Schlumberger Technology Corporation v. Coil Tubing Solutions, LLC

Filing 19

ORDER ON MOTION TO DISMISS denying 8 Motion to Dismiss.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(mserpa, 2)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
SCHLUMBERGER TECHNOLOGY
CORPORATION,
Plaintiff,
VS.
COIL TUBING SOLUTIONS, LLC,
Defendant.

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§ CIVIL ACTION NO. 2:14-CV-454
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ORDER ON MOTION TO DISMISS
Schlumberger Technology Corporation (Schlumberger) filed this action against
Coil Tubing Solutions, LLC (CTS), alleging that CTS embarked on a campaign to
damage Schlumberger’s business in Texas, North Dakota, and Louisiana by raiding
Schlumberger’s employees and diverting its customers, using unfair trade practices,
unfair competition, and trademark dilution to do so. Before the Court is CTS’s “Motion
to Dismiss Under Rule 12(b)(6)” (D.E. 8), challenging Schlumberger’s causes of action
and arguing that the facts pled reveal nothing more than ordinary business competition.
For the reasons set out below, the Court DENIES the motion.
STANDARD OF REVIEW
The test of pleadings under Rule 12(b)(6) is devised to balance a party’s right to
redress against the interests of all parties and the court in minimizing expenditure of time,
money, and resources devoted to adjudicating meritless claims. Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 558 (2007). Federal Rule of Civil Procedure 8(a)(2) requires
only “a short and plain statement of the claim showing that the pleader is entitled to
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relief.” Furthermore, “Pleadings must be construed so as to do justice.” Rule 8(e). The
requirement that the pleader show that he is entitled to relief requires “more than labels
and conclusions[;] a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).
Factual allegations are required, sufficient to raise the entitlement to relief above
the level of mere speculation. Twombly, 550 U.S. at 555. Those factual allegations must
then be taken as true, even if doubtful. Id. In other words, the pleader must make
allegations that take the claim from conclusory to factual and beyond possible to
plausible. Id. at 557. The Twombly court stated, “[W]e do not require heightened fact
pleading of specifics, but only enough facts to state a claim to relief that is plausible on
its face.” Id. at 570.
The Supreme Court, elaborating on Twombly, stated, “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.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. In dismissing the claim in Iqbal, the Court stated, “It is
the conclusory nature of respondent's allegations, rather than their extravagantly fanciful
nature, that disentitles them to the presumption of truth.” Id. at 681.
A motion to dismiss for failure to state a claim upon which relief can be granted
can be based not only on a plaintiff’s claims but on matters that support an affirmative
defense, such as limitations.

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Even if some allegations support a claim, if other

allegations negate the claim on its face, then the pleading does not survive the 12(b)(6)
review.
A complaint is subject to dismissal for failure to state a claim
if the allegations, taken as true, show the plaintiff is not
entitled to relief. If the allegations, for example, show that
relief is barred by the applicable statute of limitations, the
complaint is subject to dismissal for failure to state a claim;
that does not make the statute of limitations any less an
affirmative defense, see Fed. Rule Civ. Proc. 8(c). Whether a
particular ground for opposing a claim may be the basis for
dismissal for failure to state a claim depends on whether the
allegations in the complaint suffice to establish that ground,
not on the nature of the ground in the abstract.
Jones v. Bock, 549 U.S. 199, 215 (2007).
FACTS
According to its Complaint (D.E. 1), Schlumberger operates a division under the
trademark name Coil Tubing Services (Schlumberger) in Texas, North Dakota,
Louisiana, and other locations, offering certain oilfield services.

The division was

originally founded by individuals, including Glen Jerry Ritter (Ritter), as an independent
business entity. The founders sold the business to W-H Energy Services, which sold the
business to Smith International, Inc., which was acquired by Schlumberger in 2010.
Schlumberger then merged the division’s operations with similar operations it was
already engaged in, with Ritter as President of the division.
Thereafter, Schlumberger developed logos and trademarks for the division’s
operations, promoting the “Coil Tubing Services” name and using what it refers to as
“Schlumberger Blue,” the color Pantone No. 280, in marketing materials, on its website,
and on trailers and vehicles.
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Schlumberger has consistently used the Coil Tubing

Services trademarks to build up substantial goodwill, public recognition, and a standard
of high quality services.

