In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 13‐3906 & 14‐1097
NCLOSURES INC.,
Plaintiff‐Appellant/Cross‐Appellee,
v.
BLOCK AND COMPANY, INC.,
Defendant‐Appellee/Cross‐Appellant.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:12‐cv‐09358 — Samuel Der‐Yeghiayan, Judge.
____________________
ARGUED SEPTEMBER 15, 2014 — DECIDED OCTOBER 22, 2014
____________________
Before FLAUM, KANNE, and SYKES, Circuit Judges.
FLAUM, Circuit Judge. In May 2011, nClosures Inc. and
Block and Company, Inc. began a business relationship in
which nClosures designed and Block manufactured metal
enclosures for electronic tablets, such as iPads. At the outset
of the relationship, the parties signed a confidentiality
agreement; nClosures then divulged its designs for the en‐
closure device to Block for manufacture. The first device—
2 Nos. 13‐3996 & 14‐1097
known as the Rhino Elite—entered the market for sale in Oc‐
tober 2011. By March 2012, however, Block developed its
own competing device, known as the Atrio.
In November 2012, nClosures brought suit in diversity
against Block alleging, among other claims, breach of con‐
tract and breach of fiduciary duty. The district court granted
summary judgment to Block on both claims. On the breach
of contract claim, the district court concluded that no rea‐
sonable jury could find that nClosures took reasonable steps
to keep its proprietary information confidential, and there‐
fore that the confidentiality agreement was unenforceable.
The district court also concluded that no reasonable jury
could find that a partnership existed between nClosures and
Block that could give rise to a viable breach of fiduciary duty
claim. However, the district court denied Block’s motion for
attorney’s fees.
nClosures challenges the district court’s rulings on sum‐
mary judgment, and Block—as cross‐appellant—challenges
its denial of Block’s motion for attorney’s fees. We affirm in
both respects.
I. Background
nClosures is an industrial design firm co‐founded in 2011
by Daniel Gorman, Daniel McKean, and Kemper Barkhurst.
After its formation, nClosures developed metal cases for
electronic tablets, such as iPads. Designer and independent
contractor Ian LeBlanc designed one such device—the Rhino
Elite—for nClosures in early 2011. Later that year on May
24th, nClosures co‐founders McKean and Gorman attended
a trade show in Chicago to display prototypes of the Rhino
(a precursor to the Rhino Elite). There, Block CEO Greg Carl‐
Nos. 13‐3906 & 14‐1097 3
son approached them about a potential business relation‐
ship. Block previously manufactured and sold metal devices
like cash drawers, but had recently identified tablet enclo‐
sures as a potential new product line.
At the May 24th meeting between nClosures and Block,
the companies signed a confidentiality agreement wherein
they agreed to the following:
The Parties … agree that the Confidential In‐
formation received from the other Party shall
be used solely for the purposes of engaging in
the Discussions and evaluating the Objective
(the “Permitted Purposes”). Except for such
Permitted Purposes, such information shall not
be used, either directly or indirectly, by the Re‐
ceiving Party for any other purpose … .
The agreement defines “the Objective” as “a potential busi‐
ness relationship with respect to iPad Enclosures.” Outside
of this initial agreement, nClosures did not require other
Block employees or engineers to sign additional agreements
in order to access Rhino or Rhino Elite design files.
nClosures also did not enter into confidentiality agreements
with Rhino Elite designer Ian LeBlanc, or with the manufac‐
turers that produced Rhino Elite predecessors known as the
Lab Shield and the Rhino. However, a declaration by
nClosures co‐founder Daniel McKean states, “It is
nClosures’s policy to not share its designs, know‐how, or
market knowledge with other parties unless pursuant to a
non‐disclosure agreement. nClosures has a policy of grant‐
ing employees access to this information only on a need‐to‐
know basis.”
4 Nos. 13‐3996 & 14‐1097
After signing the confidentiality agreement, nClosures
provided Block with the design files for the Rhino products.
Subsequently, nClosures and Block attempted to negotiate a
written agreement concerning the manufacture and sale of
the tablet enclosures. Although the companies never agreed
on a written contract, they exchanged at least three draft
agreements during negotiations. After these failed attempts,
the parties reached an oral agreement on the following
terms: Block agreed to manufacture the Rhino Elite and sell
the units to nClosures at $19.25 per unit. nClosures was
permitted to sell some units to its customers, and some units
back to Block at an increased price of $53 per unit. nClosures
therefore netted $33.75 on the units it sold back to Block.
