Shapiro v. Regent Printing Co.

549 N.E.2d 793, 192 Ill. App. 3d 1005, 140 Ill. Dec. 142, 1989 Ill. App. LEXIS 1999

• Court: Appellate Court of Illinois
• Decided: December 28, 1989
• Docket: 1-88-1812
• Status: Published

Opinions

JUSTICE LINN

delivered the opinion of the court:

Howard J. Shapiro and Aria Graphics, Inc., plaintiffs, appeal from an order that enjoined them for two months from doing business with certain customers of Regent Printing Company, after Shapiro resigned from his employment with that company. Regent cross-appeals, contending that the restrictive covenant in Shapiro’s employment contract is valid and enforceable and that, accordingly, an injunction for the contractual two-year period should have been entered.

For the reasons that follow, we dismiss the appeal on grounds of mootness.

Background

Howard Shapiro worked for Regent Printing Company for approximately seven years. The printing business is owned equally by its founder’s three sons, Lester, William, and Delbert. Howard is Delbert’s son.

Howard had no prior experience in the printing business before joining Regent in 1981. For the first two years he was trained in printing production techniques in preparation for his becoming a salesman.

Toward the end of 1982 Howard and Regent negotiated an employment agreement, which contained a two-year restrictive covenant. At trial Howard stated his belief that he would be discharged if he did not sign the contract.

The purpose of the restrictive covenant was to prevent Howard from divulging to others or using for himself any “information, knowledge, data or property related to Regent’s business obtained while employed by Regent.” The provision further required him to abstain from “soliciting] or accepting] orders or business from any of Regent’s customers who were customers of Regent during the one year period prior to the date of [Howard’s] termination of employment with Regent.”

Howard resigned from Regent in February 1988 and immediately began working for ARLA, one of Regent’s competitors. He initiated the pending action after Regent notified certain customers that Howard was contractually prohibited from doing business with them. Plaintiffs’ three-count complaint sought injunctive relief against Regent as well as compensatory and punitive damages for interfering with business expectancies. In addition, Howard sought an accounting for commissions alleged to be owing to him.

Regent countersued, alleging breach of contract on the part of Howard, conspiracy to breach and intentional interference with contract on the part of ARLA, and overpayment of commissions to Howard.

Although both sides moved for preliminary injunctive relief, Howard withdrew his motion, and the matter proceeded on Regent’s motion for injunction to enforce the restrictive covenant.

After an evidentiary hearing the trial court determined that a short-term injunction was appropriate, based on the theory that Howard had breached his fiduciary duty to Regent because he had solicited customers for ARLA before leaving Regent. The court cited evidence indicating that Howard had solicited customers during the last week that he was in Regent’s employ. However, Regent had not raised this theory in its pleadings, nor relied on it at the hearing. Regent was given leave to file amended pleadings after the hearing, to conform to the evidence by adding the breach of fiduciary duty cause of action.

In its ruling the court declined to fully analyze the reasonableness and scope of the restrictive covenant, finding instead that the covenant lacked sufficient consideration. Therefore, the court denied Regent’s motion for preliminary injunction based on the two-year restrictive covenant. Nevertheless, the court granted the short-term injunction as an equitable remedy for Shapiro’s breach of fiduciary duty. The court initially granted a 90-day injunction, to allow Regent to “catch up” or regain its competitive edge. After the parties’ motions to reconsider, the court shortened the duration of the injunction to 60 days.

On appeal, Howard challenges the court’s order on the ground that he was denied an opportunity to present a defense on the breach of fiduciary duty issue. Regent cross-appeals from the order, contending that the restrictive covenant is valid and should be enforced for the full contractual period.

Opinion

We initially find that the injunction entered on May 9, 1988, was permanent in nature, despite some confusion in the briefs as to whether the injunction order was intended to be for preliminary relief. The distinction is critical to our ruling, as we explain below. Howard argues that the injunction is permanent in nature and effect. Regent, however, asserts that it was a preliminary injunction from which Howard should have appealed pursuant to Supreme Court Rule 307 (107 Ill. 2d R. 307). This rule governs interlocutory appeals as of right and requires that notice of appeal be filed from the injunction order within 30 days of its entry. This was not done.

