or services the listed serial number codes represent. Moreover, neither the summary nor the
testimony about it indicates whether these particular serial numbers reflect all of the invoiced
products or services in the months sampled or, instead, whether there are additional products or
services reflected on the invoices that show that in. some instances Kempner received the same or
a better price than company-owned distribution channels. Nonetheless, these exhibits do support
Kempner’s claim that it did not receive the same level of pricing that Cingular-owned distribution
channels enjoyed.

4. Alleged Solicitation of Subscribers Originally Activated by Kempner,

The 1999 Agreement reserves to Cingular.the right to market the same cellular services
marketed by Kempner in the same geographical area served by Kempner, “without obligation or
liability” to Kempner (PX 1, { 3). The 1999 Agreement does not describe the ways in which
Cingular could exercise this right to compete. But, in light of the restrictions in the 1999 Agreement
prohibiting Kempner from offering competitive services that compete with Cingular services, it
would be reasonable — in view of the implied duty of good faith and fair dealing — to construe this
right to restrict Cingular from initiating contact with Subscribers originally activated by Kempner
in order to switch them from Kempner to another dealer, and thus to affect Kempner’s commissions
adversely. Voyles v. Sanida Mortgage Corp.,751 N.E.2d 1126, 1130-31 (Ill. S.Ct. 2001) (discussing
implied duty of good faith and fair dealing in contracts governed by Illinois law); APS Sports
Collectibles, Inc. v. Sports Time, Inc., 299 F.3d 634, 628 (7" Cir. 2002) (same).

Cingular appears to agree with this proposition, based on the evidence submitted. According
to Cingular, when it initiated contact with a Subscriber originally activated by Kempner — for

example, by shipping a telephone with an offer for an upgrade or some other service package ~

19


Restricting Kempner for a one-year period from marketing competing products to the
Cingular Subscribers Kempner enrolled also is.a.reasonable means of protecting against what
disclosure” doctrine has been recognized in trade. secret misappropriation cases under Illinois law.
See Pepsi Co., Inc. v. Redmand, 54 F.3d 1262, 1269 (7" Cir. 1995); Strata Marketing, Inc. v.
Murphy, 740 N.E.2d 1166, 1178-79 (Ill. App. Ct. 1* Dist. 2000). While we have found no case that
discusses the application of this doctrine in the specific context of a noncompete case that involves
confidential (and not trade secret) information, wesee no reason, in principle, that it should not apply
in assessing both the interest to be protected and the reasonableness of the restraints imposed. Here,
if Kempner were allowed to sell to Subscribers Kempner enrolled, the Court believes it likely would
be inevitable that the Subscriber information Kempner obtained through its affiliation with Cingular
would be used to sell competing products and séfVices to those Subscribers. Thus, a restriction on
Kempner selling to Subscribers enrolled by Kempner likely would be reasonable to ensure that
Subscriber information is used only for permitted purposes (such as, for periodic contact with
Subscribers concerning CPE).

Finally, we note that the evidence here ‘shows that Cingular has a better than negligible

onship with Subscribers, which independently

chance of showing that it has a “near permanent’ :
constitutes a sufficient protectable interest to. warrant a restrictive covenant. See Curtis One
Thousand, Inc. y. Suess, 24 F.3d 944, 947, 1000 (7"" Cir. 1994); A.J. Dralle, Inc., 627 N.E.2d 690,
696-697 (Ill. App. Ct. 2" Dist. 1994). See also Label Printers v. Pflug, 564 N.E.2d 1382, 1387 (Ill.
App. Ct. 2TM Dist. 1991) (“Factors to be considered in determining whether a near-permanent

relationship exists . .. for the purpose of enforcing non-competition covenants include the time, cost,

40



have been tantamount to drafting a new contract.”), To the extent that the non-compete provisions
in the 1999 Agreement are unreasonable in any respect, and in determining whether they may be
modified and then enforced, we must consider whether the unreasonableness is of sucha degree that
the provisions must be eliminated rather than modified. Eichmann, 719 N.E.2d at 1149 (“A
restrictive covenant is unfair where its terms ‘clearly extend far beyond those necessary to the
protection any legitimate interest of the employer or, in other words, amount to ‘unrealistic
boundaries in time and space.””) (quoting House of Vision, 225 N.E.2d at 25).

In light of these guiding principles, we consider, in turn, (1) Kempner’s argument that the
non-compete provisions are void (and Cingular’s counter-argument that they are reasonable and
should be fully enforced); and (2) Kempner’s alternative argument that even if not void, the non-
compete provisions are nonetheless unenforceable due to Cingular’s alleged material breaches of the
1999 Agreement.

1.

We may dispense with certain of Kempner’s arguments with little discussion. First, we
conclude that the non-compete provisions are, as required, ancillary to a valid contract and supported
by consideration. See, e.g., Union Trust & Savings Bank v. Kinloch Long Distance Telephone Co.,
101 N.E. 535, 537 (1913) (“the restraint of trade has been auxiliary to the main purpose of the
contract, and has been necessary to protect one party from injury by the unfair use of the subject
matter of the contract by the other party”)) (quoting Abel v. Fox, 645 N.E.2d 591, 596, 818-819 (4"
Dist. 1995). Here, the non-compete provisions were ancillary to the 1999 Agreement, and not its
primary focus. The primary focus of that agreement was to establish a relationship through which

Kempner would market products and services of Cingular, and would be compensated for that effort.

36



Cingular’s protectable interests, Kempner has failed to make a better than negligible showing that,
taken as a whole, the non-compete is so unreasonable as to be totally unfair and thus not capable of
judicial modification. Thus, we believe that it is likely that, after a trial on the merits, the non-
compete provisions would be enforced in the modified form set forth above."

2.

We now turn to Kempner’s alternative argument concerning the non-compete provisions:
that even if valid, they are unenforceable. Kempner offers two theories of unenforceability: that
Cingular cannot enforce the restrictions due to Cingular’s material breaches of the 1999 Agreement,
and that Cingular has waived the restrictions due to its inconsistent enforcement of those restrictions
against others. For the reasons that follow, the Court finds that Kempner has not made a showing
that it has a better than negligible chance of prevailing on this theory of unenforceability.

ar

As to whether there were material breaches by Cingular, the evidence is conflicting.

Kempner claims that it was not paid substantial commissions, a point which is not sufficiently

developed for the Court to conclude that either side has the better of this point. Moreover, because

"In reaching this conclusion, we have considered the decision in Statco Wireless, L.L.C. v. Southwestern Bell
Wireless, L.L.C., No. CA 02-391, 80 Ark. App. 284 (Ark. Ct, App., 2003). In Statco, the appellate court upheld an
injunction enforcing the precise non-compete provisions at issue here. The appellate court did so based largely on its
conclusion that the trial judge’s findings at trial were not clearly erroneous, based on the evidentiary record presented
at trial in that case.

Statco, of course, is not binding on this Court. And, based on the evidentiary record presented here, we
respectfully consider Statco unpersuasive to the extent that it upheld portions of the non-compete provisions that we find
are likely to be unenforceable after a trial. In that regard, we note that the Statco decision found that Cingular’s strongest
protectable interest rested in its marks and subscribe: formation, and in preventing the agent from using that
information to steal Cingular customers. The Statco did not explain why the portions of the non-compete
provisions that go farther, and that would prevent the agent from engaging in any competitive activity whatsoever, were
not greater than needed to protect Cingular’s legitimate, interests and were not oppressive to the agent ~ which are
inquiries we must make under Illinois law. Liautaud, 221 F.3d at 987.

45


According to the testimony of Mr. Kempner, Cingular presented the 1999 Agreement as a
“take it or leave it” proposition, and would not agree to vary or negotiate any of its terms (01/28/02
Tr. 38-39, 41 (Kempner)). In particular, Mr. Kempner testified that he asked that the relationship
be nonexclusive rather than exclusive, which would permit him to sell competing products (/d., at
41, 88-89). We find Mr. Kempner’s testimony that he sought and was denied this revision credible.
We note that there is documentary evidence that Mr. Kempner sought certain changes in an earlier
agreement with Cingular, which Cingular denied : (see PX 2; see also 01/28/03 Tr. 38, 41
(Kempner)), However, Mr. Kempner acknowledged that he was not compelled to sign the 1999
Agreement (01/28/03 Tr. 131) (Kempner)).

Cc. The Business Relationship Between the Parties.

For a number of years, the relationship between Kempner and Cingular was “excellent”
(01/28/03 Tr. 22 (Kempner)). While Kempner had various complaints from time to time about
Cingular (which we will discuss further below), Kempner generally was pleased that Cingular
encouraged its growth (/d., at 23). Clearly, the major factor in that growth was the ability of
Kempner to offer Cingular’s services, and to market itself — through Cingular’s products and
services, various promotional assistance provided by Cingular (see, e.g., DX 15), and the use of
Cingular’s name and marks — as an authorized sales.and service center of Cingular. While Kempner
could sell CPE offered by any supplier, the only value of the telephone is the access it provides to
the cellular service (01/28/03 Tr. 96 (Kempner)). And, the only such service Kempner offered from
1989 until May 2002 was Cingular’s services.

Whether Kempner used various other assistance offered by Cingular is disputed. For

example, while Cingular offered various training services to agents such as Kempner (01/29/03 Tr.

13


First, once Subscribers enter into a relationship with a competitive carrier, it may be difficult
— or impossible — for Cingular to undo that relationship and to regain the subscriber, at least for a
significant period of time (especially if Cingular’s experience that the average subscriber remains
with Cingular for four years is typical of other carriers). Second, even if this loss could be measured
in damages (see, 01/29/03 Tr. 541-542, (Whiddon)), Kempner has claimed that its business is
operating on the razor’s edge of survival. Just as damages are not an adequate remedy for a plaintiff
who may go bankrupt while waiting for the trial.on the merits, so too are damages an inadequate
remedy for Cingular if Kempner “may become insolvent before final judgment can be entered and
collected.” Roland Machinery Co., 749 F.2d at.386.

However, Cingular has not established that irreparable harm would occur if the provisions
that the Court finds are likely to be held unreasonable are not preliminarily enforced pending trial.
Cingular says that it would suffer irreparable harm in this case absent preliminary injunctive relief
by virtue of “Kempner’s diversion of Cingular’s customers to competitors, use of Cingular’s
confidential information for the benefit of Kempner and Cingular’s competitors, and improper use

of Cingular’s valuable goodwill and marks” (Def.’s Amended Proposed Findings of Fact and

Conclusions of Law, 4 97). The portions of the fion-compete clause that the Court finds likely to be
enforceable adequately protect those interests. We see no irreparable harm to come from Kempner
offering competitive services (which are offered anyway by a myriad of other retail outlets used by °
Cingular’s competitors) to persons who were not: (a) active Subscribers to Cingular services as of

that Kempner has offered competing services ever since the termination letter was sent in July 2002,

now some seven months ago. Yet, Cingular has pointed no evidence that Kempner has used

55


likelihood of showing are unreasonable were preliminarily enforced. Kempner has shown that its
level of sales is far diminished from what it was,when Kempner was a Cingular sales and service
center (PX 48). Kempner also has shown that the cellular services that Cingular seeks to entirely bar
Kempner from marketing constitute seventy percerit of Kempner’s business activity, Enforcement
of the portions of the non-compete provisions that, would bar Kempner from selling of competing
cellular services, even to persons that Kempner did not enroll as Cingular Subscribers and who were
not active Cingular Subscribers as of July 23, 2002, might put Kempner out of business. In these
circumstances, the availability of money damages if Kempner ultimately prevailed at trial would be
“seriously deficient as a remedy for the harm suffered,” and thus does not undermine Kempner’s
showing of irreparable harm. Roland Machinery Co. v. Dresser Indus., 749 F.2d 380, 386 (7" Cir.
1984) (a damages remedy is inadequate where “[t|he damage award . . . come[s] too late to save the
plaintiff's business. He may go broke while waiting, or may have to shut down his business but
without declaring bankruptcy.”).

However, the Court does not believe that Kempner would suffer irreparable harm if the
remaining portions of the non-compete provisionis were to be enforced pending trial. The evidence
is that Kempner is already abiding by several of those provisions: Kempner is no longer advertising
any affiliation with Cingular, and there is no evidence that Kempner is continuing to use Cingular
information in doing business (see PX 1, {| 20(4)). In addition, there is no evidence that Kempner
has switched Cingular customers that Kempner originally activated out of Cingular services and into
the services of a competitor (/d., | 20(1), (2)).. The one thing that Kempner has continued to do
pending the outcome of this preliminary injunction proceeding that would be prohibited by the non-

compete provision (as the Court believes it would likely be modified after a trial) is to sell additional

“33


B.

