In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 05-2149 & 05-4287

TAX TRACK SYSTEMS CORPORATION,

Plaintiff-Appellant,

v.

NEW INVESTOR WORLD, INCORPORATED,

Defendant-Appellee.

____________

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 6217—Robert W. Gettleman, Judge.

____________

ARGUED MAY 5, 2006—DECIDED FEBRUARY 27, 2007

____________

Before KANNE, WOOD, and SYKES, Circuit Judges.

SYKES, Circuit Judge. This diversity suit, governed by

Illinois law, pits two insurance brokerages against each

other. Tax Track Systems Corporation (“Tax Track”) sued

New Investor World, Inc. (“NIW”), for, among other things,

breaching a confidentiality agreement. The district court

concluded that Illinois law did not protect Tax Track’s

information because Tax Track made insufficient efforts

to keep that information confidential. The court granted

summary judgment for NIW and also awarded NIW

attorneys’ fees and costs under the parties’ agreement.

On appeal, Tax Track argues that whether it took

reasonable measures to keep its information confidential
2 Nos. 05-2149 & 05-4287

(which is what Illinois requires before it will enforce a

confidentiality agreement) is a factual determination that

should have gone to a jury. It also argues that the district

court erred by awarding NIW attorneys’ fees and costs.

The agreement provided for recovery of attorneys’ fees

by the “substantially prevailing party,” and Tax Track

argues NIW did not “substantially prevail” because it lost

on its counterclaims.

We affirm. Typically, whether a party took reasonable

steps to protect its confidential information is a fact

question for the jury, but here no reasonable jury could

conclude that Tax Track’s meager and inconsistent protective measures were sufficient to protect its information.

Moreover, the district court did not err in awarding NIW

attorneys’ fees and costs as the substantially prevailing

party under the parties’ agreement.

I. Background

Tax Track markets and sells insurance products. One of

its products is called “premium financed life insurance” or

“leveraged life insurance.” Leveraged life insurance is for

the very wealthy who need policies of such great value

that the premiums are unusually high. The gist of leveraged life insurance is that the insured finances the

premiums with a loan on which he pays only the interest,

or in some cases nothing at all, and the balance of the loan

is paid out of the death benefit after the insured dies.

Leveraged life insurance is not a new idea, but Tax

Track and its owner, William Gray, who has twenty years

of experience in the insurance industry, claim to have

put a unique spin on the idea by using policy riders to

defer payments on principal and interest for the life of the

loan. In other words, the insured pays nothing for his

policy; the entire cost of the policy is paid by the death
Nos. 05-2149 & 05-4287 3

benefit. Tax Track pitched its idea to potential clients—

those who would buy the policies, the insurance companies who would underwrite them, and the banks who

would finance them—through a memo called the “Gift

Compression Techniques memo” or “GCT memo,” as Tax

Track calls it. Gray kept the memo exclusively on his

password-protected computer. However, he gave copies of

the GCT memo to 600 or 700 people over the course of

about five years; some signed confidentiality agreements,

some did not. Gray did not keep track of everyone he sent

the GCT memo to and could not identify them all. The

memos were not marked “confidential.”

In December 2000 Tax Track teamed up with NIW to

market and sell leveraged life insurance. NIW’s president,

Grace Krueger, was aware of leveraged life insurance

before joining forces with Tax Track, but NIW had not

marketed the product. The parties signed a “Confidentiality, Intellectual Property and Non-Disclosure Agreement,”

which bound them for a term of three years to keep

confidential all “Licensed Material,” as defined by the

agreement, and all other “confidential information,” which

the agreement did not define. Nine specific items were

listed as Licensed Material under the agreement: one

software program; two legal opinion letters; three memoranda, including one called the “Leverage Overview”; and

three process methodologies (like how to sell leveraged

life, how to process orders, how to respond to frequently

asked questions, and so on). Licensed Material also

included “any additional material developed over the

course of this Agreement to facilitate the concept of

Leveraged Life Insurance and the Licensed Material.” The

agreement had a three-year term, but it also contemplated

the possibility of early termination. The agreement

provided that “[t]he obligations of either party regarding

the treatment of Confidential Information and Licensed

Material shall survive any termination of the [agreement].”
4 Nos. 05-2149 & 05-4287

NIW terminated the agreement after only three months,

claiming Tax Track had not lived up to its end of the

bargain. NIW then began to compete with Tax Track in

the leveraged life insurance market, selling a product

similar to Tax Track’s. NIW also developed what it

called an “Executive Summary” of its leveraged life insurance product that bears striking resemblance to Tax

Track’s GCT memo. 

