Rail Scale, Inc. v. Balanced Railscale Certification, LLC et al

Filing 92

MEMORANDUM OPINION AND ORDER. Signed by Magistrate Judge Roy S. Payne on 1/23/2017. (ch, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
RAIL SCALE, INC.,

Plaintiff,
v.
BALANCED RAILSCALE
CERTIFICATION, LLC, TROY
SWEDLUND, DENNIS SANDIFER,

Defendants.

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§ Case No. 2:15-CV-02117-RSP
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MEMORANDUM OPINION AND ORDER
This is an unfair competition case in which Rail Scale, Inc. (“RSI”) alleges that former
RSI employees, Troy Swedlund and Denis Sandifer, and their newly-formed rail scale
certification business, Balanced Railscale Certification, LLC (“BRC”), misappropriated RSI’s
trade secrets, breached fiduciary duties to RSI, committed civil theft, engaged in common law
unfair competition, and infringed RSI’s trademark and tradename. Defendants counterclaim that
RSI intentionally interfered with their prospective business and disparaged BRC, and Defendants
seek a declaratory judgment that Defendants are not infringing RSI’s trademarks, tradename, or
trade secret rights. RSI moves to dismiss these counterclaims for failure to state a claim under
Rule 12(b)(6). Dkt. No. 41 and 47. For the reasons explained below, RSI’s motion to dismiss is
GRANTED-IN-PART to the extent that Defendants’ declaratory judgment counterclaims are
dismissed as redundant of RSI’s affirmative claims. RSI’s motion to dismiss is otherwise
DENIED.

DISCUSSION
A complaint should be dismissed if it “fail[s] to state a claim upon which relief can be
granted.” Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss under Rule 12(b)(6), a
court “accept[s] all well-pleaded facts as true, and view [s] those facts in the light most favorable
to the plaintiff.” Bustos v. Martini Club, Inc., 599 F.3d 458, 461 (5th Cir. 2010). The court must
then decide whether those facts state a plausible claim for relief. Bowlby v. City of Aberdeen,
Miss., 681 F.3d 215, 217 (5th Cir. 2012). “A claim is plausible if ‘the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. The plausibility standard is not akin to a ‘probability requirement,’ but it
asks for more than a sheer possibility that a defendant has acted unlawfully.” United States v.
Bollinger Shipyards, Inc., 775 F.3d 255, 260 (5th Cir. 2014) (citing Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)). Instead, the standard “simply calls for enough facts to raise a reasonable
expectation that discovery will reveal evidence of [the claim].” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 545 (2007). “The factual allegations in the complaint need only ‘be enough to raise a
right to relief above the speculative level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).’” Wooten v. McDonald Transit Assocs., Inc., 788
F.3d 490, 498 (5th Cir. 2015) (quoting Twombly, 550 U.S. at 555)).
The plausibility standard “does not give district courts license to look behind [a
complaint’s] allegations and independently assess the likelihood that the plaintiff will be able to
prove them at trial.” Harold H. Huggins Realty, Inc. v. FNC, Inc., 634 F.3d 787, 803 n.44 (5th
Cir. 2011)). Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a plaintiff is generally
required to provide “only a plausible ‘short and plain’ statement of the plaintiff’s claim, not an
exposition of [the plaintiff’s] legal argument.” Skinner, 562 U.S. at 530. The “short and plain”

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statement does not “countenance dismissal of a complaint for imperfect statement of the legal
theory supporting the claim asserted.” Johnson v. City of Shelby, Miss., 135 S. Ct. 346, 346
(2014).
A. Declaratory Judgment Counterclaims
Courts in the Fifth Circuit regularly reject declaratory judgment claims seeking the
resolution of issues that will be resolved as part of the plaintiff’s affirmative claims. Am. Equip.
Co. v. Turner Bros. Crane & Rigging, LLC, No. 4:13-CV-2011, 2014 WL 3543720, at *4 (S.D.
Tex. July 14, 2014) (collecting cases). RSI argues that Defendants’ declaratory judgment
counterclaims should be dismissed because they are mirror images of RSI’s trademark,
tradename, and trade secret claims. Dkt. No. 41 at 2-4. The Court agrees.
Defendants’ declaratory judgment counterclaim concerning RSI’s allegations of
trademark and tradename infringement is a mirror-image of RSI’s claim. RSI alleges that
Defendants are infringing its “Rail Scale” mark and name. Dkt. No. 11 ¶ 88. Defendants’
counterclaim seeks a declaratory judgment that “RSI has no enforceable rights with regard to the
term ‘RAIL SCALE,” and that “none of the Defendants is infringing any protectable or
enforceable trademark or trade name rights as to that term.” Dkt. No. 43 ¶ 158 (emphasis added).
The same is true of Defendants’ declaratory judgment claim regarding RSI’s trade
secrets. RSI’s amended complaint alleges that “Defendants, by virtue of their prior employment
with RSI, possess RSI’s Confidential Trade Secrets, including but not limited to RSI’s marketing
and pricing strategies, customer lists, and proprietary methods for railroad scale certification.”
Dkt. No. 11 ¶ 52. Defendants’ counterclaim seeks a declaratory judgment that “RSI has no
enforceable trade secrets in any of the information it has claimed,” and that “none of the

