Downhole Technology LLC v. Silver Creek Services Inc. et al
Filing
36
MEMORANDUM OPINION AND ORDER denying 24 MOTION to Dismiss 20 Amended Complaint, granting in part and denying in part 23 MOTION to Dismiss 20 Amended Complaint and Alternatively, Motion for More Definite Statement. Breach of Contract claim against Defendant Williams is dismissed. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
DOWNHOLE TECHNOLOGY LLC,
Plaintiff,
v.
SILVER CREEK SERVICES INC.;
STORMFIELD INNOVATIVE
TECHNOLOGIES, LLC; DANIEL R.
COFFEE; MICHAEL DIDIER;
DILLON W. KUEHL; and CHARLES M.
WILLIAMS,
Defendants.
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April 27, 2017
David J. Bradley, Clerk
CIVIL ACTION NO. H-17-0020
MEMORANDUM OPINION AND ORDER
Pending before the court are Defendants Silver Creek Services
Inc., Michael Didier, and Charles M. Williams's (collectively, the
"Silver Creek Defendants") Motion to Dismiss Plaintiff's Complaint
and,
Alternatively,
Motion for More Definite Statement
Creek Defendants' Motion to Dismiss")
(Docket Entry No.
("Silver
23)
and
Defendants StormField Innovative Technologies, LLC and Dillon W.
Kuehl's
Dismiss
(collectively,
the
"StormField
and Alternative Motion
for More
Defendants")
Definite
Motion
to
Statement
in
Response to Plaintiff's Amended Complaint ("StormField Defendants'
Motion to Dismiss")
below,
1
(Docket Entry No. 24) . 1
the Silver Creek Defendants'
For the reasons stated
Motion to Dismiss will be
Defendant Daniel R. Coffee's 12(b) (2) and 12(b) (6) Motion to
Dismiss Amended Complaint and Supporting Memorandum of Law (Docket
Entry No. 26) is not yet ripe and will be addressed in a future
order.
granted in part and denied in part, and the StormField Defendants'
Motion to Dismiss will be denied.
I.
Factual Backqround2
Defendant Downhole Technology LLC
and
deploys
("fracking")
frac
plugs
industry.
used
in
Dillon W.
("Downhole")
the
manufactures
hydraulic
fracturing
Kuehl was employed as a Field
Service Technician by Downhole from March of 2013 to March of 2014.
Kuehl signed a Proprietary Information and Intellectual Property
Assignment Agreement (the "Kuehl NDA") in which he agreed "to hold
in strictest confidence, and not to use, except for the benefit of
the Company,
or to disclose to any person,
firm or corporation
without written authorization . . . any Proprietary Information of
the Company" as defined in the NDA. 3
From
October
installations
of
through
Downhole
December
frac
of
plugs
2013
for
two
Kuehl
oversaw
customers,
FTS
International Services, LLC ("FTSI") and Rice Energy, at a site in
the
Marcellus
Shale
region
(the
"FTSI/Rice
Site") .
FTSI
and
Downhole signed a Master Purchase Agreement for Products and/or
Services
( "FTSI
Agreement"), 4
which
included
a
Confidentiality
provision. 5
2
Factual allegations are
Complaint, Docket Entry No. 20.
taken
from
plaintiff's
Amended
3
Exhibit A to Amended Complaint, Docket Entry No. 20-1, p. 2.
4
Exhibit B to Amended Complaint, Docket Entry No. 20-2.
5
Id. at 4
~
12.
-2-
Michael Didier was a consultant for Rice Energy at the time of
the installations.
Kuehl and Didier were personal friends before
Kuehl began overseeing the installation at the FTSI/Rice Site.
Charles M. Williams was an Operations Manager for FTSI at the time
of the installations.
Williams
and
Didier
information
Downhole
frac
plugs
about
FTSI/Rice Site.
Operations
for
the
Daniel R.
FTSI,
Coffee,
learned
Downhole frac plugs from
from
detailed
Kuehl
at
the
Vice President of Wire line
detailed
his
learned
information
about
the
involvement at the FTSI/Rice Site
and through Didier, Kuehl, or Williams.
In December of 2013 Coffee, Didier, Kuehl, and Williams formed
Silver Creek Services, Inc.
("Silver Creek").
was still employed by Downhole.
Williams,
along
with
other
At the time, Kuehl
In September of 2014 Kuehl and
individuals,
formed
StormField
Innovative Technologies, LLC ("StormField").
Kuehl and Williams
were named as Managing Members of StormField.
