Turnell v. CentiMark Corp.

• Decision Date: 29 July 2015
• Docket Number: No. 14–2758.,14–2758.
• Citation: 796 F.3d 656
• Parties: James TURNELL, Plaintiff–Appellant, v. CENTIMARK CORPORATION, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

796 F.3d 656

James TURNELL, Plaintiff–Appellant

v.CENTIMARK CORPORATION, Defendant–Appellee.

No. 14–2758.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 23, 2015.

Decided July 29, 2015.

James E. Dahl, Dahl & Bonadies, LLC, Chicago, IL, for Plaintiff–Appellant.

Anthony Hopp, David T. Van Der Laan, Edwards Wildman Palmer LLP, Chicago, IL, for Defendant–Appellee.

Before WOOD, Chief Judge, and KANNE and TINDER, Circuit Judges.

Opinion

KANNE, Circuit Judge.

After losing his job at CentiMark Corporation, Appellant James Turnell went to work for one of its competitors. That created a problem, as Turnell's employment contract contained restrictive covenants barring him from competing with CentiMark or soliciting its customers for two years after termination. The district court issued a preliminary injunction partially enforcing the restrictive covenants, but only to the extent the court deemed necessary to protect CentiMark's legitimate interests. Turnell challenges the preliminary injunction on appeal. We affirm.

I. Background

CentiMark is a large, nationwide roofing company that primarily sells and installs flat, single-ply roofing for commercial and industrial customers. CentiMark hired Turnell as a laborer in its Chicago office in 1978, when he was eighteen years old. Over the course of thirty-five years with the company, Turnell worked his way up the ranks. In 1988 CentiMark promoted him to Chicago District Operations Manager and increased his salary from $45,000 to $50,000 per year. In return, CentiMark required him to sign an employment agreement (the “Agreement”).

Turnell's new role would give him access to CentiMark's proprietary information and trade secrets, including sales methods and materials, customer accounts, and pricing data. So, in return for his promotion and salary increase, Turnell agreed to a non-disclosure provision (§ 4.01 of the Agreement) requiring him to maintain the confidentiality of CentiMark's information.

He also agreed to two restrictive covenants that CentiMark regularly requires its management-level employees to execute. The first is a non-compete clause (§ 4.05) prohibiting Turnell from “engag[ing] ... in any Competing Business” during the period of his employment and for two years afterward in any of the “regions and/or divisions and/or territories” in which he “operated” as a CentiMark employee. “Competing Business” includes any company that “sells or attempts to sell any products or services” that are “the same as, or similar to,” CentiMark's.

The second restrictive covenant is a non-solicitation provision (§ 4.06) providing that Turnell “shall not ... solicit the trade of, or trade with,” any of CentiMark's “customers or suppliers, or prospective customers or suppliers” during his employment and for two years afterward. “Prospective customer” is defined broadly to include anyone “contacted by [CentiMark] during the restrictive periods mentioned in this Agreement.” But the Agreement does not prohibit all contact with customers or prospective customers—only those that “would constitute [Turnell's] engaging in a competitive business, as described in [the non-compete clause].”

After his promotion in 1988, Turnell's ascent within the company continued. He rose from operations manager to branch manager to regional manager and, finally, to Senior Vice President and Regional Manager for the Midwest Region, which encompasses western Michigan, northwest Indiana, central and northern Illinois, Wisconsin, Minnesota, and North and South Dakota. This region is one of CentiMark's largest and most productive, generating over $25 million in annual revenue. Turnell was responsible for all regional sales (including pricing, marketing, and customer relationships) and operations (including staffing, personnel, and financial performance). He had regular contact with customers, reviewed all major proposals, and had access to a password-protected intranet portal containing information on proposals, leads, quotes, financial performance, and other data. He also participated in monthly conference calls with senior executives on company-wide financial projections and strategy. As regional manager, Turnell earned over $250,000 per year in base salary and bonuses; in addition, CentiMark compensated him with shares in the company worth more than $3 million.

The relationship between Turnell and CentiMark came to an end when the company fired him on January 8, 2013. The reason, according to CentiMark, is that Turnell had misappropriated company resources and covered up fraudulent billing by Vacuum Resources, a subcontracting company owned by his wife. According to Turnell, this was a pretext; the real reason for his termination had to do with his age, his health (he has diabetes and high blood pressure), and his high level of compensation.