Tax Track sued NIW for breach of the confidentiality

agreement, tortious interference with prospective economic advantage, common law misappropriation, and

quantum meruit. NIW filed compulsory counterclaims

alleging breach of contract and fraudulent misrepresentation. Both parties moved for summary judgment. The

district court granted both motions; Tax Track was

defeated on its four claims and NIW on its two.

The agreement contemplated an award of attorneys’ fees

and costs for the “substantially prevailing [p]arty” “[i]n

any suit, proceeding or action to enforce any term, condition or covenant of this Agreement or to procure . . .

determination of the rights of any of the Parties.” Although

NIW lost on its counterclaims, which by NIW’s estimates

were worth over $1.3 million, the district court awarded

NIW costs and attorneys’ fees. The court concluded that

NIW had defeated Tax Track’s claims and that NIW’s

counterclaims were “clearly defensive”—they were compulsory and would have been waived if not brought in

this suit. FED. R. CIV. P. 13(a). Accordingly, the court

held that NIW was the substantially prevailing party.

II. Discussion

Tax Track alone has appealed—NIW is apparently

satisfied with the outcomes below, including its own defeat

on its counterclaims. Tax Track raises two issues. First,
Nos. 05-2149 & 05-4287 5

Tax Track argues summary judgment was improper on its

claim for breach of the confidentiality agreement because

the issue of whether it took reasonable steps to keep its

information confidential is a question of fact for a jury.

Second, Tax Track claims NIW is not the substantially

prevailing party and should not have been awarded attorneys’ fees. By Tax Track’s lights, the litigation below

was a draw since both sides lost on their affirmative

claims.

A. Summary Judgment on the Confidentiality

Agreement

We review summary judgments de novo, taking all the

facts and their reasonable inferences in the light most

favorable to the nonmovant, Tax Track in this case.

Valentine v. City of Chi., 452 F.3d 670, 677 (7th Cir. 2006).

We affirm summary judgment when the pleadings, depositions, answers to interrogatories, and admissions on file,

together with any affidavits, show there is no genuine

issue of material fact and the moving party is entitled to

judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Accordingly,

assuming Tax Track’s version of events is true, summary

judgment is appropriate if NIW is nevertheless entitled

to judgment as a matter of law.

Confidentiality agreements like the one in this case

are restrictive covenants and under Illinois law are

reviewed with a suspicious eye. Springfield Rare Coin

Galleries, Inc. v. Mileham, 620 N.E.2d 479, 485 (Ill. App.

Ct. 1991); Label Printers v. Pflug, 564 N.E.2d 1382, 1387

(Ill. App. Ct. 1991). An Illinois court, in whose place we

sit, will enforce such agreements only when the information sought to be protected is actually confidential and

reasonable efforts were made to keep it confidential. Curtis

1000, Inc. v. Suess, 24 F.3d 941, 947 (7th Cir. 1994);
6 Nos. 05-2149 & 05-4287

N. Am. Paper Co. v. Unterberger, 526 N.E.2d 621, 624-25

(Ill. App. Ct. 1988). The information need not always be

kept under lock and key only for the viewing eyes of

company officials with the highest security clearance. See

Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d

174, 180 (7th Cir. 1991) (noting “perfect security is not

optimum security” given the costs involved). Some disclosure of confidential information is often necessary to

profitably exploit the information. Rockwell Graphic Sys.,

925 F.2d at 177. Tax Track need not show its information

rises to the level of a trade secret, but it must nevertheless establish that it engaged in reasonable steps to keep

the information confidential. Tower Oil & Tech. Co. v.

Buckley, 425 N.E.2d 1060, 1066 (Ill. App. Ct. 1981). If the

party seeking to protect its information “did not think

enough of it to expend resources on trying to prevent

lawful appropriation of it, this is evidence that it is not

an especially valuable interest.” Curtis 1000, Inc., 24 F.3d

at 947.

The question here is how much effort to keep information confidential is enough to be considered reasonable?

