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Stenstrom Petroleum Services Group, Inc. v. Mesch

September 7, 2007

STENSTROM PETROLEUM SERVICES GROUP, INC., PLAINTIFF-APPELLANT AND CROSS-APPELLEE,
v.
ROBERT MESCH, DEFENDANT-APPELLEE AND CROSS-APPELLANT
(PRECISION PETROLEUM INSTALLATION, INC., DEFENDANT-APPELLEE).



Appeal from the Circuit Court of Winnebago County. No. 07-CH-366 Honorable Ronald L. Pirrello, Judge, Presiding.

The opinion of the court was delivered by: Justice Callum

Published opinion

I. INTRODUCTION

Plaintiff, Stenstrom Petroleum Services Group, Inc., sued defendants, Robert Mesch (its former employee) and Precision Petroleum Installation, Inc. (New PPI) (Mesch's current employer), alleging, inter alia, breach of a covenant not to compete, violations of the Illinois Trade Secrets Act (Trade Secrets Act or Act) (765 ILCS 1065/1 et seq. (West 2006)), and breach of fiduciary duty. Stenstrom sought an injunction and damages. The trial court granted Stenstrom a preliminary injunction to enforce the covenant not to compete and denied relief on the other grounds alleged in its complaint. Stenstrom appeals, arguing that the trial court erred in determining the commencement date of the preliminary injunction and in declining to enjoin Mesch and New PPI for breach of fiduciary duty and violations of the Act. Mesch cross-appeals, arguing that the covenant not to compete is unenforceable. We affirm.

II. BACKGROUND

Stenstrom filed its complaint on March 7, 2007. The trial court entered a temporary restraining order (TRO) on March 8, 2007. The court heard testimony on Stenstrom's petition for a preliminary injunction on March 16 and April 3, 2007. It entered the preliminary injunction on April 25, 2007. The following testimony was presented at the hearing on the preliminary injunction.

A. Mesch

Mesch began working in the petroleum industry in 1974, installing equipment such as underground storage tanks and petroleum piping systems. For subsequent employers, Mesch rebuilt damaged gasoline dispensers and pumps, maintained and repaired service station equipment, and worked as a warehouse manager and a purchasing manager. Mesch also performed outside sales and, starting in 1986, engaged in estimating and project management.

Stenstrom installs and maintains equipment in the petroleum industry, including the installation and removal of petroleum tanks, pumps, and electronics. It also repairs such equipment. A separate Stenstrom company performs excavation work.

On June 18, 2003, Stenstrom purchased Precision Petroleum, Inc. (Old PPI). Mesch had worked for Old PPI for about seven years. On the same day that it purchased Old PPI, Stenstrom hired Mesch, who signed a non-compete agreement and a confidentiality agreement. Mesch performed the same work for Stenstrom that he had for Old PPI, working as an estimator and project manager.

The non-compete agreement, or restrictive covenant, Mesch signed appears in a document entitled "Petroleum Services Group Training Agreement," at paragraph 3. The covenant provides:

"RESTRICTIVE COVENANT. Employee, as additional consideration for the training, classroom study and materials provided by the Company, shall not for a period of six (6) months from the date of termination of his employment with the Company, engage directly or indirectly in any capacity in the excavation or equipment repair field in the counties of Winnebago and Boone (which constitute the Company's trade area or areas), except with Company's written consent. In addition to any other rights or remedies available to the Company for breach of this Agreement, the Company shall be entitled to enforcement by preliminary restraining order and injunction. In the event the Company is forced to take legal action against Employee under this Agreement, all of the Company's costs and expenses of such action, including reasonable [attorney] fees, shall be paid by Employee." (Emphasis added.)

Mesch worked for Stenstrom between June 2003 and December 2006. He estimated petroleum jobs, bid on the jobs, and managed successful bids. During his tenure with Stenstrom, Mesch bid on 378 jobs and managed 121 jobs.

He acknowledged that, while at Stenstrom, he received training in the Timberline and Excel computer programs. The Timberline database limits employees' access to only those folders that they are granted permission to use. Mesch stated that he merely "dabbled" in using the program. He denied using Timberline to prepare bids in December 2006. He did access it, however, to retrieve job costs and reports.

