IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

V.I.M. RECYCLERS, L.P., )

)

Plaintiff-Counterdefendant, ) Case No. 03 C 343

)

v. ) Magistrate Judge Morton Denlow

)

LUKE MAGNER, )

)

Defendant-Counterplaintiff, )

)

INDUSTRECYCLE, L.L.C., )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

A trusted young salesman sets up a company to compete with his employer. He

competes with his employer both before and after he quits his employment. He lies to his

boss about why accounts have been lost. He misrepresents to his boss that he is soliciting

business for his employer, when in fact, he is soliciting the business for his own company.

It takes a number of months after the employee quits for the employer to learn what

happened. The employer sues. There is no issue of liability. The case presents important

questions of damages.

Plaintiff V.I.M. Recyclers, L.P. (“VIM” or “Plaintiff”) brings this action against

Defendants Luke Magner (“Magner”) and Industrecycle, L.L.C. (“Industrecycle”)

(collectively referred to as “Defendants”) alleging causes of action for breach of fiduciary

duty, fraud, and tortious interference with prospective economic advantage. Magner has filed

affirmative defenses and a counterclaim for breach of contract claiming unpaid commissions
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“T” refers to cites to the transcript. The Court has cited to certain exhibits and transcript

pages, but relies upon the entire record in support of its findings.

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and moving expenses, which he claims justify his conduct. The Court conducted a bench

trial on June 1 - 3, 2005, and heard closing arguments by counsel on June 6, 2005. The Court

has carefully considered the testimony of the five witnesses who testified at trial, the joint

exhibits introduced into evidence (“Ex. __”), the written submissions of the parties, and the

arguments of counsel.

The following constitutes the Court’s findings of fact and conclusions of law pursuant

to Rule 52(a) of the Federal Rules of Civil Procedure. To the extent certain findings may be

deemed conclusions of law, they shall also be considered conclusions. Similarly, to the

extent matters contained in the conclusions of law may be deemed to be findings of fact, they

also shall be considered findings.

I. FINDINGS OF FACT

A. NATURE OF THE ACTION.

1. VIM employed Magner as a salesman from approximately July 1, 1995 until

August 15, 2001. T. 131, 2711

. In July, 1999, Magner and his brother, Tim Magner, formed

Industrecycle, L.L.C. Beginning in April, 2000, Industrecycle began to do business with one

account in competition with VIM. Between late April and August 15, 2001, Magner diverted

the business of four of his major accounts from VIM to Industrecycle.
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2. VIM’s Second Amended Complaint asserts three causes of action: 1) breach of

fiduciary duty, 2) fraud, and 3) tortious interference with prospective economic advantage.

Count I seeks relief against Magner and Counts II and III seek relief against both Defendants.

3. Magner’s counterclaim asserts a claim for partial commissions claimed to be due

from VIM for January and February, 2001, and a claim seeking reimbursement of Magner’s

moving expenses arising out of his move from Chicago to Massachusetts in April, 2001.

B. THE PARTIES.

4. VIM is an Illinois limited partnership with its principal place of business in Glen

Ellyn, Illinois. At the time Defendants removed this action to federal court on January 16,

2003, all of VIM’s partners were citizens of Illinois. VIM was founded in 1982 by Vince

McMahon. T. 60. He sold the business to his sons, Jack and Pat in 1996. T. 61. The sons

each own 49% and Jack owns 2% of VIM. T. 62. Jack McMahon testified at the trial. His

testimony was credible. He is a Partner and Sales Manager, and performs many other duties

at VIM. T. 67-9. VIM provides waste recycling services to industrial and commercial

entities that, as a by-product of their operations, produce recyclable waste such as paper,

cardboard and plastic. VIM generally provides one or more of the following categories of

recycling services to its customers: (a) VIM leases the bin and compacting equipment

(“baler”) to its customers to condense the recyclables into a quantity commonly referred to

as a “load”; and (b) VIM operates as an agent in assisting its customers to market the

recyclables to a mill for recycling directly or through a broker. VIM picks up the recyclables

based on customer requests. T. 84. VIM operates in 25 states with a sales force of between

2-5 salespeople. T. 66. VIM’s customers were generally long-term accounts who either used
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VIM exclusively for their recyclables at a specific location or possibly split the business with

one or more recycling companies, depending upon the volume and type of recyclables

involved. T. 81.

5. Defendant Magner is a citizen of Massachusetts. He turned 29 years old on May

30, 2001. T. 663. He married in August, 2000. T. 663. He was employed by VIM as a

salesman from July, 1995 through August 15, 2001. From July, 1999 until approximately

July, 2002, Magner was a Vice President, Manager, and 50% owner of Industrecycle. His

brother, Tim Magner, was the President and owned the other 50%. On or about July, 2002,

Magner became the President and 99% owner of Industrecycle. Tim Magner’s ownership

interest was reduced to 1%. Magner testified at the trial. His testimony was not credible in

parts, particularly where it conflicts with the testimony of Jack McMahon. This credibility

finding is based on Magner’s less than honorable conduct, his filing of false answers to

requests to admit earlier in the case, and his demeanor on the witness stand. See eg., T. 600-

09, Ex. 265.

6. Industrecycle is a Massachusetts limited liability company with its principal place

of business in Massachusetts. At the time of the filing of this lawsuit and its removal to

federal court, the two owners and members of Industrecycle were citizens of Massachusetts

and Wisconsin. T. 63. Industrecycle is a competitor of VIM. Magner operates the company

as a one employee operation. T. 678-79.

C. MAGNER’S EMPLOYMENT AND TRAINING AT VIM.

7. On July 1, 1995, VIM hired Magner as a salesman shortly after he graduated from
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the University of Massachusetts. Magner had no prior experience in the recycling business.

 T. 95, 355. At the time, his brother, Tim Magner, was employed by VIM as a salesman.

Tim Magner was employed by VIM from 1993 until 1997. T.352. After Tim Magner left

VIM, he went to work for a heavy rigging company in Milwaukee and then moved to

Massachusetts in 1999, where he stayed in the heavy rigging industry. T. 352-54.

8. Jack McMahon trained Magner over a two-year period. T. 70, 86-7, 263-64, 355-

57. VIM provided Magner with a base of existing customers while he developed his own

book of business. T. 95-7, 667-68. Magner was trained to prepare VIM quotes to customers.

T. 88-91, Ex. 180. Magner made excellent progress as a salesman and he developed a close

working relationship with Jack McMahon, his supervisor, and the VIM customers. T. 87,

109-10. By 2001, Magner was servicing approximately 75-100 customers, and his income

increased each year. Ex. 243, T. 172. Most of Magner’s customers were in the Midwest.

T. 121. VIM provided him with a great opportunity. T. 363. His compensation at VIM was

as follows:

1995 - $8,451 1998 - $43,264 2001- $35,602 (through 8/15)

1996 - $20,879 1999 - $72,660

1997 - $27,270 2000 - $90,674

T. 143-44, Ex. 131. Magner’s VIM income decreased in 2001, due in part to the economy

and the diversion of accounts to Industrecycle. T. 121-23.

9. Magner did not have a written employment contract with VIM, nor was he ever

provided with an employee handbook. T. 360, 595, 666. Magner was an employee at will

and his rates of compensation and expense reimbursement were left to VIM’s discretion. T.
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103. Salespersons were paid through commissions and hourly for office time. T. 91-2. VIM

provided Magner with monthly commission statements. T. 126-7, 669, Ex. 243. These

commission statements were prepared by Jack McMahon. T. 69. Salespersons were paid

10% of gross sales on accounts they initiated and 5% on accounts given to them by VIM.

T. 97. VIM also paid its salespersons for other services sold to customers and for profits

made during good times. T. 98-104. There is no written document that fully explains how

a salesperson’s commission is calculated. T. 278, Ex. 137. VIM did not change its

commission policy retroactively. T. 280. 

10. Magner was the “point man” for the VIM customers he managed. T. 175, 358.

As the point man, Magner supervised the customer relationship, made periodic sales calls in

person and by phone, and was generally the only person at VIM who would stay in touch

with the customer. T. 175, 265-66. As the point man, Magner understood that he was

entrusted with managing the account for the benefit of VIM. T. 358-60. He understood that

he was required to use his best efforts to protect and service the accounts for VIM. T. 579-

80. He knew VIM would rely on him to take all steps to keep the business for VIM. T. 580-

81.

