Creative Entertainment, Inc. v. Lorenz

• Decision Date: 31 May 1994
• Docket Number: No. 1-93-1042,1-93-1042
• Citation: 638 N.E.2d 217,202 Ill.Dec. 571,265 Ill.App.3d 343
• Parties: , 202 Ill.Dec. 571 CREATIVE ENTERTAINMENT, INC., Plaintiff-Appellant, v. Tony LORENZ and Proactive, Inc., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 217

638 N.E.2d 217

265 Ill.App.3d 343, 202 Ill.Dec. 571

CREATIVE ENTERTAINMENT, INC., Plaintiff-Appellant, v. Tony LORENZ and Proactive, Inc., Defendants-Appellees.

No. 1-93-1042.

Appellate Court of Illinois First District, First Division.

May 31, 1994.

Rehearing Denied Aug. 2, 1994.

As Modified Aug. 8, 1994.

Office of Neal Gerber & Eisenberg, Chicago (Michael D. Sher and David A. Eide, of counsel), for appellant.

Office of Laser, Schostok, Kolman & Frank, Chicago (Bruce M. Friedman, of counsel), for appellees.

MODIFIED ON DENIAL OF REHEARING

Justice MANNING delivered the opinion of the court:

This is an appeal by plaintiff, Creative Entertainment Corporation from a judgment of the trial court dismissing count I of plaintiff's complaint. On appeal, plaintiff argues that the trial court erred in dismissing count I of its complaint.

Plaintiff, Creative Entertainment, is an Illinois corporation engaged in the business of providing special event and entertainment production services to corporations, businesses and associations. According to the pleadings, the services provided by plaintiff to its clients include planning and arranging of meetings, conventions, trade shows, product introductions, real estate openings, employee functions, seasonal events and corporate anniversary celebrations. Additionally, the services provided by plaintiff included production and on-site supervision of all such events.

About October 1988, plaintiff through its president, entered into an oral agreement with defendant Tony Lorenz, whereby Lorenz was employed as an account executive with plaintiff. In that capacity he was responsible for soliciting and generating new business, preparing proposals for new and existing customers, and implementing proposals and contracts. As part of his employment, Lorenz received health benefits, a salary and commissions from plaintiff.

About eight months after he began working with plaintiff, Lorenz was required to sign a restrictive covenant, the pertinent terms related to this appeal being:

"This letter will confirm our understanding and agreement that as part of the terms of your employment by CEG Creative Entertainment, Inc. ("CEG") and in consideration for your continued employment at CEG and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged: * * *

(a) You agree that CEG has a legitimate and valuable proprietary interest in the protection of the Confidential Information defined in paragraph 3, and that CEG has invested substantial amounts, in rent, equipment, staff support, and other over-head expenses to obtain and serve CEG's customers.

(b) You agree that, during your employment, you will contact or solicit customers or potential customers only for CEG and for a two-year period following termination of your employment for any reason, you will not contact or solicit any person or entity that was a customer of CEG during the two-year period prior to the date of termination of your employment at CEG or develop, sell, or administer any entertainment programming for these customers."

About October 17, 1992, Lorenz voluntarily resigned from employment with plaintiff, having been employed for over three years. Later that month, Lorenz started his own company, ProActive corporation. The nature of ProActive's business included providing special event and entertainment production services to corporations and businesses. Lorenz contacted several of plaintiff's former clients, successfully acquiring a contract with at least one client to provide services in connection with an entertainment event.

Following these actions by Lorenz through ProActive corporation, plaintiff filed a two count complaint naming as defendants Lorenz and ProActive corporation. Count one of the amended complaint sought injunctive relief, alleging that defendants violated the agreement's prohibition against contacting or soliciting, for a period of two years following the termination of his employment, any customer of plaintiff. Plaintiff alleged that as a result of defendants' continued breach of the employment agreement it would be irreparably harmed, and that there was no adequate remedy at law.

On February 17, 1993, defendants filed a motion to dismiss plaintiff's complaint. In the motion defendants asserted that:

1. Plaintiff did not allege the existence of an employment contract, or that the restrictive covenant was ancillary to any employment agreement;

2. That the restrictive covenant contained no terms of employment nor did it confer contractual obligations upon plaintiff or rights running to Lorenz;

3. That the restrictive covenant was issued without consideration and signed after Lorenz began employment;

4. That a covenant not to compete in an employment situation must arise as part of or ancillary to an employment contract or agreement;

5. That the complaint failed to allege any contract establishing contractual rights enforceable by Lorenz or contractual obligations binding upon plaintiff;

6. That there was no consideration supporting the restrictive covenant because Lorenz had already commenced his employment and no new or additional benefits were granted to him.

