Insight Global, LLC v. McDonald et al

Filing 78

OPINION AND ORDER denying 15 Motion to Dismiss and granting 14 Motion to Dismiss by Chief Judge Marcia S. Krieger on 4/30/18. (dkals, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Marcia S. Krieger
Civil Action No. 17-CV-1915-MSK-MJW
INSIGHT GLOBAL LLC,
Plaintiff,
v.
MARY MCDONALD, and
BEACON HILL STAFFING GROUP LLC,
Defendants.

OPINION AND ORDER ON MOTIONS TO DISMISS

THIS MATTER comes before the Court on the Defendants’ Motions to Dismiss (## 14,
15), the Plaintiff’s responses (## 23, 24), and the Defendants’ replies (## 31, 32). For the
reasons that follow, the first motion is granted and the second motion is denied.
I. JURISDICTION
The Court has jurisdiction to hear this case under 28 U.S.C. § 1331.
II. BACKGROUND
The following general allegations are drawn from the Complaint and for purposes of
these Motions are taken as true. They are supplemented as necessary as part of the Court’s
analysis.
Defendant Mary McDonald worked for Plaintiff Insight Global, a staffing company, in its
Boston office for close to two years. She started as a recruiter-in-training and was subsequently
promoted to recruiter and then to account manager. During her employment, Ms. McDonald had
access to extensive confidential business information and trade secrets regarding Insight’s
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business, services, customers, clients, pricing, strategies and financial information. Insight
ended its employment relationship with Ms. McDonald in May 2017. Ms. McDonald then
relocated to Denver and accepted employment with Defendant Beacon Hill Staffing, performing
a similar job to what she did at Insight.
Ms. McDonald’s original employment agreement with Insight imposed several
restrictions that restricted her use and disclosure of Insight’s trade secret information during and
after her employment. Among these restrictions were provisions limiting use of 1) Insight’s
trade secrets; 2) Insight’s confidential business information; 3) a “no competition” provision
operative for two years within the “Territory” which is defined as the lesser of 35 miles from Ms.
McDonald’s business location (Boston) or the length of a straight line between Ms. McDonald’s
business location and her most distant customer or client; 4) an agreement not to solicit
customers or clients for whom she has provided services; 5) an obligation to return Insight’s
property and information on written demand; and 6) to provide a copy of the employment
agreement to any employer for whom Ms. McDonald works in the 2 year period following her
employment with Insight. After her employment with Insight ended, Ms. McDonald entered into
a Separation Agreement with Insight, in which she reaffirmed her commitment to abide the
restrictions in her employment agreement (the Reaffirmation Provision). She also affirmed that
she had returned all of Insight’s property (the Return of Property Affirmation).
In violation of the restrictions in the various agreements, Ms. McDonald misappropriated
Insight’s confidential and trade secret information including the names of customers in the
Denver area. In her new employment with Beacon Hill, Ms. McDonald is allegedly using or
disclosing Insight’s trade secrets and confidential business information in violation of her

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contractual obligations, and that she has failed to give appropriate notice of her employment with
Beacon Hill.
As to Beacon Hill, the Complaint alleges that it has knowledge of Ms. McDonald’s
contractual obligations to Insight, but that it has instructed Ms. McDonald that she does not need
to comply with these obligations. Beacon Hill has coordinated with Ms. McDonald to cover up
her breaches of the Separation Agreement.1 In addition, Beacon Hill is engaging in unfair
competition.
In its Complaint, Insight states the following causes of action against Ms. McDonald: (1)
breach of employment agreement, (2) misappropriation of trade secrets under three statutes, (3)
breach of separation agreement, (4) fraud, and (5) breach of duty of loyalty. The Complaint also
alleges two causes of action against Beacon Hill: 1) tortious interference with Ms. McDonald’s
employment agreement; and 2) unfair competition.
Ms. McDonald moves to dismiss only the fraud claim (# 15). Beacon Hill moves to
dismiss both the tortious-interference and unfair-competition claims (# 14).
III. LEGAL STANDARD
In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
the Court must accept all well-pleaded allegations in the complaint as true and view those
allegations in the light most favorable to the nonmoving party. Stidham v. Peace Officer
Standards & Training, 265 F.3d 1144, 1149 (10th Cir. 2001) (quoting Sutton v. Utah State Sch.
for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). The Court must limit its

