Reliable Fire Equip. Co. v. Arredondo

• Decision Date: 03 December 2010
• Docket Number: No. 2–08–0646.,2–08–0646.
• Parties: RELIABLE FIRE EQUIPMENT COMPANY, Plaintiff–Appellant,v.Arnold ARREDONDO, Rene Garcia, and High Rise Security Systems, LLC, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

405 Ill.App.3d 708

940 N.E.2d 153

346 Ill.Dec. 153

160 Lab.Cas. P 61,094

RELIABLE FIRE EQUIPMENT COMPANY, Plaintiff–Appellant,

v.Arnold ARREDONDO, Rene Garcia, and High Rise Security Systems, LLC, Defendants–Appellees.

No. 2–08–0646.

Appellate Court of Illinois, Second District.

Dec. 3, 2010.

Robert G. Black, Law Offices of Robert G. Black, Naperville, Christopher P. Banaszak, Jennifer A. Farley, Reinhart, Boerner & Van Deuren, S.C., Milwaukee, WI, for appellant.Tom P. Gregory, Jack C. Lai, Maria V. Vasos, Gregory & Lai, Barrington, for appellee.Presiding Justice ZENOFF delivered the opinion of the court:

[346 Ill.Dec. 154 , 405 Ill.App.3d 710] Plaintiff, Reliable Fire Equipment Co., appeals from an order of the circuit court of Du Page County entered on November 28, 2007, ruling that employment agreements entered into by the parties were unenforceable. Plaintiff also appeals from an order entered on June 12, 2008, directing a jury verdict in favor of defendants, Arnold Arredondo, Rene Garcia, and High Rise Security Systems, LLC (High Rise). We affirm.

BACKGROUND

Plaintiff, which has its principal place of business in Alsip, Illinois, sells and services portable fire extinguishers, fire suppression

[346 Ill.Dec. 155 , 940 N.E.2d 155]

systems, fire alarm systems, and other related products. Its business is commercial, and it sells fire alarm systems primarily to electrical contractors and building owners. It does the majority of its business in the Chicago area, northwest Indiana, and southern Wisconsin. At the time of trial, plaintiff employed 100 people.

Plaintiff hired Arredondo in 1998 as a salesman of fire alarm systems. Arredondo's duties were primarily to call on electrical contractors and building owners and “to go out and find business, sales.” A sales quote to a potential customer would not always or automatically result in a sale. When he was hired, Arredondo had no discussions with plaintiff about an employment agreement. However, a week or 10 days into his employment with plaintiff, he was presented with an employment agreement he was asked to sign. According to Arredondo, “[I]t was a requirement that I sign the non-compete.”

Plaintiff hired Garcia as a systems technician in April 1992 but, approximately a year or so later, asked him to move into sales, a position Garcia accepted. As a salesman, Garcia proposed projects, sent out pricing to electrical contractors, and estimated projects. Garcia worked in sales for approximately five years before plaintiff presented him with an employment agreement to sign, which he did on November 21, 1997. Plaintiff's salesmen were compensated by earning commissions, which were various percentages of the gross profits on items or systems sold. The commissions were distributed quarterly, and salesmen took draws against commissions to tide them over between quarterly disbursements. If their draws exceeded the commissions, then the salesmen owed plaintiff the difference. At the time of the jury trial in 2008, both Arredondo's and Garcia's draws exceeded their commissions, although they were known as the top producers for plaintiff.

On August 17, 2004, Arredondo and Garcia signed an operating agreement for High Rise, which was formed on April 26, 2004, to be a major minority supplier of engineered fire alarm and related auxiliary systems throughout the Chicago metropolitan area. According to the organization papers for High Rise, filed with the Illinois Secretary of State on April 26, 2004, High Rise's management was vested in Arnold Arredondo, Rolando Arredondo, and Rene Garcia. Arnold Arredondo formulated a business plan for High Rise, which he used to obtain financing. High Rise would be plaintiff's competitor.

In August 2004, plaintiff's founder and chairman, Ernest Horvath, became concerned that Arnold Arredondo and Garcia were competing against plaintiff. Horvath testified that he asked Arredondo if he was going into the fire alarm business in competition with plaintiff and that Arredondo denied it. On September 1, 2004, Arredondo tendered his resignation from plaintiff, and he left its employment on September 15, 2004. Garcia remained employed with plaintiff until October 1, 2004, when he was fired for being suspected of competing against plaintiff. The record shows that High Rise generated substantial business as of September 22, 2004. Arredondo testified that he developed the business after he left plaintiff on September 15, and plaintiff took the position that Arredondo and Garcia must have diverted business from plaintiff to High Rise while they were still employed with plaintiff. Thus, the litigation began.

