Foster Cable Services, Inc. v. Deville

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

EL DORADO DIVISION

FOSTER CABLE SERVICES, INC.

d/b/a U-PAS PLAINTIFF

v. Case No. 1:18-cv-1049

JAMES ERIC DEVILLE and

T&D SOLUTIONS1 DEFENDANTS

ORDER

Before the Court is Defendants James Eric Deville and Volt Power’s Motion for Judgment

on the Pleadings. (ECF No. 15). Plaintiff Foster Cable Services, Inc. filed a response.2 (ECF No.

17). The Court finds the matter ripe for consideration.

I. BACKGROUND

Plaintiff is the former employer of Defendant Deville. On February 12, 2017, Plaintiff

entered into a confidentiality agreement (the “Agreement”) with Defendant Deville. The

Agreement states that any information exchanged between Plaintiff and Defendant Deville is

proprietary and has been designated as a trade secret and/or confidential. The Agreement gives

examples of such covered information as including, “but is not limited to: [Plaintiff’s] concepts,

drawings, designs, and other related proprietary information.” (ECF No. 3, p. 5). Under the

1 Defendants indicate that Defendant T&D Solutions merged with Volt Power, LLC on April 30, 2018, and that the

surviving entity is properly identified as “Volt Power, LLC.” (ECF No. 1, p. 1). For ease of reference, the Court will

hereby refer to Defendant T&D Solutions as “Defendant Volt Power” throughout this order.

2 The Court notes that Defendants filed the instant motion on November 29, 2018. The Local Rules of the United

States Court for the Eastern and Western Districts of Arkansas provide that a response to a motion must be filed within

fourteen days of the date the motion is filed. Local Rule 7.2(b). Thus, Plaintiff’s response was due on or before

December 14, 2018. Plaintiff filed its response to the instant motion on December 28, 2018, two weeks late. Plaintiff

did not first seek leave to file its response out of time, and the Court granted no such leave. However, Defendants

have not objected to the untimely filing and, thus, the Court, in its discretion, excuses Plaintiff’s failure to respond

within the time provided by the Local Rules. See Silberstein v. I.R.S., 16 F.3d 858, 860 (8th Cir. 1994) (authorizing

federal district courts to overlook violations of their local rules).

Agreement, Defendant Deville agreed to keep any covered information confidential and to not

disclose it to any other party. (ECF No. 3, p. 5). The Agreement states that Defendant Deville’s

confidentiality obligations survive the termination of the Agreement and shall have no time limit,

except as otherwise provided for in the Agreement. The Agreement does not, however, set out

any time or geographical limitations.

While employing Defendant Deville, Plaintiff underwent negotiations with Claiborne

Electric3 to provide services under a pole and line maintenance agreement. On March 1, 2017,

Defendant Deville left his employment with Plaintiff and began employment with Defendant Volt

Power. Shortly thereafter, Claiborne Electric removed Plaintiff as an engineering vendor and

discontinued negotiations with Plaintiff. Plaintiff alleges that Defendant Volt Power subsequently

obtained a maintenance agreement with Claiborne Electric because of Defendant Deville’s

“disclosure of the potential client, pricing, and other proprietary information as precluded by the

[Agreement.]” (ECF No. 3, p. 2).

On June 15, 2018, Plaintiff initiated this lawsuit against Defendants in the Circuit Court of

Union County, Arkansas. Plaintiff asserts claims of breach of contract, tortious interference with

a contract, and conversion, all stemming from Defendant Deville’s alleged disclosure of

information protected by the Agreement to Defendant Volt Power. On July 26, 2018, Defendants

removed the case to this Court.

On November 29, 2018, Defendants filed the instant motion for judgment on the pleadings,

arguing that the Agreement is unenforceable as a matter of law and that Plaintiffs’ claims all fail

and should be dismissed. Plaintiff opposes the motion.

3 Claiborne Electric is not a party to this action.

II. LEGAL STANDARD

A party may move for judgment on the pleadings after the pleadings have closed. Fed. R.

