Fleetwood Packaging v. Hein et al
Filing
40
MEMORANDUM Opinion and Order. For the reasons set forth in the Memorandum Opinion, the defendants' motion to dismiss 25 is granted in part and denied in part. A status hearing is set for November 3, 2015 at 9:00 a.m. Signed by the Honorable John J. Tharp, Jr on 10/20/2015. Mailed notice(air, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FLEETWOOD PACKAGING, a Division of
Signode Industrial Group LLC,
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Plaintiff,
v.
JOHN HEIN and DuBOSE STRAPPING, INC.,
Defendants.
No. 14 C 09670
Judge John J. Tharp, Jr.
MEMORANDUM OPINION AND ORDER
Plaintiff Fleetwood Packaging (herein, “Signode”), a division of Signode Industrial
Group, alleges that its former employee, John Hein, misappropriated trade secrets and breached
his confidentiality agreement, and that his current employer, DuBose Strapping, tortiously
interfered with Hein’s contract with Signode. This Court previously denied Signode’s motion for
a temporary restraining order. Thereafter, the plaintiff filed its First Amended Complaint, and the
defendants moved to dismiss it for failure to state a claim on which relief can be granted. For the
reasons that follow, the defendants’ motion is grant in part and denied in part.
FACTS
Although the parties already conducted limited discovery and presented evidence in
support of, and in opposition to, the plaintiff’s motion for a temporary restraining order, the
universe of facts is considerably smaller for purposes of this motion. Moreover, for purposes of
its TRO motion, the plaintiff had the burden of demonstrating that it had some chance of success
of the merits, that is, a greater than negligible chance of winning. AM Gen. Corp. v.
DaimlerChrysler Corp., 311 F.3d 796, 804 (7th Cir. 2002). At this stage, however, the plaintiff’s
burden is merely to set forth sufficient allegations to state a claim for relief that is plausible.
1
Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011) (motion to dismiss). All factual
allegations in the complaint are accepted as true, and reasonable inferences are drawn in favor of
the plaintiff. Virnich, 664 F.3d at 212. Accordingly, the following facts are taken solely from the
Amended Complaint and will be viewed in the light most favorable to the plaintiff.
Signode 1 manufactures and sells strapping products and packaging materials in a
competitive industry. Amended Complaint, Dkt. 20 ¶¶ 1, 15. DuBose is one of its principal
competitors. Id. ¶ 10. John Hein worked for Signode (and its predecessor in interest) as a
salesman from 2001 until September 11, 2014. Id. ¶¶ 17, 27. Hein worked as the Territory
Manager for a seven-state region in the northwestern United States. Id. ¶ 18. His responsibilities
as the Territory Manager included activities such as managing and expanding existing customer
relationships, developing new customers, and pricing strategies. Id. ¶ 18. Before coming to
Signode, Hein had years of experience in the industry. Id. ¶ 17.
As a condition of his employment, Hein entered into a confidentiality agreement in 2001
with Illinois Tool Works, Inc., a company whose industrial packing business Signode later
acquired. 2 Id. ¶ 17. Hein’s confidentiality agreement states, in part, that Hein will not disclose or
use “any confidential information” relating to the business either during or after his employment.
Id. ¶ 22. The confidentiality agreement further identifies confidential information as “price lists,
customer lists, [and] vendor lists” among other types of information. Id.
1
References to “Signode” refer only to the portion of Signode’s business conducted by
Fleetwood Packing, one of Signode’s divisions, and the nominal plaintiff. The Amended
Complaint refers to the plaintiff as “Signode” and the Court follows suit.
2
On January 1, 2014, Illinois Tool Work contributed, transferred, and assigned to
Signode all of its rights, titles, and interest in and to any and all of the company’s assets
primarily related to the industrial packing business. Amended Complaint, Dkt. 20 ¶ 22 n.1.
2
Around August 20, 2014, Hein met with executives from DuBose to discuss his
employment at that company. Id. ¶ 26. Hein then gave two weeks’ notice to Signode on
September 10, 2014. Id. ¶ 27. Signode terminated his employment the next day. Id. Signode
retained a computer forensic expert shortly thereafter to analyze Hein’s company laptop. Id. ¶ 34.
