Hawkins v. Fishbeck et al
MEMORANDUM OPINION. Signed by Judge Norman K. Moon on 10/16/17. (jcj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
CASE NO. 3:17-CV-00032
JONATHAN B. FISHBECK, ET AL.,
JUDGE NORMAN K. MOON
Todd Hawkins and Jonathan Fishbeck founded the BuilderFish entities, three software
development companies. But the partners split, and Hawkins alleges that Fishbeck and the other
defendants (a co-worker, Fishbeck’s father, and two companies) utilized BuilderFish’s resources
improperly for their own gain. He claims that they collectively misappropriated trade secrets and
infringed copyrights, and that Fishbeck violated a non-compete agreement.
Defendants respond to these allegations in two ways. First, Jonathan Fishbeck argues
that the claims against him are subject to arbitration. Because the employment agreement
containing the arbitration clause has a significant relationship to the claims against him, the
Court will grant the motion for all claims for damages against him, but the claims for injunctive
relief are explicitly excepted by the agreement. Second, Defendants collectively argue that
Hawkins does not plead sufficient facts to plausibly state his claims against them. While
Hawkins properly pleads facts that state a trade secret claim, his copyright and covenant not to
compete claims are both fatally flawed. The motion will accordingly be granted in part.
I. LEGAL STANDARD
A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of a
complaint to determine whether a plaintiff has properly stated a claim.
“[f]actual allegations must be enough to raise a right to relief above the speculative level,” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), with all allegations in the complaint taken as
true and all reasonable inferences drawn in the plaintiff’s favor. King v. Rubenstein, 825 F.3d
206, 212 (4th Cir. 2016). A motion to dismiss “does not, however, resolve contests surrounding
the facts, the merits of a claim, or the applicability of defenses.” Id. at 214.
Although the complaint “does not need detailed factual allegations, a plaintiff’s obligation
to provide the ‘grounds’ of his entitle[ment] to relief requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at
555. A court need not “accept the legal conclusions drawn from the facts” or “accept as true
unwarranted inferences, unreasonable conclusions, or arguments.” Simmons v. United Mortg. &
Loan Inv., LLC, 634 F.3d 754, 768 (4th Cir. 2011) (quotation marks omitted). This is not to say
Rule 12(b)(6) requires “heightened fact pleading of specifics,” instead the plaintiff must plead
“only enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at
570. Still, “only a complaint that states a plausible claim for relief survives a motion to dismiss.”
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
II. FACTS ALLEGED
Plaintiff Todd Hawkins and Defendant Jonathan Fishbeck co-founded the BuilderFish
entities in 2010. (Dkt. 6 ¶¶ 3, 10). BuilderFish Enterprises, LLC, BuilderFish, LLC, and
BuilderFish Services, LLC (collectively “the BuilderFish entities”) are each Virginia limited
liability companies. (Id. ¶ 2). BuilderFish, LLC and BuilderFish Services, LLC are wholly
owned subsidiaries of Builderfish Enterprises, LLC. (Id.). Plaintiff and Jonathan Fishbeck each
own 50% of BuilderFish Enterprises, LLC, the parent company. (Id. ¶ 10). Plaintiff and
Jonathan Fishbeck contributed to the BuilderFish entities in different manners.
provided financial backing for the companies, while Jonathan Fishbeck worked as an employee
and officer. (Id. ¶¶ 3, 10-11). The companies also employed at least one other individual.
Defendant William Heapes started working for the BuilderFish entities as Chief Technology
Officer in early 2016, but has no ownership stake in the company. (Id. ¶¶ 4, 12).
Over the past three years, the BuilderFish entities have invested $4 million dollars and
the labor of its employees in the development of the “Navigator/Gravity” software. (Id. ¶ 11).
Starting in September 2016, Defendants Jonathan Fishbeck, Heapes, and Ronald Fishbeck
(Jonathan’s father) allegedly removed this software from the BuilderFish entities. (Id. ¶¶ 13, 14,
21). Defendants Ultra Lifestyle, LLC and Griffin Group Global, LLC allegedly received this
software code and used it to create unauthorized derivative products. (Id. ¶¶ 21, 22). Defendants
Jonathan Fishbeck, Ronald Fishbeck, and Heapes have at least partial ownership of these two
LLCs. (Id. ¶¶ 6, 7).