Although the trial court commented on several occasions that the proceedings were for preliminary injunctive relief, the order entered grants a permanent injunction because it concludes the rights of the parties with respect to the injunction remedy. Regent did not move for any further hearings on permanent injunctive relief, and neither side sought interlocutory review under Supreme Court Rule 307. The trial court transferred the law counts of the complaint and counter-complaint to the law division and entered an express finding that the granting of the injunction was a final order from which there was no just reason to delay enforcement or appeal under Supreme Court Rule 304(a). We accordingly have jurisdiction over the appeal, as it is a final injunction order that was made expressly appealable by the trial court in its finding.

As the Illinois Supreme Court stated in Buzz Barton & Associates, Inc. v. Giannone (1985), 108 Ill. 2d 373, 385-86, 483 N.E.2d 1271, 1277, “In far too many cases the distinction between *** a preliminary injunction, and a permanent injunction becomes blurred during the proceedings. *** The purposes of these two writs are different and distinct. The proof that is required to support them is not the same.”

In the pending case, our review of the permanent injunction rests on a different footing than it would if we were presented with the same record on review under Supreme Court Rule 307, from entry of a preliminary injunction. The purpose of a preliminary injunction is to raise a fair question as to the existence of a right needing protection, not to decide controverted facts or the ultimate merits. Buzz Barton & Associates, Inc. v. Giannone (1985), 108 Ill. 2d 373, 386, 483 N.E.2d 1271, 1277.

Both sides focus on the existence of a protectable business interest as determining the question of whether Regent’s restrictive covenant is enforceable. Most of the decisions cited in the parties’ briefs involving the validity of restrictive covenants are appeals from entry of preliminary injunctive relief, however. These cases provide limited guidance as to the validity of the permanent injunction that was entered in the pending case. It is true that if a party cannot establish the existence of a protectable business interest, he or she will not be entitled to either preliminary or permanent injunction. (Buzz Barton & Associates, 108 Ill. 2d 373, 483 N.E.2d 1271.) Even if a party establishes a clear right entitled to protection, however, he must satisfy the other elements of permanent injunctive relief. A substantial likelihood of success on the merits will sustain the entry of a preliminary injunction; more proof is needed to support a permanent injunction.

The trial court did not reach the threshold issue of whether Regent had a protectable business interest because it determined that the restrictive covenant was not supported by adequate consideration. We do not agree, however, that the covenant lacked legal consideration. Under Illinois law, continued employment after signing an employment contract with a restrictive covenant is considered to be adequate consideration. (McRand, Inc. v. Van Beelen (1985), 138 Ill. App. 3d 1045, 486 N.E.2d 1306.) In this case Shapiro himself alleged that he believed that he would not retain his employment if he did not sign the employment agreement. We conclude that the trial court’s ruling on this point was erroneous.

Our next concern is whether Regent proved that its restrictive covenant was valid and enforceable. A restrictive covenant in an employment agreement is generally held to be enforceable if it is reasonable in geographical and temporal scope and it is necessary to protect a legitimate business interest of the employer. (E.g., Morrison Metalweld Process Corp. v. Valent (1981), 97 Ill. App. 3d 373, 422 N.E.2d 1034.) Although enforceability is a question of law, the reasonableness of any restrictive covenant is determined by the facts of the particular case. (J.D. Marshall International, Inc. v. Fradkin (1980), 87 Ill. App. 3d 118, 409 N.E.2d 4.) The court recognized in Reinhardt Printing Co. v. Feld (1986), 142 Ill. App. 3d 9, 16, 490 N.E.2d 1302, 1307, that there are two general situations in which an employer’s interest in his customers is adequate for enforcing a covenant not to compete: “(1) where, by the nature of the business, plaintiff has a near-permanent relationship with its customers and but for his or her employment, defendant would not have had contact with them; or (2) where the former employee learned trade secrets or acquired other confidential information while in plaintiff’s employ and subsequently attempted to use it for his or her own benefit.”

Regent asserts that it has established a protectable business interest under either test. Its evidence includes general testimony that the method by which Regent determined its pricing was something that only the Shapiro family knew, and that if a competitor received such information, it could undercut Regent’s prices and lure away its customers. Howard Shapiro admits that his grandfather developed Regent’s particular pricing system and that his father and uncles refined it. He concedes that it took him years to learn the system. However, he asserts that Regent took no steps to segregate or restrict access to the information; all of the production workers had access to this formula and used it in the course of business. The parties agree that all of the basic costs components that go into a job, such as cost of paper, cutting, film, ink, are common to the industry and that directories are available to guide printers in setting those costs.