Schlumberger argues that the trademarks have achieved

secondary meaning and are powerful source identifiers.
By 2013, Ritter had left Schlumberger’s division, founding CTS. Ritter was made
President and CEO, with seven of CTS’s other executive leadership roles filled by former
Schlumberger employees. According to Schlumberger, at about the same time, CTS
recruited at least twenty-two (22) Schlumberger employees, representing one hundred
percent (100%) of its operational employees in its Bridgeport/Midland operations, to
leave the division and begin working for CTS. Those employees, in turn, made up the
entirety of CTS’s operational force in that location. At least some of those employees
were subject to non-competition agreements that were thus breached.
The same thing happened in North Dakota, with Brandon Beesley, a Schlumberger
employee who was bound by a non-solicitation agreement for one year after leaving
Schlumberger’s employ. Allegedly in violation of that agreement, Beesley went to work
for CTS and proceeded to solicit Schlumberger employees to join CTS. At least eighteen
(18) employees from Schlumberger’s Minot/Rock Springs operations, representing
approximately sixty percent (60%) of its operational employees, made the switch. Those
employees then made up the entirety of CTS’s operational force in that location. CTS
also recruited four employees from Schlumberger’s Broussard Louisiana operations, who
have taken and used Schlumberger’s confidential information to unfairly compete for
Schlumberger’s clients’ business on behalf of CTS.

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CTS adopted a name confusingly similar to that of Schlumberger’s division,
substituting only “Solutions” for “Services.” Using offices in close proximity to those of
Schlumberger’s division, it markets the same services to the same customers, and
displays the same or similar color of blue on its website and its trailers. It even promotes
its operations by touting its past connections with Schlumberger and creating confusion
regarding the source or origination of its business. Actual confusion has been noted by
one customer’s email asking for clarification, another’s request for Schlumberger’s
services being dispatched by CTS, and a payment intended for Schlumberger being
received by CTS.
Alleging that these acts were all part of a calculated plan to unlawfully harm
Schlumberger in those Texas, North Dakota, and Louisiana operations, to give CTS an
unfair competitive advantage, and to dilute or damage its trademarks, Schlumberger
asserts the following causes of action:
1. Tortious interference with contractual relations in Texas, in particular:
o Interference with at-will employees’ confidentiality, nonsolicitation, and non-compete agreements; and
o Interference

with

Schlumberger’s

service

contracts

with

customers and clients.
2. Tortious interference with contractual relations in North Dakota, in
particular, collaborating with Brandon Beesley before and after the
termination of his employment with Schlumberger and in violation of
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his non-solicitation agreement to recruit Schlumberger’s employees and
degrade Schlumberger’s ability to service its contracted customers.
3. Violation of Louisiana Unfair Trade Practices Act (LUTPA) by raiding
Schlumberger’s employees, including special services personnel, and
using confidential Schlumberger information with the purpose of
degrading Schlumberger’s ability to service its customer contracts.
4. False Designation of Origin and False Description under the Lanham
Act by causing confusion regarding the sponsorship, endorsement, or
approval of its services by use of:
o The name “Coil Tubing Solutions,” which is substantially similar
to “Coil Tubing Services,” and
o Using “Schlumberger Blue.”
5. Common law trademark infringement and unfair competition under
Texas and North Dakota law by creating a likelihood of confusion
between Schlumberger’s and CTS’s services with the intent to deceive
the public.
6. Trademark dilution under Texas and North Dakota law by blurring the
distinctiveness and origin of Schlumberger’s marks and its reputation
and trade name in a way calculated to dilute its marks.
D.E. 1.
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CTS has challenged each cause of action and seeks the dismissal of this action in
its entirety. According to CTS, the tortious interference and LUTPA claims should be
dismissed because: (a) recruiting at-will employees is not actionable; (b) limitations bars
the Louisiana claims to the extent that they are based on the recruiting of employees more
than one year prior to the filing of the case; and (c) the allegations are not sufficiently
specific regarding any contracts and proximate cause. It challenges the trademark claims
because: (a) “coil tubing services” is generic and not eligible for protection; and (b)
Schlumberger does not adequately allege secondary meaning.