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Defendants has or could [have] misappropriated any of those purported trade secrets.” Dkt. No.
43 ¶ 163 (emphasis added).
Defendants contend that their counterclaims should not be dismissed because the
counterclaims seek a declaratory judgment that Defendants are not infringing any of RSI’s
trademark, trade name, or trade secret rights. Dkt. No. 44 at 2. But Defendants’ counterclaims
are not worded that broadly. Accordingly, Counts I and II of Defendants’ Second Amended
Counterclaim, Dkt. No. 43 ¶¶ 154-64, are DISMISSED. Defendants’ liability for trademark and
tradename infringement and trade secret misappropriation will be resolved as part of RSI’s
claims. A declaratory judgment from the Court is unnecessary. See Wilton v. Seven Falls Co.,
515 U.S. 277, 287 (1995) (Courts have “broad discretion to grant or decline to grant declaratory
judgment.”); Am. Equip., 2014 WL 3543720, at *3 (“[I]f a request for declaratory judgment adds
nothing to an existing suit, it may be dismissed.”) (citing Pan–Islamic Corp. v. Exxon Corp., 632
F.2d 539, 546 (5th Cir. 1980)).
B. Tortious Interference Counterclaim
The parties do not dispute that under Texas law, a claim for tortious interference must
allege facts supporting the following elements:
(1) A reasonable probability that the injured party and a third party would have entered
into a contractual relationship;
(2) The accused party committed an independently tortious or wrongful act preventing
the relationship from occurring;
(3) The accused party did the act with a conscious desire to prevent the relationship from
occurring or knew that the interference was certain or substantially certain to occur as
a result of the conduct; and

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(4) The injured party incurred actual harm or damage as a result of the interference.
Dunlap v. Denison Indep. Sch. Dist., No. 4:09CV234, 2010 WL 1189561, at *5 (E.D. Tex. Mar.
25, 2010).
RSI contends that Defendants have not alleged facts sufficient to support the first two
elements of a tortious interference claim. First, RSI argues that Defendants have not alleged facts
supporting “any particular prospective business relationships with which to interfere.” Dkt. No.
47 at 4. Second, RSI contends that Defendants have not alleged any independently tortious or
wrongful act. Id. at 6-8. The Court disagrees on both points.
Defendants allege that RSI “has resorted to contacting companies in the rail-scale
industry to threaten that any company that does business with BRC faces the risk of some sort of
legal liability and involvement with the current litigation.” Dkt. No. 43 ¶ 166. The counterclaim
describes one such instance of alleged tortuous interference, see id. ¶ 167, and states that “thirdparty discovery will reveal numerous other instances,” id. ¶ 168.
With respect to the first element of a tortious interference claim, Defendants allege that
before RSI filed its complaint, BRC had been approached by a potential customer who requested
a quote from BRC. BRC and the potential customer were in the process of scheduling a test
certification when the potential customer informed BRC that it was no longer interested in the
contract. BRC alleges that it later learned that RSI’s Director of Scale Certification Services,
Keith Pearce, had called the potential customer to warn the customer that a contract with BRC
“would . . . result in [the customer] being liable to RSI as a part of RSI’s suit against BRC.” Id.
¶ 167.
Viewing these allegations in a light most favorable to the Defendants, the counterclaim
establishes a reasonable probability of a contractual relationship. Under Texas law, a tortious

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interference claimant does not have to prove that a contract “would have certainly been made but
for the interference,” but only that entering into a contract was “reasonably probable, considering
all of the facts and circumstances attendant to the transaction.” Paul v. Fedex Ground Package
Sys., Inc., No. CIV.A.H-10-258, 2010 WL 2269926, at *3 (S.D. Tex. June 4, 2010). Given the
potential customer’s request for a quote and BRC’s efforts to schedule a test certification, BRC
has alleged a reasonable probability that the potential customer and BRC would have entered
into a contract.
With respect to the second element, RSI contends that a phone call to a competitor’s
potential customer threatening litigation is not an independently tortious act because
“[e]nforcement of a party’s legal rights are not wrongful acts giving rise to a tortious interference
claim.” Dkt. No. 47 at 6 (citing Millionway Int’l, Inc. v. Black Rapid, Inc., No. CIV.A. H-131780, 2013 WL 6230366, at *4 (S.D. Tex. Dec. 2, 2013), aff’d, 585 F. App’x 1011 (Fed. Cir.
2014)). But RSI misunderstands the import of Millionway. Millionway dealt with a tortious
interference claim arising from a patent holder’s alleged intimidation of an accused party’s
suppliers, distributors, and customers, based on the accused party’s patent infringement.
Millionway, 2013 WL 6230366, at *4. The court dismissed the tortious interference claim
because the suppliers, distributors, and customers, like the accused party, were equally exposed
to patent infringement liability. Id. Thus, the patent holder was merely informing the third-parties
of their potential liability, which is not an independently tortious act.
Defendants’ tortious interference counterclaim is based on different circumstances.
Defendants allege that RSI informed BRC’s potential customers that a contract with BRC would
make them liable to RSI. But RSI’s claims are different than patent infringement claims in which
the liability of a manufacturer, customer, distributor, or supplier may be indistinguishable. By

