Archives for September 2015

Illinois Court Examines Trade Secrets Act and Inevitable Disclosure Doctrine In Suit Over Employee Wellness Health Program

The plaintiff workplace wellness program developer sued under the Illinois Trade Secrets Act in Destiny Health, Inc. v. Cigna Corporation, 2015 IL App (1st) 142530, alleging a prospective business partner pilfered its confidential data.

Affirming summary judgment for the defendants, the First District appeals court asked and answered some prevalent trade secrets litigation questions.

The impetus for the suit was the plaintiff’s hoped-for joint venture with Cigna, a global health insurance firm.  After the parties signed a confidentiality agreement, they spent a day together planning their future business partnership.  The plaintiff provided some secret actuarial and marketing data to Cigna to entice the firm to partner with plaintiff.  Cigna ultimately declined plaintiff’s overtures and instead teamed up with IncentOne – one of plaintiff’s competitors.  The plaintiff sued and claimed that Cigna incorporated many of plaintiff’s program elements into Cigna’s current arrangement with IncentOne.  The trial court granted Cigna’s motion for summary judgment and plaintiff appealed.

Held: Affirmed.

Rules/Reasons:

On summary judgment, the “put up or shut up” moment in the lawsuit, the non-moving party must offer more than speculation or conjecture to beat the motion.  He must point to evidence in the record that support each element of the pled cause of action.  In deciding a summary judgment motion, the trial court does not decide a question of fact.  Instead, the court decides whether a question of fact exists for trial.  The court does not make credibility determinations or weigh the evidence in deciding a summary judgment motion.

The Illinois Trade Secrets Act (765 ILCS 1065/1 et seq.) provides dual remedies: injunctive relief and actual (as well as punitive) damages for misappropriation of trade secrets.  To make out a trade secrets violation, a plaintiff must show (1) existence of a trade secret, (2) misappropriation through improper acquisition, disclosure or use, and (3) damage to the trade secrets owner resulting from the misappropriation. (¶ 26)

To show misappropriation, the plaintiff must prove the defendant used the plaintiff’s trade secret.  This can be done by a plaintiff offering direct (e.g., “smoking gun” evidence) or circumstantial (indirect) evidence.  To establish a circumstantial trade secrets case, the plaintiff must show (1) the defendant had access to the trade secret, and (2) the trade secret and the defendant’s competing product share similar features.  (¶ 32)

Another avenue for trade secrets relief is where the plaintiff pursues his claim under the inevitable disclosure doctrine.  Under this theory, the plaintiff claims that because the defendant had such intimate access to plaintiff’s trade secrets, the defendant can’t help but (or “inevitably” will) rely on those trade secrets in its current position.  However, courts have made clear that the mere sharing of exploratory information or “preliminary negotiations” doesn’t go far enough to show inevitable disclosure.

Here, there was no direct or circumstantial evidence that defendant misappropriated plaintiff’s actuarial or financial data.  While the plaintiff proved that defendant had access to its wellness program components, there were simply too many conceptual and operational differences between the competing wellness programs to support a trade secrets violation.  These differences were too stark for the court to find misappropriation. (¶ 35)

Plaintiff also failed to prove misappropriation via inevitable disclosure.  The court held that “[a]bsent some evidence that Cigna [defendant] could not have developed its [own] program without the use of [Plaintiff’s] trade secrets,” defendant’s access to plaintiff’s data alone was not sufficient to demonstrate that defendant’s use of plaintiff’s trade secrets was inevitable.  (¶¶ 40-42).

Afterwords:

A viable trade secrets claim requires direct or indirect evidence of use, disclosure or wrongful acquisition of a plaintiff’s trade secrets;

Access to a trade secret alone isn’t enough to satisfy the inevitable disclosure rule.  It must be impossible for a defendant not to use plaintiff’s trade secrets in his competing position for inevitable disclosure to hold weight;

Preliminary negotiations between two businesses that involve an exchange of sensitive data likely won’t give rise to an inevitable disclosure trade secrets claim where the companies aren’t competitors and there’s no proof of misappropriation.  To hold otherwise would stifle businesses’ attempts to form economically beneficial partnerships.

 

Basketball Deity Can Add Additional Plaintiff in Publicity Suit Versus Jewel Food Stores – IL ND (the ‘Kriss Kross Will Make You…Jump’ Post(??)


There’s No Way(!) I’m going to simply pull-and-post just any Google Image of His Airness and hope no one sees it (or, more accurately, takes it seriously enough to engage in some copyright saber-rattling about it).  Not after Michael Jordan is fresh off his nearly $9M Federal jury verdict in a publicity suit against erstwhile Chicago grocer Dominick’s and its parent company.  I didn’t even know he filed a companion suit – this one against Jewel Food Stores – another iconic Midwest grocery brand – pressing similar publicity claims against the chain for using his image without his permission.  Now I do.

In fact, just a couple days before that Friday night Federal jury verdict in the Dominick’s suit, Jordan successfully moved to add his loan-out company1, Jump 23, Inc. as a party plaintiff in his Jewel suit.  The Jewel case, like its Dominick’s case counterpart, stems from Jewel’s use of Jordan’s likeness in an ad congratulating him on his 2009 hoops Hall of Fame induction.

In granting Jordan’s motion to add the Jump 23 entity, the court in Jordan v. Jewel Food Stores, Inc., 2015 WL 4978700 (N.D.Ill. 2015), quite naturally, drilled down to the bedrock principles governing amendments to pleadings in Federal court as expressed in the Federal Rules of Civil Procedure.

