HIS Co. v. Stover

202 F.Supp.3d 685

HIS COMPANY, INC., Plaintiff,

v.Robert Scott STOVER, Defendant.

CIVIL ACTION NO. 4:15-CV-00842

United States District Court, S.D. Texas, Houston Division.

Signed August 15, 2016

David Britton Nelson, Jackson Walker LLP, Michael Cole Mackey, Locke Lord Bissell & Liddell LLP, Houston, TX, for Plaintiff.

Charles Henry Peckham, Peckham PLLC, Houston, TX, for Defendant.

OPINION & ORDER

MELINDA HARMON, UNITED STATES DISTRICT JUDGE

Pending in the above-referenced cause is Defendant's Motion to Dismiss Plaintiff's Complaint. (Doc. 7.) Having reviewed the motion, Plaintiff's Response in Opposition (Doc. 11), and the relevant law, the Court is of the opinion that Defendant's motion should be DENIED.

I. Background

The dispute in this case arises from allegations that a former employee used misappropriated trade secrets to compete with his former employer in violation of an express confidentiality agreement.

Plaintiff His Company, Inc. ("Hisco") offers a variety of goods and services to its customers, including a component part for the manufacture of body armor known as "spall cover" or "spall material." (Doc. 1 at ¶ 13–14.) This fabric-like ballistic material is the subject of a patent to which Hisco owns the rights. (Id. at ¶ 16) In addition to this patent, Hisco "has developed numerous trade secrets and other confidential information relating to its ballistic materials business....includ[ing], but not limited to, information such as formulas, patterns, compilations, programs, devices, methods, techniques, processes, financial data, actual and potential customer data, and actual and potential supplier data, relating to its spall material, systems and methods for making that material, and customers that purchase or may purchase that material." (Id. at ¶ 17.) In an attempt to protect these trade secrets, Hisco has "policies that provide for disciplinary action and/or termination of employment in the event of certain behavior by an employee, such as the unauthorized disclosure of trade secrets." (Id. at ¶ 19.) The company also has a "Confidentiality, Cooperation, & Release Agreement" that employees must sign. (Id. at ¶ 20; Doc. 1-1 at 2.)

Defendant Robert Scott Stover ("Stover") worked for Hisco for twenty-six years in a variety of positions. (Id. at ¶ 22.) During that time he allegedly gained knowledge of a number of Hisco's trade secrets and confidential information. (Id. at ¶ 24.) In September 2014, Stover left Hisco. (Id. at ¶ 22.) Sometime around November, Stover then founded a company with two other individuals and began selling spall material in direct competition with Hisco. (Id. at ¶¶ 28, 40.) In December, the parties executed Hisco's standard Confidentiality, Cooperation, & Release Agreement wherein Stover agreed "to continue to refrain from divulging, disclosing, or sharing to any other person or entity any of Hisco's confidential information...." in exchange for a lump-sum payment of $16,699. (Id. at ¶¶ 26, 40; Doc. 1-1 at 2–3.) When Hisco later discovered that Stover was not in compliance with the Agreement, it initiated this suit for breach of contract (Count I), misappropriation of trade secrets (Count II), and fraudulent inducement (Count III). (Doc. 1 at ¶¶ 42–61.) Stover responded with the instant Motion to Dismiss (Doc. 7), which is now ripe for adjudication.

II. Legal Standard

A. Federal Rule of Civil Procedure 12(b) 6

Motions to dismiss for failure to state a claim are appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim. Fed. R. Civ. P. 12(b)(6). Under the Federal Rules, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). This requirement exists in order to "give the defendant fair notice of what the...claim is and the grounds upon which it rests," Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson , 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ) (internal quotation marks omitted). Although Rule 8's pleading standard "does not require ‘detailed factual allegations,’ it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

"To survive a motion to dismiss [for failure to state a claim], a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). "A claim has facial plausibility when a court can draw the reasonable inference that the defendant is liable for the misconduct alleged based on the factual content pled." Id. at 678, 129 S.Ct. 1937 (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). In determining plausibility, courts first disregard "formulaic recitation[s] of the elements" of the legal claim as conclusory. Id. at 678, 129 S.Ct. 1937. The court then assumes the truth of all factual allegations and determines whether those factual allegations allege a plausible claim. See id. "Determining whether a complaint states a plausible claim for relief will...be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937 (citation omitted).

