NO. 4-07-0300 Filed 11/6/07
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
LIFETEC, INC., an Illinois Corporation, ) Appeal from Plaintiff-Appellee, ) Circuit Court of v. ) Macon County PETER EDWARDS; CAROL EDWARDS; and ) No. 06CH20 PATTERSON MEDICAL PRODUCTS, INC., a ) Michigan Corporation, d/b/a SAMMONS ) PRESTON ROLYAN, ) Defendants, ) and ) PETER EDWARDS; and PATTERSON MEDICAL ) SUPPLY, INC., a Minnesota Corporation, ) Honorable d/b/a SAMMONS PRESTON ROLYAN, ) Katherine M. McCarthy, Defendants-Appellants. ) Judge Presiding. _________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
In January 2006 plaintiff, Lifetec, Inc. (Lifetec),
sued defendant, Peter Edwards, its former employee, for breach of
contract, specifically for breach of three restrictive covenants
contained in the contract. Lifetec also sued Carol Edwards,
Peter's wife, and Patterson Medical Supply, Inc. (Patterson),
Peter's new employer, for tortious interference with contract.
In March 2007, the trial court granted Lifetec's request for a
preliminary injunction, finding sufficient evidence Edwards had
knowledge of confidential client information and Lifetec provided
sufficient evidence presenting a fair question Edwards had
disclosed such confidential information to Patterson for his and
Patterson's benefit. Thus, Lifetec presented a fair question it
had a protectible business interest and, therefore, demonstrated a likelihood of success on the merits. In this interlocutory
appeal, Edwards claims the trial court abused its discretion
because no protectible business interest was demonstrated by
Lifetec justifying a preliminary injunction. We affirm as
modified and remand with directions.
I. BACKGROUND
A. Uncontroverted Facts
On or before April 1, 1996, Edwards was offered and
accepted a position as a sales representative for Lifetec, a
dealer of medical devices and products in Illinois, Indiana, and
other neighboring states. On April 2, 1996, Edwards executed a
written employment agreement with Lifetec, which contained
several postemployment restrictive covenants. These covenants
were a "non[]competition" covenant, a "non[]solicitation" cove-
nant and a "non[]representation" covenant. They stated, respec-
tively, the following:
"6.02 Competition. Employee will not,
for a period of twenty-four (24) months after
the termination of this Agreement, directly
or indirectly, on Employee's own account or
in the service of others or through a spouse
or affiliate, compete with the Company or
engage in the sale and/or lease of the Prod-
uct or competitive medical devices and/or
- 2 - products in the Territory. For the purposes
of this provision, Product and Territory
includes only the Product and Territory as-
signed to the Employee during the most recent
eighteen [(18)] months prior to the termina-
tion of this Agreement."
"6.01 Solicitation. Employee will not,
in the service of others or through an affil-
iate or spouse, engage in the solicitation of
purchase orders for, or assist in the sale
and/or lease of, the Product or competitive
medical devices and/or products in the Terri-
tory. For the purposes of this provision,
Product and Territory includes only the Prod-
uct and Territory assigned to the Employee
during the most recent eighteen [(18)] months
prior to the termination of this Agreement."
"8.01 Duty Not to Represent. Employee
agrees that during the period of this Agree-
ment and for twenty-four (24) months thereaf-
ter, he will not, either directly or indi-
- 3 - rectly, become employed by or act as a dis-
tributor or sales representative for any
manufacturer for whom Employer acted as a
distributor or sales representative during
the prior twelve (12) months nor will Em-
ployee accept any employment with any dis-
tributor or sales representative that sells
medical and exercise products manufactured by
any manufacturer for whom Employer acted as a
distributor or sales representative within
the prior twelve (12) months."
"Product" was defined as "those medical devices and products
which the employee is authorized to sell in the Territory" and
"are listed in the Product Schedule" attached to the contract.
Edwards was employed with Lifetec for almost 10 years.
During this time, he was promoted and his compensation package
increased. Edwards never sought to renegotiate the employment
agreement to remove the covenants.
During the spring of 2005, while actively employed by
Lifetec, Edwards sought employment with Patterson, a competitor
of Lifetec with a nationwide business. Edwards knew when he
interviewed that the position with Patterson would involve
selling the same products as Lifetec to the same customers and in
the same territory. At Patterson's request, Edwards brought a
- 4 - copy of his employment agreement with Lifetec with him to the
interview with Patterson and left a copy there. Patterson's
representatives assured Edwards he would be taken care of if he
were sued by Lifetec.
In July 2005, Edwards was offered a position with
Patterson, which he quickly accepted. On July 18, 2005, Edwards
submitted his letter of resignation to Lifetec, which was ac-
cepted on July 22. In the letter he was not forthcoming about
his new employment with Patterson but instead stated he was
leaving due to personal problems and the desire to further
develop and market his own medical product. Edwards stated he
knew the real reason for his resignation would upset Lifetec's
representatives. Edwards started working for Patterson in August
2005. It was not until several months later Edwards admitted to
Michael Christoi, president of Lifetec, he was now working for
Patterson.
B. Lawsuit Initiated
On January 18, 2006, Lifetec sued Edwards for breach of
contract and on January 25, 2006, filed a motion for preliminary
injunction. At the time of the issuance of the preliminary
injunction, Edwards admits he was still selling products for
Patterson competitive with products he sold for Lifetec in the
territory he serviced for Lifetec and actually serviced the same
customers he served in the area subject to the restrictions in
- 5 - his employment agreement.
