KW Plastics v. United States Can Co.

Full title: KW PLASTICS, et al., Plaintiffs, v. UNITED STATES CAN CO., Defendant…

Court: United States District Court, M.D. Alabama, Northern Division

Date published: Oct 6, 2000

CIVIL ACTION 99-D-286-N, CIVIL ACTION 99-D-878-N (M.D. Ala. Oct. 6, 2000)

Opinion

CIVIL ACTION 99-D-286-N, CIVIL ACTION 99-D-878-N.

October 6, 2000.

MEMORANDUM OPINION AND ORDER

DeMENT, United States District Judge.

Before the court is Defendants' Motion For Summary Judgment, which was filed in Case No. 99-D-878-N on August 21, 2000. Plaintiff filed its Response on September 7, 2000. After careful consideration of the arguments of counsel, the relevant law, and the record as a whole, the court finds that Defendants' Motion is due to be granted in part and denied in part.

I. JURISDICTION AND VENUE

The court exercises subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332 (diversity jurisdiction). Neither party contests personal jurisdiction or venue.

II. SUNMARY JUDGMENT STANDARD

A court considering a motion for summary judgment must construe the evidence and make factual inferences in the light most favorable to the nonmoving party. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). Summary judgment is entered only if it is shown "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. Civ. P. 56(c).

At this juncture, the court does not "weigh the evidence and determine the truth of the matter," but solely "determine[s] whether there is a genuine issue for trial." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 249-50 (1986) (citations omitted). This determination involves applying substantive law to the substantive facts that have been developed. A dispute about a material fact is genuine if a reasonable jury could return a verdict for the nonmoving party, based on the applicable law in relation to the evidence developed. See Anderson, 477 U.S. at 248; Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir. 1989).

The moving party bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. The burden then shifts to the non-moving party, which "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). An action will be dismissed when the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party. See id. at 587.

III. FACTUAL BACKGROUND

This case focuses on the existence and effect of an alleged confidentiality and non-competition agreement between the United States Can Company ("Plaintiff" or "U.S. Can") and KW Plastics ("Defendant" or "KW"), as well as numerous business.torts arising from the transactions between the two parties.

KW manufactures plastic paint cans and the resin needed to mold them. In early 1991, KW and Plastite Corporation (which was subsequently purchased and merged into U.S. Can) executed a confidentiality, non-competition, and non-disclosure agreement ("1991 Agreement"), as well as a subcontract for various items related to the sale and production of paint cans. The 1991 Agreement was to.expire April 3, 1996. (Pl. Ex. 2.) U.S. Can bought out Plastite in early 1995 and became the successor in interest to the 1991 Agreement. U.S. Can contends that its officials met with KW officials in August 1995 and discussed a possible extension of the 1991 Agreement.

U.S. Can alleges that the two parties verbally agreed to extend the 1991 Agreement for an additional five years. This new agreement ("1996 Agreement"), according to U.S. Can, was reduced to writing in July 1996. (Second Am. Compl. ¶¶ 21-24.) However, the 1996 Agreement is dated April 3, 1991, not July 1996. By its express terms, the 1996 Agreement expired in April 1996. (Pl. Ex. 1, 2.) U.S. Can contends that the 1996 Agreement's date of "April 3, 1991" is a drafting error, which does not reflect the true intent of the parties. (Moreau Aff.) KW says the date is accurate, and that it only signed the 1996 Agreement because it thought U.S. Can's lawyers wanted something retroactive to reflect its purchase of Plastite. (Campbell Aff. ¶¶ 77-91.)

The 1996 Agreement contains noncompetition provisions similar to those in the 1991 Agreement. (1996 Agreement ¶¶ 4.1-4.2.) It provides that, for a five-year period, KW Plastics

shall not manufacture, assemble or sell, nor cause to be manufactured assembled or sold, any product which has been or may: (a) include any feature or component that KW Plastics has been or may be manufacturing pursuant to the subcontract; or (b) be the same as or substantially similar to any of the Products (plastic paint containers); or (c) be competitive with any of the products.

In addition, the 1996 Agreement bars KW Plastics, for a five-year period, from entering into

any agreement, joint venture, or any licensing, teaming or other arrangement with, or acquire any ownership interest in, any third party whereby KW Plastics or such third party would manufacture, assemble, or sell, or cause to be manufactured, assembled or sold, any product which would: (a) include any feature or component that KW Plastics has been or may be manufacturing pursuant to the subcontract; or (b) be the same as or substantially similar to any of the Products (plastic paint containers); or (c) be competitive with any of the products.

The 1996 Agreement also has several confidentiality provisions, a modification clause, and a severability clause. Id. ¶¶ 3.1-3.3, 5.1) It is governed by the laws of the state of Illinois. (Id. ¶ 5.2.)

In consideration for KW's promises, U.S. Can agreed to "enter [ ] into good-faith negotiations" with U.S. Can "concerning the subject matter of the Subcontract" — referring to a long-term resin supply subcontract. ( Id. Preamble).

It is undisputed that the parties negotiated in good faith but never signed a subcontract. (Yurco's Dep. at 40-42.) It is also undisputed that, in both August 1995 and July 1996, KW officials had no intention of entering into negotiations to supply resin or other products to other companies. (Campbell Aff. ¶ 20.)

After U.S. Can purchased Plastite, representatives of U.S. Can and KW held several meetings to discuss issues including the pricing and availability of resin, as well as KW's production of plastic paint cans at its facility in California. (Def. Ex. 5 at 624-53.) U.S. Can contends that the parties had reached a verbal commitment that it would "purchase resin as long as [KW's prices] were competitive" and that KW would "manufacture [U.S. Can's) requirements on the West Coast, and the parties could stop doing that if they so desired." (Id. at 384.) U.S. Can had sole discretion to decide whether KW's resin prices were competitive and whether it would purchase resin at all. (Id. at 217.) In fact, if U.S. Can decided to stop asking KW to manufacture plastic paint cans, such a decision would not have violated the 1996 Agreement. (Id. at 216-17.)

During this time, U.S. Can gave KW instructions on solving quality control problems. It provided specifications for the cans it purchased and the molds and equipment KW should use during production, advice on solving quality control problems, and directions where to ship the completed cans. (Pl. Ex. 14.) It shared with KW its business forecasts and inventories. (Baltz Aff. ¶¶ 5-6.) It afforded KW direct access to employees at Behr Process Corporation ("Behr"), its major customer. At one point, it also shared profitability estimates concerning its Behr account. (Pl. Ex. 11.)

U.S. Can considered such information confidential; it was not disclosed to competitors. It was disclosed to KW because U.S. Can felt the parties enjoyed a special relationship. (Baltz Aff. ¶¶ 5-6.) This information, though perhaps sensitive at the time of disclosure, is "stale" and "of no value" in today's market. (Def. Ex. 5 at 517-18.)

However, KW was neither a franchisee nor licensee of U.S. Can. KW was solely responsible for the operation of its California plant. It exclusively hired, fired, supervised, and controlled its employees. It had no authority to enter into contracts on behalf of U.S. Can. The companies kept separate financial books, had no joint employees, and never shared profits or losses. (Def. Ex. 8 ¶¶ 11-17.) U.S. Can placed resin orders in the same manner as KW's other resin customers. KW invoiced plastic cans to U.S. Can in the ordinary course of business. (Id.)

U.S. Can's business, as its moniker indicates, is selling cans. Perhaps as many as ninety percent of its paint can customers have been with the company for three or more years. (PIH at 291-93.) However, even among its largest customers, U.S. Can does not supply all their needs. (Id. at 293-97.) It has lost the business of several major customers recently. Even within the submarket for plastic cans, which are manufactured by KW and only two or three other companies, the company has lost and gained business. (Donnelly's Dep. at 45; Messina's Dep. at 195-96.) Major suppliers in the business generally know who is servicing each other. (Def. Ex. 5 at 317.)

When faced with the prospect of losing its account with Behr, U.S. Can shared with KW certain forecasts about the account's profitability. KW was also informed that U.S. Can would have difficulty entering into a long-term contract with Behr at those prices. (PIH at 91, 336-37, 340-42.)

At some point after this meeting with U.S. Can, KW and Behr began negotiations that subsequently led to an agreement for KW to supply plastic paint cans to Behr at roughly the same price that U.S. Can was then charging. (Pl. Ex. 28-29.) As a result, U.S. Can lost Behr as a plastic paint can customer.

The negotiations between KW and Behr also may have affected U.S. Can's ability to obtain a contract to sell rings and plugs for the plastic cans that Behr purchased. Rings and plugs are essentially sealed together to form the can's lid. On several occasions, Behr officials told U.S. Can officials that U.S. Can was their choice for quality rings and plugs. (Baltz Aff. ¶¶ 2-3, 8, 13; Jones Aff. ¶¶ 4-5.) According to Behr's chief executive officer, "[w]e believe that it would have been simpler if we had a single plug manufacturer for both the plastic and steel cans, since U.S. Can continues to be our steel can supplier." (Lazof's Dep. at 88.) Behr reiterated this point as late as November 1998. (Pl. Ex. 20.)

