Meyer Group, Ltd v. Rayborn ( 2020 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
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MEYER GROUP, LTD., )
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Plaintiff, )
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v. ) Civil Action No. 19-1945 (ABJ)
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JAMES M. RAYBORN, et al., )
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Defendants. )
____________________________________)
MEMORANDUM OPINION
Plaintiff The Meyer Group, Ltd. (“TMG”) is a commercial real estate company providing
brokerage and advisory services to tenants in the Washington, D.C. metropolitan area. Compl.
[Dkt. # 1] ¶ 7. Defendant James M. Rayborn is a real estate salesperson and a former employee
of TMG. Id. ¶¶ 3, 8–9. During his employment with plaintiff, Rayborn was charged with
maintaining existing client relationships and following leads for potential new clients. Aff. of
James Rayborn, Ex. A to Def. James M. Rayborn’s Mot. to Dismiss [Dkt. # 9-5] (“Rayborn Aff.”)
¶¶ 17–19. In January of 2019, TMG terminated Rayborn’s employment, and he later began
working for Broad Street Realty, another real estate brokerage firm providing services in the
District of Columbia area. Compl. ¶¶ 10, 19–20. Plaintiff alleges that Rayborn misappropriated
TMG’s confidential client data, disclosed it to Broad Street Realty, and persuaded TMG’s clients
to terminate their contracts with TMG and move to Broad Street. Id. ¶ 21.
On June 28, 2019, plaintiff filed a complaint against Rayborn and Broad Street Realty
alleging violations of the federal Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq., and the D.C.
Uniform Trade Secrets Act, D.C. Code § 36–401. Compl. ¶¶ 34–49. It also alleged that defendants
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tortiously interfered with TMG’s contracts with its clients, and that Rayborn breached his
employment agreement. Id. ¶¶ 24–33.
On September 20, 2019, defendant Rayborn filed a motion to dismiss, or in the alternative,
a motion for summary judgment. Def. Rayborn’s Mot. to Dismiss or Alternatively Mot. for Summ.
J. [Dkt. # 8] (“Def.’s Mot.”); Def. Rayborn’s Errata Mem. in Supp. of Def.’s Mot. [Dkt. # 9-3]
(“Def.’s Mem.”). He argued that the “confidential information” that was allegedly
misappropriated from TMG is not a trade secret, and that the information was his property. Def.’s
Mem. at 10–12. He also argued that plaintiff failed to state a claim for tortious interference or
breach of contract. Id. at 12–20. Defendant Broad Street Realty later joined Rayborn’s motion.
Def. Broad Street Realty, LLC’s Mot. to Dismiss [Dkt. # 11] (“Broad St. Mot.”).
For the following reasons, the Court will grant in part and deny in part defendants’ motions.
BACKGROUND
Rayborn started working for The Meyer Group in 1994 as a real estate salesperson
specializing in tenant representation. Compl. ¶¶ 8, 11. According to the complaint, Rayborn
ignored directives from the president of the company, William Meyer, and “engage[d] in disruptive
behavior” during the course of his employment. Id. ¶ 11. Rayborn also allegedly damaged the
company’s relationships with its clients by “harassing and ceaselessly calling and emailing” them.
Id. In May of 2018, Rayborn was terminated for cause. Id.Soon after he was terminated, Rayborn insisted that he be reinstated. Compl. ¶ 12. Plaintiff
agreed to bring him back under a different arrangement, and on May 29, 2018, TMG and Rayborn
executed an Independent Contractor Agreement (“ICA”). Id. Pursuant to the ICA, Rayborn would
assist current TMG clients in locating premises and negotiating lease agreements, and he would
assist TMG in acquiring new clients. Id. The agreement provided that Rayborn would be paid
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75% of any commissions paid to TMG, net of any other expenses. Id. The ICA also contained a
confidentiality provision, in which Rayborn “recognized and acknowledged that TMG would be
granting Rayborn access to confidential or proprietary information, including information
concerning TMG’s clients and prospective clients, the identity of clients and prospective
customers, the identity of key purchasing personnel in the employ of customers and prospective
clients, and client lists.” Id. ¶ 14. He agreed to not disclose this confidential information to others,
to abstain from soliciting any client or potential client of TMG, and to return any confidential
information in his possession to TMG prior to the termination of the contract. Id. ¶ 15. The ICA
also stated that either party could terminate the ICA at any time upon notice to the non-terminating
party. Id. ¶ 13.
Plaintiff alleges that by virtue of this arrangement, Rayborn had access to or created
confidential client lists, which included information that was not publicly known. See Compl.