Plaintiff filed a response and memorandum in opposition to defendants' motion to dismiss. A hearing was held on that motion on March 9, 1993. At the completion of the hearing on March 15, 1993, the court entered an order dismissing plaintiff's complaint with prejudice.

Plaintiff argues that the trial court erred in dismissing count I of its amended complaint. Specifically, plaintiff maintains that count I of the complaint alleged facts which demonstrated the elements necessary to have an enforceable restrictive covenant. Plaintiff contends that Lorenz's continued employment with plaintiff provided the consideration necessary to support a restrictive covenant. Plaintiff also asserts that the covenant was reasonable where it placed a two-year restriction on Lorenz's activities of soliciting and doing business with plaintiff's clients. Plaintiff further contends that the covenant was ancillary to Lorenz's existing and continuing employment as evidenced by the first paragraph in the agreement which stated that the Agreement is "part of the terms of employment."

Defendants contend that the trial court properly dismissed count I of plaintiff's amended complaint. Specifically, defendants maintain that plaintiff failed to fulfill the first requirement necessary for enforcement of the covenant--that the covenant be ancillary to a valid employment contract. Defendants assert that this court need not consider the issues of whether the covenant was supported by consideration or whether it was reasonable, where the covenant was not ancillary to a valid employment agreement with plaintiff.

It is well established that private covenants restraining trade are disfavored in the law and will be carefully scrutinized to ensure that they are reasonable and not contrary to public policy. (Peterson-Jorwic Group, Inc. v. Pecora (1991), 224 Ill.App.3d 460, 462, 166 Ill.Dec. 718, 586 N.E.2d 676.) A post-employment restrictive covenant will be enforced if the terms are reasonable. (Mid-Town Petroleum, Inc. v. Gowen (1993), 243 Ill.App.3d 63, 65, 183 Ill.Dec. 573, 611 N.E.2d 1221.) However, before the court addresses whether a covenant is reasonable, two determinations must be made. The court must first find that the covenant is ancillary to a valid employment contract--it must be subordinate to the contract's main purpose. (Millard Maintenance Service Company v. Bernero (1990), 207 Ill.App.3d 736, 152 Ill.Dec. 692, 566 N.E.2d 379.) Second, there must be adequate consideration to support the covenant not to compete. (Mid-Town Petroleum Inc. v. Gowen (1993), 243 Ill.App.3d 63, 183 Ill.Dec. 573, 611 N.E.2d 1221.) Based upon the court's determination that these two criteria have been met, the court makes a determination, as a matter of law, of whether a restrictive covenant is enforceable. Corroon and Black of Illinois, Inc., v. Magner (1986), 145 Ill.App.3d 151, 162, 98 Ill.Dec. 663, 494 N.E.2d 785.

In Lyle R. Jager Agency, Inc., v. Steward (1993), 253 Ill.App.3d 631, 635, 192 Ill.Dec. 437, 625 N.E.2d 397, the appellate court upheld the enforcement of a restrictive covenant which was part of a valid employment contract and supported by consideration. In that case, defendant signed a written employment agreement with plaintiff insurance agency which in pertinent part provided:

"(1) Employment

The Employer employs the Employee and the Employee accepts employment upon certain terms and conditions agreed upon orally between the parties and upon the terms and conditions in this Agreement.

Term

(2) The term of this Agreement shall begin on the day and year first written above and shall terminate two years after the employment of the Employee."

The agreement also contained a restrictive covenant that:

"Employee agrees that he will not at anytime, while he is in the employ of the Employer or within two years after leaving said employment, for himself or any other person, or persons or company, call upon, solicit, negotiate, arrange, provide or sell insurance to any person or persons who shall have been clients or customers of the Employer."

Defendant left plaintiff's employment, took confidential files with him, and began soliciting plaintiff's clients in violation of the agreement.

The appellate court found that the trial court had properly determined that an enforceable employment contract existed. The court reasoned that defendant signed the agreement in January 1991 and remained employed with plaintiff until March 1993. The court found that defendant's continued employment was sufficient consideration to support the employment contract. The facts relied upon by the court were the written agreement between the parties which spelled out the terms of the employment relationship, including the...