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Geoffrey Harris v. Central Garden & Pet Company

August 1, 2011

GEOFFREY HARRIS, PLAINTIFF/COUNTER-DEFENDANT,
v.
CENTRAL GARDEN & PET COMPANY, DEFENDANT/COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Plaintiff Geoffrey Harris seeks a judicial declaration that the non-compete agreement he entered into with his former employer, Defendant Central Garden & Pet Company, is unenforceable under Illinois law. Harris also seeks to recover a $100,000 bonus payment from Central pursuant to the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq.*fn1 Central counterclaims, asserting that the non-compete should be declared valid and enforceable. Central also filed a counterclaim for breach of contract. The parties have filed cross-motions for summary judgment. R. 80, 84. For the reasons discussed below, Harris's motion is granted in part and denied in part; Central's motion is denied.

I.

In 1993, Harris formed Bethlehem Lights, Inc., an Illinois corporation that distributed pre-lit Christmas trees, wreaths, and other seasonal foliage that it designed and imported from overseas manufacturers and then sold to a variety of retailers throughout the United States. R. 91, Pl.'s Stmt. of Facts (PSOF) ¶ 7. As the President of Bethlehem Lights, Harris located and developed relationships with several suppliers in China, Hong Kong, Thailand, and Taiwan. PSOF ¶ 8. In 1996, Harris developed a customer relationship with the QVC Network, a direct response television retailer, and regularly appeared on the air as Bethlehem Lights's spokesperson to describe and sell Bethlehem Lights products between 1996 and 1999. PSOF ¶ 9. In 1999, Harris sold the assets of Bethlehem Lights to New England Pottery (NEP), a distributor of similar holiday decor items, as well as decorative pottery, ornamental containers, and garden accessories. PSOF ¶ 11. Harris agreed to stay on as an employee of NEP, subject to a five-year employment agreement. PSOF ¶ 12. As an employee of NEP, Harris continued to work with the suppliers and customers he developed for Bethlehem Lights and appeared on QVC to describe and sell the products. PSOF ¶ 14.

On January 23, 2004, Central agreed to purchase the assets of NEP and executed an asset purchase agreement with NEP memorializing the terms of the transaction. PSOF ¶ 15. Harris did not participate in the negotiations between Central and NEP; he was neither a party nor a signatory to the asset purchase agreement. PSOF ¶ 15. Four days later, on January 27, Harris entered into an employment agreement with Central. PSOF ¶ 20. On February 26, 2004, the Central-NEP deal closed and Central acquired the assets of NEP pursuant to the asset purchase agreement. PSOF ¶ 19. The same day, Harris signed a non-compete agreement with Central, which prohibited Harris from working in the holiday decor industry, or any of the other industries in which Central operates, for the duration of his five-year employment term with Central, as well as for five years following the end of his employment with Central. PSOF ¶ 21.

Central is in the business of producing and marketing lawn and garden, home, and pet supply products. R. 82, Def.'s Stmt. of Facts (DSOF) ¶ 5. As part of this business, Central sells Christmas lights and other holiday products under the brand name GKI/Bethlehem Lighting. DSOF ¶ 7. During his employment with Central, Harris worked exclusively within the GKI/Bethlehem Lighting division. PSOF ¶ 22. Harris brought his business relationships with overseas manufacturers and retailers in the United States to Central. PSOF ¶¶ 37-38. In particular, Harris brought his relationship with QVC to Central and, as a Central employee, he continued to have primary responsibility for selling GKI/Bethlehem Lighting holiday decor to QVC. PSOF ¶ 30. Harris did not solicit or sell to other direct response television retailers, such as ShopNBC or HSN, because GKI/Bethlehem Lighting is contractually prohibited from selling its seasonal decor products to these retailers. PSOF ¶¶ 34-35. In contrast, QVC purchases comparable Christmas and seasonal decor products from other suppliers, including Central's competitors. PSOF ¶ 31. Indeed, Central is one of hundreds of companies importing and selling Christmas and other seasonal decor products to retailers throughout the United States. PSOF ¶ 24. Central routinely seeks products for its GKI/Bethlehem Lighting product line that are copied from seasonal decorations already being sold by competitors in the marketplace. PSOF ¶ 26. And, on more than one occasion, QVC has asked Central to duplicate products being sold by other retailers in the marketplace. PSOF ¶ 27. Likewise, once Central sells a GKI/Bethlehem Lighting product in the marketplace, it can be readily duplicated, or reverse-engineered, by competitors seeking to sell a comparable product. PSOF ¶ 52.

