Autotech Technology Ltd. Partnership v. Automationdirect.com

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-4544
AUTOTECH TECHNOLOGY LIMITED PARTNERSHIP,
an Illinois limited partnership,
Plaintiff-Appellant,
v.
AUTOMATIONDIRECT.COM, KOYO ELECTRONICS
INDUSTRIES COMPANY LIMITED, and
TIMOTHY HOHMANN,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 5488—James F. Holderman, Chief Judge.
____________
ARGUED OCTOBER 20, 2006—DECIDED DECEMBER 11, 2006
____________
Before EASTERBROOK, Chief Judge, and BAUER and
EVANS, Circuit Judges.
BAUER, Circuit Judge. Autotech Technology Limited
Partnership (“Autotech”) and Automationdirect.com
(“ADC”) entered into a contract to develop and market
touch screens. When ADC developed a competing touch
screen, Autotech sought a preliminary injunction to
restrain ADC from selling the new product, claiming
breach of fiduciary duties. At the preliminary injunc-
tion hearing, the district court barred Autotech’s expert
and denied Autotech relief finding that there was no
2 No. 05-4544
evidence to demonstrate a likelihood of success on the
merits because fiduciary duties were not created and
therefore not breached. We affirm.
I. Background
Autotech and ADC are two companies involved in the
touch screen industry. Autotech manufactures computer
equipment, while ADC is a direct marketer that sells
automation control products through e-commerce and
catalogs. On September 8, 1999, ADC and Autotech
entered into a contract for joint development and sale of
a product that would later be known as the “EZTouch
touch screen.” They also signed a document entitled, “This
Marriage and Signing of a $100 Million Contract.” Non-
lawyer employees at ADC and Autotech drafted both
documents; there were no lawyers involved. This usually
sets the stage for a lovely lawsuit.
By terms of the contract, Autotech agreed to manufac-
ture and ship products to ADC, and ADC agreed to
market them. Each party contributed $150,000 to a joint
investment account as an initial co-investment. The
parties were to “mutually agree upon the dispersion of
funds.” Both parties agreed that this was not a “simple
legal relationship.” Instead, the contract was to “more
strongly define a deeper sense of commitment to the long-
term success of all partners in the relationship.” Peppered
throughout the contract was language describing the
parties as “partners.” However, the contract also provided
that neither party had the right or responsibility “to
assume or to create any obligations or responsibilities
expressed or implied on behalf of or in the name of the
other or to bind the other party in any manner whatso-
ever.” Also, neither party was prohibited from developing
competing products. The contract had an initial term of
No. 05-4544 3
five and a half years and was automatically renewed for
one-year terms unless notice was given.
Without informing Autotech, ADC began to develop a
new product known as “C-More” with a different manufac-
turer, Koyo Electronics, Industries Company, Limited.
ADC planned to introduce the new product after the
contract expired in January 2005. In June 2004, ADC gave
timely notice of nonrenewal to Autotech.
On September 15, 2005, Autotech sued ADC, its CEO
Timothy Hohmann, and its majority stockholder, Koyo
Electronics Industries Company, Limited, in Illinois
State Court. ADC then removed the case to federal court
based on diversity jurisdiction. On October 26, 2005,
Autotech filed a first amended complaint asserting
claims for injunctive relief, breach of contract, breach of
fiduciary duty, aiding and abetting the breach of fiduciary
duty, fraudulent misrepresentation, and declaratory
judgment.
On September 29, 2005, Autotech filed a motion for a
preliminary injunction seeking to restrain ADC from
selling the C-More product, claiming breach of fiduciary
duties. At the preliminary injunction hearing, Autotech
contended that C-More was a clone of EZTouch that ADC
developed based on proprietary information that ADC
obtained from Autotech. Autotech pointed to the similarity
of the display of the computer icons on C-More when
compared to EZTouch. Peter M. Martin testified as
Autotech’s expert witness in support of this position. The
district court excluded his testimony, finding that
Martin’s principles and methods were unreliable because
the extent of his knowledge about C-More came from an
advertisement created by ADC for the general public. At
the conclusion of Autotech’s case-in-chief, ADC moved for
judgment as a matter of law. The district court granted
this motion and denied Autotech’s motion for a preliminary
4 No. 05-4544
injunction. The district court found that there was no
partnership or joint venture to support a fiduciary rela-
tionship because the parties had no right or ability to
create liabilities with third persons. The district court also
found that there was no fiduciary relationship created by
special circumstances. Autotech timely filed this appeal.
II. Discussion
A. Preliminary Injunction
We review the denial of a preliminary injunction for an
abuse of discretion. Goodman v. Ill. Dep’t of Fin. & Prof ’l
Regulation, 430 F.3d 432, 437 (7th Cir. 2005). Under
Illinois law, to establish a claim for breach of fiduciary
duty, Autotech must prove the existence of a fiduciary
duty, breach of that duty, and damages proximately
resulting from that breach. Neade v. Portes, 193 Ill. 2d 433,
739 N.E.2d 496, 502, 250 Ill. Dec. 733 (Ill. 2000). A fidu-
ciary duty arises either as a matter of law or by special
circumstances. Crichton v. Golden Rule Ins. Co., 358 Ill.
