Hamer Holding Group, Inc. v. Elmore

• Decision Date: 14 August 1990
• Docket Number: No. 1-89-0288,1-89-0288
• Citation: 148 Ill.Dec. 310,560 N.E.2d 907,202 Ill.App.3d 994
• Parties: , 148 Ill.Dec. 310 HAMER HOLDING GROUP, INC., First United Property Management, Inc., and Studio 2, Inc., Plaintiffs, v. Stephen C. ELMORE, Defendant-Appellee (First United Property Management, Inc., Plaintiff-Appellant).
• Court: United States Appellate Court of Illinois

Page 907

560 N.E.2d 907

202 Ill.App.3d 994, 148 Ill.Dec. 310

HAMER HOLDING GROUP, INC., First United Property Management, Inc., and Studio 2, Inc., Plaintiffs, v. Stephen C. ELMORE, Defendant-Appellee (First United Property

Management, Inc., Plaintiff-Appellant).

No. 1-89-0288.

Appellate Court of Illinois,

First District, Second Division.

Aug. 14, 1990.

Rehearing Denied Oct. 9, 1990.

Marshall N. Dickler, Ltd., Chicago (S. Keith Collins, Marshall N. Dickler, of counsel), for plaintiff-appellant.

Nisen & Elliott, Chicago (Michael J. Daley, of counsel), for defendant-appellee.

Justice SCARIANO delivered the opinion of the court:

Plaintiff First United Property Management, Inc., brings an interlocutory appeal pursuant to Supreme Court Rule 307(a)(1) (107 Ill.2d R. 307(a)(1)) from an order denying its motion for a preliminary injunction seeking to enforce a restrictive covenant against defendant Stephen C. Elmore and to obtain relief under the Illinois Trade Secrets Act (Ill.Rev.Stat.1989, ch. 140, par. 351 et seq.). Specifically, plaintiff seeks to enjoin defendant from competing in the business of managing certain types of real estate for a period of three years within a 75 mile radius of downtown Chicago.

Plaintiff presents two issues for our review: (1) whether the circuit court erred in its determination that defendant's covenant not to compete was ancillary to his employment contract rather than to the sale of his business, a decision which led the court to apply a stricter test of enforcement and consequently to deny a preliminary injunction; and (2) whether the circuit court erred in deciding that plaintiff's customer list was not a trade secret under the Illinois Trade Secrets Act (Ill.Rev.Stat.1989, ch. 140, par. 351 et seq.). Defendant raises yet a third issue, urging us to forego construing his restrictive covenant altogether and to hold that the assignment by which plaintiff succeeded to the employment agreement containing the covenant was invalid and thereby failed to confer upon plaintiff standing to sue for injunctive relief.

I. BACKGROUND

Defendant Stephen C. Elmore (Elmore) was the sole owner and chief executive officer of AMCO Realty and Management Company (AMCO), engaged in the business of managing condominium and homeowners' associations, from its incorporation in Illinois in 1979. Among AMCO's clients dating back to 1979 and 1980 were Cress Creek Condominium Association (Cress Creek), North Valley-Lo Condominiums (Valley-Lo), and Piers Condominiums (Piers).

On March 15, 1984, as president of AMCO, Elmore signed a contract with First Eagle Holding Company, Inc., (Holding Group) ¹ for the sale of AMCO. Under the contract, entitled "Acquisition Agreement," AMCO conveyed to the Holding Group all of its assets, including customer lists and business records, goodwill and going concern, employment and other service contracts, and the corporate name "AMCO Realty and Management Company." Paragraph 24 of the acquisition agreement contained a clause permitting its assignment. Paragraph 2(a) provided that the aggregate purchase price of the acquired assets would be $886,000, and the value assigned to each individual category of assets was as follows: computer equipment $40,000; leasehold improvements $5,000; equipment $15,000; receivables $25,000; contracts $795,000; goodwill and going concern $5,000; tradenames $1,000.

