Charleston Laboratories, Inc. v. SIDIS Corporation et al
MEMORANDUM OPINION & ORDER: 1) Defs' Motion to Dismiss 22 is granted in part and denied in part; 2) Defs' Motion to Dismiss Count 7 (Kentucky Trade Secrets Act) and Count 9 (Civil Conspiracy) is denied; and 3) Defs' Motion to Dismiss Count 8 (Lanham Act - False Designation of Origin) is granted and Count 8 is here by dismissed. Signed by Judge David L. Bunning on 8/29/2017.(ECO)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 16-195-DLB-JGW
CHARLESTON LABORATORIES, INC.
MEMORANDUM OPINION AND ORDER
SIDIS CORPORATION, et al.
This matter is before the Court upon Defendants’ Motion to Dismiss Counts 7, 8,
and 9 of Plaintiff Charleston Laboratories, Inc.’s Complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6). This Court has jurisdiction over this action pursuant to 29 U.S.C.
Factual and Procedural Background
This case involves a large number of actors and defendants, all interconnected in
various ways. Accordingly, the Court will begin by identifying the parties named in the
pharmaceutical company. (Doc. # 1 at ¶ 18). Paul Bosse is the president, chief executive
officer, and founder of Charleston. Id. at ¶ 19. Charleston has developed a drug, “CL-
108", that is undergoing U.S. Food and Drug Administration review for approval to sell.
Id. at ¶¶ 20-21.
Defendant SIDIS Corporation (“SIDIS”) is a holding company of “portfolio
companies,” that compete with Charleston in the pharmaceutical and biotechnology
industries for investors, partners, affiliations, and strategic collaborations. Id. at ¶ 51.
Nigel M. Ferrey is the founder, President, and CEO of SIDIS. Id. at ¶ 9. Ferrey and
Defendant Ray Takigiku are the sole members and founders of Defendant bioLOGIC
Corporation LLC (“bioLOGIC”). Id. at ¶ 3. Takigiku is also a board member of SIDIS, and
is the registered agent of Bexion Pharmaceuticals, LLC (“Bexion”). Id. at ¶ 7.
Defendant Charles D. LeCroix is a board member of SIDIS, and “claims to have
‘run’ bioLOGIC for some period of time.” Id. at ¶ 6.
Defendant Margaret Van Gilse is an officer or director of “various entitydefendants” named in the Complaint. Id. at ¶ 8.
Prime DP LLC (“Prime”) is a limited liability company whose only identified member
is Defendant LeCroix. Id. at ¶ 10. Defendant Van Gilse is Prime’s last-known registered
agent. Id. When Prime ceased doing business in Kentucky, its assets were acquired by
or distributed to SIDIS or other SIDIS-related entities. Id.
Defendant Charles R. Scheper is the settlor of the Defendant Charles R. Scheper
Irrevocable Family Trust (the “Scheper Trust”). Id. at ¶ 5. The Scheper Trust is a
stockholder of SIDIS. Id.
Throughout the Complaint, Plaintiff refers to SIDIS and bioLOGIC collectively as
“SIDIS-Related Entities” and to Ferrey, Takigiku, LeCroix, Van Gilse and Scheper as
“SIDIS-Related Individuals.” Id. at ¶¶ 12-13.
In 2007, a third party introduced John Ameling, a Charleston consultant, to
Defendant Takigiku. Id. at ¶¶ 26-27. In 2008, Ameling and Bosse, Charleston’s CEO,
traveled to Cincinnati to meet with Takigiku, and discuss Takigiku’s potential employment
Id. at ¶ 29.
According to Charleston, a number of SIDIS-related
individuals also attended the meeting and attempted to create a relationship between
Charleston and one or more SIDIS-related entities. Id. at ¶ 30. Charleston expressed
that it was not interested in forming any affiliation with SIDIS. Id. at ¶ 31.
Charleston subsequently hired Takigiku, and issued Charleston stock to him
personally. Id. at ¶ 32. After issuing that stock, Charleston learned that Prime DP, a
SIDIS–related entity, or some other SIDIS-related entity, had deposited funds into
Takigiku’s personal account or reimbursed Takigiku for his capital contribution to
Charleston. Id. at ¶ 40. In 2009, Takigiku represented to Charleston that Scheper was a
relative of his who was interested in becoming a stockholder of Charleston, and in 2010,
Scheper caused the Scheper Trust to become a stockholder of Charleston. Id. at ¶¶ 4142.
