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Christopher Glass & Aluminum, Inc. v. O'Keefe

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

June 30, 2017

CHRISTOPHER GLASS & ALUMINUM, INC., an Illinois Corporation Plaintiff,
v.
THOMAS O'KEEFE Defendant.

          MEMORANDUM OPINION AND ORDER

          Hon. Virginia M. Kendall United States District Judge

Plaintiff Christopher Glass & Aluminum, Inc. (“CGA”), initially sought a temporary restraining order and a preliminary injunction to prevent its former employee, Defendant Thomas O'Keefe, from using CGA's alleged confidential and trade secret information in his new employment and to bar O'Keefe from soliciting CGA's customers and employees. (Dkt. 6 at 1.) The Court denied Plaintiff's TRO motion because O'Keefe represented that he returned the material to CGA, agreed not to use it, and agreed not to solicit CGA's customers, so the case proceeded to discovery. (See Dkt. 16.) Under current consideration are O'Keefe's Motion to Dismiss Counts II, IV, VI, and VII of the Complaint with Prejudice [28] and his Rule 12(f) Motion to Strike Portions of the Complaint Pursuant to Fed.R.Evid. 408 [30]. For the foregoing reasons, Defendant's Motion to Dismiss is granted in part and denied in part and his Motion to Strike is granted.

         BACKGROUND

         For purposes of a Rule 12(b)(6) motion, the Court accepts as true all well-pleaded allegations and draws all reasonable inferences in favor of the plaintiff. See Appert v. Morgan Stanley Dean Witter, Inc. 673 F.3d 609, 622 (7th Cir. 2012). CGA, which has been in business since 1981, fabricates, engineers, and installs glass products and framing systems. (Dkt. 1 ¶¶ 12-13.) O'Keefe is former CGA employee who worked as CGA's Service Sales Manager and was responsible for developing CGA's bids and estimates, selling CGA's services, overseeing service jobs, and managing long-term client relationships. (Id. ¶¶ 18, 23.) As part of his job at CGA, O'Keefe required regular access to CGA's trade secrets and confidential and proprietary information, including its Service Log, which included CGA's detailed bidding history, prices, materials, and customer information. (Id. ¶¶ 24-25, 34-35.) Before O'Keefe left CGA, he printed out part of the Service Log without CGA's permission and had a series of lengthy telephone conversations with several employees of Arlington Glass, one of CGA's competitors. (Id. ¶¶ 29, 36-37, 40-42.) After leaving CGA, O'Keefe was immediately hired by Arlington Glass. (Id. ¶ 19-20.) CGA alleges that O'Keefe's misappropriation of the Service Log constituted a breach of fiduciary duty and violated his Employee Agreement with CGA, which he signed on July 14, 2014, and which prohibited O'Keefe from divulging “CGA's Trade Secrets, Trade Secret information and confidential proprietary information[.]” (Id. ¶¶ 44-45, 130-142.) O'Keefe also acknowledged that he received receipt of CGA's handbook, which outlines policies related to trade secrets. (Id. ¶ 126; Dkt 1-5 at 39.) CGA also alleges that following his departure, O'Keefe, on behalf of Arlington Glass, used the Service Log to underbid CGA on projects for as little as $150 and solicited CGA's key employees to work at Arlington Glass. (Dkt. 1 ¶¶ 183-200, 202-218.)

         CGA brought claims for injunctive relief under the Defend Trade Secrets Act of 2016 (“DTSA”) and the Illinois Trade Secrets Act (Count I), breach of fiduciary duties under the DTSA (Count II), trade secret misappropriation under the DTSA (Count III), breach of fiduciary duties under the Illinois Trade Secrets Act (Count IV), trade secret misappropriation under the Illinois Trade Secrets Act (Count V), common law replevin (Count VI), and common law breach of contract (Count VII).

         LEGAL STANDARD

         A complaint must contain factual matter sufficient to state a claim that is plausible on its face. Fed R. Civ. P. 12(b)(6); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Such a set of facts must “raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007). The complaint must fairly notify defendants of the claim and its basis. See Swanson v. Citibank, N.A., 614 F.3d 400, 404 (2010) (quoting Erickson v. Pardus, 551 U.S. 89, 93 (2007)).