The motion for preliminary injunction sought a prelimi-
nary injunction barring Edwards from violating the covenants in
his employment agreement with Lifetec and specifically ordering
him to (1) cease working for Patterson and (2) cease competing
with Lifetec and engaging in the solicitation of purchase orders
in competition with Lifetec and cease acting as (a) a distributor
or sales representative for any manufacturer for which Lifetec
acted as a distributor or (b) a sales representative for any
manufacturer for which Lifetec acted as a distributor or sales
representative during the 12 months prior to Edwards' resigna-
tion, all in accord with the covenants in the employment agree-
ment.
C. Evidentiary Hearings
The trial court heard evidence for three days at trial
from September 2006 through November 2006. Christoi testified he
started Lifetec in 1983 and it is a small, family-run distributor
of medical products, specializing in physical and occupational
therapy, schools, long-term care, and orthopedics. Lifetec's
major customers are hospitals, nursing homes, private practice
clinicians, schools, retirement centers, and orthopedists and
podiatrists. Lifetec currently employed 13 employees and gener-
ally employed between 10 and 20. The bulk of Lifetec's sales
(85% to 95%) came from Illinois, Indiana, and Wisconsin. Christ-
- 6 - oi described Patterson as Lifetec's largest competitor and both
companies market to the same customers. Lifetec usually had
about three salespeople working for it at any one time.
Christoi testified that after Edwards left Lifetec,
Lifetec suffered a loss of sales in the territory previously
served by Edwards. Christoi admitted Edwards was not replaced by
a new salesperson but the territory was being served by Christoi
himself while he also continued to perform his duties as company
president. Lifetec does not have funds with which to participate
in marketing activities and so relies heavily on its sales
personnel to market its products by direct contact with potential
customers.
In his testimony, Edwards identified himself as a
rehabilitation sales consultant for Patterson. He is one of 13
salespersons reporting to the Midwest sales director, Angie
Cominsky-Wachs. Cominsky-Wachs testified Patterson seeks to
establish customer relationships through sales representatives
supported by an "extensive catalog"; Christoi also described the
catalog as extensive. Edwards testified that, while working for
Lifetec, customers would contact him with reference to Patterson-
's catalog to determine if Lifetec could supply a certain product
and at what price.
Much of Patterson's business came about through na-
tional account contracts with hospital-based and other buying
- 7 - consortiums where the customers were obligated to buy a certain
percentage of their product from Patterson and at a set price.
For products sold by Patterson through Edwards, Cominsky-Wachs
estimated these national contracts amount to 70% of his sales.
Christoi considered the identities of key customers,
listings, ordering patterns, and quote reports, as well as "open
quotes," to be "confidential information." Of these, the open
quotes were the most important type of information. "Open
quotes" consisted of bids provided to customers for purchases the
customers were considering making. When Edwards left Lifetec,
$1.3 million in open quotes were outstanding in Edwards' Lifetec
territory. Christoi admitted open quotes were followed with
orders less than half the time. By contrast, Edwards stated
while employed with Lifetec he considered himself fortunate to
"close" 15% of his open quotes.
Christoi testified only two individuals employed by
Lifetec had signed confidentiality agreements with the company.
He admitted not all persons acting as sales representatives of
Lifetec had executed confidentiality agreements. Lifetec's
president, secretary/treasurer, and sales administrator all had
access to open-quote reports and none executed a confidentiality
agreement. Of those who had not executed confidentiality agree-
ments, these persons were family members of the family that owned
Lifetec. Account managers (in-house office-support people)
- 8 - received open-quote information from sales representatives and
they never executed confidentiality agreements. Christoi admit-
ted that after Lifetec provided these quotes to customers, the
customers commonly provided Lifetec's quote to other suppliers.
Edwards also testified open quotes from other suppliers were
generally shared by customers.
Christoi testified Lifetec's pricing for medical
equipment is confidential. While Patterson has a published
catalog, Lifetec has only a small flyer in regard to basic
supplies. The prices for items other than basic supplies were
customized and tailored to individual customers and those re-
sulted in the open quotes. The information that went into
producing the open quotes was confidential and accessed through
password-secured company computer programs. The system was set
up with security codes and sales personnel could access only
their own accounts. The only persons with open access to the
computer systems were Christoi, his wife, and his sister-in-law,
each of whom has been a trusted and trustworthy employee of
Lifetec for over 20 years.
Edwards had access to this confidential information
while employed with Lifetec. He testified he brought no custom-
ers with him when he joined Patterson as all Lifetec customers
were also customers of Patterson. The industry was very price-
driven, and customers purchased from many suppliers depending
- 9 - upon which offered the lowest prices at any given time for a
given item. Edwards further testified contacting former custom-
ers would not have made sense once he moved to Patterson because
his business there came from Patterson client lists and the bulk
of that from national contracts with buying consortiums. Edwards
admitted he had some memory of Lifetec open quotes.
Several e-mails Edwards sent to other Patterson employ-
ees after he became employed by Patterson were introduced as
evidence at trial. Pertinent ones include one dated September 6,
2005, approximately one month after Edwards started employment
with Patterson, in which Edwards states "Right now I'm just
calling on people I already know and converting." Another, dated
that same day, states "It would be very helpful for me to be able
to ID these target accounts in case they are budgeting for
equipment with competitors." Finally, another e-mail, dated
January 23, 2006, from a different sales representative to
Cominsky-Wach, states the "Pricing is to keep LifeTec [sic] out."
A great deal of other evidence was presented by Lifetec
with the purpose of proving Lifetec had "near-permanent relation-
ships" with its customers. The trial court's finding on this
point is not before us in this appeal, and we need not detail it
here.
