gpac, LLP v. Andersen et al
Filing
35
MEMORANDUM OPINION AND ORDER denying 19 Motion for Judgment on the Pleadings; denying 24 Motion for Judgment on the Pleadings. Signed by U.S. District Judge Lawrence L. Piersol on 5/10/2022. (JLS)
Case 4:21-cv-04201-LLP Document 35 Filed 05/10/22 Page 1 of 22 PageID #: 293
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
gpac, LLP,
4:21-CV-4201-LLP
Plaintiff,
MEMORANDUM OPINION
vs.
AND ORDER
BLAKE ANDERSEN and
CYBERCODERS,INC.,
Defendants.
Pending before the Court are Defendant, Blake Andersen's ("Andersen") Motion for
Judgment on the Pleadings (Doc. 19) and Defendant, CyberCoders, Inc.'s ("CyberCoders")
Motion for Judgment on the Pleadings(Doc. 24.) For the following reasons, the motions will be
denied.
BACKGROUND
Gpac is a recruiting company that provides personnel placement services. (Doc. l-I,
Complaint, f I.) Gpac is a limited liability partnership with its principal place of business in
Lincoln County, South Dakota, but gpac does business throughout the United States.(Id. ]ff 1, 5.)
Andersen, a Colorado resident, formerly worked as a recruiter for gpac. On January 17, 2019,
Andersen signed an Account Executive Employment Agreement ("Agreement") with gpac. A
copy ofthe Agreement is attached as Exhibit A to the Complaint. (Doc. 1-1.)
Pursuant to the Agreement, Andersen was employed at gpac's "Office," which is defined
at its location in Sioux Falls, South Dakota. (Agreement §§ 1.1 and 2.1.) In its Answer to
CyberCoder's Counterclaim, gpac admits that "Andersen lived and worked in Colorado while
employed by gpac at the time he resigned from gpac," but gpac asserts that "Andersen lived and
worked in South Dakota when the Agreement was executed." (Doc. 7, Answer to Counterclaim,
p. 4, If 19.) In his Memorandum in Support of Motion for Judgment on the Pleadings, Andersen
admits that he signed the Agreement while working for gpac in South Dakota. (Doc. 20, p.10.)
And again, in his Reply Brief, Andersen states:
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Although Blake executed his EA while he lived in, and worked for GPAC,in South
Dakota, he was intentionally transferred by GPAC to Colorado. By opening an
office in Colorado, and by hiring Colorado residents to work for the company,
GPAC assumed the legal obligation to follow Colorado's employment laws. While
Blake's EA may not have been void when it was first executed, it became avoidable
and unenforceable once GPAC chose to have Blake and others live and work for it
in Colorado.
(Doc. 30, p. 7.)
The Agreement contains four provisions that are relevant to the breach of contract
allegations in Count 1 ofthe Complaint. The first is a nondisclosure provision in Section 8 of the
Agreement which prohibits employees from using or disclosing "to any person the Company's
Proprietary Information either during or after Employee's employment."(Agreement § 8.2.) This
provision also requires employees to return Proprietary Information to gpac upon termination of
employment, and to delete such information from their personal property and social media sites.
{Id. at § 8.1.) "Company's Proprietary Information" is defined elsewhere in the Agreement as"the
Company's confidential information" including a long list of items ranging from customer lists,
identity of candidates and clients, billing rates, computer programs and data, to "all such
information developed by its employees, whether or not during working hours, that is related to
the Company's business." (Agreement § 1.12.) The Agreement reflects that gpac considers its
Propriety Information as constituting "trade secrets." {Id.)
The second provision is a non-solicitation covenant in Section 9 of the Agreement which
provides:
For a period of two years following the effective date of the termination of the
Employee's employment, the Employee shall not, in the course of the personnel
placement service business, solicit or provide services to any client, interim
employee or candidate or solicit for employment or employ any interim employee
or candidate, who resides in the United States, and who contacted the Company or
had been contacted by the Company for personnel placement service business and
shall not assist, directly or indirectly, any other person other than the Company in
so doing, provided that the Company remains in the personnel placement service
business in the United States.
(Agreement § 9.)