11. Jack McMahon generally conducted monthly sales meetings with all of his

salesman to discuss sales prospects, business issues and other matters related to the

functioning of the business. T. 110-11. Jack McMahon did not require his salespeople to

sign a contract, non-competition or non-solicitation agreements. T. 268. He trusted them as
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friends. He advised his salespeople that if they ever traded behind his back, they would be

fired. T. 216-17.

12. The VIM commission structure is complicated; it consists of commissions based

on the money derived by VIM from baler rentals, the acquisition and resale of recyclables,

and other miscellaneous revenue. VIM also contributes to a pension plan. T. 105. In

addition, VIM also pays certain of its salespersons’ expenses including phone service, fax

machines, and provides a company owned vehicle to its salespersons. T. 106-07. Each

salesperson is required to set up a minimum of 12 new net balers per year. T. 92-3, Ex. 137.

Every baler short of 12 results in a penalty of $1,000 at year end. Id.

D. FORMATION OF INDUSTRECYCLE, LLC.

13. Sometime in 1999, Tim Magner purchased nine balers at an auction for $12,600.

Ex. 342, T. 763. Industrecycle was formed on July 6, 1999. T. 364, Ex. 326. Magner was

listed as a manager and Vice President of Industrecycle. Tim Magner was listed as a

manager and President. Ex. 323. In July, 2002, Magner became President and Tim Magner

was removed as an officer. T. 369-70.

14. Industrecycle conducted no business until approximately April, 2000.

Industrecycle began doing business with Dutch Maid Bakery (“Dutch Maid”) on or about

April 5, 2000. Ex. 42, 362, T. 389-94. The services performed by Industrecycle for Dutch

Maid were in competition with the services performed by VIM to its customers. T. 390.

15. From the time of its formation in July, 1999, Magner knew that Industrecycle’s
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business was similar or identical to that of VIM and that Industrecycle was going to provide

the same or similar services as VIM. T. 365-67, 373. Although Tim Magner principally

serviced the Dutch Maid account, he kept Magner advised of the business being performed

with Dutch Maid. T. 394.

16. In July, 1999, Magner executed certain banking agreements with Eastern Bank

in Massachusetts in his capacity as Industrecycle’s Vice President. Ex. 303. Industrecycle

maintained a Register Report listing its financial transactions. Ex. 362.

17. From August, 1999 to February 2001, Magner deposited approximately $4,350

of his own personal funds in Industrecycle’s business account. Ex. 362, T. 385. Magner

received $2,500 from Industrecycle on May 4, 2001, and approximately $1,708 on August

2, 2001. Ex. 362, T. 388-89.

18. At no time did Magner ever advise VIM of his involvement with Industrecycle.

T. 372-75. At the time of trial, Industrecycle had approximately 40 customers, 15 of whom

were former VIM customers. T. 762. Industrecycle did approximately $300,000 of business

in 2004. T. 621.

E. CHANGE IN COMMISSION STRUCTURE.

19. In late 2000 or the beginning of 2001, Jack McMahon advised Magner and the

other salesmen that he was making a change in their commission structure from $70 per load

of cardboard that came through the Aurora plant to $3.08 per ton. T. 248-50, 342-43. This

change was reflected in Magner’s commission statements for January and February, 2001,

which he received in late April, 2001. Ex. 237 & 238, T. 250-52. VIM provided Magner
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with a detailed breakdown of the commission computations. At no time prior to the filing

of his counterclaim on April 21, 2003, did Magner ever dispute the commissions for January

and February, 2001. T. 253, 343, 599. The January and February, 2001 commissions were

properly computed and paid. Magner’s claim that he was underpaid in the amount of

$1,411.20 is not supported by the record.

F. CLAIM FOR MOVING EXPENSES.

20. Magner moved from Chicago to Massachusetts on April 2, 2001 at his request.

129-30, 593. He and VIM agreed that Magner would keep all of his Chicago customers and

fly back every two months while he built up his business on the east coast. T. 132. Magner

was to build a central hub on the east coast and possibly open a VIM facility. T. 132-34. He

incurred $2,748.92 in moving expenses. Ex. 376. VIM never promised or represented to

Magner that it would pay his moving bill. T. 254. At no time prior to the filing of the

counterclaim in this case did he ever request VIM to reimburse his moving expenses. T. 254,

592-93. VIM had neither a policy nor an agreement with Magner to reimburse him for

moving expenses. T. 327-28. Magner’s claim for reimbursement of moving expenses is not

supported by the record.

G. MAGNER DECIDES TO AGGRESSIVELY COMPETE WITH VIM.

21. VIM’s business began to suffer in late 2000 and early 2001 due to a downturn in

the economy. T. 113-17. VIM was having trouble disposing of the recyclables. T. 725. By

April, 2001, Magner was aware that Jack McMahon claimed that Magner had been overpaid

by $3,000 in commissions, that he was not meeting his baler quota (12 in a 12-month period

or $1,000 per baler is deducted), and that the commission and expense structure had been
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slightly changed. T. 728-33. Magner was concerned that he would not receive a paycheck

due to the prospective back-charges. T. 733.

22. By April 2001, Magner decided to aggressively compete with VIM through

Industrecycle. Magner was concerned about his cash flow. He therefore decided to build

Industrecycle while continuing to receive paychecks from VIM. T. 748. Because most of

his VIM customers were repeat customers, and because Jack McMahon was helping manage

these accounts after Magner’s move, Magner was able to continue his income from VIM

while working to build Industrecycle. T. 137-38.

H. SECRET DIVERSION OF VIM ACCOUNTS.

23. Beginning in April 2001, Magner began to transact business on behalf of

Industrecycle with four of his major VIM customers: Olmarc Packaging Company

(“Olmarc”), U. S. Gypsum, Sealed Air Corporation (“Sealed Air”), and Harris Lamps. T.

547. These were substantial accounts. T. 340. During this period, Magner represented to

Jack McMahon that he was continuing to solicit business for VIM. T. 136-37.

1. Diversion of the Olmarc Account.

24. Olmarc is a contract packaging company for large food service companies such

as General Mills. T. 162, 654. Olmarc became a recycling customer of VIM’s sometime in

1998. T. 163. Magner had no dealings with Olmarc prior to becoming employed by VIM.

T. 403. Magner initially solicited the Olmarc account on behalf of VIM. T. 640-41, 671.

25. Magner was VIM’s point man for the Olmarc account at its Northlake, Illinois

location. T. 403. Magner regularly dealt with Olmarc’s representative, Mark Melchiorre

(“Melchiorre”), materials manager, at that location. VIM’s services to Olmarc dealt
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primarily with recycling gaylord boxes, corrugated cardboard, chip board, and moisture

sealed bags. T. 163-68. Melchiorre testified at the trial. T. 628-54.

26. VIM provided ongoing and uninterrupted recycling services to Olmarc on a

weekly basis from sometime in 1998 until June, 2001, when Magner and Industrecycle

wrongfully diverted the account, and Olmarc terminated its business relations with VIM and

began doing business with Industrecycle. Ex. 5, T. 171-74, 404. At the time, Olmarc was

one of Magner’s top ten most lucrative accounts at VIM. T. 172.

27. While employed by VIM, Magner contacted Melchiorre in June, 2001, and

informed him that he had left VIM and formed his own recycling company called

Industrecycle. T. 548-49. Magner did not tell Melchiorre that he was still employed by

VIM. T. 549, 631. Melchiorre would not have given Industrecycle Olmarc’s business if

Magner had told him the truth because it would have been unethical to do so. T. 632. At the

time, Magner was still VIM’s point man for the Olmarc account and he knew his conduct

was wrong. T. 550.

28. Olmarc was not looking to change recycling companies when Magner approached

Melchiorre in June, 2001 on behalf of Industrecycle. T. 552. Olmarc had not given Magner

any indication that it was dissatisfied with VIM when Magner first solicited the account for

Industrecycle. T. 552. Jack McMahon was not aware of any problems at Olmarc with

VIM’s services at that time. T. 177. Up until the time Industrecycle started pulling Olmarc’s

recyclables, Melchiorre was satisfied with VIM’s services. T. 632-33, 642. There was no

written contract between Olmarc and VIM. T. 638. Magner offered Melchiorre a higher

price for the recyclables through Industrecycle. T. 549, 678.
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29. Industrecycle began picking up loads of recyclables from Olmarc’s Northlake,

Illinois location on July 6, 2001. Ex. 4, T. 179-81. Magner was still employed by VIM on

each of the above dates. Melchiorre did not know that Magner was still employed by VIM

when these loads were pulled from Olmarc in July, 2001. Industrecycle has provided

recycling services to Olmarc from July, 2001 to the present. Ex. 4.

