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SKF USA, Inc. v. Bjerkness

April 24, 2009

SKF USA, INC., PLAINTIFF,
v.
DALE H. BJERKNESS, KEVIN KOCH, JOSEPH J. SEVER AND WALTER REMICK, JR., DEFENDANTS.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

For over thirty years, Preventive Maintenance Company, Inc. ("PMCI") provided so-called "reliability services"-essentially, the monitoring and maintenance of factory machines and equipment-for its customers. In January 2007, Plaintiff SKF USA ("SKF") purchased PMCI's stock and merged PMCI's business operations into SKF's Reliability Systems division. Defendants Dale Bjerkness, Kevin Koch, Joseph Sever, and Walter Remick all worked for PMCI prior to the merger and continued to work for SKF for approximately a year and a half after the merger. In May 2008, Bjerkness left SKF and started his own reliability services firm, Equipment Reliability Services, Inc. ("ERSI"). In the following months, the other Defendants also left SKF to work with Bjerkness at ERSI. In August 2008, SKF filed a complaint in this court, alleging that Defendants breached employment agreements with SKF, violated the Illinois Trade Secrets Act ("ITSA"), and committed various other torts. SKF moved for a preliminary injunction, and Defendants in turn moved to dismiss part of the Amended Complaint. The court now addresses both motions; for the reasons explained here, each is granted in part and denied in part.

FACTUAL BACKGROUND*fn1

SKF's Reliability Systems, as did its predecessor, PMCI, performs various services, generally called "reliability services," for industrial customers. Through a program of monitoring the performance of the customer's machinery, SKF is able to provide basic maintenance for the equipment, suggest ways to improve its functioning, and detect problems to avoid unexpected equipment failures. Dale Bjerkness began working for PMCI in 2001 as a sales engineer in Minnesota. (Am. Compl. ¶ 19.) After several promotions, the last role Bjerkness held was as Director for SKF Reliability Systems, a role in which he was responsible for increasing sales and managing customer relationships in the Midwest. (Id. ¶¶19-20.) Kevin Koch was hired by PMCI in 1998, and was working as a Reliability Engineer Manager at the time he resigned, overseeing the mechanical services for customers and supervising engineers who were out at customers' job sites. (Id. ¶¶ 26-27.) Joseph Sever and Walter Remick, who began working for PMCI in 2003 and 2006, respectively, both worked as Reliability Engineers at the time of their resignations, and were responsible for actually performing the work at their customers' sites. (Id. ¶¶ 30, 32, 33.)

At PMCI, each Defendant signed an employment agreement (the "PMCI Agreement") which restricted them from competing with PMCI or soliciting PMCI's customers. (Pl.'s Ex. 11.) In pertinent part, the PMCI Agreement provided:

[A]ll business relationships and goodwill now existing with respect to the clients of PMCI, whether or not created by Employee, and all such relationships and goodwill which may hereafter be created or enhanced, at all time [sic] remain the sole property of PMCI. Accordingly, Employee agrees that during the term of this Agreement and for a further period of two years beginning on the termination of Employee's employment with PMCI, Employee shall not, under any circumstances . . . solicit business or sell or render services of the sort provided by PMCI to any client for which PMCI or its Employee has rendered services or to any prospective client that Employee has solicited to provide services of the sort provided by PMCI or about whom Employee has learned confidential information during the twelve (12) months preceding Employee's separation from PMCI; nor shall Employee, directly or indirectly, aid or assist any other person, firm or corporation to do any of the aforesaid acts. (PMCI Agreement at 3(a), SKF Ex. 34.) Similar provisions prohibited PMCI employees from "solicit[ing] or induc[ing] any employee of PMCI to leave PMCI's employ for any employment in a line of business similar to that conducted by PMCI." (Id. at 3(b).) The PMCI Agreement also states that it "shall be binding upon and shall inure to the benefit of the parties hereto and their respective . . . successors, and assigns." (Id. at 8.) Finally, the Agreement also provides that it "may be amended only in writing." (Id. at 5.)

