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Tradesman International, Inc. v. Black

United States Court of Appeals, Seventh Circuit

August 1, 2013

Tradesman International, Inc., Plaintiff-Appellant, Cross-Appellee,
v.
John Black, et al., Defendants-Appellees, Cross-Appellants.

Argued September 25, 2012.

Appeals from the United States District Court for the Central District of Illinois. No. 2:10-cv-02098-DGB — David G. Bernthal, Magistrate Judge.

Before Kanne, Tinder, and Hamilton, Circuit Judges.

Tinder, Circuit Judge.

John Black, Todd Walker, Ryan Ellis, and Ryan Boyer all held upper-level management positions at Tradesmen International, Inc., a construction staffing company, when they first began to discuss forming their own competing company in August 2009. Over the course of twelve years at Tradesmen, Ellis had risen from an entry-level field representative position to become the Area Manager of the Ohio Valley; Black, Walker, and Boyer had risen from entry-level field representative positions to become the General Managers of three Tradesmen Indiana field offices over the course of two, four, and eight years, respectively. When Black resigned from Tradesmen on October 5, 2009 after refusing to accept a demotion, the discussions among the four men became "more specific." Soon after, their new company, Professional Labor Support (PLS), was born.

On May 5, 2010, Tradesmen filed suit against Black, Walker, Ellis, Boyer, and PLS alleging ten counts: breach of contract, misappropriation of trade secrets, misappropriation of confidential information, a declaratory judgment with respect to the enforceability of the defendants' covenants not to compete (CNTCs) with Tradesmen, permanent injunctive relief, breach of the duty of loyalty, tortious interference with contractual relations, tortious interference with business expectancy, conversion, and civil conspiracy. Six months into the lawsuit, on November 11, 2010, defendant Ellis filed for Chapter 7 bankruptcy, and all proceedings against Ellis were stayed. The lawsuit continued on for the remaining defendants, however, and on November 7, 2011, the district court granted summary judgment to Black, Walker, Boyer, and PLS on all counts except the declaratory judgment count. With respect to the declaratory judgment count, the district court found it moot since all of the defendants' CNTCs had already expired. The district court also denied permanent injunctive relief to Tradesmen. The remaining defendants subsequently filed a motion for attorneys' fees, which the district court denied on April 13, 2012.

Tradesmen filed a timely notice of appeal of the November 7, 2011 summary judgment order; however, Tradesmen never sought certification under Fed.R.Civ.P. 54(b), even though the November 7, 2011 order did not end the action as to all of the parties. (The claim against Ellis remains pending to this day.) Black, Walker, Boyer, and PLS filed a timely cross-appeal in return on the attorneys' fees issue. Unlike Tradesmen, however, Black, Walker, Boyer, and PLS were concerned about whether the Seventh Circuit had jurisdiction to hear the appeal since the action was still pending against Ellis, and they successfully obtained Rule 54(b) certification for their cross-appeal. Because the November 7, 2011 summary judgment ruling is not a final decision under Kimbrell v. Brown, 651 F.3d 752, 758 (7th Cir. 2011), we lack jurisdiction to hear Tradesmen's appeal under 28 U.S.C. § 1291. We do, however, have jurisdiction to hear Tradesmen's appeal with respect to the district court's denial of injunctive relief (Count V of the complaint) under 28 U.S.C. § 1292(a)(1), which allows us to hear appeals from "[i]nterlocutory orders of the district courts … refusing … injunctions." Therefore, Tradesmen must wait to appeal the other nine counts in its complaint until its claims against Ellis are resolved. With respect to the district court's denial of injunctive relief—the only part of Tradesmen's appeal that we have jurisdiction to hear—we affirm the district court because Tradesmen has failed to show that it suffered any harm at all, let alone irreparable harm, from the remaining defendants' actions. With respect to the remaining defendants' cross appeal on attorneys' fees, we have jurisdiction to hear the appeal under McCarter v. Retirement Plan for District Managers of American Family Insurance Group, 540 F.3d 649, 654 (7th Cir. 2008) (holding that an "appeal may be taken from an award of attorneys' fees only after that award is independently final—which means, after the district judge had decided how much must be paid."). We find that the district court used the incorrect standard in its decision to deny attorneys' fees, so we reverse and remand the attorneys' fees issue with instructions to the district court on the correct standard to apply.

I

After Black's resignation from Tradesmen, the defendants moved quickly to establish their new company, PLS. On October 27, 2009, less than a month after his resignation from Tradesmen, Black organized PLS as an Illinois limited liability company. Only a few weeks afterward, on November 19, 2009, Black, Walker, and Boyer signed an office lease. By January 12, 2010, Black, Walker, Boyer, and Ellis had all left their jobs at Tradesmen, and by March 2010, PLS had made its first sale.

