Court Opinion

ID: 2816998
Source: CourtListenerOpinion
Date Created: 2015-07-14 22:01:41.948561+00
Date Added: 2024-06-11T12:08:36.034045
License: Public Domain

In the

      United States Court of Appeals
                      For the Seventh Circuit
                          ____________________  

Nos.  14-­‐‑2132  &  14-­‐‑2243  
INSTANT  TECHNOLOGY  LLC,  
                                       Plaintiff-­‐‑Appellant,  Cross-­‐‑Appellee,  
                                        v.  

ELIZABETH  DEFAZIO,  et  al.,  
         Defendants-­‐‑Appellees,  Cross-­‐‑Appellant  (DeFazio  only).  
                          ____________________  

           Appeals  from  the  United  States  District  Court  for  the  
             Northern  District  of  Illinois,  Eastern  Division.  
              No.  12  C  491  —  James  F.  Holderman,  Judge.  
                          ____________________  

          ARGUED  MAY  22,  2015  —  DECIDED  JULY  14,  2015  
                    ____________________  

   Before   EASTERBROOK,   WILLIAMS,   and   HAMILTON,   Circuit  
Judges.  
    EASTERBROOK,  Circuit  Judge.  Instant  Technology  LLC  is  an  
information-­‐‑technology   staffing   firm.   It   helps   organizations  
looking   to   hire   tech   workers   find   tech   workers   looking   for  
jobs.   Instant’s   employees   work   in   either   “recruiting”   or  
“sales”:   the   first   group   finds   qualified   candidates   and   the  
second  group  pitches  them  to  the  hiring  organizations.  Both  
sets   of   employees   sign   agreements   in   which   they   promise  
2                                                  Nos.  14-­‐‑2132  &  14-­‐‑2243  

not   to   solicit   business   from   Instant’s   clients,   not   to   recruit  
Instant’s   employees   to   other   jobs,   and   not   to   disclose   the  
firm’s  sensitive  information  to  outsiders.  
     Elizabeth   DeFazio   served   as   Instant’s   Vice   President   for  
Sales  and  Operations  until  January  2012,  when  she  was  fired.  
She  already  had  a  position  lined  up  at  Connect  Search  LLC,  
a   new   tech-­‐‑staffing   firm   she   was   in   the   process   of   co-­‐‑
founding;  she  began  working  there  immediately,  along  with  
several   coworkers   she   persuaded   to   jump   ship   with   her.  
Connect  Search  opened  its  doors  in  February  2012  and  won  
business  from  several  of  Instant’s  recent  clients.  
     Instant   brought   this   suit   in   federal   district   court   against  
DeFazio   and   four   of   the   other   defectors   (among   other   peo-­‐‑
ple)  for  breaching  the  restrictive  covenants  in  their  employ-­‐‑
ment  agreements  (among  other  asserted  misdeeds).  DeFazio  
filed  a  counterclaim  alleging  that  Instant  breached  a  contract  
by   shortchanging   her   on   a   bonus.   Some   of   Instant’s   claims  
arose  under  the  federal  Computer  Fraud  and  Abuse  Act,  18  
U.S.C.   §1030;   the   district   court   heard   those   claims   under   its  
federal   question   jurisdiction,   and   it   exercised   supplemental  
jurisdiction  over  the  rest  of  the  case.  28  U.S.C.  §§  1331,  1367.  
After  a  bench  trial  the  court  concluded  that  no  one  is  liable  
to  anyone  else.  40  F.  Supp.  3d  989  (N.D.  Ill.  2014).  Instant  and  
DeFazio  filed  cross  appeals.  
      Instant  maintains  that  the  defendants  broke  their  promis-­‐‑
es   in   three   ways:   DeFazio   poached   employees   from   Instant  
in   violation   of   the   covenant   not   to   recruit;   the   defendants  
pitched  candidates  to  Instant’s  clients  in  violation  of  the  cov-­‐‑
enant   not   to   solicit;   and   they   pilfered   Instant’s   information  
about   specific   tech   workers   and   shared   it   with   Connect  
Search   in   violation   of   the   covenant   not   to   disclose.   The   dis-­‐‑
Nos.  14-­‐‑2132  &  14-­‐‑2243                                                      3  