In a June 2012 e‐mail, Block Vice President and General
Manager David Kauffman referred to this arrangement with
nClosures as a “license fee.” On the other hand, another
Block employee—Scott Nease—described these proceeds as
the “net profit” for nClosures in an August 2012 e‐mail. In
this same e‐mail, Nease also indicated that the buyback ar‐
rangement was really just a formality by stating “[i]t would
be much cleaner … to simply issue a purchase order and pay
NClosure [sic] for $33.75 @ and not go through the formality
of sales and buyback, when a sale never really occurred in
the first place.”
By mid‐October 2011, the first Rhino Elite device manu‐
factured by Block entered the market. Shortly thereafter, the
parties became aware of various design problems with the
device, and Block’s engineers helped to re‐design the Rhino
Elite bracket to better hold tablets in place inside the enclo‐
sure. Either subsequently or simultaneously, Block also de‐
veloped a design for its own tablet enclosure, known as the
Nos. 13‐3906 & 14‐1097 5
Atrio.1 In August 2012, Block terminated its business rela‐
tionship with nClosures, and nClosures subsequently filed
this suit against Block alleging fraud, trade secret misappro‐
priation, breach of fiduciary duty, and breach of contract. In
December 2012, nClosures sought a preliminary injunction
on its breach of contract claim, which the district court
granted.
On September 6, 2013, the parties filed cross‐motions for
summary judgment—nClosures sought partial summary
judgment on its claims for fraud and breach of contract, and
Block sought summary judgment on all four of nClosures’s
claims. On December 11, the district court granted summary
judgment for Block.2 Block then filed a sealed motion for at‐
torney’s fees under the Illinois Trade Secrets Act, as well as
28 U.S.C. § 1927 and the district court’s inherent authority.
The district court orally denied this motion.
II. Discussion
We review a district court’s grant of summary judgment
de novo, taking all facts and their reasonable inferences in
the light most favorable to the nonmovant. Hansen v. Fincant‐
ieri Marine Grp., LLC, 763 F.3d 832, 836 (7th Cir. 2014).
1 nClosures claims that the Atrio is nearly identical to the Rhino Elite,
while Block notes several distinctions. For instance, the Atrio is a one
piece design using a “piano‐type hinge” to join the top and bottom of the
enclosure, while the Rhino Elite is a two‐piece design where the cover
and the bottom of the enclosure are separate pieces that lock together.
2 Although the district court granted Block’s motion for summary judg‐
ment on all four of nClosures’s claims, nClosures only challenges the
district court’s decision regarding the breach of contract and breach of
fiduciary duty claims.
6 Nos. 13‐3996 & 14‐1097
A. Breach of Contract.
To bring a successful breach of contract claim under Illi‐
nois law, a party must show “(1) the existence of a valid and
enforceable contract; (2) substantial performance by the
plaintiff; (3) a breach by the defendant; and (4) resultant
damages.” TAS Distrib. Co. v. Cummins Engine Co., 491 F.3d
625, 631 (7th Cir. 2007) (citation omitted). Additional consid‐
erations arise, however, when we assess the enforceability of
a confidentiality agreement. See Tax Track Sys. Corp. v. New
Investor World, Inc., 478 F.3d 783, 787 (7th Cir. 2007). In Tax
Track, we held that a federal court applying Illinois law “will
enforce [confidentiality] agreements only when the infor‐
mation sought to be protected is actually confidential and
reasonable efforts were made to keep it confidential.” Id. (cit‐
ing Curtis 1000, Inc. v. Suess, 24 F.3d 941, 947 (7th Cir. 1994)).
Thus, in order to enforce the confidentiality agreement be‐
tween nClosures and Block, we must find that nClosures
took reasonable steps to keep its proprietary information
confidential.3
In Tax Track, we upheld a district court’s grant of sum‐
mary judgment which found a confidentiality agreement
unenforceable, holding that no reasonable jury could con‐
clude that Tax Track engaged in reasonable efforts to protect
3 nClosures argues that ILG Industries, Inc. v. Scott, 273 N.E.2d 393 (Ill.
