Mont. Silversmiths, Inc. v. Taylor Brands, LLC

850 F.Supp.2d 1172

2012 Copr.L.Dec. P 30,199

101 U.S.P.Q.2d 1947

MONTANA SILVERSMITHS, INC., Plaintiff,

v.TAYLOR BRANDS, LLC; Chris Roth; Marcia Eaton; and John Does # 1–4, Defendants.

Case No. CV–11–85–BLG–RFC.

United States District Court,

D. Montana,

Billings Division.

Feb. 8, 2012.

Shane Coleman, Michael P. Manning, Holland & Hart, Billings, MT, Mark B. Wiletsky, Nadya C. Bosch, Holland & Hart, Boulder, CO, for Plaintiff.

Michael J. Bradford, Luedeka Neely & Graham, Knoxville, TN, Tom Singer, Axilon Law Group, PLLC, Billings, MT, for Defendants.

ORDER RE: DEFENDANTS' MOTION TO DISMISS AND PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

RICHARD F. CEBULL, District Judge.

I. Introduction

Plaintiff Montana Silversmiths brings this action for copyright infringement and misappropriation of trade secrets against Taylor Brands and two of its former employees, Chris Roth and Marcia Eaton, who now work for Taylor Brands. Montana Silversmiths alleges Roth and Eaton have used its trade secrets to help Taylor Brands launch a new line of products that mimic Montana Silversmiths' most successful products.

Pending before the Court is Montana Silversmiths' Motion for Preliminary Injunction. Doc. 16. Montana Silversmiths seeks an order enjoining Defendants from further infringing its copyrighted works and further misappropriating its trade secrets. Also pending is Defendants' Motion to Dismiss For Failure to State a Claim and Lack of Personal Jurisdiction. Doc. 32.

II. Factual Background

Montana Silversmiths, Inc. is a Delaware corporation organized in Columbus, Montana in 1973. It is designer, manufacturer, and distributor of over 3,000 Western products, including belt buckles, jewelry, trophies and awards, home decor, knives, gifts, and lifestyle products for Western enthusiasts. In addition to using authorized dealers throughout the United States and Canada, Montana Silversmiths sells its products at www. montana silversmiths. com.

Marcia Eaton worked for Montana Silversmiths from January, 2004 until she was terminated on March 26, 2010. She began as the Executive Administrative Assistant to the President but ended as the Product Development Manager.

Chris Roth was Montana Silversmiths' Territory Sales Representative from December 1996 until April 28, 2011. During his time at Montana Silversmiths, Roth worked in the Northeast and then in South Texas.

Taylor Brands was founded in 1975 as a designer, manufacturer and distributor of knives and accessories. It is a limited liability company based in Kingsport, Tennessee. It distributes its products through authorized retailers and has no offices, employees, or assets in Montana.

In mid–2010, Stewart Taylor, owner of Taylor Brands, contacted Eaton to see if she was interested in working for Taylor Brands and assisting it in developing a new line of Western products, Eaton responded that she was interested, but was still bound by a Separation Agreement with Montana Silversmiths, Taylor and Eaton therefore decided to delay any employment by Taylor Brands until after the Separation Agreement expired on July 15, 2010. Eaton was hired by Taylor Brands on July 16, 2010. She remains a resident of Montana.

Taylor Brands began marketing and selling its new Western jewelry products in April of 2011.

On April 22, 2011, Montana Silversmiths received a misdirected knife replenishment order that Roth had filled for Taylor Brands, Montana Silversmiths has evidence that Roth had been working for Taylor Brands for as long as two years while he was working for Montana Silversmiths. Roth was terminated on April 28, 2011 and is now Taylor Brands' National Sales Manager. Roth is a resident of Texas.

Montana Silversmiths alleges Eaton and Roth gained intimate knowledge of its confidential, proprietary trade secrets, including its products, packaging, pricing, relationships with vendors, costs, design, marketing, and sales history. According to Montana Silversmiths, out of its more than 1,000 Western jewelry and belt buckles, Taylor Brands managed to make a copy that is substantially similar to its best-selling product, Montana Silversmiths further notes that Taylor Brands' other products are almost all taken from Montana Silversmiths' 200 ¹ best-selling products, and sold at a 30% discount compared to Montana Silversmiths' prices.