¶ 16. Plaintiff alleges that the confidential data on each client included such information as “the
date of lease expiration, notes on client preferences, and up-to-date contacts at each client
company.” Id. ¶ 17. Some of the confidential information was stored on a Microsoft database and
other information was recorded by Rayborn on a set of “TMG index cards.” Id.In January of 2019, plaintiff learned that Rayborn was corresponding with competing real
estate firms, including Broad Street Realty about employment opportunities. Compl. ¶ 19. Meyer
asked Rayborn if he intended to continue working with TMG under the ICA, and Rayborn
indicated that he intended to seek employment elsewhere. Id. On January 24, 2019, TMG notified
Rayborn that the ICA was terminated. Id. At some point after the termination of the ICA, Rayborn
joined Broad Street Realty as a Senior Vice President. See id. ¶¶ 8, 20.
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After Rayborn’s departure, plaintiff learned that he had taken a number of the index cards
that contained client information with him. Compl. ¶ 21. Plaintiff alleges that Rayborn “disclosed
and misappropriated TMG’s Confidential Information by contacting and actively soliciting TMG’s
clients while working at Broad Street.” Id. As a result, a number of TMG’s “longtime” clients
terminated their agreements and switched to Broad Street Realty. Id. ¶ 21(a)–(g). For example,
Barnes Vanze Architects, Inc. was TMG’s client for over eight years, and on February 25, 2019,
it notified TMG that it was terminating its exclusive agreement with TMG and would be working
with Broad Street Realty instead. Id. ¶ 21(b). Plaintiff alleges that Rayborn even set up meetings
and calls with its clients to persuade them to move their business to Broad Street Realty while he
was still working at TMG. Id. ¶ 21(f)–(g).
On April 26, 2019, plaintiff sent Broad Street Realty a cease-and-desist letter demanding
that it stop using TMG’s confidential information. Compl. ¶ 22. Broad Street refused to comply,
and plaintiff alleges that Broad Street and Rayborn continue to utilize TMG’s confidential
information today. Id. ¶¶ 22–23.
On June 28, 2019, plaintiff filed a complaint in this Court against Rayborn and Broad
Street, alleging: (1) Rayborn breached the ICA by misappropriating and disclosing confidential
information, Compl. ¶¶ 24–27; (2) Rayborn and Broad Street tortiously interfered with the
contracts between TMG and its clients by actively soliciting TMG’s clients and encouraging them
to terminate their contracts with TMG, id. ¶¶ 28–33; (3) Rayborn and Broad Street violated the
D.C. Uniform Trade Secrets Act, D.C. Code § 36-403, when they misappropriated TMG’s
confidential information, Compl. ¶¶ 34–40; and (4) Rayborn and Broad Street violated the Defend
Trade Secrets Act, 18 U.S.C. § 1836, when they willfully acquired, misappropriated, and disclosed
TMG’s confidential information for their own economic benefit. Compl. ¶¶ 41–49. Defendants
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have moved to dismiss the complaint, or alternatively, for summary judgment. Def.’s Mem.;
Broad St. Mot.
STANDARD OF REVIEW
“To survive a [Rule 12(b)(6)] 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) (internal quotation marks omitted); accord Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). In Iqbal, the Supreme Court reiterated the two principles underlying its
decision in Twombly: “First, the tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions.” 556 U.S. at 678, citing Twomby,
550 U.S. at 555. And “[s]econd, only a complaint that states a plausible claim for relief survives
a motion to dismiss.” Id. at 679, citing Twombly, 550 U.S. at 556.
A claim is facially plausible when the pleaded factual content “allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. “The
plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Id, quoting Twombly, 550 U.S. at 556. A
pleading must offer more than “labels and conclusions” or a “formulaic recitation of the elements
of a cause of action,” id., quoting Twombly, 550 U.S. at 555, and “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.When considering a motion to dismiss under Rule 12(b)(6), the Court is bound to construe
a complaint liberally in the plaintiff’s favor, and it should grant the plaintiff “the benefit of all
inferences that can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d
1271, 1276 (D.C. Cir. 1994), citing Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979).
Nevertheless, the Court need not accept inferences drawn by the plaintiff if those inferences are
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unsupported by facts alleged in the complaint, nor must the Court accept the plaintiff’s legal
conclusions. See id.; Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). In ruling upon a
motion to dismiss for failure to state a claim, the Court may ordinarily consider only “the facts
alleged in the complaint, documents attached as exhibits or incorporated by reference in the
complaint, and matters about which the Court may take judicial notice.” Gustave-Schmidt v. Chao,
226 F. Supp. 2d 191, 196 (D.D.C. 2002) (citations omitted).
ANALYSIS
I. The Court will deny the motion for summary judgment as premature.
Defendants have moved, in the alternative, for summary judgment on plaintiff’s trade
secrets claims, and they attach exhibits to the motion for the Court to consider. See Def.’s Mem.;
Broad St.’s Mot. For the following reasons, the Court will not consider a motion for summary
judgment at this stage, and thus it will not review plaintiff’s or defendants’ exhibits in deciding
the motion to dismiss, unless they are specifically incorporated into plaintiff’s complaint.