1971), governs because in that case, the Illinois Supreme Court did not
require a written confidentiality agreement in order to protect proprie‐
tary information. However, ILG is not on point. The ILG court protected
plaintiff’s proprietary information on the ground that it constituted a
trade secret; there was no alleged breach of contract. See id. at 394. Hence,
ILG is inapplicable here.
Nos. 13‐3906 & 14‐1097 7
its confidential information. Id. at 788. We emphasized that
no reasonable steps were taken where the proprietary in‐
formation in question was a company memo distributed to
600–700 people, was not stamped with the word “Confiden‐
tial,” and where only some of the recipients signed confiden‐
tiality agreements. Id.
In contrast, in Rockwell Graphic Systems Inc. v. DEV Indus‐
tries, Inc., 925 F.2d 174, 180 (7th Cir. 1991), we found that the
steps taken to protect the proprietary information at issue
were substantial enough to preclude summary judgment for
the defendants in a trade secrets misappropriation case. In
Rockwell, unlike in Tax Track, the engineering drawings at
issue were kept in a vault with limited access. Id. at 177. The
engineers who used the drawings were required to sign
agreements not to disseminate the drawings or disclose their
contents. Id. Furthermore, vendors permitted to access cop‐
ies of the drawings also signed confidentiality agreements,
and each drawing was marked with an indication that it con‐
tained proprietary information. Id. While this Court did not
determine whether the steps in Rockwell were sufficient to
protect the trade secrets at issue, we did find that these steps
were substantial enough to preclude summary judgment in
favor of the defendants.
The steps taken in Rockwell, however, far exceed the
measures employed by nClosures, and more closely resem‐
ble the steps taken in Tax Track. While nClosures and Block
did sign a confidentiality agreement at the outset of their
business relationship, no additional confidentiality agree‐
ments were required of individuals who accessed the design
files for the Rhino or Rhino Elite devices. Additionally, nei‐
ther the Rhino nor the Rhino Elite drawings were marked
8 Nos. 13‐3996 & 14‐1097
with words such as “confidential” or “contains proprietary
information.” Furthermore, the drawings were not kept un‐
der lock and key, nor were they stored on a computer with
limited access. While the declaration of Daniel McKean
states generally that nClosures had a policy of requiring con‐
fidentiality agreements, no such agreements were required
of designer Ian LeBlanc or of the manufacturers that pro‐
duced previous versions of the Rhino Elite. These facts show
that nClosures did not engage in reasonable steps to protect
the confidentiality of its proprietary information, and there‐
fore that the confidentiality agreement with Block is unen‐
forceable. We affirm the district court’s ruling that no rea‐
sonable jury could find otherwise.
B. Breach of Fiduciary Duty.
The district court held that Block and nClosures did not
share profits and did not form a partnership, and therefore
that nClosures’s breach of fiduciary duty claim lacked merit.
We agree.
To establish a breach of fiduciary duty under Illinois law,
a plaintiff must show that “(1) a fiduciary duty exists; (2) the
fiduciary duty was breached; and (3) the breach proximately
caused the injury of which the plaintiff complains.” Ball v.
Kotter, 723 F.3d 813, 826 (7th Cir. 2013) (citing Neade v. Portes,
739 N.E.2d 496, 502 (Ill. 2000)). A fiduciary duty may be es‐
tablished through relationships such as partnerships and
joint ventures, as well as special circumstances. Autotech
Tech. Ltd. P’ship v. Automationdirect.com, 471 F.3d 745, 748–49
(7th Cir. 2006). The Illinois Uniform Partnership Act defines
a partnership as “the association of 2 or more persons to car‐
ry on as co‐owners of a business for profit.” 805 Ill. Comp.
Stat. 206/202(a). Considerations including the intent of the
Nos. 13‐3906 & 14‐1097 9
parties, as well as whether the entities shared profits, are rel‐
evant in analyzing whether a partnership existed.
Sharing of profits is instructive but not always conclusive
evidence of a partnership. Illinois law states that “[a] person
who receives a share of the profits of a business is presumed
to be a partner,” 805 Ill. Comp. Stat. 206/202 (c)(3), unless the
individual received the profits as compensation as an inde‐
pendent contractor or an employee. Id. at (c)(3)(ii). Evidence
of profit‐sharing, however, does not guarantee a partner‐
ship. In Argianas v. Chestler, the Illinois Appellate Court held
that no partnership existed—even though the plaintiff re‐
ceived 40% of the profits from a particular account—where
the relevant agreement provided the plaintiff with a salary
and did not indicate that a partnership existed. 631 N.E.2d
1359, 1368–70 (Ill. App. Ct. 1994). The Argianas court ex‐
plained that “[a]lthough a sharing of profits is an essential
test in determining the existence of a partnership, mere par‐
ticipation in profits, does not alone create a partnership.” Id.
at 1368.
