Samsung Electronics America Inc v. Chung et al
MEMORANDUM OPINION AND ORDER granting in part, denying in part 57 Motion to Dismiss filed by All Pro Distributing Inc., and granting plaintiff leave to file a second amended complaint within 28 days. (Ordered by Judge Sidney A Fitzwater on 2/16/2017) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
YANG KUN “MICHAEL” CHUNG,
§ Civil Action No. 3:15-CV-4108-D
In this action by plaintiff Samsung Electronics America, Inc. (“Samsung”)1 alleging
claims related to a scheme involving the distribution of service parts for Samsung devices,
defendant All Pro Distributing, Inc. (“All Pro”) moves under Fed. R. Civ. P. 12(b)(6) to
dismiss Samsung’s first amended complaint (“amended complaint”) for failure to state a
claim on which relief can be granted. For the reasons that follow, the court grants the motion
in part and denies it in part, and grants Samsung leave to replead.
Samsung is the U.S. subsidiary of the Korean company Samsung Electronics Co.,
Ltd. (“Samsung Ltd.”). It recently merged with Samsung Telecommunications America,
LLC (“Samsung Telecom”), another Samsung Ltd. subsidiary. The two subsidiaries now
operate as one unit in the United States, but during the events giving rise to this case,
Samsung Telecom was a separate entity. For ease of reference, the court will refer to the
new, consolidated company rather than differentiate between the subsidiaries.
Samsung is the U.S. subsidiary of Samsung Electronics Co., Ltd., a Korean company.2
Samsung produces and sells, among other things, cell phone replacement parts for use by
third parties in servicing and refurbishing Samsung devices. Samsung enters into agreements
with these third-party servicers and distributors to sell the replacement parts, which it does
not authorize for sale on the open market. In 2008 Samsung and All Pro entered into an
agreement under which All Pro purchased parts for service. In 2011 the companies entered
into a distributor agreement for certain Samsung products. And in 2013 All Pro signed an
accessory distribution agreement authorizing it to sell accessory products to authorized
Samsung retailers. No agreement permitted unauthorized use of trademarks or unauthorized
distribution of Samsung products.
Samsung alleges that All Pro and four Samsung employees whose employment
involved the management and sale of Samsung parts, and who Samsung alleges exerted
control over Samsung’s Services Operations Department—Michael Chung (“Chung”),
Thomas Porcarello (“Porcarello”), Yoon-Chul “Alex” Jang, and Jin-Young Song
(collectively, the “Employee Defendants”)—were involved in an unlawful scheme centering
In deciding this Rule 12(b)(6) motion, the court construes Samsung’s amended
complaint in the light most favorable to Samsung, accepts all well-pleaded factual
allegations, and draws all reasonable inferences in its favor. See, e.g., Lovick v. Ritemoney
Ltd., 378 F.3d 433, 437 (5th Cir. 2004). “The court’s review [of a Rule 12(b)(6) motion] is
limited to the complaint, any documents attached to the complaint, and any documents
attached to the motion to dismiss that are central to the claim and referenced by the
complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th
on service parts. As it relates to All Pro, the scheme had two main components: (1)
providing “build kits”—a collection of all replacement parts necessary to construct a
Samsung phone—to All Pro and other third parties; and (2) designing and rigging an auction
process to allow select companies, including All Pro, to obtain Samsung parts at a significant
discount. According to Samsung, All Pro compensated some of the Employee Defendants
through bribes and kickbacks, including $10,000 in payments to Chung. Samsung alleges
that this scheme operated from 2012 until 2015.
Regarding the first aspect of the scheme, Samsung asserts that Chung, Porcarello, and
other employees directed build kits to All Pro through a third party. The build kits included,
among other things, PBAs (the “brains” of Samsung cell phones) and OCTAs (the touch
screens used on the devices.). Samsung intended the parts to be used for servicing, and it did
not authorize either part to be resold. The OCTA also bore Samsung’s registered trademark.
Samsung alleges that the third party constructed phones from the build kits and then routed
them to All Pro for distribution.
The second aspect of the scheme involved an auction process to dispose of extra or
obsolete parts. According to Samsung, Porcarello and Chung played a role in establishing
the process, and they rigged auctions to favor All Pro. Samsung alleges that Chung and
Porcarello suppressed competition and provided All Pro with confidential information about
the process before giving it to other bidders. This allowed All Pro to pre-sell parts that it
would buy at auction and undercut the market.
After Samsung filed this lawsuit, All Pro moved to dismiss Samsung’s complaint, and
Samsung moved for leave to amend. The court denied both motions without prejudice, and
it granted Samsung leave to file an amended complaint. Samsung then filed its amended
complaint, asserting these claims against All Pro: federal and state trademark infringement;
violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1962(a), (c), and (d); breach of fiduciary duties; aiding and abetting breach of fiduciary
duties; tortious interference with contract; civil conspiracy; and misappropriation of
confidential information under Texas law. All Pro now moves under Rule 12(b)(6) to
dismiss the amended complaint. Samsung opposes the motion.
Under Rule 12(b)(6), the court evaluates the pleadings by “accept[ing] ‘all
well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.’” In re
Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby
Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). To survive All
Pro’s motion to dismiss, Samsung must allege enough facts “to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U. S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant[s] [are] liable for the misconduct alleged.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009). “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.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough
to raise a right to relief above the speculative level [.]”). “[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.’” Iqbal, 556 U.S.
at 679 (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.”
Although “the pleading standard Rule 8 announces does not require ‘detailed factual
allegations,’” it demands more than “‘labels and conclusions.’” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 555). And “‘a formulaic recitation of the elements of a cause
of action will not do.’” Id. (quoting Twombly, 550 U. S. at 555).
To obtain a Rule 12(b)(6) dismissal based on an affirmative defense, the “successful
affirmative defense [must] appear clearly on the face of the pleadings.” Cochran v. Astrue,
2011 WL 5604024, at *1 (N.D. Tex. Nov. 17, 2011) (Fitzwater, C.J.) (quoting Clark v.
Amoco Prod. Co., 794 F.2d 967, 970 (5th Cir.1986)). In other words, All Pro is not entitled
to dismissal under Rule 12(b)(6) based on an affirmative defense unless Samsung “‘has
pleaded [it]self out of court by admitting to all of the elements of the defense.’” Id. (quoting
Sivertson v. Clinton, 2011 WL 4100958, at *3 (N.D. Tex. Sept. 14, 2011) (Fitzwater, C.J.)).