The forensic examination indicated that “[o]n multiple occasions and without authorization, Hein
connected unauthorized removable storage devices to his Signode laptop and copied to them
Signode’s trade secrets and confidential information.” Id ¶ 28. On August 20, the same day he
interviewed with DuBose, Hein had “downloaded, copied or otherwise accessed over 900
documents, which included Product Matrices, Contribution Reports, pricing documents, sales
figures, and rebate information, among many others.” Id ¶ 26. Signode notified both Hein and
DuBose about the forensic results, and Hein’s confidentiality agreement, and requested that Hein
return all property to Signode in order for Signode to examine the ten external drives that were
identified during the forensic investigation. Id. ¶¶¶ 26, 34, 37. Signode received three of the ten
external drives. Id. ¶ 35.
Among the types of information that Signode concluded had been compromised were the
identities and contact information of its customers, its Contribution to Profit Reports
(“Contribution Reports”); and its so-called product matrices. Contribution Reports, which are
shared with customers, described discounts, pricing terms, services, and additional benefits that
Signode provides to specific customers. Id. ¶ 11. Signode has implemented some procedures to
maintain the confidentiality of these reports. Id. ¶ 16. Such procedures include limited
dissemination, a corporate policy to mark documents containing confidential information as
“Confidential,” employee confidentiality agreements, and an annual requirement that employees
3
certify that they have read and received Signode’s Principles of Conduct, which preclude the
disclosure of Signode’s confidential information. Id.
Product matrices contain information about the product at issue, vendors, product costs,
and relevant delivery information in response to product requests from sales personnel. Id. ¶ 11.
These documents are used to generate quotes for customers, but are not themselves shared with
customers. Id. In addition to the procedures to maintain Signode’s secrecy listed above,
Signode’s product matrices are uploaded to a database that is restricted to a limited group of
employees. Id. ¶ 16. Hein’s access to the database, which required a unique password to submit a
request, was limited to initiating requests for pricing. Access to product matrices is restricted
within the company. Id.
According to the complaint, after leaving Signode, Hein accessed Signode’s confidential
information and trade secrets. Id. ¶ 29. Nine days after departing Signode Hein accessed “files
relating to Signode’s customer Steelscape.” Hein then contacted Steelscape on behalf of DuBose.
Other Signode customers have informed Signode that Hein has solicited their business for
DuBose. Cascadia Metals, one of Hein’s customers at Signode, has advised Signode that it will
now be purchasing materials from Hein at DuBose, which gave Cascadia Metals a price lower
than Signode’s. Id. ¶ 30. Signode believes that Hein’s intimate knowledge and possession of
confidential information allowed him to undercut Signode’s prices. Id.
Based on these factual allegations, Signode brings three claims: (1) violation of the
Illinois Trade Secrets Act against both Hein and DuBose; (2) breach of contract against Hein;
and (3) tortious interference with contract against Dubose.
4
DISCUSSION
In order to survive dismissal under Rule 12(b)(6), the complaint must “state a claim to
relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). The factual allegations need only be sufficient to raise the
possibility of relief above the “speculative level.” Twombly, 550 U.S. at 555.
I.
Trade Secret Misappropriation
Signode claims that Hein and DuBose misappropriated its trade secrets in the form of its
“carefully cultivated customer contacts,” its Contribution Reports, and its product matrices. The
defendants argue that this claim must be dismissed because Signode fails to sufficiently allege
the existence of a trade secret or any misappropriation and use by the defendants.
Under the Illinois Trade Secrets Act (“ITSA”), “to state a cause of action for
misappropriation of trade secrets, a plaintiff must allege facts that the information at issue was:
(1) a trade secret; (2) that was misappropriated; and (3) used in the defendant's business.” Alpha
Sch. Bus Co. v. Wagner, 391 Ill. App. 3d 722, 740, 910 N.E.2d 1134, 1152 (2009) 3; see also
Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003). Illinois
law defines a trade secret as information that “(1) is sufficiently secret to derive economic value,
actual or potential, from not being generally known to other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the
3
At least one Court in this district has concluded, based on Liebert Corp. v. Mazur, 357
Ill. App. 3d 265, 827 N.E.2d 909, 924–25 (1st Dist. 2005), that under Illinois law, “use “ is not
actually a separate element, but instead, is one way to show misappropriation (the others being
improper acquisition and unauthorized disclosure). Parus Holdings, Inc. v. Banner & Witcoff,
Ltd., 585 F. Supp. 2d 995, 1004-1005 (N.D. Ill. 2008). Here, however, the plaintiff does not
dispute that to prevail it must establish “use.”