Our decision in Autotech is also instructive. In Autotech,
we affirmed a district court’s determination that no fiduciary
duty was owed—and therefore that no breach of this duty
occurred—when a manufacturer and a marketer failed to
form a partnership under Illinois law. 471 F.3d at 749. Simi‐
lar to the arrangement between nClosures and Block, the
parties in Autotech—ADC and Autotech—engaged in a busi‐
ness relationship whereby one company manufactured a
product and the second company marketed it. Id. at 747. The
agreement between the parties specified that neither party
had the right or responsibility “to assume or to create any
obligations or responsibilities expressed or implied on behalf
10 Nos. 13‐3996 & 14‐1097
of or in the name of the other or to bind the other party in
any manner whatsoever.” Id. ADC then developed a similar
and competing product, and Autotech sued for breach of fi‐
duciary duty, among other claims, and subsequently filed a
motion for a preliminary injunction. Id. at 747–48. We held
that the district court did not abuse its discretion in denying
the injunction and concluded that no partnership, joint ven‐
ture, or special relationship existed. We emphasized that
“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 intent to be
associated as a partnership or joint venture.” Id. at 749.
nClosures argues that its recovery of $33.75 per Rhino
Elite unit demonstrates a profit‐sharing arrangement, and
therefore the existence of an nClosures‐Block partnership.
Block, on the other hand, argues that this arrangement was a
license fee or simply nClosures’s individual profit, but that
the two companies did not share profits.4 Based on the con‐
siderations outlined in Argianas and Autotech, we conclude
that no reasonable jury could find that nClosures and Block
formed a partnership, and therefore that no breach of fiduci‐
ary duty occurred. nClosures does not adequately support
its argument that the net gain of $33.75 per Rhino Elite unit
constituted a profit‐sharing arrangement with Block, espe‐
cially because there was no agreement between the parties to
characterize the net gain in this manner. But even if we were
4 As previously noted, Block referred to the $33.75 as a licensing fee in
one instance, and as “net profit” to nClosures in another instance. The
record does not contain a statement regarding nClosures’s characteriza‐
tion of the $33.75 per unit gain at the time it entered into the oral agree‐
ment with Block.
Nos. 13‐3906 & 14‐1097 11
to accept that profit‐sharing occurred, Argianas demonstrates
that profit sharing alone is sometimes insufficient to estab‐
lish a partnership under Illinois law. Considering the factors
outlined in Autotech, there is no evidence that the parties en‐
gaged in other activities suggestive of a partnership: the par‐
ties did not sign a partnership agreement, did not file joint
tax returns, and did not hold themselves out to be partners
in any way. Thus, regardless of nClosures’s modest assertion
that its arrangement with Block constituted profit‐sharing,
other elements of the nClosures‐Block relationship do not
indicate a partnership.
Additionally, the record suggests that the parties never
intended to carry on as co‐owners of a business for profit,
and therefore failed to form a partnership under Illinois law.
See 805 Ill. Comp. Stat. 206/202(a). In granting summary
judgment to Block, the district court emphasized that all
three of the draft agreements between Block and nClosures
contained a clause stating that nothing in the conduct of ei‐
ther party “shall be deemed to constitute either party an
agent, partner, joint venture or employee of the other.”
nClosures Inc. v. Block & Co., Inc., No. 12 C 9358, 2013 WL
6498528, at * 4 (N.D. Ill. Dec. 11, 2013).5 While this unexecut‐
ed agreement does not legally bind nClosures, it is probative
5 nClosures argues that the district court incorrectly considered this lan‐
guage, citing Matter of Holder’s Estate, 355 N.E.2d 333, 334–35 (Ill. App.
Ct. 1976) for the proposition that a court may not rely on unexecuted
agreements as proof of a subsequent agreement or its terms. However,
Holder more correctly stands for the proposition that an oral agreement
to convey property cannot be enforced through specific performance
when the agreement was merely an agreement to reduce the terms of the
conveyance to writing. Holder, therefore, is simply too distinct from this
case to be dispositive.