"[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show [n]’—‘that the pleader is entitled to relief.’ " Id. (quoting Fed. R. Civ. P. 8(a)(2) ). If the facts fail to "nudge[ ] the[ ] claims across the line from conceivable to plausible, [then] the[ ] complaint must be dismissed." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. On a Rule 12(b)(6) review, "the court may consider documents attached to or incorporated in the complaint and matters of which judicial notice may be taken." United States ex rel. Willard v. Humana Health Plan of Tex. Inc. , 336 F.3d 375, 379 (5th Cir.2003) (citing Lovelace v. Software Spectrum Inc. , 78 F.3d 1015, 1017–18 (5th Cir.1996) ).

B. Federal Rule of Civil Procedure 9(b)

When a complaint alleges claims sounding in fraud, Rule 9(b) requires that plaintiffs plead the underlying factual circumstances with particularity. Fed. R. Civ. P. 9(b). Accordingly, "with respect to fraud and fraudulent inducement claims, at a minimum, Fed. R. Civ. P. 9(b) requires that the plaintiff ‘state with particularity the circumstances constituting the fraud.’ " Shandong Yinguang Chem. Indus. Joint Stock Co. v. Potter , 607 F.3d 1029, 1032 (5th Cir.2010) (per curiam) (quoting Fed. R. Civ. P. 9(b) ). This includes "allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Benchmark Elecs. v. J.M. Huber Corp. , 343 F.3d 719, 724 (5th Cir.2003) (quoting Tel – Phonic Servs. Inc. v. TBS Intern., Inc. , 975 F.2d 1134, 1139 (5th Cir.1992) ) (internal quotation marks omitted). Put simply, plaintiffs must plead the "who, what, when, where, and how of the alleged fraud." United States ex rel. Williams v. Bell Helicopter Textron Inc. , 417 F.3d 450, 453 (5th Cir.2005) (citation and internal quotation marks omitted). When certain information is peculiarly within defendant's knowledge, however, the courts are more forgiving in applying Rule 9(b), finding that less detail is required in such cases. In re Enron Corp. Sec., Derivative & "ERISA" Litig. , No. 02–0299, 2002 WL 32107216, at *11 (S.D.Tex. Aug. 12, 2002) (citing Wool v. Tandem Computers, Inc. , 818 F.2d 1433, 1439 (9th Cir.1987) ; Schilk v. Penn – Dixie Cement Corp. , 507 F.2d 374, 379 (2d Cir.1974) ; The Cadle Co. v. Schultz , 779 F.Supp. 392 (N.D.Tex.1991) ; Michaels Bldg. Co. v. Ameritrust Co. , 848 F.2d 674, 680 (6th Cir.1988) ).

III. Analysis

A. Misappropriation of Trade Secrets

Stover initiates his attack on the sufficiency of Hisco's complaint by taking aim at its misappropriation of trade secrets claim. Citing the Texas Uniform Trade Secrets Act ("TUTSA"), Stover argues that "TUTSA requires a plaintiff to show that the defendant (1) acquired the trade secrets through ‘improper means' and then (2) disclosed them without consent." (Doc. 7 at 6.) Stover points out that Hisco's complaint "alleges that it willingly provided Defendant with the alleged Trade Secrets pursuant to his employment and to further his job duties." (Id. at 7.) Citing two Western District cases,¹ Stover insists that these allegations are insufficient to state a claim because they do "not assert[ ] that Defendant acquired any trade secrets through improper means." (Id. ) Stover further argues that Hisco's claim also fails because the allegedly misappropriated items, information relating to spall material products, pricing and financial information, and customer information, are not "trade secrets" under TUTSA. (Id. at 7–8.) Finally, Stover contends that Hisco's claims fail because it does not allege what was taken, when it was taken, what was used, when it was used, how it was used, what information Hisco has as to proof, and damages. (Id. )

Hisco responds that Stover's argument that misappropriation cannot occur unless the trade secret information was acquired through improper means is "absurd" because it would "allow[ ] a former employee to simply do as he wishes with his former employer's trade secrets following the employment relationship." (Doc. 11 at 3.) Rather, it claims, "whether pre- or post-TUTSA, the law has long been that ‘a former employee may not use confidential or proprietary information or trade secrets the employee learned in the course of employment for the employee's own advantage and to the detriment of the employer.’ " (Id. ) (citation omitted). Hisco further avers that the cases Stover relies on are easily...