KLX Energy Services LLC v. Magnesium Machine LLC

Filing 25

ORDER denying in part and granting in part 22 Plaintiff's Motion to Dismiss Defendant's Amended Counterclaims No. 5, 6, 7 & 4 (as fully set out in this order). Signed by Honorable Stephen P. Friot on 4/27/2021. (llg)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
KLX ENERGY SERVICES LLC,
Plaintiff,
-vsMAGNESIUM MACHINE, LLC,
Defendant.

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Case No. CIV-20-1129-F

ORDER
Plaintiff KLX Energy Services, LLC (KLX) moves to dismiss counterclaims
five, six, seven and four.1 Doc. no. 22. The motion is brought under Rule 12(b)(6),
Fed. R. Civ. P., and partially under Rule 12(c), Fed. R. Civ. P.2

Defendant

Magnesium Machine, LLC (Magnesium Machine) has responded, objecting to
dismissal of any counterclaims. Doc. no. 23. KLX has filed a reply brief. Doc. no.
24. For the reasons stated below, the motion will, in the main, be denied; a narrow
exception is noted with respect to the fifth counterclaim.

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This is the second motion by KLX seeking dismissal of counterclaims. The first was brought
under Rule 12(b)(6) and the Oklahoma Citizens Participation Act (the anti-SLAPP statute). When
the court ruled (doc. no. 20), it gave Magnesium Machine limited leave to amend. Magnesium
Machine did so, and KLX has now filed a second motion to dismiss.

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To the extent the motion challenges counterclaims seven and four, it is brought under Rule
12(b)(6) and alternatively under Rule 12(c), Fed. R. Civ. P. Movant KLX concedes it did not
challenge counterclaims seven and four in its first motion to dismiss. KLX argues this does not
prevent it from challenging counterclaims seven and four now, via a motion for judgment on the
pleadings.

Standards
The inquiry under Rule 12(b)(6) is whether the complaint, or in this case the
challenged counterclaims, contain enough facts to state a claim for relief that is
plausible on its face. Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177
(10th Cir., 2007), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007).
To survive a motion to dismiss, a plaintiff must nudge his claims across the line
from conceivable to plausible. Id. The mere metaphysical possibility that some
plaintiff could prove some set of facts in support of the pleaded claims is insufficient;
the complaint must give the court reason to believe that this plaintiff has a reasonable
likelihood of mustering factual support for these claims. Ridge at Red Hawk, 493
F.3d at 1177. In conducting its review, the court assumes the truth of the plaintiff’s
well-pleaded factual allegations and views them in the light most favorable to the
plaintiff. Id. Pleadings that are no more than legal 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. Ashcroft v. Iqbal, 556
U.S.662, 664 (2009). 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. The court will disregard mere “labels and conclusions”
and “[t]hreadbare recitals of the elements of a cause of action” to determine if what
remains meets the standard of plausibility. Twombly, 550 U.S. at 555; Iqbal, 556
U.S. at 678. “Determining whether a complaint states a plausible claim for relief will
… be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679.
In considering a motion for judgment on the pleadings pursuant to Fed. R.
Civ. P. 12(c), the court uses the same standard it uses in considering a motion to

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dismiss pursuant to Fed. R. Civ. P. 12(b)(6). See, Horton v. National Union Fire
Insurance Co., 2015 WL 7575909, *1 (E.D. Okla. 2015) (standards for a Rule 12(c)
motion, with citations).
The Fifth Counterclaim
Deceptive Trade Practices—Statutory
The fifth counterclaim is brought under Section 53 of the Oklahoma
Deceptive Trade Practices Act (ODTPA), 78 O.S. 2011 §§ 51, et seq. Doc. no. 21,
¶ 44. In support, the fifth counterclaim alleges as follows.
-- “In the months before KLX filed the current lawsuit against Magnesium
Machine, KLX sold Adair Plugs to Seneca Resources.” Id. at ¶ 46.
-- Magnesium Machine has, in recent months, “discussed selling Adair Plugs
to Seneca….” Id. at ¶ 45.
-- In recent months, a meeting occurred between Magnesium Machine and
Seneca, in which Seneca communicated its belief that KLX designed the Adair Plug.
Id. at ¶ 47.
--

In recent months, Seneca, in a conference call, communicated to

Magnesium Machine that it “only wanted to run the ‘KLX’ plug,” and that it “had
committed to the ‘KLX’ plug design.” Id. at ¶ 48.
-- The Adair Plug was “designed and owned by Magnesium Machine,” not
KLX. Id. at ¶49.
-- “Based on the misinformation from KLX, that the Adair Plug was designed
by KLX, Seneca does not believe Magnesium Machine is the designer and owner of
the Adair Plug.” Id. at ¶ 50.

