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PACTIV CORPORATION v. MENASHA CORPORATION

May 9, 2003

PACTIV CORPORATION AN ILLINOIS CORPORATION, PLAINTIFF,
v.
MENASHA CORPORATION, A WISCONSIN CORPORATION, MENASHA PACKAGING CORPORATION, LLC, A WISCONSIN CORPORATION AND BILL BAUMGARTNER, DEFENDANTS.



The opinion of the court was delivered by: James F. Holderman, United States District Judge

MEMORANDUM OPINION AND ORDER

On March 12, 2003, plaintiff Pactiv Corporation ("Pactiv") filed its three count amended complaint against defendants Menasha Corporation, Menasha Packaging Corporation, LLC (collectively, "Menasha") and Bill Baumgartner ("Baumgartner"). Count I alleges a breach of a contact claim against Menasha for hiring Baumgartner in violation of a confidentiality agreement between Pactiv and Menasha dated April 6, 2000. Count II seeks injunctive relief and damages against Baumgartner individually and arising from an alleged breach of a December 1996 confidentiality agreement between Baumgartner and Pactiv or its predecessor. Count III seeks injunctive relief and damages for the inevitable disclosure of trade secrets by Baumgartner and other former Pactiv employees hired by Menasha. Menasha filed a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56 as to count I of the amended complaint. For the following reasons, Menasha's motion is granted.

STATEMENT OF FACTS

In April and May 2000, Menasha considered purchasing Pactiv's Glacier-Cor ("Glacier-Cor") business, a wholly owned subsidiary of Pactiv. Before Pactiv would provide Menasha with financial information regarding and access to Glacier-Cor to aid in Menasha's review of Glacier-Cor, Pactiv drafted a confidentiality agreement dated April 6, 2000 ("Agreement"), restricting Menasha's ability to use information received and to solicit or hire certain Pactiv employees for three years. The Agreement prohibited Menasha from, inter alia: (1) using the confidential information about or access to Glacier-Cor, obtained as part of its review of Glacier-Cor, for purposes other than evaluating the purchase; and (2) hiring any "restricted employee" of Pactiv. With respect to the hiring and solicitation of "restricted employees," the Agreement stated:

Without prior written consent of Pactiv neither [Menasha] nor any of [Menasha's] Representatives who are aware of any of the Evaluation Material, other Non-Disclosable Information, or the Transaction, for a three year period from the date of this agreement, will directly or indirectly, (a) solicit the employment of any Restricted Employee (as defined below), (b) hire any Restricted Employee or (c) induce any Restricted Employee to terminate his or her employment by the Company. As used herein, the term "Restricted Employee" shall refer to (a) any employee of the Company with whom [Menasha] or any of [Menasha's] Representatives have had contact or who became known to [Menasha] or any of [Menasha's] Representatives in connection with[their] review consideration of the Transaction, as well as (b) any management-level employees of Pactiv or any of its present or future direct or indirect subsidiaries, divisions or operation unites whether or not such employee is a Restricted Employee.
(Def.'s 56.1(a) Statement, ¶ 40.)

Menasha accepted and signed the Agreement. In May 2000, Pactiv provided Menasha with financial information relating to Glacier-Cor and representatives of Menasha toured the Glacier-Cor facility. That same month, Menasha decided not to purchase Glacier-Cor and informed Pactiv that all the material Menasha had received in connection with its review of Glacier-Cor had been either returned or destroyed. In July 2002, prior to the expiration of the three year period. Menasha hired Baumgartner, who at the time was the regional sales manager for Pactiv's paper honeycomb business, to become the head of Menasha's new paper honeycomb business. Menasha had not had any contact with Baumgartner in connection with its review of Glacier-Cor in 2000.

