ECTG Limited v. O'Shaughnessy et al
Filing
50
ORDER denying 32 Motion to Dismiss (Written Opinion). Signed by Senior Judge David S. Doty on 11/25/2014. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 14-960(DSD/JJK)
ECTG Limited, Trustwater,
Ltd., Trustwater USA, Inc.,
Edmond O’Reilly and
John Henry Brebbia,
Plaintiffs,
ORDER
v.
John F. O’Shaughnessy, Jr.,
Cheryl O’Shaughnessy, Gerald
O’Shaughnessy, Leparis D.
Young and Maureen O’Shaughnessy
Young, individually and as
Trustees of the Leparis D.
Young Revocable Trust, Maureen
O’Shaughnessy Young and Leparis
D. Young, as Trustees of the
Maureen O’Shaughnessy Young
Revocable Trust,
Defendants.
Stanley E. Siegel, Jr., Esq. and Nilan, Johnson & Lewis,
PA, 120 South Sixth Street, Suite 400, Minneapolis, MN
55402, counsel for plaintiffs.
Mark S. Enslin, Esq. and Lindquist & Vennum, PLLP, 80
South Eighth Street, Suite 4200, Minneapolis, MN 55402,
counsel for defendants.
This matter is before the court upon the motion to dismiss by
defendants John F. O’Shaughnessy, Jr., Cheryl O’Shaughnessy, Gerald
O’Shaughnessy, Leparis D. Young, and Maureen O’Shaughnessy Young.1
1
The Youngs are named individually and as trustees of the
Leparis D. Young Revocable Trust and the Maureen O’Shaughnessy
Young Revocable Trust. See Am. Compl. ¶ 10.
Based on a review of the file, record, and proceedings herein, and
for the following reasons, the motion is denied.
BACKGROUND
This business dispute arises from defendants’ formation of a
company allegedly using the proprietary and patented technology of
plaintiffs ECTG Limited, Trustwater, Ltd., Trustwater USA, Inc.,2
Edmond O’Reilly, and John Henry Brebbia.
Trustwater manufactures
and sells machines that generate cleaning and sanitizing products
for use in the healthcare and hospitality industries.
¶ 8.
Am. Compl.
Trustwater uses its “proprietary and patented” Electrical-
chemical Activation (ECA) technology in its products.
Id.
In
2008, non-party O Investments, LLC became a minority shareholder in
ECTG.
Id. ¶ 13; O’Shaughnessy Decl. Ex. A.
John and Cheryl
O’Shaughnessy signed a Subscription and Shareholders Agreement
(Agreement) on behalf of O Investments. O’Shaughnessy Decl. Ex. A,
at
1,
32.
The
Agreement
includes
a
forum
selection
clause
identifying Irish courts as the exclusive venue for disputes
arising out of the Agreement.
See id. § 10.14(b).
Consistent with
the Agreement, John O’Shaughnessy was appointed to the ECTG board.
2
ECTG is a holding company that does business as Trustwater.
The court will refer to the entities collectively as Trustwater
unless a finer distinction is required.
2
Am. Compl. ¶ 14; O’Shaughnessy Decl. Ex. A, § 9.4(a).
O’Shaughnessy
became
the
Relations of Trustwater USA.
Director
of
Cheryl
Communications/Public
Am. Compl. ¶ 15.
In approximately 2010, defendants allegedly began conspiring
to form a business that would compete with Trustwater by selling
bottled cleaning products through retail establishments.
¶¶ 30, 32.
Id.
Plaintiffs allege that John and Cheryl O’Shaughnessy
used the ECA technology to create the new business’s products and
that they recruited Trustwater employees to join them.
33, 45.
Id. ¶¶ 30,
Plaintiffs also allege that defendants usurped Trustwater
business opportunities and diverted Trustwater funds to finance the
new company.
Id. ¶¶ 35-37, 39.
In December 2011, Cheryl O’Shaughnessy and others met with
Gerald O’Shaughnessy - John O’Shaughnessy’s brother - to discuss
his possible investment in the new company.
Id. ¶ 46.
Defendants’
investor presentation states that the new company had an “ECA
experienced team” and that the company’s product is based on
“Trustwater™ technology.” Id. ¶ 45. Plaintiffs allege that Gerald
O’Shaughnessy ultimately invested in the new company.
Id. ¶¶ 49-
50.
On March 16, 2012, defendants formed Simple Science, LLC. Id.
¶ 55. Simple Science is registered with the Minnesota Secretary of
State and lists John O’Shaughnessy as its manager.
Id.
O’Shaughnessy resigned from the ECTG board on July 15, 2012.
