Hill v. Names & Addresses, Inc., 1-88-3235

• Decision Date: 23 April 1991
• Docket Number: No. 1-88-3235,1-88-3235
• Citation: 157 Ill.Dec. 66,571 N.E.2d 1085,212 Ill.App.3d 1065
• Parties: , 157 Ill.Dec. 66 Sherylyn H. HILL and Greenfield Direct Response, Inc., an Illinois corporation, Plaintiffs-Appellants and Counterdefendants-Crossappellees, v. NAMES & ADDRESSES, INC., an Illinois corporation, Defendant-Appellee and Counterplaintiff-Crossappellant.
• Court: United States Appellate Court of Illinois

Page 1085

571 N.E.2d 1085

212 Ill.App.3d 1065, 157 Ill.Dec. 66

Sherylyn H. HILL and Greenfield Direct Response, Inc., an Illinois corporation, Plaintiffs-Appellants and Counterdefendants-Crossappellees, v. NAMES & ADDRESSES, INC., an Illinois corporation Defendant-Appellee and Counterplaintiff-Crossappellant.

No. 1-88-3235.

Appellate Court of Illinois First District, Second Division.

April 23, 1991.

Morton Denlow, Dardick & Denlow, Chicago, for plaintiffs-appellants and counterdefendants-crossappellees.

Daniel S. Mathless, Law Office of Daniel S. Mathless, Chicago, for defendant-appellee and counterplaintiff-crossappellant.

Presiding Justice SCARIANO delivered the opinion of the court:

Plaintiff Sherylyn H. Hill sought a declaratory judgment in circuit court that certain portions of an employment agreement between her and her former employer, defendant Names & Addresses, Inc. (NAI) were unenforceable. She also sought the payment of commissions which she alleged were owed to her by NAI.

NAI counterclaimed that Hill had breached a covenant contained in the agreement that she would not, for two years following termination of her employment, sell any service or product similar to those sold by NAI to anyone who was its customer during her employment.

NAI also claimed that Hill's new employer, counterdefendant Greenfield Direct Response, Inc. (GDR) wrongfully interfered with the contractual relationship that had existed between Hill and NAI. NAI further charged Hill with breaching her duty of loyalty to it, and with violating the Uniform Deceptive Trade Practices Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 311 et seq.) (Trade Practices Act) and the Consumer Fraud and Deceptive Business Practices Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 261 et seq.) (Consumer Fraud Act). Finally, NAI complained that GDR conspired with and assisted Hill in these acts.

NAI sought (1) to enjoin Hill and GDR from servicing clients improperly obtained by them from NAI; (2) damages for lost profits caused by Hill and GDR and for recovery of compensation paid by NAI to Hill during the period in which she was breaching her duty of loyalty; (3) a constructive trust for profits wrongfully earned by GDR and for commissions paid by GDR to and unjustly withheld by Hill; and (4) punitive damages, attorney's fees and costs of suit.

Following cross-motions for partial summary judgment and a bench trial on the remaining issues, both sides were granted partial relief. Both sides appeal from those portions of the court's judgments adverse to them.

NAI and GDR are competing companies which rent mailing lists from such entities as utilities, periodicals, trade associations, etc., and provide the lists to its customers, who use them for direct mail marketing. Hill began work at NAI in June 1982 as an account executive and list broker, without a written contract; and in August 1984 she signed an "Employment Agreement" which contained a four-part "Covenant not to Compete" (restrictive covenant). The agreement also contained a "Severability" clause, stating:

"[If] any portion or portions of this Agreement are deemed * * * unenforceable * * * by a court * * * [then] such provisions may be severed from this Agreement without affecting the validity of the remaining portions * * *."

Additionally, the agreement, as later amended, provided that Hill was to receive a 40% commission on "closed" or "paid" orders, i.e., orders that she had generated and which had been paid for in full by the customer. Commissions were to be computed and paid every six months.

Hill resigned from NAI on September 11, 1985 and began working with GDR the next day. On September 13, 1985, NAI sent a letter to Hill, with a copy to GDR, threatening to sue both if she violated the terms of her restrictive covenant.

Hill then filed a complaint against NAI, which, after amendment and dismissal of several counts not at issue in this appeal, had two counts remaining. Count I sought a declaratory judgment that the restrictive covenant portions of her employment agreement were unenforceable because they constituted an unreasonable restraint on trade, and because they were unconscionable and without consideration for the obligations they imposed upon her. Count III alleged that NAI had failed to pay commissions to Hill for orders she generated before she left NAI, but for which the customers had not paid NAI until after she terminated her employment.

