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Select Energy Services Inc. v. Mammoth Energy Services, Inc.

United States District Court, W.D. Oklahoma

March 29, 2019




         Before the Court are certain motions to dismiss (Doc. Nos. 20 and 47) filed by Defendants and Plaintiffs' responses thereto. Upon consideration of the parties' submissions, the Court finds as follows.

         Defendants McDonald, Pack, Stover, and Carr, are all former employees of Plaintiff Crescent Services, an indirect subsidiary of Plaintiff Select Energy Services. Plaintiffs provide “end-to-end water management solutions to oil and gas producers in Oklahoma and other states.” (Amended Complaint, ¶ 4). Plaintiffs allege that, in violation of certain employment and confidentiality/non-solicitation agreements, its former employees, Defendants McDonald, Pack, Stover, and Carr, downloaded or otherwise obtained confidential information, specifically certain of Plaintiffs' trade secrets, and misappropriated those trade secrets, specifically by providing them to their current employer, Defendant Aquahawk, which is a subsidiary of Defendant Mammoth. Defendants seeks dismissal of Plaintiffs' federal Defend Trade Secrets Act (“DTSA”) claims, asserting that the Court lacks subject matter jurisdiction over this action because Plaintiffs' DTSA cause of action is not sufficiently pled, there are no additional federal claims, and the parties are not diverse. Defendants additionally contend that certain of Plaintiffs' state law claims are insufficiently pled, and alternatively request that the Court decline to exercise supplemental jurisdiction over the state law claims or abstain from consideration thereof in light of pending litigation between certain of these same parties in the District Court of Oklahoma County related to the validity and enforceability of employment agreements between the individual Defendants and Plaintiffs or their predecessors.

         Defendants rely on Rule 12(b)(1) for the instant motion, asserting a lack of subject matter jurisdiction because Plaintiff's DTSA claim is not sufficiently alleged in the Amended Complaint. Different standards apply to a motion to dismiss based on lack of subject matter jurisdiction under Rule 12(b)(1) and a motion to dismiss for failure to state a claim under Rule 12(b)(6). Muscogee (Creek) Nation v. Pruitt, 669 F.3d 1159, 1167 (10th Cir. 2012). Although Defendants contend that Plaintiffs' only federal claim is insufficiently pled, this alleged failure does not deprive this Court of jurisdiction; rather, the motion should be considered under Rule 12(b)(6).

         Jurisdiction ... is not defeated ... by the possibility that the averments might fail to state a cause of action on which petitioners could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be granted is a question of law[, ] and just as issues of fact[, ] it must be decided after[, ] and not before[, ] the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction.

Id. at 1167-68 (quoting Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946)).As stated by the court in Harris v. Owens, 264 F.3d 1282, 1289 (10th Cir. 2001), “[i]f the federal claim is not wholly frivolous, it suffices to establish federal jurisdiction even if it ultimately is rejected on the merits.” (citing Martinez v. United States Olympic Comm., 802 F.2d 1275, 1280-81 (10th Cir.1986)). Accordingly, a conclusion by the Court that Plaintiffs failed to state a claim would not deprive the Court of subject matter jurisdiction, and consideration of the instant motion is governed entirely by the familiar standard applicable to motions under Rule 12(b)(6) set forth in Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).[1]

         When assessing whether a complaint “fails to state a claim upon which relief may be granted, ” the Court must determine whether the complaint contains “sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.' Iqbal, 556 U.S. at 678(quoting Twombly, 550 U.S. at 570). The Court accepts the Plaintiffs' well-pled factual allegations as true and views them in the light most favorable to the Plaintiffs.United States v. Smith, 561 F.3d 1090, 1098 (10th Cir. 2009). The Court, however, is not required to accept legal conclusions alleged in the complaint as true. Iqbal, 556 U.S. at 678. “Thus, mere ‘labels and conclusions' ... will not suffice” to state a claim. Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012) (quoting Twombly, 550 U.S. at 555).[2]

         Under the DTSA, “[a]n owner of a trade secret that is misappropriated may bring a civil action ... if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Generally speaking, a trade secret is information that derives economic value from not being generally known that is subject to reasonable measures of secrecy by it owners. See 18 U.S.C. § 1839(3). The statute identifies some examples, provided they meet the above criteria:

all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically . . . .

Id. The Act permits an owner to recover for the “misappropriation” of a trade secret, which includes both acquisition, disclosure, and use of such. 18 U.S.C. §§ 1839(5).

         Plaintiff's Amended Complaint treats the Defendants as both individuals and collective entities. That is, certain allegations are levied against the four individual former employees, who are also referenced throughout the Amended Complaint collectively as “Former Employees.” Similarly, the two corporate Defendants are often referenced as a single entity and are also subject to allegations with the individuals as a collective entity known as the “Mammoth Group.” Of course, for an individual former employee to be liable under the DTSA, Plaintiffs must allege sufficient facts against that employee individually and the same holds true for a corporate Defendant. Much like in the context of litigation under 42 U.S.C. § 1983 where there are multiple Defendants, “it is particularly important . . . that the complaint make clear exactly who is alleged to have done what to whom.” Robbins v. Oklahoma, 519 F.3d 1242, 1250 (10th Cir. 2008). Here it is important that Plaintiffs plead, with regard to each Defendant, that the Defendant misappropriated a trade secret. As the court noted in a case involving a single former employee and a number of allegedly misappropriated trade secrets:

Upon review of the allegations made in support of the trade secrets claims, the court has determined that there are allegations which satisfy each of the elements of the claims challenged by the Defendants. What is not clear, however, is whether the allegations for each element apply consistently to the same categories of trade secrets.

Southern Field Maintenance & Fabrication LLC v. Killough, No. 2:18-cv-581-GMB, 2018 WL 4701782 (M.D. Ala. October. 1, 2018). The Court has combed through the Amended Complaint and the parties' briefs on the motion to dismiss and concludes that Plaintiffs have sufficiently alleged at least one claim for misappropriation against each of the four individual Defendants and the corporate Defendants. Certain of Plaintiffs' alleged trade secrets claims, however, are insufficiently pled and therefore cannot survive the instant motion.

         In order to plead a claim for violation of the DTSA, a plaintiff must allege that it lawfully owned information of independent economic value that it took reasonable measures to keep secret, and that the defendant under consideration either acquired, disclosed, or used, improperly.[3] 18 U.S.C. § 1839; See Southern Field Maintenance & Fabrication, 2018 WL 4701782 at *2. Defendants contend that Plaintiffs fail to sufficiently allege trade secrets, reasonable measures to keep such secrets, and misappropriation of any trade secret. Defendants also challenge Plaintiffs' standing to seek relief under the DTSA with regard to rig schedules, because those schedules belong to Plaintiffs' clients.

         Plaintiffs do not argue ownership of the rig schedules. Rather, they assert that “[t]he trade matter misappropriated is the compilation of the information which was acquired over time and through the expenditure of a significant amount of labor, skill and money by the S e l e c t P a r t i e s . ” (D o c . N o . 4 9, p . 5) . A l t h o u g h 1 8 U.S. C . § 1 8 3 6 (b)(1) includes compilations in the definition of trade secret, Plaintiffs' explanation does not establish how a rig schedule, one of the items in Plaintiffs' litany of allegedly misappropriated trade secrets, could support their DTSA claim, when only owners of trade secrets may seek relief under the Act. The Court finds that Plaintiffs' allegations related to rig schedules are insufficient to establish that Plaintiffs were the owners of such so as to permit trade secret protection.[4]The Court finds herein that Plaintiff's allegations that one or more Defendants misappropriated rig schedules fails to state a claim, because Plaintiffs have not alleged that they owned the schedules or any information therein, which was provided by Crescent's clients. See e.g. Amended Complaint, ¶ 57.

