Axion RMS, Ltd. v. Booth

2019 IL App (1st) 180724

138 N.E.3d 6

434 Ill.Dec. 847

AXION RMS, LTD., an Illinois Corporation, Plaintiff-Appellant,

v.Michael BOOTH, Defendant-Appellee.

No. 1-18-0724

Appellate Court of Illinois, First District, SIXTH DIVISION.

MARCH 29, 2019

Figliulo & Silverman, P.C., of Chicago (Michael K. Desmond and Thomas D. Warman, of counsel), for appellant.

Levenfeld Pearlstein, LLC, of Chicago (Peter F. Donati and Jason B. Hirsh, of counsel), for appellee.

JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion.

¶ 1 The plaintiff-appellant, Axion RMS, Ltd. (Axion), appeals from a judgment of the circuit court of Cook County, dismissing its complaint against the defendant-appellee, Michael Booth (Booth), and denying it leave to file an amended complaint. For the following reasons, we affirm the judgment of the circuit court of Cook County.

¶ 2 BACKGROUND

¶ 3 Axion,¹ an Illinois corporation engaged in the business of insurance brokerage and employee benefits consulting, filed a verified complaint² against Booth, its former president (the verified complaint). The verified complaint contained four claims: counts I and II were breach of contract claims, count III was a tortious interference claim, and count IV was an accounting claim. Counts I, II, and IV were based on alleged violations of a noncompete clause in a five-year employment agreement between Axion and Booth (the employment agreement).

¶ 4 Paragraphs 5 and 6 of the verified complaint stated:

"5. In or about October 2010, Axion RMS hired Booth as Vice President of Sales with a starting salary of $ 300,000. In 2014, Booth was promoted to President of Axion RMS and was paid a salary of $ 500,000. In connection with his employment, Booth and Axion RMS entered into an Employment Agreement * * *. A copy of [the employment agreement] is attached hereto as Exhibit 1.

6. On or about November 12, 2014, Booth also became a shareholder of Axion RMS."

The verified complaint attached the employment agreement, which was signed by Booth and the chief executive officer of Axion. The employment agreement stated that it was entered into on January 1, 2015. The verified complaint cited a noncompete clause in the employment agreement that restricted Booth from soliciting Axion's clients or employees during his employment and for a period of two years following termination of his employment.³

¶ 5 The verified complaint further alleged the following, in part:

"9. The [employment agreement] was adequately supported by consideration by virtue of Booth's continued employment with Axion RMS and the compensation paid by Axion RMS during his employment.

10. Pursuant to [the employment agreement], Booth agreed that he would pay all of his earnings from any violation of the noncompete provision to Axion RMS, which the parties agreed would be calculated as the present value of revenues generated from the loss of a client's business over a ten year period.

* * *

14. In or about December 2015, Booth resigned from his position with Axion RMS to begin work at HUB International Limited (‘HUB’), a competitor of Axion RMS. In his resignation letter, Booth stated, ‘I have a signed copy of my Axion employment agreement and I understand the terms.’ * * *

15. On information and belief, upon resigning from Axion RMS and joining HUB, and in direct violation of [the employment agreement], Booth began directly or indirectly contacting and soliciting Axion RMS's existing clients and customers he was in contact with while employed by Axion RMS, many of whom had existing Broker of Record Agreements with Axion RMS.

16. On information and belief, Booth also contacted and solicited Axion RMS employees Jason Bryan * * *, Michelle Carlson * * *, Suzanne Taylor * * * and Thomas Judge * * * to leave Axion RMS and join him at HUB. Booth's solicitation of Bryan, Carlson, Taylor and Judge was in direct violation of Section 7.1(c) of [the employment agreement]."

¶ 6 Booth filed a motion to dismiss the verified complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-615 (West 2016) ). His motion cited numerous cases from this court holding that, where the only consideration given to an employee in exchange for signing a noncompete covenant is continued employment, the employee must work for at least two years after signing the noncompete covenant in order for there to be adequate consideration and to render the noncompete covenant enforceable. Booth's motion argued, inter alia , that the noncompete clause in the employment agreement he signed lacked adequate consideration because he resigned from Axion less than a year after signing it and, therefore, the verified complaint was defective on its face.

