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Henry F. Coffeen III Management, Inc. v. Branch

United States District Court, D. New Mexico

September 25, 2017



          M. CHRISTINA ARMIJO Chief United States District Judge.

         THIS MATTER is before the Court on two Motions to Dismiss submitted by Defendants Mike Godin and Godin Dealer Services, LLC (GDS) [Doc. 11] and Defendants Tate Branch and Tate Branch Automotive Enterprises, LLC, [Doc. 8, 9] (collectively, Defendants) as well as the Opposed Motion for Leave to File an Amended Complaint filed by Plaintiff Henry Coffeen III Management d/b/a Coffeen Management Company (CMC). [Doc. 16] The Court has considered the parties' submissions and the relevant law, and is otherwise fully informed. For the following reasons, the Court GRANTS Plaintiff's Opposed Motion for Leave to File an Amended Complaint. Grant of that motion renders the Defendants' Motions to Dismiss moot. Both Motions therefore shall be DENIED as moot.

         I. Background

         The following facts are taken from Plaintiff's First Amended Complaint, the allegations in which, for purposes of the present Motions, the Court takes as true. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). CMC is a Texas corporation “engaged in the highly competitive business of marketing revenue-enhancement products and process-development strategies, including management consulting services, to automobile, power sports, and recreational vehicle dealerships through the United States.” [Doc. 16-2, First Amended Complaint, ¶¶ 1, 8] CMC “sells revenue-generating finance, insurance, and warranty products to its clients through sales personnel.” [Doc. 16-2, First Amended Complaint, ¶ 10] One of the products CMC sells as an agent is called “Warranty Forever®”. [Doc. 16-2, First Amended Complaint, ¶ 32]

         Thomas “Bear” Musgrave, IV, Christina Morton, and Richard Dewese (the Employees) were employees and/or officers of CMC until they resigned in December, 2015 (Musgrave) and January, 2016 (Morton and Dewese). [Doc. 16-2, First Amended Complaint, ¶¶ 17, 25, 28, 56, 58, 60] Defendant Tate Branch Automotive Enterprises, d/b/a Tate Branch Auto Group (TBAG) is a New Mexico limited liability company that owns three automobile dealerships in Artesia, Carlsbad, and Hobbs, New Mexico. [Doc. 16-2, First Amended Complaint, ¶ 3] TBAG was a customer of CMC's beginning in September, 2014, and generated close to $400, 000 in annual gross revenue to CMC. [Doc. 16-2, First Amended Complaint, ¶¶ 32, 39] After they left CMC, the Employees began working for TBAG. [Doc. 16-2, First Amended Complaint, ¶ 60] Scott Baez (Baez) worked for CMC until March, 2015, when he began working for TBAG. [Doc.16-2, First Amended Complaint, ¶¶ 31, 34] Prior to September, 2014, TBAG had been doing business with Defendant GDS, a New Mexico limited liability company. [Doc. 16-2, First Amended Complaint, ¶¶ 5, 33]

         The present action arises from a series of events occurring around the time that Employees left CMC to work for TBAG. In 2015, the Employees learned of an opportunity to purchase the Permian Auto Group and communicated the opportunity to Branch and CMC. [Doc. 16-2, First Amended Complaint, ¶¶ 41-45] Together, the Employees, Branch, and CMC developed a plan to “share in the ownership” of the Permian Auto Group, but the Employees, Branch, and Baez decided later to cut CMC out of the ownership. [Doc. 16-2, First Amended Complaint, ¶¶ 45-46] Having made this decision, “these individuals began discussing how Branch and/or TBAG could terminate TBAG's business relationship with CMC and either: (1) establish a new business directed at providing products and services that were comparable to what CMC was already providing to TBAG; or (2) align[] with a competitor of CMC's to obtain replacement products.” [Doc. 16-2, First Amended Complaint, ¶ 47] “The plan was discussed in the context of a joint venture between Branch, Godin, Musgrave, Morgan and Dewese, in which each would profit from the venture.” [Doc. 16-2, First Amended Complaint, ¶ 55] In December, 2015, the Employees met with Branch, Baez, and Godin and brought to the meeting “copies of the non-compete agreements they had signed with CMC and there was discussion with Godin and Branch about how to work around the non-disclosure and non-compete provisions in those agreements during implementation of the plan. [The Employees] were still working for CMC at the time of the December, 2015 meeting.” [Doc. 16-2, First Amended Complaint, ¶ 54]