The Court finds that the public interest factor does not materially add to or alter the preceding
analysis. To be sure, there is a strong public interest to be served by enforcing contracts. See, e.g.,
Cook, Inc. v. Boston Scientific Corp., No. 1 C 9479, 2002 WL 31236289, at * 6 (N.D. Ill. Oct. 1,
2002). On the other hand, there is a strong interest in competition, and Illinois public policy reflects
that interest by looking at restrictive covenants with a critical eye. See Boyar-Schultz Corp.
Tomasek, 418 N.E.2d 911, 913 (ill. App. Ct. 1* Dist, 1981). The Court’s enforcement, pending trial,
of the non-compete provisions, as modified, serves both of these interests. Moreover, given the large
number of retail outlets for cellular services, the general public is unlikely to be affected one way
or the other by the enforcement, vel non, of the non-compete provisions at issue here.

CONCLUSION

For the foregoing reasons, the Court rules as follows on the pending preliminary injunction
motions:

1. The Court GRANTS in part and DENIES in part Kempner’s and Cingular’s
competing preliminary injunction motions directed to the non-compete provisions. The Court
GRANTS Cingular’s motion to the extent that the Court hereby preliminarily enjoins Kempner from
engaging in any of the following activities in Chicago and the surrounding six-county Chicago
metropolitan area for a period of one year from the date of this opinion (unless terminated earlier
after trial, or as a result of the pending mediation proceedings between the parties):

a. Kempner may not directly or indirectly, induce, influence or suggest to any
Subscriber of Cingular’s cellular services, who originally was activated in Cingular’s service by

Kempner and remained an active Subscriber as of July 23, 2002, to purchase CRS or any other

59


B.

Turning to Kempner’s claim for commissions and other payments, neither side has presented
a particularly strong case. Kempner has offered exhibits derived from its business records claiming
$67,952.21 in commissions and other payments not made (PXs 34, 41, 43). For its part, Cingular
has offered an exhibit, derived from its records, showing that Kempner owes more than $126,242.00
in unpaid debt to Cingular (DX 20). Neither side has offered much in the way of evidence to show
how the calculations set forth in their summary exhibits were derived, or the underlying basis for
them. In these circumstances, we assume that éach side has a better than negligible chance in
prevailing on its commission claims.

Kempner also claims unpaid residual commissions for subscribers activated by Kempner, but
who were removed from his residual commission calculation, due to: (a) improper solicitation by
Cingular prior to termination in July 2002; and (b).termination of the 1999 Agreement by Cingular,
which Kempner says was improper. As to the first part of this theory, Kempner has offered no
evidence to put a number on their alleged damage amount. As to the second part of that claim, if
Kempner could prove a wrongful termination, then Kempner would have a claim to residual
commissions, at most, for the period from July 23, 2002 through December 31, 2002 (when the
contract would have expired anyway), which Kempner says amounts to $80,000.00 (01/28/03 Tr.
313 (Kempner)). Mr. Kempner offered no explanation for how he derived that number. And, even
had he done so, the Court’s foregoing analysis shows that Kempner does not have a likelihood of
success in proving the complete unenforceability of the non-compete provisions. Beginning in May
2002, Kempner clearly engaged in acts that violated the exclusivity provisions of the 1999

Agreement: he entered into contracts with Cingular’s competitors, and he began selling competitive

51


soliciting Subscribers activated by Kempner with the intent of switching them, the letters focused
principally on what Kempner described as the failure of Cingular to provide competitive services and
products and sufficient rates of commission.

When Cingular neither offered anew contract that allowed for competitive sales nor waived
the exclusivity provision, Kempner took matters into.its own hands. In May 2002, Kempner entered
into several agreements to offer cellular services that competed with those offered by Cingular:
Kempner entered into agreements with Nextel ondiay 7, 2002 (DX 53), with VoiceStream on May
14, 2002 (DX 57), with AT&T Wireless on May 13,2002 (DX 54), and with Sprint on May 31, 2002
(DX 56).* During May 2002, Kempner continued to sell Cingular’s services, but also began to make
sales of the competing services offered by these carriers (PX 48). And, in May 2002, Kempner filed
his complaint in the state court seeking, among other things, a declaration that the non-compete

provisions of the 1999 Agreement were void and unenforceable.

Kempner did not inform Cingular that it had entered into these contracts or had commenced

sales of competitive products or services (01/28/03 Tr. 97 (Kempner); 01/29/03 Tr. 514 (Whiddon));
Cingular learned about that independently, through information gleaned from activities in the
marketplace. In addition, Kempner did not serve thé state court complaint on Cingular in May 2002
or inform Cingular of its existence. In fact, Kempner did not inform Cingular of that complaint until

late July 2002, after Cingular issued its notice of termination to Kempner (01/28 Tr. 136 (Kempner)).

‘In August 2002, Kempner also entered into an agreement with Prime Co. (DX 55).

23


and difficulty involved in developing and maintaining the clientele, the parties’ intention to remain
affiliated for an indefinite period, and the continuity as well as the duration of the relationship.”);
see also McRand, Inc. y. Van Beelen, 486 N.E.24.1306, 1311-1312 (Ill. App. Ct. 1* Dist. 1985). We
say only “better than negligible” because, here, we find the evidence does not favor Cingular quite
so strongly. What is offered here is a service, which is the type of transaction that could create a
protectable interest in relations with customers. Curtis One Thousand, 24 F.3d at 948. On the other
hand, there is evidence that price and quality in competing services is what drives consumer
decisions, and not trust in a particular supplier of the services; that would militate against a finding
that Cingular has a near permanent relationship with Subscribers. /d. at 948. But, the evidence here
shows that even though the average contract that Cingular has with subscribers lasts for one year,
Cingular typically retains the relationship with the subscriber for four years (01/29/03 Tr. 558
(Nelson)). Unless Cingular always offered the best price and service (which is contrary to
Kempner’s view of things (PXs 37-38)), that suggests more durability to the relationship and would
weigh in favor of a finding of near permanence. Kempner suggests that the durability of the
relationship is a result of Subscriber loyalty to Kempner and not Cingular; but, even if so, that is a
loyalty built in substantial measure through Kempner’s affiliation with Cingular over an extended
period of time. And, that is loyalty Cingular bargained for in deciding to pay residual commissions
and to encourage a close association between it and Kempner. In short, while there are arguments
to be made on each side, we believe that shows that Cingular has a better than negligible chance of
proving a near permanent relationship with customers.

Thus, insofar as the non-competition restriction prohibits Kempner from attempting to market

competitive services to Subscribers who were.enrolled by Kempner and who remained Cingular

41



and received testimony from four witnesses testifying in person and from 12 others through
depositions and stipulations. At the close of evidence, the Court heard oral argument from the
attorneys.

The Court has now considered the testimony of the witnesses, the exhibits presented at the
hearing, and the oral and written submissions of counsel. After careful consideration, the Court
GRANTS in part and DENIES in part both Kempner’s motion to enjoin enforcement of the non-
compete provisions of the 1999 Agreement and Cingular’s corresponding motion to enforce those
provisions. The Court further GRANTS Kempner’s motion for preliminary injunction concerming
payment of residual commission only as to the $50,000 that Cingular was required to pay pursuant
to the Court’s August 21, 2002 order; in all other respects, the Court DENIES Kempner’s motion
for preliminary injunction concerning residual commissions and other payments.

L
A. The Parties.

Kempner is an Illinois corporation that is engaged in the business of marketing mobile
electronic devices including radios, paging equipment, cellular communication equipment and
services. The president of Kempner is Scott Kempner. Mr. Kempner entered into this line of
business in 1986, when he began selling paging devices (01/28/03 Tr. 12 (Kempner)). In 1989, Mr.
Kempner expanded his business to include the sale of cellular equipment and services, and at that

time formed Kempner as a proprietorship; subsequently, in 1993, Kempner was incorporated.


observed, there is no conceptual reason that a plaintiff and defendant both may not have a “better
than negligible” likelihood of success on the same issue, “since the ‘better than negligible’ standard
surely does not require a finding that it is more likely than not that one side will prevail.” Oxford
Capital Illinois, L.L.C. v. Sterling Payroll Financial, L-L.C.,No. 01 C 1173, 2002 WL411553 (N.D.
Ill. Mar. 15, 2002). With this in mind, we consider first each side’s likelihood of success on their
claims regarding the enforceability of the non-compete provisions, and then Kempner’s likelihood
of success on its commission claims.
A.

In assessing the non-compete provisions in. the 1999 Agreement, we look to Illinois law,
which the parties have contractually selected xi 24). “[T]he question of whether a restrictive
covenant is enforceable or not is a question of law.”. Liautaud v. Liautaud, 221 F.3d 981, 986 qa
Cir. 2000). Citing Lawrence Allen, Inc. v. Cambridge Human Resources Group, Inc., 292 Il.
disfavored. Advent Electronics, Inc. y. Buckman, 112 F.3d 267, 274 (7" Cir. 1997) (applying Illinois
law). As a result, the fact that the parties agreed to the non-compete provisions is not dispositive,
indeed, “[i]t is improper under Illinois law to enforce a non-competition clause merely because the
parties agreed to such an arrangement.” Jd.

In determining the enforceability of the non-competition provisions at issue in this case, we
consider first whether they are “ancillary toa valid transaction, such that the covenant not to compete
is subordinate to the main purpose of the transaction.” Liautaud, 221 F.3d at 986. If that
prerequisite is met, we next consider “whether the scope of the non-competition agreement is

reasonable, a determination which is based on the facts and circumstances of the particular case.”

34.


Kempner would remain identified as the dealer for that Subscriber on any resulting transaction, and
thus would continue to receive commissions (01729/03 Tr. 432-433 (Flack), 518-519 (Whiddon);
Boersma Dep. 39-40, 42). However, if a Subscriber originally activated by Kempner initiated a
contact with a new distribution channel (whether another outside agent or an in-house distribution
channel), the dealer code would change and future commissions would go to the new dealer
(01/29/03 Tr. 502-503 (Flack), 519 (Whiddon)).

However, Kempner has offered evidence of instances in which Cingular actively made efforts
to initiate contact with Subscribers activated by Kempner, and to switch those Subscribers to another
dealer code (see Stipulation Regarding Testimony of Gene Hyman, Robert Gomez, Betty Martin-
Dwyer, and Harry Sachsel and PXs 25, 26, 27, 28).. The fact that at least three of these Subscribers
did not have their dealer code switched does not.change the fact that an attempt to do so was made
in these specific instances.

These instances all occurred in 2001 and 2002. Based on the evidence presented, the Court
cannot determine whether these four episodes reflect a more pervasive attempt to switch Subscribers
originally activated by Kempner and, if so, whether Cingular was more successful in those efforts
than in these four examples. Kempner has offered an exhibit (PX 42) containing the names of some

4,000 Subscribers who originally were activated. by Kempner who were not listed on the August

2002 residual commission report that Kempnei ved (01/28/03 Tr. 107, 112-13 (Kempner)).
However, Kempner has not attempted to identify which of these individuals were improperly
“switched.” Moreover, Kempner acknowledges that this list would include names of Subscribers

who no longer were on the residual commission report for wholly innocent reasons, such as that their

contracts had expired and they had elected to switch carriers (/d. at 107-108). In light of this fact,

20


to 59 in June, to 45 in July), and the activations of competitor services increased (from 37 in May,
to 95 in June, to 89 in July) (PX 48).

Moreover, it is plain that some number of those activations of competitor products were for
individuals who were Subscribers originally activated for Cingular by Kempner. The evidence
shows that between May and August 2000, 54 of the new activations Kempner wrote for the services
of Cingular’s competitors were for Subscribers originally activated by Kempner (see DX 49, DX 60
and DX 60A). Kempner denies that it tried to persuade Subscribers of Cingular products and
services to enter into contracts for services and products of Cingular’s competitors (01/28/03 Tr.
235-239 (Kempner)). Kempner offered evidence. that when a potential customer is looking for
products and services, Kempner explains the various features and prices of available options, and
lets the “product sell itself” to the customer (/d., at 236). And, there is no evidence that Kempner
switched any Cingular Subscriber into a different service, in the sense of inducing the subscriber to
terminate the Cingular contract early and to substitute that with the contract of a competitor.

But, as the evidence cited above shows, Kempner sold competitive services and products to
anumber of Cingular Subscribers, which may wae had the effect of making those Subscribers less
likely to renew agreements with Cingular in the futtire. Moreover, while we find it credible that in
influencing the customer to choose between one carrier or the other, the Court also finds it highly
unlikely that this is always the case. Indeed, evidence offered by Kempner shows that when a
customer is undecided, a sales person may direct the customer to one carrier or another for a variety
of reasons — for instance, because one carrier offers the sales person a better commission rate than

another (see, e.g., Michael Abt Dep. at 27-28).

26


of worlds for Kempner, would have ended at the close of December 31, 2002, when the 1999
Agreement would have expired by its terms).

Nor does Kempner’s calculation of damages include the Subscribers whom Kempner asserts
were removed improperly from the list of subscribers for whom he would receive residual
commissions (see PX 42). Again, Kempner offered no evidence to assist the Court in determining
which of these people were removed because they switched to a competitor’s products; or because
they switched to another Cingular outlet (whether. an. independent agent or a company-owned store);
or because they were switched at the initiative of Cingular. Nor has Kempner provided any
calculation of the amounts he claims would be due and owing for these Subscribers.