         DISCUSSION

         O'Keefe argues that CGA's state law claims for breach of fiduciary duty (Counts II, IV) and replevin (Count VI) are preempted by the Illinois Trade Secrets Act (ITSA) and his breach of Contract Claim (Count VII) fails as a matter of law because it is predicated on an Employee Handbook that indicates it is not an enforceable contract. (Dkt. 28 at 1-2.) O'Keefe also moves to strike Exhibits B and C to Plaintiff's Complaint and related allegations, which he argues are settlement-related documents which are protected by Rule of Evidence 408. (Dkt. 30)

         I. Preemption Under the ITSA

         O'Keefe argues that because CGA's common law claims for breach of fiduciary duty and replevin are “based entirely upon O'Keefe's alleged misappropriation of Plaintiff's trade secrets, ” they are preempted by the ITSA. (Dkt. 28 at 2-4.) With a handful of enumerated exceptions, the Illinois General Assembly proclaimed that the ITSA “is intended to displace conflicting tort, restitutionary, unfair competition, and other laws of this State providing civil remedies for misappropriation of a trade secret.” 765 Ill. Comp. Stat. Ann. 1065/8 (West 2017). Those exceptions to preemption are limited to: (1) contractual remedies; (2) other civil remedies that are not based upon misappropriation of a trade secret; (3) criminal remedies; and (4) the definition of a trade secret contained in any other Illinois statute. Id.

         To determine whether CGA's common law claims are preempted by the ITSA, it is necessary to closely examine the relevant allegations. CGA alleges that O'Keefe violated his fiduciary duties owed to CGA resulting from his managerial role soliciting CGA employees (Dkt 1 ¶ 201-02) and by “taking actions for the benefit of himself and of his new employer, Arlington Glass and to the detriment of CGA, while still employed at CGA as described aforesaid and since he left CGA.” (Id. ¶¶ 241-258.) CGA also alleges that O'Keefe breached his fiduciary duties by “retaining a copy of the Log and by removing it before terminating his employment with CGA, and by using the Trade Secret information and confidential and proprietary information contained in the Log to successfully solicit customers and compete with CGA on behalf of his new employer and where not successful in competing with CGA, in damaging the customer relationships of customers with CGA after he left.” (Id. ¶¶ 259-269, 313.) CGA also alleges that O'Keefe breached his fiduciary duties to CGA by failing to disclose his adverse activities to CGA during or after his employment. (Id. ¶¶ 264-65.) In its replevin count, CGA alleges that it is entitled to the return of “documents, data, electronic files and information that have been unlawfully retained by O'Keefe that were unlawfully forwarded to non-CGA devices and email accounts and to Arlington Glass.” (Id. ¶ 348.) CGA's ITSA claim alleges that the information taken by O'Keefe constituted trade secrets, CGA maintained the confidentiality of that information, CGA invested heavily into the creation of the trade secrets, which led to CGA's economic benefit, and CGA was damaged by O'Keefe's use of the trade secrets. (Dkt. 1 ¶¶ 294-321, 322-346 .) CGA seeks monetary damages and extensive injunctive relief for O'Keefe's alleged ITSA violations, including the return of the trade secrets. (Id. ¶¶ 321, 346.)

         The parties rely primarily on two Seventh Circuit decisions analyzing the scope of the ITSA but do not cite to any Illinois state court interpreting the Act. In doing so, they have “fail[ed] to recognize that we defer to an Illinois court's interpretation of state law.” MacDonald v. Estate of Gayton, 469 F.3d 1079, 1082 n.1 (7th Cir. 2006) (following First District Appellate Court of Illinois decision when analyzing issue of state law).

         Although the Illinois Supreme Court has not analyzed the scope of ITSA's preemption provision, an Illinois appellate court has examined the statute under relatively similar circumstances. In Alpha School Bus Co., Inc. v. Wagner, the court reversed the wholesale dismissal of two breach of fiduciary duty claims that were based in part on the misappropriation of trade secrets by interpreting ITSA's preemption provision to only preclude claims solely premised on the misappropriation of trade secrets. 910 N.E.2d 1134, 1150(Ill.App.Ct. 2009). Wagner, a former Alpha employee, allegedly breached his fiduciary duties to his employer by setting up a competing business and preparing bids for both companies while he was still working at Alpha. Id. In finding that the trial court erred in dismissing the breach of fiduciary duty claims against Wagner, the court explained that “[a]lthough plaintiffs' claim includes allegations that Wagner used trade secrets in preparing the bid, this claim is not dependent upon the misappropriation of trade secrets. Plaintiffs also claim, inter alia, that Wagner established a competing business while still employed by Alpha, solicited Alpha's employees to work for the competing business, and converted various property of Alpha. Therefore, the Trade Secrets Act does not preempt this claim[.]” Id. Alpha also accused another defendant, Hackel, of inducing Wagner to breach his fiduciary duties in five different ways, one of which included ‚Äúconspiring with Wagner to usurp ...


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