Courts evaluate this question on a case-by-case basis,

considering the efforts taken and the costs, benefits, and

practicalities of the circumstances. See, e.g., id. at 947-48;

Rockwell Graphic Sys., 925 F.2d at 179. As we have noted,

some disclosure is usually necessary. Typically, what

measures are reasonable in a given case is an issue for a

jury. Rockwell Graphic Sys., 925 F.2d at 179-80. In some

circumstances, however, it may be readily apparent

that reasonable measures simply were not taken. Id.

at 179.

It is not entirely clear what exactly Tax Track is trying

to protect. At times, Tax Track appears to claim the

concept of leveraged life insurance is protected, but that

cannot be so. The evidence overwhelmingly demonstrates
Nos. 05-2149 & 05-4287 7

(and Tax Track does not contest) that leveraged life

insurance is widely known and has been around for

decades. Tax Track also appears to claim that its business relationships were confidential, but it has come

forward with nothing to substantiate that. Tax Track

also suggests that its specific method of selling leveraged

life insurance—by using term policy riders—is confidential. But those policies and their riders are issued by the

insurance companies who underwrite them, and the

documents are generally required to be on file as a

public record with the states where the insurance is sold.

Based on the evidence Tax Track has produced, the only

material even conceivably falling within the confidentiality agreement is the GCT memo. According to Tax

Track, the GCT memo is referred to in the agreement as

“the Leverage Overview memo” and is part of the Licensed

Material the parties specifically agreed to keep confidential. Although NIW contests this, we assume (as we must)

that Tax Track’s assertion is true. Regarding the efforts

Tax Track made to protect the GCT memo, both sides

claim support from this court’s decision in Rockwell

Graphic Systems.

Rockwell Graphic Systems, a trade secrets case, involved

“piece part” drawings, which were detailed drawings of

parts for Rockwell machines that indicated materials used,

dimensions, tolerances, and methods of manufacture. Id.

at 175. Rockwell stamped the drawings “Confidential” and

kept them in a vault with limited access. The drawings

could be used by Rockwell’s 200 engineers, who had to

sign them out and replace them after use. All photocopies

had to be destroyed. Id. at 177. Rockwell also gave some

third-party manufacturers copies of the drawings because

it sometimes hired them to build the parts. Everyone

who had access to a drawing signed a confidentiality

agreement. Id. Noting that disclosure of confidential

information is often necessary to profit off the information,
8 Nos. 05-2149 & 05-4287

id. at 177, we held in Rockwell Graphic Systems that

the mere fact the drawings were shared with thirdparty manufacturers did not necessarily destroy the

confidential nature of the documents as a matter of law.

Id. at 180. We reversed summary judgment and remanded the case for a jury to decide whether Rockwell’s

confidentiality efforts were reasonable. Id. at 180.

Tax Track maintains that it, like Rockwell, took reasonable measures to protect its GCT memo, strategically

disclosing it to outsiders only to profit. But Tax Track

behaved nothing like Rockwell. Tax Track concedes that

Gray distributed the GCT memo to 600-700 people and

sought confidentiality agreements from only 190 of them

at most, and that Gray cannot identify the people he

gave the memo to. The GCT memo was not stamped

“Confidential.” Tax Track emphasizes that the memo was

stored exclusively on Gray’s password-protected computer,

but that effort was entirely undermined by Gray’s widespread nonconfidential disclosure of the memo to hundreds

of outsiders. No reasonable jury could find Tax Track

took reasonable efforts to keep its GCT memo confidential

so as to warrant protection under the restrictive covenant.

B. Attorneys’ Fees

The agreement provides that the “substantially prevailing” party “[i]n any suit, proceeding or action to enforce

any term, condition or covenant of this Agreement or to

procure . . . determination of the rights of any of the

Parties” shall be awarded attorneys’ fees and costs. The

district court determined that although NIW lost its

counterclaims, it was the substantially prevailing party.

Tax Track disagrees. It sees the case as a tie, both sides

having won and lost equally.

