Enslein v. Di Mase et al

Filing 42

ORDER denying 20 Defendant Lee Kraus's Motion to Dismiss and denying 25 Defendant Dietmar Rose's motion to dismiss. Signed on 7/21/2017 by District Judge Ortrie D. Smith. (Kitsmiller, Julia)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
JERALD S. ENSLEIN,
in his capacity as Chapter 7 Trustee
for Xurex, Inc.,
Plaintiff,
vs.
GIACOMO E. DI MASE, et al.,
Defendants.

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Case No. 16-09020-CV-W-ODS

ORDER AND OPINION (1) DENYING DEFENDANT DIETMAR ROSE’S MOTION TO
DISMISS, AND (2) DENYING DEFENDANT LEE KRAUS’S MOTION TO DISMISS
Pending are Defendant Dietmar Rose’s (“Rose”) motion to dismiss (Doc. #25),
and Defendant Lee Kraus’s (“Kraus”) motion to dismiss (Doc. #20). Both motions are
denied.
I. BACKGROUND
Plaintiff, acting as bankruptcy trustee for Xurex, Inc., initially filed an adversary
proceeding in the underlying bankruptcy proceeding, but the reference was withdrawn
and the matter is now pending before this Court. Plaintiff brings several claims against
Defendants stemming from the breach of contracts for minimum purchases of Xurex’s
products, misappropriation of Xurex’s trade secrets, breaches of fiduciary duties owed
by Defendants to Xurex, aiding and abetting breaches of fiduciary duties, and a civil
conspiracy to engage in unlawful conduct. Faced with motions to dismiss, the Court will
broadly describe the events leading to Xurex’s bankruptcy filing and this lawsuit, and will
provide more detail regarding the moving parties’ involvement where necessary below.
Xurex, a Delaware corporation with its principal place of business in Jackson
County, Missouri, was in the business of developing, manufacturing, and selling anti-

corroision and anti-abrasion chemicals primarily used in the oil and gas industry.1 After
Defendant Joseph Johnston developed a way to commercialize Xurex’s technology,
Johnston formed DuraSeal Pipe Coatings Company LLC (“DuraSeal Pipe”), which is
also a defendant in this matter. Xurex entered into an agreement with DuraSeal Pipe in
January 2010 by which DuraSeal Pipe became the exclusive licensee for use of Xurex’s
technology in North American oil and gas operations. Later that year, Defendant Jose
Di Mase learned of Xurex’s technology and subsequently acquired DuraSeal Pipe and
Johnston’s interest in Xurex. Jose Di Mase then created an entity named DuraSeal
Holdings S.r.L (“DuraSeal Holdings”), also a defendant, with which Xurex entered into
an agreement in December 2010 that made DuraSeal Holdings the exclusive worldwide
licensee for applications of Xurex’s technology in the oil and gas, automotive, and
aerospace industries.2 Each agreement provided for certain minimum purchases of
Xurex’s products, and provided royalty payments to Xurex for use of its technology.
Plaintiff alleges Jose Di Mase used his control of the DuraSeal entities and
interest in Xurex to gain control of Xurex’s board of directors via litigation in Delaware in
2011. According to Plaintiff, these directors, including Defendants Johnston, Rose, and
Robert Olson, then amended prior Xurex agreements with DuraSeal entities, in January
2012, in a manner that financially disadvantaged Xurex, and curtailed Xurex’s ability to
protect its trade secret information from the DuraSeal entities. Plaintiff alleges these
amendments were done at the direction of Jose Di Mase in an effort to cause Xurex to
shut down its operations and transfer its assets, rights, and operations to the DuraSeal
entities. Following the amendments, Xurex’s facility in Albuquerque, New Mexico, was
shut down sometime in the spring of 2012, and its operations were relocated to
DuraSeal Pipe’s facility in Kansas City, Missouri.
In August or September 2012, Jose Di Mase attempted to purchase Xurex in its
entirety, but the offer was rejected by the Xurex board of directors. DuraSeal Pipe filed
a declaratory judgment action in Delaware, which allowed Jose Di Mase to gain full
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All factual statements are taken from Plaintiff’s Complaint. Doc. #1-2. At this stage,
Plaintiff’s factual allegations must be accepted as true and reviewed in the light most
favorable to Plaintiff. See Section II.
2
The Court refers to “DuraSeal entities” when reference to both DuraSeal Pipe and
DuraSeal Holdings is necessary.
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control over Xurex by the summer of 2013, and install yet another set of members on
the board of directors that included Defendants Giacomo Di Mase (Jose’s son), Leonard
Kaiser, Tristram Jensvold, and Steve McKeon. At this time, Plaintiff alleges Xurex was
no longer manufacturing its own product; rather, DuraSeal Pipe was improperly
manufacturing the products itself or outsourcing production to a third party. Plaintiff also
alleges Jose Di Mase controlled the boards of the DuraSeal entities, and installed Kraus
as a member of both boards.
Plaintiff alleges the boards of Xurex and the DuraSeal entities conspired to
declare Xurex’s technology ineffective, shut down Xurex’s production lab, cause Xurex
to assume liabilities for legal fees and judgments unrelated to its operations, and
wrongfully obtain Xurex’s lab book, source code, and trade secrets. Finally, in
September 2014, Xurex and the DuraSeal entities entered into another contract
amendment that “completely eliminated” the DuraSeal entities’ obligations to Xurex
under prior agreements, ultimately causing Xurex to file for Chapter 7 bankruptcy
protection.
Defendants Rose and Kraus move to dismiss Plaintiff’s claims against them.
Rose was a member of Xurex’s board of directors from approximately September 2011
to June 2013. Since 2013, Kraus has been a member of the board of directors for both
DuraSeal entities, and has served as DuraSeal Pipe CEO. Rose and Kraus argue
Plaintiff failed to state a claim upon which relief can be granted.