The court first considers whether Samsung has sufficiently pleaded trademark
infringement claims under the Lanham Act, 15 U.S.C. § 114(a), and under the Texas
Trademark Act (“TTA”), Tex. Bus. & Comm. Code Ann. § 16.102 (West 2015), and unfair
competition by false designation claims under the Lanham Act, 15 U.S.C. § 125(a).
“To succeed on a trademark infringement claim, a plaintiff first must show ownership
of a legally protectable mark, and then it must establish infringement of the mark.” TGI
Friday’s, Inc. v. Great Nw. Rest., Inc., 652 F.Supp.2d 763, 767 (N.D. Tex. 2009) (Fitzwater,
C.J.) (citing Am. Rice, Inc. v. Producers Rice Mill, Inc., 518 F.3d 321, 329 (5th Cir. 2008)).
Under the Lanham Act, infringement exists if a person
uses (1) any reproduction, counterfeit, copy, or colorable
imitation of a mark; (2) without the registrant’s consent; (3) in
commerce; (4) in connection with the sale, offering for sale,
distribution, or advertising of any goods; (5) where such use is
likely to cause confusion, or to cause mistake or to deceive.
Id. (internal quotation marks and citations omitted). A device built from genuine parts can
still qualify as a “reproduction, counterfeit, copy, or colorable imitation” if the process used
to construct it was different than that which the mark holder used to construct its genuine
products. Mary Kay, Inc. v. Weber, 601 F.Supp.2d 839, 853 (N.D. Tex. 2009) (Fish, J.). In
these circumstances, “the mark holder [needs] to show only that ‘(i) it has established
legitimate, substantial, and nonpretextual quality control procedures, (ii) it abides by these
procedures, and (iii) the non-conforming sales will diminish the value of the mark.’” Id.
A finding of “likelihood of confusion” requires “a probability of confusion” rather
than a mere possibility. See Xtreme Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 226
(5th Cir. 2009). These factors are used to determine the likelihood of confusion: (1) the
strength of the plaintiff’s trademark, (2) mark similarity, (3) product similarity, (4) outlet and
purchaser identity, (5) advertising media similarity, (6) defendant’s intent, (7) actual
confusion, and (8) care exercised by potential purchasers. Am. Rice, 518 F.3d at 329. “The
digits are a flexible and nonexhaustive list. They do not apply mechanically to every case
and can serve only as guides, not as an exact calculus.” Paulsson Geophysical Servs., Inc.
v. Sigmar, 529 F.3d 303, 311 (5th Cir. 2008) (quoting Scott Fetzer Co. v. House of Vacuums
Inc., 381 F.3d 477, 485 (5th Cir. 2004)).
All Pro maintains that Samsung’s claims must be dismissed because the allegations
of the amended complaint, taken as true, do not demonstrate that All Pro sold, offered for
sale, distributed, or advertised infringing products, or that any devices All Pro sold would
likely cause confusion in the marketplace, and because the first sale doctrine precludes
recovery.3 Samsung responds that All Pro misunderstands its contention under the Lanham
Act as asserting that the devices that All Pro constructed and distributed are genuine.
The “first sale” doctrine provides that
[t]rademark law generally does not reach the sale of genuine
goods bearing a true mark even though such sale is without the
mark owner’s consent. Once a trademark owner sells his
product, the buyer ordinarily may resell the product under the
original mark without incurring any trademark law liability.
Martin’s Herend Imps., Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296, 1303 (5th
Cir. 1997) (emphasis in original) (citations and internal quotation marks omitted). All Pro
alleges that “Samsung fails, beyond conclusory allegations, to allege how the resale of
genuine goods bearing a true mark is precluded under 15 U.S.C. § 1114(a).” D. Br. 26. The
court understands this contention to invoke the first sale doctrine. See, e.g., Matrix
Essentials, Inc. v. Emporium Drug Mart, Inc. of Lafayette, 988 F.2d 587, 590 (5th Cir. 1993)
(“[T]rademark law does not apply to the sale of genuine goods bearing a true mark, even if
the sale is without the mark owner’s consent.”).
Samsung contends that, even though All Pro used genuine parts to build the devices it sold,
the final products were materially different from devices that Samsung manufactured and
distributed. Samsung posits that it used rigid and consistent procedures to construct its
phones, and that it would not be possible for any unauthorized third party to replicate these
procedures. And Samsung maintains that while the parts used to construct a genuine
Samsung device and a device that All Pro distributed might be exactly the same, the devices
All Pro distributed were counterfeit because the processes used to assemble them resulted
in materially different phones.
The court concludes that Samsung has adequately pleaded its trademark infringement
claim under the Lanham Act. Samsung alleges the first five elements of its trademark claim:
(1) any reproduction, counterfeit, copy, or colorable imitation of a mark; (2) without the
registrant’s consent; (3) in commerce; (4) in connection with the sale, offering for sale,
distribution, or advertising of any goods; (5) where such use is likely to cause confusion, or
to cause mistake or to deceive. The amended complaint also alleges that a third party
assembled cell phones bearing the exact registered Samsung trademark from parts that were
designated for the limited purpose of repairing Samsung devices; that Samsung assembles
its phones in accordance with rigid assembly protocols, and the phones made from build kits
could not possibly meet these standards; that this third party sold the phones to All Pro,
which distributed them to the market; and that none of these phones met Samsung’s assembly
These allegations, taken as true, plausibly plead that Samsung is the owner of a
trademark for the relevant devices and that its mark has been infringed. Samsung alleges that
All Pro distributed devices that it did not have permission to sell.4 It also adequately pleads
that All Pro’s devices likely caused confusion in the marketplace. The amended complaint
alleges that the devices were sold with the Samsung mark, but did not include (1) Samsung’s
quality control protocol, (2) Samsung’s applicable warranty, (3) genuine packaging, or (4) an
assurance that the phone was built by Samsung. The court concludes that Samsung has
pleaded a plausible claim for trademark infringement under the Lanham Act.
The court also concludes that All Pro has failed to meet its burden of establishing that
Samsung has defeated its trademark infringement claim under § 1114 based on the first sale
doctrine. The first sale doctrine is an affirmative defense. Mary Kay, 601 F.Supp.2d at 852.
For the first sale doctrine to apply, All Pro must show that the devices it sold were not
“materially different from those sold by the trademark owner.” Id. (citing Martin’s Herald
Imps., Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296, 1302-03 (5th Cir. 1997))
(internal quotation marks omitted). Samsung has not admitted to this element in its amended
Samsung alleges, in pertinent part:
Chung and Porcarello improperly took all of the Samsung parts
necessary to build a phone and sold them to the third party for
less than fair market value. The third party assembled the parts
into counterfeit phones (bypassing Samsung’s rigorous
assembly protocols) and sold them to All Pro. All Pro sold these
assembled counterfeit phones to the market.
