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Tucker Auto-Mation of North Carolina, LLC v. Rutledge

United States District Court, M.D. North Carolina

July 10, 2017

TUCKER AUTO-MATION OF NORTH CAROLINA, LLC, Plaintiff/Counter Defendant,
v.
RUSSELL RUTLEDGE & RUTLEDGE COMMERCIAL, LLC, Defendants/Counterclaimants,
v.
PATRICK MERCIER & TUCKER AUTO-MATION HOLDINGS, USA, LLC Counterclaim Defendants.

          MEMORANDUM OPINION AND ORDER

          Loretta C. Biggs United States District Judge.

         Plaintiff, Tucker-Automation of North Carolina, LLC, (“Tucker”) initiated this diversity action on October 21, 2015 against Defendants, Russell Rutledge and Rutledge Commercial, LLC, alleging claims arising under state law. This matter is before the Court on Defendants' Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 32.) For the reasons stated below, Defendants' motion is granted in part and denied in part.

         Tucker, in its Amended Complaint (“Complaint”), alleges that it manufactures and distributes, among other things, revolving automatic doors for commercial use. (ECF No. 31 ¶ 10.) Defendant Russell Rutledge (“Rutledge”) served as Tucker's president from June 2013 to his resignation in September 2015. (Id. ¶ 10.) Eight days following his resignation, Tucker alleges that Rutledge filed paperwork with the North Carolina Secretary of State to form Rutledge Commercial, LLC. (Id. ¶ 32.) According to the Complaint, Rutledge Commercial, LLC is “in the business of providing automatic door solutions to commercial business enterprises.” (Id. ¶ 62.) On October 21, 2015, Tucker filed this action, alleging the following claims against Defendants: (Count 1) intentional interference with actual and prospective contractual relations; (Count 2) misappropriation of trade secrets in violation of N.C. Gen. Stat. § 66-152; (Count 3) defamation; (Count 4) unfair and deceptive trade practices in violation of N.C. Gen. Stat. § 75-1.1; (Count 5) conversion; and (Count 6)[1] violation of North Carolina's Property Protection Act, N.C. Gen. Stat. § 99A-2. (Id. at 11-16.)

         Defendants move to dismiss Counts 1, 2, 4, and 6 for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 32.)

         I. LEGAL STANDARD

         A motion to dismiss under Rule 12(b)(6) “challenges the legal sufficiency of a complaint, ” including whether it meets the pleading standard of Rule 8(a)(2). Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). Rule 8(a)(2) requires a complaint to contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “[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) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible when the complaint alleges facts that allow the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. When evaluating the complaint, the court views the facts in the light most favorable to the plaintiff. United States ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014).

         Further, where, as in this case, subject matter jurisdiction is based on diversity of citizenship, the court must apply the substantive law of the forum state. See Private Mortg. Inv. Servs., Inc. v. Hotel & Club Assocs., Inc., 296 F.3d 308, 312 (4th Cir. 2002). In doing so, the court has an obligation to apply the law as determined by the state's highest court, i.e., the North Carolina Supreme Court. See Id. When the state's highest court has not addressed directly or indirectly the issue before the federal court, the state's appellate courts' decisions, though not binding, constitute the best indicia of what the state law is unless the court is convinced by other persuasive data that the state's highest court would rule otherwise. Id. The court must apply state laws as they currently exist and cannot expand them. Burris Chem., Inc. v. USX Corp., 10 F.3d 243, 247 (4th Cir. 1993).

         II. DISCUSSION

         A. (Count 1) Intentional Interference with Actual and Prospective Contractual Relations[2]

         The Court first considers Defendants' motion to dismiss Tucker's claim of tortious interference with contract and prospective economic advantage.[3] Though raised as a single claim, the Court notes that Count 1 actually includes two separate claims- one for tortious interference with contract and one for tortious interference with prospective economic advantage. See Superior Performers, Inc. v. Phelps, 154 F.Supp.3d 237, 248 (M.D. N.C. 2016). Defendants argue both claims should be dismissed because the Complaint fails, among other things, to “specifically identify any contracts that have been breached or any particular contract that any customer has been induced to refrain from entering into with Tucker.” (ECF No. 33 at 18.) The Court agrees.

         To state a claim of tortious inference with contract, a plaintiff must allege: “(1) a valid contract between the plaintiff and a third person which confers upon the plaintiff a contractual right against a third person; (2) the defendant knows of the contract; (3) the defendant intentionally induces the third person not to perform the contract; (4) and in doing so acts without justification; (5) resulting in actual damage to plaintiff.” Beverage Sys. of the Carolinas, 784 S.E.2d at 462 (quoting United Labs., Inc. v. Kuykendall, 370 S.E.2d 375, 387 ( N.C. 1988)). “A tortious interference with prospective economic advantage claim has the same elements except that instead of an existing contract, there must be a contract that would have been entered into but for the defendant's conduct.” BioSignia, Inc. v. Life Line Screening of Am., Ltd., No. 1:12CV1129, 2014 WL 2968139, at *7 (M.D. N.C. July 1, 2014) (citing Beck v. City of Durham, 573 S.E.2d 183, 191 ( N.C. Ct. App. 2002)).

         In its Complaint, Tucker alleges that in the automated door industry “it is not customary for customers to sign written contracts for a specified term with their manufacturer and/or supplier.” (ECF No. 31 ¶ 46.) Rather, according to Tucker, it is common practice for an automated door company to provide technical and administrative service on a going-forward basis as needed, once a product is installed. (Id. ¶¶ 46-47.) Tucker alleges that, before Rutledge's resignation, its customers included Asheville-Buncombe Technical Community College, UNC Heart and Vascular at Meadowmont, Moses H. Cone Memorial Park, Duke University Hospital, and Sampson Regional Medical Center. (See Id. ¶ 45.) These clients, Tucker alleges, provided over $500, 000 in business in the last two years, but after Rutledge's resignation, they elected to retain Rutledge Commercial, LLC to fulfill their needs on a going-forward basis. (Id. ¶¶ 45, 48.) According to the Complaint, it was Defendants' actions that induced these customers to transition their business from Tucker to Defendants. (See Id. ¶¶ 44, 48.)