The third provision is a convenant not to compete in Section 10 which prevents the
employee from engaging "in the activities of an Account Executive, outside sales representative,
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coordinator, research assistant, project coordinator, manager, or trainer in the personnel placement
service business within a two hundred mile radius ofthe Office, any Remote Office,or any Home"
for a period of two years following termination of employment with gpac. (Agreement §§ 10.1,
10.1.1.)"Office" is defmed as "the office of the Company located at 116 West 69^ Street, Sioux
Falls, South Dakota. (Jd. § 1.1.) The "Remote Office" is "any location approved by the Company
in which the employee is regularly doing business on behalf of the Company other than the
'Office.'" {Id. § 1.2.) "Home" means"any location which is the employee's primary residence at
any time while the employee is employed by the Company." {Id. § 1.3.)
Finally, under Section 12 of the Agreement, the employee agrees not to induce any other
employees ofgpac to quit their employment with gpac or otherwise contribute to other employees
violating their contractual obligations to gpac. (Agreement § 12.2.)
Andersen resigned employment at gpac on January 4,2021.(Complaintf 14.) He went to
work for CyberCoders as an Executive Recruiter on or about September 2021. (Doc. 5, Answer
and Counterclaim by CyberCoders, p. Il,lff 18-19.) CyberCoders, a California company with its
principal place of business in Irvine, California, is a nationwide permanent placement recruiting
firm. (Doc. 5, p. 9,f 8.)
Gpac originally brought this action in the Second Judicial Circuit Court, Lincoln County,
South Dakota on October 20, 2021. (Doc. 1-1.) On November 23, 2021, CyberCoders removed
the case to this Court pursuant to 28 U.S.C. §§ 1441 and 1446 based on diversity jurisdiction.
(Doc. 1.)
Gpac asserts five counts in its Complaint. The breach of contract claim in Count 1 alleges
that Andersen breached Sections 8, 9, 10 and 12 of the Agreement:
Employee has breached the Agreement through; (a) using or disclosing gpac's
confidential information in violation of Section 8 of the Agreement;(b)solicitation
of gpac's current or prospective clients and candidates within two years of
termination of employment with gpac within the restricted geographic area in
violation of Section 9 of the Agreement; (c) being employed by or in a service
relationship with New Employer within two years of termination of employment
with gpac within the restricted geographic area in violation of Section 10 of the
Agreement; or (d) engaging in acts to induce other gpac employees to terminate
their employment with gpac or otherwise contributing to other employees of gpac
violating their contractual obligations to gpac.
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(Doc. 1-1, Complaint, p. 3, jf 17.) In Count 2 of the Complaint, gpac asserts that both Andersen
and CyberCoders misappropriated gpac's trade secrets. Count 3 is a claim against CyberCoders
for tortious interference with gpac's Agreement by hiring and continuing to employ Andersen.
Gpac asserts an unfair competition claim against both Andersen and CyberCoders in Count 4.
Finally, gpac seeks punitive damages from both Defendants in Count 5 of the Complaint.
Andersen filed an Answer to the Complaint. (Doc. 16.) CyberCoders filed an Answer and
a Counterclaim seeking, among other things, a declaration that the restrictive covenants in the
Agreement are unenforceable. (Doc. 7.) Both Defendants now move for judgment on the
pleadings pursuant to Federal Rule of Civil Procedure 12(c).
Defendants argue that Colorado law governs the Agreement based on Andersen's residence
in Colorado for the majority ofhis employment with gpac,and that the Agreement is unenforceable
under Colorado law. Alternatively, Defendants argue that, even if South Dakota law applies,
Andersen is still entitled to judgment in his favor on gpac's breach of contract claim, and thus
CyberCodere also is entitled to judgment in its favor on gpac's tortious interference with contract
claim because that claim is premised on an Agreement that is invalid and unenforceable.
Defendants further argue that Count 2, misappropriation of trade secrets, is not supported by
sufficient facts alleged in the Complaint, and therefore they are entitled to judgment on that claim.
Andersen also contends that Count 4, unfair competition, is not a separate, independent cause of
action, but "is more ofa label used to generally describe more specific claims or causes ofaction."
(Doc. 20, p. 31.) Finally, Anderson asserts that the claim for punitive damages in Count 5 cannot
be a stand-alone claim.
STANDARD OF REVIEW
A motion for judgment on the pleadings is appropriately granted "where no material issue
offact remains to be resolved and the movant is entitled to judgment as a matter oflaw." demons
V. Crawford, 585 F.3d 1119, 1124(8th Cir. 2009). In considering a motion under Federal Rule of
Civil Procedure 12(c), It is analyzed under the same rubric as that of a Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which relief can be granted. See id. See also E.E.O.C. v.
Northwest Airlines. Inc., 216 P. Supp. 2d 935, 937(D. Minn. 2002). Under Rule 12(bX6), the
factual allegations ofa complaint are assumed true and construed in favor ofthe plaintiff,"even if
it strikes a savvy judge that actual proof of those facts is improbable." Bell Atlantic Corp. v.
