Ethox Chemical LLC et al v. Coca-Cola Company, The

Filing 43

ORDER RULING ON REPORT AND RECOMMENDATION for 20 Motion to Dismiss for Failure to State a Claim, Motion for More Definite Statement granting in part and denying in part, filed by Coca-Cola Company.The court also grants t he plaintiffs leave to file a motion to amend the complaint within ten days of the entry of this order. Coca-Cola will then have fourteen days after service of theamended pleading to respond. Signed by Honorable Timothy M Cain on 1/3/2013. (gpre, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
Ethox Chemical, LLC; James Tanner,
Plaintiffs,
v.
The Coca-Cola Company,
Defendant.

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Case No. 6:12-cv-01682-TMC
OPINION & ORDER

The plaintiffs, Ethox Chemical, LLC, (“Ethox”) and James Tanner (“Tanner”)
(collectively, the “plaintiffs”) filed their complaint against The Coca-Cola Company (“CocaCola”) on June 19, 2012, alleging a variety of claims arising out of Coca-Cola’s alleged theft of
the molecule PEM. (Dkt. No. 1.) Coca-Cola, then, moved to dismiss certain of plaintiffs’ claims
and for a more definite statement. (Dkt. No. 20.) That motion was fully briefed by both parties.
(Dkt. Nos. 20-1, 28, 29.)
This matter is now before the court on the magistrate judge’s Report and
Recommendation (“Report”),1 recommending that (1) defendant’s motion to dismiss be (a)
granted as to plaintiffs’ South Carolina Unfair Trade Practices Act (“SCUTPA”), fraud,
negligent misrepresentation, and misappropriation of trade secrets claims and (b) denied as to
plaintiffs’ misappropriation claim, and (2) defendant’s motion for a more definite statement be
denied. (Dkt. No. 34.)

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The magistrate judge’s recommendation has no presumptive weight, and the responsibility for making a final
determination remains with the United States District Court. Mathews v. Weber, 423 U.S. 261, 270 (1976). The
court is charged with making a de novo determination of those portions of the Report to which specific objection is
made. The court may accept, reject, or modify, in whole or in part, the recommendation made by the magistrate
judge or recommit the matter with instructions. 28 U.S.C. § 636(b)(1). 

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I. Background
In about February 2009, Coca-Cola approached Ethox to assist with the development and
assessment of a new type of molecule that would provide greater barrier resistance for plastic
bottles, thereby increasing the shelf life of the bottled products. Ethox agreed to assist and
Tanner, an Ethox chemist, came up with PEM.

Coca-Cola later filed two utility patent

applications, which included PEM, without informing Ethox or listing Tanner as a co-inventor.
As a result, Ethox and Tanner filed this action, seeking to have Tanner named as a co-inventor
on the patent applications and patent and to hold Coca-Cola responsible for misappropriating
PEM.
Coca-Cola has moved to dismiss only plaintiffs’ claims for violation of the SCUTPA,
misappropriation, fraud, negligent misrepresentation, and misappropriation of trade secrets.
(Dkt. No. 20.) In support, Coca-Cola asserts that South Carolina does not recognize a cause of
action for misappropriation and that the other state law claims are insufficiently pled and subject
to federal preemption. In response, the plaintiffs contend that South Carolina does recognize a
claim for misappropriation and that their other claims are adequately pled.2 (Dkt. No. 28.) In
addition, the plaintiffs argue that Coca-Cola’s motion for a more definite statement is vague and
self-defeating.
After a thorough review, the magistrate judge recommended that (1) defendant’s motion
to dismiss be (a) granted as to plaintiffs’ SCUTPA, fraud, negligent misrepresentation, and
misappropriation of trade secrets claims and (b) denied as to plaintiffs’ misappropriation claim,
and (2) defendant’s motion for a more definite statement be denied. (Dkt. No. 34.)

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 The court notes that, in response to Coca-Cola’s motion to dismiss, the plaintiffs withdrew their second cause of
action seeking inventorship over U.S. Patent Application Ser. No. 12/629, 379. (See Dkt. No. 28 p. 2 n.1.)