Each argument is

discussed in turn.
DISCUSSION
A. Tortious Interference/LUTPA
1. The Recruitment of At-Will Employees
Citing authority in all three states, CTS argues that Schlumberger cannot premise a
claim for tortious interference on the recruitment of Schlumberger employees because
they served on an at-will basis. Schlumberger cites Sterner v. Marathon Oil Co., 767
S.W.2d 686 (Tex. 1989), as making no distinction in the tortious interference context for
contracts that are terminable at will.
In Texas, an at-will employee may be lured away without consequence only if no
wrongful conduct is involved. According to the Fifth Circuit, “Sterner does not change
the rule that mere economic inducement to exercise rights under a contract (i.e., by
offering superior employment) does not constitute tortious interference of contract.”
Kadco Contract v. Dow Chem. Co., 198 F.3d 241, *3 (5th Cir. 1999) (not published).
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Here, however, Schlumberger has pled that wrongful conduct is involved—particularly
the breach of confidentiality, non-compete, and no-solicitation agreements. In fact, the
pleading appears to base the claim on breach of those agreements as much as on a breach
or termination of an at-will employment contract. As CTS impliedly acknowledges in its
reply (D.E. 14, p. 3), Texas law does allow a tortious interference claim alleging that type
of wrongful conduct.
Whether the party that induces the at-will employee to terminate the contract was
simply acting within its rights to offer a better deal is a question of privilege or
justification—an affirmative defense with the burden of proof on the defendant under
Texas law. Sterner, 767 S.W.2d at 690. CTS’s at-will contract challenge seeks to defeat
Schlumberger’s tortious interference causes of action by showing that Schlumberger
cannot make a prima facie case because its employees served on an at-will basis. CTS’s
motion must be denied with respect to the claims involving Texas law. CTS did not, and
cannot, seek dismissal on the basis that it would prevail on its fact-based affirmative
defense.
A similar result holds true in North Dakota. The fact that an employee serves on
an at-will basis does not automatically defeat a tortious interference claim. See Hennum
v. City of Medina, 402 N.W.2d 327, 338-39 (N.D. 1987) (evaluating a tortious
interference claim on the merits as to an at-will city employee). Furthermore, it is not
just the “at-will” employment contracts that are at issue.

Rather, Schlumberger

specifically references the no-solicitation agreement binding Beesley (even after his
employment terminated) as the subject of its North Dakota tortious interference claim
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(along with any confidentiality, non-compete, and no-solicitation agreements signed by
the employees). D.E. 1, p. 18. Again, the issue of “justification” is not the basis for
CTS’s claimed dismissal. So while North Dakota, unlike Texas, places the burden of
proof on that issue on a plaintiff in its prima facie case, a dismissal on that basis is not
warranted on the record here.1 Because CTS’s motion is based solely on the at-will status
of the employees rather than the issue of justification or privilege and does not address
the collateral agreements signed by employees, the motion must be denied with respect to
North Dakota law.
Schlumberger acknowledges that its claim under Louisiana law—LUPTA—
cannot be premised merely on hiring away at-will employees. D.E. 12, p. 16. It has pled
that CTS recruited Schlumberger employees to maintain and use Schlumberger’s
confidential client information for CTS’s benefit—by using the confidential information
to solicit and entice Schlumberger’s Louisiana clients to redirect their business to CTS.
D.E. 1, pp. 7-8. Because the employees’ at-will status has nothing to do with the claims
made against CTS under LUPTA, the motion must be denied with respect to Louisiana
law.
With respect to CTS’s challenge that Schlumberger has not stated a claim for
tortious interference with a contract in Texas, North Dakota, and Louisiana because the
employees who CTS hired were at-will employees of Schlumberger, the motion is
DENIED.
1

The elements of a prima facie case in North Dakota are: (1) a contract existed; (2) the contract was breached; (3)
the defendant instigated the breach; and (4) the defendant did so without justification. Bismarck Realty Co. v.
Folden, 354 N.W.2d 636, 642 (N.D. 1984).

