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Cronimet Holdings, Inc. v. Keywell Metals, LLC

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

November 7, 2014

CRONIMET HOLDINGS, INC., a Delaware corporation, EDWARD J. NEWMAN, an individual, and JOHN D. JOYCE, an individual, Plaintiffs/Counter-Defendants,
v.
KEYWELL METALS, LLC (f/k/a KW METALS ACQUISITION, LLC), Defendant/Counter-Plaintiff

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[Copyrighted Material Omitted]

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For Cronimet Holdings, Inc., a Delaware corporation, Edward J. Newman, an individual, John D. Joyce, an individual, Plaintiffs: Roger James Higgins, LEAD ATTORNEY, The Law Offices of Roger Higgins, LLC, Chicago, IL; Timothy D. Elliott, LEAD ATTORNEY, Rathje & Woodward, Wheaton, IL; Emily A. Shupe, Jordan Rae Franklin, Polina Arsentyeva, Rathje & Woodward, LLC, Wheaton, IL.

For Keywell Metals, LLC, formerly known as KW Metals Acquisition, LLC, Defendant: Mark X Mullin, LEAD ATTORNEY, Haynes and Boone, LLP, Dallas, TX; Alex Stevens, Stephen J Manz, PRO HAC VICE, Haynes and Boone, Llp, Dallas, TX; Laura E O'Donnell, PRO HAC VICE, Haynes and Boone, Llp, San Antonio, TX; William John Barrett, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL.

For Keywell Metals, LLC, Counter Claimant: Mark X Mullin, LEAD ATTORNEY, Haynes and Boone, LLP, Dallas, TX; Alex Stevens, Stephen J Manz, PRO HAC VICE, Haynes and Boone, Llp, Dallas, TX; Laura E O'Donnell, PRO HAC VICE, Haynes and Boone, Llp, San Antonio, TX; William John Barrett, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL.

For Cronimet Holdings, Inc., a Delaware corporation, John D. Joyce, an individual, Edward J. Newman, an individual, Counter Defendants: Roger James Higgins, LEAD ATTORNEY, The Law Offices of Roger Higgins, LLC, Chicago, IL; Timothy D. Elliott, LEAD ATTORNEY, Rathje & Woodward, Wheaton, IL; Emily A. Shupe, Jordan Rae Franklin, Polina Arsentyeva, Rathje & Woodward, LLC, Wheaton, IL.

For Keywell Metals, LLC, Counter Claimant: Mark X Mullin, LEAD ATTORNEY, Haynes and Boone, LLP, Dallas, TX; Alex Stevens, Stephen J Manz, Haynes and Boone, Llp, Dallas, TX; Laura E O'Donnell, Haynes and Boone, Llp, San Antonio, TX; William John Barrett, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, IL.

For Cronimet Holdings, Inc., a Delaware corporation, John D. Joyce, an individual, Edward J. Newman, an individual, Counter Defendants: Roger James Higgins, LEAD ATTORNEY, The Law Offices of Roger Higgins, LLC, Chicago, IL; Timothy D. Elliott, LEAD ATTORNEY, Rathje & Woodward, Wheaton, IL; Emily A. Shupe, Rathje & Woodward LLC, Wheaton, IL.

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OPINION AND ORDER

SARA L. ELLIS, United States District Judge.

After spirited bidding with Plaintiff Cronimet Holdings, Inc. (" Cronimet" ), Defendant Keywell Metals, LLC (" Keywell Metals" ) acquired the assets of Keywell, LLC (" Keywell" ) in December 2013. Two of Keywell's employees, Plaintiffs Edward J. Newman and John D. Joyce, decided not to join Keywell Metals, however, and instead were hired by Cronimet in May 2014, precipitating this lawsuit. Cronimet, Newman, and Joyce (collectively, the " Cronimet Parties" ) filed the suit seeking a declaration that Cronimet could employ Newman and Joyce regardless of a non-disclosure agreement between Cronimet and Keywell (the " Cronimet NDA" ) and non-compete agreements Newman and Joyce had with Keywell. Keywell Metals responded by filing counterclaims against the Cronimet Parties, seeking relief for the following claims: (1) preliminary and permanent injunctive relief against Cronimet for breach of the Cronimet NDA, (2) preliminary and permanent injunctive relief against Newman and Joyce for breach of the non-compete agreements, (3) breach of the Cronimet NDA by Cronimet, (4) breach of the non-compete agreements by Newman and Joyce, (5) breach of fiduciary duty by Newman and Joyce, (6) violation of the Illinois Trade Secrets Act (" ITSA" ), (7) misappropriation of confidential information and unfair competition, (8) tortious interference with contract by Cronimet, (9) civil conspiracy, and (10) unjust enrichment. The Cronimet Parties seek to dismiss all but the breach of fiduciary duty and ITSA claims. Because the Court finds that Keywell Metals does not have standing

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to enforce the Cronimet NDA or the non-compete agreements, all claims based on those agreements are dismissed. Additionally, Keywell Metals' claims for misappropriation of confidential information, unfair competition, and unjust enrichment are dismissed because they are preempted by ITSA as they depend on the existence of confidential information for their viability. Keywell Metals' claim for civil conspiracy is dismissed to the extent it relates to the underlying breach of contract, misappropriation of confidential information, unfair competition, and unjust enrichment allegations but may proceed with respect to Keywell Metal's remaining claims of breach of fiduciary duties and trade secret violations.