Finally, Kempner says he should receive some $80,000 in residual commissions dating from
July 23, 2002 through December 31, 2002 (01/28/03 Tr. 313 (Kempner). Kempner offers no
explanation as to how it calculated that sum.

D. Kempner’s Initiation of Relationships with Cingular’s Competitors.

By late 2001, Kempner plainly was chafing under the exclusivity and non-compete provisions
of the 1999 Agreement. In October 2001, Kempner told Cingular that “[e]ntering into a new
exclusive agreement would be a tremendous sacrifice in today’s marketplace,” and if Cingular were
unwilling to make “drastic” changes in commissions, residuals, advertising and marketing support,
Kempner would need to consider entering into a-competitive non-exclusive agreement when the
1999 Agreement expired (PX 35). In November 2001, Kempner told Cingular that “without a
substantial increase in residuals, Kempner demands that a competitive non-exclusive contract be
proposed or the non-exclusive clause is waived” (PX 36). We note that, while these letters included

some complaints that Cingular was not providing sufficient advertising funds and was directly

22


Liautaud, 221 F.3d at 987; see also House of Vision, Inc. v. Hiyane, 225 N.E. 2d 21, 24 (IIL. S. Ct.
1967) (“[t]he validity of a contract in restraint of competition is conditioned upon its reasonableness
in terms of its affect upon the parties to the contract and the public.”). For the restriction to be
reasonable, it must not impose restrictions that are greater than those necessary to protect Cingular’s
legitimate interests; it must not be oppressive to Kempner; and it must not be injurious to the general
public. Liautaud, 221 F.3d at 987, In assessing the reasonableness of the restrictions, we consider
the interests that Cingular seeks to protect by the restrictions; the duration and geographical scope
of the restrictions; and the activities that are sought to be restrained.

The parties agreed by contract that ifthe non-competition provisions were held unenforceable
by virtue of “scope in terms of area, business activity prohibited and/or length of time,” but “could
be enforceable by reducing any or all” of these elements, the non-compete “shall be enforced to the
fullest extent permissible” (PX 1, 21). That provision comports with Illinois law, to a point.
Under Illinois law, “the fairness of the restraint initially imposed is a relevant consideration to a
court of equity” in determining whether the restraints may be enforced as modified. House of Vision,
225 N.E. 2d at 25. Accordingly, “while Illinois law allows a court to modify a restrictive covenant,
and even where the parties have incorporated this principle into their agreement through the use of
express language allowing modification, a court should refuse to modify an unreasonable restrictive
covenant, not merely because it is unreasonable, but where the degree of unreasonableness renders
it unfair.” Eichmann v. National Hosp. and Healthcare Services, Inc., 719 N.E.2d 1141, 1149 (HL.
App. 1* Dist. 1999); see also, Lee/O 'Keefe Ins,, Inc, Agency v. Ferega, 516 N.E.2d 1313, 1319 (Ill.
App. 4" Dist. 1987) (affirming trial court refusal to modify the terms of a non-compete agreement

where to do so “would have involved more than a temporal or geographical modification and would

35



For all these reasons, we find that the evidence does not establish a likelihood of success in
showing that Cingular unreasonably withheld approval of new locations for Kempner, or unfairly
allowed others to be opened to Kempner’s detriment.

2. Misidentification of Kempner’s Wilmette Location.

Cingular maintained a toll-free number that customers and potential customers could use to
identify authorized sales and service locations located within particular geo graphic areas represented
by zip codes. In May 2001, Kempner informed Cingular that a recorded message for the zip code,
in which Kempner’s Wilmette location was located, identified Kempner’s store by the wrong name
(Gillian Wireless) and the wrong location (Road House, Illinois), while giving the correct name and
location of a Cingular-owned store within the same zip code (01/28/03 Tr. 308 (Kempner) (see also
PX 31).

Cingular’s explanation is that it took prompt action to correct this problem (01/29/03 Tr. 520
(Whiddon)) is not credible. The problem persisted for about a year thereafter (PX 32), even though
Mr. Whiddon had informed plaintiff that Cingular was “reviewing the store listings” on the toll free
numbers and “planned to make the necessary revisions in the June [2001] time frame” (PX 18).
However, we note that by the spring or early unsines of 2002, this problem was corrected.

3. Denial of Promotional Opportunities.

According to Kempner, when it became an authorized sales and service center in 1993,
Kempner was told by Cingular that it would get the benefit of the same pricing on equipment and
services as Cingular gave to its internal channeis of distribution (01/28/03 Tr. 16 (Kempner)). The
1999 Agreement does not specifically contain such a guarantee: it simply says that Cingular would

establish “rates, terms, and conditions” for the sales of its services (PX 1,  5(c)), without indicating

17



bond that the Court required as a condition of the payment by Cingular to Kempner in August 2002
shall remain in effect and stand as the bond to support this aspect of the preliminary injunction. The
$150,000 injunctive bond that the Court requires Kempner to post in connection with the injunction
concerning the non-compete provisions is in addition to the previously-posted $50,000 bond.

ENTER:

SIDNEY I. SCHENKIER
United States
Dated: March 7, 2003

61



Under the 1999 Agreement, Kempner was compensated for sales on a commission basis.
Kempner received a commission on both pre-paid and post-paid contracts based on a percentage of
the initial payments; with respect to post-paid ‘contracts, Kempner also received a residual
commission, based on the periodic payments made by the customer (PX 1, { 7(b)).

The purpose of the residual commission, from the carrier’s perspective, is to encourage
retention of subscribers on a long-term basis (01/28/03 Tr. 19 (Kempner)). The 1999 Agreement
specifies a four percent commission rate (/d.); but, that rate later was increased (see, ¢.g., PX 18).
Kempner was entitled to receive only those residual commissions or other compensation that accrued
during the term of the 1999 Agreement; Kempner could eam no further compensation after the 1999
Agreement expired by its own terms on December 31, 2002 or was terminated earlier for some other
reason (PX 1, | 7). The 1999 Agreement also provided that Cingular could withhold an offset
against this commission stream against amounts past due and owing from Kempner to Cingular (Id.).

In addition to requiring that Cingular pay Kempner commissions for sales made, the 1999
Agreement required Cingular to provide Kempner with promotional literature, sales brochures and
information for preparation of catalogs, advertising and other promotional activities, and a
reasonable amount of sales training (PX 1, | 5(e)-(g)). The 1999 Agreement also allowed Kempner
to use certain Cingular marks in marketing Cingular’s services. Kempner acknowledged “the great
value of the goodwill associated with the Marks,” that the goodwill belonged “exclusively” to
Cingular, and that any use of the Marks by Kempner and the goodwill associated with them “shall
inure to the exclusive benefit of [Cingular]” (/d., 8). Kempner further agreed that the terms and

conditions of the 1999 Agreement were necessary to maintain the “high standards” for Cingular’s



evidence showing that Kempner would have accepted this mutual termination agreement had it been
offered. In all these circumstances, we do not.view this mutual termination program as strong
evidence that Cingular does not have an important interest to be protected by the exclusive/non-
compete provisions of its agency agreements, or that Cingular has waived those provisions.

I.

“The purpose of a preliminary injunction.is merely to preserve the relative positions of the
parties until a trial on the merits can be held.” Univ. of Texas v. Camenisch, 451 U.S. 390, 395
(1981). Because the purpose of a preliminary injunction is limited, a party is not required to prove
its case in full at the preliminary injunction hearing. Jd. A preliminary injunction nonetheless
remains “an extraordinary and drastic remedy, one that should not be granted unless the movant, by
aclear showing carries the burden of persuasion.” Mazuerk v. Armstrong, 520 U.S. 968, 972 (1997)
(per curiam) (citing 11A C. WRIGHT, A. MILLER & M. KANE, FEDERAL PRACTICE AND PROCEDURE
§ 2948 pp. 129-130 (2d. ed. 1995) (emphasis added)).

At the threshold, “‘a party seeking a preliminary injunction must demonstrate: (1) some
likelihood of succeeding on the merits, and (2) that it has ‘no adequate remedy at law’ and will suffer
‘irreparable harm’ if preliminary relief is denied.” Abbott Labs. v. Meade Johnson Co., 971 F.2d 6,
11 (7" Cir. 1992) (citing Lawson Prods., Inc. v. Aynet, Inc., 782 F.2d 1429, 1433 (7" Cir. 1986); see
also, Allied Signal, Inc. v. BF. Goodrich Co., 183 F.3d 567, 573 (7" Cir. 1999). “If the moving
party cannot establish either of these prerequisites, a Court’s inquiry is over and the injunction must
be denied. If, however, the moving party clears both thresholds, the Court then must consider: (3)
the irreparable harm the non-moving party will suffer ifpreliminary relief is granted, balancing that

harm against the irreparable harm to the moving party if relief is denied; and (4) the public interest,

32



provision (at least insofar as it bars efforts to sell.to customers developed through the agency
relationship) with respect to agents to whom it has paid residual commissions, than in those cases
where it has not. This evidence, therefore, does not support Kempner’s claim that Cingular either
has waived the non-compete provisions, or has no strong protectable interest in them.'°

Moreover, Kempner has not offered evidence to contradict Cingular’s showing that, except
for “big box” retailers, all outside dealer and agent.retail outlets that sell post-paid service have
exclusivity and non-compete provisions in their contracts. Instead, Kempner has offered evidence
that those non-compete provisions have not been rigorously enforced in all instances.

First, between August and October 2002 (perhaps, not coincidentally, after Kempner’s
termination), Cingular sent letters to five agents notifying them that the contracts would be
terminated within thirty days if they did not stop offering competitive services in violation of the
exclusivity provisions of their contracts (PX 11)...In each instance, the agents in question had
signage on their stores promoting the availability of both Cingular and competitive services (/d.).
According to the testimony, all of those agents ultimately were terminated because they failed to stop
selling competitive services (01/29/03 Tr. 441-443 (Flack)). However, Cingular did not file suit
against any of these agents to compel them to stop selling competitive products; does not know if
they are continuing to sell competitive products; and does not know if they are still promoting
themselves as having any association with Cingular (/d. at 443). Cingular’s explanation is that each

of these agents had only a relatively small number of subscribers that they have activated (500 or so

‘In this vein, we also note that the Abt and Cingular.contracts both contain provisions that prohibit the post-
termination use of advertising or marketing materials or any use that would associate the retailer with Cingular (PX 10,
14; PX 44, 12). Inaddition, the Abt agreement specifically prohibits, after termination, Abt from knowingly targeting
or soliciting Cingular subscribers who are activated by Abt to purchase competitive services (PX 10, 4] 15).

29


(five percent) account for the balance of Cingular sales (Id.). According to Kempner, aclose carrier-
agent relationship helps the carrier retain customers, who otherwise frequently would switch carriers
based on price or product promotions (01/28/03 Tr. 213 (Kempner); see also DX 23, J 10).

When Kempner first began selling products and services for Cingular, Kempner’s principal
customer base consisted of those who had bought paging devices and services; Cingular did not
initially provide a primary source of plaintiffs business (01/28/03 Tr. 13 (Kempner)). In 1993,
plaintiff entered into a new contract with Cingular to become a sales and service center (/d.).
Kempner remained in that relationship with Cingular through the summer of 2002, pursuant to
various contracts entered into between 1993 and 1999, all of which were nearly identical in their
terms. The last of those agreements, the 1999 Agreement, contains a merger and integration clause
stating that it constitutes the “entire agreement of the parties,” that there are “no other oral or written
understandings or agreements between [the parties] relating to the subject matter” of that Agreement,
and that the 1999 Agreement “supersedes any prior agreements or understandings between the
parties relating to the subject matter hereof” (PX 1, § 28). For this reason, the Court focuses on the
terms of the 1999 Agreement; and, we discuss preceding conversations, agreements, or other
writings only insofar as they shed light on the meaning of the 1999 Agreement. See, e.g., Air Safety
v. Teachers Realty Corp., 706 N.E.2d 882, 886 (Ill. S.Ct. 1999) (documents created before the
contract was finalized play a limited role).

B. The 1999 Agreement.

The 1999 Agreement is a 25-page, single spaced document containing numerous terms. We

summarize here certain of its key terms; to the extent that other terms are relevant to the analysis,

we will discuss them below as necessary.



It was also in 1989 that Kempner began its business relationship with Cingular, through a
contract with Comtech (a division of Cingular) (01/28/03 Tr.12 (Kempner)).' Cingular is involved
in the development, establishment and sale of Cellular services and equipment in the Chicago
metropolitan area and in other markets (see, e.g., PX 1).?