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2. Limitations
CTS challenges Schlumberger’s tortious interference claims regarding Louisiana
operations because they are barred by limitations. It is undisputed that LUPTA has a
one-year limitations period.

La. Rev. Stat. Ann. § 51:1409(E); D.E. 12, p. 17.

Schlumberger pled that CTS induced the resignation of Schlumberger’s Louisiana
employees between July 20 and 30, 2013. D.E. 1, p. 7. This action was filed on
November 17, 2014, more than one year later. D.E. 1. This does not, however, bar the
claims.
As set out above, Schlumberger’s LUPTA claims are not based solely on being
deprived of its employees but on the conduct of those employees with respect to sharing
with CTS Schlumberger’s confidential information and interfering with Schlumberger’s
customers. This is alleged as conduct that is continuing. D.E. 1, p. 8. Such ongoing
tortious conduct, considered a “continuing violation” of LUPTA, does not trigger the start
of the preemptive period until the violation abates. Tubos de Acero de Mexico, S.A. v.
American Int’l Inv. Corp., 292 F.3d 471, 481-82 (5th Cir. 2002). In its reply, CTS does
not dispute this law that allows the tolling of limitations.
Instead, CTS argues that Schlumberger has failed to allege that the employees
were bound by confidentiality agreements that would make their alleged conduct
unlawful, citing Defcon, Inc. v. Webb, 687 So. 2d 639, 643 (La. App. 1984) (providing
that one element of a fiduciary duty claim premised on a breach of confidence is an
express or implied agreement that limited the use or disclosure of confidential
information). Yet the pleading states, “Schlumberger employees routinely enter into
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confidentiality agreements, non-solicitation agreements and non-compete agreements.”
D.E. 1, p. 15. While this allegation appears under the portion of the pleading related to
tortious interference with a contract under Texas law, that allegation is not limited to
employees in Schlumberger’s Texas locations. That allegation, along with all of the
other foregoing allegations, was incorporated by reference into the portion of the
pleading related to LUTPA.

D.E. 1, p. 19.

Thus Schlumberger pled an express

agreement.
CTS then argues that the fact pleadings regarding the continuing use of
confidential information are too conclusory to remain as a viable way to toll limitations.
Given the pleading as a whole, the Court understands that Schlumberger’s allegations are
based on circumstantial factual support and a pattern of conduct occurring through many
means. It has not yet had the opportunity, through discovery, to tie the results of the
conduct that it has experienced to specific acts. What is important at this stage, however,
is that Schlumberger has alleged factual allegations that raise a right to relief above the
speculative level, thereby sufficiently stating its claim under the requirements of
Twombly. See Farouk Systems, Inc. v. Costco Wholesale Corp., 700 F. Supp. 2d 780,
784-85 (S.D. Tex. 2010).
3. Specificity of All Tortious Interference and LUPTA
Allegations, Along With Proximate Cause
Adding to its complaints about the adequacy of the pleading, CTS seeks dismissal
of all of the tortious interference and LUPTA claims under the federal pleading rules,
Fed. R. Civ. P. 8, Twombly, and Iqbal. The claim is that Schlumberger has not pled with
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specificity either the employee and customer agreements or the exact terms of either type
of contract—terms with which CTS is accused of interfering. Instead, the pleading is
conclusory or formulaic. CTS further argues that, without more specificity as to the
terms of the non-compete agreements, the Court cannot evaluate whether the agreements
are enforceable, given the law rendering some such agreements invalid as restraints on
trade. Last, CTS argues that Schlumberger has not adequately pled proximate cause.
For these arguments, CTS cites a number of cases, including M-I LLC v. Stelly,
733 F. Supp. 2d 759, 777 (S.D. Tex. 2010). While the M-I court found that the pleadings
there were inadequate with respect to tortious interference with customer contracts and
tortious interference with prospective business relations, it held that the pleadings were
adequate with respect to tortious interference with employee contracts. The allegations
here are similar to those in M-I with respect to employee contracts.
Schlumberger pled that Ritter and seven other officials of CTS were former
Schlumberger employees with knowledge of how Schlumberger works. It pled that
employees routinely signed confidentiality, non-compete, and no-solicitation agreements
ancillary to their employment. Knowing that, CTS hired away multiple employees—
entire workforces—to compete directly with Schlumberger, using the confidential
information with which the employees had been entrusted. According to Schlumberger,
the plan is working and its former employees are having a significant impact diverting
Schlumberger’s former work to CTS—a scenario such agreements are intended to
prevent.