¶ 7 Axion responded to Booth's motion to dismiss by arguing that the court should not apply a "bright-line test" of two years of employment, but instead a "totality of the circumstances test" to determine adequate consideration. Axion claimed that Booth's promotion to president and shareholder should be considered in determining whether there was adequate consideration given to Booth in exchange for signing the noncompete clause in the employment agreement.

¶ 8 Following a hearing on Booth's motion to dismiss, the trial court granted the motion, in part. In its written memorandum and order, the trial court stated:

"Axion does not contend that [the employment agreement's noncompete clause] that prohibits Booth from soliciting Axion's employees and customers are supported by any traditional form of consideration contemporaneous with Booth's execution of [the employment agreement]. Instead, Axion relies exclusively on Booth's continued employment after he executed [the employment agreement]. * * * [T]he general rule * * * is that ‘continued employment for two years or more constitutes adequate consideration.’ McInnis [v. OAG Motorcycle Ventures, Inc. ], 2015 IL App (1st) 142644, ¶ 27 [394 Ill.Dec. 107, 35 N.E.3d 1076]. Indeed, Illinois courts have consistently found restrictive covenants to be supported by adequate consideration when based on the employee's continued employment for more than two years."

The trial court acknowledged that there were predictions from several federal district court cases that our supreme court would adopt a totality of the circumstances approach to determine adequate consideration for restrictive covenants. Nonetheless, the trial court recognized that our supreme court has not yet adopted that approach. Therefore, the trial court was bound to follow the decisions from this court, holding that where restrictive covenants are supported by adequate consideration based exclusively on continued employment, the employee's employment must continue for at least two years after execution of the restrictive covenant. The court therefore found that Booth's employment for less than a year after he entered into the employment agreement at issue was insufficient to constitute adequate consideration.

¶ 9 The court concluded that due to the lack of adequate consideration, the noncompete clause between Axion and Booth was unenforceable. It consequently found that Axion could not sufficiently plead counts I, II, and IV (breach of contract and accounting claims) of its verified complaint and dismissed those counts with prejudice. The court also dismissed count III, the tortious interference claim, without prejudice and granted Axion leave to file an amended complaint for that count.⁴

¶ 10 Axion subsequently filed a first amended verified complaint, which contained a single count for tortious interference. At the same time, Axion also filed a combined motion to reconsider the court's order dismissing counts I, II, and IV and for leave to file a second amended complaint (the combined motion). The combined motion argued that the court should reconsider its order and instead dismiss counts I, II, and IV without prejudice , so that Axion could amend its complaint to cure the pleading defects regarding adequate consideration. The combined motion attached a proposed second amended complaint (the proposed amended complaint), which sought to plead adequate consideration in order to render the noncompete clause enforceable. The proposed amended complaint stated, in relevant part:

"5. In or about October 2010, Axion RMS, then known as Mid American Group, Inc., hired Booth as Vice President of Sales with a starting salary of $ 300,000, which he earned through December 31, 2014. Booth executed an employment agreement at or about the time he was hired.

6. In 2014, Mid American Group, Inc, was restructured and subsequently became known as Axion RMS, Ltd.

7. In connection with the restructuring, on or about November 12, 2014, Booth became a shareholder of Axion RMS. See attached Exhibit 1.

8. Also in connection with the restructuring, Booth and Axion RMS executed a new employment agreement (‘Booth Employment and Non-Compete Agreement’), a copy of which is attached hereto as Exhibit 2.

9. The Booth Employment and Non-Compete Agreement was entered into on January 1, 2015, which coincided with the first date that Axion RMS began operating as Axion RMS, Ltd.

* * *

13. Booth's salary was increased from $ 300,000 to $ 500,000 contemporaneous with the effective date of the Booth Employment and Non-Compete Agreement as additional compensation for execution of the Employment and Non-Compete Agreement, including its restrictive covenants. This increased salary was memorialized in Paragraph 2.2 of the Booth Employment and Non-Compete Agreement * * *.

14. The first date that Booth received his increased salary was January 1, 2015, the same date as, and contemporaneous with, the date the Booth Employment and Non-Compete Agreement took effect; See attached Exhibit 3, group exhibit of payroll registers for Booth showing pay increase taking effect on January 1, 2015.

15. Also in connection with the restructuring and execution of the Booth Employment and Non-Compete Agreement and its restrictive covenants, Booth was promoted

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