Cingular utilizes several different types of retail channels for its services and equipment:
(J) large “big box” retailers (e.g., Best Buy), which offer both Cingular and other companies’ cellular
services and equipment as part of a large variety of consumer electronic products that they sell;
(2) dealers, which tend to be small-scale operations that sell not only cellular equipment and services
but other electronic items (such as, paging devices and car alarms); and (3) agents, the larger of
which are also known as sales and service centers, which tend to focus more heavily on the
marketing and sales of the cellular service and equipment and which, through their “look and feel,”
tend to be closely associated with Cingular (01/29/03 Tr. 359-360 (Flack)). The sales and service
centers, in turn, fall into two categories: those that are “company stores” owned by Cingular, and
those that are run by outside agents pursuant to agreements with Cingular (/d. at 360). Outside
agents/sales and service centers constitute Cingular’s primary channel of distribution, accounting for
fifty percent of its sales (/d. at 557 (Nelson)). Company-owned sales and service centers (fifteen

percent), big box stores (ten to twenty percent), direct sales by Cingular (ten percent), and dealers

‘As is apparent from the case caption, Cingular formerly did business under the name “Cellular One-Chicago.”
As a result, a number of the exhibits discussed in this opinion refer to the defendant as Cellular One. For ease of
reference, throughout this opinion we will use the name Cingular to refer to the defendant even during the time it was
known as Cellular One. Kempner also has proposed that.the Court make various findings concerning other corporate
relationships involving Cingular and has suggested that there were various corporate changes that went along with the
change in name from Cellular One to Cingular. Inasmuch as there is no dispute that Cingular is a proper party on this
motion, the Court finds it unnecessary to make findings on these additional matters suggested by plaintiff.

References to exhibits admitted into evidence at the preliminary injunction hearing will be prefaced by “PX”
for Kempner’s exhibits, and “DX” for Cingular’s exhibits.

5


what standards Cingular would use or how those prices would compare to prices offered to Cellular-
owned channels of distribution. However, in May 2001, Cingular did represent to Kempner in
writing that, like all dealers, Kempner would “have access to the same level of service pricing as the
internal team,” but that any discounts on equipment and accessories “are left to the discretion of the
internal/dealer organization” (PX 18; see also 01/29/03 Tr. 517 (Whiddon)).

Kempner offered evidence of specific requests it made for promotional pricing that Kempner
said was being offered by Cingular-owned channels of distribution, but that were denied to Kempner
(see PX 19-21, 23, 45). For its part, Cingular offered evidence that Kempner’s requests were denied
because they were not identical to the promotions, being offered, and included more expensive
features that would have made it unprofitable for Cingular to offer them (01/29/03 Tr. 398-99 (Flack)
(DX 58). The Court’s review of these exhibits indicates that there is some merit to Cingular’s point;
we also note that the exhibits show that, in two instances, while Kempner’s proposal was denied as
presented, Cingular offered Kempner alternative proposals (PX 21, 45). In the Court’s view, this
evidence does not support Kempner’s contention that Kempner received less favorable pricing than
Cingular-owned outlets.

Other evidence offered by Kempner, however, raises a question on this point. Kempner
offered an exhibit (PX 29) which suggests that.in some instances, company-owned distribution
channels may have received a better price on equipment than Kempner received. And, Kempner
produced a summary exhibit (PX 30) showing that in December 2000, December 2001, and March
2002, Kempner was charged a higher invoice price than Cingular-owned distribution channels for
certain equipment or services (PX 30; see also 01/28/03 Tr. 71-72 (Kempner)). We say equipment

or services because neither the summary exhibit nor the testimony about it explains what products

18



metropolitan area, or to attempt to persuade Subscribers of Cingular’s services to obtain from
another provider services that competed with CRS, CMRS or other Authorized Services.

The persons to whom Kempner sold cellular service on behalf of Cingular became customers
of Cingular (PX 1,43). Cingular retained sole authority to establish the rates, terms and conditions
of the sale by Kempner of Authorized Services (/d., J 5(c)). The 1999 Agreement contains no
provision that specifies how the rates, terms and_conditions for the sale of services offered by
Kempner would compare to that offered by other outside agencies, or to company stores or in-house
sales outlets. On the other hand, individuals who bought from Kempner’s CPEs (and not Cingular-
owned CPE) became customers of Kempner, and Kempner had the authority to set the price at which
it would sell CPEs (/d., | 4(g)). Kempner agreed that during the term of the 1999 Agreement and
thereafter, Kempner would not divulge Subscriber information to others, and would not use it except
as necessary for service related to the CPE or for. activities unrelated to CRS, CMRS or other
Authorized Services (such as, paging services sold by Kempner) (/d., J 4(m)).

Under the 1999 Agreement, Kempner could provide “pre-paid” and “post-paid” cellular
services. Pre-paid services involve the sale ofa telephone unit along with a telephone card providing
a specified number of minutes of cellular services for one fixed price. When the minutes are used
up, the customer either must purchase another phone card providing for specified amount of
additional cellular service, or convert to a post-paid plan. Post-paid or contract service requires the
customer to enter into a contract for a particular service plan for a specified time (ranging from a few
months to three years, with one year being the most common time period (01/28/03 Tr. 20-22

(Kempner)).


E. Cingular’s Termination of Kempner.

By a letter dated June 20, 2002, Cingular.notified Kempner in writing that Cingular had
learned that Kempner was “promoting and selling the services of a competitor of Cingular in
violation of the provisions contained in Sections 4() and 20” of 1999 Agreement (PX 37). In that
letter, Cingular invoked the procedure set forth in Paragraph 18(B) of the 1999 Agreement, and
informed Kempner that, unless Kempner notified Cingular in writing within 30 days that it had
discontinued that activity, Cingular would exercise its right to terminate the 1999 Agreement and
to “seek any other remedies available to it at law’r in equity” (/d.).

Kempner continued its sales of competitive products and services (PX 48). Accordingly,
after the passage of 30 days, Cingular sent a letter, dated July 23, 2002, terminating the 1999
Agreement (DX 22). In that letter, Cingular specifically reminded Kempner of its non-compete
obligations imposed by Paragraph 20 of the 1999 Agreement (/d.). Kempner continued to sell
competitive products; moreover, despite receiving the termination notice, Kempner also continued
to sell Cingular products and to actively promote itself as affiliated with Cingular, It was not until
about one month after the termination notice, after: the proceedings in this Court on August 21, 2002,
that Kempner removed the Cingular signs and promotional materials from its facility and no longer
held itself out as a Cingular sales and service center (01/28/03 Tr. 194-95 (Kempner)).

During the preliminary injunction hearing, Kempner offered no explanation for its failure to
inform Cingular in May 2002 that it was entering into competitive contracts and was beginning to
sell competitive products and services; nor did Kempner offer any explanation for the failure to
inform Cingular of the state court lawsuit for more than two and one-half months after it was filed,

and only after Cingular had issued its termination letter. As for Kempner’s acts in continuing to hold

24


Minute Order Form (06/97)

United States District Court, Northern District of Minois

Name of Assi i . i _ Sitting Judge if Other
or Magistente Judge Sidney I. Schenkier than Assigned Tudge
CASE NUMBER 02 C 5403 DATE 3/11/2003
CASE Kempner Mobile Electronics, Inc. vs.
TITLE Southwestern Bell Mobile Systems, LLC, d/b/a Cingular Wireless

{in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.]

(1)

MOTION:

DOCKET ENTRY:

a) a Filed motion of [ use listing in “Motion” box above:} : ‘

(2) Oo Brief in support of motion due

(3) oO Answer brief to motion due___. Reply to.answer briefdue__.

(4) oO Ruling/Hearing on____setfor__at

(5) Qo Status hearing[held/continued to] [set for/re-set for] on setfor_ at.

(6) oO Pretrial conference[held/continued to] [set for/re-set for]on__setfor__—at__—

(7) im] Trial[set for/re-set for]on at.

(8) a [Bench/Jury trial] [Hearing] held/continued to __.

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) ClLocalRule 41.1 © FRCP41(a)(1):, DFRCP4I(a)Q).

(10) a [Other docket entry] ENTER CORRECTED MEMORANDUM OPINION AND ORDER, nunc pro

tunc to 03/07/03 to correct typographical error on line 1 of page 17.

_ [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required, number of notices

Notices mailed by judge’s staff.

Notified counsel by telephone. , : at on
Docketing to mail notices. Lungs igs

Mail AO 450 form. zat Hd Li aye cu

MAR 12.2003

Copy to judge/magistrate judge.

ot 3-33

dato mailed notice
courtroom

u deputy’s
initials

Date/time.received in
central Clerk’s Office mating deputy intals



But, Kempner did not choose that course (01/28/03 Tr. 338-39 (Kempner)). Rather, what
Kempner sought in filing the state court complaint in May 2002, and then the amended complaint
in this Court in August 2002, was to have its cake.and eat it, too: that is, Kempner wanted to force
Cingular to remain in the 1999 Agreement through the scheduled expiration date of December 31,
2002, so that Kempner could continue to have the benefits of that contractual relationship, but to
selectively excise from that agent the non-compete provisions, so that Kempner also could sell the
products and services of competitors. It appears, then, that what Kempner seeks is a form of
selective contract “repudiation” — which is not permitted under Illinois law. Maffel v. Ginocchio,
132 N.E. 518, 520 (Ill. 1921). “An anticipating repudiation has been defined as a manifestation by
one party to a contract of an intent not to perform its contractual duty when the time fixed in the
contact has arrived.” See Pope v. Economy Fire & Cas. Co. , 779 N.E.2d 461, 465 (Ill. App. 1* Dist.
2002) (citing Jn re Marriage of Olsen, 528 N.E.2d 684, 686 (1988)). “The party’s manifestation
must clearly and unequivocally be that it will not render the promised performance when it becomes
due.” Id. We have found no case in Illinois which permits a selective repudiation of one part of the
contract but enforcement of the other parts of the.contract, and Kempner has cited none.

Nor do the facts here fit a theory of reformation of contract. See, e.g., 13 W. JAEGER,
WILLSTON ON CONTRACTS § 1585, at 559 (3d ed, 1970) (“The desirable rule governing reformation
is that if the writing actually executed does not contain all that the parties agreed that it should
contain, it will be reformed whether the reason. why it fails to express the agreement is due to a
mistake of fact or law”); Janssen Bros., Inc. v. Northbrook Trust and Sav. Bank, 299 N.E.2d 431,
434 (Ill. App. 2TM Dist. 1973). Reformation is appropriate only when “clear and convincing evidence

compels the conclusion that the instrument as.it.stands does not reflect the true intention of the

47



CRS, CMRS or any other Authorized Service on behalf of a competing
reseller or provider in the Area, ... and [Kempner] specifically agrees not to
transfer, assign, authorize or consent to the transfer of [a Kempner] telephone
number to any other person, firm or other entity upon expiration or
termination of this Agreement.
(PX 1,420). The 1999 Agreement states that the consideration provided by Cingular for these non-
compete provisions was Cingular’s grant to Kempner “of the right to use the Marks, the right to
advertise affiliation with [Cingular] as an authorized agent of [Cingular] and great value of the
goodwill associated with [Kempner’s] ability to. use the Marks... and... the value of specialized,
technical knowledge of the cellular industry and other Services to be imparted by [Cingular] to
[Kempner] from time to time” (/d.).

Either party was authorized to terminate the 1999 Agreement early, based the occurrence of
certain events. Kempner was authorized to terminate the 1999 Agreement if Kempner was in
substantial compliance with its terms, and if Cingular materially breached the 1999 Agreement and
then failed to cure that breach within thirty days after receiving written notice by Kempner (PX 1,
{| 18(A)). In the event that Kempner terminated the 1999 Agreement under these circumstances, the
termination would be treated as “for cause” and Kempner would not be bound by the non-compete
provisions contained in Paragraph 20 (/d.). Any termination of the 1999 Agreement by Kempner
that did not meet these prerequisites would be treated as without cause and, thus, would not relieve
Kempner of the requirement to comply with the non-compete provisions (/d.). For its part, Cingular
had the right to terminate the 1999 Agreement undera variety of circumstances, including the failure

to comply with any provision of the 1999 Agreement, and a failure to timely cure the noncompliance

(Ud., § 18(B)).

ll


services, and thus to “protect and preserve thé goodwill of [Cingular’s] CRS, Services and Marks”
(id., 4 2).

Under the 1999 Agreement, Kempner was not permitted to “change or add business locations
without [Cingular’s] prior written approval,” which “shall not be unreasonably withheld” (PX 1, J
4(c) and Ex. A). The 1999 Agreement did not specify the considerations Cingular would use in
deciding whether to approve new locations.‘

The 1999 Agreement provided that its duration could be extended beyond December 31,
2002 by Cingular upon prior notice (PX 1, J 16). The 1999 Agreement provided that for a period
of one year after its termination or expiration, Kempner could not engage in any of the following
acts:

(1) Directly or indirectly, inducée; influence or suggest to any Subscriber of
{Cingular’s] CRS to purchase CRS or any other CMRS from another reseller
or provider of CRS or CMRS in the Area;

(2) Directly or indirectly, induce, influence or suggest to any Subscriber of
any other Authorized Service to.purchase a competing service from any
provider or reseller of such competing service in the Area, whether or not the
competing service is technologically the same as the Authorized Service in
question;

(3) Under any circumstances or conditions whatsoever, directly or indirectly,
as an individual, partner, stockholder, director, officer, employee, manager
or in any other relation or capacity whatsoever engage in the sale or
promotion of CRS, CMRS, or any other authorized service on behalf of any
competing reseller or provider of.such service in the Area;

(4) Directly or indirectly, allow any other person, firm or other entity to use

the name, trade name, goodwill or any other assets or property of [Kempner
or Cingular] in any manner in connection with such other entities’ sale of

“The 1999 Agreement refers to rules and procedures contained in an “Administrative Procedures Manual” that
would be incorporated into the agreement (/d., {| 10). However, there is no evidence that such a manual ever has existed
(see 01/28/03 Tr. 336-37 (Kempner); 01/29/03 Tr. 423-424, 460 (Flack).

