Tori Belle Cosmetics LLC v. McKnight

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TORI BELLE COSMETICS LLC, Plaintiff, v. CYNTHIA MCKNIGHT, et al., Defendants.

No. C21-0145RSL

United States District Court, W.D. Washington, Seattle

August 31, 2022

ORDER GRANTING IN PART DEFENDANTS' MOTION TO DISMISS

Robert S. Lasnik United States District Judge

This matter comes before the Court on “Defendants' Motion to Dismiss for Failure to State a Claim.” Dkt. # 26. Plaintiff sells cosmetics and false eyelashes through a network of salespeople it calls “Affiliates.” The Affiliates recruit additional Affiliates, earning a portion of the proceeds from a recruit's sales and forming a branching sales team. Plaintiff alleges that four of its former Affiliates are using or have used the trade secrets and social media channels they had developed while they were Tori Belle Affiliates to attract sales people and customers for the benefit of a competing venture, Globallee Inc. Plaintiff asserts claims of breach of contract (Count I) tortious interference with contract or prospective business expectancy (Count II), conversion (Count III), violation of the Defend Trade Secrets Act (Count IV), civil conspiracy (Count V), and violation of the duty of good faith and fair dealing (Count VI). Defendants seek dismissal of all of plaintiff's claims with prejudice.

The question for the Court on a motion to dismiss is whether the facts alleged in the complaint sufficiently state a “plausible” ground for relief. BellAtl. Corp v. Twombly, 550 U.S. 544, 570 (2007). In the context of a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must “accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (citation omitted). The Court's review is generally limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996).

To survive a motion to dismiss under Rule 12(b)(6), a complaint must allege “enough facts to state a claim to relief that is plausible on its face.” [] Twombly, 550 U.S. [at 570]. A plausible claim includes “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” U.S. v. Corinthian Colls., 655 F.3d 984, 991 (9th Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Under the pleading standards of Rule 8(a)(2), a party must make a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P 8(a)(2). . . . A complaint “that offers ‘labels and conclusions' or ‘a formulaic recitation of the elements of a cause of action will not do.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). Thus, “conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).

Benavidez v. Cty. of San Diego, 993 F.3d 1134 1144-45 (9th Cir. 2021). If the complaint fails to state a cognizable legal theory or fails to provide sufficient facts to support a claim, dismissal is appropriate. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010).

A. Breach of Contract (Count I)

Plaintiff alleges that individuals interested in becoming a Tori Belle Affiliate must complete an online process and agree to certain terms governing the relationship between Tori Belle and its Affiliates. Dkt. # 23 at ¶ 48. The four former Affiliates named as defendants in this matter all completed the on-line process in 2019. Dkt. # 23 at ¶¶ 51-54.

The governing contracts contain a number of promises and provisions. Plaintiff alleges material breaches of Sections 2.13, 5.4, and 11 of the “Policies and Procedures of the Tori Belle Independent Affiliate Agreement.” Dkt. # 29 at 11.^[1] Defendants challenge the viability of plaintiff's breach of contract claims, arguing that the nonsolicitation provision is not enforceable under Washington law, that plaintiff failed to adequately allege the disclosure of any confidential information, and that the nondisparagement provision does not apply posttermination and/or has not been breached.

1. Nonsolicitation

Section 5.4 of the Affiliate agreement precludes an Affiliate from recruiting any Tori Belle Affiliate or customer to participate in another direct sales or network marketing opportunity. Dkt. # 23-3 at 32; Dkt. # 23-4 at 31-32. The prohibition applies during the term of the agreement and for some period of months after its termination. Id. Although Washington law makes noncompetition provisions void and unenforceable against an independent contractor unless he or she earns more than $250,000 per year (RCW 49.62.030(1)), “the non-compete statute explicitly excludes non-solicitation agreements from its strict enforceability requirements.” A Place for Mom v. Perkins, 475 F.Supp.3d 1217, 1230 (W.D. Wash. 2020); RCW 49.62.010(4) (“‘Noncompetition covenant' includes every written or oral covenant . . . by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. A ‘noncompetition covenant' does not include: (a) A nonsolicitation agreement . . . .”). Defendants Miraya, Yocom, and Burdine nevertheless argue that the nonsolicitation covenant at issue here is not enforceable as to them^[2] because it does not fall within the statutory definition of “nonsolicitation agreement.”

