Delta Medical Systems v. Mid-America Medical Systems, Inc.

772 N.E.2d 768, 331 Ill. App. 3d 777, 265 Ill. Dec. 397
CourtAppellate Court of Illinois
DecidedJune 6, 2002
Docket1-01-4442
StatusPublished
Cited by46 cases

This text of 772 N.E.2d 768 (Delta Medical Systems v. Mid-America Medical Systems, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Delta Medical Systems v. Mid-America Medical Systems, Inc., 772 N.E.2d 768, 331 Ill. App. 3d 777, 265 Ill. Dec. 397 (Ill. Ct. App. 2002).

Opinion

JUSTICE THEIS

delivered the opinion of the court:

Plaintiff Delta Medical Systems (Delta) filed a multicount complaint in the circuit court of Cook County seeking injunctive relief to prevent defendants, Mid-America Medical Systems, Inc., Michael Donati, and John Ottum (collectively Mid-America), from using Delta’s alleged trade secret information and from soliciting and servicing its customers. Following an evidentiary hearing, the circuit court issued a preliminary injunction restraining Mid-America from soliciting and servicing certain Delta customers and ordered Mid-America to remove its service tags from certain Delta customer equipment. Mid-America now appeals from this interlocutory ruling pursuant to Supreme Court Rule 307(a)(1). 188 Ill. 2d R. 307(a)(1). It contends that (1) plaintiff was not entitled to a preliminary injunction; (2) Delta’s customer list and data are not trade secrets that were misappropriated; (3) the trial court improperly denied consideration of Mid-America’s motion to dissolve the temporary restraining order, issued a written order that does not comport with its oral ruling, and refused consideration of its motion to modify the order; and (4) the trial court made various errors regarding the admission of evidence. Delta cross-appeals contending that it was entitled to broader relief than the court afforded. For the following reasons, we reverse and remand for further proceedings.

BACKGROUND

Delta is a Wisconsin corporation founded in 1979 that sells and services various types of medical diagnostic equipment utilized by hospitals and clinics. The company conducts business in Wisconsin, Minnesota, and Illinois, has approximately 40 employees, and generates revenues of about $18 million per year. In 1995, it opened a Schaumburg, Illinois, office with eight field employees, including defendant Michael Donati as the service manager and defendant John Ottum as one of the service engineers. As part of their job duties, Donati and Ottum were responsible for soliciting new sales and servicing equipment.

Prior to joining Delta, Ottum had worked for Advanced Diagnostic Systems, Inc. (ADS), a company owned by his father, Robert Ottum. During 1995, Delta acquired ADS. The acquisition gave Delta a customer base upon which it could expand its equipment sales in Illinois, including some mammography equipment sales. The asset purchase agreement identified ADS’ assets as including its “customer lists and information including sales history, service records, and related information.” After selling his ADS business, Robert Ottum worked for Delta from 1995 to 1998.

At the time of the ADS acquisition, Delta was a dealer of mammography equipment manufactured by Hologic Systems Division, formerly known as the Lorad Division of Trex Medical Group (Lorad), in the Wisconsin, Minnesota, and northern Illinois area. However, in February 2001, Delta terminated its dealership agreement with Lorad and announced that it would become a dealer for Siemens Medical Systems, Inc., a medical equipment competitor in the same markets. When Delta terminated its dealership agreement with Lorad it was aware that it would experience some erosion of the Lorad service business and expected that another dealership would enter its territory to compete.

Sometime in February or March of 2001, Robert Ottum began discussing the formation of a new company with defendants Donati and Ottum, and began discussions with Lorad about the possibility of securing a Lorad dealership. On May 9, 2001, Mid-America was incorporated; its shareholders included Robert Ottum, Allan Pozdol, and defendants Donati and Ottum. At that time, Lorad informed Mid-America that it would be granting it a dealership. The next day Robert Ottum announced the formation of his new company to his longtime friend Paul Andresen, the diagnostic imaging director at Kishwaukee Community Hospital, and told him that defendants Ottum and Donati would be joining the company. Robert Ottum also informed him that Mid-America had become the exclusive Lorad dealer in northern Illinois.

Thereafter, on June 1, 2001, Lorad executed a dealership agreement with Mid-America for the sale and service of mammography equipment in northern Illinois. Defendants Donati and Ottum gave notice to Delta of their intent to leave the company and resigned from their employment with Delta on June 15, 2001. Soon after Mid-America began business operations, several Delta customers with Lorad equipment terminated their relationship with Delta in favor of doing business with Mid-America.

On August 1, 2001, Delta filed a complaint for injunctive relief against its former employees, Donati and Ottum, along with the newly formed company, essentially alleging that they misused trade secret information in order to set up and operate a competing business and raid Delta’s customer base. It further alleged that they misappropriated its confidential customer data encompassing the following: “the identities of customers, the needs and preferences of customer contact persons and decision-makers, the model numbers, identification numbers, and service histories of equipment located at each customer site, the terms of contracts for ongoing maintenance services, time and materials pricing to customers without service contracts or for services that went beyond those contracted for, information concerning customers’ evolving needs, *** contract expiration dates, and costs and profit margins for parts and services.”

Delta’s complaint included causes of action for breach of the common law duty of loyalty and misappropriation of corporate opportunities, a violation of the Illinois Trade Secrets Act (765 ILCS 1065/1 et seq. (West 2000)), tortious interference with contract, tortious interference with prospective economic advantage, and unfair competition. On August 3, 2001, the circuit court entered a temporary restraining order prohibiting Mid-America from continuing to solicit Delta’s customers and from using or disclosing its customer data. Thereafter, an evidentiary hearing was held on Delta’s petition for a preliminary injunction. The evidence adduced at that hearing is summarized below.

Delta’s Customer Data

Both parties agreed that their industry is highly competitive. Delta introduced several witnesses to testify regarding information that the company believed to be trade secrets. Anthony Krause testified that he was the Wisconsin area service manager for Delta from 1993 to 1999, and thereafter was a technical specialist based in Illinois. He explained that in 1993, before the opening of the Schaumburg office, Delta used a generic service contract that provided only a minimum level of service. Over time, through input from him and other employees, several changes were made in an effort to separate its service contract from the competitor. The contract incorporated multiple service level options, a regulatory compliance program, exceptions from coverage for certain parts and services, margins for time waited and overtime, and an automatic-renewal feature with a predetermined price increase. The contract had been uniquely customized to serve client needs and preferences.

Krause further testified about contract pricing and the service history of customer equipment.

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Bluebook (online)
772 N.E.2d 768, 331 Ill. App. 3d 777, 265 Ill. Dec. 397, Counsel Stack Legal Research, https://law.counselstack.com/opinion/delta-medical-systems-v-mid-america-medical-systems-inc-illappct-2002.