Label Printers v. Pflug

• Decision Date: 15 January 1991
• Docket Number: No. 2-90-0700,2-90-0700
• Parties: , 151 Ill.Dec. 720, 6 IER Cases 214 The LABEL PRINTERS, Plaintiff-Appellee, v. John C. PFLUG, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1382

564 N.E.2d 1382

206 Ill.App.3d 483, 151 Ill.Dec. 720,

6 IER Cases 214

The LABEL PRINTERS, Plaintiff-Appellee, v. John C. PFLUG, Defendant-Appellant.

No. 2-90-0700.

Appellate Court of Illinois,

Second District.

Jan. 15, 1991.

Rehearing Denied Jan. 24, 1991.

James E. Mahoney (argued), Griffith & Jacobson, Chicago, Steven N. Peskind, Peskind & Peskind, Ltd., Aurora, for John C. Pflug.

David J. Chroust, Drendel, Schanlaber, Horwitz & Tatnall, Aurora, for Label Printers.

Presiding Justice UNVERZAGT delivered the opinion of the court:

Plaintiff, The Label Printers, sought a preliminary injunction in the circuit court of Kane County against defendant, John Pflug, seeking to prohibit him from violating the terms of a noncompetition and nondisclosure agreement which defendant signed when he began working as a salesman for plaintiff. Following a hearing, the trial court granted the preliminary injunction, enjoining defendant from future solicitation of businesses to which he had made sales while employed by defendant, which had been assigned by plaintiff during his tenure with the company or which were prior clients of plaintiff.

On appeal, defendant argues that the noncompetition and nondisclosure agreement is unenforceable. We agree and reverse the judgment entered below.

The evidence as adduced at the preliminary injunction hearing was as follows. On February 24, 1987, plaintiff, a manufacturer and seller of customized pressure sensitive labels, hired defendant as a salesman. On his first day of work, defendant was taken through the plaintiff's manufacturing plant and shown the different manufacturing machines. Also, plaintiff was shown how to prepare the paper work involved in orders. On the second day, defendant accompanied an experienced sales representative on her calls. On the third day, defendant began making calls of his own.

The testimony showed that defendant was able to walk through the manufacturing plant at any time. Defendant knew the basics regarding how certain labels were manufactured and the materials used in making them. On one occasion defendant came into the plant on a Saturday to learn a particular printing process, flexography.

In the beginning of his employ with plaintiff, defendant was assigned a particular area of concentration bounded on the east by Lake Michigan, on the west by route 294, on the south by the Kennedy Expressway, and on the north by the Illinois/Wisconsin border. Both defendant and William Kane, partner, vice-president, and general manager of plaintiff, stated that, even though defendant was assigned a particular area, his territory was unlimited. Defendant said that he was able to go anywhere in the State as long as no other sales representative had "a card" on a prospective business, i.e., had previously called on the customer. According to defendant, there was no way to know if another salesman had called on a business until he received his end-of-the-month report reflecting the calls he had made. That report would show which customers had been previously called on by someone else.

When defendant first started working for plaintiff, plaintiff gave him certain existing accounts. Later, when defendant's sales were faltering, plaintiff gave him some more accounts, specifically outside of defendant's original assigned area of concentration as well as out of State.

Defendant was to call on existing customers assigned to him and to make "cold calls" to pick up new business. When making calls, defendant tried to get a sample of the label which a prospective customer wanted to order. Defendant would then measure it, describe it, and turn in a quote for the prospective order to plaintiff. In a day or two, plaintiff would return defendant's quote to him with a price to be quoted to the customer. Defendant would then contact the prospective customer with the price. Sometimes a prospective customer would tell defendant the price offered by a competitor and who the competitor was.

During his employ with plaintiff, defendant's total sales equalled $26,000 for 1987, $69,000 for 1988, and $117,000 for 1989. The total annual sales of the plaintiff was between $6 million and $7 million. Due to his low sales, defendant learned that plaintiff was going to let him go. Defendant resigned March 23, 1990, and went to work three days later for National Data Label (NDL), a company which also manufactures pressure sensitive labels and which solicits and sells labels in the area in which defendant sold labels on behalf of plaintiff. With NDL, defendant's sales territory rotates. Of the five territories in the rotation scheme, only one of the territories actually encompassed any of the territory which was defendant's original assigned area of concentration when he worked for plaintiff.

