Homewatch International, Inc. v. Navin

MOTION to Dismiss for Failure to State a Claim

D. Colo.September 13, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 1:16-cv-02143-KLM HOMEWATCH INTERNATIONAL, INC., a Colorado corporation, Plaintiff, v. SUZANNE NAVIN, Defendant. ______________________________________________________________________ DEFENDANT’S RULE 12(b)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM ______________________________________________________________________ Defendant Suzanne Navin, by counsel, hereby moves the Court pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss Plaintiff’s Complaint (Doc. 3) for failure to state a claim on which relief may be granted, and as grounds for dismissal states as follows: Certificate of conferral pursuant to D.COLO.L.Civ.R. 7.1(a) Pursuant to D.COLO.L.Civ.R. 7.1(b), counsel for Defendant states that no con- ferral is required for a motion brought under Fed.R.Civ.P. 12. I. Statement of the case. This is an action to enforce a noncompetition agreement against an individual, Defendant Suzanne Navin (Navin), who did not personally sign the contracts which contain the alleged noncompetition agreement. Plaintiff Homewatch International, Inc. (Homewatch) filed its Complaint (Doc. 3) against Navin in state court alleging that Navin breached the alleged noncompetition agreement by starting a competing business after her former company’s franchise agreement with Homewatch terminated. Navin removed Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 1 of 26 - 2 - the action to this Court, and now moves to dismiss the Complaint for failure to state a claim upon which relief may be granted. Navin was sole shareholder and officer of Prominent Home Care, Inc. (Prominent), which has not been named as a defendant in this action. As alleged in the Complaint at ¶¶ 8, 10, Homewatch and Prominent entered into a Franchise Agreement dated June 8, 2006 that licensed Homewatch’s operation methods and exclusive trademarks, service marks, logotypes, commercial symbols, and trade names to Prominent. Id.; see Exhibit 1 to Complaint. As part of the Franchise Agreement, Prominent also allegedly agreed to a "Post-Termination Covenant Not to Compete" in § 10.2 of that agreement, which provided in pertinent part that: Upon termination or expiration of this Agreement for any reason, Franchisee and its officers, directors, shareholders, limited liability company members and man- agers, and/or partners or other owners (as applicable) agree that, for a period of two years commencing on the effective date of termination or expiration, or the date on which Franchisee ceases to conduct business, whichever is later, neither Franchisee nor its officers, directors, shareholders, limited liability company managers and members, partners or other owners (as applicable) shall have any direct or indirect interest (through the spouse or children of Franchisee or its owners or otherwise) as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent or in any other capacity in any Competitive Business, as defined above, located or operating within a twenty-five (25) mile radius of Fran- chisee's Licensed Location or any other HOMEWATCH CAREGIVERS Business' location.....1 Franchisee and its officers, directors, shareholders, lim- ited liability company managers and members, partners and/or other owners (as 1Section 10.1 of the Franchise Agreement defines “Competitive Business” as “any business operating, or granting franchises or licenses to others to operate a business which offers companionship, personal care, and minor medical services or related products and services offered by HOMEWATCH CAREGIVERS Businesses provided by home health aides, personal care providers, certified nurse assistants, licensed pro- fessional nurses and registered nurses to the aging, disabled, recovering, rehabilitating, convalescing, and similar persons at their homes (excluding businesses operating under Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 2 of 26 - 3 - applicable) expressly acknowledge that they possess skills and abilities of a general nature and have other opportunities for exploiting such skills. Conse- quently, enforcement of the covenants made in this Section will not deprive them of their personal goodwill or ability to earn a living. [Emphasis added]. See Exhibit 1 to Complaint. The Franchise Agreement was signed and executed by Navin on behalf of Prominent solely in her capacity as Administrator of Prominent. In her capacity as Administrator of Prominent,2 Navin also allegedly signed a Non- disclosure and Noncompetition Agreement (NDA), Exhibit 2 to Complaint, on behalf of Prominent (the “Associate”), which provides in pertinent part at § 4: 4. Noncompetition Covenant. a. Associate covenants and agrees that (i) during the term of his or her association with a HOMEWATCH CAREGIVERS Business, and (ii) for a period of two (2) years after the end of his or her association with a HOMEWATCH CAREGIVERS Business within a twenty-five (25) mile radius of the Licensed Location (as defined in the HOMEWATCH Franchise Agreement) or any other HOMEWATCH CAREGIVERS Business' location, neither Associate nor any member of his or her immediate family shall: 1. have any direct or indirect interest as a disclosed or beneficial owner in a "Competitive Business," (defined below);3 2. perform services as a director, officer, manager, employee, consultant, representative, agent or otherwise for a "Competitive Business": or 3. divert or attempt to divert any business related to, or any cus- tomer or account of, any HOMEWATCH CAREGIVERS Business or the Com- pany's or its or affiliates' (if any) businesses by direct inducement or otherwise, or divert or attempt to divert the employment of any employee of any HOMEWATCH CAREGIVERS Business or the Company's or its or affiliates' (if any) businesses to any "Competitive Business" by any direct inducement or otherwise. other franchise agreements with HII), including private home and private pay agencies; or that is otherwise similar to a HOMEWATCH CAREGIVERS Business.” 