Complete Logistical Servs., LLC v. Rulh

394 F.Supp.3d 625

COMPLETE LOGISTICAL SERVICES, LLC

v.Donald RULH, Jr. et al.

CIVIL ACTION NO. 18-3799

United States District Court, E.D. Louisiana.

Signed June 6, 2019

David Patron, Arthur Raymond Kraatz, Ashley Joy Heilprin, Bruce Victor Schewe, Phelps Dunbar, LLP, New Orleans, LA, for Complete Logistical Services, LLC.

Randall A. Smith, J. Geoffrey Ormsby, Smith & Fawer, LLC, Ashley E. Bane, Wilson Elser Moskowitz Edelman and Dicker, LLP, Caroline J. Sanches, George J. Fowler, III, Jones Walker, Norman Charles Sullivan, Jr., Frilot L.L.C., New Orleans, LA, Michael W. McCoy, Pro Hac Vice, Fowler Rodriguez, Houston, TX, for Donald Rulh, Jr.

Mark Edward Morice, Morice Law Firm, APLLC, Gretna, LA, Ashley E. Bane, Wilson Elser Moskowitz Edelman and Dicker, LLP, Caroline J. Sanches, George J. Fowler, III, Jones Walker, Norman Charles Sullivan, Jr., Frilot L.L.C., New Orleans, LA, Michael W. McCoy, Pro Hac Vice, Fowler Rodriguez, Houston, TX, for Arnold Baker, Morris Kahn, Michelle Elwell, Shawana Harris.

SECTION "L" (5)

ORDER & REASONS

Eldon E. Fallon, U.S. District Court Judge Before the Court are several motions: (1) Defendant Donald Rulh's Motion for Partial Summary Judgment, in which Mr. Rulh also moves the Court to strike Plaintiff's expert, Mr. Jason MacMorran, R. Doc. 209; (2) a Motion for Partial Summary Judgment filed by Plaintiff Complete Logistical Services, LLC ("CLS"), R. Doc. 229; (3) CLS' motion to Exclude the Testimony of Mr. Athen M. Sweet, R. Doc. 231; and (4) Defendant Donald Rulh's Motion for Summary Judgment, R. Doc. 239. Each motion is opposed, R. Docs. 248, 245, 255, 252, and the parties have offered replies, R. Docs. 271, 275, 278, 273. The Court heard oral argument on the motions on June 4, 2019. R. Doc. 300. Because the motions are interrelated, the Court rules on them collectively.

I. BACKGROUND

CLS provides contract labor to various marine industries. It alleges its former member, Defendant Rulh, breached his fiduciary duties to CLS, misappropriated CLS' assets, damaged CLS' image, and took confidential and proprietary information after he was removed from the LLC by its remaining members. R. Doc. 98 at 1–3.¹

In its verified complaint, CLS alleges that, as a result of Mr. Rulh's allegedly egregious conduct—specifically, his failing to collect payments from clients; refusing to reimburse the LLC for money he borrowed to refinance his private home; arriving intoxicated to company events; and changing the locks on the CLS office without first discussing the matter with the other LLC members—the other three members of CLS voted to treat Mr. Rulh as an assignee of the Company, thereby revoking his authority to manage the business or act unilaterally on its behalf. Id. at 4–6. CLS alleges that after Mr. Rulh was stripped of this authority, he stole from CLS confidential information including financial statements, customer lists, and sales records while the other members were at a company crawfish boil. Id. at 8. According to CLS, these documents were printed, scanned, and then emailed to Mr. Rulh's personal email account. Id. at 8. CLS further alleges Mr. Rulh took this information intending to start a competing business with his co-Defendants.² Finally, Plaintiff alleges Mr. Rulh took $222,000.00 from the LLC's bank account without authorization. Id. at 2. According to CLS, this resulted in the company's inability to pay holiday bonuses to its employees, including Mr. Scott Coker, head of CLS' diving division. Id. CLS submits Mr. Coker left CLS because he did not receive a bonus. Id.

After voting to make Mr. Rulh an assignee of the company, on July 23, 2018, the remaining CLS members "availed themselves of their rights in the CLS Operating Agreement to expel Mr. Rulh from CLS membership" and obtained a financial report that valued Mr. Rulh's expulsion price at negative $172,664.00. Id. at 14. Ultimately, the remaining members of CLS agreed to offer Mr. Rulh an expulsion price of $3,333.00 for his 33% membership interest in CLS. Id. at 4.

Based on this factual background, CLS brings claims against Mr. Rulh for violations of the Defend Trade Secrets Act ("DTSA"); Louisiana Uniform Trade Secrets Act ("LUTSA"); Computer Fraud and Abuse Act ("CFA"); Louisiana Unfair Trade Practices Act ("LUTPA"); and for unjust enrichment; breach of fiduciary duties, duty of loyalty, and duty of due care; conversion; conspiracy; and fraud. Id. at 3. Finally, CLS seeks a declaration "that the expulsion proceedings were proper in all respects and confirming that Mr. Rulh is no longer a member of CLS." Id. at 4.³

On May 7, 2018, Mr. Rulh answered the complaint and filed counterclaims against CLS and a third-party complaint against CLS members Spencer Sens and Natchez Morice, III. R. Doc. 30. On August 21, 2018, the Court granted Mr. Sens and Dr. Morice's motion to strike Defendants' third party claims against them. R. Doc. 94. On May 2, 2019, Mr. Rulh filed an amended counterclaim, asserting a breach of contract claim as well as seeking a declaratory judgment that the expulsion price offered by CLS did not comply with the terms of the Operating Agreement. R. Doc. 237.