5
circumstances to maintain its secrecy or confidentiality.” 765 ILCS 1065/2(d). Relevant factors
in determining whether a trade secret exists include: “(1) the extent to which the information is
known outside of the plaintiff's business; (2) the extent to which it is known by the employees
and others involved in the plaintiff's business; (3) the extent of measures taken by the plaintiff to
guard the secrecy of the information; (4) the value of the information to the plaintiff and to the
plaintiff's competitors; (5) the amount of effort or money expended by the plaintiff in developing
the information; and (6) the ease or difficulty with which the information could be properly
acquired or duplicated by others.” Alpha Sch. Bus Co., 391 Ill. App. 3d at 740, 910 N.E.2d at
1152.
The defendants first contend that Signode has not alleged the existence of single trade
secret because the information is not protectable and was not sufficiently guarded by Signode.
Mem., Dkt. # 26 at 9. To begin, there is no question that customer lists can warrant protection as
trade secrets. See, e.g., Learning Curve Toys, 342 F.3d at 728-29 & n.8; Strata Mktg., Inc. v.
Murphy, 317 Ill. App. 3d 1054, 1069, 740 N.E.2d 1166, 1177 (2000) (“[Company’s] customer
lists, which it alleged take considerable effort, time, and money to compile, could be deemed a
trade secret.”). But it is the plaintiff’s burden to show that a customer list is “sufficiently secret”
to warrant such protection. See Carbonic Fire Extinguishers, Inc. v. Heath, 190 Ill. App. 3d 948,
953, 547 N.E.2d 675, 677 (1989). It is similarly the plaintiff’s job to demonstrate that it took
considerable effort, time, and resources to build its customer list. See Stampede Tool Warehouse,
Inc. v. May, 272 Ill. App. 3d 580, 588, 651 N.E.2d 209, 215 (1995)) (“The key factor to
establishing secrecy is the ease with which the information can be readily duplicated without
involving considerable time, effort or expense.”).
6
Although Signode does not have to prove anything at the pleading stage, it has not
pleaded any facts to suggest that its customer list could plausibly meet either requirement under
765 ILCS 1065/2(d). Signode alleges that it “has invested significant time and expense in
developing its relationships with its customers around the country” and that its “comprehensive
customer list is not publicly known.” Am Compl., Dkt. # 20 ¶ 13. But Signode has not provided
a single detail about how it built the customer list and, more importantly, what steps it takes to
keep its customer contacts secret. To the contrary, Signode acknowledges in its complaint that
“Dubose and Signode compete for many of the same customers nationally, and compete for sales
of the same types of products to these customers.” Am. Compl., Dkt. # 20 ¶ 12. In a niche
industry that Signode describes as highly competitive, Signode provides to factual allegations
rendering it plausible that the limited universe of potential customers could somehow be secret as
between the firms competing for the exact same business. Signode simply fails to allege facts
suggesting that the identity of its customers is a secret that it does, or can, guard inside the
company with reasonable measures.
Signode also seeks trade secret protection for its Contribution Reports, which it describes
as reports—shared with its customers—that describe discounts, pricing terms, services, and
additional benefits that it provides to specific customers. Am. Compl., Dkt. # 20 ¶ 11. But as the
defendants point out, information shared with customers with no confidentiality restrictions
attached to them does not warrant trade secret protection. See Delta Med. Sys. v. Mid-Am. Med.
Sys., Inc., 331 Ill. App. 3d 777, 793, 772 N.E.2d 768, 782 (2002) (denying trade secret protection
for customer “equipment service history” because the service history “was not secret”—plaintiff
would provide it to a customer if requested). Signode does not effectively answer this argument.
