Lifetec, Inc. v. Edwards, No. 4-07-0300 (Ill. App. 11/6/2007)

• Decision Date: 06 November 2007
• Docket Number: No. 4-07-0300.,4-07-0300.
• Parties: LIFETEC, INC., an Illinois Corporation, Plaintiff-Appellee, v. PETER EDWARDS; CAROL EDWARDS; and PATTERSON MEDICAL PRODUCTS, INC., a Michigan Corporation, d/b/a SAMMONS PRESTON ROLYAN, Defendants, and PETER EDWARDS; and PATTERSON MEDICAL SUPPLY, INC., a Minnesota Corporation, d/b/a SAMMONS PRESTON ROLYAN, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

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LIFETEC, INC., an Illinois Corporation, Plaintiff-Appellee, v. PETER EDWARDS; CAROL EDWARDS; and PATTERSON MEDICAL PRODUCTS, INC., a Michigan Corporation, d/b/a SAMMONS PRESTON ROLYAN, Defendants, and PETER EDWARDS; and PATTERSON MEDICAL SUPPLY, INC., a Minnesota Corporation, d/b/a SAMMONS PRESTON ROLYAN, Defendants-Appellants.

No. 4-07-0300.

Appellate Court of Illinois, Fourth District.

November 6, 2007.

Appeal from Circuit Court of Macon County, No. 06CH20, Katherine M. McCarthy, Judge Presiding.

JUSTICE KNECHT delivered the opinion of the court:

In January 2006 plaintiff, Lifetec, Inc. (Lifetec), sued defendant, Peter Edwards, its former employee, for breach of contract, specifically for breach of three restrictive covenants contained in the contract. Lifetec also sued Carol Edwards, Peter's wife, and Patterson Medical Supply, Inc. (Patterson), Peter's new employer, for tortious interference with contract. In March 2007, the trial court granted Lifetec's request for a preliminary injunction, finding sufficient evidence Edwards had knowledge of confidential client information and Lifetec provided sufficient evidence presenting a fair question Edwards had disclosed such confidential information to Patterson for his and Patterson's benefit. Thus, Lifetec presented a fair question it had a protectible business interest and, therefore, demonstrated a likelihood of success on the merits. In this interlocutory appeal, Edwards claims the trial court abused its discretion because no protectible business interest was demonstrated by Lifetec justifying a preliminary injunction. We affirm as modified and remand with directions.

I. BACKGROUND

A. Uncontroverted Facts

On or before April 1, 1996, Edwards was offered and accepted a position as a sales representative for Lifetec, a dealer of medical devices and products in Illinois, Indiana, and other neighboring states. On April 2, 1996, Edwards executed a written employment agreement with Lifetec, which contained several postemployment restrictive covenants. These covenants were a "non[]competition" covenant, a "non[]solicitation" covenant and a "non[]representation" covenant. They stated, respectively, the following:

"6.02 Competition. Employee will not, for a period of twenty-four (24) months after the termination of this Agreement, directly or indirectly, on Employee's own account or in the service of others or through a spouse or affiliate, compete with the Company or engage in the sale and/or lease of the Product or competitive medical devices and/or products in the Territory. For the purposes of this provision, Product and Territory includes only the Product and Territory assigned to the Employee during the most recent eighteen [(18)] months prior to the termination of this Agreement."

"6.01 Solicitation. Employee will not, for a period of twenty-four (24) months after the termination of this Agreement, directly or indirectly, on Employee's own account or in the service of others or through an affiliate or spouse, engage in the solicitation of purchase orders for, or assist in the sale and/or lease of, the Product or competitive medical devices and/or products in the Territory. For the purposes of this provision, Product and Territory includes only the Product and Territory assigned to the Employee during the most recent eighteen [(18)] months prior to the termination of this Agreement."

"8.01 Duty Not to Represent. Employee agrees that during the period of this Agreement and for twenty-four (24) months thereafter, he will not, either directly or indirectly become employed by or act as a distributor or sales representative for any manufacturer for whom Employer acted as a distributor or sales representative during the prior twelve (12) months nor will Employee accept any employment with any distributor or sales representative that sells medical and exercise products manufactured by any manufacturer for whom Employer acted as a distributor or sales representative within the prior twelve (12) months."

"Product" was defined as "those medical devices and products which the employee is authorized to sell in the Territory" and "are listed in the Product Schedule" attached to the contract.

Edwards was employed with Lifetec for almost 10 years. During this time, he was promoted and his compensation package increased. Edwards never sought to renegotiate the employment agreement to remove the covenants.

