Lumenate Technologies, LP v. Baker et al
Filing
35
ORDER DENYING DEFENDANTS' PARTIAL MOTION TO DISMISS (Doc. 20 ). Signed by Judge Timothy S. Black on 4/25/2014. (mr1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
LUMENATE TECHNOLOGIES, LP,
Plaintiff,
vs.
DANIEL BAKER, et al.,
Defendants.
:
:
:
:
:
:
:
:
:
Case No. 1:14-cv-125
Judge Timothy S. Black
ORDER DENYING DEFENDANTS’ PARTIAL MOTION TO DISMISS (Doc. 20)
This civil action is before the Court on Defendants’ partial motion to dismiss
(Doc. 20) and the parties’ responsive memoranda (Docs. 24, 25). 1
I.
FACTS AS ALLEGED BY THE PLAINTIFF
For purposes of this motion to dismiss, the Court must: (1) view the complaint in
the light most favorable to the Plaintiff; and (2) take all well-pleaded factual allegations
as true. Tackett v. M&G Polymers, 561 F.3d 478, 488 (6th Cir. 2009).
Defendants Baker, Anderson, and Hahn were long-time employees of Data
Processing Sciences Corporation (“DPS”), which provided managed IT services to third
parties. (Doc. 1 at ¶¶ 10-12). As senior and trusted employees, Defendants were
intimately familiar with DPS and its customers and operations. (Id. at ¶ 14). They had
access to DPS’s confidential, proprietary information and trade secrets concerning DPS’s
customers, customer buying habits, volume, needs, and other specific DPS data. (Id.)
1
Defendants include Daniel Baker, Christopher Anderson, William Hahn, and RDI Marketing
Services, Inc.
Defendants had full access to DPS’s strategy for soliciting, securing, servicing, and
retaining customers, particularly with regard to DPS’s highly specialized healthcare
managed services group. (Id.) Accordingly, as a condition of their employment with
DPS, each Defendant signed a DPS Agreement, promising not to disclose DPS’s
confidential information, directly or indirectly compete with DPS, or otherwise solicit or
divert business from DPS’s customers or accounts. (Id. at ¶¶ 15-16, Exs. A-C). As part
of their DPS Agreements, Defendants acknowledged that any breach of the agreements
would result in irreparable harm to DPS. (Id. at ¶ 17).
On July 31, 2013, Lumenate purchased substantially all of the assets of DPS
pursuant to the Asset Purchase Agreement (“APA”). (Doc. 1 at ¶ 19). Under the terms
of the APA, DPS assigned all of its employee Non-Solicitation and Non-Disclosure
Agreements to Lumenate. (Doc. 1 at ¶ 20; APA § 5.4(a)). After Lumenate purchased
DPS’s assets, Baker, Anderson, and Hahn resigned, and unbeknownst to Lumenate,
established a managed services business for Defendant RDI Marketing Services, Inc.
(“RDI”). (Doc. 1 at ¶ 37). During exit interviews, Defendants were reminded of their
obligations under their DPS Agreements. (Id. at ¶ 36). Neither Baker, Anderson, nor
Hahn, disclosed the fact that they were going to RDI to compete against Lumenate. (Id.)
In fact, Baker represented that he had accepted a sales position at a software company he
refused to name. (Id.)
As soon as they arrived at RDI, Baker, Anderson, and Hahn began soliciting
customers for whom they had worked when they were employed by Lumenate/DPS.
2
(Doc. 1 at ¶ 25). Indeed, Baker admits that his solicitation began almost a month before
he actually resigned his position at Lumenate, and allegedly continued even after the
Court enjoined such solicitation on February 23, 2014. (Doc. 1 at ¶ 26; Baker Dep. at 4951). Anderson admits that he took the contents of his Lumenate computer, which he used
to service former Lumenate customers until after this litigation was filed. (Doc. 1 at ¶¶
37-38; Anderson Dep. at 30-34). As a result of Defendants’ allegedly wrongful conduct,
RDI acquired a profitable managed services business in a matter of months, servicing
former Lumenate customers, and using Lumenate’s trade secrets and former employees.
(Doc. 1 at ¶ 25). Plaintiff claims that all of RDI’s managed services customers were
stolen from Lumenate. (Doc. 1 at ¶ 24; Hahn Dep. at 16).
Defendants move to dismiss Count III of the complaint for breach of the noncompete agreements. (Doc. 1 at ¶¶ 67-77).
II.
STANDARD OF REVIEW
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) operates to test the
sufficiency of the complaint and permits dismissal of a complaint for “failure to state a
claim upon which relief can be granted.” To show grounds for relief, Fed. R. Civ. P. 8(a)
requires that the complaint contain a “short and plain statement of the claim showing that
the pleader is entitled to relief.”
While Fed. R. Civ. P. 8 “does not require ‘detailed factual allegations,’ . . . it
demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
3
544 (2007)). Pleadings offering mere “‘labels and conclusions’ or ‘a formulaic recitation
of the elements of a cause of action will not do.’” Id. (citing Twombly, 550 U.S. at 555).
