In the

United States Court of Appeals

For the Seventh Circuit

No. 99-1700

JIM LIAUTAUD, an individual 

and JIMMY JOHN’S INCORPORATED, 

an Illinois Corporation,

Plaintiffs-Appellants,

v.

MICHAEL LIAUTAUD, an individual,

Defendant-Appellee.

Appeal from the United States District Court

for the Central District of Illinois.

No. 95 C 2133--Harold A. Baker, Judge.

Argued January 12, 2000--Decided July 20, 2000

 Before POSNER, Chief Judge, and COFFEY and RIPPLE,

Circuit Judges.

 RIPPLE, Circuit Judge. Jim Liautaud, upon

request, provided his cousin, Michael Liautaud,

with the secrets behind his successful sandwich

shop business. To protect himself, he proffered

to Michael a noncompetition agreement, which

prevented Michael from expanding his new business

beyond the Madison, Wisconsin, market. Michael

agreed to the terms of the agreement; however, he

later violated it by expanding his business into

other parts of Wisconsin. This lawsuit followed.

 Jurisdiction in this suit is based on diversity

of citizenship under 28 U.S.C. sec. 1332. The

amount in controversy exceeds $50,000,/1 and the

parties are of diverse citizenship./2 The

parties do not dispute that the applicable law is

Illinois state law. The district court granted

summary judgment for Michael and, for the reasons

set forth in this opinion, we affirm the judgment

of the district court.

I

BACKGROUND

A. Facts

 Jim Liautaud owns and operates a chain of

gourmet submarine sandwich shops in Illinois
called Jimmy John’s, Inc. He claims that the

secret behind the success of his shops is a

combination of his style of preparing the

sandwiches and of his business strategies. 

 In 1988, Jim’s cousin, Michael, approached Jim

about opening his own submarine sandwich shop in

Madison, Wisconsin. Jim agreed to provide Michael

with his "secrets of success" so that Michael

could open Big Mike’s Super Subs. Pursuant to his

offer to help, Jim sent Michael a letter

outlining the agreement between the cousins. The

letter states as follows:

 I want to confirm at this time exactly what we

agreed on so that it is clear and understood by

both parties.

 The agreement:

 1. Mike will open up a sub shop in Madison using

Jimmy John’s products and systems.

 2. Mike can open up as many shops [as] he would

like in Madison only.

 3. If you want to expand the sub/club business

beyond Madison you will do so using Jimmy John’s

sub shops as a partner or franchisee. This is

subject to 100% agreement on both parties. If you

don’t use Jimmy John’s Inc. you will not expand

the sub/club business beyond Madison.

 4. You will not disclose to any one: recipes,

products or systems that are given to you.

(Except your managers who run your store).

 I believe thats [sic] what we agreed on. If I

have made any misrepresentations of our agreement

please correct them in the margin of this letter

and return a copy to me. If I don’t receive a

copy I’ll assume this letter to be the agreement.

R.1, Ex.A. Michael returned the letter to Jim

and, in handwriting at the bottom, wrote: "Jimmy,

If I agree on all items stated above, you must

agree that you (Jimmy Johns Inc.) won’t enter the

Madison WI market." Id.

 Jim then helped Michael open a sandwich shop in

Madison. In 1991, Michael opened a sandwich shop

outside Madison, in LaCrosse, Wisconsin, in

violation of the cousins’ agreement. Although the

cousins attempted to reach a franchise agreement,

it never materialized. Jim thereafter filed this

action against Michael to enforce the terms of

their agreement and for unjust enrichment.

B. Holding of the District Court

1.

 The district court held that the "agreement"
between the cousins constituted a "classic

noncompetition covenant." R.65 at 3. For a

noncompetition agreement to be valid under

Illinois common law, the court explained, the

covenant must be: (1) ancillary to a valid

transaction or relationship and (2) reasonable in

scope.

 The court addressed first whether the covenant

was ancillary to a valid transaction or

relationship. Although the typical noncompetition

agreement stems from an employment relationship

or from the sale of a business, the court found

that a valid relationship existed here because

Jim intended the trade secrets to be a gift and

Michael accepted them as such. The court stated

that "[a] gift certainly creates a valid

relationship imposing rights and obligations on

both parties, just as do employment relationships

and where money is paid for a business or some

part of it." Id. at 5. Therefore, according to

the court, the trade secrets that Jim provided to

Michael were a gift and not for the mere sake of

obtaining a covenant not to compete. Thus, the

court concluded that the covenant not to compete

was ancillary to the gift relationship. 

