Labor Ready, Inc. v. Williams Staffing, LLC

• Decision Date: 31 May 2001
• Docket Number: No. 00 C 470.,00 C 470.
• Citation: 149 F.Supp.2d 398
• Parties: LABOR READY, INC., a Washington corporation, and its wholly owned subsidiary, Labor Ready Midwest, Inc., a Washington corporation Plaintiffs, v. WILLIAMS STAFFING, LLC, a Delaware limited liability corporation, d/b/a Staffing Network, Inc., an Illinois corporation, Antwan K. Patton, John Nargan, Ray Castro, Frank McCumber, and James Schlicker, Defendants.
• Court: U.S. District Court — Northern District of Illinois

149 F.Supp.2d 398

LABOR READY, INC., a Washington corporation, and its wholly owned subsidiary, Labor Ready Midwest, Inc., a Washington corporation Plaintiffs, v. WILLIAMS STAFFING, LLC, a Delaware limited liability corporation, d/b/a Staffing Network, Inc., an Illinois corporation, Antwan K. Patton, John Nargan, Ray Castro, Frank McCumber, and James Schlicker, Defendants.

No. 00 C 470.

United States District Court, N.D. Illinois, Eastern Division.

May 31, 2001.

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Michael S. Poulos, Theodore C. Jennings, Piper, Marbury, Rudnick & Wolfe, Chicago, IL, for Labor Ready, Inc., a Washington corporation, and its wholly owned subsidiary, Ready Midwest, Inc., a Washington corporation, plaintiffs.

Diane Marie Kehl, Anthony Joseph Ashley, Vedder, Price, Kaufman & Kammholz, Douglas W. Bax, Williams, Collins & Bax, Chicago, IL, Bernard Wiczer, Wiczer & Associates, Chtd., Elliot Scott Wiczer, Mark David Molay, Wiczer & Zelmar, LLC, Northbrook, for Williams Staffing, LLC, a Delaware limited liability corporation, dba Staffing Network, Inc., Antwan Patton, John Nargan, Ray Castro, Frank Mccumber, James Schlicker, defendants.

MEMORANDUM OPINION AND ORDER

GETTLEMAN, District Judge.

Labor Ready, Inc. and its wholly owned subsidiary, Labor Ready Midwest, Inc., both Washington corporations (collectively, "plaintiff"), has brought a thirteen-count complaint against defendants Williams Staffing, LLC, a Delaware corporation doing business as Staffing Network, Inc., an Illinois corporation ("Staffing Network"), and the following the former employees of plaintiff: Antwan Patton ("Patton"), John Nargan ("Nargan"), Ray Castro ("Castro"), Frank McCumber ("McCumber"), and James Schlicher ("Schlicher") (collectively, "the former employees").¹

Plaintiff alleges the following claims against Staffing Network: tortious interference with contractual relations (Count I); tortious interference with prospective business relations (Count II); aiding and abetting breach of fiduciary duty (Count IV); misappropriation of trade secrets (Count V); unfair competition (Count VI); tortious interference with employment relationship (Count VII); and violation of the Uniform Deceptive Trade Practices Act (Count VIII). Plaintiff alleges the following claims against the former employees: breach of fiduciary duty (Count III); misappropriation of trade secrets (Count V); and breach of contract (Counts IX-XIII). Defendants have filed a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons set forth below, defendants' motion is granted in part and denied in part.

FACTS

For purposes of a motion to dismiss, the court accepts the factual allegations of the complaint as true and draws all reasonable inferences in favor of plaintiff. See Travel All Over the World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1428 (7th Cir.1996). Plaintiff and Staffing Network do business in the competitive temporary manual labor staffing industry. Plaintiff operates in forty-six states, Puerto Rico, Canada, and the United Kingdom. The former employees signed comparable employment contracts with plaintiff that included nonsolicitation,² noncompetition,³ and nondisclosure⁴ restrictive covenants. Each contract states that it "shall be governed and construed in accordance with the laws of the State of Washington."

Plaintiff alleges that Staffing Network, a newer company to the temporary manual labor staffing business, hired the former employees, who were all management-level employees of plaintiff, and others who previously worked for plaintiff. Plaintiff claims that in their managerial positions, the former employees gained access to confidential information and trade secrets⁵ that plaintiff had spent a "substantial amount of time and money" developing. Plaintiff asserts that it provides confidential information and trade secrets to its employees and agents only as necessary, and that it takes various precautions, including the use of restrictive covenants, to protect the information from its competitors.