In fact, in determining a motion to dismiss, “courts ‘are not bound to accept as true a
legal conclusion couched as a factual allegation[.]’” Twombly, 550 U.S. at 555 (citing
Papasan v. Allain, 478 U.S. 265 (1986)). Further, “[f]actual allegations must be enough
to raise a right to relief above the speculative level[.]” Id.
Accordingly, “[t]o 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.’” Iqbal, 556 U.S. at 678. A claim is plausible where “plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. Plausibility “is not akin to a ‘probability requirement,’
but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.
“[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the
pleader is entitled to relief,’” and the case shall be dismissed. Id. (citing Fed. Rule Civ.
Proc. 8(a)(2)).
III.
ANALYSIS
Defendants maintain that: (1) under the express terms of the APA, DPS did not
assign Defendants’ DPS Agreements to Lumenate; and (2) even if DPS attempted such
an assignment, Ohio law does not permit Lumenate to enforce the DPS Agreements
4
against Defendants. Accordingly, Defendants argue that Plaintiff cannot state a breach of
contract claim based on the DPS Agreements with Baker, Hahn, and Anderson.
A. Assignment
In the complaint, Plaintiff clearly alleges that the Defendants’ DPS Agreements
were assigned from DPS to Lumenate under the APA. (Doc. 1 at ¶¶ 14-21, 67, 77).
The DPS Agreements state that the Employee shall not:
[H]ire any person or solicit or encourage any person to leave the
employ of DPS who is then employed by DPS; or contact any person
or entity who/which Employee contacted on behalf of DPS while
employed by DPS for the purpose of providing any products or
services which are comparable to or competitive with any products or
services which are now or are hereafter provided by DPS.
(Doc. 1, Exs. A-C §§ 1-2). Plaintiff maintains that such obligations are expressly
contemplated by the “Non-Disclosure and Non-Solicitation” language used in the APA.
Defendants premise their arguments on the following language from Section
5.4(a) of the APA: “[a]s part of the Assigned Contracts, with respect to each Transferred
Employee and each Non-Accepting Employee who has in place a Non-Solicitation and
Non-Disclosure Agreement (a “NDA”), Seller will assign such NDA to Buyer.”
Defendants claim that the “Non-Solicitation and Non-Disclosure Agreement” described
in the APA is not a reference to the DPS Agreements which are called “Non-Disclosure
and Non-Competition” agreements. Defendants argue that the use of the term “NonSolicitation” instead of “Non-Competition” to describe the DPS employees’ restrictive
5
covenants nullifies the assignment of the employment obligations of key DPS
employees. 2
Defendants’ argument emphasizes the APA’s headings and titles and ignores the
substantive obligations imposed by the assigned DPS Agreements, as well as the fact that
both documents reference “Non-Disclosure” agreements. “Section headings in a contract
are not binding provisions[,] [t]hey merely guide the reader to certain provisions.”
Jordan v. Marion Technical College, No. 9-90-36, 1991 Ohio App. LEXIS 3966 at *5
(Ohio App. Aug. 15, 1991).
Upon review of the plain language of the APA, the Court finds that it is not clear
and unambiguous that the APA excluded the assignment of the DPS Agreements.
1. Absurd Result
“Common words appearing in a written instrument will be given their ordinary
meaning unless manifest absurdity results, or unless some other meaning is clearly
evidenced from the face or overall contents of the instrument.” Foster Wheeler
Enviresponse v. Franklin Cty. Conv. Fac. Auth., 678 N.E.2d 519, 526 (Ohio 1997). If the
Court were to construe the contract as Defendants argue, Plaintiff would have purchased
a services business without negotiating any protection for the acquired assets (i.e., trade
secrets, customer relationships, and key employee contracts). Here, no DPS employee
had an employment agreement titled “Non-Solicitation and Non-Disclosure Agreement,”
2
At this stage in the litigation, Defendants have the burden to prove that the APA is “clear and
unambiguous” in its purported exclusion of assigning the DPS Agreements. Alexander v.
Buckeye Pipeline Co., 374 N.E.2d 146, 150 (Ohio 1978).
6
as referenced in the APA. Therefore, if the Court accepted Defendants’ argument, the
APA would assign contracts that do not exist (specifically, the “Non-Competition
Agreement”). Accordingly, the Court finds that Defendants’ reading of the APA would
produce an absurd result.
2. Whether Assignment was Contemplated
Next, Defendants argue that the DPS Agreements are not assignable because they
refer to “DPS” rather than “Employer,” and because they reference specific places where
DPS had offices. Defendants contend that these facts demonstrate that assignment was
not contemplated by the parties.
In making this argument, Defendants rely on Fitness Experience v. TFC Fitness
Equipment, Inc., 355 F.Supp.2d 889 (N.D. Ohio 2004), where the relevant non-compete
agreement identified both the employer and employee by name. Id. at 897 (“the noncompete agreement specifically applies to Exercare [the employer] and each individual
defendant rather than referring generically to their respective roles as employer and
employee”). Here, in contrast, the DPS Agreement only refers to “DPS” by name. (Doc.
