Elgin Separation Sols. v. Dillon

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ELGIN SEPARATION SOLUTIONS, LLC, et al., Plaintiffs, v. DAVID CHADWICK DILLON, et al., Defendants.

Civil Action No. 2:23-cv-00440

United States District Court, S.D. West Virginia, Charleston Division

March 22, 2024

MEMORANDUM OPINION AND ORDER

IRENE C. BERGER, UNITED STATES DISTRICT JUDGE

The Court has reviewed the Plaintiffs/Counterclaim Defendants' Motion to Dismiss Counterclaims (Document 47), the Memorandum in Support of Motion to Dismiss Counterclaims (Document 48), the Defendants/Counterclaim Plaintiffs David Chadwick Dillon and Dillon Industries, Inc.'s Memorandum of Law in Response to Elgin's Motion to Dismiss Counterclaims (Document 59), the Plaintiffs/Counterclaim Defendants' Reply in Support of Motion to Dismiss Counterclaims (Document 60), as well as Defendant David Chadwick Dillon and Dillon Industries, Inc.'s Answer to First Amended Verified Complaint and Counterclaim (Document 39). For the reasons stated herein, the Court finds that the motion to dismiss should be granted.

FACTUAL ALLEGATIONS

The Plaintiffs/Counterclaim Defendants are Elgin Separation Solutions, LLC, and CMS/CSI LLC, formerly known as Centrifugal Services, LLC (collectively, “Counterclaim Defendants” or “Elgin”). The Defendants/Counterclaim Plaintiffs are Dillon Industries Inc., and its owner Chad Dillon (collectively, the “Dillon Defendants”).^[1]Dillon is a former Elgin employee. He left employment with Elgin to form his company, Dillon Industries Inc. Although not the sole focus of their work, Elgin and Dillon Industries are both in the business of repairing and manufacturing specialized processing equipment; specifically decanter centrifuges.

Dillon incorporates by reference the allegations of Elgin's First Amended Verified Complaint, as well as the Dillon Defendants' Answer and affirmative defenses. To summarize, in 2013, Dillon sold his family business to Centrifugal Services, an Elgin subsidiary. At that time, the parties entered into two contracts: (1) an Asset Purchase and Contribution Agreement (the “APC Agreement”) governing the sale of the business, and (2) an Employment Agreement governing Dillon's employment with Elgin. Following the sale, Dillon continued running the business as president of Elgin's Poca, West Virginia, division.

The Employment Agreement contained one-year non-competition and non-solicitation provisions.^[2]It also contained a provision which would “toll” the one-year period during any period of noncompliance. In November 2021, Dillon decided to leave Elgin with the intention of starting his own competing business. Elgin asked him to stay until Elgin found a suitable replacement. Dillon agreed on the condition that the one-year non-competition and nonsolicitation provisions would begin to run from the effective date of his resignation, December 14, 2021.^[3]During this period, Dillon prepared to compete with Elgin. The parties dispute whether Dillon solicited Elgin employees or customers in violation of the Employment Agreement during this time, and whether the one-year period was effectively tolled.

Around October or December 2022, Elgin found a suitable replacement for Dillon, and Dillon left his employment with Elgin. On December 14, 2022, Dillon contends the one-year restrictive covenant period expired. Dillon Industries placed an ad for employment online the next day. Following Dillon's departure, he alleges customers and employees of Elgin “gravitated to [him] and became customers and employees of Dillon Industries.” (Counterclaim at ¶14.) Dillon maintains that this “frustrated” Elgin, and that Elgin “accordingly sought ways to extend the One Year Period in violation of the parties' agreements, all in an effort to remove Dillon Industries as a competitor.” (Id. at ¶15.) This includes a January 2023 call that Dillon claims he received from Elgin's CEO with a request to cease hiring former Elgin employees, as well as a March 2023 cease-and-desist letter that Elgin's counsel sent to Dillon demanding he cease competing with Elgin, soliciting Elgin employees, and using Elgin's confidential information. Dillon alleges that the “Plaintiffs' actions are in bad faith and violate their implied duty of good faith and fair dealing under the Employment Agreement and related agreements.” (Id. at ¶19.) He claims he “bargained for and obtained the contractual right to compete with Elgin by, at the latest, December 15, 2022, and Elgin has breached the parties' agreements in this regard through its bad faith behavior.” (Id.)

