U.S. Water Services, Inc. v. International Chemstar, Inc. et al

Filing 28

MEMORANDUM OPINION. Signed by Judge George Levi Russell, III on 8/11/14. (ca2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
U.S. WATER SERVICES, INC.,

:

Plaintiff,

:

v.

:
Civil Action No. GLR-14-347

INTERNATIONAL CHEMSTAR,
INC., et al.,

:
:

Defendants.
:
MEMORANDUM OPINION
THIS

MATTER

involves

Defendants

International

Chemstar,

Inc. (“Chemstar”) and Ronald L. Leach’s alleged inducement of
employees and customers from Plaintiff U.S. Water Services, Inc.
(“U.S. Water”).

Pending before the Court are Defendants’ Motion

to Dismiss Complaint (ECF No. 16) and U.S. Water’s Motion for
Expedited Discovery (ECF No. 23).
the

pleadings

necessary.

and

supporting

The Court, having reviewed

documents,

finds

See Local Rule 105.6 (D.Md. 2014).

no

hearing

For the reasons

outlined below, Defendants’ Motion will be granted in part and
denied in part.

U.S. Water’s Motion will be denied.
I.

BACKGROUND1

U.S. Water and Chemstar are competitors in an industry that
provides water treatment products and services to industrial and

1

Unless otherwise noted, the facts are taken from the
Complaint, accepted as true, and viewed in the light most
favorable to the nonmoving party, U.S. Water.

commercial

customers.

For

approximately

sixteen

years,

Mr.

Leach worked for a third competitor, Water Chemical Service,
Inc. (“Waterchem”), who is not a party in this case.

During his

tenure at Waterchem, Mr. Leach worked as a sales representative,
manager, and a member of the board of directors.
In early 2013, U.S. Water and Chemstar began discussions
regarding U.S. Water’s possible acquisition of Chemstar.

During

the discussions, the parties executed a Non-Compete Agreement on
February

17,

2013.

The

Non-Compete

Agreement

includes

a

provision that states, “Each Party will not attempt to induce or
encourage an individual to leave the employment of the other
Party and will not hire an individual who is currently employed
by

[the]

other

Party

even

if

approached

by

such

individual

seeking employment for a period of up to 12 months.”

(Compl. ¶

12, ECF No. 1; see also Defs.’ Mot. to Dismiss [“Defs.’ Mot.”]
Ex.

C,

Attach.

1,

ECF

No.

16-4,

at

7).

The

proposed

acquisition, however, never materialized.
After

discussions

with

Chemstar

dissipated,

U.S.

Water

focused on a possible acquisition of Mr. Leach’s then-employer,
Waterchem.
executed

a

acquisition
employees,

By

October

Stock
of

21,

Purchase

Waterchem.

including

Mr.

2013,

U.S.

Agreement
As

Leach,

a

Water

and

finalizing

result,

became

all

U.S.

Waterchem

U.S.

of

Water

Water’s

Waterchem’s
employees.

U.S. Water’s President met with Mr. Leach at Waterchem’s office
2

on November 1, 2013, welcomed him to U.S. Water, and informed
him that he would not need to sign a new employment agreement
because his Waterchem agreement continued to be in effect.2

One

of the forms Mr. Leach signed to become a U.S. Water employee,
however, was an Employee Acknowledgement Form provided with the
employee handbook.

The form states, among other things, “I have

entered into my employment relationship with USWS voluntarily
and acknowledge that there is no specified length of employment.
Accordingly, either I or USWS can terminate the relationship at
will, with or without cause, at any time.”

(Defs.’ Mot. Ex. B,

Attach. 2, ECF No. 16-3 at 17).
Although Mr. Leach confirmed his intent to remain with U.S.
Water on November 5, 2013, he resigned without notice three days
later and contacted Chemstar immediately thereafter.

