Hotel Registration Data Considered Computer-Stored and Computer-Generated Business Records – IL Appeals Court

Super 8 and Motel 6 registration records take center stage in an Illinois appeals court’s discussion of the razor-thin difference between computer-stored and computer-generated business records.

In People v. Schwab, 2019 IL App (4th), a sexual assault defendant argued the trial court erroneously admitted his hotel check-in records during a jury trial that culminated in a guilty verdict and long prison sentence.

The prosecution offered hotel records into evidence at trial to place the defendant at a certain location and at a fixed date and time. Over the defendant’s hearsay objection, the trial court allowed the records into evidence. Defendant appealed his conviction and 25-year sentence.

Affirming, the appeals court first provided a useful gloss on hearsay rules generally and then drilled down to the specific rules governing business records.

Hearsay is an out of court statement offered to prove the truth of the matter asserted and is typically excluded for its inherent lack of reliability.  The business-records exception allows for the admission of a writing or record where (1) the writing or record was made as a memorandum or record of the event, (2) it was made in the regular course of business, and (3) it was the regular course of business to make the record at the time of the transaction or within a reasonable time thereafter.

Anyone familiar with a business can testify as to business records, and the original entrant (i.e. the person inputting the data) doesn’t have to be a witness for the records to get into evidence. [⁋ 37]

Additional foundation is required when a business record is contained on a computer.  Illinois courts recognize the distinction between (a) computer-stored records and (b) computer-generated records.

The foundation for admitting computer-generated records is less stringent than that governing computer-stored ones. Computer-generated records are deemed intrinsically more reliable than their computer-stored counterparts.

Print-outs of computer-stored records are admissible as a hearsay exception where (1) the computer equipment is recognized as standard, (2) the input is entered in the regular course of business reasonably close in time to the happening of the event recorded, and (3) the foundation testimony establishes that the source of information, method and time of preparation indicate its trustworthiness and justifies its admission. [⁋ 38]

For computer-generated records, the admissibility threshold is more relaxed: the proponent only needs to show the recording device was accurate and operating properly when the data was generated.

The Court found that the Super 8 reservation records were computer-generated (and therefore subject to less stringent admissibility rules). The hotel’s front desk clerk’s trial testimony established that the hotel’s reservation record was automatically generated by a hotel computer at the time someone books a reservation.

According to the Court, that data may have originally been input into a third-party website (like Priceline or Expedia) didn’t cast doubt on the records’ reliability.  All that mattered was that the registration record was created automatically and contemporaneously (with the on-line reservation) to qualify as computer-generated records.

The Court agreed with the defendant that two Motel 6 records offered as prosecution trial exhibits were computer-stored. The court found that the computer records created when a guest checked in required the hotel clerk to scan the guest’s identification card and to manually input the guest’s check-in and check-out times and payment information. Since this information was the end result of human data entry, the records were deemed computer-stored.

Even so, the Court found that the State sufficiently laid the foundation for the computer-stored data. The Court credited the Motel 6 hotel clerk’s testimony that the franchise’s check-in procedures were uniform and the hotel’s computer booking system was standard in the hospitality industry.  Taken together, the testimony concerning Motel 6’s integrated check-in processes and its use of industry-standard reservation software was enough to meet the computer-stored evidence admissibility threshold.

Afterwords: Despite Schwab’s disturbing fact-pattern, the case has value for civil and criminal trial practitioners alike for its trenchant discussion of business records exception to the hearsay rule and the admissibility standards for computer-generated and computer-stored records.

Utah Default Judgment Not Subject to Full Faith and Credit in IL: No Long-Arm Jurisdiction Over Illinois Defendant Equals Void Judgment

Snap Advances, LLC v. Macomb Office Supply, Inc., 2019 IL App(1st) 180773-U examines the enforceability of a Utah judgment against an Illinois-based college bookstore operator.

There, a Utah business lender sued a defunct bookstore, its owner and corporate successor in Utah state court for breach of contract. The underlying contract (signed by the plaintiff and dissolved corporate predecessor) had Utah choice-of-law and venue terms. No defendant appeared in the Utah case and the plaintiff won a default judgment.