However, one of the "basic points" that KW identified when it began negotiating with Behr was that KW would have "the option of supplying rings and plugs from any approved source." (Pl. Ex. 21.) A Behr official said it was a "fair characterization" to state that "KW wanted to keep control of . . . deciding who would supply the rings and plugs." (Lazof's Dep. at 87.) In the end, Behr agreed to give the rings and plugs business to a company with whom KW had entered into an exclusive dealing arrangement. (Resp. at 21.) Some evidence suggests, in fact, that KW may have actively tried to poison the relationship between Behr and U.S. Can. (Baltz Aff.)

In its Second Amended Complaint, U.S. Can sets forth thirteen causes of action. The case originally was filed in Illinois state court, then removed to the U.S. District Court for the Northern District of Illinois on the basis of diversity. Thereafter, it was transferred here and consolidated with a case already pending before the court. See 28 U.S.C. § 1404 (a); FED. R. Civ.P.42(a).

The court previously denied U.S. Can's request for a preliminary injunction barring KW from doing business with Behr, in possible violation of the 1996 Agreement's covenant against competition. The court reviews that issue, as well as all others, in this opinion.

IV. DISCUSSION

In transfer of venue cases, the court receiving the case must apply the state law that would have been applied had there been no transfer. See Ferens v. John Deere Co., 494 U.S. 516 (1990); Murray v. Sevier, 50 F. Supp.2d 1257, 1271 (M.D. Ala. 1999). Cf. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Accordingly, the court will apply the law of the sovereign state of Illinois.

A. Tortious Interference

The court begins by focusing on Plaintiff's allegation of tortious interference with a prospective business relationship.¹ Plaintiff must prove: (1) the legitimate expectancy of a valid business relationship with a third party; (2) Defendant's knowledge of that expectancy; (3) Defendant's purposeful and malicious interference with Plaintiff's business expectancy; and (4) proximate harm. See Small v. Sussman, 713 N.E.2d 1216, 1223 (Ill.App.Ct. 1999). Plaintiff argues that Defendant interfered with its ability to obtain a contract to supply Behr with metal rings and plugs. The court agrees and finds that summary judgment on this claim is due to be denied.

1 "While Plaintiff's Second Amended Complaint also includes an allegation of interference with contract, its brief focuses exclusively on interference with its prospective business relationship with Behr. (Second Am. Compl. ¶ 57; Resp. at 17.) Accordingly, the court discusses that claim alone.

The first two elements are clearly satisfied. Plaintiff presents substantial evidence of its legitimate expectations for receiving Behr's metal ring and plug business. Officials from Behr and U.S. Can apparently discussed such an agreement on several occasions. (Baltz Aff.; Jones Aff.) Behr felt it was more efficient to have one supplier for its plastic and metal cans alike. (Lazof's Dep. at 88, 105.)

Behr memorialized its intentions in several letters, which it sent to Defendant during the several-month course of their negotiations. (Pl. Ex. 19, 20.) Thus, the evidence presents a sufficient question of fact as to whether Plaintiff's expectations were reasonable, and whether Defendant knew of them. See LaBate v. Data Forms. Inc., 682 N.E.2d 91, 94 (Ill.App.Ct. 1997); On Tap Premium Quality Waters, Inc. v. Bank of N. Ill., 634 N.E.2d 425, 432 (Ill.App.Ct. 1994)

A jury also could conclude that Defendant's interference was purposeful and malicious. This element requires "some active persuasion, encouragement, or inciting that goes beyond merely providing information in a passive way." In re Estate of Albergo, 656 N.E.2d 97, 103-04 (Ill.App.Ct. 1995). The court should consider the totality of the circumstances, giving due regard to the defendant's intentions. See R.E. Davis Chem. Core. v. Diasonics. Inc., 826 F.2d 678, 686 (7th Cir. 1987) (applying Illinois law)

In this case, although Behr repeatedly stated its preference for U.S. Can, one of the "basic points" that KW "hoped to see" from its negotiations was "the option of supplying rings and plugs from any approved source." (Pl. Ex. 21; Lazof's Dep. at 87.) The fact that KW opened its negotiations with this objective in mind and that Behr eventually came around to KW's position is suggestive of a subsequent course of purposeful and intentional inducement. This inference is supported by the fact that Behr eventually awarded the contract to Brockway, the same company with whom KW subsequently signed a long-term exclusivity contract.

Intent also is reflected by Defendant's apparent disclosure of otherwise confidential information about Plaintiff's quality control problems. A jury could find that such information was leaked as part of an aggressive, sustained effort "to poison the relationship between Behr and U.S. Can." (Baltz Aff.)

In its Motion, Defendant relies upon cases in which there was no persuasion because there was no reliance on the information provided. See Albergo, 656 N.E.2d at 104; Sullivan's Wholesale Drug Co. v. Faryl's Pharmacy, Inc., 573 N.E.2d 1370, 1375 (Ill.App.Ct. 1991). These cases, of course, are inapplicable. Moreover, the fact that Behr originally approached KW to discuss an agreement about the supply of plastic cans is not dispositive, given evidence that Behr also originally intended to retain U.S. Can's business for metal rings and plugs. Thus, Plaintiff has satisfied its burden as to the third element of its tortious interference claim.

Finally, the court finds that Plaintiff has shown evidence of possible damages. The totality of the evidence could support a rational jury's finding in favor of Plaintiff. See LaBate v. Data Forms, Inc., 682 N.E.2d 91, 94 (Ill.App.Ct. 1997) (plaintiff need only show reasonable expectancy of business relationship). Accordingly, the court finds that summary judgment as to Count Nine is due to be denied.

B. Breach of Fiduciary Duties

The court now considers Plaintiff's allegation of breach of fiduciary duties. Plaintiff contends that Defendant was its agent, and therefore owed Plaintiff the utmost candor, loyalty, and care. Plaintiff also argues that fiduciary obligations arose from the special circumstances of the relationship. Defendant takes the opposite view, and the court agrees. Summary judgment is due to be granted on this claim.

1. Agency relationship

First, the court finds no evidence of an agency relationship. Under Illinois law, such a relationship has two primary components: (1) the principal's right to control the manner and method in which the agent performs; and (2) the agent's power to subject the principal to personal liability. See Beckett v. H R Block, Inc., 714 N.E.2d 1033, 1040-41 (Ill.App.Ct. 1999); Anderson v. Boy Scouts of Am., Inc., 598 N.E.2d 892, 894 (Ill.App.Ct. 1992). The first factor weighs more heavily than the second. See Beckett, 714 N.E.2d at 1041.

Plaintiff argues that it controlled Defendant's conduct because it provided Defendant with product specifications, general manufacturing advice, and addresses where the finished materials should be shipped. The court finds this evidence insufficient as a matter of law.

Every manufacturer-distributor relationship involves some form of direction and advice related to the product at issue. The fact that two parties exchange information does not justify imposition of an agency relationship. See Mann v. Prudential Real Estate Affiliates, Inc., 1990 WL 205286 at § 1 (N.D. Ill. 1990) (finding no agency relationship although franchisor required franchisee's work to conform with franchisor's specifications and reserved right to supervise franchisee's performance and approve its business deals); Yassin v. Certified Grocers of Ill., 502 N.E.2d 315, 328 (Ill.App.Ct. 1986) (control "must consist of something more than a general right to make suggestions or recommendations or to order the work stopped or resumed.") (citation omitted).

Plaintiff's evidence is more than outweighed by the evidence of Defendant's autonomy in performance. Defendant was neither a franchisee nor licensee. It molded plastic cans for Defendant out of one of its two facilities, which it exclusively owned. it was solely responsible for the facility's operation. It exclusively hired, fired, supervised, and controlled its employees. Moreover, it did not have authority to enter into contracts on behalf of Plaintiff. (Campbell Aff.) On these facts, the court finds that KW clearly was not U.S. Can's agent. See Massin, 205286 WL at § 4-5; Yassin, 502 N.E.2d at 327-28; see also Anderson, 589 N.E.2d at 894-95.

2. Special circumstances

The court further finds that no fiduciary obligations could have arisen out of the parties' relationship. Plaintiff contends that the parties were so close "that U.S. Can viewed KW as one of its divisions (i.e., U.S. Can's West Coast manufacturing arm)." (Resp. at 19.) Defendant counsels against the imposition of fiduciary obligations in what it believes was a commercial relationship. The court agrees with Defendant.

A fiduciary relationship, when not imposed as a matter of law, involves confidence and trust on one side and dominance and influence on the other. As a result, the dominant party gains superiority and influence over the servient party. See State Sec. Ins. Co. v. Frank B. Hall Co., 630 N.E.2d 940, 945 (Ill.App.Ct. 1994); Carey Elec. Contracting Co. v. First Nat'l Bank of Elgin, 392 N.E.2d 759, 763 (Ill.App.Ct. 1979). The dominant party may be considered a fiduciary if it agrees to exercise its judgment on behalf of the servient party. See Ransom v. A.B. Dick Co., 682 N.E.2d 314, 322 (Ill.App.Ct. 1997). The party alleging the existence of such a relationship must offer proof "so clear and convincing, so strong, unequivocal and unmistaken that it leads to only one conclusion." Carey, 392 N.E.2d at 763.