Am. Compl. ¶ 34.
complaint. See Cochran, 2011 WL 5604024, at *1. In fact, it alleges the opposite: “The
counterfeit devices constructed and distributed by Defendants are materially different from
Samsung’s genuine phones because, among other things[,] . . . the devices were not
assembled pursuant to Samsung’s rigorous quality control standards[.]” Am. Compl. ¶ 77.
Because the court holds that Samsung has sufficiently pleaded its trademark
infringement claim under § 1114, the court reaches the same conclusions as to Samsung’s
claims for infringement under the TTA and for unfair competition under § 1125(a). See
Choice Hotels, 940 F.Supp.2d at 538 (“Nevertheless, the Court must only conduct one
inquiry to determine the [defendants’] liability because . . . the facts that support an action
for trademark infringement under the Lanham Act also support” claims for trademark
infringement under Texas law and for unfair competition under § 1125(a)); see also Dall.
Cowboys Football Club, Ltd. v. Am.’s Team Props., Inc., 616 F.Supp.2d 622, 637 (N.D. Tex.
2009) (Kinkeade, J.) (“A determination of a likelihood of confusion under federal law is
sufficient to prove trademark infringement under Texas law.”); Condom Sense, Inc. v.
Alshalabi, 390 S.W.3d 734, 738 n.2 (Tex. App. 2012, no pet.) (“The stated intent of the
recodified version [of the TTA] was to bring Texas trademark laws ‘into alignment with
federal trademark infringement and dilution laws’ . . . . [T]he construction given to the
Lanham Act ‘should be examined as persuasive authority for interpreting and construing’ the
Texas Act.” (citations omitted)). Accordingly, the court denies All Pro’s motion to dismiss
Samsung’s claims for infringement under the TTA and for unfair competition under §
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The court next considers All Pro’s motion to dismiss Samsung’s civil RICO claims,
which allege violations of 18 U.S.C. § 1962(a), (c), and (d).
Section 1962(a) makes it unlawful “for any person who has received any income
derived, directly or indirectly, from a pattern of racketeering activity or through collection
of an unlawful debt in which such person has participated as a principal” to invest that
income or anything derived from that income into the establishment or operation of an
enterprise engaged in interstate commerce. Section 1961(1)(B) defines “racketeering
activity” in part as “any act which is indictable” under several specified sections of the
United States Code or state law. Section 1961(5) defines “pattern of racketeering activity”
as “requir[ing] at least two acts of racketeering activity, one of which occurred after the
effective date of this chapter and the last of which occurred within ten years (excluding any
period of imprisonment) after the commission of a prior act of racketeering activity[.]” To
recover for a violation of § 1962(a), a plaintiff must also plead injuries to its business or
property. See 18 U.S.C. § 1964(c). The plaintiff’s injuries must have
resulted from the investment or use of racketeering proceeds. In
other words, injuries resulting from predicate acts of
“racketeering activity” themselves cannot form the basis of an
investment injury for purposes of § 1962(a). Instead, the court
must determine whether the injuries asserted were the result of
the predicate acts or of the investment of racketeering proceeds
into a RICO enterprise.
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Davis-Lynch, Inc. v. Moreno, 667 F.3d 529, 550 (5th Cir. 2012) (citations omitted).
The court considers first whether Samsung has sufficiently pleaded that its injuries
were the result of investments of racketeering proceeds into a RICO enterprise.
In its brief, Samsung maintains that defendants’ conduct “reduced the number of
eligible bidders and allowed All Pro to win more auctions at lower prices, saturated the
market with the unlawful sale of Samsung equipment and parts, caused a loss of competition
at auction and on the open market, and resulted in lost profits to Samsung.” P. Br. 22
(quoting Am. Compl. ¶¶ 101-104) (internal quotation marks omitted). Samsung has failed,
however, to “assert or present facts showing . . . how it was injured by the investment of
the proceeds.” Davis-Lynch, 667 F.3d at 551 (emphasis in original). Accordingly,
Samsung’s claim under § 1962(a) is dismissed.
Samsung also alleges a violation of § 1962(c), which prohibits “any person employed
by or associated with any enterprise engaged in, or the activities of which affect, interstate
or foreign commerce, [from] conduct[ing] or participat[ing], directly or indirectly, in the
conduct of such enterprise’s affairs through a pattern of racketeering activity[.]” “‘Reduced
to their simplest terms, the essential elements of a [§ 1962(c)] claim are: (1) a person who
engages in (2) a pattern of racketeering activity (3) connected to the acquisition,
establishment, conduct, or control of an enterprise.’” Orthoflex, Inc. v. ThermoTek, Inc.,
2012 WL 2864510, at *2 (N.D. Tex. July 12, 2012) (Fitzwater, C.J.) (quoting Larrew v.
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Barnes, 2002 WL 32130462, at * 1 n.1 (N.D. Tex. Aug. 27, 2002) (Kaplan, J.), rec. adopted,
2002 WL 32130462 (N.D. Tex. Sept.17, 2002) (Fitzwater, J.)), appeal docketed, No.
16-11381 (5th Cir. Sept. 16, 2016).
All Pro does not dispute that it is a person for RICO purposes.5 The court will
therefore consider in § IV(D) whether Samsung has adequately pleaded a pattern and in
§ IV(E) whether Samsung has adequately pleaded an enterprise.
“To establish a pattern of racketeering activity, [Samsung] must allege (1) the
predicate acts of racketeering activity, and (2) a pattern of such acts.” Orthoflex, 2012 WL
2864510 at *2 (citing In re Burzynski, 989 F.2d 733, 742 (5th Cir. 1993)). A pattern of
racketeering activity must include two or more acts of racketeering activity. See 18 U.S.C.
§ 1961(5). “[A] ‘pattern’ requires both that the acts are ‘related’ to each other and that they
have ‘continuity.’” Burzynski, 989 F.2d at 742. “It is this factor of continuity plus
relationship which combines to produce a pattern.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S.
229, 239 (1989) (emphasis in original) (citation and internal quotation marks omitted).
Predicate acts are related if they “have the same or similar purposes, results, participants,
victims, or methods of commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.” Id. at 240 (citations omitted). Samsung alleges
the following predicate acts: commercial bribery, in violation of Tex. Pen. Code Ann.
A person under RICO “includes any individual or entity capable of holding a legal
or beneficial interest in property.” 18 U.S.C. § 1961(3).