In October of 2014
Downhole
became
aware
that
Silver
Creek,
in
partnership
with
StormField, was selling frac plugs similar to the Downhole frac
plug, which Silver Creek marketed as "ZIP Plugs."
Downhole
infringed U.S.
alleges
that
Silver
Patent
Nos.
8,955,605
9,010,411 ("the '411 Patent").
Creek
and
("the
StormField
'605
Patent")
have
and
Downhole alleges that defendants
knew of Downhole's patents and that Silver Creek and StormField
induced and contributed to the infringement of those patents by
others.
Downhole alleges that Kuehl had knowledge of Downhole's
-3-
patent rights as a result of his employment with Downhole and the
notice of
"patent information"
and the directions to a website
printed on the side of each frac plug package.
Coffee and Williams
allegedly obtained confidential information belonging to Downhole
as a result of Coffee's employment with FTSI and as a result of
Williams working at the FTSI/Rice Site.
Defendants allegedly used
the confidential information they obtained to facilitate creation
of their "ZIP Plug."
Downhole
sued
Silver
Creek
and
StormField
for
patent
infringement, Kuehl for breach of contract and breach of fiduciary
duty,
Coffee
defendants
Uniform
and
for
Trade
Williams
tortious
Secrets
for
breach
interference,
Act
of
contract,
violations
( "TUTSA"), 6
and
of
unjust
and
the
all
Texas
enrichment.
Defendants now move to dismiss Downhole's claims for failure to
state a claim or, in the alternative, for a more definite statement
of Downhole's claims under the TUTSA.
II.
A Rule 12(b) (6)
pleadings
and
is
Applicable Law
motion tests the formal sufficiency of the
"appropriate
when
a
defendant
attacks
the
complaint because it fails to state a legally cognizable claim."
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001), cert.
denied sub nom.
Cloud v. United States,
122 S.
Ct.
2665
(2002).
The court must accept the factual allegations of the complaint as
6
Tex. Civ. Prac. & Rem. Code
§§
-4-
134A.001-.008.
true and view them in the light most favorable to the plaintiff.
Id. (citing Oppenheimer v. Prudential Securities Inc., 94 F.3d 189,
194
(5th Cir. 1996)).
must
plead
"enough
To defeat a motion to dismiss a plaintiff
facts
plausible on its face."
1955, 1974 (2007).
to
state
a
claim
to
relief
that
is
Bell Atlantic Corp. v. Twombly, 127 S. Ct.
The court does not "strain to find inferences
favorable to the plaintiff[]" or "accept conclusory allegations,
unwarranted deductions, or legal conclusions."
Southland Securities
Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir.
2004)
(internal quotation marks and citations omitted).
"[C]ourts
are required to dismiss, pursuant to [Rule 12(b) (6)], claims based
on invalid legal theories, even though they may be otherwise wellpleaded."
Flynn v.
State Farm Fire and Casualty Insurance Co.
(Texas), 605 F. Supp. 2d 811, 820 (W.D. Tex. 2009)
(citing Neitzke
v. Williams, 109 S. Ct. 1827, 1832 (1989)).
III.
A.
Analysis
Infringement Claims
As a preliminary matter, Downhole submitted, and the court has
accepted, a Notice of Errata correcting paragraphs 41 and 58 of the
Amended Complaint. 7
Arguments for dismissal on the basis of those
errors are therefore moot.
Defendants
argue
that
Downhole's
claims
for
induced
and
contributory infringement fail because Downhole did not plead that
7
Plaintiff's Notice of Errata, Docket Entry No. 27.
-5-
defendants had actual knowledge of the patents.
But Downhole's
pleadings allege that Kuehl had actual knowledge of the patents,
"at least" as a result of the "notice" on the device packaging. 8
Downhole further alleges that Kuehl participated in the formation
and
management
of
both
Silver
Creek
and
StormField. 9
It
is
therefore plausible that Silver Creek and StormField had actual
knowledge of Downhole's patents.
Downhole's claims for induced and
contributory infringement are therefore facially plausible.
B.
Breach of Contract Claims
1.
Williams
Williams
argues
that
Downhole's
breach of
contract
claim
against him should be dismissed because he was not a party to the
contract between Downhole and FTSI.
In Texas the elements of a
breach of contract claim are (1) the existence of a valid contract;
(2) performance or tendered performance by plaintiff; (3) breach of
contract by defendant; and (4) damages.
Inc. v. Egle Group, LLC,
490 F.3d 380,
See Smith International,
387
(5th Cir. 2007).
An
employee of a company that enters into a contract generally has no
individual liability.
262,
271
(Tex.