RCW 49.62.010(5) defines a “nonsolicitation agreement” as “an agreement between an employer and employee that prohibits solicitation by an employee, upon termination of employment: (a) Of any employee of the employer to leave the employer; or (b) of any customer of the employer to cease or reduce the extent to which it is doing business with the employer.” Because Affiliates are independent contractors, defendants argue that there is no agreement between an employer and employee and that plaintiff cannot plausibly accuse the Affiliates of soliciting “employees” or customers of an “employer.” Defendants therefore conclude that the nonsolicitation provision at issue here falls within the general definition of “noncompetition” under RCW 49.62.010(4) and is unenforceable unless the independent contractor earns more than $250,000 per year..

Neither party cites, and the Court has not found, any case or legislative history that discusses this issue. Plaintiff alleges that RCW 49.17.020(4) and (5) provide the applicable definitions for the terms “employer” and “employee” and that those definitions clearly encompass independent contractors. Dkt. # 23 at ¶ 74. Although an assertion regarding statutory interpretation and applicability is a legal conclusion that is “not entitled to the assumption of truth,” Iqbal, 556 U.S. at 680, plaintiff is correct. The noncompetition statute expressly states that “‘[e]mployee‘ and ‘employer' have the same meanings as in RCW 49.17.020.” RCW 49.62.010(2). Those definitions include in the term “employer” any business entity that contracts with one or more persons for personal labor and include in the term “employee” a person who is working under an independent contract. RCW 49.17.020(4) and (5). Thus the plain language of the statute's nonsolicitation carveout and the relevant definitions shows that nonsolicitation agreements are enforceable as to both employees and independent contractors. Whatcom Cnty. v. City of Bellingham, 128 Wn.2d 537, 546 (1996) (“When the statute's meaning is plain on its face, we give effect to the plain meaning of the statute as an expression of legislative intent.”) (citation omitted). This construction is also consistent with the legislative findings “that workforce mobility is important to economic growth and development” and “that agreements limiting competition or hiring” may be unreasonable. RCW 49.62.005. The legislature's goal of ensuring that Washington laborers have the flexibility to change jobs (or are substantially compensated if they give up that flexibility) is accomplished through the imposition of restrictions on noncompete provisions regardless whether the laborer is labeled an “employee” or an “independent contractor.”

In the alternative, defendants argue that Section 5.4 of the Affiliate Agreement is a nonsolicitation clause in name only and/or that plaintiff has not adequately alleged a breach. Defendants assert that Section 5.4 in fact bars former Affiliates from working for any other direct sales company. The contractual language belies this argument, however: “Affiliates are free to participate in other direct sales, social selling, multilevel or network marketing business ventures or marketing opportunities,” but they “may not recruit any Tori Belle Affiliate” or customer to enroll or participate in such ventures or opportunities. Dkt. # 23-3 at 32; Dkt. # 23-4 at 31-32. This is a classic nonsolicitation provision.

With regards to the adequacy of plaintiff's allegations plaintiff alleges that defendant McKnight reached out to other Tori Belle Affiliates, feigning ignorance as to why her Affiliate Agreement with Tori Belle had been terminated in the hopes of creating a sense of insecurity that would prompt the Affiliates to resign and cease doing business with Tori Belle. Dkt. # 23 at ¶ 101. McKnight allegedly used a private Facebook group she administered to inform group members, most of whom were Tori Belle Affiliates, that she would likely remain in the industry and they should connect with her at the email she provided. Dkt. # 23 at ¶ 102. McKnight, Miraya, Yocom, and Burdine coordinated social media publications at the end of January 2021 that made clear that they were involved in an as-yet unannounced business venture. Dkt. # 23 at...