Arvegenix, LLC v. Seth et al

Filing 76

ORDER & OPINION entered by Judge Joe Billy McDade on 03/13/2014. IT IS THEREFORE ORDERED that Plaintiff/Counter-Defendant Arvegenix, LLC's Motion to Dismiss Counterclaim X 64 is GRANTED. Counterclaim X is DISMISSED. This matter is REFERRED BACK to Magistrate Judge Jonathan Hawley for further proceedings. See Full Written Order.(JS, ilcd)

E-FILED

Thursday, 13 March, 2014 04:21:19 PM
Clerk, U.S. District Court, ILCD

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
ARVEGENIX, LLC,
Plaintiff/Counter-Defendant,
v.
SUDHIR SETH, individually and as
agent of Pennycress Energy Company,
LLC, and Arvens Technology, Inc.,
PENNYCRESS ENERGY COMPANY,
and ARVENS TECHNOLOGY, INC.,
Defendants/Counter-Claimants,
and
SUDHIR SETH, individually and as
agent of Pennycress Energy Company,
LLC, and Arvens Technology, Inc.,
PENNYCRESS ENERGY COMPANY,
and ARVENS TECHNOLOGY, INC.,
Third-Party Plaintiffs,
v.
VIJAY CHAUHAN, DENNIS
PLUMMER, MICHAEL ROTH,
BIOGENERATOR, a Missouri not-forprofit corporation, and BIOSTL, a
Missouri not-for-profit corporation,
Third-Party Defendants,

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Case No. 13-cv-1253

ORDER & OPINION
This matter is before the Court on Plaintiff/Counter-Defendant Arvegenix,
LLC’s Motion to Dismiss Counterclaim X (Doc. 64). For the reasons explained

below, this Motion is granted, and Counterclaim X, seeking a declaratory judgment,
is dismissed.
PROCEDURAL HISTORY
Plaintiff/Counter-Defendant Arvegenix, LLC (“Plaintiff”) filed the present
action on June 4, 2013, alleging ten counts against Defendants Sudhir Seth (“Seth”),
Pennycress Energy Company, LLC (“PEC”), and Arvens Technology, Inc. (“ATI”)
(collectively, “Defendants”). (Doc. 1). Plaintiff’s claims include defamation, unfair
competition, and a declaratory judgment claim, and are based primarily on conduct
by Defendants after a business arrangement between Defendants and Plaintiff’s
members broke down. On November 26, 2013, Defendants filed ten counterclaims
against Plaintiff and against three individuals and two not-for-profit corporations
(collectively, “Third-Party Defendants”), related to the consequences of the same
breakdown in business relations. (Doc. 40). In particular, Counterclaim X is a claim
for a declaratory judgment that would declare the rights and relationships of the
parties resulting from a non-disclosure agreement. (Doc. 40 at 18-20). Plaintiff filed
the instant Motion to Dismiss, arguing Counterclaim X must be dismissed.
LEGAL STANDARD
In ruling on a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), “the court must treat all well-pleaded allegations as true and draw all
inferences in favor of the non-moving party.” In re marchFIRST Inc., 589 F.3d 901,
904 (7th Cir. 2009). The pleading must contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To
survive a motion to dismiss, the challenged pleading must contain sufficient detail

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to give notice of the claim, and the allegations must “plausibly suggest that the
[non-movant] has a right to relief, raising that possibility above a ‘speculative
level.’” EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The plausibility
standard requires enough facts “to present a story that holds together,” but does not
require a determination of probability. Swanson v. Citibank, N.A., 614 F.3d 400,
404 (7th Cir. 2010). Though detailed factual allegations are not needed, a “formulaic
recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at 545.
FACTUAL BACKGROUND1
Defendants are in the business of developing technology to make biofuel out
of a plant called pennycress. In fall 2012, Defendant Seth, as an agent for
Defendants ATI and PEC, approached Third-Party Defendant BioGenerator in
search of investment assistance to begin commercial production of pennycress for
biofuel. BioGenerator is a company that “place[s] inventors and entrepreneurs with
investors and technological experts in order to develop their business ideas.” (Doc.
40 at 4). Defendants and BioGenerator entered into a non-disclosure agreement to
facilitate their arrangement and provide protection for any confidential information
shared by Defendants. The agreement provided that confidential information would
not be disclosed, and would be returned or destroyed at the conclusion of the
business arrangement.

