our last case on the call the docket today's case number one eleven eight seventy one john the number twenty four reliable fire equipment company versus arnold good morning christopher bana zack of milwaukee wisconsin and have it counsel table with me robert black of naperville illinois appearing on behalf of the plaintiff appellant reliable fire equipment company there are two primary issues that the court needs to address on this appeal first issue is whether it is appropriate to protect goodwill from used by a former owner but not a former employee and the second issue is whether you're only courts should evaluate the reasonable lesson and force ability of a nine compete agreement based on the totality of the circumstances  with respect to the first issue there is no reason to treat goodwill differently with respect to an owner versus an employee this court has decided a number of cases in which it is identified goodwill and customer relationships as a protective the interest in cases involving a sale of a business such as sigsbee and herson this court has held that good will can constitute a protected bill interest likewise  court held that protection of customer relationships through a nine compete agreement is a legitimate interest of the employer there is no rational reason to say that goodwill provides a protectable interest in the context of a sale of a business but not in the terminations of an employment relationship customer relationships and goodwill are the same in both instances whether it is the former owner or the former employee unfairly capitalizing on the company's goodwill the harm to the company is the same they should be provided the same protection courts from numerous other states commentators and even appellate decisions from illinois including a couple of cases we cited sniggering and jewel payne expressively found that customer relationships and goodwill do provide a protective way interest without any requirement to show permanent or ne permanent relationships both the lead opinion in the appellate court and the defendants in this case advocate in a logical rule where goodwill is protected from use by the former owner but not by the former employee there's no reason to make that distinction the court should hold that customer relationships in good will do provide a protected the interest for an employment not compete agreement without requiring showing now in spite of this court's decisions related to the sale of a business and employment relationships and prior decisions from the illinois appellate court's holding that customer goodwill is a protectable interest in an employment relationship interest they must be permanent or near permanent neither one of those principles is supported by illinois president and the reason there is no support is that the whole lot of court's decision actually contradicts prior president which never limited protection of customer relationships to those that are permanent or near permanent defendants in the lead opinion in the appellate decision in this case confuse the issue of a protect on the part of the employer and neither of the defendants in this case nor anyone else has side in any president to support the l b i test that the appellate court adopted in coal are one of the things that brought this issue up in the appellate court was the sunbelt decision in the sunbelt decision i think is correct to the extent it found that there was no precedent for the l v i test in addition to being unsupported legally test does not make sense logically it essentially prohibits nine compete agreements where they are needed the most for their spec to sales employees and it requires employers to show that they would not lose customers that the customers are permanent in order to be protected by a non compete agreement in essence there's no rational reason to have the l b i test as the basis for a finding of the enforceability of and i'm competing agreement so what standard should be used to evaluate the enforceability of restrictive covenants first they should not be disfavored for sales employees those are employees oftentimes for whom they're needed the most the employees sales employees can have extensive customer contact as a the defendants did in this case they can be heavily involved in developing customer in relationships which in many instances is one of the primary assets of a business second an employer should be entitled to protect its goodwill including customer relations ships through restrictive covenants regardless whether the customer relationships are permanent or near permanent  tast would synthesize the case line the syria and make it consistent so that goodwill isn't treated one way in one context and differently in another third quote should apply a totality of the circumstances test determine whether the restriction at issue is reasonable which is a separate issue from whether there is a protective bill interest and this is one point on which i think the sunbelt decision is incorrect in essence and sunbelt the court was saying you should evaluate the reasonableness of the restriction without reference to what the protect of the interest is i don't think you can do that you can't be evaluated in a vacuum and just to give an example if you have an employee who is involved in research and development who doesn't have any customer contact as compared to a sales employer as extensive contact there may be different restrictions that are reasonable depending on the nature of what that employee does for the employer third i think it would be for an analysis by the circuit court because the circuit court was the one who took the evidence at trial i do think at a minimum that this court can circumstances i think if you look actually at the dissenting opinion in the appellate case he did undertake that analysis and i think