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Tradesmen International, Inc v. John Black

November 7, 2011

TRADESMEN INTERNATIONAL, INC., PLAINTIFF,
v.
JOHN BLACK, ET AL., DEFENDANTS.



The opinion of the court was delivered by: David G. Bernthal U.S. Magistrate Judge

E-FILED

Monday, 07 November, 2011 09:54:20 AM Clerk, U.S. District Court, ILCD

ORDER

Plaintiff Tradesmen International, Inc. filed a First Amended Complaint (#35) against Defendants in September 2010. Defendants are Professional Labor Support, LLC, and John Black, Todd Walker, Ryan Ellis, and Ryan Boyer. Plaintiff brought ten counts against Defendants, alleging breach of contract, misappropriation of trade secrets, and other related claims. Federal jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332. The parties have consented to the exercise of jurisdiction by a United States Magistrate Judge.

In June 2011, Defendants filed a Motion for Summary Judgment (#62).*fn1 In July 2011, Plaintiff filed Plaintiff's Response in Opposition to Defendants' Motion for Summary Judgment (#66). Defendants filed Defendants' Reply Memorandum in Support of Motion for Summary Judgment (#78). After reviewing the parties' pleadings, memoranda, and submitted evidence, this Court hereby GRANTS Defendants' Motion for Summary Judgment (#62) in part and DENIES the motion in part. For the reasons explained below, the Court grants Defendants' motion for summary judgment with respect to all counts, with the exception of Count IV. Count IV is dismissed as moot.

I. Background

The following background information is taken from the undisputed facts, as well as evidence submitted to the Court.

Plaintiff Tradesmen International, Inc. is a construction labor support company with a corporate office in Macedonia, Ohio. It hires and directly employs field employees in skilled trades. Tradesmen leases these employees to clients in temporary need of skilled labor. (#62, ¶¶ 1-2). Tradesmen has offices located throughout the country.

Each of the individual Defendants is a former employee of Tradesmen. Each Defendant began his career at Tradesmen as a Field Representative, and each Defendant eventually became a General Manager. (#62, ¶¶ 12, 20, 27). Defendants Black, Boyer, and Walker worked for Tradesmen for two, eight, and four years, respectively. (#62, ¶¶ 10, 18, 25). Each Defendant signed a covenant not to compete (hereinafter "CNTC") before or shortly after commencing his employment with Tradesmen. The contracts provide that, for 18 months after the end of their employment with Tradesmen, the Defendants would not compete in a certain geographically restricted area. That area was defined in three respects: (a) certain identified counties, (b) within 100 miles of any Tradesmen field office, (c) within 25 miles of any location where Tradesmen "is providing its services." (#62, ¶ 39). The contract also provided that, within the geographically restricted area, Defendants would not transact business with Tradesmen customers or prospective customers, would not interfere with customers or prospective customers, and would not solicit or hire Tradesmen employees. (#62, ¶¶ 48-56; #62-4, Exs. 11-13). Finally, the contract provided that the Defendants would not disclose or use any of Tradesmen's proprietary information for any reason other than to benefit Tradesmen. (#62-4, Exs. 11-13).

The trouble here began in October 2009. Tradesmen asked Black to take a demotion, from General Manager to Project Coordinator. Because Black was not willing to accept the demotion, he either resigned or was terminated. (#62, ¶¶ 16-17). Defendants admit that from October 2009 to January 2010, Defendants prepared to open a business providing some of the same services as Tradesmen. In November 2010, Defendants went so far as to sign an office and apartment lease for their new business. (#66, ¶¶ 197-200; 201-15). In January 2010, Tradesmen discovered Defendants' plan, and Defendants Walker and Boyer either were terminated or resigned from Tradesmen. (#62, ¶¶ 24-25).

Before leaving Tradesmen, on January 4, 2010, Defendant Walker sent five e-mails with "Modified D&B Reports" attached to his personal e-mail account. This action is the basis for a number of claims against all Defendants. However, it is unclear if or when the other Defendants knew of this action. At some point in late January, either Defendant Black or Defendant Walker deleted these e-mails, at Defendant Black's suggestion. (#62, ¶¶ 129-44; 147-53). These "Modified D&B Reports" are used by Tradesmen to identify potential customers. They are broken down by zip code. Tradesmen gets D&B Reports for various areas on a regular basis, and often modifies them in-house to narrow the pool of prospective clients to solicit. (#62-3, Ex. 5, p. 18-20.)

