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YCA, LLC v. BERRY

May 6, 2004.

YCA, LLC, Plaintiff,
v.
KEVIN J. BERRY, Defendant



The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff YCA, LLC (hereinafter, "YCA") filed a seven-count complaint against one of its former employees, Defendant Kevin Berry (hereinafter, "Berry"). Counts I, II and III of YCA's complaint allege that Berry breached duties of non-solicitation, non-recruitrnent and non-disclosure he agreed to as part of a restrictive covenant he signed when he commenced work as a consultant for YCA. Counts IV and V allege that, primarily through this breach, Berry tortiously interfered with YCA's business and violated his duty of loyalty to YCA. Counts VI and VII request that the Court enjoin Berry from continuing his alleged conduct, and request that the Court award it attorneys' fees for the course of this action.

I. BACKGROUND

  YCA, and its predecessor, Young, Clark & Associates, Inc. (hereinafter, "Young Clark"), earn revenue by training its clients how to use Microsoft's Project and Primavera software. Primarily, YCA "consults" by conducting training classes, in which YCA instructors teach a client's employees how to use this software. YCA also provides its clients with YCA-developed software utilities specially designed to service that client's particular need. Over the years, YCA claims that it has developed unique consulting processes, methods, and techniques called "skill blocks" which it teaches its hired consultants. YCA also has developed confidential marketing skills and techniques to lure and retain clients.

  In 1997, Young Clark retained Berry to serve as one of its consultants. Young Clark insisted that Berry sign a "Confidentiality/Non-Disclosure/Restrictive Covenants Agreement" in consideration of his work for YCA. This agreement barred Berry from disclosing any of YCA's confidential information while associated with YCA, and for two years thereafter. The agreement stated that confidential information includes, but is not limited to:
. . . project management training and consulting techniques, project management software development processes, project management charts, tables, graphs and forms, computer programs and documentation, customer or supplier lists and information, pricing information, marketing and distribution plans, dealing lists and financial information concerning the business affairs of YCA.
  The agreement also imposed two restrictive covenants on Berry, which bar him from recruiting YCA employees and soliciting YCA customers. In its terms, the covenant of non-recruitment states that during Berry's tenure with YCA and for two years thereafter, he shall not:
 
. . . directly or indirectly by assisting others, recruit or hire, or attempt to recruit or hire, any other associate of YCA, or induce or attempt to induce any associate of YCA to terminate association with YCA.
  The covenant of non-solicitation contains narrower language, barring Berry only from soliciting (within two years of ending his employment):
 
. . . any of YCA's customers, including actively sought prospective customers, with whom you have had material contact during your association for purposes of providing products or services that are competitive with YCA; [sic] Provided that "material contact is agreed to exist between you and each customer or potential customer: (i) with whom you have dealt; (ii) whose dealing with YCA were coordinated or supervised by you; or (iii) about whom YCA obtained confidential information in the ordinary course of business as a result of your association with YCA; [sic] Provided further that the geographic scope of this nonsolicitation of customers restrictive covenant shall be coextensive with those political subdivisions . . . where YCA does business."
  During the course of his relationship with Young Clark/YCA, Berry spent approximately 90% of his time working on projects for Caterpillar Inc. (hereinafter, "CAT"). Out of roughly 200 worldwide CAT facilities, Berry worked for CAT Financial Services (hereinafter, "FS"), CAT Lafayette Engine Center (hereinafter, "LEC"), and the CAT More Electric Initiative (hereinafter, "MEI"). Berry also performed work for CB Richard Ellis and Alliance Energy Inc.

