Before the Court are Cross-Motions for Partial Summary Judgment. Plaintiffs Act II Jewelry, LLC, Kiam Equities Corp. ("KEC"), F-Five LLC, Victor K. Kiam, III, and Elena Kiam (collectively, "Act II") move for summary judgment on the breach of fiduciary duty claim and all remaining counterclaims. Defendants Elizabeth Ann Wooten, Adornable-U, LLC, Nicole Mead, Shannon Eckels, and Becka Daun (collectively, "Adornable-U" or "Defendants") move for summary judgment on Act II's trade secret and breach of contract claims. For the reasons stated herein, Act II's Motion for Summary Judgment and Adornable-U's Motion for Summary Judgment are granted in part and denied in part. Act II's Motion for Summary Judgment is granted as to the tortious
I. BACKGROUND
The Court assumes familiarity with the underlying facts of this case as recited in its previous opinions [ECF Nos. 90, 95, 252]. See, generally, Act II Jewelry, LLC v. Wooten,
Plaintiff Act II Jewelry, LLC was in the jewelry sales industry. (Defs.' Resp. to Pls.' Facts, Dkt. No. 307, ¶ 4.) It marketed and sold jewelry by having a network of sales representatives hold parties in customers' homes, commonly known as the "party plan" business model. (Id. ) Ann Wooten was employed as Vice President of Product Development by Act II for approximately three and a half years from July 2011 to February 9, 2015. (Id. ) As Vice President of Product Development, Wooten, and her team, selected, developed, and designed Act II's line of jewelry. (Id. ¶ 5.)
On December 1, 2014, Act II announced it would be winding down its direct-selling, party plan jewelry business in the United States and Canada and its sales advisors would be selling its Fall/Winter 2014 collection at discounted prices through December 31, 2014. (Id. ¶ 8.) To ensure an orderly wind down process, Act II entered into a Key Employee Incentive Bonus Agreement (the "Incentive Agreement") with several employees, including Wooten.
The Incentive Agreement provided financial incentives for Wooten to remain employed with Act II and work diligently during the wind down period. (Dkt. No. 307, ¶ 8.) The Incentive Agreement included a reaffirmation of a previously agreed to Non-Disclosure Agreement stating that all trade secrets Wooten obtained during her employment were to be held in confidence solely in connection with and for the purposes of employment with Act II. (Id. ¶ 7.) The Incentive Agreement also specifically allowed Wooten to continue working in the jewelry field, stating that nothing in the agreement would prevent Wooten from "continuing her work as a jewelry designer, as long as [Wooten] does not infringe on any intellectual property belonging to the Company." (Id. ¶ 10.) Finally, the Incentive Agreement entitled Wooten to severance and bonus pay if she acted in accordance with the agreement so long as she was not terminated for cause. (Id. ¶ 11.)
Act II terminated its normal business at the end of December 2014, and ceased all operations as of March 7, 2015. (Pls.' Resp. to Defs.' Facts, Dkt. No. 294, ¶ 47.) Act II has not engaged in any business since March 7, 2015. (Id. )
When Act II decided to close shop, Wooten decided to open her own business in the same industry. The crux of the dispute between the parties here is the propriety of Wooten's activities from the fall of 2014 to her termination date with Act II on February 9, 2015. The parties tell very different stories of what occurred during this period. The Court outlines each parties' rendition in turn.
Wooten tells a very different story. According to Wooten, she was always up front with Act II and its owners about her plans to continue in the business after Act II shut down. In September 2014, Wooten disclosed to Act II that, in light of the fact that Act II was going out of business, she wished to start her own company and enter into the direct-sales jewelry business. Wooten spoke with Act II personnel about her new business plans several times over the course of the next two months. Act II's owners expressed support and said they had no objection to Wooten starting her own direct-sales jewelry company and working with former Act II Sales Advisors. With Act II's blessing, Wooten incorporated Adornable-U, a direct-selling jewelry business on October 30, 2014.
According to Wooten, at no point during Act II's winding down process did she ever use or misappropriate any of Act II's trade secret information for the design or sourcing of Adornable-U's 2015 or its subsequent jewelry lines. (Dkt. No. 294, ¶ 33.) Wooten did not refer to or in any way use Act II's Spring/Summer 2015 "collection" in the selection or development of Adornable-U's jewelry lines or catalogs. (Id. ¶ 35.) To the contrary, Wooten selected and developed Adornable-U's 2015 and subsequent jewelry lines independently, using only information regarding those jewelry products and designs obtained from third-party vendors. (Id. ¶ 37.)
