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First Fin. Bank, N. A. v. Bauknecht

United States District Court, C.D. Illinois, Peoria Division

October 24, 2014


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For First Financial Bank, N.A., Plaintiff: Robert A Kearney, LEAD ATTORNEY, LAW OFFICE OF ROBERT KEARNEY, Bloomington, IL.

For Scott Bauknecht, Defendant: Nile J Williamson, LEAD ATTORNEY, Attorney at Law, Peoria, IL.

For State Bank of Graymont, Defendant: Tracy C Litzinger, LEAD ATTORNEY, Michael D Gifford, Timothy D Gronewold, HOWARD & HOWARD ATTORNEYS PC, Peoria, IL.

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JOE BILLY McDADE, United States Senior District Judge.

This matter is before the Court on cross-motions for summary judgment. Each of the three parties has filed a Motion for Summary Judgment, and each Motion is fully briefed. A discovery motion (Doc. 98) relating to evidentiary issues is also before the Court. For the reasons explained below, Plaintiff First Financial's Motion for Summary Judgment is granted in part with respect to Counts I, III, and IV and otherwise denied, Defendant Bauknecht's Motion for Summary Judgment is granted with respect to Counts V and VIII, granted in part with respect to Count IV, and otherwise denied, and Defendant State Bank of Graymont's (" Graymont" ) Motion for Summary Judgment is granted with respect to Counts VI, VII, and VIII, granted in part with respect to Count IV, and otherwise denied. Graymont's discovery motion is granted in part and denied in part.

Procedural History

Plaintiff filed the present case on December 13, 2012, bringing numerous claims relating to Defendant Scott Bauknecht's transition from employment with Plaintiff to his subsequent employment with Defendant Graymont. Plaintiff brings eight claims: breach of contract against Defendant Bauknecht (Count I), breach of fiduciary duty against Defendant Bauknecht (Count II), misappropriation of trade secrets against both Defendants (Count III), conversion against both Defendants (Count IV), violation of the Federal Computer Fraud and Abuse Act against Defendant Bauknecht (Count V), tortious interference with contract against Defendant Graymont (Count VI), tortious interference with prospective economic advantage against both Defendants (Count VII), and civil conspiracy against both Defendants (Count VIII).

Defendants previously moved to dismiss, in part, Plaintiff's Complaint. These motions were granted in part and denied in part, pursuant to the Report and Recommendation by Magistrate Judge Cudmore, to which no objections were filed and which was thus adopted by the Court. (Doc. 25). As a result, Plaintiff's Count IV was limited to conversion of property that does not constitute trade secrets. (Doc. 25 at 2). No other claims were dismissed. After the discovery period, which included several discovery disputes, this matter now proceeds to summary judgment.

Discovery Motion

After the close of discovery, Defendant Graymont filed a Motion to Overrule Objections and Allow Use of Answers and Admissions (Doc. 98). This Motion was filed under seal, because it contains extensive quotations from a deposition that contain some potentially confidential information. Because the ruling on this Motion can be given without describing any confidential information, it is contained herein and not under seal.

A deposition of Plaintiff's General Auditor Barry Stuck, pursuant to Federal Rule of Civil Procedure 30(b)(6), was taken on April 3, 2014. In response to several questions about Plaintiff's investigation and proof in this case, Plaintiff's counsel objected, primarily on the basis of work product. The answers in dispute are all subject to this objection, and many of the answers are accordingly specified by Plaintiff's counsel to be only based on Mr. Stuck's personal knowledge, not as a representative of Plaintiff.

At various times in the deposition, Defendant Graymont questioned Mr. Stuck about the proof Plaintiff had to prove its case and on what evidence Plaintiff was basing its claims. For example, Graymont asked what information and materials are being referenced in paragraph nineteen of

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the Complaint, which alleges the use of confidential information taken from Plaintiff under Count III. Mr. Stuck responded that he was only aware of one particular list of names. Graymont seeks to use this information as an admission that no other evidence supports Count III.

Under Rule 30(b)(6), a party may depose a corporation or other organization through a designated representative. This representative testifies on behalf of the organization about the identified topics. The work product doctrine protects from discovery documents and items prepared in anticipation of litigation by a party or its representative. Fed.R.Civ.P. 26(b)(3). The " mental impressions, conclusions, opinions, or legal theories of a party's attorney or other representative concerning the litigation" are specifically protected. Fed.R.Civ.P. 26(b)(3)(B). However, it does not protect the discovery of facts, only the legal theories drawn from the facts. S.E.C. v. Buntrock, 217 F.R.D. 441, 446 (N.D.Ill. 2003) (" Such discovery clearly seeks not the facts, but the manner in which the SEC intends to marshal them." ).

