DTC Energy Group, Inc. v. Hirschfeld et al
Filing
160
ORDER by Chief Judge Philip A. Brimmer on 9/25/2019, re: 103 defendant Ally Energy Services, Inc. Motion to Dismiss and Opening Brief is GRANTED; 113 defendants Craig Hirschfeld and Joseph Johnson's Motion toDismiss Second Amended Com plaint is GRANTED IN PART AND DENIED IN PART; 114 defendant Katie Stromstads Motion to Dismiss Second Amended Complaint is GRANTED IN PART AND DENIED IN PART; 115 defendant Ross Rhinehart's Motion to Dismiss Second Amended Com plaint is GRANTED IN PART AND DENIED IN PART. ORDERED that all claims against defendant Ally Energy Services, Inc. are DISMISSED WITH PREJUDICE. ORDERED that plaintiff's Fourth, Fifth, Seventh, Ninth, Twelfth, and Fou rteenth Claims against defendant Craig Hirschfeld are DISMISSED WITH PREJUDICE. ORDERED that plaintiff's Fourth, Fifth, Seventh, Twelfth, and Fourteenth Claims against defendant Joseph Johnson are DISMISSED WITH PREJUDICE. ORDERED that plaintiff's Second, Third, Ninth, Twelfth, and Fourteenth Claims against defendant Katie Stromstad are DISMISSED WITH PREJUDICE. ORDERED that plaintiff's Fifth, Tenth, Twelfth, and Fourteenth Claims against defendant Ross Rhinehart are DISMISSED WITH PREJUDICE. (sphil, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 17-cv-01718-PAB-KLM
DTC ENERGY GROUP, INC., a Colorado Corporation,
Plaintiff,
v.
ADAM HIRSCHFELD,
JOSEPH GALBAN,
CRAIG HIRSCHFELD,
JOSEPH JOHNSON,
KATIE STROMSTAD,
ROSS RHINEHART,
ALLY CONSULTING, LLC f/k/a Wyodak Staffing, LLC, a Wyoming limited liability
company, and
ALLY ENERGY SERVICES, INC., a Wyoming corporation,
Defendants.
ORDER
This matter is before the Court on defendant Ally Energy Services, Inc. Motion to
Dismiss and Opening Brief [Docket No. 103]; defendants Craig Hirschfeld and Joseph
Johnson’s Motion to Dismiss Second Amended Complaint [Docket No. 113]; defendant
Katie Stromstad’s Motion to Dismiss Second Amended Complaint [Docket No. 114];
and defendant Ross Rhinehart’s Motion to Dismiss Second Amended Complaint
[Docket No. 115]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367.
I.
BACKGROUND
A.
Factual Background
Plaintiff DTC Energy Group, Inc. (“DTC”) is a consulting and staffing firm serving
the oil and gas industry. Docket No. 82 at 4, ¶ 8. 1 DTC’s business involves placing
candidates with companies in the oil and gas industry. Id. at 7, ¶ 20. In connection with
that business, DTC has confidential information, some of which it contends are “trade
secrets.” These trade secrets include: (1) “Candidate Folders,” in which DTC stores
resumes, including resumes which it has “re-formatted” to include the DTC logo and
contact information, id. at 12-13, ¶¶ 42-48; (2) a “Candidate Database” that sum marized
the contents of “more than 1,000 of DTC’s re-formatted resumes,” id. at 13, ¶¶ 48-49;
and (3) a “Profit Calculator” that DTC uses “to evaluate several financial variables and
gain competitive advantages in the industry.” Id. at 13-14, ¶ 50.
In May 2013, DTC hired defendant Adam Hirschfeld as a salesman. Id. at 8,
¶ 27. In January 2014, DTC promoted Adam Hirschfeld to be its business development
lead. Id. at 9, ¶ 29. As business development lead, Adam Hirschfeld had access to
DTC’s confidential information. Id. ¶ 33. In July 2014, DTC hired defendant Katie
Stromstad as a human resources specialist. Id. at 5, ¶ 13. In November 2014, DTC
hired defendant Joseph Galban (“Galban”) as a staff accountant. Id. at 4, ¶ 10. From
approximately July 2015 to June 2016, DTC subleased office space to defendant Ross
Rhinehart (“Rhinehart”). Id. at 5, ¶ 14.
In the summer of 2015, DTC began discussing a potential business relationship
1
These facts are drawn from Plaintiff’s Second Amended Verified Complaint and
Jury Demand [Docket No. 82]. The Court discusses only those allegations relevant to
resolution of the instant motions. Further background can be found in the Court’s order
on DTC’s motion for a preliminary injunction. Docket No. 57. For the purposes of this
order, the Court accepts “well-pleaded factual allegations” in the complaint as true.
Brown v. Montoya, 662 F.3d 1152, 1162 (10th Cir. 2011).
2
with defendant Ally Consulting, LLC (“Ally Consulting”). Id. at 15, ¶ 57. 2 Ally Consulting
provides similar staffing services in the oil and gas industry. Id. at 16, ¶ 59. DTC
agreed that it would assist Ally Consulting by “taking on its few employees and/or
contractors and by handling the associated administrative services . . . in exchange for
percentage-based payments from [Ally Consulting].” Id. at 15, ¶ 58. DTC and Ally
Consulting executed an agreement on January 11, 2016; Ally Consulting terminated the
agreement on July 11, 2016. Id. at 16, ¶¶ 60-61.
DTC alleges that, beginning in November 2015, Adam Hirschfeld, defendant
Craig Hirschfeld (“Hirschfeld”), and defendant Joseph Johnson (“Johnson”) began
“plotting” to build up Ally Consulting by “stealing DTC’s business.” Id. at 16, ¶ 64. The
complaint is unclear what, if any, management role or ownership interest Hirschfeld and
Johnson had at the time or at present in Ally Consulting. Compare id. at 6, ¶ 16
(alleging that, since April 2017, the sole member of Ally Consulting is defendant Ally
Energy Services, Inc. (“AES”)) with id. at 4-5, ¶¶ 11-12, 14 (alleging that Rhinehart,
Hirschfeld, and Johnson are currently “co-owner[s] and co-member[s] of [Ally
Consulting] and/or [AES]”). DTC alleges that Adam Hirschfeld, Hirschfeld, and Johnson
agreed that Adam Hirschfeld would work for Ally Consulting while still employed by
DTC, and that Adam Hirschfeld would convince Galban and Stromstad to assist him.
Id. at 17, ¶ 66-67. DTC alleges that Adam Hirschfeld would secure customers on Ally
Consulting’s behalf from customers who believed they were dealing with DTC, and that
Adam Hirschfeld, Galban, Stromstad, and Rhinehart would email the customers
2
At the time, Ally Consulting was known as Wyodak Staffing, LLC.
3
“onboarding paperwork on Ally letterhead that they had copied from DTC forms.” Id. at
18, ¶¶ 73-74. Stromstad sometimes mistakenly sent candidates DTC onboarding
paperwork instead of Ally onboarding paperwork. Id. at 19, ¶ 82. Adam Hirschfeld,
Galban, Stromstad, and Rhinehart worked to conceal the work they were doing for Ally
Consulting from DTC’s owners. Id. at 20-21, ¶¶ 90-97.
DTC alleges that Hirschfeld and Craig Hirschfeld engaged in a “fraudulent”
scheme through CS Property Holdings, a third-party LLC. Id. at 30-31, ¶¶ 168-177.
Under the alleged scheme, CS Property Holdings would charge DTC “consultants”
(placed customers) in Ohio and West Virginia for their housing. Id. The rent paid to CS
Property Holdings by the consultants “far exceeded” the actual rent charged by
landlords to CS Property Holdings. Id. at 31, ¶ 176. DTC would then reimburse the
consultants for their housing. Id., ¶ 175.
On November 8, 2016, Adam Hirschfeld emailed Rhinehart DTC’s Profit
Calculator. Id. at 34, ¶ 197. On February 13, 2017, Stromstad resigned from DTC. Id.
at 5, ¶ 13. On May 3, 2017, Adam Hirschfeld resigned from DTC, effective May 31. Id.
at 32, ¶ 187. In late May 2017, Adam Hirschfeld asked Rhinehart to obtain “confidential
DTC financial information” from Galban. Id. at 34, ¶ 195. DTC alleges that Rhinehart
did obtain “confidential financial documents and trade secrets” from Galban. Id. ¶ 198.