In the Federal scheme, Rule 15 controls pleading amendments and freely allows amendments to pleadings “when justice so requires.”  Rule 15(c)(1)(C) governs where an amended claim is time-barred (filed after the statute of limitations expires) and seeks to add a new claim or a new party.  If the party or claim to be added stems from the same transaction as the earlier pleading, the amended pleading will “relate back” to the date of the timely filed claim.

Assuming an amended claim arises out of the same conduct, transaction or occurrence as the earlier (and timely) claim, the (normally) time-barred claim will be deemed timely as long as the party to be brought in by the amendment (1) received such notice of the action that it will not be prejudiced in defending the suit on the merits; and (2) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party’s identity.

While Rule 15 only speaks to bringing in additional defendants, it’s rationale extends to situations where a party seeks to add a new plaintiff.  Delay alone in adding a party (either plaintiff or defendant) usually isn’t enough to deny a motion to amend to add a new party. Instead, the party opposing amendment (here, Jewel) must show prejudice resulting from the joined party.  Prejudice here means something akin to lost evidence, missing witnesses or a compromised defense caused by the delay.

In this case, the court found there was no question that the Jump 23 entity was aligned with Jordan’s interests and its publicity claim was based on the same conduct underlying Jordan’s.  It also found there was no prejudice to Jewel in allowing Jump 23 to be added as co-plaintiff.  The court noted that Jump 23’s addition to the suit didn’t change the facts and issues in the case and didn’t raise the specter of increased liability for Jewel.  In addition, the court stressed that Jewel is entitled to use the written discovery obtained in the Dominick’s case.  As a result, Jewel won’t be exposed to burdensome additional discovery by allowing the addition of Jump 23 as plaintiff.

Take-away:

This case provides a good summary of Rule 15 amendment elements in the less typical setting of a party seeking to add a plaintiff as a party to a lawsuit.  The lesson for defendants is clear: delay alone isn’t severe enough to deny a plaintiff’s attempt to add a party.  The defendant (or person opposing amendment) must show tangible prejudice in the form of lost evidence, missing witnesses or that its ability to defend the action is weakened by the additional parties’ presence in the suit.

Jordan versus Jewel is slated for trial in December 2015.  I’m interested to see how the multi-million dollar Dominick’s verdict will impact pre-trial settlement talks in the Jewel case.  I would think Jordan has some serious bargaining leverage to exact a hefty settlement from Jewel.  More will be revealed.

  1. Loan-out company definition (see http://www.abspayroll.net/payroll101-loan-out-companies.html)

 

Piercing the Corporate Veil Not a Standalone Cause of Action: It’s A Remedy – IL Court Rules

Gajda v. Steel Solutions Firm, Inc., 2015 IL App (1st) 142219, stands as a recent discussion of the standards governing section 2-619 motions, successor liability and whether piercing the corporate veil is a cause of action or only a remedy for a different underlying legal claim.

The plaintiffs alleged they were misclassified as independent contractors instead of employees under the Illinois Employee Classification Act (820 ILCS 185/60) by their employer and one of its principals.  The plaintiffs sued under piercing the corporate veil and successor liability theories.  The trial court dismissed all of the plaintiffs’ claims and they appealed.

Reversing the trial court and sustaining the bulk of plaintiffs’ claims, the First District stressed some important recurring procedural and substantive rules in corporate litigation.

Piercing the corporate veil – Standalone cause of action or remedy?

Answer: remedy.  In Illinois, piercing the corporate veil is not a cause of action but is instead a “means of imposing liability in an underlying cause of action.”  In the usual piercing setting, once a party obtains a judgment against a corporation, the party can then “pierce” the corporate veil of liability protection and hold the dominant shareholder(s) responsible for the corporate obligation.  Piercing can also be used to reach the assets of an affiliated or “sister” corporation.

Here, since the plaintiff captioned their first count as one for piercing the corporate veil, the trial court properly dismissed the claim on defendant’s Section 2-615 motion since piercing isn’t a recognized cause of action in Illinois.  (¶¶ 19-24).  However, the court did find that the plaintiff’s factual allegations that the defunct predecessor and its successor were alter-egos of each other, that they commingled one another’s funds and made improper loans to each other were sufficient to state a claim for piercing the corporation veil as a remedy (not a separate cause of action).  (¶ 25).

Successor Liability

The court then applied Illinois’ established successor liability rules to both the defunct and current employers.  A company that purchases another company’s assets normally isn’t responsible for the purchased company’s debt.  Exceptions to this rule against corporate successor non-liability include (1) where there is an express or implied agreement or assumption of liability; (2) where a transaction amounts to a consolidation or merger of the buyer and seller companies; (3) where the buying entity is a “mere continuation” of the selling predecessor entity; and (4) where the transaction is fraudulent in that it is done so that the selling entity can evade liability for its financial obligations. (¶ 26).

Here, the plaintiff’s allegations that showed an overlap in the buying and selling entities’ management and employees as well as the complaint’s assertions that the predecessor and successor companies were commingling funds were sufficient to make out a case of mere continuation successor liability. (¶ 26).

Afterwords:

This case cements proposition that piercing isn’t a standalone cause of action – but is instead a remedy where there is an underlying failure to follow corporate formalities.  The case is also useful for its providing some clues as to what facts a plaintiff must allege to state a colorable successor liability claim under Illinois law.