Defendant Graymont was not seeking to obtain any documents or items prepared in anticipation of litigation. Accordingly, the work product doctrine does not apply. But there is a somewhat related, unarticulated problem with the questions. The problem with Defendant Graymont's questions is not necessarily the information they were attempting to obtain, but Graymont's intended use of the answers. Graymont was trying to pin Plaintiff down to make admissions about its claims by questioning its representative about the facts in support.

Questions about legal theories or requiring the application of law are better answered through interrogatories. See United States v. Taylor, 166 F.R.D. 356, 362 n.7 aff'd, 166 F.R.D. 367 (M.D.N.C. 1996). " Whether a Rule 30(b)(6) deposition or a Rule 33(c) contention interrogatory is more appropriate will be a case by case factual determination." Id.

Here, the topics of Defendant Graymont's questions are more appropriate for contention interrogatories. They ask what evidence or facts were or will be used to support each of Plaintiff's claims. This is more appropriately done in the form of written interrogatories, as they are filtered through an attorney that is familiar with the case, the discovery, and the law. See Beloit Liquidating Trust v. Century Indem. Co., 02 C 50037, 2003 WL 355743, *5-6 (N.D.Ill. Feb. 13, 2003) (concluding 30(b)(6) deposition topic of factual basis for claim more appropriate for written interrogatories). Mr. Stuck could not be expected to review the entirety of discovery productions and apply the law behind the various claims and reach a complete and conclusive answer about what evidence supports which claims. Plaintiff's objection was geared toward preventing Graymont from doing what it correctly anticipated Graymont would do: try to limit Plaintiff's claims to the evidence known to Mr. Stuck. Defendant Graymont could have filed a contention interrogatory to obtain such information, but did not, and discovery has now closed. The Court finds that although Plaintiff's stated grounds for the objection were not entirely accurate, the end result is adequate. Mr. Stuck's testimony about the facts in support of the claims was limited to his personal knowledge, to avoid Defendant Graymont using them as evidentiary admissions. This is a happy medium, and requires no further relief from the Court.[1]

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However, there is one line of questioning which is removed enough from an attempt to limit Plaintiff's proof, and based more on factual information, for which Plaintiff's objection is overruled. Defendant Graymont asked about the inspection or forensic examination that was conducted of Bauknecht's computer after he left his employment with Plaintiff. This is a reasonable line of questioning, not asked with respect to specific complaints or seeking to limit evidence Plaintiff could use to support its claims, but merely seeking facts. Defendant Graymont was entitled to answers from Plaintiff, as a corporate entity, as to the inspection of Bauknecht's computer after he left, and this is not work product or otherwise more appropriate to obtain through interrogatories. Accordingly, this objection is overruled. However, it is not clear that any further remedy is necessary at this stage, as Mr. Stuck provided answers to the questions presented, and apparently even answered them as a corporate representative. Thus, Defendant Graymont's discovery-related motion is granted in part, and denied in part.

Summary Judgment Standard

Summary judgment shall be granted where " 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 view the evidence in the light most favorable to the non-moving party. SMS Demag Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365, 368 (7th Cir. 2009). All inferences drawn from the facts must be construed in favor of the non-movant. Moore v. Vital Prods., Inc., 641 F.3d 253, 256 (7th Cir. 2011).

To survive summary judgment, the " nonmovant must show through specific evidence that a triable issue of fact remains on issues on which he bears the burden of proof at trial." Warsco v. Preferred Technical Grp., 258 F.3d 557, 563 (7th Cir. 2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). If the evidence on record could not lead a reasonable jury to find for the non-movant, then no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. See McClendon v. Ind. Sugars, Inc., 108 F.3d 789, 796 (7th Cir. 1997). At the summary judgment stage, the court may not resolve issues of fact; disputed material facts must be left for resolution at trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Cross-motions for summary judgment are considered separately, and each party requesting summary judgment must satisfy the above standard before judgment will be granted in its favor. See Tegtmeier v. Midwest Operating Eng'rs Pension Trust Fund, 390 F.3d 1040, 1045 (7th Cir. 2004); Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997). Thus, the facts are construed in favor of the non-moving party, which differs depending on which motion is under consideration. Tegtmeier, 390 F.3d at 1045.