After SKF purchased 100% of PMCI's stock and merged PMCI into SKF's Reliability Systems, Defendants were asked to (and did) sign a new agreement, the Employee Invention, Patent, and Secrecy Agreement ("SKF Agreement"). (Am. Compl. ¶ 8.) Although the SKF Agreements were not signed until 2008, they were all backdated to reflect an effective date of January 4, 2007, the date of the merger. The SKF Agreement provides:

Employee agrees that he will not in any way during his employment and at any time thereafter, without SKF's written approval, disclose or publish to any unauthorized person, firm or corporation any technical or proprietary information, trade secrets and confidential business matters, including but not limited to, secret processes, formulae, sequences, equipment, research items and results, drawings, prints, customer lists, costs, technical sales and marketing programs. All documents, memoranda, reports, prints, and drawings, including all copies thereof in respect of the above items, are the sole and entire property of SKF which Employee will surrender to SKF upon any termination of employment with SKF . . . . (Pl.'s Ex. 36.) The SKF Agreement makes no reference to the PMCI Agreement, nor does it explain what effect, if any, it may have on any other agreements then in effect. Kathy Comp, a former PMCI official and the human resources contact at the Elk Grove Village, Illinois branch of SKF, told Bjerkness and others that the SKF Agreement superseded or replaced the PMCI Agreements.

The events at issue here occurred in the spring and summer of 2008, after the signing of the SKF Agreements. Bjerkness was particularly dissatisfied with his new employer, feeling that SKF was reneging on promises both to himself and to the employees who reported to him (including the other Defendants) regarding promotions and pay increases. On May 12, 2008, Bjerkness tendered his resignation to SKF, effective May 23, 2008. Over the next two months, Koch (June 27), Remick (June 7), and Sever (July 15) all resigned from SKF as well.

Before Defendants left SKF, they transferred thousands of documents from their SKF computers to their own storage devices.*fn2 Although Defendants transferred some files to external hard drives that can be plugged directly into a computer's USB port, they mostly used other USB devices known as "thumb drives." These thumb drives-so called because they are about the size of a thumb-can be plugged into almost any computer and used to store or transfer gigabytes of information. Defendants claim that much of what they intended to transfer was simply personal information that was stored on their work computers; it is undisputed, however, that they also transferred some work documents that, according to SKF, constitute confidential information and/or trade secrets. Defendants claim that they could easily have generated all the information that they transferred on their own, and that copying that information provided simply a "shortcut." (E.g., Tr. 182.) Defendants concede, however, that they were not authorized by anyone at SKF to make these transfers, nor did they inform anyone at SKF that they were doing so. The evidence shows that the transferred material includes, among other things, customer pricing information, customer databases, machine and equipment reports, and training materials. Defendants were able to retrieve this material from the SKF computers assigned to them. In addition many of the transferred documents had been occasionally "docked" on SKF's File Transfer Protocol website ("FTP"), a password-protected website that SKF employees use to share documents. The FTP allowed users who had the password-a password which, SKF concedes, it did not change when employees left SKF-to post documents, reports, and databases on the website so that other employees could access the information. Documents generally did not remain on the FTP for more than a few days.

Although Bjerkness's resignation was not effective until May 23, Bjerkness filed the necessary paperwork to establish ERSI on May 20. When Bart Bartholomew, who succeeded Kathy Comp as head of HR at the Elk Grove Village facility, asked Bjerkness what he was planning to do after leaving SKF, Bjerkness responded by saying that he planned to take some time to go fishing. Bartholomew nevertheless offered to pay Bjerkness one year's salary in exchange for Bjerkness's signing a one-year non-compete agreement, but Bjerkness declined. The other three Defendants were not asked to sign non-competes, but did, like Bjerkness, begin working for ERSI immediately after their resignations at SKF became effective. In its first few months of operation, ERSI signed at least four customers in Minnesota and Iowa who were, up until that point, SKF customers. Plaintiff considers these customers "stolen"; Defendants, on the other hand, maintain that they were attracted by Bjerkness's salesmanship and determination and ERSI's overall skill level.