 Next, the court questioned whether the covenant

not to compete was reasonable in its scope. The

court explained that "[t]o be deemed reasonable,

a noncompetition agreement must not be greater

than necessary to protect the seller, oppressive

to the buyer, or injurious to the public." Id. To

be enforceable, the court clarified, the

agreement must be reasonable in time, in

geographical scope, and in the activities

restricted. As the court noted, absolutely no

durational or geographical limits [other than the

restriction that Michael remain in Madison]

existed on Jim’s and Michael’s noncompetition

agreement. Also, according to the court, Jim had

not explained why such stringent limitations were

justified. Therefore, the court found that the

covenant was unreasonable because it was overly

restrictive and, thus, that it was void as

against public policy.

2.

 The district court also held that Jim was not

entitled to restitution because of unjust

enrichment. First, the court determined that Jim

was not entitled to damages for unjust enrichment

for Michael’s use of Jim’s trade secrets in his

Madison shops because the trade secrets were a

gift. Next, the court discussed the availability

of damages for unjust enrichment for Michael’s

use of Jim’s trade secrets outside of Madison.

The court explained that unjust enrichment does

not apply when an agreement is unenforceable
because it is illegal or contrary to public

policy. Because it had concluded that the

noncompetition agreement was void as against

public policy, the court held that Jim could not

receive damages for Michael’s use of the trade

secrets in his shops outside Madison, Wisconsin.

II

DISCUSSION

A. Standard of Review

 We review a grant of summary judgment de novo

and draw all reasonable inferences in favor of

the nonmoving party. See Hill v. American Gen.

Fin., Inc., No. 99-2682, 2000 WL 536670, *2 (7th

Cir. May 4, 2000). "Under Illinois law, when the

basic facts are not in dispute, the existence of

a contract is a question of law." Echo, Inc. v.

Whitson Co., 121 F.3d 1099, 1102 (7th Cir. 1997);

accord Burgess v. J.C. Penney Life Ins. Co., 167

F.3d 1137, 1139 (7th Cir. 1999) (explaining that

when the question on appeal is the interpretation

of the terms of a contract, it is a question of

law that is subject to plenary review). More

specifically, "[t]he question of whether a

restrictive covenant is enforceable or not is a

question of law." Lawrence & Allen, Inc. v.

Cambridge Human Resource Group, Inc., 685 N.E.2d

434, 440 (Ill. App. Ct. 1997); accord Applied

Micro, Inc. v. SJI Fulfillment, Inc., 941 F.

Supp. 750, 753 (N.D. Ill. 1996). 

 "A contract is to be construed strictly against

the drafter." Sharon Leasing, Inc. v. Phil Terese

Transp., Ltd., 701 N.E.2d 1150, 1157 (Ill. App.

Ct. 1998); see also Brian Properties, Inc. v.

Burley, 662 N.E.2d 522, 524 (Ill. App. Ct. 1996);

accord Advance Process Supply Co. v. Litton

Indus. Credit Corp., 745 F.2d 1076, 1079 (7th

Cir. 1984). Also, "[b]ecause Illinois courts

abhor restraints on trade, restrictive covenants

are carefully scrutinized." Prairie Eye Ctr.,

Ltd. v. Butler, 713 N.E.2d 610, 613 (Ill. App.

Ct. 1999); see also Gillespie v. Carbondale &

Marion Eye Ctrs., Ltd., 622 N.E.2d 1267, 1269

(Ill. App. Ct. 1993).

B. Validity of the Noncompetition

Agreement

1.

 Under Illinois law, "[a] ’naked’ promise by one

merchant not to compete against another merchant

is against public policy because it injures the

public and the promisor, while at the same time

it serves no protectible interest of the

promisee." Abel v. Fox, 654 N.E.2d 591, 596 (Ill.

App. Ct. 1995). In order for a noncompetition

agreement to be valid, therefore, it must be

ancillary to a valid transaction, such that the
covenant not to compete is subordinate to the

main purpose of the transaction. See id. at 593.

Although noncompetition agreements typically stem

from an employment relationship or from the sale

of a business, another valid transaction may

support a covenant not to compete. The Supreme

Court of Illinois has stated that a valid

restraint on trade may be based on a purchase or

sale of a business or "any other analogous

circumstance giving one party a just right to be

protected against competition from the other."

More v. Bennett, 29 N.E. 888, 891 (Ill. 1892). 

 Although Jim urges that we characterize the

transaction as a franchise agreement, we believe

that the arrangement is more accurately

characterized as a gift. "A gift is a voluntary

gratuitous transfer of property from donor to

donee where the donor manifests an intent to make

such a gift and absolutely and irrevocably

delivers the property to the donee." In re Estate

of Poliquin, 617 N.E.2d 40, 42 (Ill. App. Ct.

