CST Indus. v. Tank Connections, LLC

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CST INDUSTRIES, INC., Plaintiff, v. TANK CONNECTION, L.L.C., et al., Defendants.

No. 23-2339-JAR-RES

United States District Court, D. Kansas

July 9, 2024

MEMORANDUM AND ORDER

JULIE A. ROBINSON UNITED STATES DISTRICT JUDGE

This case involves two business rivals seeking to become the roof subcontractor for a large municipal project to construct a drinking water reservoir for the City of Richmond, Virginia. Plaintiff CST Industries, Inc. (“CST”) brings claims against its competitor, Tank Connection, L.L.C. (“Tank”); as well as Tank's Liquid Market Manager, Jordan LaForge; and the general contractor for the project, Crowder Construction, Inc. (“Crowder”). CST's Amended Complaint alleges several tort claims against Defendants under Missouri law.^[1] Tank asserts two counterclaims against CST: (1) attempted monopolization under § 2 of the Sherman Act; and (2) unfair competition under Kansas law.^[2] Before the Court is CST's Motion to Strike and/or Dismiss Defendant Tank Connection, LLC's Counterclaims (Doc. 135). The motion is fully briefed and the Court is prepared to rule. For the reasons discussed below the Court grants CST's motion to strike the unfair competition claim and its motion to dismiss the Sherman Act claim.

I. Standards

Rule 12(f) provides that “[t]he court may strike from a pleading an insufficient defense or any redundant immaterial, impertinent, or scandalous matter.”^[3] “A defense is insufficient if no circumstances exist under which it can succeed as a matter of law.”^[4] “The decision to grant a motion to strike is within the district court's sound discretion.”^[5]

A motion to dismiss a counterclaim for failure to state a claim is evaluated under the same standard as a motion to dismiss a complaint.^[6] Under Rule 12(b)(6), “only a [counterclaim] that states a plausible claim for relief survives a motion to dismiss.”^[7] “[M]ere ‘labels and conclusions,' and ‘a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to support each claim.”^[8] Finally, the Court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.^[9]

The Supreme Court has explained the analysis as a two-step process. For the purposes of a motion to dismiss, the court “must take all of the factual allegations in the complaint as true, [but] we ‘are not bound to accept as true a legal conclusion couched as a factual allegation.'”^[10]Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.^[11] Second, the court must determine whether the factual allegations, when assumed true, “plausibly give rise to an entitlement to relief.”^[12] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”^[13]

II. Facts

The following facts from the Amended Answer and Counterclaim are accepted as true and viewed in the light most favorable to Tank.

The facts of this case relate to the City of Richmond, Virginia's (“the City”) choice of subcontractor for the design, manufacture, and installation of the roof for a 55-million-gallon drinking water reservoir (“Byrd Park Project”). At the time the City opened up bidding on construction, CST was one of three potential roof subcontractors preapproved by the City. CST claims to be the largest dome and storage tank manufacturer in the world, increasing their market share of the dome and storage tank industry in 2008 and 2009 when it acquired Conservatek Industries, Inc. and Temcor, Inc., respectively.

The City required triangulated, rectangular, flat column-supported roof structures for the Project. CST is one of the few companies in the United States that designs, manufactures and constructs this type of roof. Indeed, CST is estimated to have over 90% of the market share in the United States for triangulated, rectangular, flat column-supported aluminum roofs. Opportunities for triangulated, rectangular, flat column-supported roofs in the United States are extremely limited and jobs similar to the Byrd Park Project only present themselves once every five to seven years.

Tank, a competitor of CST's, designs, manufactures and constructs storage containment products worldwide, including aluminum flat roof covers. Tank was not preapproved by the City on the Byrd Park Project, and was not selected by any of the general contractors who submitted bids. Nevertheless, Tank presented a qualification package to the general contractors submitting bids to the City, including Crowder, who was ultimately chosen as the general contractor by the City. CST alleges in its Amended Complaint that the qualification package Tank submitted included misrepresentations about its experience and qualifications, including passing off projects that had been performed by CST as its own based on former CST employees Steve Ducotey and Casey Whalen's involvement in those projects.