A motion for summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). In determining whether to grant summary judgment, the court must analyze
the evidence in the light most favorable to the nonmoving party, with all justifiable inferences
drawn in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). To defeat summary
judgment, the non-moving party must “set forth specific facts showing that there is a genuine issue
for trial.” Id. at 248 (internal quotation marks omitted).
The mere existence of a factual dispute is insufficient to preclude summary judgment. Id.at 247–48. A dispute is “genuine” only if a reasonable fact-finder could find for the non-moving
party; a fact is “material” only if it is capable of affecting the outcome of the litigation. Id. at 248;
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Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C. Cir. 1987). In assessing a party’s motion, the
court must “view the facts and draw reasonable inferences ‘in the light most favorable to the party
opposing the summary judgment motion.’” Scott v. Harris, 550 U.S. 372, 378 (2007) (alterations
omitted), quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam).
Here, there are more disputed facts than undisputed facts, and there are even more facts
that are as yet unknown. There is little or no evidence in the record as to what information was
recorded on the index cards; whether that information was confidential; who created and owned
the index cards; where and how they were stored; who had access to them; and what efforts were
taken to maintain the secrecy of the information they contained. Defendants attach a sworn
statement by Rayborn insisting that he created the index cards from commercially available
information. Rayborn Aff. ¶¶ 3, 16. But that information is contested by the declaration of TMG’s
president, William J. Meyer, who states that some of the information on the cards was confidential
and nonpublic. Decl. of William J. Meyer, Ex. A to Pl.’s Opp. to Def.’s Mot. to Dismiss
[Dkt. # 13-3] (“Meyer Decl.”) ¶ 12. Defendants also point to emails sent by Rayborn to potential
clients, which transmit a list of existing clients as references. See Ex. D to Def.’s Mem.
[Dkt. # 9-8]; Ex. F to Def.’s Mem. [Dkt. # 9-10]. They argue that this shows that TMG client
information was not confidential, but it is not clear whether the information on the client lists is
identical to what was stored on the index cards. Finally, defendants attach a “sample of the canvass
cards” that Rayborn took with him, Def.’s Mem. at 12, citing Ex. E to Def.’s Mem. [Dkt. # 9-9],
but it is not clear whether this sample is representative of all the index cards in Rayborn’s
possession. Defendants’ “sample” index cards are marked, “Property of James M. Rayborn,” but
plaintiff avers that it purchased index cards labeled “The Meyer Group” and that Rayborn had used
those for recording client data. Meyer Decl. ¶ 14.
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In other words, not only are key facts disputed, but the facts that have not yet been fully
illuminated will bear on the determination of whether the index cards constitute trade secrets and
whether defendant Rayborn violated federal and D.C. trade secrets laws when he took the cards
with him. Given the many disputes of fact and the need for further discovery, the Court will deny,
without prejudice, the alternative motion for summary judgment under Federal Rules of Civil
Procedure 56(d) and (e). With that, the Court will evaluate the motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6), and that assessment must be based on the face of the complaint,
assuming the truth of plaintiff’s allegations for now.
II. The Defend Trade Secrets Act & D.C. Uniform Trade Secrets Act claims in Counts
III and IV will move forward.
To bring a claim under either the Defend Trade Secrets Act or the D.C. Uniform Trade
Secrets Act, a plaintiff must demonstrate the existence of a trade secret that has been
misappropriated. 18 U.S.C. § 1836(b)(1); DSMC, Inc. v. Convera Corp., 479 F. Supp. 2d 68, 77
(D.D.C. 2007), citing D.C. Code § 36–401 (to state a claim for a trade secret claim, a plaintiff must
show “(1) the existence of a trade secret; and (2) acquisition of the trade secret by improper means,
or improper use or disclosure by one under a duty not to disclose”). Defendants argue that plaintiff
has failed to plausibly plead the existence of a trade secret or, if it existed, that it was
misappropriated. Def.’s Mem. at 7–12.
A. Whether the Index Cards are Trade Secrets
“The ‘threshold inquiry’ in every trade secret case is ‘whether or not there [is] a trade secret
to be misappropriated.’” DSMC, 479 F. Supp. 2d at 77, quoting Catalyst & Chem. Servs., Inc. v.
Glob. Ground Support, 350 F. Supp. 2d 1, 8 (D.D.C. 2004). Under both the federal and D.C. laws,
a “trade secret” is defined as information that “derives independent economic value . . . from not
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being generally known” when “the owner . . . has taken reasonable measures to keep such
information secret.” 18 U.S.C. § 1839(3); see D.C. Code § 36–401(4) (defining a “trade secret”
to be information that “(A) Derives actual or potential independent economic value, from not being
generally known to, and not being readily ascertainable by, proper means by another who can
obtain economic value from its disclosure or use; and (B) Is the subject of reasonable efforts to
maintain its secrecy.”).