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Both parties have objected to the Report (Dkt. Nos. 35, 37) and have responded to the
other party’s objections (Dkt. Nos. 41, 42).
II. Legal Standard
Under the federal rules, each pleading must contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Accordingly,
pursuant to Federal Rule of Civil Procedure 12(b)(6), a claim should be dismissed when the
complaint fails to allege facts upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When
considering a motion to dismiss, the court should “accept as true all well-pleaded allegations and
should view the complaint in a light most favorable to the plaintiff.” Mylan Labs., Inc. v.
Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). However, “the pleading standard . . . demands more
than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009). Thus, the rules require more than “labels and conclusions,” “a formulaic
recitation of the elements of a cause of action,” or “naked assertions devoid of further factual
enhancement.” Id. at 678.
In sum, “[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.’” Id. (quoting Bell
Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). And, for a claim to have facial plausibility, the
plaintiff must plead “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).
III. Discussion
a. SCUTPA
SCUTPA prohibits “unfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce.” S.C. Code Ann. § 39-5-20(a). Trade or

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commerce includes “the advertising, offering for sale, sale or distribution of any services and any
property . . . and any other article, commodity or thing of value.” S.C. Code Ann. § 39-5-10(b).
In order to establish a SCUTPA violation, a plaintiff must demonstrate “(1) that the defendant
has engaged in an unlawful trade practice, (2) that the plaintiff suffered actual, ascertainable
damages as a result of the defendant’s use of the unlawful trade practice, and (3) that the
unlawful trade practice engaged in by the defendant had an adverse impact on the public
interest.” Havird Oil v. Marathon Oil Co., Inc., 149 F.3d 283, 291 (4th Cir. 1998).
“A trade practice is ‘unfair’ when it is offensive to public policy or when it is immoral,
unethical, or oppressive; a practice is ‘deceptive’ when it has a tendency to deceive.” Young v.
Century Lincoln-Mercury, Inc., 396 S.E.2d 105, 108 (S.C. Ct. App. 1989).
“An impact on the public interest may be shown if the acts or practices have the potential
for repetition.” Singleton v. Stokes Motors, Inc., 595 S.E.2d 461, 466 (S.C. 2004). The potential
for repetition can be shown by either “showing the same kind of actions occurred in the past,
thus making it likely they will continue to occur absent deterrence” or “showing the company’s
procedures created a potential for repetition of the unfair and deceptive acts.” Id. “Conduct that
affects only the parties to the transaction and not the public interest provides no basis for a
SCUTPA claim.” Bessinger v. Food Lion, Inc., 305 F.Supp.2d 574, 581 (D.S.C. 2003).
However, “the plaintiff in a SCUTPA action is required only to allege and prove those facts
sufficient to demonstrate potential for repetition; at that point, plaintiff has proven an adverse
effect on the public interest sufficient to recover under the SCUTPA.” Liberty Mutual Ins. Co. v.
Employee Resource Management, Inc., 176 F.Supp.2d 510, 516 (D.S.C. 2001).
The Report recommends dismissing the plaintiffs’ SCUTPA claim because the plaintiffs
failed to (1) allege that the unfair or deceptive acts occurred in the conduct of “the advertising,

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offering for sale, sale, or distribution” of anything of value and (2) plead sufficient facts to
establish that the alleged unlawful trade practice had an adverse impact on the public interest.
The plaintiffs object, arguing that (1) the statutory language includes non-limiting examples and
plaintiffs’ allegations fall into the general scope of the statute and (2) the complaint’s allegations
of similar past acts are enough to allege the potential for repetition.
Here, the court agrees with the Report. With regard to public interest, the complaint
merely states: “This case does not represent the first instance in which Coca-Cola has been
accused of engaging in unfair methods of competition and deceptive business practices. Without
Court intervention, there is a legitimate threat that Coca-Cola will continue to engage in unfair
practices and repeat its deceptive business practices, and, as a result, Coca-Cola’s actions
adversely affect the public interest.” (Dkt. No. 1 ¶¶ 84-85.)
These conclusory allegations, without supportive facts, are not enough to survive CocaCola’s motion to dismiss. Even if Coca-Cola has been accused of similar past violations, which
the court is not assuming without additional factual allegations, allegations of accusations are not
the same as allegations of specific similar past acts. Similarly, the complaint fails to allege any
specific procedures or business practices that create the potential for repetition. The court also
notes that the outcome of this case will affect only the parties and not the broader public.
Therefore, plaintiffs’ SCUTPA claim is dismissed with prejudice.
b. Misappropriation
The Report recommends denying Coca-Cola’s motion with regard to plaintiffs’
misappropriation claim. Plaintiffs argue, and the Report agrees, that the South Carolina Supreme
Court recognized misappropriation as a cause of action separate and distinct from trade secret
misappropriation in Super Duper, Inc. v. Pennsylvania Nat’l Mutual Casualty Ins. Co., 385 S.C.

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201 (2009).