Twombly,550 U.S.544,556(2007), cited in Data Mfg., Inc. v. United Parcel Serv., Inc.,557 F.3d
Case 4:21-cv-04201-LLP Document 35 Filed 05/10/22 Page 5 of 22 PageID #: 297
849, 851 (8th Cir. 2009). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his
'entitlement to relief requires more than labels and conclusions, and a formulaic recitation ofthe
elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal citations omitted).
The complaint must allege facts, which, when taken as true, raise more than a speculative right to
relief. Id.(intemal citations omitted); Benton v. Merrill Lynch <& Co., Inc., 524 F.3d 866, 870(8th
Cir. 2008). Although Federal Rule of Civil Procedure 8 may not require "detailed factual
allegations," it "demands more than an unadomed, the-defendant-unlawflilly-harmed-me
accusation." Ashcroft v. Iqbal,556 U.S. 662,678(2009). A claim must have facial plausibility to
survive a motion to dismiss. Id. Determining whether a claim has facial plausibility is "a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense." Ashcroft, 556 U.S. at 679.
In considering a motion to dismiss for failure to state a claim under Rule 12(b)(6), courts
primarily look to the complaint and "'matters incorporated by reference or integral to the claim,
items subject to judicial notice, matters of public record, orders, items appearing in the record of
the case, and exhibits attached to the complaint whose authenticity is unquestioned;' without
converting the motion into one for summary judgment." Miller v. Redwood Toxicology Lab., Inc.,
688 F.3d 928, 931 n. 3 (8th Cir. 2012)(quoting 5B Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1357(3d ed. 2004)).
"On a motion to dismiss for breach of contract, courts look not only at the sufficiency of
the complaint but also at the contract itself, which by definition is integral to the complaint."Axiom
Inv. Advisors, LLC by & through Gildor Mgmt., LLC v. Deutsche Bank AG,234 F. Supp. 3d 526,
533(S.D.N.Y. 2017). See also Stahl v. U.S. Dep't ofAgric., 327 F.3d 697, 700 (8th Cir. 2003)
("In a case involving a contract, the court may examine the contract documents in deciding a
motion to dismiss."). A copy of the Agreement is attached as Exhibit A to the Complaint and the
Court will consider it.'
' After Andersen filed his motion for judgment on the pleadings, gpac filed two separate
declarations with attached exhibits that relate to the Agreement. (Docs. 22 and 26.) Attached to
the first declaration as Exhibit A is a document entitled "Account Executive Employment
Agreement for Leadership." (Doc. 22-1.) The declaration states that Exhibit A is a copy of an
Addendum to Andersen's Agreement, and that it was executed on February 11,2020. Gpac argues
that the Addendum was signed before Andersen moved to Colorado, and that it raises a question
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CHOICE OF LAW
Before addressing the merits of Defendants' motions for judgment on the pleadings, the
Court must resolve the dispute over what law applies to gpac's breach of contract claim.^
Defendants ai^ue that Colorado law governs the Agreement based on Andersen's residence
in Colorado for the majority of his employment with gpac. Defendants assert that the Agreement
is unenforceable under Colorado law because the law and public policy in Colorado so strongly
disfavor the restrictive covenants in the Agreement.
Defendants point to the following provision ofthe Colorado Code:
(2)Any covenant not to compete which restricts the right of any person to receive
compensation for performance of skilled or unskilled labor for any employer shall
be void, but this subsection(2)shall not apply to:
(a) Any contract for the purchase and sale ofa business or the assets of a business;
(b) Any contract for the protection of trade secrets;
(c) Any contractual provision providing for recovery of the expense of educating
and training an employee who has served an employer for a period of less than
two years;
(d) Executive and management personnel and officers and employees who
constitute professional staff to executive and management personnel.
of fact whether Andersen was "professional staff' of gpac. {Doc. 21, pp. 12-13.) Thus, gpac
asserts, even if Colorado law applies, the Colorado statute does not void Ae Agreement because
the law contains an exception allowing non-compete agreements for professional staff.
Six exhibits are attached to the second declaration.(Docs. 26-1-26-6.) The first exhibit appears
to be a duplicate ofthe January 17, 2019 Agreement attached to the Complaint. (Doc. 26-1.)The
declaration explains that Exhibits 2 through 6 are exhibits to the January 17, 2019 Agreement.