“Although the question of whether a piece of information is a trade secret is typically a
question of fact, information is not a trade secret as a matter of law if it is ‘easily ascertainable by
the public or generally known within an industry.’” Econ. Research Servs., Inc. v. Resolution
Econ., LLC, 208 F. Supp. 3d 219, 232–33 (D.D.C. 2016). But even if individual elements are
known to the public, a trade secret can exist in a unique combination of those otherwise publicly
available elements. Catalyst, 350 F. Supp. 2d at 9; see also Elm City Cheese Co. v. Federico, 752
A.2d 1037, 1047 (Conn. 1999) (finding that “plaintiff’s ability to combine these elements into a
successful . . . process, like the creation of a recipe from common cooking ingredients is a trade
secret entitled to protection”) (internal quotation marks and citations omitted).
Client lists or customer information can be considered trade secrets, but this is an inherently
fact dependent question. Hedgeye Risk Mgmt., LLC v. Heldman, 412 F. Supp. 3d 15, 29–30
(D.D.C. 2019); see Morgan Stanley DW Inc. v. Rothe, 150 F. Supp. 2d 67, 76 (holding that
customer lists of a financial-services firm deserve trade secret status and that plaintiff had a
likelihood of success on the merits on its trade secrets claim). Courts in this district that have
considered the question have relied on six factors to determine whether a client information can
be considered a trade secret:
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(1) [T]he extent to which the information is known outside of [the] business;
(2) the extent to which it is known by employees and others involved in
[the] business; (3) the extent of measures taken by [the employer] to guard
the secrecy of the information; (4) the value of the information to [the
employer] and to his competitors; (5) the amount of effort or money
expended by [the employer] in developing the information; [and] (6) the
ease or difficulty with which the information could be properly acquired or
duplicated by others.
Ruesch v. Ruesch Int’l Monetary Servs., Inc., 479 A.2d 295, 296 (D.C. 1984), quoting 4
Restatement of Torts § 757, cmt. b (1939). In Ruesch, the D.C. Court of Appeals examined these
factors keeping in mind the distinction between a customer list which has on it “likely prospects,”
which may be more difficult to find in the public domain or may take money and time to compile,
and a “wholesale” customer list that is public and shared between those in the industry, such a
trade publication. Id. at 297. The former is more likely to be a trade secret; the latter is less likely
to be a trade secret. Id. That court also considered the industry in question in determining whether
the information could be considered a trade secret – it observed that courts are less likely to protect
customer lists when the industry is impersonal and where customer loyalty in the industry, to the
extent it exists, is to “the company rather than to a particular employee.” Id. at 300.
Another court in this district has observed that while client contact information, such as the
information printed on business cards, may not be confidential by itself, “a collection of business
cards might, in some circumstances, capture the same information contained in a confidential
customer list.” Hedgeye Risk Mgmt., 412 F. Supp. 3d at 29. For example, the customer
information “might reflect information that is confidential and difficult to find, such as information
about the identity of key decisionmakers at a firm or those persons’ private email addresses.” Id.
at 29–30.
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The issue before the Court is whether the complaint states a plausible claim that the
information contained on the index cards qualifies as a trade secret. 1 The parties agree that the
information has economic value, but defendants maintain that the information was in the public
domain or readily ascertainable. Plaintiff alleges that the index cards contained valuable
confidential information regarding each client, including not only the clients’ contact information,
but also notes on individual client preferences, and the dates their leases expired. Compl. ¶¶ 16–7.
It argues that while some of the information on the cards may be public, the act of pulling it all
together renders the index cards to be trade secrets. Pl.’s Opp. to Def.’s Mot. to Dismiss
[Dkt. # 13] (“Pl.’s Opp.”) at 10–11.
The Court finds, assuming the truth of the allegations in the complaint, and resolving all
inferences in favor of plaintiff as it is required to do at this stage, that plaintiff has plausibly alleged
that the information on the cards was nonpublic and not readily ascertainable from public sources.2
Another factor to be considered in the trade secret analysis is whether the owner of the
secret took reasonable steps to ensure the secrecy of the information. 18 U.S.C. § 1839(3)(A);
D.C. Code § 36–401(4)(B). Defendants contend that the complaint is devoid of allegations
regarding the steps plaintiff took to ensure the secrecy of the information on the index cards. Def.’s
Mem. at 9–10. They argue that “requiring Rayborn to agree to the confidentiality provision
1 While plaintiff alleges that it maintained confidential information in a Microsoft database,
there is no allegation in the complaint that Rayborn accessed this database and took any of the
information from it to his next position. The only allegation of misappropriated information
involves the index cards that Rayborn took with him. Compl. ¶ 17.
2 The question may be raised again at the summary judgment stage, when the content of the
cards is a matter of record, and one can assess whether the information was available in the public
domain, or as in Hedgeye, the contact information included private information such as “the
identity of key decisionmakers at a firm or those persons’ private email addresses.” 412 F. Supp.