2

The next

Mr. Leach’s employment agreement with Waterchem, executed
on October 6, 1997,
contains four provisions that are of
particular importance in this case: (1) the notice provision,
“This Agreement may be terminated by either party on sixty (60)
days prior written notice to the other party.”; (2) two nonsolicitation provisions stating Mr. Leach shall not, “solicit,
on behalf of anyone other than [Waterchem], orders for equipment
or services similar to those which are provided by [Waterchem]
at the date of such termination, from any person, firm, company
or other entity which is or was at any time within one (1) year
prior to such date, a customer of [Waterchem],” or “solicit,
encourage or entice away from [Waterchem] (or attempt to do so)
any officer or employee”; and (3) one non-disclosure provision
that states Mr. Leach shall not “make use of, disclose or
divulge to any third person any information of a proprietary,
secret or confidential nature relating to any business of
[Waterchem].”
(Defs.’ Mot. Ex. B, Attach. 1 [“Employment
Agreement”], ECF No. 16-3 at 6 & 9).
3

day, on November 9, 2013, Mr. Leach forwarded Chemstar an email
from Waterchem’s former owner encouraging Mr. Leach to remain
with

U.S.

personal

Water,

email

forwarded

account

in

new

customer

lieu

of

information

sending

it

to

to

his

Waterchem,

called three Waterchem technicians about potential employment
opportunities,

and

offered

to

assist

technicians in acquiring a job.

at

least

one

of

the

Around November 11, 2013, Mr.

Leach began his employment with Chemstar.
In

January

Waterchem,

2014,

sent

discontinuing

written

its

receiving

this

learning

about

GSH,

Mr.

notice

U.S.

GSH

to

U.S.

with

relationship

notice,

Leach’s

the

expressed

Water’s

largest
Water

that

company.
its

acquisition

account

at

it

was

Prior

to

displeasure

with

Waterchem

from

of

Chemstar representatives who knew that Mr. Leach was joining
Chemstar.

According

to

U.S.

Water,

four

other

long-term

Waterchem customers have discontinued their relationships with
U.S. Water, resulting in lost annual revenue of approximately
$375,000.

(See Pl.’s Mem. Supp. Mot. for Expedited Discovery at

4, ECF No. 24).
After originally filing suit in the United States District
Court for the District of Minnesota and voluntarily dismissing
the action without prejudice (see

Defs.’ Mem. Supp. Mot. to

Dismiss at 1-2, ECF No. 16-1), U.S. Water filed suit against
Defendants in this Court on February 4, 2014.
4

(ECF No. 1).

U.S. Water’s four-count Complaint alleges breach of contract—
employment agreement (Count I) against Mr. Leach as well as
breach of contract—non-compete agreement (Count II), tortious
interference with employment agreement (Count III), and tortious
interference

with

against Chemstar.

prospective

economic

relations

(Count

IV)

U.S. Water and Defendants filed their pending

Motions on March 13, and May 8, 2014, respectively.
II.
A.

DISCUSSION

Defendants’ Motion to Dismiss
1.

Standard of Review

Defendants

move

to

dismiss

U.S.

Water’s

Complaint

under

Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim.

The purpose of a motion to dismiss filed pursuant to

Rule 12(b)(6) is to test the legal sufficiency of a complaint.
Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999).
In considering a Rule 12(b)(6) motion, the court must construe
the complaint in the light most favorable to the plaintiff, read
the complaint as a whole, and take the facts asserted therein as
true.

See Harrison v. Westinghouse Savannah River Co., 176 F.3d

776, 783 (4th Cir. 1999) (citing Mylan Labs., Inc. v. Matkari, 7
F.3d

1130,

1134

(4th

Cir.

1993)).

“A

pleading

that

offers

labels and conclusions or a formulaic recitation of the elements
of a cause of action[, however,] will not do.”
Iqbal,

556

U.S.

662,

678

(2009)
5

(citing

Bell

Ashcroft v.
Atl.

Corp.

v.

Twombly, 550 U.S. 544, 555 (2007)) (internal quotation marks
omitted).