III. Defendants' Motion To DismissA. Counts Four and Five, As They Relate to Eaton, Must Be Dismissed Except For Breaches of the Separation Agreement Occurring Before Its Expiration

Count Four of the Complaint ² alleges Eaton breached a Non–Disclosure Agreement she entered into during her employment with Montana Silversmiths and the Separation Agreement executed upon her termination by “misappropriating, using, and/or disclosing” Montana Silversmiths' Trade Secrets. Count Five alleges Taylor Brands “intentionally and improperly interfered with” Eaton's contractual obligations to Montana Silversmiths. Defendants argue these claims must be dismissed pursuant to Rule 12(b)(6) Fed.R.Civ.P. because an integration clause in the Separation Agreement superceded all prior agreements and the Separation Agreement expired on July 15, 2010, one day prior to her employment with Taylor Brands.

A claim is subject to dismissal under Rule 12(b)(6) Fed.R.Civ.P. if it lacks a cognizable legal theory or if it fails to plead sufficient facts, accepted as true and viewed in the light most favorable to the plaintiffs, to state a claim for relief that is plausible on its face. Johnson v. Riverside Healthcare System, LP, 534 F.3d 1116, 1121–22 (9th Cir.2008). A facially plausible complaint “pleads 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, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) Plausible does not mean probable, but there must be more than a “sheer possibility” of unlawful action on the part of defendant. Id.

Defendants' argument for dismissal of Counts Four and Five as they relate to Eaton require that the Court consider the Separation Agreement Eaton entered into upon her termination. Ex. A to doc. 33–1, Eaton Affidavit (September 26, 2011), “Although generally the scope of review on a motion to dismiss for failure to state a claim is limited to the Complaint, a court may consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.” Daniels–Hall v. National Educ. Ass'n, 629 F.3d 992, 998 (9th Cir.2010) (internal quotations omitted). Since the Complaint's allegations rely on the Separation Agreement, e.g., doc. 22, ¶¶ 38–39, 111–112, 115, & 117, and there is no question as to its authenticity, it is appropriately considered.

Under the Separation Agreement, Eaton resigned as of March 26, 2010 with three months pay to follow. Each party agreed to forego any claims it may have had and to keep the terms of the Separation Agreement and the circumstances surrounding her termination confidential. Relevant here, Eaton (1) acknowledged she had returned all Montana Silversmiths' property, including, without limitation, computers, files, drawings, documents, software, and materials prepared for or by-Montana Silversmiths and (2) represented she would keep trade secrets, proprietary information, and all Company-related information “completely confidential.” Further, as of the effective date of March 26, 2010, the Separation Agreement:

supersedes and replaces any and all prior agreements, understandings and arrangements, whether written or oral, between the Parties (“Prior Agreements”), and the parties hereby agree that except as otherwise provided herein this Agreement hereby terminates the Prior Agreements and that they have no ongoing rights, benefits, privileges, duties, obligations and/or responsibilities arising out of, or in connection with, such Prior Agreements and that all such Prior Agreements are terminated.

Finally, Addendum A, signed on May 14, 2010, roughly six weeks after the Separation Agreement, provides: “[t]his addendum to the attached CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE between MONTANA SILVERSMITHS, INC., a Delaware corporation and Marcia Eaton, an individual, defines the expiration date to be July 15, 2010.”

When the terms of a contract are clear and unambiguous, courts must enforce them as written, Boyne USA, Inc. v. Lone Moose Meadows, LLC, 356 Mont. 408, 235 P.3d 1269, 1272 (2010). Therefore, since the Separation Agreement expressly revoked any prior agreements between Eaton and Montana Silversmiths, any claim that Eaton breached the prior Non–Disclosure Agreement or the Montana Silversmiths Employee Handbook by misappropriating Montana Silversmiths Trade Secrets (Complaint, ¶ 35–36, 114) fails to state a claim upon which relief may be granted. Similarly, any claim that Taylor Brands tortiously interfered with Eaton's Non–Disclosure Agreement is also implausible and must be dismissed. Montana Silversmiths concedes as much by not addressing the Non–Disclosure Agreement in its response brief.

Turning to the Separation Agreement, Count Four seemingly alleges a plausible claim for breach of paragraph 6, entitled “Trade Secrets and Confidential Information,” on the part of Eaton. Likewise, Count Five seems to allege a plausible claim that Taylor Brands tortiously interfered with paragraph 6 of the Separation Agreement.

But then there is Addendum A to the Separation Agreement, added roughly six weeks after the original agreement, for reasons not revealed in any of the papers filed with the Court. Addendum D “defines the expiration date to be July 15, 2010.” If the Separation Agreement expired on July 15, 2010, then Eaton would have had no contractual duty to maintain the confidentiality of Montana Silversmiths' trade secrets, and Taylor Brands could...