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CTS suggests that the pleading regarding employee contracts is still insufficient
because it does not provide the information required to evaluate whether the agreements
are enforceable or void as restraints of trade. Under Texas law, a non-compete agreement
is enforceable if it is made ancillary to another enforceable contract and contains
reasonable limits on its duration, geographical bounds, and scope of activity. Tex. Bus.
& Comm. Code § 15.50(a). While Schlumberger pled that the non-compete agreements
were routinely required, ancillary to employment, and were “limited in geographic
location, time and scope” (D.E. 1, p. 4), CTS argues that those allegations are conclusory
and formulaic.
This does not, however, require the dismissal of these tortious interference claims.
It is true that contracts in restraint of trade are vulnerable to modification or being
rendered void or unenforceable. Tex. Bus. & Comm. Code § 15.50. It is also true that, in
a dispute between employer and employee, the burden of persuasion is on the employer.
Id., § 15.51(b). However, the statute does not address any pleading requirement. And
the statute does not contemplate the respective burdens with respect to third parties who
are strangers to the contract and seek a court determination that the contract is void.
Under Texas law, whether a contract is void or unenforceable in response to a
breach of contract claim is an affirmative defense. 950 Corbindale, L.P. v. Kotts Capital
Holdings Ltd. P'ship, 316 S.W.3d 191, 196 (Tex. App.—Houston [14th Dist.] 2010, pet.
denied); Parks v. Developers Surety & Indemnity Co., 302 S.W.3d 920, 923–24 (Tex.
App.—Dallas 2010, no pet.). CTS has not demonstrated that the pleading rules require a
plaintiff to anticipate defenses and plead around them. Neither has CTS demonstrated
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that the enforceability of the agreements is an issue that can be determined on a motion to
dismiss, given that the statute allows such agreements if they are “reasonable.”
CTS raised the same challenge under North Dakota law. The statute in North
Dakota provides, “Every contract by which anyone is restrained from exercising a lawful
profession, trade, or business of any kind is to that extent void . . . .” N.D. Cent. Code §
9-08-06; Werlinger v. Mut. Serv. Cas. Ins. Co., 496 N.W.2d 26, 30 (N.D. 1993). But
Schlumberger’s North Dakota allegations do not seek enforcement of a non-compete
agreement.

They address Beesley’s no-solicitation agreement and the employees’

confidentiality agreement. Such agreements do not appear on their face to conflict with
that statute and CTS has not provided any authority that they violate that or any other
North Dakota statute.
With respect to tortious interference with employee contracts, including the
employees’ ongoing breaches of non-competition, no-solicitation, and/or confidentiality
agreements under the laws of the various states, the Court finds that the pleadings are
sufficient to raise a right to relief above the speculative level, thereby sufficiently stating
Schlumberger’s claims under the requirements of Twombly. See Farouk Systems, 700 F.
Supp. 2d at 780. Consequently, CTS’s motion to dismiss is DENIED with respect to the
tortious interference claims related to employee contracts.
With respect to customer contracts, however, the pleading fails to identify a single
customer or contract with which CTS has allegedly interfered.

The Court accepts

Schlumberger’s allegations that CTS’s efforts have damaged its business relationships as
sufficient at this stage to support its claims for damages arising from the breach of
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employee contracts. Actual customer contracts are not a necessary component to those
damages.

