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Williams-Sonoma Direct, Inc. v. Arhaus, LLC

United States District Court, W.D. Tennessee, Western Division

January 30, 2015

WILLIAMS-SONOMA DIRECT, INC. and WILLIAMS-SONOMA RETAIL SERVICES, INC., Plaintiffs,
v.
ARHAUS, LLC d/b/a ARHAUS FURNITURE and TIMOTHY STOVER, Defendants.

ORDER DENYING IN PART DEFENDANT TIMOTHY STOVER'S MOTION TO DISMISS AND IN THE ALTERNATIVE FOR SUMMARY JUDGMENT (ECF NO. 111) AND ORDER DENYING IN PART DEFENDANT ARHAUS, LLC'S MOTION TO DISMISS OR IN THE ALTERNATIVE MOTION FOR SUMMARY JUDGMENT AS TO THE SECOND AMENDED COMPLAINT (ECF NO. 115)

JON P. McCALLA, District Judge.

Before the Court are two motions: first is Defendant Timothy Stover's Motion to Dismiss and in the Alternative Motion for Summary Judgment, filed November 5, 2014 (ECF No. 111); and second is Defendant Arhaus, LLC's Motion to Dismiss or in the Alternative Motion for Summary Judgment as to the Second Amended Complaint, filed November 10, 2014 (ECF No. 115) (together, "the Motions"). In this Order, the Court addresses the Defendants' motions to dismiss this action under Rule 12(b)(1) and (7) of the Federal Rules of Civil Procedure and reserves ruling as to Defendants' motions for summary judgment.

For the reasons stated below, the Motions are DENIED IN PART: the Court denies Defendants' motions under Rule 12(b)(1) and (7) of the Federal Rules of Civil Procedure.

I. BACKGROUND

A. Factual Background

The facts relevant to the determination of the Motions are as follows. Plaintiff Williams-Sonoma Direct, Inc. ("WSDI") initiated this action through the filing of a Complaint on September 18, 2014. (ECF No. 1.) WSDI is a wholly owned subsidiary of Williams-Sonoma, Inc. (Prelim. Inj. Hr'g Tr. 42:16-42:19, Oct. 24, 2014, ECF No. 108 (testimony of Julie Whalen).) WSDI asserted four theories of liability: violation of the Tennessee Uniform Trade Secrets Act ("TUTSA"), breach of contract, breach of the duty of loyalty, and tortious interference with contract. (See Compl. ¶ 1.) Specifically, WSDI alleged that Arhaus, LLC d/b/a Arhaus Furniture ("Arhaus"), Jessica Daugherty, Timothy Stover, and Brad Voelpel violated the TUTSA, and that Arhaus and Stover were continuing to violate the TUTSA at the time this action was filed. (Id. ¶¶ 48-58.) WSDI's breach of contract claims were against Daugherty, Stover, and Voelpel. (Id. ¶¶ 59-67.) WSDI alleged that Voelpel breached his duty of loyalty. (Id. ¶¶ 68-71.) Last, WSDI brought tortious interference of contract claims against Arhaus and Stover. (Id. ¶¶ 72-78.)

WSDI filed a Second Amended Complaint on October 22, 2014. (ECF No. 83.) The Second Amended Complaint added Williams-Sonoma Retail Services, Inc. ("WSRSI") as a plaintiff, and added a breach of duty of loyalty claim against Stover (id. ¶ 74). WSRSI is a wholly owned subsidiary of Williams-Sonoma, Inc. (Prelim. Inj. Hr'g Tr. 176:19-176:21, Oct. 24, 2014, ECF No. 108 (testimony of Steve Anderson).)

