Happ's, Inc. v. Strategic Rail LLC
1:18-cv-04135
N.D. Ill.May 15, 2019Background
- Happ’s, a railroad salvage company, sued former employees Travis and Dianna Gustafson and their new company Strategic Rail LLC for trade-secret misappropriation, ICFA violations, conversion, tortious interference, and breach of fiduciary duty after the Gustafsons left to compete.
- Travis was a field supervisor with customer contacts; Dianna was an office manager with access to pricing, bids, and internal documents. Both incorporated Strategic Rail in Oct. 2017 and were terminated in Dec. 2017 after Happ’s learned of the new company.
- Allegations: Strategic Rail performed work for customers while misrepresenting affiliation with Happ’s; Dianna emailed to herself Happ’s employee handbook, safety manual, and FRA compliance plan and created a pricing spreadsheet from Happ’s master service agreement; Travis used company vehicle/funds and transferred his company phone number to a personal phone to run Strategic Rail business.
- Procedural posture: Gustafsons moved to dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) for lack of subject-matter jurisdiction (amount in controversy) and failure to state claims; the court considered facts as pled and some jurisdictional evidence.
- Court found Happ’s plausibly alleged damages exceeding $75,000 (including conceded recovery amount and value of misappropriated opportunities) and denied the jurisdictional challenge.
- On the merits, the court held Happ’s adequately pled conversion of confidential information, misappropriation under the Illinois Trade Secrets Act, ICFA claims with the required particularity, tortious interference, and breach of fiduciary duty at the pleading stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Amount in controversy for diversity jurisdiction | Damages from misappropriation and lost business exceed $75,000 | Recovery limited to Gustafsons’ salaries for Oct–Dec 2017; contested valuation of documents | Court: pleadings plausibly satisfy >$75,000; defendants’ limit unsupported |
| Conversion of proprietary/confidential materials | Confidential documents were converted because defendants deprived Happ’s of their benefit | Documents are intangible intellectual property not subject to conversion | Court: Illinois recognizes conversion of confidential information; claim adequately pled |
| Illinois Trade Secrets Act — existence/misappropriation | Documents were secret, disclosed only to need-to-know persons, and were improperly acquired | Documents aren’t trade secrets (shared with customers/employees/FRA) or were freely available | Court: allegations of limited disclosure and unauthorized downloading suffice at pleading stage |
| ICFA claim | Misrepresentations to customers about affiliation deceived market and caused billing/harms; competitors can sue under ICFA | Happ’s is not a consumer; allegations insufficiently particular | Court: competitors may bring ICFA claims where market/consumer interests implicated; allegations meet Rule 9(b) pleading requirements |
| Tortious interference with business expectancy | CP was misled into treating Strategic Rail work as Happ’s and future opportunities were diverted | No specific customers or reasonable expectancy alleged | Court: allegations identifying Canadian Pacific and redirected opportunities suffice at pleading stage |
| Breach of fiduciary duty | Former employees breached duties by misusing company resources and soliciting business | Dismissal of other counts defeats fiduciary claim | Court: fiduciary-duty claim plausibly alleged and survives dismissal motion |
Key Cases Cited
- Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (jurisdictional burden and review) (court may consider evidence beyond pleadings for 12(b)(1))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard — plausible claim required)
- Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732 (ICFA claims and Rule 9(b) particularity)
- Delta Med. Sys. v. Mid-Am. Med. Sys., Inc., 331 Ill. App. 3d 777 (definition of trade secret under Illinois law)
- RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (trade-secret secrecy via limited disclosure; misappropriation via unauthorized acquisition)
- Conant v. Karris, 165 Ill. App. 3d 783 (recognizing conversion of confidential information)
- Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 285 F.3d 1353 (misappropriation includes improper acquisition such as unauthorized downloading)
- Avila v. CitiMortgage, Inc., 801 F.3d 777 (elements of breach of fiduciary duty)