During Harris's employment with Central, none of Central's overseas suppliers maintained an exclusive relationship with Central. PSOF ¶ 39. Rather, Central's suppliers openly sold Christmas and other seasonal decorations to Central's competitors and customers.*fn2 PSOF ¶ 39. GKI/Bethlehem Lighting's suppliers are not prohibited from sharing information about orders placed by Central or their other customers. PSOF ¶ 53. In fact, within the industry, suppliers frequently share such information amongst their customers and potential customers, as well as with subcontractors who may manufacture component parts. PSOF ¶ 53. The same is true for Central's customers. PSOF ¶ 56. During Harris's employment, Central did not have confidentiality or non-disclosure agreements with QVC or any of its other GKI/Bethlehem Lighting customers under which the customers agreed to maintain the confidentiality of Central's business information and not disclose it to any third party. PSOF ¶ 56. While Harris's employment agreement with Central contains aconfidentiality provision, he was the only GKI/Bethlehem Lighting employee required to sign an agreement to maintain Central's purportedly confidential information. PSOF ¶ 42. Other GKI/Bethlehem Lighting employees privy to Central's cost and pricing information were not required to sign non-compete or confidentiality agreements. PSOF ¶¶ 43-45.

Harris's employment agreement with Central was scheduled to expire on January 27, 2009. PSOF ¶ 23. Before the contract expiration, and for several months thereafter, the parties continued to negotiate a new employment contract. DSOF ¶ 14. The parties agreed to maintain and continue the terms of Harris's employment agreement while they attempted to negotiate a new agreement. PSOF ¶ 23. In some of the same meetings where Harris and Central discussed the terms of a future employment agreement, the parties also discussed paying Harris a $100,000 bonus for his work in 2008.*fn3 R. 126, Pl.'s Resp. DSOF ¶ 15. For instance, in late October 2008, Harris met with Central executives William Brown and Stanley Bulger regarding Harris's new employment contract. DSOF ¶ 16. During that meeting, Harris requested that, in addition to his annual salary, Central pay him a $100,000 bonus for his performance in 2008. DSOF ¶ 17. This figure was written on a whiteboard, along with the proposed terms of Harris's new employment contract. DSOF ¶ 19. Harris and Brown did not discuss the method or timing of the payment for the bonus at the October 2008 meeting. DSOF ¶ 21. However, in January 2009, Central informedHarris that he would receive his 2008 bonus in the form of restricted stock. Pl.'s Resp. DSOF ¶ 24. On February 2, 2009, Harris notified Central that he did not consent to receiving his bonus in restricted stock; rather, he expected a check in the amount of $100,000. Pl.'s Resp. DSOF ¶ 25. Central placed Harris's bonus payment on hold, and proceeded to pay other employees' 2008 bonuses in the form of restricted stock. Pl.'s Resp. DSOF ¶ 27.

Ultimately, Harris and Central were unable to reach an agreement regarding Harris's continued employment, and Harris resigned from Central on April 17, 2009. PSOF ¶ 23. On the same day, Harris filed this lawsuit against Central. See R. 1. Harris continues to work in the Christmas and seasonal decor business. Def.'s Resp. PSOF ¶ 61.

II.

Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The same standard applies to cross-motions for summary judgment. Int'l Bhd. of Elec Workers, Local 176 v. Balmoral Racing Club, Inc., 293 F.3d 402, 404 (7th Cir. 2002). Rule 56 "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). All facts, and any inferences to be drawn from them, must be viewed in the light most favorable to the non-moving party. Wis. Cent., Ltd. v. Shannon, 539 F.3d 751, 756 (7th Cir. 2008). The evidence presented at this stage must comport with the Federal Rules of Evidence and be admissible at trial, United States v. 5443 Suffield Terrace, Skokie, Ill., 607 F.3d 504, 510 (7th Cir. 2010), or it must consist of affidavits or declarations "made on personal knowledge, set[ting] out facts that would be admissible in evidence, and show[ing] that the affiant or declarant is competent to testify on the matters stated." Fed. R. Civ. P. 56(c)(4). The court does not assess the credibility of witnesses or weigh evidence, Abdullahi v. City of Madison, 423 F.3d 763, 773 (7th Cir. 2005), and will not grant summary judgment if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

III.

A.

1.

Under Illinois law,*fn4 "restrictive covenants are carefully scrutinized to ensure that they are connected to legitimate business interests, and not simply intended to stifle competition." Loewen Group Int'l, Inc., Haberichter, 912 F. Supp. 388, 392 (N.D. Ill. 1996). The framework Illinois courts apply to a particular covenant depends on whether the covenant not to compete is ancillary to an employment agreement or a sales agreement. Reflecting wariness of restricting individual employment

opportunities, greater scrutiny applies to a covenant that is ancillary to an employment agreement than to a covenant ancillary to a sales agreement. A covenant ancillary to an employment agreement will be enforceable only if the employer (1) shows that the restriction is reasonable in duration, geographical area, and scope of prohibited business activity, and (2) demonstrates either a near-permanent relationship between the employer and its customers, and that but for his association with the employer, the former employee would not have had contact with the customers, or the acquisition and attempted use of confidential information by the employee. Loewen, 912 F. Supp. at 392-93 (citing Audio Props., Inc. v. Kovach, 655 N.E.2d 1034, 1037 (Ill. App. Ct. 1995)); Hamer Holding Group v. Elmore, 560 N.E.2d 907, 915-16 (Ill. App. Ct. 1990). In contrast, a covenant ancillary to the sale of a business need only be reasonable ...


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