Opinion
3:13-CV-00312-P
02-21-2014
MERRITT HAWKINS & ASSOCIATES, LLC, Plaintiff, v. LARRY SCOTT GRESHAM AND BILLY BOWDEN, Defendants.
ORDER
Now before the Court are two motions: Plaintiff's Motion to Dismiss Defendant Larry Scott Gresham's Original Counterclaim and Plaintiff's Motion to Dismiss Billy Bowden's Original Counterclaim, both filed on July 5, 2013. Docs. 20, 22. Defendants filed their joint Response on August 2, 2013. Doc. 29. Plaintiff filed its Reply on August 14, 2013. Doc. 31. After reviewing the parties' briefing, the evidence, and the applicable law, the Court GRANTS both of Plaintiff's Motions to Dismiss.
I. Background
Defendants Larry Gresham ("Gresham") and Billy Bowden ("Bowden") are both former employees of Plaintiff Merritt Hawkins & Associates, LLC. Doc. 1 at 10. As employees of Plaintiff, both Bowden and Gresham signed agreements containing non-competition, non-disclosure, and non-interference provisions. Doc. 1 at 5-8. Plaintiff claims that Bowden, in direct violation of a non-interference provision still valid within his employment contract with Plaintiff, recruited Gresham to come work with Bowden for a direct competitor of Plaintiff. Doc. 1 at 11. Gresham apparently decided to join Bowden, and, as he left Plaintiff's employment, Plaintiff claims that Gresham accessed Plaintiff's offices using his security badge and utilized his employee password to download over four-hundred files from Plaintiff's computer network. Doc. 1 at 14. Defendants deny these allegations. Docs. 18, 19.
Based on these facts, Plaintiff originally brought this suit against Defendants on January 24, 2013, alleging, among other things, breach of contract. Doc. 1 at 19, 23. Plaintiff's Complaint alleges that, as employees or former employees, Defendants were bound by non-competition, non-disclosure, and non-interference agreements and that their breach of these agreements caused Plaintiff injury. Doc. 1 at 19-21, 23-24. Defendants filed nearly identical answers to the Complaint, in which they generally deny all relevant allegations and file counterclaims for declaratory relief, requesting that the Court declare the non-competition, non-disclosure, and non-interference provisions in Defendant's employment agreement to be unenforceable under Texas Business & Commerce Code § 15.50(a), California law, or both. Doc. 18 at 10; Doc. 19 at 10.
Plaintiff moved to dismiss Defendants' counterclaims under Rule 12(b)(6), arguing that Defendants' requested relief was insufficiently pleaded, wholly duplicative and redundant of other relief sought by Plaintiff, or both. Doc. 21 at 1; Doc. 23 at 1. More specifically, Plaintiff argues that Defendants' counterclaims for declaratory relief "should be dismissed because [they] bring[] into question only issues that have already been presented in Plaintiff's Complaint." Doc. 21 at 8; Doc. 23 at 8. In their Reply, Defendants argue that their counterclaims add issues such as "future obligations and enforceability" and "reformation and attorneys' fees" to the suit and thus argue they might be able to prove facts in support of their counterclaims, which would entitle them to affirmative relief. Doc. 30 at 4.
II. Legal Standard & Analysis
A. Legal Standard
Under Federal Rule of Civil Procedure 8(a), a complaint must contain "a short, plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Federal Rule 12(b)(6) provides for the dismissal of a complaint when a movant shows that the non-movant has failed to state a claim for which relief can be granted. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The factual matter contained in the complaint must allege actual facts, not legal conclusions masquerading as facts. Id. ("Although for the purposes of a motion to dismiss we must take all of the factual allegations in the complaint as true, we 'are not bound to accept as true a legal conclusion couched as a factual allegation.'" (quoting Twombly, 550 U.S. at 555)). Additionally, the factual allegations of a complaint must state a plausible claim for relief. Id. at 679. A complaint states a "plausible claim for relief" when the factual allegations contained therein infer actual misconduct on the part of the nonmoving party, not a "mere possibility of misconduct." Id.; see also Jacquez v. Procunier, 801 F.2d 789, 791-92 (5th Cir. 1986).
