Synalloy Corporation et al v. Phoenix Chemical Company, Inc. et al

REPLY BRIEF re First MOTION to Dismiss Plaintiffs' Verified Complaint

N.D. Ga.July 3, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ROME DIVISION SYNALLOY CORPORATION, ) MANUFACTURERS CHEMICALS, ) LLC, and CRI TOLLING, LLC, ) ) Plaintiffs, ) ) CIVIL ACTION FILE v. ) ) NO: 4:17-cv-87-HLM PHOENIX CHEMICAL COMPANY, ) INC., JOHN BRYANT, and WILFORD ) DOUGLAS BONDS, ) ) Defendants. ) ) DEFENDANT BONDS’ REPLY BRIEF IN SUPPORT OF MOTION TO DISMISS PLAINTIFFS’ VERIFIED COMPLAINT COMES NOW Defendant Wilford Douglas Bonds (“Defendant Bonds”) pursuant to Fed. R. Civ. P. 12(b)(6) and files this, his Reply Brief in Support of his Motion to Dismiss Plaintiffs’ Verified Complaint, herein showing this Honorable Court as follows, to wit: I. INTRODUCTION Defendant Bonds restates, realleges and incorporates by reference both his previous Brief [Docket Entry No. 36] and the Reply in Support of Their Motion to Dismiss Plaintiffs’ Verified Complaint of Defendants Phoenix and Bryant [Doc. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 1 of 17 2 53] as if the same were set forth herein in their entirety verbatim. Defendant Bonds supplements the same with the argument and citation of authority below. II. ARGUMENT AND CITATION OF AUTHORITY A. Plaintiffs’ Verified Complaint fails the Iqbal/Twombly test. A court may dismiss a complaint if it does not plead "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Simpson v. Sanderson Farms, Inc., 744 F. 3d 702, 708 (11th Cir. 2014) (internal quotation marks omitted) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court observed that a complaint "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." 550 U.S. at 555. The factual allegations in a complaint "must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. The well-pleaded allegations must move the claim "across the line from conceivable to plausible." Id. at 570. "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 misconduct alleged." Iqbal, 556 U.S. at 678. All of the parties lean hard on Twombly, 550 U.S. 544 (2007), and for good reason. Twombly, together with its companion Iqbal, supra, establish a heightened Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 2 of 17 3 pleading standard in federal court. In Twombly, plaintiffs’ complaint alleged that several communications companies conspired to restrain trade by engaging in parallel conduct, i.e., conduct that appeared to be collusive, in violation of §1 of the Sherman Act. In relevant part, the U.S. Supreme Court held, “when allegations of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” Twombly, 550 U.S. at 557. Thus, Twombly shows that a complaint that merely suggests unlawful competitive activity will not survive a motion to dismiss when the activity in question could just as well be legitimate competitive activity. The mere possibility the defendant might have acted unlawfully is not enough for a claim to survive a motion to dismiss. Id. at 570. In fact, “courts may infer from the factual allegations in the complaint ‘obvious alternative explanation[s],’ which suggest lawful conduct rather than the unlawful conduct the plaintiff would ask the court to infer.” Sinaltrainal v. Coca- Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009) (quoting Iqbal, 556 U.S. at 678-79 (alteration in original)). Even after review of Plaintiffs’ Response in Opposition to Defendant Bonds’ Motion to Dismiss [Doc. 46], it is apparent that the record lacks sufficient non-conclusory factual allegations to support an inference that Defendant Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 3 of 17 4 Bonds has behaved unlawfully under any theory. In so failing, Plaintiffs have stumbled upon the hurdle placed before them by Twombly and Iqbal. Taking the allegations of Plaintiffs’ complaint as true, a story is told, but not one from which inferences of unlawful conduct flow. Plaintiffs’ anxieties over competition with Defendant Phoenix Chemical, Inc. (“Phoenix”), were stoked by two conversations between Defendant John Bryant (“Bryant”), Phoenix’ principal, and Synalloy’s Vice President of Operations Kevin Bates (“Bates”). [See generally Complaint, Doc. 1, ¶¶ 23-42]. Bryant appeared to know a lot about Plaintiffs’ business and, during the second conversation, consulted a document as he spoke. [Id., ¶¶ 27-34]. Bryant offered Bates