3d at 29–30.
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contained in his ICA is not sufficient by itself to demonstrate efforts to maintain secrecy,” and that
therefore, plaintiff has failed to allege “any policy, procedure, or conduct by TMG to maintain the
secrecy of the alleged confidential information.” Id. But the existence of the ICA is a significant
allegation. The courts have identified the confidentiality agreement as a method for preserving
secrecy that is consistent with trade secret protection. See Catalyst, 350 F. Supp. 2d at 10–11,
aff’d sub nom. Catalyst & Chem. Servs., Inc. v. Glob. Ground Support, 173 F. App’x 825 (Fed.
Cir. 2006) (“Maintaining trade secret status thus requires only reasonable efforts, such as
implementing confidentiality agreements.”). Thus, at this stage, the allegation is enough to show
that TMG took reasonable steps to maintain the confidentiality of the information on the index
cards.
At the summary judgment stage, plaintiff will have to come forward with evidence
regarding the confidentiality of the information on the cards and the efforts that it took to ensure
its secrecy. But for now, plaintiff has plausibly alleged the existence of trade secrets.
B. Whether the Index Cards were Misappropriated
Under the Defend Trade Secrets Act and the D.C. Uniform Trade Secrets Act,
“misappropriation” means either “(A) acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was acquired by improper means; or (B)
disclosure or use of a trade secret of another without express or implied consent by a person.”
18 U.S.C. § 1839(5)(A)–(B); D.C. Code § 36-401(2)(A)–(B). The term “improper means” is
defined to include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty
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to maintain secrecy, or espionage through electronic or other means.” 18 U.S.C. § 1839(6)(A);
D.C. Code § 36-401(1).
The “disclosure or use” category of misappropriation further requires that the discloser or
user:
(i) used improper means to acquire knowledge of the trade secret;
(ii) at the time of disclosure or use, knew or had reason to know that the knowledge
of the trade secret was—
(I) derived from or through a person who had used improper means to
acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to maintain the
secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person
seeking relief to maintain the secrecy of the trade secret or limit the use of
the trade secret; or
(iii) before a material change of the position of the person, knew or had reason to
know that—
(I) the trade secret was a trade secret; and
(II) knowledge of the trade secret had been acquired by accident or mistake.
18 U.S.C. § 1839(5); see D.C. Code § 36-401(2)(B).
In its complaint, plaintiff alleges that the confidential information on the index cards
belonged to it, Rayborn knew and understood this, and that Rayborn retained these index cards
after he was terminated and disclosed the information on them to Broad Street Realty, in violation
of the Independent Contractor Agreement. Compl. ¶¶ 14–15, 21. While defendants insist that
Rayborn created the index cards and that they were his own property, Def.’s Mem. at 10–12; Broad
St. Mot., this is something that they will have to prove in the next phases of litigation. At this
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point, plaintiff has plausibly alleged that defendants misappropriated TMG’s trade secrets, and the
Court will not dismiss these claims.
III. Count II – Tortious Interference with a Contract – will be dismissed without
prejudice.
The elements of a claim of tortious interference with business relations or a contract are:
(1) existence of a contract; (2) knowledge of the contract; (3) intentional interference causing the
breach of the contract, and (4) damages. Banneker Ventures, LLC v. Graham, 798 F.3d 1119,
1134 (D.C. Cir. 2015). The D.C. Court of Appeals has held that a breach per se is not required to
satisfy the third element; a “failure of performance” will suffice. CASCO Marina Dev., L.L.C. v.
D.C. Redevelopment Land Agency, 834 A.2d 77, 84 (D.C. 2003).
Plaintiff alleges the existence of contracts with several clients. Compl. ¶ 21. It also alleges
that Rayborn had knowledge of these contracts and actively contacted and solicited TMG’s clients
to obtain their business. Id. Plaintiff further alleges that certain clients moved their business to
Broad Street Realty, Compl. ¶ 21(a), (f); others “terminat[ed] [their] exclusive agreement with
TMG,” id. ¶ 21(b), (c); and some notified TMG that they were no longer interested in its services.
Id. ¶ 21(d).
Critically, what is missing from plaintiff’s complaint is any allegation that Rayborn
induced any client to not perform a term of a contract with TMG or to breach an existing contract
with TMG. Plaintiff does not specify the terms of any of the contracts at issue – they could have
been terminable at will. Nor does it allege that at the time any client terminated its agreement or
retained Broad Street Realty, it was in breach of or failing to perform a pre-existing obligation.
