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Stericycle, Inc. v. Simota

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

October 20, 2017

STERICYCLE, INC., Plaintiff,



         The allegations in this suit follow the pattern familiar in restrictive covenant cases: former employee leaves to work for a competitor, takes confidential files with him, and then solicits other employees and customers to join him at his new company. The setting here is Las Vegas and Plaintiff Stericycle, Inc. (“Stericycle”) is the employer who alleges foul play. Donald Simota, Dana Sullivan, and Chad Van Houten (“the defendants”) are the former employees who allegedly joined a competitor-Patriot Environmental Services, Inc. (“Patriot”)-and took Stericycle information and customers with them, in violation of their contractual and fiduciary duties. The defendants have filed a partial motion to dismiss Stericycle's breach of contract claims (Counts I-IV) under Federal Rule of Civil Procedure 12(b)(6), arguing that even though their employment agreements contain restrictive covenants that mandate, among other things, that whatever happens at Stericycle stays at Stericycle, those covenants are unenforceable due to a lack of adequate consideration. The Court disagrees and finds that the defendants' roughly thirteen months of employment and Simota's grant of stock options were sufficient consideration under Illinois law to support their restrictive covenants. As a result, all four of Stericycle's contract claims survive dismissal and the Court denies the defendants' partial motion to dismiss.


         For purposes of this Rule 12(b)(6) motion, the Court must treat the following facts asserted in Stericycle's complaint as true. Yeftich v. Navistar, Inc., 722 F.3d 911, 915 (7th Cir. 2013) (citing Fed.R.Civ.P. 12(b)(6)). Stericycle is in the medical and waste management business and offers hazardous waste emergency response services. (Compl. ¶¶ 14-15, ECF No. 1.) In January 2015, Stericycle acquired (through an indirect subsidiary) Double Barrel Environmental Services, LLC (“Double Barrel”) to expand its hazardous waste emergency response business. (Id. ¶ 27.) At the time of the acquisition, the defendants were employed by Double Barrel in its Las Vegas office; Simota was the Southern Nevada Operations Manager, Van Houten was a Project Manager, and Sullivan was an Office Administrator. (Id. ¶¶ 23-25.) Following the acquisition, all three defendants became employees of Stericycle and fulfilled substantially the same roles that they had with Double Barrel. (Id. ¶¶ 27, 30.)

         The following month, between February 15 and 18, 2015, the defendants entered into nearly identical Confidentiality and Nonsolicitation Agreements with Stericycle (the “Nonsolicitation Agreements”). (Compl. ¶¶ 32-34, 36.) The agreements bar the defendants from disclosing to third parties or using for their own purposes any of Stericycle's confidential information or trade secrets. (Id. ¶ 42.) They also prohibit the defendants from soliciting any Stericycle customers or employees for a period of twelve months following their termination from the company. (Id. ¶¶ 40-41.) The Nonsolicitation Agreements state that Stericycle offered “employment” to the defendants in consideration for these covenants. (Nonsolicitation Agreements 1, Exs. D-F, ECF Nos. 1-4 to -6.) That employment was on at-will basis. (Employee Confirmation Letters, Ex. C, ECF No. 1-3.)

         Simota also signed an Employee Covenant Agreement on April 1, 2015 (the “Covenant Agreement”), which contained nearly identical nondisclosure and nonsolicitation restrictions as the Nonsolicitation Agreements. (Compl. ¶¶ 35-36.)[1] It also contained an additional restriction that barred Simota from working for a Stericycle competitor for a period of twelve months after he left the company. (Id. ¶¶ 37-39.) According to the Covenant Agreement, Stericycle granted Simota “an option to purchase shares of Stericycle common stock . . . pursuant to an option agreement dated the same date as [the Covenant Agreement]” in consideration for these restrictions. (Covenant Agreement 1, Ex. G, ECF No. 1-7.)[2]

         The defendants worked for Stericycle until March 2016. While employed by Stericycle, all three defendants had access to and became familiar with the company's confidential information and trade secrets. (Compl. ¶ 43.) They also cultivated relationships with Stericycle customers and worked to develop new business. (Id. ¶ 45.) On March 4, 2016, Simota resigned his employment with Stericycle. (Id. ¶ 46.) Although he gave two weeks' notice, he announced his last day one week later, on March 11, 2016. (Id.) Van Houten resigned on or around March 9, 2016, but announced his last day on March 11, 2016 as well. (Id. ¶ 47.) Sullivan resigned on or around March 8, 2016, and stayed on with Stericycle until March 22, 2016. (Id. ¶ 48.)