As part of his employment with Charleston, Takiguku executed a Confidential
Information and Invention Assignment Agreement (“CIIAA Agreement”). Id. at ¶ 93.
Pursuant to that agreement, Takigiku agreed that during the term of his employment and
thereafter, he would not disclose any of Charleston’s confidential information. Id. at ¶ 94.
Charleston now alleges that Takigiku violated the CIIAA agreement, and disclosed
Charleston’s proprietary, confidential information to the other Defendants. Id. at ¶ 96.
Specifically, Charleston alleges that Takigiku reported to SIDIS, bioLOGIC, Ferrey,
and LeCroix confidential information relating to Charleston’s efforts to raise money, and
its research and development of certain products, including CL-108.
Id. at ¶ 53.
According to Charleston, SIDIS, bioLOGIC, Ferrey, Takiguku, LeCroix, and Van Gilse
falsely represented to Charleston investors and potential investors that Charleston is
affiliated with SIDIS. Id. at ¶ 54. Charleston claims that the SIDIS-related entities and
individuals used Charleston’s name, as well as the advancement and success of
Charleston’s product, CL-108, to lure potential investors away from Charleston to SIDIS,
by representing that an investment in SIDIS would include an interest in Charleston. Id.
at ¶ 55. Allegedly, in 2015, bioLOGIC and Van Gilse falsely represented to investors that
Charleston was a client of bioLOGIC. Id. at ¶ 57.
On November 2, 2016, Charleston filed the instant Complaint seeking monetary
damages and temporary and permanent injunctive relief, alleging tortious interference
with contractual relationships, tortious interference with prospective contractual
relationships, defamation, unfair competition, breach of confidentiality agreements,
violations of Kentucky’s Trade Secrets Act, civil conspiracy, and false designations of
origin under the Lanham Act. Id. at 14. The Defendants collectively moved to dismiss
Charleston’s civil-conspiracy and false-designation-of-origin claims, as well as
Charleston’s claim under the Kentucky Trade Secrets Act.1 (Doc. # 22). The Motion to
Dismiss is now fully briefed (Docs. # 29 and 33) and ripe for the Court’s review.
Standard of Review
To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plausibility standard is met when the
facts in the complaint allow “the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Id. The complaint need not contain “detailed factual
allegations,” but must contain more than mere “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action.” Id. Put another way, the “[f]actual
allegations must be enough to raise a right to relief above the speculative level.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Before considering the issues raised in the Motion to Dismiss, the Court must
determine which state’s law governs. As a federal court sitting in diversity, this Court
must apply “the choice of law rules of the forum state.” Hayes v. Equitable Energy Res.
Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg., 313 U.S.
487, 796 (1941)). Therefore, Kentucky choice-of-law rules govern.
All named Defendants joined in the Motion to Dismiss. After the Motion to Dismiss was
filed, the claims against Defendants Charles R. Scheper and the Charles R. Scheper Irrevocable
Family Trust were dismissed with prejudice. (Doc. # 39).
Kentucky’s choice-of-law rules are egocentric and there is a strong preference for
applying Kentucky law. See Paine v. La Quinta Motor Inns, Inc., 736 S.W.2d 355, 357
(Ky. Ct. App. 1987), overruled on other grounds by Oliver v. Schultz, 885 S.W.2d 699 (Ky.
1994). For tort claims, Kentucky law will apply “if there are significant contacts—not
necessarily the most significant contacts—with Kentucky.”
S.W.3d 177, 181 (Ky. 2009).
Saleba v. Schrand, 300
Here, there are significant contacts with Kentucky.
Therefore, the Court will apply Kentucky law to Charleston’s trade-secret and civilconspiracy claims. Because the Lanham Act is a federal statute, the Court will apply
federal law to the false-designation-of-origin claim.