         When CMC learned, in December, 2015, that Musgrave had contacted TBAG “in an apparent effort to divert business from CMC, ” it sent letters to Musgrave and Morgan “reminding them of their contractual obligations under their non-compete agreements with CMC.” [Doc. 16-2, First Amended Complaint, ¶¶ 58-59] On December 30, 2015, CMC filed a petition in a Texas district court for a temporary restraining order and permanent injunction seeking to enjoin Musgrave and Morgan from using or disclosing any of CMC's confidential information and trade secrets. [Doc. 11-1, pg. 21; Doc. 16-2, First Amended Complaint, ¶ 64] On February 1, 2016,

a temporary restraining order was entered, enjoining Musgrave and Morgan from a. directly or indirectly calling upon, meeting with, communicating with, or soliciting for the purpose of selling or marketing any products or services which comprised any part of CMC's business to certain of CMC's Clients;
b. accepting any business from certain of the CMC Clients on their own behalf or on behalf of any other person or entity;
c. using or disclosing, directly or indirectly, to any person or entity, or for any purpose, any part of CMC's confidential information and trade secrets, including, without limitation, any of CMC's confidential information and trade secrets that was transmitted by such individuals to their personal email accounts and/or personal computers or other electronic storage devices; and
d. altering, deleting, destroying, hiding, secreting or otherwise removing from the jurisdiction of the 96th Judicial District Court of Tarrant County, Texas any document, record, disc or other written or electronic media, including those contained on any personal computer or electronic storage device, which contains or describes any of CMC's confidential information and trade secrets.[1]

[Doc. 16-2, First Amended Complaint, ¶ 65] A few days later, the Employees, Branch, and Baez met at a TBAG dealership to have a conference call with Godin. [Doc. 16-2, First Amended Complaint, ¶ 68] Baez, at Branch's instruction, did all the talking with Godin, and the Employees supplied Baez with questions and answers via handwritten notes. [Doc. 16-2, First Amended Complaint, ¶ 75] Using these methods, the Employees disclosed confidential information to Godin and GDS about Warranty Forever®, including “all costs to CMC related to that product.” [Doc. 16-2, First Amended Complaint, ¶ 76]

         In essence, Plaintiff alleges that Employees were induced by Defendants to share confidential information and trade secrets, known to them only through their employment with CMC, with TBAG and GDS so that GDS could replace CMC in providing services and products to TBAG. In its Complaint, filed January 18, 2017, Plaintiff alleges Defendants 1) aided and abetted a breach of fiduciary duty owed by Employees to CMC, 2) violated the New Mexico Uniform Trade Secrets Act, and 3) engaged in a civil conspiracy. [Doc. 1] Defendants have moved to dismiss the Complaint on the ground that Plaintiff has failed to state a claim against them. [Doc. 8, 9, 11] Plaintiff argues that the Complaint is sufficient, but nevertheless moves to amend the Complaint. [Doc. 16, 17, 18] The Motion for Leave to File an Amended Complaint was filed twenty-eight days after the Motions to Dismiss. See Fed.R.Civ.P. 15(a)(2) (stating that unless an amendment is filed within twenty-one days of a responsive pleading, “a party may amend its pleading only with the opposing party's written consent or the court's leave.”).

         II. Discussion

         The first question presented is the order in which to consider the pending motions.

         Generally speaking, Federal Rule of Civil Procedure 15(a) allows a party to amend its pleading by leave of the court after a responsive pleading is served, and provides that leave shall be freely given when justice so requires.

In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be “freely given.”

Foman v. Davis, 371 U.S. 178, 182 (1962); see Castleglen, Inc. v. Resolution Trust Corp., 984 F.2d 1571, 1585 (10th Cir. 1993) (citing cases). “Although Fed.R.Civ.P. 15(a) provides that leave to amend shall be given freely, the district court may deny leave to amend where amendment would be futile.” Jefferson Cty. Sch. Dist. No. R-1 v. Moody's Investor's Servs., Inc., 175 F.3d 848, 859 (10th Cir. 1999). “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Id.