The fact that two parties do business together is insufficient to establish a fiduciary relationship, for they ordinarily are charged with guarding their own interests. See id. at 763-64. Even when one party trusts another with confidential information, a fiduciary relationship does not result unless that party "relies very heavily on the judgment of another." Quadro Enters., Inc. v. Avery Dennison Corp., 1997 WL 769345 at § 4 (N.D. Ill. 1997) (quoting Carey, 392 N.E.2d at 764)). After all, "[w]e trust most people with whom we choose to do business." Lagen v. Balcor Co., 653 N.E.2d 968, 975 (Ill.App.Ct. 1995) (citation omitted). "Moreover, a distributorship arrangement does not, as a matter of law, give rise to a fiduciary duty." Ransom, 682 N.E.2d at 322 (citing Seadboard Seed Co. v. Bemis Co., 632 F. Supp. 1133 (N.D. Ill. 1986)).

Quadro presents facts similar to those in this case. There, Plaintiff hired Defendant to manufacture copyrighted labels, which Plaintiff then sold to its customers. See Quadro, 1997 WL 769345 at § 1. As a result of their relationship, Defendant obtained Plaintiff's confidential materials. Eventually, Defendant began using the equipment to sell labels directly to Plaintiff's clients. See id.

Plaintiff brought suit and argued that a fiduciary relationship existed because it had placed "great confidence" in Defendant to keep the production process confidential. Id. at § 1-2. The court disagreed, finding that the relationship was one of "normal trust" that "cannot transform a formal contractual relationship into a fiduciary one." Id. at § 4 (citing Carey, 392 N.E.2d at 763).

This case, at its core, differs from Quadro in no material way. U.S. Can argues that it disclosed sensitive, confidential information to Defendant that it never would have made available to a competitor. It gave KW such information, it claims, because it placed profound trust in the company. But so did the plaintiff in Quadro, see id. at § 4, whose entire claim was based on its allegation that it believed the defendant would keep its production process and materials confidential.

U.S. Can attempts to distinguish this situation by arguing that, unlike the plaintiff in Quadro, it entrusted Defendant with a wide range of significant and sensitive information, afforded Defendant direct access to its customers, and made Defendant sign a confidentiality agreement. Plaintiff's basic point is that it entrusted Defendant with a whole lot of confidential information more than that which is exchanged in a typical manufacturer distributor relationship-rather than just a little.

But this is a distinction without a difference. Under Illinois law, what matters is not that a party discloses significant information, but that "the alleged fiduciary agree[s] to exercise its judgment on behalf of the alleged servient party." State, 630 N.E.2d at 947 ("Generally, where parties capable of handling their business affairs deal with each other at arm's length, and there is no evidence that the alleged fiduciary agreed to exercise its judgment on behalf of the alleged servient party, no fiduciary relationship will be deemed to exist.")

The record is devoid of any evidence that KW exercised judgment on behalf of U.S. Can, or that U.S. Can relied heavily on KW's judgment, other than trusting that KW would keep its confidences. KW had no influence over U.S. Can's operations and practices; both parties enjoyed independence and autonomy. KW invoiced U.S. Can for the products it made, then received payments in the ordinary course of business. U.S. Can did not delegate authority to KW to enter into contracts with its customers. (Campbell Aff.) The parties were not joint venturers; they kept separate books and never shared profits or losses. Their manufacturing and supplying arrangement, though lasting over a significant period of time, was on an at-will basis.

In short, U.S. Can trusted KW with its secrets, but not with any independent judgment. Trust is not enough to create a fiduciary relationship. See State, 630 N.E.2d at 945; Carey, 392 N.E.2d at 763-64; Quadro, 1997 WL 769345 at § 4

Plaintiff tries to compare this case to Ransom, 682 N.E.2d at 322, in which.the court found a fiduciary relationship between a manufacturer and its distributor. Plaintiff feels the Ransom court imposed such an obligation because the "distributor had access to the plaintiff's business plans" and, therefore, the parties shared "an intimate relationship." (Resp. at 23-24.)

The court disagrees. For one thing, the Ransom court found that the manufacturer-not the distributor-was the fiduciary. See Ransom, 682 N.E.2d at 317-18. Moreover, Ransom was precisely the type of case in which the defendant gained influence over, and exercised judgment on behalf of the plaintiff, which relied on such judgment and thereby established obligations of loyalty and care.

Plaintiff was the distributor of A.B. Dick products in Mexico. After several years of profits, hard times befell Ransom. See id. A.B. Dick got nervous. To keep the company afloat, A.B. Dick guaranteed several loans that Ransom used to pay amounts owed to A.B. Dick. Defendant also attended Ransom's company meetings, proffered advice on how Ransom could handle its debt problems, encouraged Ransom to restructure its financing rather than to declare bankruptcy, and sent its chief financial officer to Ransom to help develop a business plan and prospectus for attracting new investors. See id. at 322.

The distributor followed its advice. In the end, though, A.B. Dick fired Ransom and found itself a new distributor. Thus, the court found it possible to conclude that special circumstances had established a fiduciary relationship between the two companies, and led to Plaintiff's injuries. See id.

What mattered to the Ransom court, when read consistently with other Illinois cases, was the fact that the dominant party became intimately entangled in the servient party's financial affairs, then offered the party advice on how to conduct those affairs. Nothing approaching this situation is involved in the case presented. See Quadro, 1997 WL 769345. Therefore, the court finds, as a matter of law, that no fiduciary relationship existed between the parties.

C. Fraudulent Suppression

Plaintiff's allegation that Defendant fraudulently suppressed information must fail as a matter of course, given the court's findings above. See supra Part IV.B. Mere silence in a business transaction does not amount to fraudulent suppression. Plaintiff must demonstrate the existence of a fiduciary relationship between the parties, which then raises a duty to disclose. See Magna Bank of Madison County v. Jameson, 604 N.E.2d 541, 544 (Ill.App.Ct. 1992); Lidecker v. Kendall College, 550 N.E.2d 1121, 1126 (Ill.App.Ct. 1990). Having found that such a relationship does not exist in this case, Defendant had no duty to disclose.

In addition, even if a fiduciary relationship existed, the court would still grant summary judgment because U.S. Can's internal business records show that the company knew as early as July 1998 that KW and Behr were negotiating with each other. (Def. Ex. 5 at 351-52; Def. Ex. 15.) Thus, even if KW had a duty to disclose such information, it should have been discovered by U.S. Can through reasonable inquiry. See Ruane v. Amore, 677 N.E.2d 1369, 1377 (Ill.App.Ct. 1997). Therefore, Count Eleven is due to be dismissed.

D. Fraudulent Misrepresentation

The court also finds that summary judgment is appropriate on Count Ten, which alleges that Defendant has committed common law fraud. Plaintiff contends that KW, through its general manager, N. Kenneth Campbell, misrepresented that it would extend the parties' 1991 Agreement until April 2001.² (Second Am. Compl. ¶¶ 58-59.)

2 The courts findings on this claim will necessarily result in dismissal of Plaintiff's prayer for equitable estoppel. See infra Part IV.G.2.

Illinois common law fraud consists of five basic elements. Plaintiff must show that Defendant: (1) made a false statement of material fact; (2) with knowledge or belief that it was untrue at the time of its making; (3) and with the purpose of inducing Plaintiff to act; (4) and that Plaintiff relied upon the statement; (5) which led proximately to its injury. See Small, 713 N.E.2d at 1221.

In this case, Plaintiff has failed to show that Mr. Campbell knew, at the time he promised to extend the 1991 Agreement, that KW would not live up to its promises. Viewed in the light most favorable to Plaintiff, the record indicates that Mr. Campbell may have verbally agreed to extend the 1991 Agreement in August 1995. (Second Am. Compl. ¶ 21.) In addition, the parties may have signed an identical written agreement April 3, 1996. (Pl. Ex. 1.)

In either situation, Plaintiff's claim fails as a matter of law because the undisputed evidence reflects that KW and Behr did not begin negotiating a manufacturing contract until late 1997 or early 1998. (Pl. Ex. 25.) Mr. Campbell's uncontradicted affidavit states that Defendant had not even formed an intention to negotiate with Behr prior to that time period. (Campbell Aff. 6 20.) Moreover, there is no evidence that Defendant considered contracting with any other company.³

3 Indeed, U.S. Can takes the position that the two companies were not potential competitors when the 1996 Agreement was executed. (Resp. at 41-42).

While it is true that Mr. Campbell's statements turned out to be untrue, this is a case of allegedly deliberate-not negligent — misrepresentation. of that there is no evidence. See Stromberger v. 3M Co., 990 F.2d 974, 978 (7th Cir. 1993) ("Fraud in the sense of deliberate deceit cannot be inferred from falsity alone.") Because Plaintiff has failed to establish this crucial element, summary judgment is due to be granted as to Count Ten.

E. Breach of Contract

The court now turns to Count Two, which alleges that KW breached the 1996 Agreement. At this point, of course, it is an open question whether the 1996 Agreement is enforceable at all. Plaintiff still bears the burden of proving this issue.⁴ See Suburban Bank of Hoffman-Schaumburg v. Bousis, 578 N.E.2d 935, 939 (Ill. 1991); Harley v. Magnolia Petro. Co., 37 N.E.2d 760, 765 (Ill. 1941). The court's analysis proceeds on the questionable assumption that Plaintiff will meet this heavy burden.