Trade Secret Claim
The Kentucky Uniform Trade Secrets Act (“KUTSA”) provides civil remedies for
misappropriation of trade secrets if the plaintiff can prove: (1)
that the information
misappropriated qualifies as a trade secret and (2) that the defendant misappropriated
such information. Ky. Rev. Stat. Ann. § 365.892(2)(a)-(b). A failure under either prong
will result in dismissal of the claim as a matter of law. Auto Channel, Inc. v. Speedvision
Network, LLC, 144 F. Supp. 2d 784, 795 (W.D. Ky. 2001).
Information qualifies as a trade secret if it “derives independent economic value,”
is not “readily ascertainable by proper means,” and is the “subject of efforts that are
reasonable under the circumstances to maintain its secrecy.” Id. (citing Ky. Rev. Stat. §
365.880(4)). Without the identification of trade secrets misappropriated, no KUTSA claim
is stated. Amtote Int’l, Inc. v. Ky. Downs, LLC, No. 1:15-CV-00047-GNS, 2016 WL
1270262 (W.D. Ky. Mar. 31, 2016). However, “so long as [plaintiff] can put forth general
categories of its trade secrets and provide the type of factual allegations... that allow for
the reasonable inference that [defendants] improperly disclosed some of those trade
secrets... [plaintiff] has done all that is required to survive a motion to dismiss.” Luvata
Electrofin, Inc. v. Metal Processing Int’l, L.P., No. 4:10-CV-203-CWR, 2012 WL 3961226
(W.D. Ky. Sep. 10, 2012). Whether a particular type of information constitutes a trade
secret is a question of fact for the jury. Fastenal Co. v. Crawford, 609 F. Supp. 2d 650,
671 (E.D. Ky. 2009).
Defendants claim that Charleston’s Complaint fails to sufficiently identify a trade
secret, and instead merely recites the definition of “trade secret.” While it is true that the
paragraphs contained within Count 7 (the KUTSA claim) recite only the general definition
of “trade secret,” other sections of the Complaint identify the trade secret. Specifically,
Charleston alleges that Takigiku improperly disclosed proprietary, confidential
information, including “information relating to Charleston’s product CL-108 and FDA
proceedings relating to the product.” (Doc. # 1 at ¶ 96). Charleston further alleges that
Takigiku obtained such information through his employment with Charleston, and
described the efforts taken to maintain the secrecy of such information through the CIIAA
agreement. Id. Thus, Charleston has “plausibly allege[d] information not generally known
and detail[ed] efforts taken to maintain secrecy.” Amtote, at *21 (citing Brake Parts, Inc.
v. Lewis, 443 F. App’x 27, 29 (6th Cir. 2011)). Accordingly, Defendants’ Motion to Dismiss
Charleston’s trade-secrets claim will be denied.
Lanham Act Claim
Charleston brings a claim against Defendants for false designation of origin under
the Lanham Act. “The Lanham Act covers trademark infringement as well as a host of
other deceptive practices that might loosely be termed ‘unfair competition.’” Johnson v.
Jones, 149 F.3d 494, 502 (6th Cir. 1998). “One such form of unfair competition is the
false designation of origin.” Id. A person is liable for false designation of origin if they “on
or in connection with any goods or services … use in commerce … any false designation
of origin, false or misleading description of fact, or false or misleading representation of
fact, which … is likely to cause confusion, or to cause mistake, or to deceive … as to the
origin … of his or her goods, services, or commercial activities.” Id. (quoting 15 U.S.C. §
Here, Charleston claims that Defendants falsely represented that they were
affiliated with Charleston in order to induce investments.
Defendants argue that
Charleston is not protected by the Lanham Act, because it has not engaged in commercial
activity. Additionally, Defendants claim that even if Charleston is protected under the
Lanham Act, the Complaint fails to state a false-designation-of-origin claim upon which
relief can be granted. The Court will consider each of Defendants’ arguments in turn.
1. Charleston has engaged in commercial activity.
The Lanham Act is intended to “protect persons engaged in [commerce within the
control of Congress] against unfair competition.” 15 U.S.C. § 1127. Defendants claim
that Charleston is not protected under the Lanham Act, because it has not “engaged in
commerce,” since Charleston does not have a good or service currently being sold to
consumers on the market. Charleston asserts that it does have an actual product, and
that it has engaged in “years of commercial activity.” (Doc. # 29 at 16).