2This Agreement also identified Navin’s capacity with Prominent as “Secretary/ Treasurer.” 3This term has the identical definition set forth in footnote 1 supra. Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 3 of 26 - 4 - The Franchise Agreement expired after its ten-year term expired on June 30, 2016. Complaint, ¶ 14. Homewatch alleges that on July 1, 2016, Navin started a company called Health Network of Wisconsin Corporation that competes directly with Homewatch and is a "Competing Business" as defined in the Franchise Agreement and NDA. Complaint, ¶¶ 15-16. Defendant Navin moves to dismiss Homewatch’s Complaint for failure to state a claim for relief based on the following grounds: (1) Navin did not sign the alleged non- competition agreements in her personal capacity and therefore cannot be held personally liable for their breach; (2) the noncompetition agreement entered into by Prominent cannot be enforced against Prominent’s owners or officers who are not parties to the agreement; (3) the Franchise Agreement is not a “contract for the purchase and sale of a business or the assets of a business” within the exception to the general prohibition on enforcement of noncompetition covenants of Colo. Rev. Stat. § 8-2-1113(2)(a); and (4) the equitable remedy of unjust enrichment is unavailable to Homewatch in this case. II. Standard of review. Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test “the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). To survive a Rule 12(b)(6) motion, “[t]he complaint must plead sufficient facts, taken as true, to provide ‘plausible grounds’ that discovery will reveal evidence to support the plaintiff’s allegations.” Shero v. City of Grove, Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 4 of 26 - 5 - 510 F.3d 1196, 1200 (10th Cir. 2007), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A complaint must include “enough facts to state a claim to relief that is plausible on its face.” TON Servs., Inc. v. Qwest Corp., 493 F.3d 1225, 1235 (10th Cir. 2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the alleged misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A plaintiff’s obligation to provide the grounds of entitlement 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. To survive Rule 12(b)(6) dismissal, factual allegations must be enough to raise a right to relief above the speculative level. Id. “[T]he mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007). Evaluation of a Rule 12(b)(6) motion requires a two-part analysis. First, the Court identifies “the allegations in the complaint that are not entitled to the assumption of truth,” that is, those allegations which are legal conclusion, bare assertions, or merely con- clusory. Such allegations, because they are no more than conclusions, are not entitled to the assumption of truth. Iqbal, 556 U.S. at 677-81. “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. at 678. The Court “need not accept conclusory allegations without supporting factual averments.” Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 5 of 26 - 6 - Cir.1998). Second, the Court considers the factual allegations “to determine if they plausibly suggest an entitlement to relief.” Iqbal, 556 U.S. at 681. If the well-pleaded factual allegations state a plausible claim for relief, the claim survives dismissal. Id. at 679. If, however, the well-pleaded facts do not permit the Court to infer more than the mere possibility of misconduct, the complaint has not shown that the pleader is entitled to relief. Id. Where, as here, documents are attached as exhibits to the Complaint, the Court may consider those documents in ruling on a motion under Rule12(b)(6). GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.1997). See Fed.R.Civ.P. 10(c). The legal effect of documents attached to a complaint as exhibits is determined by their contents rather than by allegations in the complaint. Jacobsen v. Deseret Book Co., 287 F.3d 936, 941-42 (10th Cir.2002). The Court is not required to accept legal conclusions or factual claims at variance with the express terms of such documents. Olpin v. Ideal Natl. Ins. Co., 419 F.2d 1250, 1255 (10th Cir.1969). III. The noncompetition agreement is not binding on Defendant Navin because she did not sign it in her individual or personal capacity, only in her capacity as a corporate officer on behalf of Prominent. Navin’s first ground for dismissal is that because she did not sign either the Fran- chise Agreement or NDA in her personal capacity, but only in her capacity as Adminis- trator of Prominent, she is not personally bound by either agreement, and therefore neither agreement may be enforced against her personally. The Franchise Agreement provides in § 13 that “this Agreement will be interpreted under the laws of the State of Colorado, and any dispute between the parties will be Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 6 of 26 - 7 - governed by and determined in accordance with the substantive internal laws of the State of Colorado, which laws shall prevail in the event of any conflict of law.” Similarly, the NDA in § 9 provides that “This instrument shall be governed by and construed under the laws of the state of Colorado.” Accordingly, Navin’s grounds for dismissal are premised on Colorado law. See 28 U.S.C. § 1652. As shown above, Navin signed the Franchise Agreement and NDA solely in her capacity as “Administrator” of Prominent Home Care, Inc. and not in her individual capacity. Colorado contract law precludes a suit against Navin as an individual for a con- tract entered into between Homewatch and Prominent. See Newport Steel Corp. v. Thompson, 757 F. Supp. 1152, 1156 (D. Colo. 1990); see also Bonfils v. McDonald, 270 P. 650, 652 (Colo. 