PHP Agency Inc v. Martinez et al

Filing 66

Memorandum Opinion and Order: For the foregoing reasons, the Court the Court GRANTS PHP's motions to strike [Doc. Nos. #35 and #38 ], DISMISSES AS MOOT the defendants' motions to strike [Doc. Nos. #41 and #47 ], and GRANTS IN PART AND DENIES IN PART the defendants' motions to dismiss [Doc. Nos. #23 , #26 , and #28 ]. If it wishes to do so, PHP may amend its complaint as to Claims Six, Seven, and Eight only within 28 days of this order. (Ordered by Judge Brantley Starr on 1/10/2022) (ndt)

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
PHP AGENCY, INC.,
Plaintiff,
v.
JOSE MARTINEZ AKA TONY
MARTINEZ, et al.,
Defendants.

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Civil Action No. 3:21-CV-00418-X

MEMORANDUM OPINION AND ORDER
Before the Court are several motions to dismiss [Doc. Nos. 23, 26, and 28] from
defendants Tony Rojas, Pamela Krause, Peter Krause, Kasie Cameron-Perez, Mario
Perez, Ederardo Duarte, Piedad Murguia, Jose Santiago Murguia, Marco Trujillo,
and Jose Patino. 1 Because the motions at Doc. Nos. 26 and 28 “adopt, incorporate
herein by reference, and rely on all of the arguments and legal authorities set forth
in” the brief supporting the Doc. No. 23 motion, the Court considers these three
motions together. Also before the Court are two objections from the plaintiff PHP
Agency, Inc. (PHP) [Doc. Nos. 35 and 38], which the Court construes as motions to
strike. Finally, before the Court are various defendants’ motions to strike [Doc. No.
41 and 47]. After careful consideration, and for the reasons explained below, the
Court GRANTS PHP’s motions to strike [Doc. Nos. 35 and 38], DISMISSES AS

1 Also before the Court is the motion to dismiss from defendants Maria Lizarraga and Tony
Martinez [Doc. No. 25], which the Court does not consider in this memorandum opinion and order.
The Court will address that motion in a subsequent order.

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MOOT the defendants’ motions to strike [Doc. Nos. 41 and 47], and GRANTS IN
PART AND DENIES IN PART the defendants’ motions to dismiss [Doc. Nos. 23,
26, and 28].
I.

Factual Background

PHP is a life insurance company structured as a “Field Marketing
Organization,” which means PHP markets and distributes its insurance products
through independent distributors.

These independent distributors are called

Associates and earn commission on their own sales as well as on the sales of
Associates aligned beneath them. The line of Associates below a particular Associate
is known as that Associate’s “downline organization.” The downline organization
typically works in an office that is owned or leased by a well-established Associate,
who PHP refers to as a Principals, and serves the geographic area in which it is
located. PHP maintains a database of its Associates, which includes their rank,
contact information, payments history, order history, pricing history, consumer
customer contact information, bonus history, and other information. Access to this
database is restricted, but PHP permits Associates limited access to it based on their
level of authority.
When Associates join PHP, they must agree to PHP’s New Associate
Agreement.

This agreement prohibits Associates from using PHP’s proprietary

information for improper purposes. It also forbids Associates who leave PHP from
soliciting or recruiting other PHP Associates to competing companies for two years
after they leave PHP. The agreement also contains a choice of forum provision

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requiring the associates to submit to “jurisdiction and venue in Dallas County, Texas
for disputes that may arise” under the contract. 2
The defendants here are all former PHP Associates who agreed to the New
Associate Agreement and had access to portions of PHP’s database. PHP terminated
each of the defendants. After their termination, the defendants joined a competing
insurance Field Marketing Organization called Family First Life. PHP alleges that,
upon joining Family First Life, the defendants violated their New Associate
Agreement with PHP by using the confidential information contained in PHP’s
database to successfully solicit and recruit other PHP Associates to Family First Life.
PHP now sues the defendants for these actions and presents numerous claims
against them. First, PHP claims that the defendants breached their contracts with
PHP (the New Associate Agreement) by improperly using the proprietary information
in PHP’s database (Claim One), recruiting PHP Associates to a competitor (Claim
Two), affiliating with First Family Life before leaving PHP (Claim Three), and for
violating a provision of the New Associate Agreement requiring them to conduct their
business in a “legal, ethical, honest and fair manner and in the best interest of the
Associate’s clients and PHP” (Claim Four). PHP also claims that the defendants
violated the Defense of Trade Secrets Act (Claim Five) and the Texas Uniform Trade

