Hanchett Paper Co. v. Melchiorre

792 N.E.2d 395, 341 Ill. App. 3d 345, 275 Ill. Dec. 164, 2003 Ill. App. LEXIS 858
CourtAppellate Court of Illinois
DecidedJune 27, 2003
Docket2-02-1233
StatusPublished
Cited by19 cases

This text of 792 N.E.2d 395 (Hanchett Paper Co. v. Melchiorre) 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
Hanchett Paper Co. v. Melchiorre, 792 N.E.2d 395, 341 Ill. App. 3d 345, 275 Ill. Dec. 164, 2003 Ill. App. LEXIS 858 (Ill. Ct. App. 2003).

Opinion

JUSTICE McLAREN

delivered the opinion of the court:

Defendant, Frank Melchiorre, appeals an order granting a preliminary injunction enjoining defendant from soliciting, selling to, or servicing customers defendant serviced while he was employed by plaintiff, Hanchett Paper Company, d/b/a Shorr Packaging Corporation, a/k/a Shorr Paper Products, Inc. Defendant was employed by plaintiff as a sales representative from July 1990 until July 2002. Defendant then began to work for Stamar Packaging, a competitor of plaintiffs. We affirm.

Plaintiff, an Illinois corporation, is a distributor of packaging products such as corrugated boxes, shrink wrap, tape, adhesive, protective packaging materials, and related items. Plaintiff stocks the products, provides customer service, insurance, telephone, and other support and employs warehouse personnel to take orders, freight lines, delivery trucks, office staff, product managers, and a management team to accompany sales representatives on sales calls. Plaintiff spends millions of dollars each year trying to develop and maintain its customers. It can take nine months to several years to develop a customer. Defendant stated that developing a customer is a “team effort.”

David Shorr, plaintiffs president and chief operating officer, testified that a list of prospective customers is given to a sales representative. This list is prepared by plaintiff by narrowing down a larger list of potential customers. This process takes a lot of work. Although plaintiff’s website contains base prices and uses professional directories and telephone books, its potential customer list is not readily obtainable from these sources. These sources do not disclose which businesses are plaintiffs customers, who should be contacted at those businesses, how much the businesses have bought in the past, which products they have purchased, or when they make those purchases. Shorr stated that the information was confidential “[bjecause we’ve gone through the trouble and the work of developing those [potential customers] into more than just a name” and the information is not readily available to competitors. Shorr explained that plaintiff provided the following to help defendant: customer lists; invoices; customer usage reports indicating what, when, and how much a customer bought; and profit margin information, including prices and plaintiffs costs. The customer usage reports indicated what products the customers purchased, when they purchased them, and how much they purchased.

Leo Albert Dieter, plaintiffs chief financial officer, testified that plaintiff has a long-term relationship with its customers and encourages its sales representatives to develop relationships with customers because that is the best way of maintaining customers. Of the top 300 customers in sales volume in fiscal year 2001, two-thirds of them had been plaintiffs customers for at least five years. These top 300 customers accounted for 80% of plaintiffs sales in 2001-02. Dieter stated that plaintiffs customer and vendor lists are protected by the use of a computer-based password-accessible system.

Shorr testified that about half of defendant’s customers were transferred to defendant by plaintiff. At the time of defendant’s departure, two-thirds of his top 50 customers had been plaintiff’s customers for at least five years. These top 50 customers accounted for 90% of defendant’s sales. Almost all of defendant’s customers were within 50 miles of plaintiffs location in Aurora.

John Tedesco, president of Stamar Packaging, and defendant both testified that plaintiffs business, that is, the packaging business, is highly competitive and that the products are sold by many different companies, all using the same vendors and manufacturers, selling the same products. The products sold by plaintiff are fungible. Most sales are accomplished through cold calls. Almost all of plaintiffs customers also bought packaging products from more than one distributor simultaneously. Thus, none of defendant’s customers bought exclusively from plaintiff. They all purchased from other distributors while purchasing from plaintiff. Vendors and manufacturers possess information about plaintiff’s business, such as customer identities and contacts, products purchased, frequency of purchases, and pricing. Defendant competed by learning competitors’ prices and trying to beat the price. The customers often provided this information to defendant to get a better price. Plaintiff published its price ranges, manufacturers, and available products on its public website. Plaintiff encouraged its representatives to develop customers by using the telephone book, Illinois Manufacturers Guide, D&B Rating Book, Standard Industrial Codes, trade journals, and newspapers.

Defendant was first employed by plaintiff in July 1990 as a sales representative. Before defendant’s employment with plaintiff, he had no prior experience as a sales representative in the packaging industry. However, defendant testified that he had experience as a sales representative for three years with three different companies. Defendant testified that when he was hired by plaintiff, defendant received two weeks of “intense” product training, which consisted of outside vendors coming in to describe their products and explain how to sell the products. Defendant received no other formal training. Defendant was responsible for generating sales for plaintiff. Defendant testified that about 33 of defendant’s 102 customers were transferred to defendant by plaintiff. Defendant developed the remaining customers. Defendant developed customers through cold calls and referrals and by visiting companies and speaking to their employees. Defendant earned $100,000 to $125,000 a year while working for plaintiff and paid his own business expenses, such as client entertainment and gifts, travel, cell phone, and his home office.

Defendant stated that in April 2000, before defendant left plaintiff, defendant began to direct customer orders to be filled by Stamar, through Tedesco, defendant’s future boss. Over $11,000 in orders were filled this way before defendant left plaintiffs employ. Defendant voluntarily left plaintiffs employ on July 3, 2002, and was hired by Stamar on August 7, 2002. While at Stamar, all but one of defendant’s customers were developed by defendant while he worked for plaintiff. By September 23, 2002, defendant generated over $213,000 in sales from these customers. The products sold and prices charged to customers for sales made through Stamar were roughly the same as the products sold and prices charged them while defendant was employed by plaintiff. Defendant used the deviated pricing information he learned from plaintiff to get the same prices for the same customers while defendant worked for Stamar.

Tedesco testified that Stamar is a competitor of plaintiff’s. Defendant sold the same products and performed the same sales function for Stamar as he performed for plaintiff. The prices listed on plaintiffs websites are not actual prices but merely a starting point for a sale. Tedesco opined that pricing information such as profit margins is valuable and confidential information. Defendant received no commission from Stamar for the sales he referred to Stamar before he began to work for Stamar.

At the beginning of defendant’s employment with plaintiff, defendant entered into a written employment contract with plaintiff.

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Bluebook (online)
792 N.E.2d 395, 341 Ill. App. 3d 345, 275 Ill. Dec. 164, 2003 Ill. App. LEXIS 858, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hanchett-paper-co-v-melchiorre-illappct-2003.