Certainteed Corp v. Williams, Jerome O. ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 06-3043
CERTAINTEED CORPORATION,
Plaintiff-Appellant,
v.
JEROME O. WILLIAMS, JR.,
Defendant-Appellee.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 06 C 2992—James F. Holderman, Chief Judge.
____________
ARGUED FEBRUARY 5, 2007—DECIDED MARCH 22, 2007
____________
Before EASTERBROOK, Chief Judge, and ROVNER and
SYKES, Circuit Judges.
EASTERBROOK, Chief Judge. Both CertainTeed Corpora-
tion and IKO Industries Ltd. make roofing tiles. Jerome
Williams managed one of CertainTeed’s plants in Texas
from 2002 through April 2006, when he transferred his
flag to IKO, becoming manager of its new plant in
Kankakee, Illinois. CertainTeed then filed this suit
under the diversity jurisdiction, seeking an injunction to
enforce a promise that Williams had made as a condition
of his promotion to plant manager in 2002. Williams
signed a contract containing this language:
I shall not, without [CertainTeed’s consent] . . .
during the one year period following termination of
2 No. 06-3043
my employment with the Company, engage in or
contribute my knowledge to any work or activity
that involves a product, process, apparatus, service
or development (i) which is then competitive with
or similar to a product, process, apparatus, service
or development on which I worked or (ii) with
respect to which I had access to Confidential
Information while at the Company at any time
during the period prior to such termination. The
preceding sentence shall not apply if my employ-
ment is terminated by the Company without cause.
The above one year period shall not run during any
period in which I am in violation of this paragraph.
Williams’s job as a plant manager for IKO violates this
promise. He argues, however, that the promise is invalid
under Pennsylvania law, which the contract’s choice-of-law
clause specifies. (CertainTeed’s headquarters are in
Pennsylvania.)
After holding a hearing on CertainTeed’s request for a
preliminary injunction, the district court concluded that
Pennsylvania would not enforce clause (i) of the language
we have quoted. Although the court deemed clause (ii)
valid, and although the evidence establishes (without
dispute) that Williams had access at CertainTeed to
confidential information that could be put to use at IKO’s
new plant, the district court declined to provide any
relief because CertainTeed did not demonstrate that
Williams has used its confidential information in his
new job. 2006 U.S. Dist. LEXIS 43199 (N.D. Ill. June 27,
2006). The court credited testimony to the effect that it
is possible for Williams to do his job without drawing on
confidential knowledge he gained at CertainTeed. That
plus the absence of proof that Williams had used confiden-
tial information (CertainTeed conceded that it had no
such evidence) was dispositive in the district judge’s eyes.
No. 06-3043 3
Pennsylvania enforces restrictive covenants that are
“reasonably necessary for the protection of the employer’s
protectible business interests” such as trade secrets and
other confidential information, if the restrictions “are
reasonably limited in duration and geographic extent.”
Hess v. Gebhard & Co., 570 Pa. 148, 162, 157, 808 A.2d
912 (2002). See also, e.g., Barb-Lee Mobile Frame Co. v.
Hoot, 416 Pa. 222, 206 A.2d 59 (1965); Omicron Systems,
Inc. v. Weiner, 860 A.2d 554 (Pa. Super. 2004). Williams
does not argue that one year is too long, or that the
geographic scope is excessive (competition in shingles
is national if not international), so the question becomes
whether the restriction is “reasonably necessary for the
protection of the employer’s protectible business interests”.
In holding clause (ii) valid, the district court gave an
affirmative answer. Yet if clause (ii) is valid, why must
CertainTeed show that Williams actually used its con-
fidential information? A demand for such proof amounts
to saying that Pennsylvania never enforces non-competi-
tion clauses and will enforce only contracts that limit the
misappropriation of trade secrets. That view contradicts
Hess and the district court’s own recognition that clause
(ii) is valid as a matter of Pennsylvania law.
One reason why employers solicit promises such as
clause (ii) in addition to promises not to use confidential
information is that it may be very difficult to show that the
ex-employee has used confidential information. Williams
has a great deal of information about CertainTeed’s
manufacturing processes that could be valuable to IKO
and that IKO has no other way of learning. (Witnesses
testified that manufacturing processes cannot be inferred
from inspecting or reverse engineering the finished
shingles.) Williams may be tempted to use this knowledge
to make his new plant more efficient. Has he yielded to
temptation? Unless Williams confesses, CertainTeed may
have no way to tell—the same limits on reverse engineer-
4 No. 06-3043
ing that prevent IKO from learning how CertainTeed
makes its shingles also prevent CertainTeed from learning
(from IKO’s finished product) whether IKO has used
CertainTeed’s secret processes.
Keeping a business executive with a wealth of informa-
tion from taking an equivalent position at a rival is
“reasonably necessary for the protection of the employer’s
protectible business interests” when the executive’s use
of trade secrets would be hard to detect. The district court
did not address the questions whether (a) Williams’s
position at IKO is one in which he would be tempted to put
CertainTeed’s information to use, and (b) whether, if a
plant manager yielded to this temptation, CertainTeed
could detect the transgression. Williams maintains that
only “inevitable” use of confidential information allows
relief, but that position lacks any footing in Pennsylvania
law.
The evidence in the record all but compels an affirmative
answer to the first question, which entitles CertainTeed
to a preliminary injunction pending a hearing on its
request for permanent relief. Question (b) can be ad-
dressed at that hearing; for that matter, the parties are
free to supplement the record about Question (a).
We vacate the district court’s decision and remand
for the prompt entry of an appropriate preliminary in-
junction. The mandate will issue forthwith.
No. 06-3043 5
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-22-07