1928) (party cannot be liable for breach of a contract to which he was not a party); O’Brien v. Houston, 262 P. 1020, 1021 (Colo. 1927) (person who did not execute written contract cannot be held liable for its breach). Moreover, a corporation is always a separate entity distinct from the individuals comprising it, whether they are its officers, directors, or investors. Leonard v. McMorris, 63 P.3d 323, 330 (Colo. 2003); U.S. v. Van Diviner, 822 F.2d 960, 963 (10th Cir. 1987). Personal liability cannot be imposed on an officer of a corporation merely because that individual is serving in such a capacity. Van Diviner, 822 F.2d 960, 963; Newport Steel, 757 F.Supp. at 1156. More to the point, an individual who acts within the scope of his authority for a corporation cannot be held personally liable on a contract that he signed on behalf of the corporation so long as notice has been given that he is acting for a Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 7 of 26 - 8 - corporation and the name or identity of the corporation has been disclosed. Fink v. Mont- gomery Elevator Co., 421 P.2d 735, 737 (Colo. 1966); Bidwell v. Jolly, 716 P.2d 481, 483 (Colo. App. 1986); Beneficial Fin. Co. v. Bach, 665 P.2d 1034, 1036 (Colo. App. 1983). This rule was applied in Bidwell v. Jolly, 716 P.2d at 483, to preclude enforcement of a debt against a corporate officer. There, a creditor of a corporation brought a collection action against both the corporation and its president and sole shareholder. Because, however, every document admitted into evidence which dealt with the transaction established that it was between the creditor and the corporation, the Colorado Court of Appeals held that the president cannot be held personally liable for the debt of the corporation. See also Rossetti Assocs., Inc. v. Santa Fe I25 Denver, LLC, 2011 U.S. Dist. LEXIS 22082, *10-*11 (D. Colo. 2011) (corporate agents who signed contracts on behalf of fully disclosed corporation “cannot as a matter of law be held liable under the contracts.”). Similarly, here, Navin signed both the Franchise Agreement and the NDA solely in her capacity as “Administrator” of Prominent Home Care, Inc. Although the NDA indicates that she signed it on behalf of an “Associate,” the NDA itself in its preamble defines “Associate” as “Prominent Home Care, Inc.” Accordingly, the noncompetition agreements cannot be enforced against Navin individually because she signed them solely in her capacity as a corporate officer of a fully disclosed corporation and not in her capacity as an individual. See Newport Steel, 757 F.Supp. at 1156; Rossetti, 2011 U.S. Dist. LEXIS 22082 at *11; Bidwell, 716 P.2d at 483. Accord: Bankers' Trust Co. v Dockham, 181 N.E. 174, 175 (Mass. 1932) (finding as matter of law that “since it is apparent from the contract Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 8 of 26 - 9 - that Stevens Dockham signed the contract only in his capacity as president of the Dockham Publishing Company, which plainly appears from the signature on the contract, that he is not bound individually by any of the terms of the contract and that the agreement not to compete contained in paragraphs 5 and 6 of the contract are not binding on him individually."); California Linoleum & Shades Supplies, Inc. v Schultz, 287 P. 980, 981 (Cal. App. 1930) (“The defendant signed [the noncompetition agreement] in his capacity as president of the corporation and it did not bind him personally.”). In addition, the NDA is not enforceable against Navin by its own terms. As noted above, the NDA’s preamble defines the “Associate” who is bound thereby as “Prominent Home Care, Inc.,” not as Suzanne Navin individually, and not as any of Prominent’s owners, officers, or directors. Homewatch admits as much in ¶ 13 of its Complaint, where it alleges that: “PHC [but not Navin] agreed to a similar noncompetition covenant contained in the NDA, which was executed contemporaneously with the Franchise Agree- ment.” Moreover, the NDA provides in § 4 that “Associate covenants and agrees that ... for a period of two (2) years after the end of his or her association with a HOMEWATCH CAREGIVERS Business within a twenty-five (25) mile radius of the Licensed Location (as defined in the HOMEWATCH Franchise Agreement) or any other HOMEWATCH CAREGIVERS Business' location, neither Associate nor any member of his or her immediate family shall: ... perform services as a director, officer, manager, employee, consultant, representative, agent or otherwise for a ‘Competitive Business’”).4 4Because the NDA is a “naked” agreement not to compete which is independent of the Franchise Agreement, it cannot be enforced against Navin personally under Colo. Rev. Stat. § 8-2-113(2). See infra Part IV. Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 9 of 26 - 10 - The Complaint, however, does not allege that Prominent—the only “Associate” bound by the NDA—is engaging in competition with Homewatch, or that any member of Prominent’s “immediate family” is engaging in competition with Homewatch. Since Navin is neither the “Associate” bound by the NDA nor a member of Prominent’s “immediate family,” § 4 of the NDA is not binding on her. Consequently, because Navin in her personal capacity cannot be not bound by either the Franchise Agreement or NDA, the allegations of the Complaint at ¶ 12 that “Navin also agreed to a ‘Post-Termination Covenant Not to Compete,’" and at ¶ 21 that “Navin breached the noncompetition covenants contained in the Franchise Agreement and NDA” lack legal plausibility because Navin was not a party to either agreement in her personal capacity and because she signed those agreements solely in her capacity as an officer of a fully disclosed corporation. To the extent, therefore, that all of Homewatch’s claims for relief depend on Navin’s being personally bound by either the Franchise Agreement or NDA, its Complaint fails to state a