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Insight tenders these allegations upon information and belief. The Court does not recount the
other, myriad allegations Insight makes against Beacon Hill — such as it being Beacon Hill’s
modus operandi to raid Insight for new employees and to conceal such hires from Insight —
because such allegations are based largely on the existence of other disputes between these two
parties, a circumstance not particularly germane to this lawsuit.
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consideration to the four corners of the complaint, any exhibits attached thereto, and any external
documents that are incorporated by reference. See Smith v. United States, 561 F.3d 1090, 1098
(10th Cir. 2009). However, a court may consider documents referred to in the complaint if the
documents are central to the plaintiff’s claim and the parties do not dispute the documents’
authenticity. Alvarado v. KOB-TV LLC, 493 F.3d 1210, 1215 (10th Cir. 2007).
A claim is subject to dismissal if it fails to state a claim for relief that is “plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To make such an assessment, the Court first
discards those averments in the complaint that are merely legal conclusions or threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements. The Court then
takes the remaining, well-pleaded factual contentions, treats them as true, and ascertains whether
those facts (coupled, of course, with the law establishing the requisite elements of the claim)
support a “plausible” as compared to a “conceivable” claim. See Khalik v. United Air Lines, 671
F.3d 1188, 1191 (10th Cir. 2012).
IV. DISCUSSION
A. Fraud
The fraud claim alleges that Ms. McDonald made material misrepresentations when she
executed the Separation Agreement. Specifically, Insight alleges that Ms. McDonald agreed to
the Return of Property Affirmation without any intention to return Insight’s trade secrets,
confidential information and other property and agreed to the Reaffirmation Provision knowing
that she had accepted employment with a competitor, Beacon Hill.
To prove a claim under Colorado law for fraudulent misrepresentation, a plaintiff must
establish that (1) the defendant knowingly misrepresented a material fact, (2) he justifiably relied

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on the misrepresentation, and (3) he suffered damage as a result of such reliance.2 See Barfield
v. Hall Realty Inc., 232 P.3d 286, 290 (Colo. App. 2010). To prove a claim for negligent
misrepresentation, a plaintiff must allege that (1) the defendant supplied false information in a
business transaction, (2) the defendant failed to exercise reasonable care or competence in
communicating that information, and (3) that he justifiably relied upon the false information.
Campbell v. Summit Plaza Assoc., 192 P.3d 465, 477 (Colo. App. 2008).
Rule 9(b) requires that allegations of fraud be pled with particularity — “the time, place,
and contents of the false representation, the identity of the party making the false statements and
the consequences thereof.” United States ex rel. Sikkenga v. Regence Bluecross Blueshield of
Utah, 472 F.3d 702, 726–27 (10th Cir. 2006). However, the requirements of Rule 9(b) must be
read in conjunction with the principles of Rule 8, which requires that pleadings “be construed to
do substantial justice.” Fed. R. Civ. P. 8(e)–(f); Seattle-First Nat’l Bank v. Carlstedt, 800 F2d
1008, 1101 (10th Cir. 1986). The purpose of Rule 9(b) is “to afford defendant fair notice of
plaintiff’s claims and factual ground upon which [they] are based”. Schwartz v. Celestial
Seasonings, 124 F3d 1246, 1252 (1997). Review of the entire complaint is often necessary to
determine whether fraud is sufficiently pleaded. A dismissal for failure for failure to adequately
plead particulars in accordance with Rule 9(b) is akin to a dismissal for failure to state a claim,
curable by amendment.
Ms. McDonald complains that the Complaint is insufficiently specific in identifying the
misrepresentations she allegedly made to Insight. Indeed, the Complaint recites no specific
misrepresentations in a traditional sense. Rather, the Complaint derives the alleged
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It appears from the Complaint that the Separation Agreement provides that Georgia state law
will govern its interpretation. See Compl. ¶ 49. However, in its response to the motion to
dismiss, Insight cites and argues Colorado state law. Accordingly, the Court assumes that
Insight is satisfied proceeding under Colorado law.
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misrepresentations from the warranties contained in the Separation Agreement. A contractual
claim based on the breach of a duty and a tort claim that Ms. McDonald never intended to
comply with the contract in the first place are mutually exclusive. If she did not intend to enter
into the contract in the first place — that is, she never intended to perform that which she was
promising to perform — then there was no contract and tort is the only remedy. See Kinsey v.
Preeson, 746 P.2d 542, 551 (Colo. 1987) (“A promise concerning a future act, when coupled
with a present intention not to fulfill the promise, can be a misrepresentation which is actionable
as fraud.”). To the extent she did intend to enter into the contract, then Insight’s remedy is
breach and the economic-loss rule would proscribe extra-contractual damages in tort.
But, for pleading purposes, the breach claim and fraud claim can exist as alternative
theories. See Fed. R. Civ. P. 8(d)(2). The Court therefore construes the fraud claim as an
alternative theory to breach claim based on the Separation Agreement, such that both claims may
proceed at this time. Eventually, however, Insight will have to elect which theory to pursue.
B. Tortious Interference
This claim alleges that Beacon Hill induced Ms. McDonald to breach the Separation
Agreement. Beacon Hill argues that the Complaint contains insufficient allegations to show that
it used improperly hired Ms. McDonald.
To prove a claim under Colorado law for tortious interference, a plaintiff must establish
that (1) it had either a valid existing contract with a third party or it expected to enter into a
contract with a third party, (2) the defendant induced or otherwise caused the third party to
breach the contract or not enter into the contractual relation, and (3) the defendant did so
intentionally and via improper means. Harris Grp. v. Robinson, 209 P.3d 1188, 1195–96 (Colo.
App. 2009). When, as here, parties are engaged in business competition, the improper-means

