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Instant Technology, LLC, An Illinois Limited Liability Company v. Elizabeth Defazio

June 26, 2012

INSTANT TECHNOLOGY, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
ELIZABETH DEFAZIO, LAURA REHN, MEGAN MARKER, BETHANY MEEK, ERIN BAUER, JOEL KATZ, ANDREA KATZ, INDIVIDUALS, AND
CONNECT SEARCH, LLC, A DELAWARE LIMITED LIABILITY COMPANY DEFENDANTS.



The opinion of the court was delivered by: James F. Holderman, Chief Judge:

MEMORANDUM OPINION AND ORDER

On April 19, 2012, plaintiff Instant Technology, LLC ("Instant Technology") filed a First Amended Verified Complaint for Injunctive and Other Relief (Dkt. No. 40 ("Am. V. Compl.")) against former employees Elizabeth DeFazio, Laura Rehn, Bethany Meek, and Erin Bauer (collectively "Employee Defendants"), as well as against Joel Katz, Andrea Katz, and Connect Search, LLC ("Connect Search") (collectively "Connect Search Defendants") (altogether "Defendants"). Instant Technology seeks injunctive and other relief from Employee Defendants for breach of employment agreements, breach of fiduciary duty, and alleged violations of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030. Instant Technology also seeks injunctive and other relief from all Defendants for alleged violations of the Illinois Trade Secrets Act ("ITSA"), 765 ILCS 1065/2-3, tortious interference with business expectancies, and civil conspiracy, and from DeFazio and Connect Search Defendants for tortious interference with contract. Defendants have moved to dismiss portions of the breach of employment agreements claim against Employee Defendants (Count I) and the tortious interference with contract claim against DeFazio and Connect Search Defendants (Count III), pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons detailed below, "Defendants' Motion to Dismiss Counts I and III of the Verified Complaint for Injunctive and Other Relief" (Dkt. No. 31 ("Defs.' Mot.")) is denied.

BACKGROUND

At this stage in the litigation, the court must accept the factual allegations in Instant Technology's Amended Verified Complaint as true and must draw all reasonable inferences in Instant Technology's favor. Fednav Int'l Ltd. v. Cont'l Ins. Co., 624 F.3d 834, 837 (7th Cir. 2010). The facts set forth below are therefore stated from that perspective.

Instant Technology is in the business of information technology ("IT") staffing, working with clients seeking temporary or permanent job candidates. (Am. V. Compl. ¶ 13.) Instant Technology also works with third-party suppliers of IT job candidates as well as directly with candidates for placement with clients. (Id. ¶¶ 17-18.) As a part of this process Instant Technology invests "a substantial amount of money and other resources in developing and maintaining its client, candidate and supplier base." (Id. ¶ 21.) In the course of business, Instant Technology compiles certain confidential information not publicly available regarding each client, placement candidate, and third-party supplier. (Id. ¶¶ 24.) That information includes services, fees, and purchasing history for each client, profit margins, qualifications of job candidates, "information that is unique to Instant Technology's relationship with its third party suppliers," and extensive contact information unique to each client, candidate and third-party supplier. (Id. ¶¶ 23-24.) Instant Technology alleges that this confidential information is the "product of hundreds of hours of work," is "developed at a substantial cost . . . deriv[ing] economic value," and "cannot be independently developed by its competitors without great effort and expense." (Id. ¶¶ 25-26.) Instant Technology recognizes its proprietary interest in this confidential information by requiring employees to keep the information confidential and by restricting its access to selective employees and utilizing security measures such as passwords. (Id. ¶ 27.) Further, Instant Technology requires certain employees to sign employment agreements covenanting that they will not misappropriate the information or otherwise duplicate it, and that they will return all confidential information upon termination of the employment relationship. (Id.)

DeFazio began her employment at Instant Technology in April of 2004, and prior to her termination held the position of Executive Vice President, Sales & Operations. (Am. V. Compl. ¶ 28.) In this role DeFazio was responsible for nationwide sales, supervised 25 employees, and received compensation commensurate with her executive position. (Id. ¶¶ 28-29.) DeFazio entered into an employment agreement on October 31, 2008, effective January 1, 2008 with a term continuing through December 31, 2010 and expiring on January 1, 2011. (Id., Ex. A ("DeFazio Agreement") § 2.) The DeFazio Agreement included two restrictive covenants: the first a covenant not to disclose proprietary property ("Non-Disclosure Covenant"), (id. § 7), and the second a covenant not to solicit clients or employees of Instant Technology ("Non-Solicitation Covenant"), (id. § 8). The Non-Disclosure Covenant covers "Proprietary Property," defined as "memorandas [sic]; files; programs; clients [sic] account and customer lists; information about and notes regarding customers, candidates and consultants and their reserves . . . ; costs and prices of Instant [Technology]; client needs, requirements and business affairs; records; manuals; [and] computer data and reports." (Id. § 7(a).) DeFazio agreed that "she shall not, while in the employ of Instant [Technology], or thereafter, communicate or divulge to, or use for the benefit of herself or any other person . . . any information in any way relating to the Proprietary Property." (Id. § 7(b) (emphasis added).)