trict  court  rejected  each  contention.  It  found  that  defendants  
did  not  leak  or  otherwise  misuse  Instant’s  proprietary  data.  
40  F.  Supp.  3d  at  1014–15.  Instant  asks  us  to  set  that  finding  
aside,  but  it  wasn’t  clearly  erroneous,  so  we  cannot.  Fed.  R.  
Civ.  P.  52(a)(6).  Instant  hired  a  forensic  computer  technician  
to   dig   up   dirt   on   DeFazio   and   her   confederates,   but   he   dis-­‐‑
covered   no   evidence   that   any   defendant   accessed   Instant’s  
information  after  leaving  the  firm.  The  defendants  must  have  
used   its   information   about   job   candidates,   Instant   presses,  
because  Connect  Search  got  off  the  ground  so  quickly;  DeFa-­‐‑
zio  left  at  the  beginning  of  January,  and  her  new  firm  began  
operations  toward  the  end  of  February.  But  the  district  court  
found   that   technology   professionals   looking   for   work   don’t  
keep   their   names   or   qualifications   secret;   they   publish   their  
credentials   on   websites   such   as   LinkedIn   and   respond   en-­‐‑
thusiastically  to  cold  calls  by  recruiters.  A  month  and  a  half  
would   have   been   plenty   of   time   for   a   legitimate   start—at  
least,   the   district   judge   did   not   clearly   err   in   finding   that   it  
would  have  been.  
     Defendants   admitted   breaching   the   covenants   not   to   so-­‐‑
licit   and   not   to   recruit,   but   the   court   held   those   provisions  
unreasonable   and   unenforceable   under   Illinois   law.   40  
F.  Supp.  3d  at  1013–14.  In  Illinois  a  restrictive  covenant  in  an  
employment  agreement  is  valid  only  if  it  serves  a  “legitimate  
business   interest”.   Reliable   Fire   Equipment   Co.   v.   Arredondo,  
2011  IL  111871  ¶17  (S.  Ct.  Ill.  Dec.  3,  2011).  The  district  court  
concluded   that   neither   covenant   did.   Tech-­‐‑staffing   firms   do  
not   build   relationships   with   clients   that   would   justify   re-­‐‑
stricting   their   employees   from   setting   out   on   their   own.   In  
fact,   the   court   found,   clients   show   barely   any   loyalty   to   the  
firms  they  use;  larger  organizations  routinely  request  service  
from  five  to  ten  firms  at  once,  and  a  firm  can  expect  compen-­‐‑
4                                                  Nos.  14-­‐‑2132  &  14-­‐‑2243  

sation  only  a  tenth  of  the  time  it  recommends  a  candidate  for  
a   position.   40   F.  Supp.  3d   at   1004,   1012.   Employees   of   tech-­‐‑
staffing   firms   also   aren’t   exposed   to   important   private   in-­‐‑
formation.  Instant  did  keep  data  about  qualified  IT  workers  
and   maintained   lists   of   candidates   likely   to   hit   the   market  
soon.  But  (as  we’ve  already  discussed)  the  court  found  that  
anybody   can   access   most   of   that   information   with   little  
work,  and,  given  that  most  good  candidates  find  jobs  quick-­‐‑
ly,   lists   of   active   candidates   have   short   shelf   lives.   Id.   at  
1012–13.  Instant  also  could  not  rely  on  its  interest  in  a  “stable  
workforce”  to  justify  a  covenant  not  to  recruit.  Its  workforce  
was  never  stable;  77%  of  the  people  who  worked  there  two  
years  before  the  trial  left  in  the  interim.  Id.  at  1013–14.  
   Instant   now   argues   that   the   district   court   performed   the  
wrong  analysis.  Reliable  Fire  holds  that  the  existence  of  legit-­‐‑
imate  business  interests  turns  on  the  “totality  of  the  circum-­‐‑
stances”.   2011   IL   111871   at   ¶¶  40–43.   The   district   court   dis-­‐‑
cussed  only  three  circumstances:  the  strength  of  the  relation-­‐‑
ships  between  Instant’s  employees  and  its  clients,  the  confi-­‐‑
dentiality   of   Instant’s   data,   and   the   stability   of   Instant’s  
workforce.   That’s   not   the   totality   of   the   circumstances,   In-­‐‑
stant  insists.  
   Instant’s   first   problem   is   that   it   doesn’t   identify   any   cir-­‐‑
cumstance  that  the  district  court  should  have  considered  but  
didn’t.   It   instead   argues   that   the   court   misjudged   the   cir-­‐‑
cumstances   it   did   consider,   pointing   to   testimony   that   In-­‐‑
stant’s  sales  force  had  to  woo  clients  at  dinners  and  that  In-­‐‑
stant  paid  money  to  build  its  candidate  lists.  But  the  defend-­‐‑
ants  presented  heaps  of  contradictory  testimony.  The  district  
court  was  entitled  to  find  the  way  it  did.  
Nos.  14-­‐‑2132  &  14-­‐‑2243                                                    5  