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contrast, RSI characterizes its claims as being based on unfair competition. See Dkt. No. 11
(Amended Complaint) (“This is an unfair competition case.”). It is not clear how a customer
seeking certification of its rail scale could possibly be liable to RSI for unfair competition. See,
e.g.,15 U.S.C. §§ 1114, 1125. Based on the allegations in Defendants’ counterclaim, it is
plausible that RSI deliberately misled BRC’s potential customers into thinking otherwise in an
effort to interfere with BRC’s business.
RSI’s second argument regarding Defendants’ failure to allege facts to support an
independently tortious act is equally unconvincing. RSI argues that Defendants have failed to
plead RSI’s fraudulent misrepresentation to BRC’s potential customers with particularity. Dkt.
No. 47 at 7-8. To the contrary, Defendants’ counterclaim alleges that RSI’s Director called a
specific customer in February 2016 and told the customer that a contract with BRC would result
in liability to RSI, despite having no basis for such a conclusion. See Dkt. No. 48 at 4-5; Dkt. No.
43 ¶ 167. These allegations are sufficient to support the second element of a tortious interference
claim. See, e.g., Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir. 2005)
(“Rule 9(b) requires that plaintiffs plead enough facts to illustrate the ‘who, what, when, where,
and how’ of the alleged fraud.”) (internal quotation and citation omitted). Defendants’
allegations in Count III therefore adequately state a claim for tortious interference.
C. Business Disparagement Counterclaim
The parties do not dispute the five general elements of a claim for business
disparagement under Texas law: “(1) publication by the defendant of the disparaging words, (2)
falsity, (3) malice, (4) lack of privilege, and (5) special damages.” Teel v. Deloitte & Touche
LLP, No. 3:15-CV-2593-G, 2015 WL 9478187, at *3 (N.D. Tex. Dec. 29, 2015).

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RSI argues that Defendants have not alleged “any disparaging statements against their
economic interests.” Dkt. No. 47 at 9. This is not true. Defendants allege facts about a specific
phone call by an RSI Director telling a potential BRC customer that if it contracted with BRC, it
would be liable to RSI for unfair competition. Dkt. No. 43 ¶¶ 167, 173-77. RSI assumes that the
disparaging statement must be about the injured party’s economic interest. See Dkt. No. 47 at 10
(“this type of statement has nothing to do with Defendants’ economic or business interests”).
This assumption is simply incorrect and warrants no further discussion. See Teel, 2015 WL
9478187, at * 4 (“[T]he action for business disparagement protects the economic interests of the
injured party against pecuniary loss.”).
RSI also argues that Defendants have not alleged that any disparaging statements are
false. Dkt. No. 47 at 10-11. Again, not true. Defendants’ counterclaim alleges that “RSI has
made false and disparaging statements . . . including statements that doing business with BRC
would subject third parties to legal liability relating to RSI’s purported trademark, trade dress
rights, and trade secrets.” Dkt. No. 43 ¶ 174 (emphasis added). RSI insists that BRC could not
prove that RSI’s statements were false because there is an “an undecided legal issue” as to
whether BRC’s customers could be liable to RSI for unfair competition by doing business with
BRC. Based on the parties’ submissions, however, there is no basis to conclude that a rail scale
customer could be liable to RSI for unfair competition. At least in this context, a customer
seeking rail scale certification services does not compete with a company providing those
services, nor would the customer’s typical contractual relationship give rise to a trademark,
tradename, or trade secret claim. Accordingly, Defendants’ counterclaim plausibly alleges that
RSI’s statements were false.

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Finally, RSI argues that Defendants have not alleged special damages. Once again, not
so. Defendants allege facts regarding a specific business relationship that ceased to exist
following RSI’s alleged disparaging statements. Dkt. No. 43 ¶¶ 167, 173-77. Accordingly,
Defendants have made the requisite allegations of “specific lost sales, loss of trade, or loss of
other dealings.” Encompass Office Sols., Inc. v. Ingenix, Inc., 775 F. Supp. 2d 938, 959 (E.D.
Tex. 2011) (quoting Astoria Indus. of Iowa, Inc. v. SNF, Inc., 223 S.W.3d 616, 628 (Tex. App..
Fort Worth 2007). Accordingly, Defendants’ business disparagement allegations in Count IV
adequately state a claim for which relief can be granted.
CONCLUSION
RSI’s motion (Dkt. No. 41, 47) to dismiss Defendants’ counterclaims is GRANTED-INPART and DENIED-IN-PART. Defendants’ declaratory judgment counterclaims in Counts I
and II (Dkt. No. 43) are DISMISSED as redundant. Defendants adequately allege facts
supporting their tortious interference and business disparagement claims in Counts III and IV,
and thus the remainder of RSI’s motion is DENIED.
SIGNED this 3rd day of January, 2012.
SIGNED this 23rd day of January, 2017.

____________________________________
ROY S. PAYNE
UNITED STATES MAGISTRATE JUDGE

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