4 The court has previously found that the written 1996 Agreement is dated April 3, 1991. The court reaffirms that finding here. Thus, Plaintiff has the burden of showing that the writing is the product of a unilateral or mutual mistake.

Defendant raises numerous objections, including the arguments that the 1996 Agreement violates Illinois common law and the Sherman Act as an illegal restraint of trade. After careful consideration, the court shall enforce the 1996 Agreement within the guidelines of Illinois law. Specifically, the 1996 Agreement is limited in scope to prohibit KW from using U.S. Can's confidential information to misappropriate its customers. (1996 Agreement ¶¶ 4.1-4.2.)

The evidence shows that Behr is the only customer that Defendant may have misappropriated. Thus, the 1996 Agreement is enforceable only with respect to Defendant's business dealings with Behr. In all other respects, the non-compete covenants are unenforceable. (Id.) They will be severed.

Moreover, evidence suggests that any alleged misappropriated information has become stale. As a result, the 1996 Agreement is deemed terminated as of the date that such information lost its value. Nobody has an interest in preventing competition per se.

After such modification, strict construction, and limitation, the court finds that the 1996 Agreement is enforceable. Summary judgment, therefore, is due to be granted in part and denied in part, and it shall be entered accordingly.

1. U.S.Can has stated a proper cause of action

The court finds no reason why, to a more or (in this case) less extent, Illinois courts would not recognize U.S. Can's breach of contract claim. Illinois courts will enforce noncompete agreements if four elements are met. The agreement must be: (1) ancillary to a legitimate business transaction; (2) supported by adequate consideration; (3) necessary to protect one party's legitimate business interests; and (4) reasonably limited in scope. See Abel v. Fox, 654 N.E.2d 591, 593, 593-98 (Ill.App.Ct. 1995). After modification, the covenant meets each of these requirements.

At the outset, the court acknowledges that it is faced with the task of deciding a question apparently not addressed in Illinois: does the state's common law recognize a non-compete agreement between two businesses that transact at will? Thus, the court must necessarily attempt to predict how the Illinois Supreme Court and its lower courts would decide this question.

It is "the duty of the court to arrive at the decision which reason dictates, with the faith that the state courts will arrive at the same decision." Insurance Co. of N. Am. v. English, 395 F.2d 854, 859 (5th Cir. 1968).⁵ After all, federal courts and state courts are deemed equally competent at resolving issues of state law. See Testa v. Katt, 330 U.S . 386 (1947).

5 The Eleventh Circuit adopted as binding precedent the decisions of the former Fifth Circuit prior to October 1, 1981. See Bonner v. Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981) (enbanc).

The court begins by turning to Illinois common law. As a general rule, Illinois favors competition and views with suspicion covenants that partially restrain trade. Courts carefully scrutinize the agreements in order to ensure that they are designed to advance legitimate business needs rather than simply stifle competition. See, e.g., George S. May Int'l Co. v. International Profit Assoc., 628 N.E.2d 647, 653 (Ill.App.Ct. 1993); Springfield Rare Coin Galleries, Inc. v. Mileham, 620 N.E.2d 479, 485 (Ill.App.Ct. 1993); Lee/O'Keefe Ins. Agency. Inc. v. Ferega, 516 N.E.2d 1313, 1317 (Ill.App.Ct. 1987).

Nevertheless, if restrictive covenants meet the standards imposed by law, then they should be enforced. See, e.g., McRand, Inc. v. Beelen, 486 N.E.2d 1306 (Ill.App.Ct. 1985); The Instrumentalist Co. v. Band. Inc., 480 N.E.2d 1273 (Ill.App.Ct. 1985); Wolf Co. v. Waldron, 366 N.E.2d 603 (Ill.App.Ct. 1977).

Most Illinois cases — but not all — have involved restrictive covenants that were either ancillary to a contract between an employer and its former employees, or collateral to the sale of a business. Defendant argues that Illinois law permits non-compete agreements solely in these two situations, citing to loose language in a case that ostensibly supports such a crabbed reading of the law. See Loewen Group Int'l Inc. v. Haberichter, 912 F. Supp. 388, 392 (N.D. Ill. 1996) ("a restrictive covenant must be ancillary to either a sales agreement or an employment agreement.")

Yet Loewen does not cover the entire relevant landscape. For starters, Illinois courts have upheld reasonable covenants in connection with franchise licensing agreements. See, e.g., In re KBAR, Inc., 96 B.R. 158 (C.D. Ill. 1988); U-Haul Co. of Cent. Ill. v. Hindahl, 413 N.E.2d 187 (Ill.App.Ct. 1980).

In that sense, Illinois is like many other jurisdictions that have enforced covenants beyond the narrow bounds of the traditional employer-employee relationship. See Robert W. Emerson, Franchising Covenants Against Competition, 80 Iowa L. Rev. 1049, 1051 (1995) ("franchise relationships, and their ancillary covenants not to compete, are utterly incomparable to either employment or the sale of a business.")

In addition, Illinois courts have upheld covenants ancillary to the sale of real property. See Lanyon v. Garden City Sand Co., 79 N.E. 313 (Ill. 1906); Peter Schoenhofen Brewing Co. v. Welbourn, 215 Ill. App. 185 (Ill.App.Ct. 1911); Anheuser-Busch Brewing Assoc. v. Dwyer, 150 Ill. App. 315 (Ill.App.Ct. 1909); see also George F. Mueller Sons, Inc. v. Morales, 323 N.E.2d 518, 520 (Ill.App.Ct. 1975) ("[t]he principle expressed in these cases that a negative covenant contained in contracts or leases related to real property will be enforced by courts of equity.)⁶

6 The driving principle behind cases like Lanvon was the facilitation of economic development. See Walter F. Pratt, Jr., American Contract Law at the Turn of the Century, 39 S.C.L. Rev. 415, 433-38 (1988). Such an interpretation comports nicely with the recognition that modern law promotes economic output by encouraging cooperation. Covenants forbidding the use of confidential information allow parties to discuss business strategy freely, yet not worry they are cutting their throats by doing so.

Illinois courts also have approved restrictions between partners and shareholders in close corporations. See Central Water Works Supply. Inc. v. Fisher, 608 N.E.2d 618 (Ill.App.Ct. 1993). Finally, Illinois courts have given effect to non-compete agreements in non-exclusive licensing arrangements when the parties were not held to any minimum or maximum output, and the licensee was free to accept or reject the work offered by the licensor. See Morrison Metalweld Process Corp. v. Valent, 422 N.E.2d 1034, 1035 (Ill.App.Ct. 1981).

Illinois courts clearly do not feel constrained to enforce covenants solely in the limited settings suggested by Defendant. This conclusion makes perfect sense; Illinois is a common law state and the common law's abstract fluidity does not lend itself to the type of firm, rigid rule for which Defendant argues. Indeed, while the Restatement (Second) of Contracts gives several specific examples of acceptable restrains on trade, Illinois courts have recognized that the list by no means purports to be exclusive. See Central Water Works, 608 N.E.2d at 625 (Cook, J., concurring) (citing RESTATEMENT (SECOND) OF CONTRACTS § 188(2), cmt. e (1981)).

The Restatement defines "reasonable restraints" by distinguishing them from "unreasonable restraints." A promise to refrain from competition is unreasonable if it "imposes a restraint that is not ancillary to an otherwise valid transaction or relationship." RESTATEMENT (SECOND) OF CONTRACTS § 187. Furthermore, a restraint is unreasonable-even if it is ancillary to a legitimate transaction-if "(a) the restraint is greater than is needed to protect the promisee's legitimate interest; or (b) the promisee's need is outweighed by the hardship to the promisor and the likely injury to the public." Id. § 188.

In other words, a restraint is reasonable when it does not suffer from the defects mentioned above. It may be disfavored. But that affects only the degree of scrutiny it should receive, not its entitlement to consideration.

Illinois courts have cited to various Second Restatement provisions on numerous occasions quite recently. See, e.g., Smith v. Allstate Ins. Co., 726 N.E.2d 1, 8 (Ill.App.Ct. 2000); Woodfield Group. Inc. v. DeLisle, 693 N.E.2d 464, 469 (Ill.App.Ct. 1998); Abel, 654 N.E.2d at 594-97; Hickox v. Bell, 552 N.E.2d 1133, 1140 (Ill.App.Ct. 1995)

No court, however, has questioned its authority with respect to the scope or enforceability of non-competes ancillary to legitimate business transactions. Thus, the court finds that Illinois courts would consider the possibility of enforcing a non-compete between two businesses, such as the one presented here.

This finding is strengthened by the fact that courts in other jurisdictions have been willing to consider enforcing noncompetition covenants similar to this one. Absent guidance from the forum state, a federal court may attempt to interpret the state's laws by looking at how other jurisdictions would resolve the issue. See Erie Ins. Group v. Sear Corp., 102 F.3d 889, 892 (7th Cir. 1996)

A search of the available case law reveals, for example, Hodge v. Sloan, 17 N.E. 335 (N.Y. 1887). In Hodge, the New York Court of Appeals upheld an agreement by a buyer of land not to sell sand therefrom in competition with the seller. The court found the restriction reasonable, stating that "[i]t stands upon a good consideration, and is not larger than necessary for the protection of the covenantee in the enjoyment of his business." Id. at 340.

