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Owens Trophies, Inc. v. Bluestone Designs & Creations, Inc.

United States District Court, N.D. Illinois, Eastern Division

January 14, 2014

OWENS TROPHIES, INC. f/k/a R.S. OWNS AND COMPANY, INC., Plaintiff,
v.
BLUESTONE DESIGNS & CREATIONS, INC., and SOCIETY AWARDS, Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT W. GETTLEMAN, District Judge.

Plaintiff Owens Trophies, Inc. ("Owens") has filed a three-count second amended complaint against defendants Bluestone Designs & Creations ("Bluestone") and Society Awards alleging: Breach of Contract against Bluestone (Count One); Tortious Interference with Prospective Economic Advantage against Bluestone (Count Two); and Tortious Interference with Contract against Society Awards (Count III). Defendants have moved to dismiss the second amended complaint for failure to state a claim pursuant to Fed. R. Civ. Pro. 12(b)(6), and in the alternative, for lack of standing pursuant to Fed. R. Civ. Pro. 12(b)(1). For the reasons described below, the court denies defendants' motion to dismiss Count I and grants defendants' motion to dismiss Counts II and III. The court also denies defendants' motion to dismiss for lack of standing.

BACKGROUND[1]

Plaintiff is a design firm that began working with Bluestone, a manufacturer of trophies and awards, to produce various trophies and awards beginning in 2005. In 2007, plaintiff and Bluestone signed a written contract[2] containing a clause that prohibited Bluestone from providing "to anyone... other than R.S. Owens, any Work which R.S. Owens has provided to Bluestone...."[3] This prohibition was to remain in place for two years after the termination or expiration of the contract.

One of the awards that Bluestone manufactured for plaintiff is the subject of this lawsuit. Plaintiff had a "longstanding" arrangement to produce the Emmy Award for the National Academy of Television Arts and Sciences and the Academy of Television Arts and Sciences ("the Academy"). In 2010, plaintiff received notice from the Academy that Society Awards, a competitor, had quoted the Academy a price well below plaintiff's price for producing the Emmy Award. Plaintiff matched Society Awards' price and increased donations to the Academy, but the Academy subsequently advised plaintiff that some of its chapters would be acquiring the Emmy Award through another source. Plaintiff learned that Society Awards was this alternate source, and that Bluestone was producing the Emmy Award for Society Awards. Plaintiff then filed the instant complaint, alleging breach of contract and tortious interference with prospective economic advantage against Bluestone, and tortious interference with contract against Society Awards.

DISCUSSION

Defendants have moved to dismiss all counts of the amended complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. That motion tests the sufficiency of the complaint, not the merits of the case. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). The court accepts as true the well-pleaded factual allegations and draws all reasonable inferences in the plaintiff's favor. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). To provide the defendant with "fair notice of what the claim is and the grounds upon which it rests, " id. at 555, the complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). In addition, the allegations must plausibly suggest that the plaintiff has a right to relief and raise that possibility above the "speculative level." Twombly, 550 U.S. at 555; see Ashcroft v. Iqbal, 556 U.S. 662 (2009) (Twombly's pleading principles apply in all civil actions).

This standard demands that a complaint allege more than "legal conclusions or threadbare recitals of the elements of the cause of action, supported by mere conclusory statements. Iqbal, 556 U.S. at 679. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 662.

A. Count One: Breach of Contract Against Bluestone

Defendants argue that the contract provision that Bluestone is alleged to have breached is an unenforceable restrictive covenant. Restrictive covenants are utilized by employers to "protect information or relationships that the employee might acquire by virtue of the fact that the employer hired him, " and by purchasers of businesses who seek to "preserv[e] the goodwill that he purchases (which may include clientele in some cases), " Bus. Records Corp. v. Lueth, 981 F.2d 957, 959 (7th Cir. 1992). Courts are more likely to invalidate restrictive covenants between employers and employees as unreasonable, because purchasers tend to have bargaining power that employees generally do not. Id . Defendants argue that the contract provision in question should be analyzed under the framework typically applied to employer-employee relationships as opposed to the framework applied in the sale of a business. Under the employer-employee restrictive covenant framework, defendants claim that plaintiff has failed to allege a legitimate business interest to substantiate such a covenant and that it is therefore unenforceable.

In support of the argument that an employer-employee restrictive covenant framework should be applied, defendants cite Nortek Products (Taicang) Ltd. v. FNA Grp., Inc., 10 C 2813, 2011 WL 2110043 (N.D. Ill. May 24, 2011), where the court found that the framework applied to a licensee that had entered into a "Nondisclosure, Noncompetition, and Non-solicitation Agreement" with the supplier ancillary to a license contract to produce a patented product for the supplier. The court found that, because the covenants in the nondisclosure agreement between the parties "serve to protect confidential customer information and customer relationships, they are more akin to covenants ancillary to an employment contract than to a sale of a business." Id. at *3.[4]

Plaintiff argues[5] that this restrictive covenant framework does not apply to the contract, but that even if it does, the contract is not unenforceable. First, plaintiff argues that defendants have provided no support for the proposition that the contract should be treated as a restrictive covenant. Plaintiff cites U.S. Data Corp. v. RealSource, Inc., 910 F.Supp.2d 1096, 1105 (N.D. Ill. 2012), where the court noted that the protections afforded to former employees are not applied to corporations that are dealing with each other at arms-length. As a result, plaintiff argues that the application of an employer-employee restrictive covenant framework is inappropriate in this case. The court agrees.

As a preliminary matter, in Nortek the parties agreed that a restrictive covenant framework applied and simply disputed which type of relationship framework was the appropriate standard under which to proceed. In the instant case, however, plaintiff does not concede that the contract constitutes a restrictive covenant.

In the instant case, the manufacturer and designer are the type of independent, sophisticated corporations dealing at arms-length described in U.S. Data Corp. There is no need to extend the additional precautions afforded in evaluating employer-employee restrictive covenants in such a situation because the imbalances of power between the parties do not exist. Unlike Peerless and Stunfence, there is no argument that the contract provision in question unfairly limits one of plaintiff's former employees in his new employment with the party alleged to be in breach. Defendants cite no reason that Bluestone would have been unable to negotiate ...


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