Civ. P. 12(c). In deciding a Rule 12(c) motion, courts apply the same legal standard used for a

motion to dismiss under Rule 12(b)(6). Ashley Cnty., Ark. v. Pfizer, Inc., 552 F.3d 659, 665 (8th

Cir. 2009). A pleading must state “a short and plain statement of the claim showing that the pleader

is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To meet this standard and to survive a Rule 12(b)(6)

motion, a complaint need only state factual allegations sufficient to raise a right to relief above the

speculative level that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

“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).

Courts deciding a Rule 12(c) motion are required to accept as true the complaint’s well-

pled allegations and must resolve all inferences in the plaintiff’s favor. Wishnatsky v. Rovner, 433

F.3d 608, 610 (8th Cir. 2006). However, this tenet does not apply to legal conclusions, “formulaic

recitation of the elements of a cause of action,” or naked assertions which are so indeterminate as

to require further factual enhancement. Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th

Cir. 2009). “Judgment on the pleadings is appropriate only when there is no dispute as to any

material facts and the moving party is entitled to judgment as a matter of law.” Wishnatsky, 433

F.3d at 610.

When considering a motion for judgment on the pleadings, a court must generally ignore

all materials outside the pleadings. Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th

Cir. 1999). However, courts may consider “some materials that are part of the public record or do

not contradict the complaint . . . as well as materials that are necessarily embraced by the

pleadings.” Id. (internal quotation marks omitted).

III. DISCUSSION

Defendants argue that the Agreement is an unreasonable and unlawful restraint of trade

and, as such, is unenforceable. Thus, Defendants argue that Plaintiff’s claims all fail, as they are

premised on the existence of a valid underlying contract, of which there is none. Plaintiff argues

in response that the instant motion should be denied as premature because the pleadings have not

closed, the parties have not filed their Joint Rule 26(f) Report, and the parties have not conducted

any discovery. Plaintiff does not, however, respond to the substance of Defendants’ arguments

for dismissal.

As a preliminary matter, the Court will address Plaintiff’s arguments that the instant motion

should be denied as premature. Then, if necessary, the Court will take up Defendants’ arguments

for dismissal.

A. Whether the Motion is Premature

Plaintiff presents various arguments that the instant motion is premature. First, it contends

that the Court should deny the instant motion because the pleadings were not closed at the time

Defendants filed the instant motion.

A party may file a motion for judgment on the pleadings “[a]fter the pleadings are closed—

but early enough not to delay trial.” Fed. R. Civ. P. 12(c). “The pleadings are ‘closed’ after the

complaint and answer are filed, along with any reply to additional claims asserted in the answer.”

Hesford v. Jefferson Capital Sys., No. 18-CV-100-CJW, 2019 WL 124823, at *1 (N.D. Iowa Jan.

7, 2019); see also Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §

1367 (3d ed. 2018) (“[P]leadings are closed upon the filing of a complaint and an answer (absent

a court-ordered reply), unless a counterclaim, cross-claim, or third-party claim is interposed, in

which event the filing of a reply to a counterclaim, cross-claim answer, or third-party answer

normally will mark the close of the pleadings.”) (internal footnote omitted).

Defendants answered Plaintiff’s complaint prior to filing the instant motion and

Defendants’ answer did not assert any additional claims. Thus, the pleadings closed upon the

filing of Defendants’ answer, and the instant motion is procedurally proper. Hesford, 2019 WL

124823, at *1. As such, the Court finds that the instant motion should not be denied as premature

based on the pleadings not being closed.

Second, Plaintiff argues that the instant motion is premature because the parties have not

filed their Joint Rule 26(f) Report.4 Plaintiff cites no authority for the proposition that a Rule 12(c)

motion cannot be filed prior to the submission of the parties’ Joint Rule 26(f) Report, and the Court

is unaware of any such authority. To the Court’s knowledge, the only procedural barrier Rule 26

may present is that parties generally cannot conduct formal discovery before conferring pursuant

to Rule 26(f). See Fed. R. Civ. P. 26(d)(1). However, this limitation is of no import as to whether

the instant motion is premature because a Rule 12(c) motion may be filed at any time after the

pleadings close. As discussed above, the pleadings closed in this case before Defendants filed the

instant motion, and, thus, the instant motion should not be denied as premature based on the timing

of the parties’ Joint Rule 26(f) Report.