     Instant’s   second   problem   is   more   fundamental.   It   thinks  
“totality   of   the   circumstances”   means   “all   of   the   circum-­‐‑
stances”—that   a   district   court   commits   reversible   error   by  
limiting  its  discussion  to  those  circumstances  it  deems  mate-­‐‑
rial.   That’s   an   understandable   reading   given   the   slippery  
formulation,  but  it  cannot  be  correct.  “All”  circumstances  is  a  
lot  of  circumstances—indeed,  infinitely  many.  Few  matter  to  
the   question   whether   a   restrictive   covenant   is   reasonable,  
and  even  fewer  matter  enough  that  it  would  be  a  reversible  
error   for   the   district   court   to   omit   them   from   its   findings.  
The  court  didn’t  discuss  the  price  of  eggs  in  Guatemala,  but  
that  does  not  require  a  remand.  
    A   “totality   of   the   circumstances”   standard   is   a   grant   of  
discretion.   Milwaukee   Chapter   of   the   N.A.A.C.P.   v.   Thompson,  
116  F.3d  1194,  1197  (7th  Cir.  1997).  If  the  trier  of  fact  identi-­‐‑
fies   the   right   standard   and   considers   the   most   pertinent   in-­‐‑
formation,   a   reviewing   court   should   not   second-­‐‑guess   its  
conclusions   unless   they   are   clearly   wrong.   Here   the   district  
court   identified   the   standard   from   Reliable   Fire—40   F.  
Supp.  3d  at  1012  (“The  existence  of  a  legitimate  business  in-­‐‑
terest   turns   on   the   totality   of   the   circumstances   of   each   case”)  
(emphasis  added)—and  analyzed  facts  that  courts  in  Illinois  
have   identified   as   important.   See,   e.g.,   Lawrence   and   Allen,  
Inc.  v.  Cambridge  Human  Resource  Group,  Inc.,  292  Ill.  App.  3d  
131,  141–42  (2d  Dist.  1997)  (permanence  of  relationships  with  
customers   and   access   to   confidential   information   affect   the  
enforceability   of   restrictive   covenants);   Office   Mates   5,   North  
Shore,   Inc.   v.   Hazen,   234   Ill.  App.  3d   557,   573–75   (1st   Dist.  
1992)  (same).  Its  conclusions  were  permissible.    
   Making  validity  turn  on  “the  totality  of  the  circumstanc-­‐‑
es”—which   can’t   be   determined   until   litigation   years   after  
6                                                      Nos.  14-­‐‑2132  &  14-­‐‑2243  