3
John
Id.
¶ 57.
Other Trustwater employees also joined Simple Science.
id. ¶¶ 38, 41, 56.
See
In late 2013, Simple Science began selling hand
sanitizer online and in grocery stores under the name CleanSmart.
Id. ¶ 59.
In December 2013, John O’Shaughnessy, Leparis Young, and
Maureen O’Shaughnessy Young filed suit in this court alleging that
ECTG breached certain promissory notes underlying the Agreement.
Id. ¶ 63.
Plaintiffs allege that the promissory note litigation
was designed to “put [Trustwater] out of business.”
Id. ¶¶ 64, 84.
In October 2014, John and Cheryl O’Shaughnessy and O Investments
brought suit in Hennepin County, alleging that Trustwater USA and
O’Reilly fraudulently induced them to enter into the Agreement.
Bromen Decl. Ex. D.
On April 3, 2014, plaintiffs filed this suit.
On August 28,
2014, plaintiffs filed an amended complaint alleging breach of
fiduciary duty, tortious interference with prospective advantage,
and misappropriation of trade secrets against John and Cheryl
O’Shaughnessy; civil conspiracy against all defendants; aiding and
abetting breach of fiduciary duty against Leparis Young, Maureen
O’Shaughnessy Young, and Gerald O’Shaughnessy; and prima facie tort
against all defendants.3
Defendants move to dismiss the case under
3
The parties agree that plaintiffs’ claim for prima facie
tort should be dismissed.
4
the
Agreement’s
forum
selection
clause
or,
alternatively,
to
dismiss certain counts for failure to state a claim.
DISCUSSION
I.
Standard
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“A claim
has facial plausibility when the plaintiff [has pleaded] factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Iqbal, 556
U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)).
Although a complaint need not contain detailed factual
allegations, it must raise a right to relief above the speculative
level.
Twombly, 550 U.S. at 555.
“[L]abels and conclusions or a
formulaic recitation of the elements of a cause of action” are not
sufficient to state a claim.
Iqbal, 556 U.S. at 678 (citation and
internal quotation marks omitted).
The court does not consider matters outside the pleadings
under Rule 12(b)(6).
Fed. R. Civ. P. 12(d).
The court may,
however, consider matters of public record and materials that are
“necessarily embraced by the pleadings.”
5
Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and
internal quotation marks omitted). Here, the Agreement is embraced
by pleadings and properly before the court.
II.
Forum Selection Clause
Defendants argue that this matter should be dismissed under
the Agreement’s forum selection clause, which provides that,
[e]ach of the parties hereby submits to the exclusive
jurisdiction of the Irish Courts for the purpose of any
proceedings arising out of or in any way relating to the
Agreement or any other proceedings in any way connected
with the subject matter of the Agreement.
O’Shaughnessy Decl. Ex. A, § 10.14(b).
Specifically, defendants
argue that the proceedings arise out of the Agreement because
plaintiffs would have no fiduciary duties absent the Agreement.
Defendants further argue that John and Cheryl O’Shaughnessy are
entitled to invoke the clause because they signed the Agreement on
behalf of O Investments.
The court is not persuaded.
As an
initial matter, none of the defendants are parties to the Agreement
and, even if it could be invoked by John and Cheryl O’Shaughnessy,
the Agreement still would not apply to the remaining defendants.
Indeed, neither the Youngs nor Gerald O’Shaughnessy even argue that
the forum selection clause applies to them.
Additionally, even
though John O’Shaughnessy’s board membership is referenced in the
Agreement,
his
fiduciary
obligation
position, not the Agreement.
arises
out
of
his
board
Likewise, Cheryl O’Shaughnessy’s
6
fiduciary obligation arises out of her role as an officer of
Trustwater, rather than out of the Agreement.4
As a result,
dismissal on this basis is not warranted.5
III. Trade Secret Claim
John and Cheryl O’Shaughnessy alternatively argue that the
Minnesota
Uniform
dismissed.
allege
Trade
Secret
Act
(MUTSA)
claim
should
be
To properly plead a MUTSA violation, plaintiffs must
the
existence
of
a
trade
secret
and
the
acquisition, disclosure, or use of the trade secret.
improper
See Minn.
Stat. § 325C.01 subd. 3; Electro-Craft Corp. v. Controlled Motion,
Inc., 332 N.W.2d 890, 897 (Minn. 1983).
The O’Shaughnessys argue that this claim should be dismissed,
first, because plaintiffs have not established the existence of a
trade secret.
The court disagrees.