II. STANDARD
The liberal pleading standard created by the Federal Rules of Civil Procedure
requires Aa short and plain statement of the claim showing that the pleader is entitled to
relief.@ Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Fed. R. Civ. P.
8(a)(2)). ASpecific facts are not necessary; the statement need only >give the defendant
fair notice of what the…claim is and the grounds upon which it rests.=@ Id. (citing Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In ruling on a motion to dismiss, the
Court Amust accept as true all of the complaint=s factual allegations and view them in the
light most favorable to the Plaintiff[ ].” Stodghill v. Wellston Sch. Dist., 512 F.3d 472,
476 (8th Cir. 2008).
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To survive a 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. A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. The plausibility standard is
not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully. Where a complaint
pleads facts that are merely consistent with a defendant's liability, it stops
short of the line between possibility and plausibility of entitlement to relief.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In keeping with these principles a court considering a motion to dismiss
can choose to begin by identifying pleadings that, because they are no
more than conclusions, are not entitled to the assumption of truth. While
legal conclusions can provide the framework of a complaint, they must be
supported by factual allegations. When there are well-pleaded factual
allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.
Id. at 679. A claim is facially plausible if it allows the reasonable inference that the
defendant is liable for the conduct alleged. See Horras v. Am. Capital Strategies, Ltd.,
729 F.3d 798, 801 (8th Cir. 2013); Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594
(8th Cir. 2009).
III. ANALYSIS
A. Rose’s Motion to Dismiss
Rose, acting pro se, moves to dismiss Plaintiff’s allegations against him, arguing
“Plaintiff failed to make a claim because he did not provide any factual evidence for the
many charges leveled against me.” Doc. #25, at 1. In addition to the motion filed in this
Court, Rose filed two motions to dismiss and several supporting documents in the
bankruptcy court prior to the withdrawal of reference, which he incorporated in the
instant motion. Enslein, Tr. for Xurex, Inc. v. Di Mase, et al., Case No. 16-04103-DRD
(Bankr. W.D. Mo.) (Docs. #17, 18, 51, 52, 54, 59, 60, 63).
The Complaint alleges Rose was a member of Xurex’s board of directors and
signed the January 2012 amendment to Xurex’s agreements with DuraSeal entities.
The amendment allegedly damaged Xurex because it provided for less favorable
financial terms to Xurex than previous agreements, and allowed DuraSeal entities
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access to and/or ownership of Xurex’s trade secrets, among other things. Plaintiff
alleges Rose was part of a civil conspiracy and breached his fiduciary duties owed to
Xurex. In his motion, Rose states he “accept[s]” as fact that he “was a director of Xurex
Inc. and that I signed an amended agreement with DuraSeal.” Doc. #25, at 1-2.
Rose’s motions and attached exhibits indicate Rose challenges the merits of
Plaintiff’s claims, rather than the legal sufficiency of the Complaint. Doc. #25, at 1-3 (“I
have challenged the Plaintiff and I will continue to challenge the Plaintiff to produce any
evidence against me that would support his claims....there has not been an attempt by
the [Defendant] [sic] to resolve a contest between the parties about the facts or the
substantive merits of the plaintiff’s case because the Plaintiff has not presented any
facts other than the two stated above and elsewhere....Plaintiff’s complaint did not
include any factual evidence.”). A motion to dismiss premised on Federal Rule of Civil
Procedure 12(b)(6), such as Rose’s motion, is not the proper challenge to the merits of
a claim. Rather, a 12(b)(6) motion to dismiss is a method to test the legal sufficiency of
the complaint, and is not the proper method to challenge facts supporting a claim. Peck
v. Hoff, 660 F.2d 371, 374 (8th Cir. 1981). At this stage, the Court is “under no duty to
admit matters outside of the pleadings.” Id. The Court will not engage in a searching
review of documents submitted by Rose that are outside the pleadings, and does not
base its decision on the substantive merits of a matter. The Court accepts as true, as it
must, the allegations contained in Plaintiff’s Complaint, and finds them legally sufficient
to state a claim against Rose upon which relief can be granted. Accordingly, the Court
denies Rose’s motion to dismiss.