After the plaintiff registered the Utah default judgment in Illinois, the Illinois  court granted the successor company’s motion to vacate the Utah default judgment and dismissed the post-judgment proceedings. The plaintiff appealed.

Affirming, the appeals court first held that under the full faith and credit clause of the U.S. Constitution, every court must validate a foreign court’s judicial proceedings. The Uniform Enforcement of Judgments Act, 735 ILCS 5/12-650 et seq. also prevents an enforcing court from considering the merits of a foreign judgment.

But two instances where an enforcing court will look into the merits of a foreign judgment are where (1) the rendering court lacked jurisdiction over the defendant/judgment debtor, or (2) there is fraud in the procurement of the judgment.

This is so because a foreign judgment is not entitled to full faith and credit where an underlying defect (such as lack of jurisdiction) voids the judgment.  However, where the rendering court (here, Utah) specifically finds that it does have jurisdiction over a defendant, its ruling is conclusive and cannot be challenged by the enforcing court (Illinois).

But where the rendering court does not specifically rule on the jurisdiction question, the enforcing court can examine the rendering court’s jurisdiction. [⁋⁋ 22-23]

Since the Utah judgment was silent as to whether the Illinois-based successor company was subject to Utah jurisdiction, the Illinois court could look into whether the Utah court had jurisdiction over the successor defendant.  To do this, the Illinois court looked to Utah’s long-arm jurisdiction and Federal due process principles.

A Utah court has long-arm jurisdiction over a foreign defendant where a defendant does business in Utah, contracts to supply goods or services there, causes injury in Utah or owns Utah real estate. Utah Code Ann. s. 78B-3-205 (West 2016). Federal due process requires an out-of-state defendant to have minimum contacts with a foreign jurisdiction such that it should reasonably anticipate being sued there.

Since the record was silent as to any acts the Illinois successor did in Utah that could support either long-arm jurisdiction or Federal due process concerns, there was no basis for Utah jurisdiction over the Illinois successor entity.

The court rejected the plaintiff’s argument that the successor consented to Utah jurisdiction based on the predecessor’s assent to Utah law and venue provisions. Since the successor was not a party to the contract, there was nothing tying it to the contractual Utah choice-of-law and venue terms.

The court also nixed the plaintiff’s claim that since the Illinois defendants were served in Utah, they were subject to Utah jurisdiction. But, as the court astutely remarked, “service does not confer jurisdiction.”

Even if the Illinois defendant was property served in Utah, the Court continued, a defendant did not have to appear in Utah or respond to the Utah lawsuit. Instead, it could wait until the Utah judgment was registered in Illinois and then seek to vacate the Utah judgment.

But the defendant’s conduct didn’t go unnoticed by one of the appellate judges.  In a special concurrence, Judge Pucinski decried the business owner’s “slick” grifter-like financial “shell trick” where the owner plainly engineered the transfer of the defunct book store’s assets to a new buyer – the Illinois successor –  that operated from the same location, with the same inventory and identical personnel as the prior company.

Judge Pucinski worried about the possible chilling effect the majority’s ruling could have on out-of-state companies doing business with Illinois companies: a foreign company could be dissuaded from commerce with Illinois entities if Illinois courts would not hold their companies accountable for successor liability.

In the end though, the concurring judge sided with the majority. She cited a lack of record evidence that the Illinois successor was subject to Utah jurisdiction and a lack of Utah case law that stood for proposition that a corporate successor was bound by a predecessor’s contractual consent to jurisdiction in a sales contract. [⁋ 51]

Afterwords:

The case illustrates the limits of the Full Faith and Credit in the context of interstate jurisdictional disputes.

Snap Advances also demonstrates that where there is no evidence of a corporate successor’s consent to foreign state jurisdiction, a default judgment entered there could have no effect here.

The case also cements proposition that contractual choice-of-law and venue terms consented to by a corporate predecessor won’t bind its successor.

IL ND Considers Conflicts of Laws and Inevitable Disclosure Doctrine in Employee Non-Solicitation and Trade Secrets Spat

When some  high-level General Electric employees defected to a Chicago rival, GE sued for trade secrets theft and for violations of employee non-solicitation and confidentiality agreements.