that this court could do that as well as an alternative if the court decides that it's not two were two trials there was a trial a court trial in november of two thousand and seven that dealt solely with the enforceability of the nine compete agreement at that trial the circuit court found that the agreements were not enforceable there were other claims in the case dealing with breach of fiduciary duty and other issues they were tried separately in a jury trial in june of two thousand and eight so yes that the evidence that was presented at aggregate a case ultimately where whether the length in the scope of the nine compete agreement is reasonable should be evaluated based on the nature of the business and the employees position one key inquiries should be whether the employee is in a position to use the employer's goodwill and customer relationships to his advantage though a large i think one of the concerns that i sense led to the development of this l b i test was a concern that one competes would be applied to broadly but even if you adopt the standards that we're asking you to adopt there are large groups of employees who would have would not have the ability to capitalize on an employer's good well for example employees working on an assembly line the cash register clerk at the grocery store and probably many others in between so using this standard is not going to create a situation where every employee out there can be subject to a nine compete it simply shifts the focus from the protectable interest to where it should be which is valuating the circumstances of the employees and claimant and the nature of the employee's employer's business so the proper test should be first were at work said whether there's confidential information or goodwill that can be protected if the answer to that question is yes then there's a protect interest the second the second inquiry is whether the restrictions are reasonable based on the business of the nature of the business and the employee's position with the company and that's the totality of the circumstances review and as i indicated it really shifts the focus from the front end which is not the appropriate point at which to be evaluating those things to the back and in terms of looking at the reasonableness of the restrictions and with respect to what the court should do here we would ask you to reverse the decision of the trial and the appellate court the court should direct the trial court to find that reliable has a protectable interest here and defendants essentially can see that if you look at their brief their response we find page thirty four it emphasizes the fact that they would be the go to guys for the customers on behalf of reliable they'd be available twenty four seven they wanted to become of the customer's team it's all part of the goodwill that they developed on behalf of reliable while they were being paid by reliable we did talk about this a little bit previously but if you look at the appellate decision the dissenting justice actually goes through the analysis of the reasonableness of the agreement i think again i think that you can do that here if you feel that that's inappropriate then the the relief here should be every man to one of the lower courts to make that analysis if not if you make the reasonableness determination on your own based on the record then there should be a real man to the trial court for a trial on damages on the nine compete related claims the issues we believe presented to the sambal court are one where the longstanding legitimate business interest test and established precedent should be up held in the state of illinois for evaluating the enforceability of post employment restrictive  whether the fourth district which had previously applied the l b i test erred in rejecting the application of this test so this morning we would like to address three points first that the legitimate business interest test is the proper test second that the fourth district's sunbelt decision should be overruled and third that the decisions below should be upheld as their analyses of our case as shown directing your attention to our first point yes your honor at the first trial the november two thousand and seven bench trial the court conducted at the trial on the issue of the enforceability of the employment agreement so all evidence that point to have was presented at that first get the the appellant presented all of their evidence both sides presented all all of their evidence on the issue of the enforceability of the employment agreement and so we believe that they had a complete opportunity at that point to yes your honor we believe that the plaintiff has no protectable interest whether we want to call it confidential information near permanent customer relationship or give it any other name all the evidence was was produced at trial presented at trial in november of two thousand and seven and so yes i agree with your question that even if this court were to apply a new test called totality of the circumstances that the decisions below do not warrant reversal or once an employee's promised service is complete the employer needs special justification to impose a restriction on the former employee so because otherwise there is this potential of  being above the restriction to being against public policy because it incloses an endure hardship on on the form ten employees from be able to make a living and could potentially affect other third parties such as customers who wish to do business with the former employer so there's too dangerous a potential effects of of a restrictive covenant the legitimate business interest test is the proper test in the state of illinois for evaluating the enforceability of post employment restrictive covenants in illinois an employer must have a legitimate business interest