10


CMRS or other competing service from another provider or reseller of such services in the six-
county Chicago metropolitan area; and
b. Kempner may not directly or indirectly use or allow any other person, firm

or other entity to use the name, trade name, goodwill or any other assets or property of Cingular in
any manner in connection of the sale of CRS, CMRS, or other cellular services on behalf of a
competing reseller or provider in the six-county Chicago metropolitan area.'¢
In all other respects, the Court GRANTS Kempner’s motion to preliminarily enjoin enforcement of
the restrictive covenant, and DENIES Cingular’s motion to preliminarily enjoin Kempner from
acting in a manner contrary to those provisions...

Under Fed.R.Civ.R. 65, a party who obtains a preliminary injunction must provide security
to support it. Gateway Eastern Ry. Co. v. Terminal RR Assoc. of St. Louis, 35 F.3d 1134, 1141 (7"
Cir. 1994). When setting an injunction bond, the trial court “should err on the high side.” Mead
Johnson & Co. y. Abbot Laboratories, 201 F.3d.883, 888 (7" Cir. 2000). As a condition of the
preliminary injunction granted to each side, the Court orders each side to post bond in the amount
of $150,000.00, which in closing argument each side suggested would be a reasonable amount to
support a preliminary injunction were one to issue.

2. Kempner’s motion for preliminary injunction with respect to payment of commissions
and other amounts is GRANTED in part, limited solely to permitting Kempner to retain the $50,000
payment that the Court ordered be made in August 2002. In all other respects, Kempner’s motion

for preliminary injunction requiring payment of additional commissions is DENIED. The $50,000

‘*Ajthough Kempner would have us start counting the one-year period, for the non-compete provisions, from
the date of his termination in July 2002, we refuse that course because Kempner treated the one-year limitation as
unenforceable and continued to sell to Cingular Subscribers that Kempner activated after the termination.

60



be inevitably used by Kempner if Kempner were allowed to offer competing products. There is no
evidence that Kempner has done so since August 2002, a six-month period during which Kempner
has been offering competing products. To the extent Cingular wishes to do so, it readily can police
compliance that restriction (such as, by undisclosed visits or calls to Kempner to see if Kempner is
promoting any Cingular affiliation).

As for product and other information that Kempner received during the course of his
relationship with Cingular, the evidence persuades this Court that this information is rapidly
changing, and thus has a limited useful life. According to the evidence, this information is updated
and revised every 30-90 days (01/28/03 Tr. 92 (Kempner)). Kempner has not received any such
information since August 2002, and anything Kempner received before then likely is of little (ifany)
value. We see little likelihood that Cingular’s interest in outdated information (such as details of
past promotions to the public, which would be ini the public domain anyway once the promotions
were offered) could support a complete bar on Kempner marketing competing cellular products after
his termination.

Finally, as for Cingular’s interest in its investment in developing Subscriber lists and
information (or relationships with the Subscribers), that interest is protected by the provisions of the
non-compete clause that bar Kempner from selling competing services to those Subscribers Kempner
enrolled who remained Cingular Subscribers as of July 23, 2002. To go farther, and to prohibit
Kempner from offering competitive services to individuals who were not enrolled by Kempner and
who were not active Subscribers as of the termination date, would exceed the scope of Cingular’s

protectable interest.

43



(01/29/03 Tr. 468 (Flack); see also PX 13). Thus, in none of those instances did Cingular enforce
the non-compete provisions of the agency agreements.'!

Cingular explained that one motivation for this program was to try to preserve these agents
as outlets for the pre-paid services (01/29/03 Tr. 490-491 (Flack)). Cingular also offered evidence
that all of these agents were small, and none were sales and service centers like Kempner (Id. at 505).
However, one reasonably may wonder why Cingular would want to maintain relationships with
agents who were violating the non-compete provisions, so that the agents could sell a service (pre-
paid contracts) which constitutes a very small part (five percent or less) of Cingular’s business.
Moreover, a Cingular witness testified that Kempner was not offered this arrangement because
Kempner had filed a suit against Cingular — not because Kempner was bigger than the other agents
who had been offered this arrangement (01/29/03 Tr. 538 (Whiddon)). That explanation does not
square with the undisputed evidence that Cingular did not know of Kempner’s lawsuit until after
Cingular issued the termination letter dated July 23, 2002. Moreover, the same witness earlier
testified in his deposition that he could think of no good reason why this arrangement had not been
offered to Kempner (/d., at 538 (Whiddon)).

That said, we can envision understandable reasons why Cingular would not offer this
arrangement to Kempner. The chain of correspondence between the parties in 2001 and early 2002
show that the relationship between the parties was in serious disrepair, and it would not have been
unreasonable for Cingular to decide not to allow.a large (and disaffected) sales and service center

like Kempner to have carte blanche to sell competitive products. And, in any event, there is no

"Kempner also attempted to establish that Ci gular allowed one of its agents to violate the exclusive/non-
compete provisions because of its relationship with a Cingulat vice president (PX 14; 01/29/03 Tr. 523-537 (Whiddon)).
Kempner’s evidence was not persuasive to the Court on this point.

31



parties, and that there has been either a mutual mistake or a mistake by one party and a fraud by the
other.” Magnus v. Barrett, 557 N.B.2d 252, 255 (Ill. App. 1* Dist. 1990). Kempner has not cited
any case authority to support the view that a material breach can lead to the reformation of a contract,
and we have found none. Here, there is no doubt that the non-compete provisions were included
in the contract intentionally, not mistakenly, and that the parties signed the 1999 Agreement fully
aware of those provisions. Kempner has not cited any case authority to support the view that a
material breach can lead to the reformation of a contract, and we have found none.

In closing argument, Kempner’s counsel candidly admitted that the only authority Kempner
has for this argument is found in the severability provision of the 1999 Agreement, which states that
ifany portion of the 1999 Agreement is held “invalid, contrary to, or in conflict with any applicable
present or future law, regulation for public policy,” that portion of the 1999 Agreement would be
severed and “shall not impair the operation of, or have any other effect upon, such other portions of
this Agreement as may otherwise remain enforceable” (PX 1, { 21). We do not think that the
insertion of this common provision created for Kempner a legal right that is not generally recognized
in Illinois common law. What’s more, the language of the severability provisions is ill-suited to the
argument Kempner makes. In this alternative argument, Kempner is not claiming that the non-
compete provisions are “invalid, contrary to, or in conflict with ... law.” Rather, this argument
assumes that the restrictive covenant is valid, but that Cingular’s alleged material breaches bar its

enforcement. The severability clause does not fit that situation.

48



each), and that it is therefore not worth Cingular’s while to pursue them aggressively as it has done
with Kempner (who, at the time of termination, had a base of some 7,000 Subscribers whom it had
activated). This explanation is not without some force: any company must make an economic
decision about whether the costs of seeking to enforce a contractual provision will exceed the
damages caused by the alleged violation. Nonetheless, while each of these agents is individually
small, collectively they account for some 2,500 subscribers. And, the fact that the termination letters
all post-dated Kempner’s termination, and the institution of this lawsuit in federal court, raises a
question as to whether the notices and terminations.were driven not by concerns over the breach of
the non-compete, but by the litigation needs in this case.

Second, there is evidence that in the spring of 2002, Cingular instituted a program for
addressing violations of the exclusivity/non-compete provisions of their agency agreements. Under
this program, the exclusive agency agreement would be terminated and the agent would enter into
anew contract allowing it to market only Cingular’s pre-paid services, and not its post-paid services.
The agents would be permitted to offer these cellular services on a non-exclusive basis, meaning that
they could offer both pre-paid and post-paid services of other carriers (PX 12; 01/29/03 Tr. 467-468
(Flack)). The agents could not use Cingular’s marks or other materials provided by Cingular after
termination of the new agreement (PX 12, { 10(c)). According to the evidence, it was “standard
procedure” for Cingular to make this offer to agents who were in breach of their non-compete

provisions, and between March and August 2002, Cingular entered into nearly 20 such agreements

30



The 1999 Agreement defines “Authorized Services” as the services offered by Cingular that
Kempner was allowed to sell under the 1999 Agreement (PX 1, { 1). Under the 1999 Agreement,
Kempner was authorized to sell only cellular radio service (“CRS”) (/d., Ex. A), not commercial
mobile radio services (“CMRS”). Kempner also was authorized to sell or lease customer premises
equipment (“CPE”): that is, the cellular telephones or other related hardware necessary for the
customer to use Cingular’s cellular services being marketed by Kempner (/d., Jf] 1, 4(g)). The 1999
Agreement authorized Kempner to sell these products and services in a defined “Area” — the six-
county Chicago metropolitan area (/d., | 1 and Ex. A). The 1999 Agreement defined “Subscribers”
as customers of the Authorized Services provided by Cingular; each telephone number assigned to
a customer of Authorized Services was counted as a separate “Subscriber” (/d., ] 1).

The 1999 Agreement expressly states that the relationship between the parties was not a
“general agency, joint venture, partnership, employment relationship or franchise” (PX 1, J 3).°
Under the 1999 Agreement, Kempner was a “non-exclusive authorized agent” for Cingular, in that
Cingular reserved the right to market its cellular services and CPE “in the same geographical areas
served by [Kempner], whether through [Cingular’s] own representatives or through others including,
but not limited to, other authorized agents, retailers, resellers and distributors” (/d.). In addition,
Kempner was not limited in its ability to sell paging services or CPE offered by companies other than
Cingular (d., | 4(j)). However, the 1999 Agreement prohibited Kempner from acting as a

representative or agent of any other reseller or provider of cellular services in a six-county Chicago

Kempner pointed to an undated document, which he said he received from Cingular in 1994, that referred to
the relationship between Cingular and its authorized sales and service centers as a “Joint venture” (PX 24). However,
the 1999 Agreement could not be more clear in stating that the relationship was vot a joint venture, and in further making
it clear that any agreements or understandings prior to the 1999 Agreement were superseded.

1



and given the lack of success in the efforts to switch specific subscribers identified by Kempner, we
are skeptical that many of these 4,000 names reflect.the results of switches initiated by Cingular.
5. Kempner’s Compensation.
Kempner alleges that Cingular owes it some $4,413.21 in out-of-pocket costs that Cingular
agreed, but failed, to reimburse (PX 34); $2,600.00 in “charge backs” that Cingular improperly
applied but had not paid to Kempner as of November 2001 (PX 40); unpaid commissions totaling

$55,720.00 as of July 16, 2002 (PX 41); and $5, 21

)0 in returned equipment for which Kempner
had not received a credit (PX 43), for a total of $67,952.21. Cingular disputes this calculation, and
offered an exhibit showing that, according to its records, Kempner owes Cingular $126,242 in
unpaid invoices (DX 20). Neither side offered much in the way of testimony or other evidence to
substantiate their respective claims for these amounts, or to dispute the other side’s claims.
Kempner’s calculation of amounts due from Cingular do not include three other categories
of claimed damages. Kempner claims that he hagréceived no commission for cellular products and
services that he sold to some 100 Cingular Subscribers whom Kempner enrolled between the date
of his termination, on or about July 21, 2002, and when he actually stopped selling on behalf of
Cingular, approximately one month later (see PX 48; Pl.’s Proposed Finding of Fact No. 69).’
Kempner estimated that it should have received $15,000 to $20,000 in up-front commissions on
those sales (01/28/03 Tr. 122-23 (Kempner)). Kempner has not provided acalculation of the amount

of any residual commissions he claims would flow from these transactions (which, under the best

7We discuss below the circumstances concerning Kempner’s continued sale of Cingular products and services
after the termination letter was issued in July 2002.

21



that only a small percentage of Kempner’s sales from May through August 2002 fell within that
category. Enforcement of this restriction would only remove from Kempner’s potential customer
pool for a period of one year some 7,000 persons, leaving hundreds of thousands of potential
customers in the Chicago metropolitan area to whom Kempner freely may market. If, after a full trial
on the merits, that restriction were deemed unenforceable, Kempner could seek monetary damages
from Cingular — and there is no argument that Cingular would be unable to pay them if proven.
As to those portions of the non-compete provisions that the Court believes are likely to be
found unreasonable at trial, the balance of the hardships favors Kempner. Enforcement of those
provisions would eliminate seventy percent of Kempner’s business for a one-year period, and would
run the risk of putting Kempner out of business. By contrast, failure to enforce the restrictions would
not cause harm to Cingular: Kempner still would be prohibited from using Cingular’s name,
goodwill or confidential information, and from soliciting persons originally enrolled by Kempner
who were still active Cingular Subscribers as of July 23, 2002. What Cingular would be prevented
from doing is keeping Kempner from using Kempner’s own name and goodwill, and from selling
competitive products to persons who were not active Cingular Subscribers as of the time of
termination. To the extent that those actions would harm any protectable interest of Cingular, that
harm is far less than the harm Kempner would experience were those activities prohibited.
Finally, with respect to the $50,000 in commissions, the balance of harms favors Kempner.
If, after trial, it turns out that the money should go. back to Cingular, Cingular will be able to collect
because there is a bond guaranteeing a source of payment for that sum. On the other hand, if
Kempner is required to pay the money now and it turns out after trial that Kempner was entitled to

keep those funds, that victory would be pyhrric if, in the meantime, Kempner has become insolvent.

