-46). Later that day, Renee Frigo faxed a draft agreement to Mr. Grappolini with the cover note: "I have attached the Essential Oil Agreement for you to present on Lucini behalf to Mr. Perotti." (Px 78). The attached supply agreement described a worldwide exclusive supply arrangement between Vegetal and Lucini. Id.
21. After February 1999, Mr. Grappolini indicated to Lucini that he had presented the contract to Vegetal and stated, on numerous occasions, that it was only a matter of time before he would have the supply contract signed by Vegetal. He indicated that any delays were due to Vegetal's need to run the proposed agreement past its French parent company. Mr. Grappolini's representations to Lucini were not true. At his deposition, Mr. Grappolini admitted that Lucini had asked him to present the contract to Vegetal, that he had never done so, and that he never told Lucini of his failure to transmit the contract. (Px 303, pgs. 23-27).
22. In May of 1999, Arthur Frigo, Renee Frigo, Daniel Graeff, and Grappolini met with the Perottis. Before the meeting, Grappolini cautioned the Frigos not to mention the proposed supply agreement with Vegetal. He stated that since it was their first meeting, the Perottis would be offended by such an American and aggressive approach. Grappolini reassured the Frigos that he would take care of the business issues with the Perottis. Once again, Lucini relied on Grappolini's advice. After the meeting, Giorgio Perotti wrote to Renee and Daniel, "expressing great confidence in (their] enterprise, which aim is to link to the qualities of the olive oil the numerous and suggestive qualities of the essential oils." (Px 89).
23. As time went by and Lucini spent more and more money developing its flavored oil products, Grappolini continued to reassure Lucini that he would obtain the Vegetal contract for Lucini.
24. From March to October 1999, Grappolini met nearly every month for extensive) multiple day meetings with Arthur and Renee Frigo, Daniel Graeff, and Lucini's designer, Milana Kosovac, concerning the LEO Project. During the meetings, which took place in Chicago, New York, Miami, Loro Ciuffenna, and Lake Como, as well as through confidential correspondence, the Frigos explained to Grappolini in detail Lucini's confidential and trade secret marketing and design strategies, research results and analysis concerning the LEO Project. This information included:
(a) Lucini's targeted marketing strategy for specific
(b) Lucini's research into consumer profiles in
different sales venues;
(c) Lucini's specific plans for introducing new single
flavor and combination LEO products in different
(d) Lucini's testing data and analysis of bottle,
package and label design features to determine
which elements would maximize the chances that
first . . . time customers would pick Lucini's
products off the shelf;
(e) Lucini's advertising strategy and techniques to
establish and maintain a "brand" identity and
(f) Lucini's research into consumer acceptance of
different flavors; and
(g) Lucini's pricing strategy.
25. The information and plans Lucini shared with Grappolini were not shared with anyone outside of Lucini's senior management, its designer, and Grappolini. As Lucini's designer, Ms. Kosovac had signed an agreement specifying that information shared by Lucini would remain strictly confidential. Lucini maintained its marketing, product development and design information as a closely guarded secret because it believed this information would give it a competitive advantage when it began selling LEO products, so long as it was unknown to Lucini's competitors. By the end of 1999, Lucini had spent over $800,000 developing the market information, researching packaging and sales possibilities and generating its trade secrets for the new LEO products. (Px 402).
26. Lucini's extensive expenditures preparing its LEO products for market made good business sense to Lucini based on its sales forecasts for the products. On its grocery line of LEO products, Lucini conservatively forecast sales of at least $1.2 million in its first full year; at least $2.1 million in its second full year; at least $2.5 million in its third full year, and at least $5.0 million in its fourth full year. (Px 401). Lucini anticipated profits of at least $4.17 million on the grocery line over its first four years. Lucini anticipated additional sales and profits on its gourmet and chefs lines of LEO products, but does not have contemporaneous sales forecasts for these products. Lucini's forecast are conservative, reasonable and credible. They are validated by the fact that Lucini did similar forecasts for its Lucini Premium Select product and for its vinegar products and exceeded its forecasts during the initial years the products were sold. If Lucini gains access to Vegetal essential oil or an alternative supply source immediately, it will be able to launch its products in early 2004, but not sooner, based on the fact that the olive harvest for 2003 has already concluded and Lucini cannot obtain sufficient quantities of the necessary base oil at this time to fill orders for 2003. Defendants have sold olive oil flavored with Vegetal essential oils since some time in 1999 under several different brand names but refused to disclose in discovery their total sales or profits from these products. The Court draws the inference from Defendants' refusal to disclose their actual sales experience with the product lines that Defendants' sales and profits meet or exceed those forecast by Lucini.