Adam Hirschfeld, Stromstad, and Galban now all work for Ally Consulting. Id. at 35,
¶ 203. Before leaving DTC, Adam Hirschfeld stole his work laptop and flash drives that
had “thousands of confidential DTC files he downloaded to them.” Id. at 37, ¶ 220.
After DTC commenced this lawsuit, Rhinehart requested that Adam Hirschfeld cease all
4
use of the laptop. Id. ¶ 223.
B.
Procedural History
DTC initiated this lawsuit on July 14, 2017. Docket No. 1. On the same day,
DTC moved for a temporary restraining order and preliminary injunction based on the
alleged misappropriation of its trade secrets by Adam Hirschfeld, Galban, and Ally
Consulting. Docket No. 4. After a hearing on the motion on July 20, 2017, the Court
denied DTC’s request for a temporary restraining order, finding that DTC had failed to
demonstrate a likelihood of success on the merits of its misappropriation claims. See
Docket No. 17 at 69. On September 13, 2017, DTC filed an amended complaint and
an amended motion for a preliminary injunction. Docket Nos. 24, 25. The amended
motion sought relief against Adam Hirschfeld, Galban, and Ally Consulting for
misappropriation of trade secrets under federal and state law, breach of contract, and
breach of the duty of loyalty and unfair competition. Docket No. 25 at 2, 6-16. After an
evidentiary hearing on January 30, 2018, the Court denied DTC’s request for a
preliminary injunction on March 2, 2018. Docket No. 57. T he Court concluded that
DTC had failed to demonstrate irreparable harm on all of its claims save for the breach
of contract claim and further concluded that DTC had failed to demonstrate a likelihood
of success on the merits of the breach of contract claim. Id. The Tenth Circuit affirmed
the Court’s denial of a preliminary injunction. See DTC Energy Group, Inc. v.
Hirschfeld, 912 F.3d 1263 (10th Cir. 2018).
On November 9, 2018, DTC filed its Second Amended Complaint (the
“complaint”). Docket No. 82. The complaint adds as defendants Hirschfeld, Johnson,
5
Stromstad, Rhinehart (together, the “individual defendants”), and AES. The complaint
brings claims against some or all defendants for (1) breach of contract; (2) breach of
the duty of loyalty; (3 and 4) misappropriation of trade secrets under the federal Defend
Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831 et seq., and the Colorado Uniform Trade
Secrets Act (“CUTSA”), Colo. Rev. Stat § 7-74-101 et seq.; (5) unjust enrichment; (6)
tortious interference with business relations; (7) tortious interference with contract; (8)
unfair competition; (9) civil theft; (10) conversion; (11) civil conspiracy; (12) violation of
the Civil Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1962 et seq.; (13) violation of the Computer Fraud and Abuse Act (“CFAA”), 18
U.S.C. § 1030 et seq.; and (14) conspiracy to violate the CFAA. Id. at 40-57, ¶¶ 241349.
AES and the individual defendants have filed motions to dismiss. Docket Nos.
103, 113, 114, 115. 3
II. LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a complaint must allege enough factual matter that, taken as true, makes
the plaintiff’s “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671
F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “[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 shown–that the
pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal
3
Defendant Adam Hirschfeld’s Motion for Judgment on the Pleadings [Docket
No. 134] is not before the Court in this Order.
6
quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A
plaintiff must nudge [his] claims across the line from conceivable to plausible in order to
survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint’s
allegations are “so general that they encompass a wide swath of conduct, much of it
innocent,” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191
(quotations omitted). Thus, even though modern rules of pleading are somewhat
forgiving, “a complaint still must contain either direct or inferential allegations respecting
all the material elements necessary to sustain a recovery under some viable legal
theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration m arks
omitted ).
III. ANALYSIS
A.
AES’s Motion to Dismiss
In its motion to dismiss, AES argues that, because it is a “non-operating, holding
company owning 100% of the membership interest in [Ally Consulting],” DTC has “no
basis for independent claims against AES.” Docket No. 103 at 2. In response, DT C
contends that it refers to AES and Ally Consulting collectively as “Ally” throughout the
complaint. Docket No. 110 at 10-13. 4 As a result, AES argues that the complaint is not
sufficient to put AES on notice of the claims against it. Docket No. 111 at 6-8.
The complaint’s allegations against AES are oblique. The first page refers to
“Ally Consulting, LLC f/k/a Wyodak Staffing, LLC and Ally Energy Services, Inc.
4
DTC argues that AES’s motion fails to comply with this Court’s Practice
Standards. Docket No. 110 at 8-10. This argument, which is effectively a motion to
strike, is not properly before the Court. See D.C.COLO.LCivR 7.1(d) (“A motion shall
not be included in a response or reply to the original motion.”).
7
(collectively, ‘Ally’).” Docket No. 82 at 1. The complaint next identifies the parties,
describing “Ally Consulting, LLC” as
a Wyoming limited liability company in good standing with its principal
offices currently located in Casper, Wyoming and Lakewood, Colorado.
Ally formerly had a business relationship with DTC and, as a result of the
Defendants’ unlawful acts alleged herein, is currently a direct competitor
of DTC. During calendar year 2016 and much of 2017, the majority of
Ally’s work was being performed by DTC employees out of DTC’s physical
office. On information and belief, Ally did not officially open its Lakewood,
Colorado office until early 2017, shortly before DTC’s employees officially
“moved” to work for Ally. Ally is A. Hirschfeld’s, Ms. Stromstad’s, Mr.
Galban’s, and Mr. Rhinehart’s current employer, does business in
Colorado, and one of its principal places of business is located in
Lakewood, Colorado.
Id. at 6, ¶ 15. 5 The complaint next identifies AES as “a Wyoming corporation in good
standing with its principal offices located in Casper, Wyoming and has been the sole
member of [Ally Consulting] since April 2017.” Id. at 6, ¶ 16. The complaint further
alleges that Hirschfeld, Johnson, and Rhinehart are “co-owner[s] and co-member[s] of []
Ally Consulting, LLC and/or Ally Energy Services, Inc.” Id. at 4-6, ¶¶ 11-12, 14. Taken
together, these paragraphs describe the relationship between AES and Ally Consulting:
AES owns Ally Consulting as its sole member. They also describe Ally Consulting’s
business: a competitor of DTC in the oil and gas consulting and staffing field that
employs Adam Hirschfeld, Stromstad, Galban, and Rhinehart. They do not, however,
allege that AES, the holding company, is a competitor to DTC or that it has any
employees. Moreover, throughout the general factual allegations the complaint
appears to use “Ally” solely to refer to Ally Consulting, as opposed to Ally Consulting
5
Confusingly, the complaint here uses “Ally” as a shorthand for Ally Consulting,
not Ally Consulting and AES together.
8
and AES, and never mentions AES specifically. See, e.g., id. at 14, ¶ 53 (referring to
the “illegitimate clone company, Ally”); id. at 15-16, ¶¶ 57-63 (describing the initial
business relationship between DTC and “Wyodak Staffing, LLC” (Ally)).6 Despite DTC’s
use of the collective “Ally” to purportedly refer to Ally Consulting and AES, the complaint
does not plausibly allege the involvement of AES – Ally’s corporate parent – in any of
DTC’s causes of action. Thus, there is no basis for the Court to infer that there is a
basis for legal claims against AES independent of its ownership of Ally Consulting.
DTC argues that the allegation that Ally Consulting and AES “share common
ownership and the same or similar employees” is sufficient to establish the claims
against AES. Docket No. 110 at 12. This argument is not persuasive. First, the
complaint does not allege that the entities have “the same or similar employees.” See
Docket No. 82 at 6, ¶¶ 15-16. Second, a bare alleg ation that the entities have common
ownership does not lead to an inference that AES, as an entity, is responsible for all of
Ally Consulting’s acts. Cf. McCallum Family LLC v. Winger, 221 P.3d 69, 74 (Colo.
