DocketNumber： Case No. 12-CV-346-JHP
Filed Date： 3/16/2016
Status： Precedential
Modified Date： 10/18/2024
OPINION AND ORDER
James H. Payne, United States District Judge, Eastern District of Oklahoma
Before the Court are Defendant’s Motion to Dismiss or For Judgment as a Matter of Law (Doc. No. 77) and Plaintiffs Response in Opposition (Doc. No. 81). After consideration of the briefs, and for the reasons stated below, Defendant’s Motion to Dismiss or For Judgment as a Matter of Law is DENIED.
BACKGROUND
Plaintiff Pre-Paid Legal Services, Inc., now known as LegalShield,
According to the Petition, Defendant Todd Cahill (“Cahill”) became a LegalSh-ield associate in 2004. (Id. ¶ 7). Cahill was promoted to Regional Manager in 2008, and by 2011, he had risen to the position of Regional Vice-President of Illinois. (Id. ¶¶ 9-10). In his 2004 Associate Agreement, Cahill agreed that the identity of associates in his downline is “confidential, proprietary information that belongs to [LegalShield],” and he agreed not to “proselytize, recruit or solicit in any manner any [LegalShield] Associate ... into
In August 2012, Cahill left LegalShield and joined Nerium International (“Neri-um”). As he prepared to leave LegalShield, Cahill allegedly contacted his downline associates to solicit them to join Nerium. (Id. ¶¶ 13-16). At a meeting of Cahill’s downline associates on August 9, 2012, which Cahill organized under false pretenses of conducting LegalShield business, he allegedly urged the associates to e-mail him or look at his Facebook page to find out where he was going. (Id. ¶ 13). He also allegedly made disparaging and untrue statements about LegalShield at the meeting to lure them away from LegalShield to another company. (Id.). Immediately prior to that meeting, Cahill also allegedly “targeted and solicited” another LegalShield Regional Manager to join Nerium and disparaged LegalShield, its management, and its compensation plan. (Id. ¶ 14). Cahill also allegedly posted information about Nerium on a Facebook group site established for the leaders in Cahill’s LegalShield organization, with knowledge that the members of that group were LegalShield associates and with the intent that those associates join Nerium. (Id. ¶ 16).
LegalShield filed this action against Ca-hill in the District Court of Pontotoc County on August 14, 2012, asserting claims for breach of contract, misappropriation of trade secrets, and tortious interference with contract or business relations. (See Doc. No. 2-1). While the case was pending in state court, LegalShield obtained a Temporary Restraining Order that prohibited Cahill from (1) contacting LegalShield associates to directly or indirectly solicit or encourage them to join Cahill in a new company or leave LegalShield for the eventual purpose of joining a new organization or (2) using trade secret information of LegalShield for any other purpose. (See Doc. No. 8-1).
Cahill then removed the action to this Court based on diversity jurisdiction. (Doc. No. 2). LegalShield sought a preliminary injunction from this Court, which the Court referred to Magistrate Judge Steven Shreder. On January 22, 2013, Magistrate Shreder issued a Report and Recommendation (“R & R”), which recommended that a preliminary injunction should issue barring Cahill “from initiating contact with [LegalShield] sales associates in an effort to solicit them to join Nerium.” (Doc. No. 31, at 15). The Magistrate did not recommend an injunction should issue prohibiting Cahill from using LegalShield’s trade secrets, because the Magistrate found Le-galShield did not have evidence that Cahill was in possession of LegalShield’s trade secrets at that time. (Id. at 10). The Magistrate further recommended that Cahill’s unopposed Motion to Stay Pending Arbitration be granted. This Court affirmed and adopted the R & R on February 12,
On July 24, 2015, Cahill moved to dismiss the Petition pursuant to Federal Rule of Civil Procedure 12(b)(6) or 12(c). (Doc. No. 77).
