The Fifield Case: Two Years of Continuous Employment = Sufficient Consideration to Enforce Restrictive Covenants

In Fifield v. Premier Dealer Services, Inc. 2013 IL App (1st) 120327, http://www.state.il.us/court/Opinions/AppellateCourt/2013/1stDistrict/1120327.pdf the Court squarely held that two years of continued employment is required to uphold a noncompetition or nonsolicitation provision.

 Facts and Procedural History

Plaintiff resigned about three months after starting his job as an insurance salesman and went to work for a competing firm.  He preemptively sued his former employer seeking a declaration that the noncompete he signed wasn’t enforceable. employment contract were unenforceable.  The trial court agreed and granted summary judgment   for the plaintiff.  The employer appealed.

Held: Affirmed. 

Rules/Reasoning:

Court rejected the employer’s two main arguments: that (1) the two-year consideration rule didn’t apply because the Plaintiff signed the restrictive covenants before he was hired (and so this wasn’t really a post-employment restriction at all); and (2) the offer of employment itself was sufficient consideration to support the noncompete and nonsolicitation provisions – since Plaintiff was free to refuse to sign the employment contract and go work somewhere else. 

The Court held it didn’t matter whether Plaintiff signed the covenants before or after he was hired since at-will employment can constitute an “illusory benefit” as the employer can fire (and the employee can quit) at any time for any reason.

The Court also held that the two years of continued employment consideration rule applies even where an employee resigns on his own (like Plaintiff).  Fifield, ¶ 19.  And since Plaintiff was only employed for a little more than 3 months after he signed the noncompete, this fell far chronologically short of the requisite two-year period.  Fifield, ¶ 19.  In addition, the “first-year provision” (Plaintiff’s firing without cause during first employment year nullifies restrictive covenants) didn’t affect the Court’s analysis: “at most, [Plaintiff’s] employment was only protected for one year, which is still inadequate under Illinois law.”  Id.

 Take-away: Fifield could spell trouble for employers because it seems to open the door for employees to breach restrictive covenants with impunity – so long as they resign within two years of their start date.  The case also shows that courts may view at-will employment as “illusory benefit” and deem such employment insufficient consideration to enforce post-employment restrictions.  In addition, based on the Court’s discussion of the “first year provision”, employers may be well-served by providing that restrictive covenants won’t bind the employee if he’s fired without cause within two years of his start date.  This would seem to make it easier for an employer to argue that post-employment restrictions are enforceable.     

 

Can a LinkedIn Account Be Stolen (or Converted)?

Earlier I discussed the three claims on which plaintiff prevailed at trial (albeit with no damages) against her former employer, Edcomm.  For symmetry’s sake, I now summarize the five state law claims which defendant won. 

These claims are (1) identity theft, (2) conversion, (3) tortious interference with contract, (4) civil conspiracy, and (5) civil aiding and abetting.  In analyzing these claims, the Pa. district court assessed some creative attempts to adapt and expand common law tort rules to a modern-day computerized context. 

(1) Claim and Factual Basis: Identity Theft.  Edcomm used plaintiff’s “identifying information” (see 18 Pa. Cons. Stat. s. 4120(a)) without plaintiff’s permission when it hijacked her LinkedIn account and replaced plaintiff’s credentials with those of plaintiff’s successor (can you say “salt in the wound”?).

Ruling and Reasoning: Identity theft claim fails.  Plaintiff’s name was publicly available and never possessed by Edcomm.   Also, Edcomm inadvertently left plaintiff’s “honors and awards” on Morgan’s LinkedIn page. 

Plaintiff’s honors and awards are not sufficient identifying information such that someone who viewed Morgan’s page would think he was actually viewing plaintiff’s page.  In addition, because Edcomm didn’t purposefully leave plaintiff’s honors and awards on plaintiff’s former LinkedIn page, plaintiff couldn’t show that Edcomm used plaintiff’s information for an improper purpose.  * 9.

(2) Claim and Factual Basis: Conversion.  Edcomm effectively stole or “converted” plaintiff’s LinkedIn account – which is plaintiff’s property or chattel.

 Ruling and Reasoning: Conversion claim fails because a LinkedIn account is not the type of “tangible property” (touchable, feelable, palpable, e.g.) contemplated by a conversion suit. 

Software, domain names and satellite signals are intangible property not subject to conversion under Pennsylvania law.  A LinkedIn account is “an intangible right to access a specific page on a computer”; it is not palpable property that can be converted.  *9-10.

(3) Claim and Factual Basis: Tortious interference with contract.  Edcomm tortiously interfered with plaintiff’s contract with LinkedIn when Edcomm blocked plaintiff’s access from the page.

Ruling and Reasoning.  The claim fails.  Plaintiff definitely has a contract right in her LinkedIn account by virtue of the User Agreement and Edcomm definitely interfered with that contractual relationship. 

However, plaintiff regained control of her account within a month of being fired and she could not prove measurable monetary loss.  No damages = no tortious interference under Pa. law.

