Cambridge Engineering, v. Mercury Partners

• Decision Date: 07 December 2007
• Docket Number: No. 1-06-0798.,1-06-0798.
• Citation: 879 N.E.2d 512
• Parties: CAMBRIDGE ENGINEERING, INC., Plaintiff-Appellant, v. MERCURY PARTNERS 90 BI, INC., d/b/a Brucker Company, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

879 N.E.2d 512

CAMBRIDGE ENGINEERING, INC., Plaintiff-Appellant, v. MERCURY PARTNERS 90 BI, INC., d/b/a Brucker Company, Defendant-Appellee.

No. 1-06-0798.

Appellate Court of Illinois, First District, Sixth Division.

December 7, 2007.

Michael D. Quinlan, Quinlan Law Firm, St. Louis, MO, Stephen Viz, Figliulo & Silverman, Chicago, for Appellant.

Richard M. Kates, Chicago, for Appellees.

Justice JOSEPH GORDON delivered the opinion of the court:

This is a suit for attorney fees and punitive damages incurred in seeking legal enforcement of a contractual covenant not to compete. In a prior action filed in Missouri in 2001, plaintiff-appellant, Cambridge Engineering, Inc. (Cambridge), prevailed in a suit to enjoin former employee Gregory Deger from engaging in certain sales-related activities for his new employer, Mercury Partners 90 BI, Inc., d/b/a Brucker Company (Brucker). Thereupon, Cambridge filed the instant lawsuit against the employer Brucker, seeking compensatory and punitive damages against Brucker for tortious interference with contract; those damages included recovery of the fees it expended in the Missouri injunction action against Deger. Prior to trial, the parties stipulated to limit the claim for compensatory damages solely to attorney fees, but let the action for punitive damages stand. The trial court directed a verdict against Cambridge on its claim for punitive damages, and it entered judgment notwithstanding the verdict (judgment n.o.v.) against Cambridge on the issue of liability. Cambridge now appeals both the judgment n.o.v. with respect to its right to recover fees and the directed verdict with respect to punitive damages. For the reasons that follow, we affirm.

I. BACKGROUND

On March 27, 2002, Cambridge filed its first amended complaint against Brucker, in which it sought damages for tortious interference with contract. The complaint alleges that Cambridge is a Missouri corporation, engaged in the business of manufacturing and selling commercial and industrial gas direct fired space heating and make-up air heating equipment; Brucker is an Illinois corporation that serves as a manufacturers' representative and wholesaler of heating, ventilation, and air conditioning equipment and competes with Cambridge in the Midwest region.

Beginning in 1996, Cambridge employed Deger as a sales representative in northern Illinois and Indiana. His employment agreement contained both noncompetition and nonsolicitation covenants. On April 21, 2001, Cambridge terminated Deger's employment for good cause. Subsequently, on or before June 29, 2001, Brucker allegedly hired Deger to compete with Cambridge and to solicit Cambridge's customers, in violation of the restrictive covenants in his contract with Cambridge.

Cambridge further avers that during Deger's interviews for employment with Brucker, Deger told Brucker's president David Sobut that his contract with Cambridge had contained a noncompetition clause. In addition, upon learning of Deger's employment with Brucker, Cambridge sent a letter to Brucker informing it of the restrictive covenants in Deger's contract and demanded that Deger cease all competitive activities. Nevertheless, Brucker continued to employ Deger, and it "intentionally and without justification" assisted Deger in violating the restrictive covenants so that it could gain a competitive advantage against Cambridge.

As a result of this conduct, Cambridge sought injunctive enforcement of the restrictive covenants in the circuit court of St. Louis County, Missouri (the St. Louis court). On October 11, 2001, the St. Louis court permanently enjoined Deger from taking any action that would violate the restrictive covenants in his employment contract with Cambridge.

A copy of the employment agreement between Deger and Cambridge is attached to the complaint as Exhibit A. It has several provisions that are relevant to the case at hand. Section 7, entitled "Post-Termination Protection of Employer's Confidential Information and Business Interests," contains the restrictive covenants that Deger allegedly violated:

"c. * * * Employee shall not, for a period of 24 months following the termination of his/her employment, whether as principal, employee, independent contractor or otherwise, in any way, directly or indirectly, engage in any activity for or on behalf of Employer's competitors, or engage in any business that competes with Employer, anywhere in the United States or Canada.

d. Employee shall not, for the same period, either directly or indirectly, contact or communicate with any customer, employee or representative of Employer for any purpose that is or may be detrimental to Employer, including without limitation, to engage in sales activities, employment recruitment, or solicitation of any kind."