Those exhibits are dated January 17,2019, January 28,2020, February 11,2020, March 20,2020,
and May 20,2020.(Docs. 26-2- 26-6.) They appear to pertain to Andersen's compensation for his
work with gpac, but gpac does not explain their relevance.
Andersen objects to consideration of gpac's declarations and referenced exhibits in deciding the
pending motion "because he cannot in good faith admit or agree that these materials are authentic,
genuine, and complete."(Doc.30, p. 2.)The Court need not reach this issue because it has no need
to consider Docs.22 or 26 in order to rule on Defendants' motions forjudgment on the pleadings.
2 Andersen asserts that gpac's other claims or Counts "do not require a conflict of law analysis
because South Dakota and Colorado substantive laws are the same." (Doc. 20, p. 7.) CyberCoders
does not argue to the contrary. (Doc. 24.) If no conflict exists, the Court need not engage in a
choice of
an&\y%\%. See Prtidential Ins. Co. ofAmerica v. Kamrath,475 F.3d 920,924(8th Cir.
2007).
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Colo. Rev. Stat. § 8-2-113(2). Defendants assert that none of the exceptions in Sections 2(a)-(d)
apply here, and thus the non-compete covenant in the Agreement is void. Andersen adds that
"Colorado's public policy against non-competes is so strong that its Legislature has made it
'unlawful to use force,threats, or other means ofintimidation to prevent any person from engaging
in any lawful occupation at any place he sees fit.'"(Doc. 20, p. 12, citing Colo. Rev. Stat. § 8-2113(4)).
Andersen's Agreement with gpac includes two provisions that are relevant to Defendants'
choice-of-law argument. First, the choice-of-law provision states: "This Agreement, and any
controversies, claims, disputes or matters in question arising out of or relating to this Agreement
shall be construed, governed, and enforced in accordance with the laws of the Slate of South
Dakota." (Agreement § 16.) Second, the choice-of-forum clause states:
The sole and exclusive forum for resolving any and all controversies, claims,
disputes and matters in question arising out of, or relating to, the employment of
the Employee by the Company or the termination of such employment, or this
Account Executive Employment Agreement or the breach thereof, or the relations
between the parties, arising either during or after the employment relationship, shall
be in either the South Dakota Circuit Court for Second Judicial Circuit or the United
States District Court for the District of South Dakota, Southern Division.
(Agreement § 17.1.) According to gpac, these provisions require the application of South Dakota
law to its breach of contract claim.
\n Broin and Associates, Inc. v. Genencor Intern.. Inc., 232F.R.D.335(D.S.D.2005), this
Court set forth the general rule applicable to resolving choice of law issues: "When confronted
with a conflict oflaws issue in a diversity action, a federal district court must apply the conflict of
law rules of the forum state." Id. at 338 (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487,496 (1941)). See also Black Hills Truck & Trailer, Inc. v. Mac Trailer Manufacturing, Inc.,
2015 WL 8483353,*l (D.S.D. Dec. 9, 2015). In Miller v. Honkamp Krueger Financial Services.
Inc.,the Eighth Circuit reiterated the rule that,"[i]n determining which state's law applies, we look
to the choice oflaw principles ofthe forum state." 9F.4th 1011,1016(8th Cir.2021)(quoting/4m.
Fire & Cas. Co. v. Hegel, 847 F.3d 956,959(8th Cir. 2017)). In designating South Dakota law as
governing, the Miller court determined that "[ujnder South Dakota law, courts honor contractual
choice-of-law provisions unless friey contravene South Dakota public policy." Miller, 9 F.4lh at
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1016(citing Dunei/foi/?., L.L.C. v. Country Kitchen Int'l,Inc.,623 N.W.2d484,488(S.D.2001)).
The South Dakota Supreme Court has stated that "[i]n South Dakota, a stipulation that provides
the governing law is permitted." Dunes, 623 N.W.2d at 488 (citing State ex rel Meierhenry v.
Spiegel, Inc., 211 N.W.2d 298,299(S.D. 1979)).
Recognizing that choice of law issues can be complex. South Dakota has turned to the
Restatement (Second) of Conflicts to navigate the nuances of Conflicts of Laws. As this court
recently noted,"South Dakota applies the provisions of the Restatement(Second) of Conflicts of
Laws in order to resolve questions about which state's laws govern in particular factual
situations." O/wego Liner Company, Inc. v. Monte Vista Group. LLC, 2019 WL 4415378, *5
(D.S.D. Sept. 16,2019)(citing D«»es,623 N.W.2d at 488 {
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