A complaint is also insufficient if it relies upon

“naked assertions devoid of further factual enhancement.”

Id.

(quoting Twombly, 550 U.S. at 557) (internal quotation marks
omitted).
A motion to dismiss is properly converted into a motion for
summary judgment if “matters outside the pleadings are presented
to and not excluded by the court.”

Fed.R.Civ.P. 12(d).

The

court, however, “may properly consider documents ‘attached or
incorporated into the complaint,’ as well as documents attached
to the defense motion, ‘so long as they are integral to the
complaint and authentic.’”

Bourgeois v. Live Nation Entm’t,

Inc., --- F.Supp.2d ---, No. ELH-12-cv-00058, 2014 WL 936841, at
*9 (D.Md. Mar. 20, 2014) (quoting Philips v. Pitt Cnty. Mem’l
Hosp., 572 F.3d 176, 180 (4th Cir. 2009)).
attached
Court,

several
however,

exhibits
will

to

only

their

Motion

consider

Mr.

Defendants have
to

Dismiss.

Leach’s

The

Employment

Agreement and Employee Acknowledgement Form, and the Non-Compete
Agreement

between

U.S.

Water

and

Chemstar.

Because

these

documents are integral to the Complaint and their authenticity
has

not

been

challenged,

Defendants’

converted into one for summary judgment.

6

Motion

will

not

be

2.

Analysis

Defendants seek to dismiss U.S. Water’s Complaint in its
entirety for failure to state a claim.

Defendants’ overarching

argument is that U.S. Water’s allegations are bare and void of
the factual specificity required to overcome a dismissal motion.
The Court agrees in part, and will grant Defendants’ Motion as
to Counts II and IV, but will deny the Motion as to Counts I and
III.
a.

Counts I and III

In Count I, U.S. Water alleges that Mr. Leach breached his
Employment

Agreement

by

engaging

in

certain

competitive

activities within the year following his termination, disclosing
and

using

Waterchem’s

confidential

business

information,

and

failing to provide sixty days advance notice of resignation.
(Compl.

¶

26).

Defendants

contend

this

count

should

be

dismissed because U.S. Water fails to specify how Mr. Leach
violated the agreement, aside from failing to provide advanced
notice

of

his

requirement

resignation,

became

and

obsolete

because

upon

Mr.

the

sixty-day

Leach’s

notice

signing

of

the

Employee Acknowledgement Form.
U.S. Water has sufficiently alleged that Mr. Leach violated
the

non-disclosure

Employment
informed

and

Agreement.
Chemstar

that

non-solicitation
According
Waterchem
7

to

provisions

U.S.

was

Water,

being

of

Mr.

acquired

his
Leach
and

disclosed information about Waterchem’s customers (Compl. ¶ 17),
forwarded

messages

from

Waterchem’s

former

owner

to

Chemstar

(id. ¶ 19), sent new customer information to his personal email
account without sending it to Waterchem (id.), and contacted
three different Waterchem technicians about potential employment
opportunities (id.).

These facts, accepted as true for the

purpose of this Motion, sufficiently support U.S. Water’s breach
of contract claim.
Moreover, at this juncture, Defendants’ argument that the
Employee

Acknowledgement

requirement

in

the

Form

renders

Employment

the

Agreement

sixty-day

obsolete

notice

must

fail.

Section 15 of Mr. Leach’s Employment Agreement states it may
only be modified in a writing “signed by the party against which
enforcement
Agreement

of

at

the

[modification]

11).

The

lack

of

is

sought.”

U.S.

Water

(Employment
representative

signatures on the Employee Acknowledgement Form, coupled with
U.S. Water’s

allegation

that it informed Mr. Leach

that

the

Waterchem Employment Agreement still applied, disfavors a grant
of Defendants’ Motion at this time.

