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APC Filtration, Inc. v. Becker

August 4, 2008

APC FILTRATION, INC., PLAINTIFF,
v.
WILLIAM A. BECKER AND SOURCEONE PLUS, INC., DEFENDANTS.



The opinion of the court was delivered by: Robert M. Dow, Jr. District Judge

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Plaintiff APC Filtration, Inc.'s ("APC") motion for partial summary judgment on Counts III and VI [87], and on Defendants William A. Becker and SourceOne Plus, Inc's ("SourceOne") summary judgment motion as to all counts [109]. For the following reasons, the Court grants Plaintiff's motion for partial summary judgment [87] and denies Defendants' motion for summary judgment [109] as to Counts III and VI. I. Background

A. Factual Background

APC is a Canadian corporation incorporated in the province of Ontario. APC engineers and manufactures filters and bags for various types of industrial, commercial, and domestic vacuum cleaners. Russell Kelly is the President of APC, and Athanasia "Tammy" Kelly is the Chief Financial Officer. APC employed William Becker from January 2002 until January 31, 2007. At the time that his employment with APC ended, Becker was APC's National Sales Manager.*fn1 In 2006, Becker earned approximately $171,000 in salary and commissions and received a $19,034.24 severance package from APC upon his termination. He is now President of SourceOne Plus, Inc., an Illinois corporation that competes against APC in the janitorial and sanitary supply market ("the Jan-San market").

APC manufactures filters and bags for vacuum cleaners for two primary markets: "original equipment manufacturers" and "aftermarket" customers. Original equipment manufacturers order vacuum bags or filters that are tailored to a particular manufacturer's specifications and printed with that manufacturer's own part number or brand name. Aftermarket customers order replacement bags or filters that are designed to be used with original equipment vacuums; generally, these bags and filters are not printed with an original equipment manufacturer's part number or brand name, although they do identify which vacuum each bag will fit. APC's aftermarket brands include Janitized, VacFx, and Janitized Plus.

Beginning in approximately 2004, Becker created a sales and marketing program for APC to present to potential aftermarket customers. Between 2004 and January 2007, Becker managed and ran the aftermarket program on behalf of APC. Also beginning in 2004, Becker hired, trained, and managed all sixteen of APC's contracted Manufacturer's Representative Groups who sold APC's Janitized products throughout the United States and Canada.

Except for internal financial and payroll information, Becker had access to all of the password-protected databases containing APC's business information, including product information and profit margins, pricing (including "deviated" or specialized pricing), customer lists, and customer contact information, preferences, and purchase history. APC stored all of this information in its "ACT" database, a customer contact management system. Other than the Kellys, Becker was the only APC employee who possessed a password that would give him immediate access to APC's computer databases.

APC's supply chain consists primarily of Chinese companies. In mid-May 2006, Becker contacted a former APC employee, Yanlin Hou, to discuss going into business with one of APC's major Chinese suppliers, Zehua. On May 12, 2006, while still employed by APC as its National Sales Manager, Becker sent an e-mail to Ms. Hou stating, "Have you received any additional feedback from any Chinese manufacturers yet regarding sales in the US * * * * I am still uncertain about APC, so I have to be very careful. Please make certain not to mention my name to Adamn or anyone." On May 15, 2006, Ms. Hou responded to Becker's May 12, 2006 e-mail with a proposal for a business relationship between Becker and Zehua in which Zehua would supply Becker directly and Becker would act as an agent of Zehua. On May 16, 2006, Becker sent another e-mail to Ms. Hou stating, "It is a plan I will need to think about. Sounds interesting. However, I think the aftermarket would be necessary as well. A lot of business could happen there as well. Would ZH no longer sell to APC?"

Becker communicated by telephone and e-mail with both Hou and Adamn Chang, the president of Zehua (and his assistant Candy), from May through September or October 2006, to negotiate the terms of the eventual contract between Becker and Zehua. The e-mail communications exchanged between Becker, Hou, Chang, and other representatives of Zehua contained pricing and marketing strategies. The e-mail communications between Becker, Hou, and Zehua are not retrievable because they were stored on a computer that Becker destroyed in approximately March 2007, after this lawsuit was filed.

On September 10 and 11, 2006, while he was still employed by APC as its National Sales Manager, Becker traveled to China to visit Zehua's factory and negotiate the final terms of the agreement between Zehua and SourceOne. After he returned, he and Zehua finalized the terms of the contract between SourceOne and Zehua and eventually entered into an exclusive contract in which Zehua would supply SourceOne with filters and bags and Becker would act as an agent of Zehua to both original equipment manufacturers and aftermarket customers. The contract between Zehua and SourceOne contains a provision stating that within six months of the execution of the contract, Zehua must stop supplying APC.