  In November 1998, Young Clark sold itself to ProfitSource Corporation, and became a wholly-owned subsidiary of ProfitSource. The 1998 stock-purchase agreement specified that all employee restrictive covenants remained binding and enforceable. In 2000, Young Clark's former owner Alden P. Young formed YCA and purchased all of Young Clark's assets from ProfitSource. Section 1.1(b) of the Asset Purchase Agreement defined as an asset transferred from Young Clark to YCA "all of Young Clark & Associates, Inc.'s right, title and interest under its contracts, which for purposes hereof, shall mean all . . . restrictive covenants described in Section 3.10." However, § 3.10 on its face appears to release these covenants, stating that "Young Clark & Associates, Inc. [and Shareholder] hereby release and extinguish the restrictive covenants applicable to . . . all employees of Young Clark and Associates, Inc. who become employees of YCA, Inc." Berry contends that this Asset Purchase Agreement released all of the restrictive covenants binding him to Young Clark/YCA. YCA disagrees, noting that, in a related matter, a Georgia court has already held that the Asset Purchase Agreement merely extinguished Young Clark's rights under the restrictive covenant, and transferred said rights as assets to YCA. Sometime between October and December in 2002, Berry began discussing a plan to leave YCA and start a rival consulting firm with fellow employees Thomas Stevens ("Stevens") and William M. Wilson ("Wilson")-Between December 2 and December 9, 2002, Stevens and Wilson entrusted Berry with finalizing a 3-year cash flow projection and developing a competitive advantage statement, business plan, travel and expense form, billing forms, and local press releases. Berry used his YCA computer to create the travel and expense form, using a YCA form as a template. Berry also met with Stevens, Steven's wife, and Wilson on December 16 to strategically plan their new company. Berry also planned all-day meetings with them on December 21 and 22, although it is not certain that those meetings actually took place. During these conducted and planned meetings, Berry and his partners orchestrated everything from their new company's pricing strategy to its competitive advantages. The planned discussions also included identifying "high" and "medium" probability clients for their new company. On January 6, 2003, Stevens resigned from YCA. On January 7, Stevens formally created PMAlliance, a new company that would specialize in precisely the same business as YCA. On January 14 and January 30, respectively, Wilson and Berry announced their resignations, and subsequently joined PMAlliance.

  At the same time Berry was meeting with Stevens and Wilson to plan PMAlliance, he served on the Marketing Team of YCA. This team, which included just eight YCA officers, communicated via telephone and e-mail several times per month to formulate YCA's strategies for obtaining and retaining clients. Following Stevens' resignation on January 6, 2003, YCA asked Berry if he planned on joining Stevens at PMAlliance, so as to ascertain whether YCA should remove him from the Marketing Team. Berry informed YCA that he had no plans to leave YCA. This allowed Berry to remain on the team until he announced his own resignation on January 31, 2003. Between the time of Stevens' resignation and his own, Berry used his YCA telephone to call Wilson and Stevens, presumably to help plan PMAlliance.

  In February 2003, shortly before his resignation from YCA became effective, Berry had dinner alone with YCA consultant Crissy Blanton ("Blanton"). Berry also had discussions with YCA consultant Bill Bordiuk ("Bordiuk") about designing computer software for PMAlliance. Bordiuk eventually left YCA to join PMAlliance.

  Upon resigning from YCA, Berry became Executive Vice President of PMAlliance, where he assumed responsibility for PMAlliance's marketing efforts. Over the next few months, Berry phoned and/or e-mailed several CAT officials whom he met while working for YCA. For example, Berry called CAT FS officer Jack Sollner ("Sollner") twenty-nine times between February and June 2003. Over the course of these discussions with Sollner and others, Berry succeeded in winning several consulting contracts with CAT for PMAlliance. Berry contends that he never solicited work from any of these individuals. Rather, Berry insists that the CAT officers solicited him for work. YCA disputes this assertion, a material fact that the Court relies on below in precluding summary judgment.

  Additionally, Berry retained more than 1,000 pages of documents he accumulated while working for YCA, and brought these documents over to PMAlliance. Among other things, Berry kept 19 of YCA's Itemization of Client Services forms spanning nine months of YCA billings in 2002 containing client-sensitive price information and client-contact information, YCA expense information related to specific clients, and YCA client files, includes more than 1,000 pages of status memos, program files, report packages, meeting notes etc., regarding projects Berry had worked on during his employment with YCA. Berry acknowledges keeping these documents, but contends that they are contractually the property of CAT, not YCA.

  II. DISCUSSION

 A. Possible Extinguishment of the Restrictive Covenants

 Berry argues that the Asset Purchase Agreement in 2000 extinguished all of his obligations under the restrictive covenants.

  Berry raises this argument both to support his summary judgment claim, and as the basis for his counterclaim that YCA breached its contractual obligations to him as an alleged third-party beneficiary of the Asset Purchase Agreement. Since such a possible extinguishment would render moot the rest of the pending issues, the Court addresses it first.

  Section 10.6 of the Asset Purchase Agreement ("Entire Agreement; No Third Party Beneficiaries") states that "except for any additional agreements contemplated hereby and referenced herein, this Agreement . . . is not intended to confer upon any person other than Seller and Purchaser, any rights or remedies hereunder." Berry contends that he qualifies as a third-party beneficiary under § 10.6's "except for" clause. Berry notes that §§ 3.10, 8.4, 9.2 and 9.3 of the Asset Purchase Agreement appear on their surface to denote certain benefits to "all employees of Seller who became employees of Purchaser," a class that includes him. Section 3.10 states that "Seller and Shareholder [Young Clark and Profitsource] hereby release and extinguish the restrictive covenants applicable to . . . all employees of Seller who become employees of Purchaser." Sections 9.2 and 9.3 release these restrictive covenants in the event that a bankruptcy or cancellation interrupts finalization of the Asset Purchase Agreement. Although no such bankruptcy or cancellation took place, Berry asks the Court to consider them as evidence of the contracting parties' intent. Lastly, § 8.4 states that all employees shall "enter into such agreements with Seller necessary to terminate any and all prior employment agreements between such employees and Seller."