App. 2009) (discussing eight factors courts use to determine whether a corporate entity
is an alter ego of another).7 DTC also argues that the allegations against AES are
6
The sole exception is an allegation that Ally Consulting issued DTC employees
“‘@allyenergyservices.com email accounts’ to use in connection with Ally Consulting’s
secret business development efforts.” Docket No. 82 at 17, ¶ 67. The Court agrees
with AES that an internet domain name does not establish the authority of the email
author.
7
The parties spend considerable energy arguing the question of whether DTC
has pled sufficient facts that would allow it to pierce Ally Consulting’s (and AES’s)
corporate veil. See Docket No. 103 at 6-9; Docket No. 110 at 8-10. T he Court agrees
with DTC that piercing the corporate veil is an equitable remedy rather than an
independent claim for relief. See, e.g., Peacock v. Thomas, 516 U.S. 349, 354 (1996)
(observing that piercing the corporate veil is a means of imposing liability on an
9
sufficient because the complaint alleges that both Ally Consulting and AES “were each
involved in the plot to enrich themselves.” Docket No. 110 at 12. However, DTC fails to
explain how, given the allegations in the complaint about the corporate structure of AES
and Ally Consulting, the Court could infer that AES was involved in the “plot” solely on
the basis of DTC’s inconsistent collective reference.
DTC argues that the use of a collective reference in the complaint is permissible.
However, as a general matter, “[w]ithout allegations sufficient to make clear the grounds
on which the plaintiff is entitled to relief,” it is “impossible for the [C]ourt to perform its
function of determining . . . whether the asserted claim is clearly established.” Robbins
v. Oklahoma, 519 F.3d 1242, 1249 (10th Cir. 2008) (internal citation and q uotation
omitted). “The need for individualized allegations is especially important where . . .
each of the defendants ha[s] different powers and duties.” Brown, 662 F.3d at 1165.
Here, the collective reference in the complaint to both Ally Consulting and AES does
not make clear on what grounds DTC is entitled to relief from AES. The cases cited by
DTC do not support a bright-line rule that the use of a collective reference is
permissible. Rather, those cases found that the complaint contained allegations that
made clear the grounds on which plaintiff was entitled to relief. See Dawson v. Bd. of
Cty. Comm’rs of Jefferson Cty., No. 16-cv-01281-MEH, 2017 WL 5188341, at *11 (D.
Colo. Jan. 3, 2017) (collective action permissible in § 1983 action where plaintiff alleges
underlying cause of action). DTC does not attempt to support its claims against AES
on the basis of allegations that it is Ally Consulting’s alter ego. See Docket No. 110 at 9
(arguing that DTC’s claims do not “rely on or require that AES’s or [Ally Consulting’s]
corporate veils be pierced”). However, in order to establish the legal claims against
AES, DTC must plead facts that make out a claim against AES. For this motion,
piercing Ally’s corporate veil is irrelevant.
10
that a similar group of defendants “all failed to take one specific act”); Bark v. Chacon,
No. 10-cv-01570-WYD-MJW, 2011 WL 1884691, at *5 (D. Colo. May 18, 2011)
(collective reference permissible in § 1983 action where the allegations against a group
of defendants “all relate to a single incident” where defendants “are alleged to have
been present at that incident and to have acted in concert”); Ferguson v. Bd. of Cty.
Comm’rs of Sierra Cty, 2013 WL 12334214, at *4 (D.N.M. April 2, 2013) (holding that,
because the “key inquiry” is “whether each defendant knows why he or she was named
in the complaint,” collective action permissible in § 1983 action where the allegations
against defendants using “and/or” were tailored to specific claims). By contrast, the
complaint in this case does not make clear the grounds on which DTC is entitled to
relief from AES.
Because the complaint does not assert any claims upon which relief can be
granted against AES, the Court grants AES’s motion to dismiss.8
B.
Individual Defendants’ Motion to Dismiss
The Court will address the motions to dismiss filed by the individual defendants
on a claim-by-claim basis.
1.
Second Claim – Breach of the Duty of Loyalty
DTC alleges that Stromstad “breached her duty of loyalty by soliciting customers
8
DTC argues, in the alternative, that it should be granted leave to amend to cure
any pleading deficiencies. Docket No. 110 at 13. A motion for leave to amend the
complaint may not be made in a response to a motion. See D.C.COLO.LCivR 7.1(d)
(“A motion shall not be included in a response or reply to the original motion.”). Even if
DTC’s request were properly made, a motion for leave to amend must “give[] adequate
notice of the basis for the proposed amendment,” which DTC fails to do. See Requena
v. Roberts, 893 F.3d 1195, 1208 (10th Cir. 2018) (internal alterations and q uotations
omitted).
11
for Ally while still employed by DTC.” Docket No. 126 at 5. Stromstad argues that the
complaint fails to state a claim for breach of the duty of loyalty. Docket No. 114 at 6-7.
Under Colorado law, an employee breaches her duty of loyalty if she solicits
customers for a rival business or solicits other employees to terminate their
employment. Jet Courier Serv., Inc. v. Mulei, 771 P.2d 486, 497 (Colo. 1989). In
applying Jet Courier, the Tenth Circuit has stated that “courts should focus on the
following factors in determining whether an employee’s actions rise to the level of a
breach of loyalty: (1) the nature of the employment relationship; (2) the impact or
potential impact of the employee’s actions on the employer’s operations; and (3) the
extent of any benefits promised or inducements made . . . to obtain their services in the
competing business.” In re Prof'l Home Health Care, Inc., 159 F. App’x. 32, 34 (10th
Cir. 2005) (unpublished). Furthermore, the factors must be weighed, as no one factor
is determinative. Id.9
Turning to the first factor, Stromstad argues that DTC alleges only that she, as a
human resources employee, complied with directives made by Adam Hirschfeld.
Docket No. 114 at 7. Because, Stromstad argues, she lacked “substantial discretion” in
her role, DTC’s claim for breach of the duty of loyalty cannot survive. Docket No. 131 at
2-3. The Court agrees that the first factor weighs strongly in Stromstad’s favor. Jet
9
DTC argues that the three-factor test only applies in situations where the
employee solicits co-employees to terminate employment, and not where the employee
solicits customers for a rival business before the end of employment. Docket No. 126
at 5. Courts in this district have applied the three-factor test in cases where the
allegedly disloyal employee solicited clients, not just co-workers. See, e.g., Nutritional
Biomimetics, LLC v. Emperical Labs Inc., No. 16-cv-01162-KMT, 2018 WL 2567872, at
*4 (D. Colo. April 24, 2018). The Court is not persuaded to adopt DTC’s narrow reading
of Jet Courier.
12
Courier derived its analysis of an employer’s claim for breach of the duty of loyalty from
agency principles. Jet Courier, 771 P.2d at 491-493 (adopting test set out in the
Restatement (Second) of Agency); cf. 19 Richard A. Lord, Williston on Contracts
§ 54.26 (noting that courts allowing claims for breach of the duty of loyalty “derive
guidance from analogous principles of agency law” in “determining the scope and
extent of the duty”). As noted in the Jet Courier concurrence, “not every employee is
the employer’s agent, and an employee may act as an agent with regard to certain job
functions but not with regard to others.” Jet Courier, 771 P.2d at 503 (Mullarkey, J.,
specially concurring). The Court finds Stromstad’s job functions and level of
independent authority to be central to the analysis. See Graphic Directions, Inc. v.
Bush, 862 P.2d 1020, 1023 (Colo. App. 1993) (noting that, under Jet Courier, “there
may be circumstances under which the duty of loyalty does not apply to an employee”);
cf. Restatement of Employment Law § 8.01(a) (“Employees in a position of trust and
confidence with their employer owe a fiduciary duty of loyalty to the employer in matters
related to their employment.”). The complaint alleges that Stromstad was employed as
a “human resources specialist.” See Docket No. 82 at 5, ¶ 13. The complaint further
alleges that she acted at the direction of Adam Hirschfeld, who was employed by DTC
at the time. See id. at 19, ¶¶ 80-82, 86-87. The complaint does not allege that
Stromstad actively solicited customers; it alleges that her job was to send customers
“onboarding paperwork.” See id. at 19, ¶ 82. The Court finds that these facts are
insufficient to demonstrate that Stromstad, in her role as human resources specialist,
was acting as DTC’s agent.
