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Capital Meats, Inc. v. The Meat Shoppe, LLC

United States District Court, D. Maryland

July 9, 2015

CAPITAL MEATS, INC.,
v.
THE MEAT SHOPPE, LLC, et al.

MEMORANDUM

J. FREDERICK MOTZ, District Judge.

Plaintiff Capital Meats, Inc. ("CMI") brings this lawsuit against several entities referred to collectively here as "The Meat Shoppe" and several former CMI employees who now work for The Meat Shoppe (collectively, "defendants"). CMI alleges that defendants violated Virginia contract law; the Maryland Uniform Trade Secrets Act ("MUTSA"), Md. Code Ann., Com. Law § 11-1201 et seq; and committed several Maryland business and competition-related torts when they resigned en masse to establish and operate The Meat Shoppe. CMI has filed a nine-count amended complaint. (ECF No. 35).

Now pending is a joint motion to dismiss filed by defendants. (ECF No. 38). It is fully briefed, and no oral argument is necessary. See Local Rule 105.6. For the reasons set forth below, the motion is granted in part and denied in part.

BACKGROUND

Plaintiff CMI, a Virginia corporation with its principal place of business in West Virginia, is a wholesale distributor of frozen meat, poultry, and seafood. (Am. Compl., ECF No. 35 ¶ 1). CMI operates in sixteen states and has eleven warehouse distribution centers (often referred to as "CMI offices"). ( Id. ¶¶ 2-3). Relevant to this case are three CMI offices in Maryland: Baltimore, Middle River, and Westminster, and one office in New Castle, Delaware. ( Id. ¶ 4). CMI contracts with independent sales representatives ("Retail Dealers") who sell CMI's products door-to-door while driving trucks and wearing clothes that display CMI's logo and name. ( Id. ¶ 6). The Retail Dealers purchase CMI's products "on consignment on a daily basis without any up-front payment, " and return unsold product at the end of the day. ( Id. ¶¶ 102-103). CMI maintains a "CMI Database" that tracks inventory, sales, payments by customers, and balances owed by Retail Dealers. ( Id. ¶ 125). It "provides CMI a competitive advantage and is not available to others outside of CMI's business." ( Id. ¶ 128). CMI also maintains an inter-office website ("Call Center Website") which is "a centralized system for customer payment processing." ( Id. ¶ 137). Both the Database and Call Center Website stored information that the Retail Dealers used to improve their sales through greater efficiency. Defendant Meghan Tunney had access to the Database and Call Center Website as part of her job as CMI's Chief Auditor. ( Id. ¶ 30-31).

Each of the individual defendants except for Meghan Tunney was a Retail Dealer who signed a Distributorship Agreement with CMI.[1] ( Id. ¶ 110). Section 11 of the Distributorship Agreement contains a non-compete and non-solicitation clause ("the covenant") which states -

Upon termination of this Agreement and for a two (2) year period thereafter, Retail Dealer covenants and agrees not to engage, directly or indirectly, in the business of selling meat, poultry, and seafood products door-to-door in the Territory granted to Retail Dealer pursuant to this Agreement. Retail Dealer further agrees that upon the termination of this Agreement that he shall not solicit, either directly or indirectly, any customers with whom he had dealt while acting as an independent contractor for Supplier for the sale of meat, poultry, seafood, and other food products.

( Id. ¶ 112). CMI's amended complaint acknowledges the Retail Dealers were not awarded "exclusive rights to sell in any territory." Instead, the Retailer Dealers were allowed to sell within any area they could reach during a single day so that they could return unsold product back to CMI's warehouse for storage. ( Id. ¶ 110). Indeed, ¶ 2 of the Distributorship Agreement, "Rights and Territories, " was left blank on each of the Retail Dealer defendants' contracts, except for Liam Tunney, whose contract had "Any" written in each of the blanks. (ECF No. 35-4, 6, 8, 10, 12, 14, 16, 18).