Plaintiff alleges violations of the Defend Trade Secrets Act, 18 U.S.C. § 1831, et seq., the
Copyright Act, 17 U.S.C. § 101, et seq., and the covenant not to compete in Jonathan Fishbeck’s
employment agreement. (Dkt. 6 at 8-10). But before getting to those claims, Defendants
challenge whether Plaintiff can represent the BuilderFish entities under Virginia corporate law.
Plaintiff’s ability to bring a derivative suit under Virginia law
It is “well settled” that “Virginia law does not accord a shareholder standing to sue in his
own right for compensatory damages caused by injury to a corporation.” Womble v. Dixon, 752
F.2d 80, 82 (4th Cir. 1984) (citing Keepe v. Shell Oil Co., 220 Va. 587, 591 (Va. 1979)). “The
rule is that an officer or a shareholder of a corporation, even if he is the sole shareholder, has no
personal or individual right of action against third parties for a wrong or injury inflicted by those
third parties upon the corporation.” Mullins v. First Nat. Exch. Bank of Va., 275 F. Supp. 712,
721 (W.D. Va. 1967); see Mission Residential, LLC v. Triple Net Properties, LLC, 275 Va. 157,
161–62 (Va. 2008) (applying this principle to limited liability companies).
While Plaintiff cannot sue directly for any alleged injuries to the BuilderFish entities, he
can sue on behalf of the limited liability companies, or “derivatively.” “A derivative action is an
equitable proceeding in which a member asserts, on behalf of the limited liability company, a
claim that belongs to that entity rather than the member.” Mission Residential, 275 Va. at 161–
62. Va. Code § 13.1-1042 governs derivative actions brought on behalf of limited liability
companies. Plaintiff can only bring a derivative action if he was a member of the company
during the alleged injury, made a written demand on the company to take action, and waited
ninety days to see whether the company would take action on its own behalf. Va. Code § 13.11042. Plaintiff must also “fairly and adequately” represent the interests of the limited liability
company. Id. at §§ 13.1-1042, 13.1-1043.
Plaintiff made a written demand on the company, and the first three requirements are
satisfied. (Dkt. 6 ¶¶ 10, 27).1 However, Defendants dispute whether Plaintiff can “fairly and
adequately” represent the interests of the company. (Dkt. 12 at 3-4). They claim that “economic
antagonisms between representative and class” and “other litigation pending between the
plaintiff and defendants” weigh against the Plaintiff’s ability to fairly and adequately represent
Plaintiff has not pled that the written demand was made ninety days before
commencement of the action. This is not necessarily fatal to Plaintiff’s derivative action—a
plaintiff can avoid the ninety-day waiting period if irreparable injury would result. Va. Code §
13.1-1042(B)(2); see also DCG & T ex rel. Battaglia/Ira v. Knight, 68 F. Supp. 3d 579, 593
(E.D. Va. 2014). The Fourth Circuit has noted that “[i]rreparable injury often derives from the
nature of copyright violations, which deprive the copyright holder of intangible exclusive rights.”
Christopher Phelps & Assocs., LLC v. Galloway, 492 F.3d 532, 544 (4th Cir. 2007). Even
though, as discussed below, Plaintiff has no copyright here, analogous violations are alleged.
Defendant has not contested this point. Accordingly, the 90-day requirement is waived.
the BuilderFish entities. (Dkt. 12 at 3 (quoting Office of Strategic Servs., Inc. v. Sadeghian, 528
F. App’x 336, 350 (4th Cir. 2013))).2
But the parties’ animosity does not necessarily doom a derivative action. See Cattano v.
Bragg, 283 Va. 638, 647–48 (Va. 2012). In Cattano, the Virginia Supreme Court upheld the
ability of one shareholder in a two-shareholder corporation to fairly and adequately bring a
derivative action against the other. In that case, there was also “economic antagonism as well as
apparent animosity between the Firm’s only two shareholders,” but the court was unwilling to
find that this was determinative. Id. “To so hold would be to enact a de facto bar on derivative
suits in two-shareholder corporations.”
Instead, a court “must look beyond the mere
presence of economic and emotional conflict, placing more emphasis on whether the totality of
the circumstances suggest that the plaintiff will vigorously pursue the suit and that the remedy
sought is in the interest of the corporation.” Id.
