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Optionscity Software, Inc. v. Baumann

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

June 19, 2015




This case arises out of a dispute over a restrictive covenant in an Employment Agreement. Brian Baumann, formerly employed by OptionsCity Software, Inc., went to work for Bolt Trading Company ("Bolt"), and once there, solicited his former customers in an attempt to induce them to come over to Bolt. OptionsCity sued Baumann for breach of contract based on the restrictive covenant in the Employment Agreement Baumann signed at OptionsCity.

Now before the Court is Plaintiff's Emergency Motion for a Temporary Restraining Order and Preliminary Injunction [1-1], p. 21. Defendant Brian Baumann was given notice of this motion and an opportunity to file a written response. Additionally, the parties were fully and fairly heard on the matter on June 19, 2015. This Court, having reviewed the evidence before it and heard the arguments of counsel for both parties, for the reasons set forth below, hereby grants plaintiff's request for a temporary restraining order, and enters and continues the request for a preliminary injunction until July 2, 2015 at 10:30 a.m.

Background & Procedural History

OptionsCity Software, Inc. creates options trading software for use by trading companies and individual options traders. Complaint [1-1], ¶1. It has offices in Chicago, New York and London and clients throughout the United States and in other countries. Id., ¶2. OptionsCity continuously modifies its software for its clients, which means, as a practical matter, that its client relationships tend to be committed and longstanding. Although OptionsCity has only been in business 8 years, most of its clients have been with it for 3 years or longer. Complaint [1-1], ¶¶2-4. The market for options trading software is competitive; OptionsCity spent years and considerable expense building its client base through marketing efforts, advertising, public presentations and through its sales force, which uses knowledge and contacts to market OptionsCity's software. Id., ¶5. OptionsCity also obtains, develops and creates, as part of its business model, confidential and proprietary information, including a customer contact list (which includes contact names, addresses, phone numbers, customer billing and payment information) and a set of unique options trading formulas, which it protects through reasonable security measures. Complaint [1-1], ¶¶6-8. One such measure is the use of employment agreements containing provisions prohibiting former employees from disclosing confidential or proprietary information. Id., ¶8.

Brian Baumann worked as a saleperson for OptionsCity from March of 2011 until October of 2014. [1-1], ¶9. He signed an employment agreement with OptionsCity on March 21, 2011. [1-1], ¶13. The Employment Agreement contains several provisions that are relevant for the Court's purposes today, including an arbitration provision, a termination provision and a restrictive covenant. Each is discussed below.

Initially, the Employment Agreement includes a "resolution of disputes" provision stating that any "disputes arising under or in connection with this Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration to be held in Chicago, Illinois in accordance with the rules and procedures of the American Arbitration Association." Employment Agreement, ¶16 (attached to the Complaint). Baumann argues that this provision divests the Court of jurisdiction to entertain the motion for injunctive relief. OptionsCity disagrees, both on the basis of another provision in the Agreement (¶6) and on the basis of binding precedent.

The Court finds that the clause requiring disputes to be resolved through mediation or arbitration does not preclude it from granting preliminary injunctive relief, if such relief is necessary to preserve the status quo and make that mediation or arbitration meaningful. E.g., Merrill Lynch Pierce Fenner & Smith v. Salvano, 999 F.2d 211, 214 (7th Cir. 1993)("the weight of federal appellate authority recognizes some equitable power on the part of the district court to issue preliminary injunctive relief in disputes that are ultimately to be resolved by an arbitration panel.")(citing cases). As such, the Court has jurisdiction to grant the requested relief if the proper showing can be made by OptionsCity.

The Employment Agreement between OptionsCity and Baumann also includes a termination clause that allows OptionsCity to "terminate this Agreement upon five (5) days notice to Employee for any reason" and allows Baumann to "terminate this Agreement at any time upon five (5) days notice to Employer for any reason." Employment Agreement, ¶3. Baumann claims in his response that OptionsCity did not comply with this provision. According to Baumann, on October 23, 2014, his supervisor texted him and told him they needed to talk; he was then summarily fired when he got to the office. Response, p. 3. Baumann also argues that, because he was fired, the restrictive covenant is therefore unenforceable under Illinois law.

OptionsCity disputes that Baumann was fired without cause or notice. In fact, at the hearing on the motion for TRO, counsel clarified that, according to OptionsCity, the company fired Baumann because he was disparaging the company to its customers. OptionsCity also disputes that the law in Illinois precludes enforcement of a restrictive covenant in every case where an at-will employment is fired.

At this point in the proceedings, the Court need not resolve the issue of why Baumann was fired. The circumstances surrounding his termination and the question of whether OptionsCity complied with its obligations under the Agreement - including its obligation to honor the duty of good faith and fair dealing that is implied in every contract - are germane to the ultimate question to be resolved through mediation or arbitration (whether the restrictive covenant is enforceable under the circumstances presented). Accordingly, the issue is not before this Court, except to the extent it impacts OptionsCity's likelihood of success on the merits (as discussed below).

Finally (and most importantly), the Employment Agreement between Baumann and OptionsCity included a restrictive covenant provision. Pursuant to this provision, Baumann agreed that he "shall not directly or indirectly:

during the Employment Period, and for eighteen (18) months thereafter, for any reason, (i) induce any customer or supplier of the Company or any of its subsidiaries or affiliates to patronize or do business with any business directly or indirectly in competition with the business conducted by the Company or any of its subsidiaries or affiliates; (ii) canvass, solicit or accept from any customer or supplier of the Company or any of its subsidiaries or affiliates any such competitive business; or (iii) request or advise any customer or vendor of the Company or any of its subsidiaries or affiliates to withdraw, curtail or cancel any such customer's or vendor's business with the Company or any of its subsidiaries or affiliates.

Employment Agreement, ¶4(b). It is undisputed that, once he was employed at Bolt, Baumann began contacting OptionsCity's customers to entice them to leave OptionsCity and to sign on with Bolt. OptionsCity alleges that Baumann has successfully lured at least one customer to switch to Bolt and has contacted at least two ...

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