DISCUSSION
In considering a Rule 12(b)(6) motion, the court must accept all well-pleaded allegations of the complaint as true, and must construe them in the light most favorable to the plaintiff. See Anderson v. Merrill Lynch Pierce Fenner & Smith, Inc., 521 F.3d 1278, 1284 (10th Cir.2008). To withstand a motion to dismiss, a complaint must contain enough allegations of fact “to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The plaintiff bears the burden to frame “a complaint with enough factual matter (taken as true) to suggest” that he or she is entitled to relief. Twombly, 550 U.S. at 556, 127 S.Ct. 1955. “A pleading that offers ‘labels and conclusions’ or a formulaic recitation of the elements of a cause of action will not do.’ ” Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of further factual enhancement.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955).
“A motion for judgment on the pleadings under Rule 12(c) is treated as a motion to dismiss under Rule 12(b)(6).” Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir.2000) (citing Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528 (10th Cir.1992)).
I. Breach of Contract (First Cause of Action)
Cahill asserts several arguments challenging the viability of LegalShield’s breach of contract claim. The Court will address each argument separately.
A. The Associate Agreement is Not Illusory as a Matter of Law
First, Cahill argues LegalShield’s contract-based claim fails because the Associate Agreement is illusory and therefore void. Paragraph 23 of the Associate Agreement reads in relevant part: “these Policies and Procedures may be amended from time to time by [LegalShield] by publication in a means reasonably available to Associates generally, including by publication in periodic communications to Associates or on the [LegalShield] website.” (Doc. No. 77-1, ¶ 23).
Here, Cahill promised in the Associate Agreement to serve as a sales associate for LegalShield, while LegalShield promised to pay Cahill for his work during the term of .the Agreement. Further, LegalShield’s right to modify its policies and procedures did not render the Agreement illusory, because Cahill retained the right to reject LegalShield’s modifications by terminating the Agreement. See Carroll, 658 F.3d at 683 (finding unilateral modification provision not illusory where employee had an opportunity to accept new terms by continuing to work for the company); Hancock v. Am. Tel. & Tel. Co., 2011 WL 3629226, at *4 n. 16 (W.D.Okla. Aug. 11, 2011) (finding defendants’ right to unilaterally modify Terms of Service did not render agreement illusory where agreement required notice to customers of any material changes and customers could cancel if they did not agree to such changes).
LegalShield’s right to modify the contract was also subject to a notice requirement, which Oklahoma courts have found to be a reasonable limitation on a party’s unilateral right to modify. See Wilson v. Gifford-Hill & Co., 570 P.2d 624, 626 (Okla.Civ App.1977) (“[W]here notice of cancellation is required the promisor is bound sufficiently so that his promise to
Moreover, as LegalShield points out, Magistrate Shreder has already rejected Cahill’s argument here in a similar case involving the same defense counsel—Prepaid Legal Services, Inc. v. Moore, Case No. CIV-13-215-SPS (E.D. Okla. March 27, 2015). In that case, Magistrate Shreder held, “the relevant notice provisions in the Associate Agreement coupled with their implied duty of good faith and fair dealing indicate that the Agreement was not illusory.” Id. at 3 (citing Carroll, 658 F.3d at 683). Cahill has not attempted to distinguish Judge Shreder’s conclusion in Moore regarding the enforceability of the same amendment clause at issue here, and the Court sees no reason to reach a different conclusion. Accordingly, the Court concludes Paragraph 23 of the Associate Agreement does not render the agreement illusory as a matter of law.
B. LegalShield Plausibly Alleges a Claim for Breach of the Associate Agreement
Second, Cahill argues there is insufficient evidence on the record to show that Cahill solicited LegalShield associates in violation of the Associate Agreement.
Cahill argues “solicitation” requires a one-on-one “first contact” initiated by the solicitor for the explicit purpose of convincing a particular solicitee to do a particular thing, citing Black’s Law Dictionary. Cahill argues his conduct, including putting a general announcement on Facebook about Nerium, is not, by definition, “solicitation” of any particular person. Cahill relies on Magistrate Shreder’s R & R findings on the request for preliminary injunction, in which Magistrate Shreder stated, “Defendant’s actions in this case are less explicitly inviting professional interest in Nerium than the act of posting a job opportunity on a social networking page that could, and likely would, be viewed by employees.” (Doc. No. 31 (R & R), at 18).