II. PRESENT MOTIONS

The motions presently before the Court mostly overlap. The parties both move to strike the other's expert, R. Docs. 209, 231, and both seek summary judgment on the issue of whether the expulsion price offered to Mr. Rulh complied with the terms of the CLS Operating Agreement, R. Docs. 209, 229, 239. Finally, Mr. Rulh seeks summary judgment on Plaintiff's remaining claims, namely its DTSA, CFAA, LUTSA, and LUTPA claims.

III. DISCUSSION

The facts relevant to the instant motions are largely undisputed. By April 23, 2014, CLS consisted of four members: Mr. Rulh, Mr. Spencer Sens, Dr. Natchez "Trey" Morice III, and Dr. Brett Casey.⁴ On January 12, 2018, pursuant to section 10.3 of the CLS Operating Agreement, Mr. Sens, Dr. Morice, and Dr. Casey voted to initiate expulsion proceedings against Mr. Rulh. These proceedings took the form of three meetings. The first meeting, held January 22, 2018, proceeded in two parts. First, Mr. Sens, Dr. Morice, and Dr. Casey "agree[d] by vote that [Mr. Rulh] ha[d] caused direct harm to [CLS]" and thereafter voted to immediately treat Mr. Rulh "as an assignee of [CLS] for all purposes." See CLS Operating Agreement, § 10.3. The members then scheduled the second meeting for February 26, 2018. Having set the second meeting, the CLS Operating Agreement allowed Mr. Rulh to "make a specific request to [CLS] to receive computer generated financial reports so that he may have an independent evaluation at his own cost if he so chooses." Id. Mr. Rulh did not request financial documents from the company.

At the second meeting, held February 26, 2018, Mr. Sens, Dr. Morice, and Dr. Casey "agree[d] by vote to have a financial evaluation of [Mr. Rulh's] interest," authorizing Postlewaithe & Netterville to provide CLS with a financial valuation of Mr. Rulh's interest in CLS. Id. ; R. Doc. 98 ¶¶ 65, 67. Pursuant to this authorization, Mr. Jason MacMorran of Postlewaithe & Netterville completed a valuation of Mr. Rulh's membership interest, ultimately concluding that the appropriate expulsion price for Mr. Rulh was negative $172,664.00. Id. at 68. This valuation was "sent out with the certified notice of the [third] meeting," which the parties set for July 23, 2018.

In the event Mr. Rulh intended to introduce his own membership valuation at the July 23, 2018 meeting, the CLS Operating Agreement required Mr. Rulh to first request that the members consider his independent evaluation. See CLS Operating Agreement, § 10.3 ("If the offending member wishes to introduce his own evaluation price at the meeting, then he must request that his independent evaluation should be considered."). On July 6, 2018, Mr. Rulh's counsel sent a letter to the remaining members of CLS indicating that Mr. Rulh intended to introduce his own evaluation prepared by Mr. Athen Sweet. R. Doc. 209-10 at 1; see also R. Doc. 231-10 at 7. In his letter, Mr. Rulh contended the "fair and proper evaluation for his interest in CLS" was $7,448,891.00. R. Doc. 209-10 at 1.

During the July 23, 2018 meeting, however, Mr. Rulh stated his $7,448,891.00 price was "not an official valuation," and that he "need[ed] more information." R. Doc. 229-5 at 6. To clarify, Mr. Rulh's attorney explained Mr. Rulh had obtained "discounted cash flow analysis information" and "based upon that analysis [made a good faith] estimate that [Mr. Rulh's] share was in excess of $7.4 million."⁵ Id. at 6. Nevertheless, thereafter, Mr. Rulh's attorney stated Mr. Rulh was "standing down" on "the $7.4 million that was in [his] July 6 letter" and confirmed that Mr. Rulh was not offering a specific valuation; rather, Mr. Rulh's attorney explained the $7,448,891.00 was "just [a] proposal."⁶ Id. at 9. Mr. Rulh and his counsel then left the meeting. Id. at 11.

Following Mr. Rulh's departure, the members of CLS passed the following resolution pursuant to section 10.3 of the CLS Operating Agreement:

WHEREAS , the Members have determined Mr. Rulh has caused direct harm to the Company and his conduct is egregious enough to warrant a full expulsion by the Company;

NOW, THEREFORE, BE IT RESOLVED , that Mr. Rulh is hereby expelled from the Company effective July 23, 2018 in accordance with Section 10.3 of the Operating Agreement of the Company....

WHEREAS , the Members have determined to pay Mr. Rulh $3,333.00 for his 33.3% equity interest in the Company notwithstanding the Members' determination that the Postlethwaite & Netterville valuation of Mr. Rulh's 33.3% equity interest in the Company at a negative $172,664.00 is a correct valuation for such interest;

NOW, THEREFORE, BE IT RESOLVED , that the Company purchase Mr. Rulh's 33.3% equity interest in the Company [for] $3,333.00 ....

Id. at 11–12.

After Mr. Rulh was formally expelled from CLS, Mr. Athen Sweet, whom Mr. Rulh now offers as an expert, prepared a valuation...