2006)
See, e.g., Willis v. Donnelly, 199 S.W.3d
(the corporate shield protects a business
owner from individual liability on a contract entered into by the
8
"Furthermore, as a result of his employment with Downhole,
Kuehl had knowledge of Downhole's patent rights
" Amended
Complaint, Docket Entry No. 20, p. 15 ~ 47.
9
Id. at 8
~
25.
-6-
entity); OAIC Commercial Assets, L.L.C. v. Stonegate Village, L.P.,
234 S.W.3d 726, 738 (Tex. App.--Dallas 2007, pet. denied)
("Privity
[to sue for breach of contract] is established by proving that the
defendant was a party to an enforceable contract with either the
plaintiff or a
party who assigned its
cause of action to the
plaintiff.").
Downhole responds that "this stage of the proceeding does not
address
whether
contract. '" 10
Williams
was
or
was
not
'a
party
to
the
But Downhole must at least allege that Williams was
a party to a valid contract.
Downhole alleges that "[t]he FTSI
Agreement is a valid contract between Downhole and FTSI" and that
"[a]s
former
employees
of
FTSI,
Coffee
obligations under the FTSI Agreement." 11
status
alone
is
not
Williams and Downhole.
sufficient
to
and
Williams
have
But Williams' employment
establish
privity
between
Absent an allegation that Williams was a
party to a valid contract with Downhole and that Williams breached
that contract, Downhole's claim against Williams fails.
The breach
of contract claim against Williams will therefore be dismissed.
2.
Kuehl
Kuehl argues that Downhole's breach of contract claim against
him "fails to plead that any information that was provided to Kuehl
10
Plaintiff' s Response in Opposition to Certain Defendants'
Motions to Dismiss ("Plaintiff's Response"), Docket Entry No. 28,
p. 16.
11
Amended Complaint, Docket Entry No. 20, p. 23
-7-
~~
82-83.
or
received
by
Kuehl
information under
the
qualified
terms
as
restricted
confidential
agreement with Downhole. " 12
of his
Downhole cites two paragraphs from its Amended Complaint in its
Response: 13
30. None of the Defendants
developed/ marketed/ or sold
improperly misappropriating and
and trade secret information
could have designed 1
the ZIP plug without
utilizing confidential
belonging to Downhole
74.
However
Kuehl has breached the Kuehl NDA in at
least the following ways:
1
a.
On information and belief
Kuehl disclosed
confidential information of Downhole to others 1 including
to
Coffee
Didier
Williams
Silver
Creek
and
StormField 1 all in violation of the Kuehl NDA.
1
1
1
1
1
b.
On information and belief Kuehl has improperly
used confidential information belonging to Downhole to
facilitate creation of the ZIP Plug for StormField. 14
1
In order for Kuehl to improperly use confidential information/ he
must first have obtained that information.
The court need not
strain to infer from Downhole 1 s allegations that Kuehl obtained the
confidential information while employed by Downhole and that he
later used the information to Downhole
1
S
detriment.
Accepting the
facts pled as true/ Downhole has stated a legally cognizable claim
for breach of the Kuehl NDA.
12
No. 24
13
14
StormField
p. 16.
Defendants/
Motion
to
Dismiss 1
Docket
1
Plaintiff
1
S
Response/ Docket Entry No. 28
Amended Complaint/ Docket Entry No. 20
-8-
1
1
p. 16.
pp. 10
1
21-22.
Entry
C.
Tort Claims
Defendants
argue
fiduciary duty,
that
and
Subsection
Remedies
(b)
restitutionary,
this
1
and
Section 134A. 007
Code
states:
chapter
other
law
this
district,
of
"Except
for
breach
of
this
the
Texas
as
provided
conflicting
displaces
remedies for misappropriation of a
decision from
claims
of
tortious interference, and unjust enrichment are
preempted by the TUTSA.
Practice
Downhole's
state
civil
In a recent
Judge Rosenthal provides
analysis of preemption under the TUTSA.
by
tort,
providing
trade secret."
Civil
a
clear
AMID, Inc. v. Medic Alert
Foundation United States, Inc., Civil Action No. H-16-1137, 2017
WL 1021685, at *27 (S.D. Tex. March 16, 2017).
By pleading common-
law causes of action in addition to misappropriation of
secrets,
the
plaintiff
in
~AM~I~D~·~-=I~n~c~.
alternative theories of relief.
"essentially
trade
pleaded
It sought relief on the theory
that [the defendant] misappropriated information protected as trade
secrets,
and alternatively under the theory that the misappro-
priated information was not a trade secret but was confidential."
Id. at *28.
