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Great American Opportunities, Inc. v. Cherry Brothers, LLC

United States District Court, M.D. Tennessee, Nashville Division

January 16, 2018




         Steven B. Clonts, Rene Ulloa, Todd Allen Mills, and Rebecca Francis (collectively, with Matthew L. Parkin, who did not join this motion, “Individual Defendants”) have filed a Motion to Dismiss (Docket No. 113), to which Great American Opportunities, Inc. (“Great American”) has filed a Response (Docket No. 123), and those defendants have filed a Reply (Docket No. 133). Parkin has also filed a Motion to Dismiss (Docket No. 120), which Great American addresses in its Response (Docket No. 123), and Parkin has filed a Reply (Docket No. 132). For the reasons stated herein, the Motions will be granted in part and denied in part.


         Great American markets, designs, and administers fundraising programs for schools, councils, civic organizations, and others. Great American fundraising products are built around the sale of products that Great American distributes. (Docket No. 51 ¶¶ 16-17.) Great American claims to rely on:

trade secrets and other confidential business information[, ] includ[ing], but . . . not limited to, the following: business plans, marketing and promotional strategies, financial data, sales training materials, actual and potential customer lists and related information, past and current fundraising programs, sales representative contact and performance information, pricing information and strategies, competitive business information, and industry know-how.

(Id. ¶ 20.) This information-or at least some of it-is stored in business records that are protected by digital and/or physical security measures, as applicable. (Id. ¶¶ 31, 33.) Great American sales representatives are given access to the company's confidential information for use in furtherance of their job duties. (Id. ¶ 32.) Great American also emphasizes that, once it establishes a client relationship, it “engages in an intensive process” to craft and execute a customized strategy that will most effectively meet the specific needs of that particular customer. (Id. ¶ 24.)

         The Individual Defendants are all former Great American employees. Ulloa worked at Great American for nearly fourteen years, rising to the position of sales manager and eventually sales director. (Id. ¶¶ 42-46.) Clonts, Mills, Francis, and Parkin were commissioned sales representatives. (Id. ¶¶ 6-7, 107, 128.) Each of the Individual Defendants signed employment agreements with Great American that contained non-compete clauses. (Id. ¶¶ 54, 70-71, 90-91, 114, 133.) Clonts, Mills, Francis, and Parkin's agreements prohibited them from directly or indirectly soliciting any of Great American's customers within the respective territories they serviced on behalf of Great American or otherwise personally competing with Great American in those territories, for periods ranging from eighteen to twenty-four months after leaving the company. (Id. ¶¶ 70-71, 90-91, 114-15, 132-33.) Ulloa's contract included a similar, one-year restriction, although Ulloa's provision, unlike the others', expressly identified states and localities to be included. (Id. ¶ 54.) The agreements also expressly prohibited the Individual Defendants from taking or using any of Great American's confidential business information for any purpose other than serving Great American. (Id. ¶¶ 57-58, 73-74, 92-93, 117-18, 134-35.)

         The Individual Defendants all resigned from Great American during the first half of 2017. (Id. ¶¶ 41, 67, 87, 107, 128.) Ulloa retained an iPad provided to him by Great American that stores all or portions of Great American's trade secret and confidential information. (Id. ¶ 64.) Upon resigning, each of the Individual Defendants went to work at Cherry Brothers, LLC d/b/a Cherrydale Farms Fundraising (“Cherrydale”), which, both directly and through its corporate predecessor, has a long history of direct competition with Great American. (Id. ¶¶ 145- 46.) In 2008, Great American successfully sued Cherrydale's predecessor in Delaware chancery court for improperly recruiting Great American personnel and inducing them to breach their employment agreements. See Great Am. Opportunities, Inc. v. Cherrydale Fundraising, LLC, No. CIV.A. 3718-VCP, 2010 WL 338219, at *8, 29 (Del. Ch. Jan. 29, 2010). The sued predecessor later filed for receivership and ceased doing business altogether, leaving Cherrydale to continue its operations. (Docket No. 51 ¶ 150.)

         Great American claims that, in 2017, Cherrydale pursued a similar, well-orchestrated plan to recruit Great America's leading sales force members, including the Individual Defendants, for the purpose of accessing Great American's trade secrets and inducing the recruited employees to breach their Great American non-compete provisions. (Id. ¶¶ 152-53.) Great American claims that, upon going to Cherrydale, all of the Individual Defendants violated their employment agreements by “directly and/or indirectly soliciting Great American's customers in the territories . . . which they serviced and/or managed during their employment with Great American.” (Id. ¶ 161.) In particular, Great American alleges that Parkin and Francis helped Cherrydale seek to increase its presence in Florida, Mills helped Cherrydale seek to increase its presence in Virginia, and Clonts helped Cherrydale seek to increase its presence in Tennessee and Alabama. (Id. ¶¶ 163-66.) Great American claims that the Individual Defendants were able to use Great American's trade secrets to bypass the substantial amount of work that Cherrydale would have otherwise needed to expend on building client bases in those states. (Id. ¶¶ 168-69.) Great American maintains that Cherrydale was well aware that using the Individual Defendants in this manner amounted to enticing them to break their employment agreements, both because of the previous litigation and because Great American sent a letter following Ulloa's departure informing Cherrydale of the terms of Ulloa's agreement. (Id. ¶ 156.)