Following his departure from plaintiff, defendant contacted 40 to 50 potential customers in his former area of concentration. Of the 57 accounts defendant maintained he had when he left plaintiff, defendant admitted having contacted 85% of them on behalf of NDL. Of these accounts, some were already customers of NDL prior to defendant's accepting employment with NDL. Of those who became customers of NDL since defendant's employment, the majority were customers defendant had secured on his own while working for plaintiff. Additionally, defendant related that the items purchased by these businesses from NDL were items that the customers had not previously purchased from plaintiff when he was working for plaintiff.

Defendant stated that during his two months with NDL, he had made approximately 700 personal calls on businesses. Of these, about 45 businesses were customers that he had done business with while employed by plaintiff. Defendant maintained that only 19 of the 57 accounts he had at the time he left plaintiff were "house accounts" given to him by plaintiff and that the rest of the accounts were obtained by him through "cold" calls. Plaintiff maintained that at the time of his resignation defendant had 76 accounts of which 35 were house accounts. Of these 76 accounts, plaintiff was the exclusive supplier for only two or three of them. The other customers purchased labels from other suppliers besides plaintiff.

At the time defendant began working for plaintiff, he had signed a noncompetition and nondisclosure agreement. That agreement prohibited defendant from soliciting or selling pressure sensitive labels to any former customers of plaintiff for a period of 18 months after defendant left plaintiff's employment. Specifically, the agreement provided:

"During his employment with the Partnership and any successor entity thereto, and for a period of eighteen (18) months after the termination of such employment, he will not for himself or for any other person, firm, corporation, partnership, association or other entity, sell or offer for sale, canvass, solicit or deliver, any products which are then sold by the Partnership to any person, firm, corporation, partnership, association or other entity, who is, or has been within the period ending on the date of such termination, a customer of the Partnership."

Additionally, the agreement prohibited defendant from engaging in any business competition with plaintiff within the geographic area in which he had represented plaintiff. Paragraph 2 of the agreement provided:

"During his employment with the Partnership, and any successor entity thereto, and for a period of eighteen (18) months after the termination of such employment, he shall not directly or indirectly, within any geographical area in which he has at any time represented the Partnership (hereinafter referred to as the 'Restricted Territory'), enter into or engage in a business which is in competition with the business of the Partnership, either as an individual for his own account, or as a partner or joint venturer, or as an employee, agent or salesperson for any person, or as an officer, director or a shareholder of any corporation, or otherwise. Solicitation or acceptance of orders outside the [r]estricted area for shipment to, or delivery in, any of the Restricted Territory shall constitute 'engaging in business' in the Restricted Territory in violation of this Agreement."

On April 12, 1990, plaintiff brought a complaint against defendant for a temporary restraining order, preliminary injunction, and permanent injunction. In its complaint plaintiff asserted that defendant had violated the preceding provisions of the noncompetition and nondisclosure agreement. Plaintiff alleged that since defendant's resignation from the company, he had solicited the purchase of NDL's pressure sensitive labels from businesses which were defendant's customers at the time of his resignation.

Additionally, plaintiff alleged that defendant had also violated paragraph 3 of the agreement by using confidential information obtained during his employment with plaintiff. Paragraph 3 provided:

"Both during and after his employment with the Partnership, he will not use his knowledge of the business or customers of the Partnership for the benefit of himself or any other person, firm, corporation, partnership, association or other entity, or divulge or disclose to any person or entity information or data concerning the business affairs of the Partnership, including the names of customers, names of employees, number or character of contracts, prices, terms or particulars of the trade or business of the Partnership; and he agrees that he will, in all things and in good faith, protect the good will of the business of the Partnership, and keep confidential his knowledge of such business affairs acquired while in the employ of the Partnership."

At the hearing on plaintiff's complaint, William Kane, plaintiff's vice-president and general manager, testified that 90% to 95% of plaintiff's business consisted of the manufacture of custom labels of an uncommon nature. Kane stated that customers would bring...