Even if Cahill is correct in his reading of the term “solicitation” (which LegalShield disputes), it remains a question of fact whether Cahill made the first contact with his associates, as LegalShield alleges. (See Doc. No. 2-1, ¶ 13). On a motion to dismiss,
Moreover, it is inappropriate to dismiss LegalShield’s claims based on evidence presented at the preliminary injunction hearing. By its nature, a preliminary injunction decision is not conclusive with respect to subsequent findings at summary judgment and trial. See Attorney Gen. of Oklahoma v. Tyson Foods, Inc., 565 F.3d 769, 776 (10th Cir.2009) (“Because preliminary injunctions are ‘customarily granted on the basis of procedures that are less formal and evidence that is less complete than in a trial on the merits,’ we do not require a moving party to ‘prove his case in full at a preliminary injunction hearing.’ ”) (quoting Univ. of Tex. v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 68 L.Ed.2d 175 (1981)). See City of Chanute, Kan. v. Williams Nat. Gas Co., 955 F.2d 641, 649 (10th Cir.1992) (“In a summary judgment proceeding, the district court is not bound by its prior factual findings determined in a preliminary injunction hearing.”), overruled on other grounds by Systemcare, Inc. v. Wang Lab. Corp., 117 F.3d 1137 (10th Cir.1997). Accordingly, Ca-hill’s reliance on the R & R (Doc. No. 31) with respect to the factual findings on solicitation is misplaced.
In any event, LegalShield alleges improper solicitation conduct that extends beyond general Facebook posts and passively permitting sign-ups. The Petition additionally alleges Cahill organized a “mastermind” meeting of LegalShield leaders on false pretenses for the purpose of recruiting them to join Nerium. (Doc. No. 2-1, ¶ 13). The Petition further alleges Cahill directly contacted a LegalShield Regional Manager to encourage him to join Nerium. (Id. at ¶¶ 14-15). Cahill does not address these allegations in his brief. Le-galShield’s allegations, taken as true, adequately support LegalShield’s claim for breach of the non-solicitation clause of the Agreement. Accordingly, the Court denies Cahill’s motion on this ground.
C. The Non-Solicitation Clause Is Governed by Oklahoma Law
Third, Cahill argues California law should govern the Associate Agreement, because Cahill was a California resident when he entered into the agreement. Because the non-solicitation clause cannot be enforced against him under California law, Cahill argues, LegalShield’s breach of contract claim should be dismissed.
The Court can discern no reason why California law should apply to the Associate Agreement. Cahill offers no authority in support of his argument that California law should apply over the agreement’s Oklahoma choice of law provision. (See Doc. No. 77-1, at ¶ 23 (“The Associate Agreement and Policies and Procedures will be governed by and construed in accordance with the laws of the State of Oklahoma.”)). Cahill himself acknowledges “the Associate Agreement has an Oklahoma choice of law clause.” (Doc. No. 77, at 12). Further, Oklahoma law allows parties to a contract to choose which state’s laws govern their agreement, Harvell v. Goodyear Tire & Rubber Co., 164 P.3d 1028, 1033-34 (Okla.2006), and Oklahoma will enforce the choice of law provision when it is clear and unambiguous. See Fossil Creek Energy Corp. v. Cook’s Oilfield Servs., 242 P.3d 537, 542 (Okla.Civ.App.2010) (“Where the language of a con
II. Misappropriation of Trade Secrets (Second Cause of Action)
Cahill next argues LegalShield has not plausibly alleged a claim for misappropriation of trade secrets under the Oklahoma Uniform Trade Secrets Act (“OUTSA”), Okla. Stat. tit. 78, § 85 et seq. Specifically, Cahill argues that “LegalShield has not pled sufficient facts to state a plausible claim that any particular information was a trade secret, much less that Cahill used that secret to LegalShield’s detriment.” (Doc. No. 77, at 14). The Court disagrees. To state a claim for misappropriation of a trade secret under the OUTSA, LegalShield must allege (1) the existence of a trade secret; (2) misappropriation of the trade secret by Cahill; and (3) use of the secret to LegalShield’s detriment. See, e.g., MTG Guarnieri Mfg., Inc. v. Clouatre, 239 P.3d 202, 209 (Okla.Civ.App.2010). Here, LegalShield alleges a trade secret existed in the form of the names and contact details of its associates. (Doc. No. 2-1, ¶¶ 4-6, 24). LegalShield alleges Cahill misappropriated that secret by soliciting LegalShield associates to join Nerium. (Id. ¶¶ 13, 25). LegalShield also alleges it suffered damages as a result of Cahill’s misappropriation of that secret, from which LegalShield derives independent economic value. (Id. ¶¶ 24-26). These allegations suffice to state a plausible claim for violation of the OUTSA. Whether LegalShield’s associate information in fact qualifies as a “trade secret” under the OUTSA is not properly before the Court at this stage of litigation, as Cahill acknowledges. (See Doc. No. 77, at 14 (“the determination of whether specific information qualifies as a trade secret involves a factual inquiry.”)).