Here, the totality of the circumstances demonstrate that Plaintiff is able to vigorously
pursue the derivative suit in the interest of the corporation and that the remedy sought is in the
interest of the corporation. First, because of Plaintiff’s large interest in the company, Plaintiff
would vigorously pursue these claims and be “the driving force behind the litigation.” Jennings,
275 Va. at 601. This would resound to the benefit of the BuilderFish entities as a whole.
Second, the remedy sought (the return of any trade secrets or money derived from them) is the
These are two of the factors that courts consider in determining whether an individual can
fairly and adequately represent a limited liability company’s interests. See Jennings v. Kay
Jennings Family Ltd. P’ship, 275 Va. 594, 601 (Va. 2008) (listing the following factors: “(1)
economic antagonisms between the representative and members of the class; (2) the remedy
sought by the plaintiff in the derivative action; (3) indications that the named plaintiff is not the
driving force behind the litigation; (4) plaintiff’s unfamiliarity with the litigation; (5) other
litigation pending between the plaintiff and defendants; (6) the relative magnitude of plaintiff’s
personal interests as compared to his interests in the derivative action itself; (7) plaintiff’s
vindictiveness toward the defendants; and (8) the degree of support plaintiff is receiving from the
shareholders he purports to represent.” (citation omitted)).
same type of remedy that the company would seek on its own behalf. See Cattano, 283 Va. at
648 (“The remedy sought—the return of funds, misappropriated by an officer, to the
corporation—is highly appropriate for a derivative claim.”).
Third, Plaintiff is intimately
familiar with the litigation and, as the BuilderFish entities are owned only by Plaintiff and
Defendant Jonathan Fishbeck, there is no one more familiar with the dispute who could bring a
There is “other litigation pending between the plaintiff and defendants.” Jennings, 275
Va. at 601. This distinguishes this case from Cattano, but the underlying concern of Cattano
still holds: Allowing the “[c]harged emotions and economic antagonism [that] are virtually
endemic to disputes in closely held corporations” to prevent derivative actions “would be to
enact a de facto bar on derivative suits in two-shareholder corporations.” 283 Va. at 647. The
totality of these circumstances demonstrates that Plaintiff has standing to “fairly and adequately”
pursue this derivative action on behalf of the BuilderFish entities.
Defendant Jonathan Fishbeck’s Motion to Compel Arbitration
Defendant Jonathan Fishbeck moved to compel arbitration based on an arbitration clause
in his employment contract. (Dkt. 15).3 Plaintiff admits that his claim for damages based on the
This Court must consider the motion to compel arbitration before ruling on the motion to
dismiss. See, e.g., Edmondson v. Lilliston Ford, Inc., 593 F. App’x 108, 109 (3d Cir. 2014)
(“[W]e will vacate and remand with instructions that the District Court decide the motion to
compel before it reaches the motion to dismiss presented by the appellee.”); see also Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (“[T]he [Federal Arbitration] Act leaves no
place for the exercise of discretion by a district court, but instead mandates that district courts
shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has
violation of the covenant not to compete is subject to arbitration, but denies that his claims under
trade secret and copyright law are covered by the agreement. (Dkt. 18 at 6).4
The Federal Arbitration Act (“FAA”) establishes a presumption of validity for arbitration
agreements. Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530, 533 (2012) (citations
omitted). In the event that a suit is brought in circumvention of an arbitration agreement, the
FAA instructs courts to stay the action for “any issue referable to arbitration under an agreement
in writing for such arbitration.” 9 U.S.C. § 3. “[A]ny doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration . . . .” Moses H. Cone Mem’l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24–25 (1983). The Fourth Circuit, in Adkins v. Labor Ready, Inc.,
delineated a four element test for determining whether a party can compel arbitration under the
FAA. 303 F.3d 496, 500–01 (4th Cir. 2002). The test requires: (1) “the existence of a dispute
between the parties”; (2) “a written agreement that includes an arbitration provision which
purports to cover the dispute”; (3) “the relationship of the transaction, which is evidenced by the
agreement, to interstate or foreign commerce”; and (4) “the failure, neglect or refusal of the
[plaintiff] to arbitrate the dispute.” Id.