In calculating his bids, Mesch used an Excel spreadsheet and not the Timberline estimating program that other Stenstrom project managers used. Addressing the Excel spreadsheet, Mesch explained that it was first developed by someone at Old PPI. It began as a "crude spreadsheet, which was just quantities, list prices, some discounts, and the way the owner of the company put it, he wanted something that was better than just doing a bid off a napkin." Mesch continued to use the spreadsheet in estimating projects, with "great revisions and modifications" that he incorporated into it.

Mesch described his spreadsheet calculations as follows. The material and labor worksheet contains part numbers, quantities, list prices, discounts off of list prices, and extended pricing. The spreadsheet also contains markups to net prices. Mesch manually entered quantities, subcontractor bids, labor hours, and markup percentages. The "bid" tab incorporates the material and labor data. Mesch manually revised entries concerning the scope of the work.

On December 22, 2006, Mesch resigned from his job with Stenstrom. He last worked for Stenstrom on December 26, 2006. His salary at that time was $73,840. Mesch started copying Stenstrom files in early-to-mid 2006 for the purpose of working at home on Stenstrom's behalf. From this period through his termination date, he did not use any of the copied materials to prepare bids for any entity other than Stenstrom.

After he left Stenstrom, Mesch commenced working for a newly formed entity--New PPI. Mesch testified that all of New PPI's customers are also Stenstrom customers and that New PPI has bid on jobs only for Stenstrom customers. He also stated that New PPI has discussed bids only with Stenstrom customers. New PPI's logo is similar to Old PPI's logo. Mesch conceded that he referenced a computer file of the Old PPI logo, which he copied from Stenstrom, in order to create the New PPI logo. Mesch agreed that he currently has an unwritten agreement with New PPI under which he will receive 20% of its net profits in addition to his salary. His job title is project manager/ estimator. Mesch denied that he is an officer, director, or shareholder of New PPI.

Mesch explained that New PPI purchases its equipment from a distributor. Stenstrom, however, purchases directly from manufacturers. According to Mesch, New PPI does not obtain the same prices from manufacturers as does Stenstrom. Stenstrom receives much deeper discounts than New PPI because it does not go through a distributor, which takes a markup. To calculate bids at New PPI, Mesch obtained a list of manufacturer discounts from Source North America and incorporated the data into the Excel spreadsheet, thus changing the discounts.

Mesch stated that New PPI, unlike Stenstrom, does not perform any excavation work or equipment repair work. It relies instead on subcontractors. Mesch testified that Stenstrom does the majority of its own concrete work and excavation work. As to electrical contractors, Mesch has used at New PPI contractors that he used at Stenstrom and previously at Old PPI.

According to Mesch, in September 2006, he copied a subdirectory entitled "Estimating" from Stenstrom's server onto his personal Dell Jukebox, a music player. He testified that he did so with his supervisor's knowledge. The directory contained folders that, in turn, contained subfolders for various jobs. Mesch testified that not all of the jobs involved clients, but included entities for which Stenstrom had prepared unsuccessful bids. In addition to the music player, Mesch conceded that he copied Stenstrom information onto a travel drive on December 1, 2006. Mesch copied the files from the music player and travel drive to his home computer and then onto two DVDs. He copied the information for the purpose of using it for New PPI and conceded that he did access the information while working for New PPI. He did not use the files from the music player at New PPI, but only the files from the travel drive. Mesch testified that many of the files were from Old PPI and that Stenstrom received them because he brought them to Stenstrom. He conceded that the files were on a computer that Stenstrom purchased. Mesch destroyed the DVDs before he left Stenstrom. Further, Mesch conceded that some of the data he copied from Stenstrom he used to prepare bids at New PPI. He did this on his own and not at New PPI's request.

As of the hearing on the preliminary injunction, Mesch no longer possessed the computer files he copied from Stenstrom's computers. Within three days after the TRO was issued, Mesch turned over the Stenstrom data he had copied. Mesch further testified that he no longer had the spreadsheet available to him to prepare bids. However, he testified that he could reproduce it in two to three days because he developed the original. He would not have to rely upon any information from Stenstrom in order to recreate it. All of the information he requires "is readily available from manufacturers." Also, he knows from experience the discounts that Stenstrom obtains from its key suppliers. He can recite many of the discounts from memory.

While working for Old PPI, Mesch prepared six bids for State Oil. State Oil was one of Old PPI's better customers. His contact at the company was Jim Peters. Mesch also prepared 12 bids for Road Ranger. His contact there was John Carabelli. Road Ranger was Old PPI's largest customer.