Factual Background[2]

Defendant Scott Bauknecht (" Bauknecht" ) began working for Pontiac National

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Bank (" PNB" ) in 1995. In 2006, the bank changed its name to Freestar, and Freestar eventually merged with Plaintiff First Financial Bank on December 30, 2011. At the time of this merger, Bauknecht was an Agricultural Loan Officer, as well as a Community Bank President.

Bauknecht's Confidentiality Agreement and First Financial's Security Protocol

While Bauknecht was employed with PNB, he received an employee handbook in February 1996. PNB had a policy of keeping information such as customer account information, financial data and personal information confidential. While it was called Freestar, the bank had a policy of forbidding employees from disclosing or using confidential customer information during or after employment. Freestar also required encryption of data copied onto laptops or other devices. On June 6, 2002, Bauknecht signed a Confidentiality Agreement with PNB, in which he agreed not to disclose confidential customer information for a period of two years. Such information includes:

all or any part of the Bank's customer accounts; customer financial records or related information; any existing or subsequently created customer or potential customer lists; . . . trade secrets . . . ; information regarding products and services offered by the Bank; and any other documents made, compiled, obtained or acquired by the Employee during employment concerning any customer or product or service offered by the Bank.

(Pl.'s Ex. 17, Doc. 109-7 at 1). To access financial information on Freestar's or Plaintiff's computers, the user must have the proper security codes.

On October 11, 2011, Bauknecht learned of the potential merger between Freestar and Plaintiff. The merger closed on December 30, 2011. Bauknecht retained his employment, in the same office.

Bauknecht's Subsequent Employment with Graymont

On either December 24 or December 31, 2011, Bauknecht spoke on the phone with Ronald Minnaert (" Minnaert" ), president of Graymont, a competitor of Plaintiff. Bauknecht and Minnaert discussed the possibility that Bauknecht might work for Graymont, but the exact content and tone of the discussion is disputed. On January 10, 2012, Graymont's Board of Directors met, and voted to approve hiring Bauknecht as a loan officer. The nature of Bauknecht's acceptance of this offer is disputed, though no formal written offer or acceptance is on the record. On the weekend of January 21-22, 2012, Bauknecht went into the office at Plaintiff bank, and packed up his office. On that Monday, January 23, 2012, Bauknecht quit without giving prior notice to Plaintiff and signed employment paperwork with Graymont. Bauknecht's salary at Graymont is based upon his loan volume.

Bauknecht's Transition to Graymont

The parties dispute several details concerning Bauknecht's actions around the time of his transition from First Financial to Graymont. The following facts are undisputed.

After leaving his employment with Plaintiff, Plaintiff asked Bauknecht to return his keys and provide his voicemail password. At least twice, Bauknecht gave the wrong password. Bauknecht took with him soil maps, as well as farm equipment guides, upon leaving his employment. The soil maps were purchased by Bauknecht, but the farm equipment guides belong to Plaintiff and were returned to it at a deposition for this litigation.

On January 24, 2012, Bauknecht drafted a letter on Graymont letterhead that discussed his new employment at Graymont. Bauknecht wrote in his letter that his " clients will continue to come first," and

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told recipients, " [i]n the next couple of weeks I will be calling on you personally." He concluded with his contact information and a note that he " look[s] forward to serving your banking needs." (Pl.'s Ex. 13, Doc. 109-6 at 1). The letter was sent to seventy-three people, including many customers of Plaintiff's.[3] Minnaert personally reviewed and approved the sending of this letter.

After sending this letter, Bauknecht followed up with many of the recipients. About half of them called him directly, and he also called an additional twenty to thirty percent later. A number of the list's recipients, including customers of First Financial, moved their loans to Graymont, where Bauknecht handles approximately $20 million of the bank's $110 million loan portfolio.

In April 2012, Bauknecht created a document that listed several loans closed at Graymont through March 2012, four loans that were in the " pipeline" and expected to close by the end of 2012, and a list of about thirty individuals on his " calling list" that he intended to " continue to work on" in 2012. (Pl.'s Ex. 15, Doc. 111-10 at 1-2). This document notes that over $15 million in loans were " moved over" since Bauknecht began his employment with Graymont, and that they were the " low hanging fruit," anticipating that obtaining more loans would be more difficult. This document also identifies those customers who farm land managed by Plaintiff, which Bauknecht knew because of his former employment.