App. 3d 1137, 832 N.E.2d 843, 854, 295 Ill. Dec. 393 (Ill.
App. Ct. 2005). Autotech asserts that ADC owed it fidu-
ciary duties based on the existence of a partnership or
joint venture relationship or special circumstances.
Fiduciary duties exist as a matter of law in certain
relationships including partnerships and joint ventures.
The burden of proving the existence of a partnership or
joint venture is on the person who claims such a rela-
tionship exists. A partnership is an association of two or
more persons to carry on, as co-owners, a business for
profit. 805 ILCS 105/6(1). A joint venture is similar but
has a single enterprise. Harmon v. Martin, 395 Ill. 595, 71
N.E.2d 74, 83 (Ill. 1947). To establish a partnership, the
plaintiff must show that the parties (1) joined together to
carry on a trade or venture, (2) for their common benefit,
No. 05-4544 5
(3) with each contributing property or services to the
enterprise, and (4) having a community of interest in the
profits. Maloney v. Pihera, 215 Ill. App. 3d 30, 573 N.E.2d
1379, 1387, 158 Ill. Dec. 194 (Ill. App. Ct. 1991). To
establish a joint venture, the plaintiff must prove (1)
an express or implied agreement to carry on some enter-
prise; (2) a manifestation of intent by the parties to be
associated as joint ventures; (3) a joint interest as shown
by the contribution of property, financial resources, effort,
skill or knowledge; (4) a degree of joint proprietorship or
mutual right to the exercise of control over the enterprise;
and (5) a provision for joint sharing of profits and losses.
Trustmark Ins. Co. v. Gen & Cologne Life Re of America,
424 F.3d 542, 547 (7th Cir. 2005).
Other than the text of the contracts referring to “mar-
riage” and “partners”, see Yokel v. Hite, 348 Ill. App. 3d
703, 809 N.E.2d 721, 726, 284 Ill. Dec. 155 (Ill. App. Ct.
2004) (finding that nomenclature in a contract is not
dispositive of the relationship), Autotech failed to offer
any evidence showing a partnership or joint venture. In
fact, the evidence indicated the opposite: the contract
expressly prohibited joint control; there was no provision
for profit sharing and loss; the parties did not file joint tax
returns; and there was no evidence of an intent to be
associated as a partnership or joint venture. The district
court correctly determined that there was no partnership
or joint venture to support a fiduciary relationship.
Special circumstances also can give rise to a fiduciary
duty. To determine if special circumstances exist, courts
consider the degree of kinship between the parties; the
disparity in age, health, mental condition, education, and
business experience between the parties; and the extent
to which the servient party entrusted his business affairs
to the dominant party and placed trust and confidence
in it. Crichton, 832 N.E.2d at 854. Autotech asserts that a
confidential relationship existed because ADC had exclu-
6 No. 05-4544
sive control over customer relationships. In an attempt to
show kinship, Autotech also cites to correspondence
between the two CEOs, Shalabh Kumar and Timothy
Hohmann. The correspondence simply demonstrates that
the businessmen developed a personal friendship derived
in part from their respective moral and religious ap-
proach to business. This is insufficient to establish special
circumstances where fiduciary duties are owed. We find
that the district court did not err in reaching the same
conclusion.
B. Expert Testimony
Under Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579, 597, 113 S.Ct. 2786, 125 L.Ed. 2d 469 (1993),
the district court is a “gate-keeper” who determines
whether proffered expert testimony is reliable and rele-
vant before accepting a witness as an expert. We review
the district court’s implementation of the Daubert frame-
work de novo. United States v. Hall, 165 F.3d 1095, 1101
(7th Cir. 1999). Once we are convinced that the district
court properly applied the Daubert framework, however,
we review the decision to admit or exclude expert testi-
mony for an abuse of discretion. United States v. Young,
316 F.3d 649, 656 (7th Cir. 2002).
Autotech contends that the district court erred by
excluding Peter Martin’s testimony under Daubert and
Federal Rule of Evidence 702. Based on his 26 years of
experience in software development, review of the
EZTouch software, and review of advertisements about
C-More, Martin testified that the features of C-More
could not be developed independently of EZTouch. At no
time, however, did Martin examine the C-More software.
Moreover, he never conducted tests on the product. The
district court found this methodology unreliable because
computer experts must do more than read advertise-
No. 05-4544 7
ments. To qualify as an expert on software, an expert
should, at a minimum, examine the product and software
upon which the expert bases his opinion. Accordingly,
we conclude that the district court properly found that
Peter Martin was an unqualified expert and that his
opinion was unreliable.
III. Conclusion
The judgment of the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-11-06