D. Trial Court Order
The trial court entered its order granting most of the
- 10 - relief sought by Lifetec while preliminarily enjoining Edwards
from competing directly with Lifetec in any territory he previ-
ously served in for Lifetec for the first 24 months after leaving
Lifetec's employ:
"A. Defendant Edwards is ORDERED not to
compete with Lifetec or engage in the sale
and/or lease of any product or competitive
medical device listed in Exhibit A to the
Agreement in the territory assigned to Ed-
wards during the eighteen (18) month period
of time prior to the termination of his
Agreement for a period of twenty-four (24)
months.
B. Defendant Edwards is ORDERED not to
engage in the solicitation of purchase orders
for or assist in the sale or lease of any of
the products or competitive medical devices
listed in Exhibit A of the Agreement within
the territory to which he was assigned with
Lifetec during the eighteen (18) month period
Agreement.
C. Defendant Edwards is ORDERED not to
act as a distributor or sales representative
- 11 - for any manufacturer for whom Plaintiff acted
as a distributor or sales representative
during the twelve (12) months prior to Defen-
dant Edwards' resignation with Lifetec."
The trial court specifically found the e-mail messages
presented a fair question that Edwards was using information he
gained from his employment at Lifetec to his advantage. The
court noted the most troubling piece of evidence was the e-mail
early on in his new job in which Edwards stated he was "calling
on people I already know and converting." Although Edwards
denied this was a reference to Lifetec and was meant to include
all competitors, the trial court found a fair question was
presented by Lifetec that Edwards was using confidential informa-
tion "for his own benefit with his new employer." Further,
Edwards stated "it would be very helpful for me to able to ID
these target accounts in case they are budgeting for equipment
with competitors." Edwards admitted he had some memory of
pending Lifetec "open quotes" and he would be able to give
Patterson a significant competitive advantage by using this
confidential information.
The trial court concluded Lifetec presented sufficient
evidence presenting a fair question Edwards has disclosed confi-
dential information to his present employer, Patterson, for his
own and Patterson's benefit.
- 12 - This interlocutory appeal followed.
II. ANALYSIS
Defendants appeal pursuant to Supreme Court Rule
307(a)(1) (188 Ill. 2d R. 307(a)(1)). The only question before
us is whether a sufficient showing was made to the trial court to
sustain the order granting the relief sought. Postma v. Jack
Brown Buick, Inc., 157 Ill. 2d 391, 399, 626 N.E.2d 199, 203
(1993).
A. Standard of Review
Trial courts have substantial discretion in deciding
whether to grant a preliminary injunction (Danville Polyclinic,
Ltd. v. Dethmers, 260 Ill. App. 3d 108, 109, 631 N.E.2d 842, 843
(1994)), and the decision of the trial court will not be dis-
turbed on appeal absent an abuse of discretion (Mohanty v. St.
John Heart Clinic, S.C., 225 Ill. 2d 52, 63, 866 N.E.2d 85, 91
(2006)). On appeal, the court examines only whether the party
seeking the injunction has demonstrated a prima facie case that
there is a fair question concerning the existence of claimed
rights. Mohanty, 225 Ill. 2d at 62, 866 N.E.2d at 91.
B. Preliminary Injunction Requirements
The proof required for issuance of a preliminary
injunction requires a plaintiff to show a "fair question" exists
regarding his claimed right, and "the court should preserve the
status quo until the case can be decided on the merits." Buzz
- 13 - Barton & Associates, Inc. v. Giannone, 108 Ill. 2d 373, 382, 483
N.E.2d 1271, 1275 (1985). As a general rule, a preliminary
injunction requires a showing by a preponderance of the evidence
(Weitekamp v. Lane, 250 Ill. App. 3d 1017, 1022, 620 N.E.2d 454,
458 (1993)) the plaintiff (1) has a clearly ascertainable right
needing protection; (2) will suffer irreparable harm without
protection; (3) has no adequate remedy at law; and (4) is likely
to succeed on merits. Postma, 157 Ill. 2d at 399, 626 N.E.2d at
204. The trial court should also consider whether the benefits
of granting the preliminary injunction exceed the injury to the
defendant. Danville, 260 Ill. App. 3d at 111, 631 N.E.2d at 844.
C. Restrictive Covenants in Employment Contracts
Because restrictive covenants in employment agreements
are a form of restraint of trade, they are scrutinized carefully
to ensure their intended effect is not to prevent competition per
se. Gillespie v. Carbondale & Marion Eye Centers, Ltd., 251 Ill.
App. 3d 625, 626, 622 N.E.2d 1267, 1269 (1993). Where restric-
tive covenants are ancillary to valid contracts supported by
adequate consideration and are reasonable in their terms as to
time and territory, such covenants will be enforced by the courts
and relief by injunction is customary and proper. Center for
Sight of Central Illinois I, S.C. v. Deranian, 305 Ill. App. 3d
909, 915, 712 N.E.2d 417, 421 (1999).
In determining whether to grant an injunction enforcing
- 14 - a restrictive covenant, courts look to whether the covenant is
reasonable. Weitekamp, 250 Ill. App. 3d at 1023, 620 N.E.2d at
459. In determining whether a restrictive covenant is enforce-
able, courts must determine whether the terms of the agreement
are reasonable and necessary to protect a "legitimate business
interest" of the plaintiff. Label Printers v. Pflug, 206 Ill.
App. 3d 483, 491, 564 N.E.2d 1382, 1387 (1991).
The reasonableness of the terms of the covenants as to
time and territory is not in dispute. Nor are the facts (1) the
territories Edwards was working in for Patterson overlapped the
territories he worked in for Lifetec and (2) he worked for
Patterson within 24 months of leaving Lifetec.
