Curtis 1000, Inc. v. Suess

• Decision Date: 16 June 1994
• Docket Number: No. 94-1059,94-1059
• Citation: 24 F.3d 941
• Parties: 9 Indiv.Empl.Rts.Cas. (BNA) 942 CURTIS 1000, INCORPORATED, Plaintiff-Appellant, v. Roy H. SUESS and American Business Forms, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 941

24 F.3d 941

9 Indiv.Empl.Rts.Cas. (BNA) 942

CURTIS 1000, INCORPORATED, Plaintiff-Appellant, v. Roy H. SUESS and American Business Forms, Incorporated Defendants-Appellees.

No. 94-1059.

United States Court of Appeals, Seventh Circuit.

Argued March 30, 1994.

Decided May 16, 1994.

Rehearing and Suggestion for Rehearing En Banc Denied June 16, 1994.

Michael R. Levinson (argued), Alan S. Dalinka, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for plaintiff-appellant.

Stuart R. Lefstein (argued), Brian S. Nelson, Katz, McAndrews, Balch, Lefstein & Fieweger, Rock Island, IL, for Roy H. Suess.

J. David Jackson (argued), Melinda K. Greer, Laura Keohane, Dorsey & Whitney, Minneapolis, MN, for American Business Forms, Inc.

Before POSNER, Chief Judge, MANION, Circuit Judge, and REYNOLDS, District Judge. ^*

POSNER, Chief Judge.

Curtis 1000, a seller of customized stationery, business forms, and printing services to business firms, brought this diversity suit against a former employee, Roy Suess, and a competitor, American Business Forms. The suit charges Suess with breach of contract in having violated a covenant not to compete that he had signed when employed by Curtis, and charges ABF with having tortiously interfered with Curtis's contract with Suess by inducing him to violate the covenant. Curtis moved for a preliminary injunction against both defendants, which the district court denied, 843 F.Supp. 441 (C.D.Ill.1993), precipitating this appeal under 28 U.S.C. sec. 1292(a)(1).

Suess, who is now in his fifties, had been employed by Curtis as a salesman for 24 years when he quit, effective September 15, 1993, believing he would soon be fired because his supervisors had expressed dissatisfaction with his performance; the company had already advertised for a salesman to cover his two territories (Rock Island County in Illinois and Scott County across the Mississippi in Iowa), presumably as his replacement. ABF, a newish company in the same line as Curtis--it is 12 years old, while Curtis is 111 years old--has been busy hiring salesmen away from Curtis. It hired Suess, five days after he left Curtis, as its first salesman in the two-county area, promising to advance him his expenses of defending against any suit by Curtis to enforce the covenant not to compete. Suess proceeded to solicit current and recent customers of Curtis in the area in violation of the covenant.

Suess never had either a term contract or a tenure contract with Curtis. He was always an employee at will, except that he was entitled to a week's notice of termination. These and other terms of employment were set forth in a written contract that Suess had signed when he was hired back in 1969. Employment at will is of course a contractual relationship and there is often a written contract differing from a term or tenure contract only in being terminable by either party at any time. Suess was told when he was hired that he would have to sign a covenant not to compete, but the covenant was not included in the initial written agreement. It first appeared in a separate document, which he was asked to sign and did sign, two weeks after he was hired, when he completed a training program at Curtis's headquarters and was about to begin his work as a salesman. The covenant forbade him, within two years after leaving Curtis's employ, to call on any person or firm within the two-county area for the purpose of selling a competing product. Curtis gave Suess no money or other separate consideration for signing the covenant not to compete, except insofar as Curtis's retaining him in its employ might be thought a form of consideration. On three subsequent occasions Suess signed a superseding covenant not to compete, and on none of these occasions, either, did he receive any consideration for signing the document other than retention as an employee.

The covenants not to compete that Suess signed at different stages of his employment with Curtis were very similar in all but two respects. First, the original covenant had specified that Illinois law would apply in the event of a dispute, the 1977 and 1981 versions that Georgia law would apply, and the 1985 version--the version that Curtis seeks by means of this lawsuit to enforce--that Delaware law would apply. Delaware is the state in which Curtis is incorporated, although the firm appears not to have any other significant contacts with that state. Its headquarters are in Georgia and many of its covenants not to compete continue to make Georgia law applicable in the event of a dispute. Second, the final covenant permitted Suess to solicit customers in his territory even within the two-year period after he left Curtis's employ, except customers whom he had solicited on Curtis's behalf within two years before he left and to whom Curtis had made at least one sale during that period.