On January 20, 2015, things went awry. Wooten posted Adornable-U's first product catalog online. (Dkt. No. 307, ¶ 15.) According to Act II, Adornable-U's product catalog contained Act II's work product because it included many "carryover" jewelry items in Act II's Fall/Winter 2014 and prior jewelry collections, as well as items that Act II's designers had been designing in the fall of 2014, but that had not yet appeared in an Act II published collection. (Id. ¶ 16.) After Adornable-U's catalog was published, the parties attempted to negotiate.
On February 9, 2015, Act II notified Wooten that her employment was terminated for cause. (Dkt. No. 334, ¶ 81; Dkt. No. 307, ¶ 24.) On March 6, 2015, Adornable-U started selling jewelry. (Dkt. No. 307, ¶ 30.) From 2015 through 2017, Adornable-U sold 755 styles of jewelry. (Dkt. No. 334, ¶ 93.) Only 62 of those styles are at issue in this suit. (Id. )
Act II filed suit against Wooten and Adornable-U in the Circuit Court of Cook County, Illinois on March 20, 2015, which was subsequently removed to federal court. (Dkt. No. 307, ¶ 32.) From March 2015 to August 2015, Act II sent four letters to individuals associated with Adornable-U, including actual and potential sale agents. (Id. ¶¶ 33-39.) The letters advised the recipients of the pending lawsuit, summarized the claims in the suit, and advised the recipients of potential future discovery obligations. (Id. ¶¶ 33-39.) The letters stated that "this lawsuit does not seek to block Ms. Wooten from operating a direct selling jewelry company" and that Act II and KEC were "not seeking to block [the letter's recipients] from representing [Adornable-U]." (Id. ¶ 33.) Act II contends these letters were necessary to assert its rights and advise the recipients of a litigation hold. (Id. ¶¶ 33-39.) Adornable-U disagrees, arguing that the letters were sent as a campaign explicitly and implicitly to threaten Adornable-U's actual and potential sales agents with a lawsuit if they continue working with Adornable-U. (Pls.' Resp. to Defs.' Add'l Facts, Dkt. No. 330, ¶ 19.) Additionally, Act II served 314 third-party subpoenas, many to Adornable-U sales agents, for documents and/or deposition testimony in this case. (Id. ¶ 22.) Adornable-U argues that Act II used the guise of discovery to threaten Adornable-U sales agents with suit if they continue working for Adornable-U.
Before the Court are Cross-Motions for Summary Judgment. The Court considers each claim in turn.
II. ANALYSIS
A. Standard of Review
Summary judgment is appropriate where the "pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). A fact is "material" if it is one identified by the law as affecting the outcome of the case. Anderson v. Liberty Lobby, Inc. ,
B. Breach of Fiduciary Duty
Act II moves for summary judgment on its claim that Wooten breached her fiduciary duties to Act II. To succeed, Act II must show that Wooten was a "key managerial employee" or agent of Act II and that she breached her fiduciary duties to Act II. See, Sci. Accessories Corp. v. Summagraphics Corp. ,
Wooten was a "key managerial employee" and agent of Act II during the relevant time period. Act II provides the following evidence through documents and deposition testimony: Wooten was in the "executive group" directly below the President; she ran the "Global Product Development and Merchandising" department; she regularly attended and presented at board meetings; she was privy to executive-level financial reports; she was the lead person in charge of selecting, designing and curating Act II's entire product line and interacted with Act II's vendors and suppliers; and she managed the pricing and costing of the jewelry. (Pls.' Facts, Dkt. No. 273, ¶¶ 5-6; Ex. AA, Dkt. No. 281 (Wooten's job description); Ex. KK, Dkt. No. 281 (Act II's organizational chart).) These facts satisfy Act II's burden as the movant and shifts the burden to Adornable-U. Adornable-U disputes these facts, citing Wooten's affidavit. (Dkt. No. 307, ¶ 5 (citing Wooten's Decl. ¶¶ 3-5).) Wooten avers that she was not a "key employee" at Act II, she was not a member of the executive management team as she reported the Executive Vice President, Keith Maib, rather than the CEO, Victor Kiam, she had no knowledge or access to sensitive financial information, and she did not "design" jewelry for Act II. Wooten's statement that she was not a key employee is conclusory and will be disregarded. And even taking the other statements as true, Wooten would still be a "key managerial employee" of Act II as a matter of law. She does not dispute that she was a Vice President and ran the "Global Product Development and Merchandising" department, that she presented at board meetings occasionally, and that she was the lead person in charge of selecting and curating Act II's entire product line and interacted with Act II's vendors and suppliers and managed the pricing and costing of the jewelry. Even accepting that she was not a jewelry designer or the sole person responsible for managing the pricing and cost of jewelry, her role as Vice President of the "Global Product Development and Merchandising" department and its attendant responsibilities are sufficient to establish Wooten as a "key managerial employee." See, Sci. Accessories Corp. v. Summagraphics Corp. ,
