Adelos, Inc. v. Halliburton Company et al

Filing 75

ORDER denying 69 Partial Motion to Dismiss. Signed by Judge Dana L. Christensen on 12/11/2017. (ASG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
MISSOULA DIVISION

FILED
DEC 11 2017
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CV 16-119-M-DLC

ADELOS, INC.,
Plaintiff,

ORDER
vs.
HALLIBURTON ENERGY SERVICES,
INC,
Defendant.
Before the Court is Defendant Halliburton Energy Services, Inc.' s
("Halliburton") Partial Motion to Dismiss Adelos, Inc.' s ("Adelos") conversion
claim in its First Amended Complaint. The Court held a hearing on the motion on
December 5, 2017. For the reasons explained below, the Court denies the motion.

BACKGROUND
Because the parties are familiar with the general facts of this case, the Court
will not restate them here. (See Doc. 60 at 1-4.)
Adelos filed its First Amended Complaint (Doc. 68) on July 28, 2017.
Halliburton now brings this Motion for Partial Dismissal of Adelos's Amended
Complaint under Fed. R. Civ. P. 12(b)(6), seeking to dismiss Adelos's amended
conversion claim for failure to state a claim upon which relief can be granted.
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•

(Doc. 69.)

LEGAL STANDARD
Under Rule 12(b)(6), the Court is generally limited to the allegations of the
complaint, "which are accepted as true and construed in the light most favorable to
the plaintiff." Lazy Y Ranch LTD v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).
Nonetheless, the plaintiff must allege sufficient facts "to state a claim to relief that
is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 697 (2009) (citation
omitted). These facts need not be overly specific, but they must "give the
defendant fair notice of what the ... claim is and the grounds upon which it rests."
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curium) (quoting Bell At!. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)). The Twombly/Iqbal plausibility standard

is not "akin to a probability requirement," but it "asks for more than a sheer
possibility that a defendant has acted unlawfully .... " Iqbal, 556 U.S. at 678
(internal quotation marks and citation omitted).

DISCUSSION
As an initial matter, Adelos claims that Halliburton waived all arguments
presented in its motion to dismiss because they were omitted from its first motion
to dismiss. (Doc. 71at10.) Under Federal Rule of Civil Procedure 12(g)(2),
Adelos argues that a when a party makes a motion under Rule 12, it must not make
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another motion under this rule raising a defense or objection that was available to
the party but omitted from its earlier motion. (Id.) Halliburton counters that
Adelos's new conversion claim relates to alleged information that falls outside of
Adelos's patents and patent applications. Thus, it is a new theory of liability and
Halliburton could not have raised these defenses under the original conversion
claims and first motion to dismiss. The Court agrees. In the Court's July 7, 2017
Order, it invited Adelos to file an Amended Complaint in order to cure the
deficiencies related to the conversion claim. The Court found that federal law
preempts state law claims related to patents and patent infringement. (Doc. 67 at 6
("If Adelos chooses to amend its Complaint, its claim may survive the pleadings

phase to the degree that it plausibly alleges [Halliburton's] misappropriation of
technical information other than that disclosed in the patents and patent
applications.").) Therefore, the Court anticipated a new conversion claim related
to Adelos' s business proprietary information. This is an entirely new claim.
Therefore, Halliburton did not waive any defenses under Rule 12(g)(2).
Regarding the merits of the amended conversion claim, Halliburton presents
four arguments in favor of dismissal. First, it contends that the claim fails as a
matter of law because Adelos has not and cannot allege a recognized property
interest in the information allegedly converted. Second, it claims that Adelos did
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not sufficiently plead "specific technical information." Third, it argues that the
Montana Uniform Trade Secrets Act ("MUTSA") preempts common law causes of
action that are premised on the alleged misappropriation of "technical
information." Finally, it claims that Adelos did not plead a contractual
relationship and that Adelos volunteered the alleged "technical information" to
Halliburton.
As a preliminary matter, the Court notes that the amended conversion claim
may be subject to MUTSA preemption. NetApp, Inc. v. Nimble Storage, Inc., No.
5:13-CV-05058-LHKHRL, 2015 WL 400251, at *16 (N.D. Cal. Jan. 29, 2015)
(finding that "although [plaintiffs] allegations are decidedly vague, they may still
be subject to [California Uniform Trade Secret Act] preemption"). However, at
this stage of the proceeding it is unclear what information is contained in the
documents listed in paragraph 81 of the Amended Complaint. It may very well be
trade secrets. 1 But without the benefit of discovery in this case, the Court is
unable to conclude that the conversion claim is preempted in whole or in part by
MUTSA. Thus, the Court is left to determine whether Adelos has sufficiently pled
a common law claim for conversion under Montana law.

1

At the hearing on the motion to dismiss, Adelos conceded that it may have a trade secret
claim against Halliburton, but would need to conduct further discovery in order to have sufficient
information to plead such a claim.
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Halliburton claims that Adelos failed to plead any property right that is
subject to conversion under Montana law. Halliburton contends that Adelos must
allege a legal basis for the property right, and cannot state a mere conclusory
recitation of the elements of conversion to satisfy the pleading standard at the
motion to dismiss stage. (Doc. 70 at 6-8.) Adelos claims that it accurately set
forth the elements of a conversion claim under Montana law in its Amended
Complaint, and named specific documents in which the information Halliburton
allegedly converted is merged.
"A plaintiff alleging a claim of conversion must establish the following four
elements: (1) property ownership by the plaintiff; (2) plaintiffs right of possession
of the property; (3) defendant's unauthorized control over the property; and (4)
damages." Feller v. First Interstate Bancsystem, Inc., 299 P.3d 338, 343 (Mont.
2013). "Conversion is 'a distinct act of dominion wrongfully exerted over one's
property in denial of, or inconsistent with, the owner's right .... "' Id. (internal
citations omitted).
The Amended Complaint alleges that:

78.