In addition, section 9(d) contains a choice of law provision:

"This agreement * * * and the entire relationship of the parties, shall be governed by the laws of the State of Missouri."

Finally, section 9(e) provides for judicial reformation of the agreement when necessary:

"This Agreement shall be interpreted to give the fullest effect to its provisions consistent with controlling law. If any term or provision shall be deemed invalid or unenforceable by a court of competent jurisdiction, then such term of provision shall be automatically amended to be effective to the fullest extent permitted by law, and the adjudicating court shall have authority to modify any such term or provision to accomplish said purpose and intention. The remainder of this agreement shall continue in full force and effect as if such modification had always been part of the Agreement."

Also attached to the complaint as Exhibit B is the final injunction issued by the St. Louis court against Deger. The caption of the case is "Cambridge Engineering, Inc. v. Greg Deger"; Brucker is not a named party. In handing down the injunction against Deger, the court found the restrictive covenants in the employment agreement to be valid, stating: "Cambridge has a protectable interest in its customers underlying the restrictive covenants. Deger's employment with Brucker and his admitted solicitation of Cambridge customers violates the restrictive covenants. The geographic and temporal scope of the restrictive covenants is reasonable."

In its answer to the complaint, Brucker admits that it hired Deger, but it denies that Deger was competing with Cambridge or soliciting Cambridge customers on behalf of Cambridge's competitors. Brucker also avers that Deger told Brucker that he had been terminated without cause and that Deger's statement was supported by the State of Illinois Department of Employment Security Appeals Referee's Decision (Referee's Decision) regarding Deger's unemployment benefits. In addition, Deger's attorney gave Brucker a court case (Showe-Time Video Rentals, Inc. v. Douglas) and told Brucker that under the law as described in that case, the restrictive covenant in Deger's contract was unenforceable.

With respect to the St. Louis case, Brucker admits that the St. Louis court entered a permanent injunction against Deger, but it argues that the decision was "strictly against Deger." Upon learning of that order, Brucker fired Deger.

Attached to the answer is a copy of the Referee's Decision. Under the heading "Findings of Fact," the decision states, "He [Deger] was discharged by the employer regarding a disagreement over his employment contract." Later, under the heading "Conclusion," it states, "There was no competent evidence which could establish that the Claimant [Deger] willfully an deliberately violated any company rule or policy of the Employer or that the claimant's actions caused harm to the employer."

Cambridge filed a motion in limine regarding choice of law, requesting that the court apply Missouri substantive law in the case. The court heard arguments from both sides and then found that Illinois substantive law applied, over the objection of Cambridge's counsel. At this time, counsel for Brucker advised the court, in the presence of Cambridge's counsel and with his acquiescence, that with respect to compensatory damages, Cambridge had agreed to limit its recovery to legal fees incurred in prosecuting the St. Louis case.

The case proceeded to a jury trial. The first person whom Cambridge called to testify was Sobut, Brucker's president, as an adverse witness. Sobut told the court that Deger was not a Brucker salesperson but, rather, an inside support person for outside salespeople. As a result, he was not directly soliciting customers or making sales calls. However, he admitted that as an employee of Brucker, Deger made multiple contacts with customers he used to solicit at Cambridge. Counsel for Cambridge confronted Sobut with a boilerplate letter that Deger had sent to Cambridge customers when he started working with Brucker; in the letter, Deger said, "I'll be glad to provide you with the same conscientious service which you have come to expect from me." The letter contained a list of products sold by Brucker, and Sobut acknowledged that some of them competed with Cambridge products.

On cross-examination by his own counsel, Sobut testified that Brucker and Cambridge were not direct competitors on all their products; indeed, he said that their area of competition, the make-up air industry, was only a "very small" part of Brucker's business. During the time that Deger was employed with Brucker, he did not work within that competitive area. Instead, his work concerned products that, to the best of Sobut's knowledge, Cambridge did not deal in. Therefore, Sobut opined that Deger was not really "competing" with Cambridge.

Cambridge next called its president, Jack Kramer, to the stand. Kramer spoke about the events leading up to the instant lawsuit, explaining that when Cambridge discovered that Deger was working for Brucker, it sued to enforce the restrictive covenants in Deger's contract.

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