Farmers Bank & Trust, N.A. v. Witthuhn et al

Filing 106

MEMORANDUM AND ORDER granting 95 Motion for Leave to Amend Complaint. Plaintiff shall file the Second Amended Complaint attached to Doc. 95 within fourteen days. Signed by District Judge Julie A. Robinson on 11/28/2011. (pp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
FARMERS BANK & TRUST, N.A.

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Plaintiff,
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vs.
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RAY WITTHUHN, et al.,
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Defendants.
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____________________________________)

Case No. 11-2011-JAR

MEMORANDUM AND ORDER
Plaintiff Farmers Bank & Trust, N.A. (“Farmers Bank”) alleges several claims against its
former employees, Defendants Ray Witthuhn and Tonetta Stieben. Plaintiff previously sought
leave to amend the complaint to add claims against Community Bank of the Midwest
(“Community Bank”), Witthuhn and Stieben’s current employer, and to add a claim for breach of
the duty of good faith against Witthuhn and Stieben. The Court ruled on that motion to amend
along with a motion for partial summary judgment and a motion to dismiss, directing Plaintiff to
file an amended motion for leave to amend in accordance with that Memorandum and Order.1
Now before the Court is Plaintiff’s Amended Motion for Leave to File Second Amended
Complaint (Doc. 95). Defendants oppose the motion, asking the Court to decline supplemental
jurisdiction over the claims against Community Bank and to deny the motion for leave to add a
claim for breach of the duty of good faith as duplicative of its existing claim for breach of the
duty of loyalty. As explained more fully below, the Court grants Plaintiff’s motion to amend;
the Court will exercise supplemental jurisdiction over the claims against Community Bank and

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Doc. 94.

finds that Plaintiff’s proposed additional claim against Defendants for breach of the duty of good
faith is not futile in light of its existing claim for breach of the duty of loyalty.
I.

Background
Plaintiff alleges several claims against its former employees, Defendants Ray Witthuhn

and Tonetta Stieben.2 Plaintiff alleges a federal claim in Count III for violations of the Computer
Fraud and Abuse Act (“CFAA”), and Kansas state law claims for breach of contract, violation of
the Kansas Uniform Trade Secrets Act, conversion, civil conspiracy, unfair competition, and
breach of the duty of loyalty. Plaintiff alleges that Defendants engaged in a scheme to cripple
Farmers Bank and enrich Community Bank whereby Whitthun and Stieben solicited Farmers
Bank’s clients on behalf of Community Bank, and copied and deleted Farmers Bank’s sensitive
business information.
Defendants filed a motion to dismiss the CFAA claims and requested that the Court
decline supplemental jurisdiction over the remaining state law claims. Plaintiff also filed a
motion for leave to amend the complaint, seeking to add Community Bank as a Defendant,
correct certain CFAA citations, and add certain factual allegations. Defendants objected that the
proposed amendment was futile for the reasons set forth in their motion for summary judgment.
That is, Defendants contended that Plaintiff’s CFAA claims failed as a matter of law because it
was uncontroverted that Defendants were authorized to access Farmers Bank’s computers and
that they did not exceed that authorized access. In light of the Court’s rulings on summary
judgment, it was unable to conclude that Plaintiff’s original proposed second amended complaint
was futile insofar as it amended the CFAA claims under § 1030, subsections (a)(2)(C), (a)(4),
2

Defendant Brent Kerr was dismissed from this case after Defendants’ dispositive motions were filed (Doc.

64).

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and (a)(5)(A). However, the Court found that the amendment would be futile with respect to
Plaintiff’s proposed amendment to subsection (a)(5)(C). The Court also ruled that liability under
the CFAA may not be premised on Defendants’ unauthorized access, but instead, on the claim
that they exceeded their authorized access.
Therefore, Plaintiff’s motion to amend was denied but Plaintiff was granted leave to file a
revised motion for leave to amend the complaint, attaching a proposed pleading that complies
with its Memorandum and Order on summary judgment. Because the Court denied the motion
for summary judgment with respect to several provisions of the CFAA claim, it also denied the
motion to dismiss on jurisdictional grounds.
II.

Discussion
Plaintiff has now filed a second motion for leave to amend the complaint in response to

the Court’s directive, attaching a revised proposed second amended complaint. Under Fed. R.
Civ. P. 15(a), leave to amend should be freely granted, however “the district court may deny
leave to amend where the amendment would be futile. A proposed amendment is futile if the
complaint, as amended, would be subject to dismissal.”3 Defendants oppose the motion, but not
on the grounds cited in their original opposition brief. Defendants do not argue that the proposed
second amended complaint fails to abide by the Court’s summary judgment ruling. Instead,
Defendants argue that the Court should decline to exercise jurisdiction over the state law claims
against Community Bank and that the proposed claim for breach of the duty of good faith is
futile because it is duplicative of the breach of the duty of loyalty claim. The Court addresses
each in turn.