the   events—makes   it   hard   to   predict   which   covenants   are  
enforceable.   If   employers   can’t   predict   which   covenants  
courts  will  enforce,  they  will  not  make  investments  that  may  
depend   on   covenants’   validity,   and   they   will   not   pay   em-­‐‑
ployees  higher  wages  for  agreeing  to  bear  potentially  costly  
terms.  Both  employers  and  employees  may  be  worse  off  as  a  
result.  Risk-­‐‑averse  employees  who  hope  that  their  covenants  
will   be   unenforceable,   but   fear   that   they   will   be   sustained,  
may  linger  in  jobs  they  would  be  happier  (and  more  produc-­‐‑
tive)  leaving.  But  our  rule  of  decision  comes  from  state  law.  
Erie  R.R.  v.  Tompkins,  304  U.S.  64  (1938).  Reforming  that  law,  
or  trying  to  undermine  it,  is  beyond  our  remit.  
     As   for   DeFazio’s   counterclaim:   Instant’s   CEO,   Rona  
Borre,  sent  DeFazio  a  letter  in  late  2010  describing  the  terms  
of   DeFazio’s   job   for   the   next   year.   In   a   section   captioned  
“Sales  Goal  [sic]”,  the  letter  reads:  
        Specific  performance  objectives  are  as  follows  —  
      •   2011  revenue  goal  —  21.75MM  with  27%  GPM  
      •   2011  net  income  goal  —  1.3M  
                º  Revenue  (50%)  
                º  Net  income  (35%)  
                º   Perm   Division   must   achieve   600K   in   gross   revenue  
                (15%)  

The   next   section,   captioned   “Salary   and   Performance   Bo-­‐‑
nus”,   states   that   DeFazio   is   “eligible   for   $120,000   in   perfor-­‐‑
mance   bonus   when   Instant   Technology   achieves   the   above  
stated  company  revenue  and  net  income  goals.”  
  Instant  met  the  net  income  goal  but  not  the  revenue  goal.  
DeFazio  argues  that  the  nested  list  of  percentages  shows  she  
was  entitled  to  partial  credit;  the  firm  met  the  “net  income”  
mark,   so   she   deserved   35%   of   $120,000   ($42,000).   Instant  
Nos.  14-­‐‑2132  &  14-­‐‑2243                                                     7  

paid   DeFazio   only   a   $10,000   bonus   in   2011.   DeFazio   wants  
the  difference.  
    But  the  district  court  thought  the  list  of  percentages  am-­‐‑
biguous.   A   plaintiff   may   recover   even   for   breach   of   an   am-­‐‑
biguous  term  if  she  demonstrates  with  evidence  that  her  pre-­‐‑
ferred  interpretation  is  correct.  Air  Safety,  Inc.  v.  Teachers  Re-­‐‑
alty  Corp.,  185  Ill.  2d  457,  462–63  (1999).  But  the  district  court  
found  that  DeFazio  failed  to  do  so.  40  F.  Supp.  3d  at  1022.  
      DeFazio  points  out  that  Illinois  law  treats  a  term  as  “am-­‐‑
biguous”   only   if   it   is   “susceptible   to   more   than   one   mean-­‐‑
ing”,  Thompson  v.  Gordon,  241  Ill.  2d  428,  441  (2011),  and  that  
Instant   hasn’t   proposed   any   other   reasonable   interpretation  
of   the   list   of   percentages.   True   enough.   But   the   problem   is  
not  that  the  list  is  susceptible  to  more  than  one  meaning;  it’s  
that  the  list  is  not  susceptible  to  even  one  meaning.  It  is  a  set  
of   fragments.   Sometimes   context   illuminates   Delphic   pas-­‐‑
sages,   but   it   offers   no   support   in   this   case.   If   the   list   was  
supposed  to  indicate  that  DeFazio  should  receive  partial  bo-­‐‑
nuses  for  achieving  only  some  of  her  goals,  why  did  it  come  
under   the   heading,   “2011   net   income   goal   —   1.3M”   rather  
than  next  to  the  statement  that  DeFazio  could  earn  $120,000  
in  bonus  compensation?  And  why  did  “Revenue  (50%)”  and  
“Perm  Division  must  achieve  600K  in  gross  revenue  (15%)”  
come  under  the  “net  income  goal”  heading,  given  that  reve-­‐‑
nue   differs   from   net   income?   Borre   may   have   intended   to  
convey   that   DeFazio   would   receive   a   partial   bonus   for   par-­‐‑
tial   accomplishment.      But   the   letter   does   not   say   that,   and  
DeFazio   has   not   established   its   meaning   with   other   evi-­‐‑
dence.   She   bears   the   burden   of   persuasion   on   the   claim,   so  
she  loses.  
                                                                        AFFIRMED