         Shortly after leaving Stericycle, the defendants began working for Patriot, one of Stericycle's competitors in the hazardous waste emergency response business. (Compl. ¶¶ 1, 49.) All three defendants took on the same or substantially similar positions at Patriot that they held at Stericycle. (Id. ¶¶ 50-51.) As they left Stericycle, Simota and Sullivan took confidential information with them, including detailed information pertaining to Stericycle's customers and pricing. (Id. ¶¶ 55-60.) Moreover, the defendants informed Stericycle customers about their move to Patriot and solicited at least one Stericycle employee to join Patriot. (Id. ¶¶ 61-68.)

         On March 30, 2016, Stericycle sent letters to the defendants reminding them of their post-employment obligations and demanding compliance with their covenants. (Id. ¶ 69.) Shortly after the defendants responded to those letters on April 8, 2016, Stericycle filed suit. (Id. ¶¶ 70-73.) Among other counts in its complaint, Stericycle asserts that the defendants have breached the restrictive covenants in their Nonsolicitation Agreements and Covenant Agreement, as well as their fiduciary duties to Stericycle, and seeks damages and injunctive relief. (Id. ¶¶ 74-113.) In May 2016, following a hearing, the Court entered a temporary restraining order enjoining the defendants from soliciting Stericycle customers and employees for a twelve-month period and barring defendants from using or disclosing Stericycle's confidential information or trade secrets. (TRO 2-4, ECF No. 21.) Two months later, in July 2016, the defendants filed a motion to dismiss Stericycle's breach of contract claims (Counts I-IV). (Defs.' Mot. to Dismiss, ECF No. 42.)


         To overcome a motion to dismiss under Rule 12(b)(6), “a complaint must ‘state a claim to relief that is plausible on its face.'” Adams v. City of Indianapolis, 742 F.3d 720, 728 (7th Cir. 2014) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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.” W. Bend Mut. Ins. Co. v. Schumacher, 844 F.3d 670, 675 (7th Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). This Court “must accept as true all factual allegations in the . . . complaint and draw all permissible inferences” in Stericycle's favor. Id. (quoting Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 639 (7th Cir. 2015) (internal quotation marks omitted)). However, “[w]hile a plaintiff need not plead ‘detailed factual allegations' to survive a motion to dismiss, [it] still must provide more than mere ‘labels and conclusions or a formulaic recitation of the elements of a cause of action' for [its] complaint to be considered adequate under [Rule] 8.” Bell v. City of Chi., 835 F.3d 736, 738 (7th Cir. 2016) (quoting Iqbal, 556 U.S. at 678).

         The sole issue presented by the defendants' motion is whether the Nonsolicitation Agreements and the Covenant Agreement were supported by adequate consideration. The defendants argue that the consideration underlying the Nonsolicitation Agreements fails because it was based only on the promise of at-will employment, and because they worked for Stericycle for no more than thirteen months (not two years), their employment was insufficient as a matter of Illinois law to serve as consideration for a restrictive covenant. (Defs.' Mem. in Supp. of Mot. to Dismiss 3-4, ECF No. 43.) Simota argues that his Covenant Agreement also lacked sufficient consideration because it was supported only by an illusory grant of options that never vested or resulted in a payout. (Id. at 4.) Stericycle contends that the defendants were employed for a “substantial period” under Illinois law in light of their voluntarily resignation from Stericycle, and thus the Nonsolicitation Agreements are enforceable. (Pl.'s Resp. in Opp'n to Mot. to Dismiss 8-11, ECF No. 47.) With regard to the Covenant Agreement, Stericycle argues that the options served as adequate consideration regardless of whether they vested. (Id. at 5-7.) The Court addresses the two different agreements in turn and finds that both are supported by sufficient consideration.

         I. The Defendants' Nonsolicitation Agreements (Counts I, III, IV)

         Because the defendants resigned from Stericycle after about thirteen months of continued employment to work for a competitor, the Court finds that there is enough consideration to enforce the Nonsolicitation Agreements. A contract is enforceable under Illinois law whenever there is an exchange that includes an offer, acceptance, and consideration. All Am. Roofing, Inc. v. Zurich Am. Ins. Co., 404 Ill.App.3d 438, 449, 934 N.E.2d 679, 689 (1st Dist. 2010) (citation omitted). ‚ÄúConsideration is defined as a bargained-for ...

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