         While these allegations, viewed in the light most favorable to Tucker, demonstrate an ongoing business relationship between Tucker and its former customers, an ongoing business relationship, without any contractual obligations between the parties, is insufficient to state a claim of tortious interference with contract under North Carolina law. See Phelps, 154 F.Supp.3d at 249, 250 (dismissing the plaintiff's tortious interference with contract claim because the plaintiff failed to sufficiently allege a valid contract between itself and a third party, but rather “refers to its ‘relationships' with its customers, which is insufficient under North Carolina law”); Beverage Sys. of the Carolinas, 784 S.E.2d at 462-63 (dismissing the tortious interference with contract claim, holding that although it was the “industry custom . . . for owners of beverage-dispensing equipment” to engage repair companies “on an as-needed basis only, ” rather than via contract, the plaintiff had failed to establish a legal obligation between it and the customers it acquired); Sports Quest, Inc. v. Dale Earnhardt, Inc., Nos. 02 CVS 0140, 01 CVS 2200, 2004 WL 742918, at *6 ( N.C. Super. Ct. Mar. 12, 2004) (explaining that the “fatal flaw[]” in the plaintiff's tortious interference claim is that “not all of [the plaintiff's] relationships with third parties included contracts” and thus plaintiff cannot maintain its tortious interference claim with respect to the “existing business relations” in the absence of a “contractual obligation to [the plaintiff]”). Nor are Tucker's allegations sufficient to allege a claim of tortious interference with prospective economic advantage under North Carolina law, because Tucker has failed to sufficiently allege that a contract would have resulted with a third party but for Defendants' tortious interference. See Phelps, 154 F.Supp.3d at 249-50; Beverage Sys. of the Carolinas, 784 S.E.2d at 463. At best, Tucker's allegations reveal an expectation that its customers would continue to do business with it. However, a mere expectation customers “would continue to do business with [a] plaintiff” is “insufficient to support a claim for either tortious interference with contract or tortious interference with prospective economic advantage.” Beverage Sys. of the Carolinas, 784 S.E.2d at 463.

         Because Tucker has failed to specifically identify a contract that confers a contractual right between Tucker and any third party or any specific contract Defendants induced a third party to refrain from entering into with Tucker, [4] the Complaint fails to state a claim of tortious interference with contract or tortious interference with prospective economic advantage. Thus, Defendants' motion to dismiss these claims must be granted.

         B. (Count 2) Misappropriation of Trade Secrets

         Count 2 of Tucker's Complaint alleges that Defendants misappropriated various trade secrets in violation of the North Carolina Trade Secrets Protection Act (“TSPA”), N.C. Gen. Stat. § 66-152. (ECF No. 31 ¶¶ 77-88.) Defendants seek dismissal, contending, among other things, that Tucker: (1) has not identified any alleged trade secrets with the requisite particularity; and (2) has not alleged acts of misappropriation with the requisite particularity. (ECF No. 33 at 9.) The Court disagrees.

         Under the TSPA, an “owner of a trade secret shall have remedy by civil action for misappropriation of his trade secret.” N.C. Gen. Stat. § 66-153. “A trade secret is business or technical information that ‘[d]erives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development . . . and [is] the subject of efforts that are reasonable under the circumstances to maintain its secrecy.'” Sunbelt Rentals, Inc. v. Head & Engquist Equip., L.L.C., 620 S.E.2d 222, 226 ( N.C. Ct. App. 2005) (alterations in original) (quoting N.C. Gen. Stat. § 66-152(3)(a)- (b)). Courts consider the following factors in determining whether an item constitutes a trade secret:

(1) the extent to which information is known outside the business; (2) the extent to which it is known to employees and others involved in the business; (3) the extent of measures taken to guard secrecy of the information; (4) the value of information to business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be acquired or duplicated by others.

Id. (quoting State ex rel. Utils. Comm'n v. MCI Telecomms. Corp., 514 S.E.2d 276, 282 ( N.C. Ct. App. 1999)). “Misappropriation, ” under the TSPA, is defined as the “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret.” N.C. Gen. Stat.§ 66-152(1).

         To state a claim for misappropriation of trade secrets, the complaint “must identify [the] trade secret with sufficient particularity so as to enable a defendant to delineate that which he is accused of misappropriating and a court to determine whether misappropriation has or is threatened to occur.” Washburn v. Yadkin Valley Bank & Tr. Co., 660 S.E.2d 577, 585 ( N.C. Ct. App. 2008) (quoting Vision AIR, Inc. v. James, 606 S.E.2d 359, 364 ( N.C. Ct. App. 2004)). “The complaint must also set forth with sufficient specificity the acts by which the alleged misappropriation occurred.” Bldg. Ctr., Inc. v. Carter Lumber, Inc., No. 16 CVS 4186, 2016 WL 6142993, at *3 ( N.C. Super. Ct. Oct. 21, 2016). “[A] complaint that makes general allegations in sweeping and conclusory statements, without specifically identifying the trade secrets allegedly misappropriated, ” is insufficient under North Carolina law to state a claim for misappropriation of trade secrets. Washburn, 660 S.E.2d at 585- 86.

         Tucker's Complaint identifies the following trade secrets allegedly ...


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