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Consolidated Infrastructure Group, Inc. v. USIC, LLC

United States District Court, D. Nebraska

May 18, 2017



          Joseph F. Bataillon, Senior United States District Judge

         This matter is before the court on a motion to dismiss or, in the alternative, to stay or transfer this action, filed by defendants USIC, LLC; USIC Locating Services, LLC; and Locate Holdings, Inc., (collectively, “USIC”), Filing No. 13.[1]

         This is an action for declaratory judgment. The individual plaintiffs are former employees of USIC. Plaintiff Consolidated Infrastructure Group, Inc., (“CIG”) is a company formed by a former USIC employee, and the six individual plaintiffs are also former USIC employees. The plaintiffs seek a determination that (1) they have not misappropriated trade secrets under the Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C. § 1832 et seq.; (2) that the restrictive covenants contained in the agreements signed by plaintiffs Brian Hanna, Travis Daniels and Eric Moody are unenforceable; and (3) the USIC restrictive covenants are unlawful restraints of trade under state and federal antitrust laws, including the Sherman Act, 15 U.S.C. § 1. They also seek to enjoin enforcement of the restrictive covenants. Jurisdiction is premised on 28 U.S.C. §§ 1331 and 1337.[2]

         USIC moves to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2) and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). It also relies on the federal comity doctrine on concurrent jurisdiction, the doctrine of forum non conveniens, and 28 U.S.C. § 1404(a) in its alternative motion to stay or transfer this action to the United States District Court for the Southern District of Indiana where an action involving the same parties, USIC, et al., v. Coffield, et al., No 1:16cv-3285 (“the Indiana Action”) is pending.

         I. BACKGROUND

         A. Nebraska Action

         Defendant USIC provides underground utility location and damage prevention services throughout the United States and Canada. In their complaint, the plaintiffs allege that USIC acquired its dominant market share by eliminating competition through a series of acquisitions and by utilizing anticompetitive business practices to eliminate or stifle competition.[3] They allege USIC entered into a series of exclusive agreements with vendors for software and equipment which provide USIC with a competitive advantage by denying rivals access to field tools. Further, they contend USIC utilizes overly restrictive and anticompetitive employment agreements to restrict former employees from working for rivals, and to threaten rivals with litigation.

         CIG is a competing Locating Services provider formed in 2016. CIG hired seven USIC employees in 2016, six of whom are now plaintiffs.[4] Plaintiff Eric Moody was hired by CIG in May 2016 and Brian Hanna, Travis Daniels, Brent Coffield, Zack Mantey and Tom Orth were hired in September 2016. While employed at USIC, plaintiffs Moody, Hanna and Daniels each signed a Protective Covenants Agreement (“Agreement”) prohibiting them from, among other things: (1) improperly competing with USIC following termination of employment, (2) soliciting customers or employees of USIC, or (3) utilizing confidential information or trade secrets belonging to USIC following their separation from employment. Hanna and Daniels also signed Non-Qualified Stock Option Agreements containing similar restrictive covenants.

         The covenants signed by Moody, Hanna and Daniels' have explicit forum selection and choice of law clauses, requiring that Indiana law governs any dispute and that courts in Marion County, Indiana are the exclusive venue and forum for such disputes.[5] Though plaintiffs Brent Coffield, Zack Matney and Tom Orth did not sign noncompete or nondisclosure agreements, USIC contends they explicitly incurred and acknowledged an ongoing obligation to refrain from disclosing USIC's confidential information.

         On October 14, 2016, USIC sent cease and desist letters to CIG and to each of the individual plaintiffs asserting they had removed, retained, used, and/or disclosed confidential information belonging to USIC. The letters also asserted that plaintiffs Moody, Hanna and Daniels had violated explicit written covenants not to compete with USIC or solicit customers or employees of USIC. The letters demanded that the individual plaintiffs cease all such activity immediately, and stated that USIC would not hesitate to pursue legal action should the actions continue.

         On October 19, 2016, the plaintiffs filed this action for declaratory and injunctive relief. Summonses were requested and issued on November 19, 2016, and the record shows that service was effected on the defendants between November 18, 2016 and November 28, 2016. Filing Nos. 4-10. USIC's corporate disclosure statement shows USIC, LLC is a limited liability company organized under the laws of Delaware and based in Indianapolis, Indiana. Its sole member is USIC Holdings, Inc. which is a Delaware C Corporation with its principal place of business in Indianapolis, Indiana. USIC Locating Services, LLC, USIC Locating Services, LLC is a limited liability company based in Indianapolis, Indiana. Its sole member is USIC, LLC, which is a limited liability company based in Indianapolis, Indiana. Locate Holdings, Inc. is a Delaware corporation. Filing No. 22.

         B. Indiana Action

         USIC filed an action in Marion County, Indiana, Superior Court on November 9, 2016. See USIC, LLC, et al., v. Consolidated Infrastructure Group, Inc., et al., Cause No. 49D0116 11 PL 039993. Filing No. 21-2, Index of Evid., Ex. 1. In that case, USIC asserts claims for misappropriation of trade secrets, breach of contract, tortious interference with a contract, and seeks treble damages for pecuniary loss as a result of a property offense under Indiana Code § 34-24-3-1, against CIG and the former employees. On December 5, 2016, CIG and the former employees (the plaintiffs in this action) removed the case to the United States District Court for the Southern District of Indiana. Filing No. 21-4, Index of Evid. Ex. 3.

