Springfield Rare Coin Galleries, Inc. v. Mileham

• Decision Date: 09 September 1993
• Docket Number: No. 4-92-0958,4-92-0958
• Citation: 620 N.E.2d 479,189 Ill.Dec. 511,250 Ill.App.3d 922
• Parties: , 189 Ill.Dec. 511 SPRINGFIELD RARE COIN GALLERIES, INC., Plaintiff-Counterdefendant-Appellant and Cross-Appellee, v. Steve MILEHAM, Defendant-Counterplaintiff-Appellee and Cross-Appellant.
• Court: United States Appellate Court of Illinois

Page 479

620 N.E.2d 479

250 Ill.App.3d 922, 189 Ill.Dec. 511

SPRINGFIELD RARE COIN GALLERIES, INC. Plaintiff-Counterdefendant-Appellant and Cross-Appellee, v. Steve MILEHAM, Defendant-Counterplaintiff-Appellee and Cross-Appellant.

No. 4-92-0958.

Appellate Court of Illinois Fourth District.

Argued June 22, 1993.

Decided Sept. 9, 1993.

Bruce A. Beeman and Stephen M. Osborne (argued), Beeman Law Offices, Springfield, for appellant.

R. Kurt Wilke (argued), Barber, Segatto, Hoffee & Hines, Springfield, for appellee.

Justice KNECHT delivered the opinion of the court:

Plaintiff, Springfield Rare Coin Gallery, brought suit against defendant, Steve Mileham, its former employee, for breach of a restrictive covenant. Plaintiff obtained a preliminary injunction, and sued for damages. Defendant countersued, alleging conversion of his property by plaintiff. The trial court found the restrictive covenant to be unenforceable as defendant had not obtained any confidential information during his employment and plaintiff did not have a near-permanent relationship with its customers. The trial court found plaintiff did not convert defendant's property; however, it found plaintiff was in possession of property belonging to defendant and ordered the transfer of the property to defendant. Both parties appeal. We affirm the trial court's judgment with respect to the unenforceability of the restrictive covenant, but reverse its finding defendant did not establish the elements of conversion.

I. FACTS

Plaintiff is in the business of dealing in rare coins and precious metals. James Hausman, plaintiff's president, began operating his first coin business out of his home in 1975. The plaintiff corporation was formed at a later date. Defendant, Steve Mileham, began working part-time for his father's coin business in the late 1960's, and worked full-time for the business between 1973 and 1986.

In 1986, defendant approached Hausman regarding the possibility of employment with plaintiff. Hausman testified since defendant was the son of a local competitor, he (Hausman) was concerned if plaintiff employed defendant, defendant would learn plaintiff's business, and then return to work for his (defendant's) father. Accordingly, plaintiff required defendant to sign a restrictive covenant, agreeing not to compete with plaintiff in Sangamon County for two years after the termination of the employment relationship.

Defendant began his employment with plaintiff in February 1987 and was terminated in January 1989. At the outset of the employment relationship the parties created an account which they termed the "show account." The show account was funded equally by the parties: defendant contributed property valued at $12,456, and plaintiff contributed $12,456 in cash. Defendant paid for his purchases with show account funds, and deposited his sales proceeds in the show account. Defendant was paid a salary of $7,000 per year, plus half the profits generated in show account transactions.

Initially, defendant worked in plaintiff's store. After a few months, defendant began to devote his time exclusively to the middleman portion of plaintiff's business. Acting as a middleman in the coin and precious metals trade involves buying goods at low prices from small dealers, and selling them at higher prices to larger dealers. Defendant developed purchasing routes to Peoria, Decatur, Champaign, Danville, and St. Louis. Hausman introduced him to some of the coin dealers in these locations, others had been known to defendant prior to his employment with plaintiff. Defendant also learned of other dealers by referring to local telephone directories and by asking dealers if they knew of other dealers in the area; defendant would then make a cold call to their businesses. The parties agreed defendant conducted 95% of the show account business outside of Sangamon County. Hausman testified he had handwritten notes, made on FACTS dealer listing sheets, regarding the financial reliability of dealers he had previously done business with, and he showed these notes to defendant. Defendant testified he did not use this information. Defendant did not take the FACTS sheets with him when he left plaintiff's employ. Hausman also testified he told defendant the profit margin plaintiff had on some items.

