Stonecoat of Tex., LLC v. Procal Stone Design, LLC

426 F.Supp.3d 311

STONECOAT OF TEXAS, LLC, StoneCoat GP, LLC, and StoneCoat LP, Plaintiffs/Counter-Defendants

v.PROCAL STONE DESIGN, LLC, ProCal Stone Design USA, LLC, ProCal Enterprises, LLC, John Profanchik, Sr., Justin Kinser, Irma Villarreal, Alfredo Gonzalez, Philippe Mergaux, and Pierre-Laurent Chamielec, Defendants/Counter-Plaintiffs

v.The Morrison Family Trust and Kenneth W. Morrison, Individually and in his capacity as Trustee, Third-Party Defendants

Civil Action No. 4:17CV303

United States District Court, E.D. Texas, Sherman Division.

Signed September 12, 2019

Wm. Charles Bundren, Wm. Charles Bundren & Associates, Frisco, TX, Terry Lane Scarborough, Viola Blayre Pena, Hance Scarborough LLP, Austin, TX, Stacey Vause Reese, Stacey V. Reese, Austin, TX, for Plaintiffs/Counter-Defendants.

Viola Blayre Pena, Terry Lane Scarborough, Hance Scarborough LLP, Austin, TX, Stacey Vause Reese, Stacey V. Reese, Austin, TX, for Defendants/Counter-Plaintiffs.

ORDER ADOPTING REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE REGARDING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

The above-entitled and numbered civil action was heretofore referred to United States Magistrate Judge Caroline M. Craven pursuant to 28 U.S.C. § 636. On August 12, 2019, the Magistrate Judge issued a Report and Recommendation, recommending the following motions be granted: (1) John Profanchik, Sr.'s Motion for Summary Judgment (regarding StoneCoat GP's and StoneCoat LP's remaining claims against him) (Dkt. #67); (2) Irma Villarreal and Alfredo Gonzalez's Motion for Summary Judgment (Dkt. #127); (3) Justin Kinser's Motion for Summary Judgment (Dkt. #128); (4) ProCal Stone Design, LLC's Motion for Summary Judgment (Dkt. #129); and (5) ProCal Stone Design USA, LLC and ProCal Enterprises, LLC's Motion for Summary Judgment (Dkt. #195). Specifically, the Magistrate Judge recommends StoneCoat GP's and StoneCoat LP's remaining claims against Profanchik be dismissed with prejudice,¹ and Plaintiffs' claims against the remaining defendants be dismissed with prejudice.

Plaintiffs-counterdefendants StoneCoat of Texas, LLC ("SCOT"), StoneCoat GP, LLC ("StoneCoat GP"), and StoneCoat, LP ("StoneCoat LP") (collectively, "Plaintiffs") filed objections to the Report and Recommendation. The Court conducts a de novo review of the Magistrate Judge's findings and conclusions.

BACKGROUND

Plaintiffs-counterdefendants' claims

In May 2017, Plaintiffs filed this case against defendants-counterplaintiffs ProCal Stone Design, LLC ("ProCal Stone Design"), John D. Profanchik, Sr. ("Profanchik"), Justin Kinser ("Kinser"), Irma Villarreal ("Villarreal"), Alfredo Gonzalez ("Gonzalez"), Philippe Mergaux ("Mergaux"), and Pierre-Laurent Chamielec ("Chamielec"). ProCal Stone Design, US LLC ("ProCal USA") and ProCal Enterprises, LLC ("ProCal Enterprises") (together with ProCal Stone Design, "ProCal") were later added as defendants.

Plaintiffs allege the following claims against the ProCal entities, Profanchik, Kinser, Villarreal, Gonzalez, Mergaux, and Chamielec:² violations of the Lanham Act, 15 U.S.C. § 1125(a), and Defend Trade Secrets Act of 2016, Public Law 114-153 (May 11, 2016); common law and statutory misappropriation of trade secrets; breach of nondisclosure and noncompete contractual covenants; conversion; violation of the Texas Theft Liability Act; tortious interference with exiting contractual relationships; unfair competition; civil conspiracy; assisting and encouraging, concert of action by Defendants; joint enterprise by Defendants; and declaratory relief under the Declaratory Judgment Act, 28 U.S.C § 2201.

Among other things, Plaintiffs allege Profanchik executed a non-disclosure/non-compete agreement in order to obtain, and did obtain, confidential and proprietary information and trade secrets of Plaintiffs in order to evaluate a possible purchase of Plaintiffs or an equity investment in Plaintiffs. According to Plaintiffs, Profanchik ultimately decided not to invest in Plaintiffs; "but, Profanchik, nevertheless, misappropriated Plaintiffs' confidential and proprietary information and trade secrets and used such information and trade secrets to form Procal and to unlawfully compete with Plaintiffs." Dkt. #103, ¶ 3. Profanchik formed or created the ProCal entities on various dates since May 7, 2015 and allegedly "used and transmitted to Procal misappropriated proprietary and confidential information and trade secrets of Plaintiffs to the Procal [entities] to enable them to unlawfully and unfairly compete against Plaintiffs." Id. , ¶ 4.