7
Finally, there are the product matrices, which Signode has sufficiently alleged to be trade
secrets at the pleading stage. These documents contain information about a particular product,
including, vendors, costs, and relevant delivery information, for the purposes of setting prices.
See Outsource International, Inc. v. George Barton & Barton Staffing Solutions, 192 F.3d 662,
668 (7th Cir. 1999) (cost and pricing figures, and comparable rates protectable as trade secrets).
And importantly, product matrices are not provided to Signode’s customers. Id.; see Delta Med.
Sys., 331 Ill. App. 3d at 792, 772 N.E.2d at 781 (stating rule that pricing formulas are entitled to
trade secret protection when not generally known to others and could not be acquired through
general skills and knowledge common in the industry) (citing Service Centers of Chicago, Inc. v.
Minogue, 180 Ill. App. 3d 447, 454-55, 535 N.E.2d 1132, 1136-37 (1989)).
Signode has
implemented procedures to maintain the secrecy of these reports, such as limited dissemination,
a corporate policy to mark documents containing confidential information as “Confidential,”
employee confidentiality agreements, and an annual requirement that employees certify that they
have read and received Signode’s Principles of Conduct, which preclude the disclosure of
Signode’s confidential information. Signode’s product matrices are stored in a database that is
restricted to a limited group of employees within the company. See Elmer Miller, Inc. v. Landis,
253 Ill. App. 3d. 129, 134, 625 N.E. 338, 342 (1993) (finding limited employee access to known
confidential information in a closed draw as reasonable measures to maintain secrecy in a small
business). Hein did not have access to the database and could only request product matrices for
customers; whatever reports he obtained by request were to be kept confidential inside the
company. These allegations sufficiently indicate reasonable efforts to maintain the secrecy of the
information. See Strata Mktg., Inc. v. Murphy, 317 Ill. App. 3d 1054, 1069, 740 N.E.2d 1166,
1177 (2000); Jackson v. Hammer, 274 Ill.App.3d 59, 68, 653 N.E.2d 809, 816 (1995) (“[T]he
8
Act requires a plaintiff to take ‘affirmative measures' to prevent others from using
information.”); see also Learning Curve Toys, 342 F.3d at 725 (“Whether the measures taken by
a trade secret owner are sufficient to satisfy the Act’s reasonableness standard ordinarily is a
question of fact for the jury.”).
The defendants argue, however, that even if Signode pleaded the existence of a trade
secret, its allegations are insufficient with respect to the elements of misappropriation and use.
The ITSA defines “misappropriation” as either (1) acquisition of a trade secret by one “who
knows or has reason to know that the trade secret was acquired by improper means;” or (2)
“disclosure or use of a trade secret” by one who “at the time of the disclosure or use, knew or
had reason to know that knowledge of the trade secret was…derived from or through a person
who owed a duty to the person seeking relief to maintain its secrecy or limit its use.” 765 ILCS
1065/2(b); see Seng-Tiong Ho v. Taflove, 648 F.3d 489, 503 (7th Cir. 2011) (“A claim of trade
secret misappropriation, then, requires that the information have a status of secrecy and that a
confidential relationship be breached.”).
Signode points to the forensic examination of Hein’s computer indicating that he had
connected a number of external drives to Signode’s laptop on August 20, 2014, allowing him to
download Signode’s data including product matrices. Hein met with executives from DuBose to
discuss his employment at that company around the same day he downloaded Signode’s data,
permitting the reasonable inference that he did not intend to use the information for Signode’s
benefit. Signode notified both Hein and DuBose about the forensic results, and requested that
Hein return all property to Signode. Signode received three of the ten external drives and no
assurances that Hein would be kept from disclosing any confidential information. These
allegations permit an inference that Hein, acquired product matrices by improper means or for an
9
improper purpose. See Twombly, 540 U.S. at 570; see also Stampede Tool Warehouse, 272 Ill.