3

Jefferson Cnty. Sch. Dist. No. R-1 v. Moody’s Investors’s Servs., Inc., 175 F.3d 848, 859 (10th Cir. 1999).

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A.

The Court Exercises Jurisdiction Over the Claims against Community Bank

The Court has supplemental jurisdiction over state law claims that are “so related to
claims in the action within such original jurisdiction that they form part of the same case or
controversy . . . [and] shall include claims that involve the joinder or intervention of additional
parties.”4 Under 28 U.S.C. § 1367(c), the Court may decline to exercise supplemental
jurisdiction over a claim if “in exceptional circumstances, there are other compelling reasons for
declining jurisdiction.”5
The Court is satisfied that the state law claims against Community Bank are so related to
the existing claims in this case against Defendants Witthuhn and Stieben that they are part of the
same case or controversy.6 Defendants do not argue that these claims are unrelated. Instead,
Defendants urge the Court to exercise its discretion and find that this is an exceptional
circumstance where compelling reasons exist for declining jurisdiction. Defendants argue that
compelling circumstances exist because Plaintiff only alleges state law claims against
Community Bank. But this is a circular argument. Under § 1367(a), supplemental jurisdiction
may include joinder of additional parties and the Court declines to find that this fact alone would
be a compelling reason to decline to exercise supplemental jurisdiction under § 1367(c)(4).
Moreover, the Court is unable to find that other exceptional circumstances exist here that provide
a compelling reason to decline to exercise jurisdiction. The state law claims against Community
Bank are neither novel nor complex state law issues and, most importantly, judicial efficiency

4

28 U.S.C. § 1367(a).

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28 U.S.CS. § 1367(c)(4).

6
See United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966) (explaining that the plaintiff’s claims
“must derive from a common nucleus of operative fact.”).

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will not be served by declining jurisdiction. The case has been litigated in federal court for more
than ten months and the parties have engaged in mediation, motions practice, and discovery.
Given the relatedness of the existing claims to those asserted against Community Bank, judicial
efficiency will be best served by the Court exercising jurisdiction over these claims.7
B.

Plaintiff’s Breach of Fiduciary Duty Claim is not Futile

Proposed Count IX alleges that Witthuhn and Stieben owed Farmers Bank a fiduciary
duty of good faith to disclose their plans to compete with Farmers Bank while they were
engaging in the substantial planning and overt acts in furtherance of a conspiracy to compete and
that they breached the duty of good faith by failing to disclose their plans to compete. Count VII
of the First Amended Complaint alleges that Witthuhn and Stieben breached their duty of loyalty
to Farmers Bank by surreptitiously obtaining Farmers Bank’s business information and by
competing with Farmers Bank while still under its employ. Defendants argue that the proposed
claim for breach of the duty of good faith is duplicative of Plaintiff’s existing claim for breach of
the duty of loyalty and, therefore, this amendment would be futile.
Plaintiff maintains in its reply that the two claims differ because the duty of loyalty is
premised on Defendants’ roles as employees of Farmers Bank, while the duty of good faith is
based on their roles as officers. Neither side cites authority for their arguments on this point and
the Court declines to conduct an extensive analysis on the similarity of the elements of these
claims or the basis upon which the duties of loyalty and good faith arise. For the purpose of this
motion, the Court is unable to find that the proposed second amended complaint would be
subject to dismissal. Plaintiff alleges that Defendants Witthuhn and Stieben breached two
7
See De Luna-Guerrero v. N.C. Grower’s Ass’n, Inc., 328 F. Supp. 2d 649, 652–53 (E.D.N.C. 2004)
(finding exceptional circumstances based on judicial efficiency).

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different duties based on their roles as officers and employees at Farmers Bank. The alleged
breaches are slightly different—Plaintiff alleges a breach of the duty of good faith based on the
failure to disclose Defendants’ plans to compete, while the duty of loyalty additionally alleges a
breach by surreptitiously obtaining Plaintiff’s business information. Moreover, Plaintiff argues
that Defendants are subject to a higher punitive damages award on the duty of good faith claim
based on the higher level of trust and confidence imposed on Defendants in their role as officers.
Because Plaintiff’s claims are not alleged to be based on the same conduct, the Court declines to
deny leave to amend on futility grounds.
IT IS THEREFORE ORDERED BY THE COURT that Plaintiff’s Amended Motion
for Leave to File Second Amended Complaint (Doc. 95) is granted. Plaintiff shall file the
Second Amended Complaint attached to Doc. 95 within fourteen days.
Dated: November 28, 2011
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

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