The Court's focus in a 12(b)(6) determination is not whether the non-movant should prevail on the merits but rather whether the non-movant has failed to state a claim. Twombly, 550 U.S. at 563 n.8 ("[W]hen a complaint adequately states a claim, it may not be dismissed based on a district court's assessment that the plaintiff will fail to find evidentiary support for his allegations or prove his claim to the satisfaction of the factfinder."); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (overruled on other grounds) (finding that the standard for a 12(b)(6) motion is "not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims").
Where, as here, state law claims are present in a diversity action, federal courts apply state substantive law and federal procedural law. Cf. Foradori v. Harris, 523 F.3d 477, 486 (5th Cir. 2008). If no state court decisions control, a federal court must make an "Erie guess" as to how the high state court would apply the substantive law. Beavers v. Metro. Life Ins. Co., 566 F.3d 436, 439 (5th Cir. 2009) (quoting Travelers Cas. & Sur. Co. of Am. v. Ernst & Young LLP, 542 F.3d 475, 483 (5th Cir. 2008)).
B. Analysis
Defendants' counterclaims for declaratory relief pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, request that the Court declare the non-competition, non-disclosure, and non-interference provisions in Defendants' employment contracts to be unenforceable under the Texas Business and Commerce Code, California law, or both. Docs. 18, 19. Plaintiff argues that because the existence of an enforceable contract is an essential element of its breach of contract claims, Defendants' counterclaims seeking to declare these provisions as unenforceable is already an issue before the Court and thus relief cannot be granted. Doc. 21 at 5; Doc. 23 at 5.
"Since its inception, the Declaratory Judgment Act has been understood to confer federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Winton v. Seven Falls Co., 515 U.S. 277, 286 (1995). While courts may not dismiss a declaratory relief request "on the basis of whim or personal disinclination . . . the court may consider a variety of factors in determining whether to decide a declaratory judgment suit." Rowan Cos., Inc. v. Griffin, 876 F.2d 26, 28-29 (5th Cir. 1989) (internal quotations and citations omitted). A request for a declaratory judgment need not be permitted if it adds nothing to the suit. See Regus Mgmt. Grp., LLC v. Int'l Bus. Mach. Corp., No. 3:07-CV-1779-B, 2008 WL 2434245, at *2 (N.D. Tex. June 17, 2008) (citing Pan-Islamic Corp. v. Exxon Corp., 632 F.2d 539, 546 (5th Cir. 1980)).
In the Rule 12(b)(6) context, courts generally dismiss declaratory judgment claims seeking to resolve matters already pending before the court. See, e.g., Xtria LLC v. Tracking Sys., Inc., No. 3:07-CV-0160-D, 2007 WL 1791252, at *3 (N.D. Tex. June 21, 2007) (dismissing declaratory judgment action under Rule 12(b)(6) when it duplicated existing claim); Kougl v. Xspedius Mgmt. Co., No. 3:04-CV-2518-D, 2005 WL 1421446, at *4 (N.D. Tex. June 1, 2005) (dismissing declaratory judgment action where the "questions [would] be resolved in the context of the breach of contract actions"). Thus, redundant declaratory judgment claims will not survive a Rule 12(b)(6) motion. Kougl, 2005 WL 1421446, at *4.
In its Complaint, Plaintiff asserted a breach of contract claim, which under Texas law requires that Plaintiff prove the existence of a valid contract. See Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 387 (5th Cir.2007); Sauceda v. GMAC Mortg. Corp., 268 S.W.3d 135, 140 (Tex. App.—Corpus Christi 2008, no pet.). Therefore, the Court must necessarily determine the enforceability and validity of the contract provisions in dispute to resolve Plaintiff's claims. To survive dismissal, then, Defendants' counterclaims must raise an issue that goes beyond the scope of Plaintiff's pending claim. See Regus Mgmt. Grp., LLC, 2008 WL 2434245, at *2. It does not. Defendants' counterclaims request that the Court declare certain provisions of the employment agreement to be unenforceable. Doc. 18 at 10; Doc. 19 at 10. As noted, however, for Plaintiff to prevail on its breach of contract claim, it must show a valid and enforceable contract, particularly with respect to the provisions that it claims Defendants breached: the non-competition, non-disclosure, and non-interference provisions. See Smith Int'l, Inc., 490 F.3d at 387. Therefore, Defendants' counterclaims merely seek declaratory judgment on issues already pending before the Court—namely, the enforceability of the non-competition, non-disclosure, and non-interference provisions in Defendants' employment contracts.
