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Hal Wagner Studios, Inc. v. Elliott

January 15, 2009

HAL WAGNER STUDIOS, INC., D/B/A WAGNER PORTRAIT GROUP, PLAINTIFF,
v.
KRIS ELLIOTT, PAM ELLIOTT, BRAD GUTIERREZ, CINDY HARGRAVE, ROBERT BRAY, PHIL WALKER, AND SHARON VANSAGHI, DEFENDANTS.



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

ORDER ISSUING TEMPORARY RESTRAINING ORDER

A. Background

On January 9, 2009, Plaintiff Hal Wagner Studios (hereinafter "Wagner") filed this action against Defendants alleging ten counts (Doc. 2), including: (1) a claim for injunctive relief to enforce the non-compete agreement against Kris Elliott, (2) breach of contract claim against Kris Elliott, (3) a claim under the Computer Fraud and Abuse Act against Kris Elliott, Pam Elliott, and Brad Guitierrez, (4) a claim for replevin against all Defendants, (5) a claim for conversion against all Defendants, (6) a breach of the duty of loyalty claim against all Defendants, (7) a breach of fiduciary duty claim against Kris and Pam Elliott, (8) a tortious interference with business and contractual relationships/expectancy claim against Kris and Pam Elliott, (9) a civil conspiracy claim against all Defendants, and (10) a claim for unfair competition against all Defendants. Along with its verified complaint, Wagner filed a motion for a temporary restraining order (Doc. 5). Defendants Kris and Pam Elliott submitted a response on January 13, 2009 (Doc. 22).

The verified complaint includes the following allegations. Wagner is in the business of supplying photography services to local schools for the purpose of composing yearbooks. Wagner claims that on March 1, 1994, Kris Elliott entered into an employment agreement with Wagner (Doc. 5, Exh. A). That agreement contains a covenant not to compete, which provides that Elliott cannot directly or indirectly, (for or on behalf of himself or any other person or entity) for a period of 18 months for the date of termination of this Agreement:

A. Solicit or sell school photography accounts which were accounts in the Elliott Territory or were accounts produced by Elliott during the term of this Agreement;

B. Disclose the list of the above-described school photography accounts or any part thereof, to anyone without the prior written consent of Employer;

C. Otherwise engage in competition in any respect, with Employer for any of the above-described school photography accounts. (Doc. 5, Exh. A, ¶ 5). The Elliott Territory includes the Illinois counties of Adams, Calhoun, Macoupin, Madison, Morgan, Pike, and St. Clair, excluding 21 specifically identified schools. The territory also includes 16 specifically identified schools in Missouri (Doc. 2, Exh. A, Schedules 2 & 3).

Kris Elliot served as the General Manager of Wagner's business in Central and Southern Illinois from an office in Edwardsville, IL. Pam Elliott, Kris's wife, was employed as the office manager. All other Defendants worked in various capacities under their direction.

On December 31, 2008, all Defendants unexpectedly submitted letters of resignation, effective on January 1, 2009, leaving only two employees in the Edwardsville office. Since Defendants' resignations, Wagner claims that the each took jobs with Wagner's major competitor, Herff Jones.*fn1 For reasons explained below, Wagner alleges that the Defendants are attempting to take Wagner's work product and use it to move clients to Herff Jones immediately.

Upon receipt of the resignations, Wagner's vice-president inspected the Edwardsville office and determined that a large number of business documents were missing. These include customer lists, pending contracts, photography schedules, 110 production orders, notebooks containing notes about customer needs, and entire customer files. Additionally, photographic images from each school serviced by the Edwardsville office during the 2006-2007 and 2007-2008 school years are no longer accessible on Wagner's computer server and appear to have been recently deleted. Wagner is also unable to locate any physical CDs containing these images, nor can they find copies of images from 2008-2009. In addition, seven senior wall composites printed by Wagner and the framing supplies purchased for them are missing. Wagner also learned that Defendant Gutierrez created and operated a separate email account from which to communicate with clients, but never disclosed the password to Wagner. Other documents and items were determined as missing, and Wagner lists them in detail throughout the complaint. Wagner claims that these physical and electronic files and items are critical to its business, both presently and in the future.

Actions taken by the Elliotts on their final days of employment further raised Wagner's suspicions that they and the other employees who abruptly resigned are responsible for taking these items. Wagner analyzed its Printer Job Log from its corporate headquarters in St. Louis, Missouri and determined that Pam Elliott (as user "pelliott") spent December 30, 2008 printing 110 production orders (Doc. 2, Exh. J). Wagner has not been able to gain access to any of these production orders.

Pam Elliott and other defendants also printed a variety of other business documents between December 9 and December 31 which are no longer accessible from the computers in the Edwardsville office. Wagner further claims that it hired a company specializing in electronic data retrieval and is still unable to view any of these documents, including the approximately 200,000 portraits from the 2006-2007 and 2007-2008 school years that are missing from Wagner's server.