App. 3d at 590, 651 N.E.2d at 217 (“[A] trade secret can be misappropriated by physical copying
or by memorization.”). 4
Finally, the defendants argue that Signode insufficiently alleges that its competitor,
DuBose, used Signode’s alleged trade secrets. But the facts asserted in the complaint permit a
reasonable inference of use by DuBose. First, Hein departed Signode for a similar job in the
same territory, for a competitor who did not previously have a presence in that territory. Hein is
now attempting to sell the same products to the same customers, on behalf of a different
employer, making his knowledge of Signode’s pricing inputs highly relevant. Under the
circumstances, the potential for use of Signode’s confidential pricing data clearly was high.
Moreover, the complaint alleges that since leaving Signode, Hein in fact has accessed files he
took from Signode. In particular, Hein is alleged to have accessed Steelscape’s data and then
called on Steelscape on behalf of DuBose. The complaint further alleges that Hein obtained
Cascadia Metals’ business for DuBose by undercutting Signode on price. These examples lend
sufficient plausibility to the claim that Hein and DuBose actually used Signode’s trade secrets.
Signode alternatively argues that its trade secrets will be inevitably disclosed by way of
Hein’s employment at DuBose. The inevitable disclosure doctrine concerns situations where a
former employee cannot help but to rely on his former employer’s secrets in performing his
duties for a new employer. See Strata, 317 Ill. App. 3d at 1070, 740 N.E. 2d. at 1178; PepsiCo,
4
It bears repeating that the standard for evaluating the sufficiency of the plaintiff’s
pleading differs from that applicable to the Court’s previous consideration of the motion for a
temporary restraining order. The Court previously held that, based on the evidence presented in
support of the TRO motion, Signode could not establish any significant likelihood of success on
the issue of misappropriation. That preliminary factual determination is entirely different from
the issue presented here, which is whether the allegations pleaded in the complaint, taken as true,
plausibly suggest misappropriation.
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Inc. v. Redmond, 54 F.3d 1262, 1268-69 (7th Cir. 1995). Given the near identity of Hein’s jobs at
Signode and DuBose—selling the same products to the same customers—there is at least facial
plausibility to the claim that he could not help but take Signode’s confidential pricing
information into account when trying to competitively price products for DuBose. However,
given the passage of time, and the competitive nature of the industry, it is also doubtful that the
information Hein obtained from Signode remains relevant for any period of time. 5 And, of
course, DuBose’s pricing must rely on factors, such as its own supply network and costs, that
have nothing to do with Signode, which belies the plaintiff’s suggestion that simply knowing
Signode’s pricing structure would allow DuBose to undercut Signode’s prices. The Court has
already found sufficient allegations of actual use; it need not, therefore, resolve whether the
inevitable disclosure doctrine applies here.
In light of the foregoing, Signode has adequately pleaded a claim of trade secret
misappropriation as to its product matrices.
II.
Breach of Contract and Tortious Interference with Contract
The defendants next argue that Signode fails to plead sufficient allegations to state
plausible claims of breach of contract (by Hein) and tortious interference (by DuBose), both of
which depend on the existence of an enforceable contract.
As a threshold matter, the defendants maintain that Signode does not have standing to
enforce Hein’s confidentiality agreement, because it is between Hein and ITW, Signode’s
predecessor in interest, and Signode has not established a valid assignment of the agreement. The
contract, which, as an exhibit to the complaint, is part of the pleadings, see Fed. R. Civ. P. 10(c),
5
For this reason, among others (including the sparse allegations of any actual lost
business), there is ample reason to doubt Signode’s ability to prove any significant damages
caused by the alleged misappropriation and breach of contract.
11
says nothing about assignment, and the Amended Complaint alleges only: “On January 1, 2014,
Illinois Tool Work Inc., (‘ITW’) contributed, transferred, and assigned to Premark Packaging
LLC (now known as Signode Industrial Group LLC) all of ITW’s rights, titles, and interest in
and to any and all of ITW’s assets primarily related to the industrial packaging business, which
included the Signode business.” In their briefs, the parties refer to a 2014 Business Contribution
Agreement (“BCA”) between ITW”s subsidiary, Premark Packaging LLC, and Signode and
argue its significance to the issue of the assignment of the confidentiality agreement. But the
proper interpretation of the BCA, which is not part of the pleadings, is not appropriate to
consider on this motion to dismiss. The parties did not request an evidentiary hearing on the
issue of standing. Accordingly, the Court cannot resolve the contested issue of the assignment of
the confidentiality agreement in the context of this motion.