On August 19, 2008, SKF filed its complaint in this court,*fn3 and shortly thereafter moved for entry of a preliminary injunction enjoining ERSI from, among other things, competing with SKF for two years. On December 9, 2008, just before the conclusion of the preliminary injunction proceedings, Defendants filed a motion to dismiss, seeking dismissal of Counts IV through VI of Plaintiff's Amended Complaint. For the reasons that follow, both motions are granted in part and denied in part.

DISCUSSION

Preliminary Injunction

A party moving for a preliminary injunction must demonstrate "(1) a likelihood of success on the merits; (2) a lack of an adequate remedy at law; and (3) [that] an irreparable harm will result if the injunction is not granted." Lambert v. Buss, 498 F.3d 446, 451 (7th Cir. 2007) (quoting Foodcomm Int'l v. Barry, 328 F.3d 300, 303 (7th Cir. 2003)). If these criteria are established, the court then must weigh the irreparable harm the plaintiff is likely to suffer against the harm the defendants will suffer if the injunction is granted. Incredible Techs., Inc. v. Virtual Techs., Inc., 400 F.3d 1007, 1011 (7th Cir. 2005).

Plaintiff seeks an injunction against several different activities by Defendants. First, and most significantly, SKF asks the court to enjoin Defendants from performing services for any entity or individual that was a client or potential client of SKF immediately preceding Defendants' resignations. Second, Plaintiff requests that the court prohibit Defendants from soliciting or inducing any current SKF employee to leave SKF and go to work for ERSI. Third, SKF seeks to enjoin the Defendants from using or disclosing any SKF trade secrets or proprietary information. Finally, Plaintiff seeks an order requiring Defendants to return any documents or electronic media that contain trade secrets or proprietary information. SKF argues that it is entitled to injunctive relief based on the provisions of the PMCI Agreement, the SKF Agreement, and the Illinois Trade Secrets Act ("ITSA"). The court considers each of Plaintiff's legal theories in turn before considering what relief, if any, is appropriate.

I. PMCI Agreement

The non-compete clause in the PMCI Agreement is the primary source for SKF's contention that Defendants are barred from competing with SKF in the upper Midwest. Whether the court can enter an injunction prohibiting Defendants from running their business in this part of the country thus depends upon the validity of that contract.

As noted above, the PMCI Agreements contain provisions stating that it is enforceable by successors and assigns, and that any amendment to the Agreements must be made in writing. (PMCI Agreement at 5, 8, Pl.'s Ex. 34.) Defendants nevertheless contend that the Agreement is not binding because SKF officials waived any right they had to enforce the non-competition provisions of the PMCI Agreements by representing to Defendants that the provisions no longer applied after Defendants signed the Employee Invention, Patent and Secrecy Agreement with SKF. In Illinois,*fn4 courts may imply waiver of a contract provision "if a party indicates by its conduct that compliance with a particular provision is not required." Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., 383 Ill. App.3d 645, 674, 891 N.E.2d 1, 28 (1st Dist. 2007); see also LaSalle Bank Nat'l Ass'n v. Paramont Props., 588 F. Supp. 2d 840, 854 (N.D. Ill. 2008) ("The law is clear that a party to a contract is free to waive conditions precedent which are solely for its benefit."). In order for a court to find a waiver of a contractual right, "the facts must indicate that the party knowingly relinquished that right." C-B Realty & Trading Corp. v. Chicago and North Western Ry. Co., 289 Ill. App. 3d 892, 899, 682 N.E.2d 1136, 1142 (1st Dist. 1997). When the contract in question contains a clause requiring all amendments to be in writing, as the PMCI Agreement does, waiver is still possible, but the waiver must be proved by clear and convincing evidence. Roboserve, Inc. v. Kato Kagaku Co., Ltd., 78 F.3d 266, 277 (7th Cir. 1996).