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element is satisfied by allegations showing that the interference took the form of conduct that is
“intrinsically wrongful — that is, conduct which is itself capable of forming the basis for liability
of the actor,” as well as conduct that is illegal, in violation of professional standards, achieved
through violence or threats, arising from misrepresentation or unfounded litigation, or via
defamation. Id. at 1197–98.
The sum total of the Complaint’s allegations against Beacon Hill is as follows:


Beacon Hill’s business model is to hire employees subject to covenants not to
compete with competitors, as evidenced by almost 30 lawsuits over 11 years.



Beacon Hill is aware of the restrictions Insight places on terminated or separated
employees because it has reviewed the subject agreements in the course of discovery
in other lawsuits.



Beacon Hill has hired at least five former Insight employees in the month preceding
the Complaint’s filing.



Beacon Hill is aware of Ms. McDonald’s obligations under the Separation
Agreement.



Beacon Hill has instructed Ms. McDonald that she does not need to comply with such
obligations.

See Compl. ¶¶ 70–78.
These allegations are not sufficient to state a plausible claim. Although there does not
appear to be any dispute that Insight had a valid, existing contract with Ms. McDonald (the third
party), the allegations that Beacon Hill is aware of the terms of Ms. McDonald’s obligations and
it told her that she need not comply is conclusory.

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Even if true, the combination of these allegations fails to state facts concerning use of
“improper means” by Beacon Hill to induce Ms. McDonald to breach her contracts with Insight.
Beacon Hill’s awareness of the existence of Ms. McDonald’s obligations does not indicate how
Beacon Hill induced Ms. McDonald to breach them, and the Complaint offers no further
allegations other than a conclusory statement that Beacon Hill’s conduct (whatever it was) was
committed with actual malice and improper purpose. According to the Complaint, the only
means Beacon Hill used — assuming arguendo that it induced Ms. McDonald to breach the
Separation Agreement in the first place — was hire Ms. McDonald. By itself, the offer of a job
to the employee of a competitor is not improper. For these reasons, the allegations are
insufficient to state a plausible claim for tortious interference.
C. Unfair Competition
This claim is brought against Beacon Hill, alleging that Beacon Hill engaged in a
systematic campaign of raiding Insight’s employees, which Insight characterizes as unfair
competition. The parties agree as to the elements of an unfair-competition claim under Colorado
law. A plaintiff must establish that (1) the defendant copied the plaintiff’s products or services,
or misappropriated the plaintiff’s name or business values; and (2) the defendant’s conduct is
likely to deceive or confuse the public because of difficulties distinguishing between the parties’
products, services, or business values. Netquote Inc. v. Byrd, 504 F. Supp. 2d 1126, 1131 (D.
Colo. 2007).
Though the concept of unfair competition has developed under Colorado law over time,
any of its formulations require “that the public was deceived or confused.” Id. at 1132.
Unfortunately, the Complaint fails to allege any facts, which if true, would establish that there

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has been or is likely to be any impact on the public’s ability to distinguish between the products
and services of Insight and Beacon Hill.
Although the Court appreciates that “raiding” of employees is harmful to Insight, an
unfair competition claim does not focus a direct loss to Insight. Instead, it focuses on a loss to
Insight because the public is confused or deceived. In order for a cognizable unfair competition
claim to be alleged based on Beacon Hill “poaching” Insight’s employees, there would have to
be allegations such as that the public was confused as to who the employees worked for or that
Insight lost business because the public dealt with Beacon Hill believing that it was dealing with
Insight. The Complaint contains no allegations as to the effect that the “raiding” of employees
by Beacon Hill had or is likely to have on the public, much less how that has impacted Insight.
Consequently no cognizable claim for unfair competition has been stated, and the claim is
dismissed.

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V. CONCLUSION
For the foregoing reasons, Ms. McDonald’s Motion to Dismiss (# 15) is DENIED.
Beacon Hill’s Motion to Dismiss (# 14) is GRANTED. The Plaintiff’s tortious-interference, and
unfair-competition claims are DISMISSED, without prejudice. Should the Plaintiff be able to
overcome the deficiencies described herein, it may file a motion to amend the Complaint within
21 days of the date of this order.
Dated this 30th day of April, 2018.
BY THE COURT:

Marcia S. Krieger
Chief United States District Judge

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