In October 2009, the Defendant Black officially formed a new business, Professional Labor Support, LLC (hereinafter PLS), a Defendant in this case. (#62, ¶ 66). Defendants Boyer and Walker joined PLS in January 2010, after their employment with Tradesmen ended (#62, ¶¶ 67, 69; #66, ¶ 67 [partially disputed]).*fn2 The idea, according to Defendants, was to compete with Tradesmen in a manner that would not violate the CNTCs. (#62, ¶¶ 74-75; #66, ¶¶ 74-75 [disputed]). Defendants opened PLS in Mahomet, Illinois, more than 100 miles away from any Tradesmen field office. (#62, ¶ 75; #66, ¶ 75; #62-2, Ex. 4; but see also #66, ¶¶ 243-44). Defendants turned down several opportunities to do business with clients they first encountered through their work at Tradesmen. (#62, ¶¶ 79-86).

Around March 2010, PLS became fully operational. It started making sales, recruiting field employees, and actively conducting business. (#62, ¶ 71). PLS indisputably provided services to at least one Tradesmen client, TCR Systems, LLC. (#62, ¶ 94, #66, ¶¶ 280).*fn3 However, on February 7, 2011, in response to discovery in this case, Tradesmen provided Defendants a list of customers "we believe are covered by the restrictions at issue" (hereinafter the "Restricted Client List"). (#62, ¶ 91; #62-6, Ex. 24). This list contains over 2,600 customers or prospective customers. (#62, ¶ 93). On the same date, Plaintiff provided a list of its "specific offices covered by Defendants' Non-Compete Agreements" (hereinafter the "Restricted Office List.") (#62, ¶ 89; #62-6, Ex. 24). TCR Systems is not on the Restricted Client List. (#62, ¶ 96). It does not appear that any of PLS's customers are on the Restricted Client List.

The plot thickens in January 2011. In January 2011, Defendant Ellis's term for his CNTC expired. Defendant Ellis organized a separate limited liability company in Indiana called PLS of Indiana, LLC (hereinafter "PLS Indiana"). (#66, ¶ 265). When Defendant Black's CNTC term expired in April 2011, he left PLS, gave up his interest, and joined PLS Indiana (#66, ¶ 269). Plaintiff notes that Defendant Boyer also considered leaving PLS to join PLS Indiana as soon as the term for his CNTC expired, in July 2011. (#66, ¶ 270). PLS Indiana has clients in common with Tradesmen, including Stickle Steam, Biehle Electric, and Forrester Electric (#66, ¶ 287; #62, ¶¶ 124-28; #66, ¶¶ 124-28 [disputed as to whether these clients are also clients of PLS]).

Based on these events, Plaintiff brings ten counts against Defendants: (1) breach of contract, (2) misappropriation of trade secrets, (3) misappropriation of confidential information, (4) declaratory judgment regarding enforceability of the CNTCs, (5) permanent injunctive relief, (6) breach of the duty of loyalty, (7) tortious interference with contractual relations, (8) tortious interference with business expectancy, (9) conversion, and (10) civil conspiracy.

II. Standard

Summary judgment is appropriate 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). In ruling on a motion for summary judgment, the Court must decide, based on admissible evidence, whether any material factual dispute exists that requires a trial. Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994). A factual dispute is material only if its resolution might affect the outcome of the suit under governing law. Id. The party seeking summary judgment bears the initial burden of showing that no such issue of material fact exists.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Furthermore, the Court must draw all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). However, the nonmoving party may not rest upon mere allegations in the pleadings or upon conclusory statements in affidavits; rather, he must go beyond the pleadings and support his contentions with proper documentary evidence. Celotex, 477 U.S. at 322-23.

III. Discussion

In the following discussion, the Court will first address several preliminary issues: choice of law, preemption, and whether there are genuine issues of material fact precluding summary judgment. Then, the Court will address Defendants' arguments presented in its motion for summary judgment.