at stake such as confidential information or near permanent customer relationships before a court can enforce a covenant that bars a former employee from pursuing his or her line of business and in illinois your honors the l b i test has historically been upheld and we'd like to start with the house of vision versus high end of one thousand nine hundred sixty seven case in which this honorable court district the public court held that a manufacturer of plastic and metal parts did not have confidential information in trade secrets or trade secrets in its product or services and then most recently in two thousand vs st john hart clinic this honorable court express its disagreement with the plaintiffs in at case who argued that the clinic would be unable to handle its patient load when this court stated this argument is  responsive to the issue here whether the temporal restriction is greater than necessary to protect the defendant's interests and this honorable court also stated that the time restrictions were reasonable and necessary to protect the clinic interests and justice freeman added in his dissenting opinion that notwithstanding the above i am not unsympathetic to the legitimate business interests that employers such as the defendants wish to protect and later added that the majority focuses on business interests so the l b i test this test broadly covers all all industries is flexible your honour's and can be applied to businesses that favor against restraints of trade have a firm foundation in other states case and statutory laws as well by way of example there's massachusetts in a soda alabama california montana north dakota and oklahoma just to name a few so b l b i test has been the law of the state of illinois as well as many other states and now directing your attention to our second point the fourth district sunbelt decision should be overruled in sunbelt rentals vs ehlers the fourth district failed to do a complete restrictive covenant analysis and rejecting the time tested l b i test was criticized by our second district and not failed because it looked at only the reason lists of the time and territory restrictions and the sunbelt court failed to first ascertain whether an employer even has a legitimate business interest in need of protection  without first without first ascertaining whether an employer has a legitimate business interest in need of protection the analysis of the reason a list of the time and territory restrictions and this is where we agree with counsel is done in a vacuum and totality of the circumstances test your honor is simply a concept it's a measure for it's a concept for measuring reasonless reasonable ness in objective terms it's not an actual test so that's that's before we see in even calling totality of the circumstances a test in no way does it compare to the time tested valuable legitimate business interest test but it would require we don't even your honor i'm not even sure we we would see that because because of the fact that totality of the circumstances that that phrase comes up in cases but it's confined when you phrase it that way i believe it could be argued such and so then the problem with both sunbelt and totality of the circumstances is there is no legitimacy component and that's what the court's focus in on under the legitimate business interest test is their legitimacy in a business interest but neither sunbelt nor totality focus on that if we were  not at all not at all because the legitimate business interest test which has been used in thirty five years of case law would continue on and and the court could continue to use the legitimate business interest us it would not wipe it out we would add that corbin on contracts when they cite in their reply brief states that neither scope of proscribed activity nor territory nor duration can be reasonable if there is no  interest to justify the covenant in any form and we would point out that even the dissenting opinion below in our case recognized that the reason illness of time and territory should still be evaluated in relation to  covenants an organization could subject even its lowest level employees such as a receptionist or a facility in the post employment restrictive covenants and this would be against public policy and would be both an undue hardship and a severe restraint on trade and now directing your attention to our third point the decisions below should be upheld as their analyses of our case as shown we point out that at trial they argued that the l b eye test applied and that the employer satisfied the two traditionally recognized legitimate business interests of confidential information and your permanent customer relationships in fact a wholly indorse the b i test and presented their evidence thinking they would prevail but the trial court disagreed at the appellate court level in their initial brief they again wholly endorse the l b i test by arguing that they met and exceeded the burden of evidence required but the appellate court disagree it should be pointed out that at the appellate court level they raised the issue for the first time that the trial court should have blue pencil the employment agreement but they waived that argument as the plaintiff never filed a complaint or a motion which requested blue penciling prior to the employment agreement prior to the start of the november two thousand and seven trial in the november of two thousand and seven the trial court conducted a bench trial as i mentioned before on the enforceability of the post employment restrictive covenants contained in the employment agreement and after the november two thousand and seven trial was concluded the trial court read her extensive ten page ruling into the record but the plaintiff failed to make an offer of proof at that time with regard to blue penciling and so that