Capstone Associated Services, Ltd. et al v. Organizational Strategies, Inc. et al
Filing
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MEMORANDUM AND ORDER granting in part and denying in part 4 Motion to Dismiss for Failure to State a Claim, with leave to replead by January 19, 2016.(Signed by Judge Nancy F. Atlas) Parties notified.(TDR, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CAPSTONE ASSOCIATED
SERVICES, LTD., et al.,
Plaintiffs,
v.
ORGANIZATIONAL STRATEGIES,
INC., et al.,
Defendants.
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December 23, 2015
David J. Bradley, Clerk
CIVIL ACTION NO. H-15-3233
MEMORANDUM AND ORDER
This trade secrets case is before the Court on the Motion to Dismiss [Doc. # 4]
filed by Defendants Organizational Strategies, Inc., Nicolette Hendricks, William
Hendricks, Integration Casualty Corp., System Casualty Corp., and Optimal Casualty
Corp., to which Plaintiffs Capstone Associated Services, Ltd. and Capstone
Associated Services (Wyoming), Limited Partnership (collectively, “Capstone”) filed
a Response [Doc. # 10], and Defendants filed a Reply [Doc. # 13]. Having reviewed
the full record and applicable legal authorities, the Court denies the Motion to Dismiss
the breach of contract claim. The Court grants the Motion to Dismiss as to the trade
secret misappropriation and Texas Uniform Trade Secrets Act (“TUTSA”) claims,
with leave for Plaintiffs to file an amended complaint.
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I.
BACKGROUND
Capstone alleges that it entered into a Services Agreement with Defendants.
The Services Agreement included a limited license for Defendants to use Capstone’s
intellectual property. The Services Agreement provided that the license would expire
upon the termination of the agreement.
Capstone alleges that in March 2013, a dispute arose among the parties and the
Services Agreement was eventually terminated. Capstone claims that, after the
Services Agreement was terminated, Defendants improperly continued to use the
intellectual property that was the subject of the license.
Capstone filed this lawsuit in Texas state court, asserting causes of action for
trade secret misappropriation, violation of TUTSA, and breach of contract.
Defendants removed the case to federal court, then filed their Motion to Dismiss. The
Motion has been fully briefed and is now ripe for decision.
II.
STANDARD FOR RULE 12(b)(6) MOTION TO DISMISS
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure is viewed with disfavor and is rarely granted. Turner v. Pleasant, 663 F.3d
770, 775 (5th Cir. 2011) (citing Harrington v. State Farm Fire & Cas. Co., 563 F.3d
141, 147 (5th Cir. 2009)). The complaint must be liberally construed in favor of the
plaintiff, and all facts pleaded in the complaint must be taken as true. Harrington, 563
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F.3d at 147. The complaint must, however, contain sufficient factual allegations, as
opposed to legal conclusions, to state a claim for relief that is “plausible on its face.”
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Patrick v. Wal-Mart, Inc., 681 F.3d
614, 617 (5th Cir. 2012). When there are well-pleaded factual allegations, a court
should presume they are true, even if doubtful, and then determine whether they
plausibly give rise to an entitlement to relief. Iqbal, 556 U.S. at 679. Additionally,
regardless of how well-pleaded the factual allegations may be, they must demonstrate
that the plaintiff is entitled to relief under a valid legal theory. See Neitzke v.
Williams, 490 U.S. 319, 327 (1989); McCormick v. Stalder, 105 F.3d 1059, 1061 (5th
Cir. 1997).
The lawsuit, however, was filed in Texas state court and the Court will apply
Texas pleading standards to evaluate the claims asserted in the Original Petition. See
Taylor v. Bailey Tool Mfg. Co., 744 F.3d 944, 946-47 (5th Cir. 2014). In Texas state
court, a plaintiff’s petition must contain only “a short statement of the cause of action
sufficient to give fair notice of the claim involved.” TEX. R. CIV. P. 47(a). This “fair
notice” pleading standard is satisfied if the opposing party “can ascertain from the
pleading the nature, basic issues, and the type of evidence that might be relevant to the
controversy.” Dallas Area Rapid Transit v. Morris, 434 S.W.3d 752, 760 (Tex. App.
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-- Dallas 2014, review denied) (citing Low v. Henry, 221 S.W.3d 609, 612 (Tex.
2007)).
III.
ANALYSIS
A.
Trade Secret Misappropriation and TUTSA Claims
“Trade secret misappropriation under Texas law is established by showing: (a) a
trade secret existed; (b) the trade secret was acquired through a breach of a
confidential relationship or discovered by improper means; and (c) use of the trade
secret without authorization from the plaintiff.”