B. Kraus’s Motion to Dismiss
Kraus moves to dismiss Count VI alleging Kraus’s involvement in a civil
conspiracy, Count VIII alleging Kraus aided and abetted breaches of fiduciary duties,
and Count V alleging Kraus’s involvement in misappropriation of Plaintiff’s trade secrets.

i. Civil Conspiracy
Kraus argues Count VI for civil conspiracy fails to state a claim upon which relief
can be granted because Missouri law only recognizes such a claim if the underlying
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wrongful conduct is pleaded as a tort, rather than a claim sounding in contract. Plaintiff
argues the alleged underlying wrongful acts – “breach of contract, fraudulent transfer,
aiding and abetting breach of contract, breach of fiduciary duty, and aiding and abetting
breaches of fiduciary duties owed to [Plaintiff]” – form the basis for a cognizable civil
conspiracy claim under Missouri law. Doc. #1-2, at 36; Doc. #29, at 13-18.
A civil conspiracy is “an agreement or understanding between persons to do
unlawful acts, or to use unlawful means to do a lawful act.” Oak Bluff Partners, Inc. v.
Meyer, 3 S.W.3d 77, 780-81 (Mo. banc. 1999) (citation omitted). A plaintiff must state a
cause of action for an underlying wrongful or tortious act to present a viable claim for
civil conspiracy. Wiles v. Cap. Indem. Corp., 280 F.3d 868, 870 (8th Cir. 2002)
(citations omitted). A claim for civil conspiracy must establish: (1) two or more persons;
(2) with an unlawful objective; (3) after a meeting of the minds; (4) committed at least
one act in furtherance of the conspiracy; and, (5) the plaintiff was thereby damaged.
Oak Bluff Partners, 3 S.W.3d at 781. “Unlawful” conduct is not limited to conduct that is
criminally liable, rather individuals associating for the purpose of causing or inducing a
breach of contract or business expectancy may be the basis for an unlawful conspiracy.
See W. Blue Print Co. v. Roberts, 367 S.W.3d 7, 22 (Mo. banc 2012); Lyn-Flex W., Inc.
v. Dieckhaus, 24 S.W.3d 693, 700-01 (Mo. Ct. App. 1999); Schott v. Beussink, 950
S.W.2d 621, 628 (Mo. Ct. App. 1997).
Breach of contract may be an underlying wrongful act on which a civil conspiracy
claim is premised. Envirotech, Inc. v. Thomas, 259 S.W.3d 577, 587 (Mo. Ct. App.
2008) (stating “[c]onspiracy to breach a contract has long been recognized as a
plausible civil conspiracy claim in Missouri.”) (citing Contour Chair Lounge Co. v. Aljean
Furniture Mfg. Co., 403 S.W.2d 922, 926 (Mo. Ct. App. 1966)). A conspiracy to “injure
or destroy the trade, business or occupation of another is an unlawful conspiracy.” Id.
Finally, a civil conspiracy to breach fiduciary duties is a viable claim. Roseman v. St.
Louis Bank, 858 F.3d 488, 500 (8th Cir. 2017).
Plaintiff’s claim of civil conspiracy to commit the underlying wrongful acts alleged
– “breach of contract, fraudulent transfer, aiding and abetting breach of contract, breach
of fiduciary duty, and aiding and abetting breaches of fiduciary duties owed to [Plaintiff]”
– states a viable claim. Furthermore, Plaintiff sufficiently pleaded these underlying
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wrongful acts and its civil conspiracy claim. Plaintiff alleges Kraus was a board member
of DuraSeal entities, acting with other Defendants for the unlawful objectives of inducing
breaches of contract and improperly obtaining Xurex’s trade secrets. Plaintiff
sufficiently pleaded a “meeting of the minds” occurred in that Kraus was part of a group
with “a unity of purpose or a common design and understanding” to obtain and disclose
Xurex’s trade secrets to the DuraSeal entities, and enter into a contract amendment
with Xurex despite overlapping members on the boards of Plaintiff and the DuraSeal
entities. See Aguilar v. PNC Bank, N.A., 853 F.3d 390, 403 (8th Cir. 2017). Finally,
Plaintiff pleaded damages resulting from injuries caused by Kraus and other
Defendants’ conduct. Accordingly, the Court denies Kraus’s motion to dismiss Count VI
because it states a viable claim under Missouri law, and Plaintiff sufficiently pleaded its
