Pampered Chef v. Alexanian

• Decision Date: 14 July 2011
• Docket Number: No. 10 C 1399.,10 C 1399.
• Citation: 804 F.Supp.2d 765
• Parties: The PAMPERED CHEF, Plaintiff, v. Sandy ALEXANIAN, Don Funt, Christine Laurich, Lori Mitchell, Valerie Newton, Shannon Pell, Elaine Schutter and Sybil Goade, Defendants.
• Court: U.S. District Court — Northern District of Illinois

804 F.Supp.2d 765

The PAMPERED CHEF, Plaintiff,

v.Sandy ALEXANIAN, Don Funt, Christine Laurich, Lori Mitchell, Valerie Newton, Shannon Pell, Elaine Schutter and Sybil Goade, Defendants.

No. 10 C 1399.

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

July 14, 2011.

Dean A. Dickie, James William McConkey, Katharine N. Dunn, Kathleen Elizabeth Koppenhoefer, Ryan Christopher Williams, Miller, Canfield, Paddock and Stone, P.L.C., Chicago, IL, Nicole Roth Christiansen, The Pampered Chef, Addison, IL, for Plaintiff.

Henry M. Baskerville, Jonathan M. Cyrluk, Henry M. Baskerville, Stelter, Duffy & Rotert, Ltd., Daniel Martin Feeney, Roger J. Perlstadt, Miller Shakman & Beem LLP, for Defendants.

MEMORANDUM OPINION AND ORDER

JEFFREY COLE, United States Magistrate Judge.

INTRODUCTION

The Pampered Chef is a direct sales company that sells kitchenware through home parties hosted by family and friends of the members of its sales force, who are independent contractors. Jewels by Park Lane is another direct sales company that sells jewelry. Pampered Chef has taken umbrage at the loss to Park Lane of several of what it calls its most valuable, upper-level “Directors,” who are highly-placed individuals in the pyramidal sales structure used by Pampered Chef and others in the direct sales industry. The defecting Directors were free to leave Pampered Chef whenever they chose. However, under their contracts, they were not free to solicit or recruit any Pampered Chef Director or any of its 58,000 sales consultants to join them at another direct sales company. Also, the Directors could not permit anyone to use the names of any of Pampered Chef's nationwide salesforce for recruiting or promoting the sales of another company's products or services.

The Second Amended Complaint (“Complaint”), insofar as is pertinent at this juncture, alleges that defendants, Sandy Alexanian, Don Funt, Christine Laurich, Valerie Newton, Elaine Schutter and Sybil Goade, breached their Pampered Chef Director agreements by “directly and unabashedly soliciting and recruiting members of Pampered Chef's sales force to join the sales force of Park Lane.” (Complaint, ¶ 183). The Complaint charges Lori Mitchell and Shannon Pell, who are affiliated with Park Lane, with tortious interference with the Pampered Chef's contracts with the Directors and/or with tortious interference with Pampered Chef's business expectancy with its consultants and Directors by inducing the defendant Directors to provide names of Pampered Chef consultants and Directors whom Mitchell and Pell could and did solicit to join Park Lane. (Complaint, ¶¶ 202–207, et. seq.). Pampered Chef seeks a preliminary injunction against Ms. Mitchell and Ms. Pell.¹

Resolution of a motion for preliminary injunction and resolution of a case on the merits involve “significantly different” inquiries. University of Texas v. Camenisch, 451 U.S. 390, 393, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981). Since “[t]he purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held,” id. at 395, 101 S.Ct. 1830, a plaintiff need not prove its case in full, and the court's findings of fact and conclusions of law are not binding at a trial on the merits. Id. See also IDS Life Insurance. Co. v. SunAmerica, Inc., 103 F.3d 524, 530 (7th Cir.1996).

This case, however, has taken a path different from the abbreviated course envisioned by the cases. In addition to two days of testimony, the parties' submissions were voluminous. Collectively, they consisted of 12 three-inch spiral binders of numbered exhibits, totaling perhaps 10,000 pages. Additionally, there are 5 volumes of deposition transcripts, totaling approximately 500 pages, plus an additional 800 pages of exhibits to the depositions. This was in advance of the parties' briefs, to which were attached a number of exhibits. To encourage some factual organization, the parties were instructed even before the briefing was completed to comply with Local Rule 56.1 solely as it pertained to the presentation of facts. [Dkt. # 168]. Of course, this is not a summary judgment case, and the parties were aware of the very limited purpose for which the organizational structure provided by a Rule 56 statement of facts was resorted to.² The motion for preliminary injunction is here for determination by limited consent pursuant to 28 U.S.C. § 636(b)(1)(c).

I.

