Container Life Cycle Mgmt. LLC v. Safety Mgmt. Servs. Co.

CONTAINER LIFE CYCLE MANAGEMENT LLC and GREIF, INC. PLAINTIFFS v. SAFETY MANAGEMENT SERVICES CO.and COTTINGHAM & BUTLER, INC. DEFENDANTS

NO. 6:20-CV-06001

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS HOT SPRINGS DIVISION

June 1, 2020

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Before the Court are two 12(b)(6) motions to dismiss filed by Cottingham & Butler, Inc. ("Cottingham"). After Cottingham filed its first motion (ECF No. 5), the Plaintiffs responded by amending their complaint. (ECF No. 14). Cottingham subsequently filed its second motion to dismiss (ECF No. 18), the Plaintiffs filed a response in opposition (ECF No. 21), and Cottingham filed a reply. (ECF No. 24). These matters are now ready for consideration. Cottingham's second motion to dismiss should be DENIED for the reasons that follow, and the first motion should be DENIED as moot.

II. PLEADING STANDARD

Rule 8 of the Federal Rules of Civil Procedure requires a complaint to make "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). A plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). This standard is satisfied if the complaint alleges "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). When deciding the merits of a Rule 12(b)(6) motion to dismiss, the Court must accept as true all factual allegations and draw all reasonable inferences in the non-movant's favor. See Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir. 2008); Maki v. Allete, Inc., 383 F.3d 740, 742 (8th Cir. 2004). A complaint should not be dismissed for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Thomas W. Garland, Inc. v. City of St. Louis, 596 F.2d 784, 787 (8^th Cir. 1979). Ordinarily, only the facts alleged are considered in ruling on a 12(b)(6) motion, but when materials are attached to the complaint, the Court may consider these materials in construing the sufficiency of the complaint. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986); see also Stahl v. U.S. Dep't of Agriculture, 327 F.3d 697, 700 (8th Cir. 2003) (contract documents attached as exhibits may be considered when ruling on a motion to dismiss).

III. BACKGROUND

For purposes of considering the second motion to dismiss, the facts are taken from the amended complaint (ECF No. 14) and construed in a light most favorable to the Plaintiffs, Container Life Cycle Management LLC ("CLCM") and Greif, Inc. ("Greif").

The Plaintiffs manufacture steel drums, plastic drums, and intermediate bulk containers.¹ Prior to the events at issue, Greif hired Safety Management Services Co. ("SMS") and Cottingham to perform safety audits and training services at CLCM facilities.² In connection with their services, consultant teams from SMS and Cottingham traveled to the facilities to inspect worksites, interview company employees, and collect information regarding safetyincidents. After conducting inspections and interviews, SMS and Cottingham issued reports identifying areas of concern and safety risks. The reports also contained an audit score for each facility. The reports were issued on Cottingham's letterhead with a return address to Cottingham's corporate headquarters. To access the safety reports and audit scores, the Plaintiffs would login to an online portal operated by SMS and Cottingham. Occasionally, Greif officials met with SMS and Cottingham to discuss the inspection services. These meetings took place at Cottingham's corporate offices.

Cottingham and SMS's performance obligations required access to confidential information. The parties stipulate this access was governed by a confidentiality agreement signed between Greif and SMS in 2004.³ According to the agreement, the business arrangement consisted of SMS's ability to obtain certain of Greif's workplace and safety-related information. The agreement stated that SMS and its representatives had a duty to return all confidential information to Greif and could not retain duplicates or extracts of such information. The term "confidential information" was defined to include Greif's health and safety records, its compliance monitoring systems and applications, as well as any software and computer systems developed or used by Greif. Regarding the use of confidential information, the confidentiality agreement said:

[SMS] agrees that the Confidential Information will be used solely for the purpose of the Business Relationship with Greif and for no other purpose, and that all such information will be kept confidential by [SMS] and its Representatives at all times following such disclosures; provided, however, that (a) any such information may be disclosed to [SMS's] Representatives who need to know such information for the purpose of evaluating a possible Business Relationship between Greif and the Company (it being understood that such Representatives shall be informed by [SMS] of (i) the confidential nature of such information and (ii) the terms of this Agreement and the obligation of confidentiality undertaken by [SMS] under this Agreement, and shall agree to comply with the terms set forth herein), and (b) anydisclosure required by applicable law or legal proceedings may be made, subject to compliance with this Agreement.