In support of their position, Defendants rely on a case from the Southern District
of Texas. In that case, the plaintiff had pitched his idea for a television show called
“American Idol” to various producers, and after the defendant produced a show by the
same name, plaintiff brought a claim alleging rights in the mark. Keane v. Fox Television
Stations, Inc., 297 F. Supp. 2d 921, 926 (S.D. Tex. 2004). The court dismissed plaintiff’s
claims, finding that the plaintiff had not used the mark in commerce. Id. at 937 (“Just as
a ‘product’ is distinct from an ‘idea for a product,’ an attempt to sell an idea to potential
investors is not analogous to the sale of a trademarked good or service to the public at
Defendants contend that, like the plaintiff in Keane, Charleston has only an “idea”
for a product, rather than having an actual product being sold in commerce. Charleston,
however, has more than an idea; it is an established pharmaceutical corporation with a
product currently undergoing FDA review. (Doc. # 1 at ¶¶ 18-21). This is commercial
activity that Congress regulates.
Moreover, the Trademark Manual of Examining
Procedure (“TMEP”) states that the meaning of “‘use in the ordinary course of trade’ will
vary from one industry to another,” and that “a pharmaceutical company[’s] … shipment
to clinical investigators during the Federal approval process will also be in its ordinary
course of trade.” TMEP § 901.02 (8th ed. Apr. 2017) (citing H.R. Rep. No. 1028, 100th
Cong. 2d Sess. 15 (1988); Paramount Pictures Corp. v. White, 31 U.S.P.Q.2d 1768, 1774
n.8 (T.T.A.B. 1994), aff’d, 108 F.3d 1392 (Fed. Cir. 1997) (Table)); see also Kythera
Biopharmaceuticals, Inc. v. Lithera, Inc., 998 F. Supp. 2d 890, 899 (C.D. Cal. 2014).
Therefore, by transporting CL-108 for clinical trials, Charleston has engaged in commerce
such that its “mark” is protected under the Lanham Act.2
2. Defendants are not using Charleston’s mark in commerce in connection
with a good or service.
Although Charleston’s commercial interests fall within those protected by the
Lanham Act, the Complaint fails to state a viable claim for false designation of origin
against Defendants. Charleston’s attempt to fit its claim into the parameters of the
Lanham Act is akin to fitting a square peg in a round hole. In their attempt to analogize
the facts in this case to those in other Lanham Act cases, the parties have demonstrated
confusion as to what analysis is applicable. Because Charleston’s Lanham Act claim is
atypical, none of the cases presented by the parties provide a clear answer. Having
reviewed the parties’ arguments, the Court finds that Charleston’s claim does not fit into
the Lanham Act’s framework, and thus, Charleston has failed to state a false-designationof-origin claim upon which relief can be granted.
Section 43(a) of the Lanham Act goes “beyond trademark protection,” and
“create[s] a federal remedy against a person who use[s] in commerce either a false
Defendants make a related argument that Charleston lacks standing to bring a claim under
the Lanham Act. (Doc. # 22 at 9). Specifically, they claim that Charleston does not fall within the
“zone of interests” covered by the Lanham Act, because they do not have a product on the market.
Id. The Supreme Court has held that “to come within the zone of interests … a plaintiff must
allege an injury to a commercial interest in reputation or sales.” Lexmark Int’l, Inc. v. Static Control
Components, Inc., 134 S. Ct. 1377, 1390 (2014). Because Charleston has alleged that it lost
investors, and that its reputation has been damaged by Defendants’ false representations, its
claim falls within the Lanham Act’s “zone of interests.”
designation of origin, or any false description or representation in connection with any
goods or services.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 29
(2003). However, it does not “have boundless application as a remedy for unfair trade
practices.” Id. (quoting Alfred Dunhill, Ltd. v. Interstate Cigar Co., 499 F.2d 232, 237 (2d
Cir. 1974)). “Because of its inherently limited wording, § 43(a) can never be a federal
codification of the overall law of unfair competition, but can apply only to certain unfair
trade practices prohibited by its text.” Id. (internal citations and quotations omitted).
Accordingly, to establish a claim for false designation of origin, a plaintiff must establish
each element listed in the statute; that is, the plaintiff must allege that the defendant (1)
used in commerce (2) a false designation of origin (3) in connection with any goods or
services. 15 U.S.C. § 1125(a).