During the spring of 2005, while actively employed by Lifetec, Edwards sought employment with Patterson, a competitor of Lifetec with a nationwide business. Edwards knew when he interviewed that the position with Patterson would involve selling the same products as Lifetec to the same customers and in the same territory. At Patterson's request, Edwards brought a copy of his employment agreement with Lifetec with him to the interview with Patterson and left a copy there. Patterson's representatives assured Edwards he would be taken care of if he were sued by Lifetec.

In July 2005, Edwards was offered a position with Patterson, which he quickly accepted. On July 18, 2005, Edwards submitted his letter of resignation to Lifetec, which was accepted on July 22. In the letter he was not forthcoming about his new employment with Patterson but instead stated he was leaving due to personal problems and the desire to further develop and market his own medical product. Edwards stated he knew the real reason for his resignation would upset Lifetec's representatives. Edwards started working for Patterson in August 2005. It was not until several months later Edwards admitted to Michael Christoi, president of Lifetec, he was now working for Patterson.

B. Lawsuit Initiated

On January 18, 2006, Lifetec sued Edwards for breach of contract and on January 25, 2006, filed a motion for preliminary injunction. At the time of the issuance of the preliminary injunction, Edwards admits he was still selling products for Patterson competitive with products he sold for Lifetec in the territory he serviced for Lifetec and actually serviced the same customers he served in the area subject to the restrictions in his employment agreement.

The motion for preliminary injunction sought a preliminary injunction barring Edwards from violating the covenants in his employment agreement with Lifetec and specifically ordering him to (1) cease working for Patterson and (2) cease competing with Lifetec and engaging in the solicitation of purchase orders in competition with Lifetec and cease acting as (a) a distributor or sales representative for any manufacturer for which Lifetec acted as a distributor or (b) a sales representative for any manufacturer for which Lifetec acted as a distributor or sales representative during the 12 months prior to Edwards' resignation, all in accord with the covenants in the employment agreement.

C. Evidentiary Hearings

The trial court heard evidence for three days at trial from September 2006 through November 2006. Christoi testified he started Lifetec in 1983 and it is a small, family-run distributor of medical products, specializing in physical and occupational therapy, schools, long-term care, and orthopedics. Lifetec's major customers are hospitals, nursing homes, private practice clinicians, schools, retirement centers, and orthopedists and podiatrists. Lifetec currently employed 13 employees and generally employed between 10 and 20. The bulk of Lifetec's sales (85% to 95%) came from Illinois, Indiana, and Wisconsin. Christoi described Patterson as Lifetec's largest competitor and both companies market to the same customers. Lifetec usually had about three salespeople working for it at any one time.

Christoi testified that after Edwards left Lifetec, Lifetec suffered a loss of sales in the territory previously served by Edwards. Christoi admitted Edwards was not replaced by a new salesperson but the territory was being served by Christoi himself while he also continued to perform his duties as company president. Lifetec does not have funds with which to participate in marketing activities and so relies heavily on its sales personnel to market its products by direct contact with potential customers.

In his testimony, Edwards identified himself as a rehabilitation sales consultant for Patterson. He is one of 13 salespersons reporting to the Midwest sales director, Angie Cominsky-Wachs. Cominsky-Wachs testified Patterson seeks to establish customer relationships through sales representatives supported by an "extensive catalog"; Christoi also described the catalog as extensive. Edwards testified that, while working for Lifetec, customers would contact him with reference to Patterson's catalog to determine if Lifetec could supply a certain product and at what price.

Much of Patterson's business came about through national account contracts with hospital-based and other buying consortiums where the customers were obligated to buy a certain percentage of their product from Patterson and at a set price. For products sold by Patterson through Edwards, Cominsky-Wachs estimated these national contracts amount to 70% of his sales.

Christoi considered the identities of key customers, listings, ordering patterns, and quote reports, as well as "open quotes," to be "confidential information." Of these, the open quotes were the most important type of information. "Open quotes" consisted of bids provided to customers for purchases the customers were considering making. When Edwards left Lifetec, $1.3 million in open quotes were outstanding in Edwards' Lifetec territory. Christoi admitted open quotes were followed with orders less than half the time. By contrast, Edwards stated while employed with Lifetec he considered himself fortunate to "close" 15% of his open quotes.

Christoi testified only two individuals employed by Lifetec had signed confidentiality agreements with the company. He admitted not all persons acting as sales representatives of Lifetec had executed...