Central Specialties Co. v. Schaefer, 69 C 293.

• Decision Date: 12 February 1970
• Docket Number: No. 69 C 293.,69 C 293.
• Parties: CENTRAL SPECIALTIES CO., corporation of the State of Illinois, Plaintiff, v. Robert G. SCHAEFER and Edward E. Schaefer, Defendants. Robert G. SCHAEFER, Counter-Plaintiff, v. William BALLENGER, Robert Ballenger, and Central Specialties Co., corporation of the State of Illinois, Counter-Defendants.
• Court: U.S. District Court — Northern District of Illinois

318 F. Supp. 855

CENTRAL SPECIALTIES CO., corporation of the State of Illinois, Plaintiff, v. Robert G. SCHAEFER and Edward E. Schaefer, Defendants.

Robert G. SCHAEFER, Counter-Plaintiff, v. William BALLENGER, Robert Ballenger, and Central Specialties Co., corporation of the State of Illinois, Counter-Defendants.

No. 69 C 293.

United States District Court, N. D. Illinois, E. D.

February 12, 1970.

Jack Dominik, of Dominik, Knechtel & Godula, Chicago, Ill., for plaintiff.

Melvin Jager, of Hume, Clement, Hume & Lee, David Schulman of Prince, Schoenberg & Fisher, Chicago, Ill., for defendant Robert Schaefer.

Jay Erens, of Levy & Erens, Chicago, Ill., for defendant Edward Schaefer.

MEMORANDUM OPINION

MAROVITZ, District Judge.

Central Specialties Co. (Central), an Illinois corporation, brings this action against Edward E. Schaefer and his son Robert G. Schaefer (Robert), alleging patent infringement, breach of contract, unfair competition, and conspiracy. Robert answered the complaint and filed a counterclaim against Central and two of its officers, W. and R. Ballenger. This cause is now before us on Robert's motion for summary judgment as to all counts of the complaint.

Summary judgment is appropriate only when there is no substantial factual controversy which requires a trial and one party is entitled to prevail as a matter of law. Silverstein v. United States, 293 F.Supp. 1106, 1110 (N.D.Ill.1968). The movant has the burden of establishing the absence of a genuine factual issue. 2361 State Corp. v. Sealy, Inc., 402 F.2d 370, 375 (7th Cir. 1968). Throughout our consideration of this motion, we must keep in mind that all facts must be viewed in the light most favorable to the opponent of the motion and that all doubts must be resolved against the movant. United States v. Diebold, 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962); Zahora v. Harnischfeger Corp., 404 F.2d 172, 175 (7th Cir. 1968); Greenebaum Mortgage Co. v. Town and Garden Associates, 385 F.2d 347, 349 (7th Cir. 1967).

In that part of the Complaint alleging a breach of contract, plaintiff alleges that among the documents executed by defendants in connection with the sale of business and assets to Central was a contract not to compete for a period of five years with Central. Complaint, ¶ 8, Exhibit D. The Complaint also alleges that Robert was paid a salary of not less than $20,000.00 per year in "further consideration" of his signing that contract and that Robert "did conspire to enter into direct competition with Plaintiff * * *." Id. ¶¶ 9, 10.

At least the following facts are undisputed: E. and R. Schaefer executed a contract on June 14, 1965, which contains a convenant prohibiting them from competing with Central for five years. The covenant not to compete states:

"Schaefer and Robert G. Schaefer do hereby severally agree that they will not, for the period of 5 years after the closing date, either directly or indirectly, work for or become associated with any other person, firm or corporation engaged in the manufacture and/or sale of competitive items of merchandise serving the same purposes as the merchandise, except window shade cornice heads, sold by Corporate-Seller in the fiscal year ended April 30, 1965, and that they, or either of them, will not individually sell or offer for sale, in said period, any such competitive item of merchandise;"

After Robert's termination from Central, he contacted some suppliers and customers of Central for the purpose of manufacturing and marketing products in Competition with Central. (Robert's Memorandum in Support of his Motion for Summary Judgment, at 2-3.)

We will assume, without deciding, that the contract of June 14, 1965, is supported by sufficient consideration. Two questions of law are presented by the defendant with respect to this aspect of the complaint. First, defendant Robert asks if the contract of June 14, 1965, is enforceable against him. Robert contends that the contract is not enforceable against him because it lacks consideration and, as the covenant not to compete runs for five years and contains no territorial limitations, that it is void as an unreasonable restraint of trade. Second, he asks whether, if enforceable, the contractual obligations were released by a document executed on April 16, 1968.

On the ground that contracts in general restraint of trade are unreasonable and void as against public policy, Illinois courts have, for over seventy years, nullified such contracts. See, e. g., House of Vision, Inc. v. Hiyane, 37 Ill.2d 32, 225 N.E.2d 21 (1967); Parish v. Schwartz, 344 Ill. 563, 176 N.E. 757 (1931); Lanzit v. J. W. Sefton Manufacturing Co., 184 Ill. 326, 56 N.E. 393 (1900). As far back as Hursen v. Gavin, 162 Ill. 377, 379-380, 44 N.E. 735 (1896), quoted with approval in Parish, a contract in general restraint of trade was defined as one in which a party bound himself not to pursue at all a particular trade or business or not to pursue the activity within a state or country.