civil conspiracy theory of liability.
ii. Aiding and Abetting Breach of Fiduciary Duty
Kraus seeks dismissal of Count VIII for aiding and abetting breach of fiduciary
duty. Kraus argues Missouri law does not recognize this theory of liability, while Plaintiff
argues Missouri law recognizes the claim. Plaintiff also suggests Delaware law governs
this claim because Xurex is a Delaware corporation. Because the Court determines
Count VIII states a viable claim under Missouri law, the Court leaves for future
determination the question of whether Delaware or Missouri law governs.
The tort of aiding and abetting is based on Restatement (Second) of Torts §
876(b) (1965), which provides:
For harm resulting to a third person from the tortious conduct of another,
one is subject to liability if he...knows that the other’s conduct constitutes a
breach of a duty and gives substantial assistance or encouragement to the
other so to conduct himself.
As several courts note, the Missouri Supreme Court has yet to decide whether Missouri
recognizes a cause of action for aiding and abetting breach of fiduciary duty. See, e.g.,
Bradley v. Ray, 904 S.W.2d 302, 315 (Mo. Ct. App. 1995); Jo Ann Howard & Assocs.,
P.C. v. Cassity, No. 09-CV-01252-ERW, 2012 WL 3984486, at *5-10 (E.D. Mo. Sept.
11, 2012). The Missouri Supreme Court heard a case in which the Missouri Court of
Appeals held a petition stated a cause of action for aiding and abetting breach of
fiduciary duty, but the aiding and abetting claim was not addressed, and the matter was
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resolved on other grounds. Brandt v. Med. Def. Assocs., 856 S.W.2d 667, 669, 674675 (Mo. banc 1993) (stating “[t]he court of appeals also held plaintiff’s petition stated a
cause of action...for aiding and abetting...in the commission of a tort, i.e., breach of
fiduciary duty.”). The Brandt opinion does not suggest the Court of Appeals was
incorrect in its assessment of the law.
Several opinions from the Missouri Court of Appeals suggest a cause of action
for aiding and abetting breach of fiduciary duty is viable under Missouri law. In Bradley,
after noting the Missouri Supreme Court did not expressly recognize an aiding and
abetting liability theory, the Missouri Court of Appeals proceeded to reject the plaintiff’s
claim on the merits, rather than as a matter of law, because the plaintiff did not plead
facts to support the claim. 904 S.W.2d at 315. One year later, an aiding and abetting
theory of liability was recognized by the Missouri Court of Appeals where the
defendants allegedly encouraged tortious conduct that was a substantial factor in
plaintiffs’ injuries. Shelter Mut. Ins. Co. v. White, 930 S.W.2d 1, 3-4 (Mo. Ct. App.
1996). An aiding and abetting theory of liability has been recognized in the commission
of trespass, assault, and battery. See Curlee v. Donaldson, 233 S.W.2d 746, 753 (Mo.
Ct. App. 1950) (trespass); Knight v. W. Auto Supply Co., 193 S.W.2d 771, 776 (Mo. Ct.
App. 1946) (assault); Phelps v. Bross, 73 S.W.3d 651, 656 (Mo. Ct. App. 2002)
(battery).
Federal district courts in Missouri have recognized aiding and abetting breach of
fiduciary liability claims. Aguilar v. PNC Bank, N.A., Case No. 14-CV-985-LRR (E.D.
Mo., Nov. 19, 2014) (Doc. #26, at 6-8); Lonergan v. Bank of Am., N.A., No. 12-CV04226-NKL, 2013 WL 176024, at *11-12 (W.D. Mo. Jan. 16, 2013) (“[Defendant] has not
shown that, as a matter of law, aiding and abetting liability does not exist for torts in
Missouri.”). Additionally, the Eighth Circuit set forth the requirements to prove an aiding
and abetting breach of fiduciary duty claim under Missouri law. See Rosemann, 858
F.3d at 499-500 (explaining what the plaintiff must prove by favorably citing Bradley,
904 S.W.2d at 315). Nor did the Eighth Circuit reject the Aguilar Court’s review of
Missouri law and finding that aiding and abetting was a viable claim. Aguilar, 853 F.3d
at 403 n.15 (“As the district court recognized, the Missouri Supreme Court has yet to