claim for relief and should be dismissed under Rule 12(b)(6). IV. A noncompetition agreement entered into by a corporation cannot be en- forced against the corporation’s owners or officers who are not parties to the agreement. Because neither the Franchise Agreement nor NDA is personally binding on Navin inasmuch as she executed both agreements solely in her authority as a corporate officer of Prominent, the next question is whether Homewatch can enforce, against Navin as an individual, Prominent’s covenant in § 10.2 of the Franchise Agreement that “neither Fran- chisee nor its officers, directors, shareholders, limited liability company managers and Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 10 of 26 - 11 - members, partners or other owners (as applicable) shall have any direct or indirect interest (through the spouse or children of Franchisee or its owners or otherwise) as a disclosed or beneficial owner, investor, partner, director, officer, employee, consultant, representative or agent or in any other capacity in any Competitive Business, as defined above, located or operating within a twenty-five (25) mile radius of Franchisee's Licensed Location or any other HOMEWATCH CAREGIVERS Business' location.” As noted above, Prominent is not a party to this action, and thus any order entered in this action cannot bind it. In Gold Messenger, Inc. v. McGuay, 937 P.2d 907, 912 (Colo. App. 1997), the Colorado Court of Appeals held that a noncompetition agreement for the protection of trade secrets could be enforced against a non-signatory to the agreement who was the “life partner” of the signatory (an individual) and who assisted the signatory in competing with the plaintiff by using the plaintiff’s trade secrets because “a non-signatory to a cov- enant will be bound because a covenantor will not be allowed to do through others what he or she could not do directly.” “[U]nder this doctrine,” the court stated, “a third party is bound by the covenant at least to the extent that he or she assists the covenantor to violate the covenant not to compete.” Id. Nevertheless, the court upheld the preliminary injunction against the defendant on an alternative ground, that “under the facts found by the trial court, defendant's assistance to the covenantor here would constitute a misap- propriation of trade secrets, which is, in and of itself, grounds for an injunction against defendant under the Colorado Uniform Trade Secrets Act.” Id. Because its resolution depended on the non-signatory assisting the covenantor to Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 11 of 26 - 12 - violate the covenant not to compete, Gold Messenger is distinguishable because the sole covenantor here, Prominent, is not competing with Homewatch, and because there is no allegation that Navin is assisting or has assisted Prominent in competing with Home- watch. Rather, Homewatch alleges that Navin herself is competing with it through a different corporation. See Complaint (Doc. 3), ¶¶ 15-17. As established supra Part II, neither the Franchise Agreement nor NDA is personally binding on Navin because she did not sign it in her individual or personal capacity. See Russell v. Mullis, 479 So.2d 727, 729 (Ala. 1985) (“'A person who has not executed or signed the contract or covenant is not bound by the stipulation against engaging in business, and he may not be enjoined from competing with the covenantee.”). Although a non-signatory “may be restrained from engaging in the business in partnership with, or as an employee of, the covenantor,” id.; see Gold Messenger, 937 P.2d at 912, Navin is neither the covenantor nor is she allegedly engaging in business in partnership with, or as an employee of the covenantor, Prominent, but with another corporate entity altogether. Moreover, an employer cannot bind its shareholders, officers, or employees to a contract with a third party to which the shareholders, officers, or employees are not par- ties. In Texas Shop Towel, Inc. v Haire, 246 S.W.2d 482 (Tex. Civ. App. 1952), the seller of a business agreed in the sale agreement that neither he nor his agents, servants, or employees would engage in a similar business. After the seller’s former employee began competing with the business’s purchaser, the purchaser sued the seller for breach of the noncompetition agreement based on the employee’s competition. The court noted that “the employees, who did not voluntarily surrender their right to labor and compete, would Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 12 of 26 - 13 - not be bound by the contract,” id., 246 S.W.2d at 485, because: The contract does not purport to bind any individuals other than [seller]. On the contrary, in addition to [seller], a certain class or category of persons having a definite legal relationship to [seller] is designated. The contract does not refer to nor attempt to bind those persons as individuals who at the time of the making of the contract were the agents or servants of [seller], but applies to those persons who may, during the five year restrictive period, bear the relationship of agent, servant or employee to [seller]. Over these, [seller] may exercise a measure of control. Over those who have ceased to be members of the class of agents, ser- vants or employees, he can, of course, exercise no control. Their actions obviously could not be controlled by injunction predicated upon the contract involved as they are not parties to it. Id. at 486. As the court concluded, “in a contract restricting trade, we do not think that an employee's individual right and freedom to contract may be traded away by a third person, even by the third party's express contract.” Id. at 484. For a similar case which held that a shareholder of a corporation was not bound by a noncompetition agreement between the corporation and a third party, see Yost v. Patrick, 17 So. 2d 240, 244 (Ala. 1944) (“The corporation, or