On January 5, 2015, the Retail Dealer defendants did not show up for their regularlyscheduled warehouse pickups, and Meghan Tunney informed CMI that she had resigned effective immediately. ( Id. ¶¶ 144-146). CMI asked the defendants to return all of CMI's property in their possession, including Megan Tunney's access to the CMI Database which had been installed on her personal computer. ( Id. ¶ 134). Meghan Tunney never responded, until after this lawsuit was initiated and the CMI Database was provided to her counsel in February 2015. Id. There are other allegations around this time frame, including surveillance video footage of: Meghan Tunney moving around files inside CMI's Baltimore office and removing some of them from the office; Combass and Fincham removing documents and property; and shredding of documents by a CMI employee later hired by The Meat Shoppe. ( Id. ¶¶ 147, 150, 152, 155).

The individual defendants and around 100 of CMI's sales force began working at (and, CMI alleges, began operating) competing businesses, all operating under the name The Meat Shoppe. ( Id. ¶¶ 159-60). It is similarly "a wholesale meat distributor that sells and distributes frozen meat, poultry, and seafood via door-to-door sales in Maryland, the District of Columbia, Delaware, Pennsylvania, Virginia, and West Virginia." ( Id. ¶ 15). Defendants allegedly "engaged in malicious and deceitful actions in an effort to solicit and steal CMI's customers, " including by making false statements to customers and CMI employees that CMI is or will be out of business so as to entice them to switch to The Meat Shoppe. ( Id. ¶¶ 164-65). The four CMI regional offices at issue lost significant business to The Meat Shoppe subsequent to the mass resignation on January 5, 2015, which resulted in CMI losing around 70% of its revenue. ( Id. ¶ 172).

STANDARD

When ruling on a motion brought under Rule 12(b)(6), the court must "accept the wellpled allegations of the complaint as true, " and "construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). "Even though the requirements for pleading a proper complaint are substantially aimed at assuring that the defendant be given adequate notice of the nature of a claim being made against him, they also provide criteria for defining issues for trial and for early disposition of inappropriate complaints." Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). "The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6)." Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To survive a motion to dismiss, the factual allegations of a complaint "must be enough to raise a right to relief above the speculative level... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and alterations omitted). "To satisfy this standard, a plaintiff need not forecast' evidence sufficient to prove the elements of the claim.... However, the complaint must allege sufficient facts to establish those elements." Walters, 684 F.3d at 439 (internal citations and quotation marks omitted). "Thus, while a plaintiff does not need to demonstrate in a complaint that the right to relief is probable, ' the complaint must advance the plaintiff's claim across the line from conceivable to plausible.'" Id. (quoting Twombly, 550 U.S. at 570).

In deciding whether to grant a motion to dismiss, the court may also consider documents attached to the complaint as well as documents attached to the motion to dismiss, provided that they are "integral to the complaint and authentic." See, e.g., Philips v. Pitt Cnty. Memorial Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

ANALYSIS

Defendants move to dismiss all nine counts in CMI's amended complaint. Neither side disputes that Virginia law applies to CMI's contract claims pursuant to ¶ 16(g) of the Distributorship Agreements. Maryland law applies to CMI's MUTSA claim and remaining tort allegations. Each count is discussed in order below.

I. Breach of Covenant Not-to-Compete.

CMI's first cause of action alleges that all of the Retail Dealers breached ¶ 11 of their respective Distributorship Agreement contracts - the non-compete and non-solicitation covenants. Although the clause is supported by consideration, the omission of material terms renders the clause unenforceable and warrants dismissal of Count I.

A. The contract and non-compete clause are supported by consideration.

Under Virginia law, a valid contract requires proof of "an offer, acceptance, and consideration." Neil v. Wells Fargo Bank, N.A., 596 F.Appx. 194, 196 (4th Cir. 2014) (citing Chang v. First Colonial Sav. Bank, 410 S.E.2d 928 (Va. 1991)). Offer and acceptance can be proved through signed contracts and also "inferred from the acts and conduct of the parties." Durham v. Nat. Pool Equip. Co. of Va., 138 S.E.2d 55, 58 (Va. 1964). As for consideration, "Virginia has long followed the peppercorn' theory of consideration, under which even a peppercorn suffices as consideration." Sfreddo v. Sfreddo, 720 S.E.2d 145, 153 (Va. Ct. App. 2012) ("A peppercorn has been equated with a cent."). If only nominal consideration was provided, however, Virginia law requires proof that the transaction was indeed a "bargained for exchange" and not a gift. Id. at 154 (quoting Chang, 410 S.E.2d at 930).