Because the court concluded that the plaintiff "could
recover on its tort claim without proving that the information
[was]
protected as trade secrets," the motion to dismiss on the
basis of TUTSA preemption was denied.
Like the plaintiff in AMID,
Id.
Inc., Downhole's claims include
misappropriation of confidential information and other allegations
in addition to the misappropriation of trade secrets.
-9-
Downhole's
breach of fiduciary duty claim against Kuehl stems in part from the
fact that Kuehl was allegedly "engaging in conduct competitive to
the interests of Downhole"
as well as disclosing
information." 15
tortious
Downhole's
interference
"confidential
claim against
defendants also alleges the misuse of "confidential information,"
which may or may not include trade secrets . 16
And Downhole's unjust
enrichment claim against defendants similarly involves the "taking
of
information
properly
belonging
to
Downhole. " 17
Because
Downhole's claims involve activity other than misappropriation of
trade secrets and permit recovery in the event that the information
obtained
and
used
by
defendants
does
not
qualify
as
"trade
secrets," the claims are not preempted by the TUTSA.
D.
TUTSA Claims
Defendants
argue
that
Downhole's
TUTSA claims
mirror
its
breach of contract claims and that "Downhole has not alleged facts
establishing a legal duty independent of the confidentiality clause
of the agreement between Downhole and FTSI." 18
Defendants cite a
Texas Supreme Court case for the proposition that a party may not
recover under a tort theory when "the only loss or damage is to the
15
Amended Complaint, Docket Entry No. 20, p. 22
16
Id. at 24
~~ 88,
17
Id. at 27
~
~ 103.
18
79.
90.
Sil ver Creek Defendants'
No. 23, p. 8 ~ 18.
Motion to Dismiss,
-10-
Docket Entry
subject matter of the contract. " 19
alleged basis for TUTSA liability.
owed
a
distinct
fiduciary
duty
But the NDA is not the only
Downhole has alleged that Kuehl
to
Downhole
as
employee. 20
an
Moreover, even if the general rule in DeLanney applied to Kuehl,
the rule would not preclude TUTSA claims against the remaining
defendants
whose
misappropriation
was
not
due
to
a
breach of
contract on their part.
Defendants also argue that "Downhole pleads its TUTSA claim in
a
formulaic
recitation
of
elements,
without
alleging
facts
supporting misappropriation" 21 and that Downhole "has not identified
which specific trade secrets were misappropriated, or by whom." 22
Defendants
cite
no
case
law
in
support
of
the
position
that
Downhole is required to identify specific trade secrets in its
pleadings.
Downhole pleads that it has trade secrets relating to
the manufacture and use of its frac plugs and that defendants used
those trade secrets to develop their competing product.
Downhole
specifically pleads that
[s]uch trade secrets include, but are not limited to, the
products developed, the associated hardware design,
related firmware and software, components that were
19
Id. (citing Southwestern Bell Telephone Co. v. DeLanney, 809
S.W.2d 493, 494 (Tex. 1991)).
20
Amended Complaint, Docket Entry No. 20, p. 22
21
Sil ver Creek Defendants'
No. 23, p. 8 ~ 19.
22
StormField
No. 24, p. 15.
Defendants'
Motion to Dismiss,
Motion
-11-
to
Dismiss,
~
78.
Docket Entry
Docket
Entry
identified and used in connection with its frac plug
technology, the general know-how and negative know-how
learned in conjunction with the trial and error process
in developing, testing, marketing, and selling its frac
plug and associated technology, and also in conjunction
with significant expenditure by Downhole in pursuit of
developing its frac plug technology. 23
Downhole's pleadings contain sufficiently defined categories to
enable
defendants
to
respond
to
definite statement is required.
these
No
allegations.
And taken as true,
more
Downhole's
pleadings set forth sufficient factual allegations to support its
claims under the TUTSA.
IV.
Conclusions and Orders
For the reasons explained above,
the court concludes that
Downhole has failed to plead a legally cognizable claim for breach
of contract against Williams.
That claim is therefore DISMISSED
with prejudice as to Williams.
The remainder of Downhole's claims
are legally cognizable and facially plausible.
Defendants' Motion to Dismiss
The Silver Creek
(Docket Entry No. 23)
is therefore
GRANTED in part and DENIED in part, and the StormField Defendants'
Motion to Dismiss (Docket Entry No. 24) is DENIED.
SIGNED at Houston, Texas, on this 27th day of April, 2017.
UNITED STATES DISTRICT JUDGE
23
Amended Complaint, Docket Entry No. 20, p. 25 ,
-12-
95.
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