(ECF No. 14-2, Confidentiality Agreement, at 2).

In 2015, SMS and Cottingham performed safety audits and OSHA training at CLCM facilities throughout the country, including a facility in Arkadelphia, Arkansas. They assigned Will Kramer, a newly employed occupational health and safety consultant, to work on these projects. The functions of Kramer's job required access to confidential information, particularly access to Greif's compliance management system ("CMS"). CMS contains data and information related to workplace injuries.

When conducting the inspections, Kramer covertly recorded conversations with Greif and CLCM employees, including employees located at the Arkadelphia facility. Furthermore, Kramer improperly accessed certain confidential information, such as data about historical employee injuries at CLCM facilities. Kramer allegedly collected this information to construct a false narrative that the Plaintiffs were unresponsive and indifferent to workplace safety conditions. In the fall of 2016, Kramer provided this information and the recordings to media outlets, politicians, and various governmental agencies. Kramer's revelations led to an onslaught of regulatory investigations and public attention. Approximately fifty regulatory inspections occurred at CLCM's facilities during the six-month period following Kramer's disclosures. Greif and CLCM allege they suffered damages exceeding $1,000,000. Specifically, they allege these damages consist of environmental consulting expenses, public relations expenses, attorneys' fees, fines, investigation and litigation expenses, reputational damage and loss of goodwill, and equipment expenditure expenses.

In this action, Greif and CLCM assert three claims for relief. First, Greif alleges breach of the confidentiality agreement. Greif contends that SMS and Cottingham failed to meet their contractual obligations when Kramer improperly accessed and disclosed confidential information. Second, Greif and CLCM allege breach of a services contract, pleading that SMS and Cottingham had to perform certain obligations under the agreement, e.g., they were required to provide competent health and safety consultants, and they had to adequately screen and supervise the consultants.⁴ Lastly, Greif and CLCM allege negligent hiring, supervision, and retention. They plead that SMS and Cottingham failed to exercise reasonable care when they hired and retained Kramer as an employee. The basis of this claim is that Kramer allegedly had anti-industry and anti-management sentiments prior to being hired as a consultant.⁵

For ease of reference, the Court refers to the breach of confidentiality agreement claim as "Count One," the breach of services contract claim as "Count Two," and the negligent hiring, supervision, and retention claim as "Count Three."

IV. DISCUSSION

The main thrust of the second motion to dismiss is the amended complaint fails to allege a proper basis of liability against Cottingham. Cottingham asserts that it was not a party to the contracts at issue. Cottingham stipulates it is a shareholder of SMS, and it contends the Plaintiffs have failed to plead a sufficient basis to pierce the corporate veilbetween SMS and Cottingham. The Plaintiffs maintain that SMS and Cottingham failed to distinguish themselves during their business dealings, and accordingly, both should be liable for the misconduct alleged. In addition, Cottingham contends that only SMS employed Will Kramer. The Plaintiffs respond by asserting that both entities shared their employees.

A. Contractual Claims

Under Count Two, the amended complaint pleads the existence of a services contract in which Cottingham owed obligations to the Plaintiffs. None of the parties have submitted the services contract on the record. The Court finds that an inquiry into veil piercing under Count II would be premature at this moment. For purposes of a motion to dismiss, the Court must assume that Cottingham owed contractual obligations under the services contract. See Iqbal, 556 U.S. at 678 (stating courts must accept as true all factual allegations in the complaint). Under this assumption, the amended complaint pleads sufficient factual allegations to support a breach of contract claim under Count Two, i.e., the Plaintiffs plead contractual obligations owed by Cottingham, breach of these obligations, and resulting damages. See, e.g., Pownall v. PNC Bank, 2010 WL...