Finally, Plaintiff argues that the instant motion should be denied as premature because the

parties have not yet had the opportunity to conduct discovery. The Federal Rules of Civil

Procedure authorize courts to delay a ruling in certain instances to allow parties to conduct

additional discovery. See Fed. R. Civ. P. 56(d) (permitting courts to continue a ruling on a motion

4 The Court notes that the parties filed their Joint Rule 26(f) Report on the same day that Plaintiff filed its opposition

papers to the instant motion.

for summary judgment if the parties have not conducted adequate discovery). However, Plaintiff

cites no authority providing for the use of Rule 56(d)—or any other, similar rule—on a motion for

judgment on the pleadings, and the Court is unaware of any such authority. Even assuming

arguendo that Rule 56(d) is applicable to delay a ruling on a Rule 12(c) motion, courts may only

delay a ruling to allow for discovery if the requesting party “shows by affidavit or declaration that,

for specific reasons, it cannot present facts essential to justify its opposition.” Anzaldua v. Ne.

Ambulance & Fire Prot. Dist., 793 F.3d 822, 836 (8th Cir. 2015). Plaintiff has not provided an

affidavit or declaration to this effect, nor has it stated any facts which it hopes to uncover in

discovery to allow it to better respond to the instant motion. See Beal v. Old Reliable Cas. Co.,

No. 4:14-cv-4079-PKH, 2014 WL 4230851, at *2 (W.D. Ark. Aug. 26, 2014). Accordingly, the

Court finds that the instant motion should not be denied as premature based on the parties’ lack of

discovery.

In sum, the Court finds that Plaintiff’s arguments that the instant motion should be denied

as premature are misplaced. Thus, the Court will now turn to the merits of Defendants’ motion.

B. Whether Dismissal is Appropriate

Defendants argue that the Agreement is an unreasonable and unlawful restraint of trade

and, as such, is unenforceable. Thus, Defendants argue that Plaintiff’s claims fail, as they are

premised on the existence of a valid underlying contract, of which there is none. The Court will

now separately address whether dismissal is proper as to each of Plaintiff’s claims.

1. Breach of Contract

Plaintiff asserts that Defendant Deville breached the Agreement5 by disclosing confidential

5 The Court may consider the Agreement—which is the subject matter of this breach of contract claim—because it

was attached to Plaintiff’s complaint and, thus, is necessarily embraced by the pleadings. Zean v. Fairview Health

Servs., 858 F.3d 520, 526-27 (8th Cir. 2017).

information covered by the Agreement after leaving Plaintiff to work for Defendant Volt Power.

Defendants argue that the Agreement is an unreasonable and unlawful restraint of trade and, thus,

is unenforceable.

Federal district courts sitting in diversity, like the Court in this case, must apply the forum

state’s substantive law. Guardian Fiberglass, Inc. v. Whit Davis Lumber Co., 509 F.3d 512, 515

(8th Cir. 2007). A valid breach-of-contract claim under Arkansas law requires the assertion of:

(1) the existence of a valid and enforceable contract; (2) an obligation on the part of the defendant,

(3) a breach of that obligation; and (4) damages resulting from the breach. Rabalaias v. Barnett,

284 Ark. 527, 528-29, 683 S.W.2d 919, 921 (1985). Defendants assert that the first element—the

existence of a valid and enforceable contract—is missing in this case and, thus, Plaintiff’s breach-

of-contract claim fails.

As a preliminary matter, the Court must address the standard to be used to determine the

validity and enforceability of the Agreement. Defendants state that the Court should analyze the

Agreement—and find it unenforceable—using the “reasonable restraint” analysis used in Arkansas

for covenants not to compete.6 Plaintiff offers no response or objection to this assertion.