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§ 32.43(b) (West 2015); money laundering, in violation of 18 U.S.C. § 1956; participation
in unlawful monetary transactions, in violation of 18 U.S.C. § 1957; trafficking in counterfeit
goods or services, in violation of 18 U.S.C. § 2320; mail fraud, in violation of 18 U.S.C.
§ 1341; and wire fraud, in violation of 18 U.S.C. § 1343. Each qualifies as a predicate act
under RICO, 18 U.S.C. § 1361(1).
The court concludes that Samsung has adequately pleaded at least two predicate acts
necessary to establish a pattern of racketeering activity: commercial bribery and trafficking
in counterfeit goods or services. In Texas, both the payor and payee of a bribe can be guilty
of commercial bribery. An employee commits the crime of commercial bribery if “without
the consent of his [employer], he intentionally or knowingly solicits, accepts, or agrees to
accept any benefit from another person on agreement or understanding that the benefit will
influence the conduct of the [employee] in relation to the affairs of his [employer].” Id.
§ 32.43(b) (West 2015). A payor commits commercial bribery if he “offers, confers, or
agrees to confer any benefit the acceptance of which is an offense under Subsection (b).”
Tex. Pen. Code. Ann. § 32.43(c) (West 2015). Because “racketeering activity [that] does not
involve fraud [does not] trigger the pleading requirements of Rule 9(b),” the court evaluates
whether Samsung has plausibly pleaded this predicate act without reference to the pleading
requirements of Rule 9(b). See Rolls-Royce Corp. v. Heros, Inc., 576 F.Supp.2d 765, 777
(N.D. Tex. 2008) (Fitzwater, C.J.).6
Some courts have suggested that all civil RICO claims are subject to Rule 9(b)’s
heightened pleading standard, regardless of the nature of the predicate act on which the
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Samsung alleges that All Pro bribed Chung and Porcarello to induce them to engage
in, and compensate them for, a scheme to provide Samsung build kits to All Pro. The
amended complaint also alleges that Chung accepted two payments from All Pro totaling
$10,000. Taken as true, these facts give rise to a plausible predicate act of commercial
bribery under § 32.43(c) of the Texas Penal Code.
Samsung also pleads that All Pro violated 18 U.S.C. § 2320(a)(1), which prohibits the
intentional trafficking in goods or services and knowing use of a counterfeit mark on or in
connection with such goods and services. The statute defines a counterfeit mark as
a spurious mark . . . that is used in connection with trafficking
in any goods . . . that is identical with, or substantially
indistinguishable from, a mark registered on the principal
register in the United States Patent and Trademark Office . . .
that is applied to or used in connection with the goods or
services for which the mark is registered . . . and the use of
which is likely to cause confusion, to cause mistake, or to
18 U.S.C. § 2320(f)(1)(A). The court has already held that Samsung has sufficiently pleaded
each of these elements in relation to its Lanham Act claim. See supra § III(C). Accordingly,
the court concludes that Samsung has adequately pleaded two predicate acts under RICO.
RICO claim is based. See, e.g., Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F.3d
1309, 1316 (11th Cir. 2007) (“Civil RICO claims, which are essentially a certain breed of
fraud claims, must be pled with an increased level of specificity.”). This is not, however, the
law in this circuit. See Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997)
(“[Rule] 9(b) applies to . . . RICO claims resting on allegations of fraud.”) (citing Tel-Phonic
Servs., Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1138 (5th Cir.1992)); Tel-Phonic Servs., 975
F.2d at 1138 (5th Cir.1992) (“[Rule 9(b)] applies to the pleading of fraud as a predicate act
in a RICO claim[.]”).
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It is not enough, however, that the alleged predicate acts occurred. For a series of
related predicate acts to constitute a RICO “pattern of activity,” a plaintiff must also allege
that the acts “amount to or threaten continuing racketeering activity.” Burzynski, 989 F.2d
at 742 (emphasis in original). “It is ‘continuity’ that assures a federal cause of action.” Id.
Continuity may be alleged as “either a closed period of repeated conduct, or an open-ended
period of conduct that ‘by its nature projects into the future with a threat of repetition.’”
Word of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5th Cir. 1996)
(quoting H.J. Inc., 492 U.S. at 241). A closed period of conduct may be properly pleaded
by alleging “a series of related predicates extending over a substantial period of time.” Id.
(quoting H.J. Inc., 492 U.S. at 242 (“Predicate acts extending over a few weeks or months
and threatening no future criminal conduct do not satisfy this requirement.”)). An open
period of conduct requires allegations of “a ‘specific threat of repetition extending
indefinitely into the future,’” or that “the predicates are a regular way of conducting
defendant’s ongoing legitimate business.” Id. (quoting H.J. Inc., 492 U.S. at 242-43) (some
internal quotation marks omitted).
Courts in this circuit have repeatedly held that
“[c]ontinuity cannot be established by multiple acts of fraud that are part of a single
transaction.” Orthoflex, 2012 WL 2864510, at *3 (citing Word of Faith, 90 F.3d at 123); see
also Word of Faith, 90 F.3d at 123 (“It is unnecessary to delve into the arcane concepts of
closed-end or open-ended continuity under RICO. [Fifth Circuit precedent] make[s] clear
that where alleged RICO predicate acts are part and parcel of a single, otherwise lawful
transaction, a ‘pattern of racketeering activity’ has not been shown.”); Burzynski, 989 F.2d
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at 734 (“All of the alleged predicate acts took place as part of the Burzynski I litigation, which
has ended . . . . The conduct did not constitute or threaten long-term criminal activity.”
(emphasis in original)); Calcasieu Marine Nat’l Bank v. Grant, 943 F.2d 1453, 1464 (5th Cir.
1991) (“[T]here is no threat here of continued criminal acts. [Defendant’s] acts which were
alleged to have deprived [plaintiff] of a property interest were, when completed, without
threat of repetition.”); Delta Truck & Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 244 (5th
Cir. 1988) (“Delta has alleged as a pattern of racketeering activity nothing more than
numerous predicate acts which were necessary segments of an otherwise legitimate
[merger].”). When this is the case, “[t]he conduct d[oes] not constitute or threaten long-term
criminal activity.” Burzynski, 989 F.2d at 743; see also Calcasieu, 943 F.2d at 1464
(“Short-term criminal conduct is not the concern of RICO.”).