Here, the parties only contest the second element, and more specifically whether the
arbitration provision covers the trade secret and copyright infringement claims. (Dkt. 18 at 6).
The arbitration clause states that:
[A]ny controversy, disagreement, or dispute arising out of or related to this
Agreement, the interpretation of any of the provisions hereof, or the action or
inaction of a party to this Agreement hereunder shall be submitted to final and
Plaintiff also argues that the arbitration agreement does not apply to injunctive relief.
Section 6 of the Employment Agreement expressly allows the Employer to seek injunctive relief
for the violation of the “covenants and agreements” contained in the Employment Agreement.
(Id at 3–4). Similar clauses have been held to be generally enforceable. See, e.g., Aetrex
Worldwide, Inc. v. Sourcing for You Ltd., 555 F. App’x 153, 153 (3d Cir. 2014). Accordingly,
the arbitration agreement does not prevent Plaintiff from seeking injunctive relief in this Court.
binding arbitration . . . . No action at law or in equity based upon any claim
arising out of or related to this Agreement shall be instituted in any court by any
party except  an action to compel arbitration . . . or an action to enforce an award
obtained in an arbitration.
(Dkt. 12-3 at 5).
The Fourth Circuit has characterized language nearly identical to this as a “broad
agreement.” See Long v. Silver, 248 F.3d 309, 316 (4th Cir. 2001) (discussing language that
covered “any and all disputes . . . arising out of or in connection with this Agreement”). And “a
broadly-worded arbitration clause applies to disputes that do not arise under the governing
contract when a ‘significant relationship’ exists between the asserted claims and the contract in
which the arbitration clause is contained.” Id. This contract arguably covers trade secret and
copyright claims. (See dkt. 12-3 at 2 (stating that all confidential information and intellectual
property is owned by the employer)). But even if it does not, those claims certainly have a
“significant relationship” to the confidentiality, intellectual property, and non-compete portions
of the employment agreement. “[T]here is a presumption of arbitrability in the sense that an
order to arbitrate the particular grievance should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted
dispute.” Peabody Holding Co., LLC v. United Mine Workers of Am., Int’l Union, 665 F.3d 96,
104 (4th Cir. 2012) (internal quotations omitted); see also Great Am. Ins. Co. v. Hinkle
Contracting Corp., 497 F. App’x 348, 352 (4th Cir. 2012) (“An issue will be classified as being
outside the scope of an arbitration provision only when the parties have manifested such an
intent in their written agreement.”). Accordingly, the arbitration clause governs all three claims
for damages against Jonathan Fishbeck, but not the claims for injunctive relief.
These covered claims will be stayed during arbitration, but the claims against other
Defendants and the claim for injunctive relief against Jonathan Fishbeck remain for this Court to
address. See Summer Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455, 1461 (4th Cir.
1992), as amended (June 23, 1992) (“The decision whether to stay the litigation of the nonarbitrable issues is a matter largely within the district court’s discretion to control its docket.”).
Defendants’ Motion to Dismiss
The Defendants collectively ask the Court to dismiss all three claims against them.
Plaintiff’s claim for relief under trade secret law clears the Iqbal and Twombly threshold, but his
claims for copyright infringement and violation of the non-compete agreement both fail.
Defendants’ motion to dismiss will accordingly be granted in part.
Count I: Violation of the Defend Trade Secrets Act
Enacted in 2016, the Defend Trade Secrets Act provides the following cause of action:
“An owner of a trade secret that is misappropriated may bring a civil action under this subsection
if the trade secret is related to a product or service used in, or intended for use in, interstate or
foreign commerce.” 18 U.S.C. § 1836(b)(1). In order to plead a violation of the Act, Plaintiff
must allege (1) that the BuilderFish entities own a trade secret, (2) that the trade secret was
misappropriated, and (3) that the trade secret implicates interstate or foreign commerce. Id. The
amended complaint successfully pleads facts that satisfy each of these elements.
First, Defendants protest that Plaintiff does not sufficiently specify that the information at
issue was actually a “trade secret.” The Act defines trade secrets as “scientific [and] technical . .