1993). We believe that there is no question that

Jim intended to provide Michael with the gift of

the "secrets of his success." Also, the parties

do not dispute that Jim delivered his gift to

Michael and that Michael accepted Jim’s gift.

Thus, the parties entered a valid gift

relationship. The donor in a gift relationship,

when the gift is trade secrets, is providing the

donee with valuable advice for free. The donor

may wish to protect both his generosity and his

business interests from exploitation; therefore,

he may desire to impose a covenant not to compete

on his donee. See More, 29 N.E. at 891. Here, the

covenant not to compete was ancillary to the gift

transaction between Jim and Michael: The gift

from Jim to Michael was the essential element of

the transaction, and the noncompetition agreement

was subordinate to the main purpose of that

transaction. Thus, because the gift relationship

is a valid relationship or transaction and the

noncompetition agreement is subordinate to that

relationship, the noncompetition agreement meets

the first requirement that it be ancillary to a

valid relationship or transaction.

2.

 The next question is whether the scope of the

noncompetition agreement is reasonable, a

determination which is based on the facts and

circumstances of the particular case. See

Eichmann v. National Hosp. & Health Care Servs.,

Inc., 719 N.E.2d 1141, 1143 (Ill. App. Ct. 1999);

Lawrence & Allen, 685 N.E.2d at 441; Weitekamp v.

Lane, 620 N.E.2d 454, 462 (Ill. App. Ct. 1993).

For this restrictive covenant to be reasonable,

its terms (1) must not be greater than necessary

to protect Jim, (2) must not be oppressive to
Michael, and (3) must not be injurious to the

general public. See Decker, Berta & Co. v. Berta,

587 N.E.2d 72, 76 (Ill. App. Ct. 1992); see also

Lawrence & Allen, 685 N.E.2d at 441; Abel, 654

N.E.2d at 593; Weitekamp, 620 N.E.2d at 462;

Howard Johnson & Co. v. Feinstein, 609 N.E.2d

930, 934 (Ill. App. Ct. 1993); accord Applied

Micro, 941 F. Supp. at 753. 

 Jim asserts first that, given the nature of his

business and the trade secrets involved, the

restraint on Michael’s expansion was necessary to

protect his business interests. He explains that

his trade secrets are the fundamental elements of

his business success and that providing Michael

with access to these secrets, without

compensation for Jim, is fundamentally unfair.

Next, Jim argues that the restrictions were not

oppressive to Michael because (1) he provided the

trade secrets to Michael for free, (2) Michael

could expand outside Madison in any business

other than the submarine sandwich business, and

(3) Michael could expand his submarine sandwich

business outside Madison, as long as he used

Jimmy John’s, Inc. as a partner. Finally, Jim

asserts that not enforcing the covenant would be

injurious to the public because it would restrict

the freedom of parties to contract.

 Conversely, Michael submits that the

noncompetition agreement was unreasonable.

According to Michael, Jim does not have a

legitimate business interest in preventing

Michael from establishing submarine sandwich

shops where Jim is not located. Also, the

geographical restriction is not reasonable,

Michael claims, because the restriction prevents

Michael from expanding anywhere in the world

besides Madison, Wisconsin.

 In our view, under Illinois common law

principles, the covenant here is overly broad

because there is an unnecessarily stringent

geographic restriction on the promisor, Michael,

and no temporal restriction whatsoever. These

restrictions are not necessary to protect Jim’s

business interest, are oppressive to Michael, and

are injurious to the public. Generally, in a

covenant not to compete, the agreement restricts

competition within a certain town or city or

within a defined radius from the promisee’s own

business. See, e.g., Prairie Eye Ctr., 713 N.E.2d

at 612 (upholding an agreement which restricted

the promisor from competing within specified

cities as well as within a 10-mile radius from

certain other cities); Gillespie, 622 N.E.2d at

1270 (enforcing a 50-mile radius restriction on

competition with a medical practice); Weitekamp,

620 N.E.2d at 462 (allowing an agreement with a

300-mile radius limit); Decker, Berta & Co., 587
N.E.2d at 76 (sanctioning a covenant with a 35-

mile radius restriction). Although a lack of

geographic limits is not per se unreasonable, the

complete bar on competition needs to be

reasonably related to the promisee’s interest in

protecting his own business. See Eichmann, 710

N.E.2d at 1147; Lawrence & Allen, 685 N.E.2d at

441. 

 Here, Michael is prevented from expanding

anywhere in the world outside of Madison.

