Apex Physical Therapy, LLC v. Ball et al

Filing 38

MEMORANDUM AND ORDER, Defendant Zachary Ball's Motion (Doc. 13 ) to Dismiss for Failure to State a Claim is DENIED and defendant Todd Linebarger's Motion (Doc. 14 ) to Dismiss for Failure to State a Claim is DENIED. Signed by Judge J. Phil Gilbert on 7/19/2017. (jdh)

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
APEX PHYSICAL THERAPY, LLC,
Plaintiff,
Case No. 17-cv-00119-JPG-DGW

v.
ZACHARY BALL, TODD LINEBARGER,
and ADVANCED PHYSICAL THERAPY,
LLC,
Defendants.

MEMORANDUM AND ORDER
This matter comes before the Court on defendant Zachary Ball’s Motion (Doc. 13) to
Dismiss for Failure to State a Claim and defendant Todd Linebarger’s Motion (Doc. 14) to
Dismiss for Failure to State a Claim. The plaintiff filed a timely response to each motion. (Docs.
19 and 20).
1. Background.
This matter was initially filed in the Circuit Court of the Third Judicial Circuit, Madison
County, Illinois and removed to this Court pursuant to 28 U.S.C. §§ 1332, 1441, and 1446
(diversity of citizenship). The complaint alleges breach of contract and injunctive relief against
defendants Ball and Linenbarger and tortious interference with business expectancy and civil
conspiracy against all defendants.
Generally, the complaint alleges that the defendants, Ball and Linenbarger, worked for the
plaintiff and left to become employed by defendant Advance. Plaintiff operates a network of
physical therapy rehabilitation services for industrial clients and defendant Advance is a
competitor providing the same services.

Plaintiff alleges that once defendants Ball and

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Linenbarger became employed with Advance, they solicited the plaintiff’s customers in violation
of their employment and confidentiality agreements.
2. Standards.
When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts as true all allegations
in the complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007) (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). To avoid dismissal under Rule 12(b)(6) for failure to state a claim, a
complaint must contain a “short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). This requirement is satisfied if the complaint (1)
describes the claim in sufficient detail to give the defendant fair notice of what the claim is and the
grounds upon which it rests and (2) plausibly suggests that the plaintiff has a right to relief above a
speculative level. Bell Atl., 550 U.S. at 555; see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009);
EEOC v. Concentra Health Servs., 496 F.3d 773, 776 (7th Cir. 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.” Iqbal, 556 U.S. at 678 (citing
Bell Atl., 550 U.S. at 556).
In Bell Atlantic, the Supreme Court rejected the more expansive interpretation of Rule
8(a)(2) that “a complaint should not be dismissed for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle
him to relief,” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Bell Atlantic, 550 U.S. at 561–63;
Concentra Health Servs., 496 F.3d at 777. Now “it is not enough for a complaint to avoid
foreclosing possible bases for relief; it must actually suggest that the plaintiff has a right to relief .
. . by providing allegations that ‘raise a right to relief above the speculative level.’” Concentra
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Health Servs., 496 F.3d at 777 (quoting Bell Atl., 550 U.S. at 555).
Nevertheless, Bell Atlantic did not do away with the liberal federal notice pleading
standard. Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir.
2007). A complaint still need not contain detailed factual allegations, Bell Atl., 550 U.S. at 555,
and it remains true that “[a]ny district judge (for that matter, any defendant) tempted to write ‘this
complaint is deficient because it does not contain . . .’ should stop and think: What rule of law
requires a complaint to contain that allegation?” Doe v. Smith, 429 F.3d 706, 708 (7th Cir. 2005)
(emphasis in original).

Nevertheless, a complaint must contain “more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl.,
550 U.S. at 555. If the factual detail of a complaint is “so sketchy that the complaint does not
provide the type of notice of the claim to which the defendant is entitled under Rule 8,” it is subject
to dismissal. Airborne Beepers, 499 F.3d at 667.
The Court may review all exhibits attached to the complaint and “[w]here an exhibit and
the complaint conflict, the exhibit typically controls. A court is not bound by the party's
characterization of an exhibit and may independently examine and form its own opinions about the
document.” Forrest v. Universal Sav. Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2007).
In this matter, there is a choice of law provision that neither party challenges. The choice
of law provision mandates that the law of the State of Illinois will govern.
3. Analysis.
a.

Defendant Zachary Ball’s Motion (Doc. 13) to Dismiss for Failure to State a Claim.