For a complaint alleging violation of the DTSA to survive a motion to dismiss under Rule 12(b)(6), a plaintiff must identify the purported trade secrets, but it may do so generally to avoid publicly disclosing the information in its court filings. See Mission Measurement Corp. v. Blackbaud, Inc., 216 F.Supp.3d 915, 920-21 (N.D. Ill. 2016) (holding that a complaint was well-pleaded when it identified the purported trade secrets as including “business models, ... business plans, and product development plans”). Here, Wells Lamont alleges that Mendoza was exposed to confidential information such as “customer account information, product summaries, pricing sheets, product prototypes, product designs, and detailed sales reports, ” FAC ¶ 25, and that he took “substantial amounts” of this information with him to Radians once he resigned from Wells Lamont, Id. ¶ 27. These allegations are sufficient to state a DTSA claim. E.g., SleekEZ, LLC v. Horton, CV 16-09-BLG-SPW-TJC, 2017 WL 190695, at *4 (D. Mont. Apr. 21, 2017) (holding that the allegations were adequate when the complaint generally described the information as its “industry contacts and customers[ ] and its marketing and business strategies”); Aggreko, LLC v. Barreto, No. 1:16-CV-353, 2017 WL 963170, at *2 (D. N.D. Mar. 13, 2017) (holding that a complaint's allegations were adequate when they described the trade secrets as “including customer lists and information regarding [the plaintiff's] operations, customers, business proposals, pricing strategy, client preference and history, and proprietary pricing models”)

Wells Lamont Indus. Grp. LLC v. Richard Mendoza & Radians, Inc., No. 17 C 1136, 2017 WL 3235682, at *3 (N.D. Ill. July 31, 2017).

In this case, Plaintiff alleges Defendant “accessed CLS' proprietary and confidential electronic data” including Plaintiff's [ ] financial statements, customer lists, and sales records, which are kept on Plaintiff's “secure and protected computer system.” R. Doc. 98 at ¶ 98. Moreover, Plaintiff alleges it “maintains its Confidential Information as confidential within CLS and does not share this information outside of CLS, ” R. Doc. 98 at ¶ 38, which Plaintiff alleges makes the information “highly valuable.” Id. at ¶ 39. Finally, Plaintiff alleges it “derives a competitive advantage and independent economic value, both actual and potential, from the Confidential Information, because the Confidential Information is not generally known to the public or to others who can obtain economic value from its disclosure or use.” The Court finds Plaintiff has sufficiently alleged the existence of a trade secret.

Complete Logistical Services, LLC v. Ruth, 350 F.Supp.3d 512, 519 (E.D.La. 2018); see also Inmar, Inc. v. Vargas, No. 18-cv-2306, 2018 WL 6716701, at *3 (N.D. Ill.Dec. 21, 2018)(finding allegations that former employee misappropriated business development plans for existing clients, Plaintiffs' pricing and marketing strategies, lead sources, client lists, position in the market, and research dossiers sufficient to avoid dismissal).

A robust consensus of district courts within the Third Circuit have held that a party alleging misappropriation in violation of PUTSA need not describe trade secrets with particularity to survive Rule 12 scrutiny. Certainteed Ceilings Corp. v. Aiken, No. 14-3925, 2015 WL 410029, at *5 (E.D. Pa. Jan. 29, 2015); Mattern & Assocs., LLC v. Latham & Watkins LLP, No. 13-6592, 2014 WL 4804068, at *3 (E.D. Pa. Sept. 26, 2014); Synthes, Inc. v. Emerge Med., Inc., No. 11-1566, 2012 WL 4205476, at *27 (E.D. Pa. Sept. 19, 2012) (collecting cases). . . . In the two years since the DTSA's enactment, district courts across the country have applied a similar standard to federal misappropriation claims at the Rule 12 stage. See, e.g., Alta Devices, Inc. v. LG Elecs., Inc., No. 18-CV-404, 2018 WL 5045429, at *8 (N.D. Cal. Oct. 17, 2018); S. Field Maint. & Fabrication LLC v. Killough, No. 2:18-CV-581, 2018 WL 4701782, at *3-4 (M.D. Ala. Oct. 1, 2018) (citing Wells Lamont Indus. Grp. LLC v. Richard Mendoza & Radians, Inc., No. 17-1136, 2017 WL 3235682, at *3 (N.D. Ill. July 31, 2017)); see also Chubb Ina Holdings Inc. v. Chang, No. 16-2354, 2017 WL 499682, at *10 (D.N.J. Feb. 7, 2017).

Magnesita Refractories Co. v. Tianjin New Century Refractories Co., No. 1:17-CV-1587, 2019 WL 1003623, at *9 (M.D. Pa. Feb. 28, 2019). Additionally, “the question of whether certain information constitutes a trade secret ordinarily is best ‘resolved by a fact finder[.]'” Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 723 (7th Cir. 2003) (quoting Lear Siegler, Inc. v. Ark-Ell Springs, Inc., 569 F.2d 286, 289 (5th ...

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