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Mainline Information Systems, Inc. v. Benkendorf

May 20, 2010

MAINLINE INFORMATION SYSTEMS, INC. PLAINTIFF,
v.
MARK BENKENDORF, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-Yeghiayan United States District Court Judge

MEMORANDUM OPINION

SAMUEL DER-YEGHIAYAN, District Judge

This matter is before the court on Defendants' motion to dismiss. For the reasons stated below, we deny the motion to dismiss in its entirety.

BACKGROUND

Plaintiff Mainline Information Systems, Inc. (Mainline) is a company that markets information technology (IT) products and services. Mainline alleges that on July 29, 2002, Mainline hired Defendant Mark Benkendorf (Benkendorf) as an Account Executive, and eventually promoted him to the position of Regional Vice President. Mainline claims that as Regional Vice President, Benkendorf supervised Defendant Terry Rombalski (Rombalski), Defendant Jack Wachowiak (Wachowiak), Defendant Don Carlquist (Carlquist), Defendant Rosendo Arroyo (Arroyo), and Defendant John Suehr (Suehr), who were Account Executives at Mainline, and Defendant Jacqueline Lynch (Lynch), Defendant Mike Meyer (Meyer), and Defendant Jignesh Patel (Patel), who were Systems Engineers at Mainline. According to Mainline, "[a]ll individual Defendants had sales and customer relationship responsibilities to Mainline." (Compl. Par. 1).

Mainline states that on April 29, 2009, it informed Benkendorf that Benkendorf's position might be eliminated due to a company reorganization at Mainline. Mainline alleges that soon after that date, Benkendorf engaged in a conspiracy with the other individual Defendants to unlawfully solicit Mainline's customers and employees away from Mainline for the benefit of Defendant Forsythe Solutions Group, Inc. (Forsythe), who is a direct competitor of Mainline. Mainline claims that in furtherance of the alleged conspiracy, Benkendorf "secretly and without authority" excluded certain customers from the restricted covenants contained in Rombalski's and Wachowiak's employment agreements for the purpose of targeting those customers. (Compl. Par. 5). Mainline also claims that on May 20, 2009, Benkendorf offered to release Carlquist from all restrictive covenants contained in Carlquist's employment agreement if Carlquist decided to leave Mainline.

Benkendorf's last day of work at Mainline was allegedly May 29, 2009. Mainline claims that after Benkendorf was terminated by Mainline, he began working for Forsythe. Mainline also claims that after Benkendorf's termination, Benkendorf "engaged in an unlawful campaign of unfair competition by soliciting Mainline's customers and employees and disclosing and using Mainline's trade secrets and confidential information" for his own benefit and for the benefit of Forsythe. (Compl. Par. 7). Mainline alleges that the employees who left Mainline to work for Forsythe have also allegedly solicited Mainline's customers and disclosed and used Mainline's trade secrets and confidential information in violation of their employment agreements and Illinois law.

On February 24, 2010, Mainline filed the instant action. Mainline includes in its complaint claims for conspiracy brought against all Defendants (Count I), claims for unlawful solicitation of employees brought against Benkendorf and Wachowiak (Counts II and XIV), claims for unlawful competition brought against Benkendorf, Wachowiak, Lynch, Meyer, and Patel (Counts III, XVI, XXIII, XXXIII, and XXXVI), claims for breach of employee fiduciary duty brought against Benkendorf, Rombalski, Wachowiak, Carlquist, Lynch, Arroyo, Meyer, Patel, and Suehr (Counts IV, VIII, XII, XVII, XXI, XXVI, XXXI, XXXV, and XXXIX), claims for violation of the Illinois Trade Secrets Act (ITSA), 765 ILSC 1060 et seq., brought against Benkendorf, Rombalski, Wachowiak, Carlquist, Lynch, Arroyo, Meyer, Patel, and Suehr (Counts V, XI, XV, XX, XXV, XXIX, XXXIV, XXXVIII, and XLI), a claim for intentional interference with employment agreements (IIEA) brought against Forsythe (Count VI), a claim for tortious interference with a business expectancy (TIBE) brought against Forsythe (Count VII), claims for unlawful solicitation of customers brought against Rombalski, Wachowiak, Carlquist, Lynch, Arroyo, and Meyer (Counts IX, XIII, XVIII, XXII, XXVII, and XXXII), claims for breach of trade secrets and confidential information covenants brought against Rombalski, Carlquist, Lynch, Arroyo, Patel, and Suehr (Counts X, XIX, XXIV, XXVIII, XXXVII, and XL), and a claim for violation of the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030 et seq., brought against Arroyo (Count XXX). Defendants have moved to dismiss all claims.

LEGAL STANDARD

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), a court must "accept as true all of the allegations contained in a complaint" and make reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)(stating that the tenet is "inapplicable to legal conclusions"); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). To defeat a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted)(quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint that contains factual allegations that are "merely consistent with a defendant's liability . . . stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted).

DISCUSSION

I. Choice of Law

The parties have agreed that Illinois law should apply to the instant action, despite the Florida choice of law provisions found in the employment agreements at issue. Defendants are all citizens of Illinois, and the events giving rise to Mainline's claims allegedly occurred in Illinois. Based on the record and the parties' agreement, we will apply Illinois law. We note that even if we were to apply Florida law, the result would be the same.