Partially granting and partially denying the employee defendants’ motions, the District Court in General Electric Company v. Uptake Technologies, Inc., 2019 WL 2601351 (N.D.Ill. 2019) provides a thorough choice-of-law analysis and discusses the trade secrets case inevitable disclosure doctrine.

Non-Solicitation Agreement: What State’s Law Applies – New York or California?

The first choice-of-law question involved GE’s non-solicitation agreement (the NSA). GE argued that New York law applied since that was what the NSA specified. For their part, the defendants argued that California law controlled the NSA since that is where they were based when they worked for GE and because California law voids employment restrictive covenants.

In Illinois (a federal court exercising supplemental jurisdiction over state-law claims applies the choice-of-law rules of the forum state – here, Illinois), a choice-of-law provision governs unless (1) the chosen forum has no substantial relationship to the parties or the transaction, or (2) application of the chosen law is contrary to a fundamental public policy of a state with a materially greater interest in the issue in dispute.

A party challenging a contractual choice-of-law provision bears the burden of demonstrating a difference in two states’ laws – a conflict – and that the conflict will make a different in the outcome of the lawsuit.

Under New York law, a restrictive covenant in an employment agreement is reasonable if it is no greater than required to protect a legitimate interest of an employer, does not impose an undue hardship on the employee and is not injurious to the public. New York court also consider the temporal and geographic reach of restrictions.

The court found that the NSA’s were enforceable under New York law. It noted that GE was a global company, the one-year term was reasonable and the restriction was narrowly-tailored to high-level employees.

By contrast, California Code Section 16600 voids any contract “by which anyone is restrained from engaging in a lawful profession, trade or business of any kind.” The Court found the NSA was likely void under California law, but it wasn’t a cut-and-dried issue since there is a clear split in California case authorities: some courts enforce non-solicitation agreements; others don’t.

This schism in the California courts signaled an unclear California policy which led the Court to ultimately conclude that applying New York law did not clearly impinge on a fundamental California public policy. [*6]

The Court then found that GE sufficiently alleged the required elements of a breach of contract claim against the defendants and denied the defendants’ motion. (The court did grant the motion filed by the lone employee whose NSA specified California law would govern.)

GE’s Trade Secrets Claim – What Law Governs?

Illinois’s choice-of-law rule for trade secret misappropriation focuses on where the misappropriation occurred or where the defendant benefitted from the misappropriation.

Since Uptake’s (the individual defendants’ corporate employer) principal place of business is in Illinois and the defendants allegedly pilfered GE’s trade secrets there, Illinois law governed GE’s trade secrets claim.

Illinois recognizes the “inevitable disclosure doctrine” which allows a trade secrets plaintiff to show misappropriation by showing a defendant’s new employment “will inevitably lead him to rely on the plaintiff’s trade secrets.”

The plaintiff must allege more than that an erstwhile employee’s general skills and knowledge will be used to benefit a new employer. Instead, the plaintiff must focus on protecting “particularized plans or processes” a defendant was privy to which are unknown to industry competitors and could give the new employer an unfair advantage over the plaintiff. [*9][citing to PepsiCo v. Redmond, 54 F.3d 1262 (7th Cir. 1995).

In evaluating whether disclosure is inevitable, the Court considers (1) the level of competition between former and current employer, (2) whether employee’s new position is similar to former position, and (3) actions new employer has taken to protect against the new employee’s use or disclosure of former employer’s trade secrets.

Since GE alleged that Uptake is a competitor in the data analytics market for industrial machinery and the defendants’ Uptake positions are similar to their former GE ones, the Court found GE sufficiently pled an ITSA claim under the inevitable disclosure doctrine.

Afterwords:

This case illustrates in sharp relief how convoluted and important choice-of-law questions are when different employment agreement sections apply different states’ laws.

The case also provides a useful summary of the key considerations litigators should hone in on when alleging (or defending) trade secrets misappropriation claims based on the inevitable disclosure doctrine.