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decide whether Missouri recognizes a cause of action for aiding and abetting a breach
of fiduciary duty. For purposes of appeal, we will assume that it does.”).
The Court believes Count VIII states a viable claim under Missouri law. As
stated above, the Missouri Supreme Court has yet to decide whether a claim for aiding
and abetting breach of fiduciary duty is recognized under Missouri law. However,
Missouri law recognizes an aiding and abetting theory of liability for certain intentional
torts, and the recent Eighth Circuit decisions indicate a claim for aiding and abetting
breach of fiduciary duty is a viable claim. Accordingly, the Court denies Kraus’s motion
to dismiss Count VIII.

iii. Misappropriation of Trade Secrets
Kraus moves to dismiss Count V, alleging misappropriation of trade secrets,
arguing the Complaint lacks specific allegations regarding his involvement in any
alleged misappropriation.3 However, Plaintiff sufficiently pleaded Kraus’s involvement in
allegedly unlawful efforts to obtain Plaintiff’s trade secret information. Although Kraus
argues Plaintiff’s civil conspiracy claim fails to state a claim, the Court rejected this
argument above. One of the purposes of the alleged conspiracy was to wrongfully
obtain Xurex’s trade secrets for use by the DuraSeal entities. Plaintiff pleaded Kraus’s
involvement on the board of directors of the DuraSeal entities and as DuraSeal Pipe
CEO when Defendants allegedly had a “meeting of the minds” to acquire Xurex’s trade
secret information by deceiving an escrow company into releasing it. Plaintiff then
alleges Kraus was “one of the few” recipients in an email conversation which included
Xurex’s former CEO, Defendant Kaiser, disclosing the trade secret information to the
DuraSeal entities. The Court finds Plaintiff sufficiently pleaded Kraus’s involvement in
the alleged misappropriation of Plaintiff’s trade secret information. Accordingly, the
Court denies Kraus’s motion to dismiss Count V.

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To demonstrate a misappropriation of trade secrets, one must show: “(1) a trade
secret exists, (2) the defendant misappropriated the trade secret, and (3) the plaintiff is
entitled to either damages or injunctive relief.” Central Tr. & Inv. Co. v. Signalpoint
Asset Mgmt., LLC, 422 S.W.3d 312, 320 (Mo. banc 2014).
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IV. CONCLUSION
The Court denies Rose’s motion to dismiss (Doc. #25), and denies Kraus’s
motion to dismiss (Doc. #20). Pursuant to Federal Rule of Civil Procedure 12(a)(4)(A),
Rose’s and Kraus’s answers to Plaintiff’s Complaint are due fourteen days after entry of
this Order.
IT IS SO ORDERED.
/s/ Ortrie D. Smith
ORTRIE D. SMITH, SENIOR JUDGE
UNITED STATES DISTRICT COURT

DATE: July 21, 2017

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