Furthermore, there is no

evidence in the record that suggests U.S. Water intended for the
Employee Acknowledgement Form to dissolve the sixty-day notice
requirement.
Similarly, U.S. Water has sufficiently alleged Count III.
To

state

a

claim

of

tortious

interference
8

with

an

existing

contract

under

Maryland

law,

a

plaintiff

must

allege

five

elements: (1) existence of a contract between plaintiff and a
third party; (2) defendant’s knowledge of that contract; (3)
defendant’s

intentional

interference

with

that

contract;

(4)

breach of that contract by the third party; and (5) resulting
damage to the plaintiff.

See K&K Mgmt. v. Lee, 557 A.2d 965,

986 (Md. 1989).
Defendants aver that U.S. Water fails to state a claim
because Mr. Leach did not breach the Employment Agreement, they
did not cause any Waterchem employees or customers to abandon
U.S. Water, and none of Chemstar’s actions caused damage to U.S.
Water.
Count

The basis of U.S. Water’s tortious interference claim in
III,

however,

is

Chemstar’s

alleged

inducement

of

Mr.

Leach to breach his Employment Agreement, thereby causing U.S.
Water to suffer loss profits and “other consequential damages.”
(Compl.

¶¶

34-37).

Furthermore,

Defendants’ first argument fails.
matters,

U.S.

Water

alleges

because

Count

I

remains,

Aside from these preliminary

sufficient

facts

to

overcome

dismissal at this juncture.
Therefore,

the

Court

will

deny

Defendants’

Motion

to

dismiss Counts I and III.
b.

Count II

In Count II, U.S. Water alleges Chemstar violated the NonCompete Agreement when it induced Mr. Leach to leave U.S. Water
9

for Chemstar.

(See Compl. ¶¶ 30-31).

Chemstar argues this

count should be dismissed because the plain language of the NonCompete Agreement excludes Mr. Leach.

The Court agrees.

Under Maryland law, “When the clear language of a contract
is

unambiguous,

the

court

will

give

effect

to

its

plain,

ordinary, and usual meaning, taking into account the context in
which it is used.”

Sy-Lene of Wash., Inc. v. Starwood Urban

Retail II, LLC, 829 A.2d 540, 546 (Md. 2003) (citing Langston v.
Langston, 784 A.2d 1086, 1095 (Md. 2001)); see also Middlebrook
Tech,

LLC

v.

Moore,

849

A.2d

63,

79

(Md.

2004)

(“When

a

contract’s language is expressed in clear and unambiguous terms,
the court will not engage in construction, but will look solely
to

what

was

written

as

conclusive

of

the

parties’

intent.”

(citing Adloo v. H.T. Brown Real Estate, Inc., 686 A.2d 298, 304
(Md. 1996)).
The Non-Compete Agreement provides, in relevant part, “Each
Party will not attempt to induce or encourage an individual to
leave the employment of the other Party and will not hire an
individual who is currently employed by [the] other Party even
if approached by such individual seeking employment for a period
of up to 12 months.”

(Compl. ¶ 12) (emphasis added).

U.S.

Water avers that this language includes any employee it acquired
within twelve months of signing the Non-Compete Agreement.
Water’s

interpretation

of

the

contract,
10

however,

ignores

U.S.
the

document’s plain language.
applies

to

employees

who

The Non-Compete Agreement clearly
were

employed

by

U.S.

Water

Chemstar at the time of execution on February 17, 2013.

and

Because

Mr. Leach did not join U.S. Water until the fall of 2013, he
cannot be considered a “current” employee under the Non-Compete
Agreement and, therefore, Chemstar’s actions do not constitute a
breach of contract.
Accordingly,

the

Court

will

grant

Defendants’

Motion

to

guilty

of

Dismiss Count II.
c.
In

Count IV

Count

tortious
because
contracts

IV,

U.S.

interference
it

Water
with

intentionally

and

economic

alleges

prospective

failed

to

allege,

is

economic

interfered

with

the

relationships”

U.S.