Coca-Cola objects, asserting that Super Duper only discusses the term

misappropriation in determining its meaning for insurance coverage purposes and that the case
does not suggest that an independent cause of action for misappropriation exists under South
Carolina law.
Here, the court agrees with Coca-Cola. In Super Duper, a district court judge certified to
the South Carolina Supreme Court the question of “whether an underlying suit premised upon
trademark infringement by the insured qualifies as injury arising out of the offense of
‘misappropriation of advertising ideas or style of doing business’.” Id. at 207. In resolving the
question before it, the court makes fairly clear that it is interpreting the specific language of the
insurance contract involved in the case, which defined “Advertising injury” as an “injury arising
out of” the offense of “Misappropriation of advertising ideas or style of doing business,” but
failed to further define the term misappropriation. Id. at 204, 205, 209-10 (The District Court
“presents certified questions concerning commercial general liability (CGL) insurance policies”;
“based on the policy terms before us”; adopting the common meaning of the word
misappropriation from Webster’s dictionary, rather than the common law tort meaning). This
court does not find any language in Super Duper suggesting that the Supreme Court of South
Carolina recognized a common law misappropriation cause of action under South Carolina law.
Thus, in the absence of any other case law or argument advancing this claim, the court dismisses
plaintiffs’ misappropriation claim with prejudice.
c. Fraud & Negligent Misrepresentation
In order to successfully plead a cause of action for fraud, a plaintiff must show (1) a
misrepresentation, (2) its falsity, (3) its materiality, (4) either knowledge of its falsity or a
reckless disregard of its truth or falsity, (5) intent that the representation be acted upon, (6) the

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hearer’s ignorance of its falsity, (7) the hearer’s reliance on its truth, (8) the hearer’s right to rely
thereon, and (9) the hearer’s consequent and proximate injury. Ardis v. Cox, 431 S.E.2d 267,
269 (S.C. Ct. App. 1993). In addition, under Federal Rule of Civil Procedure 9(b), a party
alleging fraud must state with particularity the circumstances constituting fraud, including “‘the
time, place, and contents of the false representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.’” Fed. R. Civ. P. 9(b); Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) (quoting 5 Charles Alan
Wright and Arthur R. Miller, Federal Practice and Procedure: Civil § 1297, at 590 (2d ed.
1990)).
In order to state a claim for negligent misrepresentation, a plaintiff must establish that:
“(1) the defendant made a false representation to the plaintiff; (2) the defendant had a pecuniary
interest in making the statement; (3) the defendant owed a duty of care to communicate truthful
information to the plaintiff; (4) the defendant breached that duty; (5) the plaintiff justifiably
relied on the representation; and (6) the plaintiff suffered a pecuniary loss as a result of such
reliance.” Schnellmann v. Roettger, 368 S.C. 17, 17 (S.C. Ct. App. 2006).
The Report recommends dismissing plaintiffs’ fraud and negligent misrepresentation
claims because the complaint fails to allege (1) when and where the alleged misrepresentation
was made or who made it or (2) sufficient facts to demonstrate that the representation was false
at the time it was made. The plaintiffs object and assert that the complaint satisfies the Rule 9(b)
pleading requirement by naming at least one Coca-Cola employee engaged in the fraud and
alleging the time period during which the fraud took place – namely, upon the taking of the PEM
molecular structure and its subsequent placement in and filing of patent applications.3

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  The plaintiffs also assert that the Report imposes a higher pleading standard than that required by Rule 9. In
particular, the plaintiffs object to the Report requiring them to prove that Coca-Cola’s representations and omissions

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The court agrees with the Report. The complaint alleges that “Coca-Cola falsely and
knowingly misrepresented that it would maintain Plaintiffs’ disclosures in confidence.” (Dkt. No.
1 ¶ 100.) But, after a thorough review of the complaint and all other submissions in this case, the
court cannot find what the alleged understanding of confidentiality is based on. Alleging a
general understanding of confidentiality is not the same as alleging a specific representation
made by one party to another evoking reliance. Without pleading a specific representation, the
plaintiffs cannot satisfy the other eight elements of their fraud and negligent misrepresentation
claims.
Accordingly, plaintiffs’ fraud and negligent misrepresentation claims are dismissed, but
without prejudice.4
d. Misappropriation of Trade Secrets
Under the South Carolina Code, “Trade secret” means “[i]nformation including, but not
limited to, a formula, pattern, compilation, program, device, method, technique, product, system,
or process, design, prototype, procedure, or code that” (1) “derives independent economic value,
actual or potential, from not being generally known to, and not being readily ascertainable by
proper means by the public or any other person who can obtain economic value from its
disclosure or use,” and (2) “is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy.” S.C. Code Ann. § 39-8-20(5)(a). The South Carolina Supreme Court
views the second requirement as a particularly high bar. Accordingly, “[r]evealing a trade secret
to others is . . . fatal to its protected status unless one ‘exercises eternal vigilance.’ The exercise

were false. The court acknowledges this objection, but interprets the Report as merely requiring the plaintiffs to
plead, not prove, falsity. This requirement is well within Rule 9’s pleading standards.

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The court grants the plaintiffs leave to file a motion to amend the complaint, in accordance with Federal Rule of
Civil Procedure 15(a)(2), within ten days of the entry of this order, to address any claims the court dismisses without
prejudice.

