DTC Energy Group, Inc. v. Hirschfeld

          ORDER

          PHILIP A. BRIMMER, Chief United States District Judge.

         This matter is before the Court on defendant Ally Energy Services, Inc. Motion to Dismiss and Opening Brief [Docket No. 103]; defendants Craig Hirschfeld and Joseph Johnson’s Motion to Dismiss Second Amended Complaint [Docket No. 113]; defendant Katie Stromstad’s Motion to Dismiss Second Amended Complaint [Docket No. 114]; and defendant Ross Rhinehart’s Motion to Dismiss Second Amended Complaint [Docket No. 115]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367.

         I. BACKGROUND

         A. Factual Background

         Plaintiff DTC Energy Group, Inc. (“DTC”) is a consulting and staffing firm serving the oil and gas industry. Docket No. 82 at 4, ¶ 8.^[1] DTC’s business involves placing candidates with companies in the oil and gas industry. Id. at 7, ¶ 20. In connection with that business, DTC has confidential information, some of which it contends are “trade secrets.” These trade secrets include: (1) “Candidate Folders, ” in which DTC stores resumes, including resumes which it has “re-formatted” to include the DTC logo and contact information, id. at 12-13, ¶¶ 42-48; (2) a “Candidate Database” that summarized the contents of “more than 1, 000 of DTC’s re-formatted resumes, ” id. at 13, ¶¶ 48-49; and (3) a “Profit Calculator” that DTC uses “to evaluate several financial variables and gain competitive advantages in the industry.” Id. at 13-14, ¶ 50.

         In May 2013, DTC hired defendant Adam Hirschfeld as a salesman. Id. at 8, ¶ 27. In January 2014, DTC promoted Adam Hirschfeld to be its business development lead. Id. at 9, ¶ 29. As business development lead, Adam Hirschfeld had access to DTC’s confidential information. Id. ¶ 33. In July 2014, DTC hired defendant Katie Stromstad as a human resources specialist. Id. at 5, ¶ 13. In November 2014, DTC hired defendant Joseph Galban (“Galban”) as a staff accountant. Id. at 4, ¶ 10. From approximately July 2015 to June 2016, DTC subleased office space to defendant Ross Rhinehart (“Rhinehart”). Id. at 5, ¶ 14.

         In the summer of 2015, DTC began discussing a potential business relationship with defendant Ally Consulting, LLC (“Ally Consulting”). Id. at 15, ¶ 57.^[2] Ally Consulting provides similar staffing services in the oil and gas industry. Id. at 16, ¶ 59. DTC agreed that it would assist Ally Consulting by “taking on its few employees and/or contractors and by handling the associated administrative services . . . in exchange for percentage-based payments from [Ally Consulting].” Id. at 15, ¶ 58. DTC and Ally Consulting executed an agreement on January 11, 2016; Ally Consulting terminated the agreement on July 11, 2016. Id. at 16, ¶¶ 60-61.

         DTC alleges that, beginning in November 2015, Adam Hirschfeld, defendant Craig Hirschfeld (“Hirschfeld”), and defendant Joseph Johnson (“Johnson”) began “plotting” to build up Ally Consulting by “stealing DTC’s business.” Id. at 16, ¶ 64. The complaint is unclear what, if any, management role or ownership interest Hirschfeld and Johnson had at the time or at present in Ally Consulting. Compare id. at 6, ¶ 16 (alleging that, since April 2017, the sole member of Ally Consulting is defendant Ally Energy Services, Inc. (“AES”)) with id. at 4-5, ¶¶ 11-12, 14 (alleging that Rhinehart, Hirschfeld, and Johnson are currently “co-owner[s] and co-member[s] of [Ally Consulting] and/or [AES]”). DTC alleges that Adam Hirschfeld, Hirschfeld, and Johnson agreed that Adam Hirschfeld would work for Ally Consulting while still employed by DTC, and that Adam Hirschfeld would convince Galban and Stromstad to assist him. Id. at 17, ¶ 66-67. DTC alleges that Adam Hirschfeld would secure customers on Ally Consulting’s behalf from customers who believed they were dealing with DTC, and that Adam Hirschfeld, Galban, Stromstad, and Rhinehart would email the customers “onboarding paperwork on Ally letterhead that they had copied from DTC forms.” Id. at 18, ¶¶ 73-74. Stromstad sometimes mistakenly sent candidates DTC onboarding paperwork instead of Ally onboarding paperwork. Id. at 19, ¶ 82. Adam Hirschfeld, Galban, Stromstad, and Rhinehart worked to conceal the work they were doing for Ally Consulting from DTC’s owners. Id. at 20-21, ¶¶ 90-97.