However, summary judgment as to whether Wooten breached those duties is not warranted because issues of material fact abound. Wooten disputes nearly every material fact Act II cites on this score. This Court will not canvas the litany of disputed facts, but will offer a sufficient example. Act II claims that Wooten breached her fiduciary duties when she directed Act II designers Bonnie Jaekel and Abbey Johnson to spend Act II work time to prepare designs for Adornable-U and used those designs, along with Act II's trade secrets and resources for her new business. (Dkt. No. 273, ¶ 12.) She also used multiple Act II jewelry styles in Adornable-U's catalog, including pieces from the unreleased collection she and her Act II team developed in 2014. (Id. ) Adornable-U disputes each contention, citing assertions to the contrary contained in Wooten's affidavit and deposition. (See, Dkt. No. 307, ¶ 12 (citing Wooten's Decl. ¶ 29); Kaba v. Stepp,
C. Tortious Interference Claims
Act II also moves for summary judgment as to Defendants' multiple tortious interference claims, under which Adornable-U asserts that Act II tortiously interfered with its prospective economic advantage and with its contract rights by sending letters and subpoenas to actual and potential Adornable-U sales agents which deterred them from working for, or continuing to work for, Adornable-U. "The elements of tortious interference with a prospective economic advantage are: (1) the plaintiff's reasonable expectation of entering into a valid business relationship; (2) the defendant's knowledge of the plaintiff's expectancy; (3) purposeful interference by the defendant that prevents the plaintiff's legitimate expectancy from being fulfilled; and (4) damages to the plaintiff resulting from the defendant's interference." Delloma v. Consolidation Coal Co.,
However, certain communication is privileged "if the defendant acted in good faith to protect an interest or uphold a duty." Delloma v. Consolidation Coal Co.,
The communications at issue here consisted of copies of the complaint and amended complaint, cease and desist/litigation hold letters, and subpoenas. These communications fit in two of the classes of communications that are subject to a qualified privilege. First, [Act II] made the communications to protect their contractual rights and intellectual property rights and interests, whichthey believed were being violated. [Act II] sought to prevent the continued sale of the disputed jewelry designs, and the letters and subpoenas were an attempt to preserve any evidence they may need to pursue their rights in court. Second, the communications advised the current and potential AU Sales Advisors of their duties and potential liabilities in light of the allegations against [Adornable-U]. Therefore, under the facts alleged, the Court concludes that the communications are subject to a qualified privilege.
Because a qualified privilege attaches to the communications in question, [Act II Parties] are immune from tort liability based on these statements unless they are found to have abused this privilege.
(Memorandum and Opinion Order, Dkt. No. 95 at 18-19.) Nothing since this Court's ruling has altered that conclusion. Thus, a qualified privilege having been established, the plaintiff must prove that the defendant abused its privilege by acting with actual malice. Delloma v. Consolidation Coal Co.,
It is undisputed that between March 27, 2015 and August 31, 2015, Act II sent four letters and multiple subpoenas to actual and potential Adornable-U sales agents around the country. (Defs.' Add'l Facts, Dkt. No. 306, ¶ 17; Dkt. No. 273, ¶¶ 32-39.) Although the parties characterize the letters and subpoenas differently, the content of the letters and subpoenas is also undisputed. Id. Act II argues that the letters were sent for legitimate reasons: to assert its property rights and to give the recipients notice of a litigation hold. (Dkt. No. 273, ¶ 32-39.) Adornable-U contends, on the other hand, that Act II abused the qualified privilege for litigation-related mailings because the letters contained misstatements and were designed to scare away any Adornable-U sales agents under fear of a lawsuit. (Dkt. Nos. 306, 17, 19.)
However, the facts supporting malice are few. It is clear from the undisputed content of the letters and subpoenas that the communication was directly related to Act II's efforts to protect their legal interests. See, e.g., Philip I. Mappa,
Here, the undisputed facts demonstrate that Act II's communications were related to protecting a legitimate litigation-related interest. See, Microsoft Corp. v. Logical Choice Computers, Inc., No.