Despite their haste in establishing PLS, the defendants were generally "very careful" during the startup process, as their counsel pointed out in oral argument. Black, Walker, Boyer, and Ellis had all signed CNTCs during their employment with Tradesmen, and the defendants attempted to abide by their terms. Because the defendants had different jobs that serviced different areas, the geographic restrictions in each defendant's CNTC were different. Black, Boyer, Walker, and Ellis were explicitly prohibited from interfering with Tradesmen's business in certain Indiana counties. Walker was also prohibited from interfering with Tradesmen's business in three Ohio counties. All defendants were prohibited from soliciting construction staffing business within one hundred miles of a Tradesmen field office and within twenty-five miles of any location at which Tradesmen provided services. As a result, the defendants decided to establish PLS in Mahomet, Illinois because Tradesmen had no local presence there. Beginning in January 2010, the four men "lived several days a week in an apartment … away from their wives and children in Indiana" as they endeavored "to start … without soliciting business from its Members' old Tradesmen accounts and contacts."

The only exceptions to the general care that the defendants took when establishing PLS are the emails that Boyer and Walker sent during their last month of employment at Tradesmen. Between December 4, 2009 and January 4, 2009, these two defendants sent emails to their personal email accounts and to Black with attachments that included Tradesmen's workers' compensation rates, manager compensation rates, marketing materials, and potential customer reports purchased from Dun & Bradstreet. The defendants presented unrebutted evidence that they never used any of these email attachments in starting PLS; still, the defendants' attorney admitted at oral argument that the email attachments "are the worst facts in the case for us."

Otherwise, the defendants appeared to have tried to abide by the terms of the CNTCs throughout their durations. The duration of Black, Boyer, and Walker's CNTC was eighteen months from the time that they left Tradesmen; the duration of Ellis's CNTC was only twelve months. The first CNTC to expire was Ellis's on January 12, 2011; the last was Walker's on July 12, 2011. While their CNTCs were in effect, PLS did not work for any of the defendants' previous customers at Tradesmen; in fact, PLS actually turned down work from previous customers who contacted the defendants at PLS. (The one exception is Ellis, the defendant who is not a party to this appeal. Because Ellis's CNTC expired before the other defendants' CNTCs, Ellis completely relinquished his membership in PLS in January 2011 and formed his own company, PLS of Indiana, which has apparently worked for Ellis's previous customers at Tradesmen.)

Nonetheless, Tradesmen was upset by the defendants' actions (and apparent ability to build a successful new business), and Tradesmen filed suit against Black, Ellis, Boyer, Walker, and PLS. In granting summary judgment to Black, Boyer, Walker, and PLS (since the action against Ellis was stayed), the district court focused on Tradesmen's failure to prove damages—even with regards to the improper emails that the defendants sent in December 2009 and January 2010. Tradesmen, which sought injunctive relief, lost profits, and compensatory damages from the defendants, submitted only two pieces of evidence to establish its damages: (1) Tradesmen's gross sales figures for clients that PLS had allegedly solicited in violation of the defendants' CNTCs, and (2) PLS's gross sales figures. Many of the documents with Tradesmen's gross sales figures did not contain a company name. Moreover, Tradesmen never made clear how the court was supposed to interpret these documents. Perhaps Tradesmen expected the court to assume that PLS's overall gross sales figures represented the amount of business that Tradesmen lost to PLS (which would have been a terrible assumption given that Tradesmen had no local presence in Mahomet, Illinois). Nor were Tradesmen officials any help in interpreting these documents for damage purposes; Tradesmen's Fed.R.Civ.P. 30(b)(6) designee testified in his deposition as follows:

Q. What's the company's position on how these two documents support its claim for lost business damages?
A. What was the question again? … I don't know.
Q. Do these two documents show a computation of any lost business damages that Tradesmen is claiming against Professional Labor Support or any of the defendants?
A. I don't know.

On all accounts, Tradesmen left the district court to speculate both whether the defendants had harmed it and how the defendants had harmed it. Yet even Tradesmen admits in its brief that it was obligated to prove damages with "reasonable certainty" and "without speculation." The district court found that, given the incomprehensible collection of documents that Tradesmen had provided, any determination of harm from these documents would be "unduly speculative." Consequently, the district court granted summary judgment to all defendants except Ellis on all claims (except Count IV, the declaratory judgment action, which it dismissed as moot since the CNTCs had all expired). The district court further denied permanent injunctive relief to Tradesmen.

Nine days after prevailing on the merits of the case, Black, Boyer, Walker, and PLS filed a motion to recover attorneys' fees under the Illinois Trades Secrets Act (ITSA), claiming that Tradesmen had "maintained its trade secrets misappropriation claim in bad faith." The relevant language of ITSA, contained in 765 Ill. Comp. Stat. 1065/5, provides, "If (i) a claim of misappropriation is made in bad faith, … the court may award reasonable attorney's fees to the prevailing party." Here, the remaining defendants pointed to Tradesmen's overall lack of evidence on damages and Tradesmen's wholly uninformed Fed.R.Civ.P. 30(b)(6) witness as evidence that Tradesmen had "made" its claim against them in bad faith. On April 13, 2011, the district court denied the remaining defendants' motion for attorneys' fees. Interpreting the ITSA "made in bad faith" language for the first time, the district court decided that a claim made in bad faith must be "initiated" in bad faith at the time of filing. Because the district court was "unwilling to conclude that Plaintiff's [Tradesmen's] trade secrets claim ...


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