Eichmann v. NAT. HOSP. AND HEALTH CARE SERV. INC.

• Decision Date: 18 October 1999
• Docket Number: No. 1-98-3593.,1-98-3593.
• Citation: 719 N.E.2d 1141,241 Ill.Dec. 738,308 Ill. App.3d 337
• Parties: John EICHMANN, Plaintiff-Appellee, v. NATIONAL HOSPITAL AND HEALTH CARE SERVICES, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

719 N.E.2d 1141

308 Ill. App.3d 337

241 Ill.Dec. 738

John EICHMANN, Plaintiff-Appellee, v. NATIONAL HOSPITAL AND HEALTH CARE SERVICES, INC., Defendant-Appellant.

No. 1-98-3593.

Appellate Court of Illinois, First District, First Division.

October 18, 1999.

Scariano, Ellch, Himes, Sraga and Petrarca, Chtd., Chicago (Lawrence Jay Weiner, Rosanne Ciambrone, Brian J. Fahey, of counsel), and Paul Seeley, Rosemont, for Appellant.

Shefsky & Froelich, Ltd., Chicago (Cary E. Donham, Lynn A. Ellenberger, of counsel), for Appellee.

Justice GALLAGHER delivered the opinion of the court:

Plaintiff, John Eichmann, filed a verified complaint against defendant, National Hospital and Health Care Services, Inc. Count I sought a declaration that restrictive covenants contained in an independent contractor agreement between plaintiff and defendant are unenforceable. Count II sought damages for breach of that agreement. The circuit court granted summary judgment in favor of plaintiff as to count I and subsequently denied defendant's motion for reconsideration. Defendant filed a timely notice of appeal. This court has jurisdiction of this appeal pursuant to Supreme Court Rule 304(a) (155 Ill.2d R. 304(a)). For the reasons stated below, we affirm the trial court's judgment.

Our review of the trial court's grant of summary judgment is de novo. In re Estate of Hoover, 155 Ill.2d 402, 185 Ill.Dec. 866, 615 N.E.2d 736 (1993). The reasonableness of a restrictive covenant is a question of law. Corroon & Black of Illinois, Inc. v. Magner, 145 Ill.App.3d 151, 162, 98 Ill.Dec. 663, 494 N.E.2d 785 (1986); Hamer Holding Group, Inc. v. Elmore, 244 Ill.App.3d 1069, 1078, 184 Ill. Dec. 598, 613 N.E.2d 1190 (1993); Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc., 292 Ill.App.3d 131, 137, 226 Ill.Dec. 331, 685 N.E.2d 434, 440 (1997). Although the question of whether a restrictive covenant is enforceable is one of law and depends upon the reasonableness of its terms, the determination of reasonableness necessarily depends on the unique facts and circumstances of each case. Hamer Holding Group, Inc. v. Elmore, 202 Ill.App.3d 994, 1009, 148 Ill.Dec. 310, 560 N.E.2d 907, 917 (1990); McRand, Inc. v. Van Beelen, 138 Ill.App.3d 1045, 93 Ill.Dec. 471, 486 N.E.2d 1306 (1985). The relevant undisputed facts and circumstances of this case follow. Defendant markets and sells group health and life insurance products to small industrial and commercial employers. Plaintiff was employed by defendant from January 9, 1992, through October 31, 1994, as an insurance sales account executive. Plaintiff voluntarily resigned in October 1994. In January 1995, plaintiff began working as an independent contractor for defendant. As an independent contractor, plaintiff performed the same duties he had as an employee. On September 5, 1995, the parties executed a written agreement (the Agreement) which among other things identified the 32 customers, hereinafter referred to as "Exhibit B customers," that plaintiff was to serve as an independent contractor. The Agreement also contained, under separate headings, the two restrictive covenants¹ that are now the subject of this appeal.

The first of the two restrictive covenants at issue states as follows:

"8. Ownership of Business.

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b. Eichmann hereby covenants and agrees not to compete, directly or indirectly, with any existing or future customer of NHC. This covenant shall apply to all lines of insurance coverage from and after the date of execution of this Agreement. Notwithstanding this covenant, the parties shall not be precluded from competing with each other for new customers as to which said customers are not clients of NHC."

The other covenant states in pertinent part:

"17. Covenant Not to Compete. The parties hereto acknowledge that this Agreement is based on the premise that this covenant not to compete is essential and fully upheld as follows:

* * *

d. Eichmann hereby agrees not to directly or indirectly, solicit, accept, service or contact for the purposes of soliciting any insurance product(s), any customer either group or individual insured through NHC. Each party agrees that his/its obligations under this Agreement shall continue for so long as NHC and/or Eichmann continue to service an Exhibit B customer."