         Defendants do not argue that they will suffer undue prejudice if the amendment is granted, or that Plaintiff has acted in bad faith. Defendants' only argument in opposition to the proposed First Amended Complaint is that the proposed amendment is futile because it fails to adduce facts necessary to support Plaintiff's claims, an argument closely related to Defendants' Motions to Dismiss, in which Defendants argue that the allegations in the original Complaint fail to state a claim and that the Complaint must be dismissed under Rule 12(b)(6). [Doc. 8, 9, Doc. 11] Here, in essence, Plaintiff's Opposed Motion for Leave to File an Amended Complaint seeks to modify the Complaint to address the deficiencies identified by Defendants' Motions to Dismiss. [Doc. 16] Thus, if the First Amended Complaint rectifies any such deficiencies, the Motions to Dismiss are moot. Cf. Gotfredson v. Larsen LP, 432 F.Supp.2d 1163, 1172 (D. Colo. 2006) (stating that “[a] pleading that has been amended under Federal Rule of Civil Procedure 15(a), supersedes the pleading it modifies” and that “motions to dismiss [filed before an amended pleading] are technically moot because they are directed at a pleading that is no longer operative.”). However, if the First Amended Complaint also fails to state a claim, then the amendment would be futile and the Court may properly deny leave to amend. Ketchum v. Cruz, 961 F.2d 916, 920 (10th Cir. 1992) (stating that a district court is “justified in denying the motion to amend if the proposed amendment could not have withstood a motion to dismiss or otherwise failed to state a claim.”). The Court will therefore consider Plaintiffs' Opposed Motion for Leave to File an Amended Complaint. In doing so, the Court will determine whether the deficiencies alleged in the Motions to Dismiss have been rectified. See Jefferson Cty. Sch. Dist. No. R-1, 175 F.3d at 859 (stating that “in determining whether the district court abused its discretion in denying the [plaintiff]'s motion for leave to amend, we consider the sufficiency of the antitrust claims that it sought to add in its [s]econd [a]mended [c]omplaint”); Bauer v. City & Cty. of Denver, 642 F. App'x 920, 925 (10th Cir. 2016) (unpublished) (affirming the district court's denial of a motion to amend where the district court considered whether the proposed amended complaint stated a claim or was futile); Gotfredson, 432 F.Supp.2d at 1172 (assessing a motion to dismiss vis a vis an amended complaint where the movant requested the court to do so).

         In Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), the Supreme Court held that, “to withstand a motion to dismiss, a complaint must have enough allegations of fact, taken as true, ‘to state a claim to relief that is plausible on its face.' ” Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Twombly, 550 U.S. at 570). In applying this test, a court accepts as true all well-pleaded facts alleged in the plaintiff's complaint but does not accept the plaintiff's legal conclusions. Iqbal, 556 U.S. at 679. In short, in ruling on a Rule 12(b)(6) motion, “a court should disregard all conclusory statements of law and consider whether the remaining specific factual allegations, if assumed to be true, plausibly suggest the defendant is liable.” Collins, 656 F.3d at 1214. In the circumstances here, if the allegations are sufficient, the amendment is not futile and leave to file will be granted.

         A. Preliminary Matters

         As a preliminary matter, the Court declines at this stage of the proceedings to resolve the collateral estoppel issue raised by Defendants. Defendants contend that because a Texas court held that the non-compete agreements at issue here are unenforceable, Plaintiff is collaterally estopped from arguing to the contrary. [Doc. 28, pg. 4; Doc. 26, 4-5] Plaintiff argues that the issue has not been fully decided because the Texas Court of Appeals has not addressed it. [Doc. 34, pg. 5-6]

         Collateral estoppel will bar litigation of an issue if four elements are met:

(1) the issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.

Frandsen v. Westinghouse Corp., 46 F.3d 975, 978 (10th Cir. 1995) (Emphasis added) (internal quotation marks and citation omitted). Generally, “[f]indings made in a preliminary injunction proceeding are seldom considered sufficiently final to be given issue preclusive effect.” James Wm. Moore, Moore's Federal Practice, §132.05[5][b] (2013 3rd ed.); Kuzinich v. Santa Clara Cty., 689 F.2d 1345, 1350 (9th Cir. 1982) (holding that “issues litigated in a preliminary injunction action . . . do not form a basis for collateral estoppel” because “[t]he granting or denial of a preliminary injunction does not amount to an adjudication of the ultimate rights in controversy.”). “There are exceptions to the general rule, arising in circumstances where a ruling is rendered ‘practically' final owing to factors demonstrating that it was not avowedly tentative, the adequacy of the hearing, and the opportunity for review.” Don King Prods., Inc. v. Douglas, 742 F.Supp. 741, 754 (S.D.N.Y.), on reargument, 742 F.Supp. 786 (S.D.N.Y. 1990) (alterations, internal quotation marks, and citation omitted).