A "legitimate business interest" is found only where
(1) the employee acquired confidential information through his
employment with the plaintiff and later attempted to use it for
his own gains or (2) by the nature of the plaintiff's business,
its customer relationships are near permanent and the employee
would not have had contact with the customer absent his employ-
ment. A.J. Dralle, Inc. v. Air Technologies, Inc., 255 Ill. App.
3d 982, 991, 627 N.E.2d 690, 696-97 (1994). We need not address
the second of these, as Lifetec filed no cross-appeal taking
issue with the trial court's ruling on this point.
D. Employee Acquisition of and Later Attempt To Use Confidential Information for His Own Gain
The issue on appeal is whether Lifetec had protectible
- 15 - confidential information that Edwards gained through his employ-
ment with the plaintiff and later attempted to use for his own
gains. "[C]ustomer information [may] constitute confidential
information only when the information has been developed by the
plaintiff over a number of years at great expense and kept under
tight security." A.J. Dralle, Inc., 255 Ill. App. 3d at 992, 627
N.E.2d at 697. Where such information is known by others in the
trade or could be duplicated easily by reference to industry
publications or the identity of customers is known because the
customers did business with more than one supplier, such informa-
tion is not protectible. A.J. Dralle, Inc., 255 Ill. App. 3d at
992, 627 N.E.2d at 697.
E. Sufficiency of Evidence To Meet Confidentiality Prong of Business-Interest Test
Lifetec primarily contends information described as
"open quotes" warrants protection as confidential information.
When Edwards left Lifetec on July 18, 2005, Lifetec had outstand-
ing $1.3 million in open quotes in the territory serviced by
Edwards. Lifetec claims Edwards' access to the open quotes on
customized products may have allowed him to undercut those quotes
while employed at Patterson. Defendants argue Lifetec offered no
proof any of the open quotes outstanding when Edwards left
remained in existence as of the date of the order granting the
preliminary injunction or that any of the quotes required injunc-
tive relief for the protection of Lifetec.
- 16 - The general rule in Illinois is as follows:
"[W]hile an employee, at the termination of
his employment, can take with him general
skills and knowledge acquired during the
course of his employment, he may not take
confidential particularized information dis-
closed to him during the time the employer-
employee relationship existed which are un-
known to others in the industry and which
give the employer advantage over his competi-
tors." Burt Dickens & Co. v. Bodi, 144 Ill.
App. 3d 875, 879, 494 N.E.2d 817, 819 (1986).
While defendants spend a great deal of time arguing the
open quotes are available to anyone in the industry once they are
given to customers and are, therefore, not confidential informa-
tion, no attention is paid to the information possessed by
Edwards as to how those open quotes are calculated before they
are given to the customers. That is where the obvious confiden-
tiality truly lies.
This information is akin to the information as to
"markups" which the court found to be confidential in The Agency,
Inc. v. Grove, 362 Ill. App. 3d 206, 217, 839 N.E.2d 606, 616
(2005) (markups were the difference between what the plaintiff, a
temporary employment agency, paid temporary workers and what was
- 17 - charged to its clients for the workers; such markups and the
reasons therefor would be of value to a competitor). Further,
the compilation, generation, and use of information and the
circumstances under which the information was maintained are also
important in determining confidentiality. "[W]hen individual
pieces of information are compiled and organized at a single
location as in this case, it is much more valuable and useful
than each piece of information individually." Lyle R. Jager
Agency, Inc. v. Steward, 253 Ill. App. 3d 631, 640, 625 N.E.2d
397, 402 (1993) (information in a compiled form is not easily
obtained or accessible to the public and worksheets on which a
client's premiums are calculated are not available to the pub-
lic). The court in The Agency, Inc. found despite the ease with
which the public may acquire information in the plaintiff's
client profiles through simple contact with workers placed or the
clients themselves, the advantage of the profiles, as in Lyle R.
Jager, is the information is gathered in one place. The Agency,
Inc., 362 Ill. App. 3d at 219, 839 N.E.2d at 617-18.
The trial court's order stated the "Court concludes
that [Edwards'] knowledge of [']open quotes['] pending at the
time of his termination from employment with Lifetec is confiden-
tial client information." As the trial court noted, not only was
Edwards aware of the open-quotes reports but he "would have the
necessary information to undercut a bid presented on behalf of
- 18 - Lifetec." This was the equivalent of information gathered in one
place prior to Lifetec making its bids. Edwards had been privy
to the information upon which Lifetec relied in making its bids
resulting in the open quotes and, thus, he would likely know
whether Lifetec would be able to adjust its bid if Patterson
underbid Lifetec. Because all of the evidence indicated the
medical sales industry was very competitive and the contracts
were usually awarded to the lowest bidder, Lifetec necessarily
wanted to keep this information confidential. Edward's knowledge
of this information could be very damaging to Lifetec if he
served the same territory for a competitor as he had for Lifetec.
The evidence was also sufficient to support the trial
court's conclusion Lifetec had presented a fair question that
Edwards disclosed the information he remembered from his employ-
ment to Patterson or used it to his and Patterson's advantage.
As the trial court noted, the e-mails were quite telling. Early
on in his new job, Edwards stated in an e-mail he was "calling on
people I already know and converting." (Emphasis added.)
Although Edwards denied this was a reference to Lifetec and was
meant to include all competitors, this presents a fair question
Edwards was using confidential information for his own benefit
with his new employer. Further, in another e-mail, Edwards
stated "it would be very helpful for me to able to ID these
target accounts in case they are budgeting for equipment with
- 19 - competitors." Edwards admitted he had some memory of pending
Lifetec "open quotes" and he would be able to give Patterson a
significant competitive advantage by using this confidential
information.