. information” that “the owner thereof has taken reasonable measures to keep . . . secret.” 18
U.S.C. § 1839(3). This information must also “derive independent economic value . . . from
not being generally known . . . .” Id. The amended complaint sufficiently pleads that the
purported trade secrets fall within this broad definition of scientific and technical information by
describing various facets of the software and related products. (Dkt. 6 ¶ 16) (“These trade
secrets include . . . software design specifications, . . . product engineering and architecture,
system prototypes, . . . [and] user interface design . . . .”). Plaintiff also sufficiently pleads that
the BuilderFish entities took reasonable measures to keep this information secret by “including
confidentiality and non-compete agreements” in their employment agreements. (See id. ¶ 18).
Although never pled directly, the amended complaint also provides enough elaboration to infer
that the BuilderFish entities derived value from the trade secrets. (See id. ¶ 16 (“These trade
secrets include . . . pricing and service delivery planning and decisions . . . and work in progress
with outside software development firms . . . .”)).
Second, Plaintiffs also successfully plead that Defendants “misappropriated” the trade
secrets. The Act defines misappropriation as “acquisition of a trade secret of another by a person
who knows or has reason to know that the trade secret was acquired by improper means; or 
disclosure or use of a trade secret of another without express or implied consent . . . .” 18 U.S.C.
The “disclosure or use” category of misappropriation further requires that the
discloser or user (i) “use improper means to acquire knowledge of the trade secret,” (ii) know or
have reason to know that the trade secret was acquired improperly, or (iii) know or have reason
to know that the trade secret was “acquired by accident or mistake.” Id.
Plaintiff alleges that Defendants Jonathan Fishbeck, Ronald Fishbeck, and Heapes “did
knowingly and without authorization appropriate, copy, upload, alter, and conceal the
Navigator/Gravity Trade Secrets.” (Dkt. 6 ¶ 21). The next paragraph continues by alleging that
the defendants “have actively participated in the copying without license of Navigator/Gravity
software code, and in the creation of unauthorized derivative works based on that software
code.” (Id. ¶ 22). Rule 12(b)(6) does not require “heightened fact pleading of specifics,” and
these allegations that Defendants copied software code provide “enough facts to state a claim to
relief that is plausible on its face.” Twombly, 550 U.S. at 570.5 Likewise, Plaintiff sufficiently
pleads that Defendants Ultra Lifestyle and Griffin Group Global misappropriated the purported
trade secrets. Plaintiff alleges that these two defendants “received, bought, and/or possessed the
Navigator/Gravity Trade Secrets, knowing them to be misappropriated and converted without
authorization.” (Id. ¶ 21). Plaintiff alleges that these two companies joined the other Defendants
in creating “unauthorized derivative works based on [the] software code. (Id. ¶ 22). These facts,
taken as true, create “a plausible claim for relief [that] survives a motion to dismiss.” Iqbal, 556
U.S. at 679.
Third, Defendants also protest that Plaintiff does not sufficiently plead the interstate
commerce requirement. Although Plaintiff’s recitation that the various aspects of the purported
trade secrets “relate to products and services intended to be sold in or used in interstate
commerce” is conclusory, the amended complaint elsewhere satisfies this element by discussing
commerce with other developers and tests with potential customers. (See id. ¶ 16 (discussing
marketing plans, feedback from potential customers, and business with outside developers)).
Plaintiff is required to “provide the grounds of his entitlement to relief,” Twombly, 550 U.S. at
555, and he has done so here. Defendants’ motion to dismiss this count will be denied.
Count II: Copyright Infringement
Plaintiff’s claim for copyright infringement fails because neither the Plaintiff nor the
BuilderFish entities have a copyright that can be infringed. The Copyright Act is clear that “no
civil action for infringement of the copyright in any United States work shall be instituted until
preregistration or registration of the copyright claim has been made in accordance with this title.”
Defendants specifically question the sufficiency of the pleadings with respect to
Defendant Ronald Fishbeck. But he is identified both in these paragraphs and elsewhere in the
amended complaint alongside the other Defendants. These pleadings are sufficient for this stage.
17 U.S.C. § 411; Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (“[T]he Copyright
[Act] requires copyright holders to register their works before suing for copyright
infringement.”); Scott v. Carlson, No. 2:17-cv-10011, 2017 WL 3599249, at *2 (W.D. Va. Aug.