         Here, neither party addresses whether the Texas district court's findings issued vis a vis an application for temporary injunction should be subject to the general rule or its exception. While the Texas district court's written order is not “avowedly tentative, ” neither were the findings final, as the order contemplated a trial on the merits four months hence. [Doc. 11-3] In addition, there was no opportunity for review of the court's findings, because the Texas Court of Appeals expressly declined to address the findings on the merits and instead affirmed on the ground that the non-compete agreement did not restrict post-termination conduct. [Doc. 26-1, pg. 7-8 (stating “it is unnecessary for us to evaluate the enforceability of the Non-Compete Agreement under section 15.50 because . . . the non[-]compete and antisolicitation provisions do not restrict Musgrave's post-termination activities.”). Finally, neither party addresses the adequacy of the hearing on the matter and whether Plaintiff had a “full and fair opportunity to litigate” the issue. See Commodity Futures Trading Comm'n v. Bd. of Trade of City of Chicago, 701 F.2d 653, 658 (7th Cir. 1983) (holding that findings from a preliminary injunction hearing should be given preclusive effect where they were “entered after a six-day hearing . . . and were affirmed unanimously by a panel of [the appellate] court in a published opinion after full briefing and oral argument”). In the absence of briefing from the parties on this issue, the Court declines at this time to resolve the issue.

         Resolution of whether Plaintiff is precluded from arguing that the non-compete agreement with Musgrave is enforceable is not necessary to address Plaintiff's Motion for Leave to File an Amended Complaint. In the context of the Court's analysis, even if the non-compete agreement is not enforceable, Plaintiff's allegations related to the agreement go to Defendants' knowledge of the Employees' fiduciary duties and to the Employees' relationship with CMC. The enforceability of the non-compete agreement is therefore not integral to the Court's assessment of the sufficiency of Plaintiff's claims.

         B. Aiding and Abetting

         Plaintiff first alleges that Defendants aided and abetted a breach of a fiduciary duty when “[Defendants] intentionally provided substantial assistance, encouragement, and monetary inducements to [the Employees] to commit acts which [D]efendants knew to be a breach of fiduciary duties owed to [Plaintiff].” [Doc. 16-2, ¶ 86] “New Mexico recognizes tort liability for the aiding and abetting of a breach of fiduciary duty.” GCM, Inc. v. Kentucky Cent. Life Ins. Co., 1997-NMSC-052, ¶ 17, 124 N.M. 186, 947 P.2d 143.

In order to state such a claim, a plaintiff must allege and prove the following: (1) a fiduciary of the plaintiff breached a duty owed to the plaintiff; (2) the defendant knew of such a duty; (3) the defendant intentionally provided substantial assistance or encouragement to the fiduciary to commit an act which the defendant knew to be a breach of duty; and (4) damages to the plaintiff were caused thereby.

Id. Moreover, “[a]n injured party need not have a direct relationship with the third party against whom liability is sought as an aider and abettor.” Id. ¶ 18. “Rather, the injured party must have a fiduciary relationship with the principal tortfeasor, and the third party must occupy the role of an accomplice in relation to the principal tortfeasor.” Id.

         Here, Plaintiff alleges that the Employees were employees and/or officers of CMC and as such owed CMC a duty of “good faith, loyalty, due care, and disclosure.” Black's Law Dictionary 743 (10th ed. 2014) (defining a “fiduciary” as one who owes “the duties of good faith, loyalty, due care, and disclosure”); see Isengard, 1978-NMCA-117, ¶¶ 8-9 (discussing duties owed by employees to the corporation). [Doc. 16-2, First Amended Complaint, ¶¶ 17-30, 83] It alleges that the Employees “breached their respective fiduciary duties owed to CMC by disclosing CMC's confidential information and trade secrets to [Defendants]” during a conference call with Defendants in February, 2016, [Doc. 16-2, First Amended Complaint, ¶¶ 67-68, 76] and that Defendants “knew, by virtue of CMC's past employment of [the Employees] as officers and senior managers of CMC, that [the Employees] were in a fiduciary relationship with CMC.” [Doc. 16-2, First Amended Complaint, ¶¶ 82, 83] In support of these allegations, Plaintiff asserts that Defendants knew of confidentiality and non-compete agreements signed by the Employees “from discussions in the December, 2015 meeting” and that the Employees had “brought . . . copies of the non-compete agreements they had signed with CMC [to that meeting] and there was discussion with [Defendants] about how to work around the non-disclosure and non-compete provisions in those agreements.” [Doc. 16-2, First Amended Complaint, ΒΆΒΆ 54, 84] It alleges that both Branch and Godin were present at the December, 2015 meeting. ...

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