13
The second factor weighs slightly in favor of DTC. DTC generally alleges that,
“[a]s a direct and proximate result of all of the foregoing acts, DTC has lost . . . current
and future business,” as well as “goodwill.” See id. at 39-40, ¶ 238. Although the
complaint fails to explain how Stromstad’s actions, in particular, led DTC to lose
business, the Court can reasonably infer that sending Ally Consulting onboarding
paperwork to customers who would otherwise have joined DTC would cause DTC to
lose business. The third factor weighs in favor of Stromstad, as the complaint is devoid
of any allegations that Stromstad promised benefits or inducements to any customers
or employees in order to get them to join Ally Consulting. Indeed, the only allegations
regarding Stromstad’s interaction with customers is that she sent customers – who had
been recruited by Adam Hirschfeld – “onboarding paperwork.” See id. at 18, ¶ 73-74.
Weighing the three Jet Courier factors, the Court finds that the complaint fails to state a
claim against Stromstad for breach of the duty of loyalty.
2.
Third and Fourth Claims – Misappropriation of Trade Secrets
DTC brings two separate claims for misappropriation of trade secrets against (a)
Stromstad and (b) Hirschfeld, Johnson, and Rhinehart. Docket No. 82 at 43-47,
¶¶ 258-277. Both claims are brought under the federal Defend Trade Secrets Act
(“DTSA”) and the Colorado Uniform Trade Secrets Act (“CUTSA”).10 A plaintiff
asserting a claim for misappropriation of trade secrets under the DTSA must “establish:
(1) the existence of a trade secret that relates to a product or service used in, or
10
To the extent that the complaint alleges liability for common-law
misappropriation of trade secrets, that claim is preempted by the CUTSA. See Gognat
v. Ellsworth, 259 P.3d 497, 500 (Colo. 2011).
14
intended for use in, interstate or foreign commerce; (2) the acquisition of the trade
secret, or the use or disclosure of the trade secret without consent; and (3) the person
acquiring, using, or disclosing the trade secret knew or had reason to know that the
trade secret was acquired by improper means.” Arctic Energy Servs., LLC v. Neal, No.
18-cv-00108-PAB-KLM, 2018 WL 1010939, at *2 (D. Colo. Feb. 22, 2018) (citing 18
U.S.C. § 1836(b)(1); 18 U.S.C. § 1839; Ultradent Prods. Inc. v. Spectrum Solutions
LLC, 2018 WL 324868, at *2 (D. Utah Jan. 8, 2018); Blue Star Land Servs. LLC v.
Coleman, 2017 WL 6210901, at *4 (W.D. Okla. Dec. 8, 2017)). Similarly, to prevail on
a claim under Colorado’s UTSA, a plaintiff must show: “[1] that he or she possessed a
valid trade secret, [2] that the trade secret was disclosed or used without consent, and
[3] that the defendant knew, or should have known, that the trade secret was acquired
by improper means.” Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 847
(10th Cir. 1993).
a.
Stromstad
Stromstad argues that the complaint does not establish that she misappropriated
trade secrets. Docket No. 114 at 7-8. In response, DT C argues that the complaint
alleges that Stromstad used “customer lists and contact information, including the
reformatted resumes . . . to solicit those customers on behalf of Ally [Consulting].”
Docket No. 126 at 7-8.
The complaint alleges, broadly speaking, that DTC had the following sets of
trade secrets: (1) “Candidate Folders,” in which DTC stores resumes, including
resumes which it has “re-formatted” to include the DTC logo and contact information,
15
Docket No. 82 at 12-13, ¶¶ 42-48; (2) a “Candidate Database” that sum marized the
contents of “more than 1,000 of DTC’s re-formatted resumes,” Id. at 13, ¶¶ 48-49; and
(3) a “Profit Calculator” that DTC uses “to evaluate several financial variables and gain
competitive advantages in the industry.” Id. at 13-14, ¶ 50. 11 The complaint alleges
that, in order to poach potential customers from DTC, Adam Hirschfeld would represent
to customers that there was an “alliance” between Ally and DTC, leading to those
customers signing contracts with Ally. Id. at 18, ¶¶ 72-73. Once the contracts were in
place, Stromstad (among others) would “coordinate with candidates by emailing them
. . . onboarding paperwork on Ally letterhead that they had copied from DTC forms.” Id.
¶ 74. The complaint alleges that Stromstad mistakenly sent candidates DTC paperwork
when she meant to send them Ally paperwork. Id. at 19, ¶¶ 82-84. The remainder of
the complaint’s factual allegations about Stromstad’s role are conclusory. See, e.g., id.
at 36-37, ¶ 217 (alleging that “[d]efendants’ conspiracy [] to use . . . trade secrets” has
caused DTC damages). From these allegations, there is no reasonable inference that
Stromstad acquired, used, or disclosed DTC’s alleged trade secrets – the Candidate
Folders, the Candidate Database, or the Prof it Calculator. The complaint does not
allege that Stromstad played any role in “soliciting” new customers; her alleged role was
limited to sending unspecified “onboarding paperwork” to the new customers. This role
did not require any use of trade secrets. Thus, DTC fails to state a claim against
Stromstad for misappropriation of trade secrets.
11
The Court makes no ruling as to whether the Candidate Folders, Candidate
Database, or Profit Calculator are “trade secrets” within the meaning of the DTSA and
CUTSA.
16
b.
Hirschfeld and Johnson
Hirschfeld and Johnson argue that DTC fails to allege that they acquired,
disclosed, or used DTC’s trade secrets without consent. Docket No. 113 at 3-6. In
response, DTC argues that Hirschfeld and Johnson are liable because they were (1)
“principals of Ally [Consulting]” and/or (2) “participat[ed] in sanctioning or authorizing
[Ally Consulting]’s agent . . . to steal DTC’s trade secrets.” Docket No. 125 at 5-6.
Neither argument is persuasive. Under the responsible corporate officer
doctrine, a plaintiff “must show some form of participation by the officer in the tort, or at
least show that the officer directed, controlled, approved, or ratified the decision that led
to the plaintiff’s injury.” 3A Fletcher Cyclopedia of the Law of Corporations § 1135
(Sept. 2019 update); see also Hoang v. Arbess, 80 P.3d 863, 868 (Colo. App. 2003)
(“To be found personally liable to third persons for a tort, the officer of a corporation
must have participated in the tort.”). The well-pleaded allegations in the complaint
indicate that: (1) Hirschfeld and Johnson were physically present at “Ally [Consulting]
member meetings . . . when the conspiracy to sabotage DTC was discussed and
furthered,” Docket No. 82 at 4-5, ¶¶ 11-12; (2) Hirschfeld, Johnson, and Adam
Hirschfeld “plott[ed]” to “steal[] DTC’s business for Ally [Consulting],” id. at 16-17, ¶¶ 6465; (3) Johnson emailed Adam Hirschfeld and stated that he wanted “to pull away from
DTC every chance we get as you do as well,” id. at 17, ¶ 68; and (4) “[o]n information
and belief,” Hirschfeld and Johnson agreed that Hirschfeld’s capital contribution to Ally
“was the sweat equity [Adam Hirschfeld] provided in transforming Ally [Consulting] into
a DTC competitor by absconding with DTC’s business.” Id. at 24, ¶ 122. None of these
17
allegations show that Hirschfeld or Johnson directed, controlled, approved, or ratified a
decision to acquire, disclose, or use DTC’s trade secrets without consent. Rather, the
most the allegations show is that Hirschfeld and Johnson knew that Ally would attempt
to compete for DTC’s business – not steal its trade secrets. See Docket No. 125 at 5-6
(arguing that DTC’s trade secrets were “profit calculators, customer information,
onboarding procedures and protocol, and . . . financial information”). More is required
to show Hirschfeld and Johnson’s involvement in the alleged theft of trade secrets. See
Hoang, 80 P.3d at 868-69 (personal liability for negligence attached where defendant
was “personally involved in each step of the construction” and “knew or should have
known” that construction techniques did not meet recommendations).12 Thus, DTC
cannot sustain its claim for misappropriation of trade secrets against Hirschfeld and
Johnson.
c.
