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SBS Worldwide, Inc. v. Potts

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

February 7, 2014

SBS WORLDWIDE, INC., Plaintiff,
v.
DENNIS POTTS and WOODLAND INTERNATIONAL TRANSPORT COMPANY, INC., d/b/a WOODLAND GLOBAL Defendants.

MEMORANDUM OPINION AND ORDER

JAMES F. HOLDERMAN, District Judge.

On September 13, 2013, plaintiff SBS Worldwide, Inc. ("SBS") filed a complaint ("Complaint") (Dkt. No. 1 ("Compl.")) against former SBS employee Dennis Potts ("Potts") and Potts's new employer, Woodland International Transport Company, Inc., doing business as Woodland Global ("Woodland") (collectively "Defendants"). SBS seeks injunctive and other relief from Potts and Woodland for alleged violations of the Illinois Trade Secrets Act ("ITSA"), 765 ILCS 1065/2-3, tortious interference with business relationships, unfair competition, and unjust enrichment. (Compl. ¶¶ 62-75, 88-91.) SBS also seeks monetary relief from Potts for breach of fiduciary duty and alleged violations of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, et seq. (Compl. ¶¶ 77-87.) Woodland has moved to dismiss (Dkt. No. 12) the four counts alleged against Woodland (Counts I-III, VI), pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Potts has moved to dismiss (Dkt. No. 17) all six counts of SBS's Complaint for the same reason. In its response to Defendants' motions to dismiss (Dkt. No. 22 ("Pl.'s Resp.")), SBS asks this court to impose sanctions on Potts and Woodland. ( Id. at 1-2, 8-10.) For the reasons detailed below, Defendants' motions to dismiss are granted in part and denied in part, and SBS's motion for sanctions is denied.

FACTUAL BACKGROUND

At this stage in the litigation, the court must accept the factual allegations in SBS's Complaint as true and must draw all reasonable inferences in SBS'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.

SBS is a global logistics company specializing in international freight and supply chain solutions. (Compl. ¶ 8.) In the course of business, SBS compiles certain confidential information not publicly available regarding its customers. ( Id. ¶ 11.) That information includes the customers' identities, preferences, services, purchasing history, and "specific information regarding customer relationships." ( Id. ¶ 9.) SBS also compiles confidential sales data, including the prices SBS charges its customers and the profit margins SBS earns on its sales. ( Id. ) SBS alleges it derives significant economic value from this "confidential customer information" because "the fewer competitors who know its customers and call on them, the better position SBS is in to make sales." ( Id. ¶ 12.) SBS similarly keeps its price and margin information confidential to prevent competitors from underbidding SBS. ( Id. ¶ 14.) Ultimately, according to the Complaint, SBS's confidential customer information is "the type of information that any sales person needs and must use to effectively compete for customers against SBS." ( Id. ¶ 56.)

SBS recognizes its proprietary interest in its confidential information by requiring employees to keep the information confidential, restricting its access to selective employees, and utilizing security measures such as passwords. (Compl. ¶ 14.) SBS also requires employees to abide by a non-disclosure policy barring employees from misusing trade secrets and other confidential business information. ( Id. ¶ 17.) In the spring of 2013, SBS added an additional layer of protection by asking certain sales executives, including Potts, to enter into employment agreements containing restrictive covenants. ( Id. ¶ 30.) Potts, however, declined to enter into any employment agreement with SBS. ( Id. ¶ 31.)

Potts began his employment at SBS in May of 1998, and prior to his resignation held the position of Business Development Executive. (Compl. ¶¶ 19, 23.) In this role he was responsible for finding new customers and interacting with existing customers to increase sales of SBS's products and services. ( Id. ¶ 25.) Between 2007 and April of 2011, before Potts was demoted to Business Development Executive, he held the position of General Manager of SBS's Elmhurst office. ( Id. ¶¶ 19, 21, 23.) In that role, he was responsible for, among other things, ensuring that employees complied with SBS's company policies. ( Id. ¶ 21.)