The two predicate acts that Samsung adequately alleges are related acts. The
commercial bribery and the trafficking in counterfeit goods both trace back to an alleged
scheme by which the Employee Defendants unlawfully distributed Samsung parts to All Pro
and other companies. These acts are also indicative of continuous criminal activity. While
the two predicate acts trace back to a single scheme, they are not multiple acts that were part
of a “single, otherwise lawful transaction.” Word of Faith, 90 F.3d at 123. Samsung alleges
that All Pro paid two separate bribes to Chung. It also alleges that the Employee Defendants
provided build kits to third parties and All Pro for two years—from 2012-2014. The
amended complaint thus alleges activity that was much broader than a single, otherwise
lawful transaction; rather, taken as true, the allegations plausibly plead that All Pro and the
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Employee Defendants’ predicates acts repeated over “a substantial period of time.” Word
of Faith, 90 F.3d at 122. Moreover, the allegations permit the court to draw the reasonable
inference that this transaction was not otherwise lawful; according to Samsung, All Pro and
the Employee Defendants operated entirely outside of any distribution agreement between
All Pro and Samsung. Cf., e.g., Delta Truck, 855 F.2d at 244 (holding there was no
continuity where predicate acts were necessary segments of otherwise legitimate merger);
Orthoflex, 2012 WL 2864510, at *3 (holding that there was no continuity where alleged
fraud was part of otherwise lawful distributor agreement).
Accordingly, the court concludes that Samsung has adequately alleged a pattern of
racketeering for the purposes of its § 1962(c) claim.
The court now considers whether Samsung has sufficiently pleaded the third
element—the existence of a RICO enterprise and All Pro’s association with the enterprise.
“RICO defines an enterprise as ‘any individual, partnership, corporation, association
or other legal entity, and any union or group of individuals associated in fact although not
a legal entity.’” Allstate Ins. Co. v. Plambeck, 802 F.3d 665, 673 (5th Cir. 2015) (quoting
18 U.S.C. § 1961(4)). Samsung contends that the RICO enterprise operated from within
Samsung’s own corporate structure.7 In the amended complaint, Samsung alleges that
defendants “effectively hijacked Samsung’s Services Operations Department and used
“Samsung does not allege that an association-in-fact enterprise existed between All
Pro and the Employee Defendants.” P. Br. 17.
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Samsung to conduct racketeering activity that crossed state lines[.]” Am. Compl. ¶ 88.
Samsung maintains that the requisite elements for an association-in-fact enterprise are
satisfied by Samsung’s clear and established identity as a corporation and an apparent
hierarchy within the Services Operations Department. Essentially, Samsung posits that it is
both the plaintiff and the RICO enterprise in this case.
Section 1964(c) provides that “[a]ny person injured in his business or property by
reason of a violation of section 1962 of this chapter may sue therefor in any appropriate
United States district court.” The statute does not exclude entities that allege that a RICO
operation exists within them. One circuit has expressly held that neither RICO’s language
nor the applicable caselaw “prohibit[s] the plaintiffs from including themselves in a
legitimate, albeit infiltrated, enterprise and has not been interpreted to limit RICO enterprises
to those persons engaged in the illegal conduct.” United Energy Owners Comm., Inv. v. U.S.
Energy Mgmt. Sys., Inc., 837, F.2d 356, 362 (9th Cir. 1988). The court is unaware of any
pertinent Fifth Circuit precedent. Unless and until the Fifth Circuit rules to the contrary, the
court will join other district courts that follow United Energy. See, e.g., Polymer Dynamics,
Inc. v. Bayer Corp., 2000 WL 1146622 (E.D. Pa. Aug. 14, 2000); Edison Elec. Inst. v.
Henwood, 832 F. Supp. 413, 416-17 (D.D.C. 1993); Com-Tech Assocs. v. Computer Assocs.
Int’l, Inc., 753 F. Supp. 1078, 1088-89 (E.D.N.Y. 1990). As the Com-Tech court noted,
“[t]his is consistent with the plain language of section 1962(c), as well as the policy behind
section 1962 to prevent racketeering activity from infiltrating legitimate business
enterprises.” Com-Tech, 753 F. Supp. at 1089 (emphasis in original) (internal citations and
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quotation marks omitted).
In addition to the existence of a RICO enterprise, a violation under § 1962(c) requires
that the person be employed by or associated with the enterprise, which the Supreme Court
has interpreted to apply to the “operation and management” of the enterprise. See Reves v.
Ernst & Young, 507 U.S. 170, 183 (1993). While the Court noted that this would typically
apply to those within an organization’s management structure, “[a]n enterprise might also be
‘operated’ or ‘managed’ by others ‘associated with’ the enterprise who exert control over it
as, for example, by bribery.” Id. at 184. As noted above, Samsung alleges that All Pro
bribed Chung and Porcarello to compensate them for and induce them to redirect parts that
All Pro could use to sell counterfeit phones. See supra § IV(D). Under Reves this is
sufficient to plausibly plead operation and management, as required by § 1962(c).
Having concluded that Samsung has sufficiently pleaded a pattern of racketeering
activity and that All Pro is connected to the control of a RICO enterprise, the court denies the
motion to dismiss Samsung’s § 1962(c) claim.
All Pro also moves to dismiss Samsung’s claim for RICO conspiracy under § 1962(d),
which makes it “unlawful for any person to conspire to violate any of the provisions of
[RICO].” “To prove a RICO conspiracy, the [plaintiff] must establish (1) that two or more
people agreed to commit a substantive RICO offense and (2) that the defendant knew of and
agreed to the overall objective of the RICO offense.” TruGreen Landcare, L.L.C. v. Scott,
512 F.Supp.2d 613, 625 n.11 (N.D. Tex. 2007) (Fitzwater, J.) (quoting United States v.
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Delgado, 401 F.3d 290, 296 (5th Cir. 2005)). “A RICO conspiracy thus has RICO-specific
requirements—such as an agreement by at least two conspirators to engage in a pattern of
racketeering activity.” Id. Put simply, Samsung must allege that All Pro conspired with at
least one other person involved with the RICO enterprise at Samsung to commit two
predicate acts that would give rise to liability under § 1962(c).
Samsung has failed to adequately plead a RICO conspiracy claim because it has not
sufficiently alleged two predicate acts that All Pro conspired with another person to commit.
Samsung has adequately alleged an agreement between All Pro and Chung to commit
commercial bribery. Because commercial bribery under Texas law requires a showing of
agreement or understanding between the parties, Tex. Pen. Code. Ann. § 32.43(b) (West
2015), the pleading of commercial bribery also satisfies the elements of a RICO conspiracy
The remaining claims, however, do not sufficiently allege an agreement between All
Pro and Chung (or any other employee defendant), as required for a § 1962(d) claim. The
basis for the alleged predicate acts of money laundering is unclear. Under 18 U.S.C. § 1956,
Samsung must show a financial transaction involving proceeds from an unlawful activity was
conducted with the intent to promote the carrying on of the unlawful activity, evade federal
taxes, or conceal the proceeds of the unlawful activity. Samsung’s amended complaint does
not point to a specific transaction that would qualify as money laundering under this statute,
nor does it allege generally that All Pro possessed any of the requisite intent with respect to
any financial transaction.