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of ‘eternal vigilance’ imposes a heavy burden on the owner of a trade secret, as it ‘calls for
constant warnings to all persons to whom the trade secret has become known and obtaining from
each an agreement, preferably in writing, acknowledging its secrecy and promising to respect
it.’” Hill Holliday Connors Cosmopulos, Inc. v. Greenfield, 433 F. App’x 207, 214 (4th Cir.
2011) (unpublished opinion) (quoting Lowndes Prods., Inc. v. Brower, 191 S.E.2d 761, 766 (S.C.
1972)).
The Report recommends dismissing plaintiffs’ misappropriation of trade secrets claim
because they fail to plead sufficient facts to demonstrate that PEM was the subject of efforts that
were reasonable under the circumstances to maintain its secrecy. The plaintiffs object and point
to specific paragraphs in the complaint that they argue show that they shared the identity of PEM
with Coca-Cola under the protection of confidentiality, took steps to maintain the confidentiality
of PEM, and only disclosed PEM to Coca-Cola because the parties were engaged in a joint
development project and the parties’ interactions were confidential.
The court, again, agrees with the Report. The paragraphs plaintiffs rely on, even taken in
the context of the entire complaint, do not demonstrate the eternal vigilance required in South
Carolina. In particular, the plaintiffs point the court to paragraphs 115-119 to support their
argument that they took steps reasonable under the circumstances to maintain PEM’s secrecy.
However, the only somewhat supportive paragraph in that section merely states: “Plaintiffs took
reasonable efforts to maintain the secrecy of the PEM molecule.” (Dkt. No. 1 ¶ 116.) That
statement alone is not enough. Therefore, plaintiffs’ misappropriation of trade secrets claim is
dismissed, but without prejudice.

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e. Motion for a More Definite Statement
“A party may move for a more definite statement of a pleading to which a responsive
pleading is allowed but which is so vague or ambiguous that the party cannot reasonably prepare
a response.” Fed. R. Civ. P. 12(e). The motion is “designed to strike at unintelligibility rather
than simple want of detail.” Frederick v. Koziol, 727 F. Supp. 1019, 1020-21 (E.D. Va. 1990). A
motion for more definite statement “is not a substitute for the discovery process, and where the
information sought by the movant is available or properly sought through discovery, the motion
should be denied.” Id.
The Report recommends denying defendant’s motion for more definite statement. CocaCola objects, arguing that it needs a more definite statement of plaintiffs’ claims, and particularly
the relief and damages plaintiffs seek, in order to determine the extent to which they are or are
not preempted by federal law.
The court agrees that Coca-Cola’s motion for more definite statement should be denied,
but for slightly different reasons than those cited in the Report. The court interprets defendant’s
motion as seeking a more definite statement of the alleged damages and remedies sought for all
of the state law claims. Damages and remedies are both topics that the parties can adequately
address during the discovery process. For that reason, the court denies Coca-Cola’s motion for
more definite statement.
f. Remaining Claims
In their objections, the plaintiffs argue that Coca-Cola is in default on the remaining
claims in the complaint that are not addressed in Coca-Cola’s motion to dismiss. Accordingly,
the plaintiffs would like the court to enter an order finding that all facts are deemed admitted as
to those claims and to enter a default judgment sua sponte as to liability.

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The court declines to take either of these actions. Coca-Cola’s motion for more definite
statement applied to all claims in the complaint, including the ones it did not move to dismiss.
So, pursuant to Federal Rule of Civil Procedure 12(a)(4), Coca-Cola would have fourteen days
from the entry of this order denying its motion for more definite statement to file a response to
the remaining claims in the complaint. See Fed. R. Civ. P. 12(a)(4). However, because the court
is granting the plaintiffs leave to file a motion to amend the complaint, in the interest of judicial
economy and resources, Coca-Cola will have until fourteen days after service of the amended
pleading to respond to all claims. See Fed. R. Civ. P. 15(a)(3).
IV. Conclusion
The court has carefully reviewed the pleadings, motion to dismiss and accompanying
memoranda, the Report, objections, and responses to the objections. For the foregoing reasons,
the court dismisses plaintiffs’ SCUTPA and misappropriation claims with prejudice and
dismisses plaintiffs’ fraud, negligent misrepresentation, and misappropriation of trade secrets
claims without prejudice. In addition, the court denies Coca-Cola’s motion for a more definite
statement. Accordingly, Coca-Cola’s motion to dismiss and for a more definite statement (Dkt.
No. 20) is granted in part and denied in part.
The court also grants the plaintiffs leave to file a motion to amend the complaint within
ten days of the entry of this order. Coca-Cola will then have fourteen days after service of the
amended pleading to respond.
IT IS SO ORDERED.
s/ Timothy M. Cain
Timothy M. Cain
United States District Judge
Anderson, South Carolina
January 3, 2013
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