It is undisputed that while Daugherty, Stover, and Voelpel were employed at Williams-Sonoma, they signed the Williams-Sonoma, Inc. Code of Business Conduct and Ethics ("Code of Conduct") (Anderson Decl. Ex. A, ECF No. 13-6). Four provisions of the Code of Conduct are relevant in this case. First, the contract states that "references in the Code of Conduct to we, us, our, Williams-Sonoma, WSI or the Company are generally intended to mean Williams-Sonoma, Inc. and all its affiliates, divisions, brands, and subsidiaries, including its global subsidiaries, stores and offices." (Id. at PageID 94.) Second, the Code of Conduct states that it "also serves as an agreement between you and the Company." (Id. at PageID 95.) Third, the contract states how employees are to protect confidential information and defines confidential information:

As associates of the Company, and for the benefit of ourselves as well as the Company, we each have a duty to safeguard our Company's trade secrets and Confidential Information and to refrain from any improper dealings with the confidential information of any other company, including our competitors. Associates may not disclose Confidential Information either while an employee of WSI or at any time after employment ends, regardless of the reason why employment ends. "Confidential Information" includes, but is not limited to, all confidential, proprietary and trade secret information that is not generally known and that therefore has economic value to the Company. This information includes all information, whether in written, oral, electronic, magnetic, photographic or any other form, that relates to: the Company's past, present and future businesses, products, product specifications, designs, drawings, concepts, samples, intellectual property, inventions, know-how, sources, costs, pricing, technologies, customers, vendors, other business relationships, business ideas and methods, distribution methods, inventories, manufacturing processes, computer programs and systems, employees, hiring practices, compensation, operations, marketing strategies and other technical, business and financial information. Confidential Information also includes the identity, capabilities and capacity of vendors and of former vendors or others that were considered but rejected and any non-public, personal information about any associates, customers, contractors, vendors or other parties, including, but not limited to, social security, driver's license, credit or debit card number or payment card numbers.
Additionally, associates may not bring or use any other company's confidential information to WSI. All associates must acknowledge by signing this Code of Conduct that they have not brought any such confidential information from prior employers to WSI.

(Id. at PageID 103-04.) Fourth, the Code of Conduct includes a non-solicitation provision:

As part of our duty to safeguard the Company's trade secrets and Confidential Information, associates may not, either during their employment with the Company or for twelve months afterward, directly or indirectly recruit, solicit or induce, or attempt to induce, any employee, consultant or vendor of the Company to terminate employment or any other relationship with the Company. Additionally, former associates may not use Confidential Information to recruit, solicit, retain or hire any of the Company's employees, consultants or vendors. By signing this Code of Conduct, associates acknowledge that the restrictions contained in this paragraph are necessary for the protection of the business and goodwill of the Company and are considered to be reasonable for that purpose, and agree to be bound by such restrictions.

(Id. at PageID 104.)

In the Second Amended Complaint (ECF No. 83), Plaintiffs' allegations may be generally described as follows. While working for Plaintiffs, Daugherty, Stover, and Voelpel each signed the Code of Conduct. Stover resigned from WSDI on July 18, 2014 and left on July 21, 2014. (Id. ¶ 30.) He joined Arhaus approximately two weeks later as Arhaus' Chief Supply Chain Officer. (Id.) Before leaving, Stover directed his employees to do work for him "that he would use at Arhaus." (Id. ¶ 74.) When he left, he took over one hundred confidential documents with him. (Id. ¶ 30.) Plaintiffs allege that:

Stover immediately began unlawfully soliciting WSDI employee Daugherty and WSRSI employee Voelpel (along with several other WSDI employees) to violate their agreements with WSDI and provide Stover with WSDI's confidential and trade secret information for Stover's use at Arhaus. Starting at the end of July and through September 2014, Daugherty and Voelpel willfully participated in Stover's unlawful plan. Daugherty used her WSDI and personal email accounts to forward Stover, without authorization, WSDI's confidential information. Voelpel similarly used his company and personal email accounts to forward Stover, without authorization, WSDI's confidential information.

(Id.)