According to plaintiff, both during and after the time the former employees' worked for plaintiff, they attempted to recruit a number of plaintiff's other employees to work for Staffing Network. Staffing Network allegedly also had the former employees and other of plaintiff's employees steal or attempt to steal personnel files and other records from plaintiff. Additionally, plaintiff claims that Castro is employed three blocks from his former office in violation of the restrictive covenant's ten-mile radius work limitation. Other of the former employees—McCumber, Castro, and Patton—are accused of soliciting plaintiff's customers for the benefit of Staffing Network, either during or after their employment with plaintiff. Finally, plaintiff alleges that Patton disparaged plaintiff to plaintiff's customers in order to obtain those customers' business for Staffing Network. In sum, plaintiff alleges that Staffing Network induced the former employees to breach their employment contracts with plaintiff, that the breach of those contracts harmed plaintiff, and that Staffing Network and the former employees illegally used plaintiff's trade secrets to the benefit of Staffing Network.

LEGAL STANDARDS

In ruling on a motion to dismiss for failure to state a claim, the court considers "whether relief is possible under any set of facts that could be established consistent with the allegations." Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992). A claim may be dismissed only if it is beyond doubt that under no set of facts would the plaintiff's allegations entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Travel All Over the World, 73 F.3d at 1429-30. The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide its merits. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990).

DISCUSSION

I. Enforceability of the Employment Contracts

Before the court can address defendants' arguments for dismissal of each of the individual counts in the complaint, the court must first address defendants' contention that the employment contracts between plaintiff and the former employees are overbroad and therefore unenforceable. The parties dispute which state's law applies, however. Plaintiff notes that the contracts dictate that Washington law governs; defendants argue that Illinois choice of law analysis requires the court to apply Illinois law.

A. Choice of Law Analysis—Contractual Provision

In diversity cases, the court applies the choice of law doctrines of the state in which the court sits (in this case Illinois). See ECHO, Inc. v. Whitson Co., 52 F.3d 702, 706 (7th Cir.1995) (citing Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). Under Illinois law, a court will enforce a contractual choice of law provision unless the law to be applied is "repugnant to a strong and fundamental policy of Illinois" or there is no relationship between the parties and the state whose law is to be applied.⁶ ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F.Supp. 1310, 1335 (N.D.Ill.1990); Curtis 1000, Inc. v. Suess, 843 F.Supp. 441, 445 (C.D.Ill.1994) (citing Potomac Leasing Co. v. Chuck's Pub, Inc., 156 Ill.App.3d 755, 109 Ill.Dec. 90, 509 N.E.2d 751 (2d Dist.1987)). The latter exception does not apply in the instant case because plaintiff is a Washington corporation, indicating that there is a relationship between the parties and Washington law. See ISC-Bunker Ramo, 765 F.Supp. at 1315. Thus, the court must now consider whether Washington law is so repugnant to a strong Illinois public policy that the court should not honor the choice of law provision in the employment contracts.

Defendants argue that Washington law is repugnant to Illinois public policy because Washington law employs a more liberal level of scrutiny to restrictive covenants than Illinois law. It is true that Illinois law disfavors private covenants restraining trade, and as a result Illinois courts carefully scrutinize such provisions to ensure that they are reasonable and not contrary to public policy. See Peterson-Jorwic Group, Inc. v. Pecora, 224 Ill. App.3d 460, 166 Ill.Dec. 718, 586 N.E.2d 676, 677 (1st Dist.1991). Washington courts take the same approach, however. See Sheppard v. Blackstock Lumber Co., 85 Wash.2d 929, 540 P.2d 1373, 1375-76 (1975) (recognizing that covenants that partially restrain trade are valid only if reasonable); Wood v. May, 73 Wash.2d 307, 438 P.2d 587 (1968) (addressing whether restrictive covenant is void due to public policy concerns).

Further, both Illinois and Washington courts consider the same factors when determining the enforceability of a restrictive covenant. They consider its reasonableness, using such factors as area, time, scope, and the effects on the covenantee and the public. See, e.g., ISC—Bunker Ramo, 765 F.Supp. at 1315, 1335-36; Lawrence & Allen v. Cambridge Human Resource Group, 292 Ill.App.3d 131, 226 Ill. Dec. 331, 685 N.E.2d 434, 441 (2d Dist. 1997); Perry v. Moran, 109 Wash.2d 691, 748 P.2d 224 (1987) (considering area and time restrictions as well as scope), modified on other grounds, 111 Wash.2d 885, 766 P.2d 1096 (1989) (altering determination of the reasonableness of liquidated damages); Wood, 438 P.2d at 589 (considering effect on covenantee, public, and employer); Lehrer v. Dept. of Social & Health Servs., 101 Wash.App. 509, 5 P.3d 722, 725 (2000) (applying Perry factors).

Also, both Illinois and Washington courts will, under some circumstances, modify a fair restrictive covenant to the extent it is overbroad—though Washington courts may do so more willingly than Illinois courts. Compare, e.g., House of Vision, Inc. v. Hiyane, 37 Ill.2d 32, 225 N.E.2d 21, 25 (1967) ("[W]hile we do not hold...