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Samsung’s predicate act alleging unlawful monetary transactions is also deficient. 18
U.S.C. § 1957(a) prohibits engaging in monetary transactions in criminally derived property
of a value of greater than $10,000. The statute defines a monetary transaction as “the
deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of
funds or a monetary . . . by, through, or to a financial institution[.]” But the amended
complaint makes no allegation of any monetary transaction involving criminally derived
property of a value greater than $10,000. While the amended complaint and Samsung’s brief
are unclear regarding the specific transaction to which Samsung is referring, any possibilities
are lacking. Samsung does contend that All Pro used credit cards and bank accounts to
facilitate sales of its completed phones, but it does not allege any transaction worth greater
than $10,000, as required to trigger § 1957(a) liability. Samsung might also be alleging that
the auction process itself was an unlawful monetary transaction. But, similarly, Samsung
does not allege any auction transaction of greater than $10,000.
Samsung has not alleged any knowledge on the part of an Employee Defendant as to
All Pro’s alleged efforts to traffic counterfeit goods. The amended complaint simply notes
that some Employee Defendants provided third parties and All Pro with build kits that could
be used to construct entire phones. It does not allege that any specific Employee Defendant
knew or had an intention that All Pro would immediately resell these phones in interstate
Samsung finally alleges that All Pro committed mail and wire fraud, in violation of
18 U.S.C. §§ 1341 and 1343.
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To state a claim for mail or wire fraud to support a RICO
violation under § 1341 or § 1343, a plaintiff must establish three
elements: (1) a scheme or artifice to defraud or to obtain money
or property by means of false pretenses, representations, or
promises; (2) a use of the interstate mails or wires for the
purpose of executing the scheme; and (3) a specific intent to
defraud either by [d]evising, participating in, or abetting the
Vanderbilt Mortg. & Fin., Inc. v. Flores, 746 F.Supp.2d 819, 841 (S.D. Tex. 2010) (quoting
Hewlett-Packard Co. v. Byd:Sign, Inc., 2007 WL 275476, at *3 (E.D. Tex. Jan. 25, 2007))
(internal quotation marks omitted).
Rule 9(b) requires particularity in pleading the
“circumstances constituting fraud.” “This particularity requirement applies to the pleading
of fraud as a predicate act in a RICO claim as well.” Tel-Phonic Servs., Inc. v. TBS Int’l,
Inc., 975 F.2d 1134, 1138 (5th Cir. 1992) (citing Landry v. Air Line Pilots Ass’n Int’l AFLCIO, 901 F.2d 404, 430 (5th Cir. 1990)). “At a minimum, Rule 9(b) requires allegations of
the particulars of ‘time, place, and contents of the false representations, as well as the identity
of the person making the misrepresentation and what he obtained thereby.’” Id. (quoting 5
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1297, at 590
(1990)). “Allegations about conditions of the mind, such as defendant’s knowledge of the
truth and intent to deceive, however, may be pleaded generally.” Id. (citing Rule 9(b)).
The sole allegation to which Samsung points the court to support mail and wire fraud
by All Pro states: “All Pro . . . caused [completed phones] to be sold . . . through interstate
commerce, including, but not limited to (1) advertising online; (2) using the mail to effectuate
transactions; and (3) using bank accounts/credit cards to facilitate such transactions.” Am.
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Compl. ¶ 40. This allegation contains neither the time nor place of the mail and wire fraud
and do not otherwise satisfy the requirements of Rule 9(b).8
Because Samsung has failed to plead two predicate acts involving an agreement
between All Pro and another person, Samsung’s claim for RICO conspiracy is dismissed.
The court now turns to Samsung’s claim for breach of fiduciary duties.
“Under Texas law, ‘[t]he elements of a breach of fiduciary duty claim are: (1) a
fiduciary relationship between the plaintiff and defendant; (2) the defendant must have
breached his fiduciary duty to the plaintiff; and (3) the defendant’s breach must result in
injury to the plaintiff or benefit to the defendant.’” Days Inn Worldwide, Inc. v. Sonia Invs.,
2007 WL 1188028, at *3 (N.D. Tex. Apr. 23, 2007) (Fitzwater, J.) (alteration in original)
(quoting Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App. 2006, pet. denied)). Texas law
recognizes two types of fiduciary relationships. Jones, 196 S.W.3d at 447. “The first is a
Samsung maintains that the court should consider Porcarello’s alleged mail and wire
fraud, which does not involve All Pro, as a predicate act. Samsung contends that, “[l]ike all
predicate acts, Samsung is not required to plead specific instances of mail and wire fraud
conducted by All Pro. Instead, Samsung must only plead facts showing All Pro’s
contribution to the overall RICO scheme.” P. Br. 14 (citations omitted). The court disagrees
with Samsung’s position because it contradicts the explicit text of the statute, which makes
it “unlawful for any person . . . to participate . . . in the conduct of [an] enterprise’s affairs
through a pattern of racketeering activity[.]” 18 U.S.C. § 1962(c). The phrase “pattern of
racketeering activity” modifies the “person[’s]” participation, not the “enterprise’s affairs.”
Accordingly, as noted supra at § IV(D), Samsung must plead that All Pro itself committed
two predicate acts of racketeering.
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formal fiduciary relationship, which arises as a matter of law and includes the relationships
between attorney and client, principal and agent, partners, and joint venturers.” Abetter
Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex. App. 2003, no pet.) (citing Ins. Co. of N.
Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998)). “The second is an informal fiduciary
relationship, which may arise from ‘a moral, social, domestic or purely personal relationship
of trust and confidence, generally called a confidential relationship.’”
Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 287 (Tex. 1998)).
Samsung does not attempt to demonstrate the existence of a formal fiduciary
relationship; rather, it asserts an informal fiduciary relationship. It contends that All Pro
owed it a fiduciary duty because the two companies had a long lasting business relationship
of trust and confidence that went beyond any specific contracts.
An informal fiduciary relationship “may arise from a variety of relationships where
the parties are ‘under a duty to act for or give advice for the benefit of another upon matters
within the scope of their relation.’” ARA Auto. Grp. v. Cent. Garage, Inc., 124 F.3d 720, 723
(5th Cir. 1997) (quoting Tex. Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 ( Tex.