Arkansas caselaw is not particularly well developed regarding how courts should determine

whether a confidentiality agreement is enforceable. However, it appears that Arkansas courts use

the same test to determine whether confidentiality agreements and non-compete agreements are

enforceable. See, e.g., Alltel Commc’ns, LLC v. DeJordy, No. 4:10-cv-0130-BSM, 2011 WL

672003, at *3 (E.D. Ark. Feb. 17, 2011) (applying Arkansas law and using the “reasonable

restraint” test to separately examine the enforceability of a non-compete contract and a

confidentiality agreement); City Slickers, Inc. v. Douglas, 73 Ark. App. 64, 73, 40 S.W.3d 805,

6 The record before the Court indicates that Plaintiff and Defendant Deville executed a confidentiality agreement—

the Agreement—but nothing indicates that they also executed a covenant not to compete.

812 (2001) (affirming the trial court’s finding that a challenged nondisclosure agreement was

unenforceable as an overly broad, unreasonable, and unlawful restraint of trade). Accordingly, the

Court will examine the Agreement using applicable Arkansas caselaw regarding the enforceability

of covenants not to compete.

Covenants not to compete are not generally favored by Arkansas law. Duffner v. Alberty,

19 Ark. App. 137, 139 (1986). The party challenging the validity of a covenant bears the burden

to show that the covenant is unreasonable and contrary to public policy. Dawson v. Temps Plus,

Inc., 337 Ark. 247, 254, 987 S.W.2d 722, 726 (1999). “In order for a non-compete agreement to

be valid, three requirements must be met: (1) the covenantee must have a valid interest to protect;

(2) the geographical restriction must not be overly broad; and (3) a reasonable time limit must be

imposed.” Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 81, 281 S.W.3d 749, 754 (2008).

All three of these factors must be present to create a valid non-compete agreement, as the law will

not enforce a contract that serves merely to prohibit ordinary competition. Duffner, 19 Ark. App.

at 139. The validity of a covenant is determined on a case-by-case basis. Evans Labs., Inc. v.

Melder, 262 Ark. 868, 870, 562 S.W.2d 62, 63 (1978).

“The restraints imposed by a covenant not to compete must not be broader than necessary

to protect the covenantee’s interests.” Statco Wireless, LLC v. Sw. Bell Wireless, LLC, 80 Ark.

App. 284, 298, 95 S.W.3d 13, 21 (2003). “If a covenant prohibits the covenantor from engaging

in activities which are unnecessary to protect the promise, the covenant is unreasonable.” Id. “The

test of reasonableness of contracts in restraint of trade is that the restraint imposed upon one party

must not be greater than is reasonably necessary for the protection of the other and not so great as

to injure a public interest.” Burleigh v. Ctr. Point Contractors, Inc., 2015 Ark. App. 615, 7, 474

S.W.3d 887, 891 (2015).

Arkansas courts “view covenants not to compete differently based on whether they grow

out of an employment relationship or whether they are made in connection with the sale of a

business.” Freeman, 102 Ark. App. at 82, 281 S.W.3d at 755 (2008). Covenants not to compete

in employment contracts are subject to stricter scrutiny than those connected with the sale of a

business. HRR Ark., Inc. v. River City Contractors, Inc., 350 Ark. 420, 430, 87 S.W.3d 232, 239

(2002).

A covenant not to compete must be valid as written, as courts will not parse a contract to

separate the reasonable provisions from the unreasonable ones. Bendinger v. Marshalltown

Trowell Co., 338 Ark. 410, 419, 994 S.W.2d 468, 473 (1999). “It has long been the rule that, when

a covenant not to compete is too far-reaching to be valid, the court will not make a new contract

for the parties.” Federated Mut. Ins. Co. v. Bennett, 36 Ark. App. 99, 104-05, 818 S.W.2d 596,

599 (1991) (citing Rector-Phillips-Morse, Inc. v. Vroman, 253 Ark. 750, 753, 489 S.W.2d 1, 4

(Ark. 1973)).

Defendants argue that the Agreement, a confidentiality agreement arising out of an

employment relationship, is an unreasonable restraint of trade. Specifically, Defendants argue that

the Agreement, by its plain terms, covers “all information” provided by Plaintiff to Defendant

Deville and vice versa, and that Defendant Deville cannot disclose that information to any other

party, with this obligation lasting forever.