Here, Charleston presents a claim for unfair trade practices that falls outside of the
scope of the Lanham Act. In a typical false-designation claim, the defendant is falsely
“passing off” the plaintiff’s product or services as its own, or passing off its own product
or service as having an affiliation with plaintiff. For example, a claim might allege “the
Coca-Cola Company’s passing off its product as Pepsi-Cola or reverse passing off PepsiCola as its product.” Dastar, 539 U.S. at 32. In such cases, the central inquiry—“whether
the defendant’s actions create a likelihood of confusion as to the origin of the parties’
goods or services”—is straightforward. See Bird, 289 F.3d 865. In this case, the analysis
is anything but straightforward.
Charleston attempts to fit its claim into the mold of the typical case by pursuing
both “passing off” and “reverse passing off” theories. Specifically, Charleston alleges (1)
that Defendants falsely represented that Charleston’s products or services were its own,
and (2) that Defendants falsely represented that their own products or services were
affiliated with Charleston. (Doc. # 29 at 14).
Charleston’s theories both satisfy one of the requirements for a false-designationof-origin claim.
By alleging that Defendants represented to the public that they
“accelerated CL-108 to commercialization,” Charleston plausibly alleges that Defendants
made the type of false representation actionable under the Lanham Act. However, both
the “reverse passing off” and “passing off” claims fail to satisfy the other requirements
needed to state a claim upon which relief can be granted. The Court will address each
claim in turn.
a. Charleston’s “reverse passing off” claim fails
Charleston claims that Defendants falsely represented that Charleston’s product,
CL-108, was its own. Specifically, Charleston asserts that Defendants claimed to have
“accelerated CL-108 to commercialization.” However, Charleston’s Complaint fails to
allege that Defendants used this false representation “in commerce” as required to state
a claim under Section 43(a) of the Lanham Act.
Under the terms of the Lanham Act, “use in commerce” is a term of art defined
The term “use in commerce” means the bona fide use of a mark in the
ordinary course of trade, and not made merely to reserve a right in a mark.
For purposes of this chapter, a mark shall be deemed to be in use in
(1) on goods when
(A) it is placed in any manner on the goods or their containers or the
displays associated therewith or on the tags or labels affixed thereto,
or if the nature of the goods makes such placement impracticable,
then on documents associated with the goods or their sale, and
(B) the goods are sold or transported in commerce
15 U.S.C. § 1127 (emphasis added).
Critically, Charleston has not alleged that Defendants sold or transported CL-108
in commerce.3 Nor could they have, since CL-108 is not yet available on the market.
Charleston has merely alleged that Defendants’ representations were used to lure
investors to buy shares in SIDIS and bioLOGIC. But soliciting investments does not fall
within the definition of “use in commerce,” because it does not involve selling or
transporting the goods themselves.
Therefore, the Complaint fails to allege that
Defendants made a false representation in connection with Charleston’s own goods or
b. Charleston’s “passing off” claim fails
Next, the Court will consider Charleston’s “passing off claim”—that Defendants
represented that Charleston was affiliated with or approved of Defendants’ own products
or services. The Complaint does not identify any specific products or services offered by
The parties’ arguments focus on whether Charleston was engaged in commerce.
However, the Lanham Act imposes liability on “[a]ny person who … uses in commerce ….” 15
U.S.C. § 1125(a)(1). Thus, the appropriate question is whether Defendants made the alleged
representations in commerce.
Defendants.4 Instead, the Complaint alleges that Defendants used Charleston’s name in
connection with investment-solicitation activities.
This allegation fails to save
Charleston’s Lanham Act claim from dismissal, however, because securities are not
“goods” and “investment solicitations are not “services.”
representations were not made “in connection with any goods or services.”
First, securities are not “goods” sold in commerce. The Lanham Act does not
provide a definition for “goods.” Thus, courts have looked to other sources for a definition.
The Supreme Court defined the term “goods” using its dictionary definition: “[w]ares;
Dastar, 539 U.S. at 31.