58


That is the same geographic area in which the 1999 Agreement authorized Kempner to do business.
And (although he did not have locations in all.of these areas) the advertising by Cingular for
Kempner extended into areas outside Cook County (see PX 27, 28). In these circumstances, we
believe that the geographical scope is sufficiently. tailored to be reasonable.

We now consider the activities barred by the non-compete provision.

a.

The non-compete prohibits Kempner from using the name, goodwill or other assets or
property of Cingular on behalf of a competitor for cellular services (PX 1, J 20(4)). Kempner has
offered no argument as to why it should be permitted to use Cingular’s marks or other information,
which Cingular provided to Kempner only as a result of the contractual relationship with Kempner
and which Kempner recognized to be Cingular’s } property (see, e.g., PX 1,8). We see no basis to
conclude that this restriction is unreasonable, and find that Kempner does not have a better than
negligible chance of success on that point.

b.

We also do not believe that Kempner has ‘a better than negligible chance of showing that the
non-compete restrictions are unreasonable insofar as they bar Kempner — for one year, and
throughout the six-county Chicago metropolitan area— from selling or attempting to sell services that
compete with Cingular’s cellular services to any Cingular Subscriber whom Kempner activated
(PX 1, {20(1), (2)). Kempner sold those services,to the Subscribers as a result of his affiliation with
Cingular, and utilized the service offerings made.available by Cingular in doing so. Under the 1999
Agreement, Kempner was entitled to receive compensation for those efforts in the form of

commissions, and assistance in making those efforts in the form of various promotional and other

38


support. And, as part of this contractual relationship, Kempner agreed that the Subscribers of the
services Kempner sold on behalf of Cingular would be customers of Cingular (PX 1, {{ 3).

Based on the evidence submitted at the preliminary injunction hearing, the identity of the
Cingular Subscribers, and the service choices they have made, is information that Cingular keeps
confidential. There is no evidence that this Subscriber information may be readily obtained by
Cingular’s competitors in the marketplace on any systematic basis.'? While Kempner certainly
knows the identity of the subscribers and their service choices, that is only because Kempner was
authorized by Cingular to sell those services to Subscribers on Cingular’s behalf. And, the 1999
Agreement provides that Kempner may use the Subscriber lists only for purposes allowed by the
agreement, and may not divulge that information to others (PX 1, { 4(m)).

This is not a case like Hydroaire, Inc. v. Sager, 424 N.E.2d 719, 725 (Ill. App. Ct. 1* Dist.
1981), where the court found that the company seeking to enforce a restrictive covenant was
attempting to restrain the former employee “from contacting customers previously known and readily
available to [the former employee], rather than . ... protect[ing] a legitimate aspect of its business
against an improper or unfair method of competition.” Hydroaire, 424 N.E.2d at 725 (emphasis
added). The evidence here shows that, prior to beginning its relationship with Cingular in 1989,
Kempner had a small clientele to which it sold only paging products; it was through Kempner’s
affiliation with Cingular, from 1989 until 2002, that Kempner expanded the clientele to which it sold

products to some 10,000 at one point, and some 7,000 by the time of the termination in July 2002.

“We recognize that if a Cingular Subscriber were to visit, say, a Sprint retail outlet for the purpose of
considering replacement of the Cingular service, the Sprint retailer well might learn from the Cingular subscriber much
or all of this information. But, that kind of random or episodic possibility falls far short of proof that the information
is ascertainable by Cingular’s competitors on any general.or systematic basis, or by reference to publicly available
sources such as telephone directories or industry publications. Cf A.J. Dralle, Inc. v. Technologies, Inc., 627 N.E.2d
690, 696 (Ill. App. Ct. 2” Dist. 1994).

39


services to active Cingular Subscribers that Kempner enrolled. However, for several reasons, we
do not believe that Kempner would suffer irreparable harm if enjoined preliminarily from continuing
that activity.

First, during the period from May through August 2002, Kempner sold competitive services
to 54 active Cingular Subscribers (Stipulation Regarding DX 49 and DX 60). During that same
period, Kempner sold the services of Cingular’s competitors to 309 other persons (PX 48). Thus,
Kempner’s sales during that period to Cingular Subscribers accounted for only about fifteen percent
(54 out of 363) of Kempner’s sales of services that compete with those offered by Cingular. We do
not think Kempner would be irreparably harmed from refraining from that limited scope of activity.

Second, enforcing this restriction would still allow Kempner access to a broad Chicago area

marketplace, in which the number of potential customers for cellular services dwarfs the number of

Subscribers to whom Kempner would be prohibited from marketing competitive services for a one-
year period. Thus, we see no likelihood that enforcing this restriction would force Kempner out of
business altogether.

Shifting to the Cingular side of the question, the Court finds that Cingular has made a
showing that it would suffer irreparable harm if those portions of the non-compete provisions that
the Court finds likely will be enforceable are not preliminarily enforced pending trial. Preliminarily
enjoining Kempner from using the Cingular name or affiliation pending trial is necessary to prevent
Cingular from losing control over its name and goodwill. See Meridian Mut. Ins. Co. v. Meridian
Ins. Group, Inc., 128 F.3d 1111, 1114, 1117 (7" Cir. 1997). Moreover, the Court agrees that the
harm that would result from Kempner selling to Cingular Subscribers that Kempner originally

activated might prove irreparable, for several reasons.

54


For these reasons, we find it likely that Kempner benefitted from having a three-month period
in which he simultaneously sold Cingular and competitive services in two different ways. First, by
continuing to market his association with Cingular at the same time he was marketing associations
with competitors, Kempner was able to increase the potential pool of customers; and second, with
respect to some of those Subscribers of Cingular services, he was able to sell competitive products
to them. This benefit to Kempner is further highlighted by the evidence that after August 2002,
when Kempner was no longer able to sell Cingular services, Kempner’s sales of the other carriers’
services and products fell off substantially. In August 2002, Kempner sold 142 new activations for
the products and services of Cingular’s competitors; in the following three months, Kempner sold
only 96, 76, and 93 new activations, respectively (PX 48).

Kempner has offered evidence that the Subscribers have more loyalty to Kempner than to
Cingular (see, e.g., PX 38, 39), and that Kempner did not influence them to obtain competitive
services (see Stipulation Regarding Testimony of Lili Donio, Danny Zivin). In the Court’s view, that
evidence is relevant to assessing the extent of the benefit obtained by Kempner from being able to
develop subscriber relationships through his affiliation with Cingular. But, the evidence fails to
show that Kempner derived no benefit from that affiliation.

1 Cingular’s Enforcement of Exclusivity Provisions Against Other Dealers/Agents.

According to the evidence, Cingular’s practice is to require exclusivity only for dealers and
agents who market post-paid services, Cingular generally does not require exclusive arrangements
for “big box” retail outlets or for dealers that sell only pre-paid services (see PX 6; 01/29/03 Tr. 360-
361, 465 (Flack)). In pointing out the reasons for that distinction, Cingular presented evidence that:

(1) although national retailers offer pre-paid and post-paid services, they do not receive residual

27



enrolled by Kempner, and (2) from using its own name, mark and goodwill in doing so. Conversely,
we find that Cingular has established likelihood of success and irreparable harm from the failure to
enforce those portions of the non-competition provisions that prohibit Kempner from using
Cingular’s name, goodwill and confidential information, and that bar Kempner from marketing
competitor’s services to persons who were active Cingular Subscribers as of July 23, 2002 and who
originally were enrolled by Kempner. The Court further finds that Kempner has established
likelihood of success and irreparable harm on the question of return of the $50,000 in commission
that the Court ordered paid in August 2002. Accordingly, on these points we turn to the final
elements of the preliminary injunction analysis:, balance of the hardships and public interest.
A.

The Court finds that, with respect to those portions of the non-competition provisions that
the Court holds are likely to be found reasonable at trial, the balance of hardships favors Cingular.
If these provisions are not enforced, Cingular runs the risk of losing the ability to control its name,
marks, goodwill, and Subscriber information, as well as Subscriber relationships that may be
difficult to regain in the future. To the extent that this harm could be quantified and reduced to a
damage award were Cingular to prevail at trial, that remedy is uncertain given Kempner’s evidence
conceming its precarious economic situation. The harm Cingular would suffer outweighs the harm
that Kempner would experience from the enforcement of these provisions. According to Kempner’s
testimony, it already is complying with most of the provisions that the Court finds are likely to be
found reasonable at trial. Enforcing the limitation prohibiting Kempner from soliciting Cingular
Subscribers who Kempner originally activated and who remained active as of July 23, 2002 is not

a substantial burden on Kempner: as described above, from the evidence offered so far it appears

57


Kempner continued access to Cingular’s computer system. The Court also denied Kempner’s
motion to stay enforcement of the non-compete provisions of the 1999 Agreement as moot, because
the parties had agreed among themselves that any enforcement of the non-compete provisions would
be stayed pending the outcome of a preliminary injunction hearing. Finally, the Court granted the
temporary restraining order insofar as it sought to require payment by Cingular to Kempner of
$50,000 in commissions allegedly due and owing as of the date of the termination, based on
Kempner’s unrebutted submissions at that time showing some likelihood of success and irreparable
harm. Payment of that amount was conditioned on Kempner posting a $50,000 bond as security,
which Kempner subsequently provided.

At that time, with the agreement of the parties, the Court set September 26-27, 2002 for an
evidentiary hearing on Kempner’s motion for preliminary injunction, and for Cingular’s competing
motion for preliminary injunction to enforce the non-compete provisions of the 1999 Agreement.
That hearing later was continued by agreement of the parties to November 14-15, 2002, and then on
Kempner’s motion to January 9-10, 2003 (doc. # 17), and later to January 27-28, 2003 (doc. # 26).
At the joint request of the parties, the date for the preliminary injunction hearing then was adjusted
by one day, to take place on January 28-29, 2003 (doc. # 30).

During the more than five months between this Court’s ruling on plaintiff's renewed motion
for temporary restraining order and the commencement of the preliminary injunction hearing, the
parties engaged in substantial discovery. Prior to the preliminary injunction hearing, the parties
submitted proposed findings of fact and conclusions of law (doc. ## 36-37). In addition, Cingular
filed several motions in limine, which the Court ruled upon in advance of the hearing (doc. ## 30,

38). During the preliminary injunction hearing, the Court received into evidence some 72 exhibits,


Kempner has not offered evidence concerning what its normal commission stream would be, the
Court cannot determine whether the alleged failure to fully pay commissions — if proven — would
constitute a material breach of the contract.

Kempner’s best evidence of material breach is with respect to the claim that Cingular tried
to undermine Kempner’s business by deprivirig it of pricing that was given to company-owned
outlets, and by attempting to divert Subscribers. from Kempner to company-owned outlets. While
Cingular retained the right to compete with Kempner through company-owned stores, under the duty
of good faith and fair dealing Cingular had the obligation to exercise that right in a fair manner. See
Prudential Ins. Co. v. McCurry, 492 N.E.2d 1026, 1028 (Ill. App. 3d Dist. 1986). Whether the
evidence, as fully developed for trial, will show.that this conduct was a part of a purposeful plan
remains to be seen. But, at this preliminary phase, we believe the evidence is enough to show that
Kempner may be able to show that these acts were not merely aberrations. Thus, at the very least,
Kempner has a better than negligible chance of showing a material breach.

However, that does not translate into a better than negligible likelihood of success on the
theory that a material breach would excuse Kempner from complying with the non-compete
provisions. Certainly, a material breach by one party to a contract may provide the basis for the other
party to terminate the contract in its entirety. Indeed, that principle is recognized in the 1999
Agreement itself, which gave Kempner the right to terminate the 1999 Agreement inits entirety upon
a material breach by Cingular that was not cured within thirty days of notice (PX 1, [ 18(A)). In that
event, the 1999 Agreement specifically states that Kempner would “not be bound by the provisions

in Paragraph 20, Covenants Not To Compete” (/d.).

46


These restrictions not only likely exceed the scope of Cingular’s protectable interest, but
likely would be oppressive to Kempner. Barring Kempner from selling any competitive services is,
in effect, barring Kempner from engaging in its chosen line of business. The evidence shows that
the sale of cellular services constitutes seventy percent of Kempner’s business (01/28/03 Tr. 125
(Kempner)). It is reasonable to infer that a business that loses seventy percent of its revenue source
might not be able to survive for one year. While that harsh result may be required were it necessary
to safeguard Cingular’s protectable interest, we do not think that is the case here. Moreover, the
restriction that would in substance require Kempner to change its name and corporate identity in
order to sell competing service would cause Kempner to lose the identity that it has developed over
more than a decade, which may be of great utility to Kempner in selling the paging services and other
products and services that constitute the other thirty percent of his business.