30. On or about June 29, 2001, Magner misrepresented to Jack McMahon that the

Olmarc account was lost to a competitor, when in fact Magner signed up the account for his

own rival company, Industrecycle. T. 175, 553. Magner knew this statement to Jack

McMahon was false. T. 554. At that time, Jack McMahon questioned Magner as to what

could be done to regain the Olmarc account for VIM. Magner told McMahon that the

account was “lost” and there was nothing VIM could do to regain the business. T. 176-77.

Jack McMahon had no idea that Magner was the Vice President of the competitor that took

the Olmarc account from VIM. T. 184. After Magner left VIM, VIM contacted Olmarc on

several occasions but was unable to reclaim Olmarc’s business. T. 303-06.

31. Industrecycle paid Olmarc a total of approximately $86,149.33 in recyclable

rebates for the months of August, 2001 through May, 2003.

32. Industrecycle has provided monthly recycling services to Olmarc at its Northlake,

Illinois location from July, 2001 to the present. On average, Defendant Industrecycle’s

monthly revenue from the Olmarc account since July, 2001 is approximately $800.00 to

$1,200.00.

33. Olmarc was using VIM’s baler to compact the recyclables that Industrecycle

picked up in July, 2001. In August, 2001, VIM’s baler was replaced with Industrecycle’s
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baler. T. 552. Magner was still employed by VIM at this time. Industrecycle used the same

broker used by VIM, Columbia Paper, LLC (“Columbia”), a recycling broker located in

Chicago, Illinois, to sell Olmarc’s recyclables. T. 182-84.

34. VIM relied upon Magner as its point man to attempt to regain VIM’s business

with Olmarc and other accounts unknowingly lost to Industrecycle prior to Magner’s August

15, 2001 resignation.

2. Industrecycle Diverts U.S. Gypsum Account.

35. U.S. Gypsum in Fort Dodge, Iowa is another VIM account Magner and

Industrecycle diverted from VIM while Defendant Magner was employed by VIM. The

contact person at U.S. Gypsum was Curly Brand. T. 225.

36. In or about August, 1998, VIM began doing business with U.S. Gypsum to

provide a leased baler and weekly recycling services primarily relating to U.S. Gypsum’s

cardboard commodities, multi-wall bags, bales of cores and stretch wrap. T. 225-26.

Magner was the salesman from VIM who initially engaged U.S. Gypsum as a VIM customer

and was the point man responsible for managing the account.

37. VIM contracted with Columbia to purchase the loads of U.S. Gypsum recyclables

from VIM. VIM’s contractual relations continued uninterrupted with U.S. Gypsum from

1998 until about May, 2001 when Magner first proposed to Curley Brand that U.S. Gypsum

switch to Industrecycle. U.S. Gypsum had not expressed a desire to switch companies. T.

573. Magner was still employed by VIM at this time. Magner knew that his solicitation of

Curly Brand on behalf of Industrecycle was wrong. T. 573.
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38. Magner succeeded in convincing U.S. Gypsum to terminate its business

relationship with VIM, and in May, 2001, Industrecycle began pulling loads of recyclables

from U.S. Gypsum. Industrecycle pulled it’s first load from U.S. Gypsum on May 2, 2001.

T. 67, p. 837. T. 573-74. Industrecycle pulled the same types of products from U.S. Gypsum

as had been pulled by VIM.

39. Industrecycle used the same trucking services and recycling brokers who were

used by VIM when Industrecycle began diverting U.S. Gypsum loads from VIM in May,

2001. When confronted by VIM, Magner continually denied that he was trading behind

VIM’s back. Magner told Jack McMahon that the U.S. Gypsum business was lost to a

competitor. T. 228-29.

40. Industrecycle has continued to provide monthly recycling services to U.S.

Gypsum from May, 2001 to the present. After the U.S. Gypsum account was lost to

Industrecycle, VIM repeatedly and unsuccessfully sent another salesman, Eric Williams, to

U.S. Gypsum in an attempt to recapture the account. T. 232, 311-12. U.S. Gypsum

continued to lease the baler from VIM after VIM lost the recycling business. T. 227, 309.

3. Diversion of the Sealed Air Account.

41. Sealed Air Corporation (“Sealed Air”) is another VIM account that Magner

diverted from VIM to Industrecycle while Magner was still employed by VIM.

42. In or about July, 1998, VIM initially contracted with Sealed Air to provide

recycling services relative to recyclables made up primarily of densified plastic and plastic

bubble wrap commodities at Sealed Air’s location in Hodgkins, Illinois. Sealed Air is in the

business of manufacturing and supplying protective packaging to various industries. T. 714.
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43. Magner was the salesman from VIM who initially engaged Sealed Air as a VIM

customer and was responsible for continuing to manage the account for VIM. T. 556, 679.

44. Starting in or around late 1998, VIM arranged to pick-up Sealed Air’s densified

plastic commodity from its Hodgkins, Illinois location and sell it to Xsresens, Inc., a

recycling broker; and to sell Sealed Air’s plastic bubble wrap commodity to Harris Lamps

in Chicago, Illinois. T. 184-86. Vince McMahon initiated the idea to sell the bubble wrap

commodity to Harris Lamps for its use in packaging lamp products. T. 172-73. VIM would

then issue rebates to Sealed Air based upon the above sales of its recyclables. Magner was

VIM’s point man for these transactions. Magner dealt primarily with James Kasprowicz

(“Kasprowicz”) at Sealed Air. T. 187, 679. Kasprowicz testified at the trial. T. 689-719.

Kasprowicz was employed at Sealed Air from 1980 through November, 2001. T. 690. VIM

was Sealed Air’s exclusive recycler for the products in question at its Hodgkins’ location.

T. 187. Sealed Air used other recyclers for other products at the time they used VIM to pull

the polyethelene foam, the resin, and the shredded paper envelopes with bubble wrap. T.

700-01.

45. VIM’s contractual relations continued uninterrupted with Sealed Air, Xsresens

and Harris Lamps on a weekly and monthly basis for approximately 2-3 years. Ex. 8-10.

VIM did a good job in providing recycling services to Sealed Air’s Hodgkins, Illinois

location T. 695. Sealed Air was a very significant account because it was tied in with the

Harris Lamps account, because the Sealed Air bubble wrap was used as packaging material

for Harris Lamps. T. 172-73. There were other recyclers dealing with Sealed Air for other

types of scrap. T. 683-84.
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46. In or around mid-April, 2001, Magner, on behalf of VIM and Sealed Air’s

representative, Kasprowicz, traveled to three other Sealed Air locations on the east coast

(Holyoke, Massachusetts; Scotia, New York; and Saddle Brook, New Jersey) to discuss

expanding VIM’s recycling services to those locations. T. 213-15, 561, 741-42. At the time,

Kasprowicz was Sealed Air’s recycling coordinator. T. 692. According to Kasprowicz, the

purpose of the trip was to create a business opportunity for VIM. T. 695. VIM paid for

Magner’s travel expenses and costs. T. 215. VIM never received any business from those

Sealed Air locations. T. 215.

47. Unknown to VIM, Magner ultimately signed up Sealed Air’s recycling business

in Holyoke, Massachusetts and Saddle Brook, New Jersey for Industrecycle. Exs. 31 & 38.

Industrecycle began doing business at the Sealed Air Holyoke location as early as May 3,

2001. Ex. 28-29, T. 559-60. Magner first met the Sealed Air Holyoke representatives during

his business meeting paid for by VIM. T. 561. Magner began doing business with the

Sealed Air Saddle Brook location in July, 2002. Ex. 38.

48. VIM continued to provide ongoing recycling services to Sealed Air’s Hodgkins,

Illinois location on a weekly and monthly basis without interruption until about May, 2001

when Magner diverted VIM’s Sealed Air’s Hodgkins, Illinois account to Industrecycle. 

Magner was employed by VIM at that time. Magner did not disclose this fact to Kaprowicz.