(4) Claim and Factual Basis: Civil Conspiracy.  Edcomm and individual employee defendants conspired to misappropriate and damage plaintiff’s LinkedIn account.

Ruling and Reasoning: Plaintiff fails to prove a civil conspiracy.  A corporate defendant and employees or agents of that corporation cannot conspire with each other under the intra-corporate conspiracy doctrine.  

Plaintiff didn’t show malice (a required conspiracy element under Pa. law): that defendants’ sole purpose was to injure plaintiff (as opposed to keeping what Edcomm believed to be company property).     *11.

(5) Claim and Factual Basis: Civil Aiding and Abetting. The individual Edcomm agents aided and abetted in Edcomm’s misappropriation of plaintiff’s identity.

Ruling and Reasoning: Judgment for defendant.  While plaintiff proved an actionable wrong: misappropriation of publicity, invasion of privacy and unauthorized use of name, plaintiff failed to show individual defendants’ “substantial assistance” in the wrongful conduct.  Since plaintiff did not provide the court with sufficient evidence of each individual’s actions, plaintiff’s civil aiding and abetting claim failed.

Parting Shots:

– Pirating a social media account is not conversion; since the account is an intangible right to access a computer page rather than tangible property;

– A civil conspiracy claim requires concerted activity by at least two or more persons, and that a corporation cannot, by definition, conspire with its own agents.

Recovering Your Attorneys Fees In Litigation: Illinois’ 8 Factored Test

A recent Illinois Fourth District case provides a quick summary of  the factors a court considers when determining prevailing party attorneys’ fees under the Illinois Consumer Fraud Act (CFA) and spotlights the “mere continuation” exception to the rule governing corporate successor liability.

In Clayton v. Planet Travel Holdings, 2013 IL App (4th) 120717, the plaintiffs sued a travel agency, a successor agency and the principal of both agencies for consumer fraud and breach of contract based on a botched vacation package.

Plaintiff sought to recover the $11,000-plus deposit plaintiffs made when the travel agency failed to timely book a group trip.  After a bench trial, the court awarded the plaintiffs just under $6,000 in compensatory damages and attorneys’ fees and costs of over $30,000.  All three defendants – the predecessor and successor agencies and the corporate principal appealed.

Held: Affirmed.

Attorneys’ Fees Factors

The Appellate Court affirmed the trial court’s damage and fee awards noting that the CFA allows the winning party to recover its reasonable attorneys’ fees.  815 ILCS 505/10a(c); Clayton, ¶ 24.

The factors a court considers when determining what is a reasonable fee are: (1) the skill and standing of the attorney; (2) nature of the case; (3) novelty or difficulty of the issues and work involved; (4) importance of the matter; (5) degree of responsibility required; (6) the usual and customary charges for comparable services; (7) benefit accruing to the client; and (8) whether the was a reasonable connection between the fees charged and amount involved in the litigation. ( ¶ 25)

A trial court is able to use its own knowledge, experience and case familiarity in examining the fee question and its award is reviewed under an abuse of discretion standard.  (¶ 25).  The Appellate Court found that the plaintiffs properly documented their fees and costs and claimed fees of over $30,000 was reasonable for over four years of work.  Id., ¶ 30.

Mere Continuation Exception

The Fourth District also affirmed the trial court’s money judgment against the agencies’ principal.  He operated the predecessor agency for several years, sold its assets to himself for $1, later dissolved it and then formed a “new” agency with an almost identical name.

However, in the 13-month interim period between the dissolution of the first company and formation of the second one, The principal continued to operate the travel agency business as a sole proprietorship. (¶¶ 36, 41)

The “mere continuation” rule is an exception to the general rule that a successor corporation is not liable for the transferor’s debts. The exception applies where “the purchasing corporation is merely a continuation or reincarnation of the selling corporation” or where the new corporation maintains the same or similar management and ownership, but “merely wears different clothes”.  ¶ 40.  In any mere continuation calculus, the key element is identity of ownership.

Held: Corporate officer is personally liable for the judgment under the mere continuation rule.

Reason: After the dispute with plaintiffs had already crystallized, the corporate principal engineered the sale of the predecessor agency to himself for a dollar and continued to operate the business as a sole proprietorship. (¶ 41).

Some 13 months later, the principal formed the similarly named successor agency.  During that time span, the principal operated the sole proprietorship from the same address and used the same checking accounts as the prior corporation.  He also filed tax returns on behalf of both Agencies entities and generally operated the travel business without interruption.  Id.

Based on these factors, the Court found that all three same-sounding travel businesses shared a common ownership. ¶ 41. The Court held that  the principal  couldn’t escape personal liability for the corporate debts because he continued the travel business as a sole proprietorship after the former agency dissolved.  ( ¶ 42)

Conclusion: Clayton is instructive on the factors an Illinois court considers when passing on an attorney fee petition and in discussing the mere continuation rule for corporate successor liability.  The case’s main lesson is that if a corporate agent  dissolves a corporation and later forms a separate company – but continues to run the business as a “dba” or sole proprietorship in the interim – that agent can be personally responsible for any obligations arising before the new corporation is formed.