         DTC alleges that Hirschfeld and Craig Hirschfeld engaged in a “fraudulent” scheme through CS Property Holdings, a third-party LLC. Id. at 30-31, ¶¶ 168-177. Under the alleged scheme, CS Property Holdings would charge DTC “consultants” (placed customers) in Ohio and West Virginia for their housing. Id. The rent paid to CS Property Holdings by the consultants “far exceeded” the actual rent charged by landlords to CS Property Holdings. Id. at 31, ¶ 176. DTC would then reimburse the consultants for their housing. Id., ¶ 175.

         On November 8, 2016, Adam Hirschfeld emailed Rhinehart DTC’s Profit Calculator. Id. at 34, ¶ 197. On February 13, 2017, Stromstad resigned from DTC. Id. at 5, ¶ 13. On May 3, 2017, Adam Hirschfeld resigned from DTC, effective May 31. Id. at 32, ¶ 187. In late May 2017, Adam Hirschfeld asked Rhinehart to obtain “confidential DTC financial information” from Galban. Id. at 34, ¶ 195. DTC alleges that Rhinehart did obtain “confidential financial documents and trade secrets” from Galban. Id. ¶ 198. Adam Hirschfeld, Stromstad, and Galban now all work for Ally Consulting. Id. at 35, ¶ 203. Before leaving DTC, Adam Hirschfeld stole his work laptop and flash drives that had “thousands of confidential DTC files he downloaded to them.” Id. at 37, ¶ 220. After DTC commenced this lawsuit, Rhinehart requested that Adam Hirschfeld cease all use of the laptop. Id. ¶ 223.

         B. Procedural History

         DTC initiated this lawsuit on July 14, 2017. Docket No. 1. On the same day, DTC moved for a temporary restraining order and preliminary injunction based on the alleged misappropriation of its trade secrets by Adam Hirschfeld, Galban, and Ally Consulting. Docket No. 4. After a hearing on the motion on July 20, 2017, the Court denied DTC’s request for a temporary restraining order, finding that DTC had failed to demonstrate a likelihood of success on the merits of its misappropriation claims. See Docket No. 17 at 69. On September 13, 2017, DTC filed an amended complaint and an amended motion for a preliminary injunction. Docket Nos. 24, 25. The amended motion sought relief against Adam Hirschfeld, Galban, and Ally Consulting for misappropriation of trade secrets under federal and state law, breach of contract, and breach of the duty of loyalty and unfair competition. Docket No. 25 at 2, 6-16. After an evidentiary hearing on January 30, 2018, the Court denied DTC’s request for a preliminary injunction on March 2, 2018. Docket No. 57. The Court concluded that DTC had failed to demonstrate irreparable harm on all of its claims save for the breach of contract claim and further concluded that DTC had failed to demonstrate a likelihood of success on the merits of the breach of contract claim. Id. The Tenth Circuit affirmed the Court’s denial of a preliminary injunction. See DTC Energy Group, Inc. v. Hirschfeld, 912 F.3d 1263 (10th Cir. 2018).

         On November 9, 2018, DTC filed its Second Amended Complaint (the “complaint”). Docket No. 82. The complaint adds as defendants Hirschfeld, Johnson, Stromstad, Rhinehart (together, the “individual defendants”), and AES. The complaint brings claims against some or all defendants for (1) breach of contract; (2) breach of the duty of loyalty; (3 and 4) misappropriation of trade secrets under the federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1831 et seq., and the Colorado Uniform Trade Secrets Act (“CUTSA”), Colo. Rev. Stat § 7-74-101 et seq.; (5) unjust enrichment; (6) tortious interference with business relations; (7) tortious interference with contract; (8) unfair competition; (9) civil theft; (10) conversion; (11) civil conspiracy; (12) violation of the Civil Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962 et seq.; (13) violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030 et seq.; and (14) conspiracy to violate the CFAA. Id. at 40-57, ¶¶ 241-349.

         AES and the individual defendants have filed motions to dismiss. Docket Nos. 103, 113, 114, 115.^[3]

         II. LEGAL STANDARD

         To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must allege enough factual matter that, taken as true, makes the plaintiff’s “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged–but it has not shown–that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A plaintiff must nudge [his] claims across the line from conceivable to plausible in order to survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint’s allegations are “so general that they encompass a wide swath of conduct, much of it innocent, ” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191 (quotations omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (alteration marks omitted).

         III. ANALYSIS

         A. AES’s Motion to Dismiss

         In its motion to dismiss, AES argues that, because it is a “non-operating, holding company owning 100% of the membership interest in [Ally Consulting], ” DTC has “no basis for independent claims against AES.” Docket No. 103 at 2. In response, DTC contends that it refers to AES and Ally Consulting collectively as “Ally” throughout the complaint. Docket No. 110 at 10-13.^[4] As a result, AES argues that the complaint is not sufficient to put AES on notice of the claims against it. Docket No. 111 at 6-8.

