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Act II Jewelry, LLC v. Wooten

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

July 11, 2018

ACT II JEWELRY, LLC, a Delaware Limited Liability Corporation d/b/a Lia Sophia; and KIAM EQUITIES CORPORATION, a Delaware Corporation, Plaintiffs,
v.
ELIZABETH ANN WOOTEN; ADORNABLE-U, LLC, a Delaware Limited Liability Company; NICOLE MEAD; SHANNON ECKELS; and BECKA DAUN, Defendants. ELIZABETH ANN WOOTEN; ADORNABLE-U, LLC, a Delaware Limited Liability Company; NICOLE MEAD; and SHANNON ECKELS, Counterplaintiffs/ Third-Party Plaintiffs,
v.
ACT II JEWELRY, LLC, a Delaware Limited Liability Company; and KIAM EQUITIES CORP., a Delaware Corporation; VICTOR K. KIAM III; and ELANA KIAM, Counterdefendants/ Third-Party Defendants.

          MEMORANDUM OPINION AND ORDER

          HARRY D. LEINENWEBER, JUDGE

         Before the Court are Cross-Motions for Partial Summary Judgment. Plaintiffs Act II Jewelry, LLC, Kiam Equities Corp. (“KEC”), F-Five LLC, Victor K. Kiam, III, and Elena Kiam (collectively, “Act II”) move for summary judgment on the breach of fiduciary duty claim and all remaining counterclaims. Defendants Elizabeth Ann Wooten, Adornable-U, LLC, Nicole Mead, Shannon Eckels, and Becka Daun (collectively, “Adornable-U” or “Defendants”) move for summary judgment on Act II's trade secret and breach of contract claims. For the reasons stated herein, Act II's Motion for Summary Judgment and Adornable-U's Motion for Summary Judgment are granted in part and denied in part. Act II's Motion for Summary Judgment is granted as to the tortious interference claims and the Illinois Consumer Fraud claim, but denied as to the breach of fiduciary duty claim, breach of Incentive Agreement claim and the Illinois Wage Payment and Collection Act claim. Defendants' Motion for Summary Judgment on Act II's trade secret claims against Mead, Eckels, and Daun is granted. The rest of Defendants' Motion is denied.

         I. BACKGROUND

         The Court assumes familiarity with the underlying facts of this case as recited in its previous opinions [ECF Nos. 90, 95, 252]. See, generally, Act II Jewelry, LLC v. Wooten, 301 F.Supp.3d 905 (N.D. Ill. 2018) (motion to dismiss and partial summary judgment); Act II Jewelry, LLC v. Wooten, No. 15 C 6950, 2016 WL 4011233 (N.D. Ill. July 27, 2016) (motion to dismiss counterclaims); Act II Jewelry, LLC v. Wooten, No. 15 C 6950, 2016 WL 3671451 (N.D. Ill. July 11, 2016) (motion to dismiss operative complaint). The Court reiterates the basic facts and will discuss in more detail in the analysis as necessary.

         Plaintiff Act II Jewelry, LLC was in the jewelry sales industry. (Defs.' Resp. to Pls.' Facts, Dkt. No. 307, ¶ 4.) It marketed and sold jewelry by having a network of sales representatives hold parties in customers' homes, commonly known as the “party plan” business model. (Id.) Ann Wooten was employed as Vice President of Product Development by Act II for approximately three and a half years from July 2011 to February 9, 2015. (Id.) As Vice President of Product Development, Wooten, and her team, selected, developed, and designed Act II's line of jewelry. (Id. ¶ 5.)

         On December 1, 2014, Act II announced it would be winding down its direct-selling, party plan jewelry business in the United States and Canada and its sales advisors would be selling its Fall/Winter 2014 collection at discounted prices through December 31, 2014. (Id. ¶ 8.) To ensure an orderly wind down process, Act II entered into a Key Employee Incentive Bonus Agreement (the “Incentive Agreement”) with several employees, including Wooten.

         The Incentive Agreement provided financial incentives for Wooten to remain employed with Act II and work diligently during the wind down period. (Dkt. No. 307, ¶ 8.) The Incentive Agreement included a reaffirmation of a previously agreed to Non-Disclosure Agreement stating that all trade secrets Wooten obtained during her employment were to be held in confidence solely in connection with and for the purposes of employment with Act II. (Id. ¶ 7.) The Incentive Agreement also specifically allowed Wooten to continue working in the jewelry field, stating that nothing in the agreement would prevent Wooten from “continuing her work as a jewelry designer, as long as [Wooten] does not infringe on any intellectual property belonging to the Company.” (Id. ¶ 10.) Finally, the Incentive Agreement entitled Wooten to severance and bonus pay if she acted in accordance with the agreement so long as she was not terminated for cause. (Id. ¶ 11.)

         Act II terminated its normal business at the end of December 2014, and ceased all operations as of March 7, 2015. (Pls.' Resp. to Defs.' Facts, Dkt. No. 294, ¶ 47.) Act II has not engaged in any business since March 7, 2015. (Id.)

         When Act II decided to close shop, Wooten decided to open her own business in the same industry. The crux of the dispute between the parties here is the propriety of Wooten's activities from the fall of 2014 to her termination date with Act II on February 9, 2015. The parties tell very different stories of what occurred during this period. The Court outlines each parties' rendition in turn.