Unless otherwise noted, the Court draws the facts in this section from Defendants’
Counterclaim (Doc. 40), treating their allegations as true and drawing all
reasonable inferences in their favor, in accordance with the motion to dismiss
standard described above.
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In fall 2012 and spring 2013, Seth was introduced to some individuals
BioGenerator represented as having knowledge and experience in start-up
agribusiness. These individuals included Third-Party Defendants Vijay Chauhan,
Dennis Plummer, and Michael Roth, as well as non-party Arnold Rosielle.
BioGenerator represented to Seth that these individuals were pursuing due
diligence to determine whether Defendants had a viable business idea. Defendants
provided access to information about the production of pennycress as well as
business information and present and potential partners. During this time,
Chauhan, Plummer, Roth, and Rosielle represented to Seth that they were meeting
with potential investors. They also altered Seth’s proposed business plans by
reducing Seth’s role in the proposed new business and his compensation.
BioGenerator, Defendants, Chauhan, Plummer, and Roth set a May 1, 2013,
deadline for reaching agreement on the new business; none was reached.
BioGenerator did not require its consultants to destroy or return confidential
information pursuant to the non-disclosure agreement. Chauhan, Plummer, and
Roth, in collaboration with BioGenerator, then formed a new company, Arvegenix,
LLC, Plaintiff in this case, which would compete with PEC and ATI. Plaintiff, as
well as Chauhan, Plummer, and Roth, used information and data provided by
Defendants to seek researchers and partners to work with, and attempted to
persuade them to cancel agreements with Defendants to instead work with them.
On May 22, 2013, Seth demanded the return or destruction of all information
provided to BioGenerator and Chauhan, Plummer, and Roth, as BioGenerator
consultants. BioGenerator advised they had received no confidential information.

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ANALYSIS
Plaintiff essentially makes two arguments against Defendants’ Counterclaim
X. First, it argues Plaintiff should not be subject to the claim because, as is made
clear from the allegations throughout the Counterclaim, it was not a party to the
non-disclosure agreement and thus cannot be in breach of it. Second, Plaintiff
argues the claim is improper because it seeks affirmative relief, not a declaratory
injunction. Because the Court finds Plaintiff’s second argument dispositive of the
matter, it does not address Plaintiff’s first argument herein.
I.

Preliminary Matters
There are some minor issues that can be cleared up before addressing

Plaintiff’s arguments. First, the Court does not consider the exhibits attached to
Plaintiff’s Motion to Dismiss and Defendants’ Response. (Docs. 65-1, 65-2, 65-3, 681). If matters outside the pleadings are considered by a court in ruling on a motion
to dismiss, the motion must be treated as a motion for summary judgment, and the
parties are to be given sufficient time to present all pertinent material. Fed. R. Civ.
P. 12(d). The exhibits presented by the parties are largely irrelevant to the issues to
be decided, and add nothing to the determination of whether or not Defendants
have stated a claim in Counterclaim X. Accordingly, the Court will not consider the
parties’ additional exhibits, and thus does not convert Plaintiff’s Motion to Dismiss
into a motion for summary judgment pursuant to Rule 12(d).2

As an additional procedural note, directed primarily toward Defendants’ counsel, a
memorandum in response to a motion to dismiss is all that is required; the nonmovant does not file both a response and a separate memorandum in support. The
parties are directed to consult the local rules any time there is uncertainty over
proper procedure.

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Second, one of Plaintiff’s arguments in the Motion to Dismiss can be rejected
summarily. Plaintiff repeatedly emphasizes that Defendants filed the same ten
claims Plaintiff filed. The Court sees no reason that fact alone would require
dismissal of any claim, and Plaintiff cites not authority for such a requirement.
Simply because the same claims have been filed against Defendants by Plaintiff
does not mean Defendants’ claims are without merit, or that they are inadequately
pleaded.
Finally, both parties have included an abundance of irrelevant information
and arguments in their memoranda to the Court. For example, Plaintiff points out
Defendants’ service errors as supposed evidence of a lack of care in investigating
claims (Doc. 65 at 2 n.1), and Defendants emphasize denials based on insufficient
knowledge in Plaintiff’s Answer to the Counterclaim that it finds disingenuous (Doc.
68 at 6). The Court will not tolerate irrelevant finger-pointing in any future filings.
II.