Without any factual allegations regarding a breach or failure of performance, plaintiff has
not alleged the third element of the claim. See Econ. Research Servs., Inc., 208 F. Supp. 3d at
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229–30 & n.9 (dismissing tortious interference claim where plaintiff failed to allege breach or
failure of performance of the contract). Thus, TMG has failed to state a claim for tortious
interference with a contract, and the Court will dismiss it without prejudice. 3
IV. Count I – Breach of Contract – will move forward in part.
To prevail on a breach of contract claim in the District of Columbia, “a party must establish
(1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a
breach of that duty; and (4) damages caused by breach.” Tsintolas Realty Co. v. Mendez, 984 A.2d
181, 187 (D.C. 2009), citing San Carlos Irrigation & Drainage Dist. v. United States, 877 F.2d
957, 959 (Fed. Cir. 1989); see also Jia Di Feng v. See–Lee Lim, 786 F. Supp. 2d 96, 104 (D.D.C.
2011) (citations omitted).
Both parties agree that a valid contract existed between the parties – the Independent
Contractor Agreement. The dispute centers on whether plaintiff has sufficiently pled facts to
plausibly allege Rayborn’s breach of his duties under the ICA and whether those duties are
enforceable.
Plaintiff alleges that Rayborn violated the confidentiality provision of the ICA. Compl.
¶ 27. That provision states that “Confidential Information” includes, in whole or in part,
“information concerning TMG’s clients and prospective clients, the identity of clients and
prospective customers, identity of key purchasing personnel in the employ of customers and
3 Defendants also argue that plaintiff failed to allege that they engaged in egregious conduct
to secure TMG’s client, Def.’s Mem. at 13–14, but TMG is not required to allege egregious
conduct. Banneker, 798 F.3d at 1136 (“Contrary to [the defendant’s] position, [the plaintiff] need
not allege inducement through egregious means, such as libel, slander, coercion, or
disparagement.”). The D.C. Circuit has explained that inducement “may be any conduct
conveying to the third person the actor’s desire to influence him not to deal with the other,” id.,
citing Restatement (Second) of Torts § 766, comment k (1979), and while such conduct can include
intimidation, it also includes persuasion. Id.
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prospective clients, TMG’s manuals, client lists, canvas cards, formulae, processes, methods,
ideas, improvement, [and] inventions . . . .” Independent Contractor Agreement, Ex. B to Def.’s
Mem. [Dkt. # 9-6] (“ICA”) ¶ 6(a). 4 The ICA specifies that the confidential information is TMG’s
property, and that the Contractor – Rayborn – “agrees not to disclose the Confidential Information
to others or use the Confidential Information to his own advantage or the advantage of others.” Id.
The provision goes on to state that Rayborn will be restrained “from soliciting any client or
potential client of TMG” and that, upon termination of the agreement, he must turn over all of
TMG’s properties, including customer lists and any other confidential information. Id. ¶ 6(b)–(c).
In addition, he promised to not retain any copies of TMG’s property and/or confidential
information. Id. ¶ 6(c).
Plaintiff alleges that Rayborn breached the ICA by (1) “misappropriating and disclosing
confidential proprietary information concerning TMG’s clients and prospective clients” and (2)
“actively soliciting clients and potential clients of TMG.” Compl. ¶ 27.
As to the first breach, Rayborn argues that the claim must fail, because the allegedly
purloined index cards did contain confidential information as defined by the ICA. Def.’s Mem. at
20. He points to the introductory clause in the provision, which states: “Contractor recognizes
4 A motion to dismiss under Rule 12(b)(6) must rely solely on matters within the pleadings,
see Fed. R. Civ. P. 12(d), which includes statements adopted by reference as well as copies of
written instruments joined as exhibits. See Fed. R. Civ. P. 10(c). Documents that a defendant
attaches to a motion to dismiss are “part of the pleadings” under Rule 10(c) if they are referred to
in the complaint and their authenticity is undisputed. See Kaempe v. Myers, 367 F.3d 958, 965
(D.C. Cir. 2004); Hinton v. Corr. Corp. of Am., 624 F. Supp. 2d 45, 46–47 (D.D.C. 2009). The
Court may thus consider those materials on a motion to dismiss without treating the motion “as
one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d); Marshall v. Honeywell Tech.
Sols., Inc., 536 F. Supp. 2d 59, 65 (D.D.C. 2008). Here, the ICA is referred to extensively in the
complaint and both parties attach it to their pleadings, and so the Court may review it without
converting the motion to dismiss to one for summary judgment.
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and acknowledges that in the course of Contractor’s performance hereunder, Contractor may
acquire information which could include . . . client lists, canvass cards . . . (“Confidential
Information.”)” Def.’s Mem. at 20–21, citing ICA ¶ 6(a) (emphasis omitted). Rayborn argues that
the modifier “hereunder” means that any information acquired before the execution of the Contract
on May 29, 2019 is not confidential information; since according to the defense, Rayborn
developed relationships with the clients over his years of employment with TMC, anything noted
on the index cards prior to the execution of the ICA “was not gathered ‘hereunder.’” Id.The Court finds that accepting the allegations in the complaint as true and resolving all
inferences in favor of plaintiff, the complaint plausibly alleges that Rayborn misappropriated
information that was “confidential” as that term is defined in the Agreement, even if one were to
adopt the temporal limitation proposed by defendant, since it alleges that Rayborn had access to
confidential client information “under” the Agreement for a period of approximately six months.