21, 2017) (“[T]he registration requirement is an element of a cause of action for infringement
that must be pleaded and proved by the plaintiff.”).
Plaintiff argues that it is the Defendants’ collective fault that he has been unable to
register the copyright. (Dkt. 6 ¶ 22). But “courts should not assume that ‘Congress . . .
intend[ed] courts to read other unmentioned, open-ended, ‘equitable’ exceptions into the statute
that it wrote.’” United States v. Prescott, 221 F.3d 686, 689 (4th Cir. 2000) (quoting United
States v. Brockamp, 519 U.S. 347, 352 (1997)); see also A. Scalia & B. Garner, Reading Law:
The Interpretation of Legal Texts 101 (2012) (“[T]he presumed point of using general words is
to produce general coverage—not to leave room for courts to recognize ad hoc exceptions.”).
Congress provided “a comprehensive statutory scheme” for copyright protection. Reed Elsevier,
Inc., 559 U.S. at 157.
This scheme “establishes a condition—copyright registration—that
plaintiffs ordinarily must satisfy before filing an infringement claim . . . .” Id. at 158. This
requirement reflects Congress’s decision “to encourage copyright holders to proactively apply to
register their works soon after publication, rather than wait until it became necessary to sue an
infringer.” Asche & Spencer Music, Inc. v. Principato-Young Entm’t, Inc., 147 F. Supp. 3d 833,
837 (D. Minn. 2015). “Congress sets the rules—and courts have a role in creating exceptions
only if Congress wants them to.” Ross v. Blake, 136 S. Ct. 1850, 1857 (2016).
This result is supported by the fact that Congress did choose to provide some exceptions
to the registration requirement—just not any that would benefit Plaintiff. Reed Elsevier, Inc.,
559 U.S. at 165 (“[The statute] expressly allows courts to adjudicate infringement claims
involving unregistered works in three circumstances: where the work is not a U.S. work, where
the infringement claim concerns rights of attribution and integrity under § 106A, or where the
holder attempted to register the work and registration was refused.”). Congress’s decision to
specify exceptions implies the exclusion of other exceptions of the same sort. See Leatherman v.
Tarrant Cty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168 (1993). This Court
will not read a further exception into the statute. Because the registration requirement is not met,
Plaintiff’s copyright infringement claim will be dismissed.
Count III: Violation of Covenant Not to Compete
Plaintiff’s third count is for Jonathan Fishbeck’s alleged violation of a covenant not to
compete. Plaintiff’s claim for damages under Count III is subject to the arbitration agreement,
but his claim for injunctive relief under Count III remains. Defendant argues that the claim
should be dismissed because the non-compete agreement is overbroad. Because the agreement is
unenforceable as a matter of law, Defendant’s motion will be granted.
In Virginia, non-competition agreements are disfavored.6 “A non-competition agreement
between an employer and an employee will be enforced if the contract is narrowly drawn to
protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s
ability to earn a living, and is not against public policy.” Omniplex World Servs. Corp. v. U.S.
Investigations Servs., 270 Va. 246, 249 (Va. 2005). These factors should not be considered “as
three separate and distinct issues.” Simmons v. Miller, 261 Va. 561, 581 (Va. 2001). “Rather,
these limitations must be considered together.” Id. The employer bears the burden of proof and
The employment agreement contains a valid choice of law provision stating that Virginia
law governs the agreement. See dkt. 12-3 at 5; Pyott-Boone Elecs. Inc. v. IRR Tr. for Donald L.
Fetterolf Dated Dec. 9, 1997, 918 F. Supp. 2d 532, 541 (W.D. Va. 2013) (“Virginia courts
generally enforce choice-of-law clauses, ‘unless the party challenging enforcement establishes
that such provisions are unfair or unreasonable, or are affected by fraud or unequal bargaining
power.’” (quoting Paul Bus. Sys., Inc. v. Canon U.S.A., Inc., 240 Va. 337, 342 (1990))).
any ambiguities in the contract will be construed in favor of the employee. Omniplex World
Servs., 270 Va. at 249.
The non-compete agreement here states that:
During the term of this Agreement and for a period of twelve (12) months
thereafter, Executive shall not, in any capacity whatsoever, own, participate in the
ownership of, manager, operate, exercise any control over, render services to,
derive income from or engage in any of the foregoing for any business, firm,
corporation, limited liability company, partnership, or other entity which operates
a business competitive with Employer. . . .
