Service Centers of Chicago, Inc. v. Minogue

• Citation: 180 Ill.App.3d 447,129 Ill.Dec. 367,535 N.E.2d 1132
• Decision Date: 09 March 1989
• Docket Number: No. 1-88-2448,1-88-2448
• Parties: , 129 Ill.Dec. 367, 11 U.S.P.Q.2d 1062 SERVICE CENTERS OF CHICAGO, INC., an Illinois corporation, d/b/a Deliverex of Chicago, Plaintiff-Appellee, v. Jeffrey M. MINOGUE and Filefax, Inc., Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 1132

535 N.E.2d 1132

180 Ill.App.3d 447, 129 Ill.Dec. 367,

11 U.S.P.Q.2d 1062

SERVICE CENTERS OF CHICAGO, INC., an Illinois corporation d/b/a Deliverex of Chicago, Plaintiff-Appellee, v. Jeffrey M. MINOGUE and Filefax, Inc., Defendants-Appellants.

No. 1-88-2448.

Appellate Court of Illinois First District, Fourth Division.

March 9, 1989.

Deutsch, Levy & Engel, Chtd., Chicago (Paul M. Levy, Scott B. Greene, Terese Keirnan-Shust, of counsel), for defendants-appellants.

Vedder, Price, Kaufman & Kammholz, Chicago (Richard F. Zehnle, Patricia C. Cook, John E. Dougherty, of counsel), for plaintiff-appellee.

Presiding Justice JIGANTI delivered the opinion of the court:

The trial court preliminarily enjoined the defendants, Jeffrey M. Minogue and Filefax, Inc., from using trade secrets and confidential information allegedly obtained during Minogue's employment with the plaintiff, Service Centers of Chicago, Inc., d/b/a Deliverex of Chicago (Deliverex). The order further enjoined the defendants from providing services to Lutheran General Hospital. Minogue has appealed, contending that Deliverex failed to prove the existence of any trade secrets or confidential information sufficient to warrant injunctive relief. Alternatively, Minogue contends that the injunction order is facially invalid because it fails to meet the specificity requirements of section 11-101 of the Illinois Code of Civil Procedure. Ill.Rev.Stat.1987, ch. 110, par. 11-101.

Deliverex operates a business which provides off-site medical records storage and retrieval services for health-care facilities. Deliverex formed its Chicago operation in September 1987 with Gardner Heidrick as owner and president of the franchise. The service provided by Deliverex is directed toward hospitals and other health-care facilities and consists of purging the existing medical files, storing them on open shelves at an off-site facility duplicating the hospital's filing system, and retrieving the files when needed by the hospital. Deliverex hired Jeffrey Minogue as a salesman in October 1987 and sent him to San Jose, California, to participate in a one-week training program.

Before the training program began, Minogue was required to sign what the parties refer to as a confidentiality agreement, which stated in part:

"1. Acknowledgement of Trade Secrets. The Employee hereby acknowledges that the information and materials provided to him/her by the Company and/or Deliverex, Inc., Securex Inc., ¹ its employees, franchisees, agents or business advisors concerning or in any way relating to the Company, Deliverex, Inc. and/or Securex Inc., or services or products associated with the trademark Securex, Inc. and/or Deliverex, Inc. are confidential and are trade secrets.

"2. Covenant Not To Disclose. The Employee hereby agrees not to disclose or disseminate any information or material provided to him/her by the Company, Securex, Inc., and/or Deliverex, Inc. or their employees, agents or business advisers to any person or entity whatsoever other than the Employee's attorneys, accountants or business advisors.

"3. Restriction on Use. The Employee agrees that he/she will not use any confidential information or trade secrets received from Securex, Inc. and/or Deliverex, Inc. or their employees, franchisees, agents or business advisors in the event that the Employee leaves his/her employment with the Company. To that end, it is agreed that if the Employee engages in a business similar to the business of the Company, Securex, Inc. and/or Deliverex, Inc., within a period of two (2) years of the date the Employee discontinues his/her employment with the Company, the Employee shall assume the burden of proving that the Employee has not used any such confidential information or trade secrets in such business, regardless of the geographical location of the Employee's business."

After signing this agreement, Minogue visited an operating storage facility and reviewed certain sales and marketing materials. During his classroom training, Minogue became familiar with a survey used to analyze a potential customer's needs and determine the monthly rate to charge that customer. Minogue was also taught how to write a pricing proposal.