1980)). “The existence of a fiduciary relationship, outside of formal relationships that
automatically give rise to fiduciary duties, is usually a fact intensive inquiry.” Id. (citing
Moore, 595 S.W.2d at 508). “Under Texas law, ‘a fiduciary duty will not be lightly created’
since ‘it imposes extraordinary duties’ and requires the fiduciary to ‘put the interests of the
beneficiary ahead of its own if the need arises.’” Id. (quoting Floors Unlimited, Inc. v.
Fieldcrest Cannon, Inc., 55 F.3d 181, 188 (5th Cir. 1995)).
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Samsung cites ARA for the proposition that early Texas cases recognized an informal
fiduciary duty exists where parties “were looking to profit from a shared risk, e.g., an oil and
gas well, or the sale of a particular property and not where the parties’ positions, harmonized
for purposes of self-interest, were yet naturally antagonistic.” ARA, 124 F.3d at 726 (quoting
Lee v. Wal-Mart Stores, Inc., 943 F.2d 554, 557-60 (5th Cir. 1991) (internal quotation marks
omitted). But ARA also notes that “[n]o Texas [or federal] case cited by [plaintiff] or
uncovered in our research has affirmed a fiduciary obligation in the context of a . . .
manufacturer-distributor relationship, or other transactional setting involving experienced
managers . . . . We decline to be the first.” Id. at 726. The court is similarly unaware of any
authority that would support Samsung’s claim.
Accordingly, the court concludes that Samsung has failed to plead a plausible claim
for breach of fiduciary duties, and it dismisses the claim.
All Pro also moves to dismiss Samsung’s claim for aiding and abetting breach of
fiduciary duties under Texas law.
“It is settled as the law of this State that where a third party knowingly participates in
the breach of duty of a fiduciary, such third party becomes a joint tortfeasor with the
fiduciary and is liable as such.” Kinzbach Tool Co. v. Corbett-Wallace Corp., 160 S.W.2d
509, 514 (Tex. 1942). “A cause of action premised on contribution to a breach of a fiduciary
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duty under Kinzbach must involve the knowing participation in such a breach.” Cox Tex.
Newspapers, L.P. v. Wootten, 59 S.W.3d 717, 722 (Tex. App. 2001, pet. denied) (citing
Kinzbach, 160 S.W.2d at 514). For Samsung to state a claim for aiding and abetting breach
of fiduciary duties, it must plead facts that enable the court to draw the reasonable inference
that there was “(1) the existence of a fiduciary relationship; (2) that the third party knew of
the fiduciary relationship; and (3) that the third party was aware that it was participating in
the breach of that fiduciary relationship.” Meadows v. Hartford Life Ins. Co., 492 F.3d 634,
639 (5th Cir. 2007).
Samsung alleges (1) that the Employee Defendants owed them fiduciary duties; (2)
that All Pro knew the Employee Defendants were employees of Samsung and owed Samsung
fiduciary duties because “it is commonplace in the telecom industry for companies to have
policies prohibiting an employee from acting against the company’s interest[,]” Am. Compl.
¶ 39; and (3) that All Pro knowingly participated in the Employees Defendants’ breach by
paying bribes to obtain discounted or free parts for Samsung devices. All Pro contends that
these allegations are conclusory and do not prove knowledge, intent, or participation. The
Samsung has gone beyond mere recital of the Kinzbach standard and alleged facts
that, if true, enable the court to draw the reasonable inference that All Pro is liable for the
misconduct alleged. Samsung alleges that All Pro had knowledge based on its experience
in the industry, and that All Pro actively participated in the breach of the duty through
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bribery. Accordingly, the court denies All Pro’s motion to dismiss this claim.
The court next addresses Samsung’s claim for tortious interference with contract.
Under Texas law, the elements of tortious interference with contract are: (1) the
existence of a contract, (2) willful and intentional interference, (3) interference that
proximately caused damage, and (4) actual damage or loss. Powell Indus., Inc. v. Allen, 985
S.W.2d 455, 456 (Tex. 1998) (citing ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426,
430 (Tex. 1997)).
Samsung alleges that the Employee Defendants’ employment contracts, and
Samsung’s own employee handbook, bound them to act in Samsung’s best interests and to
maintain confidentiality of Samsung’s proprietary or confidential information. The amended
complaint also asserts that All Pro had actual knowledge of these contracts based on industry
standards, and that their conflict was therefore intentional and willful. Samsung also alleges
that All Pro’s payments to the Employee Defendants resulted in the Employee Defendants’
selling Samsung parts at prices lower than market value, thereby proximately resulting in
financial loss to Samsung. Taking these allegations as true, the court concludes that
Samsung has pleaded a plausible claim for tortious interference with contract.
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The court now turns to Samsung’s claim for civil conspiracy.
Under Texas law, a claim of civil conspiracy requires the following elements: “(1) two
or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the object
or course of action; (4) one or more unlawful, overt acts; and (5) damages as a proximate
result.” Wackman v. Rubsamen, 602 F.3d 391, 408 (5th Cir. 2010) (quoting Tri v. J.T.T., 162
S.W.3d 552, 556 (Tex. 2005) (internal quotation marks omitted)). To satisfy the “meeting
of the minds” element, Samsung must allege that defendants had the “specific intent to agree
to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means.”
Id. at 408 (quoting Juhl v. Airington, 936 S.W.2d 640, 644 (Tex. 1996)) (internal quotation
marks omitted). All Pro must have been “aware of the harm or wrongful conduct at the
inception of the combination or agreement.” Id. at 408 (quoting Triplex Commc’ns, Inc. v.
Riley, 900 S.W.2d 716, 719 (Tex. 1995)). Samsung can establish intent by “circumstantial
evidence and reasonable inference.” Id. at 409 (citing Schlumberger Well Surveying Corp.
v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 858 (Tex. 1968)). Civil conspiracy is a
derivative tort, meaning that “liability for conspiracy depends on participation in some
underlying tort for which the plaintiff seeks to hold at least one of the named defendants
liable.” Tilton v. Marshall, 925 S.W.2d 672, 681 (Tex.1996). Samsung alleges six derivative
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All Pro maintains, inter alia, that Samsung has not adequately pleaded a meeting of
the minds. To satisfy this requirement, Samsung must allege that there was a “preconceived
plan and unity of design and purpose.” Goldstein v. Mortenson, 113 S.W.3d 769, 779 (Tex.
App.2003, no pet.). “For a civil conspiracy to arise, the parties must be aware of the harm
or wrongful conduct at the inception of the combination or agreement.” Triplex Commc’ns,,
900 S.W.2d at 719. Samsung has failed to allege a preconceived plan or a time and place at
which All Pro and other defendants had a meeting of the minds regarding the object of the
conspiracy. See Berry v. Indianapolis Life Ins. Co., 608 F.Supp.2d 785, 794 (N.D. Tex.
