the district court found that a technology staffing firm won business ten percent of the time once a client included the firm in its network, yet past relationships with clients were not a “reasonable expectation” of future business under Illinois law
How later courts described this case
- the district court found that a technology staffing firm won business ten percent of the time once a client included the firm in its network, yet past relationships with clients were not a “reasonable expectation” of future business under Illinois law
- "Courts in this district consistently agree ... that costs not related to computer impairment or computer damages are not compensable under the CFAA."
- “In Illinois a restrictive covenant in an employment agreement is valid only if it serves a legitimate business interest.”
Written by the judges who cited it.
The opinion
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