its president, would not have authority to bind a stockholder as an individual by a contract in restraint of his right to engaged in a lawful business, without a legal showing that the stockholder gave such authority.”). Whether a corporation’s contract with a third party could prohibit its employees from competing with was also addressed in Heyde Cos. v. Dove Healthcare, LLC, 637 N.W.2d 437 (Wis. App. 2001), aff’d, 654 N.W.2d 830 (Wis. 2002). There, the defendant, Dove, entered into an agreement to furnish physical therapists to nursing homes with the plaintiff’s subsidiary, Greenbriar. The agreement prohibited Dove and its employees from hiring any Greenbriar therapists or therapist assistants to provide services for Dove for a year after their agreement terminated. Shortly after terminating the agreement, Dove Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 13 of 26 - 14 - hired one current and three former Greenbriar therapists. As the court framed it, the issue was “whether the no-hire provision is unenforceable. Dove argues that the provision was, in effect, a covenant not to compete that affected the rights of Greenbriar's therapists to seek employment,” which Dove contended was unenforceable without the therapists’ consent. Id., 637 N.W.2d at 439. The court agreed with Dove and held the no-hire provision unenforceable because the therapists were not parties to the Greenbriar-Dove contract and thus could not be bound by it: The no-hire provision violates public policy by restricting Greenbriar therapists the right to freely sell their skills in the labor market. Without signing any agreement or even being given notice, a portion of the available labor market has been taken away. Not only are the therapists restricted from working for Dove, but with thirty- three other health care facilities that have contracted with Greenbriar. Thus, cur- rent and former Greenbriar therapists are restricted from being employed by these facilities, unless Greenbriar gives consent and unless the facilities are willing to pay the fee. Id. at 440. Citing Texas Shop Towel, the court agreed that “It is one thing to uphold the restriction on an employee's freedom where it results from an agreement freely entered into by the employee. But where the restriction on an employee's freedom results from the employer's agreement with another potential employer, the employee is deprived of his or her freedom without acquiescence and with no resulting benefit.” Id. Consequently, the court concluded that the no-hire agreement violated public policy because “its effect limits the employment opportunities of Greenbriar therapists without their knowledge or consent,” and that Greenbriar “cannot enforce restrictive covenants unless its employees agree to the covenants.” Id. at 441. The Wisconsin Supreme Court affirmed. Heyde Cos. v. Dove Healthcare, LLC, 654 N.W.2d 830, 836-37 (Wis. 2002). Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 14 of 26 - 15 - Similarly, here, the noncompetition covenant in § 10.2 of Homewatch’s Franchise Agreement purports to bind not only Prominent, the contracting party, but also Promi- nent’s “officers, directors, shareholders, limited liability company managers and mem- bers, partners or other owners.” Because, however, Prominent cannot bind its “officers, directors, shareholders, limited liability company managers and members, partners or other owners” to a noncompetition covenant in its contract with a third party without their consent—which Homewatch does not allege Prominent obtained—its attempt to enforce the noncompetition covenant in § 10.2 of the Franchise Agreement (and in § 4 of the NDA) against Navin fails as a matter of law. See Heyde, 637 N.W.2d at 440-41; Texas Shop Towel, 246 S.W.2d at 485-86. Homewatch’s First and Third Claims for Relief should accordingly be dismissed under Rule12(b)(5) for failure to state a claim. V. Even if Navin had signed the agreements in her individual capacity—such that she (rather than Prominent) could potentially be bound thereby— Navin’s motion to dismiss should still be granted, because the noncompetition provisions in those agreements are void pursuant to § 8-2- 113(2) The next issue is whether the Franchise Agreement and NDA are enforceable against Navin under Colorado’s statute governing noncompetition agreements. As noted above, § 13 of the Franchise Agreement provides that “this Agreement will be interpreted under the laws of the State of Colorado, and any dispute between the parties will be governed by and determined in accordance with the substantive internal laws of the State of Colorado,” while § 9 of the NDA provides that “This instrument shall be governed by and construed under the laws of the state of Colorado.” “Contracts which restrict one in the exercise of a trade or profession are viewed Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 15 of 26 - 16 - with disfavor if their effect is unreasonably to interfere with the covenantor's right of free exercise of his liberty of occupation and employment.” Gibson v. Eberle, 762 P.2d 777, 779 (Colo. App. 1988). Under Colorado law, noncompetition agreements are generally void as against public policy unless they comply with Colo. Rev. Stat. § 8-2-113(2). DBA Enterp., Inc. v. Findlay, 923 P.2d 298, 302 (Colo. App. 1996). The legislative intent of § 8- 2-113(2) is to protect employees from noncompetition clauses except in carefully and narrowly defined circumstances. National Graphics Co. v. Dilley, 681 P.2d 546 547 (Colo. App. 1984). To that end, § 8-2-113(2) provides: (2) Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void, but this subsection (2) shall not apply to: (a) Any contract for the purchase and sale of a business or the assets of a business; (b) Any contract for the protection of trade secrets; (c) Any contractual provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years; (d) Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. A noncompetition agreement that fails to meet one of the exceptions defined in § 8-2-113(2) is void ab initio. Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 840 (Colo. App. 2007); Harvey Barnett, Inc. v. Shidler, 143 F.Supp.2d 1247, 1253 (D. Colo. 2001). Moreover, the exceptions in § 8-2-113(2) to the general rule that noncompetition agree- ments are void ab initio are narrowly construed. Logixx Automation, Inc. v. Lawrence Michels Family Trust, 56 P.3d 1224, 1230 (Colo. App. 2002); Phoenix Capital, 176 P.3d Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 16 of 26 - 17 - at 842-43. “Accordingly, the enforceability of the noncompete provisions must stand or fall on the applicability of one or more of the statutory exceptions.” King v. PA Consulting Grp., Inc., 485 F.3d 577, 587 (10th Cir. 2007). For purposes of this motion to dismiss, the issue is whether the noncompetition agreement in the Franchise Agreement falls within the exception for contracts for the pur- chase and sale of a business under § 8-2-113(2)(a). Colorado courts have not yet ad- dressed this issue directly. In 1997, the Colorado Court of Appeals stated in Gold Messenger v. McGuay, 937 P.2d at 910, that the trial court’s determination that a fran- chise agreement was akin to the sale of a business such that its associated noncom- petition covenant was valid under § 8-2-113(2)(a) was “questionable” because “Colorado appellate courts have not addressed the question whether the creation of a franchise arrangement constitutes the sale of a business.” More than a decade later, in Keller Corp. v. Kelley, 187 P.3d 1133, 1138-39 (Colo. App. 2008), the same court again declined to decide “whether an agreement establishing a franchise in a territory for the first time would constitute the sale of a ‘business’ within the meaning of section 8-2-113(2)(a).” The purpose of the exception in § 8-2-1113(2)(a) for contracts “for the purchase and sale of a business” is “to make the good will of the business conveyed ‘a saleable asset by protecting the buyer in the enjoyment of that for which he pays,’” Gibson v. Eberle, 762 P.2d at 779 (quoting 6A A. Corbin, CONTRACTS § 1387 (1962)). “The test to determine the reasonableness of such contracts is whether the restraint provides a fair protection to the interests of the purchasing party in reasonably protecting that which he bought.” Id. (emphasis added). Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 17 of 26 - 18 - The typical situation in which § 8-2-1113(2)(a) applies to a noncompetition agree- ment is where the seller of a business or its assets agrees not to compete with the purchaser of the business or its assets for a certain term. See Keller Corp. v. Kelley, 187 P.3d at 1138 (“Thus, in the sale of a business context, it is the seller who often agrees not to compete with the buyer for a certain period of time within a certain area because such an agreement protects the value of the goodwill purchased by the buyer.”); e.g., Reed Mill & Lumber Co. v. Jensen, 165 P.3d 733, 735 (Colo. App. 2006); DBA v. Findlay, 923 P.2d at 300-01; Gibson, 762 P.2d at 777. In that situation, “[t]he purpose of the covenant is not to control the seller's future income, but to prevent the seller from soliciting the buyer's new customers and to protect the good will inherent in the purchase.” DBA, 923 P.2d at 302. See National Propane, Inc. v. Miller, 18 P.3d 782, 786 (Colo. App. 2000) (same). This raises the question whether the Franchise Agreement between Homewatch and Prominent amounts to “a contract for the purchase and sale of a business” under § 8- 2-1113(2)(a). (The separate NDA, which is not a “contract for the purchase and sale of a business,” see Exhibit 2 to Complaint, is a “naked” noncompetition agreement5 which is clearly outside the exception created by § 8-2-1113(2)(a)). Unlike the cases discussed above where § 8-2-1113(2)(a) was invoked to validate noncompetition agreements 5See King v. PA Consulting, 485 F.3d at 587 (“naked” covenant not to compete is "not associated with a transfer of assets” or is "one unaccompanied by the sale of the assets of the related business”). The NDA contains no provision relating to the franchise or license acquired by Prominent pursuant to the Franchise Agreement, which contains its own noncompetition agreement, but is a standalone agreement not connected to the Franchise Agreement itself. Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 18 of 26 - 19 - whereby a seller of a business agrees not to compete with the purchaser of a business, Homewatch seeks to enforce a noncompetition agreement which is the other way around, whereby the purchaser of a franchise (or franchisee) agrees not to compete with the seller of the franchise (or franchisor). In that reverse situation, the purpose of the non- competition agreement is not “to prevent the seller from soliciting the buyer's new cus- tomers and to protect the good will inherent in the purchase,” but rather to restrain com- petition by the purchaser after the franchise agreement expires by its own terms. In Gold Messenger, 937 P.2d at 909-10, the putative franchisee argued that the noncompetition covenant in his unsigned franchise agreement was outside the purview of § 8-2-113(2)(a) because “the creation of a franchise arrangement does not constitute the sale of a business under § 8-2-113(2)(a).” The Court of Appeals ducked the issue by holding that the agreement was nonetheless enforceable as a covenant for the protection of trade secrets under § 8-2-113(2)(b). In Keller Corp., 187 P.3d at 1138-39, the Court of Appeals discussed whether a franchise agreement fit within the “sale or purchase of a business” exception in § 8-2- 113(2)(a). After observing that “nothing within the statute itself limits its applicability only to covenants designed to protect buyers,” the court noted that: In the case of the sale of a franchise, the