Summary judgment in Act II's favor is also warranted on another, independent ground: Adornable-U cannot establish its alleged lost profits with reasonable certainty as required by Illinois law. "[A]s a general rule, expected profits of a new commercial business are considered too uncertain, specific and remote to permit recovery. This maxim is commonly referred to as the 'new business rule.' " TAS Distrib. Co. v. Cummins Engine Co. ,
Adornable-U contends that it can establish its lost profits with reasonable certainty based on its two expert reports. (Dkt. No. 306, ¶¶ 1-11.) Hoffman's report used a conventional lost profit methodology and estimated the revenue each distributor would have generated for Adornable-U "but for" the alleged wrongful conduct. (Dkt. No. 306, ¶¶ 2-8.) However, what is noticeably absent from either report is an analysis of established profits from a business analogous to Adornable-U. (See generally Hoffman Expert Witness Report, Dkt. No. 308-4.) The expert report analyzes data from fourteen businesses that are not analogous to Adornable-U: All have significant international operations and only one of the fourteen companies sells jewelry products, and even then not exclusively. (See,
The Court therefore grants Act II summary judgment on Defendants' counterclaims of tortious interference with contract and Defendants' counterclaims of tortious interference with prospective economic advantage.
D. Meads and Eckels' Tortious Interference Claims
There exists a separate, independent basis to grant summary judgment as to Mead and Eckles' Tortious Interference Claims. Although these claims fail for the reasons stated above, they also fail because Mead and Eckles are unable to establish that they had contracts with any agents. In response to summary judgment, Mead and Eckels cite two sources: Adornable-U's Counterclaim and their own declarations. As to the Counterclaim, a party cannot cite to allegations in its own pleading to escape summary judgment; summary judgment requires proof, not mere allegations. As to the declarations, both Meads and Eckels simply assert: "I entered into verbal contractual agreements with other independent contractors." (Exs. G, H to Dkt. No. 306.) These statements do not offer names or any documentary evidence to support these assertions. See, Buie v. Quad/Graphics, Inc.,
The Court need not reach any of Act II's other arguments as to the tortious interference claims.
E. Illinois Consumer Fraud and Deceptive Practices Act
Next, Act II moves for summary judgment on Adornable-U's counterclaim asserting that Act II violated the Illinois Consumer Fraud and Deceptive Business Practices Act. ("Consumer Fraud Act"), see, 815 ILCS 505/2 et seq . The Consumer Fraud Act is "intended to protect consumers, borrowers, and business persons against fraud, unfair methods of competition, and other unfair or deceptive business practices." Robinson v. Toyota Motor Credit Corp.,
Adornable-U's citation to ABN AMRO, Inc. v. Capital International Ltd.,
F. Illinois Wage Payment and Collection Act and Breach of Key Employee Incentive Bonus Agreement
Act II claims that summary judgment in its favor as to Wooten's breach of fiduciary duty also resolves Adornable-U's Illinois Wage Payment and Collection Act ("IWPCA") and breach of the Incentive Agreement claims in Act II's favor. Act II argues that a finding that Wooten breached her fiduciary duties justifies her termination for cause under the Key Employee Incentive Bonus Agreement and thus provides no basis for a claim under the Incentive Agreement or the IWPCA. It is true that these claims likely fail if Wooten breached her fiduciary duties to Act II. However, as discussed above, issues of material fact exist as to whether she breached her fiduciary duties and thus, the factual predicate for summary judgment as to these claims is not present. Summary judgment is denied.
G. Trade Secret Claim
In Illinois, a trade secret claim is a statutory claim governed by the Illinois Trade Secrets Act ("ITSA"), 765 ILCS 1065/1 et seq . The elements of a trade secret claim follow: (1) a
Adornable-U's main argument for summary judgment is that Act II fails to identify specifically its trade secrets. (Dkt. No. 294, ¶ 14.) Adornable-U complains that Act II's interrogatories "identified" its trade secrets by referring to 9,825 pages of documents, including many documents that were not confidential and held no proprietary information. (Dkt. No. 294, ¶¶ 23, 30-31.) Such a pile of documents are unlikely to meet the specificity requirements under the ITSA. See, Composite Marine Propellers, Inc. v. Van Der Woude ,
Adornable-U next argues that the SS15 Collection cannot constitute a trade secret because the SS15 Collection is merely a combination of products that are bought on the open market and are thus generally known to the public. Certainly, products purchased from commercial vendors cannot constitute trade secrets by themselves. See,
[A] trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.