Other courts have adopted the Uniform
Commercial Code’s (“UCC”) definition of “goods” for the Lanham Act. Under the UCC,
“goods” are “all things … which are movable at the time of identification to the contract
for sale other than the money in which the price is to be paid, investment securities …
and things in action.” U.C.C § 2-105(1) (emphasis added). Regardless of the definition
adopted, courts have uniformly rejected arguments that securities are “goods.” See
Groetzinger v. C.I.R., 771 F.2d 269, 277 (7th Cir. 1985) (“Securities simply are not ‘goods’
within the ordinary meaning of the term nor under a legal definition.”); Cottonwood Fin.
Ltd. v. Cash Store Fin. Servs., Inc., 778 F.Supp.2d 726, 738 (N.D. Tex. 2011) (noting that
the UCC’s definition of goods expressly excludes ‘investment securities’); Hong Leong
Finance Ltd. (Singapore) v. Pinnacle Performance Ltd., 297 F.R.D. 69, 74 (S.D.N.Y 2013)
In fact, Charleston asserts that SIDIS has “no product or services of its own.” (Doc. # 1 at
12). The Complaint does not identify any goods produced or services offered by bioLOGIC or
any of the other Defendants.
(listing cases). This Court agrees. Because securities are not a “good” within the
meaning of any relevant definition, they do not fall within the meaning of “good” as
contemplated by the Lanham Act.
Charleston’s Complaint also fails to allege that the representations were made “in
connection with a service,” because investment solicitations are not “services” under the
Lanham Act. While the Lanham Act fails to provide a definition for “services,” other courts
have found that a trademark user provides a service when it performs the service for the
benefit of others. See Morningside Grp. Ltd. v. Morningside Capital Grp., LLC, 182 F.3d
133, 137-38 (2d Cir. 1999); In re Canadian Pacific Ltd., 754 F.2d 992, 994 (Fed. Cir.
1985). Accordingly, because investment-solicitation activities are performed to raise
capital for the corporation, courts have found that those activities do not constitute a
“service.” See Cottonwood, 778 F.Supp.2d at 739 ([L]isting stock on a stock exchange
does not constitute a qualifying service under the Lanham Act.”); Leis v. Davidson, 955
F.Supp.2d 821 (N.D. Ill. 2013) (“Nor does the effort to sell an interest in a corporation
constitute a service.”). In Cottonwood, the court explained its reasoning as follows:
Public corporations routinely list shares on stock exchanges and conduct
promotional investment solicitation activities to facilitate the sale and
subsequent trading of their stock. Thus, when a member of the public
purchases or trades [a corporation’s] stock, he does not “expect” to receive
investment services from [that corporation]. He may expect (or more
accurately, hope) to receive the benefits of ownership in return, but those
benefits will flow from the market value of [the corporation’s] activities … as
reflected in the price of [the] stock. And when a member of the public
encounters [a corporation’s] investment solicitation activities, he
understands that such activities are designed to raise capital for [the
corporation’s] primary business activity and increase the price of [the] stock.
Cottonwood, 778 F.Supp.2d at 740. Cottonwood’s reasoning is persuasive. Investment
solicitations are not the type of “service” the Lanham Act protects.
Because Defendants’ statements made in connection with CL-108 were not “used
in commerce,” and because investment-solicitation activities do not constitute a “good” or
“service,” the Lanham Act does not apply. Charleston’s claims simply do not fit within the
bounds of the Lanham Act’s “limited wording.” Therefore, Charleston’s false-designationof-origin claim must be dismissed, and Defendants’ Motion to Dismiss Count 8 of
Charleston’s Complaint is granted.
Civil Conspiracy Claim
To prevail on a civil-conspiracy claim, a plaintiff must prove “an unlawful/corrupt
combination or agreement between the alleged conspirators to do by some concerted
action an unlawful act.” James v. Wilson, 95 S.W.3d 875, 897 (Ky. Ct. App. 2002) (citing
Montgomery v. Milam, 910 S.W.2d 237, 239 (Ky. 1995)). This requires the plaintiff to
show “that the defendants acted tortiously pursuant to a common design, or that they
rendered substantial assistance to others to accomplish the tortious act.” Peoples Bank
of N. Ky. v. Crowe Chizek & Co., LLC, 277 S.W.3d 255, 261 (Ky. Ct. App. 2008). A civil
conspiracy claim is one “for damages caused by acts committed pursuant to a formed
conspiracy.” Id. Civil conspiracy is not a free-standing claim in Kentucky: “[I]t merely
provides a theory under which a plaintiff may recover from multiple defendants for an
underlying tort.” Christian Cty. Clerk ex rel. Kem v. Mortg. Elec. Registration Sys., Inc.,
515 F. App’x 451, 458-59 (6th Cir. 2013) (quoting Stonestreet Farm, LLC v. Buckram Oak
Holdings, N.V., Nos. 2008-CA-002389-MR, 2009-CA-000026-MR, 2010 WL 2696278,
*13 (Ky. Ct. App. July 9, 2010)).