The employment contract provided the property in the show account belonged equally to plaintiff and defendant and was to be divided equally between them upon termination of the employment relationship. After the termination of the employment relationship, plaintiff and defendant had discussions regarding distribution of the show account property, but whether they arrived at an agreement regarding the distribution is in dispute. Plaintiff withdrew $71,225.66 as its share of the assets on March 22, 1989. Defendant's share of the assets remains in plaintiff's possession.

After the termination of the employment relationship between plaintiff and defendant, defendant did not return to work for his father, and did not open a business in Sangamon County. However, defendant did continue to do business as a middleman. Defendant traveled to coin dealer's businesses, bought goods from them, and resold them to larger dealers.

Plaintiff obtained a preliminary injunction against defendant, prohibiting him from transacting business with any of plaintiff's "protected customers" under the following circumstances:

"1. When Sangamon County is the point of delivery of a product being the subject of the transaction or when the product has Sangamon County as a destination (that is, when the outgoing or shipping point is Sangamon County or when Sangamon County is the destination in connection with the purchases or receipt of materials by the defendant); or

2. When the transaction was negotiated or consummated in whole or in part either physically between the Defendant and the customer in Sangamon County or when the transaction or the consummation of the transaction was, in whole or in part, reached by a telephone conversation in which the point of origin or destination was in Sangamon County."

"Protected customers" were defined as those customers meeting both of the following criteria "(a) Customers who transacted business with the Plaintiff with a frequency of either once a month, or twelve times within a twelve[-] month period from March, 1987 and before January 17, 1989; and

(b) Customers with whom the Defendant has had no business transactions (including while with B & J Coin Co.) prior to Defendant's employment by Plaintiff in March, 1987."

On July 8, 1991, plaintiff filed an amended complaint requesting damages for breach of the restrictive covenant. Plaintiff alleged defendant had transacted business with 20 to 25 of its protected customers. Plaintiff later limited its claim to five or six customers, i.e., Joel Coen, Dave's Trading Post, Bob Glenn, Speciality, and Blue Diamond. Defendant conceded he had not transacted business with these customers prior to becoming affiliated with plaintiff. The parties disagreed regarding whether defendant had transacted business with a sixth customer, Premiere, prior to becoming affiliated with plaintiff. Plaintiff alleged Premiere was a protected customer if Hausman's testimony defendant had not transacted business with Premiere prior to becoming affiliated with plaintiff was accepted as true. However, Premiere would not be a protected customer if defendant's testimony he had transacted business with Premiere's parent company prior to becoming affiliated with plaintiff were accepted as true.

It is unclear from the evidence presented at trial whether plaintiff voluntarily ceased transacting business with Joel Coen. Hausman testified he did not continue to do business with Coen because defendant had bought all of the "product," and there was no product available for plaintiff to buy and resell to Coen. However, Hausman was impeached with his deposition testimony, in which he stated he ceased transacting business with Coen because he could receive better prices from other customers. Hausman testified he did not recall introducing defendant to Premiere, Dave's Trading Post, Specialty or Blue Diamond. However, Hausman testified although he did not introduce defendant to a particular client, on many occasions he instructed defendant regarding whether to do business with the client. Defendant testified he developed Blue Diamond, Dave's Trading Post and Specialty as customers by making cold calls to their businesses.

At trial, plaintiff attempted to prove its damages by presenting evidence of defendant's income and his transactions with various customers. Plaintiff alleged the measure of damages should be the percentage of defendant's income equal to the percentage of defendant's business with plaintiff's protected customers. Plaintiff presented no evidence it had ever been underbid by defendant, it had ever been unable to buy materials for resale as the result of defendant's business, or it had ever been unable to resell materials as the result of defendant's business. Although Perrino initially testified plaintiff could not buy scrap gold to resell due to defendant's business transactions, he was impeached with his deposition testimony in which he acknowledged nothing prevented plaintiff from buying scrap gold and reselling it to other dealers.

As stated, the trial court found the restrictive covenant was unenforceable. In determining defendant did not obtain confidential information while in plaintiff's employ, the court ruled the names of plaintiff's customers were not confidential information. However, the trial court did not specifically address plaintiff's claims that customer information, instructions given to defendant, and pricing information were confidential information.

The trial court ordered plaintiff to return defendant's share of the show account property to defendant. Defendant filed a motion to reconsider, alleging...