Within a week after being fired, Turnell interviewed with Windward Roofing and Construction, Inc., a smaller, more local roofing company in Chicago. Commercial roofing accounts for about half of Windward's business and makes it a competitor of CentiMark. But Windward also does other work that CentiMark does not, such as shingled residential roofing and masonry. CentiMark caught wind of Turnell's discussions with Windward and demanded that he cut them off. Turnell testified that he was aware of his contractual obligations but did not care whether he was competing with CentiMark because he “needed a job.” Turnell made little effort to find a job outside commercial roofing.

Instead, he accepted an offer from Windward and began selling commercial roofing for his new employer on or about March 1, 2013. He was hired not to service existing accounts but to develop new business. To that end, Turnell contacted numerous customers or former customers of CentiMark, some of whom he had personally worked with during his tenure there. He sold services to at least one of those customers. And he submitted two bids in head-to-head competition with CentiMark, winning one of those jobs for Windward.

CentiMark demanded that Turnell stop working for its competitor. After an unfruitful exchange of letters, the parties took their dispute to court. Turnell and Windward sued first, on March 11, 2013, seeking a declaration from the Circuit Court of Cook County, Illinois that the Agreement's restrictive covenants were unenforceable. CentiMark removed that lawsuit to the federal district court for the Northern District of Illinois on April 9. The following day, CentiMark filed its own separate action in the Northern District of Illinois against Turnell, Windward, and Vacuum Resources to enforce the restrictive covenants and to obtain other relief. The district court consolidated the two actions.

CentiMark moved for a preliminary injunction against Turnell under Fed.R.Civ.P. 65. After expedited discovery and an evidentiary hearing, the district court granted CentiMark's motion on July 10, 2014. But the court found Turnell's restrictive covenants too broad, so it enforced them only to the extent it judged “reasonably necessary for the protection of CentiMark.” The preliminary injunction reads:

James Turnell shall not sell, attempt to sell, or help sell any products or services, or any combination thereof, related to commercial roofing to any person or entity who was a customer of Centimark Corporation as of January 8, 2013 and who is located in Illinois, Indiana, Michigan, Minnesota, North Dakota, South Dakota, or Wisconsin.

The court provided that “[t]his injunction shall remain in effect until the earlier of a decision on the merits ... or two years from the date of this order.” The court counted from the date of the order rather than the date of Turnell's termination because Turnell's breach tolled the running of the restrictive periods under the Agreement. Finally, the court required CentiMark to post a $250,000 bond.

The preliminary injunction is narrower than the contractual covenants in three respects. First, whereas Turnell's non-compete clause bans all competing business (i.e., sales of products or services similar to CentiMark's), the injunction does not. It allows Turnell to remain in commercial roofing, subject to restrictions on his ability to sell to CentiMark's customers.

Second, the injunction only forbids commercial roofing sales to actual customers of CentiMark as of Turnell's termination date. Unlike the non-solicitation provision, the injunction does not extend to prospective CentiMark customers or to persons who were customers in the past.

Third, the injunction is geographically narrower. There is no geographical limitation in the non-solicitation provision, and the non-compete covers any region where Turnell “operated” as a CentiMark employee. But the district court limited the injunction's reach to the Midwest—the region where Turnell primarily worked throughout his career and which he managed at the time of his departure.

The district court rejected CentiMark's request to enjoin Turnell from working at Windward altogether. So long as he abided by the terms of the preliminary injunction, he was free to remain in his new job. The court also rejected CentiMark's separate claim that Turnell had violated the nondisclosure provision, as there was no evidence of breach. Nevertheless, Turnell took exception to the court's order and filed a timely notice of appeal.

We have subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. §§ 1441(a) -(b) and 1332. And although this is an interlocutory appeal, we have authority to decide it under 28 U.S.C. § 1292(a)(1).

II. Analysis

Federal courts sitting in diversity “apply state substantive law and federal procedural law” under the eponymous Erie doctrine. Hanna v. Plumer, 380 U.S. 460, 465, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ). The district court here applied Pennsylvania law, pursuant to a choice-of-law clause in the parties' Agreement, to determine the...