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-- “Magnesium Machine has not been able to restart any conversation with
Seneca in order to develop a business relationship in selling the Adair Plug.” Id. at
¶ 51.
-- “KLX claims the Adair Plug as their own product as noted by the meeting
conversations with Seneca and as shown on the KLX website – http://klxenergydev.azurewebsites.net.” Id. at ¶ 52.
-- KLX “has knowingly made false representations about the designer…and
source for the Adair Plug, any modifications, and any improvements.” Id. at ¶ 53.
1.
KLX argues, first, that the fifth counterclaim does not plausibly allege a
deceptive act. KLX argues it is “pure speculation” to conclude, based on the
allegations, that KLX knowingly made false representations about KLX’s role in the
Adair Plug’s design. Doc. no. 22, p. 5. KLX argues that instead of specifics about
any alleged false representation by KLX concerning the ownership, source or design
of the plug, the fifth counterclaim relies on an inference that KLX is the origin of
Seneca’s incorrect information. KLX argues this is not a plausible inference. KLX
argues it is equally if not more reasonable to infer that KLX has acted in conformity
with the parties’ distribution agreement, by which Magnesium Machine authorized
KLX to rebrand the products using its own trademarks and trade names.
The fifth counterclaim relies on an inference that KLX is the source of
Seneca’s misinformation about the source of the plug and its design. That inference
is plausible given other allegations which provide context. For example, the fifth
counterclaim describes conversations Magnesium Machine had with Seneca in
which Seneca revealed its understanding (Seneca’s incorrect understanding, from
Magnesium Machine’s point of view) that KLX was the designer and is the owner

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of the plug. The fifth counterclaim also alleges that statements on KLX’s website
claim the plug as KLX’s “own” product. Doc. no. 21, ¶ 52.
The court rejects KLX’s argument that the fifth counterclaim does not
plausibly allege a deceptive act on the part of KLX.
2.
Next, KLX argues the fifth counterclaim should be dismissed because it does
not identify which subsection of § 53(A) it relies on, and because it includes no
allegations which otherwise identify the deceptive trade practice in question.3
Subsection (2) of 78 O.S. 2011 § 53(A) makes it a deceptive trade practice
to, in the course of business, “Knowingly make[] a false representation as to the
source, sponsorship, approval, or certification of goods or services[.]” No other
subsection of § 53(A) refers to the “source” of goods or services. The fifth
counterclaim alleges that “KLX has knowingly made false representations about the
designer, creator, manufacturer, and source for the Adair Plug, any modifications,
and any improvements.” Doc. no. 21, ¶ 53. This allegation, which addresses false
representations about the source of the plug and about the source of modifications
or improvements to the plug, gives adequate notice that the fifth counterclaim alleges
a deceptive trade practice as defined in subsection (2) of §53(A).
The fifth counterclaim will not be dismissed for failure to indicate which
subsection of the statute it relies upon.4

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Section 53(A) of the ODTPA lists deceptive trade practices in subsections (1) through (14).

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To the extent, if any, that the fifth counterclaim is intended to allege a deceptive trade practice
under a subsection of § 53(A) other than subsection (2), any such claim fails for lack of adequate
notice and will be dismissed.

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3.
KLX argues the ODTPA only protects competing business interests, and that
the fifth counterclaim fails to plausibly allege Magnesium Machine is in competition
with KLX. KLX also argues that the fifth counterclaim does not specify when the
allegedly deceptive acts by KLX occurred so that the counterclaim necessarily fails
to plead that KLX and Magnesium Machine were competitors at the time of the
deceptive acts.
The fifth counterclaim alleges that “In recent months, Magnesium Machine
had discussed selling Adair Plugs to Seneca Resources.” Doc. no. 21, ¶ 45. The
counterclaim also alleges that “In the months before KLX filed the current lawsuit
against Magnesium Machine, KLX sold Adair Plugs to Seneca.” Id. at ¶46. Thus,
the counterclaim alleges facts indicating that Seneca is a potential customer of both
Magnesium Machine and KLX, making Magnesium Machine and KLX competitors.
In addition, assuming (without deciding) it is necessary for Magnesium Machine to
establish that KLX and Magnesium Machine were competitors at the time of the
deceptive acts, such an inference is plausible, reading Magnesium Machine’s
allegations as a whole.5
The fifth counterclaim will not be dismissed for failure to allege that KLX and
Magnesium Machine are competitors. Nor will it be dismissed for failure to allege
that these entities were competitors at the time of the alleged deceptive acts.
4.
KLX’s final challenge to the fifth counterclaim argues this counterclaim does
not plausibly allege any in-state conduct by KLX. KLX concedes it has found no

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In addition, the court notes that KLX’s complaint alleges that Magnesium Machine is selling “the
KLX-designed plugs to KLX’s own customers.” Doc. no. 1, ¶ 6.

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cases which hold that the ODTPA does not encompass activities occurring outside
of Oklahoma. Accordingly, KLX relies on cases involving the Oklahoma Consumer
Protection Act.
Magnesium Machine notes the absence of authority with respect to this
argument for dismissal. In addition, Magnesium Machine argues that it is based in
Oklahoma and that conversations KLX had with Seneca, and possibly others, impact
Magnesium Machine’s business. Magnesium Machine also argues that discovery
may uncover deceptive acts by KLX which occurred in Oklahoma.