Water

Waterchem’s former customers.
has

Chemstar

(Compl. ¶¶ 39-43).

however,

that

Chemstar

relations

“prospective
sought

from

U.S. Water

committed

this

interference through improper means.
Over the years, Maryland courts have attempted to maintain
the balance between this tort and typical business competition.
See, e.g., Alexander & Alexander, Inc. v. B. Dixon Evander &
Assocs., Inc., 650 A.2d 260, 269 (Md. 1994).

With this in mind,

Maryland courts have “refused to adopt any theory of tortious
interference

with

contract

or

with

economic

relations

‘converts a breach of contract into an intentional tort.’”
11

that
Id.

at 269-70 (quoting K&K Mgmt., 557 A.2d at 981). U.S. Water’s
tortious interference with prospective economic relations claim
requires a showing of tortious intent and improper conduct.

Id.

at 271 (citing Macklin v. Robert Logan Assocs., 639 A.2d 112,
121 (Md. 1994)).
notion

that,

Of particular import to this case is the

“[s]imply

because

a

person

induces

another

to

exercise an existing right to terminate a contract, even if that
person’s intention with regard to one of the parties to the
contract is tortious, does not make it actionable.

That is, his

or her conduct is not thereby rendered improper or wrongful as a
matter of law.”

Goode v. Am. Veterans, Inc., 874 F.Supp.2d 430,

447 (D.Md. 2012) (quoting Macklin, 639 A.2d at 119).
There

is

nothing

in

alleged in Count III.

the

Complaint

to

support

the

tort

Although U.S. Water alleges Chemstar

acted with the requisite intent, it does not sufficiently allege
that Chemstar induced these Waterchem customers through improper
means.
Therefore, the Court will grant Defendants’ Motion as to
Count IV.
B.

U.S. Water’s Motion for Expedited Discovery
1.

Standard of Review

U.S. Water moves for limited expedited discovery for the
purpose

of

preparing

a

preliminary

injunction

motion.

Rule

26(d)(1) provides, “A party may not seek discovery from any
12

source before the parties have conferred as required by Rule
26(f),

except

.

.

.

when

authorized

stipulation, or by court order.”

by

these

rules,

by

Moreover, Local Rule 104.4,

prohibits discovery from commencing prior to the court entering
a scheduling order.
2.
In

Analysis
its

additional
resulting

Motion,

U.S.

long-term
in

lost

Water

avers

that

customers

since

filing

annual

revenue

of

it

has

lost

the

four

Complaint,

approximately

$375,000.

U.S. Water speculates, based on circumstantial evidence, that
Defendants’ actions
seeks

limited

corroborating
thereby

expedited
that

providing

injunction.

caused

the loss of these customers.
discovery

circumstantial
a

direct

for

the

evidence

factual

basis

purpose

of

for

It
of

wrongdoing,

a

preliminary

U.S. Water’s Motion will be denied.

In terms of timing, U.S. Water avers that the only thing
hindering it from serving Defendants with the discovery attached
to its Motion is the fact that the Rule 26(f) conference has not
been completed, which is delayed by the Court’s failure to issue
a

scheduling

order.

Although

U.S.

Water

is

correct

that

Defendants’ Answer will be due fourteen days after the Court
issues this decision, a preliminary scheduling order will issue
immediately

thereafter,

thereby

triggering

Rule

removing the barrier Local Rule 104.4 constructs.
13

26(f)

and

Therefore,

granting

U.S.

Water’s

Motion

to

Expedite

Discovery

at

this

will,

separate

juncture is not necessary.
III. CONCLUSION
For

the

foregoing

reasons,

the

Court

by

Order, grant in part and deny in part Defendants’ Motion to
Dismiss Complaint.

(ECF No. 16).

Counts II and IV will be

dismissed, but Counts I and III remain.
U.S. Water’s Motion for Expedited Discovery.

The Court will deny
(ECF No. 23).

Entered this 11th day of August, 2014

/s/
George L. Russell, III
United States District Judge

14