Adelos has ownership rights over the property converted by
Halliburton.

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79.

Adelos has a right of possession over the property converted by
Halliburton.

80.

Halliburton's conduct, as described herein, constitutes
unauthorized control over Adelos's property.

(Doc. 68 at 23.) Halliburton contends that simply stating "ownership rights over
the property converted" is not enough to satisfy the Twombly/Iqbal plausibility
pleading standard, but instead, Adelos must plead a "legally recognized property
interest" in the alleged converted property. (Doc. 70 at 10.) For support,
Halliburton relies on Great Falls Tribune v. Montana Pub. Serv. Comm 'n, 82 P.3d
876, 886 (Mont. 2003), which holds that in Montana information is protectable as
a property right in three instances: as a trade secret, by express contract, or when
patented. Thus, Halliburton maintains that the conversion claim cannot survive
because it is grounded in a trade secret claim.
Adelos argues that because it is not possible at this stage of the proceedings
to determine whether a trade secret claim is appropriate, a conversion claim is the
only available tort it can plead in its Amended Complaint. To the extent that
Halliburton takes issue with the conversion of proprietary business information
under Montana law, Adelos contends that in Montana "property ownership" can
simply be an interest in the property and the right to possess the property at the
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time of the alleged conversion. King v. Zimmerman, 878 P.2d 895, 899 (Mont.
1994) ("[I]n an action for conversion, 'property ownership' does not mean that the
plaintiff must have absolute or unqualified title to the property in question, but
rather that he or she must have an interest in the property and the right to possess
the property at the time of the alleged conversion."). Further, Adelos references
other jurisdictions that support the proposition that intangible property may serve
as the basis for a claim of conversion if it is merged into a document. Restatement
(Second) of Torts§ 242 (1965) ("[T]here may be 'conversion' of such an
intangible right, of a kind customarily identified with and merged in a document,
even though the document is not itself converted."); Res. Ventures, Inc. v. Res.
Mgmt. Int'/, Inc., 42 F. Supp. 2d 423, 439 (D. Del. 1999) (finding that the plaintiff

stated a claim for conversion with regard to its proprietary information and
survived a Rule 12(b)(6) motion); Astroworks, Inc. v. Astroexhibit, Inc., 257 F.
Supp. 2d 609, 618 (S.D.N.Y. 2003) ("'[G]oods' converted may include intellectual
property. Although an idea alone cannot be converted, the 'tangible expression or
implementation of that idea' can be."); AdVnt Biotechnologies, LLC v. Bohannon,
No. CV-06-2788-PHX-DGC, 2007 U.S. Dist. LEXIS 471060, at *5 (D. Ariz. June
28, 2007) ("In order to bring an action for conversion, the object of conversion
must be tangible personal property, or intangible property that is merged in, or
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identified with, some document[.]"). Although Montana has not ruled on this
specific topic, the Court has already determined that Montana would likely adopt
the Restatement approach regarding the merger of intangible property. (See Doc.
60 at 10.) Thus, based on that ruling, the element of property ownership is
satisfied because Adelos' s allegedly converted intellectual property has been
merged into the documents in paragraph 81 of the Amended Complaint. (Doc. 68
at 24.)
Halliburton's argument that Adelos has failed to plead "specific technical
information" related to its fiber optic sensing systems that is not disclosed in
Adelos's patents and patent applications is also not compelling. The Court
instructed Adelos that if it were to amend its complaint, it needed to "plausibly
allege[] [Halliburton]' s misappropriation of technical information other than that
disclosed in the patents and patent applications." (Doc. 67 at 6 (emphasis

added)). Adelos complied with those guidelines and asserted nine documents in
paragraph 81 that allegedly contain proprietary information not involving the
patents at issue. The Court has no knowledge whatsoever at this time regarding
the contents of those document. However, Adelos satisfied its burden to plausibly
suggest that Halliburton may have converted the information within those
documents, and Halliburton is on notice of what documents are at issue related to
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the conversion claim.
Finally, Halliburton contends that it did not exercise unauthorized control
over Adelos' s alleged proprietary information because Adelos voluntarily supplied
Halliburton with the information. If that were the case, then this patent
infringement/conversion case would not be before the Court. It is an inherently
fact intensive question regarding whether Adelos volunteered the information to
Halliburton, and Halliburton's argument fails to support dismissal at this time of
the conversion claim in its entirety.
In sum, the Court reminds the parties that at this point it is only ruling on a
motion to dismiss and the plausibility pleading standard controls. The Court
concludes that Adelos has stated a claim for conversion with regard to its
proprietary business information merged in the documents listed in paragraph 81
of the Amended Complaint. Adelos sufficiently alleged that it has property
interests in the proprietary information, which includes its theory of operation,
target analytics, workflow diagrams, and architecture presentations. (Doc. 68 at
24.) The Amended Complaint includes sufficient allegations that Halliburton
converted Adelos' s intellectual property by converting the proprietary information
to its own use and profit, which gave Halliburton an unfair competitive advantage
in the fiber optic sensing market. (Doc. 68 at 26-27). Accordingly, the Court
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concludes Adelos has stated a claim of conversion against Halliburton.
Accordingly IT IS ORDERED that Defendant's Partial Motion to Dismiss
(Doc. 69) is DENIED.

',~

Dated this _I_ day ofDecember, 2

Dana L. Christensen, Chief Judge
United States District Court

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