         According to Act II, Wooten used Act II's proprietary information to launch her new business, Adornable-U. While she was still employed by Act II, Wooten covertly directed Act II designers Bonnie Jaekel and Abbey Johnson to spend Act II work time to develop designs for Adornable-U. (Dkt. No. 307, ¶ 12.) She also coached Act II supplier La Radiant in its negotiations against Act II and secretly took Act II's jewelry styles, including pieces from the unreleased collection she and her team developed in 2014, and used them for Adornable-U. (Id.) Wooten also took proprietary information from Act II prior to her termination. She forwarded numerous e-mails and attachments from her Act II business account to her personal email account including proprietary information regarding the Spring/Summer 2015 collection, sales trends for Act II styles, and other topics clearly related to the launch of her new business. (Id.) While still employed and under contract with Act II, Wooten began operating Adornable-U's business by marketing Adornable-U to the public: she published Adornable-U's catalog online, registered and/or employed sales representatives to hold parties and take customer orders, and sold and distributed starter kits (containing actual product). (Dkt. No. 307, ¶ 13; Defs.' Reply to Pls.' Add'l Facts, Dkt. No. 334, ¶ 76.) In short, in Act II's view, Wooten stopped working in the best interests of Act II and further took Act II's proprietary information to benefit her new business. All of these activities, according to Act II, were undertaken without Act II's knowledge. While Act II had been generally aware of Wooten's intention to start her own direct-sales jewelry business after Act II shuttered its doors, Act II expected that Wooten would not take any of its proprietary information and would not begin operating prior to concluding her work with Act II.

         Wooten tells a very different story. According to Wooten, she was always up front with Act II and its owners about her plans to continue in the business after Act II shut down. In September 2014, Wooten disclosed to Act II that, in light of the fact that Act II was going out of business, she wished to start her own company and enter into the direct-sales jewelry business. Wooten spoke with Act II personnel about her new business plans several times over the course of the next two months. Act II's owners expressed support and said they had no objection to Wooten starting her own direct-sales jewelry company and working with former Act II Sales Advisors. With Act II's blessing, Wooten incorporated Adornable-U, a direct-selling jewelry business on October 30, 2014.

         According to Wooten, at no point during Act II's winding down process did she ever use or misappropriate any of Act II's trade secret information for the design or sourcing of Adornable-U's 2015 or its subsequent jewelry lines. (Dkt. No. 294, ¶ 33.) Wooten did not refer to or in any way use Act II's Spring/Summer 2015 “collection” in the selection or development of Adornable-U's jewelry lines or catalogs. (Id. ¶ 35.) To the contrary, Wooten selected and developed Adornable-U's 2015 and subsequent jewelry lines independently, using only information regarding those jewelry products and designs obtained from third-party vendors. (Id. ¶ 37.)

         On January 20, 2015, things went awry. Wooten posted Adornable-U's first product catalog online. (Dkt. No. 307, ¶ 15.) According to Act II, Adornable-U's product catalog contained Act II's work product because it included many “carryover” jewelry items in Act II's Fall/Winter 2014 and prior jewelry collections, as well as items that Act II's designers had been designing in the fall of 2014, but that had not yet appeared in an Act II published collection. (Id. ¶ 16.) After Adornable-U's catalog was published, the parties attempted to negotiate. Those negotiations were unsuccessful. (Id. ¶ 19.)

         On February 9, 2015, Act II notified Wooten that her employment was terminated for cause. (Dkt. No. 334, ¶ 81; Dkt. No. 307, ¶ 24.) On March 6, 2015, Adornable-U started selling jewelry. (Dkt. No. 307, ¶ 30.) From 2015 through 2017, Adornable-U sold 755 styles of jewelry. (Dkt. No. 334, ¶ 93.) Only 62 of those styles are at issue in this suit. (Id.)

         Act II filed suit against Wooten and Adornable-U in the Circuit Court of Cook County, Illinois on March 20, 2015, which was subsequently removed to federal court. (Dkt. No. 307, ¶ 32.) From March 2015 to August 2015, Act II sent four letters to individuals associated with Adornable-U, including actual and potential sale agents. (Id. ¶¶ 33-39.) The letters advised the recipients of the pending lawsuit, summarized the claims in the suit, and advised the recipients of potential future discovery obligations. (Id. ¶¶ 33-39.) The letters stated that “this lawsuit does not seek to block Ms. Wooten from operating a direct selling jewelry company” and that Act II and KEC were “not seeking to block [the letter's recipients] from representing [Adornable-U].” (Id. ¶ 33.) Act II contends these letters were necessary to assert its rights and advise the recipients of a litigation hold. (Id. ¶¶ 33-39.) Adornable-U disagrees, arguing that the letters were sent as a campaign explicitly and implicitly to threaten Adornable-U's actual and potential sales agents with a lawsuit if they continue working with Adornable-U. (Pls.' Resp. to Defs.' Add'l Facts, Dkt. No. 330, ¶ 19.) Additionally, Act II served 314 third-party subpoenas, many to Adornable-U sales agents, for documents and/or deposition testimony in this case. (Id. ¶ 22.) Adornable-U argues that Act II used the guise of discovery to threaten Adornable-U sales agents with suit if they continue working for Adornable-U.

         Before the Court are Cross-Motions for Summary Judgment. The Court considers each claim in turn.

         II. ANALYSIS

         A. ...


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