Minogue then returned to Chicago and began work as a salesman for Deliverex. During the course of his five-month employment with Deliverex, Minogue made sales calls upon area hospitals, including Lutheran General, where he met with the director of radiology, Judy Koptik. After making a sales presentation and conducting a survey to determine the hospital's needs, Minogue drafted and submitted a proposal containing a price quotation.

On March 8, 1988, Koptik and another hospital representative accompanied Minogue and Heidrick on an inspection of Deliverex's storage facility. At that time, the facility was in a warehouse shared by another business and was essentially inoperable. Koptik raised several objections about the condition of the facility, and Minogue later called her to apologize. During that conversation, Koptik suggested to Minogue that he start his own company.

Displeased with the Deliverex operation, Minogue tendered his resignation on March 17, 1988. One week later, he contacted Koptik and informed her that he had formed Filefax, Inc. On March 31, 1988, Filefax submitted a proposal to Lutheran General offering the same services as those offered by Deliverex. In May of 1988, Lutheran General awarded the contract to Filefax, Inc., and the instant lawsuit was filed.

In its complaint, Deliverex alleged that Minogue breached the confidentiality agreement by using confidential information or trade secrets consisting of "techniques of marketing, techniques of record organization, pricing mechanisms and business forms which have been developed by [Deliverex's] franchisor through 15 years of experience in the industry." At the hearing in the trial court, counsel for Deliverex argued that it was the "Deliverex system, formula, method, technique" that constituted a trade secret.

On appeal, Deliverex has narrowed its claim of trade secrets to the pricing formula used to calculate a flat monthly fee for each customer. The pricing formula has three main components: (1) a survey or questionnaire used to identify the customer's needs; (2) the use of a linear foot measurement; and (3) certain rules of thumb.

Charles Williams, president of Securex, Inc., testified at the hearing on the preliminary injunction that the Deliverex system of purging, storing and retrieving hospital records was unique and that it had not lost a customer in its 15 years of operation. Williams stated that although several component parts of the Deliverex system were contained in an advertising brochure and therefore not confidential, it was the entire system or process of pricing and providing services which rendered it confidential. The advertising brochure, introduced as an exhibit at trial, stated that Deliverex analyzes the hospital's needs, then stores its files off-site using the same filing system used by the hospital. The brochure further states that Deliverex offers a fixed monthly fee, daily scheduled deliveries, one-hour delivery on a "stat" basis, facsimile transmission, nearby facilities and complete interfiling retrieval and purging services. Pictures in the brochure show that the files are located on open shelves.

Williams stated that the main advantage of the Deliverex system was its ability to offer a flat monthly rate, thereby allowing the customer to predict the costs. According to Williams, all Deliverex's competitors charged customers on a "per retrieval" basis. The pricing mechanism which allowed the calculation of a flat monthly rate had three major components which were confidential (1) a 20-page survey used to determine the needs of the customer; (2) the use of a linear foot measurement; and (3) certain "rules of thumb." The survey was not introduced into evidence at trial. However, Williams testified that it contained questions about the age, thickness and condition of the files to be stored as well as questions about the hospital's filing system. After obtaining this information, certain "rules of thumb" arrived at over the 15 years Deliverex had been in business are used as guidelines to estimate how much the customer should be charged. While Williams did not specify what "rules of thumb" were, Minogue listed certain examples. He stated that in calculating how many records are in the hospital, "you add up the number of feet of records and divide by the number of years to get an average." Another rule of thumb is that medical records should be 75 cents to 85 cents per foot and an X ray should be $1 to $1.15 per foot. Patient accounts are 65 cents per foot.

At the conclusion of the hearing, the trial court issued a preliminary injunction which stated that Minogue "is hereby enjoined from utilizing the particulars that he learned confidentially as to how to implement the system either in pursuit of business for himself, Filefax, Inc. or others who could profit by the confidential information for a period of two years from the date he left the plaintiffs employ." The court further enjoined Minogue and Filefax, Inc., "from performing any further services to Lutheran General Hospital as he has been providing for two years from the date Jeffrey Minogue left the plaintiffs employ." Minogue has appealed, contending that Deliverex failed to prove the existence of any confidential information or trade secrets.

Throughout the course of this litigation, Deliverex has consistently failed to identify with any degree of particularity the alleged trade secrets or confidential...