Plaintiffs allege Kinser, Villarreal, Gonzalez, Mergaux, and Chamielec all previously worked with Plaintiffs prior to May 7, 2015 and had executed written agreements not to disclose Plaintiffs' confidential and propriety information and trade secrets; however, after May 7, 2015, they began working for ProCal and began unlawfully and unfairly using Plaintiffs' confidential and proprietary information and trade secrets while working for ProCal. Id. , ¶ 5.

Plaintiffs allege Profanchik and ProCal knew of the contractual agreements made by Kinser, Villarreal, Gonzalez, Mergaux, and Chamielec, but despite such knowledge, interfered with these contractual obligations. Id. , ¶ 6. Plaintiffs further allege ProCal "has and continues to falsely misrepresent its involvement in the industry and has falsely made claims that are known to be ... literally false and that caused confusion in the marketplace regarding Procal's products, services, goods and workmanship." Id. , ¶ 7.

Defendants' motions for summary judgment

In five separate motions, Profanchik, Kinser, Villarreal, Gonzalez (together, "individual defendants"), and the ProCal entities (collectively, "Defendants") move the Court to grant summary judgment against the following claims asserted against them by Plaintiffs: (1) Lanham Act violations (Count 1); (2) misappropriation of trade secrets and theft/conversion (Counts 2-5); (3) breach of contract (Count 6); (4) breach of fiduciary duty (Count 7); (5) tortious interference (Count 8); (6) unfair competition (Count 9); (7) declaratory relief; (8) injunctive relief; and (9) damages.

As an overarching argument, Defendants assert all Plaintiffs' claims should be dismissed because Plaintiffs' damages calculations are flawed and without evidentiary support. Specifically regarding each claim, Defendants argue as follows:

First, Defendants assert Plaintiffs' Lanham Act claims fail as a matter of law. According to Defendants, the alleged violations fall into two categories – false advertising and trademark infringement – and there is no evidence to support either claim.

Second, Defendants assert Plaintiffs' Misappropriation of Trade Secrets and Confidential and Proprietary Information (Count 2), Misappropriation of Trade Secrets and Confidential and Proprietary Information, United States Defend Trade Secrets Act of 2016 (Count 3), Conversion (Count 4), and Texas Theft Liability Act (Count 5) claims fail as a matter of law for the following reasons: (1) Plaintiffs do not have any trade secrets, (2) there is no evidence the individual defendants took Plaintiffs' trade secrets, and (3) there is no evidence the individual defendants are using Plaintiffs' trade secrets.

Third, Defendants assert Plaintiffs' Breach of Contract (Count 6) claim fails as a matter of law because there is not a valid contract and the statute of limitations expired before Plaintiffs brought this claim. According to Kinser, Villarreal, and Gonzalez, there was no consideration provided them when entering in the non-disclosure/non-compete agreements and those agreements contain unreasonable limitations. According to ProCal USA and ProCal Enterprises, they were not party to a contract with Plaintiffs.

Fourth, the ProCal entities move for summary judgment against Plaintiffs' claim for Breach of Fiduciary Duty (Count 7), asserting ProCal did not have a fiduciary relationship with Plaintiffs. Kinser, Villarreal, and Gonzalez also move for summary judgment as to this claim. Kinser argues he was not a fiduciary and the economic loss rule applies. Villarreal and Gonzalez argue there is no evidence they breached fiduciary duties to Plaintiffs.

Fifth, the ProCal entities argue Plaintiffs' Tortious Interference (Count 8) claim fails as a matter of law because there is not a valid contract to interfere with and the statute of limitations expired related to all contracts at issue before Plaintiffs brought this claim. ProCal Stone Design further argues related entities cannot interfere with their own contracts. ProCal USA and ProCal Enterprises further argue they were not in existence at the time of the alleged interference.

Sixth, Defendants assert Plaintiffs' claim for Unfair Competition (Count 9) and all iterations of conspiracy fail as a matter of law because they are not an independent causes of action.

Seventh, Defendants assert Plaintiffs' claims for Declaratory Relief (Count 7) fail as a matter of law because those claims are redundant and such relief is not available in federal court.

Eighth, Defendants assert Plaintiffs' claims for Injunctive Relief fail as a matter of law.

AUGUST 12, 2019 REPORT AND RECOMMENDATION

Consideration of all the evidence of record

On August 12, 2019, the Magistrate Judge entered a 193-page Report and Recommendation ("R & R") regarding proposed findings of fact and recommendations that Defendants' motions for summary judgment be granted. Dkt. #241. The evidence relied upon by the Magistrate Judge is set forth in detail in the R & R and is not duplicated herein.³ Id. at pp. 24-90.

Consideration of Plaintiffs' Lanham Act claims (Count 1)

In her discussion of the Lanham Act trademark infringement claim, the Magistrate Judge considered whether there was sufficient evidence to show Defendants used or infringed the "Stonecoat" mark and concluded the evidence is insufficient to carry Plaintiffs' burden at the summary judgment...