Propriety of Declaratory Judgment Claim
In Counterclaim X, Defendants seek a declaration of the rights and

relationships of the parties in relation to a non-disclosure agreement entered into
initially between Defendants and BioGenerator. Plaintiff’s Claim X similarly seeks
a declaratory judgment as to whether it has any obligation under the same
agreement. Although Plaintiff objects to Counterclaim X on the basis of Rule
12(b)(6), arguing it fails to state a claim upon which relief can be granted, Plaintiff’s
substantive argument is more relevant to whether the Court should, in its
discretion, entertain Defendants’ claim for a declaratory judgment. Plaintiff argues
that Counterclaim X is not actually a declaratory judgment claim, but rather a

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disguised breach of contract claim, in part because Defendants ask for affirmative
relief such as barring Plaintiff and Third-Party Defendants from doing business in
the pennycress industry.
Pursuant to the Declaratory Judgment Act, where there is an “actual
controversy,” a court “may declare the rights and other legal relations of any
interested party seeking such declaration.” 28 U.S.C. § 2201(a). The purpose of this
provision is to “‘avoid accrual of avoidable damages to one not certain of his rights
and to afford him an early adjudication without waiting until his adversary should
see fit to begin suit, after damage had accrued.’” Cunningham Bros., Inc. v. Bail,
407 F.2d 1165, 1167-68 (7th Cir. 1969) (quoting E. Edelmann & Co. v. Triple-A
Specialty Co., 88 F.2d 852, 854 (7th Cir. 1937)). A declaratory judgment is
appropriate to “clarify and settle the disputed legal relationships and afford relief
from the uncertainty and controversy that created the issues.” NUCOR Corp. v.
Aceros Y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 578 (7th Cir. 1994).
A court has discretion when determining whether or not to entertain a claim
for declaratory judgment. See Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (“If
a district court, in the sound exercise of its judgment, determines after a complaint
is filed that a declaratory judgment will serve no useful purpose, it cannot be
incumbent upon that court to proceed to the merits before staying or dismissing the
action.”). Some factors that may be considered in making this determination
include, as relevant here, “‘whether the declaratory judgment action would serve a
useful purpose in clarifying the legal relations at issue’” and “‘whether there is an
alternative remedy that is better or more effective.’” NUCOR Corp., 28 F.3d at 579

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(quoting Nationwide Mut. Fire Ins. Co. v. Willenbrink, 924 F.2d 104, 105 (6th Cir.
1991)).
There is clearly an actual controversy in the present case, as evidenced by the
numerous disputed claims and counterclaims that all stem from actions in
connection with the business relationship and non-disclosure agreement initially
formed between Defendants and BioGenerator. Further, under a typical failure to
state a claim analysis, Defendants have given notice of their claim and adequately
pleaded facts in support of it. However, the purpose of declaratory judgments—
resolving uncertainty and affording early adjudication to avoid accrual of
damages—would not be served by Defendants’ declaratory judgment claim, and the
claim should thus be dismissed. Plaintiff is also correct that Defendants could have
filed a claim for breach of contract if they believed Plaintiff was obligated to take or
refrain from particular action, and could have sought damages or injunctive relief.
The remedy from such a claim would be a more effective alternative to a declaratory
judgment that simply declares Plaintiff to have contractual obligations.
Defendants argue in response to the Motion to Dismiss that Counterclaim X
is virtually identical to Claim X by Plaintiff, but this actually dooms Defendants’
claim. Plaintiff’s claim is a typical declaratory judgment claim, seeking only to know
if it has any obligations at all, to clear up any uncertainty of its contractual
obligations, and not alleging any substantive claim or seeking relief beyond a
declaration of rights and relationships. Further, courts have dismissed declaratory
judgment claims that merely seek a declaratory judgment from the opposite

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perspective, as they are redundant. Green Bay Packaging, Inc. v. Hoganson &
Assocs., Inc., 362 F. Supp. 78, 82 (N.D. Ill. 1973).
The Court will determine the issues presented in Counterclaim X in resolving
Count X and other claims before the Court. Defendants could have raised the same
issues in a more straightforward manner by bringing a breach of contract claim.
Counterclaim X is redundant, and does not serve the purpose of the declaratory
judgment provision. For all these reasons, the Court, in its discretion, declines to
entertain Counterclaim X, seeking a declaratory judgment. Accordingly, it is
dismissed.
CONCLUSION
IT IS THEREFORE ORDERED that Plaintiff/Counter-Defendant Arvegenix,
LLC’s Motion to Dismiss Counterclaim X (Doc. 64) is GRANTED. Counterclaim X is
DISMISSED. This matter is REFERRED BACK to Magistrate Judge Jonathan
Hawley for further proceedings.

Entered this 13th day of March, 2014.

s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge

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