Springfield Rare Coin Galleries v. Mileham
620 N.E.2d 479 (Ill.App.Ct. 1993).

Facts:

  • Hausman ran a coin shop. He hired Mileham, who just came from working at his father’s coin shop, a local competitor.
    • Mileham signed a restrictive covenant, agreeing not to compete with Hausman in Sangamon County for two years after the termination of the employment relationship.
  • Mileham was the middleman in the coin and precious metals trade, buying goods at low prices from small dealers, and selling them at higher prices to larger dealers.
  • When he left plaintiff’s business, he continued to do business as a middleman.
  • That led to this suit for breach of the restrictive covenant and damages.

History:
The trial court held that the restrictive covenant was not enforceable.

  • Mileham didn’t acquire confidential information during his employment and use it to his benefit after termination.

Issue:
On appeal, plaintiff alleges defendant received the following confidential information:

(1) The names of its customers;
(2) Financial information regarding its customers;
(3) Instruction on the authentication and valuation of rare coins and collectibles; and
(4) Its policies regarding price margins.

Holding/Rule:
Affirmed.

  • Reasonable restrictive covenants will be enforced under two sets of circumstances:

(1) Where the former employee acquired confidential information through his employment and subsequently attempted to use it for his own benefit; OR
(2) Where, by the nature of the business, the customer relationship is near permanent and, but for his association with plaintiff, defendant would not have had contact with the customers in question.

Reasoning:

A. Confidential Information

(1) Customer Names.

  • Customer lists and other customer information will constitute confidential information only when the information has been developed by the employer over a number of years at great expense and kept under tight security.
    • However, the information is NOT protectable where:
      • It has not been treated as confidential and secret by the employer;
      • It was generally available to other employees and known by persons in the trade;
      • It could easily be duplicated by reference to telephone directories or industry publications; and
      • When the customers on such lists did business with more than one company or otherwise changed businesses frequently so that their identities were known to the employer’s competitors.
  • Here, the court held that Hausman didn’t incur any great expense in developing its customer list. Furthermore, the customers were well known to others in the trade, could be easily found in phone books and trade journals, and did business with Hausman’s competitors.

(2) Financial Information Regarding Customers – Hausman testified he made handwritten notes regarding the financial reliability of his customers, including whether a given customer was a “fast payer” or “slow payer.”

  • Again, the court held that there wasn’t any great expense incurred in developing this information. The court also noted that information regarding credit worthiness and payment history is obtainable from credit reporting agencies or by credit references.

(3) Instructions.

  • When the employee merely learns the trade during his term of employment, the employee has not learned confidential information.
  • Here, Mileham attended a seminar to learn about counterfeit coins, and was taught how to grade coins by plaintiff. He learned techniques integral to the trade of dealing in coins, but he did not learn confidential information particular to plaintiff’s business.

(4) Policies Regarding Price Margins.

  • Other dealers publicized their price formulas, and P did not present evidence regarding how its pricing formula is different from those of its competitors, which are readily available.

B. Near-Permanent Relationship

  • Where the employer is engaged in the provision of professional services and employs the employee to assist in the provision of these services, and the evidence indicates the employee would not have had contact with the clients but for the association with the employer, the near-permanency test is satisfied.
  • Here, Plaintiff is not engaged in the provision of professional services, is not the exclusive supplier to its customers, and the customers are ascertainable by reference to yellow pages, trade directories and attendance at trade shows.