Applying as he was required to do the conflict of law rules of Illinois, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Sarnoff v. American Home Products Corp., 798 F.2d 1075, 1080 (7th Cir.1986), the district judge first held that an Illinois court (and therefore the federal district court in this diversity suit) would not enforce the provision in the final covenant not to compete that makes Delaware law applicable to disputes concerning the covenant; instead it would apply Illinois law. He had two reasons drawn (of course) from Illinois conflicts law for this ruling: the covenant had an insufficient connection to Delaware, and an Illinois court would consider the Delaware law of covenants not to compete repugnant to the public policy of Illinois. Fister/Warren v. Basins, Inc., 217 Ill.App.3d 958, 160 Ill.Dec. 858, 861-62, 578 N.E.2d 37, 40-41 (1991); Hartford v. Burns Int'l Security Services, Inc., 172 Ill.App.3d 184, 122 Ill.Dec. 204, 205, 526 N.E.2d 463, 464 (1988). The common law of Illinois requires that a covenant not to compete, to be enforceable, secure a "protectable interest" of the employer, Shapiro v. Regent Printing Co., 192 Ill.App.3d 1005, 140 Ill.Dec. 142, 145, 549 N.E.2d 793, 796 (1989), such as a trade secret. Label Printers v. Pflug, 206 Ill.App.3d 483, 151 Ill.Dec. 720, 564 N.E.2d 1382, 1387 (1991); Springfield Rare Coin Galleries, Inc. v. Mileham, 250 Ill.App.3d 922, 189 Ill.Dec. 511, 517, 620 N.E.2d 479, 485 (1993). Delaware law contains no such requirement. See Knowles-Zeswitz Music, Inc. v. Cara, 260 A.2d 171 (Del.Ch.1969); Faw, Casson & Co. v. Cranston, 375 A.2d 463 (Del.Ch.1977). Not that there is no judicial supervision of such covenants in Delaware. They will be enforced only if they protect a "legitimate economic interest" of the employer. E.g., McCann Surveyors, Inc. v. Evans, 611 A.2d 1, 3 (Del.Ch.1987); Pollard v. Autotote, Ltd., 852 F.2d 67, 72 (3d Cir.1988) (applying Delaware law). But this is a less demanding requirement than that of a "protectable interest," as it extends to the employer's general business "goodwill." Research & Trading Group v. Pfuhl, 1992 WL 345465, * 12 (Del.Ch.1992); Knowles-Zeswitz Music, Inc. v. Cara, supra, 260 A.2d at 175. The Illinois concept does not, as we shall see.

This difference between Illinois and Delaware law was not a problem for the district judge because he concluded that Curtis had demonstrated a protectable interest and had thus satisfied the more demanding standard. But he also concluded that the covenant not to compete was invalid under Illinois law because not supported by consideration. He recognized that several decisions by Illinois's intermediate appellate court have found covenants not to compete to be adequately supported by consideration in circumstances indistinguishable from those in this case, Millard Maintenance Service Co. v. Bernero, 207 Ill.App.3d 736, 152 Ill.Dec. 692, 697-98, 566 N.E.2d 379, 384-85 (1990); Corroon & Black, Inc. v. Magner, 145 Ill.App.3d 151, 98 Ill.Dec. 663, 494 N.E.2d 785, 791 (1986); McRand, Inc. v. Van Beelen, 138 Ill.App.3d 1045, 93 Ill.Dec. 471, 478-79, 486 N.E.2d 1306, 1313-14 (1985); Smithereen Co. v. Renfroe, 325 Ill.App. 229, 59 N.E.2d 545, 551 (1945), and he did not attempt to distinguish those cases. But he was sure that the state's highest court, should it ever take such a case, would throw out the line of intermediate-court decisions as contrary to the fundamental principles of contract law, which with immaterial exceptions refuses to enforce contracts for which there is no consideration.

Because the judge believed that Curtis had no legal leg to stand on, he refused to issue a preliminary injunction against Suess even though he also believed that the firm had demonstrated irreparable harm from Suess's refusal to abide by the covenant not to compete--more such harm, moreover, than would ensue to Suess if the injunction was denied. Suess could solicit anyone in the two-county area who was not a current or recent customer of Curtis, plus anyone, period, in any other part of the state (or, for that matter, the nation), and could be made whole by an award of damages for any harm done him by the injunction, up to the limit of the injunction bond. Although the covenant will expire in September 1995, Curtis is concerned that in the meantime ABF through Suess will obtain a foothold with Curtis's customers, exploiting the knowledge about them that Suess obtained as its salesman.

The judge also denied the preliminary injunction that Curtis had sought against ABF, because if Suess had not broken his contract with Curtis there was no breach for ABF to have induced. It is true that the tort of intentional interference with advantageous business relations no longer requires that the relation interfered with be one embodied in a formal contract; so an employer need not show any more that the employee lured away by a competitor broke his contract with the plaintiff in leaving. Vajda v. Arthur Andersen & Co., 253 Ill.App.3d 345, 191 Ill.Dec. 965, 973, 624...