Cahill cites MTG Guarnieri Manufacturing., Inc. v. Clouatre, 239 P.3d 202, 210 (Okla.Civ.App.2010), and the cases cited therein, in support of his argument against plausibility. (Doc. No. 77, at 14). The Court, however, fails to see how MTG supports Cahill’s argument. To the contrary, MTG demonstrates that whether information constitutes a trade secret under the OUTSA is a question of fact, which is not properly decided on a motion to dismiss. In MTG, the appeals court reversed the lower court’s grant of summary judgment, in part because a question of fact remained whether the company’s methods, systems, and processes qualified as protected trade secrets. Id. at 210-11. The cases cited in MTG do not support a different conclusion.
In a separate section of his brief, Cahill asserts this claim is insufficiently pleaded, because LegalShield fails to enumerate
Cahill also argues LegalShield’s claim for misappropriation of trade secrets fails as “conclusively disproven.” In this regard, Cahill argues Magistrate Shreder found in his R & R that there was “no violation prior to the injunction hearing except the alleged solicitation of Mike Cabradilla from which there were no damages.” (Doc. No. 77 (Motion), at 16). Based on the R & R findings, Cahill asks the Court to (1) dismiss the case; (2) strike Paragraphs 12 through 16 and 24 from the Petition and grant Cahill judgment as a matter of law based on the remaining allegations; or (3) restrict this case to the time period between August 12, 2012, and August 11, 2014, because an injunction has been in place in LegalShield’s favor for the last two years. As discussed above, however, the Court may not consider evidence obtained at a preliminary injunction hearing when evaluating a motion to dismiss. Accordingly, the Court declines to grant Ca-hill his requested relief, and Cahill’s request to dismiss this claim is denied.
III. Punitive Damages and. Attorney’s Fees Under the OUTSA
Next, Cahill argues LegalShield has not alleged a plausible claim of entitlement to punitive damages and attorney’s fees for its misappropriation of trade secrets claim pursuant to the OUTSA. As Cahill acknowledges, however, a court may award a party both punitive damages and attorney’s fees under the OUTSA if the misappropriation is proven to be “willful and malicious.” Okla. Stat. tit. 78, §§ 88(B), 89(3). Cahill asserts the Petition fails to allege the misappropriation was either willful or malicious, or that Cahill even used any “trade secret.” The Court disagrees. The Petition alleges Cahill’s misappropriation of LegalShield’s trade secret was knowing, deliberate, and undertaken by using false pretenses, all of which amount to willful and malicious conduct. (See Doc. No. 2-1, ¶¶ 13-16, 27). If those allegations are proven, LegalShield may be entitled to fees and punitive damages under the OUTSA. Accordingly, Cahill’s motion to dismiss these damage claims is denied.