2 Although it does not include the allegation in the amended complaint, PHP contends that
this provision of the agreement was also a choice of law clause, designating Texas law as governing
any disputes arising under the agreement. Because, as explained below, the Court concludes that a
choice-of-law analysis is inappropriate at this stage of the litigation, it need not consider whether it
may rely on the choice of law provision—despite its absence from the amended complaint—as part of
a document “incorporated into the complaint by reference.” Haddock v. Tarrant Cnty, 852 F. App’x
826, 829 (5th Cir. 2021).

3

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Secrets Act (Claim Nine). Finally, PHP brings claims against the defendants of
tortious interference with contract (Claim Six), defamation (Claim Seven), and
tortious interference with prospective economic advantage (Claim Eight).
II.

Legal Standard

Under Federal Rule of Civil Procedure 12(b)(6), the Court evaluates the
pleadings by “accepting all well-pleaded facts as true and viewing those facts in the
light most favorable to the plaintiffs.” 3 To survive a motion to dismiss, “a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” 4 A claim is facially plausible “when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” 5 Although the plausibility standard
does not require probability, “it asks for more than a sheer possibility that a
defendant has acted unlawfully.” 6 In other words, the standard requires more than
“an unadorned, the-defendant-unlawfully-harmed-me accusation. A pleading that
offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of
action will not do.’” 7

3

Hutcheson v. Dall. Cnty., 994 F.3d 477, 481–82 (5th Cir. 2021).

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)).
4

5

Id.

Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right
to relief above the speculative level . . . .”).
6

7

Iqbal, 556 U.S. at 678. (quoting Twombly, 550 U.S. at 555).

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III.
A.

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Analysis

Motions to Strike

As a threshold matter, the Court considers PHP’s objections [Doc. Nos. 35 and
38], which it construes as motions to strike, and the defendants’ motions to strike
these objections [Doc. Nos. 41 and 47]. PHP objects to the defendant’s introduction
of evidence in their reply briefs and accompanying appendixes. Because at the motion
to dismiss stage “our factual universe is bounded by the four corners of the
complaint,” 8 the Court agrees with PHP that the defendants’ attempts to establish
facts beyond those alleged in the complaint are improper at this stage of the litigation.
Accordingly, the Court construes PHP’s objections as motions to strike and GRANTS
them, and strikes the portions of the defendants’ reply briefs that contain factual
allegations beyond those contained in the complaint, as well as the accompanying
appendixes. The defendants may seek to establish these facts at later, appropriate
stage of litigation.
Next, the Court considers the defendants’ motions to strike PHP’s objections
[Doc. Nos. 41 and 47]. The defendants contend that the objections should be struck
because they neither constitute proper sur-replies nor are they properly presented
motions to strike under the local rules. Because the Court construes the objections
as motions to strike, the Court DISMISSES AS MOOT the defendants’ motions to
strike.

8

Morgan v. Swanson, 659 F.3d 359, 401 (5th Cir. 2011).

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B.

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Claims Six, Seven, and Eight

The Court first considers PHP’s Claims Six, Seven, and Eight. The parties
agree that PHP has inadequately pled Claims Six, Seven, and Eight. In admitting
these defective pleadings in its response to the defendants’ motion to dismiss, PHP
seeks leave to amend its complaint a second time to address these defects. Under
Federal Rule of Civil Procedure 15(a)(2), “a party may amend its pleading only with
the opposing party’s written consent or the court’s leave. The court should freely give
leave when justice so requires.”
The Court GRANTS the defendants’ motion to dismiss PHP’s Claims Six,
Seven, and Eight. However, as requested, PHP may file an amended complaint that
amends Claims Six, Seven and Eight to cure these defects. If it wishes to do so, PHP
must file such an amended complaint within 28 days of this order.
C.