As of June 2000, Pactiv had more than 100 subsidiaries and affiliates, which were located in twenty countries: the United States, Canada, Mexico, Japan, Peoples Republic of China, United Kingdom, France, Germany, Italy, Belgium, Denmark, Hungary, Ireland, Netherlands, Poland, Romania, Spain, Sweden, Egypt, and Chile. There is no evidence in the record of exactly how many employees Pactiv had in April 2000, and how many of those were considered "management-level" employees at that time. However, it is undisputed that Pactiv's EEO-1 forms for the payroll period covering September 30, 2002, states that Pactiv had 10,543 employees in the United States, and identified 854 of these individuals as "officials and managers."

STANDARD OF REVIEW

Under Rule 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, the evidence of the nonmovant must be believed and all justifiable inferences must be drawn in the nonmovant's favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513 (1996). This court's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. A party who bears the burden of proof on a particular issue, however, may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact that requires trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553 (1986).

ANALYSIS

I. Hiring of Management-Level Employees

In count I, Pactiv alleges Menasha breached the Agreement when it hired Baumgartner in July 2002 because Baumgartner was a "management-level employee" as prohibited in the (b) definition of "restricted employee" of the Agreement. It is undisputed that Pactiv is not alleging, and has no factual basis for alleging, that Menasha has misused any confidential information it obtained in 2000 during its review of Glacier-Cor. Menasha now asserts that it is entitled to summary judgment in its favor as to count I of the amended complaint because the blanket ban on Menasha hiring or soliciting any management-level employees of Pactiv in the Agreement is void and unenforceable as a matter of law. Based upon the undisputed facts and circumstances in this case, this court agrees.

As a preliminary matter, this court finds that the "no-hire" restrictive covenant at issue here is subject to the Illinois law on the validity of restrictive covenants. Pactiv argues that the Illinois law governing restrictive covenants does not apply in this case because the covenant at issue here was entered into as part of a confidentiality agreement between Pactiv and Menasha, as opposed to a conventional non-compete covenant in an employment contract between an employer and its employee. The provision at issue in the confidentiality Agreement, however, and covenants not to compete between and employer and an employee, are both restraints on trade. Therefore, the public policy implications of these restrictive covenants are the identical. While this court recognizes that the Agreement containing the restrictive covenant at issue was an arms-length transaction entered into by two sophisticated companies, it is nonetheless subject to the same scrutiny required of restrictive covenants under Illinois law. See Freund v. E.D. & F. Mann Int.'l Inc., 199 F.3d 382, 385 (7th Cir. 1999) (holding that under Illinois law, an employer can enforce a promise by another employer not to hire away certain employees, provided the contract does not unreasonably restrain competition between the two employers, and survives the "reasonableness" scrutiny of restrictive covenants); Szabo Food Svc. Inc. v. County of Cook, 160 Ill. App.3d 845, 848, 513 N.E.2d 875 (1st Dist. 1987) (finding that the employer to employer "no-hire" provision at issue was a restrictive covenant, and such covenants are not favored by Illinois courts because of their anti-competitive effect, and are thus strictly scrutinized). Additionally, this court notes that Menasha has not, by signing and entering into the Agreement, waived its right to contest the enforceability of the provision at issue. See O'Hara v. Ahlgren, Blumenfeld and Kempster, 127 Ill.2d 333, 348, 537 N.E.2d 730 (Ill. 1989) (party to a contract that is contrary to public policy is not precluded from raising its illegality as a defense).

The question of whether a restrictive covenant is enforceable is a question of law. See Woodfield Group Inc. v. DeLisle, 295 Ill. App.3d 935, 938, 693 N.E.2d 464 (1st Dist. 1998). Prior to analyzing the reasonableness of a covenant not to compete, this court must make two determinations: (1) the covenant must be ancillary to a valid contract, that is, it must be subordinate to the contract's main purpose; and (2) there must be adequate consideration to support the covenant. See Woodfield Group Inc., 295 Ill. App.3d at 938, 693 N.E.2d 464. Because Menasha does not dispute that these two ...


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