The court recognizes, on one hand, that Hodge might be dismissed for two reasons. First, its precedential value may be negligible, since it is more than a century old. Second, it might be narrowly construed or distinguished as merely a covenant touching and concerning real property. See Mueller, 323 N.E.2d at 520. If this were true, Plaintiff would have difficulty convincing an Illinois court to follow Hodge.

But the case has never been overruled, and nothing has happened in the past 100 years to sap it of its vitality. In fact, it was relied upon just ten years ago to justify upholding a non-competition clause completely unrelated to a sale or agreement involving real property. See Baker's Aid v. Hussman Foodserv. Co., 730 F. Supp. 1209 (E.D.N.Y. 1990) (applying New York law).

The covenant in Baker's Aid involved an agreement between a distributor and a manufacturer of ovens. The manufacturer agreed to make the ovens in accordance with the distributor's idiosyncratic specifications, then return the written specifications to the distributor after it bought a fixed number of ovens. See id. at 1211-12.

In conjunction with this sales contract, the distributor sought to enforce a covenant barring the manufacturer from subsequently: (1) making or selling to the distributor's customers any ovens based on the specifications; and (2) making or selling ovens "anywhere in the United States. See id. at 1211-14.

The manufacturer balked at the deal later on, probably because it hoped to sell similar ovens to other customers. The court, however, recognized that the covenant was part of a legitimate bargained-for exchange. As a whole, the contract increased the production and output of ovens, which, in turn, potentially helped consumers by stimulating supply-side competition in the relevant market. See id.

At the same time, the court also recognized that the distributor would not have signed the contract if it knew that its information was going to be used to subsidize a competitor's start-up costs. See id. at 1214. Had the distributor not shared the information, it would have had to make the ovens itself — something that would have been incredibly inefficient given the obvious comparative advantages of both respective parties.

The court found no evidence that the manufacturer had "an independent source of oven technology." Id. at 1215. Therefore, it upheld the covenant-but only to the extent that it prohibited the manufacturer from using the confidential specifications to make ovens. Id. at 1214-15.

The court found the remainder of the non-compete agreement unreasonable, noting that it was not "a narrowly tailored restraint necessary to protect a legitimate business record of the plaintiff." The manufacturer "could have entered the rack oven market at any time, provided that [it] invested enough time and money to reverse engineer an existing rack oven." Id.

Thus, the court recognized the proper use of a noncompetition agreement between two businesses. The agreement should be enforced if it helps promote economic activity (such as oven production resulting through the voluntary, permissive exchange of confidential information) but invalidated if its sole effect is to restrain trade (such as the emergence of competition resulting from the other party's independent hard work and efforts)

The court finds that Illinois courts would embrace this line of precedent. The Illinois Supreme Court has commented favorably upon the New York judiciary's interpretations of the common law. See, e.g., Zostautas v. Saint Anthony De Padua Hosp., 178 N.E.2d 303, 304-08 (Ill. 1961) (interpreting extent of common law breach of contract and tort law causes of action for wrongful death; construing subsequent Illinois statute similar to New York statute).

Moreover, while statutory codes have generally supplanted the common law, the Illinois judiciary has continued to embrace opinions from the Empire State. See, e.g., Harvel v. City of Johnston City, 586 N.E.2d 1217, 1225-26 (Ill. 1992) (wrongful Death Act); People v. Ellis, 470 N.E.2d 524, 526 (Ill.App.Ct. 1984) (Unemployment Insurance Act); Jablonski v. Multack, 380 N.E.2d 924, 928 (Ill.App.Ct. 1978) (Workmen's Compensation Act)

All of this evidence leads to the conclusion that Illinois would find that U.S. Can has stated a cause of action in alleging that KW breached its covenant against competition.

2. Portions of the contract are enforceable

As noted previously, a non-compete must satisfy four requirements. First, it must be ancillary to a legitimate business transaction or relationship. See Abel, 654 N.E.2d at 597. Second, it must be supported by adequate consideration. See McRand, 486 N.E.2d at 1314. Third, it must be necessary to protect one party's legitimate business interests. See Springfield, 620 N.E.2d at 485. Finally, it must be reasonably limited in scope. See Weitekamp v. Lane, 620 N.E.2d 454, 461-62 (Ill.App.Ct. 1993).

a. Ancillary and supported by consideration

The first and second elements — that the covenant be ancillary to a legitimate agreement and supported by valid consideration blend together. They will be discussed accordingly.

In this case, at minimum, the parties concede that U.S. Can and KW agreed to negotiate in good faith over the possibility of a manufacturing subcontract. Thus, it is undisputed that the restrictive covenant was ancillary to U.S. Can's commitment to negotiate.

The situation here is most analogous to those involving noncompete agreements that are subordinate to at-will employment arrangements. The law upholds these agreements because they allow the parties to work together to expand output and competition. If one party can trust the other with confidential information and secrets, then both parties are better positioned to compete with the rest of the world. See Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185, 189 (7th Cir. 1985). By protecting ancillary covenants not to compete, even after an employee has launched his own firm, the law "makes it easier for people to cooperate productively in the first place." Id.

In this case, the court is reviewing a covenant between two firms, rather than an employer and its employees. But the principles are the same. U.S. Can wanted to negotiate a longterm supply subcontract, and it wanted to guard against misuse of the confidential information to which KW had access, both during the normal course of business and during the subcontract negotiations. So when it went to KW and sought to initiate a relationship that might have benefited the parties-and, potentially, consumers who would benefit from expanded production-it wanted some type of agreement to protect its legitimate interests in keeping its information confidential. See Morrison, 422 N.E.2d at 1038; Baker's Aid, 730 F. Supp. at 1214-16.

But was there consideration? The fact that U.S. Can purchased resin and paint cans from KW could not constitute consideration. U.S. Can could have refused at any time. It had sole discretion to determine what it felt were appropriate prices, and it was held to no minimum purchase requirement. (PIH 216-17, 384.) This is no consideration, for there is no commitment to perform. Cf. Engine Specialties. Inc. v. Bombardier. Ltd., 605 F.2d 1, 9-11 (1st Cir. 1991). "If one of the promises appears on its face to be so insubstantial as to impose no obligation at all on the promisor — who says, in effect, "I will if I want to'-then that promise may be characterized as an "illusory' promise, or one that is a "promise in form but not in substance." Jacksonville. Inc. v. FPL Group. Inc., 162 F.3d 1290, 1311 (11th Cir. 1998) (quoting E. Allan Farnsworth, Contracts § 2.13, at 75-76 (2d ed. 1990)).

Yet there was ample consideration flowing from U.S. Can's promise to negotiate in good faith over a long-term supply subcontract.⁷ See Chase v. Consolidated Foods Corp., 744 F.2d 566, 571 (7th Cir. 1984) (commitment to negotiate in good faith is consideration). It is irrelevant whether or not the contract was ever Signed. The promise was to negotiate, and negotiations ensued. See Crum v. Krol, 425 N.E.2d 1081, 1086 (Ill.App.Ct. 1981) (when party promises to perform, consideration is promise itself; non-performance does not negate consideration given) (citing Wilson v. Continental Body Corp., 418 N.E.2d 56, 59 (Ill.App.Ct. 1981)).

7 In employer-employee settings, long-term employment normally is consideration for the reciprocal covenant not to compete. See, e.g., Curtis 1000. Inc. v. Suess, 24 F.3d 941, 945-46 (7th Cir. 1994). But this need not be the case; all that is necessary is that there is valid consideration for the covenant, and that it is subordinate to some other existing legitimate "transaction or relationship." RESTATEMENT (SECOND) OF CONTRACTS § 187 (1981) (emphasis supplied).

In some situations, the exchange of "good and valuable consideration" might be a sham. See, e.g., Jacksonville, 162 F.3d at 1311-12 (boilerplate recital of consideration is inadequate); O'Neil v. Delaney, 415 N.E.2d 1260, 1265-67 (Ill.App.Ct. 1980) (consideration that shocks the conscience is inadequate). But cf. Exchange Nat'l Bank of Chicago v. Daniels, 768 F.2d 140, 143 (7th Cir. 1985) ("(t]his is a lot more than a peppercorn, which would be consideration enough.")

But not here. U.S. Can is one of the market's larger industrial consumers of paint containers, and a supply contract would have ensured a substantial and steady customer base for KW. It makes no difference that the parties could not reach agreement. Defendant was willing to take that risk.

There was no coercion, duress or disparity in bargaining power. Moreover, there is no allegation that U.S. Can negotiated in bad faith. For all these reasons, the court finds sufficient consideration for KW's promise not to compete with U.S. Can. This consideration supported a partial restraint on trade that was ancillary to a legitimate business transaction.

b. Necessary to protect legitimate business interests

U.S. Can, however, has a more difficult time meeting the requirements of the third element: showing that portions of the non-competition agreement are reasonably necessary to protect its legitimate business interests. Thus, as explained below, the court finds that U.S. Can is entitled to prohibit KW from competing only with respect to confidential or proprietary information related to the Behr account that has not lost its vitality, and which was disclosed during the relationship between the parties. Under Illinois law, the remainder of the covenant against competition is unnecessary. It is, therefore, unenforceable.