The Amended Verified Complaint asserted the following causes of action: Count I: Violation of the Defend Trade Secrets Act; Count II: Violation of the West Virginia Uniform Trade Secrets Act; Count III: Copyright Infringement (as to Mr. Dillon and Dillon Industries); Count IV: Breach of Contract - APC Agreement (as to Mr. Dillon); Count V: Breach of Contract - Employment Agreement (as to Mr. Dillon); Count VI: Breach of Fiduciary Duty (as to Mr. Dillon); Count VII: Tortious Interference (as to Mr. Dillon); Count VIII: Breach of Fiduciary Duty (as to Mr. Ritchie); and Count IX: False Designation of Origin - Lanham Act.

The Counterclaim asserts two causes of action: (1) Breach of Contract (by David Chadwick Dillon against Centrifugal Services and Elgin); and (2) Misrepresentation and Tortious Interference (by Dillon Industries against Centrifugal Services and Elgin). Dillon seeks an order of judgment on his breach of contract claim, monetary damages in an amount to be determined by a jury, attorneys' fees and costs, and punitive damages.^[4]

STANDARD OF REVIEW

A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted tests the legal sufficiency of a complaint or pleading. Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Additionally, allegations “must be simple, concise, and direct.” Fed.R.Civ.P. 8(d)(1). “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a complaint must contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

Moreover, “a complaint [will not] suffice if it tenders naked assertions devoid of further factual enhancements.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).

The Court must “accept as true all of the factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S. 89, 93 (2007). The Court must also “draw[ ] all reasonable factual inferences from those facts in the plaintiff's favor.” Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). However, statements of bare legal conclusions “are not entitled to the assumption of truth” and are insufficient to state a claim. Iqbal, 556 U.S. at 679. Furthermore, the court need not “accept as true unwarranted inferences, unreasonable conclusions, or arguments.” E. Shore Mkts., v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice . . . [because courts] ‘are not bound to accept as true a legal conclusion couched as a factual allegation.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555).

To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). In other words, this “plausibility standard requires a plaintiff to demonstrate more than ‘a sheer possibility that a defendant has acted unlawfully.'” Francis, 588 F.3d at 193 (quoting Twombly, 550 U.S. at 570). A plaintiff must, using the complaint, “articulate facts, when accepted as true, that ‘show' that the plaintiff has stated a claim entitling him to relief.” Francis, 588 F.3d at 193 (quoting Twombly, 550 U.S. at 557). “Determining whether a complaint states [on its face] a plausible claim for relief [which can survive a motion to dismiss] will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679.

DISCUSSION

As a preliminary matter, the Court notes that Dillon Industries indicated in its response that it “will be moving to withdraw its second counterclaim (Misrepresentation and Tortious Interference) against Elgin” based on its understanding that the Court's Memorandum Opinion and Order denying Elgin's motion for injunctive relief (Document 55) “effectively moots” that claim. (Resp. at 1) (Document 59.) While Dillon Industries has yet to formally move to withdraw its counterclaim, the Court will treat the claim as moot and address only Dillon's counterclaim for breach of contract.

Elgin urges the Court to dismiss the breach of contract claim for three reasons. First, Elgin contends Dillon's counterclaim is procedurally barred by the litigation privilege because the wrongful conduct alleged therein is Elgin's filing of this lawsuit and request for preliminary injunctive relief, and the litigation privilege applies to breach of contract claims in West Virginia. Second, Elgin argues that the counterclaim fails to plausibly allege that Elgin...