Bunnett & Co. v. Dores
| Decision Date | 06 March 2018 |
| Docket Number | A-15-CV-1104 -LY-AWA |
| Parties | BUNNETT & CO., INC., et al. v. FRANK DORES |
| Court | U.S. District Court — Western District of Texas |
Before the Court are Plaintiffs' Amended Motion for Order to Show Cause (Dkt. No. 179), Plaintiffs' Brief in Support (Dkt. No. 205), Todd Gearheart's Response (Dkt. No. 209), Ray Gearheart's Response (Dkt. No. 210), and Plaintiffs' Reply (Dkt. No. 213); and Joint Motion to Dismiss Voluntarily with Prejudice Movants' Claims Against Respondent Wawasan (Dkt. No. 190).1 The District Court referred the above-motions to the undersigned Magistrate Judge for report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(A), FED. R. CIV. P. 72, and Rule 1(c) of Appendix C of the Local Rules.
In this suit, Plaintiffs Bunnett & Co., Inc. (Bunnett) and Energy Feeds International, LLC (EFI) accuse Frank Dores of breach of fiduciary duty and theft of trade secrets. The suit wasoriginally filed in state court, and shortly thereafter was removed to federal court. Though not directly relevant to the claims asserted here, a short description of the alleged dealings between Bunnett and Dores provides helpful background to the issues before the Court.
Bunnett and EFI are in the business of distributing animal feed supplements for dairy cattle. One of Bunnett and EFI's main suppliers was Wawasan Agrolipids, Inc., a Malaysian company owned by Gareth Cheong. Dores began working for EFI in November 2008, and eventually became General Manager of both companies. In his positions with EFI and Bunnett, Dores built relationships with suppliers and customers, including Wawasan. In October 2015, Dores abruptly resigned his positions, claiming that he was experiencing severe emotional distress that made it impossible to continue performing his duties. He filed a workers' compensation claim and filed for disability benefits. However, at the same time, Dores incorporated a new entity that Plaintiffs assert he intended to use to compete against Bunnett and EFI by using trade secrets Dores had misappropriated from them—namely information on customers and suppliers, delivery capabilities, shipping speed, stock of product, and prices.
As a result, Bunnett filed suit in state court, and on the same day requested a temporary restraining order which the state court granted on November 24, 2015 (November TRO). The court further set a preliminary injunction hearing for two weeks later. Shortly before that hearing was to take place, however, Dores removed the case to federal court. After removal, Bunnett filed a motion in this Court requesting a TRO, and the Court set it for a hearing on January 13, 2016. After the hearing, the parties reached an agreement, and submitted an agreed TRO to Judge Yeakel. That TRO was signed and entered on January 13, 2016 (January TRO). Dkt. No. 47. It reads, in relevant part:
IT IS ORDERED that Defendant Frank Dores and any persons in active concert or participation with Dores who receive actual notice of this Order are commanded forthwith to refrain from: . . . Directly or indirectly soliciting, either on behalf of himself or any other person, employer, or entity, for the purpose of creating a contractual or other business relationship any customer or supplier of Plaintiffs with whom Dores had contact or for whom he performed services during his employment with Plaintiffs.
Id. at 1. The January TRO further sets forth Dores' required response were he to be contacted by a former customer or supplier. Id. The January TRO was served on Gareth Cheong and Wawasan and Ray Gearheart, a former independent contractor/sales person for Bunnett.2 Pl. Exh. 60. R. Gearheart sent Todd Gearheart an email with the November TRO attached, to which T. Gearheart responded, "And so it begins." Pl. Exh. 50. On January 22, 2016, while the January TRO was in force, Bunnett moved for a preliminary injunction. Dkt. No. 51. Three days later, Dores filed his Suggestion of Bankruptcy, notifying the Court that he had filed a voluntary petition in the Eastern District of California, thereby staying the case. Dkt. No. 52. The January TRO expired by its own terms on February 1, 2016.