NAI's amended counterclaim consisted of eight counts. Counts I, III and IV alleged that Hill, in conspiracy with GDR, had breached her duty of loyalty to NAI, causing customers to leave NAI and to become customers of GDR. Count II charged that Hill and GDR had engaged in deceptive trade practices as defined in sections 2(2), (8) and (12) of the Trade Practices Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 312(2), (8), (12)). Count V alleged that Hill and GDR, by acting as alleged in Count II, also violated section 2 of the Consumer Fraud Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 262). Finally, counts VI-VIII claimed that Hill had violated one of the provisions of her restrictive covenant through her dealings with certain NAI customers while she was still with the firm. NAI also charged that GDR, by assisting Hill, had wrongfully interfered with her contract with NAI and with NAI's business relationships with those customers.

NAI moved for summary judgment on Count III of Hill's complaint, which had asked for an accounting of and judgment for commissions still owed by NAI to Hill; and on February 1, 1988, the circuit court held that since her right to compensation did not vest until NAI had received payment on the orders as to which she was claiming commissions, and that since Hill had breached her duty of loyalty owed to NAI, she had forfeited her claim to all commissions to which her right had not vested at the time of her misconduct; consequently, the court denied Hill all unpaid commissions in excess of $7,406.32.

Later, NAI moved for summary judgment on Counts VII and VIII of its counterclaim, which alleged that Hill, assisted by GDR, had breached a particular provision of the restrictive covenant in her employment agreement; and Hill moved for summary judgment on Count I of her complaint, in which she had requested a declaratory judgment that portions of the restrictive covenant, including the part upon which NAI had relied in its counterclaim, were unenforceable.

On March 21, 1988, the circuit court denied NAI's motion but granted Hill's, holding that because some parts of the covenant were invalid, and because the severability clause could not be used to truncate the unenforceable parts from the remainder of the covenant, the entire covenant was without legal effect. On April 21, 1988, the court denied NAI's "Motion for Limited Reconsideration and/or Clarification," and sua sponte, dismissed Counts VI-VIII of NAI's counterclaim as being predicated upon the unenforceable covenant.

A bench trial was held on July 18-21, 1988 on Counts I-V of NAI's counterclaim, which were the only remaining issues in the case. The circuit court rendered final judgment on July 27, 1988, finding that Hill, assisted by GDR, breached her duty of loyalty owed to NAI by misappropriating NAI's legitimate business expectancies, causing six customers to switch their business from NAI to GDR, and resulting in gains to Hill and GDR, and losses incurred by NAI.

The court awarded NAI alternative remedies: (1) to accept the imposition of a constructive trust on gains wrongfully realized by GDR and Hill, or (2) to receive damages equal to NAI's lost profits resulting from GDR's and Hill's actions. If NAI chose the constructive trust, it would embrace all profits realized by GDR from the business of the six customers wrongfully diverted from NAI from September 1985 to July 1988--a total of $154,872.41; and it would also include commissions paid by GDR to Hill in connection with the business of those six customers from September 1985 to August 1987--a total of $126,820.52. The court also held that it would not require Hill to disgorge those commissions earned after August 1987 because they were not proximately caused by her wrongdoing, but resulted more likely from Hill's efforts to maintain the business of those six clients; the court further held that disgorgement of all commissions earned would amount to the levying of a penalty. Finally, the court held that because NAI would have paid commissions to Hill if she had not breached her duty of loyalty, by virtue of the judgment that GDR disgorge all profits resulting from its actions NAI was put in the same position as it would have been in the absence of such wrongdoing.

If NAI chose to accept damages instead of the benefits of a constructive trust, Hill and GDR would be liable, jointly and severally, for all profits lost by NAI from September 1985 to July 1988 as the result of Hill's and GDR's actions--a total of $157,976.24. In addition to the choice of remedies awarded to NAI, the court awarded it punitive damages of $10,000 against Hill and $10,000 against GDR.

The court denied NAI's requests for: a two-year injunction grounded upon Hill's breach of her duty of loyalty; relief predicated upon Hill's and GDR's alleged violation of the Trade Practices Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 311 et seq.); and relief based on Hill's and GDR's alleged violation of section 2 of the Consumer Fraud Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 262). On September 30, 1988, the court denied Hill's and GDR's "Motion to Reconsider, Modify and Vacate" the judgment.

Hill and GDR appeal from all rulings adverse to them. NAI cross-appeals from that portion of the judgment that denies it the benefits of a constructive trust for commissions earned by Hill from August 1987 to July 1988, and from the court's denial of its claim under the Consumer Fraud Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 261 et seq.)

Hill...