Ultimately, this case proceeded to a jury trial on plaintiff's second amended complaint, which was filed on April 7, 2006. The second amended complaint alleged generally that the employment agreements Arredondo and Garcia signed prohibited

[346 Ill.Dec. 156 , 940 N.E.2d 156]

them from competing for a year in Illinois, Wisconsin, and Indiana after their termination of employment and that they solicited sales and customers while still employed by plaintiff, resulting in plaintiff's financial detriment. Count I alleged that Arredondo and Garcia breached a duty of fidelity and loyalty to plaintiff; count II alleged that Arredondo and Garcia engaged in a civil conspiracy to compete against plaintiff in violation of their employment agreements by soliciting plaintiff's customers, soliciting plaintiff's employees, and copying confidential information; count III alleged that Arredondo and Garcia breached their employment agreements; count IV alleged that Arredondo, Garcia, and High Rise tortiously interfered with plaintiff's prospective economic advantage when Arredondo and Garcia violated the employment agreements; count V alleged that High Rise tortiously interfered with plaintiff's employment agreements with Arredondo and Garcia; and count VI alleged that all three defendants were unjustly enriched when Arredondo and Garcia ceased devoting their full sales efforts on behalf of plaintiff.

Defendants answered the second amended complaint and filed affirmative defenses alleging that Arredondo and Garcia discharged and satisfied their duties as employees of plaintiff; the employment agreements were void or voidable for lack of consideration; the employment agreements were signed under duress; plaintiff violated the employment agreements by failing to pay earned commissions; plaintiff breached Garcia's employment agreement by failing to pay a severance benefit; plaintiff had unclean hands; and the employment agreements were contracts of adhesion and therefore void or voidable.

Prior to the filing of the second amended complaint, defendants filed a first amended counterclaim for declaratory judgment on December 16, 2005, seeking a declaration that the restrictive covenants in the employment agreements were unenforceable on the grounds that they did not protect a legitimate business interest (plaintiff's customers) and imposed an undue hardship on plaintiff's employees and the general public. On November 27, 2007, the trial court commenced a trial without a jury to determine the enforceability of the restrictive covenants.

Defendants' evidence showed the following. Plaintiff sells fire alarm systems manufactured by other companies. Plaintiff is one of approximately 75 entities that compete for business in the Chicago area. Generally, electrical contractors solicit bids from plaintiff and its counterparts, and the electrical contractors are accessible to plaintiff and its competitors by consulting the Yellow Pages, the Internet, industry directories, and signs in front of construction projects. Another method of locating electrical contractors who would be potential customers is to contact the union halls. Plaintiff kept a list of electrical contractors on a computer, which was available to everyone in plaintiff's employ. The products sold by plaintiff are not unique but can be purchased through other suppliers, and the lowest price for such products usually determines who gets the job. Costs associated with submitting quotes are fairly standard in the industry and are not confidential.

Plaintiff presented testimony that long-term customer relationships with electrical contractors and business owners are essential to its business and that these relationships are developed and nurtured over time. Horvath testified that this relationship with his company, rather than strictly price, will determine plaintiff's success in getting a job and keeping the customer. For this reason, plaintiff invested time and

[346 Ill.Dec. 157 , 940 N.E.2d 157]

money in marketing to its customer base. It does not share its internal costs with its competitors. While plaintiff's products are not necessarily unique, its ability to provide the services to support those products is unique in the industry.

For purposes of its ruling, the trial court found that plaintiff's customers were electrical contractors, that they were very well known to everyone in the industry through the Internet and publications, and that they did not restrict their bid solicitations to one supplier, so there was no near-permanent relationship between plaintiff and its customers. Second, the trial court found that plaintiff's pricing formula was a simple time and material computation and not confidential. Third, the court found that who plaintiff's customers were—electrical contractors or end users—was not clear, so the employment agreements were not understandable. Fourth, the court found that the employment agreements unlawfully restricted defendants from soliciting any of plaintiff's customers, not just those with whom the individual salesmen dealt. Fifth, the court found that the geographic restrictions were unreasonable, although it did not consider that dispositive “since I find that the other aspects of [the agreements] are unreasonable.” ¹

On June 10, 2008, following jury selection,...