Defendant Ball first moves for dismissal arguing a lack of consideration. According to
defendant Ball, he “was not employed by Plaintiff for the requisite two years in order for the
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restrictive covenant Plaintiff attempts to rely upon to be enforceable.” (Doc. 20 at 1). Mr. Ball
was employed by Apex from April 30, 2007 until August 17, 2016, but the contract at issue was
not signed until February 3, 2015.
“Illinois courts have repeatedly held that there must be at least two years or more of continued
employment to constitute adequate consideration in support of a restrictive covenant.” Fifield v.
Premier Dealer Services, Inc., 993 N.E.2d 938, 943 (Ill. App. 1st Dist. 2013). However, when a
federal court sitting in diversity applies state substantive law, it must apply the law as it believes
the highest court of the state would apply it if it were hearing the issues. State Farm Mut. Auto.
Ins. Co. v. Pate, 275 F.3d 666, 669 (7th Cir. 2001). When the highest state court has not spoken
on an issue, the federal court must give great weight to decisions of intermediate appellate courts
unless there are persuasive reasons to believe the highest court would rule differently. Id.
Five federal courts in the Northern District of Illinois and one federal court in the Central
District of Illinois have predicted that the Illinois Supreme Court will reject the Illinois appellate
court’s bright-line rule in favor of a more fact-specific approach. See Allied Waste v. Tibble, 177
F.Supp.3d 1103, 1108 (N.D. Ill. April 7, 2016); R.J. O'brien & Associates, LLC v. Williamson, 14
C 2715, 2016 WL 930628, at *3 (N.D. Ill. Mar. 10, 2016); Traffic Tech, Inc. v. Kreiter, 2015 WL
9259544, at * 5 (N.D. Ill. Dec. 18, 2015); Bankers Life & Casualty v. Miller, 2015 WL 515965 at
*4 (N.D. Ill. Feb. 6, 2015); Montel Aetnastak, Inc., v. Miessen, 998 F.Supp.2d 694, 716 (N.D. Ill.
Jan. 28, 2014)(see also LKQ Corp., v. Thrasher, 785 F.Supp.2d 737, 744 (N.D. Ill. May 23, 2011);
Cumulus Radio Corp. v. Olson, 80 F.Supp.3d 900, 909 (C.D. Ill. Feb. 13, 2015)(all concluding that
the Illinois Supreme Court would reject a two year bright-line rule in favor of a fact specific
totality-of-the-circumstances test.)
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One federal court of the Northern District of Illinois has predicted that the Illinois Supreme
Court will uphold the two-year rule. Compare, Instant Tech., LLC v. DeFazio, 40 F. Supp. 3d
989, 1010 (N.D. Ill. 2014), aff'd, 793 F.3d 748 (7th Cir. 2015) (“This court, however, predicts the
Illinois Supreme Court upon addressing the issue would not alter the doctrine established by the
recent Illinois appellate opinions, which clearly define a “substantial period” as two years or more
of continued employment.”) Although the judgment in Instant Tech was affirmed by the United
States Court of Appeals for the Seventh Circuit, the bright-line rule was not addressed on appeal.
Instant Tech., 793 F.3d 748.
This Court agrees with reasoning of the Courts that have held that the Illinois Supreme Court
will most likely reject the two year bright-line rule in favor a fact specific
totality-of-the-circumstance approach. Bright-line rules can result in unequable results. For
example, say employee “A” and employee “B” both execute restrictive contracts on the same day.
“A” works for 25 months after the contract, but “B” voluntarily terminates his employment at 23
months. Holding that the employer can only enforce the restrictive contract against employee
“A” simply because “A” was employed for an additional two months would not serve and protect
the intent of a restrictive contract. What if “B” was given additional bonuses over “A”? Or
access to more confidential information? Or was simply aware of the two year bright-line test and
knew to terminate his employment prior to hitting the magical two year mark?
The purpose of substantial consideration is to ensure that an employer could not terminate an
employee immediately after signing a non-compete or non-disclosure agreement. Substantial
consideration is intended to ensure that the employee receives a benefit from the agreement;
however, this Court believes that consideration can be comprised of benefits beyond continued
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employment for two years.

As such, substantial consideration is an issue of fact that is

undeveloped at the pleading stage. Therefore, dismissal under Federal Rule of Civil Procedure
12(b)(6) for lack of sufficient consideration is not appropriate.
Next, defendant Ball argues that provision 4.3 of the employment agreement, “is far broader
than necessary to protect Plaintiff’s interest in preventing Defendant Ball from abusing the specific
client relationships he built up during his time with the company.” He further argues that, “it is
unreasonable and unenforceable as a matter of law.” (Doc. 13 at 9). Provision 4.3 provides:
4.3
Non-Solicitation of Referral Sources. For a period of two (2) years after the
expiration, or termination of Employee's employment with Employer for any reason,
and whether voluntary or involuntary and whether for cause or without cause, Employee
will not, directly or indirectly solicit, and will not directly or indirectly contact any
existing Referral Source or identified prospective Referral Source with whom
Employee. has had direct or indirect contact or about whom Employee has learned
confidential information and/or trade secrets by virtue of his/her employment with
Employer, other than Referral Sources that Employer has not had contact with within the
two (2) years immediately preceding the expiration or termination my employment with
Employee. A "Referral Source" is a person or entity which refers or can refer patients to
Employer, such as a physician, a hospital, a physician assistant, a nurse practitioner, a
nurse case manager, or a business.