This evidence is sufficient to present a fair question
Lifetec has a protectible business interest in confidential
information. The trial court did not abuse its discretion in
granting Lifetec's motion for preliminary injunction and preserv-
ing the status quo until the case could be decided on its merits.
F. Sufficiency of Evidence to Otherwise Merit Preliminary Injunction Issuance
The other criteria for issuing a preliminary injunction
are also satisfied. Defendants argue Lifetec made no effort to
establish the existence of any emergency necessary to warrant
issuance of preliminary injunction because the business would
suffer irreparable harm. On the effective date of the order,
Edwards had been without access to Lifetec information for a
period of time in excess of 20 months. Lifetec offered no
evidence any open quote, on which Edwards might have possessed
knowledge when he worked for Lifetec, remained open on March 21,
2007.
When the preliminary injunction was entered, Edwards
was servicing customers on behalf of Patterson in the area
subject to the covenants. Competition was clearly occurring.
Edwards sought employment, marketed products, and represented
- 20 - Patterson in violation of the covenants. Lifetec presented
sufficient evidence indicating a fair question Edwards disclosed
confidential information to Patterson for his own benefit.
Christoi testified it lost significant business in the territory
previously served by Edwards since he began working for Patterso-
n.
"[A] legal rule that irreparable injury
can be established only by a concrete demon-
stration *** would make injunctions useless
as a practical matter. If proof of particu-
lar injuries could be supplied, then the
injury would be reparable by damages; it is
precisely the difficulty of pinning down what
business has been or will be lost that makes
an injury 'irreparable.' See Hilton v.
Braunskill, 481 U.S. 770, 776, 107 S. Ct.
2113, 95 L. Ed. 2d 724 (1987). Competition
changes probabilities ***. ***
Illinois recognizes this. *** It treats
ongoing competition itself as a sufficient
basis for relief. See, e.g., Gold v. Ziff
Communications Co., 196 Ill. App. 3d 425,
434, 142 Ill. Dec. 890, 553 N.E.2d 404, 410
(Ill. App. 1 Dist. 1989)('The failure of
- 21 - plaintiff to show an actual loss is not
dispositive'); U-Haul Co. v. Hindahl, 90 Ill.
App. 3d 572, 577, 45 Ill. Dec. 854, 413 N.E.-
2d 187, 192 (Ill. App. 3 Dist. 1980) ('It is
not necessary that a party seeking an injunc-
tion show an actual loss of sales before
relief will be granted')." Hess Newmark
Owens Wolf, Inc. v. Owens, 415 F.3d 630, 632-
33 (7th Cir. 2005).
As for an inadequate remedy at law, the harm to
Lifetec's ongoing business caused by Edwards's ongoing breaches
of the covenants would be difficult, if not impossible, to
measure. The only way to minimize the seemingly increasing
damages was to require Edwards to comply with the covenants under
his employment agreement.
In regard to the element of a likelihood of success on
the merits, as noted previously, defendants never argue Edwards
was not engaged in actions in violation of the covenants as
worded. Rather, their contentions have been the covenants are
not enforceable due to lack of a protectible business interest.
As we have already noted, where postemployment restrictive
covenants are ancillary to valid contracts supported by adequate
consideration, and are reasonable in their terms, such covenants
will be enforced. Center for Sight of Central Illinois I, S.C.,
- 22 - 305 Ill. App. 3d at 915, 712 N.E.2d at 421. The covenants in
this case are ancillary to an employment agreement, a valid
contract supported by consideration. See Abel v. Fox, 274 Ill.
App. 3d 811, 814, 654 N.E.2d 591, 593 (1995) (continued employ-
ment is generally sufficient consideration for execution of
nonsolicitation covenant). No one is contesting whether the
terms of the agreements are reasonable and necessary to protect a
legitimate business interest of the plaintiff, and the trial
court has already determined a legitimate business interest
exists. Therefore, the trial court correctly determined plain-
tiff showed a likelihood of success on the merits, i.e., enforc-
ing the restrictive covenants.
Finally, the trial court balanced the hardships to the
parties in granting the preliminary injunction and found no
evidence Edwards could not continue to work for Patterson outside
of the competing territory. In fact, the court specifically
found the order did not require Edwards to cease employment with
Patterson. He simply could not work in any capacity violating
the restrictive covenants. In addition, no evidence showed
Edwards could not work for any other noncompeting company or that
he even tried to find a job not violating the restrictive cove-
nants. Edwards actively sought employment with Patterson while
employed by Lifetec in spite of knowledge Patterson sold the same
products as Lifetec to the same customers and in the same terri-
- 23 - tory. On balance, the evidence is sufficient to support the
trial court's finding the benefits to Lifetec exceeded any injury
to Edwards.
G. Further Challenge to Validity of Preliminary Injunction
1. Alleged Defectiveness for Lack of Detail Required by Section 11-101 Is a Matter for Clarification, Not Requiring Reversal
Defendants make two final arguments in regard to the
legal validity of the preliminary injunction order. First,
defendants contend the order runs afoul of section 11-101 of the
Code of Civil Procedure (Code) (735 ILCS 5/11-101 (West 2006)),
which requires:
"Every order granting an injunction and
every restraining order shall set forth the
reasons for its entry; shall be specific in
terms; shall describe in reasonable detail,
and not by reference to the complaint or
other document, the act or acts sought to be
restrained ***." (Emphasis added.)