While Defendants briefly mention California law in their pleadings, they advance no argument as to why it might apply, especially given that the employment agreements' choice-of-law and venue provisions choose Texas law. Even if California law did apply, its application would not result in a different outcome. See Charles C. Chapman Bldg. Co. v. Cal. Mart, 82 Cal. Rptr. 830, 834 (Cal. Ct. App. 1969) (holding that valid and existing contract is requirement for breach of contract claim).
In their Response, Defendants contend that their counterclaims add issues such as future obligations, enforceability, reformation, and attorneys' fees. Doc. 30 at 4. The Court disagrees. Plaintiff's breach of contract claim includes the issue of enforceability: it is an essential element. Entitlement to attorneys' fees will likewise be determined as part of the underlying claim. See Tex. Civ. Prac. & Rem. Code Ann. § 38.001 ("A person may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for . . . an oral or written contract."); Doc. 1-2 at 8 (The parties' agreement states that, in the event of litigation over the agreement, "the prevailing party in such litigation shall be entitled to recover its reasonable costs and expenses, including attorney's fees, incurred in connection with such litigation."). Thus, even when read in a light most favorable to Defendants, their counterclaims are defenses to the enforceability of certain provisions of the employment agreement; separate declaratory judgment actions would be redundant.
Defendants also reference the Texas Theft Liability Act as entitling them to attorneys' fees. See Tex. Civ. Prac. & Rem. Code Ann. § 134.005(b) ("Each person who prevails in a suit under this chapter shall be awarded court costs and reasonable and necessary attorney's fees."). This adds no new issue. The prevailing party will recover attorneys' fees in the underlying claim, so a counterclaim for attorneys' fees adds nothing.
Defendants also contend that future obligations and reformation are additional issues, but neither was raised in their counterclaim. Doc. 18 at 10; Doc. 19 at 10. In their Response, Defendants seek leave to amend "to the extent necessary to clarify the specific relief requested." Doc. 30 at 4 n.4. Although leave to amend is usually "freely given," the Court will not grant leave to amend if the amendment would be futile. Forman v. Davis, 371 U.S. 178, 182 (1962). The amendments requested by Defendants would be futile. Because the Court will need to determine the enforceability of the provisions at issue in its resolution of Plaintiff's breach of contract claim, whether future obligations exist will necessarily be decided. Similarly, reformation is already before the Court—under Texas Business and Commerce Code Section 15.51(c), the Court shall reform a covenant that is unenforceable under § 15.50(a). See, e.g., Sadler Clinic Ass'n, P.A. v. Hart, 403 S.W.3d 891, 898 (Tex. App.--Beaumont 2013, pet. denied) (Section 15.51(c) "requires reformation 'to the extent necessary' to cause the limitations "to be reasonable.'"). Thus, even if pleaded as counterclaims, future obligations and reformation do not add new issues, and any such amendment would therefore be futile. Accordingly, a declaratory judgment is unavailable to declare provisions of the employment agreement unenforceable, and the Court GRANTS Plaintiff's Motions to Dismiss.
While Defendants mention California law as a possible basis for unenforceability of the provisions at issue, they only seek reformation pursuant to § 15.51(c). Doc. 18 at 10; Doc. 19 at 10. Thus, California law is not relevant to whether Defendants' reformation counterclaim would be futile.
III. Conclusion
For the foregoing reasons, the Court GRANTS Plaintiff's Motion to Dismiss Defendant Larry Scott Gresham's Original Counterclaim and Plaintiff's Motion to Dismiss Billy Bowden's Original Counterclaim.
IT IS SO ORDERED.
Signed this 21st day of February, 2014.
/s/_________
JORGE A. SOUS
UNITED STATES DISTRICT JUDGE