“A restrictive covenant, assuming it is ancillary to a valid employment relationship, is
reasonable only if the covenant: (1) is no greater than is required for the protection of a legitimate
business interest of the employer-promisee; (2) does not impose undue hardship on the
employee-promisor, and (3) is not injurious to the public. Further, the extent of the employer's
legitimate business interest may be limited by type of activity, geographical area, and time.”
Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 396–97 (Ill. 2011)(internal citations
omitted.) Further, “[w]hether a legitimate business interest exists is based on the totality of the
facts and circumstances of the individual case. Factors to be considered in this analysis include, but
are not limited to, the near-permanence of customer relationships, the employee's acquisition of
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confidential information through his employment, and time and place restrictions. No factor
carries any more weight than any other, but rather its importance will depend on the specific facts
and circumstances of the individual case.” Id. at 403.
As stated earlier, this matter is at the pleading stage and the parties have not been given an
opportunity to develop the necessary facts. When analyzing a Rule 12(b) motion, the question is
whether the plaintiff has describes the claim in sufficient detail to give the defendant fair notice of
what the claim is and the grounds upon which it rests, and that the claim plausibly suggests that the
plaintiff has a right to relief above a speculative level. The Court finds that plaintiff’s complaint
meets the pleading requirements with regard to defendant Ball. As such, dismissal under Federal
Rule of Civil Procedure 12(b)(6) is also not appropriate for the non-solicitation of referral sources
provision being overbroad and unenforceable.
b. Defendant Todd Linebarger’s Motion (Doc. 14) to Dismiss for Failure to State a Claim.
First, it should be noted that defendant Linebarger only executed a Confidentiality and
Nondisclosure Agreement.

There is nothing in the record to indicate that he executed an

Employment Agreement. The Non-Solicitation of Referral Sources (provision 4.3), discussed
above, is contained is the Employment Agreement and is therefore not applicable to defendant
Linebarger. However, the plaintiff’s complaint does allege that defendant Linebarger’s actions
violated the Confidentiality and Nondisclosure Agreement.
Defendant Linbarger makes the same argument as defendant Ball with regard to a lack of
consideration. He also claims that he was not employed by the plaintiff, “for the requisite two
years.” (Doc. 14 at 1). This argument fails for the reasons stated above.

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Next, defendant Linebarger argues that the confidentiality agreement “is invalid and
unenforceable on its face because it is not limited in scope, including geographic area and
duration.” (Doc. 14 at 1).
The Illinois courts have held unenforceable nearly identical provisions in
confidentiality agreements because (1) they contain no limitation on the duration of
the nondisclosure provision, instead restricting disclosure “during and subsequent
to the period of said employment,” and (2) they contain no geographical limitation
or other kind of limit on the parties to whom the employee is prohibited from
disclosing information. Confidentiality agreements without such limitations
constitute, in the view of the Illinois courts, unreasonable restraints on trade which
unduly restrict the free flow of information necessary for business competition.
AMP Inc. v. Fleischhacker, 823 F.2d 1199, 1202 (7th Cir. 1987) (internal citations omitted.),
superseded by statute, Illinois Trade Secrets Act, 765 ILCS 1065, as recognized in PepsiCo, Inc. v.
Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995).
The plaintiff makes the same argument that it tendered in response to defendant Ball’s
motion to dismiss. That is, “geography and duration go the reasonableness of the restrictive
covenant” and are fact specific.

Plaintiff again cites to Reliable Fire Equipment Co. v.

Arredondo, 9965 N.E. 393 (Ill. 2011) which held:
Factors to be considered in this analysis include, but are not limited to, the
near-permanence of customer relationships, the employee's acquisition of
confidential information through his employment, and time and place restrictions.
No factor carries any more weight than any other, but rather its importance will
depend on the specific facts and circumstances of the individual case.
Id. at 403.
However, the Reliable court was addressing a restrictive covenant not to compete – not a
confidentiality agreement. “[A] covenant not to compete is easier to enforce than a covenant that
forbids the former employee to use confidential information.” Outsource Intern., Inc. v. Barton,
192 F.3d 662, 671 (7th Cir. 1999)(Posner, dictum in dissent). But again, the Court agrees with the

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plaintiff that this is a fact specific inquiry not ripe at the pleading stage and that dismissal at this
stage is not appropriate.
4. Conclusion.
For the reasons stated above, defendant Zachary Ball’s Motion (Doc. 13) to Dismiss for
Failure to State a Claim is DENIED and defendant Todd Linebarger’s Motion (Doc. 14) to
Dismiss for Failure to State a Claim is DENIED.
IT IS SO ORDERED.
DATED: 7/19/2017
s/J. Phil Gilbert
J. PHIL GILBERT
DISTRICT JUDGE

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