However, actual customer contracts are required for a prima facie case of

tortious interference with those customer contracts. Schlumberger recites that it is not
making a claim for tortious interference as to customer contracts. D.E. 12, p. 12, n. 6.
Thus, this issue is moot.
B. Unfair Competition
1. Whether “Coil Tubing” is Generic
CTS contends that Schlumberger cannot premise any unfair competition claims on
CTS’s use of the name Coil Tubing Solutions, compared to Schlumberger’s Coil Tubing
Services, because “coil tubing” is a generic term that cannot be given trademark status.
See Xtreme Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 227 (5th Cir. 2009)
(generic terms are not given trademark status). The classification of a term on the
continuum of “fanciful,” “arbitrary,” “suggestive,” “descriptive,” and “generic” is a
question of fact. Id.
Here, to prove its point that “coil tubing” is generic, CTS attached to its motion
screenshots from a number of different industry websites using the term “coil tubing” or
“coiled tubing.”

D.E. 8-1.

And on reply, CTS refers to an online article for the

proposition that, in the energy industry, “coil tubing” includes all of the services that
Schlumberger offers. This is meant to defeat Schlumberger’s argument that it provides
more than coil tubing services under the coil tubing name, giving the name distinctive
significance, rather than being simply generic.

Likewise, Schlumberger has offered

USPTO documents suggesting that the term is descriptive, argues that there is a
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difference between “coil” and “coiled,” and seeks to show that CTS’s President has
claimed that “Coil Tubing Services” was a protectable trademark in the past—a
proposition CTS disputes.
This offer of competing evidence by both parties could not be a clearer indication
that the issue is one of fact, requiring the submission of matters outside the pleading,
contrary to standards for disposition on a Rule 12(b)(6) motion. Fed. R. Civ. P. 12(d).
Given the apparent factual dispute, the Court declines to convert the motion to one for
summary judgment under Rule 56. The Court denies the Rule 12(b)(6) motion with
respect to CTS’s request to dismiss the unfair competition claims on the basis that “coil
tubing” is a generic term.
2. Specificity of Pleadings With Respect
to Claims of Secondary Meaning
Schlumberger’s Complaint includes allegations regarding: (1) the specific length
of time it has used its marks; (2) that Schlumberger invested in promoting the marks to
create source identification; (3) that consumers associate the marks with Schlumberger’s
services, such that there is name recognition and specific instances of confusion caused
by CTS’s use of the same or similar name and color; (4) that CTS’s President previously
worked to create and promote the marks on behalf of Schlumberger and its division’s
predecessors; (5) that CTS intentionally copied Schlumberger’s marks and took
geographical positions in close proximity to Schlumberger offices, along with promoting
its personnel’s prior association with Schlumberger; and (6) that Schlumberger has used
the Pantone No. 280 color blue on a consistent, comprehensive, and dominant basis
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(including examples) to promote its services for recognition, goodwill, and source
identification.
Allegations of this type are relevant to secondary meaning. E.g., Compliance
Review Servs., Inc. v. Callista Davis-Osuawu, No. 04-cv-3635, 2006 WL 2385291, *4
(S.D. Tex. Aug. 17, 2006) (using marks to create association between plaintiff and
defendant); Brand Coupon Network, LLC v. Catalina Mktg. Corp., No. 11-cv-556, 2014
WL 6674034, *8-9 (M.D. La. Nov. 24, 2014) (name recognition and confusion); Pebble
Beach Co. v. Tour 18 1, Ltd., 942 F. Supp. 1513, 1540 (S.D. Tex. 1996) (duration and
manner of plaintiff’s use; plaintiff’s investment in promoting the mark for source
identification; and the defendant's intent in copying the mark).
Given Schlumberger’s allegations, along with the totality of the complaint, the
Court finds that Schlumberger has raised its claims of unfair competition above the level
of mere possibility into plausibility in satisfaction of Twombly. The Court denies CTS’s
request to dismiss the unfair competition claims on the basis that secondary meaning was
not sufficiently pled.
CONCLUSION
For the reasons set out above, the Court DENIES CTS’s motion to dismiss (D.E.
8).

ORDERED this 16th day of April, 2015.

___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE
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