Rhinehart
Rhinehart similarly argues that DTC fails to allege that he acquired, used, or
disclosed trade secrets. Docket No. 115 at 4-6. DTC again attempts to invoke the
responsible corporate officer doctrine, arguing that Rhinehart directly participated in the
misappropriation of trade secrets. Docket No. 127 at 3-4.
The complaint alleges that, in May 2017, Adam Hirschfeld “asked” Rhinehart “to
12
Paragraph 271 of the complaint alleges that “[a]t the time [Hirschfeld and
Johnson] acquired DTC’s trade secrets, [Hirschfeld and Johnson] knew or had a reason
to know” that the disclosure of DTC’s trade secrets “constituted a breach of [Adam
Hirschfeld, Galban, and Stromstad’s] duty to maintain the secrecy of DTC’s trade
secrets.” Docket No. 82 at 45, ¶ 271. The complaint does not identify any instance
where Hirschfeld or Johnson acquired trade secrets. This otherwise-conclusory
allegation is therefore insufficient to support a misappropriation of trade secrets claim
against Hirschfeld or Johnson.
18
obtain confidential DTC financial information” from Galban, and that Rhinehart obtained
“DTC confidential documents and trade secrets” from Galban. Docket No. 82 at 34,
¶¶ 195, 198. The complaint further alleges that, on November 8, 2016, Adam
Hirschfeld emailed the Profit Calculator to Rhinehart. Id. ¶ 197.13 Finally, the complaint
alleges that, at the time Rhinehart acquired trade secrets, he “knew or had a reason to
know” that the disclosure of trade secrets violated Adam Hirschfeld and Galban’s duty
of loyalty to DTC. Id. at 45, ¶ 271. The complaint therefore adequately alleges that
Rhinehart acquired a trade secret that was disclosed without consent and had reason to
know it was acquired by improper means, which is sufficient to state a claim under the
DTSA and CUTSA.
3.
Fifth Claim – Unjust Enrichment
DTC brings a claim against Hirschfeld, Johnson, and Rhinehart for unjust
enrichment. Under Colorado law, “[a] party claiming unjust enrichment must prove that
(1) the defendant received a benefit, (2) at the plaintiff’s expense, (3) under
circumstances that would make it unjust for the defendant to retain the benefit without
commensurate compensation.” Sterenbuch v. Goss, 266 P.3d 428, 437 (Colo. App.
2011). DTC claims that Hirschfeld, Johnson, and Rhinehart “received the benefits of
payments, bonuses, and commissions from third-party oil and gas companies and from
consultants . . . that rightfully belong to DTC.” Docket No. 82 at 46, ¶ 279.
13
The complaint alleges that the Profit Calculator is a “proprietary, complex, and
valuable excel spreadsheet” that DTC uses to present “competitive bids,” and that DTC
has “never disclosed [the Profit Calculator] externally.” Docket No. 82 at 13-14, ¶¶ 5051. Rhinehart does not appear to argue that the Profit Calculator is not a trade secret,
and the Court assumes that it is for the purposes of the motion to dismiss.
19
Hirschfeld, Johnson, and Rhinehart argue that (1) the CUTSA preempts DTC’s
unjust enrichment claim and (2) DTC fails to allege that Hirschfeld and Johnson
received a benefit at DTC’s expense. Docket No. 113 at 6-8; Docket No. 115 at 7-8.
The Court agrees that DTC fails to allege that these individuals received a benefit at
DTC’s expense. At most, the complaint alleges that Ally Consulting received a benefit
at DTC’s expense, not Hirschfeld, Johnson, and Rhinehart personally. See Brumbelow
v. Law Offices of Bennett and Deloney, P.C., 372 F. Supp. 2d 615, 622-23 (D. Utah
2005) (applying substantially similar Utah law and holding that an unjust enrichment
claim fails where “the benefit, if any, was conferred on the corporation, and not the
individual defendants”). There are no non-conclusory allegations in the complaint
regarding what benefits Hirschfeld, Johnson, and Rhinehart received, and the complaint
does not explain how Ally Consulting distributed revenues from the consultants it
allegedly poached from DTC.14 Thus, this claim fails against Hirschfeld, Johnson, and
Rhinehart.
4.
Seventh Claim – Tortious Interference with Contract
DTC claims that Hirschfeld and Johnson are liable for tortious interference with
contract. “To sustain a claim of intentional interference with contract, the plaintiff must
prove that the defendant (1) was aware of the existence of the contract; (2) intended
that one of the parties breach the contract; (3) induced the party to breach the contract
14
Although DTC suggests that its unjust enrichment claim includes Hirschfeld’s
participation in an “illegal housing scheme” with Adam Hirschfeld, see Docket No. 125
at 8, this is not pled in the complaint. See Docket No. 82 at 46, ¶ 279 (alleging that
Hirschfeld received the benefit of “payments, bonuses, and commissions from thirdparty oil and gas companies and from consultants”). Moreover, as discussed later in
the order, DTC fails to plead the allegedly fraudulent housing scheme with particularity.
20
or make it impossible for him or her to perform; and (4) acted ‘improperly’ in causing the
breach.” Hertz v. Luzenac Grp., 576 F.3d 1103, 1118 (10th Cir. 2009) (citing
Krystkowiak v. W.O. Brisben Cos., 90 P.3d 859, 871 (Colo. 2004)). DTC claims that
Hirschfeld and Johnson induced Adam Hirschfeld to breach his employment agreement
with DTC. Docket No. 82 at 48-49, ¶ 297.
Hirschfeld and Johnson argue that the complaint does not include any “factual
content” explaining how they “induced” Adam Hirschfeld to breach the employment
agreement. Docket No. 113 at 9. The Court agrees. The complaint alleges that, in
November 2015, Adam Hirschfeld “began plotting” with Hirschfeld and Johnson to
“steal” DTC’s business. See Docket No. 82 at 16, ¶ 64. According to this allegation,
Adam Hirschfeld either initiated the “plot” with Hirschfeld and Johnson or, at least, was
in on it from the beginning. Thus, the complaint does not contain a plausible inference
that Hirschfeld and Johnson “induced” Adam Hirschfeld to breach his employment
agreement. Cf. Black’s Law Dictionary 790 (8th ed. 2004) (defining “inducement” in the
context of contract law as “[t]he benefit or advantage that causes a promisor to enter
into a contract”). DTC does not point to any specific allegation to rebut this argument,
arguing that “allegations that set forth [Hirschfeld and Johnson’s] participation in
hatching the entire conspiracy” are sufficient to show inducement. Docket No. 125 at 9.
However, this argument fails to explain how Hirschfeld and Johnson induced Adam
Hirschfeld to breach his employment agreement. DTC also argues that Hirschfeld and
Johnson’s scheme “made it impossible for [Adam] Hirschfeld to perform under his
contract by not stealing trade secrets.” Id. This curious argument also fails; the
complaint is devoid of any explanation as to how Hirschfeld and Johnson “made it
21
impossible” for Adam Hirschfeld to not steal any trade secrets. Thus, the complaint
fails to state a claim for tortious interference with contractual relations against
Hirschfeld and Johnson.
5.
Ninth Claim – Civil Theft
DTC brings a claim for civil theft against Stromstad, Hirschfeld, and Rhinehart.
Under Colorado law, a person commits civil theft when he or she “‘knowingly obtains,
retains, or exercises control over anything of value of another without authorization or
by threat or deception,’ and acts intentionally or knowingly in ways that deprive the
other person of the property permanently.” Van Rees v. Unleaded Software, Inc., 373
P.3d 603, 608 (Colo. 2016) (quoting Colo. Rev. Stat. § 18-4-401(1)). A person must
have “the specific intent to permanently deprive the owner of the benefit of property.”