buyer would seem clearly to have a protectable interest in not having the franchisor compete with it in its exclusive franchise territory during the period that the franchise is in existence. At the same time, however, once the franchised term ends, the franchisor may well possess an interest worthy of protection in not having the former franchisee use the know- ledge, training, and experience gained from the franchisor to compete against it. In both cases, the covenant not to compete protects the goodwill of the business. Id., 187 P.3d at 1138. Although the Keller court acknowledged the respective interests of Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 19 of 26 - 20 - franchisors and franchisees in protecting their goodwill, it declined to address “whether an agreement establishing a franchise in a territory for the first time would constitute the sale of a ‘business’ within the meaning of section 8-2-113(2)(a), because that is not this case.” Id. at 1139. Instead, the court ultimately determined that “the franchise agreement between Franchisor and Kelley was entered into as part of the same transaction in which Kelley acquired a going business from the previous franchisees,” so that the “sale or purchase of a business” exception in § 8-2-113(2)(a) applied. Consequently, Keller’s discussion of the issue is mere dicta. The basic problem with applying the Keller dicta to this case is that Homewatch did not “sell” and Prominent did not “purchase” a “business” or “the assets of a business.” Indeed, the Franchise Agreement as structured makes clear that no business or assets were either sold or purchased. Rather, the Franchise Agreement in § 1.1 “grants to Franchisee, and Franchisee accepts from HII, the right to use the Licensed Methods and Marks in connection with the operation of a HOMEWATCH CAREGIVERS Business.” That no “sale” of any assets occurred is made clear by § 7.1, which provides in part: Franchisee acknowledges that HII has the sole right to own and license the Marks, and to control Franchiser's use of the Marks; and that such Marks shall remain under the sole and exclusive ownership and control of HII. [Emphasis added]. Section 7.6 further provides that “Franchisee acknowledges that the Licensed Methods are the sole property of HII.” Consequently, Homewatch did not “sell” and Prominent did not “purchase” a “bus- iness” or “the assets of a business” within the meaning of § 8-2-113(2)(a). Instead, Prominent purchased only a license to use Homewatch’s operation methods, trademarks, Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 20 of 26 - 21 - and other intangible intellectual property for a term of ten years. See Franchise Agreement, § 1.2. Because the exceptions to § 8-2-113(2) must be narrowly construed, Logixx Automation, 56 P.3d at 1230, and because a “sale” “consists in the passing of title from the seller to the buyer for a price,” see Colo. Rev. Stat. § 4-2-106(1); see also BLACK’S LAW DICTIONARY 1337 (7th ed. 1999) (defining “sale” as “the transfer of property or title for a price”), the Franchise Agreement here does not amount to a “sale” of a bus- iness because it only licensed Homewatch’s intellectual property and did not transfer any title or ownership rights to that property (or any other property) to Prominent. See Lehman v. Williams, 533 P.2d 63, 65 (Colo. App. 1975) (the legal interest conveyed by a license is “merely a personal privilege to do some particular act or series of acts” that does not create ownership interest in licensee). For these reasons, the dicta in Keller, which did not construe § 8-2-113(2)(a) nar- rowly and which did not accord the statutory term “sale” its ordinary and accustomed meaning of a transaction transferring title, does not establish that a franchise license is a “sale” of a business within the meaning of § 8-2-113(2)(a). Navin acknowledges that Prominent may be bound by the noncompetition agreements in the Franchise Agreement and NDA, but because of Colorado’s strong public policy against noncompetition agree- ments “which restrict one in the exercise of a trade or profession,” she is not bound by them, because they do not fall within the narrowly circumscribed statutory exception for a “contract for the purchase and sale of a business or the assets of a business” in § 8-2- 113(2)(a). Because of Colorado’s strong public policy against noncompetition agreement and Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 21 of 26 - 22 - explicit statutory scheme, cases from other jurisdictions that uphold such agreements in connection with franchise licenses are not helpful. See Gold Messenger, 937 P.2d at 910 (noting that “the reasoning and results of other jurisdictions' treatment of this issue vary widely because each jurisdiction must consider its respective statutory scheme and public policy”). An exception is Budget Rent-A-Car Corp. v Fein, 342 F.2d 509 (5th Cir. 1965), where the Circuit Court, applying Georgia law, which allows enforcement of noncompetition agreements made in connection with a “sale of business,” held that the noncompetition covenant in a franchise agreement between a car rental company and a prospective franchisee could not be enforced because there was not a true “sale” of business: In a sale of business situation, a reasonably drawn covenant will be enforced be- cause it allows the seller to dispose of his good will and the purchaser to buy it. The necessity for a covenant is not so much that the seller has intimate knowledge of a particular line of business, but rather he, as a dominant personality, is so much the life of the business and is known to customers as such, that the buyer would run the very real risk of losing what he had paid for should the seller shortly become his competitor. By protecting this transaction, the covenant facilitates the free transfer of property which is in the public interest. Nothing in Budget's situation