BACKGROUND[1]

I. Purchase of Keywell's Assets

Keywell was a leading supplier of recycled titanium, high-temperature alloys, and stainless steel. Its headquarters were in Chicago, Illinois, although it had operations throughout the United States. In May 2013, Keywell enlisted Eureka Capital Markets, LLC (" Eureka" ) to help Keywell sell its assets. Eureka identified 186 potential purchasers, including Cronimet. Of these 186 potential purchasers, 59 executed non-disclosure agreements, 41 received access to an online data room, and 9 conducted site visits. Cronimet signed its non-disclosure agreement with Keywell--the Cronimet NDACon June 28, 2013. The Cronimet NDA prohibited Cronimet from using or disclosing any Keywell confidential and financial information that Cronimet obtained during its negotiations with Keywell. Cronimet also agreed that, for a period of 24 months (i.e. until June 28, 2015), it would not hire any of Keywell's officers, directors, or other Keywell employees with whom Cronimet came into contact during negotiations, except with Keywell's prior written consent.

On September 21, 2013, Cronimet and Keywell executed an asset purchase agreement by which Cronimet was to serve as the stalking horse bid for Keywell's assets in a Bankruptcy Code Section 363 sale process. On September 24, Keywell filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois. In re SKG Ventures, LLC, f/k/a Keywell, LLC, No. 13-37603 (Bankr. N.D. Ill). On September 26, Keywell filed a motion with the bankruptcy court seeking approval of the sale of its assets by way of a specified bid procedure. That motion was granted on October 21. An auction was held on December 2, with both Keywell Metals and Cronimet bidding on Keywell's assets. Keywell Metals ultimately prevailed.

On December 12, the bankruptcy court entered an order authorizing the sale of Keywell's assets to Keywell Metals. On that same day, Keywell and Keywell Metals entered an asset purchase agreement. The sale order provided that " [t]he transactions contemplated under the [asset pur

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chase agreement] do not amount to a consolidation, merger, or de facto merger of [Keywell Metals] and [Keywell] and/or [Keywell's] estate, there is no substantial continuity between [Keywell Metals] and [Keywell], there is no continuity of enterprise between [Keywell] and [Keywell Metals], [Keywell Metals] is not a mere continuation of [Keywell] or its estate, and [Keywell Metals] does not constitute a successor to [Keywell] or its estate under applicable state law." Ex. 4 to Second Am. Counterclaim, Sale Order, ¶ 24. It went on to state that, other than as provided under the asset purchase agreement, Keywell Metals did not assume " any employment or labor agreements, consulting agreements, severance agreements, change-in-control agreements, or other similar agreements to which [Keywell] is or was a party." Id. The transactions contemplated by the asset purchase agreement were consummated on December 31, 2013, at which point Keywell Metals began operations. As part of these transactions, Cronimet received a break-up fee of $450,000 for its role as the stalking horse bidder.

II. Newman and Joyce's Employment History

Newman began employment with Keywell in 1979. In 2013, Newman was Keywell's Executive Vice President -- Titanium and HTA Commercial. Joyce began working at Keywell in 1995. In 2013, Joyce was Keywell's Vice President of Purchasing. Both Newman and Joyce executed non-compete agreements in 1997, Newman on June 30 and Joyce on July 31. These non-compete agreements prohibited Newman and Joyce from disclosing Keywell's confidential or proprietary information or trade secrets without Keywell's prior written approval. Newman and Joyce also agreed that, for 24 months after their employment with Keywell was terminated, they would not become employed by certain companies. The prohibition extended to employment with Cronimet.

On December 20, 2013, Keywell Metals offered Newman and Joyce employment with Keywell Metals in positions that were substantially similar to those they held with Keywell. Newman and Joyce both declined their offers and resigned their positions from Keywell on December 30, 2013. On May 5, 2014, Newman and Joyce informed Keywell Metals that Cronimet had offered them jobs starting May 15, 2014 and that they intended to accept the Cronimet offers. On May 9, Keywell Metals responded, objecting to Newman and Joyce working for Cronimet and stating that it expected them to abide by their non-compete agreements. On May 12, Newman and Joyce took the position that Keywell Metals had not acquired the non-compete agreements pursuant to the asset purchase agreement with Keywell. That same day, Keywell and Keywell Metals jointly informed Cronimet that they objected to ...


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