Fister/Warren v. Basins, Inc.

• Decision Date: 12 July 1991
• Docket Number: 1-90-2882,Nos. 1-90-2260,s. 1-90-2260
• Parties: , 160 Ill.Dec. 858 FISTER/WARREN, successor in interest to Charles L. Fister and Associates, Inc., a corporation; Charles L. Fister and Robert J. Warren, Plaintiffs-Appellants/Counter-Defendants-Appellees, v. BASINS, INC., a Wyoming corporation, and Georgia Marble Company, a Georgia corporation, Defendants-Appellees/Counter-Plaintiffs-Appellants.
• Court: United States Appellate Court of Illinois

Page 37

578 N.E.2d 37

217 Ill.App.3d 958, 160 Ill.Dec. 858

FISTER/WARREN, successor in interest to Charles L. Fister

and Associates, Inc., a corporation; Charles L.

Fister and Robert J. Warren, Plaintiffs-Appellants/Counter-Defendants-Appellees, v. BASINS, INC., a Wyoming corporation, and Georgia Marble

Company, a Georgia corporation,

Defendants-Appellees/Counter-Plaintiffs-Appellants.

Nos. 1-90-2260, 1-90-2882.

Appellate Court of Illinois,

First District, Sixth Division.

July 12, 1991.

Rehearing Denied Aug. 30, 1991.

Carrane, Newman & Freifeld, Chicago; Jerome C. Brezinsky, of counsel, for plaintiffs-appellants/counter-defendants-appellees.

Schiff Hardin & Waite, Chicago; Walter C. Greenough and Yvonne E. Mena, of counsel, for defendants-appellees/counterplaintiffs-appellants.

Presiding Justice RAKOWSKI delivered the opinion of the court:

Plaintiffs-appellants Charles Fister, Robert Warren and Fister/Warren brought the action below, seeking, inter alia, a declaration that the noncompetition agreement between Fister/Warren and defendants-appellees Basins, Inc. (Basins) and Georgia Marble Company (Georgia Marble), was void and unenforceable. Defendants filed a counterclaim alleging that Fister/Warren had violated the covenant not to compete. Defendants sought damages for the alleged violation of the agreement and issuance of an injunction restraining Fister/Warren from further violation of the agreement.

Defendants brought a motion for summary judgment. The trial court granted the motion, holding that the noncompetition agreement was valid and enforceable and finding that Fister/Warren was liable on the counterclaim for violating the agreement. The court also issued an injunction restraining Fister/Warren from further violation of the covenant not to compete. Subsequently, Fister/Warren brought two motions to reconsider the trial court's ruling on defendants' motion for summary judgment. While the trial court denied the reconsideration motion(s) with respect to the validity and enforceability of the agreement, it reversed its ruling on the issue of Fister/Warren's liability for violation of the agreement. An evidentiary hearing ensued, and the trial court then entered judgment in favor of Fister/Warren.

Fister/Warren argues on appeal, as they did below, that the covenant not to compete is void and unenforceable. Georgia Marble and Basins have also appealed the entry of judgment in favor of plaintiffs as to liability. We affirm the trial court's ruling with respect to the validity and enforceability of the noncompetition agreement, but reverse the trial court's entry of judgment in favor of Fister/Warren.

On March 10, 1969, Basins entered into a sales agency agreement with Charles L. Fister and Associates, the predecessor-in-interest to Fister/Warren. Charles Fister and Robert Warren, pursuant to the sales agency agreement, were responsible for marketing Basins' stone products in the entire United States. By January of 1986, however, plaintiffs were only marketing Basins' products in three states: Illinois, Wisconsin and Indiana. Plaintiffs, in January of 1986, owned approximately 35% of the ownership interest in Basins. The Addison family owned approximately 60% of the Basins stock, and several other individuals owned the remaining few shares of the Basins stock.

In January of 1986, Basins was sold to Georgia Marble, which had been in the stone products business since only 1984. At the time Georgia Marble purchased Basins, it operated in the southeast portion of this country, and its purchase of Basins allowed Georgia Marble to expand its market over the entire United States. The sale of Basins to Georgia Marble was effectuated via a Stock Purchase Agreement through which Georgia Marble purchased all of the outstanding stock of Basins. All of the shareholders, including Fister/Warren and Fister and Warren individually, executed the agreement, and at the close of the sale Basins, Georgia Marble and Warren individually executed a noncompetition agreement. (Both defendants and plaintiffs assume and do not dispute that although only Warren signed the noncompetition agreement, Charles Fister and Fister/Warren are bound by its covenants.)