Id. In an action for civil theft, a person may maintain an action to recover “property
obtained by theft, robbery, or burglary.” Colo. Rev. Stat. § 18-4-405; see Itin v. Ungar,
17 P.3d 129, 134 (Colo. 2000) (holding that the statute provides an owner of property
with a private remedy that “requires proof of a specified criminal act”). The statute
allows for the recovery of only the stolen property itself, not “property or proceeds for
which the stolen property may have been exchanged.” In re Marriage of Allen, 724
P.2d 651, 657 (Colo. 1986).
a.
Stromstad
DTC’s civil theft claim against Stromstad alleges that Stromstad “obtain[ed] and
use[d] DTC’s confidential and proprietary information and trade secrets by theft.”
Docket No. 82 at 51, ¶ 311. As discussed above, the only allegation in the complaint
22
related to Stromstad is that she would “coordinate with candidates by emailing them . . .
onboarding paperwork on Ally [Consulting] letterhead that [she] had copied from DTC
forms.” Id. at 18, ¶ 74. The complaint is otherwise entirely conclusory as to what
“confidential and proprietary information and trade secrets” Stromstad acquired from
DTC. Although the response suggests that DTC’s “onboarding procedures” are
proprietary information, see Docket No. 126 at 9, the complaint (and the response) fail
to explain how Stromstad’s use of the onboarding procedures “permanently deprived
[DTC] of the benefit of” the onboarding procedures. See Van Rees, 373 P.3d at 608.
Finally, DTC fails to explain how it could “recover” any property through a civil theft
claim against Stromstad. See Allen, 724 P.2d at 657 (noting that the civil theft statute
allows only for the recovery of stolen property itself). Thus, the civil theft claim against
Stromstad fails.
b.
Hirschfeld
DTC’s civil claim against Hirschfeld rests on a “scheme to wrongfully obtain by
theft rents belonging to DTC.” Docket No. 82 at 50, ¶ 308. 15 The complaint alleges that
DTC provided a “housing allowance” for consultants and employees that it placed on
projects in Ohio and West Virginia. Id. at 30, ¶ 168. The complaint further alleges that
Hirschfeld used CS Property Holdings, a third-party LLC, to bill DTC consultants directly
15
Although DTC’s response brief alleges that Hirschfeld is liable based on
“planning to have [Adam] Hirschfeld take” material belonging to DTC, see Docket No.
125 at 9, this theory is not pled in the complaint. See Docket No. 82 at 50-51, ¶¶ 30512. The complaint further alleges that Hirschfeld “used [his] title[] and position of trust
with DTC to obtain . . . trade secrets by theft.” See id. at 51, ¶ 311. There are no other
allegations in the complaint that Hirschfeld had any title or position of trust in DTC, and
DTC does not defend this theory of liability in its response brief.
23
for provided housing “under the ruse that the arrangement was a part of a DTC
‘company housing’ program.” Id. ¶ 170. The complaint alleges that the amount billed
to DTC consultants “far exceeded the actual rent charged to CS Property Holdings
and/or [Adam] Hirschfeld.” Id. at 31, ¶ 176. After paying CS Property Holdings, the
DTC employees and consultants would “seek reimbursement from DTC.” Id. at 30,
¶ 172.
These allegations fail to state a claim for civil theft against Hirschfeld. First, there
is no basis to conclude that Hirschfeld ever obtained DTC’s property. Under the alleged
scheme, CS Property Holdings (presumably controlled by Hirschfeld, although the
complaint is not clear) would bill DTC consultants and employees directly for housing.
The central transaction is CS Property Holdings obtaining property (cash) from DTC
consultants and employees, not from DTC. DTC fails to explain how its later
reimbursement to the consultants and employees is in any way material to the analysis.
See Montoya v. Grease Monkey Holding Corp., 883 P.2d 486, 490 (Colo. App. 1994)
(holding that a civil theft claim fails against a party that never possessed fraudulently
obtained funds). Second, although the complaint offers repeated conclusory
allegations that the amount charged by the third-party LLC was “fraudulent,” see Docket
No. 82 at 31, ¶¶ 173-76, the complaint fails to “state with particularity the circumstances
constituting fraud.” See Fed. R. Civ. P. 9(b). DTC’s complaint does not “set forth the
time, place, and contents of the false representation, the identity of the party making
the false statement, and the consequences thereof.” Id.; see L-3 Commc’ns Corp. v.
Jaxon Eng’g & Maint., Inc., 863 F. Supp. 2d 1066, 1076 (D. Colo. 2012). The complaint
24
does not explain why CS Property Holdings had any obligation to charge the DTC
consultants and employees the amount of rent equivalent to what CS Property Holdings
(presumably) paid to the landlords. Thus, DTC’s claim against Hirschfeld for civil theft
will be dismissed for failure to state a claim.
c.
Rhinehart
DTC’s civil theft claim against Rhinehart alleges that Adam Hirschfeld
“coordinated and ensured that [Rhinehart] . . . obtained DT C’s confidential financial
documents and the Profit Calculator.” Docket No. 82 at 51, ¶ 309. 16 The complaint
further alleges that Rhinehart “knew or had a reason to know” that it breached Adam
Hirschfeld and Galban’s duty to DTC to send those documents to Rhinehart. Id. at 45,
¶ 271. The complaint also alleges that Rhinehart used this information “for competitive
purposes to benefit Ally [Consulting],” id. at 34, ¶ 198, which the Court infers could
“permanently deprive[] [DTC] of the benefit of” the confidential documents and the Profit
Calculator. See Van Rees, 373 P.3d at 608. Although the Court is unclear whether
DTC could “recover” the confidential documents and Profit Calculator through its civil
theft claim against Rhinehart, the Court is satisfied that the complaint states a claim for
civil theft against Rhinehart.
6.
Tenth Claim – Conversion
DTC brings a claim for conversion against Rhinehart for “knowingly exercis[ing]
16
Although DTC’s response brief alleges that Rhinehart is liable based on
exercising control over an allegedly stolen computer, the complaint pleads only that
“Ally” obtained the computer by theft. See Docket No. 82 at 51, ¶¶ 310. As discussed
above, Rhinehart can only be liable for acts of Ally Consulting if he personally
participated in the tort. There are no allegations in the complaint that Rhinehart stole
the computer.
25
dominion or control over” DTC’s property, specifically, “files containing confidential
information” on a laptop and flash drives. Docket No. 82 at 51-52, ¶ 314. Under
Colorado law, to state a claim for conversion DTC must allege that: “(i) a defendant
exercised dominion or control over property; (ii) that property belonged to [DTC]; (iii) the
defendant's exercise of control was unauthorized; (iv) [DTC] demanded return of the
property; and (v) the defendant refused to return it.” L-3 Commc’ns, 863 F. Supp. 2d at
1081.
DTC alleges that Adam Hirschfeld stole his DTC laptop when he resigned.
Docket No. 82 at 37, ¶ 220. DTC further alleges that Rhinehart became aware that
Adam Hirschfeld was using the laptop and “requested” that he stop all use of the
computer. Id. ¶ 223. Finally, DTC alleges that Adam Hirschfeld continued to use the
stolen laptop. Id. at 37-38, ¶¶ 224-25. 17 These allegations fail to state a claim against
Rhinehart because there is no plausible inference that he had “dominion or control”
over the laptop. Indeed, the allegations indicate that Rhinehart lacked any dominion or
control over the laptop, as his request (not directive) that Adam Hirschfeld stop using
the laptop had no effect on Adam Hirschfeld’s behavior. There are no allegations that
Rhinehart personally participated in the theft of the laptop. See Hoang, 80 P.3d at 868
(“To be found personally liable to third persons for a tort, the officer of a corporation
17
Although the complaint, filed after more than a year of litigation, alleges that
“DTC has demanded, to no avail, that the [d]efendants return [the laptop],” Rhinehart
represents that the laptop “was delivered to a forensic firm in accordance with evidence
preservation requirements.” Compare Docket No. 82 at 38, ¶ 226 with Docket No. 115
at 9-10. The Court found at the preliminary injunction hearing that Rhinehart gave the
laptop to a third-party forensics company for safekeeping after Hirschfeld turned over
the laptop in July or August of 2017. See Docket No. 57 at 9, ¶ 18.