Moreover, the Court is not persuaded that it should conclude as a matter of law at this
stage of the proceedings that the Agreement should be given the strained interpretation advanced
by the defense. The clause at issue introduces the confidentiality provision, but it is not a part of
the definition of the term “Confidential Information,” and there is nothing in the definition that
limits that category of information based upon when the information was first gathered by TMG
or one of its employees. The Agreement states that Rayborn, referred to as “Contractor,”
“recognizes and acknowledges that in the course of Contractor’s performance hereunder,
Contractor may acquire information . . . concerning TMG’s clients . . . .” Id. ¶ 6(a) (emphasis
added). So the paragraph plainly pertains to information to which Rayborn gained access by virtue
of the contractual relationship. Rayborn submits that he collected some or all of that information
and recorded it on the index cards during the course of his previous employment, so he takes the
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position that the data is not covered. Def.’s Mem. at 21. But what he omits is the fact that the
complaint alleges that he was terminated from his employment in May of 2018, so it is a plausible
inference that after that, any access he gained to information written on the cards, no matter when
it was first recorded, was acquired in the course of his performance under the new contractual
relationship. Indeed, the complaint alleges, upon information and belief, that he sought
reinstatement for just that purpose. Compl. ¶ 12.
Further, since plaintiff disputes defendants’ interpretation of the contract, if the Court finds
it to be ambiguous, an examination of extrinsic evidence may be necessary to determine its
meaning. This requires a “deeper factual analysis than is permitted at the motion-to-dismiss
stage.” Pernice v. Bovim, 183 F. Supp. 3d 84, 87–88 (D.D.C. 2016) (denying a motion to dismiss
a breach of contract claim premised on an ambiguous contractual term), citing District of Columbia
v. D.C. Pub. Serv. Comm’n, 963 A.2d 1144, 1155–56 (D.C. 2009) (“[W]here a contract is
ambiguous, . . . the meaning of the language must be evinced from extrinsic evidence on the intent
of the parties—a factual determination.”). So the breach of contract claim will not be dismissed
on its face due to a failure to allege the misappropriation of “confidential” information.
Rayborn also argues that plaintiff has failed to allege any specific damages arising from
the breach, but the complaint alleges that TMG was harmed and suffered damages when its clients
decided to terminate their contracts as a result of Rayborn’s misappropriation of the confidential
information. See Compl. ¶ 21. And, “[u]nder District of Columbia law, . . . Plaintiffs are not
required to allege the damages caused by a breach of contract to survive a Rule 12(b)(6) motion to
dismiss. At this stage, ‘it is enough for the plaintiff to describe the terms of the alleged contract
and the nature of the defendant’s breach.’” Jacobson v. Hofgard, 168 F. Supp. 3d 187, 207,
quoting Francis v. Rehman, 110 A.3d 615, 620 (D.C. 2015) (internal citation omitted).
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As to the second alleged breach of contract – the solicitation of clients and potential clients
– Rayborn argues that this provision of the contract is unenforceable because it unreasonably
restrains trade. Def.’s Mem. at 16.
In the District of Columbia, “[a] promise is unenforceable on grounds of public policy if it
is unreasonably in restraint of trade.” Ellis v. James V. Hurson Assocs., Inc., 565 A.2d 615, 618
(D.C. 1989), citing Restatement (Second) of Contracts § 186 (1981). A promise is “unreasonably
in restraint of trade if (a) the restraint is greater than is needed to protect the promisee’s legitimate
interest, or (b) the promisee’s need is outweighed by the hardship to the promisor and the likely
injury to the public.” Id., citing Restatement (Second) of Contracts § 188. “The extent of the
restraint is a critical factor in determining its reasonableness. The extent may be limited in three
ways: by type of activity, by geographical area, and by time.” Restatement (Second) Contracts
§ 188 cmt. d. Where “the restraint is too broad to be justified by the promisee’s need, a court may
hold it to be unreasonable without the necessity of weighing the countervailing interests of the
promisor and the public. What limits as to activity, geographical area, and time are appropriate in
a particular case depends on all the circumstances.” Id.
The non-solicitation provision of the ICA states: “Contractor further recognizes and
acknowledges that it is essential for the proper protection of the business of TMG that Contractor
be restrained . . . (iii) from soliciting any client or potential client of TMG.” ICA ¶ 6(b). It goes
on to state that the provision “shall survive the termination or expiration of this Agreement.” Id.