G. Defendants Strike Their Own Deal With Vegetal, Shutting Out Lucini.
27. In direct contravention of his representations and Lucini's reasonable expectations, Grappolini secretly negotiated an exclusive, worldwide supply contract with Vegetal for the Grappolini Company, rather than for Lucini. Grappolini never told Lucini that he was negotiating his own deal with Vegetal. The Grappolini-Vegetal agreement was signed on October 4, 1999. (Px 18 and 19). The Grappolini-Vegetal contract expressly prohibited any assignment of the contract to any third party, including Lucini. (Px 19, Art. 12).
28. After entering into his own exclusive arrangement with Vegetal, Grappolini deliberately hid that fact from Lucini. Grappolini continued to represent to Lucini that Lucini would soon have a worldwide exclusive contract with Vegetal. On October 4, 1999, the very day on which the Grappolini Company entered into its exclusive agreement with Vegetal, Renee Frigo and Daniel Graeff were in Italy to finalize details of the LEO Project. During that trip, Mr. Grappolini met with Renee Frigo and Daniel Graeff in Loro Ciuffenna to review labels for the LEO project, discuss Lucini's marketing plans, and conduct tasting. When Renee and Daniel reminded Grappolini of the importance of a direct supply agreement between Lucini and Vegetal, Grappolini responded, "Do not worry." Mr. Grappolini continued in his deception in mid-October 1999, during a day-long meeting about the LEO project, Grappolini told Arthur Frigo, "Do not worry. The Perotti agreement is going to be done in the next 30-45 days. I will have it for you. No problem. Do what you got to do." (Tr. 85). Mr. Grappolini's statements were false and intended to mislead Lucini into continuing to spend money on LEO, to continue sharing its trade secrets with Grappolini, and to continue paying Grappolini his monthly consulting fee even though he had begun to work exclusively for his own interests instead of for Lucini.
29. Because Lucini was nearing its planned launch of the LEO products at the important Fancy Food Show in San Francisco in mid-January 2000, Arthur Frigo insisted on knowing the status of the Vegetal negotiations by mid-October 1999. Mr. Frigo further reminded Grappolini that if the Lucini/Vegetal agreement was not executed within 30-45 days, then Lucini would be in serious risk of mining its credibility with its customers (some of whom had committed to purchase the product sight unseen based on Lucini's reputation). Again, Grappolini insisted that everything was on track and reassured Frigo that he should not be concerned.
30. On or about November 5, 1999, in reliance on Grappolini's reassurances and representations, Lucini placed an order for LEO products from Grappolini, to be delivered in Chicago on February 21, 2000 and delivered to Lucini's warehouse in San Francisco on February 28, 2000. Grappolini indicated that he would fill this order using Lucini Premium Select oil and essential oil that Vegetal had agreed to provide pursuant to the anticipated exclusive supply arrangement with Lucini. Lucini paid the Grappolini Company $28,000 for the essential oils in anticipation of the contract. Lucini planned to use the LEO products to fill advance customer orders it would take at the Fancy Food Show and to begin its efforts to have the products distributed to stores around the country.
H. Lucini Discovers the Truth
31. On November 9, 1999, Daniel Graeff met with Grappolini in Italy in connection with negotiations over a potential expanded role for Mr. Grappolini with Lucini as it added more product lines. Because Lucini's offer to expand Grappolini's role and nearly double his monthly compensation was explicitly contingent on securing for Lucini the worldwide exclusive contract with Vegetal, Mr. Graeff questioned Mr. Grappolini about the status of the Vegetal negotiations. Under direct questioning from Daniel Graeff, Grappolini admitted that he had already entered into an agreement with Vegetal for himself and his ...