was another opportunity waived then failed to file a post trial motion to ask for blue penciling prior to the june two thousand and eight jury trial so that was another opportunity waived by the plaintiff and in june of two thousand and eight the trial court conducted a jury trial on all remaining cla when counsel gives his rebuttal argument this would be the perfect opportunity for this court to ask why an offer of proof wasn't made or why a post trial motion wasn't filed after the november two thousand and seven trial and next it should be pointed out that the plaintiff has improperly changed its argument and raise new issues several times while this case is going on appeal the first improper change came after sunbelt was issued where they argued for the first time that courts should look at only the reasonableness of the time  they could have thought of it on their own they could have thought of recently just looking at reasonable a sony only and argue that at trial but they never did that sort of going on that the second improper change came after the dissenting opinion below was issued where they argued in their pilates for a new test which they called the patella of the circumstances to us and then the third improper change occurred when they filed their brief with this honorable court where they argued for the first time that they have a protect the interest in their good will we've discussed sunbelt so we've touched on totality of the circumstances i would now like to point out that by now maybe you've noticed a pattern that after brief to this honorable court they said that the l b eye test is narrow but we after we filed our response of brief demonstrating that the l b eye test is not narrow but can be broadly applied they suggested in their reply brief that the test should be broadly implied applied to include goodwill which i would like to address now the first problem with their new goodwill argument is that goodwill is just a component of and falls under the pillar of near permanent customer relationships an already recognized and established legitimate business interest the next problem with their new good will claim is that in the reseller industry the plaintiff distributor actually has no goodwill as the record shows there are seventy five distributors in the chicago metropolitan area that sell fire alarm systems and fire protection equipment and jobs are awarded based on lowest price so the plaintiff doesn't sell anything unique and it is common for electrical contractors in the industry to purchase equipment from more than one fire alarm distributor so the plaintiff employer here has no goodwill on the other hand goodwill may exist and belong to arnold and renee because the employer only and burst reimbursed arnold fifty dollars a month but arnold in rene had to buy their own personal computers do their jobs they had to buy their own used buy and use their own cell phones to do their jobs and they had to take prospective customers out to lunch on their own d therefore any goodwill that exists actually belongs to arnold and rene and the plaintiff therefore has no legitimate business interest and moreover please remember then that in our strictly sales setting  are fire alarm system salesman and and the employer and highrise our distributors simply distributors or resellers of fire protection equipment so this is an industry where specifications for jobs are published and put it was always lowest price wasn't a contested issue or disputed issue it was a yes or yes run it was disputed by the plaintiff but the evidence overwhelmingly because of the numerous independent witnesses that testified in november two thousand and seven demonstrated that it was based on lowest price mr gregory your time's expired you may conclude in closing there were two trials your honors the plaintiff employer had two opportunities and they did not deserve a third opportunity the employer failed to prove that it had to protect the interest in either confidential information when your permanent customer relationships or any other business interest that could be found to be legitimate and to prove evidence of solicitation competition or damages and as your honour's know these failures cannot be cured on appeal so the play is free for requests for reading and is not appropriate when the issue here is a question of law respectfully ask this court to affirm the decisions below and we thank you for your time and attention this morning thank you m burg just to respond to a couple of points raised by mr gregory and with respect to the november trial that trial was conducted with the based on everyone's understanding that guy test was the that indicated that that was the test they needed needed to be applied so there was no waiver here there was some discussion about whether these are disfavored and whether they require some justification and we don't dispute that obviously nine compete agreements are disfavored there has to be some justification for the restrictions that are being imposed on the employee but that's the issue before the court is what i what is the test for determining that  and one of the problems with the defense argument and also with the lead opinion in the appellate case is they mix protectable interest with legitimate business interest test the two are not the same to help me with that confidential information and then secondly on a determination should be made looking at all the circumstances how is that different than a legitimate business and just well the problem with a legitimate business interest test with respect to kind of financial information and it's the same that's part of that test the difference is under would join him at business interest test the only good will or customer relationships that are deemed worthy of protection are those that are permanent or near