IV. Validity of the “Debit Balance” and “Forfeiture” Clauses
Finally, Cahill argues LegalShield’s collection of Cahill’s debit balance upon his termination is punitive. Cahill also argues the “forfeiture” provision in the Associate Agreement is unenforceable under Oklahoma law, because it acts as a penalty clause. Paragraph 13 of the Associate Agreement reads:
Any sums advanced to the Associate shall create a debit balance which will be a loan to the Associate from [LegalSh-ield]. This balance will normally be repaid by withholding earned commissions, including renewals, but the Associate is ultimately liable for repayment upon demand by [LegalShield].
(Doc. No. 77-1, ¶ 13). LegalShield may terminate an Associate “for actions or state
Cahill is correct that contractual penalty clauses are generally void unless they satisfy the requirements for valid liquidated damages clauses, as stated in Sun Ridge Investors Limited v. Parker, 956 P.2d 876, 878 (Okla.1998). See Okla. Stat. tit. 15, §§ 213-15 (providing that penalty clauses are void under Oklahoma law unless they satisfy the statute on liquidated damages). However, Cahill’s arguments are irrelevant to this motion under Rule 12(b)(6) or Rule 12(c). Here, the appropriate question for resolution is whether the complaint alleges a plausible claim for relief. Instead, Cahill addresses the question of whether LegalShield can collect its debit balance from Cahill, which is not even alleged in LegalShield’s complaint.
Whether LegalShield can collect damages from Cahill for breach of contract in addition to Cahill’s debit balance is an issue not yet ripe for review, nor is the question of whether Cahill is entitled to a set-off of his commissions earned after his termination against his debit balance. Le-galShield has not sought recovery of the debit balance in its pleadings, and the Court will not address a claim not raised in the complaint. Even if, as Cahill asserts, the claim “will surely be added to the Petition by amendment” (Doc. No. 77, at 1 n.l), it would be premature for the Court to address such a hypothetical claim. Accordingly, Cahill’s arguments regarding the enforceability of the “debit balance” and “forfeiture” clauses do not merit further consideration at this stage of the case.
CONCLUSION
For the reasons detailed above, Defendant Cahill’s Motion to Dismiss or For Judgment as a Matter of Law is (Doc. No. 77) is DENIED.
IT IS SO ORDERED this 16th day of March, 2016.
. For ease of reference, the Court will use the name "LegalShield” to refer to Plaintiff throughout this Opinion and Order.
. The Court notes that Cahill's brief, though requesting dismissal of the entire Petition, does not directly address LegalShield's third cause of action, for tortious interference with contract or business relations. Accordingly, that claim remains for resolution.
. Cahill does not explain why he seeks alternative relief pursuant to Federal Rule of Civil Procedure 12(c), as the pleadings had not yet closed at the time of filing his motion. Because the standard of review is the same under either Rule 12(b)(6) or 12(c), however, the Court will not examine this issue further.
. Although the blank Associate Agreement with Policies and Procedures (Doc. No. 77-1) was not attached to LegalShield's Petition, it is central to LegalShield’s claims and referred to throughout the Petition, and LegalShield does not dispute its authenticity. Accordingly, the Court may consider it without converting the motion to one for summary judgment. See Pace, 519 at 1072.
. Although the header on this section of Ca-hill’s brief indicates he is challenging the enforceability of the non-solicitation clause as overly broad under Oklahoma law, the body of this section does not develop the enforceability argument at all. Regarding this discrepancy, LegalShield suggests Cahill left the header in his brief in error. Cahill did not respond to LegalShield's suggestion or offer any clarification. Accordingly, the Court will not address the enforceability of the non-solicitation clause under Oklahoma law.
. To the extent Cahill is arguing a judgment of this Court would be unenforceable against him in California, Cahill misapprehends the law. Even if California public policy would prohibit enforcement of the Associate Agreement’s non-solicitation clause in California, California would nonetheless be obliged to "give full faith and credit to a sister state judgment, regardless of the forum state’s public policy on the underlying claim.” Metro. Creditors Serv. v. Sadri, 15 Cal.App.4th 1821, 1824, 19 Cal.Rptr.2d 646 (1993) (citing Fauntleroy v. Lum, 210 U.S. 230, 28 S.Ct. 641, 52 L.Ed. 1039 (1908)).