DG3 NORTH AMERICA, INC. v. LABRADOR REGULATED INFORMATION TRANSPARENCY, INC.
OPINION. Signed by Judge Stanley R. Chesler on 11/12/14. (gmd, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
DG3 NORTH AMERICA, INC.,
Civil Action No. 14-5123 (SRC)
CHESLER, District Judge
This matter comes before the Court upon Plaintiff DG3 North America, Inc.’s (“Plaintiff”
or “DG3”) motion to dismiss the counterclaims asserted by Defendant Labrador Regulated
Information Transparency, Inc. (“Defendant” or “Labrador”). Labrador has opposed the motion.
The Court has considered the papers filed by the parties, and, for the reasons expressed below,
grants the motion in part and denies it in part.
DG3 initiated this breach of contract action against Labrador in New Jersey state court,
seeking to recover monies Labrador has allegedly failed to pay for printing services rendered
between April and June 2014. According to the Complaint, DG3 is a New Jersey corporation
engaged in the business of providing print and graphic communications services. Labrador, a
Delaware corporation headquartered in Atlanta, Georgia, provides design and advisory services
in connection with the preparation of documents to be filed with the Securities and Exchange
Commission (“SEC”). Labrador removed this action from the Superior Count of New Jersey,
Hudson County, pursuant to 28 U.S.C. § 1441, and this Court has subject matter jurisdiction
pursuant to 28 U.S.C. § 1332(a).
In its responsive pleading, Labrador asserted four counterclaims against DG3: tortious
interference with employment agreement, misappropriation of trade secrets, tortious interference
with business relationships and unfair competition. These claims arise from two coinciding
events, both occurring in or around June 2014: DG3’s launch of an advisory and consulting
operation known as “Argyle” and the departure of Labrador employee Iain Poole to commence
employment with DG3. According to the allegations made in the Counterclaim, prior to
Argyle’s launch, DG3 had been engaged solely in the business of financial printing services.
The consulting services of Argyle, Labrador alleges, are virtually identical to Labrador’s services
and thus make DG3 a direct competitor of Labrador. Poole, who had served as Labrador’s
United States sales director since 2012, was allegedly approached by DG3 in 2014 to join its
Argyle consulting operation. The Counterclaim alleges that DG3 began these discussions with
Poole and offered him employment even though it knew, or should have known, that Poole was
bound by an employment agreement with Labrador, which included restrictive covenants,
including non-solicitation of customers, non-disclosure of confidential information and trade
secrets and non-solicitation of Labrador employees for other employment.
Labrador grounds its claims in a number of factual allegations identifying conduct by
DG3 and Poole which violated these restrictive covenants. It alleges that DG3 used Poole’s
knowledge of Labrador’s customer identities, customer preferences and requirements, pricing
structure and other information considered by Labrador to be proprietary and confidential to
persuade Labrador’s existing customers to switch to Argyle’s services. The Counterclaim names
a number of Labrador clients that have been solicited by DG3 and Poole and identifies one that
transitioned its business to Argyle after being offered similar investor relations services to
Labrador’s. It alleges that an August 2014 email sent by Argyle to current and prospective
customers, including Labrador clients, announced a corporate governance training course to be
led by Poole which is, according to Labrador, nearly identical to a Labrador course. It thus avers
that the email reflects another instance of DG3’s attempt to solicit customers using information
Poole learned during his employment with Labrador. Labrador also alleges that, through Poole,
DG3 approached other Labrador employees to entice them to join DG3. Labrador seeks
monetary and injunctive relief against DG3.
A. Legal Standard
Pleading a cognizable claim for relief is governed by Federal Rule of Civil Procedure 8(a),
which provides that a legally sufficient pleading must contain “a short and plain statement of the
claim showing that the pleading is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Federal Rule of
Civil Procedure 12(b)(6) provides a mechanism by which a defendant may defeat a claim “for
failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A complaint
will survive a motion under Rule 12(b)(6) only if it states “sufficient factual allegations, accepted
as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). “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.” Id. (citing Twombly, 550 U.S.
at 556.) Following Iqbal and Twombly, the Third Circuit has held that, to prevent dismissal of a
claim, the complaint must show, through the facts alleged, that the plaintiff is entitled to relief.
Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009). The Court must “accept all
factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and
then determine whether a reasonable inference may be drawn that the defendant is liable for the
alleged misconduct.” Argueta v. U.S. Immigration and Customs Enforcement, 643 F.3d 60, 74
(3d Cir. 2011). While the Court must accept all factual allegations as true, it need not accept a
“legal conclusion couched as a factual allegation.” Baraka v. McGreevey, 481 F.3d 187, 195 (3d
Cir. 2007); Fowler, 578 F.3d at 210-11; see also Iqbal, 556 U.S. at 679 (“While legal conclusions
can provide the framework of a complaint, they must be supported by factual allegations.”).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, will not suffice.” Iqbal, 556 U.S. at 678.
B. Sufficiency of the Claims
The Court begins its analysis by noting a well-established rule concerning the scope of a
motion to dismiss. In a Rule 12(b)(6) motion, the Court is limited in its review to a few basic
documents: the complaint, exhibits attached to the complaint, matters of public record, and
undisputedly authentic documents if the complainant's claims are based upon those documents.
See Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993).
A corollary to this rule is that, with few and narrow exceptions, matters extraneous to the
pleading may not be considered in determining whether a claim meets the pleading standard of
Federal Rule of Civil Procedure 8(a). In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410,
1420 (3d Cir. 1997). On a motion to dismiss for failure to state a claim, the issue before the
Court “is not whether plaintiff will ultimately prevail but whether the claimant is entitled to offer
evidence in support of the claims.” Id. (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
In spite of this axiomatic standard governing the sufficiency of a claim, DG3’s attack on
the sufficiency of the counterclaims consists almost entirely of the argument that “there is no
evidence, beyond highly speculative and unsupported statements, to sustain any of these claims.”
(DG3 Mot. at 1) (emphasis added). Rather than engage in any meaningful analysis of the factual
allegations actually set forth in Labrador’s Counter-Complaint, DG3 presents its own version of
events, relying primarily on the affidavit of Mr. Poole. Such extrinsic material has no bearing on
this motion and will not be considered by this Court. See Snyder v. Baxter Healthcare, Inc., 393
F. App’x 905, 907 n.4 (3d Cir. 2010) (“Pursuant to Rule 12(b)(6), affidavits or other peripheral
documents are generally not permissible for a district court's consideration because a motion to
dismiss attacks claims contained by the four corners of the complaint.”); Jordan v. Fox,
Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994) (holding that, on Rule
12(b)(6) motion, “a court looks only to the facts alleged in the complaint and its attachments
without reference to other parts of the record.”). 1
The movant, here DG3, “bears the burden of showing that no claim has been presented.”
Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). It has failed to do so. The Court will
briefly review each counterclaim and the factual allegations which support it.
Indeed, recognizing that it has presented matters outside the initial pleadings in challenging the counterclaims,
DG3 notes that the Court has discretion to accept the extrinsic material and convert the motion to dismiss into a
motion for summary judgment. While Federal Rule of Civil Procedure 12(d) authorizes this approach, the Court
will not consider the Poole Affidavit and other extrinsic material submitted by DG3 in support of its motion and thus
will not convert this motion into a motion for summary judgment under Federal Rule of Civil Procedure 56.
1. Tortious Interference with Employment Agreement
To state a claim for tortious interference with a contract under New Jersey law, a plaintiff
must allege actual interference with a contract by a defendant who is not a party to the contract,
that the interference was intentional and without justification, and the interference caused
damage. Printing Mart Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 751 (1989). The claim
is this case is premised upon the theory that DG3 interfered with the Employment Agreement
between Labrador and Poole by inducing Poole to breach the agreement’s restrictive covenants.