U.S. Can's claim, at its heart, is that KW received confidential information that would not have been disclosed in the absence of the non-compete agreement. In its own words, "because KW agreed not to compete and to keep sensitive information confidential, it was permitted to develop a relationship with U.S. Can's customers and to market U.S. Can's Plastite cans to those customers." (Resp. at 32.) "But for those agreements," U.S. Can contends, "KW would never have had the opportunity to learn the paint can business, to obtain confidential information about U.S. Can's pricing structure and quality control issues, or to develop contacts with customers like Behr." (Id.)

Thus, the court is interpreting U.S. Can's argument to be that KW should have a property interest in its: (1) general knowledge about product development and production; (2) specific internal pricing structures and sensitive operating mechanisms; and (3) access to its customers generally. See FED. R. CIV. P. 8 . The court will consider each of these categories of alleged interests. Only the second is legitimate.

i. General product development and production

The first issue is whether a non-compete agreement is reasonably necessary to protect one party's general knowledge about product development and production from unfair misappropriation. As a general rule, a product or service that is "within the realm of general skills and knowledge in the industry" cannot be protected. Pope v. Alberto-Culver Co., 694 N.E.2d 615, 617 (Ill.App.Ct. 1998). A party is entitled to use the general skills and experiences it builds up during any business relationship. See Stampede Tool Warehouse, Inc. v. May, 651 N.E.2d 209, 216-17 (Ill.App.Ct. 1995).

Testimony suggests that the techniques for manufacturing plastic cans are common knowledge. (Maynard Aff.) The record also reflects that KW manufactured plastic cans long before U.S. Can ever entered the plastic industry. (Campbell Aff. ¶¶ 57-62.) U.S. Can points to no evidence contradicting these affidavits. The court, therefore, finds no grounds to protect U.S. Can against competition based on KW's knowledge of the paint can business.

ii. Access to customers due to knowledge of confidential information

The second issue is whether U.S. Can has a proprietary interest in access to its customers. If so, U.S. Can may enforce a restrictive covenant barring others from doing business with them.

Illinois allows restrictive covenants against competition in two situations: (1) when the party has acquired confidential information through the business relationship and subsequently attempted to use it for its own benefit; or (2) when, by the nature of the business, the customer relationship is near permanent and, but for Defendant's association with Plaintiff, it would not have had contact with the customers in question. See Springfield, 620 N.E.2d at 485; Lee/O'Keefe, 516 N.E.2d at 1318.

On one hand, the court finds that KW may have acquired and used confidential information about U.S. Can's relationship with Behr. At the same time, the court finds insufficient evidence of a general proprietary interest that would justify preventing KW from contacting or contracting with U.S. Can's other customers.

If one party claims that another has misappropriated its confidential information, it must satisfy two basic elements. First, it must show that the information was of value when disclosed. See Laidlaw, Inc. v. Student Transp. of Am., Inc., 20 F. Supp.2d 727, 759 (D.N.J. 1998); International Parer Co. v. Suwyn, 966 F. Supp. 246, 257-59 (S.D.N.Y. 1997). Second, it must adequately show that the other party used the purportedly confidential information. See Springfield, 620 N.E.2d at 486. Cf. Pepsico. Inc. v. Redmond, 54 F.3d 1262, 1269-70 (7th Cir. 1995) (inferring inevitable disclosure).

U.S. Can contends that KW received trade secrets or confidential information about its account with Behr. This information included discussions about the company's quality control problems, inventories, and future business forecasts. (Baltz Aff.) During a meeting between the parties in January 1998, U.S. Can also allegedly disclosed information showing its profitability and net profits or losses relative to the Behr account. (Pl. Ex. 11.)

Such data apparently is not normally available to competitors. According to a U.S. Can executive, this information is "highly sensitive and confidential and treated as such by U.S. Can. In the hands of competitors it would allow them to have an unfair advantage in the marketplace." (Baltz Aff.)

There is no reason to doubt that such information was material at the time it was disclosed and possibly used. (Baltz Aff.) If a jury reaches this conclusion, then it may find that KW has undermined U.S. Can's legitimate interests. See Coady v. Harpo. Inc., 719 N.E.2d 244, 250 (Ill.App.Ct. 1999) (upholding agreement to prohibit "unwarranted erosion of confidential information"); Morrison, 422 N.E.2d at 1038 (same for information "despite the absence of a 'trade secret' or patent"); see also Baker's Aid, 730 F. Supp. at 1214-16 (same for confidential information).

Defendant cites to Springfield, 620 N.E.2d at 486, for the proposition that summary judgment should be granted. In Springfield, the alleged information was printed on a piece of paper, and the defendant said that he never used the notes. The plaintiff did not identify any of the defendant's current customers that might have been misappropriated, nor did he introduce the notes into evidence. See id.

Unlike the defendant in Springfield, KW presents no affirmative denial that it disclosed the information to Behr executives. Moreover, in this case, the record viewed in the light most favorable to Plaintiff reflects that KW knew that U.S. Can was making little profit on its dealings. (Pl. Ex. 10 at 91-92, 336-37; Campbell Aff. ¶¶ 105-08.) It also had reason to know that U.S. Can would have found it difficult to enter into a longterm contract at that price level. (Pl. Ex. 10 at 340-41.) KW then entered into negotiations with Behr and eventually agreed to pricing at substantially the same level that U.S. Can had been charging. (Pl. Ex. 11, 28, 29.)

From this circumstantial evidence, a jury certainly could infer that the similarity between prices resulted from KW's use of confidential information to obtain Behr's business. If so, KW has breached the "contract.

At the same time, however, the court finds insufficient evidence to suggest that KW acted upon confidential information to misappropriate any U.S. customer besides Behr. Although U.S. Can maintains that there are "many examples of confidential information disclosed" to KW, (Resp. at 33), it does not point to any additional circumstantial evidence showing that the information was actually used. Indeed, even in its section dealing with misuse of trade secrets, U.S. Can's brief solely discusses their use in conjunction with the Behr account. (Id. at 44-45.)

The party opposing summary judgment must go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324 (citing FED. R. Civ. P. 56 (e)). Because Plaintiff has created a factual dispute only with respect to the Behr account, it may proceed at trial accordingly.

iii. Access to customers generally

But U.S. Can urges the court to go further-and prevent KW from contacting any of its customers-on the grounds that U.S Can had near-permanent relationships with its customers. The court declines.

To determine whether a business maintained a protectable, near-permanent relationship with its customers, courts applying Illinois law consider the nature of the industry in which the business participates and whether that industry lends itself to long-term relationships between merchants and their customers. See Springfield, 620 N.E.2d at 488-91. At one end of the spectrum is the professional service industry, where "[a] near permanent relationship is inherent." Id. at 488. At the opposite end of the spectrum is the sales industry:

The sales category is the opposite of the professional services category. When the employer's business is sales of a nonunique product, its customers also do business with its competitors, are generally known to the competitors, or are ascertainable by reference to telephone or specialized directories, the nearpermanency test will not be satisfied.

Id. at 489

While courts sometimes apply a multi-factor test to determine whether the business relationship is near-permanent, see Agrimerica, Inc. v. Mathes, 557 N.E.2d 357, 363 (Ill.App.Ct. 1990), the determination "may be made without resort to the Agrimerica factors" when a business falls squarely into one category or the other. Springfield, 620 N.E.2d at 490. In any event, the outcome of the test turns in large degree on whether the business is one of professional services or sales. See Office Mates 5. N. Shore. Inc. v. Hazen, 599 N.E.2d 1072, 1082 (Ill.App.Ct. 1992).

Plaintiff argues that its customers are near-permanent for several reasons. First, it claims that it sells a unique product, for only three manufacturers produce plastic paint cans. Second, its cans are made from recycled resin and have four-ringed metal seals. (Most have three). Third, some ninety percent of its customers have been with the company for at least three years. The court is unmoved.

U.S. Can is engaged in sales, which tends to suggest that its customer base it transient. Indeed, one of U.S. Can's own experts agreed that consumers tend to substitute suppliers freely. (PIH at 761). Company officials stated that they serve five major customers, and that these customers generally know who is servicing each other. (Def. Ex. 5 at 317.) The names of the company's major competitors are matters of public record, as they are included in annual filings with the Securities Exchange Commission. The major competitors in the industry are commonly known. (Id.) In addition, U.S. Can is not the exclusive provider of paint cans to those customers; rather, it meets only forty to fifty percent of their needs.

Even within the submarket for plastic cans, the company has lost and gained business. (Donnelly's Dep. at 45; Messina's Dep. at 195-96.) Thus, even if plastic cans are unique-which is a doubtful proposition given that at least two other companies produce them-U.S. Can does not retain the near-permanent allegiance of its customers.⁸

8 Uniqueness is neither a necessary nor sufficient condition to finding a near-permanent customer base. A customer base is not near-permanent because a product is unique. Rather, it is because a product is unique that one might infer that one's product base is near-permanent.

In short, customer relationships in the paint container manufacturing industry are transient and, the court finds, U.S. Can's customers are no exception. Accordingly, U.S. Can cannot enforce the non-competition agreement against KW on this ground.

c. Reasonable in scope.

