System Development Services, Inc. v. Haarmann

907 N.E.2d 63, 389 Ill. App. 3d 561
CourtAppellate Court of Illinois
DecidedApril 13, 2009
DocketNo. 5-07-0648
StatusPublished
Cited by16 cases

This text of 907 N.E.2d 63 (System Development Services, Inc. v. Haarmann) 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
System Development Services, Inc. v. Haarmann, 907 N.E.2d 63, 389 Ill. App. 3d 561 (Ill. Ct. App. 2009).

Opinion

JUSTICE STEWART

delivered the opinion of the court:

The defendants appeal from the judgment of the circuit court of Effingham County, Illinois, that granted the plaintiff an injunction and awarded the plaintiff damages pursuant to the Illinois Trade Secrets Act (Trade Secrets Act) (765 ILCS 1065/1 et seq. (West 2006)). We reverse.

The plaintiff, System Development Services, Inc. (SDS), is an Illinois corporation in the business of furnishing computer network services to businesses in and around Effingham County, Illinois. The defendants, Timothy F. Haarmann, Jason B. Repking, Rick Hoene, and Terry Oldham, are computer technicians that were formerly employed with SDS. Haarmann left employment at SDS in January of 2004, and Repking, Hoene, and Oldham left SDS on April 9, 2004. The defendants then began doing business under the name Technical Partners, and they began competing with SDS in providing the businesses in Effingham County with computer network services.

On May 21, 2004, SDS filed a multicount complaint seeking injunctive relief and damages against the defendants, alleging that the defendants violated the Trade Secrets Act by misappropriating, disclosing, using, and acquiring its customer list, manuals, marketing plans, profitability analysis, pricing plans and determinations, and knowledge of SDS’s customers’ computer systems and system requirements. The plaintiff filed a motion for an emergency restraining order, seeking to prohibit the defendants from having any contact with SDS’s customers for a period of two years. On June 22, 2004, the circuit court denied the motion for an emergency temporary restraining order. On November 9, 2004, the plaintiff filed an amended complaint. Counts I through IV of the amended complaint alleged that the defendants violated the Trade Secrets Act, and counts V through VII alleged that the defendants violated fiduciary duties they owed to SDS.

On May 8, 2006, through May 11, 2006, the circuit court conducted a bench trial on SDS’s amended complaint, and on February 23, 2007, the circuit court entered a memorandum of decision. The court found that SDS’s customer list and information about its customers’ computer systems and networks were protectable trade secrets under the Trade Secrets Act. The court found that the defendants “utilized SDS’s customer mailing list and that it was improperly obtained” and that the defendants “not only utilized their general skills and knowledge of the industry in their new business, they also utilized technical and confidential information that was particularized to each individual customer of SDS that included the intricacies of each customer’s network.” The court held that SDS was “entitled to compensation for harm caused by defendants’ improper conduct and a cessation of the conduct continuing.” The court found, however, that the defendants did not “misappropriate SDS’[s] job budgets, estimates!,] and pricing strategies, SDS’s weaknesses ***, nor [sic] SDS’s internal marketing information.”

The court granted an injunction prohibiting the defendants “from marketing to and from providing any computer or network[-]related type services to all actual and potential customers in SDS’[s] customer database on and prior to April 9, 2004, for a period of three (3) years commencing immediately upon [the] entry of this Judgment.” In addition, the court granted an injunction prohibiting the defendants from disclosing any of SDS’s trade secrets. The court awarded SDS a judgment in the amount of $481,892 plus court costs, attorney fees and expenses in the total amount of $260,695.99, and exemplary damages in the amount of $20,000. The judgment for the plaintiff was entered on October 29, 2007, and the defendants filed a timely notice of appeal.

The evidence presented at the bench trial established that SDS began operating in 1983, when its founder, Steven G. Schallert, began helping another company “write some software application.” SDS started providing custom applications and software for other customers as well. Initially, Schallert was SDS’s only employee, and he ran the business as a sole proprietorship out of his home in Effingham, Illinois. At the same time, he also worked full-time as the director of information systems at a hospital in Mattoon, Illinois. In 1995 or 1996, Schallert incorporated SDS and started working full-time for the corporation. He operated SDS as a “full-time consulting service.” He continued to work out of his living room, hired an additional employee, and targeted local businesses in Effingham, for its products and services. At some point, Schallert moved SDS’s operations to an apartment building he owned.

In the fall of 1997, SDS hired Haarmann as a computer programmer. In negotiating Haarmann’s employment, Schallert sent Haarmann an offer of employment dated September 28, 1997. The offer of employment contained a paragraph addressing the issue of confidentiality, which stated: “The nature of the type of work done for many of our customers requires a high level of confidentiality. It is understood failure to maintain strict confidentiality of System Development Services work[-]related information for both customers and company are [sic] grounds for severe disciplinary action, including possible termination.”

In 1998, SDS moved from Schallert’s apartment building to the Lincoln Land Building in Effingham. The building was a “professional office environment” with locked doors and a security alarm. Schallert explained that all of SDS’s client information was stored on its computer “server equipment” that was protected by a network “firewall.” The firewall prevented public access to SDS’s computer network through the Internet. Each computer in SDS’s network and SDS’s e-mail server were protected with passwords. Schallert testified that they also used paper shredders to shred confidential documents prior to placing them into the trash.

In 2001, SDS’s business started moving away from custom software applications and started focusing on computer networking services for its business customers. SDS added administrative staff, more programmers, and “networking services people.” Schallert explained that the networking services related more to the hardware and equipment of the customers, rather than the programming. He testified that in order to provide network services, a computer technician had to become “intimately knowledgeable of customers’ networks, computer systems, and applications.” When a customer called SDS for its services, it would send one of its technicians to the customer’s location to learn about the customer’s computer network needs.

Schallert testified SDS purchased an “ACT software” for marketing purposes and for maintaining a database of addresses and contact information for customers and potential customers. The ACT software was password-protected. SDS’s network included an automated program that copied the customer information in the ACT database into SDS’s e-mail database so that the information in each database was the same. The e-mail database was also password-protected, but all of SDS’s employees had access to it. The customer list included current customers, past customers, potential customers, vendors, and various people in the computer business. This ACT database and the identical e-mail database constituted the “client list” that SDS asserted was entitled to protection under the Trade Secrets Act.

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Bluebook (online)
907 N.E.2d 63, 389 Ill. App. 3d 561, Counsel Stack Legal Research, https://law.counselstack.com/opinion/system-development-services-inc-v-haarmann-illappct-2009.