Matrix Basement Systems Inc. v. Defendants

  • Client: Defendant Law Firm and Attorneys
    Outcome: Appellate court affirmed order denying sanctions and attorney fees for firm’s clients

Synopsis:

The appellate court upheld a trial court decision to deny a defendant’s motion for sanctions against plaintiff, its attorneys and their law firm following the voluntary dismissal of an action in which plaintiff alleged violations of the Illinois Trade Secrets Act and breach of contract claims. On appeal, Donohue Brown attorney Karen DeGrand represented the attorneys and their law firm in responding to defendant’s challenge of the trial court’s ruling.

Plaintiff alleged in a verified complaint that defendant, an independent contractor who had worked with plaintiff in the business of selling and installing mold proof basement systems, severed the relationship and, after joining another company, used trade secrets and attempted to compete with plaintiff.  The trial court dismissed the original complaint and granted plaintiff leave to amend.  In an amended complaint, plaintiff dropped its statutory trade secrets claim and pleaded only breach of contract and tortious interference theories.  Before discovery commenced, plaintiff moved to voluntarily dismiss the action. 

Objecting to plaintiff’s motion to voluntarily dismiss the case without prejudice to refile it, defendant sought sanctions pursuant to Supreme Court Rule 137 and the trial court’s inherent authority to control its docket.  Defendant also asserted that he was a “prevailing party” entitled to an award of attorney fees under section 5(i) of the Trade Secrets Act.  After an evidentiary hearing, the court concluded that no sanctions were warranted against plaintiff or its counsel.  Additionally, the trial court ruled that defendant did not achieve prevailing party status necessary for a statutory fee claim.

On appeal, the appellate court rejected defendant’s claim that he was entitled to sanctions based on the contention that plaintiff used the courthouse to injure defendant and restrain competition.  The appellate court observed that the purpose of imposing sanctions under a court’s inherent authority is to coerce compliance with court rules and orders – not to punish a party. Further, the appellate court noted the trial court’s finding that plaintiff was not objectively unreasonable in suspecting that defendant may have used plaintiff’s trade secrets or “poached” plaintiff’s employees. 

The appellate court also agreed with the trial court’s finding that defendant was not a “prevailing party” entitled to an attorney fee award under the Trade Secrets Act.  Considering this question of statutory interpretation on a de novo basis, the appellate court observed that no controlling Illinois case defines a “prevailing party” under that statute.  The court held that, in the absence of an adjudication on the merits or a settlement agreement, defendant was not a prevailing party entitled to recover attorney fees.  Further, the appellate court found no reason to disturb the trial court’s finding that plaintiff had not acted in bad faith.  

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