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Exhibit Works, Inc. v. Inspired Exhibits

December 21, 2005

EXHIBIT WORKS, INC. PLAINTIFF,
v.
INSPIRED EXHIBITS, INC., ET AL. DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

On September 2, 2005, plaintiff Exhibit Works, Inc. ("Exhibit Works"), invoking this court's diversity jurisdiction, filed a five-count complaint against defendants Inspired Exhibits, Inc. ("Inspired Exhibits"), Stephen Kelke, ("Kelke"), Robin White ("White"), Lindsay Millsap ("Millsap"), and Robert Herdman ("Herdman") (collectively "defendants"), alleging breach of fiduciary duty, violation of the Illinois Trade Secret Act, intentional interference with business relations and prospective economic advantage, breach of contract and civil conspiracy in breach of fiduciary duties. (Dkt. No. 1). On September 2, 2005, Exhibit Works also filed the pending motion for a preliminary injunction. (Dkt. No. 10). Expedited discovery proceeded and opposing counsel worked professionally and cooperatively to present the matter efficiently to the court. Oral argument on Exhibit Works' motion was held on December 1, 2005. For the reasons set forth below, Exhibit Works' motion for preliminary injunction is denied.

BACKGROUND

Exhibit Works engages in the trade show exhibit and event marketing business. (Dkt. No. 1 at ¶ 3). Exhibit Works' primary office is in Livonia, Michigan but it opened a satellite office in Lisle, Illinois in 2002. (Dkt. No. 10 at ¶ 5). Exhibit Works opened its Illinois office to expand Exhibit Works' trade show business in Illinois and service its account with International Truck and Engine Corporation ("International"). (Id.) Defendants Kelke, White, Millsap and Herdman worked in Exhibit Works' Illinois office. Kelke was the general manager of the office, (Id. at ¶ 6), White was an account manager, (Id. at ¶ 7), Millisap was an account coordinator, (Id. at ¶ 8), and Herdman was the creative designer (Id. at ¶ 8).

The defendants contend that during the first part of 2005, Exhibit Works engaged in corporate restructuring which resulted in a series of missteps that made Exhibit Works less attractive to clients such as International. (Dkt. No. 18 at pg 2-3). Kelke, White and Herdman concluded that they would likely lose their jobs if International pulled its business from Exhibit Works since the Illinois office's primary focus was serving International. (Id. at pg 3). The defendants assert that they decided during 2005 to "create a new company shell, provide two weeks' notice [to Exhibit Works], aid in the orderly turnover of accounts and information within [Exhibit Works], leave [Exhibit Works], and commence operations as a new company with the hope that trade show exhibitors would consider them qualified and provide business." (Id.)

The defendants state that they had hoped to start their new business, Inspired Exhibits, over the 2005 Labor Day weekend. However, on the evening of August 17, 2005 via an email sent by an International employee, Exhibit Works became aware of defendants' plan to create Inspired Exhibits. (Dkt. No. 10 at ¶ 12-15). The next day, August 18th, Exhibit Works fired Kelke, White, Millsap and Herdman. (Id. at ¶ 16). International also notified Exhibit Works on August 18th that it was terminating its relationship with Exhibit Works. (Id. at ¶ 18).

LEGAL STANDARD "A preliminary injunction is an extraordinary remedy that is only granted where there is a clear showing of need." Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999) (citing Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)). This court's decision on whether to issue a preliminary injunction is reviewed by the Seventh Circuit under an abuse of discretion standard. East St. Louis Laborers' Local 100 v. Bellon Wrecking & Salvage Co., 414 F.3d 700, 703 (7th Cir. 2005) (quoting Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992)). "As a threshold matter, [Exhibit Works] must show (1) a likelihood of success on the merits, (2) irreparable harm if the preliminary injunction is denied, and (3) the inadequacy of any remedy at law." Cooper v. Salazar, 196 F.3d 809, 813 (7th Cir. 1999). Once the three primary factors are considered, this court must balance the (4) the harm to parties if the preliminary injunction is wrongfully decided ("the private interests"), and (5) the impact on the persons not directly concerned in the dispute ("the public interests"). Id.

ANALYSIS

As stated above, to obtain the preliminary injunctive relief that Exhibit Works seeks, the threshold requirement that it has the burden of establishing is a reasonable likelihood of success on the merits. To establish that, Exhibit Works must show that the defendants breached their fiduciary duties to Exhibit Works or misappropriated Exhibit Works' confidential trade secrets. The court will address each of these requirements.

I. Fiduciary Duties

Exhibit Works argues that the defendants violated their fiduciary duties to Exhibit Works by: (1) recruiting Exhibit Works employees, (2) encouraging International to move its business from Exhibit Works to Inspired Exhibits, (3) taking customer property from Exhibit Works' warehouse for Inspired Exhibits' benefit while the defendants were employed with Exhibit Works, (4) breaching Exhibit Works' conflict of interest policy, and (5) actively misleading Exhibit Works about their plans to create Inspired Exhibits. Exhibit Works also seeks to enjoin Inspired Exhibits, along with the individual defendants, because Exhibit Works alleges that the bad actions were taken by Inspired Exhibits' principles on the defendant company's behalf.

Under Illinois law,*fn1 "an employee owes a duty of fidelity and loyalty to his employer."

V.I.M. Recyclers, L.P. v. Magner, No. 03 C 343, 2005 WL 1745657, at *12 (N.D. Ill. July 21, 2005) (citing ABC Trans. Nat'l Transp., Inc. v. Aeronautics Forwarders, Inc., 379 N.E.2d 1228, 1237 (Ill. App. Ct. 1978)). "An employee need not be an officer or a director to be accountable [for a breach of fiduciary duties] since an agent must act solely for the principle in all matters related to the agency and refrain from competing with the principle." E.J. McKernan Co. v. Gregory, 623 N.E.2d 981, 994 (Ill. App. Ct. 1993) (citing Radiac Abrasives, Inc. v. Diamond Tech., Inc., 532 N.E.2d 428, 433 (Ill. App. Ct. 1988)).

However, "[i]t is recognized that an employee, absent a restrictive contractual provision, has a right to enter into competition with the former employer upon leaving such employ." Classic Amenities, Inc. v. Verbeke, No. 00 C 3326, 2003 WL 21801021, at *2 (N.D. Ill. Aug. 1, 2003) (quoting Lawter Int'l, Inc. v. Carroll, 451 N.E.2d 1338, 1349 (Ill. App. Ct. 1983) (emphasis deleted)). "In Illinois, the timing of arguably competitive behavior is ... important. The 'preliminary stages' doctrine permits an employee to plan, form, and outfit a competing corporation while still working for the employer, as long as he does not commence competition," Riad v. 520 S. Michigan Ave. Assoc. Ltd., No. 97 C 2488, 2000 WL 680217, at *3 (N.D. Ill. May 22, 2000) (citing Voss Eng'g v. Voss Indus, Inc., 481 N.E.2d 63, 66 (Ill. App. Ct. 1985)), but "an employee is held accountable for breaching his fiduciary duty to his employer when he goes beyond such preliminary competitive ...


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