We find it difficult to ascertain from the record what, exactly, was confidential about Regent’s pricing formula. We agree with Howard that Regent’s pricing formula could not be considered a trade secret. (See Service Centers of Chicago, Inc. v. Minogue (1989), 180 Ill. App. 3d 447, 535 N.E.2d 1132.) Nevertheless, we disagree with Howard’s suggestion that only trade secrets — as distinct from confidential information — are entitled to legal protection. (See, e.g., A.B. Dick Co. v. American Pro-Tech (1987), 159 Ill. App. 3d 786, 514 N.E.2d 45 (employer’s interest in his customers is proprietary and thus legally protectable if the employee acquired confidential information through his employment and substantially attempted to use it for his own benefit).) Our analysis of the confidential information evidence in this case leads us to conclude that it falls short of being a protectable business interest entitled to injunctive relief.

Regent also has asserted a near-permanent relationship with the customers in which it alleges a proprietary interest. Some had been customers of Regent for eight or more years, in an industry that has been characterized as being “highly competitive.” (Reinhardt Printing Co. v. Feld (1986), 142 Ill. App. 3d 9, 16, 490 N.E.2d 1302, 1307.) If the pending appeal were from a preliminary injunction, we might have agreed that the evidence raises a fair question as to the existence of a protectable interest under this test. If so, we might have found that Regent had sustained its requisite showing of the elements for provisional relief and maintenance of the status quo. (A.B. Dick Co. v. American Pro-Tech (1987), 159 Ill. App. 3d 786, 514 N.E.2d 45.) There is evidence of record that Regent enjoyed a near-permanent relationship with certain clients, some of which were steady customers for eight or more years, and that the company maintained specialized customer information that would enable it to better serve them. Howard would not have been exposed to these clients and information but for his employment with Regent.¹

We do not find, however, that the record supports the entry of permanent injunctive relief based on the restrictive covenant. We cannot say with any degree of certainty that Regent sustained the burden of proof necessary for this relief.

Although the trial court stated that the pricing formula is “a valuable business asset of Regent and is proprietary and confidential information,” it did not base its ruling on the validity of the restrictive covenant. By viewing the evidence as establishing that Shapiro had solicited Regent’s customers while still employed, the trial court held that this breach of fiduciary duty justified the entry of the short-term injunction, to allow Regent to regain its competitive edge.

The evidentiary support for this theory is also scant, possibly because the parties were focusing on the validity of the restrictive covenant and did not pursue breach of fiduciary duty as a theory of the case. Indeed, Howard’s appeal challenges the use of this theory as being unfair to him for that reason. We decline to rule on the soundness of this approach because it is irrelevant to our disposition. However, we note that the result of the trial court’s ruling seems equitable under all of the circumstances. We believe that the trial court attempted to reach an equitable compromise that would fairly conclude the injunctive branch of the litigation and put neither side at a severe disadvantage.

Although we could reverse the court’s order on the basis that Regent failed to prove its right to permanent injunctive relief, we instead chose to dismiss the appeal as having become moot. The two-month injunction has long since expired, on its own terms. Our dismissal of the appeal leaves the parties to their other remedies at law and does not affect those rights.

For the foregoing reasons, we dismiss this appeal on the grounds that the relief requested by both the main and cross-appeals has become moot.

Dismissed.

JOHNSON, J., concurs.

1 Despite our acknowledgement that the requirements of a preliminary injunction may have been met, we cannot treat this appeal as one perfected under Supreme Court Rule 307. Neither side chose to treat it as a preliminary injunction. Regent did not move for further proceedings and did not file an interlocutory appeal within 30 days of the entry of the injunction, to test the validity of the court’s refusal to enforce the covenant for the full two-year period. Likewise, Howard did not file an interlocutory appeal asserting that the order was a wrongfully issued preliminary injunction. Had he done so after moving to dissolve he would have preserved a possible claim for statutory damages under section 11 — 110 of the Code of Civil Procedure, assuming that the court agreed that the injunction had been wrongfully entered. (Ill. Rev. Stat. 1987, ch. 110, par. 11—110.) This section does not apply to permanent injunctions, as Howard concedes. (See Buzz Barton & Associates, Inc. v. Giannone (1985), 108 Ill. 2d 373, 483 N.E.2d 1271.) Therefore, our disposition of this appeal does not give him any base upon which to assert a claim for damages under that section.