B. Procedural Background

WSDI filed its Complaint on September 18, 2014 (ECF No. 1) and a Motion for Temporary Restraining Order on September 19, 2014 (ECF No. 13). Judge Samuel H. Mays, Jr. held a hearing on the Motion for Temporary Restraining Order on September 29 and 30, 2014. (ECF Nos. 52, 54.) Arhaus and Stover filed a Joint Motion to Dismiss on September 26, 2014. (ECF No. 31.) On September 29, 2014, WSDI amended the Complaint so as to correct a technical pleading defect. (ECF No. 51.) On September 30, 2014, Judge Mays issued an order granting in part and denying in part the Motion for Temporary Restraining Order. (ECF No. 56.) The order required all defendants to preserve evidence, and ordered defendants not to acquire, access, disclose, or use any of WSDI's trade secrets - or to attempt to do so. (Id. at 3-4.) The order further restrained Daugherty and Stover from: acquiring, accessing, disclosing or using, or attempting to acquire, access, disclose, or use WSDI's or its derivatives' confidential information; and from soliciting employees of WSDI, its parents, subsidiaries, or affiliates. (Id. at 4.)

On October 14, 2014, the Court set a preliminary injunction hearing and, by consent, extended the TRO. (ECF No. 73.) Plaintiffs filed their Second Amended Complaint on October 22, 2014, which added WSRSI as a plaintiff. (ECF No. 83.) Plaintiffs then filed a Supplemental Brief in Support of Motion for Preliminary Injunction on October 23, 2014. (ECF No. 92.) Defendants each filed briefs in opposition to a preliminary injunction also on October 23, 2014. (ECF Nos. 94-100.) The Court held a preliminary injunction hearing on October 24 and 25, 2014 and December 10, 2014. (ECF Nos. 102, 104, [1] 141.) By consent of the parties (see ECF No. 106), on November 3, 2014, the Court extended the TRO until an order is issued regarding the Plaintiffs' request for preliminary injunction. (ECF No. 109.)

Stover filed a Motion to Dismiss and in the Alternative Motion for Summary Judgment on November 5, 2014. (ECF No. 111.) Arhaus filed a Motion to Dismiss or in the Alternative Motion for Summary Judgment on November 10, 2014. (ECF No. 115.) Plaintiffs filed their response to these motions on December 11, 2014. (ECF No. 134.)

By joint motion of Plaintiffs and Voelpel (ECF No. 121), the Court granted a Permanent Injunction and Judgment as to Voelpel on December 3, 2014. (ECF Nos. 128, 129.) Similarly, by joint motion of Plaintiffs and Daugherty (ECF No. 132), the Court granted a Permanent Injunction and Judgment as to Daugherty on December 19, 2014. (ECF No. 146.)

II. LEGAL STANDARD

Pursuant to Rule 12(b)(1), a defendant may move to dismiss a plaintiff's complaint for "lack of subject-matter jurisdiction." Fed.R.Civ.P. 12(b)(1). "A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, ... or it can attack the factual basis for jurisdiction...." DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004).

A facial attack is a challenge to the sufficiency of the pleading itself. On such a motion, the court must take the material allegations of the petition as true and construed in the light most favorable to the nonmoving party. A factual attack, on the other hand, is not a challenge to the sufficiency of the pleading's allegations, but a challenge to the factual existence of subject matter jurisdiction. On such a motion, no presumptive truthfulness applies to the factual allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. But the fact that the court takes evidence for the purpose of deciding the jurisdictional issue does not mean that factual findings are therefore binding in future proceedings.

United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) (citations omitted). Where a Rule 12(b)(1) motion challenges the factual basis for jurisdiction, "a trial court has wide discretion to allow affidavits, documents and even a limited evidentiary hearing to resolve disputed jurisdictional facts." Williams v. Hooah Sec. Servs., LLC, 729 F.Supp.2d 1011, 1012 (W.D. Tenn. 2010) (quoting Ohio Nat. Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir.1990)) (internal quotation marks omitted).

III. ANALYSIS

Plaintiffs' Second Amended Complaint asserts four grounds for relief: (1) that all Defendants have engaged in actual and threatened misappropriation of trade secrets in violation of the TUTSA; (2) that Defendants Daugherty, Stover, and Voelpel have breached contracts; (3) that Brad Voelpel and Timothy Stover breached the duty of loyalty; and (4) that ...


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