permanent they the only distinction we're talking about a lot of terms of not the only distinction that we're talking about is the near permanent aspect of all this that's correct that's the only difference our position is that customer relationships in general are worthy of protection there shouldn't be a requirement that you need to show that they're permanent or new permanent in order to be able to have an forcible non compete agreement with an employee so could there be some dispute about goodwill or circulation so certainly could be there could be disputes about whether the employee has the ability to benefit or utilize the goodwill of the employer but that's all that's all part of looking at the totality of the circumstances and not determining whether there's any protectable interest at all so but but there's a tooth created to step tast around the first step is goodwill or confidential information which sounds almost exactly the same as legitimate business interests except in that context we'd be looking at confidential information in your permanent relationships the only difference you're talking about is we don't have to look near personal they're your current relationships and then you agree in the second step on your book house is to look at all the circumstances territory all those things but only distinction here is near permanent relationships is that correct that that's correct except that the concept of good will i think could include things other than simply customer relationships i think that's a broader term so i think under that definition if you're talking about confidential information and goodwill there may be other things beyond simply customer relationships that could be found worthy of protection so there still has to be an inquiry as to whether or not the employer has protected will business interests it's just that we're going to talk about it you want to talk about it a different way is that right that's that is the primary asset of the business or the customer relationships that the business has it's good name things like that so i think it would be in unusual cases where you would find that that is not present and again that shifts the focus to the second part which is looking at what restrictions are trying to be the employers trying to impose on the employee and i don't think that are really designed to protect the interests of the employer and i do agree  mentioned this previously with respect to sunbelt i think that is one problem with it you can't evaluate the reasonableness of the restrictions in a vacuum you do have to look at how those tie into whatever interests the employer is trying to  protect just to address very briefly a couple of we have arguments with respect to the blue penciling the contract itself those contain a provision that allows blue penciling we specifically asked for that to be done in the trial court that issue was raised on appeal so there's no waiver of that argument and and i do think that the defendants are mischaracterizing our position to the extent that they say well you're just asking for the l test to be applied more broadly yes i do think there's a separate there's a big distinction between saying you can only enforce nine compete agreements in situations where there are permanent or near permanent customer relationships and saying that the the company's goodwill can provide a protective bill interest i think that's a much broader concept but it shifts the focus to where it should be which is on the reasonableness of the restrictions and if you look at these cases that the defendants mentioned from other states when they talk about a legitimate business interest in those cases they're not talking about permanent or near permanent customer relationships they're talking about customer relationships and other things that would be categorized as goodwill generally there's not a single case that i'm aware of that anyone has cited from any state which is adopted it has similar to the legitimate business interest and or that the  applied first and coal are so it really is a it's a break with this crowd's prior precedent it's a break with the prior decisions from the illinois appellate court and it's part of different from the standards that are applied in other states suggestion it's not going to lead to as i discussed previously if a flood of these agreements being applied to anyone and everyone there are still standards that have to be applied to terms of evaluating the reasonableness of the restrictions again based on the nature of the business and the employees the employees position with the company that are going to limit fees and in fact make broad categories of employees exempt from them so again we would ask that that ever the court on its own review of the record issue a finding in favor of the plaintiffs in this case or at a minimum remain in the matter for consideration under the appropriate standard and i don't think if the court concludes that the inappropriate standard was applied here that i think the evidence does show that the defendants lose or at a minimum there's an issue to be resolved there because even assuming this and we dispute the evidence that price was key but even assuming that that was the case then this muted evidence is that you know where to get the opportunity to bid these jobs to begin with you have to have the established customer relationships because otherwise you don't get invited to bed the people don't go look in the yellow pages and pick names randomly out of the phone book there's a small group of people that they will take quotes from for many of these jobs in the way you get establishing the customer relationships thank you thank you mr gregory and mr benedict for your arguments today case number one eleven eight seventy one reliable fire equipment versus arnold already done