  YCA disagrees that the Asset Purchase Agreement bestows any rights to Berry as a third-party beneficiary. YCA notes that § 1.1(b) of the Asset Purchase Agreement defines as an "asset" transferred to Purchaser YCA "rights of the Seller, Shareholder and EPS Solutions Corporation under the restrictive covenants described in Section 3.10." YCA thus argues that the true intent of § 3.10 is to release solely Young Clark's rights under the restrictive covenants, so as to avoid the "vulnerability of [the] assignee to competing claims." E. Allan Farnsworth, Contracts, § 11.9, pp. 817-823 (2d Ed. 1990). After all, YCA contends, it would be illogical for a contract to transfer a right to a purchaser, while simultaneously extinguishing that right.

  In related litigation concerning Berry's business partner Stevens, a Georgia state court ruled that Stevens' restrictive covenants remained enforceable despite the Asset Purchase Agreement. The Georgia court rioted:

  It would have made no sense for the parties to the Asset Purchase Agreement to define the restrictive covenants as `assets' or for YCA, LLC to purchase them — if YCA, LLC could not enforce them. Accordingly, when Sections 1.1(b) and 3.10 are read together, and each section is given meaning, it is clear that the parties intended for YCA, LLC to acquire Young, Clark & Associates, Inc.'s right in the restrictive covenants at issue, and for Young, Clark & Associates, Inc. to release it [sic] rights in the same. Thomas P. Stevens and PM Alliance v. YCA, LLC and Alden P. Young, Case No. 03-A-00354-4 (Superior Court of Gwinnet County, Georgia 2003).

  The Georgia court's decision does not control this Court's ruling here. Nevertheless, this Court finds its reasoning persuasive. This is particularly true in light of the general presumption under Illinois law that parties contract only for their own benefit. Federal Ins. Co. v. Turner Const. Co., 660 N.E.2d 127, 132 (App. Ct. Ill. 1995). Therefore, the Court finds that § 3.10 grants Berry no third-party rights under the contract and that. Consequently, he remains bound to the restrictive covenants he signed, to the extent the Court can enforce those covenants under Illinois law.

  Similarly, Berry's argument that he constitutes a third-party beneficiary under § 8.4's release of employment contracts does not hold water. As seen in §§ 1.1(b), 3.10, 9.2, and 9.3, the contract distinguishes between the terms "employment contract" and "restrictive covenants." Therefore, the contract's plain language indicates that § 8.4 does not release Berry from "Confidentiality/Non-Disclosure/Restrictive Covenants Agreement" he signed. Therefore, the Court grants YCA's motion for summary judgment as to Berry's counterclaims. B. Berry's Motion to Strike Testimony of Robert Mandall

  Berry has moved to strike the testimony of YCA's computer expert Mandall, who recovered a plethora of deleted documents from Berry's old YCA computer. Berry contends that YCA failed to disclose Mandall by the required discovery cut-off deadline of December 23, 2003. Berry also argues that YCA deliberately withheld Mandall's name from its interrogatory and document production responses, which was filed after the close of discovery by agreement of the parties. Berry notes that, in YCA's January 13, 2003 responses to his interrogatories 1, 2, 5, and 6, YCA denied having anyone work on Berry's computer, and denied using any expert witnesses at all. Similarly, Berry points out that in YCA's January 23, 2003 responses to a document production request, YCA stated that while it would produce documents recovered from Berry's YCA computer, "to date, none exist." Berry believes that YCA's subsequent disclosure of. Mandall in its response to Berry's summary judgment motion violates Rules 26(a)(2)(B) and 37(c)(1) of the Federal Rules of Civil Procedure. This prejudiced Berry, as Berry prepared his summary judgment motion without full knowledge of YCA's case against him. As a sanction, Berry asks the Court to strike Mandall's declaration, and the documents he recovered from the computer.

  The Court need not address whether YCA violated discovery rules, as it finds that any such delay was justified. YCA submitted the above discovery responses in light of Berry's deposition testimony during July and August 2003. In that testimony, Berry stated that he had no contact with Stevens regarding the formation of PMAlliance other than an e-mail exchange regarding a projected cash-flow statement. Berry stated that this exchange took place on either his AOL or Yahoo account. Therefore, based on Berry's sworn deposition testimony, YCA had no reason to suspect that Berry's YCA computer would contain discoverable information. Indeed, such a search ...


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