Under the same paragraph 17 is another clause which states as follows:

"e. If any portion of the foregoing provisions of this covenant not to compete shall be, for any reason, declared invalid or unenforceable, the remaining portion or portions shall nevertheless be valid and enforceable and carried into effect to the fullest extent permitted, and the invalid or unenforceable portion shall be reformed, if possible, so as to be valid and enforceable."

This clause, applicable to paragraph 17, is not applicable to paragraph 8(b).

On June 5, 1998, the trial court granted partial summary judgment to plaintiff, concluding that the restrictive covenants are unreasonable as a matter of law. On August 21, 1998, the court denied defendant's motion for reconsideration.

Defendant raises several issues on appeal, which we shall address as follows: (1) the trial court erred in granting equitable relief because plaintiff had "unclean hands"; (2) the trial court improperly applied the standard for employee-employer relationships where, at the time of the Agreement, plaintiff was an independent contractor; (3) the trial court erred in determining that the provisions in question are unreasonable and unenforceable; and (4) the trial court erred in refusing to modify the Agreement, which was contrary to the both the terms of the Agreement and case law. Defendant also contends that summary judgment should not have been granted because several issues of fact exist. We shall address each purported genuine issue of material fact under our discussion of each issue to which defendant contends it applies.

Defendant asserts that summary judgment should not have been granted by a court of equity to plaintiff since he breached the Agreement, and therefore, had "unclean hands." The equitable doctrine of unclean hands provides that a party seeking equitable relief cannot take advantage of his own wrong. Northern Trust Co. v. VIII South Michigan Associates, 276 Ill.App.3d 355, 368, 212 Ill.Dec. 750, 657 N.E.2d 1095, 1105 (1995). It is within the sound discretion of the trial court whether to apply the doctrine of unclean hands. Regional Transportation Authority v. Burlington Northern Inc., 100 Ill.App.3d 779, 786, 55 Ill.Dec. 818, 426 N.E.2d 1143, 1148 (1981). It is plaintiff, not defendant, who instituted this action asking the court to determine the parties' obligations under the Agreement. Defendant essentially asks us to hold that a party who believes that a contract is invalid and seeks a declaratory judgment as to its invalidity must nonetheless comply with the contract, regardless of any harm it may cause to the party, while that party awaits the outcome of its declaratory judgment. We refuse to do so.

In refusing to recognize a tort action for breach of contract, this court has stated: "The law does not condone breach of contract, but it does not consider it tortious or wrongful. If a party desires to breach a contract, he may do so purposely as long as he is willing to put the other party in the position he would have been had the contract been fully performed. [Citation.] Fault is irrelevant to breach of contract." Album Graphics, Inc. v. Beatrice Foods Co., 87 Ill.App.3d 338, 350, 42 Ill.Dec. 332, 408 N.E.2d 1041, 1050 (1980). This principle is equally applicable here. Had the court determined that the contract was valid and enforceable, defendant would be entitled to be put in the position he would have been in had the breach not occurred. Plaintiff has brought this action in accordance with his apparent good-faith belief that the covenants are unenforceable as a matter of law. Defendant has failed to show that plaintiff acted with malice or in bad faith, and plaintiff is not barred by the doctrine of unclean hands from bringing this action.

Defendant next argues that the trial court erred in applying the standards applicable to restrictive covenants in employment contracts, rather than that applied to cases involving sales of businesses, partnerships and other business agreements. Defendant notes that, at the time of the Agreement, plaintiff was an independent contractor and attempts to characterize the parties' relationship as a joint venture. Defendant argues that plaintiff, as an independent contractor, had more bargaining strength than an employee and the restrictive covenants therefore need not be subject to the strict scrutiny given to typical postemployment restraints. Defendant argues that the trial court, in not considering plaintiff's relative bargaining strength, improperly applied the standard for employee-employer relationships. Defendant therefore contends that a genuine issue of material fact precluded summary judgment because plaintiff's relative bargaining strength was a contested fact. We disagree.

While it is true that restrictive covenants in employment contracts are looked at with more scrutiny than such covenants that are ancillary to the sale of a business, in both instances, the restraints must be reasonable. As this court has noted, although Illinois law views restrictive covenants ancillary to a sale of a business more favorably than those ancillary to employment, restrictive covenants in general impair the availability of services and interfere with competition; therefore, our courts apply scrutiny, with equal fervor, to both types of restraints. Hamer Holding Group, Inc. v. Elmore, 244 Ill.App.3d 1069, 1079, 184 Ill.Dec. 598, 613 N.E.2d 1190, 1197-98 (1993). Defendant has not cited any case that stands for the proposition that there are defined, separate standards for each type of restrictive covenant.

Although one of the reasons courts distinguish the two types of...