T. 697-98. Had he known, he would not have given the business to Industrecycle. T. 715-

18. In or around May, 2001, Magner informed Kasprowicz that he and his brother were

going into their own recycling business and offered to provide services to Sealed Air. VIM

was still providing recycling services to Sealed Air’s Hodgkins, Illinois location when
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Magner approached Kasprowicz on behalf of Industrecycle. At the time, there were no

problems with VIM’s service to Sealed Air. T. 697. Magner knew that his solicitation of

Kasprowicz on behalf of Industrecycle was wrong. T. 563.

49. Industrecycle began pulling recyclables from Sealed Air’s Hodgkins, Illinois

location as early as May 3, 2001. Ex. 11, T. 564. Magner was still employed by VIM at that

time. Industrecycle also used XSResens as a recycling broker. Ex. 43. Industrecycle

continued to do business at the Sealed Air Hodgkins location continuously through the end

of 2004. T. 564. VIM did no business with Sealed Air during this time. T. 207. 

50. In June, 2001, VIM received an invoice from Sealed Air requesting payment for

a May load of densified bubble wrap. Jack McMahon contacted Magner to follow up and

Magner told him that Sealed Air had made a mistake that someone had outbid VIM for the

load. T. 190-93, 290-95. In fact, the load was purchased by Industrecycle. Ex. 11. Jack

McMahon totally relied upon Magner to preserve the Sealed Air account. T. 196.

51. In or around July, 2001, Jack McMahon specifically confronted Magner as to

whether he was trading behind VIM’s back. T. 294. Magner did not admit to doing so.

Magner misrepresented to Jack McMahon that VIM lost the Sealed Air account to a

competitor.

52. After Industrecycle diverted the Sealed Air account from VIM, Pat McMahon

attempted on a number of occasions to call Kasprowicz at Sealed Air in an unsuccessful

attempt to regain the account. T. 301.

4. Diversion of Harris Lamps Account.

53. Harris Lamps is another VIM account that Magner diverted from VIM to
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Industrecycle while Magner was employed at VIM. VIM began selling to Harris Lamps in

the late 1990's and continuously delivered bubble wrap to them through the spring of 2001.

T. 221. In addition, VIM pulled cardboard, metal and sawdust from Harris Lamps for

recycling. T. 222. Magner was assigned to handle the account for VIM. T. 222. Harris

Lamps ceased doing business with VIM in April or May, 2001. It began doing business with

Industrecycle on May 23, 2001, through Magner. Ex. 289, T. 223, 570. Harris Lamps began

purchasing Sealed Air’s bubble wrap from Industrecycle in May, 2001. T. 570. Harris

Lamps also switched its recyclables pickup to Industrecycle sometime after Magner left

VIM’s employment. Harris Lamps continued to do business with Industrecycle until Harris

Lamps went out of business in 2003. T. 687.

54. Although he was employed by VIM, he made these sales on behalf of

Industrecycle. T. 570, Ex. 290-95. Magner knew this conduct was improper. T. 571. VIM

had been selling Sealed Air bubble wrap to Harris for a significant period of time. As a result

of Magner’s diversions, VIM’s business relations with Harris Lamps was terminated.

I. MAGNER LEAVES VIM.

55. Sometime in mid - late July, 2001, Magner told Jack McMahon that he planned

to leave VIM in order to pursue work in pharmaceutical sales or the tree service business.

T. 138-40. Magner left VIM on or about August 15, 2001. Ex. 130. VIM continued to pay

Magner through September, 2001. T. 141-43, Ex. 127-29, 241-46. At the time he left VIM,

he was short four balers on a pro rata basis. T. 148, Ex. 383. He was not charged back the

$4,000 by VIM because Jack McMahon viewed him as a friend. T. 155-56, 611-12. Jack

McMahon did not know at the time that Magner was diverting VIM accounts to
19

Industrecycle.

J. INDUSTRECYCLE’S DIVERSION OF OTHER VIM CUSTOMERS AFTER

DEFENDANT MAGNER’S TERMINATION OF EMPLOYMENT WITH VIM.

56. Subsequent to Magner’s termination of employment with VIM in or around

September, 2001, Magner and Industrecycle diverted several additional customers away from

VIM including VJI Packaging, East Balt Commissary, Best Kosher, and Newly Wed Foods.

T. 245-48, Ex. 243. Magner was the VIM salesperson on these accounts. T.344-45. Magner

became familiar with all of the above customers by virtue of his employment with VIM.

Subsequent to his employment with VIM, Magner used the information and knowledge he

had gained through VIM about the above customers in order to divert them to his rival

company, Industrecycle. By the time of trial, Industrecycle was doing business with

approximately 15 former VIM accounts. T. 762.

57. Jack McMahon unsuccessfully contacted a number of the above former VIM

customers after they were diverted by the Defendants in an attempt to resecure their

relationship with VIM.

K. VIM DELEGATED THE RESPONSIBILITY OF RECAPTURING THE LOST

ACCOUNTS TO ITS POINTMAN, MAGNER, NOT KNOWING THAT IT

WAS MAGNER WHO ACTUALLY DIVERTED THE ACCOUNTS.

58. VIM took reasonable steps to attempt to regain the loyalty of its lost customers.

To that end, VIM directed Magner, as VIM’s point man, to attempt to recapture the various

lost accounts including Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps. At the time

VIM delegated this responsibility to Magner, VIM was unaware that Magner diverted the

accounts to his own rival company.

59. While employed by VIM, Magner was charged by VIM with the obligation as
20

point man to try and recapture the Olmarc, Sealed Air, U.S. Gypsum and Harris Lamps

accounts. Magner, of course, did not make any efforts to convince the above customers to

leave his rival company, Industrecycle, and return to VIM. Moreover, Magner’s fraudulent

concealment from VIM of his wrongful diversions of VIM’s accounts caused VIM to rely

upon Magner to regain the customers’ loyalty. Magner’s concealment delayed VIM’s

knowledge of Magner’s misconduct, thereby hampering VIM’s efforts to regain the

customers’ business.

L. DEFENDANT MAGNER FRAUDULENTLY CONCEALED THE

EXISTENCE OF INDUSTRECYCLE (OR HIS DIVERSION OF VIM’s

ACCOUNTS) FROM PLAINTIFF VIM.

60. At no time during Magner’s employment with VIM did he disclose the existence

of Industrecycle to VIM. At no time prior to VIM’s instigation of the instant lawsuit did

Magner ever divulge to VIM that he and Industrecycle diverted VIM accounts during his

employment with VIM. In fact, as late as April 7, 2003, Defendants served false responses

to Plaintiff’s Request to Admit Facts, denying these solicitations of VIM’s customers. Ex.

265, T. 602-09.

61. During the time that Magner was employed at VIM, the company had a policy

prohibiting VIM salespeople from transacting recycling business behind VIM’s back. T.

216-17. Magner was specifically informed while employed by VIM that if VIM salespeople

were caught trading behind VIM’s back, they would be fired. Magner’s conduct in diverting

the Olmarc, U.S. Gypsum, and Sealed Air accounts from VIM to his own rival company

while employed by VIM was a violation of the above described policy.

M. FRAUDULENT CUSTOMER QUOTES.
21

62. Magner remained employed by VIM after his move to Massachusetts in the spring

of 2001. After the move, Magner continued to inform Jack McMahon from VIM that he was

developing accounts for VIM.

63. After his move to Massachusetts, Magner would furnish VIM with copies of

various customer proposals that he had purportedly delivered to potential customers.

64. In early June, 2001 Magner sent Jack McMahon a copy of a VIM recycling

proposal which he purportedly delivered to Dutch Maid Bakeries out east. Ex. 113, T. 234-

35, 347-48. Magner wanted McMahon to think he was busy trying to secure accounts for

VIM. T.582-85. At the time Magner sent the Dutch Maid Bakery quote to VIM, his rival

company, Industrecycle, was already servicing Dutch Maid Bakery. Ex. 42, p. 513, 524.

Magner was attempting to misrepresent to Jack McMahon that he was trying to secure

business for VIM. T. 582-85. He did not send the VIM quote to Dutch Maid Bakery since

Industrecycle had been servicing Dutch Maid since at least April 5, 2000. Ex. 42, p. 524.