12 Nos. 13‐3996 & 14‐1097
of the parties’ intent underlying their business relationship.
Illinois courts have held that when no written agreement ex‐
ists, it is appropriate to consider the intent of the parties and
the facts and circumstances surrounding the alleged partner‐
ship formation. See e.g., Snyder v. Dunn, 638 N.E.2d 744, 747
(Ill. App. Ct. 1994). Therefore, we consider the language of
the unexecuted agreements between Block and nClosures for
this purpose. Because all three of the agreement drafts con‐
tained a clause specifying that the parties should not be con‐
strued as partners, and because there is no evidence that
nClosures objected to the inclusion of this clause, we are
persuaded that nClosures and Block did not contemplate a
partnership when structuring their business relationship.
For these reasons, there is a lack of evidence from which
a reasonable jury could conclude that nClosures and Block
formed a partnership under Illinois law, and thus
nClosures’s breach of fiduciary duty claim must fail.
C. Attorney’s Fees.
On December 26, 2013, Block filed a sealed motion seek‐
ing attorney’s fees under three theories: (1) the Illinois Trade
Secrets Act (“the ITSA”), (2) 28 U.S.C. § 1927, and (3) the dis‐
trict court’s “inherent authority.” Under the ITSA, a defend‐
ant in a trade secret action can recover its reasonable attor‐
ney’s fees if “a claim of misappropriation is made in bad
faith.” 765 Ill. Comp. Stat. 1065/5(i). Additionally, under 28
U.S.C. § 1927, an attorney may be required to pay costs and
expenses when he or she “multiplies the proceed‐
ings … unreasonably and vexatiously.” Furthermore, sanc‐
tions pursuant to a district court’s inherent authority “are
appropriate where a party has willfully abused the judicial
Nos. 13‐3906 & 14‐1097 13
process or otherwise conducted litigation in bad faith.” Tuck‐
er v. Williams, 682 F.3d 654, 661–62 (7th Cir. 2012).
In denying Block’s motion for attorney’s fees, the district
court stated:
I know the case. I did not find anything that
comes remotely close that there was no basis
for the lawsuit or that it was in bad faith. I
agree with counsel for plaintiffs. I entered
summary judgment in this case. I understand
it’s on appeal. And I might be right, I might be
wrong on that summary judgment, but I’m not
going encourage any further litigation on that
issue. There’s been no bad faith on the part of
the plaintiffs.
Block insists that the district court’s dismissal of its motion
for attorney’s fees was improper, citing IDS Life Insurance Co.
v. Royal Alliance Associates, Inc., 266 F.3d 645, 653–54 (7th Cir.
2001) as an example of when we held that a district court
abused its discretion in failing to issue sanctions under 28
U.S.C. § 1927. In IDS, the district court refused to issue sanc‐
tions pursuant to its “own philosoph[ical]” opposition to
sanctions, even after characterizing the defendants’ argu‐
ments as “dubious and disingenuous,” as well as question‐
ing the “real motive” behind the defendants’ action to seek a
confirmation award in a different court from the one in
which the suit arose. Id. Against this factual backdrop, we
held that the district court abused its discretion in failing to
sanction the defendants for unreasonably multiplying pro‐
ceedings under 28 U.S.C. § 1927. Id. at 654.
14 Nos. 13‐3996 & 14‐1097
The facts of IDS are quite different from the facts here. In
this case, the district court did not deny Block’s motion for
attorney’s fees pursuant to any personal hostility to sanc‐
tions, but rather applied a bad faith standard by stating, “I
know the case. I did not find anything that comes remotely
close that there was no basis for the lawsuit or that it was in
bad faith.” Further, rather than expressing doubt about
whether the claims in the lawsuit had any merit, the district
court acknowledged that its summary judgment decision
was a close call by stating, “I entered summary judgment in
this case … . And I might be right, I might be wrong on that
summary judgment … .” Simply put, the case before us is
too distinct from IDS to dictate a finding that the district
court abused its discretion by denying Block’s motion for
attorney’s fees. Furthermore, Block fails to offer any addi‐
tional compelling support for this argument.
III. Conclusion
We AFFIRM the district court’s grant of summary judg‐
ment in favor of Block and the denial of Block’s motion for
attorney’s fees.