Here, the individual Distributorship Agreements reflect a valid, bargained-for contract between CMI and the Retail Dealers. Defendants do not dispute that all parties operated under the respective Distributorship Agreements without complaint until the events of January 5, 2015.[2] Instead, defendants argue that ¶ 11 was not supported by consideration. The noncompete clause prohibited the Retail Dealers from selling meat door-to-door "in the Territory granted to" them under ¶ 2 of the Distributorship Agreement, "Rights and Territories." Paragraph 2, however, was left blank on all but one of the contracts (Liam Tunney's, which instead lists "Any" and is thus equally non-specific) which, defendants argue, is evidence that CMI did not provide exclusive territory to the Retail Dealers in consideration for the noncompete clause.

Although the omission of a defined territory in ¶ 2 is fatal to Count I (discussed further below), it does not render the non-compete clause invalid for lack of consideration. Neither side disputes that the relationship between the parties was commercial, and these kind of contracts are a collection of various promises and exchanges that are not neatly divisible into directly corresponding benefits and detriments. See, e.g., SunTrust Mortg., Inc. v. Simmons First Nat. Bank, 861 F.Supp.2d 733, 736 (E.D. Va. 2012) (describing "mutual promises as consideration, even if the promises apply to different contract terms or are conditioned upon performance by the other party"). Even if a Retail Dealer was not given exclusive territory under ¶ 2, therefore, the omission of that specific benefit does not automatically void ¶ 11 for lack of consideration. CMI provided the Retail Dealers other benefits under the Distributorship Agreement, including compensation for selling CMI's products. I conclude that CMI has sufficiently alleged offer, acceptance, and consideration as to ¶ 11 of each Distributorship Agreement.

B. The non-compete clauses omit material terms.

The restrictive covenants in ¶ 11 may be supported by consideration, but they are unenforceable due to the omission of material terms. Restrictive covenants, like any contract, "must be sufficiently definite to enable a court to give it an exact meaning, and must obligate the contracting parties to matters definitely ascertained or ascertainable." Dean v. Morris, 756 S.E.2d 430, 537 (Va. 2014) (internal citations omitted). Courts must look within the "four corners" of the contract to ascertain meaning and intent. See, e.g., Schuiling v. Harris, 747 S.E.2d 833, 836 (Va. 2013) ("[C]ourts are bound to say that the parties intended what the written instrument plainly declares.") (quoting Wilson v. Holyfield, 313 S.E.2d 396 (Va. 1984)). Only if a term is ambiguous may extrinsic parol evidence be consulted to "establish the real contract between the parties." Prospect Dev. Co., Inc. v. Bershader, 515 S.E.2d 291, 296 (Va. 1999) (internal citations omitted).

In general, the validity of restrictive covenants like the non-compete clause in ¶ 11 turns on its reasonableness from three perspectives: (1) the employer's, (2) the employee's, (3) and "sound public policy." Advanced Marine Enters., Inc. v. PRC Inc., 501 S.E.2d 148, 155 (Va. 1998). Informing that analysis are the "function, geographic scope, and duration" of the covenant. Home Paramount Pest Control Comps., Inc. v. Shaffer, 718 S.E.2d 762, 763-64 (Va. 2011). Virginia law requires that restrictive covenants be "narrowly drawn... and any ambiguities in the contract will be construed in favor of the employee." Omniplex World Servs. Corp. v. U.S. Investigations Servs., Inc., 618 S.E.2d 340, 342 (Va. 2005). Here, as described above, the "Territory" that Retail Dealers are prohibited from competing in after their CMI employment ends is defined by ¶ 2 of the Distributorship Agreement. Defining the "Territory, " therefore, is a material term necessary for ...


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