In summary, on the question of the reasonableness of the restrictive covenant, we find that
Cingular has made a strong showing that the restrictive covenant is reasonable insofar as it bars
Kempner from using Cingular’s name, goodwill and other assets or property in selling competing
services, and bars Kempner — for a period of oné year in the Chicago six-county metropolitan area
- from selling services that compete with Cingular’s cellular services to Subscribers that Kempner
enrolled and who were active Cingular Subscribers as of July 23, 2002. However, we find that
Kempner has made a strong showing of likelihood of success that the restrictive covenant is
unreasonable insofar as it would bar Kempner from selling competitive services to persons who were
not active Cingular Subscribers that Kempner enrolled, or using Kempner’s own name, goodwill,
assets or property in engaging in that business activity. Moreover, while Kempner has shown that

these latter aspects of the non-compete likely exceed what is reasonably necessary to safeguard

44


381-382 (Flack)), Mr. Kempner testified that he utilized very few of those services, and he focused
more on the training sessions offered by cellular phone manufacturers (such as Motorola) than on
the characteristics and features of their products (01/28/03 Tr, 93 (Kempner)). Cingular also
provided information to Kempner on when particular Subscriber contracts were nearing expiration
or had recently expired, with the idea that Kempner could target those customers and attempt to
retain them or get them back (01/29/03 Tr. 380 (Flack); see also, DX 9, DX 61)). But, Kempner
denied that it used that information (01/28/03 Tr. 331-32 (Kempner)). Kempner did use the access
it was afforded to personnel at Cingular (to discuss complaints, to find out information about
shipments of goods or promotional opportunities, and to seek approval for special promotions), as
well as to a computer system (“Pos.com”) to facilitate the activation of customers from Kempner’s
business location (01/29/03 Tr. 385-389 (Flack)). Kempner also received information from Cingular
about promotional offerings (see DX 41-43, 45), schedules showing commissions payable on certain
offerings (DX 51), and regular residual commission reports (see, ¢.g., DX 60). These materials were
sent on a regular basis, but generally had little currency after one month or so (01/28/03 Tr. 92
(Kempner)).°

By no later than 2001, the relationship between the parties had soured — at least, from the

perspective of Kempner. Kempner had a number of complaints about the treatment it was receiving

$Cingular has suggested that “big box” retail outlets, which do not have exclusivity non-compete provisions in
their contracts with Cingular, do not receive all of the types of assistance provided to agents like Kempner, who have
those contractual provisions. The Court finds Cingular’s.evidence on this point unconvincing. The differences in
assistance provided to big box retailers, as compared to exclusive agents, appear to the Court to be largely a matter of
degree and not kind. Cingular provides training to big box retailers, although perhaps not of the same scope as to
exclusive agents (01/29/03 Tr. 381-383 (Flack); access to personnel (/d., at 385-386); and promotional materials (/d.
at 384, 391). While big box retailers do not get residual.commission reports (because they generally do not have
contracts that provide for residua{ commissions), they do receive commission statements that set forth much of the same
Subscriber information as is received by exclusive agents who have non-compete provisions (/d., 395-396).

14


confidential information provided by Cingular improperly or that Cingular otherwise has suffered
in the marketplace from Kempner’s activities.

Finally, turning to the question of Kempner’s alleged irreparable harm on the commission
claim, we note that Kempner has not made a strong showing that it is entitled to more than the
$50,000 that the Court ordered to be paid in August 2002 on a temporary basis. The question is
whether, in light of the rather weak showing that each side has made on the commission claims,
Kempner has established sufficient irreparable harm to warrant preliminary injunctive relief in the
form of keeping that $50,000 pending the outcome of the litigation. Although the question is a close
one, we believe that Kempner has made that showing. It certainly would have been preferable to
receive evidence that more concretely showed Kempner’s revenues, expenses and debt, so that the
Court could assess more thoroughly the impact the loss of this $50,000 would have on Kempner.
Nonetheless, the evidence shows that cellular sales constitute seventy percent of Kempner’s sales,
and that after August 2002, when Kempner no. longer was offering cellular services, its sales of
cellular services dropped by fifty percent or more from what they were when Kempner offered
Cingular’s services (PX 48). By any measure, that is a substantial drop, and Cingular has offered
no evidence to dispute plaintiffs testimony (01/28/03 Tr. 124 (Kempner)) that Kempner is in a
precarious economic situation.

Vv.

Based on the foregoing analysis, we find that Kempner has established likelihood of success
and irreparable harm from enforcement of the non-compete provisions insofar as they would bar
Kempner from (1) offering the cellular services of Cingular’s competitors to persons who were not

active Cingular Subscribers as of the termination on July 23, 2002 and who were not originally

56


location (DX 31). Cingular also offered other evidence of some sixteen other instances in which
Cingular approved stores that were located within.three miles of another existing Cingular outlet —
including some within one-half mile or less of each other (DX 64). In at least two instances, these
stores were opened within three miles of one another prior to 1995 (DX 64), while the three-mile
policy still was in effect - which is consistent with the evidence that the three-mile policy was never
a “hard and fast” rule (Klamer Dep. 62).

Third, the presence of a Cingular-owned, location within three miles of Kempner — the
Lincoln Town Center Mall location — does not strongly favor Kempner’s contention here. Kempner
complains that he was denied approval to open a store at the Lincoln Town Center Mall as far back
as 1994 (01/28 Tr. 24 (Kempner)), but that Cingular then opened an outlet at that location itself in
1998. Cingular offered evidence that it actually started using the Lincoln Town Center Mall location
as far back as October 1994, providing evidence of lease agreements dating from that point through
the present (DX 63). While Kempner argues that the existence of the leases does not show that the
space was actually used by Cingular prior to 1998 for the sale of its services and products, it would
certainly be reasonable to infer that Cingular did not pay tens of thousands of dollars in rent over a
four-year period for space that it did not utilize. .Moreover, Kempner testified that he last sought
approval for the Lincoln Town Center location in 1997 (01/28 Tr. 24-25) (Kempner)), long before
the signing of the 1999 Agreement and well outside the one-year contractual limitations imposed by

that agreement.®

‘Kempner also says that in September 2000, Cingular opened a location on Dempster Avenue two miles from
Kempner’s Touhy Avenue location (01/28/03 Tr. 37 (Kempnez)). No evidence was offered concerning the circumstances
of the opening of that location, which we also note occurred more than one year before Kempner filed its state court
complaint in May 2002.

16



Cingular or terminated early by Kempner or Cingular for one of the specified reasons in the 1999
Agreement.

On May 6, 2002, Kempner filed an eleyen-count complaint against Cingular in state court,
asserting various claims for breach of contract, and common law and statutory tort. In addition,
Kempner sought a declaration that Kempner was not bound by any of the terms of the 1999
Agreement, including its “exclusivity” and non-compete provisions (which, among other things,
prohibited Kempner from selling competitive services). Although filed in May 2002, the state court
complaint was not served on Cingular until late July 2002 — after Cingular learned that Kempner was
selling competitive products and then, on July 23, 2002, issued a notice terminating Kempner as an
agent under the 1999 Agreement. Kempner thereafter amended the state court complaint, and on
July 26, 2002, filed a motion for a temporary restraining order in state court.

Before a ruling on that motion, Cingular (after an initial misstep) successfully removed this
case to federal court (doc. # 1), and Kempner renewed in this Court its motion for preliminary relief
(doc. #2). Cingular responded with a motion to stay the action, pending the outcome of the private
mediation process required the 1999 Agreement (doc. # 3). On August 8, 2002, the district judge
then presiding in the case granted Cingular’s motion to stay, and compelled mediation of all claims
“except as to plaintiff's request for preliminary injunction, which will go forward to preserve the
status quo and prevent irreparable harm” (doc. # 4).

Pursuant to the consent of the parties (doc. ## 5-6), the case was then reassigned to this Court
for all proceedings pursuant to 28 U.S.C. § 636(c) (doc. #7). On August 21, 2002, the Court
considered Kempner’s renewed motion for a temporary restraining order. The Court denied that

motion insofar as it sought to stay Cingular’s termination of Kempner as an agent and to allow


The non-compete provisions were obtained from Kempner in consideration of certain benefits that
Kempner received under the 1999 Agreement, including the right to use Cingular’s marks and the
“great value of the goodwill” associated with.that right; the right to advertise affiliation with
Cingular; and the receipt of specialized, technical knowledge and other services to be supplied by
Cingular (PX 1, § 20). Moreover, the non-compete provisions effectuate the agreement that
Subscribers enrolled by Kempner through its affiliation with Cingular would become customers of
Cingular (/d., 4 3). The non-compete provisions in the 1999 Agreement thus were not just “naked
promises” not to compete, but were in furtherance of larger goals set forth in the contract between
the parties.

Second, in considering the reasonableness of the restrictions imposed, we have little trouble
finding that Kempner has not shown the requisite likelihood of success in establishing that the one-
year duration and six-county Chicago metropolitan geographical scope of the restrictions are
unreasonable. Non-compete agreements lasting for one year (or even more) have been upheld, see,
eg., Canfield v. Spear, 254 N.E.2d 433, 435 (1969) (upholding a three year non-compete
agreement); Bauer y. Sawyer, 134 N.E.2d 329, 331-32, 355 (Ill. 1956) (upholding a five year non-
compete agreement), and the evidence in this case does not indicate that a one-year duration is
unreasonable. The average length of the contracts entered into between Cingular and its customers
for post-paid services is one year, and customers on average remain in arelationship with a particular
carrier for four years (01/29/03 Tr. 558 (Nelson)). Moreover, the geographical scope of the non-
compete provisions corresponds with the counties in which Cingular does business. Midwest
Television, Inc. v. Oloffson, 699 N.E.2d 230, 235 (Ill. App. Ct. 3d Dist. 1998) (restrictive covenant

is reasonable if the restricted geographical is coextensive with the employer’s business territory).

37



itself out as a Cingular retail outlet and continuing to sell Cingular products and services for one
month after the termination, the only evidence offered was that Kempner was “confused” and
thought that because Cingular had not cancelled all its dealer codes and still sent Kempner some
promotional bulletins, Kempner was not sure it really had been terminated (/d.) (01/28/03 Tr. 96
(Kempner)). The Court finds that a more reasonable.inference to be drawn from the facts here is that
Kempner tried to keep its competitive activity secret and to keep the lawsuit from coming to a head
on the question of preliminary relief for as long as possible, so that Kempner would have the
maximum opportunity to continue to sell Cingular services while at the same time establishing itself
as a seller of the competitive services before the relationship with Cingular came to an end (and
before Kempner’s competitive activities were enjoined, if it came to that).

Kempner’s own evidence shows that Kempner benefitted from this period of concealment
and delay. From May through August 2002, Kempner’s total monthly sales remained relatively
consistent: 217 in May 2002, 259 in June 2002, 246 in July 2002 and 202 in August 2002 (PX 48).
What changed was the mix between sales of Cingular products and services, and those of Cingular’s
competitors. In May 2002, Kempner sold 190 Cingular new activations and replacements, and 37
new activations of competitors. In June 2002, Kempner sold 164 Cingular new activations and
replacements, and 95 new activations of competitor services and products, a ratio that remained
relatively consistent in July 2002 (157 and 89, respectively) (PX 48). In August 2002, when the
litigation heated up, the ratio changed dramatically: there were 60 Cingular new activations and
replacements, and 142 new activations of competitor services and products (PX 48). Even before
August, there was an important change in the pattern of sales. With respect to new activations, in

each month from May through July the number of Cingular activations decreased (from 73 in May,

25


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
KEMPNER MOBILE ELECTRONICS, INC., )
an Illinois corporation, )
)
Plaintiff, )
) No. 02 C 5403
vs. )
) Magistrate Judge Schenkier
SOUTHWESTERN BELL MOBILE )
SYSTEMS, LLC, d/b/a CINGULAR )
WIRELESS f/k/a/ SOUTHWESTERN BELL ) OGY ETED
MOBILE SYSTEMS, INC. d/b/a CELLULAR ) Dorabe dit
ONE-CHICAGO, ) MAR i 2 2003
)
Defendant. )

MEMORANDUM OPINION AND ORDER

This diversity lawsuit, originally filed in state court but then removed to federal court, arises
out of disputes between the parties concerning their business relationship. Plaintiff, Kempner
Mobile Electronics, Inc. (“Kempner”), an Illinois corporation with its principal place of business in
Illinois, is engaged in the marketing and sale of, among other things, cellular telephone products and
services. Defendant (which, for simplicity, we. will refer to as “Cingular’), a Delaware limited
liability corporation with its principal place of business in Georgia, is involved in the development,
establishment and sale of cellular telephones and services in various parts of the United States,
including the Chicago metropolitan area. In late 1999, Kempner and Cingular entered into an
Authorized Agency Agreement (“the 1999 Agreement”), which was the last of several written
agreements entered into by the parties dating back to the beginning of their relationship in 1989. By

its terms, the 1999 Agreement was to extend through December 31, 2002, unless extended by


b.

