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Jano Justice Systems, Inc. v. Burton

June 10, 2009

JANO JUSTICE SYSTEMS, INC., PLAINTIFF,
v.
SAM BURTON AND SCB SYSTEMS, INC., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, U.S. District Judge

OPINION

Plaintiff Jano Justice Systems, Inc. seeks a preliminary injunction against Defendant Sam Burton and his company, Defendant SCB Systems, Inc.

The preliminary injunction is granted in part and denied in part.*fn1

I. BACKGROUND

Burton created an "integrated court system" program in 1991. In 1993, Burton joined with Vasco Bridges to create Jano Data Systems, Inc.

By 2002, Jano Data Systems had been replaced by Jano Justice. Further, Burton's original concept for an "integrated court system" had been transformed into a program called "Clericus Magnus." Burton is currently one of two 50% shareholders of Jano Justice. Jano's business largely concerns entering into license and maintenance agreements with public entities (particularly counties) regarding the use of Clericus Magnus.

After a number of years with Jano Justice (and Jano Data), Burton left the company. Soon after, he began operating a sole proprietorship in competition with Jano. In late 2007, this proprietorship was incorporated as Defendant SCB Systems, Inc. ("SCB"). SCB provides the same products and services as Jano and has managed to capture several of Jano's customers. Further, Defendants have hired one of Jano's employees to work for them.

II. PRELIMINARY INJUNCTION

The grant of a preliminary injunction involves "a very far-reaching power, never to be indulged in except in a case clearly demanding it." Girl Scouts of Manitou Council, Inc. v. Girl Scouts of USA, Inc., 549 F.3d 1079 (7th Cir. 2008) (internal quotations omitted). Whether an injunction is so demanded turns on a two-phase analysis. The first, a threshold phase, requires the injunction seeking party to make three showings: (1) some likelihood of success on the merits of the claims, (2) irreparable harm absent the injunction, and (3) the inadequacy of traditional legal remedies. The second phase involves a balancing between the harm accruing to the plaintiff from a lack of injunction and the harm that would afflict the defendant or other non-parties (i.e., the public) if the injunction were granted. Id.

A. Likelihood of Success on the Merits

The likelihood of success on the merits impacts both phases of the preliminary injunction analysis. To survive under the threshold phase, Jano Justice must merely show that the likelihood of success is better than negligible. Girl Scouts, 549 F.3d at 1096 (citing Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 897 (7th Cir. 2001); Omega Satellite Prods. Co. v. City of Indianapolis, 694 F.2d 119, 123 (7th Cir. 1982)). In the balancing phase, however, a sliding scale approach applies, meaning that the greater Jano Justice's likelihood of success, the more likely it is entitled to a preliminary injunction. Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir. 1992). This Court must determine the likelihood of Jano Justice's success on its three claims: (1) breach of fiduciary duties by Burton, (2) violations of the Illinois Trade Secrets Act by Burton and SCB, and (3) tortious interference with business relations by Burton and SCB.

First, Jano Justice claims that Burton owed it fiduciary duties as one-half owner and that those duties were breached when Burton opened a competing software company and hired away an employee from Jano Justice. Illinois courts have imposed liability in closely analogous circumstances. For instance, in Hagshenas v. Gaylord, an Illinois appellate court concluded that 50% shareholders owe each other duties similar to those of partners. 119 Ill. App. 3d 60, 68-73 145 Ill. Dec. 546, 557 N.E.2d 316 (1990). That duty was breached where the 50% owner opened a competing business and hired away several employees. Id. Under such authority, Jano Justice's likelihood of success on the merits is quite high.*fn2

Second, Jano Justice seeks relief under the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq., which provides for the issuance of injunctions to prohibit actual or threatened misappropriation of a trade secret. Jano Justice claims that the program for Clericus Magnus is a "trade secret" and that an injunction is necessary to prevent its continued misappropriation by Defendants. In response, Defendants suggest that Clericus Magnus is not Jano's property and, in any event, does not qualify as a "trade secret."

Initially, it appears that Jano will succeed on its claim of ownership over Clericus Magnus. Burton's claims to ownership hinge entirely on his development of a predecessor of Clericus Magnus prior to his joining Jano Data Systems or Jano Justice Systems. However, he later became 50% owner of these companies and apparently allowed Jano to repeatedly assert its ownership of the product in its licensing agreements. Further, the predecessor program is not being marketed; rather, Jano is licensing "Clericus Magnus," a program that it developed from Burton's original concept and for which it is ...


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