         The complaint’s allegations against AES are oblique. The first page refers to “Ally Consulting, LLC f/k/a Wyodak Staffing, LLC and Ally Energy Services, Inc. (collectively, ‘Ally’).” Docket No. 82 at 1. The complaint next identifies the parties, describing “Ally Consulting, LLC” as

a Wyoming limited liability company in good standing with its principal offices currently located in Casper, Wyoming and Lakewood, Colorado. Ally formerly had a business relationship with DTC and, as a result of the Defendants’ unlawful acts alleged herein, is currently a direct competitor of DTC. During calendar year 2016 and much of 2017, the majority of Ally’s work was being performed by DTC employees out of DTC’s physical office. On information and belief, Ally did not officially open its Lakewood, Colorado office until early 2017, shortly before DTC’s employees officially “moved” to work for Ally. Ally is A. Hirschfeld’s, Ms. Stromstad’s, Mr. Galban’s, and Mr. Rhinehart’s current employer, does business in Colorado, and one of its principal places of business is located in Lakewood, Colorado.

Id. at 6, ¶ 15.^[5] The complaint next identifies AES as “a Wyoming corporation in good standing with its principal offices located in Casper, Wyoming and has been the sole member of [Ally Consulting] since April 2017.” Id. at 6, ¶ 16. The complaint further alleges that Hirschfeld, Johnson, and Rhinehart are “co-owner[s] and co-member[s] of [] Ally Consulting, LLC and/or Ally Energy Services, Inc.” Id. at 4-6, ¶¶ 11-12, 14. Taken together, these paragraphs describe the relationship between AES and Ally Consulting: AES owns Ally Consulting as its sole member. They also describe Ally Consulting’s business: a competitor of DTC in the oil and gas consulting and staffing field that employs Adam Hirschfeld, Stromstad, Galban, and Rhinehart. They do not, however, allege that AES, the holding company, is a competitor to DTC or that it has any employees. Moreover, throughout the general factual allegations the complaint appears to use “Ally” solely to refer to Ally Consulting, as opposed to Ally Consulting and AES, and never mentions AES specifically. See, e.g., id. at 14, ¶ 53 (referring to the “illegitimate clone company, Ally”); id. at 15-16, ¶¶ 57-63 (describing the initial business relationship between DTC and “Wyodak Staffing, LLC” (Ally)).^[6] Despite DTC’s use of the collective “Ally” to purportedly refer to Ally Consulting and AES, the complaint does not plausibly allege the involvement of AES – Ally’s corporate parent – in any of DTC’s causes of action. Thus, there is no basis for the Court to infer that there is a basis for legal claims against AES independent of its ownership of Ally Consulting.

         DTC argues that the allegation that Ally Consulting and AES “share common ownership and the same or similar employees” is sufficient to establish the claims against AES. Docket No. 110 at 12. This argument is not persuasive. First, the complaint does not allege that the entities have “the same or similar employees.” See Docket No. 82 at 6, ¶¶ 15-16. Second, a bare allegation that the entities have common ownership does not lead to an inference that AES, as an entity, is responsible for all of Ally Consulting’s acts. Cf. McCallum Family LLC v. Winger, 221 P.3d 69, 74 (Colo.App. 2009) (discussing eight factors courts use to determine whether a corporate entity is an alter ego of another).^[7] DTC also argues that the allegations against AES are sufficient because the complaint alleges that both Ally Consulting and AES “were each involved in the plot to enrich themselves.” Docket No. 110 at 12. However, DTC fails to explain how, given the allegations in the complaint about the corporate structure of AES and Ally Consulting, the Court could infer that AES was involved in the “plot” solely on the basis of DTC’s inconsistent collective reference.

         DTC argues that the use of a collective reference in the complaint is permissible. However, as a general matter, “[w]ithout allegations sufficient to make clear the grounds on which the plaintiff is entitled to relief, ” it is “impossible for the [C]ourt to perform its function of determining . . . whether the asserted claim is clearly established.” Robbins v. Oklahoma, 519 F.3d 1242, 1249 (10th Cir. 2008) (internal citation and quotation omitted). “The need for individualized allegations is especially important where . . . each of the defendants ha[s] different powers and duties.” Brown, 662 F.3d at 1165. Here, the collective reference in the complaint to both Ally Consulting and AES does not make clear on what grounds DTC is entitled to relief from AES. The cases cited by DTC do not support a bright-line rule that the use of a collective reference is permissible. Rather, those cases found that the complaint contained allegations that made clear the grounds on which plaintiff was entitled to relief. See Dawson v. Bd. of Cty. Comm’rs of Jefferson Cty., No. 16-cv-01281-MEH, 2017 WL 5188341, at *11 (D. Colo. Jan. 3, 2017) (collective action permissible in § 1983 action where plaintiff alleges that a similar group of defendants “all failed to take one specific act”); Bark v. Chacon, No. 10-cv-01570-WYD-MJW, 2011 WL 1884691, at *5 (D. Colo. May 18, 2011) (collective reference permissible in § 1983 action where the allegations against a group of defendants “all relate to a single incident” where defendants “are alleged to have been present at that incident and to have acted in concert”); Ferguson v. Bd. of Cty. Comm’rs of Sierra Cty, 2013 WL 12334214, at *4 (D.N.M. April 2, 2013) (holding that, because the “key inquiry” is “whether each defendant knows why he or she was named in the complaint, ” collective action permissible in § 1983 action where the allegations against defendants using “and/or” were tailored to specific claims). By contrast, the complaint in this case does not make clear the grounds on which DTC is entitled to relief from AES.