2009) (Boyle, J.) (dismissing civil conspiracy claim because, inter alia, “it fail[ed] to specify
who was involved, precisely what the interaction was or what actions were decided upon, or
when any meeting of the minds occurred between those parties”); Patel v. Pac. Life Ins. Co.,
2009 WL 1456526, at *16 (N.D. Tex. May 22, 2009) (Boyle, J.) (dismissing civil conspiracy
claim because, inter alia, “[t]he conspiracy claim identifie[d] no specific time or place in
which any meeting of the minds” took place).
Samsung alleges that, “[f]rom 2012-2014, Chung, Porcarello, and other Samsung
employees wrongfully provided ‘build kits’ to third-parties” for the purpose of diverting
counterfeit devices to All Pro, Am. Compl. ¶ 32, and, “from 2012 to 2015, All Pro won
approximately 60-70% of the [allegedly rigged] auctions,” id. at ¶ 50.9 Samsung does not
Because the elements of commercial bribery and civil conspiracy appear to be
similar, it may seem incongruous to dismiss one claim but not the other. But civil conspiracy
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make any other allegations regarding time with respect to All Pro’s involvement in the
These allegations are insufficient. See, e.g ., Berry, 608 F.Supp.2d at 795 (“A period
of years is not definitive enough in the context of the conspiracy claim as alleged to put any
defendant on sufficient notice to be able to defend.”); Orthoflex, 2012 WL 2864510, at *7
(holding insufficient allegations that “‘[b]etween 2008 and present, [defendants] became
aware that the other [defendants] desired to obtain ThermoTek’s confidential and proprietary
information,’ and that ‘each formed the specific intent to assist the other in obtaining the . . .
information.’” (brackets in original)).
Accordingly, the court dismisses Samsung’s civil conspiracy claim.
Finally, the court analyzes Samsung’s Texas-law claim for misappropriation of
Samsung alleges that its claim for misappropriation of confidential information arises
under the Texas Uniform Trade Secrets Act (“TUTSA”), Tex. Civ. Prac. & Rem. Code Ann.
§ 134A.001-.008 (West 2015). But as Samsung notes in its brief, Texas common law applies
requires more specific pleading than does commercial bribery. For example, concerning
knowledge, commercial bribery requires “an agreement or understanding that the benefit will
influence the conduct,” Tex. Penal Code Ann. § 32.43(b), whereas civil conspiracy requires
much more specific “aware[ness] of the harm or wrongful conduct at the inception,” Triplex
Commc’ns, 900 S.W.2d at 719. Civil conspiracy also requires a specific pleading of time,
which Samsung has not alleged in support of its commercial bribery claim.
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because TUTSA took effect after the alleged misappropriation began. See id. § 134A.001
note (West 2015) (“A misappropriation of a trade secret made before and a continuing
misappropriation beginning before the effective date of this Act are governed by the law in
effect immediately before the effective date of this Act[.]”). Samsung’s misplaced reliance
on TUTSA is immaterial, however, because Samsung also sufficiently pleads the elements
of Texas common law misappropriation of confidential information.
Under Texas common law, Samsung can recover for a misappropriation of
confidential information if the information is kept secret. See Alliantgroup, L.P. v. Feingold,
803 F.Supp.2d 610, 624 n.3 (S.D. Tex. 2011) (Rosenthal, J.) (collecting cases showing that
Texas common law similarly protects trade secrets and confidential information that meets
certain requirements—including secrecy).10 To state a claim for misappropriation of
confidential information, Samsung must plausibly allege (1) the existence of confidential
information, (2) breach of a confidential relationship or improper discovery of confidential
information, (3) use of the confidential information without the plaintiff’s authorization, and
(4) resulting damages. See Calce v. Dorado Exploration, Inc., 309 S.W.3d 719, 738 (Tex.
While Texas law is unclear as to what constitutes confidential information, Judge
Rosenthal suggests that it is a less exacting standard than that for trade secrets—which is
determined by looking to six “relevant” but non-exclusive factors. Alliantgroup, L.P., 803
F.Supp.2d at 624-26. At a minimum, “there is no cause of action for misappropriation of
confidential information that is not either secret or, at least substantially secret.” Stewart v.
Stevenson Servs., Inc. v. Serv-Tech, Inc., 879 S.W.2d 89, 99 (Tex. App. 1994, no writ)
(emphasis in original).
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App. 2010, no pet.) (addressing standard for misappropriation of trade secrets).
Samsung pleads that, prior to auctions, Chung provided All Pro confidential
information relating to (1) the types of parts coming up for auction and (2) other bidders at
the auction. According to the amended complaint, Samsung did not distribute any of this
information until closer to the auction, and the information was kept confidential until that
point. Samsung alleges that All Pro used this information to pre-sell parts that it purchased
at auction, thereby undercutting the market price and, in turn, Samsung’s profits. Taking
these facts as true, Samsung has pleaded a plausible claim for misappropriation of
confidential information. It has alleged facts addressing each essential element of a
misappropriation claim. Accordingly, the court denies All Pro’s motion to dismiss this claim.
Although the court is granting in part All Pro’s motion to dismiss, it will permit
Samsung to replead. See, e.g., In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d 552,
567-68 (N.D. Tex. 2005) (Fitzwater, J.) (noting that district courts often afford plaintiffs at
least one opportunity to cure pleading deficiencies before dismissing case, unless it is clear
that defects are incurable or plaintiffs advise court that they are unwilling or unable to amend
in a manner that will avoid dismissal).11 There is no indication that Samsung cannot, or is
unwilling to, cure the defects in its amended complaint. The court therefore grants Samsung
Because the court did not address the merits of All Pro’s prior motion to dismiss, it
considers this memorandum opinion and order to be the first that alerts Samsung to the
court’s conclusions about the deficiencies in Samsung’s pleadings and Samsung’s first
opportunity to cure deficiencies that the court has identified.
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28 days from the date this memorandum opinion and order is filed to file a second amended
complaint. If Samsung repleads, All Pro may move anew to dismiss the amended claims, if
it has a basis to do so.
For the reasons explained, the court grants All Pro’s motion as to Samsung’s claims
for civil RICO violations under 18 U.S.C. 1962(a) and 18 U.S.C. 1962(d), breach of
fiduciary duties, and civil conspiracy, and otherwise denies the motion. The court also grants
Samsung leave to replead.
February 16, 2017.
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
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