Defendants argue that Charleston’s civil-conspiracy claim is barred by the
“intracorporate conspiracy doctrine,” because the alleged coconspirators are a
corporation and its agents. Under the doctrine, a corporation and its employees are one
entity, and since two or more actors are required to form a conspiracy, a corporation and
its employees cannot form a conspiracy. See Hull v. Cuyahoga Valley Joint Vocational
Sch. Dist. Bd. Of Educ., 926 F.2d 505, 509 (6th Cir. 1991).
The Kentucky Supreme Court has not yet considered the “intracorporate
conspiracy doctrine.” However, the Sixth Circuit recently predicted that the Kentucky
Supreme Court, if faced with the issue, would apply the doctrine. Roof v. Bel Brands
USA, Inc., 641 F. App’x 492, 499 (6th Cir. 2016). Applying Kentucky law, the Sixth Circuit
reasoned that “[t]his outcome is a logical extension of Kentucky law and would likely be
reached by a Kentucky court considering the issue since ‘a corporation can only act
through its agents,’ Caretenders, Inc. v. Commonwealth, 821 S.W.2d 83, 86 (Ky. 1991),
and because a conspiracy involves more than one person, see McDonald v. Goodman,
239 S.W.2d 97, 100 (Ky. 1951).” Id.5
The Kentucky Court of Appeals recently considered the issue, and found that the
intracorporate conspiracy doctrine is a “logical extension of [Kentucky’s] rules that ‘a corporation
can only act through its agents, and that a conspiracy involves two or more persons.” Cowing v.
Commare, 499 S.W.3d 291, 294 (Ky. Ct. App. 2016) (internal citations and quotations omitted).
Although Kentucky Court of Appeals decisions are not binding on this Court, the decision is
persuasive, and strengthens the Court’s reliance on Roof. Accordingly, there is no reason to
believe that Kentucky law bars application of the intracorporate conspiracy doctrine.
In this case, however, the doctrine is not applicable. Charleston alleges that
“[p]ursuant to an agreement by and among the SIDIS-Related Individuals, led by Ferrey,
and the SIDIS-Related Entities, led by SIDIS, the Defendants conspired together to
commit the torts and statutory violations set forth” in the Complaint. (Doc. # 1 at ¶ 126).
Although the Complaint alleges that the named entities and individuals are related,
Charleston has not alleged that the Defendants are all employees or agents of each other.
Specifically, Charleston contends that “SIDIS and bioLOGIC are separate corporate
entities,” and that “Takigiku, while he was an employee of Charleston, conspired and
reported to SIDIS, bioLOGIC, Ferry and LeCroix ....” Id. (emphasis added). Thus, while
Charleston refers to these entities as “related,” Charleston does not allege that they are
the same corporation, or agents of the same corporation. While it is possible that
Defendants may be able to prove otherwise through discovery, the Court must take
Charleston’s allegations as true at this stage of the litigation.
intracorporate conspiracy doctrine does not apply, and Defendants’ Motion to Dismiss the
civil conspiracy claim is denied.
Accordingly, for the reasons stated herein,
IT IS ORDERED as follows:
Defendants’ Motion to Dismiss (Doc. # 22) is granted in part and denied
Defendants’ Motion to Dismiss Count 7 (Kentucky Trade Secrets Act) and
Count 9 (Civil Conspiracy) is denied; and
Defendants’ Motion to Dismiss Count 8 (Lanham Act - False Designation of
Origin) is granted and Count 8 is hereby dismissed.
This 29th day of August, 2017.
k:\data\orders\cov16\16-195 charleston labs moo.docx
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