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Jano Justice Systems, Inc. v. Burton

May 20, 2010

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

The Court held a hearing on March 31, 2010, to address a number of pending issues and motions in this case. Immediately following the hearing, the Court issued the following Text Order:

The Plaintiff's Motion for Modification of Opinion [d/e 40] and the Plaintiff's Petition for Contempt [d/e 57] are hereby DENIED.

The Preliminary Injunction Order contained in the Court's Opinion and Order entered June 10, 2009 [d/e 30] is valid and in effect until further order of this Court. The Court underscores the "harm to the public" exception contained in the last paragraph on page 13 of the Opinion and Order [d/e 30], allowing the Defendants to continue working for Will, Kane, and Winnebago Counties.

Jano Justice Systems, Inc. is directed to post an injunction bond in the amount of $90,000 with the Clerk of Court on or before April 9, 2010.

Opinion to follow.

Text Order of March 31, 2010.

This opinion explains the rationale behind that summary text order.

I. BACKGROUND

Defendant Sam Burton is a 50% shareholder in the Plaintiff company, Jano Justice Systems, Inc. The other Defendant is Burton's company, SCB Systems. Vasco Bridges is the chief executive officer of Jano Justice Systems. Both Plaintiff and Defendants provide computer technology services to counties and state circuit courts in Illinois. All parties are involved with a computer program, or group of programs, called Clericus Magnus.

Burton was involved in developing the first version of Clericus Magnus, and it was installed in 1991 in Sangamon County, Illinois. Eventually, Bridges and Burton went into business together, with Burton bringing the code, and Bridges providing the business expertise. The Plaintiff company's predecessor, Jano Data Systems, was incorporated in Mississippi in 1993. In 2002, Jano Justice Systems was incorporated in Mississippi, and Jano Justice absorbed Jano Data. Burton was a vice president of Jano Justice until late 2006.

Around the time Burton left Jano he started a sole proprietorship, and later, in late 2007, formed SCB Systems. Defendants Burton and SCB Systems established a competing business that eventually took over some of the Plaintiff's work in Will, Winnebago, and Kane Counties. The Defendants maintain the Clericus Magnus program for clients, and have helped Winnebago County transition to a new provider, Justice Systems, Inc.

The Plaintiff filed suit on September 19, 2008, including four counts in the complaint:

Count I: Breach of Fiduciary Duty Against Defendant Burton;

Count II: Tortious Interference with Business Relationship Against Defendants Burton and SCB Systems;

Count III: Illinois Trade Secret Act Against Defendants Burton and SCB Systems; and Count IV: Deceptive Trade Practices.

Count IV did not survive the Defendants' Motion to Dismiss. See Opinion of Dec. 11, 2008 [d/e 12].

The Plaintiff moved for a preliminary injunction [d/e 21] in April of 2009. The Plaintiff sought to block the Defendants from doing any work with counties or state circuit courts in Illinois. Neither party requested a hearing.

In a June 10, 2009 Opinion [d/e 30], the Court allowed the motion, with the limitation that the Defendants could continue to service the affiliated counties. The Court found the likelihood of the Plaintiff prevailing on Counts 1-3 of the Complaint very high. The Court reasoned that the exception was necessary because there was a high likelihood of harm to the public.

After the Opinion was entered, the Defendants moved for reconsideration [d/e 32]. The Defendants claimed that the preliminary injunction should not have issued without an evidentiary hearing, because there were dueling affidavits and the factual issues should have been resolved first. The Defendants also disagreed with the Court's basis for granting the preliminary injunction. Finally, the Defendants asked the Court to set a bond.

The Motion to Reconsider was allowed to the extent that the Defendants sought the imposition of security for the preliminary injunction. The Court had inadvertently omitted the bond requirement. See Opinion of July 2, 2009 [d/e 34]. The motion was denied to the extent that the Defendants sought a hearing or other reconsideration.

The Court requested briefing on the amount of security. The Plaintiff refused to provide a specific number, stating that it was the Defendants' burden to provide an amount. Alternatively, the Plaintiff requested that the bond be of a nominal value.

The Defendants requested that the bond amount be $150,000, allegedly the value of a consulting contract which was lost when Kane County, Illinois decided against renewal. Vasco Bridges had sent a copy of the Opinion to the clients of the Defendants.

On July 21, 2009, the Plaintiff filed a Motion for Modification of Opinion [d/e 40]. The Plaintiffs wanted to eliminate the public harm exception that allowed the Defendant to continue to provide services to Illinois counties.

