U.S. Water Services, Inc. v. International Chemstar, Inc. et al
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.,
Civil Action No. GLR-14-347
INC., et al.,
Inc. (“Chemstar”) and Ronald L. Leach’s alleged inducement of
employees and customers from Plaintiff U.S. Water Services, Inc.
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 Court, having reviewed
See Local Rule 105.6 (D.Md. 2014).
For the reasons
outlined below, Defendants’ Motion will be granted in part and
denied in part.
U.S. Water’s Motion will be denied.
U.S. Water and Chemstar are competitors in an industry that
provides water treatment products and services to industrial and
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.
Leach worked for a third competitor, Water Chemical Service,
Inc. (“Waterchem”), who is not a party in this case.
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.
the discussions, the parties executed a Non-Compete Agreement on
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
seeking employment for a period of up to 12 months.”
12, ECF No. 1; see also Defs.’ Mot. to Dismiss [“Defs.’ Mot.”]
acquisition, however, never materialized.
focused on a possible acquisition of Mr. Leach’s then-employer,
U.S. Water’s President met with Mr. Leach at Waterchem’s office
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
of the forms Mr. Leach signed to become a U.S. Water employee,
however, was an Employee Acknowledgement Form provided with the
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.
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
(Defs.’ Mot. Ex. B, Attach. 1 [“Employment
Agreement”], ECF No. 16-3 at 6 & 9).
day, on November 9, 2013, Mr. Leach forwarded Chemstar an email
from Waterchem’s former owner encouraging Mr. Leach to remain
called three Waterchem technicians about potential employment
technicians in acquiring a job.
Around November 11, 2013, Mr.
Leach began his employment with Chemstar.
Chemstar representatives who knew that Mr. Leach was joining
Waterchem customers have discontinued their relationships with
U.S. Water, resulting in lost annual revenue of approximately
(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.
(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
U.S. Water and Defendants filed their pending
Motions on March 13, and May 8, 2014, respectively.
Defendants’ Motion to Dismiss
Standard of Review
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
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
See Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 783 (4th Cir. 1999) (citing Mylan Labs., Inc. v. Matkari, 7
labels and conclusions or a formulaic recitation of the elements
of a cause of action[, however,] will not do.”
Twombly, 550 U.S. 544, 555 (2007)) (internal quotation marks
A complaint is also insufficient if it relies upon
“naked assertions devoid of further factual enhancement.”
(quoting Twombly, 550 U.S. at 557) (internal quotation marks
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.”
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)).
Agreement and Employee Acknowledgement Form, and the Non-Compete
documents are integral to the Complaint and their authenticity
converted into one for summary judgment.
Defendants seek to dismiss U.S. Water’s Complaint in its
entirety for failure to state a claim.
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
Counts I and III
In Count I, U.S. Water alleges that Mr. Leach breached his
activities within the year following his termination, disclosing
failing to provide sixty days advance notice of resignation.
dismissed because U.S. Water fails to specify how Mr. Leach
violated the agreement, aside from failing to provide advanced
Employee Acknowledgement Form.
U.S. Water has sufficiently alleged that Mr. Leach violated
disclosed information about Waterchem’s customers (Compl. ¶ 17),
(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
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
Section 15 of Mr. Leach’s Employment Agreement states it may
only be modified in a writing “signed by the party against which
signatures on the Employee Acknowledgement Form, coupled with
that it informed Mr. Leach
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
Similarly, U.S. Water has sufficiently alleged Count III.
elements: (1) existence of a contract between plaintiff and a
third party; (2) defendant’s knowledge of that contract; (3)
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.
The basis of U.S. Water’s tortious interference claim in
Leach to breach his Employment Agreement, thereby causing U.S.
Water to suffer loss profits and “other consequential damages.”
Defendants’ first argument fails.
Aside from these preliminary
dismissal at this juncture.
dismiss Counts I and III.
In Count II, U.S. Water alleges Chemstar violated the NonCompete Agreement when it induced Mr. Leach to leave U.S. Water
(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
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
contract’s language is expressed in clear and unambiguous terms,
the court will not engage in construction, but will look solely
(citing Adloo v. H.T. Brown Real Estate, Inc., 686 A.2d 298, 304
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).
Water avers that this language includes any employee it acquired
within twelve months of signing the Non-Compete Agreement.
document’s plain language.
The Non-Compete Agreement clearly
Chemstar at the time of execution on February 17, 2013.
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.
Dismiss Count II.
Waterchem’s former customers.
(Compl. ¶¶ 39-43).
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
‘converts a breach of contract into an intentional tort.’”
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.
at 271 (citing Macklin v. Robert Logan Assocs., 639 A.2d 112,
121 (Md. 1994)).
Of particular import to this case is the
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).
alleged in Count III.
Although U.S. Water alleges Chemstar
acted with the requisite intent, it does not sufficiently allege
that Chemstar induced these Waterchem customers through improper
Therefore, the Court will grant Defendants’ Motion as to
U.S. Water’s Motion for Expedited Discovery
Standard of Review
U.S. Water moves for limited expedited discovery for the
26(d)(1) provides, “A party may not seek discovery from any
source before the parties have conferred as required by Rule
stipulation, or by court order.”
Moreover, Local Rule 104.4,
prohibits discovery from commencing prior to the court entering
a scheduling order.
U.S. Water speculates, based on circumstantial evidence, that
the loss of these customers.
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
Defendants’ Answer will be due fourteen days after the Court
issues this decision, a preliminary scheduling order will issue
removing the barrier Local Rule 104.4 constructs.
juncture is not necessary.
Order, grant in part and deny in part Defendants’ Motion to
(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
George L. Russell, III
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?