The defendants next contend that the confidentiality agreement is unenforceable as a
matter of law because it lacks limits on duration and geographic scope that are required in order
for a restrictive covenant to be reasonable under Illinois law.
Under Illinois law, employers can protect confidential information by means of a
restrictive covenant, such as a confidentiality agreement. Although Illinois law views some
restrictive covenants skeptically as restraints on trade, it will enforce the covenants to protect
legitimate business interests. See, e.g., Instant Technology LLC v. DeFazio, 793 F.3d 748, 450
(7th Cir. 2015) (“In Illinois a restrictive covenant in an employment agreement is valid only if it
serves a ‘legitimate business interest.’”) (citing Reliance Fire Equipment Co. v. Arredondo, 965
N.E.2d 393, 396-97 (Ill. 2011)); American Family Mut. Ins. Co. v. Roth, 485 F.3d 930, 933 (7th
Cir. 2007) ((contract that forbids disclosure of customer information is enforceable—“but only if
the contractual prohibition is reasonable in time and scope, and, specifically, only if its duration
12
is limited”) (applying Wisconsin law, but citing Illinois cases for support)); Lawrence & Allen,
Inc. v. Cambridge Human Resources Group, Inc., 292 Ill. App. 3d 131, 138, 685 N.E.2d 434,
443 (1997) (“A restrictive covenant's reasonableness is measured by its hardship to the
employee, its effect upon the general public, and the reasonableness of the time, territory, and
activity restrictions.”). In Cincinnati Tool Steel Co. v. Breed, 136 Ill. App. 3d 267, 276, 482
N.E.2d 170, 175 (2d Dist. 1985), the Illinois Appellate Court expressly held that durational and
geographic limitations are required for a confidentiality agreement to be enforceable. The
confidentiality agreement that Hein signed in 2001 contains no such limitations. Confidentiality
Agreement, Dkt. # 20-1. If Cincinnati Tool remains good law, then, the confidentiality
agreement is in jeopardy given its unlimited temporal and geographic scope.
The plaintiff contends, however, that the confidentiality agreement is saved by the
ITSA’s provision that “a contractual or other duty to maintain secrecy or limit use of a trade
secret shall not be deemed to be void or unenforceable solely for lack of durational or
geographical limitation on the duty.” 765 ILCS 1065/8(b)(1). Signode argues that this provision
abrogated Cincinnati Tool and, further, that it applies to confidential information of all stripes,
not just trade secrets, and therefore the confidentiality agreement is broadly enforceable.
This Court has already concluded that §1065/8(b)(1) did not abrogate Cinncinati Tool
and other Illinois law requiring reasonable temporal and geographic restrictions in restrictive
covenants, except as to trade secrets. No Illinois court has stated that the statute overruled or
abrogated Cincinnati Tool, and its reasoning remains persuasive as to confidential information
that falls short of a trade secret. See Roth, 485 F.3d at 933 (7th Cir. 2007) (citing Cincinnati Tool
as persuasive authority for the proposition that “[t]reating customer information as a trade secret
limits competition as well, but such information is given enhanced legal protection as a trade
13
secret only if there is some indication that the information has value apart from its value in
limiting competition—that it represents an investment on the part of the firm seeking to protect
it”). The plaintiff relies on Coady v. Harpo, Inc., 308 Ill. App. 3d 153, 162, 719 N.E.2d 244, 251
(1999), which held that a confidentiality agreement was enforceable although it lacked time or
geographic restrictions. Citing §1065/8(b)(1), the court stated: “[A] confidentiality agreement
will not be deemed unenforceable for lack of durational or geographic limitations where trade
secrets and confidential information are involved.”Coady, 308 Ill. App. 3d at 161, 719 N.E.2d
at 250. But the appellate court did not explain why §1065/8(b)(1) could apply to “confidential
information” where it appears in a provision of the Trade Secrets Act and expressly refers only to
contracts “to maintain secrecy or limit use of a trade secret.” Absent any indication the court
actually considered whether §1065/8(b)(1) overruled Cincinnati Tool as to all types of
confidential information, this Court will not take it upon itself to be the first court to so hold.