The standard of review for the award of attorneys’ fees

has been the subject of some debate in this case. We
Nos. 05-2149 & 05-4287 9

review the meaning of the contract term “substantially

prevailing” de novo. Platinum Tech., Inc. v. Fed. Ins. Co.,

282 F.3d 927, 931 (7th Cir. 2002). The more difficult

question is how we review the district court’s award of

attorneys’ fees. Under Illinois law, whether to award

attorneys’ fees is usually a matter entrusted to the discretion of the trial court. Raffel v. Medallion Kitchens of

Minn., Inc., 139 F.3d 1142, 1147 (7th Cir. 1998). If the

agreement permitted an award of attorneys’ fees to the

substantially prevailing party, we would review for an

abuse of discretion. But the agreement at issue here

mandates attorneys’ fees if the district court finds that

one party substantially prevailed.

Accordingly, whether NIW substantially prevailed

within the meaning of the contract is a mixed question of

fact and law, or stated differently, an application of the

legal standard (“substantially prevailing”) to the facts. In

a diversity suit when the judge acts as a fact finder (as he

does in deciding whether a party substantially prevailed),

the federal standard of review applies. Mayer v. Gary

Partners & Co., Ltd., 29 F.3d 330, 334 (7th Cir. 1994)

(noting that “[w]hen federal judges act as triers of fact in

diversity cases, all questions concerning the standard of

review are governed by federal law”). So we will review the

district court’s determination that NIW was the substantially prevailing party for clear error. Thomas v. Gen.

Motors Acceptance Corp., 288 F.3d 305, 307 (7th Cir. 2002).

As to the meaning of the contractual term “substantially

prevailing party,” we have found no Illinois contract

cases dealing with the phrase; more often litigated is the

simpler phrase “prevailing party.” Tax Track suggests

that the standard for “substantially prevailing party” is

higher than the standard for a “prevailing party.” As it

turns out, however, Illinois case law incorporates a substantiality requirement into its interpretation of contrac-
10 Nos. 05-2149 & 05-4287

tual attorneys’ fees provisions awarding fees to the

prevailing party. In this context, a “prevailing party” is one

who “is successful on any significant issue in the action

and achieves some benefit in bringing suit, when it

receives a judgment in its favor, or when it achieves an

affirmative recovery.” Med + Plus Neck & Back Pain Ctr.,

S.C. v. Noffsinger, 726 N.E.2d 687, 694 (Ill. App. Ct. 2000)

(emphasis added); Raffel, 139 F.3d at 1147; First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d

1007, 1015 (7th Cir. 1985) (interpreting “prevailing party”

language used in contract governed by Illinois law by

comparing it to use of “prevailing party” in the Federal

Rules of Civil Procedure fee-shifting rule).

Because Illinois interprets “prevailing party” as one

who prevails in a “significant” respect in the litigation, we

see little distinction in meaning between a “prevailing

party” and a “substantially prevailing” one. Even assuming

the standard for a “substantially prevailing party” status

is incrementally steeper than that for “prevailing party”

status, the district court did not clearly err in concluding that NIW substantially prevailed.

NIW defeated all of Tax Track’s claims and received a

judgment in its favor dismissing the entire action against

it. NIW lost on its counterclaims. By Tax Track’s reasoning, a judgment in one’s favor is not enough for “substantially prevailing party” status if another judgment—on a

counterclaim, for example—is adverse. Not so. A party

may win some and lose some, but it may win more than

it loses. A “prevailing party” need not win on all claims,

see, e.g., Powers v. Rockford Stop-N-Go, Inc., 761 N.E.2d

237, 240 (Ill. App. Ct. 2001), nor must a “substantially”

prevailing party—to prevail “substantially” does not

mean “totally.”

Here, the district court characterized NIW’s counterclaims as “defensive” in that NIW brought its counter-
Nos. 05-2149 & 05-4287 11

claims only because they were compulsory. The district

court then held that NIW’s counterclaims were “not

sufficiently weighty, time-consuming or complex to warrant denial of fees to defendant for prevailing on all of

plaintiff’s claims.” Tax Track notes on appeal that NIW’s

counterclaims were allegedly worth upwards of $1.3

million and argues that a loss on a counterclaim of this

size must defeat prevailing party status. We disagree. NIW

prevailed completely—not just substantially—on all of

Tax Tracks claims against it, and lost only on its compulsory counterclaims. Tax Track’s claims against NIW

predominated in the litigation, and in securing their

dismissal NIW won more than it lost. The district court’s

determination that NIW was the substantially prevailing party entitled to an award of attorneys’ fees was not

clearly erroneous.

AFFIRMED.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-27-07