Syntex Ophthalmics, Inc. v. Novicky,
As for the confidentiality requirement, Adornable-U argues that Act II failed to take reasonable measures to protect the confidentiality of the SS15 Collection. Act II provides evidence that its employees who developed or had access to the jewelry collections were required to sign confidentiality, non-disclosure and developments agreements and other internal policies to maintain secrecy of its jewelry designs and to use password-protected, restricted access computer systems. (Dkt. No. 294, ¶ 62.) Adornable-U disputes all of this. (Dkt. No. 334, ¶ 62.) These factual disputes are material and will be left for the jury. See, Motorola v. Lemko Corp., No. 08-CV-5427,
To the next element: Adornable-U argues that Act II cannot establish
Act II provides evidence that Wooten took multiple documents containing sensitive information near the end of her employment by emailing them to her personal account and by downloading them onto portable drives. (Dkt. No. 294, ¶ 14; see, First Fin. Bank, N.A. v. Bauknecht,
Adornable-U's trade secret argument is on firmer footing as to three other Defendants, Mead, Eckels, and Daun. Adornable-U points out that these Defendants did not have access to any of the material disclosing the Spring/Summer 2015 collection nor to Act II's sensitive documents, and Act II does not present evidence to the contrary. (Dkt. No. ¶ 38, 32, 41, 43-44.) Act II's contention that these three Defendants were given copies of the collection upon being served with the Complaint does not go to show that any of these Defendants misappropriated the material from Act II while it was still in business. (Dkt. No. 294, ¶¶ 38, 44.) Although Act II argues that Mead, Eckels, and Daun must have known they were using misappropriated trade secrets, Act II cites no admissible evidence indicating that any of them had such knowledge. Finding no reasonable jury could find in Act II's favor against Mead, Eckels, and Daun based on the evidence presented, the Court grants summary judgment as to the trade secrets claim as to those three Defendants. The trade secrets claim against Wooten and Adornable-U remains.
Lastly, Adornable-U argues that none of the Plaintiffs can assert a trade secret claim against Adornable-U because none of them satisfy Rule 17's real-party-in-interest requirement. This argument creates an absurd result. If this proposition were true, even assuming the claim was meritorious, no party could bring the claim here. Federal Rule of Civil Procedure 17(a)(1) states that "an action must be prosecuted in the name of the real party in interest." FED. R. CIV. P. 17(a)(1). "[T]o be a real party in interest, the person must be the
H. Breach of Key Employee Incentive Bonus Agreement
Adornable-U moves for summary judgment on Act II's claim that Wooten breached the Key Employee Incentive Bonus Agreement. Adornable-U argues that it is entitled to summary judgment because that Agreement is unenforceable as Act II has no legitimate business interest in the contract's enforcement now that it is out of 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." Reliable Fire Equip. Co. v. Arredondo,
Before considering this claim in depth, the Court must dispose of a threshold argument. Act II argues that Reliable Fire and the standard it espouses is restricted to non-compete provisions and thus does not apply. Although public policy looks with a more stringent eye on non-competes, all post-employment restrictive covenants are analyzed under the same standard. See, Cronimet Holdings, Inc. v. Keywell Metals, LLC,
The protection of confidential business information is generally considered a legitimate business interest. Reliable Fire Equip. Co. v. Arredondo,
Second, Adornable-U argues that the contract is unenforceable because it is overly broad and would impose undue hardships on Wooten. Adornable-U maintains that the Restrictive Covenants, if enforced, would essentially preclude Wooten from engaging in the jewelry business. This argument falls flat. As Adornable-U itself points out, the Incentive Agreement specifically provides that nothing in that Agreement or the Restrictive Covenants "shall prevent Employee from continuing her work as a jewelry designer, as long as employee does not infringe on any of intellectual property belonging to the Company." (Facts ¶ 51.) Regardless of Act II's construction, the Incentive Agreement speaks for itself. It precludes Wooten from using Act II's trade secrets and confidential information in her continued work as a jewelry designer. It does not pretend to limit Wooten from continuing in her chosen field. Merely preventing a former employee from using their former employer's confidential information is not overly broad or unduly burdensome, and especially not here, in light of the carve out that allows Wooten to continue working in her chosen field.
Wooten's Motion for Summary Judgment on Act II's claim that she breached the Incentive Agreement claim is denied.
IV. CONCLUSION
For the reasons stated herein, Adornable-U's Motion for Summary Judgment and Act II's Motion for Summary Judgment are granted in part and denied in part. Act II's Summary Judgment Motion is granted as to the tortious interference claims and the Illinois Consumer Fraud claim, but denied as to the breach of fiduciary duty claim, breach of Incentive Agreement claim and the Illinois Wage Payment and Collection Act claim. Defendants' Motion for Summary Judgment on Act II's trade secret claims against Mead, Eckels, and Daun is granted. The rest of Defendants' Motion is denied.
IT IS SO ORDERED.