Claims One, Two, Three, and Four

Next, the Court considers the defendants motion to dismiss as to PHP’s Claims
One, Two, Three, and Four, all of which arise from the defendants’ alleged breach of
contract. As an initial matter, the defendants contend that PHP has inadequately
pled these claims because it has not produced the actual contracts that the defendants
entered with PHP. The defendants point to no legal authority on either a state or
federal level to support this argument, and PHP need not produce the actual contracts
at the motion to dismiss stage. Unlike the rules of civil procedure for some states,
“there is no corresponding Federal Rule of Civil Procedure that requires a copy of the

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contract be attached to a complaint alleging a breach of contract claim.” 9 PHP’s
allegation that such contracts existed and its quotations from specific provisions of
those contracts are sufficient at this stage.
The defendants also argue that PHP has failed to allege in adequate detail the
defendants’ conduct that constituted breaches of contract, and has instead merely
alleged breaches in a general and conclusory fashion. PHP has alleged breaches of
specific contractual provisions and explained at a general level how the defendants
breached their contracts by improperly taking and using the information in PHP’s
databases to solicit PHP’s associates: “Defendants accessed their back-offices and
used the information contained therein to begin soliciting Associates.

In fact,

Defendants would send out emails, text messages, and other forms of communications
to set up private meetings with groups of Associates and solicit them to join [Family
First Life].” PHP claims that “many Associates have terminated their relationship
with [PHP]” because of these actions and the defendants alleged further use of PHP’s
bonus and pricing information to convince PHP’s associates to join Family First Life.
While PHP’s allegations certainly lack individualized factual details that may be
important as this litigation progress, Rule 8 “does not require detailed
factual allegations.” 10

And the defendants provide the Court with no caselaw

Wevercomm Co. v. Fiplex Commc’ns, Inc., No. 18-21378-CIV, 2019 WL 2106071, at *2 (S.D.
Fla. Feb. 25, 2019).
9

10

Iqbal, 556 U.S. at 678.

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whatsoever where courts have read similar allegations as “an unadorned, thedefendant-unlawfully-harmed-me accusation.” 11
Next, the defendants argue that, notwithstanding any Texas choice-of-law
provision in their contracts, California law applies and that the contractual terms
underlying PHP’s Claims One and Three 12 are void and unenforceable under section
16600 of the California Business and Professions Code. PHP argues that Texas law
applies.

Both parties undertake detailed factual analyses to support their

arguments. Faced with similar situations, numerous courts have concluded “that
choice-of-law determinations are fact-intensive inquiries that would be premature to
resolve at the motion-to-dismiss stage.” 13 Furthermore, the defendants’ choice of law
analysis—no matter how persuasive it might be—contains various factual allegations
beyond those contained in PHP’s Amended Complaint and is supported by the
declarations that the defendants include in their appendix to their reply brief.
Because at the motion to dismiss stage “our factual universe is bounded by the four
corners of the complaint,” 14 the Court DENIES the defendant’s motion to dismiss
Claims One, Three, and Nine. The defendants may renew their choice-of-law and
section 16600 arguments in a subsequent motion for summary judgment.

11

Id.

12 The defendants raised the same argument with respect to PHP’s Claims Six and Eight.
Because, as explained above, the Court dismisses these claims with leave to amend on other grounds,
it does not list them here.

Bristol-Myers Squibb Co. v. Matrix Laboratoires Ltd., 655 Fed.App’x. 9, 13 (2d. Cir. 2015).
See also Foisie v. Worcester Polytechnic Inst., 967 F.3d 27, 42-43 (1st Cir. 2020); Jones v. Lattimer, 29
F. Supp. 3d 5, 10 n.3 (D.D.C. 2014).
13

14

Morgan, 659 F.3d at 401.

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D.