¶ 6. The provision does not specify a geographical location, a time period, or type of activity, and
it restrains solicitation to all “potential clients” of TMG without defining that term. The plain
language of the provision would effectively lock Rayborn out of the real estate business
indefinitely.
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Without any limitations to this restrictive covenant, the provision is not tailored narrowly
to protect the promisee’s interests, and it places an unreasonable restraint on Rayborn’s ability to
work in the real estate industry. It is therefore invalid and unenforceable pursuant to public policy.
See Erikson v. Hawley, 12 F.2d 491, 494 (D.C. Cir. 1926) (“Where, by restrictive clauses,
unconscionable advantages have been taken of dependent employees in their contracts of
employment, the courts have always carefully scrutinized them, and have had no hesitancy in
declaring them invalid, where the restriction was not limited as to time and territory, and where,
by their terms, great hardship was placed upon the employee.”) 5; Cf. Morgan Stanley, 150 F. Supp.
2d at 74–75 (finding a non-solicitation covenant reasonable and enforceable where it restricted
competition for one year, unless the defendant worked more than 100 miles outside of Washington,
D.C.); Deutsch v. Barsky, 795 A.2d 669, 677 (D.C. 2002) (finding that a two-year, five-mile radius
restriction of contract was not invalid on its face).
Plaintiff argues that the Court should invoke the “equitable reformation doctrine” and
impose reasonable durational and geographical limits on the non-solicitation provision without
dismissing plaintiff’s claim. Pl. Opp. at 23. The D.C. Court of Appeals adopted this doctrine in
Steiner v. Am. Friends of Lubavitch (Chabad), 177 A.3d 1246, 1257–59 (D.C. 2018), and it sets
forth that a court may make reasonable modifications to an overly broad restrictive covenant. In
adopting this doctrine, though, the Court of Appeals expressed some reluctance. It contrasted the
equitable formation doctrine with another approach – the “blue-pencil” rule, “which allows courts
only to sever overbroad terms where the severable character of the restriction is evident from the
5 Rayborn takes the position that even after he executed the “Independent Contractor
Agreement,” he was still very much an employee of TMG. Def.’s Mem. at 5 n.2. The Court need
not resolve that issue to rule on the particular issues presented in the motion to dismiss.
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terms of the agreement.” Id. at 1256 (internal quotation marks omitted). The equitable formation
doctrine allows courts to enforce a covenant “to the extent that its terms are reasonable, regardless
of grammatical severability.” Id. Ultimately, the Court was “persuaded to adopt equitable
reformation more by the argument that the blue-pencil doctrine can be too rigid and technical an
approach than by any suggestion that courts should be at liberty to wholesale rewrite overbroad
clauses.” Id. at 1258.
In adopting this doctrine, the Court remained “cognizant of the judicial reluctance to
‘rewrite’ contracts between parties . . . and [of] the argument which suggests that partial
enforcement rewards employers who have everything to gain from writing overbroad covenants.”
Id., quoting Ellis, 565 A.2d at 617. It also noted that many courts “review with stricter scrutiny a
decision to reform an agreement to make it reasonable where doing so would require a substantial
rewrite of the contract or where the Court would be called upon to supply essential terms.” Id.In this case, the Court would need to modify the provision to include a geographical scope,
a time limit, a definition of “potential client,” and a more specific delineation of what sort of
conduct is prohibited. This would require the Court to add a number of essential terms to the
existing provision, which would constitute a substantial revision, and neither party has suggested
or agreed to what those terms should be.
The Court also notes that the adoption of the equitable formation doctrine arose in the
unique context of a preliminary injunction. In Steiner, the question before the Court was whether
a noncompete and noninterference clause could be enforced by preliminary injunction after
employment was terminated, and in fashioning a preliminary injunction precluding the promisor
from engaging in certain activity, the trial court modified the noncompete provision. Id. at 1256.
The D.C. Court of Appeals found that the provision could be modified in this context under the
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equitable reformation doctrine, but that the revision was overly broad and remanded the case to
the trial court. Id. at 1257–59, 1262–63. No court in the District of Columbia has modified a
restrictive covenant within a contract to supply a proper foundation for a breach of contract claim
against a former employee.
Thus, the Court finds that it would be improper “to reform a covenant that was not drafted
to properly protect [the employer’s] interest in the first place,” id. at 1259, and it will dismiss the
breach of contract claim to the extent that it is based upon the non-solicitation provision. But, to
the extent the breach of contract claim is based upon the misappropriation and disclosure of
confidential information, the Court will deny defendants’ motion to dismiss.
CONCLUSION
For all the reasons stated above, defendants’ motion to dismiss is granted in part and denied
in part: Count I will move forward to the extent that it is based on the misappropriation and
disclosure of confidential information. Count II will be dismissed. And defendants’ motion to
dismiss Counts III and IV will be denied.
AMY BERMAN JACKSON
United States District Judge
DATE: September 28, 2020
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