After being contacted by various schools, Wagner also learned that prior to their resignation, Kris and Pam Elliott sent "Publisher CDs" to certain schools. These CDs contain all of the photographs taken by Wagner at those schools, which Wagner would typically use to publish yearbooks. The delivery of these images is contrary to Wagner's business practice, as the photography work is typically stored by Wagner until yearbook production is completed.

For instance, Greenfield Elementary received a CD accompanied by a letter informing it that the CDs would be used to print their yearbook. The letter was dated December 30, 2008 (the day before Defendants resigned), and the identified sender was "Wagner Portrait Group," though the format does not use Wagner's official letterhead (Doc. 2, Exhs. K & L). On January 2, 2009, Defendants Kris and Pam Elliott sent a solicitation letter to Greenfield Elementary on Herff Jones letterhead (Doc. 2, Exh. M). The letter announces the Defendants' change in employment and solicits the school's business. Wagner also alleges that on January 8, 2009, one of the Defendants contacted the school and stated that they were coming to pick up the "Publisher CD" so as to begin work on the yearbook (presumably converting the client into a Herff Jones customer). The Elliotts admit that they did in fact send such CDs to various schools, but claim that they were under the impression that the photographs on the CDs belonged to the schools (Doc. 22, Exhs. A & B).*fn2

Wagner seeks an injunction ordering Kris Elliot and anyone acting in concert with him from soliciting Wagner accounts in the Elliott territory or engaging in competition with Wagner. Additionally, Wagner seeks the return of all missing documents and items.*fn3 Wagner also wants the Court to require Brad Gutierrez to provide the password to an alternate email account, to which Wagner believes he diverted customer correspondence. Wagner also asks that the Elliotts be required to send letters to all schools that received "Publisher CDs," explain that these CDs are the property of Wagner, and require that all such CDs be returned to Wagner.

The Court set a hearing on the motion for TRO for 2:00 p.m. on January 13, 2009 (Doc. 13). Counsel for Kris and Pam Elliott appeared. Additionally, Wagner's counsel represented to the Court that all other Defendants, except for Robert Bray, were given notice of the motion for TRO and hearing. Upon considering the parties arguments, the Court issued a "preliminary temporary restraining order," (Doc. 27) but informed the parties that it would be vacated in favor of a detailed Order.

Accordingly, the Court now GRANTS IN PART AND DENIES IN PART the motion for temporary restraining order (Doc. 5) pursuant to the terms and conditions provided below.

B. ANALYSIS

1. The Issuance of an Ex Parte TRO as to Defendant Bray

Wagner has given notice to all Defendants except Robert Bray. Therefore, any TRO with respect to Bray would be ex parte. FEDERAL RULE OF CIVIL PROCEDURE 65(b) authorizes the issuance of a temporary restraining order (TRO) only under limited circumstances.

The "stringent restrictions" imposed "on the availability of ex parte temporary restraining orders reflect the fact that our entire jurisprudence runs counter to the notion of court action taken before reasonable notice and an opportunity to be heard has been granted both sides of a dispute. Ex parte temporary restraining orders are no doubt necessary in certain circumstances, . . . but under federal law they should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing, and no longer." Ex parte temporary restraining orders are most familiar to courts where notice to the adversary party is impossible either because the identity of the adverse party is unknown or because a known party cannot be located in time for a hearing.

American Can Co. v. Mansukhani, 742 F.2d 314, 321--22 (7th Cir. 1984) (quoting Granny Goose Foods, 415 U.S. 423, 438--39 (1974)).

Indeed, Rule 65(b)(1) permits a federal court to grant a TRO without notice to the adverse party only if:

(A) specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and

(B) the movant's attorney certifies in writing any efforts made to give notice and the reasons why it should not be required.

Wagner has failed to fulfill the requirements described in Rule 65(b)(1)(A)--(B) with respect to Bray. Indeed, the fact that notice was given to all Defendants but Bray indicates that there is not a reasonable basis upon which the Court could find that notice should not be required. Accordingly, the Court declines to issue an ex parte TRO with respect to Defendant Bray.

2. The Issuance of a TRO as to All Other Defendants

District Courts within this Circuit hold that the standard for granting a TRO and the standard for granting a preliminary injunction are identical. See, e.g., Charter Nat'l Bank and Trust v. Charter One Financial, Inc., 2001 WL 527404 (N.D. Ill. May 15, 2001) (unreported). The movant must make an initial showing that (1) its case has a likelihood of success on the merits, (2) no adequate remedy at law exists, and (3) it will suffer irreparable harm if injunctive relief is not granted. See, e.g., Hodgkins ex rel. Hodgkins v. Peterson, 355 F.3d 1048, 1054-55 (7th Cir. 2004). If the movant meets the burden on these three requirements, then the Court considers two additional criteria: (4) whether the balance of harm to the ...


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