Lakeview Tech Inc v. Robinson, Eric ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-4433
LAKEVIEW TECHNOLOGY, INC.,
Plaintiff-Appellant,
v.
ERIC ROBINSON,
Defendant-Appellee.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 05 C 3227—Charles P. Kocoras, Chief Judge.
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ARGUED APRIL 3, 2006—DECIDED MAY 1, 2006
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Before EASTERBROOK, ROVNER, and WILLIAMS, Circuit
Judges.
EASTERBROOK, Circuit Judge. Eric Robinson was a
vice president of sales of Lakeview Technology, a vendor
of software that enables users to access their data during
system outages. Late in 2004 Robinson entered negotiations
with Vision Solutions, Inc., one of Lakeview’s competitors;
he did not inform Lakeview about this step, nor did he
inform his employer when he accepted Vision’s offer of
employment. He told Lakeview that he would be leaving but
lied about the reason. Asked point-blank about rumors that
he was going to Vision, Robinson told Lakeview that he was
doing no such thing and would instead pursue real-estate
interests after his departure. By deceiving his employer,
2 No. 05-4433
Robinson not only extended the duration of his salary but
also obtained commercially valuable information that he
could take with him. During April and May 2005, Lakeview
made its selling plans for the 2005-06 sales year; Robinson
took this information with him to Vision in the middle of
May 2005. When Lakeview learned that it had been gulled,
it filed this suit under the diversity jurisdiction.
Robinson had promised Lakeview, through his employ-
ment contract, that for a year following his departure he
would not compete with it by soliciting any of Lakeview’s
customers with which he had contact or any prospective
customer to which Lakeview had attempted to sell software
during the preceding 24 months. He also promised to hold
in confidence all of Lakeview’s trade secrets, including its
plans, pricing, and customer lists. Lakeview asked for an
injunction to ensure that Robinson kept these promises.
After Robinson told the district judge that he would limit
his efforts to places in which Lakeview had not been
promoting its software and would not solicit his old custom-
ers or let Vision in on any of Lakeview’s secrets, the court
denied Lakeview’s motion for a preliminary
injunction—without holding an evidentiary hearing to
explore the question whether Robinson is telling the truth.
Lakeview took an interlocutory appeal under 28 U.S.C.
§1292(a)(1). Discovery continues in the district court, and
the district judge has yet to set a schedule for dispositive
motions. So preliminary relief may be the only kind avail-
able for some time to come. The dispute is not moot: the
limit on using trade secrets is of indefinite duration, and
the limit on solicitation is extended if not complied with
during the year provided by the contract.
The district court gave three reasons for denying relief:
(1) The absence of proof that Robinson had solicited
Lakeview’s customers or disclosed its secrets; (2) Robinson’s
pledge not to do so in the future; and (3) the prospect of
hefty damages if he should act otherwise. The first of these
No. 05-4433 3
is inadequate as a matter of Illinois law, which controls
here. That subject is covered in Hess Newmark Owens Wolf,
Inc. v. Owens, 415 F.3d 630 (7th Cir. 2005), and the discus-
sion need not be repeated. Injunctions issue to curtail
palpable risks of future injury; it is not essential to estab-
lish that the worst has come to pass.
The second reason is weak given Robinson’s history of
deceit. Whether an ex-employee who concedes telling
lies that serve his financial interest is continuing to dissem-
ble, as Lakeview contends, is a question that a court may
not resolve against the employer without a hearing. See,
e.g., Ty, Inc. v. GMA Accessories, Inc., 132 F.3d 1167, 1171
(7th Cir. 1997); Medeco Security Locks, Inc. v. Swiderek, 680
F.2d 37, 39 (7th Cir. 1981). Especially when his lawyer
contends (as Robinson’s does) that he is entitled to ignore
his commitments, which at oral argument counsel called
onerous. This implies a strong temptation to disregard the
contractual promises coupled with a belief that doing so
would be justified. The risk that action will follow cannot be
called insubstantial.
The court’s final reason fails to take account of the limits
on Robinson’s wealth. The judge wrote that, if Robinson
fails to honor his contractual obligations, “the damage could
be very large, given the nature of the industry involved and
the length of the revenue-generating relationship with
customers” but could be calculated, so that a financial
remedy would be adequate. Ability to calculate damages
does not make that remedy adequate, however, if the
plaintiff cannot collect the award. A judgment-proof defen-
dant is not deterred by the threat of money damages, so
some other remedy (such as the contempt power) may be
essential. Nothing in the record suggests that Robinson
would be good for “very large” damages. He could pro-
vide assurances via a bond or a letter of credit—and if
Vision is confident that it has in place controls to prevent
Robinson from violating his promises to Lakeview, then
4 No. 05-4433
Vision should be willing to pledge its credit to induce a
commercial surety to stand behind Robinson’s obligation.
But neither Robinson nor Vision (which is not a party, and
which therefore cannot be ordered to pay from corporate
funds) has offered to provide the sureties that would
make damages a potentially adequate remedy for the
potentially “very large” injuries that Robinson can inflict on
Lakeview.
The balance of equities is so lopsided that Lakeview is
entitled to injunctive relief, unless Robinson demonstrates
that any judgment against him can be satisfied. If, as
Robinson assured the district court, he plans to abide by all
of his commitments, then an injunction that obliges him to
keep these promises while allowing him to remain on
Vision’s payroll costs him nothing: the costs of false
positives are nil. (Any slight risk can and should be amelio-
rated by an injunction bond under Fed. R. Civ. P. 65(c). See
Mead Johnson & Co. v. Abbott Laboratories, 201 F.3d 883,
amended, 209 F.3d 1032 (7th Cir. 2000).) But an injunction
can protect Lakeview from potentially substantial injury if
Robinson should yield to temptation: the costs of false
negatives are large. See generally Illinois Bell Telephone
Co. v. WorldCom Technologies, Inc., 157 F.3d 500, 503-04
(7th Cir. 1998); American Hospital Supply Corp. v. Hospital
Products Ltd., 780 F.2d 589, 593-94 (7th Cir. 1986); Lawson
Products, Inc. v. Avnet, Inc., 782 F.2d 1429, 1433-34 (7th
Cir. 1986).
Whether a bond or other surety would be a sufficient
reason to withhold injunctive relief is a question best left to
the district court. See Wolfinger v. Mueller, 165 F.2d 844(6th Cir. 1948). Our suggestion that financial security could
be an adequate substitute for an injunction should not be
confused with the proposition, rejected in Grupo Mexicano
de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S.
308 (1999), that a district court always may require defen-
dants to put up assets. Here the plaintiff is presumptively
No. 05-4433 5
entitled to equitable relief under the traditional formula
that considers both the probability of success on the merits
and the potential costs of judicial error. When the evalua-
tion of relative error costs depends in large measure on the
fact that the defendant may be unable to pay damages, this
balance changes if a bond or letter of credit ensures that the
prevailing side can be compensated adequately. A “non-
injunction bond” then is the flip side of an injunction bond
under Rule 65(c). Cf. 7-20 Chisum on Patents §20.04[1][g].
Until this issue has been resolved one way or the other,
however, Lakeview is entitled to a preliminary injunction
that will reduce the risks it must bear from uncertainty
about Robinson’s conduct. This is not to say, however, that
Lakeview is entitled to its fondest wish—that Robinson be
banned from working for any competitor. Sweeping relief is
inappropriate if more focused restrictions will serve.
The judgment of the district court is vacated, and the case
is remanded with instructions to craft appropriate equitable
relief with dispatch. The mandate will issue forthwith.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-1-06