The Non-Solicitation Covenant provides that: Employee shall not directly or indirectly, for a period of three (3) years after termination of Employee's employment with instant, perform IT Staffing Services for any of Instant [Technology's] Clients who have been serviced by Instant [Technology] within three (3) years prior to the termination of Employee's employment with Instant [Technology] ("Instant's Serviced Clients") or accept IT Staffing Services business from, or assist any person . . . to perform IT Staffing Services for . . . any of Instant's Serviced Clients. (Id. § 8.) DeFazio also was restricted from: contacting or soliciting any of Instant's Serviced Clients for three years following termination of her employment, (id. § 8(a)), notifying Instant's Serviced Clients of her termination, (id. § 8(b)), notifying Instant's Serviced Clients where she is employed during the two-year period following termination or servicing any clients during that time, (id. § 8(c)), and "directly or indirectly encourag[ing], solicit[ing], or otherwise attempt[ing] to persuade any employee . . . of Instant [Technology] to leave the employ . . . or breach any employment . . . agreement with Instant [Technology]," (id. § 8(e)).

Between January 11, 2008 and March 24, 2011 defendants Meek,*fn1 Marker, Rehn, and Bauer each entered into employment agreements of indefinite length with Non-Solicitation Covenants. (Am. V. Compl., Exs. B-E ("Employment Agreements").) The terms of the Non-Solicitation Covenants in the Employment Agreements are identical to those in the DeFazio Agreement with one exception: The Employment Agreements restrict servicing of, contact with, or solicitation of Instant's Serviced Clients for only two years following termination, rather than three. (Id. § 8.)

Prior to termination, both Rehn and Marker each held the position of Senior Account Manager, reporting directly to DeFazio, Meek held the position of Lead/Senior Recruiter, reporting to the COO, and Bauer held the position of Recruiter, reporting to DeFazio. (Am. V. Compl. ¶¶ 34-37.) In total, Employee Defendants allegedly generated approximately one-third of Instant Technology's revenues. (Id. ¶ 39.) The other individual parties to the litigation are Joel and Andrea Katz. Joel Katz used to head Addison Search Ventures, LLC, a competitor of Instant Technology, and currently serves as Chief Investment Officer for Brown Lab Investments (an unrelated business), whose CEO is Andrea Katz. (Id. ¶ 48-50.)

During the latter half of 2011, while still in the employ of Instant Technology, DeFazio was regularly late to work and failed to close any sales purportedly because of her efforts to launch Connect Search. (Am. V. Compl. ¶¶ 31-32.) For example, on December 9, 2011, DeFazio took Meek for drinks to discuss the startup of Connect Search and their departure from Instant Technology, and then charged the outing to her Instant Technology expense account. (Id. ¶ 60.) On December 29, 2011, after being contacted by DeFazio, representatives from Staffing Now, a staffing company, met with DeFazio to present candidates for an administrative assistant opening they believed to be for Instant Technology. (Id. ¶¶ 63-65.) As it turned out, DeFazio was hiring for Connect Search. (Id. ¶ 65.) During this same period, Rehn, Marker, Meek, and Bauer, at the behest of DeFazio, each targeted Instant Technology's top clients for sales but intentionally failed to close those sales so that Connect Search could later step in with the leg-work completed. (Id. ¶¶ 59, 61.)

In early January 2012, Instant Technology alleges that much of its Proprietary Property was misappropriated by Employee Defendants. According to the Amended Verified Complaint, DeFazio copied all of her Instant Technology emails, and using portable media "transferred several gigabytes of data." (Id. ¶ 68.) In addition, Meek allegedly downloaded all candidate data from her Instant Technology computer during the same period. (Id. ¶ 69.) Finally, all Employee Defendants allegedly sent "dozens" of Instant Technology emails from their work to their home email accounts, and then deleted thousands of emails in an effort to hide their conduct. (Id. ¶¶ 70, 72.)

On January 3, 2012, Instant Technology fired Bauer based on diminished performance. (Am. V. Compl. ¶ 51.) Three days later, on January 6, 2012, Marker resigned based on a purported desire to move into the suburbs and start a family; the same day Meek also resigned. (Id. ¶ 52.) Later that day, Instant Technology fired DeFazio and Rehn due to diminished performance and suspicions that they were collaborating with the other Employee Defendants to start a competitive business. (Id. ¶ 53.) That same day, DeFazio, Joel Katz, and Andrea Katz launched Connect Search with each serving as Managers. (Id. ¶ 54.) Connect Search offers the same services and "targets the same market and client base" as Instant Technology. (Id. ¶ 55.) Today, all Employee Defendants are employed by Connect Search: DeFazio as President, Rehn and Marker as Vice Presidents of Sales, and Meek and Bauer as Vice Presidents of Recruiting. (Id. ¶ 57.) Since joining Connect Search, Employee Defendants have contacted clients and third-party suppliers of Instant Technology seeking to transfer their business to Connect Search. (Id. ¶ 73.)

LEGAL STANDARD

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To be facially plausible, a plaintiff's allegations must allow "the court to draw the reasonable inference that defendant is liable for the misconduct alleged." Id. However, "the plausibility requirement is not akin to a 'probability requirement . . . .'" Id. The complaint must simply give ...


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