Formax, Inc. v. Allan C. Hostert, Kris Hostert, Gary L. Jugles and the Dale Service Group , 841 F.2d 388 ( 1988 )

PAULINE NEWMAN, Circuit Judge,

concurring in part, dissenting in part;

I

I join that portion of the court’s opinion reversing the dismissal of the RICO count.

II

I respectfully dissent from the court’s decision denying the injunction pendente lite. Formax requested that the Formax manufacturing prints in defendants’ possession be turned over to a custodian during the litigation and that the defendants be enjoined from using the information obtained therefrom. The requirements for this limited preliminary relief appear to be well met, and entirely in accord with Illinois law and the interests of justice.

Mr. Hostert admitted that he personally took some of the manufacturing prints from the Formax offices, and that he obtained over six hundred more from persons to whom Formax had entrusted them for the purpose of manufacture of Formax’s machines. When a party has possession of and is using the tangible property of another, as was here admitted, justice requires that the party not profit therefrom while the case wends its way through the courts. See Affiliated Hospital Products, Inc. v. Baldwin, 57 Ill.App.3d 800, 15 Ill.Dec. 528, 532-33, 373 N.E.2d 1000, 1004-05, 202 USPQ 220, 224 (Ill.App.Ct.1978) (when defendants had possession of and used drawings found to be the confidential property of plaintiff, denial of preliminary injunction was abuse of trial court’s discretion).

The provenance of the manufacturing prints was established before the district court, without substantial dispute, through several witnesses. It appears unchallenged that each document was identified as the property of Formax and carried a legend prohibiting unauthorized use:

NOTICE This drawing or other document contains proprietary information of Formax, Inc. and is not to be used, reproduced or disclosed without express written permission.

No possession of this property as of right has been shown, or even seriously argued, by the defendants. Illinois law establishes that documents of this sort are accorded legal protection. Schulenburg v. Signatrol, Inc., 33 Ill.2d 379, 387, 212 N.E.2d 865, 869, 147 USPQ 167, 171 (1965), cert. denied, 383 U.S. 959, 86 S.Ct. 1225, 16 L.Ed.2d 302 (1966):

It is clear that an employee may take with him ... general skills and knowledge acquired during his tenure with the former employer. It is equally clear that the same employee may not take with him, confidential particularized plans or processes developed by his employer and disclosed to him while the employer — employee relationship exists, which are unknown to others in the industry and which give the employer advantage over his competitors.

The Illinois standard for granting preliminary injunctions was recently stated in Lee/O’Keefe Ins. Agency, Inc. v. Ferega, 163 Ill.App.3d 997, 114 Ill.Dec. 919, 516 N.E.2d 1313, (1987):

Initially, we note that a preliminary injunction is a provisional remedy granted to preserve the status quo, i.e., the last, peaceable uncontested status which preceded the litigation, pending a hearing of the case on its merits. In order for a preliminary injunction to issue the party seeking it must establish by a preponderance of the evidence (1) he possesses a certain and clearly ascertainable right or interest needing protection; (2) there is no adequate remedy at law; (3) irreparable harm will result if it is not granted; and (4) there is a reasonable likelihood of success on the merits. In addition ... the trial court must conclude that the benefits of granting the injunction outweigh the possible injury which defendant might suffer as a result thereof. Finally, as the decision to grant or deny preliminary injunctive relief rests within the sound discretion of the trial court, and because its findings may not be disturbed absent a showing of an abuse thereof, the role of a reviewing court is limited to a determination of whether those findings are contrary to the manifest weight of the evidence, [citations omitted]

Formax’s right to the drawings is uncontested, as Mr. Hostert admitted that he had taken, and concealed his possession of, the Formax prints. Illinois law does not condone such actions. Thus there is a reasonable likelihood that Formax will prevail on the merits of the issue of ownership of the manufacturing prints now in defendants’ possession. Schulenburg, 33 Ill.2d at 387, 212 N.E.2d at 869, 147 USPQ at 171. To authorize such continuing possession and use will unjustly favor the wrongdoer to the continuing and irreparable injury of the wronged. See Lawter Int’l, Inc. v. Carroll, 116 Ill.App.3d 717, 731, 72 Ill.Dec. 16, 25, 451 N.E.2d 1338, 1348 (1983) (irreparable injury is shown “when the plaintiff will be subject to transgressions of a continuing nature, constant and frequent, such that no meaningful redress can be had at law”). The balance of harms strongly favors Formax.

Formax has asked for a narrow provisional remedy. It has not requested an injunction against reverse engineering of its parts and machines. The requested injunction would not bar the defendants from continuing in this business by legitimate means. See ILG Industries, Inc. v. Scott, 49 Ill.2d 88, 93, 273 N.E.2d 393, 397-98, 171 USPQ 371, 375 (1971) (“defendants elected to proceed in an unlawful manner although a legal means of obtaining this information [by reverse engineering] was available to them”). The interest of justice is better served by preserving the integrity of property rights in manufacturing drawings, and not condoning misappropriation of the property of another.

There is a controlling distinction between the facts of this case and those cases which turn on questions of employee mobility and the rights of employees to profit from experience gained during employment. Defendants themselves assert that the parts and machines can readily be reverse engineered. Issues of employee mobility, if there are any in this case, are not raised in the relief that Formax requested pendente lite.

My colleagues on this panel have apparently placed controlling weight on the time elapsed between when Formax first received information that Hostert had taken some manufacturing prints, and the request for a preliminary injunction. I agree that this is a factor to be considered. However, I am persuaded that Formax did not act unreasonably in waiting until it had evidence that defendants not only had a large number of Formax manufacturing prints but also that they were using them to produce parts and machines to Formax’s significant damage. When defendants eventually, after resisting discovery, produced 678 Formax prints, Formax acted within days.

The elements supporting grant of a preliminary injunction are plainly present. In my view the district court’s decision was contrary to the manifest weight of the evidence and the applicable law. The court thus exceeded its discretionary authority in declining to grant the requested preliminary injunction.