In September 2016, while the case was still under the automatic stay, Bunnett filed a motion for Order to Show Cause (Dkt. No. 65) alleging that several non-parties had violated the TRO issued by this Court. Dkt. No. 65. In this motion, Bunnett claimed that Wawasan, its Executive Director Gareth Cheong, T. Gearheart and his company E&K Ag, R. Gearheart and his company Gearheart Ag, and John Franklin all participated in a scheme in which Wawasan—with the help of the others and several of Dores's family members—sent two $20,000 payments to Dores in violation of the TRO. At a status conference on the motion, the Court first ordered briefing to address jurisdictionalissues raised by several of the alleged contemnors. With the exception of Franklin, the Court found that it had jurisdiction over the alleged contemnors. Dkt. Nos. 109 & 114. The Court then set a schedule for discovery and a hearing on the merits of the motion. Shortly before the evidentiary hearing, Dores' bankruptcy suit was dismissed, thus lifting the automatic stay on this Court. Bunnett then moved to amend its Motion for Order to Show Cause to add Dores as a Contemnor. The Court granted this motion, and Dores was added as a party. His counsel sought leave to withdraw, which was granted, and Dores has been representing himself since then.3 Finally, just days before the hearing was set to begin, Bunnett, Wawasan, and Cheong reached an agreement on the motion, and filed their joint motion to dismiss voluntarily. Dkt. No. 190.
The Court held a two-day evidentiary hearing on the Motion for Order to Show Cause on July 24-25, 2017. At this hearing the Court heard evidence on the issue of whether the two $20,000 payments made to Dores violated the January TRO. A number of witnesses testified via deposition. Set forth below are the factual findings of this Court.
Dores had worked at EFI and Bunnett for about 7 years before leaving. When he left in October 2015, Dores claimed that he was suffering from severe stress, and requested workers' compensation forms. Pl. Exh. 18; Pl. Exh. 19 (). Further, Cheong testified that at this same time, Dores asked to be taken on as General Manager at Wawasan, at a salary of $20,000 per month. Cheong Dep. 41:23-42:20. Cheong declined to hire him, stating that Wawasan did not have the internal structure to accommodate such a position. Id. Documents also show that in October Dores incorporated FM Ag Enterprises, Inc (FM Ag). Vol. 1 Tr. 97:11-98:20. Dores claimed that this was a husband-wife venture and was incorporated for his wife's real estate appraisal business. Id. 99:2-5. However, the corporate documents listed Dores as CEO with a salary of $120,000, while his wife was Treasurer/Secretary and received no salary. Id. 98:13-14, 101:2-16. It further appears that in at least one email at the time, he referred to FM Ag as "his" business. Id. 101:17-24, 102:7-24; Pl. Exh. 44. Moreover, FM Ag, on November 17, 2015 received a payment from Wawasan, allegedly for a report drafted by Dores' wife. Vol. 1 Tr. 107:1-3; Pl. Exh. 41. However, each of the parties has admitted that no report was ever done. See Wei Su 11/1/16 Dep. 69:24-70:07; Cheong Dep. 92:09-22; cf. Vol 1 Tr. 107:9-15 ().
Shortly before Dores left, Bunnett and Wawasan had a dispute that led to Wawasan stopping shipments to Bunnett.5 RG Exhs. 9-11. This led to Bunnett having difficulty filling its customers' orders. Also, a new Wawasan distributor appeared on the market at this time—Agrofin—which was offering to distribute Wawasan products to United States purchasers, the business Bunnett had been engaged in. Wei Su. 6/27/17 Dep. 23:16-19. At around the same time, R. Gearheart and another independent contractor, John Franklin, who had been salesmen for Bunnett and EFI, also quit. Vol.2 Tr. 84:14-22, 246:25-247:5. After leaving, both Franklin and R. Gearheart were introduced to Wei Su and were taken on as independent sales agents for Agrofin. Vol. 2 Tr. 84:23-84:7; Pl. Exhs. 28 & 30. Wei Su first testified that she was introduced to Dores, R. Gearheart, and Franklin by Cheong, and that they were to be working for Agrofin as independent sales agents. Wei Su 11/1/16 Dep. 38:21-39:09; Wei Su 6/27/17 Dep. 44:05-08; cf. Pl. Exh. 12 ().6 Emails between Wei Su and several of Bunnett's former customers show that during this period Dores introduced the customers to Wei Su to supply their product needs. Pl. Exhs. 33, 35, 38-40; see also Wei Su 6/27/17 Dep. 91:02-09. Though in her first deposition, Wei Su admitted that this was due to Dores being taken on as a sales agent (Wei Su 11/1/16 Dep. 38:16-24), she later claimed that she did not know why Dores was sending customers to Agrofin. Wei Su 6/27/17 Dep. 54:22-25, 91:16-92:06.
A number of emails between January and March 2016 cast additional light on Dores' business activities during this period. On January 5, 2016, R. Gearheart—who at this time was a sales agent for Agrofin—sent an email to KoreChem, Inc. representative Steven Schabel stating that he, Franklin, and Dores were working together to distribute products. Pl. Exh. 54. Similarly, on March 8-9, R. Gearheart and Cheong emailed each other about a plan to sell directly to dairies, in which Cheong noted that he had spoken...
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