Although this may seem to be an exaggeration of

what the parties expected in reality, we can only

read the plain language of the agreement, and in

its terms the covenant not to compete does not

contain any geographic limitations. Jim’s

articulated legitimate business interest,

protection of his trade secrets, does not show

why Michael should not be able to expand to

locations other than Madison, even when Jim is

not in those locations. Jim has not indicated

that he plans to expand into the markets where

Michael is located. Also, Michael has not

suggested that he plans to expand to places where

Jim already is located. Generally, courts will

uphold a restriction on competition that is

coextensive with the area where the promisee is

doing business. See Lawrence & Allen, 685 N.E.2d

at 442. Jim has not demonstrated why expansion by

Michael in cities and states where Jim is not

located would injure Jim. 

 Moreover, the agreement is oppressive to Michael

because it restricts him from expanding his

sandwich business, regardless of whether he

continues to use Jim’s trade secrets. According

to the terms of the agreement, Michael could not

open any kind of sandwich shop outside Madison

without Jim’s approval. Finally, the complete ban

on expansion is injurious to the public because

it completely restricts competition. Although it

seems "fair" that Jim should receive some

compensation for Michael’s use of Jim’s trade

secrets, this noncompetition agreement, without

any geographic limitations, is not the reasonable

means of accomplishing that end.

 The agreement also fails to provide any limits

on time. Instead, the agreement, as written,

merely states that Michael may not expand his

business. Read literally, this means that Michael

may not expand his business beyond Madison for

the rest of his life. Illinois courts generally

have refused to enforce noncompetition agreements

that do not limit the duration of the

restriction. See Eichmann, 719 N.E.2d at 1148;

but see Storer v. Brock, 184 N.E. 868 (Ill. 1933)

(allowing an activity restriction for all time

within Chicago on retired physician because

physician received valuable consideration for
contract and could practice anywhere outside the

city). The length of time for the restriction

must be reasonably related to the needs of the

promisee’s business. See Eichmann, 719 N.E.2d at

1148; Lawrence & Allen, 685 N.E.2d at 442. For

example, in a business where client development

takes over a year, a restriction on competition

for one to two years is reasonable because of the

time it takes to cultivate a client. See, e.g.,

Prairie Eye Ctr., 713 N.E.2d at 612 (upholding a

two-year restriction because of the time needed

to cultivate patients); Gillespie, 622 N.E.2d at

1270 (enforcing a two-year restriction on

competition with a medical practice).

 Jim has not produced any reason for perpetually

restricting Michael’s ability to expand beyond

Madison. Even though it may take time to

establish a sandwich shop business and to attract

a sufficient customer base to make the venture

profitable, the time to accomplish this is not in

perpetuity. Jim has not shown that he needs to

prevent Michael from ever expanding beyond

Madison in order to protect his business

interests. Also, as stated above, under the

agreement, Michael is prevented from ever

expanding his shops, even if he develops his own

recipes and business strategies. Finally, this

infinite agreement injures the public because it

stifles competition. We conclude that, in light

of the severe and unnecessary restrictions on

Michael, this covenant not to compete is

unreasonable and is, therefore, void as against

public policy.

C. Unjust Enrichment

 Jim also asserts that he has a claim of unjust

enrichment against Michael for the use of his

trade secrets in (1) Michael’s Madison shops and

(2) Michael’s shops outside of Madison. However,

the district court correctly held that a party

may not recover damages for unjust enrichment

pursuant to a gift relationship. See generally

Hartman v. Townsend, 523 N.E.2d 199, 202-03 (Ill.

App. Ct. 1988). Thus, Jim may not recover damages

for Michael’s use of the trade secrets in his

Madison shops. 

 We also agree with the district court that

Illinois law does not allow a claim for unjust

enrichment when the underlying contract has been

held to be void as against public policy. See

First Nat’l Bank v. Malpractice Research, Inc.,

688 N.E.2d 1179, 1186 (Ill. 1997); see also

Juneau Academy v. Chicago Bd. of Educ., 461

N.E.2d 597, 601 (Ill. App. Ct. 1984). Because the

noncompetition agreement is void as against

public policy, we cannot award Jim damages for

unjust enrichment under it. Thus, Jim cannot
receive damages for Michael’s use of his trade

secrets in Michael’s Madison shops or in his

shops outside Madison.

Conclusion

 For the foregoing reasons, we affirm the

judgment of the district court.

AFFIRMED

/1 The amount in controversy under 28 U.S.C. sec.

1332, since Jim filed his lawsuit, has changed

from in excess of $50,000 to in excess of

$75,000. This amendment does not apply

retroactively.

/2 Jim is a citizen of Illinois, and Jimmy John’s,

Inc. is incorporated in Illinois with its

principal place of business in Illinois. Michael

is a citizen of Wisconsin.