II. Conspiracy Claims

Mainline has alleged that the Defendants participated in a conspiracy to unfairly and unlawfully compete with Mainline. Defendants have moved to dismiss the conspiracy claims, arguing that the claims fail as a matter of law, and that the facts alleged are insufficient to survive the plausibility analysis articulated in Twombly, 550 U.S. at 570, and Iqbal, 129 S.Ct. at 1949. Defendants also contend that the conspiracy claim against Forsythe must be dismissed since the individual Defendants are employees of Forsythe.

A. Effect of Benkendorf's Termination Without Cause

Defendants argue that since Mainline's allegations indicate that Benkendorf was terminated without cause, the restrictive covenants contained in Benkendorf's employment agreement are unenforceable, and therefore the conspiracy claims fail as a matter of law. (Rep. at 7). Defendants misstate the terms of Benkendorf's employment agreement, which we note is attached to the complaint and is therefore part of the pleadings pursuant to Federal Rule of Civil Procedure 10(c) (Rule 10(c)). Benkendorf's employment agreement provides only that the customer non-solicitation clause becomes unenforceable if Benkendorf is terminated without cause. (Compl. Ex. A Par. 9(A)). The other restrictive covenants contained in Benkendorf's employment agreement remained in effect regardless of the circumstances surrounding Benkendorf's separation from the company. The conspiracy claims involve, among other things, Benkendorf's alleged unlawful solicitation of Mainline's employees and unlawful use of Mainline's trade secrets, both of which are prohibited by Benkendorf's employment agreement. (Compl. Par. 50-55). Thus, Defendants are mistaken in arguing that the conspiracy claims fail based upon Benkendorf's termination without cause.

B. Sufficiency of Pleadings

Defendants also argue that Mainline's conspiracy claims against Defendants must be dismissed because Mainline has failed to allege the names of customers and employees solicited, the confidential information taken, details regarding when each co-conspirator joined the conspiracy, and what overt actions each took in furtherance of the conspiracy. For a claim of civil conspiracy under Illinois law, a plaintiff must show "(1) an agreement; (2) by two or more persons; (3) to perform an overt act or acts; (4) in furtherance of the agreement/conspiracy; (5) to accomplish an unlawful purpose or a lawful purpose by unlawful means; (6) that causes injury to another." Bressner v. Ambroziak,379 F.3d 478, 483 (7th Cir. 2004)(citation omitted). Unless a civil conspiracy claim involves allegations of fraudulent conduct, the heightened pleading standard of Federal Rule of Civil Procedure 9(b) does not apply. See Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507-09 (7th Cir. 2007)(stating that whether Rule 9(b) applies to a civil conspiracy claim "will depend on the plaintiffs' factual allegations" and whether such allegations "sound in fraud")(citations omitted).

Mainline has alleged sufficient facts to support its conspiracy claims. Mainline has alleged that each Defendant was involved in the conspiracy, and that in furtherance of the conspiracy, each Defendant committed unlawful overt acts, including the unlawful solicitation of Mainline's customers and employees and the unlawful use and disclosure of Mainline's trade secrets and confidential information. (Compl. Par. 8-10, 225-231). Mainline has also alleged that Defendants committed such unlawful overt acts to unlawfully compete with Mainline, and that as a result, Mainline has suffered damages. (Compl. Par. 4, 232).

Contrary to Defendants' assertions, Mainline need not allege facts specifying when each Defendant entered the conspiracy or the specific terms of the conspiratorial agreement. The case cited by the Defendants in support of their argument, Ryan v. Mary Immaculate Queen Center, 188 F.3d 857, 860 (7th Cir. 1999), is distinguishable from the instant action. In Ryan, the plaintiff had not alleged that the defendant at issue committed any overt act related to the search at issue, and instead only stated that the defendant at issue "conspired" with those that performed the search. Id. at 859-60. In contrast, Mainline has alleged specific overt acts undertaken by each Defendant in connection with and in furtherance of the alleged conspiracy. Also, in Ryan, it was not apparent from the allegations in the complaint how or why the defendant at issue would have been involved in the conspiracy, whereas in this case, it is apparent. The allegations in the complaint set forth the general scope of the conspiracy and the role of each Defendant in the conspiracy. Based on the above, Mainline has alleged sufficient facts relating to its conspiracy claims.

C. Plausibility Analysis

Defendants have argued that Mainline's conspiracy claims should be dismissed because Mainline's conspiracy claims cannot survive because they do not meet the federal pleading standard.

1. Benkendorf's Authority to Alter Employment Agreements

Defendants argue that Mainline's conspiracy claims fail because the claims are based on allegations that Benkendorf was without authority to approve exclusions to the customer non-solicitation provisions contained in several employment agreements at issue. According to Defendants, such allegations are contradicted by other allegations in the complaint. Defendants specifically point to portions of Mainline's complaint indicating that Benkendorf "was responsible for recruiting and managing sales persons," that Benkendorf was "a highly trusted and regarded senior management team member" who "exercised substantial discretion and independent judgment in the performance of his duties." (Compl. Par. 33). Defendants also point out that Benkendorf had, in the past, negotiated and signed employment agreements with Mainline's knowledge and approval. (Mot. at 8). Such allegations and Mainline's approval of Benkendorf's past negotiations do not contradict Mainline's allegations that Benkendorf did not have authority to approve the specific changes at issue in this case. As discussed above, at this stage of the proceedings, the court must "accept as true all of the ...


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