Ultimately, CST was unable to fulfill Crowder's bond requirement for the Project, which led Crowder to look for other potential subcontractors who could replace the roof and fully bond the project. After many submissions, meetings, and questions answered, Crowder chose Tank as the subcontractor to replace the Byrd Park Reservoir roof.

Since 2016, CST has filed several lawsuits seeking to enforce noncompetition agreements and recover from competitors based on allegations that they used photographs of CST projects to market their own products. CST filed this lawsuit on August 3, 2023.^[14] In the Amended Complaint, CST alleges (1) tortious interference with contract against Tank and Crowder; (2) violations of the Defend Trade Secrets Act (“DTSA”) against Tank and Crowder; (3) tortious interference with business expectancy against Tank and LaForge; (4) civil conspiracy against Tank and Crowder; (5) aiding and abetting against Tank and Crowder; and (6) unfair competition against all Defendants.^[15]

CST moved for a preliminary injunction, seeking to enjoin Crowder and Tank from installing the roof on the project.^[16] The Court held an evidentiary hearing on March 11 and 12, 2024, and ultimately denied the motion.^[17] In that Order, the Court considered the evidence presented by the parties in support of CST's claims for tortious interference with business expectancy and unfair competition under Missouri law. As part of its ruling, the Court determined that CST was not likely to succeed on those claims.

Tank and LaForge moved to dismiss several of CST's claims. The Court granted in part and denied in part those motions, finding that CST failed to state a plausible claim for misappropriation of trade secrets and aiding and abetting, as alleged in Counts II and V of the Amended Complaint.

Tank alleges two counterclaims against CST: (1) a claim under § 2 of the Sherman Act alleging that CST used this “sham” litigation to deter competition; and (2) unfair competition under Kansas law, based on CST's past practice of purchasing competitors, colluding with other tank suppliers, and suing competitors to hobble competition. CST now moves to dismiss both claims for failure to state a claim upon which relief can be granted.

III. Discussion

In its Sherman Act claim, Tank claims that CST is attempting to secure monopoly power in the aluminum, flat column-supported cover industry in the United States by filing the instant lawsuit against Tank, and in order to interfere with Tank's business practices in this limited market. Tank alleges that CST's claims are objectively and subjectively baseless given that CST was not awarded the subcontract for the Project due to its inability to bond the Project. In its unfair competition claim, Tank claims that CST's conduct, including filing this lawsuit, interfered with its ability to conduct business and irreparably harmed its clients, goodwill, revenues, profits, and caused diminution in the value of its business.

CST first moves to strike both claims under the Kansas anti-SLAPP (Strategic Lawsuits Against Public Participation) statute. Alternatively, CST moves to dismiss under Rule 12(b)(6) based on the Noerr-Pennington doctrine and failure to state a claim.

A. Motion to Strike

“An anti-SLAPP statute is a specialized version of the tort of abuse of process, designed to reduce defense costs by creating an absolute or qualified immunity, and (in several states) by requiring early disposition of a motion to dismiss.”^[18] Kansas's anti-SLAPP statute, the Kansas Public Speech Protection Act (“KPSPA”) became law in 2016,^[19] in order to “prevent meritless lawsuits that chill free speech.”^[20] Under subsection (d) of the statute,

A party may bring a motion to strike the claim if a claim is based on, relates to or is in response to a party's exercise of the right of free speech, right to petition or right of association. A party bringing the motion to strike has the initial burden of making a prima facie case showing the claim against which the motion is based concerns a party's exercise of the right of free speech, right to petition or right of association. If the moving party meets the burden, the burden shifts to the responding party to establish a likelihood of prevailing on the claim by presenting substantial competent evidence to support a prima facie case. If the responding party meets the burden, the court shall deny the motion. In making its determination, the court shall consider pleadings and supporting and opposing affidavits stating the facts upon which the liability or defense is

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