Mesch further testified that Stenstrom's Road Ranger Hampshire computer file is in New PPI's Road Ranger Hampshire computer file. Mesch conceded that he bid on Road Ranger's Hampshire project while at Stenstrom and then bid on a larger version of that project while working at New PPI. Mesch also conceded that he successfully bid on a job for State Oil, the North Chicago project, for New PPI after having bid on the project for Stenstrom. Mesch testified that he used Stenstrom drawings to make the "CAD" drawings for New PPI to submit with its bid.

New PPI's only successful bid as of the hearing date was the State Oil North Chicago project. Mesch bid on the project in September 2006 for Stenstrom. That bid was rejected. After he left Stenstrom, Mesch called Jim Peters and informed him that he had left Stenstrom. While working at New PPI, Mesch re-bid on the project, at Jim Peters' request. New PPI's bid was higher than Stenstrom's bid. At the time he left Stenstrom, State Oil had not yet rejected Stenstrom's bid for the North Chicago job. Comparing Stenstrom's unsuccessful bid with New PPI's successful bid, Mesch testified that the only differences are the names on the bids, the prices, and the payment terms.

Mesch conceded that Stenstrom's name appears in several places in another bid he submitted on behalf of New PPI. Mesch also conceded that while working at New PPI he consulted Stenstrom bid information to obtain subcontractor electrical, canopy, and tank costs for bids. Mesch used the spreadsheet at New PPI with the new company's costs substituted in the place of Stenstrom's costs.

B. David Sockness

David Sockness, president of Stenstrom and of Stenstrom Excavation and Blacktop, testified on Stenstrom's behalf that both companies are owned by the same holding company. Sockness manages Stenstrom. He explained that the company, which has been in the petroleum business since 1982, installs petroleum equipment, such as tanks, piping, dispensers, islands, point-of-sale devices, tank-monitoring equipment, submersible pumps, and manholes. It also services the equipment it installs and places concrete. Stenstrom operates within a 100-mile radius of Rockford. In some cases, the company performs work outside this area.

Sockness acknowledged that Stenstrom uses a spreadsheet to create its bids and that the information therein is not contained in the final bids submitted to customers. This information is valuable to Stenstrom. It includes all of its pricing, including material, labor, and equipment, and includes manufacturer discounts, vendor discounts, and profit margins. It also contains labor hours for jobs and labor rates. The spreadsheet can be used to determine future Stenstrom bids. Two current bidders use the spreadsheet. Stenstrom purchased the spreadsheet when it purchased Old PPI. It also purchased the Old PPI logo. According to Sockness, New PPI's logo is the same as Old PPI's logo. Sockness is unaware if Stenstrom registered Old PPI's logo or trade name. Sockness further testified that Stenstrom is moving away from the Timberline program and toward using the spreadsheet to bid on jobs.

Stenstrom's largest customers are Kelley Williamson, Road Ranger, and State Oil. They comprise about 40% of Stenstrom's petroleum installation business and 40% of its petroleum service business. Old PPI had a strong relationship with Road Ranger, and this is one of the reasons Stenstrom bought Old PPI. This was also the case with State Oil. Stenstrom's second tier of clients includes Vista Marketing and Combined Oil. They comprise about 10% of Stenstrom's installation business and 10% of its service business. Stenstrom has never lost a major client.

Stenstrom handles all of Kelley Williamson's and Vista's petroleum installation business. It performs about 50% of Road Ranger's local petroleum installation business. According to Sockness, Stenstrom maintains its relationships with its customers via marketing campaigns, personal calls, personal visits, and business meetings. Its client entertainment budget is $20,000. Sockness conceded that Road Ranger and State Oil get competitive bids from other companies for installation work. Also, Stenstrom does not have any agreement with Kelley Williamson to be its exclusive provider of installation services. Further, when Stenstrom purchased Old PPI, there was no promise by Road Ranger that a certain percentage of its business would thereafter go to Stenstrom.

Stenstrom usually uses Nicholson Electric as its electrician. Al Hoover owns the company. New PPI also uses Nicholson Electric. Mesch would have had contact with Hoover at Nicholson Electric while Mesch worked at Stenstrom and would have developed a relationship with him. Sockness conceded that he is not aware of any reason ...


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