FACTUAL BACKGROUND ³

Pampered Chef is a direct sales company that sells its kitchen wares through home parties hosted by family and friends of the members of its sales force. ( Plaintiff's Amended Local Rule 56.1 Statement ( “Pl.St.” ), ¶ 1; Ex. 1, Tr. 87:13–16; 369:2–370:15; 535:25–536:3). That force is made up entirely of independent contractors—none are employees. ( Pl.St., ¶ 2; Ex. 1, Tr. 246:20–247:16; 447:5–7). That is common in the direct sales industry. Direct sales is a method of distributing products, employed by many similar companies. ( Pl.St., ¶ 3; Ex. 1, Tr. 369:16–370:15; 443:8–444:6; 448:5–25). Pampered Chef's sales force is nearly 60,000 strong, broken down into a hierarchy of about 55,000 “consultants,” 2,500 “senior consultants,” and 1,000 team leaders at the top. ( Defendants' Local 56.1 Statement of Facts ( “Def.St.” ), ¶ 1; Ex. A, Tr. 623). The consultants come and go—in droves and with unremitting consistency. The turnover rate is about 60% annually, and they are replaced as quickly as they are lost. ( Def.St., ¶ 3; Ex. A, Tr. 633).

For example, in 2008, Pampered Chef lost approximately 30,000 consultants, but gained an equal number in the same time period. In 2009, Pampered Chef lost 37,000 consultants, but added an equal amount of new consultants. From January 1, 2010 through October 1, 2010, Pampered Chef lost 20,000 consultants, but gained 24,000 new ones. ( Def.St., ¶ 3; Ex. A, Tr. at 632:22–633:22). This rapid and consistent turnover is consistent with the historically high rate of turnover in the direct sales industry. See infra at 788.

To move up in the hierarchy and become a Director, a consultant must recruit a certain number of other people to become consultants. ( Def.St., ¶ 4; Ex. B, Jonas Dep. at 60:18–68:19). Directors are compensated on the basis of their sales, the sales of their recruits, and the sales of their recruits' recruits. ( Def.St., ¶ 4; Ex. E, Capinegro Dep. at 143: 8–144:1; Ex. L (Pampered Chef Policy Guide), at 15–33). Above the Director level, there is Advanced Director, Senior Director, Executive Director, Senior Executive Director, and National Executive Director. ( Def.St., ¶ 4; Ex. B, Jonas Dep. at 60:18–68:19; Ex. K; Ex. L at 15–33). To ascend the ladder from Director to Advanced Director and above, a Director must recruit more people and have their recruits recruit more people and so on. ( Def.St., ¶ 4; Ex. A, Tr. at 86:19–90:3; Ex. B, Jonas Dep. at 60:18–68:19; Ex. L at 15–33). As of August 2010, there were 18 National Executive Directors, who earned an average of $282,031 per year. At the same time there were 1,347 base level Directors, who earned approximately $14,205 per year on average. ( Def.St., ¶ 7; Ex. C at TPC 000923, 000926).

Pampered Chef changed the rules in 2009. Those who had already qualified as base-level Directors in 2008, no longer qualified in 2009. The consequence, of course, was less income for those affected. ( Def.St., ¶ 8; Ex. A, Tr. at 171:11–172:1; 322:22–323:23). In the aftermath, there were approximately 1,000 fewer Directors in 2010 than there were on December 31, 2009, when there were approximately 3,021 Directors. The change also made it more difficult to qualify for certain consultant levels, and many people were demoted. ( Def.St., ¶ 8; Ex. C at TPC 000926; Ex. A, Tr. at 636:22–638:3; Ex. B, Jonas Dep. at 199:1–6).

It was during this period—from about March 2008, when Valerie Newton, the first Director left Pampered Chef, through about April 2010—that 13 Directors and 4 Consultants left Pampered Chef and moved to Park Lane. ( Def.St., ¶ 33; Ex. A, at 595:17–25). Defendants, Alexanian, Funt, Laurich, Newton, Goade, and Schutter (“Director defendants”), were among them. ( Pl.St., ¶ 4; Ex. 1, Tr. 234:24–25; 361:15–19, 22–24; 235:18–22; 86:2–5; Ex. 2, Alexanian Dep. at 5:5–8, 19:23–20:7, 158:11–21; Ex. 3, Funt Dep. at 5:8–10, 22:4–20, 30:21–23; Ex. 4, Goade Dep. at 9:1–4; 65:7–8; 10:25–11:3).

At the time they became Pampered Chef Directors, they signed Independent Sales Director Agreements, which included confidentiality and non-solicitation provisions:

F. Confidentiality

1. Director acknowledges that Company has provided Director and Director has received from the Company special training and knowledge and the Company has given Director access to trade secrets and other valuable information which is confidential and proprietary in nature. Director understands and confirms that all such trade secrets and other valuable information constitute the exclusive property of the Company. During the term of this Agreement and for two years after termination of this Agreement, Director shall hold in strict confidence and shall not, directly or indirectly, disclose or reveal to any person or use for the personal benefit of Director or anyone else any trade secrets and other confidential or proprietary information of any kind that has been obtained by or disclosed to Director as a result of Director's position in the Company's independent contractor field sales force.

* * *

I. Non-solicitation

1. Director agrees that Director has received valuable consideration from the Company in the form of specialized training and sales management training in connection with the Director's business opportunity with the Company. Director also acknowledges the receipt of valuable publicity, goodwill and promotional support from the Company to enhance Director's business success. In consideration of the awards, rights and privileges contained in this Agreement, Director...