Defendants point the Court to City Slickers, Inc. v. Douglas, in which the Arkansas Court

of Appeals found a confidentiality agreement to be unenforceable. 73 Ark. App. at 72, 40 S.W.3d

at 811. The City Slickers confidentiality agreement prevented the covenantor, for a period of five

years, from disclosing to any party “all information [he] [saw,] hear[d], [came] in contact with or

otherwise gain[ed] knowledge of, in connection with [his] employment.” Id. The appellate court

reasoned that, by its terms, the challenged confidentiality agreement improperly prevented the

covenantor from using his experience and knowledge gained during his employment in any future

endeavors. Id. Thus, the appellate court affirmed the lower court’s ruling that the challenged

confidentiality agreement “constituted an unreasonable and unlawful restraint of trade, and that it

was an overly broad covenant not to compete masquerading as a confidentiality and nondisclosure

agreement.” Id.

Defendants argue that the Agreement in this case is far broader than the confidentiality

agreement in City Slickers, which had a five-year limitation period and prevented the employee

from disclosing all information that he came in contact with during his employment. They argue

that the Agreement in this case not only covers “all information” provided by Plaintiff to Defendant

Deville, but also vice versa, and that the Agreement has no time limitation at all. Thus, Defendants

argue that the Court should find the Agreement unenforceable. Plaintiff offers no response to this

argument, other than seemingly arguing that “non-disclosure agreements . . . are generally held to

be more valid and in a more favorable light [than non-compete agreements].” (ECF No. 18, p. 2).

The Court agrees with Defendants. Plaintiff’s complaint does not allege that Defendant

Deville was exposed to any confidential information related to its client list or their prices, but it

does allege that he relayed that information to Defendant Volt Power. Giving Plaintiff the benefit

of all reasonable inferences, it appears that Plaintiff alleges that it, at some point, gave Defendant

Deville confidential information regarding Claiborne Electric. To be sure, an employer has a

legitimate desire in seeing that a former employee does not appropriate its customers. Statco

Wireless, LLC, 80 Ark. App. at 284, 95 S.W.3d at 21. However, any covenant utilized to prevent

appropriation of customers must be reasonably drawn, so as to not constitute an unreasonable

restraint on trade. Id. Plaintiff did not tailor the Agreement in a way that explicitly protected

information related to its customers or pricing, but instead drafted it to cover “all information

provided by either party [to the other].” (ECF No. 3, p. 5). Therefore, the Court finds that the

Agreement is not reasonably drawn, as it not only bars Defendant Deville from disclosing any

trade secrets learned during his employment, but also prevents him from disclosing any

information, including his experience and knowledge gained during that time. City Slickers, Inc.,

73 Ark. App. at 72, 40 S.W.3d at 811 (citing Witmer v. Ark. Dailies, Inc., 202 Ark. 470, 476, 151

S.W.2d 971, 974 (1941)). Moreover, the fact that the Agreement does not state a time limitation,

but instead applies forever, further supports a finding that it is unenforceable. See id. (finding

unenforceable a confidentiality agreement with a five-year limitation period). Bearing in mind

that Plaintiff does not offer a substantive response or argument regarding the Agreement’s

enforceability, the Court finds that the Agreement constitutes an unreasonable and unlawful

restraint of trade and, thus, is unenforceable.

Plaintiff’s breach-of-contract claim is based only on the existence of the Agreement. In

light of the Court’s above finding that the Agreement is unenforceable, the Court finds that, after

taking all well-pled allegations as true and construing all reasonable inferences in Plaintiff’s favor,

Plaintiff’s breach-of-contract claim fails because its essential elements are not met. Specifically,

Plaintiff has not alleged facts satisfying the requisite element that a valid and enforceable contract

exists between the parties. See Rabalaias, 284 Ark. at 528-29, 683 S.W.2d at 921. Accordingly,

Plaintiff fails to state a breach-of-contract claim upon which relief may be granted and that claim

should be dismissed.

2. Tortious Interference

Plaintiff’s complaint alleges that Defendant Volt Power tortiously interfered with the

contract between Plaintiff and Defendant Deville by accepting confidential information from

Defendant Deville. Defendants argue that this claim fails and should be dismissed because there

is no valid, underlying contract between Plaintiff and Defendant Deville.