The Counterclaim alleges specific instances of actual interference by DG3 with the nonsolicitation provision: sending an August 2014 email to customers, including existing Labrador
customers, to promote a corporate governance program to be led by Poole and having Poole
contact Labrador customers with the offer to provide similar advisory services through DG3’s
Argyle operation. It also alleges that DG3 courted Labrador customers to transition their
business to the Argyle services by using confidential customer information known by Poole from
his employment with Labrador, thus interfering in the non-disclosure covenant of the
Employment Agreement. Labrador has alleged that such interference was intentional and
unjustified, averring that DG3 had actual knowledge of Poole’s Employment Agreement and that
such restrictive covenants are standard in the SEC printing and consulting industry. Damages
resulting from such conduct are also alleged, for example, in the loss of a particular Labrador
client solicited by DG3. Assuming these allegations to be true, DG3’s plausible liability for
tortious interference with the Employment Agreement has been pled in conformity with Rule
8(a), and the claim will therefore survive this motion to dismiss.
2. Misappropriation of Trade Secrets
The elements of a claim for misappropriation of trade secrets claim are: (1) the existence
of a trade secret; (2) communicated in confidence by the plaintiff to the employee; (3) disclosed
by the employee in breach of that confidence; (4) acquired by the competitor with knowledge of
the breach of confidence; and (5) used by the competitor to the detriment of one claiming
misappropriation. Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 429-30 (3d Cir. 1982).
Labrador alleges that customer identities and preferences as well as information concerning
pricing were disclosed by Poole to DG3 and then utilized to sway Labrador customers to switch
to DG3’s Argyle services. New Jersey courts have recognized customer lists, pricing, marketing
techniques and other information relating to business operations to constitute trade secrets.
Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285, 298-99 (2001); Commc’ns Workers of Am.
v. McCormac, 417 N.J. Super. 412, 437-38 (App. Div. 2008). Labrador’s allegations about
DG3’s utilization of such information together with the allegations concerning both Poole’s and
DG3’s awareness that the information was treated as confidential by Labrador suffice to set forth
a cognizable claim for misappropriation of trade secrets.
3. Tortious Interference with Business Relations or Economic Advantage
To assert a viable claim for tortious interference with business relations or economic
advantage, a plaintiff must allege facts that “show that it had a reasonable expectation of
economic advantage that was lost as a direct result of defendants’ malicious interference, and
that it suffered losses thereby.” Lamorte Burns & Co., 167 N.J. at 305-06. Malice, for purposes
of this cause of action, “means that harm was inflicted intentionally and without justification or
excuse.” Id. at 306. As this Opinion has discussed, Labrador has alleged that DG3 knowingly
used confidential information about Labrador’s customers to solicit their business. It has
specifically identified one Labrador client that in fact chose to engage the services of DG3 as an
alleged result of DG3’s solicitation. The claim has been sufficiently pled.
4. Unfair Competition
DG3 has, however, correctly pointed out that the unfair competition claim is duplicative of
the tortious interference claims. Though Labrador argues that the claim addresses a broader
“scheme to rapidly develop a mirror business” (Labrador Opp. at 19) and is therefore not
duplicative, it identifies the offending conduct as exactly the same conduct giving rise to the
other counterclaims: DG3’s alleged misappropriation of customer information and use of this
information to solicit and encourage Labrador customers to transition their business to Argyle
operation. Courts in the District of New Jersey have held that, because unfair competition is a
rubric which subsumes claims for tortious interference with business or contractual relations, and
not a recognized cause of action in and of itself, a claim for “unfair competition” will be
dismissed where it is duplicative of a tortious interference claims. Diversified Indus., Inc. v.
Vinyl Trends, Inc., Civil Action No. 13-6194 (JBS), 2014 WL 1767471, at *6 (D.N.J. May 1,
2014) (citing Sussex Commons Outlets, L.L.C. v. Chelsea Prop. Grp., Inc., A3714-07T1, 2010
WL 3772543, at *9 (N.J. Super. Ct. App. Div. Sept. 23, 2010); C.R. Bard, Inc. v. Wordtronics
Corp., 235 N.J. Super. 168, 172 (Law Div. 1989)). Labrador’s unfair competition claim will
accordingly be dismissed.
For the foregoing reasons, the Court will dismiss Labrador’s counterclaim for unfair
competition but will deny DG3’s motion to dismiss the counterclaims in all other respects. An
appropriate Order will be filed.
s/Stanley R. Chesler
STANLEY R. CHESLER
United States District Judge
Dated: November 12, 2014
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