         Court records in the Indiana case show that removal was based on diversity of citizenship. See USIC, et al., v. Coffield, et al., No 1:16cv-3285, Filing No. 1, Notice of Removal (S.D. Ind. Dec. 5, 2016). Noting that USIC and CIG are both Delaware corporations, USIC moved to remand.[6] Id., Filing No. 11. In response, CIG and the former employees argued that USIC fraudulently joined CIG as a defendant in an effort to destroy diversity and to prevent removal and consolidation with this action. Id., Filing No. 18. Further, the CIG defendants argued the Indiana court should construe USIC's complaint as alleging a claim under the federal DTSA, thus conferring federal question jurisdiction, because in its complaint USIC did not specifically assert its misappropriation of trade secret claim was based solely on Indiana law. Id. USIC responded that it only seeks relief under Indiana state law. Id., Filing No. 21.

         Defendants Daniels, Hanna, and Moody (the “signatory defendants”) filed an answer to USIC's complaint, for the most part denying the allegations. Id., Filing No. 7. Defendant CIG and the other individual defendants (Coffield, Orth, and Matney, “the non-signatory defendants”) moved to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), arguing they lacked sufficient minimal contacts with the State of Indiana. Id., Filing No. 8. In response, USIC argues that those defendants had impliedly consented to be bound by the forum selection clauses in the other defendants' agreements because the non-signing defendants are “closely related parties, ” making it foreseeable that they would be bound by the forum selection clauses. Id., Filing No. 13. Alternatively, they argue that defendants Coffield, Orth, and Matney purposefully directed activities at the state of Indiana in that they allegedly “reached into USIC's computer servers and networks located in Indiana to copy, remove, disclose and otherwise misappropriate confidential and trade-secret information belonging to USIC, ” which included “financial statements showing USIC's proprietary competitive pricing scheme; proprietary training methods and programs; and private customer and employee information.” Id. at 15. They argue that the actions of the former employees were calculated to cause harm in Indiana and is sufficient to create specific personal jurisdiction. Id. Also, they argue the Indiana court has personal jurisdiction over defendant CIG because it is foreseeable that a third-party employer would be bound by a forum selection clause in a contract entered into by an employee it recruited. Id. It also argues the tortious actions aimed at Indiana by the former employees can be imputed to CIG. Id.

         All of the defendants in the Indiana action also moved to transfer the Indiana action to the District of Nebraska pursuant to 28 U.S.C. § 1404(a). Filing No. 22, Motion; Filing No. 23, Brief. They argued venue was proper in Nebraska under 28 U.S.C. 1391(b)(2) because a substantial part of the events giving rise to the claims alleged in this action occurred in Omaha, Nebraska.[7] Filing No. 23. Further they argue that USIC's claims in the Indiana action would be compulsory counterclaims in the Nebraska action. Id.

         The motions to dismiss, to remand, and to transfer were referred to the United States Magistrate Judge for a report and recommendation. Id., Filing No. 37. The Magistrate Judge exercised his discretion to first examine the motion to remand rather than the motions to dismiss. Filing No. 38, Report and Recommendation at 4. He noted the motion to remand related to subject matter jurisdiction, and that not all defendants had moved to dismiss for lack of personal jurisdiction. Id.

         The Magistrate Judge found there was not complete diversity and rejected the Indiana defendants' contention argument that the fraudulent joinder exception to complete diversity applied. Id. at 5-6. He found USIC's complaint adequately alleged colorable claims against CIG and therefore found no fraudulent joinder. Id. at 6. Further, he rejected the CIG defendants' federal question jurisdiction based on application of the “well-pleaded complaint rule.” Id. at 7. Because complete diversity was lacking and there was no federal question on the face of USIC's complaint, the Magistrate Judge found the Indiana federal district court lacked jurisdiction and recommended to the district judge that the action be remanded to state court.[8] The Magistrate Judge further recommended that the District Court deny the defendants' motion to transfer the action to Nebraska as moot and found the defendants' motions to dismiss for lack of personal jurisdiction could be addressed by the Indiana state court on remand. Objections to the R&R have been filed, but have not been ruled on. Id., Filing No. 41, Objection; Filing No. 44, Response.

         C. Present Motion

         In the motion presently pending in this court, USIC moves to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), arguing a lack of sufficient minimum contacts with Nebraska to satisfy the exercise of specific personal jurisdiction. It contends that the plaintiffs rely exclusively on allegations of “general” personal jurisdiction over the Defendants; in other words, they assert “continuous” contacts with the State of Nebraska, but not any contacts that relate to the claims at issue. Filing No. 14, Brief at 5. USIC argues these allegations do not satisfy the standard for assertion of general personal jurisdiction, as recently clarified by the Supreme Court in Daimler AG v. Bauman, 134 S.Ct. 746, 753 (2014).

         In response, the Nebraska plaintiffs state that USIC has consented to jurisdiction in this state by registering to conduct business in Nebraska. They submit evidence that USIC is registered to conduct business in the state of Nebraska in accordance with Nebraska law, and has appointed a registered agent for service of process in Nebraska. Filing No. 21-3.

         USIG further argues the action is subject to dismissal under the Supreme Court's Brillhart/Wilton doctrine, [9] in deference to the Indiana action addressing the same issues. USIC also moves to dismiss under Federal Rule of Civil Procedure 12(b)(b)(6) based on the forum selection clause of the agreements at issue.

         In its alternative motion to stay or transfer under 28 U.S.C. § 1404(a), it argues that the Indiana action takes priority because USIC's complaint in the Indiana action was the first filed based on service of process, and because USIC is the “true plaintiff.” It also argues that Indiana is the more convenient forum.

         The plaintiffs take essentially the opposite position, arguing that the court has personal jurisdiction over the matter, the motion to transfer should denied on the basis of the “first-filed rule, ” venue is proper in this ...

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