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Claims Five and Nine

The Court next turns to PHP’s Texas Uniform Trade Secret Act claim, or Claim
Nine. 15 The defendants argue that the information contained in PHP’s database is
outside the scope of “trade secrets” as defined by Texas law. But—as reflected by the
defendants’ own footnote—the definition of “trade secrets” that the defendants quote
comes from the Texas Penal Code.
Although neither party points to it, the Court looks to the applicable (and
seemingly broader) definition of “trade secret” contained within the Texas Uniform
Trade Secret Act itself:
“Trade Secret” means all forms and types of information, including
business, scientific, technical, economic, or engineering information, and
any formula, design, prototype, pattern, plan, compilation, program
device, program, code, device, method, technique, process, procedure,
financial data, or list of actual or potential customers or suppliers,
whether tangible or intangible and whether or how stored, compiled, or
memorialized physically, electronically, graphically, photographically,
or in writing if:
(A) the owner of the trade secret has taken reasonable measures
under the circumstances to keep the information secret; and
(B) the information derives independent economic value, actual
or potential, from not being generally known to, and not being
readily ascertainable through proper means by, another person
who can obtain economic value from the disclosure or use of the
information. 16

15

The parties apparently agree that Texas’ Uniform Trade Secrets Act governs this claim.

16

TEX. CIV. PRAC. & REM. CODE § 134A.002(6).

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Without the benefit of any relevant briefing on this point from the parties, the
Court is not prepared to say that the information at issue here necessarily falls
outside the scope of this definition of trade secrets.
The defendants also argue that the information at issue here is not a trade
secret because it “accessible to anyone through a variety of public means.” Public
availability of the information in question may certainly be relevant at a later stage
in this litigation. But, as PHP points out, at the motion to dismiss stage “our factual
universe is bounded by the four corners of the complaint.” 17 And the complaint does
not suggest that the information at issue here is “accessible to anyone through a
variety of public means.”
Finally, the defendants appear to argue that, because the defendants had
legitimate access to the information at issue during their relationship with PHP, their
alleged misuse of that information cannot possibly constitute a “misappropriation”
under the Texas Uniform Trade Secrets Act. The defendants cite no legal authority
for this argument. Once again, the Court finds the Texas Uniform Trade Secrets Act’s
definitions section illuminating.

The statutory definition of “misappropriation”

includes
disclosure or use of a trade secret of another without express or implied
consent by a person who . . . at the time of disclosure or use, knew or had
reason to know that the person’s knowledge of the trade secret was . . .
acquired under circumstances giving rise to a duty to maintain the
secrecy of or limit the use of the trade secret. 18

17

Morgan, 659 F.3d at 401.

18

TEX. CIV. PRAC. & REM. CODE § 134A.002(3)(B)(ii)(b).

10

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Because misuse of a trade secret originally acquired through legitimate means seems
to be included in this definition of misappropriation, the Court is not prepared to say
that the defendants’ alleged conduct lies outside the scope of the Texas Uniform Trade
Secrets Act as a matter of law. Accordingly, the Court DENIES the defendants’
motion as to PHP’s Claim Nine.
Finally, the Court turns to PHP’s Defense of Trade Secret Act claim, or Claim
Five. The defendants’—apparently incorporating their arguments as to PHP’s Texas
Uniform Trade Secret Act claim—state in conclusory fashion that PHP has failed to
make out a Defense of Trade Secret Act claim. Again, the defendants neither provide
the Court with meaningful reasoning nor point to legal authority in support of their
argument. Accordingly, the Court DENIES the defendants’ motion to dismiss PHP’s
Defense of Trade Secret Act claim, or Claim Five.
IV.

Conclusion

For the foregoing reasons, the Court the Court GRANTS PHP’s motions to
strike [Doc. Nos. 35 and 38], DISMISSES AS MOOT the defendants’ motions to
strike [Doc. Nos. 41 and 47], and GRANTS IN PART AND DENIES IN PART the
defendants’ motions to dismiss [Doc. Nos. 23, 26, and 28]. If it wishes to do so, PHP
may amend its complaint as to Claims Six, Seven, and Eight only within 28 days of
this order.
IT IS SO ORDERED this 10th day of January, 2022.

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BRANTLEY STARR
UNITED STATES DISTRICT JUDGE

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