1, Exs. A-C (referring generally to “Employee” rather than repeatedly identifying
employees by name)). Defendants cannot have it both ways – if the use of “DPS”
evidences intent of non-assignability, then the use of “Employee” evidences intent of
assignability.
Defendants also argue that the nature of the geographic restrictions in the DPS
Agreements indicate that they are not assignable (citing the non-compete agreement in
7
Fitness Experience, 355 F.Supp.2d at 889, which was defined by a reference to the
distance from one specific employer site). However, under the DPS Agreements, the
“Territories” restrict only the places where Defendants are prohibited from owning,
operating, or being in the employ of a competitor of DPS. The non-disclosure provisions
and provisions prohibiting the solicitation of customers and employees are general and
are not limited to the Territories. (Doc. 1, Exs. A-C at §§ 1-2). Furthermore, the
definition of “Territories” in the DPS Agreements specifically contemplates future
expansion. (Id. (“…said cities and all other cities in which DPS may hereafter have an
office herein referred to as the “Territories.”)). The DPS Agreements do not put
limitations on the type of office expansion (i.e., whether DPS acquired or was acquired
by another company with new offices). Therefore, there is nothing about the geographic
restrictions in the DPS Agreements that suggests the signers did not intend them to be
assignable.
3. Goodwill
Finally, Defendants argue that Plaintiff fails to allege facts demonstrating that the
assignability of the DPS Agreements was “necessary to protect the good will of the
business being sold.” Fitness Experience, 355 F.Supp.2d at 889. 3
The complaint states that Defendants were subject to the DPS Agreement
(Doc. 1 at ¶¶15-17, 67-68), that Plaintiff performed its obligations under those
3
Again, it is important to note that Defendants rely on Fitness Experience, an opinion which
resolved a motion for summary judgment, not a motion to dismiss.
8
agreements (Id. at ¶ 69), that Defendants breached the DPS Agreements (Id. at ¶¶ 70-74),
and that Defendants’ breaches caused damages (Id. at ¶¶ 76-77). The DPS Agreements
specifically state that the “Employee acknowledges that such confidential information is
a valuable commercial asset of DPS, that its use provides DPS with a significant
competitive advantage and that the retention by DPS of its customers is vital and
indispensable to the conduct of its business.” (Doc. 1 at Exs. A-C). The Complaint
describes Plaintiff’s managed services business, Defendants’ trusted positions, the
valuable proprietary information possessed by Defendants, and how Defendants used that
information to steal millions of dollars in customer business. (Id. at ¶¶ 10, 12-14, 18, 37,
42-47). Accordingly, Plaintiff has presented sufficient facts that the DPS Agreements
were necessary to protect the goodwill of the business. 4
D.
Ohio Contract Law
Even if the Court were inclined to read the APA as assigning Defendants’ DPS
Agreements to Plaintiff, Defendants argue that such an assignment would have no effect
under Ohio law.
The parties dispute whether non-compete agreements are assignable under Ohio
law. When a non-compete agreement is silent as to assignability, the court must ascertain
the parties’ intent by determining: (1) whether the covenant employs words which
4
Fitness Experience, 355 F.Supp.2d at 890 (“the importance of non-compete agreements to the
protection of the good will of the business sold operates on a spectrum. At one extreme, where
assignable non-compete agreements are fundamentally necessary to the continued operation of
the business, are businesses which perform unique services and are highly dependent on a few
key clients.”).
9
indicate that assignment was contemplated; and (2) whether assignability is necessary to
protect goodwill of a business being sold. Fitness Experience, 355 F. Supp.2d at 889
(“the assignment of the Individual Defendants’ non-compete agreements is not
categorically precluded even though the agreements did not explicitly state that they were
assignable and even though the Individual Defendants did not expressly consent to the
assignment”). 5 See also Blakeman’s Valley Office Equip., Inc. v. Bierdeman, 786 N.E.2d
914, 919 (Ohio App. 2003) (“Appellant correctly states that non-competition agreements
are assignable in Ohio[.]”).
While the Court finds that Plaintiff has alleged sufficient facts to go forward on
the claims that: (1) assignment was contemplated; and (2) assignability is necessary to
protect the goodwill of the Company -- where the relevant analysis is a factual inquiry
into the parties’ intent, the Court declines to making a finding on the parties’ intent at the
motion to dismiss stage.
IV.
CONCLUSION
Accordingly, for these reasons, Defendants’ partial motion to dismiss (Doc. 20) is
DENIED.
IT IS SO ORDERED.
Date: 4/25/14
s/ Timothy S. Black
Timothy S. Black
United States District Judge
5
The Court finds that Defendants’ repeated references to Fitness Experience are misplaced
because that case arose in the context of a motion for summary judgment.
10
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?