a job, [id., ¶¶ 36 and 41], making Bates uncomfortable, [id., ¶ 43]. Driven by concern for his employer, [id., 43-44], Bates informed the Plaintiffs about his conversations with Bryant, [id., ¶¶ 45-46], and promptly resigned, [id., ¶ 50]. Plaintiffs commenced an inquiry. [Id., ¶¶ 52 and 53]. They found they had lost some business after firing Defendant Bonds, [id., ¶ 81], but do not allege a non-conclusory connection between any wrongful behavior and these losses. In fact, Plaintiffs do not allege that Phoenix gained the lost business. Rather, Plaintiffs’ conclusion that Bryant must be behaving badly, together with the discovery that Defendant Bonds now worked for Phoenix, resulted in Defendant Bonds being named in this case, but it is not “enough to raise [Plaintiffs’ claims] above the speculative level.” See Twombly, 550 U.S. at 555. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 4 of 17 5 In their response [Doc. 46] Plaintiffs do not direct this Court to a non- conclusory allegation of fact in their complaint to support an inference that Defendant Bonds has any connection to the offending Bryant-Bates conversation and the information discussed therein. Plaintiffs’ crucial connecting allegations, e.g., ¶¶ 62, 63, 79, and 83, are "unwarranted deductions of fact or legal conclusions masquerading as facts" that this Court need not accept as pleaded, Snow v. DirecTV, Inc., 450 F.3d 1314, 1320 (11th Cir. 2006) (internal quotation marks and citation omitted), and, as such, add nothing meaningful to the Court’s present analysis. Without a non-conclusory allegation of fact to support such a connection, Plaintiffs’ Complaint merely suggests unlawful activity when, in fact, it could just as well be fair, lawful competition. See Twombly, 550 U.S. at 557. Since Plaintiffs cannot direct the Court to specific allegations tending to support their own inference of unlawful behavior, this Court “may infer from the factual allegations in the complaint ‘obvious alternative explanation[s],’ which suggest lawful conduct.” Sinaltrainal, 578 F.3d 1252 at 1260 (quoting Iqbal, 556 U.S. at 678-79 (alteration in original)). Without some specific, non-conclusory allegation of fact to support an inference of unlawful behavior, Bryant could just as well have sourced the offending information lawfully without Defendant Bonds’ involvement, from Plaintiffs’ customers or employees, or other lawful sources. Similarly, Plaintiffs offer no reason why Defendant Bonds could not have Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 5 of 17 6 remembered the disputed information and made use of it, especially in light of the lack of a non-disclosure agreement or other covenant. Further, Bryant’s “one specific document”, [¶ 26-27], later morphs into “seven comprehensive sales reports” that Defendant Bates is alleged to have used during his employment with Plaintiffs, [¶¶ 59 and 61]. Without something to support its “upon-information- and-belief”, unverified, conclusory allegations that Defendant Bonds was unlawfully involved in their facts as pleaded, Plaintiffs have not shown why their allegations are anything more than merely conceivable, have not shown why unlawful rather than lawful activity should be inferred and, as a consequence, have not shown why their Verified Complaint should not be dismissed. B. Plaintiffs’ Complaint does not properly allege trade secret claims. Again, Defendant Bonds seeks here to supplement, not supplant, his previous arguments, and those made in the similar reply brief of Defendants Phoenix and Bryant, specifically those concerning the proper allegation of the elements of a trade secret claim. But two points merit further attention here: Plaintiffs’ failure to provide specific allegations of reasonable efforts to maintain secrecy and their references to matters beyond the pleadings. A trade secret must both have economic value by virtue of not being commonly known and be the subject of reasonable efforts to maintain this secrecy. O.C.G.A. § 10-1-761(4). Plaintiffs’ Complaint is thin on non-conclusory Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 6 of 17 7 allegations supporting the contention its Reports are both secret and are the subject of reasonable efforts at secrecy. Plaintiffs point to no policy of general application, no restrictive covenant or other agreement specific to Defendant Bonds, nor even any informal verbal