A trade secret is information
that must (1) not be generally known or readily ascertainable,
(2) derive independent economic value from its secrecy, and (3) be
the
subject
of
reasonable
efforts
to
maintain
its
secrecy.
See Minn. Stat. § 325C.01 subd. 5; Electro-Craft Corp., 332 N.W.2d
at 899.
Plaintiffs allege that (1) Trustwater uses “proprietary
and patented [ECA] technology,” Am. Compl. ¶ 8; (2) defendants,
4
Because the court finds that the forum selection clause
does not apply to this matter, it need not address whether John and
Cheryl O’Shaughnessy are permitted to invoke the clause.
5
The court further notes that defendants’ position is
inconsistent with their decision to file two other lawsuits, both
of which arise more directly from the Agreement, in Minnesota.
7
unbeknownst to plaintiffs, devised a plan to “place Trustwater
devices in [retail] stores,” id. ¶¶ 30-31, 60; (3) defendants
developed expertise relating to the ECA technology through their
employment with Trustwater, id. ¶¶ 30, 33, 61; and (4) defendants,
through Simple Science, sell products using ECA technology, id.
¶¶
59-62.
In
other
words,
plaintiffs
allege
that
the
O’Shaughnessys used their insider status at Trustwater to gain
access to the ECA technology and to start a new and competing
company
using
that
technology.
Plaintiffs’
allegations
are
sufficient to plead the existence of a trade secret under MUTSA.
The O’Shaughnessys also argue that the MUTSA claim fails
because defendants do not allege that they misappropriated the
alleged trade secrets.
As noted, however, plaintiffs expressly
allege misappropriation by asserting that the O’Shaughnessys used
Trustwater’s ECA technology to start a competing business.
As a
result, the MUTSA claim is adequately pleaded.
IV.
Aiding and Abetting and Conspiracy Claims
Leparis
Young,
Maureen
O’Shaughnessy
Young,
and
Gerald
O’Shaughnessy move to dismiss the aiding and abetting and civil
conspiracy claims.
To state a claim for aiding and abetting under
Minnesota
plaintiff
law,
a
must
allege
(1)
a
primary
actor
committed a tort that caused injury to the plaintiff, (2) the aider
and abettor knew that the primary actor’s conduct constituted a
tort, and (3) the aider and abettor substantially assisted or
8
encouraged the primary actor in committing the tort.
Lehrman,
Lehrman
&
Flom,
601
N.W.2d
179,
187
Witzman v.
(Minn.
1999).
Plaintiffs have sufficiently alleged aiding and abetting against
Gerald
O’Shaughnessy
and
the
Youngs.
As
to
O’Shaughnessy,
plaintiffs allege that he was aware of the underlying tortious
conduct
and
that
he
assisted
that
conduct
by
investing
a
substantial portion of the funds needed to start Simple Science.
Am Compl. ¶¶ 44-50, 85.
And as to the Youngs, plaintiffs allege
that they sued ECTG for breach of promissory notes underlying their
investment in ECTG for the purpose of putting Trustwater “out of
business through default/liquidation.”
Id. ¶¶ 34, 63-66.
These
allegations are sufficient to allege a viable aiding and abetting
claim.
The allegations also support plaintiffs’ civil conspiracy
claim.
Civil conspiracy “involves a combination of persons to
accomplish either an unlawful purpose or a lawful purpose by
unlawful means.”
Anderson v. Douglas Cnty., 4 F.3d 574, 578 (8th
Cir. 1993) (citing Harding v. Ohio Cas. Ins. Co., 41 N.W.2d 818,
824 (Minn. 1950)).
“To establish a civil conspiracy, plaintiffs
must show five elements:
(1) two or more persons; (2) an object to
be accomplished; (3) a meeting of the minds on the object or course
of action to be taken; (4) the commission of one or more unlawful
overt
acts;
conspiracy.”
and
(5)
damages
as
the
proximate
result
of
the
In re TMJ Implants Prods. Liab. Litig., 113 F.3d
9
1484, 1498 (8th Cir. 1997).
the required elements.
The complaint adequately sets forth
Plaintiffs allege that each of the five
defendants played a part in planning and establishing a business to
compete with Trustwater, using Trustwater’s proprietary technology.
Although the Youngs and Gerald O’Shaughnessy may have played lesser
roles in doing so, the complaint directly implicates them in the
scheme.
As a result, dismissal of the conspiracy claim is not
warranted.
CONCLUSION
Accordingly,
based
on
above,
IT
IS
HEREBY
ORDERED
that
defendants’ motion to dismiss [ECF No. 32] is denied.
Dated:
November 25, 2014
s/David S. Doty
David S. Doty, Judge
United States District Court
10
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