Beginning in January of 2011, Potts began forwarding emails containing SBS's confidential customer information to his personal email account, in violation of SBS's company policy, and continued to do so until his resignation on July 2, 2013. (Compl. ¶¶ 28, 39.) Before he left, Potts attempted to delete the forwarded emails from his SBS email account. ( Id. ¶ 40.) On Saturday, June 15, 2013, Potts entered SBS's offices and removed a number of SBS files. ( Id. ¶ 33.) These files contained documents from management meetings, copies of emails, employee salary information, employee commission reports, and SBS profit reports. ( Id. ¶¶ 34-36.) The commission reports contained customer contact details, price quotes, and email exchanges with customers. ( Id. ¶ 36.) The profit reports contained details of shipments, revenues, costs, and profit margins. ( Id. ) Finally, in anticipation of resigning from SBS, Potts quoted shipping prices to SBS customers that he knew would result in losses to SBS. ( Id. ¶ 32.) Potts resigned from SBS on July 2, 2013 and his last day of work was July 3, 2013. ( Id. ¶ 41.)

After his resignation, Potts began working for Woodland, which competes with SBS to provide international freight and supply chain solutions. (Compl. ¶ 42.) SBS alleges Potts promised Woodland he would use his knowledge of SBS's confidential customer information to solicit SBS clients on behalf of Woodland. ( Id. ¶ 44.) In July of 2013, Potts fulfilled his promise and solicited business from SBS customer Posterservice, Inc. ("Posterservice"). ( Id. ¶ 46.) As part of his proposal to Posterservice, Potts asked Posterservice to provide him with "additional information" so that he could underbid SBS based on his knowledge and possession of SBS's charge codes. ( Id. ) SBS claims that because SBS and Woodland use different pricing structures, these charge codes were necessary for Potts to offer Posterservice a better price than SBS. ( Id. )

Upon learning that Potts was soliciting business from SBS customers, SBS sent Potts a "cease and desist" letter on July 17, 2013. (Compl. ¶ 48.) The letter directed Potts to stop using the confidential information and documents he took from SBS, return all electronic and other information, and to describe the circumstances of his use and disclosure of SBS's confidential customer information. ( Id. ¶ 49.) SBS also informed Woodland that Potts was using SBS's confidential customer information to compete "unfairly" on Woodland's behalf. ( Id. ¶ 58.) In response, Potts forwarded to SBS's counsel "hundreds of emails" he had sent from his SBS email account to his personal email account, and returned to SBS four boxes of documents he had taken from SBS's offices. ( Id. ¶¶ 50, 53.) SBS alleges the returned emails and documents contained SBS's confidential customer information, ( id. ¶¶ 51, 53), and that Potts has retained certain confidential customer information by failing to return all of the emails he forwarded to his personal account between January of 2011 and July 3, 2013 ( id. ¶¶ 52, 54).

Despite returning certain emails and documents, Potts has continued to solicit business from SBS customers using SBS's confidential customer information. ( Id. ¶ 55.) Since his resignation, Potts has convinced multiple SBS customers to do business with Woodland instead of SBS. ( Id. ¶ 57.) SBS estimates these former customers accounted for over one million dollars in revenue during 2013. ( Id. )

On September 13, 2013, SBS filed this lawsuit against Potts and Woodland. SBS's Complaint asserts the following four counts against Potts and Woodland: violation of the ITSA (Count I); tortious interference with business relationships (Count II), unfair competition (Count III), and unjust enrichment (Count VI). (Compl. ¶¶ 62-76, 88-91.) SBS's Complaint asserts two additional counts against Potts: violation of the CFAA (Count IV) and breach of duty of loyalty (Count V). (Compl. ¶¶ 77-87.) SBS seeks monetary relief and an injunction barring Woodland from employing Potts in any role substantially similar to his General Manager or Business Development Executive roles with SBS, and enjoining Potts from having any further contact with any client or customer of SBS with whom Potts had contact during his employment with SBS. Defendants moved to dismiss all counts alleged in SBS's Complaint pursuant to Rule 12(b)(6). (Dkt. Nos. 12, 17.) On November 12, 2013, in its response to the motions to dismiss, SBS requested that this court impose sanctions on Potts and Woodland for purportedly mischaracterizing SBS's Complaint and misleading this court on the law applicable to SBS's claims. (Pl.'s Resp. at 1-2, 8-10.)

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The complaint must "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Although "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. The complaint must "include sufficient facts to state a claim for relief that is plausible on its face.'" Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011) (quoting Justice v. Town of Cicero, 577 F.3d 768, 771 (7th Cir. 2009)). "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." Ashcroft v. Iqbal, ...


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