Both the Defendants and current SKF employees testified that they believed the SKF Agreement superseded the PMCI Agreement, at least in regard to the non-compete provision. Koch testified at the hearing that Bjerkness told him the SKF Agreement superseded the PMCI Agreement, and later Kathy Comp confirmed that the SKF secrecy agreement replaced the PMCI non-compete, at least in the context of new hires. (Tr. 197.) Sever and Remick both testified that Jeff Hall, their supervisor at SKF, told them that the SKF Agreement superseded or replaced the PMCI Agreement. (Tr. at 664, 1066.) As for Bjerkness, both Bart Bartholomew, a Vice-President at SKF, and Comp told him that the SKF Agreement superseded the PMCI Agreement. (Tr. at 843.) Steven Wareham, a human resources manager with SKF who rejoined SKF in 2008 after leaving PMCI in 2005, verified that Comp was telling people that the SKF secrecy agreements were replacing the PMCI non-competes. (Tr. at 440.) Bartholomew's own conduct suggested that there was no non-compete in place at the time of Defendants' resignations; he testified that he asked Bjerkness to consider signing a non-compete-a request that would make little sense if the PMCI Agreement remained operative. (Tr. 543.) James Miller, who was the former president and majority shareholder of PMCI before selling all of his stock to SKF and becoming a Vice President of SKF, claims that Kathy Comp, who is his sister, told him that Wierling advised her that the SKF Agreement superseded the PMCI Agreement. (Tr. 968.)

Comp herself verified this account. On February 29, 2008, Comp e-mailed Christoph Wierling, stating, "I am assuming that [the SKF Agreement] is superseding the one that PMCI used, so the PMCI's is null and void? Some employees in the field are asking." (Defs.' Ex. 1.) Comp testified that based on Wierling's response to that e-mail, she understood that the PMCI Agreement was no longer operative once the employees signed the SKF Agreement. (Tr. at 1012.) Comp also said that she showed Bjerkness an e-mail message from Wierling confirming that the PMCI Agreement was null and void. (Tr. at 1016.) The e-mail itself was never produced, however, either in Comp's files or SKF's files, and Wierling initially testified that he never talked to Comp about whether the SKF Agreement superseded the PMCI Agreement. (Wierling Dep. at 98.) Wierling later acknowledged that, though he does not remember discussing the effect of the existing PMCI Agreements with her on the telephone, he did frequently communicate with Comp by telephone, so it was not unusual for him not to respond to an e-mail from her. (Id. at 108-09.)

The court concludes, by clear and convincing evidence, that SKF knowingly relinquished its rights in the PMCI Agreements. Defendants were told by several parties-including Comp, Hall, and Bartholomew-that the PMCI non-compete agreements were no longer in effect after they signed the SKF Agreements. Plaintiff insists that this does not constitute a waiver because Comp was neither authorized to communicate this nor were her representations capable of effecting a waiver. While conflicting testimony clouds the question of whether Wierling told Comp that the SKF Agreement superseded the PMCI non-compete, the court is comfortable in concluding that Comp's statements to Defendants and others did constitute a waiver by SKF. In Illinois, an employee may bind her employer by her words and actions if she has either actual or apparent authority. Sphere Drake Ins. Ltd. v. Am. Gen. Life Ins. Co., 376 F.3d 664, 672 (7th Cir. 2004) (citing Amcore Bank, N.A. v. Hahnaman-Albrecht, Inc., 326 Ill. App. 3d 126, 134, 759 N.E.2d 174, 181 (2d Dist. 2001)). As noted, it is unclear whether Comp had actual authority, as Comp and Wierling (her supervisor) ...


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