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McClure v. Imperial Woodworking Co.

United States District Court, D. Colorado

August 9, 2017

RILEY McCLURE, Plaintiff,


          Kristen L. Mix United States Magistrate Judge.

         This matter is before the Court on Plaintiff's Motion to Dismiss Counterclaim, Fed.R.Civ.P. 12(b)(6) [#22][1] (the “Motion”). Defendant Imperial Woodworking Enterprises, Inc. (“Enterprises”) has filed a Response [#23] to the Motion, and Plaintiff filed a Reply [#28]. Pursuant to 28 U.S.C. § 636(b)(1) and D.C.COLO.LCivR 72.1(c), the Motion [#22] has been referred to the undersigned for recommendation. See [#24]. The Court has reviewed the entire case file and the applicable law, and is sufficiently advised in the premises. For the reasons set forth below, the Court respectfully RECOMMENDS that the Motion [#22] be DENIED.

         I. Background

         Plaintiff brings this lawsuit against Defendant Enterprises, [2] which “is engaged in the business of creating and building luxury retail and hospitality interior finishes and fixtures on a global basis, ” and Defendant Imperial Woodworking Company (“Imperial”), which “is engaged in the business of creating and building prestigious architectural woodwork projects on a global scale.” Compl. [#7] ¶¶ 6, 8. To summarize, Plaintiff alleges that he was employed by Enterprises as its Vice President and Project Executive and that he is owed bonuses that he was never paid following termination of his employment. Id. ¶ 10.

         Plaintiff filed the Complaint in state court on August 10, 2016. See [#1-1]. On September 14, 2016, Defendants removed the action to this Court. Notice of Removal [#1]. On September 21, 2016, Enterprises filed an Answer [#15], which included Counterclaims against Plaintiff. Enterprises alleged that the following actions breached Plaintiff's duty of loyalty to Enterprises: Plaintiff refused to settle a fee dispute with a subcontractor due to a “personal vendetta, ” which resulted in a lawsuit filed against Enterprises; Plaintiff became angry with a significant client, who then questioned Enterprises about the integrity of its business; and Plaintiff purposefully sold a substantial project under market price in an attempt to financially harm Enterprises.[3] Additionally, Enterprises alleges that Enterprises and Imperial have an exclusive relationship with Decca Furniture Limited (“Decca”), a company located in Hong Kong that is “one of the few companies in the world that can produce high-quality woodwork and accents at below-market prices.” Answer [#15] ¶¶ 11- 14. Enterprises further states that if it lost Decca as a supplier, its business would be substantially harmed or destroyed. Id. ¶ 15. Enterprises alleges that Plaintiff flew to Hong Kong to meet with Decca's owner, Mr. Tsang, in January 2016 after “several months of discussion” with him. Id. The alleged content of the discussions is that Plaintiff attempted to solicit Mr. Tsang “to terminate Decca's contract with [Enterprises] and conduct a competing business in the United States, managed by [Plaintiff].” Id. ¶¶ 20, 28. Plaintiff charged Enterprises for the cost of his travel to and lodging in Hong Kong. Id. ¶¶ 29, 30.

         Enterprises brings Counterclaims against Plaintiff for (1) Breach of the Duty of Loyalty, (2) Unjust Enrichment, and (3) Declaratory Judgment. See Answer [#15] at 18-21. Plaintiff now moves to dismiss the Counterclaims. See Motion [#22].

         II. Legal Standard

         The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test “the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994); Fed.R.Civ.P. 12(b)(6) (stating that a complaint may be dismissed for “failure to state a claim upon which relief can be granted”). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (citation omitted). To withstand a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain enough allegations of fact ‘to state a claim to relief that is plausible on its face.'” Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir. 2007) (“The complaint must plead sufficient facts, taken as true, to provide ‘plausible grounds' that discovery will reveal evidence to support the plaintiff's allegations.” (quoting Twombly, 550 U.S. at 570)).

         “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “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.” Id. (brackets in original; internal quotation marks omitted).

         To survive a motion to dismiss pursuant to Rule 12(b)(6), the factual allegations in the complaint “must be enough to raise a right to relief above the speculative level.” Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1191 (10th Cir. 2009). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, ” a factual allegation has been stated, “but it has not show[n] that the pleader is entitled to relief, ” as required by Rule 8(a). Iqbal, 552 U.S. at 679 (second brackets added; citation and internal quotation marks omitted).

         III. Analysis

         A. Breach of Duty of Loyalty[4]

         The parties disagree about the applicable test for breach of duty of loyalty. Plaintiff, relying on the Restatement (Third) of Agency, argues that the elements are: (1) the employee took an action, (2) which resulted in a material benefit from a third party to the employee, (3) in connection with a transaction conducted or other actions taken on behalf of the principal, (4) except that employees are privileged to “prepare for competition.” See Motion [#22] at 2-3. Plaintiff argues that Enterprises has failed to sufficiently allege two of these elements: that Plaintiff acquired any material benefit from his actions, and that Plaintiff competed with Enterprises, as opposed to preparing for competition following termination from the company. See Id. at 3. Enterprises, on the other hand, cites to a Colorado Court of Appeals case in order to argue that it has sufficiently alleged the following elements: (1) the employee was acting as a fiduciary, (2) the employee breached his fiduciary duty, (3) the employer suffered damages, and (4) the employee's breach was the proximate cause of the employer's damages. See Response [#23] at 4 (citing Graphic Directions v. Bush, 862 P.2d 1020, 1022 (Colo.App. 1993)).

         Here, the Court applies a different test, which was articulated in Jet Courier Serv., Inc. v. Mulei, 771 P.2d 486, 499-500 (Colo. 1989). The Tenth Circuit Court of Appeals, in applying Jet Courier, stated that “courts should focus on the following factors in determining whether an employee's actions rise to the level of a breach of loyalty: (1) the nature of the employment relationship; (2) the impact or potential impact of the employee's actions on the employer's operations; and (3) the extent of any benefits promised or inducements made . . . to obtain their services in the competing ...

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