Spear Marketing, Inc. v.
Bancorpsouth Bank, 791 F.3d 586, 600 (5th Cir. 2015) (citations omitted). A claim
under TUTSA similarly “requires that a defendant ‘acquire’ knowledge of the trade
secret at issue through ‘improper means.’” Educ. Mgmt. Servs., LLC v. Tracey, 102
F. Supp. 2d 906, 914 (W.D. Tex. 2015) (referring to plain language of TEX. CIV.
PRAC. & REM. CODE § 134A.002(3)(B)(I)).
In this case, Capstone has failed to allege that Defendants acquired the trade
secrets through breach of the Service Agreement or other improper means. Instead,
Capstone’s allegations indicate that Defendants acquired the trade secrets in
connection with a valid license, but later allegedly breached the Services Agreement
and the license contained therein. Absent an allegation that Defendants acquired the
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trade secrets through improper means, Capstone fails to state a claim under TUTSA
or for trade secret misappropriation.
Defendants argue also that the TUTSA and misappropriation of trade secrets
claims are preempted by the Copyright Act, citing Spears Marketing, Inc. v.
Bancorpsouth Bank, 791 F.3d 586 (5th Cir. 2015). In Spears, however, the Fifth
Circuit held only that the conversion and Texas Theft Liability Act claims were
preempted. See id. at 597-98. The Fifth Circuit did not hold that the misappropriation
of trade secrets claim was preempted and, instead, addressed that claim on its merits.
See id. at 600-02. Under the “extra element” test, if the state law claim has one or
more qualitatively different elements, then there is no preemption by the Copyright
act. See Alcatel USA, Inc. v. DGI Tech., Inc., 166 F.3d 772, 787 (5th Cir. 1999); M-I
LLC v. Stelly, 733 F. Supp. 2d 759, 786 (S.D. Tex. 2010). The misappropriation of
trade secrets claim requires proof that the trade secret was acquired through a breach
of a confidential relationship or improper methods, an element not required for a claim
under the Copyright Act. See Beardmore v. Jacobson, __ F. Supp. 3d __, 2015 WL
5530398, *11 (S.D. Tex. Sept. 18, 2015) (citations omitted). Consequently, the
misappropriation of trade secret claim contains an “extra element” and is not
preempted. See Beardmore, 2015 WL 5530398 at *11.
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B.
Breach of Contract Claim
Under Texas law, the elements of a breach of contract claim are: (1) the
existence of a valid contract; (2) performance or tendered performance by the
plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the
plaintiff as a result of the breach. Mullins v. TestAmerica, Inc., 564 F.3d 386, 418 (5th
Cir. 2009). Capstone alleges that Defendants entered into the Services Agreement,
and that Defendants breached that contract by continuing to use the intellectual
property after the termination of the agreement, causing Capstone to incur damages.
See Original Petition, ¶¶ 29-30. Additionally, in the Response, Capstone asserts that
Defendants breached the Services Agreement by failing to comply with contract terms
requiring the return of confidential documents and other intellectual property after the
contract expired. See Response, p. 6.
These allegations adequately state a breach of contract claim, particularly as
supplemented by the Response and evaluated under the more lenient state court
pleading standards. Nonetheless, the Court encourages Capstone to include in its
amended complaint more complete factual allegations to support the breach of
contract claim to comply with federal pleading standards.
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C.
Leave to Replead
When a complaint fails to state a claim, the Court should generally give the
plaintiff at least one opportunity to amend the complaint under Rule 15(a) before
dismissing the action with prejudice. See Great Plains Trust Co. v. Morgan Stanley
Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002). This is particularly true when
the Original Petition was filed in state court under state court pleading standards.
In its Response, Capstone requests leave to amend should the Court determine
that Defendants’ Motion to Dismiss has merit. The Court concludes that Capstone
should be permitted to file an amended complaint under the federal pleading
requirements.
IV.
CONCLUSION AND ORDER
Capstone has failed adequately to allege its TUTSA and misappropriation of
trade secrets claims in this case. Because the case was originally filed in Texas state
court, the Court finds that Capstone should be permitted to file an amended complaint
that satisfies the federal court pleading standards. Accordingly, it is hereby
ORDERED that Defendants’ Motion to Dismiss [Doc. # 4] is GRANTED in
part and DENIED in part, with leave to replead by January 19, 2016.
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SIGNED at Houston, Texas, this 23rd day of December, 2015.
NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE
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