It is further undisputed that Bauknecht told Graymont the amount of money that one of Plaintiff's customers carried in its deposit accounts, or at least provided his best estimate of how much money the customer carried. He also told Graymont that the deposit account held money that was used to offset the cost of the customer's use of First Financial's Remote Deposit Capture.

The following facts remain in dispute. Defendants insist that Bauknecht created this list of seventy-three people to which to send the letter from memory after he left his employment with Plaintiff; Plaintiff has no evidence to the contrary, but suggests a jury could infer otherwise.

Plaintiff also suggests that Bauknecht obtained customer names and contact information from two additional documents: a document that it refers to as a " Master Database" and two lists of open loans.

There is another document, referred to by Plaintiff as a " Master Database." This list contains names of 615 individuals, and includes contact information for a portion of them, notes about them, and other miscellaneous data. (Pl.'s Ex. 8, Doc. 111-4). Bauknecht asserts that he stored the contact information for his friends, relatives, business acquaintances, professional and business service providers, and customers on his cell phone, and did so between 1995 and 2011. (Decl. of Scott Bauknecht, Doc. 104-1, at ¶ 3). The parties all dispute the origins of the master database and the manner in which Bauknecht obtained it.

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Bauknecht also retained an iPad, given to him by Freestar, after his employment with Plaintiff ended. Freestar allowed its employees to use the iPads for personal use. Discovery revealed that Bauknecht's iPad contained two lists of open loans, one showing the loans Bauknecht serviced while employed by Plaintiff, and the other showing the loans managed by Plaintiff's junior loan officer, Dustin Smith. (Pl.'s Ex. 9, Doc. 111-5). Bauknecht transferred the documents to the iPad on January 9, 2012, and also sent it to his personal email account. Bauknecht claims this was approved by Plaintiff and that he transferred the documents in order to prepare for a meeting. Plaintiff claims that Bauknecht transferred the documents in an effort to poach customers.

Finally, both Bauknecht and Graymont had in their possession a number of Plaintiff's financial documents, including collateral schedules and financial documents such as loan agreements and note modifications. It is undisputed that Bauknecht and Graymont obtained certain information through their customers. But the parties dispute the ways in which Defendants came into possession of other documents.

First Financial's Losses

It is undisputed that a number of Plaintiff's customers took their business to Graymont. The parties, however, dispute the reasons why this happened. Plaintiff argues that Defendants' misdeeds directly caused it to lose its business, but Defendants' argue that Plaintiff's declining reputation in the small community that it served, coupled with the ordinary business loss that accompanies the transition of employees, resulted in the loss.


As explained below, there are disputed facts that preclude judgment in favor of any party with respect to some of Plaintiff's claims. For others, there is no genuine dispute of material fact, and judgment may be awarded. The Court addresses each claim separately, below. First, a preliminary matter concerning an alleged admission is addressed.

Bauknecht's Indemnification Letter

Shortly after the initiation of this litigation, counsel for Bauknecht wrote a letter to counsel for Graymont. In this letter, Bauknecht's counsel states:

All actions attributed to Bauknecht in the complaint were either known to or authorized by appropriate officers of the State Bank of Graymont. Accordingly, Bauknecht hereby makes demand upon Graymont to save, hold harmless and indemnify him for any and all damages that may accrue including without limitation, reasonable attorney's fees. Additionally, we request that you send to the undersigned any and all insurance policies in force at the time of the facts described in the complaint which may cover Bauknecht's actions as an officer/employee of State Bank of Graymont . . . .

(Pl.'s Ex. 3, Doc. 111-2). This passage is nearly the entirety of the letter.

Plaintiff argues this letter, particularly the first sentence of the passage recited above, should bring the litigation to an end, as both parties have thus admitted every allegation in the Complaint. Such a reading is absurd as a factual matter, and does not comport with the laws of evidence. In context, it is clear that this statement, although very unfortunately worded, was not an admission that everything alleged is true. Rather, it is an assertion that, to the extent Bauknecht is found liable for any of the alleged actions, Graymont must be required to indemnify him, because if he undertook the actions, they would have been approved by, or are otherwise attributable to Graymont.