         Great American filed its initial Verified Complaint, naming Cherrydale and all of the Individual Defendants, except Clonts, on July 11, 2017. (Docket No. 1.) On August 8, 2017, following an initial round of motions and rulings resulting in a modified temporary restraining order (“TRO”) against the then-named defendants (Docket No. 43), Great American filed an Amended Complaint adding its claims against Clonts (Docket No. 51), who has since been added to the TRO (Docket No. 71). Count I of the Amended Complaint raises claims for actual and threatened misappropriation of trade secrets in violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831 et seq., against all defendants; Count II raises claims for actual and threatened misappropriation of trade secrets in violation of Tennessee's Uniform Trade Secrets Act (“Uniform Act” or “UTSA”), Tenn. Code Ann. § 47-25-1701 et seq., against all defendants; Count III raises claims for breach of contract against the Individual Defendants; Count IV raises a claim for procurement of breach of contract against Cherrydale; Count V raises claims for breach of fiduciary duty against the Individual Defendants; Count VI raises a claim for aiding and abetting breach of fiduciary duty against Cherrydale; Count VII raises a claim of tortious interference with contract against Cherrydale; and Count VIII raises claims for tortious interference with business relationships against all defendants. (Docket No. 51 ¶¶176 -246.)

         The parties continued briefing Great American's request to transform the temporary restraining order into a preliminary injunction in anticipation of a September 5, 2017 hearing. (Docket No. 81; Docket No. 89; Docket No. 90.) On September 4, 2017, however, the defendants filed an unopposed Motion to Continue Preliminary Injunction Hearing, in which they informed the court that Cherrydale had terminated Parkin on the ground that materials uncovered during discovery revealed that he had continued to perform work on Great American's behalf after he had come to Cherrydale. (Docket No. 101 ¶ 3.) Counsel for the Individual Defendants determined that a conflict of interest had arisen with regard to Parkin, who would need to obtain separate counsel. (Id. ¶ 5.) The court granted the motion and continued the hearing, to be reset by later order of the court. (Docket No. 102.) Clonts, Mills, Ulloa, and Francis filed their Motion to Dismiss on September 27, 2017. (Docket No. 113.) Parkin filed his separate but significantly overlapping Motion on October 2, 2017. (Docket No. 120.) The motions have been briefed and are ripe for review.


         In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6), the court will “construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007); Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). The Federal Rules of Civil Procedure require only that a plaintiff provide “a short and plain statement of the claim that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957). The court must determine only whether “the claimant is entitled to offer evidence to support the claims, ” not whether the plaintiff can ultimately prove the facts alleged. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

         The complaint's allegations, however, “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To establish the “facial plausibility” required to “unlock the doors of discovery, ” the plaintiff cannot rely on “legal conclusions” or “[t]hreadbare recitals of the elements of a cause of action, ” but, instead, the plaintiff must plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). “[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679; Twombly, 550 U.S. at 556.

         III. ANALYSIS

         A. Misappropriation of Trade Secrets

         The Individual Defendants argue that Counts I and II should be dismissed as to them because Great American has made only vague allegations that fall short of establishing the elements necessary to support claims for misappropriation of trade secrets under either the DTSA or the Uniform Act. Great American responds that it has alleged facts sufficient to put the Individual Defendants on notice with regard to the information and actions at issue and that requiring more would amount to the imposition of a legally baseless heightened pleading requirement for trade secret cases. The requirements for establishing misappropriation of a trade secret are largely the same under the DTSA and the Uniform Act. See Ukrainian Future Credit Union v. Seikaly, No. 17-CV-11483, 2017 WL 5665960, at *10 n.11 (E.D. Mich. Nov. 27, 2017) (“The DTSA has a similar trade secret definition to the UTSA and was intended to be substantially similar to the UTSA definition.”); Phyllis Schlafly Revocable Trust v. Cori, No. 4:16-CV-016-31-JAR, 2016 WL 6611133, at *2 (E.D. Mo. Nov. 9, 2016) (“The elements of Plaintiffs' trade secret misappropriation claims under the DTSA and MUTSA are essentially the same.”); see also H.R. Rep. 114-529 (“While other minor differences between the UTSA and Federal definition of a trade secret remain, the Committee does not intend for the definition of a trade secret to be meaningfully different from the scope of that definition as understood by courts in States that have adopted the UTSA.”).

         The Individual Defendants argue first that Great American has insufficiently pleaded the existence of any trade secrets. The Uniform Act defines a “trade secret” as:

information, without regard to form, including, but not limited to, technical, nontechnical or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan that:
(A) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and
(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Tenn. Code Ann. ยง 47-25-1702(4). Tennessee courts have recognized a number of factors relevant to identifying whether a piece ...

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