In Arkansas, the elements of tortious interference are: (1) the existence of a valid

contractual relationship or a business expectancy; (2) knowledge of the relationship or expectancy

on the part of the interfering party; (3) intentional interference inducing or causing a breach or

termination of the relationship or expectancy; (4) resultant damage to the party whose relationship

or expectancy has been disrupted; and (5) improper conduct by the interfering party. Ballard Grp.,

Inc. v. BP Lubricants USA, Inc., 2014 Ark. 276, 14, 436 S.W.3d 445, 454 (2014). Moreover, some

third party must be involved for a tortious-interference claim to lie. Id.

Defendants argue that the first essential element of a tortious-interference claim—the

existence of a valid contractual relationship or expectancy—cannot be shown in this case.

Specifically, Defendants argue that the Agreement, which Plaintiff bases its claims on, is

unenforceable and, thus, there is no valid contractional relationship or expectancy. Defendants

conclude that Plaintiff’s tortious-interference claim fails because its essential elements are not

satisfied. Plaintiff does not respond to this argument, other than to say that whether tortious

interference occurred is a fact-based determination not ripe for a decision prior to a Rule 26(f)

report being filed.

The Court agrees with Defendants and finds Plaintiff’s argument is misplaced. As

previously determined above, the Agreement is an unreasonable restraint of trade and, thus, is

unenforceable. The Court has also determined above that Rule 26(f) presents no barrier to the

instant Rule 12(c) motion. Thus, for the above-stated reasons, and after taking all well-pled

allegations as true and construing all reasonable inferences in Plaintiff’s favor, the Court finds that

Plaintiff’s tortious-interference claim fails because it has not alleged facts demonstrating all

essential elements of the claim. Specifically, Plaintiff has not demonstrated the existence of a

valid contractual relationship or business expectancy. Accordingly, Plaintiff fails to state a

tortious-interference claim upon which relief may be granted and that claim should be dismissed.

3. Conversion

Plaintiff’s complaint alleges that Defendants converted Plaintiff’s confidential information

for their own use and benefit. Defendants argue that this claim fails and should be dismissed

because there is no valid, underlying contract between Plaintiff and Defendant Deville barring the

disclosure of information and, thus, Defendants’ alleged actions cannot be considered “wrongful.”

“[T]o establish liability for the tort of conversion, a plaintiff must prove that the defendant

wrongfully committed a distinct act of dominion over the property of another, which is a denial

of, or is inconsistent with, the owner’s rights.” Integrated Direct Mktg., LLC v. May, 2016 Ark.

281, 3, 495 S.W.3d 73, 75 (2016). “Stated another way, conversion is a common-law tort action

for the wrongful possession or disposition of another’s property.” Id.

Defendants argue that the Agreement is unenforceable and that Defendant Deville was not

bound by any confidentiality obligation when he left Plaintiff to work for Defendant Volt Power.

For this reason, Defendants argue that their alleged actions cannot be considered “wrongful” and,

thus, Plaintiff’s conversion claim fails and should be dismissed. Plaintiff does not respond to this

argument.

The Court agrees with Defendants. As discussed above, the Agreement is an unreasonable

restraint of trade and is unenforceable. Without the Agreement, nothing prevented Defendant

Deville from disclosing the information he came into contact with while employed with Plaintiff.

Therefore, Defendants’ alleged actions cannot be considered “wrongful,” an essential element of

the tort of conversion in Arkansas. See id. (“[A] plaintiff must prove that the defendant wrongfully

committed a distinct act of dominion over the property of another.”). Accordingly, after taking all

well-pled allegations as true and construing all reasonable inferences in Plaintiff’s favor, the Court

finds that Plaintiff fails to state a conversion claim upon which relief may be granted and that claim

should be dismissed.

IV. CONCLUSION

For the above-stated reasons, the Court finds that Defendants’ Motion for Judgment on the

Pleadings (ECF No. 15) should be and hereby is GRANTED. Plaintiff’s complaint is hereby

DISMISSED WITH PREJUDICE. A separate judgment of even date shall issue.

IT IS SO ORDERED, this 20th day of February, 2019.

/s/ Susan O. Hickey

Susan O. Hickey

Chief United States District Judge