A covenant not to compete for twenty-five years "in the State of Illinois, or anywhere else where so doing may conflict with the business interests or diminish or lessen the profits of" the covenantee was construed as covering the entire United States and, as such, unenforceable. Union Strawboard Co. v. Bonfield, 193 Ill. 420, 423, 427, 61 N.E. 1038 (1901). The court held that it was immaterial to the validity of the contract that there was good consideration and that the restraint was no greater than necessary to protect the covenantee from competition. Id. at 426, 61 N.E. 1038. The court found it to be against public policy to deprive a citizen of carrying on a lawful occupation at some place within the state's border, to deprive other citizens of the covenantor's industry, and to force the covenantor to leave the state to support himself and his family. Id. at 427, 61 N.E. 1038. A similar covenant to refrain from pursuing a particular trade for ten years in the states of Illinois and Indiana was held void in Lanzit v. the J. W. Sefton Manufacturing Co., 184 Ill. 326, 331-332, 56 N.E. 393 (1900).

More recently, in the Parish case, the restrictive covenant which was voided prohibited competition for sixteen years in a territory defined as "`in the United States of America east of the Mississippi River or in any territory in which the company is now selling its products, * * *'" 344 Ill. at 565, 176 N.E. at 758. Similarly, in Beltone Electronics Corp. v. Smith, 44 Ill.App.2d 112, 194 N.E.2d 21 (1963), a state court invalidated a post-employment covenant not to compete the duration of which was confined to one year, but which was silent as to a territorial limitation.

In prohibiting defendant from competing anywhere for five years with plaintiff, the June 14, 1965 contract is clearly one in general restraint of trade. We find that the contract which restricted competition by defendant anywhere for a period of five years and which defendant allegedly breached is void and unenforceable. From House of Vision, where the territorial restriction was confined to only thirty miles from plaintiff's two offices, but with the time limit on the competitive restraint unspecified, to Parish, Union Strawboard, and Lanzit, Illinois courts have refused to enforce general restraints of trade such as the one found in the contract which plaintiff seeks to enforce.

Where restraining covenants are partial, that is, limited in both area and time, they are permissible if reasonable, Union Strawboard Co. v. Bonfield, 193 Ill. 420, 421, 61 N.E. 1038 (1900), that is, if they are "reasonably related to safeguarding the employer without putting unreasonable restraints upon trade." Beltone Electronics Corp. v. Smith, 44 Ill.App.2d 112, 115, 194 N.E. 2d 21, 23 (1963); accord, The House of Vision, Inc. v. Hiyane, 37 Ill.2d 32, 37, 225 N.E.2d 21 (1967). In these situations, the court will seek to determine if the restraint imposed is no greater than necessary for the employer's protection, if the hardship on the employee is not undue, and if the public is not injured. Beltone Electronics Corp. v. Smith, 44 Ill.App.2d 112, 115-116, 194 N.E.2d 21 (1963). Even where the covenants are so limited, however, their reasonableness must be construed with respect to their "special circumstances" which "generally involve elements of trade secrets or unfair dealing." In re Solar Textiles Co. v. Fortino, 46 Ill.App.2d 436, 441-442, 196 N.E.2d 719, 722 (1964). In the absence of special circumstances such as trade secrets, the state court in Solar Textiles refused to enforce a noncompetition agreement which restricted a former employee from selling grille cloth for five years to certain manufacturers within a 350 mile radius of Chicago and New York City.

Parenthetically, in the only Illinois case about which we know, where a court upheld a contract which contained a noncompetition provision that was unlimited as to either time or geography, or at least was statewide in application, a secret chemical formula was involved. See World Wide Pharmacal Distributing Co. v. Kolkey, 5 Ill.App.2d 201, 125 N.E. 2d 309 (1955). Kolkey has been limited to its facts and is not applicable here. See Beltone Electronics Corp. v. Smith, 44 Ill.App.2d 112, 116-117, 194 N.E.2d 21 (1963). In the instant case, there is no allegation that any trade secret or process or mechanism known only to plaintiff or through plaintiff to his employees. Compare, In re Solar Textiles Co. v. Fortino, 46 Ill.App.2d 436, 442-445, 196 N.E.2d 719 (1964). Consequently, even if the restraint in this contract were partial and not general, in the absence of special circumstances to justify the duration of the restraint, the contract would still be unenforceable.

Nor do we think that a contract containing an illegal restraint can be reformed so as to become enforceable within a reasonable geographic area. In L & R Insurance Agency Inc. v. McPhail, 92 Ill.App.2d 107, 235...