First, there are different types of admissions. " Judicial admissions are formal

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concessions in the pleadings, or stipulations by a party or its counsel . . . ." Keller v. United States, 58 F.3d 1194, 1198 n.8 (7th Cir. 1995). Such formal concessions " must be deliberate, clear and unambiguous." Robinson v. McNeil Consumer Healthcare, 615 F.3d 861, 872 (7th Cir. 2010) (internal quotation marks omitted). Essentially all other types of party statements are simply evidentiary admissions, and may thus be admissible evidence under Federal Rule of Evidence 801(d)(2). See Murrey v. United States, 73 F.3d 1448, 1455 (7th Cir. 1996). The difference between these two types of admissions is crucial, because judicial admissions are conclusive, while evidentiary admissions can later be controverted or explained by the party. Keller, 58 F.3d at 1198 n.8.

Bauknecht's statement in the letter at issue, through his counsel, is not a judicial admission. It was not made during any legal proceedings; rather, it was written in a letter to another attorney. It also is not a deliberate and unambiguous formal concession. However, as a statement made by Bauknecht's attorney, it is an evidentiary admission by a party opponent that would not be subject to a hearsay objection. Fed.R.Evid. 801(d)(2). As such, if admitted into evidence, it could still be contradicted, and thus is not dispositive of any issues in this case.

Bauknecht makes several arguments for why the contents of the letter should not be admissible as a judicial admission. As explained above, the Court has not adopted the statement as a judicial admission and is merely treating it as an evidentiary admission. Even so, the Court addresses Bauknecht's arguments in the event that they also apply to evidentiary admissions. First, he argues that this is not an admission because the word attribute or attribution does not mean admit or admission. That, of course, is true. But it does not mean that Bauknecht's statements were not evidentiary admissions. Under Bauknecht's argument, all admissions would need to begin with the magic words, " I admit." Here, First Financial relies upon a possible implication of Bauknecht's attorney's statement that if " all actions attributed to Bauknecht in the complaint were either known to or authorized by appropriate officers of the State Bank of Graymont" then those actions must have actually occurred. ( See Pl.'s Ex. 2, Doc. 111-2).

Second, Bauknecht argues that the statement is a legal conclusion that Bauknecht was acting within his employment relationship with Graymont. It may well have been Bauknecht's attorney's intent to demand indemnification from Bauknecht's employer. However, that is not the way in which First Financial is attempting to use the statement. Instead, First Financial is attempting to use the statement as evidence that Bauknecht engaged in the activities constituting the factual underpinnings of its complaint.

Third, Bauknecht argues that he never adopted or consented to the statement in the letter, although he was copied on it. However, there is no requirement in the federal rules that a party opponent adopt or consent to comments made by its agent or employee on a matter within the scope of that relationship. See Fed.R.Evid. 801(d)(2)(D). Here, Bauknecht's attorney wrote the letter on Bauknecht's behalf, and the letter concerned the matter in which Bauknecht had retained him. Therefore, the provisions of Rule 801(d)(2)(D), which pertain to admissions through an employee or agent, apply rather than the provisions of Rule 801(d)(2)(B), which pertain to admissions through adoption. Cf. United States v. Jung, 473 F.3d 837, 841 (7th Cir. 2007).

This is an evidentiary admission as to Bauknecht only. Plaintiff relies on Rule 801(d)(2)(B),

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and argues Graymont adopted this admission by failing to object to it and agreeing to indemnify Bauknecht. Plaintiff thus argues Graymont must have believed Bauknecht's statement was true because it agreed to the demanded indemnification. But that is not necessarily the case. Graymont's agreement to indemnify Bauknecht likely has nothing to do with whether Bauknecht acted as the Complaint alleges, and instead depends upon preexisting agreements between the two Defendants. Graymont did not adopt this admission. There was also no reason Graymont should have objected in any from to Bauknecht's statement.

Defendants also argue that this evidence, even if an evidentiary admission, should be inadmissible for other reasons. Bauknecht cites Rule 411, which prohibits use of insurance coverage as evidence to prove liability. That is not what Plaintiff is attempting to do; its focus is not on the existence of insurance, which is not even apparent from the letter, but on the statement concerning liability. The Court also sees no basis to exclude the statement under Rule 403 at this time. Accordingly, the statement is evidence, not weighed at the summary judgment stage, that supports Plaintiff's claim that Bauknecht is liable. As to Graymont, the statement is ...

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