26
must have participated in the tort.”). To the extent that the conversion claim against
Rhinehart relies on the previously discussed allegations that he received confidential
information and the Profit Calculator, the complaint fails to make non-conclusory
allegations that Rhinehart refused to return (or delete) the confidential information or
the Profit Calculator, as is required for a conversion claim. See L-3 Commc’ns., 863 F.
Supp. 2d at 1081; see also Scott v. Scott, 428 P.3d 626, 635 (Colo. App. 2018) (noting
that “a lawful possessor of property may become a converter once he or she refuses a
demand for return of the property from the lawful owner”). Thus, DTC’s claim against
Rhinehart for conversion fails.
7.
Eleventh Claim – Civil Conspiracy
DTC brings a claim for civil conspiracy against the individual defendants. To
state a claim for civil conspiracy under Colorado law, a plaintiff must allege: “(1) two or
more persons, and for this purpose a corporation is a person; (2) an object to be
accomplished; (3) a meeting of the minds on the object or course of action; (4) one or
more unlawful overt acts; and (5) damages as the proximate result thereof.” In re
Qwest Commc’ns Int’l, Inc. Sec. Litigation, 387 F. Supp. 2d 1130, 1153 (D. Colo. 2005)
(citing Jet Courier, 771 P.2d at 502). To state a claim for civil conspiracy, a plaintiff
must “allege specific facts showing agreement and concerted action among
defendants.” Durre v. Dempsey, 869 F.2d 543, 545 (10th Cir. 1988); see also Nelson v.
Elway, 908 P.2d 102, 106 (Colo. 1995) (noting that “evidence of . . . an agreement [to
form a conspiracy] must be presented by the plaintiff”). “[P]laintiff cannot succeed on its
claims for civil conspiracy without showing that each defendant agreed to do something
27
in furtherance of the conspiracy, knowing of its improper purpose.” Powell Prods., Inc.
v. Marks, 948 F. Supp. 1469, 1480 (D. Colo. 1996).
DTC alleges that the defendants “conspired together for the objective of creating
an unlawful and illegitimate clone company to misappropriate DTC’s name and
reputation.” Docket No. 82 at 52, ¶ 322. 18 The complaint further alleges that the
“course of action” was “for [Adam] Hirschfeld, [Galban], and [Stromstad] to breach their
duties of loyalty” to DTC. Id. at 53, ¶ 324. The individual defendants argue that the
complaint fails to provide more than conclusory allegations that they came to “a meeting
of the minds on the object or course of action.” The Court disagrees. Although the
allegations that the individual defendants came to a meeting of the minds regarding the
conspiracy are conclusory, the complaint includes specific allegations of concerted
action. For example, the complaint alleges that Hirschfeld and Johnson “exchanged
ideas about [Ally Consulting’s] logo” and agreed with Adam Hirschfeld that he would
continue to work for DTC while siphoning business to Ally Consulting. See Docket No.
82 at 16-17, ¶ 65. The complaint alleges that Stromstad and Rhinehart had “secret Ally
[Consulting] email accounts” that they would use to onboard customers for Ally
Consulting rather than DTC. See id. at 18, ¶ 74. The complaint also alleges that
Stromstad and Rhinehart worked to conceal their work for Ally Consulting from DTC’s
owners by tracking the whereabouts of DTC’s owners and communicating to make sure
that Ally Consulting information was hidden before the DTC principals arrived. See id.
18
DTC suggests that its conspiracy claim includes Hirschfeld’s participation in
the above-referenced “illegal housing scheme” with Adam Hirschfeld. Docket No. 125
at 11-12. For the reasons discussed above, the complaint fails to allege the allegedly
“fraudulent” housing scheme with particularity. See Fed. R. Civ. P. 9(b).
28
at 20-21, ¶¶ 90-97. Taken together, these allegations provide sufficient factual support
to state a claim for civil conspiracy against the individual defendants.
The individual defendants argue that the civil conspiracy claim against them is
preempted by the CUTSA. The statute states that the CUTSA “displaces conflicting
tort, restitutionary, and other law of [Colorado] providing civil remedies for
misappropriation of a trade secret,” but does not affect “[o]ther civil remedies that are
not based upon misappropriation of a trade secret.” Colo. Rev. Stat. § 7-74-108. The
Court agrees with Powell Prods., which held that, under the CUTSA, “[p]reemption is
only appropriate where other claims are no more than a restatement of the same
operative facts which would plainly and exclusively spell out only trade secret
misappropriation.” 948 F. Supp. at 1474. Thus, DTC’s civil conspiracy claim is
preempted only to the extent that the claim “do[es] not depend upon the information in
question qualifying as trade secrets” or “include[]s additional elements not necessary for
a misappropriation claim.” Id.; see also Gates Corp. v. CRP Indus., Inc., No. 16-cv01145-KLM, 2017 WL 5714342, at *5 (D. Colo. Nov. 28, 2017). The Court is satisfied
that, at the motion to dismiss stage, at least some of DTC’s civil conspiracy claim is not
based upon misappropriation of trade secrets and is not preempted.
8.
Twelfth Claim – RICO
DTC brings a RICO claim against the individual defendants. In order to state a
claim under RICO, DTC must allege: “(1) conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.” See Bixler v. Foster, 596 F.3d 751, 761 (10th Cir.
2010). “A pattern of racketeering activity must include at least two predicate acts.”
29
Gillmor v. Thomas, 490 F.3d 791, 797 (10th Cir. 2007) (quotation omitted). The Court
finds that DTC has failed to adequately allege a pattern of racketeering because (1) the
complaint “fails to allege sufficient continuity to sustain a RICO claim,” Hall v. Witteman,
584 F.3d 859, 867 (10th Cir. 2009), and (2) the com plaint fails to adequately allege two
predicate acts.
To establish a pattern of racketeering activity, a plaintiff must show that (1) the
racketeering predicates are “related” and (2) they “amount to or pose a threat of
continued criminal activity.” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239
(1989). This second “continuity” requirement refers “either to a closed period of
repeated conduct, or to past conduct that by its nature projects into the future with a
threat of repetition.” Id. at 241. In evaluating continuity, courts consider (1) the duration
of the related predicate acts, and (2) the “extensiveness” of the RICO enterprise’s
scheme, with the goal of “achieving a natural and commonsense result.” Resolution
Trust Corp. v. Stone, 998 F.2d 1534, 1543-44 (10th Cir. 1993). An alleg ed racketeering
scheme “directed at one individual with no potential to extend to other persons or
entities” does not satisfy the continuity requirement. SIL-FLO, Inc. v. SFHC, Inc., 917
F.2d 1507, 1516 (10th Cir. 1990) (recognizing that, “[i]n enacting the RICO statute,
‘Congress was concerned . . . with long-term criminal conduct’” (quoting Northwestern
Bell, 492 U.S. at 242)); see also Pagel v. Wash. Mut. Bank, Inc., 153 F. App’x 498, 502
(10th Cir. 2005) (unpublished) (“In this circuit, it is well established that a single scheme
to accomplish one discrete goal, directed at a finite group of individuals, with no
potential to extend to other persons or entities, rarely will suffice to establish a threat of
30
continuing racketeering activity.”).
The Court finds DTC’s complaint fails to establish continuity. DTC alleges that it
is the sole target of the racketeering scheme. See Docket No. 82 at 54, ¶ 331 (alleging
that the “unlawful purposes” of the scheme included “stealing DTC’s business” and
“misappropriating DTC’s confidential and proprietary information”). Other than a
conclusory suggestion that the purpose of the racketeering scheme was to “intentionally
defraud . . . DTC’s actual and prospective customers,” see id., the complaint alleges no
other “persons or entities” targeted by the enterprise. See SIL-FLO, 917 F.2d at 1516.
The complaint also lacks any indication that the alleged enterprise has any “potential” to
extend to other persons or entities. See Pagel, 153 F. App’x at 502. As in Boone v.