(Dkt. 12-3 at 3). While Virginia has upheld non-compete agreements that prohibit working with
direct competitors, this agreement is overbroad in two respects.
First, the agreement goes too far in restricting the functions that an employee can perform
for a competitor. See Cantol, Inc. v. McDaniel, No. 2:06-cv-86, 2006 WL 1213992, at *4 (E.D.
Va. Apr. 28, 2006) (“[T]he Virginia Supreme Court upholds covenants not to compete . . . only
to the extent that the proscribed functions are the same functions as were performed for the
former employer.”). The language of the agreement prevents an employee “in any capacity
whatsoever” from “render[ing] services to . . . a business competitive with Employer . . . .” (Dkt.
12-3 at 3). The Virginia Supreme Court has rejected similar limitations that restricted “the
former employee from working in any capacity for a competitor of her former employer” as
overbroad and unenforceable. Modern Environments, Inc. v. Stinnett, 263 Va. 491, 496 (Va.
2002); see also Lanmark Tech., Inc. v. Canales, 454 F. Supp. 2d 524, 530 (E.D. Va. 2006)
(“Thus, where, as here, the non-compete clause effectively prohibits the employee from working
in virtually any capacity for a competitor, it is not narrowly drawn to protect the employer’s
legitimate business interest, and thus, is functionally overbroad.”). Second, the agreement is also
overbroad because “[t]he non-competition clause is without geographical limitation.” Simmons,
261 Va. at 581; see also McDaniel, 2006 WL 1213992, at *4 (“[T]he Supreme Court of Virginia
has never upheld a restrictive covenant, which was ancillary to an employer-employee
relationship, when the restrictive covenant could be applied to a geographic area in which the
employee performed no function for the employer.”).
Because of this overbreadth, the
agreement is unenforceable.
Perhaps acknowledging its own breadth, the agreement also states that if a court finds the
restrictions unreasonable, the restrictions should be read to extend “to the broadest business,
longest period, and largest territory as may be considered reasonable by such court . . . .” (Id.).
But Virginia has rejected similar attempts to “blue-pencil” invalid terms. See Morris Law Office,
P.C. v. Tatum, 369 F. Supp. 2d 812, 815 (W.D. Va.), aff’d, 141 F. App’x 205 (4th Cir. 2005).
Accordingly, the covenant not to compete is unenforceable, and Plaintiff’s claim for injunctive
relief under Count III must be dismissed.
Defendant Jonathan Fishbeck seeks arbitration on the claims against him under Counts I,
II, and III. This motion will be granted in part—arbitration is compelled and the claims against
him for damages will be stayed. The Defendants collectively seek dismissal of Counts I, II, and
III, arguing that Plaintiff has failed to state a claim under the Defend Trade Secrets Act, that
Plaintiff cannot bring a copyright claim because neither he nor the BuilderFish entities own a
copyright, and that the state law covenant not to compete agreement is unenforceable. The
Defendants’ motion will be denied as to Count I, but granted as to Counts II and III. Claims
under Count II and III (except the claims for damages against Jonathan Fishbeck) will be
dismissed with prejudice because any attempt to amend these Counts would be futile.
While this motion to dismiss was pending, Plaintiff filed a motion for a preliminary
injunction. (Dkt. 23). That motion will be considered separately.
Plaintiff also filed a motion to strike Defendants’ motions to compel arbitration and to
dismiss because Defendants did not schedule a hearing within 60 days of filing their motions.
(Dkt. 28). But the local rule only states that motions are deemed withdrawn “unless otherwise
ordered,” and this Court retains the authority to determine a motion without oral hearing
pursuant to Fed. R. Civ. P. 78(b) and Local Rule 11(b). Furthermore, this Court previously
allowed Plaintiff extra time to file a response to these motions. Accordingly, this Court has
considered the motions and orders that Plaintiff’s motion to strike is denied.
An appropriate Order will issue, and the Clerk of the Court is hereby directed to send a
copy of this Memorandum Opinion to Plaintiffs, Defendants, and all counsel of record.
Entered this _____ day of October, 2017.
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