The terms of this agreement were that plaintiffs agreed, for a period of five years and as to the entire United States, not to:

"[d]irectly or indirectly, either as an employee or a member of of a partnership, or as an employee, sponsor, promoter, stockholder, officer or director of a corporation or or other business entity, or otherwise, own, manage, operate, contract, be employed by, participate in, or be connected in any manner with the ownership, management, operation or control of any business, whether foreign or domestic, similar to or competing with the type of business conducted by the Company and the Products produced by the company, within the United States of America."

The noncompetition agreement further prohibited plaintiffs from soliciting existing customers, from influencing existing employees to leave the company or from disclosing customer lists and confidential information.

Georgia Marble's President, Albert Gay, testified that while Georgia Marble valued the assets of Basins at about $8,000,000, it paid an additional $4,000,000 because it wanted to operate Basins as an ongoing entity. Gay further testified that Fister/Warren received over $4,000,000 for its stock. Fister testified that Fister/Warren and their attorneys reviewed the noncompetition agreement and Fister/Warren considered the amount paid for the stock to be fair. Gay testified that the purchase of Basins by Georgia Marble would not have taken place had Fister/Warren not agreed to enter the noncompetition agreement. Plaintiffs were terminated as agents for Georgia Marble in October of 1986.

At the evidentiary hearing which ultimately ensued, both plaintiffs and a representative of Georgia Marble testified that it was the understanding of the parties to the Stock Purchase agreement that Fister/Warren would be precluded from selling stone products in competition with Georgia Marble. Plaintiffs did not think the agreement would be enforceable, however, and on August 1, 1988, Fister/Warren became the exclusive distributor for one of Georgia Marble's and Basins' competitors--Colorado Quarries, Incorporated (Colorado Quarries).

Plaintiffs filed suit against defendants in February of 1987. Counts I and III of the complaint sought a declaration by the court that the noncompetition agreement was invalid and unenforceable. In March of 1989, defendants filed an amended counterclaim, which in Count II alleged that the plaintiffs had violated the noncompetition agreement by entering into the agreement with Colorado Quarries. Plaintiffs did not file any affirmative defenses to the counterclaim, nor did they argue any affirmative defense in responding to defendants' motion for summary judgment.

Fister/Warren sought reconsideration of the trial court's ruling, both with respect to the validity of the noncompetition agreement and as to Fister/Warren's liability for violating the agreement. Fister/Warren's first motion for reconsideration was denied on a technical ground. A second motion for reconsideration was brought, which was denied as to the validity of the noncompetition agreement, but was granted with respect to the violation thereof by plaintiffs. Key to the trial court's granting of the motion on the second issue were two letters introduced by Fister/Warren, for the first time at the reconsideration stage of the litigation. These letters, dated in February and June of 1987, were from defendants' attorney, and in sum stated that the "executives" of Georgia Marble did not understand the "noncompete agreement" to exclude plaintiffs from selling competing products, but only understood the agreement to mean that plaintiffs could not compete in the "quarrying business."

While the terms of the noncompetition agreement are broad, the only competition with respect to sales defendants have sought to restrain plaintiffs from pursuing has been plaintiffs' sale of competing white marble. Plaintiffs' ability to sell other stone products has never been questioned.

The first issue we address is whether the covenant not to compete is void and unenforceable as a matter of law.

Although judgment was entered for Fister/Warren on the issue of their liability for violating the noncompetition agreement, Fister/Warren has nonetheless appealed the issue of whether the trial court erred in granting defendants summary judgment on the issue of whether the noncompetition agreement was valid. Preliminarily, the parties have disputed which law is to be applied in analyzing this issue. The Stock Purchase agreement provides that the law of Wyoming would apply. Defendants insist that the panel is bound to construe solely Wyoming law, while Fister/Warren argues that we should apply the law of Illinois.

As the court in Hartford v. Burns Int'l Security Services (1988), 172 Ill.App.3d 184, 187, 122 Ill.Dec. 204, 526 N.E.2d 463 observed:

"Illinois has recognized the validity of an express choice of law provision contained in a contract. [citations.] However, the law will be given effect subject to certain limitations: whether the choice of law provision contravenes Illinois public policy and whether there is some relationship between the chosen forum and the parties or the transaction. [citation.] * * * Nevertheless, conflict of law rules are resorted to only when a difference in the law would be determinative of the outcome of the litigation. [citation.]"

In this case, Fister/Warren does not raise an issue with regards to the latter limitation--that there is no relationship between the parties or the transaction to Wyoming. Fister/Warren only argues that recognition of the parties' choice of law provision would violate the public policy of Illinois. The public policy of a State must be sought in its constitutio...