65. While employed with VIM and living in Massachusetts, Magner also sent Jack

McMahon a copy of a VIM proposal which he purportedly delivered to one of Sealed Air’s

locations on the east coast. Ex. 113, pp. 1467-68. Magner did not inform VIM at that time

that his rival company, Industrecycle, had already diverted VIM’s Sealed Air account relative

to Sealed Air Corporation’s Hodgkins, Illinois location. Magner knew it was improper to

divert VIM’s Sealed Air (Hodgkins’) account and then send copies of bogus VIM proposals

to VIM for other Sealed Air locations. T. 590-91.
22

66. After moving to Massachusetts, Magner also sent VIM a number of other phony

VIM proposals to Jack McMahon while working for his rival company, Industrecycle,

including Necco, Quizani Bakery, Bertolino Beef, MJ Malloy, and Floral Dist. Ex. 114-117.

These quotes were prepared long after Magner knew that he could not gain their business to

make it appear that he was busy working for VIM. T. 794-97.

N. VIM LEARNS OF MAGNER’S COMPETITION.

67. Sometime between the end of 2001 through the summer of 2002, VIM gradually

learned that Magner was competing with it. T. 161. VIM lost the Best Kosher account at

the end of 2001, but could not find out to whom. T. 161. In the summer of 2002, Jack

McMahon learned from Strand Tech that Magner was in the recycling business. T. 161.

VIM’s former customers did not disclose that they had switched their accounts to

Industrecycle. T. 289-91.

O. EXPERT TESTIMONY - JOSEPH DUDLEY.

68. Joseph Dudley (“Dudley”), a CPA, testified as an expert witness on the issue of

damages. T. 416-536, Ex. 263. He reviewed numerous documents in preparation of his

opinions. Ex. 263, pp. 3370-72, T. 433. He prepared a report. Ex. 263. The Court finds

Dudley to be credible and his testimony to be helpful. Dudley summarized the lost profits

damages from the four major accounts as follows:

(Two years)

 Pre 8/15/01 Post 8/15/01
23

Olmarc $1,733.02 $42,683.68

Xresen (Sealed Air) 3,117.43 14,185.79

Harris Lamps 881.71 5,940.48

U.S. Gypsum 422.73 5,195.34

Misc. Checks 3,546.90 12,499.89

 $9,701.79 $80,505.18

Ex. 263, p. 3327. Dudley determined that VIM’s gross profit margin was 20.8% and that

applying that margin to the information provided from Industrecycle’s records resulted in the

above lost profits to VIM over a two-year period and an additional $40,000 if applied to a

three-year period. The Court finds Dudley’s analysis to be reasonable and appropriate. The

Court finds his gross profit margin calculation to be reasonable. Industrecycle did significant

business with other VIM customers after Magner left VIM. Ex. 263, pp. 3352-53.

69. In addition, Dudley computed damages for wages, fringe benefits and other

expenses from the date of Industrecycle’s incorporation in July, 1999, to the date of

Magner’s resignation on August 15, 2001 at VIM of $208,895.25. Ex. 263, p. 3328. These

numbers were taken from VIM’s accountant. T. 462. Dudley identified a third category of

damages as the $253,807.54 in attorney’s fees and costs VIM incurred in this litigation

through September 27, 2004. Ex. 263. The Court will discuss the issue of damages in detail

in its conclusions of law.

II. CONCLUSIONS OF LAW

A. JURISDICTION AND CHOICE OF LAW

70. This Court has diversity jurisdiction to decide this case. 28 U.S.C. §1332(a)(1).

Section 1332(a)(1) provides federal courts with jurisdiction over all civil cases where the

matter in controversy is in excess of $75,000.00 and is between citizens of different states.
24

71. Plaintiff VIM is an Illinois limited partnership with its principal place of business

in Glen Ellyn, Illinois. All of the partners of VIM are citizens of Illinois. Defendant Magner

is a citizen of Massachusetts. Defendant Industrecycle is a Massachusetts limited liability

company with its principal place of business in Massachusetts. The two members of

Industrecycle are citizens of Massachusetts and Wisconsin. 

72. The amount in controversy is “whatever is required to satisfy the plaintiff’s

demand, in full, on the date the suit begins.” Hart v. Schering-Plough Corp., 253 F.3d 272,

273 (7th Cir. 2001). Pursuant to the complaint, VIM claims that it is entitled to

compensatory damages, punitive damages, and pre-judgment interest in excess of $601,000.

Accordingly, the Court has subject matter jurisdiction.

73. As per the parties agreement, Illinois law applies.

74. The Court will address the legal issues in the following order: 1) VIM’s claim that

Magner breached his fiduciary duty; 2) VIM’s claim that Magner and Industrecycle

committed fraud; 3) VIM’s claim that Magner and Industrecycle tortiously interfered with

VIM’s prospective business advantage; 4) Magner’s counterclaim for commissions and

moving expenses; and 5) damages.

B. MAGNER’S BREACH OF FIDUCIARY DUTY

75. VIM first claims that Magner breached his fiduciary duty by creating and

operating a rival company, Industrecycle, and then diverting VIM’s business while still

employed at VIM. In order to succeed on a claim for breach of fiduciary duty, a plaintiff

must establish the existence of a fiduciary duty, a breach of that duty, and damages

proximately resulting from the breach. Schwendener v. Jupiter Electric Co., 2005 Ill.App.
25

LEXIS 425, *3 (Ill. App. Ct. May 11, 2005), citing Neade v. Portes, 739 N.E.2d 496, 502-

503 (Ill. 2000). 

76. It is well settled under Illinois law that an employee owes a duty of fidelity and

loyalty to his employer. See ABC Trans Nat’l Transp., Inc. v. Aeronautics Forwarders, Inc.,

379 N.E.2d 1228, 1237 (Ill. App. Ct. 1978). Accordingly, a fiduciary cannot act

inconsistently with his agency or trust by soliciting his employer’s customers for himself.

Id. 

78. Illinois courts have recognized that an employee may take part in some

preliminary competitive activities without breaching his fiduciary duty. Generally,

employees may plan, form, and outfit a competing corporation while still working for the

employer, but they may not commence competition. Dowell v. Bitner, 652 N.E.2d 1372,

1379 (Ill. App. Ct. 1995). Thus, an employee may form a rival corporation and outfit it for

business while still employed by his future competitor. E.J. McKernan Co. v. Gregory, 623

N.E.2d 981, 993 (Ill. App. Ct. 1993). However, that employee crosses the line and breaches

his fiduciary duty when he goes beyond such preliminary competitive activities and

commences business as a rival concern. Id.; see also Everen Sec. Inc. v. A.G. Edwards &

Sons, Inc. 719 N.E.2d 312, 318 (Ill. App. Ct. 1999) (holding that former general employees

may compete with their former employers absent a contractual restrictive covenant, provided

there was no demonstrable business activity before termination of employment).

79. For example, in Hill v. Names & Addresses, Inc., the Illinois Appellate Court for

the First District found that the defendant employee had breached her fiduciary duty to her

employer when she solicited the clients of her former employer, prior to leaving, in order to
26

secure them for her new employer. 571 N.E.2d 1085, 1090, 1094 (Ill. App. Ct. 1991).

80. Given the evidence in this case, it is clear that Magner breached his fiduciary duty

to VIM because he actively competed with VIM while still employed there. The only real

issue before this Court is to pinpoint at what time Magner began breaching his duty. VIM

argues that Magner began breaching his fiduciary duty on the date he formed Industrecycle.

Magner argues that the breach occurred in late April, 2001 when Magner began diverting

VIM’s accounts. For simplicity, the Court discusses Magner’s possible breach in the context

of three time periods: 1) July, 1999 to April, 2000; 2) April 2000 through April 2001; and

3) May 2001 to August 15, 2001. During the first time period, from July, 1999 to April,

2000, Magner formed Industrecycle but did not begin doing any business with customers.

During the second time period, from April 2000 though April 2001, Industrecycle serviced

its first client, Dutch Maid. During the third period, from May 2001 until August 15, 2001,

Magner diverted accounts from VIM.

1. Period One: The Formation of Industrecycle 

81. The first time period is from July 1999, when Magner and his brother formed

Industrecycle, until April, 2000, when Industrecycle began operations (“Period 1"). During

Period 1, Magner was named as Vice President of Industrecycle, he signed banking

agreements on behalf of Industrecycle, and he deposited and received money into

Industrecycle’s bank account. However, during Period 1, Industrecycle did not conduct any

business with customers. 