Paragraph 3(a)(iv) stated that as a condition precedent to the obligations of the parties, Elmore was to execute and deliver an employment agreement, attached to the acquisition agreement as an exhibit, on or before the date of closing, March 30, 1984. Paragraph 8 required the seller to produce the executed employment agreement at the closing as a necessary document. Paragraph 15 contained a set-off provision whereby in the event Elmore terminated his employment with the buyer before the employment agreement expired, the buyer reserved the right to reduce the aggregate purchase price by $3,000 for every month of employment remaining under the terms of the employment agreement. Finally, paragraph 16 incorporated by reference all exhibits and attachments and provided that all agreements executed by the parties in connection with the acquisition agreement would constitute the entire agreement.

On March 26, 1984, four days prior to the closing of the acquisition agreement between AMCO and the Holding Group, the Holding Group assigned the acquisition agreement to its wholly-owned subsidiary, First United ICI, Inc., (First United I). ² Thus, the parties to the closing on March 30, 1984, were AMCO (seller) and First United I (buyer). The parties to the employment agreement, which was executed that same day, were Elmore (employee) and First United I (employer). The employment agreement, as it existed on March 15, 1984, in the form of an unexecuted document attached as an exhibit to the acquisition agreement, already set forth First United I as the employer.

The employment agreement contained, among others, the following terms. In paragraph 1, Elmore agreed to be "responsible for management services rendered to condominiums and cooperative associations and rental apartment units." Paragraph 2 stated that the agreement covered Elmore's employment for a term of one year, from March 30, 1984, to March 30, 1985. Under paragraph 3, Elmore was to receive a salary of $2,000 per month. Paragraph 9B permitted the transfer of all rights and duties under the agreement to "the heirs, executors, assigns, transferees, and successors in interest of the parties, notwithstanding the reorganization, merger, consolidation or change in personnel of Employer."

Contained in the employment agreement was a covenant not to compete, which stated:

"7. Covenant Not to Compete

Employee agrees that during the term of this Agreement he will not directly or indirectly consult with, or render services for or in any manner engage in a business competing with the business of Employer anywhere within a seventy-five (75) mile radius of Monroe and Dearborn Streets, Chicago, Illinois ("Restricted Area"). Employee further agrees that for a period of three (3) years following the termination of his employment with Employer he will not directly or indirectly consult with or render services for clients of Employer whether or not such clients became clients of Employer through efforts made by or on behalf of Employee or in any manner engage in a business competing with the business of Employer anywhere in the Restricted Area.

Employee agrees that during the term of this Agreement and for a period of three (3) years following the termination of his employment with Employer, he shall not consult with, render services for or in any manner engage in a business competing with the business of Employer within the Restricted Area with regard to any person, persons or companies that had been contacted by Employee for the purpose of securing such parties as clients of Employer. In the case of termination, such covenant for such three year period following termination shall be with regard to all such parties contacted by Employee or on behalf of Employer by Employee during the previous 12 month period preceding termination.

If, at the time of enforcement of this paragraph 8 [sic], a court shall hold that the duration, scope or area of restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area. This covenant on the part of Employee shall be construed as a covenant independent of any other provisions of this Agreement, and the existence of any claim or cause of action of Employee against Employer whether predicted [sic] on this Agreement or otherwise shall not constitute a defense to the enforcement by Employer of this covenant.

In the event of the breach by Employee of this paragraph 8 [sic], Employer, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief in order to enforce or prevent any violation of the provisions hereof."

With regard to confidentiality, the employment agreement stated:

"8. Confidentiality

Employee recognizes that certain knowledge and information which might be obtained by him in the course of his employment hereunder with respect to the conduct and details of Employer's business are of a confidential nature. Employee agrees that he will not disclose any information which he has learned of by virtue of his employment by Employer either directly or indirectly, or use of any such information in any way either during the term of this Agreement or at any time thereafter. All files, records, documents, data, equipment, experiments, lists and similar items relating to the business of Employer, whether prepared by Employee or otherwise coming into his possession, shall remain the exclusive property of Employer and shall not be used by Employee or removed from the premises where the work of Employer is being carried on, except at the direction of Employer, or in the course of the performance of Employee's regular duties for Employer. However, such material may be used and removed by Employee with prior written consent of Employer. In the event that this paragraph 9 [sic] is breached, Employer may, in addition and supplementary to other rights and remedies existing in his favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof."

After acquiring AMCO, First United I assumed the management of Cress Creek, Valley-Lo and Piers. In addition to continuing AMCO's business, First United I also engaged in the management of town homes and some commercial...