Carlsbad Bancorporation, Inc., 972 F.2d 1545 (10th Cir. 1992), “[p]laintiff[] allege[s]
what is actually a closed-ended series of predicate acts constituting a single scheme
. . . to establish a discrete goal directed at a finite group of individuals ‘with no potential
to extend to other persons or entities,’” which is insufficient to establish continuity. 972
F.2d at 1556 (quoting SIL-FLO, 917 F.2d at 1516). As DTC fails to satisfy the continuity
requirement, it fails to allege that defendants are engaged in “the type of activity that
RICO was enacted to address.” Id.
Even assuming that the complaint establishes continuity, DTC has failed to
sufficiently allege two or more predicate acts of racketeering activity. The complaint
alleges that defendants “committed multiple predicate acts of mail and wire fraud and
theft/misappropriation of DTC’s trade secrets.” Docket No. 82 at 54, ¶ 332. However,
this allegation does not specifically identify which acts in the hundreds of paragraphs of
31
factual allegations establish violations of 18 U.S.C. § 1341 (mail fraud), § 1343 (wire
fraud), or § 1832 (theft of trade secrets). DTC’s response briefs do not identify which
acts it alleges are predicate acts, which statute they violate, and how each element of
the statute is met. Moreover, to the extent that the RICO claim is based on predicate
acts of mail and wire fraud, DTC has failed to plead any fraud with particularity. See
Fed. R. Civ. P. 9(b). DTC’s complaint does not “set forth the time, place, and contents
of the false representation, the identity of the party making the false statement, and the
consequences thereof.” See L-3 Commc’ns, 863 F. Supp. 2d at 1076 (citing Tal v.
Hogan, 453 F.3d 1244, 1263 (10th Cir. 2006)).
Because the complaint fails to establish that the individual defendants engaged
in a “pattern” of racketeering activity, DTC’s RICO claim against them fails.
9.
Fourteenth Claim – Conspiracy to Violate the CFAA
DTC brings a claim against the individual defendants for conspiring to violate the
CFAA. DTC contends that defendants “knew of and/or encouraged [Adam] Hirschfeld’s
post-resignation, unauthorized access” of the DTC laptop. Docket No. 82 at 57, ¶ 347.
DTC claims that, as a result of this conspiracy, “the integrity and/or the availability of
DTC’s data and systems have been impaired.” Id. ¶ 348.
As relevant here, the CFAA provides that a person who suffers “loss to [one] or
more persons . . . aggregating at least $5,000 in value,” 18 U.S.C. § 1030(c)(4)(A)(i)(I),
as a result of a violation of the CFAA may bring a civil action against that person. Id.
§ 1030(g). The CFAA also provides for conspiracy liability. Id. § 1030(b). The
complaint does not specify which portion of the CFAA the conspiracy intended to
32
violate. However, the response briefs variously allege that the conduct violated
§ 1030(a)(4) – that the conspiracy was to “knowingly and with intent to defraud,
access[] a protected computer without authorization, or exceed[] authorized access,
and by means of such conduct further[] the intended fraud and obtain[] anything of
value” – or § 1030(a)(5)(B) – that the conspiracy was to “intentionally access[] a
protected computer without authorization, and as a result of such conduct, recklessly
cause[] damage.”19 Because the CFAA is a federal criminal statute, to establish a
conspiracy to violate the CFAA, a plaintiff must allege that (1) the defendant agreed
with at least one other person to violate the law, (2) one of the conspirators engaged in
at least one overt act furthering the conspiracy’s objective, (3) the defendant knew the
essential objective of the conspiracy, (4) the defendant knowingly and voluntarily
participated, and (5) there was interdependence among the members of the conspiracy.
Tenth Circuit Criminal Pattern Jury Instructions § 2.19 (updated 2018) (general
conspiracy instruction); see also United States v. Schaffer, 586 F.3d 414, 422 (6th Cir.
2009) (in a criminal case, finding that an indictment charging defendant with conspiracy
to violate the CFAA was sufficient where indictment set forth the objective of the
conspiracy, the role played by each defendant, the overt actions taken in furtherance of
19
Some courts have read § 1030(g) to support only a civil action for violations of
§ 1030(a)(5). See Hot Stuff Foods, LLC v. Dornbach, 726 F. Supp. 2d 1038, 1054 (D.
Minn. 2010). But see Theofel v. Farey-Jones, 359 F.3d 1066, 1078 (9th Cir. 2003)
(holding that § 1030(g) provides a civil remedy for any person who suffers damage or
loss due to a violation of the CFAA); US Bioservices Corp. v. Lugo, 595 F. Supp. 2d
1189, 1191 (D. Kan. 2009) (assuming without analysis that § 1030(g) provides for civil
liability for a violation of § 1030(a)(4)). Because DTC fails to plausibly establish the
individual defendants’ conspiracy liability, the Court need not decide whether a violation
of § 1030(a)(4) can support a civil action.
33
the conspiracy, and the means used to accomplish it).
The complaint fails to state a claim for conspiracy liability against the individual
defendants. There are no specific factual allegations supporting the claim that the
individual defendants “knew of and/or encouraged” Adam Hirschfeld’s access of the
laptop; thus, it is conclusory. Moreover, DTC fails to explain how a showing that the
individual defendants “knew of and/or encouraged” access to the laptop is sufficient to
establish an agreement to violate the law or that there was “interdependence” among
the individual defendants regarding the alleged theft of the laptop.
DTC’s arguments in response are unavailing. First, DTC suggests that it is
sufficient to allege that defendants “conspired” to violate the CFAA. See, e.g., Docket
No. 126 at 13. DTC offers no authority for the proposition that a bare allegation that
defendants “conspired” is sufficient to state a claim for which relief can be granted.
This is an example of a legal conclusion couched as a factual allegation that the Court
need not accept. See, e.g., Johnson v. Liberty Mut. Fire Ins. Co., 648 F.3d 1162, 1165
(10th Cir. 2011) (“[A] naked legal conclusion, backed by no well-pleaded facts . . . [is]
hardly enough to state a claim for relief.”). Second, DTC suggests that it may sustain
its claim based on (1) Stromstad’s use of DTC computers to “steal reformatted resumes
and onboarding paperwork,” Docket No. 126 at 13-14, and (2) Adam Hirschfeld’s
access of DTC computers to send “[Rhinehart] trade secrets.” Docket No. 127 at 14.
However, the conspiracy pled in the complaint is specifically limited to defendants’
“knowledge and/or encouragement of [Adam] Hirschfeld’s unauthorized, postresignation accessing” of the laptop. See Docket No. 82 at 57, ¶ 348. Thus, DTC’s
claim fails.
34
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that defendant Ally Energy Services, Inc. Motion to Dismiss and
Opening Brief [Docket No. 103] is GRANTED. It is further
ORDERED that defendants Craig Hirschfeld and Joseph Johnson’s Motion to
Dismiss Second Amended Complaint [Docket No. 113] is GRANTED IN PART AND
DENIED IN PART. It is further
ORDERED that defendant Katie Stromstad’s Motion to Dismiss Second
Amended Complaint [Docket No. 114] is GRANTED IN PART AND DENIED IN PART.
It is further
ORDERED that defendant Ross Rhinehart’s Motion to Dismiss Second
Amended Complaint [Docket No. 115] is GRANTED IN PART AND DENIED IN PART.
It is further
ORDERED that all claims against defendant Ally Energy Services, Inc. are
DISMISSED WITH PREJUDICE. It is further
ORDERED that plaintiff’s Fourth, Fifth, Seventh, Ninth, Twelfth, and Fourteenth
Claims against defendant Craig Hirschfeld are DISMISSED WITH PREJUDICE. It is
further
ORDERED that plaintiff’s Fourth, Fifth, Seventh, Twelfth, and Fourteenth Claims
against defendant Joseph Johnson are DISMISSED WITH PREJUDICE. It is further
ORDERED that plaintiff’s Second, Third, Ninth, Twelfth, and Fourteenth Claims
against defendant Katie Stromstad are DISMISSED WITH PREJUDICE. It is further
35
ORDERED that plaintiff’s Fifth, Tenth, Twelfth, and Fourteenth Claims against
defendant Ross Rhinehart are DISMISSED WITH PREJUDICE.
DATED September 25, 2019.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
Chief United States District Judge
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