The order here provided Edwards was not to "engage in
the sale and/or lease" or "in the solicitation of purchase orders
for or assist in the sale or lease of any product or competitive
medical device listed in Exhibit A to the Agreement" nor "act as
a distributor or sales representative for any manufacturer for
whom Plaintiff acted as a distributor or sales representative
during the twelve (12) months prior to Defendant Edwards' resig-
- 24 - nation." Thus, the order requires, by its terms, a review of an
exhibit to the Agreement, a product schedule, setting forth the
products from which Edwards' sales efforts are banned. Further,
it requires reference to other sources for determining those
entities for whom Edwards is barred from acting as sales repre-
sentative as they are not listed in the order.
While it appears the order does not comply with section
11-101 of the Code, this does not render the order invalid or
require reversal. A simple motion for clarification based on the
requirements of section 11-101 would have sufficed to correct the
deficiencies in the order; this could have been done prior to
appeal. While we affirm the trial court's order in granting the
preliminary injunction, we remand for the trial court to make
these clarifications now.
2. Failure To Plead Alleged Misappropriation of Confidential Information No Bar to Relief Granted
Defendants also maintain Lifetec made no assertion in
its complaint or in its motion for preliminary injunction any
purportedly confidential information was misappropriated warrant-
ing injunctive relief. They argue a party is not permitted to
state one claim in its complaint and establish a different case
by evidence. However, Lifetec never stated a different com-
plaint. Lifetec has consistently sought enforcement of the
restrictive covenants in its employment agreement with Edwards.
Lifetec properly pled (1) the covenants are valid and enforceable
- 25 - and (2) Edwards breached them. Evidence of confidentiality of
information establishes Lifetec had a legitimate business inter-
est to protect, i.e., it is one type of significant matter
supporting enforceability of the restrictive covenants. While
actual misappropriation and misuse of confidential information is
part of the court's analysis of the imminent threat to Lifetec
under preliminary injunction calculus, these facts need not be
pled to state a claim for enforcement of the restrictive cove-
nants.
The special concurrence posits the interesting proposi-
tion that the "legitimate-business-interest test" is not valid.
It also notes our analysis should have ended once we determined
the terms of the restrictive covenant were reasonable. The
special concurrence is persuasive, but no advocate made the
arguments or presented the analysis found in the special concur-
rence. In short, the issue was not presented. While we may
affirm for any reason in the record, if we are to reject three
decades of precedent based on an argument never made, perhaps we
should wait for the dog to bark.
III. CONCLUSION
For the foregoing reasons, we affirm the trial court's
judgment but remand for clarification of the order granting
preliminary injunction in accordance with section 11-101 of the
Code (735 ILCS 5/11-101 (West 2006)). In so concluding, we
- 26 - acknowledge the trial judge's detailed six-page single-spaced
memorandum order, which we found most helpful.
Affirmed as modified and cause remanded with direc-
tions.
TURNER, J., concurs.
STEIGMANN, P.J., specially concurs.
- 27 - PRESIDING JUSTICE STEIGMANN, specially concurring:
Although I agree with the result in this case, I
specially concur because the majority opinion, in determining the
enforceability of this restrictive covenant, uses the
"legitimate-business-interest" test that I believe is no longer
valid, if it ever was.
I. THE "LEGITIMATE-BUSINESS-INTEREST" TEST
For over three decades, the Illinois Appellate Court
has held that courts will not enforce a restrictive covenant that
bars a former employee from competing with his former employer,
unless the terms "are reasonable and necessary to protect an
employer's legitimate business interests." Hanchett Paper Co. v.
Melchiorre, 341 Ill. App. 3d 345, 351, 792 N.E.2d 395, 400
(2003). In Hanchett, the Second District Appellate Court ex-
plained this rule as follows:
"A legitimate business interest exists where:
(1) because of the nature of the business,
the customers' relationships with the em-
ployer are near permanent and the employee
would not have had contact with the customers
absent the employee's employment; and (2) the
employee gained confidential information
through his employment that he attempted to
use for his own benefit." Hanchett, 341 Ill.
- 28 - App. 3d at 351, 792 N.E.2d at 400.
Every district of the appellate court, including this one, has
used similar language in restrictive-covenant cases. See Office
Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d 557, 569,
599 N.E.2d 1072, 1080 (1992) (First District); Dam, Snell &
Taveirne, Ltd. v. Verchota, 324 Ill. App. 3d 146, 151-52, 754
N.E.2d 464, 468-69 (2001) (Second District); Lyle R. Jager
Agency, Inc. v. Steward, 253 Ill. App. 3d 631, 636, 625 N.E.2d
397, 400 (1993) (Third District); Springfield Rare Coin Galler-
ies, Inc. v. Mileham, 250 Ill. App. 3d 922, 929-30, 620 N.E.2d
479, 485 (1993) (Fourth District); Carter-Shields v. Alton Health
Institute, 317 Ill. App. 3d 260, 268, 739 N.E.2d 569, 575-76
(2000) (Fifth District). However, the Supreme Court of Illinois
has never embraced this test, and its application is inconsistent
with recent supreme court decisions concerning restrictive
covenants. Accordingly, the test should be abandoned.
II. THE ORIGIN OF THE "LEGITIMATE-BUSINESS-INTEREST" TEST
The "legitimate-business-interest" test (although not
identified by that name) first appeared in the First District
Appellate Court's decision in Nationwide Advertising Service,
Inc. v. Kolar, 28 Ill. App. 3d 671, 673, 329 N.E.2d 300, 301-02
(1975). In that case, an advertising agency sought to enforce a
restrictive covenant against its former employee and appealed
denial of enforcement, arguing that "under Illinois law an
employer such as it had a legitimate business interest in its
- 29 - customers which was subject to protection through enforcement of
an employee's covenant not to compete." (Emphasis added.)