Given the plain language of §1065/8(b)(1) and the fact that Cincinnati Tool has never been
overruled or expressly limited, this Court is of the view that only unlimited agreements to keep
trade secrets, not other information, confidential are exempted from the longstanding rule that
requires nondisclosure agreements to include reasonable limits on scope.
Therefore, given the absence of any reasonable limitations in Hein’s confidentiality
agreement, it is enforceable only as to trade secrets, and only because of §1065/8(b)(1). (The
defendants have not challenged enforceability on grounds other than standing and the lack of
reasonable limits.) Signode has alleged the existence of a trade secret—its product matrices—
that is covered under the broader rubric of “confidential information” that the contract forbids
Hein to disclose or use. Thus, to the extent that Signode seeks to enforce the agreement as to its
alleged trade secrets, the agreement does not fail for want of limits on duration and geographic
14
scope, and the breach of contract claim does not fail altogether. Although the contract is not
enforceable as to any confidential information that is not a trade secret, the breach of contract
claim survives the motion to dismiss, as limited by this discussion. And, therefore, the tortious
interference claim also does not fail at the pleading stage for want of an enforceable contract.
The defendants further argue, however, the tortious interference claim 6 must be
dismissed because Signode fails to sufficiently allege that Hein breached the agreement 7 and that
DuBose induced the breach, and further that the claim is preempted by the ITSA. The latter two
arguments are sound. There are simply no factual allegations in the complaint that lend
plausibility to Signode’s claim that DuBose intentionally caused Hein’s breach of confidentiality.
Signode does not allege any intentional action by DuBose to cause Hein to disclose or use
Signode’s trade secrets; simply hiring Hein does not suffice when, by Signode’s own admission,
DuBose did not know about the confidentiality agreement until Hein was already employed
there. Signode suggests, but fails to support the argument that tortious interference could arise
from DuBose’s failure to take certain unspecified measures to mitigate the potential damage to
Signode after learning about the agreement (and well after hiring Hein).
In any event, the issue of inducement is immaterial. Given that the Court has concluded
that the confidentiality agreement is enforceable, as to trade secrets only, by operation of
§ 1065/8(b)(1), the ITSA preempts the tort claim because it is premised on the exact same facts
6
To establish a tortious interference with a contract claim under Illinois law, “a plaintiff
has the burden of proving the following elements: (1) the existence of a valid and enforceable
contract between the plaintiff and a third party; (2) defendant's awareness of the contract; (3)
defendant's intentional and unjustified inducement of a breach; (4) defendant's wrongful conduct
caused a subsequent breach of the contract by the third party; and (5) damages.” Echo, Inc. v.
Timberland Machines & Irrigation, Inc., 661 F.3d 959, 968 (7th Cir. 2011) (citing Purmal v.
Robert N. Wadington & Associates, 354 Ill.App.3d 715, 727, 820 N.E.2d 86, 98 (2004)).
7
This argument fails for the same reasons the Court determined that Signode adequately
pled misappropriation and use for purposes of the trade-secrets claim.
15
as the misappropriation claim. The Act is the exclusive remedy for such claims. See 765 ILCS
§ 1065/8(a); Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404 (7th Cir. 2005) (“This statute
abolishes claims other than those based on contract arising from misappropriated trade secrets,
replacing them with claims under the Act itself”); Nat'l Auto Parts, Inc. v. Automart Nationwide,
Inc., No. 14 C 8160, 2015 WL 5693594, at *4, *7 (N.D. Ill. Sept. 24, 2015). Because there is no
action for which Signode seeks recovery that is separate from the misappropriation of its trade
secret information, the tort claim is preempted as a matter of law.
For the foregoing reasons, the defendants’ motion to dismiss is granted as to the claim of
tortious interference with contract and denied as to the claim of trade secrets misappropriation.
The breach-of-contract claim survives only to the extent of the contract’s protection of trade
secrets.
Dated: October 20, 2015
John J. Tharp, Jr.
United States District Judge
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