82. Under Illinois law, Magner did not breach his fiduciary duty to VIM during

Period 1 because he was merely involved in preliminary competitive activities. E.J.
27

McKernan Co., 623 N.E.2d at 993. As stated above, an employee will not be considered to

be in breach of his fiduciary duty by the mere formation of a rival concern. Id. Therefore,

there was no breach by Magner for Period 1. 

2. Period Two: Industrecycle Services Dutch Maid

83. The second time period is from April 2000, when Industrecycle acquired its first

customer, Dutch Maid, until May, 2001, when Magner began diverting VIM’s accounts

(“Period 2"). During Period 2, Magner’s brother, Tim Magner, acted as Industrecycle’s

President and principally serviced the Dutch Maid account. However, during that time,

Magner served as Industrecycle’s Vice President, was aware of his brother’s dealings with

Dutch Maid, and also knew that Industrecyle was a direct competitor of VIM’s. 

84. It was during Period 2 that Magner began breaching his fiduciary duty. While the

Court acknowledges that Tim Magner principally serviced the Dutch Maid account, Luke

Magner was made aware of the business and had some limited involvement in this account.

Under Illinois law, Magner “commenced business as a rival concern” and this constitutes a

breach. McKernan Co., 623 N.E.2d at 993. At this point going forward until May, 2001,

Magner was technically in breach of his fiduciary duty because he was not acting consistent

with the best interests of his employer. Id.

3. Period Three: Magner Diverts Accounts to Industrecycle.

85. The third time period is from May, 2001, when Magner began diverting accounts

from VIM to Industrecycle, until August 15, 2001, when Magner left VIM (“Period 3").

During Period 3, Magner actively solicited VIM customers Sealed Air, U.S. Gypsum,

Olmarc, and Harris Lamps. Magner was able to convince these customers to do business
28

with Industrecycle instead of VIM; Magner himself began servicing these accounts for

Industrecycle. Throughout Period 3, Magner represented to VIM that he was continuing to

solicit business for VIM.

86. During Period 3, Magner was in serious breach of his fiduciary duty. As

discussed in Hill, an employee may not solicit the customers of his employer while still

working for that employer. 571 N.E.2d at 1090. In this case, not only did Magner solicit

VIM customers while still employed there, he actually began to do rival business with them

through Industrecycle. Magner’s activities during Period 3 were clearly against the best

interests of his employer and represent a serious breach of his fiduciary duty.

87. The Court concludes that Magner breached his fiduciary duty to VIM in Period

2, beginning in April 2000, when his rival company began conducting business in

competition with VIM. However, the most serious breach of fiduciary duty occurred in

Period 3, between May, 2001 and August, 2001, when Magner diverted VIM’s accounts and

took its business. The issue of damages will be discussed later. 

C. FRAUD

88. VIM next alleges a cause of action for fraud against Defendants Magner and

Industrecycle. Under Illinois law, the elements of a claim for fraudulent misrepresentation

are: (1) a false statement of material fact; (2) defendant’s knowledge that the statement was

false; (3) defendant’s intent that the statement induce the plaintiff to act; (4) plaintiff’s

reliance upon the truth of the statement; and (5) plaintiff’s damages resulting from reliance

on the statement. Connick v. Suzuki Motor Co., Ltd, 675 N.E.2d 584, 591 (Ill. 1996).

“Fraud means anything calculated to deceive, including all acts, omissions and concealments
29

involving a breach of legal or equitable duty, trust or confidence resulting in damage to

another.” Carey Electric Contracting, Inc. v. First National Bank of Elgin, 392 N.E.2d 759,

762 (Ill. App. Ct. 1979). Fraud is never presumed; it must be proved by clear and convincing

evidence. Ray v. Winter, 367 N.E.2d 678, 682 (Ill. 1977). There is no general rule for

determining what facts will constitute fraud. Rather, its existence depends upon the

particular facts of each case. Id. 

89. In this case, this Court has found several instances in which Magner acted in an

attempt to deceive VIM. First, at no time during Magner’s employment with VIM did he

disclose the existence of Industrecycle to the Plaintiff. Second, Magner deceived VIM

regarding his trip to Sealed Air’s eastern plants in April, 2001. While he told VIM that the

purpose of the trip was to secure more accounts for VIM, he was instead securing those

accounts for Industrecycle. As early as May 3, 2001, Industrecycle began pulling loads from

the Sealed Air Holyoke, Massachusetts location. The cost of the trip was paid for by VIM.

Third, on several occasions Magner misled VIM into believing that he was working on behalf

of VIM when in fact he was not. Magner sent Jack McMahon a copy of a VIM proposal

which he purportedly delivered to Dutch Maid Bakeries out east, in an effort to show VIM

he was busy trying to secure accounts for VIM. However, Magner never sent the proposal

to Dutch Maid since Industrecycle was already servicing the account. Indeed, Magner sent

other fake proposals to prospective clients to McMahon in order to make VIM believe that

he was attempting to solicit business on its behalf when in fact he knew these companies

were not interested in doing business. Fourth, Magner misrepresented to Jack McMahon

that the Olmarc, Sealed Air, and U.S. Gypsum accounts were lost to a competitor when the
30

accounts had actually been lost to Industrecycle. 

90. These instances of deceit represent misrepresentations of material facts. Magner

clearly knew these statements and actions were false. His intent was to make VIM believe

that he was still working in the best interests of VIM in order to induce VIM to keep him

employed while he stole its business. As VIM’s salesperson, Magner served as the “point

man” on each account. VIM relied on Magner to manage and keep these accounts. By

fraudulently misrepresenting to Plaintiff what he was doing, Magner caused damage to VIM.

 Under these facts, this Court concludes that Magner acted fraudulently. See Carey Electric,

Inc., 392 N.E.2d at 763. 

91. VIM has proven by clear and convincing evidence that Magner and Industrecycle

committed fraud against VIM. The issue of damages will be discussed later.

D. TORTIOUS INTERFERENCE WITH PROSPECTIVE ECONOMIC

ADVANTAGE

92. VIM last alleges that Magner and Industrecycle interfered with Plaintiff’s

prospective economic advantage by interfering with VIM’s existing accounts and by

wrongfully soliciting and securing various new recycling business opportunities away from

his employer. Under Illinois law, the elements of tortious interference with prospective

economic advantage are: (1) a reasonable expectation by the plaintiff 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 interest from

ripening into a valid business relationship; and (4) damages to the plaintiff resulting from

such interference. Felhauer v. City of Geneva, 568 N.E.2d 870, 878 (Ill. 1991). “Purposeful
31

interference” means that the defendant has committed some impropriety in interfering with

the expectancy. Dowd and Dowd Ltd. v. Gleason, 698 N.E.2d 358, 371 (Ill. 1998).

93. As discussed previously, Magner diverted four VIM accounts to Industrecycle

during his employment with VIM: Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps.

These diversions amount to tortious interference on the part of Magner and Industrecycle.

VIM had long-standing relationships with all four of these customers. VIM was the primary

recycler for each of these customers for certain types of recyclables and thus had a

substantially exclusive relationship with all four. These customers were generally happy

with VIM’s service and had no reason to switch but for Magner’s and Industrecycle’s

interference. Thus, VIM had a reasonable expectation of a continuing relationship with

Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps. Magner knew of this expectancy and

yet purposefully interfered with these relationships, and his interference resulted in damages

to VIM. See Felhauer, 568 N.E.2d at 878.

94. Magner also tortiously interfered with respect to possible future VIM customers.

In the case of Sealed Air, as earlier noted, Magner (purportedly on behalf of Plaintiff), and

James Kasprowicz, Sealed Air’s representative, traveled to three other Sealed Air locations

on the east coast in April or May, 2001. They went to these three locations, Holyoke,

Massachusetts; Scotia, New York, and Saddle Brook, New Jersey, to discuss expanding

VIM’s recycling services to those locations. VIM was paying for the resulting travel

expenses and costs. In or around May, 2001, Magner informed James Kasprowicz that he

and his brother were going into their own recycling business, and offering to provide services

to Sealed Air. At this time, VIM was still providing recycling services to the Hodgkins,
32

Illinois Sealed Air location. In April or May, 2001 Defendant Magner ultimately signed up

the Holyoke location on behalf of Industrecycle. Magner began conducting business with

the Saddle Brook, New Jersey Sealed Air location in July, 2002. 