Kolar, 28 Ill. App. 3d at 673, 329 N.E.2d at 301. In summarizing
the principles that underpinned the appellate court's earlier
analysis in the same case (Nationwide Advertising Service, Inc.
v. Kolar, 14 Ill. App. 3d 522, 302 N.E.2d 734 (1973)), the
Kolar court wrote as follows:
"[A]n employer's business interest in
customers is not always subject to protection
through enforcement of an employee's covenant
not to compete. Such interest is deemed
proprietary and protectable only if certain
factors are shown. A covenant not to compete
will be enforced if [(1)] the employee ac-
quired confidential information through his
employment and subsequently attempted to use
it for his own benefit. [Citation.] An
employer's interest in its customers also is
deemed proprietary if, [(2)] by the nature of
the business, the customer relationship is
near-permanent and but for his association
with plaintiff, defendant would never have
had contact with the clients in question.
(Cockerill v. Wilson (1972), 51 Ill. 2d 179,
- 30 - 281 N.E.2d 648; Canfield v. Spear (1969), 44
Ill. 2d 49, 254 N.E.2d 433.)" Kolar, 28 Ill.
App. 3d at 673, 329 N.E.2d at 301-02.
Although the Kolar court cites the supreme court's decisions in
Cockerill and Canfield as authority for the "legitimate-business-
interest" test, neither of those cases used that test in the
restrictive-covenant analyses they contained. See Canfield, 44
Ill. 2d at 51, 254 N.E.2d at 434 (stating that in restrictive-
covenant cases "where the limitation as to time and territory is
not unreasonable, the agreement is valid and enforceable, and
relief by injunction is customary and proper"); Cockerill, 51
Ill. 2d at 183-84, 281 N.E.2d at 650-51 ("[c]ovenants *** involv-
ing performances of professional services have been held valid
and enforceable when the limitations as to time and territory are
not unreasonable"). Instead, it appears that the Kolar court's
analysis has devolved into the "legitimate-business-interests"
test, which the appellate courts have created "out of whole
cloth."
For the last 32 years, the "legitimate-business-inter-
est" test has been cited in one form or another by all of the
districts of the Illinois Appellate Court when deciding
restrictive-covenant cases. Due to the sheer volume of cases
appellate courts handle, they are often required to address cases
of first impression and must develop the common law and nuanced
- 31 - analysis. We appellate judges often endeavor to develop bright-
line rules or tests, both to inform our analysis and to assist
the bench and bar in future cases. Nonetheless, good practice
requires us from time to time look back to what our supreme court
has said, earlier and most recently, to make sure our analyses
remain consistent with supreme court doctrine.
III. SUPREME COURT OF ILLINOIS DOCTRINE REGARDING ENFORCEABILITY OF RESTRICTIVE COVENANTS
A. Early Cases
The earliest supreme court case dealing with restric-
tive covenants is Hursen v. Gavin, 162 Ill. 377, 44 N.E. 735
(1896), in which the plaintiff, who had been engaged in the
livery and undertaking business in Chicago, sued to enforce a
restrictive covenant restraining the defendant, his former
partner, from engaging in the same business in Chicago for five
years. The supreme court affirmed the trial court's grant of the
injunction restraining the defendant and explained as follows:
"A contract in restraint of trade is ***
total and general, when by it a party binds
himself not to carry on his trade or business
at all, or not to pursue it within the limits
of a particular country or State. Such a
general contract in restraint of trade neces-
sarily works an injury to the public at large
and to the party himself in the respects
- 32 - indicated, and is, therefore, against public
policy.
But a contract, which is only in partial
restraint of trade, is valid, provided it is
reasonable and has a consideration to support
it. [Citations.] The restraint is reason-
able, when it is such only as to afford a
fair protection to the interests of the part-
y, in whose favor it is imposed. *** A
contract in restraint of trade, to be valid,
must show that the restraint imposed is par-
tial, reasonable[,] and founded upon a con-
sideration capable of enforcing the agree-
ment. *** Where the restriction embraces too
large a territory, it will be unreasonable
and void ***. [Citations.]
* * *
***[The contract in this case was valid
and enforceable because it] was only in par-
tial restraint of trade. It was limited in
time to the period of five years, and in
space to the city of Chicago." Hursen, 162
Ill. at 379-82, 44 N.E. 735-36.
In Ryan v. Hamilton, 205 Ill. 191, 197, 68 N.E. 781,
- 33 - 783 (1903), the supreme court reversed the appellate court and
upheld the trial court's grant of an injunction restraining the
defendant from practicing general medicine "in or within" eight
miles of the village of Viola in Mercer County, explaining as
follows:
"Contracts of this class, where the limita-
tion as to territory is reasonable and there
exists a legal consideration for the
restraint, are valid and enforceable in eq-
uity, and in such cases relief by injunction
is customary and proper."
In Bauer v. Sawyer, 8 Ill. 2d 351, 354, 134 N.E.2d 329,
331 (1956), the supreme court upheld enforcement of another
restrictive covenant regarding a former partner who was enjoined
from practicing medicine and noted that "[t]he principles govern-
ing cases of this kind were stated in Ryan v. Hamilton." The
Bauer court added the following: "In determining whether a
restraint is reasonable[,] it is necessary to consider whether
enforcement will be injurious to the public or cause undue
hardship to the promisor, and whether the restraint imposed is
greater than is necessary to protect the promisee." Bauer, 8
Ill. 2d at 355, 134 N.E.2d at 331. In making these observations,
the supreme court cited its earlier decision in Hursen.