approaches this. Id., 342 F.2d at 517. Accordingly, because a franchise licensing agreement, including the Franchise Agreement alleged here, amounts to neither the “sale” nor the “purchase” of a “business,” the noncompetition covenants in the Franchise Agreement and NDA do not fall within the statutory exception and are therefore unenforceable against Navin individually under § 8- 2-113(2). Homewatch’s claims for breach of contract and injunctive relief based on this unenforceable agreement should therefore be dismissed under Rule 12(b)(6) for failure Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 22 of 26 - 23 - to state a claim upon which relief can be granted. VI. Because there is no enforceable noncompetition agreement, Homewatch’s unjust enrichment claim also fails as a matter of law. Finally, Homewatch’s Second Claim for Relief, denominated “unjust enrichment,” should also be dismissed for failure to state a claim under Rule 12(b)(6). In ¶ 24 of that claim, Homewatch alleges, “upon information and belief,” that “Navin, through HNWC, has realized profits from competitive activities after promising not to compete against Homewatch after the termination of the Franchise Agreement.” This claim fails for several reasons. First, as established in Parts III and IV supra, Navin in her individual capacity never “promised” not to compete against Homewatch after the termination of the Franchise Agreement. The only alleged “promises” were made by Prominent, not by Navin individually, and those “promises” are not binding on her for the reasons stated in Parts III and IV supra. Second, the unjust enrichment claim is simply a “backdoor” attempt to enforce a noncompetition agreement where no enforceable agreement can be established. Be- cause Homewatch has alleged the existence of an express contract covering the same subject matter, it has no claim for unjust enrichment. See West Ridge Group, LLC v. First Trust Co., 414 Fed. Appx. 112, 120 (10th Cir. 2011) (unjust enrichment “is not available as a mere alternative legal theory when the subject is covered by an express contract.”); Braddock Fin. Corp. v. Washington Mut. Bank, 637 F.Supp.2d 924, 933 (D. Colo. 2009) (“unjust enrichment is not a viable theory of recovery where there is an express contract governing the conduct.”); Jorgensen v. Colo. Rural Props., LLC, 226 P.3d 1255 (Colo. App. 2010) (“a claim for unjust enrichment may not be asserted if there is a valid contract Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 23 of 26 - 24 - covering the subject matter of the alleged obligation”); Harris Grp., Inc. v. Robinson, 209 P.3d 1188, 1205 (Colo. App. 2009); Bedard v. Martin, 100 P.3d 584, 592 (Colo. App. 2004); Interbank Inv., LLC v. Eagle River Water & Sanit. Dist., 77 P.3d 814, 816 (Colo. App. 2003) ("a party cannot recover for unjust enrichment by asserting a quasi-contract when an express contract covers the same subject matter because the express contract precludes any implied-in-law contract."). That Homewatch’s express contract did not bind Navin personally to its terms is no reason to find an implied contract between Homewatch and Navin; Homewatch had the opportunity to secure Navin’s consent to a noncompetition agreement that would bind her personally but failed to do so. Under these circumstances, equity will afford it no relief. Finally, any noncompetition agreement implied under a theory of unjust enrichment runs afoul of § 8-2-113(2). A claim for unjust enrichment "requires that (1) at plaintiff's expense (2) defendant received a benefit (3) under circumstances that would make it unjust for defendant to retain the benefit without paying." Nicholls v. Zurich Am. Ins. Grp., 244 F.Supp.2d 1144, 1165 (D. Colo. 2003); Robinson v. Colo. State Lottery Div., 179 P.3d 998, 1007 (Colo. 2008). Homewatch cannot establish the third element of unjust enrichment; since there is no enforceable noncompetition agreement between Home- watch and Navin, Navin cannot have been “unjustly enriched” by freely competing in the marketplace. Moreover, equity will not imply the existence of a contract—in this case, a noncompetition agreement that would restrain Navin personally from competing with Homewatch—which is void as a matter of public policy. See Hooven v. Quintana, 618 P.2d 702, 703 (Colo. App. 1980); § 8-2-113(2) (“Any covenant not to compete which Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 24 of 26 - 25 - restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void”). Accordingly, because Homewatch’s separate claim for unjust enrichment lacks plausibility based on the facts alleged in the Complaint and exhibits submitted therewith, it, too, should be dismissed for failure to state a claim under Rule 12(b)(6). WHEREFORE, Defendant Suzanne Navin respectfully requests the Court to enter an order dismissing Plaintiff’s Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted, and to grant such other and further relief as the Court deems just and proper. Respectfully submitted this 13th day of September, 2016, JONSEN LAW FIRM, LLC /s/ Eric R. Jonsen Eric R. Jonsen Jonsen Law Firm, LLC 555 Eldorado Boulevard, Suite 200 Broomfield, Colorado 80021 Phone: 303-991-5970 erjonsen@jonsen.net Attorney for Defendant Suzanne Navin Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 25 of 26 - 26 - CERTIFICATE OF SERVICE The undersigned hereby certifies that on this 13th day of September, 2016, a copy of the foregoing DEFENDANT’S RULE 12(b)(6) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM was electronically filed with the Clerk of the Court using the CM/ECF system which will send notification of such to the following: William F. Jones, Esq. Jason D. Hermele, Esq. Moye White LLP 16 Market Square, 6th Floor 1400 16th Street Denver, Colorado 80202-1486 billy.jones@moyewhite.com jay.hermele@moyewhite.com s/Lisa Vos Case 1:16-cv-02143-KLM Document 10 Filed 09/13/16 USDC Colorado Page 26 of 26