95. These actions represent a tortious interference with prospective business

advantage. VIM had a reasonable expectation of entering into a business relationship with

Sealed Air for the three Sealed Air locations not already being serviced by VIM. Defendant

Magner, as the point man on this account for VIM, was aware of this expectancy. The

actions by Magner clearly interfered with this prospective business relationship since he

diverted the accounts to his own company. VIM relied on Magner’s ability to enter into and

maintain business relationships with their customers. Magner’s interference on behalf of

Industrecycle prevented VIM’s legitimate business interests from ripening into a business

relationship. This interference caused damage to VIM. See Felhauer, 568 N.E.2d at 878.

96. The Court concludes that VIM has proven that Magner and Industrecycle

tortiously interfered with VIM’s prospective business advantage by diverting existing and

prospective accounts. These damages will be discussed later. 

E. COUNTERCLAIM

97. As the Court earlier found, Magner was properly paid his commissions.

Furthermore, VIM was not obligated to reimburse Magner for his moving expenses. This

is because there was no employment agreement between VIM and Magner, and VIM

properly paid him according to VIM’s then existing commission structure. VIM sent

Magner copies of his commission statements and he never objected prior to filing his

counterclaim. Also, at no point did VIM promise to pay Magner for his moving expenses.
33

98. The Court concludes that Magner has not proven that he is entitled to recover

damages under his counterclaim. There will be no damages awarded for this claim.

F. COMPENSATORY DAMAGES

99. This Court has found that Magner breached his fiduciary duty to VIM; that

Magner and Industrecycle were fraudulent; and that Magner and Industrecycle tortiously

interfered with VIM’s prospective business advantage. Plaintiff seeks damages in the form

of lost profits, disgorgement of commissions earned, punitive damages, attorneys fees, and

pre-judgment interest.

100. Where there has been a breach of fiduciary duty, a court can award lost profits,

a forfeiture of wages, and punitive damages. See Vendo v. Stoner, 321 N.E.2d 1, 12-14 (Ill.

1974); Hill, 571 N.E.2d at 1099. Lost profits and punitive damages are also applicable where

there has been tortious interference with prospective business advantage. See Zdeb v. Baxter

Intern., Inc., 697 N.E.2d 425, 426 (Ill. App. Ct. 1998) (noting that a jury awarded several

million dollars for a defendant’s tortious interference). Where there has been fraud, a court

can also award lost profits and punitive damages. See Stojkovich v. Monadnock Bldg., 666

N.E.2d 704, 712 (Ill. App. Ct. 1996). 

1. Lost Profits

101. This Court has concluded that Magner breached his fiduciary duty to VIM, that

both Magner and Industrecycle tortiously interfered with VIM’s prospective business

advantages, and that Magner and Industrecycle acted fraudulently. Therefore, lost profits is

an appropriate measure of damages. The first issue, therefore, concerns the appropriate

measure of lost profit damages for Magner’s breach of fiduciary duty and Magner’s and
2

 In Vendo, the court calculated that the plaintiff’s market share prior to the period

of breach was 31% and because of the actions of the defendants that market value fell to

roughly 16%. Vendo, 321 N.E.2d at 13. The judgment represented the sum of the profits

lost to plaintiff during the 7 year period of the defendant’s breach, and the diminution in

the value of the plaintiff’s business as of the end of the period, attributable to defendant’s

activities. Id.

34

Industrecycle’s tortious interference and fraud. Although the Court discusses the three

theories for lost profit damages, the Plaintiff is only entitled to recover once and not

aggregate the damages for each count. 

102. Lost profit damages are calculated based upon “the difference between the

profits which [the plaintiff] could reasonably be expected to make...and the profits which it

did in fact earn.” Vendo, 321 N.E.2d at 12-13. In Vendo, the Illinois Supreme Court

affirmed a lower court’s calculation of lost profits due to an employee’s breach of his

fiduciary duty to his employer. Id. at 15. The lower court calculated lost profits based upon

the difference between the sales volume which the employer could have anticipated (had the

breach not occurred) and the actual sales volume the employer experienced due to the breach.

This profit ratio was then applied so as to arrive at the employer’s lost profits. Id. at 13.

Based upon this method, the court calculated damages over a seven year period.2 Id.

103. Lost profits in a tort action are limited to those damages proximately caused by

the defendant’s wrongful conduct. ABC, 413 N.E.2d at 1312. The plaintiff must present

competent proof of damages from which a reasonable basis of computation can be derived.

Id. In ABC, the plaintiff proved his lost profits by presenting data and expert testimony

which projected the profits ABC would have enjoyed over three years.

a. Magner’s Breach of Fiduciary Duty
35

104. The first basis for an award of lost profits is Magner’s breach of fiduciary duty.

There is no doubt that Magner’s breach of his fiduciary duty to his employer resulted in lost

profits for VIM. Magner diverted four of VIM’s long-standing customers while still an

employee of VIM: Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps. Two of these

clients testified at trial that they would not have followed Magner to Industrecycle had they

known he was still an employee of VIM at the time. Therefore, VIM should receive the

difference between the profits which it could reasonably have made from these four accounts

and the profits which it did in fact earn. Vendo, 321 N.E.2d at 12-13. However, because

there was no contractual relationship between VIM and its customers, there was no guarantee

that VIM would continue to do business with these clients. Therefore, the court awards lost

profits for Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps while Magner was employed

at VIM through a period of two years after August 15, 2001, the date Magner left VIM. The

Court accepts the 20.8% profit margin testified to by Joseph Dudley. The Court also accepts

Dudley’s computation of the damages as representing a reasonable computation.

b. Magner’s and Industrecycle’s Tortious Interference With Prospective

Economic Advantage

105. The second basis for lost profits damages is Magner’s and Industrecycle’s

tortious interference with VIM’s prospective business relationships. Magner and

Industrecycle not only interfered with VIM’s future profits from its long-standing customers

(Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps), but they also interfered with VIM’s

prospective customers. Specifically, Magner and Industrecycle interfered with a prospective

relationship between VIM and Sealed Air’s Holyoke, Massachusetts and Saddle Brook, New
36

Jersey locations. Therefore, in addition to the damages above, VIM is also entitled to receive

lost profits for these two Sealed Air locations during the time of Magner’s employment with

VIM and for a two year duration thereafter.

c. Magner’s and Industrecycle’s Fraud

106. The third basis for an award of lost profits is Magner’s and Industrecycle’s

fraudulent behavior. Magner acted fraudulently by, among other things, failing to disclose

the existence of Industrecycle, by stealing VIM’s customers and then lying to VIM about it,

and by sending VIM false quotes that he purportedly sent to prospective customers on VIM’s

behalf. This Court’s finding that Magner and Industrecycle were fraudulent is another basis

for awarding lost profits. See SK Hand Tool Corp. v. Dresser Indus., Inc. 672 N.E.2d 341,

(Ill. App. Ct. 1996) (discussing lost profit damages in connection with an allegation against

a corporation for fraud). However, VIM is only entitled to collect actual lost profits once for

the U.S. Gypsum, Olmarc, Harris Lamps, and the three Sealed Air accounts.

2. Forfeiture of Wages

107. In addition to lost profits, in cases of breach of fiduciary duty, Illinois law also

permits a complete forfeiture of any salary paid by an employer to its employee during a time

when the employee was breaching his fiduciary duty to the employer. See Vendo, 321

N.E.2d at 14-15. In Vendo, the court affirmed the lower court’s judgment forfeiting all salary

paid by the employer to the employee for three years and five months while he was usurping

an opportunity that he never offered to the corporation. Id. at 14. In support of its decision

to affirm an award of forfeiture in addition to lost profits, the court declared: “it borders upon

the frivolous for the defendant to claim a right to retain compensation which the judgment
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restored to the plaintiff.” Id. In that case, the defendant did not have to forfeit his total

compensation, just the compensation earned after he breached his fiduciary duty. 

108. Although Magner technically began breaching his fiduciary duty in Period 2,

when Industrecycle started doing business with Dutch Maid in competition with VIM,

disgorgement is not warranted until the more serious breach in Period 3, which begins

sometime in May, 2001. Unlike the employee in Vendo, Magner was a commissioned

employee, which means that any money he earned during his employment at VIM was a

result of his soliciting and retaining customers for VIM. Thus, throughout Period 2, although

Magner was technically in breach of his fiduciary duty to VIM, Magner continued to work

hard for VIM and continued to earn the company money. See Monotronics Corp. v. Baylor

436 N.E.2d 1062, 1066-67 (affirming the trial court’s decision not to forfeit the breaching

employee’s compensation because the employer benefitted substantially from employee's

performance of his duties during the period of his breach). 