At this point, the court summarizes its findings with respect to the 1996 Agreement between U.S. Can and KW. First, it is ancillary to a legitimate business transaction between the parties. Second, it is supported by adequate consideration. Third, it is reasonably necessary to protect against competition based upon use of confidential information acquired during the course of the parties' business dealings.

However, as explained above, the non-competition agreement must be reformed and modified to a certain extent. KW already knew how to manufacture plastic cans, or else such knowledge was commonly known. "In addition, U.S. Can does not have a proprietary interest in its customers. Thus, U.S. Can has produced sufficient evidence to support the non-compete only to the extent that it bars KW from using confidential information to misappropriate the Behr account for its own benefit.

It is for the jury to determine whether KW actually disclosed such information and, if so, whether it was sensitive at the time it was disclosed. If the information was disclosed and sensitive when KW attempted to use it for its own benefit, then U.S. Can may enforce the covenant and prevent the company from contracting with Behr.

With respect to any and all other potential customers, however, the non-competition portions of the 1996 Agreement are not reasonably necessary to protect any of U.S. Can's legitimate business interests. (1996 Agreement ¶¶ 4.1-4.2.) They will not be enforced.

The court also finds that the non-compete clauses will be terminated as of the date when any misappropriated information became stale. A court may modify a non-competition provision that is unreasonable in time or scope. See Weitekamp, 620 N.E.2d at 461-62; Arpac, 589 N.E.2d at 652. The court should consider factors including the party's need to protect a legitimate business interest; the hardship or injury to the former employee, and the likely injury to the public. It must also be mindful of the state's pronounced aversion to partial restraints of trade. See Weitekamp, 620 N.E.2d at 461-62; Arpac, 589 N.E.2d at 651-52.

U.S. Can's only legitimate interest is in proscribing unfair competition arising from the misuse of its confidential information. But once such information becomes commonly known or stale, then U.S. Can's interest evaporates. After all, if KW had entered the plastic paint can market due to its own accord, then it would have deprived U.S. Can of nothing. The perpetuation of a non-compete clause in such a situation would amount to nothing more than a punitive, naked restraint of trade. See 765 ILCS 1065/3(a) (1997) (authorizing court to terminate injunction once confidential information "has ceased to exist" due to factors not attributable to defendant).

Illinois courts recognize this principle, and they have pared down overbroad covenants that have restrained trade beyond the time needed for the restrained party to become a competitor in its own right. See, e.g., Stampede, 651 N.E.2d at 217; see also Laidlaw, 20 F. Supp.2d at 757-61.

While Plaintiff cites cases that have upheld restraints for as long as five years, each case must be judged on its facts. Moreover, those cases involved employees in the professional services industry, who acquired skills that presumably would not dissipate duringany ascertainable time period. See Wyatt v. Dishong, 469 N.E.2d 608, 609-10 (Ill.App.Ct. 1984); Rhoads v. Clifton, Gunderson Co., 411 N.E.2d 1380, 1383 (Ill.App.Ct. 1980)

In this case, given the absence of any legitimate interest for an ongoing restraint, the court finds that the covenant not to compete is terminated as of the date when any misappropriated information became stale. See Stampede, 651 N.E.2d at 217.

3. The contract, as reformed, does not violate the Sherman Act

In addition, the court finds that the covenant, as modified, does not violate § 1 of the Sherman Act. See 15 U.S.C. § 1.

Preliminarily, the court rejects Defendant's assertion that the covenant is unreasonable per se. The Sherman Act prohibits "unreasonable" restraints on trade. See All Care Nursing Serv., Inc. v. High Tech Staffing Servs., Inc., 135 F.3d 740, 746 (11th Cir. 1998); Retina Assoc., P.A. v. Southern Baptist Hosp. of Fla., Inc., 105 F.3d 1376, 1380 (11th Cir. 1997). The fundamental question is "whether or not the challenged restraint enhances competition." National Bancard Core. v. VISA U.S.A., Inc., 779 F.2d 592, 598 (11th Cir. 1986) (citation and quotation omitted).

Generally, the court must consider all of the relevant facts and circumstances; weighing the procompetitive advantages of the restraint against its anticompetitive costs. "A presumption exists that the circumstances of a case will be looked at in the light of the rule of reason standard and will not be deemed per se unreasonable." All Care, 135 F.3d at 746 (citing Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723-26 (1988)).

In other words, the court will consider a restraint unreasonable per se only if it "facially appears to be one that would always or almost always tend to restrict competition and decrease output" rather than "increase economic efficiency and render markets more, rather than less, competitive." Id. (citing Northwest Wholesale Stationers. Inc. v. Pacific Stationery Printing Co., 472 U.S. 284, 289-90 (1985)). See also Consultants Designers, Inc. v. Butler Serv. Group. Inc., 720 F.2d 1553, 1562 (11th Cir. 1983)

Nevertheless, there are some limited situations when the court can take a "quick look" and readily determine that a contract is "solely a naked restraint of trade so offensive to competition as to be unreasonable per se." Retina Assoc., 105 F.3d at 1380; All Care, 135 F.3d at 746.

As Defendant recognizes, courts are quick to condemn horizontal market restrictions. Such an agreement exists when: (1) its participants are either actual or potential rivals at the time the agreement was made; and (2) the agreement eliminates competition by dividing a relevant market into spheres within which each party enjoys exclusive control. See Palmer v. BRG of Georgia, 498 U.S. 46, 49-50 (1990); 11 Herbert Hovenkamp; Antitrust Law: An Analysis of Antitrust Principles and Their Application, ¶ 1901, at 185 (1998 ed.)

In this case, the 1996 Agreement, as modified, is not a horizontal market restriction. It merely prevents KW from using confidential information to misappropriate a customer. KW remained free to contract with any company it chose, so long as it spent its own time, money, and effort to make the agreement possible. Certainly, the 1996 Agreement is not the type that calls for per se treatment.⁹ See Baker's Aid, 730 F. Supp. at 1216. Cf. Consultants, 720 F.2d 1561 ("there has been an unbroken line of cases holding that the validity of covenants not to compete under the Sherman Act must be analyzed under the rule of reason."); Smith v. Dravo Corp., 203 F.2d 369, 375 (7th Cir. 1953) (covenants not to compete are unquestionably lawful when designed to protect confidential information).

9 The restraint considered in Engine Specialties, 605 F.2d 1, differs from this case in the crucial respect that it was not ancillary to any business relationship or transaction. Here, the covenant is ancillary to the agreement to negotiate in good faith.

Rule of reason analysis normally involves a three-step process, which focuses on the impact of the agreement at the time it was made. First, the parties must define the relevant market. Second, the court must consider whether the party seeking to enforce the agreement had sufficient market power or market share to raise price significantly above competitive levels without losing business. See Graphic Prods. Distribs., Inc. v. Itek Corp., 717 F.2d 1560, 1570-72 (11th Cir. 1983). Third, the court considers whether the "plaintiff has demonstrated an anticompetitive effect which is not offset by a need to achieve a procompetitive benefit or justification." See Consultants, 720 F.2d 1562 (citation omitted).

The parties disagree to some extent about the relevant market in this case; Defendant feels that it is limited solely to plastic paint cans, while Plaintiff argues that it includes all metal and plastic paint cans.¹⁰ Regardless, the 1996 Agreement, as modified, had no inherently anticompetitive side effects. KW remained free to contract with any party it chose, provided that it did not use U.S. Can's confidential information. In fact, nothing prohibited it from contracting with Behr, so long as it did not do so through a breach of confidence.

10 If Plaintiff is correct, then the record reflects that U.S. Can had a market share of approximately 45 percent of the relevant market in (and this is not clear) either 1996 or 2000. (Sherwin Decl.)

The Sherman Act is concerned only with "impact on competitive conditions." National Soc. of Prof. Eng'rs v. United States, 435 U.S. 679, 688 (1978). Its purpose is "the protection of competition, not competitors." Brunswick Corp. v. Pueblo Bowl-O-Mat. Inc., 429 U.S. 477, 488 (1977).

Thus, regardless of U.S. Can's market share, the 1996 Agreement, as modified, could have worked no unreasonable restraint on trade. Cf. Water Servs. Inc. v. Tesco Chems., Inc., 410 F.2d 163, 170-71 (5th Cir. 1969); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 265 (7th Cir. 1981). Quite simply, U.S. Can did not eliminate a competitor; it only protected its own information.

On the other hand, the 1996 Agreement's procompetitive effects are readily apparent. U.S. Can sought to share confidential information with a possible competitor. The information, if disclosed, had the potential to help them both reflect upon their own interests. Afterwards, they might have possibly entered into a long-term subcontract, or they may have used the information to build upon their manufacturing or distributing relationship. Cf. Polk Bros., 776 F.2d at 188-89K

Such confidentiality provisions are commonplace in the commercial world Indeed, Illinois law specifically authorizes courts to enjoin unfair competition based on the use of such information.¹¹ See 765 ILCS 1065/3 (1997); see also Harpo, 719 N.E.2d at 250; Morrison, 422 N.E.2d at 1038; Pepsico, 54 F.3d at 1267-70.

11 An injunction may issue even in the absence of a restrictive covenant. See Televation Telecomm. Sys., Inc. v. Saindon, 522 N.E.2d 1359, 1362 (Ill.App.Ct. 1988); see generally Anthony C. Valiulis, Can't Keep a Secret, CBA RECORD 28 (January 1995).