B. The Most Recent Supreme Court Decision
- 34 - The supreme court's most recent decision on the
enforceability of a restrictive covenant was Mohanty, 225 Ill. 2d
52, 866 N.E.2d 85. In Mohanty, a group of physicians filed a
declaratory judgment action against their employer, alleging that
the restrictive covenants in their employment contracts were void
as against public policy and unenforceable. The employer coun-
terclaimed for declaratory judgment and injunctive relief, and
the supreme court ultimately held that the employer was entitled
to a preliminary injunction to enforce the restrictive covenants.
Mohanty, 225 Ill. 2d at 78, 866 N.E.2d at 100. Notably, in
reaching its decision, the supreme court made no mention of the
"legitimate-business-interest" test, despite over three decades
of its use by the appellate court.
Initially, the Mohanty court rejected the physicians'
contention that restrictive covenants in physician employment
contracts should be held void as against public policy in Illi-
nois. The supreme court explained as follows:
"[W]e note that this court has a long tradi-
tion of upholding the right of parties to
freely contract. [Citation.] Consequently,
our decisions have held that a private con-
tract, or provision therein, will not be
declared void as contrary to public policy
unless it is '"clearly contrary to what the
- 35 - constitution, the statutes or the decisions
of the courts have declared to be the public
policy"' or it is clearly shown that the
contract is '"manifestly injurious to the
public welfare."' [Citations.] *** As a
result, plaintiffs carry a heavy burden of
showing that restrictive covenants in physi-
cian employment contracts are against the
public policy of this state." Mohanty, 225
Ill. 2d at 64-65, 866 N.E.2d at 92-93.
The supreme court later repeated these same criteria when it
concluded that "plaintiffs have failed to show that physician
restrictive covenants are contrary to the constitution, statutes
or judicial decisions of this state. Nor have they shown that
these covenants are manifestly injurious to the public welfare."
Mohanty, 225 Ill. 2d at 69, 866 N.E.2d at 95.
The physicians also challenged the restrictive cove-
nants in their employment contracts as unenforceable "because
they [were] unreasonably overbroad in their temporal and activity
restrictions." Mohanty, 225 Ill. 2d at 75, 866 N.E.2d at 98.
The supreme court rejected this claim, explaining as follows:
"As noted earlier in this opinion, this
court has a long tradition of upholding cove-
nants not to compete in employment contracts
- 36 - involving the performance of professional
services when the limitations as to time and
territory are not unreasonable. Cockerill v.
Wilson, 51 Ill. 2d 179, 183-84
[, 281 N.E.2d 648] (1972); Canfield v. Spear,
44 Ill. 2d 49[, 254 N.E.2d 433] (1969); Bauer
v. Sawyer, 8 Ill. 2d 351[, 134 N.E.2d 329]
(1956). '"In determining whether a restraint
is reasonable it is necessary to consider
whether enforcement will be injurious to the
public or cause undue hardship to the
promisor, and whether the restraint imposed
is greater than is necessary to protect the
promisee."' [Citations.]" Mohanty, 225 Ill.
2d at 76, 866 N.E.2d at 98-99.
Consistent with the above criteria, the supreme court
considered the parties' evidence to determine whether the limita-
tions set as to time (three years) and territory (a five-mile
radius) were unreasonable and concluded that they were not.
Thus, the supreme court determined that a restrictive
covenant that restrained cardiologists from practicing medicine
was enforceable, and the supreme court reached this conclusion
without relying upon--or even mentioning--the "legitimate-
business-interest" test. As Sherlock Holmes would observe, this
- 37 - is the case of the dog that did not bark.
IV. EPILOGUE
In this case, the parties argue--and the majority
opinion discusses--the need for the employer, Lifetec, to over-
come the "legitimate-business-interest" test to prevail in its
effort to enforce a restrictive covenant against one of its
salesmen. Yet, the supreme court in Mohanty enforced a restric-
tive covenant that undermined the physician/patient relationship
without even acknowledging the existence of the "legitimate-
business-interest" test. It makes no sense to place a greater
burden on employers of salespeople than on employers of physi-
cians when the enforceability of noncompete covenants is at
issue. Surely the physician-patient relationship and access to
medical care are more societally significant concerns than any
concerns related to the relationship between a retailer of
medical products and its sales force. I find support for this
view in Justice Freeman's partial concurrence in Mohanty, where
he wrote, "a strong case exists for abolishing all physician
restrictive covenants as being against public policy. However, I
agree that this decision is for the General Assembly to make."
Mohanty, 225 Ill. 2d at 86, 866 N.E.2d at 104 (Freeman, J.,
concurring in part and dissenting in part).
The lesson of Mohanty is that courts at any level, when
presented with the issue of whether a restrictive covenant should
- 38 - be enforced, should evaluate only the time and territory restric-
tions contained therein. If the court determines that they are
not unreasonable, then the restrictive covenant should be en-
forced.
In this case, the majority opinion notes that "[t]he
reasonableness of the terms of the covenants as to time and
territory are not in dispute." Slip op. at 14. At oral argu-
ment, defendants’ counsel conceded that the terms of the restric-
tive covenant were reasonable. The majority's observation that
the reasonableness of the terms of the covenants as to time and
territory are not in dispute should have ended our analysis. The
employer has no additional burden to prove a "protectible" or
"legitimate" business interest to support enforcement. This
court need not engage in an additional discussion regarding the
application of the "legitimate-business-interest" test because
that test constitutes nothing more than a judicial gloss incor-
rectly applied to this area of law by the appellate court. We
need not await the supreme court's explicit and emphatic rejec-
tion of that test before rejecting it ourselves, especially when,
as here, continued fealty to it runs counter to Supreme Court of
Illinois doctrine.
- 39 -