109. However, during Period 3, when Magner started diverting accounts and

soliciting new customers for Industrecycle, Magner stopped “earning” his commissions.

Indeed, Magner spent the greater part of May, June, and July in Massachusetts, not Chicago.

It is clear that Magner did little work, if any, for VIM during that time; while Magner was

in Massachusetts, Jack McMahon managed many of Magner’s old accounts in Chicago.

During Period 3, Magner was in total breach of his fiduciary duty to VIM and was not

entitled to receive compensation from VIM in any form. Therefore, Magner must disgorge

all of the commissions and other compensation he received for business generated from May

1, 2001 until the end of his employment with VIM. See e.g., Ex. 241-46.
38

G. PUNITIVE DAMAGES

110. Although states generally possess discretion over the imposition of punitive

damages, the Due Process Clause of the Fourteenth Amendment prohibits the imposition of

grossly excessive or arbitrary punishments on a tortfeasor. State Farm v. Campbell, 538

U.S. 408, 416 (2003). Courts must ensure that the measure of punishment is both reasonable

and proportionate to the amount of harm to the plaintiff and to the general damages

recovered. Id. at 426. The Supreme Court has instructed courts reviewing punitive damages

to consider three guideposts: 1) the degree of reprehensibility of the defendant’s misconduct;

2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive

damages award; and 3) the differences between the punitive damages awarded by the jury

and the civil penalties authorized or imposed in comparable cases. Id. at 418 (citing BMW

of N. Am., Inc. v. Gore, 517 U.S. 559, 575 (1996). The most important indicator of the

reasonableness of the punitive damages award is the degree of reprehensibility of the

defendant’s conduct. Id. at 419 (citing Gore, 517 U.S. at 575). 

111. Courts have been instructed to determine the reprehensibility of a defendant’s

actions by considering whether: 1) the harm caused was physical as opposed to economic;

2) the tortious conduct displayed an indifference to or a reckless disregard for the health or

safety of others; 3) the target of the conduct had financial vulnerability; 4) the conduct

involved repeated actions or was an isolated incident; and 5) the harm was the result of

intentional malice, trickery, or deceit, or mere accident. Id. at 419. The existence of one of

these factors may not be sufficient to sustain a punitive damage award and the absence of all

of them renders any award suspect. Id. It should be presumed a plaintiff has been made
39

whole by compensatory damages, so punitive damages should only be awarded if the actions

of the defendant are so reprehensible to warrant further sanctions to achieve punishment or

deterrence. Id. 

112. Under Illinois law, the initial determination of whether the facts and

circumstances justify imposition of punitive damages is a question of law. Smith v. Prime

Cable of Chicago, 658 N.E.2d 1325, 1336 (Ill. App. Ct. 1995). Like the Supreme Court,

Illinois courts have also recognized that the purpose of an award for punitive damages is to

punish the individual responsible for the wrongful conduct, to teach the individual not to

repeat the wrongful conduct, and to deter others from similar conduct. Page v. City of Chi.,

701 N.E.2d 218, 227 (Ill. App. Ct. 1998). It has long been established in this State that

punitive or exemplary damages may be awarded when torts are committed with fraud, actual

malice, deliberate violence or oppression, or when the defendant acts willfully, or with such

gross negligence as to indicate a wanton disregard of the rights of others. Stojkovich v.

Monadnock Bldg., 666 N.E.2d 704, 712 (Ill. App. Ct. 1996). Punitive damages may also be

allowed “where the wrong involves some violation of duty springing from a relation of trust

or confidence.” Home Sav. & Loan Ass’n of Joliet v. Schneider, 483 N.E.2d 1225, 1228 (Ill.

1985) (finding that punitive damages were proper when the defendant employee had

knowingly and intentionally interfered with his employer’s clients and employees). 

113. In this case, Magner acted fraudulently and “breached the trust” of his employer;

thus his actions clearly warrant the imposition of punitive damages. Although Magner

technically breached his fiduciary duty during Period 2, his actions rose to a level

necessitating punitive damages in Period 3 when he began diverting his employer’s accounts,
40

lying to his employer, and stealing possible customers from his employer while still

employed there. Magner’s actions were intentional and fraudulent, and in deliberate

disregard of the fiduciary duty he owed to VIM. Moreover, these actions caused serious

economic harm to VIM. An award of punitive damages therefore meets the standard set forth

by the Supreme Court in State Farm. 528 U.S. at 419. Therefore, this Court awards punitive

damages to VIM against Magner and Industrecycle jointly for Magner’s actions during

Period 3 in the amount of $75,000. 

H. PREJUDGMENT INTEREST

114. Prejudgment interest may be recovered from a fiduciary where he is found to

have breached his fiduciary duty. NC Illinois Trust Co. v. First Illini Bancorp, Inc., 752

N.E.2d 1167, 1180 (Ill. App. Ct. 2001); see also Jefferson Nat’l Bank of Miami Beach v.

Cent. Nat’l Bank in Chicago, 700 F.2d 1143 (7th Cir. 1983) (finding that a jury’s award

calculated on the basis of the prime rate properly compensates the plaintiff for lost income

caused by a breach of fiduciary duty). 815 ILCS 205/1 sets the statutory prejudgment

interest rate at five percent. In the present case an award of prejudgment interest at the

statutory rate is fair and within the power of the court. Therefore, VIM is awarded prejudgment interest for all damages related to lost profits and forfeiture of wages.

I. COURT COSTS

115. VIM is the prevailing party and is thus entitled to receive court costs pursuant

to Fed. R. Civ. P. 54(d)(1).

III. CONCLUSION

When he first started out of college, Luke Magner was a young, hard-working
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salesperson for VIM. VIM trained him, gave him several accounts, employed him for over

six years, and trusted him as the “point man” for as many as 100 VIM customers.

Unfortunately, when this young salesperson determined to start his own competitive

business, he decided to go about it in a fraudulent, deceptive manner which seriously

breached the trust of his employer. While the Court acknowledges the Defendant was a

young man who, in his own mind, was trying to protect his financial security, as well as the

financial security of his family, there is a right way to do things, and a wrong way. The

defendant chose the wrong way, and he must suffer the consequences. 

For the foregoing reasons, under the Second Amended Complaint, Defendant Luke

Magner is liable for breach of fiduciary duty, fraud, and tortious interference with

prospective business advantage. Defendant Industrecycle is liable for fraud and tortious

interference with prospective business advantage. Plaintiff VIM is entitled to lost profits

during Magner’s employment at VIM and for two years thereafter relating to the diverted

Sealed Air, U.S. Gypsum, Olmarc, and Harris Lamps accounts, the Sealed Air’s Holyoke,
42

Massachusetts and Saddle Brook, New Jersey locations and repayment of commissions and

compensation earned by Magner beginning May 1, 2001 until his employment ended.

Prejudgment interest shall apply to damages related to lost profits and forfeiture of wages.

Due to the nature of Magner’s actions, VIM is also entitled to punitive damages from Magner

and Industrecycle in the amount of $75,000. In addition, judgment will be entered in favor

of VIM on Magner’s counterclaim. The parties are directed to jointly prepare a final

judgment in this case inserting the actual amounts of damages and making the interest

computations and deliver the proposed form of final judgment order to the Court on or by

August 12, 2005. A status will be held on August 16, 2005 at 10:00 a.m. in the event the

parties cannot agree as to the form of the judgment. In addition, VIM shall file its bill of

costs on or by August 3, 2005. Objections if any, are to be filed by August 10, 2005.

SO ORDERED THIS 21st DAY OF JULY, 2004.

______________________________________

 MORTON DENLOW

UNITED STATES MAGISTRATE JUDGE

Copies mailed to:

Aldo E. Botti

Peter M. DeLongis

BOTTI, MARINACCIO & DELONGIS,

LTD.

720 Enterprise Drive

Oak Brook, IL 60523

Counsel for Plaintiff

L. Andrew Brehm

Michael T. Roche

SCHUYLER, ROCHE & ZWIRNER, P.C.

One Prudential Plaza

130 East Randolph Street

Suite 3800

Chicago, IL 60601

Counsel for Defendants