A. Preliminary Issues

As a preliminary matter, this Court will address choice of law issues and preemption.

Parties did not raise these matters, but the Court nevertheless considers them to ensure that the proper law is followed, and the relevant public policy is not circumvented. Additionally, the Court will consider whether any genuine issues of material fact preclude summary judgment.

1. Choice of Law

First, the Court will address choice of law. The parties do not explicitly discuss choice of law, though both parties predominantly cite Ohio authority. The CNTCs contain a forum selection clause, expressing that the contracts are to be governed by Ohio law. Nevertheless, despite the presence of a forum selection clause in the contract, the Court must consider which state has the most significant relationship to Plaintiff's tort claims.*fn4 See Robinson v. McNeil Consumer Healthcare, 615 F.3d 861, 865 (7th Cir. 2010) (stating that Illinois, the forum state, uses the "most significant relationship" test to determine choice of law for tort claims). For torts, the state with the most significant relationship to a claim is presumably the state where the injury occurred. Id. In cases involving misappropriation of confidential information or trade secrets, Illinois applies the law of the state "where the alleged wrong was committed or the benefit was obtained." Maine v. Standard & Poor's Corp., 918 F.2d 959 (7th Cir. 1990) (citing Goldberg v. Medtronic, Inc., 686 F.2d 1219, 1225 (7th Cir. 1982)).*fn5

Here, Plaintiff is an Ohio corporation, Defendants primarily worked for Plaintiff in Indiana, and then Defendants opened a new business in Illinois. The tort claims in this case are mainly related to misappropriation of trade secrets and confidential information, specifically involving a Defendant, while employed in Indiana by Plaintiff, allegedly e-mailing himself proprietary information to benefit his new business, operating in Illinois. The Court notes that, under these facts, Illinois is the state where any benefit of Defendants' misappropriation was obtained. In any event, choice of law does not affect the outcome of this motion. The states of Illinois, Indiana, and Ohio have each adopted the Uniform Trade Secrets Act, which guides the Court's determination of Plaintiff's tort claims. 765 ILCS 1065; Indiana Code § 24-2-3; Ohio Revised Code § 1333.61. Where there is no conflict of law, the law of the forum state may be applied. Sphere Drake Ins. Ltd v. Am. Gen. Life Ins. Co., 376 F.3d 664, 671 (7th Cir. 2004). For these reasons, this Court applies Illinois law to Plaintiff's tort claims.

2. Preemption

Second, the Court will consider whether any or all of Plaintiff's common law tort claims are preempted by the Illinois Trade Secrets Act. The Court has requested supplemental briefing on this issue, which the parties have submitted (#83, #84).*fn6

The Illinois Trade Secrets Act provides that the statute displaces conflicting tort, restitutionary, and other laws providing civil remedies for misappropriation of a trade secret. 765 ILCS 1065/8(a). This provision does not affect contractual remedies, other civil remedies that are not based on misappropriation of a trade secret, or criminal remedies. 765 ILCS 1065/8(b). As a result of this provision, claims are foreclosed when they rest on the conduct that is said to constitute misappropriation of trade secrets. Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404-05 (7th Cir. 2005). However, the provision does not preempt duties imposed by law that are not dependent upon the existence of competitively significant secret information, such as an agent's duty of loyalty. Id.

Plaintiff's claim for misappropriation of trade secrets is based on harm resulting from Defendant Walker e-mailing himself Plaintiff's proprietary D&B Reports. (#62, ¶ 129). Plaintiff has admitted that this group of reports is the only trade secret at issue in this case. (#62, ¶ 129). Several of Plaintiff's common law tort claims are based, in whole or in part, on this same injury. Specifically, Plaintiff has alleged that Defendants breached their duty of loyalty "by misappropriating confidential business information during their employment in order to compete with Tradesmen." (#35, p. 20, ¶ 91). In Plaintiff's response brief, Plaintiff further relies on the theory that Defendant Walker breached a duty of loyalty by e-mailing himself D&B Reports. Similarly, in Plaintiff's claim for conversion, Plaintiff alleges that the Defendants "wrongfully and without authorization removed information from Tradesmen's computers that constitutes intellectual property of Tradesmen." ...


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