Some additional issues arose in the course of briefing the Motion to Reconsider and the Motion for Modification. First, the Plaintiff relied heavily on an Illinois case, Hagshenas v. Gaylord , 199 Ill. App. 3d 60 (2d Dist. 1990), when evaluating Count I of the Complaint. The Court also relied heavily upon Hagshenas in establishing the preliminary injunction. See Opinion and Order of June 10, 2009 [d/e 30], 4-5. Hagshenas imposed strict fiduciary duties on 50% shareholders of close corporations. Hagshenas was a heavily criticized case, and as a result, the state legislature adopted an opt-out provision where a shareholder could essentially sever his responsibilities via waiver. See 805 ILCS 5/7.90. After the Court entered the Preliminary Injunction Order, the Defendant sent the statutory waiver to the Plaintiff and filed a copy with the Court. The Defendant argued that Count I would fail because he no longer had fiduciary duties.

In response, the Plaintiff asserted that Count I should be governed by Mississippi law, because Jano Justice Systems is a Mississippi corporation. The parties made initial arguments regarding choice of law. At the same time, the Defendants' affirmative defense based on copyright law seemed to take shape, but the briefing was inadequate. The Court directed additional briefing on the choice of law and intellectual property issues, and the parties complied. See Order Requesting Additional Briefing [d/e 51].

On November 20, 2009, the Plaintiff filed its Contempt Petition [d/e 57]. The Plaintiff claims that the Defendants have violated the preliminary injunction in working with competitors of Jano Justice Systems.

A few days after the filing of the Contempt Petition, Winnebago County, Illinois, filed its Motion for Leave to File an Amicus Brief [d/e 59], and permission was granted the same day. See Text Order of Nov. 23, 2009. The Amicus Brief dealt with the possibility of harm to the public and Winnebago County if the Plaintiff's Motion for Modification of Opinion [d/e 40] was granted. Specifically, the Defendants were involved in Winnebago County's transition from Clericus Magnus to a new system provided by Justice Systems, Inc., and there were concerns about disruptions to the transition. The parties were given the opportunity to respond to the Amicus Brief.

Thereafter, the Plaintiff sought to strike the Amicus Brief. See Motion to Strike [d/e 66]. The Plaintiff made a number of aggressive claims, including that Winnebago County was colluding with the Defendants. See id. The Court denied the Motion to Strike. See Order of Dec. 30, 2009 [d/e 71].

From December 2009 to late February 2010, the Court took no action on the modification, contempt, choice of law, trade secret/copyright, or bond amount issues because mediation had been scheduled before Magistrate Judge Byron G. Cudmore. See Minute Entry of Dec. 1, 2009, Order of Jan. 5, 2010 [d/e 73].

Eventually, the mediation was cancelled. See Text Order of Feb. 18, 2010. The following day, the Court set a hearing for March 31, 2010 to resolve the pending issues in the case. See Order of Feb. 19, 2010 [d/e 81]. The hearing was held, and shortly thereafter the Court resolved the outstanding issues via text order, indicating that an opinion would follow. See Minute Entry of March 31, 2010, Text Order of March 31, 2010.

In the Text Order, the Plaintiff was directed to post a bond with the Clerk of Court on or before April 9, 2010. The Plaintiff failed to post a bond by the deadline.

II. ANALYSIS

A. PLAINTIFF'S MOTION FOR MODIFICATION OF OPINION

The Plaintiff has moved to eliminate the public harm exception to the preliminary injunction. The information technology systems dealt with in this case relate to the organization and interconnection of records relating to courts, prosecutors, public defenders, law enforcement agencies, and county clerks. In some instances, these systems relate to providing accurate information to law enforcement regarding active arrest warrants. In short, this is serious business and the Court recognizes that injunctive relief should be carefully tailored to avoid harm to the public, and should not interfere with judicial and law enforcement activities.*fn1

Therefore, the Court created an exception to the preliminary injunction, allowing the Defendants to maintain programs currently in place.

The Plaintiff argues that the programs can operate on their own and that if service or maintenance is needed the Plaintiff is better equipped to provide these services to the three counties in question. However, there are indications from the record that Kane County is vehemently opposed to working with the Plaintiff.

Winnebago County has been in the process of moving to another system. The Amicus Brief of Winnebago County has illuminated the way in which modifying the injunction could cause harm to the public. The County has expended in excess of $3 million in the transition to Justice Systems, Inc. Modifying the Order could result in the loss of substantial resources, as well as limiting the ability of state circuit courts and counties to operate efficiently. ...


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