Kempner also argues that Cingular cannot enforce the non-compete provisions because it has
waived the contractual right to do so. We are not persuaded that Kempner has even a negligible
chance of succeeding on this point.

To establish a waiver, Kempner must show that Cingular’s actions in failing to enforce the
non-compete provisions amount to a complete disregard for those provisions. See, e.g., Surgidev
Corp. v. Eye Technology, Inc., 648 F. Supp. 661, 698 (D. Minn. 1986) (court found defendant had
waived its right to enforce non-compete provision after it “blithely ignored” provision with prior
employees); Midwest Television, Inc. v. Oloffson, 699 N.E. 2d 230, 237 (Ill. App. 3d 1999) (3d Dist.
1998) (adopting Surgidev waiver standard and holding that a question of fact existed as to whether
defendant employer waived the non-compete provision by selective enforcement). Kempner has not
persuaded the Court that it likely will satisfy that high standard. The evidence shows that Cingular
regularly insists on this provision in the contracts with agents who sell post-paid services. While
there is evidence that Cingular did not sue certain agents who breached those provisions, this
evidence does not satisfy, in this Court’s view, the “complete disregard” standard adopted in
Midwest. Because there is no other authority or evidence to support the waiver argument, the Court
finds that Cingular did not waive its legal right to enforce the non-compete provision against

Kempner.

49


meaning the consequences of granting or denying the injunction to non-parties.” Abbott Labs., 971
F.2d at 11-12. The Court then weighs all four factors, seeking to “minimize the costs of being
mistaken.” Abbott Labs., 971 F.2d at 11-12. See also American Hospital Supply Corp. v. Hospital
Products Ltd., 780 F.2d 589, 593-594 (7" Cir. 1985).

In this case, there are three separate requests for preliminary injunctive relief. First, Kempner
seeks a preliminary injunction to restrain Cingular from enforcing any aspect of the non-compete
provisions of the 1999 Agreement. Second, Cingular seeks a mirror image preliminary injunction,
restraining Kempner from taking acts that would violate any portion of the non-compete provisions
in the 1999 Agreement. Third, Kempner seeks.a preliminary injunction requiring payment by
Cingular of certain commissions and other monies that Kempner claims are due and owing.
Utilizing the principles set forth above, we turn to an analysis of each of these claims for preliminary
injunctive relief.!”

Wi.

We begin with the question of likelihood of success. The Seventh Circuit has held that a
movant must show “a reasonable likelihood of success on the merits,” which can be satisfied by
proof that the chance of prevailing at trial is better than negligible. Kinney v. Int.'l Union of
Operating Engineers, 994 F.2d 1271, 1275 (7" Cir. 1993). Under the “better than negligible”
standard, the “threshold is low” for establishing likelihood of success. Roland Machinery Co. v.

Dresser Industries, Inc., 749 F.2d 380, 387 (7" Cir. 1984). Thus, as this Court previously has

"Kempner also originally asked to enjoin termination of the 1999 Agreement prior to December 31, 2002, and
sought related preliminary relief in the form of access to certain computer equipment and systems that would be part and
parcel of the continuation of 1999 Agreement (see Pl.’s Renewed Motion for Preliminary Injunctive Relief, doc. #39,
at 6). The passage of time has rendered these aspects of Kempner’s request of preliminary injunctive relief moot, and
we therefore do not address them further.

33


Subscribers as of July 23, 2002 (i.e., the date of the termination letter), we believe that Kempner has
not made a better than negligible showing of likelihood of success that this restriction is
unreasonable,

c.

However, we view the remaining restrictions in the non-competition clause differently.
Those restrictions would bar Kempner, for a period of one year, from engaging in the sale or
promotion of cellular services on behalf of any Competing reseller or provider in the six-county
Chicago metropolitan area (PX 1,  20(3)); from attempting to influence any Cingular Subscriber
to acquire a service that competes with Cingular’s cellular service, even if that Subscriber was not
enrolled by Kempner (/d., {{] 20(1) (2) and (3)); and from using its own name, assets or property in
connection with a marketing of services that compete with Cingular’s cellular services (/d.,  20(4)).
We believe that Kempner has made a strong showing of likelihood of success on the proposition that
these various restrictions are unreasonable.

Barring Kempner from selling any competitive cellular services is both broader than is
necessary to protect Cingular’s legitimate interests, and oppressive to Kempner. As described above,
we believe Cingular likely will show that it has protectable interests in, at a minimum, its name and
goodwill, and that it allowed Kempner to use information that Kempner had about product offerings
and market plans, and Subscriber information that was known to Kempner only through his work
with Cingular. But, Kempner from selling any competing cellular product to anyone is not
reasonably tailored to protect those interests. The interest in protecting Cingular’s name and
goodwill is satisfied by the provision of Paragraph 20 barring Kempner from using those assets to

its advantage (PX 1, [20(4)). We see no reason to believe that Cingular’s name and goodwill would

42


commissions, which are paid to agents on exclusivé arrangements as part of the inducement to create
a closer affiliation with Cingular and to provide broader services; and (2) pre-paid service, which
is the only thing offered by non-exclusive dealers, constitutes only five percent or less of Cingular’s
business (/d., at 362-363).?

Kempner offered evidence that there are inconsistencies in Cingular’s implementation of its
stated practice of not providing residual commissions to “big box” retailers. Kempner offered
evidence that Cingular’s contract with Circuit City provides for payment of residual commissions
(PX 44, 6). In addition, Kempner offered evidence that for an extended period of time, Abt was
allowed to sell Cingular products and services under.an unwritten arrangement which provided for
residual commissions; that during the last year of this arrangement, Abt began selling wireless
service offered by competitors of Cingular; and_that ultimately Cingular entered into a written
contract that allowed Abt to continue to sell wireless service on a non-exclusive basis and provided
(01/29/03 Tr. 474-477 (Flack)) (PX 10).

Kempner’s evidence on this point tends to show that Cingular’s relationships with Abt and
Circuit City are exceptions to the rule, but not that.the rule — that is, that “big box” retailers do not
get residual commissions ~ does not exist. The evidence shows that the residual commission
structure gives agents an incentive to help the carrier retain customers and build more enduring
relationships with them which Kempner itself acknowledges helps Cingular retain Subscribers (DX

23, 4 10). This supports Cingular’s contention that it has a stronger interest in a non-compete

°Cingular also offered evidence that exclusive agents are privy to information and assistance that is not provided
to “big box” retailers (id., at 375-376). For the reasons stated above (see note 5, supra), we find that the evidence on
this latter point does not support Cingular’s assertion.

28


The 1999 Agreement provided that any “specifications, drawings, sketches, models, samples,
data, computer programs or documentation, or technical or business information (“Information”)
furnished or disclosed by (Cingular] to [Kempner] hereunder shall be deemed the exclusive property
of [Cingular]’” to be “retumed to [Cingular] upon completion or termination of authorized work (PX
1,933). In addition, the parties agreed that “Subscriber lists and related information or data are the
exclusive property of ({Cingular] and are to be used by [Kempner] solely in the performance of its
obligations and duties under the 1999 Agreement,” and that Kempner would return that information
to Cingular when the 1999 Agreement came to an end (Id.).

The 1999 Agreement contained a number of other terms of significance here. The agreement
provided for a process of private dispute resolution and mediation for all disputes that may arise
under that agreement - except for those relating to the non-compete provisions in Paragraph 20 (PX
1,435). As stated above, the 1999 Agreement contained a merger and integration clause (PX 1, J
28). The parties agreed that the 1999 Agreement “shall be interpreted under and governed by the
laws of the State of Illinois” (PX 1, {| 24). The parties further agreed that any suit or action
concerning the 1999 Agreement must be brought “within one (1) year after the underlying cause of
action accrues” (/d.). The 1999 Agreement also contained a severability clause (/d., 21), and
provided that to the extent the non-compete provisions in Paragraphs 4 or 20 might be deemed
unenforceable “by virtue of its scope in terms of area, business activity prohibited and/or length of
time, but could be enforceable by reducing any or all thereof, [Kempner and Cingular] agree that
same shall be enforced to the fullest extent permissible under the laws and public policies applied

in the jurisdiction in which enforcement is sought” (Zd.).

12


(a

Finally, we note that one who invokes the equity jurisdiction of the Court, as has Kempner,
must come to the Court with clean hands. Yugoslav-American Cultural Ctr., Inc. v. Parkway Bank
& Trust Co., 763 N.E.2d 360, 368 (ll. App. 3" Dist. 2001) (GREIMAN, dissenting on other
grounds). Aspects of Kempner’s conduct here give the Court concern about whether Kempner has
done so. Rather than utilize the provision that would allow Kempner to terminate the 1999
Agreement upon uncured material breaches by Cingular, Kempner took matters into its own hands.
Kempner signed contracts with four of Cingular’s competitors in May 2002, and began offering their
competitive services in May 2002, without ever telling Cingular. Kempner filed a state court
complaint against Cingular in May 2002, without serving the complaint or taking steps to bring it
to Cingular’s attention until late July 2002 — after Cingular learned of Kempner’s competitive
activity and terminated the 1999 Agreement. As the Court has found above, this conduct could be
interpreted as Kempner concealing information to buy itself time to establish relationships with
Cingular’s competitors, and to continue selling Cingular’s products as long as possible, before
litigation brought matters to ahead. And, Kempner’s own evidence shows that during the period
from May through July 2002, Kempner was able to continue selling a substantial number of Cingular
services at the same time he built up his sales of competitive services (PX 48). This is further reason
that we find that Kempner has failed to show a better than negligible chance of success on his theory

that the non-compete provision, even if valid, is not enforceable.

50



services to Cingular Subscribers. Under the 1999 Agreement, that gave Cingular cause to terminate
Kempner’s contract. In these circumstances, we do not believe Kempner can show a better than
negligible likelihood that it would prevail on the claim that Kempner was improperly terminated in
July 2002, and thus is entitled to continue to recéive residual commissions through December 31,
2002.

One other commission issue remains. After termination of the 1999 Agreement on July 23,
2002, Kempner continued selling Cingular products for approximately a month or so. During that
time, Kempner sold Cingular services and products to approximately 100 subscribers.'* According
to Mr. Kempner, he should have received $1 5,000 to $20,000 in commissions (01/28/03 Tr. 121-22
(Kempner)). But again, Kempner offers no explanation of how this figure was derived. Moreover,
no one has addressed the legal question of whether Kempner is entitled to commission for post-
termination sales (perhaps under a theory of quantum meruit), or whether Kempner is entitled to no
commission because the sales were made in the face of a termination letter and thus, at best,
Kempner acted as a volunteer. Because Kempneris the one seeking preliminary injunctive relief on
that claim, this failure prevents Kempner from proving a better than negligible likelihood of success
on this portion of the commission claim.

Iv.
We consider now the question of irreparable harm. The Court finds that Kempner has shown

it would suffer irreparable harm if those portions of the restrictive covenant which Kempner has a

‘We derive that number from PX 48. That exhibit shows that Kempner made 60 sales of Cingular products
in August 2002. It shows that he made 157 during the entire month of July 2002; if we assume an equal distribution
throughout the month, that would leave approximately 40 sales during the period in July after the termination letter was
sent,

$2


from Cingular. The complaints that Kempner focused on in the preliminary injunction hearing are
discussed below.

1. Store Locations.

The evidence from the hearing shows that, at least as of 1994, Cingular had a “three-mile”
policy, pursuant to which Cingular generally would not approve a sales location if it would be within
three miles of another Cingular authorized sales and service center (PX 15). Kempner claims that
Cingular applied this three-mile policy to deny “repeated requests” by Kempner to open additional
locations, but it ignored the policy in allowing Cingular’s company-owned stores to open locations
within three miles of Kempner’s store (see, eg., Pl.’s Proposed Findings, {ff 43-47). We find the
plaintiff's evidence on this point unpersuasive for several reasons.

First, while plaintiff established that it made several requests for store locations that were
denied, the evidence showed that, with one exception, all of the requests predated the 1999
Agreement and, indeed, took place more than one year before the contractual limitations period set
forth in the 1999 Agreement (PX 1,424). Moreover, the evidence showed that the only request that
Kempner made for an additional store location during the term of the 1999 Agreement was fora
location in Wilmette, Illinois that Kempner sought in April 2000 — which Cingular approved (DX
31).

Second, the evidence showed that the three-mile policy was changed by 1995 (see Boersma
Dep. 53-54), thereafter, Cingular looked more generally at the market penetration in a given area,
and thus could approve certain locations that were within three miles of another authorized sale and
service center (/d., at 54). And, indeed, the evidence showed that the Kempner location in Wilmette,

which Cingular approved in April 2000, was within three miles (albeit barely) of another Cingular

15