Finally,

Magnesium Machine argues that limiting the ODTPA in the manner KLX suggests
would defeat the purpose the statute.
Issues regarding the reach of the ODTPA are best left to a later stage.
Evidence may render this issue moot. If the issue is not moot, evidence will help
define the issue. Accordingly, the fifth counterclaim will not be dismissed for failure
to allege deceptive trade practices occurring in Oklahoma.6
The Sixth Counterclaim:
Deceptive Trade Practices—Common Law
KLX construes the sixth counterclaim as a common law claim for unfair
competition (doc. no. 22, p.4, n.3), a characterization Magnesium Machine’s
response brief does not dispute. As for the underlying facts, the sixth counterclaim
reasserts the facts alleged in the fifth counterclaim. Doc. no. 21, ¶ 60. To the extent
the sixth counterclaim sets out its own facts, those facts are similar to those alleged
in support of the fifth counterclaim. Specifically, the sixth counterclaim alleges that
“KLX has made false assertions to Seneca that any modifications or improvements

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Nothing stated in this order should be interpreted as suggesting how the court might rule if this
issue is raised later.

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of the Adair Plugs belong to it [KLX] and [h]as represented the same to the public
on KLX’s website….” Doc. no. 21, ¶ 61. The sixth counterclaim also alleges that
“KLX is offering false information intended to harm Magnesium Machine.” Id. at
¶ 64. Accordingly, the sixth counterclaim is construed as a common law claim for
unfair competition based on KLX’s allegedly false assertions regarding the plug.
KLX makes the same arguments for dismissal of the sixth counterclaim, so
construed, that it makes for dismissal of the fifth counterclaim. For the same reasons
that the court rejected KLX’s arguments for dismissal of the fifth counterclaim, the
court rejects KLX’s arguments for dismissal of the sixth counterclaim.
The Seventh Counterclaim:
Request for Injunctive Relief
The seventh counterclaim seeks injunctive relief prohibiting KLX from
distributing the Adair Plug as “the KLX plug” or as the “KLX Adair Plug.” Id. at
¶ 69.
KLX argues that injunctive relief is a remedy and not a standalone cause of
action. KLX also argues that injunctive relief depends on a viable underlying claim,
that the fifth and sixth counterclaims should be dismissed for reasons already
addressed (and rejected), and that the remaining counterclaims do not support the
type of injunctive relief sought in the seventh counterclaim.
The court has determined that the fifth and sixth counterclaims will not be
dismissed. Accordingly, the central premise of KLX’s argument for dismissal or
judgment on the pleadings with respect to the seventh counterclaim has been
rejected. The motion will be denied with respect to this counterclaim.

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The Fourth Counterclaim:
Declaratory Judgment—the Adair Plug “Belongs To” Magnesium Machine
The fourth counterclaim asks the court to review the agreement between
Magnesium Machine and KLX,7 along with the acts of the parties, and declare that
“the Adair Plug, all modifications and all improvements ‘belong to’ Magnesium
Machine.” Id. at ¶ 42.
KLX contends the requested declaration is “hopelessly ambiguous” and
“would do almost nothing to settle the controversy or clarify the legal relations at
issue.” Doc. no. 22, p. 11. KLX also argues that the requested declaration is
redundant of relief potentially afforded under other counterclaims.
It is premature to decide what declarations in favor of Magnesium Machine
might or might not be appropriate pursuant to the counterclaims. Accordingly, the
motion for dismissal or for judgment on the pleadings will be denied with respect to
the fourth counterclaim.
Conclusion
After careful consideration, KLX’s motion is DENIED in all respects save
one, which is the sole respect in which the motion is GRANTED.
The Fifth Counterclaim. Excluding the exception noted below, the motion is
DENIED with respect to the fifth counterclaim, which alleges a deceptive trade
practice under 78 O.S. 2011 §53(A)(2).
To the extent, if any,8 that the fifth counterclaim is intended to allege a
deceptive trade practice under any subsection of §53(A) other than subsection (2),
7

The agreement is the Distributor Appointment Agreement which Magnesium Machine and KLX
allegedly entered into on July 12, 2018. Doc. no. 21, ¶ 1.

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Based on Magnesium Machine’s response brief, the court does not believe Magnesium Machine
intended to allege a deceptive trade practice under any other subsection.

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any such claim fails for lack of adequate notice and is DISMISSED, without
prejudice, under Rule 12(b)(6), Fed. R. Civ. P. The motion is GRANTED to this
limited extent only.
The Sixth Counterclaim. The motion is DENIED with respect to the sixth
counterclaim, which is construed as a common law claim for unfair competition
based on KLX’s allegedly false assertions regarding the plug.
The Seventh and Fourth Counterclaims. The motion, which is brought under
Rule 12(b)(6) and 12(c) insofar as the challenges to the seventh and fourth
counterclaims are concerned, is DENIED with respect to these counterclaims.
IT IS SO ORDERED this 27th day of April, 2021.

20-1129p004.docx

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