admonition meant to communicate that the Reports were confidential, that the Reports were not to be sent to a personal email account, or that the Reports were to be maintained in secrecy. [See generally, Docs. 1 and 46]. Plaintiffs do not allege that they asked Defendant Bonds to return or delete any information he might possess upon termination of his employment. In fact, Plaintiffs neither allege in their Complaint nor argue in their response that Defendant Bonds behaved wrongfully when he allegedly emailed the Reports to his personal account and retained them therein. Plaintiffs only point to their allegation that the disputed information is available only to “key employees” on password-protected computers. [Pl.’s Response, Doc. 46, p. 8, citing Compl., ¶¶ 72-78, 89-93, 105-109]. However, this allegation conflicts with the allegation that Defendant Bonds was permitted to email the information to himself, and the related failure to find any fault with this behavior. Further, password-protection is not necessarily a sufficient measure to establish reasonable efforts. See e.g. Warehouse Sols., Inc. v. Integrated Logistics, LLC, 610 F. App’x 881, 885 (11th Cir. 2015) (portions of password-protected software not a trade secret where disclosure or use not Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 7 of 17 8 otherwise limited by agreement). Without some non-conclusory allegation leading one to infer that the information was indeed designated “secret” and was maintained as such, Plaintiffs’ Complaint fails to state a claim for recovery under either of the trade secret statutes on which Plaintiffs rely. Finding little support in their Complaint for their desired inferences, Plaintiffs resort to informing the Court that they believe from their review of the documents produced by the Defendants 1 that their fears of misappropriation are confirmed. [Doc. 46, p. 7, fn. 2, and pp. 16-7]. While Plaintiffs are entitled to have all reasonable inferences from their allegations drawn in their favor, they are not entitled to expand this matter beyond those allegations. Accordingly, Defendant Bonds respectfully requests that these representations, themselves conclusory and not addressed to closing the gaps in Plaintiffs’ trade secret claims, be disregarded. C. Plaintiffs’ Tort Claims are preempted. Having adopted, restated and realleged his previous arguments and the related arguments and citations to authority of Defendants Bryant and Phoenix, Defendant Bonds will here explicate the two cases on which Plaintiffs chiefly rely to salvage their claims sounding in tortious interference with business relations 1 Plaintiffs impugn the Defendants’ production of “over 1,200 documents” as “limited.” [See Doc. 46, p. 7, fn. 2, and pp. 16-7] Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 8 of 17 9 (Count 3), tortious interference with contract (Count 4), unjust enrichment 2 (Count 5), and conversion (Count 6): Professional Energy Management, Inc. v. Necaise, 300 Ga. App. 223, 226-27 (2009), and Candy Craft Creations, LLC v. Gartner, No. CV 212-091 (S.D. Ga., Mar. 31, 2015). As shown hereinbelow, since the facts and damage on which their common law claims are based are not distinguished from the facts or damage on which their GTSA claim is based, Plaintiffs’ common law claims are preempted by their putative claim under the Georgia Trade Secrets Act, O.C.G.A. § 10-1-761 et seq. (“GTSA”). See generally Diamond Power Int'l, Inc. v. Davidson, 540 F. Supp. 2d 1322 (N.D. Ga. 2007) (following Bacon v. Volvo Serv. Ctr., 266 Ga. App. 543 (2004) and Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1297 (11th Cir.2003)). “[T]he key inquiry is whether the same factual allegations of misappropriation are being used to obtain relief outside the GTSA.” Robbins v. Supermarket Equipment Sales, LLC, 290 Ga. 462, 465 (2012). 2 Unjust enrichment is not a tort claim, but an equitable notion springing from the body of contract law. See e.g. Crook v. Foster, 333 Ga. App. 36, 39, 775 S.E.2d 286, 289 (2015). In the interest of judicial economy, Defendant Bonds here adopts Plaintiffs’ inclusion of unjust enrichment among its tort claims [see Doc. 46, p. 9] as, in any event, they are all susceptible to similar analysis. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 9 of 17 10 In Necaise 3 , the plaintiff sued its former employee/co-founder and his subsequent employer for claims sounding in breach of fiduciary duty, tortious interference with contract, conversion, the GTSA, and breach of a non-disclosure agreement, and misappropriation of corporate opportunities, together with claims for recovery in unjust enrichment and constructive trust 4 . See 300 Ga. App. 223. The trial court granted the defendant-employee’s motion to dismiss for failure to state a claim and dismissed each of the plaintiffs’ claims except the GTSA claim, finding that the GTSA preempted the other claims. Id. On application for interlocutory appeal, in part pertinent hereto, the Georgia Court of Appeals reversed and remanded. Id. The Court of Appeals began by noting the trial court had based its ruling on that of the United States District Court for the Northern District of Georgia in Diamond Power v. Davidson, supra, and its holding that “where the ‘full extent’ of a claim relied on the same allegations as those underlying a claim for misappropriation of trade secrets, the claims are ‘conflicting’ under the GTSA and therefore precluded.” Necaise, 300 Ga. App. at 224(1) (quotations in original, 3 It bears noting that Georgia is not an Iqbal/Twombly jurisdiction, see Austin v. Clark, Case No. S13G1590, *3 (Ga. Supreme Court, March 10, 2014), but given the nature of the ruling in Necaise, this fact is not determinative. 4 The defendant-employee filed counterclaims irrelevant to our analysis. See id. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 10 of 17 11 citations omitted). “[The Diamond Power court] properly reasoned that purposes of the GTSA would be subverted if a plaintiff could state a claim for the misappropriation of proprietary information outside of the GTSA and thereby avoid its burdensome requirements of proof.” Id. (citation omitted). However, if a claim seeks to remedy an injury caused not by misappropriation, but by separate conduct – “such as the misappropriation of physical property or the improper interference with contractual relationships respecting something other than proprietary information” – such a claim is not preempted, as it does not conflict with the purposes of the GTSA. Id. (quoting Diamond Power, 540 F.Supp. 2d at 1345). In Necaise, the plaintiffs’ complaint asserted that the defendants worked together to solicit the plaintiffs’ customers while the defendant-employee was still employed by the plaintiff and that the defendant-employee had removed tangible client files from the plaintiffs’ property. See 300 Ga. App. at 224, (1)(b) and (1)(c). Such allegations support inferences of unlawful conduct and, if proved, would give rise to claims separate from and unrelated to misappropriation of trade secrets and, therefore, were not preempted. See id. As shown hereinbelow, our case differs. In Candy Craft Creations, LLC v. Gartner, No. CV 212-091 (S.D. Ga., Mar. 31, 2015), the plaintiff had developed a novel cake icing product, but needed assistance with marketing and distribution to major retailers. See id. at *1-2. The Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 11 of 17 12 defendants offered this assistance at first, but later developed a “strikingly similar” product of their own and took it to market, replacing the plaintiff’s product on store shelves and in endorsement deals. Id. at *2. The plaintiff sued, leveling causes of action sounding in the GTSA, fraud, breach of fiduciary duty, unjust enrichment, and tortious interference with business and contractual relations, amongst a host of other claims under Georgia and Federal law. See id. at *2-*3. Because each of the state law claims were related to the plaintiff’s GTSA claims, the defendants argued on motion for judgment on the pleadings that those counts were preempted by the GTSA. After inspecting plaintiff’s common law claims, the Candy Craft court held that each “pleaded operative facts that go beyond those ‘facts that would plainly and exclusively spell out only trade secret misappropriation.’” Id. at *33-*34 (quoting Diamond Power, 540 F.Supp. 2d at 1345. For example, plaintiff alleged that the defendants made misrepresentations of fact aimed at stealing things other than trade secrets, owed fiduciary duties due to non-disclosure and confidentiality agreements, and misappropriated things other than trade secrets. Id. at *33-*35. Since the plaintiff’s common law claims were “based on allegations separate and distinct from the allegations of trade secret misappropriation”, the Candy Craft court held they were not preempted by the GTSA. Id. at 35. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 12 of 17 13 Here, Plaintiffs’ allegations of fact are different from those in Necaise and Candy Craft. Here, Plaintiffs’ Complaint alleges, in summary, that Defendant Bonds emailed the disputed information to himself during his employment and that he has used this information in his new job. But there is no allegation of pre- termination competition in conjunction with Defendants Bryant and Phoenix, nor any allegation that Defendant Bonds removed any tangible files from Plaintiffs’ property, allegations of the type that drove the Necaise court to distinguish the holding in Diamond Power. Similarly, there is no allegation of an agreement that might give rise to a claim separate and distinct from one based on misappropriation of the disputed information, nor any allegation of misappropriation of anything other than the disputed information, allegations of the type that drove the decision in Candy Craft. Instead, the “full extent” of Plaintiffs’ common law claims rely on the same basic allegations as those underlying their claims for misappropriation of trade secrets, causing the tort claims to “conflict” with the purposes of the GTSA and requiring their dismissal. See Diamond Power, 540 F.Supp. 2d at 1345. D. Plaintiffs’ O.C.G.A. § 13-6-11 claim. With respect to Count 7, Defendant Bonds relies upon his previous arguments and those of Defendants Bryant and Phoenix. Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 13 of 17 14 III. CONCLUSION WHEREFORE, Defendant Bonds prays that Plaintiffs’ Verified Complaint be dismissed with prejudice, or in the alternative, that all or some of the causes of action set forth in said Complaint be dismissed with or without prejudice, in whole or in part, as determined in the discretion of this Court. Respectfully submitted this 3rd day of July, 2017. THE FEDERAL FIRM, LLC BY: /s/ Joseph Blake Evans JOSEPH BLAKE EVANS GEORGIA BAR NUMBER: 252363 710 South Thornton Avenue Suite A COUNSEL FOR DEFENDANT BONDS Dalton, Georgia 30720 (706) 226-0001 (706) 226-0007 (fax) joseph@fedfirm.com Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 14 of 17 15 CERTIFICATION UNDER L.R. 7.1D Pursuant to Northern District of Georgia Civil Local Rule 7.1D, undersigned counsel certifies that the foregoing is a computer document and was prepared in Times New Roman 14 point font as mandated in Local Rule 5.1C. Respectfully submitted this 3rd day of July, 2017. THE FEDERAL FIRM, LLC BY: /s/ Joseph Blake Evans JOSEPH BLAKE EVANS GEORGIA BAR NUMBER: 252363 710 South Thornton Avenue Suite A Dalton, Georgia 30720 (706) 226-0001 (706) 226-0007 (fax) joseph@fedfirm.com Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 15 of 17 16 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ROME DIVISION SYNALLOY CORPORATION, ) MANUFACTURERS CHEMICALS, ) LLC, and CRI TOLLING, LLC, ) ) Plaintiffs, ) ) CIVIL ACTION FILE v. ) ) NO: 4:17-cv-87-HLM PHOENIX CHEMICAL COMPANY, ) INC., JOHN BRYANT, and WILFORD ) DOUGLAS BONDS, ) ) Defendants. ) ) CERTIFICATE OF SERVICE This is to certify that I have this date served counsel for the parties listed below with a copy of the within and foregoing Defendant Bonds’ Reply Brief in Support of Motion to Dismiss Plaintiff’s Verified Complaint by filing the same using the CM/ECF system, which will automatically provide notification and service of such filing to the following: William H. Foster III, Esq. Nelson Mullins Riley & Scarborough, LLP P.O. Box 10084 104 South Main Street, Suite 900 Greenville SC 29603-0084 bill.foster@nelsonmullins.com Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 16 of 17 17 Michelle W. Johnson, Esq. Nelson Mullins Riley & Scarborough, LLP 201 17th Street, NW, Suite 1700 Atlanta GA 30363 michelle.johnson@nelsonmulllings.com Warren N. Coppedge, Jr., Esq. Stephen Michmerhuizen, Esq. Coppedge & Associates, P.C. 508 S Thornton Avenue Dalton GA 30720 trisha@coppedgefirm.com steve@coppedgefirm.com Respectfully submitted this 3rd day of July, 2017. THE FEDERAL FIRM, LLC BY: /s/ Joseph Blake Evans JOSEPH BLAKE EVANS GEORGIA BAR NUMBER: 252363 710 South Thornton Avenue Suite A Dalton, Georgia 30720 (706) 226-0001 (706) 226-0007 (fax) joseph@fedfirm.com Case 4:17-cv-00087-HLM Document 54 Filed 07/03/17 Page 17 of 17