         Because the complaint does not assert any claims upon which relief can be granted against AES, the Court grants AES’s motion to dismiss.^[8]

         B. Individual Defendants’ Motion to Dismiss

         The Court will address the motions to dismiss filed by the individual defendants on a claim-by-claim basis.

         1. Second Claim – Breach of the Duty of Loyalty

         DTC alleges that Stromstad “breached her duty of loyalty by soliciting customers for Ally while still employed by DTC.” Docket No. 126 at 5. Stromstad argues that the complaint fails to state a claim for breach of the duty of loyalty. Docket No. 114 at 6-7.

         Under Colorado law, an employee breaches her duty of loyalty if she solicits customers for a rival business or solicits other employees to terminate their employment. Jet Courier Serv., Inc. v. Mulei, 771 P.2d 486, 497 (Colo. 1989). In applying Jet Courier, the Tenth Circuit has 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 business.” In re Prof'l Home Health Care, Inc., 159 F. App’x. 32, 34 (10th Cir. 2005) (unpublished). Furthermore, the factors must be weighed, as no one factor is determinative. Id.^[9]

         Turning to the first factor, Stromstad argues that DTC alleges only that she, as a human resources employee, complied with directives made by Adam Hirschfeld. Docket No. 114 at 7. Because, Stromstad argues, she lacked “substantial discretion” in her role, DTC’s claim for breach of the duty of loyalty cannot survive. Docket No. 131 at 2-3. The Court agrees that the first factor weighs strongly in Stromstad’s favor. Jet Courier derived its analysis of an employer’s claim for breach of the duty of loyalty from agency principles. Jet Courier, 771 P.2d at 491-493 (adopting test set out in the Restatement (Second) of Agency); cf. 19 Richard A. Lord, Williston on Contracts § 54.26 (noting that courts allowing claims for breach of the duty of loyalty “derive guidance from analogous principles of agency law” in “determining the scope and extent of the duty”). As noted in the Jet Courier concurrence, “not every employee is the employer’s agent, and an employee may act as an agent with regard to certain job functions but not with regard to others.” Jet Courier, 771 P.2d at 503 (Mullarkey, J., specially concurring). The Court finds Stromstad’s job functions and level of independent authority to be central to the analysis. See Graphic Directions, Inc. v. Bush, 862 P.2d 1020, 1023 (Colo.App. 1993) (noting that, under Jet Courier, “there may be circumstances under which the duty of loyalty does not apply to an employee”); cf. Restatement of Employment Law § 8.01(a) (“Employees in a position of trust and confidence with their employer owe a fiduciary duty of loyalty to the employer in matters related to their employment.”). The complaint alleges that Stromstad was employed as a “human resources specialist.” See Docket No. 82 at 5, ¶ 13. The complaint further alleges that she acted at the direction of Adam Hirschfeld, who was employed by DTC at the time. See id. at 19, ¶¶ 80-82, 86-87. The complaint does not allege that Stromstad actively solicited customers; it alleges that her job was to send customers “onboarding paperwork.” See id. at 19, ¶ 82. The Court finds that these facts are insufficient to demonstrate that Stromstad, in her role as human resources specialist, was acting as DTC’s agent.

         The second factor weighs slightly in favor of DTC. DTC generally alleges that, “[a]s a direct and proximate result of all of the foregoing acts, DTC has lost . . . current and future business, ” as well as “goodwill.” See id. at 39-40, ¶ 238. Although the complaint fails to explain how Stromstad’s actions, in particular, led DTC to lose business, the Court can reasonably infer that sending Ally Consulting onboarding paperwork to customers who would otherwise have joined DTC would cause DTC to lose business. The third factor weighs in favor of Stromstad, as the complaint is devoid of any allegations that Stromstad promised benefits or inducements to any customers or employees in order to get them to join Ally Consulting. Indeed, the only allegations regarding Stromstad’s interaction with customers is that she sent customers – who had been recruited by ...