Accordingly, for all these reasons, the court finds that the 1996 Agreement, as modified, is a reasonable restraint that is permissible under the Sherman Act. Defendant's Motion For Summary Judgment as to Count Two is due to be denied to the extent that it argues otherwise.

F. Breach of Implied Covenant of Good Faith and Fair Dealing

The court now turns to Count Three of Plaintiff's Second Amended Complaint, which alleges that KW breached an implied covenant of good faith and fair dealing. This claim can be dismissed summarily.

As a general rule, this implied covenant does not create an independent source of duties for the parties. See Guardino v. Chrysler Corp, 691 N.E.2d 787, 793 (Ill.App.Ct. 1998). Illinois law "precludes separate claims for breach of implied good faith duties that allege only [a] violation of express contractual terms." Codest Eng'g v. Hyatt Int'l Corp., 954 F. Supp. 1224, 1233 (N.D. Ill. 1996)

There is one exception to the rule. In Voyles v. Sandia Mortgage Corp., 724 N.E.2d 1276 (Ill.App.Ct. 2000), a DuPage County appellate court recognized that "courts have implicitly accepted the existence of the tort of bad faith in lendermortgagee scenarios." Id. at 1281. The court's holding was a narrow one. It emphasized that it was recognizing a cause of action only for "bad faith claims arising from a lender's misconduct" that was "intentional and outrageous." Id. at 1282.

Voyles is wholly inapplicable in this situation. Thus, the general rule applies. U.S. Can's claim is based entirely upon the factual allegations underlying its breach of contract claim. (Second Am. Compl. ¶¶ 34-37.) Because U.S. Can has alleged a derivative claim, summary judgment is due to be granted.

G. Promissory and Equitable Estoppel

Counts Four and Five of Plaintiff's Amended Complaint raise the related claims of promissory estoppel and equitable estoppel. Both claims focus on an alleged verbal agreement made in August 1995, wholly apart from the alleged written agreement in April 1996.

In Count Four, Plaintiff argues that it relied upon Defendant's verbal agreement not to compete with the company for a period of five years. It claims, therefore, that the promise must be enforced to avoid injustice. (Second Am. Compl. ¶¶ 38-42.) In Count Five, Plaintiff argues that Defendant made this promise with the intent or expectation that U.S. Can would rely upon it, even though KW, in fact, "did not intend to abide by such an agreement." ( Id. ¶¶ 44-45.)

Defendant argues that the Statute of Frauds bars recovery for promissory estoppel. It also argues that Plaintiff has not met all the necessary elements to recover under a claim of equitable estoppel. The court agrees with Defendant, and summary judgment is due to be granted on both claims.

1. Promissory Estoppel

Under Illinois law, promissory estoppel may be invoked if: (1) there is a promise unambiguous in terms; (2) that is relied upon by the promisee to its detriment; (3) and such reliance is expected and foreseeable by the party making the promise. See Cullen Distrib. Inc. v. Petty, 517 N.E.2d 733, 736-38 (Ill.App.Ct. 1988); Gerson Elec. Constr. Co. v. Honeywell. Inc., 453 N.E.2d 726, 728 (Ill.App.Ct. 1983).

In response, Defendant invokes the Statute of Frauds. In Illinois, the statute provides "no action shall be brought . . . upon any agreement that is not to be performed within the space of one year from.the making thereof," unless it is "in writing and signed by the party to be charged." 740 ILCS 80/1 (1997).

The statute "covers only those contracts whose performance cannot possibly be completed within a year." McInerney v. Charter Golf. Inc., 680 N.E.2d 1347, 1353 (Ill. 1997) (Nickels, J., dissenting) (citing RESTATEMENT (SECOND) OF CONTRACTS § 130, cmt. a (1981)). See also 2 Corbin on Contracts § 444, at 535 (1950); 3 Williston on Contracts § 495, at 575-58 (3d ed. 1960). If the statute applies, one cannot circumvent its effects by claiming reliance and promissory estoppel. See McInerney, 680 N.E.2d at 1352; Sinclair v. Sullivan Chevrolet Co., 195 N.E.2d 250, 254 (Ill.App.Ct. 1964).

The alleged verbal agreement in this case involves a promise by Defendant not to compete with Plaintiff in the paint can market for five years. If the parties made such an agreement, of course, it would be have to be modified by the court in accordance with the principles regulating the written 1996 Agreement. But even after such modification, it still would have a life of five years. Obviously, a covenant to refrain from acting for five years cannot be performed in less than one year.

It is apparent to the court that Plaintiff has conceded this argument. Plaintiff issues the following four-sentence statement, which is embedded in its 52-page Response:

In response to U.S. Can's claims for promissory estoppel (Count IV) and equitable estoppel (Count V), KW first lumps both together in hopes of blurring the lines between the two very different causes of action. (KW Brief, pp. 37-38.) For example, KW argues that U.S. Can's basis for estoppel, i.e., the oral agreement to extend the non-compete for five years, is barred by the Statute of Frauds. According to KW, promissory estoppel cannot be used to circumvent the statute. (KW Brief, p. 38.) This is the only argument KW makes in response to U.S. Can's promissory estoppel claim [footnote omitted]. .

(Resp. at 47.) Plaintiff then goes on to attack Defendant's arguments related to equitable estoppel. ( Id. at 47-48.)

"There is no burden upon the district court to distill every potential argument that could be made based upon the materials before it on summary judgment. The onus is upon the parties to formulate arguments; grounds alleged in the complaint but not relied upon in summary judgment are deemed abandoned." Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995) (applying FED. R. CIV. P. 56(e)).

Plaintiff's response admits the existence of a five-year oral agreement, acknowledges Defendant's legal basis for summary judgment, and offers no counterargument. Based on the foregoing, the court finds that Plaintiff has abandoned its claim of promissory estoppel. Summary judgment is due to be granted on Count Four.

2. Equitable Estoppel

Defendant's Motion For Summary Judgment on Count Five is due to be granted, too. U.S. Can contends that KW verbally agreed to extend the non-competition agreement during a meeting between the parties in August, 1995. (Second Am. Compl. ¶¶ 21, 44.)

In Illinois, the estopped party must have actual or implied knowledge that its statements were not true. See Hubble v. O'Connor, 684 N.E.2d 816, 825 (Ill.App.Ct. 1997). "This knowledge need not be actual but may be implied; misrepresentations made with gross negligence can form a basis for equitable estoppel." Vaughn v. Speaker, 533 N.E.2d 885, 890 (Ill. 1988)

In other words, as Plaintiff acknowledges, "[e]quitable estoppel is just like promissory estoppel except that it includes some element of fraud." (Resp. at 47.) As noted above in dismissing Plaintiff's fraud claim, see supra Part IV.D., the court found insufficient evidence to suggest that Mr. Campbell knowingly or intentionally misrepresented any material facts during the August 1995 meeting when the verbal agreement allegedly was made. Plaintiff's prayer for equitable estoppel is due to be denied for the same reason.

H. Trade Secrets

The court now turns to Plaintiff's claim of misappropriation of trade secrets. The Illinois Trade Secrets Act prohibits disclosure of such information, see 765 ILCS 1065/1 (1997), as does the parties' own written agreement. (1996 Agreement ¶¶ 3.1-3.3.)

In its earlier discussion of breach of contract, the court set forth its findings that Defendant may have misappropriated certain protectable materials. See supra Part IV.E.2. For those same reasons, Defendant's Motion For Summary Judgment on Count Twelve is due to be denied.

I. Civil Conspiracy

Finally, the court finds that Defendant is entitled to summary judgment on Plaintiff's allegation of civil conspiracy. Illinois recognizes this claim, provided that one proves: (1) an agreement between two or more persons; (2) to participate in an unlawful act or a lawful act in an unlawful manner; (3) the existence of an injury caused by an overt act by one of the conspirators in furtherance of their overall conspiracy. See Small, 713 N.E.2d at 1223.

Plaintiff's claim fails as a matter of law. The parties are all principals or agents of KW and, therefore, cannot conspire with one another. See Krieger v. Alder, Kaplan Begy, 1996 WL 6540 at § 17 (N.D. Ill. 1996). Moreover, as Defendant notes, Plaintiff has pointed to absolutely no evidence even suggesting a conspiracy among the various defendants. In the face of a properly supported motion for summary judgment, a party simply cannot rest on its pleadings. See Celotex, 477 U.S. at 324. Accordingly, summary judgment is due to be granted on Count Thirteen.

V. ORDER

Accordingly, it is CONSIDERED and ORDERED that Defendant's Motion For Summary Judgment be and the same is hereby GRANTED in part and DENIED in part as follows:

(1) The Motion be and the same is hereby GRANTED as to Counts One, Three, Four, Five, Ten, Eleven, and Thirteen.

(2) The Motion be and the same is hereby DENIED as to Counts Nine and Twelve.

(3) The Motion be and the same is hereby GRANTED IN PART AND DENIED IN PART as to Count Two, as explained in Part IV.E. of the Memorandum Opinion accompanying this Order.

(4) It is further ORDERED that, if the finder of fact concludes that the written 1996 Agreement exists, then it is MODIFIED in accordance with the court's findings in Part IV.E. of the Memorandum Opinion accompanying this Order.