In early December 2006, after having taken steps to set up SourceOne, including securing e-mail and mailing addresses and applying for a registered trademark for "Green Klean,"*fn2 Becker placed an order worth $30,000 with Zehua. Then, in January 2007, while still employed by APC, Becker sent Green Klean vacuum bags to the same expert used by APC to test its bags. He also made arrangements with a warehouse in Park City, Illinois, to receive, store, and transport SourceOne's products. On January 24, 2007, Becker instructed the warehouse to set aside 200 cartons of vacuum bags from Zehua's first shipment. Those bags were ultimately sent to one of APC's customers, Flint Cleaning.*fn3

On March 27, 2007, Zehua informed APC of its intention to stop supplying APC with products. According to the Kellys, APC has been unable to locate a supplier to replace Zehua and instead, at greater expense, has had another one of its suppliers temporarily fill the void in its supply chain left by Zehua.

Since 2005, AmSan has been a customer of APC.*fn4 Until he was fired in January 2007, Becker was APC's only contact with AmSan's corporate office. In 2005, Becker began soliciting all of AmSan's corporate vacuum bag business on behalf of APC, including AmSan's specialized aftermarket brand line -- "Renown" -- as well as AmSan's general aftermarket business. In early 2006, APC sent AmSan Janitized samples and samples made for AmSan's "Renown" brand, and Becker discussed with D.J. Christensen, AmSan's President of Merchandising, the possibility of a rebate program and specialized pricing. In March and April 2006, Becker noted in the ACT database that AmSan was very close to entering into a business relationship with APC. However, on May 24, 2006, Becker noted that AmSan had been acquired by another company and APC's negotiations with AmSan were put on hold.

At his deposition on July 24, 2007, Becker testified that he had no contact with Christensen between September 13, 2006 and late January 2007.*fn5 While Becker sent no emails and had no other contact with Christensen concerning APC's attempt to obtain AmSan's business, third party discovery showed that during that time period, while Becker was still employed by APC, he and Christensen sent or received approximately sixty e-mails and had several telephone conversations with each other and with another representative of Interline, Lisa Blum, concerning Becker's attempt to obtain AmSan's business on behalf of SourceOne.*fn6 In these e-mails, bag types and quantities were discussed,*fn7 and Becker provided AmSan with a number of price and product lists.*fn8 He also negotiated price reductions and discussed terms of payment and a volume rebate agreement. In at least two e-mails, Becker informed AmSan that SourceOne's pricing was below APC's pricing.

On January 26, 2007, five days before APC fired Becker, Christensen sent an e-mail to other AmSan employees, including division branch managers, announcing that SourceOne would be AmSan's new supplier of "a new general line vacuum bag." Her e-mail also stated, "You will find that the costs for these bags will not only be lower than your current major equipment brand but also lower than one of the more recent to market prominent bag suppliers, APC Filtration." While communicating with AmSan, Becker did not advise Christensen that he was still employed by APC. Christensen testified that Becker told her he was with a "new company," and she concluded that APC did not want a relationship with AmSan because no one from APC contacted her after Becker began soliciting the AmSan business on behalf of SourceOne. AmSan executed a contract with SourceOne with an effective date of February 5, 2007.

In the fall of 2006, Becker contacted former co-defendant Kevin Sullivan, the President of Prime Line, Inc. ("Prime Line"), about working with Becker for SourceOne.*fn9 Prime Line, one of APC's Manufacturer's Representative Groups, had a written agreement with APC containing a non-solicitation clause. The agreement, in effect since August 15, 2004, renewed automatically on a year-to-year basis. At the time Becker spoke with Sullivan about working with SourceOne, Prime Line's contract with APC was in effect. In the fall of 2006, Becker and Sullivan agreed that they would contact some of APC's current customers about purchasing vacuum bags from SourceOne. While his agreement with APC was in effect, Sullivan solicited APC's customers on behalf of SOP and Zehua North America.

B. Procedural History

Prior to the reassignment of this case, Judge Gettleman entered a temporary restraining order [Dkt. No. 17] and a preliminary injunction [107] against Source One and Becker. Magistrate Judge Ashman issued orders [101, 135] imposing sanctions in the amount of almost $100,000 against both Defendants. Both judges have expressed their dismay over Becker's conduct during the course of this litigation. Judge Gettleman concluded that Becker "purposefully destroyed evidence in this case and continually lied about it." 10/23/07 Trans. at 10-11. Magistrate Judge Ashman found that Becker "willfully destroyed relevant evidence," "violated the Court's June 28, 2007 discovery order," and "acted in bad faith to prevent APC from discovering damaging evidence." 12/21/07 Order [135] at 2 (summarizing 10/12/07 Order).

In addition to the summary judgment motions [87, 109] addressed in part in this opinion, the Court has before it two motions [150, 157] for rules to show cause why Defendants should not be held in contempt for alleged violations of the preliminary injunction order. In view of all of the pending motions, the Court set this case for status in June to ask whether the parties had any interest in a global settlement of this litigation prior to the disposition of the pending motions. The parties agreed to discuss settlement, but subsequently advised the Court that they were unable to reach accord.

In view of that communication from the parties, the Court turned to the disposition of the summary judgment motions. However, mindful of Plaintiff's expression of "great doubt about defendants' ability to satisfy [a large] judgment" and its observation that "[s]hould APC obtain partial summary judgment" with respect to the $174,195.92 that it paid Becker while he was breaching his duties, APC would be in position to "make a rational business decision whether or not the cost of additional litigation would be worth obtaining a substantially larger judgment which ...


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