Clean Waste Sys. v. WasteMedX, LLC
| Decision Date | 17 September 2021 |
| Docket Number | 3:21-cv-36 |
| Parties | Clean Waste Systems, LLC, Plaintiff, v. WasteMedX, LLC and Timothy J. Miller, Defendants. |
| Court | U.S. District Court — District of North Dakota |
ORDER ON DEFENDANT'S MOTION TO DISMISS
Before the Court is Defendant Timothy J. Miller's (“Miller”) motion to dismiss for failure to state a claim and for lack of personal jurisdiction. Doc. No. 11. Plaintiff Clean Waste Systems, LLC (“CWS”) responded in opposition to the motion on May 28, 2021. Doc No. 19. Miller filed a reply on June 11, 2021. Doc. No. 23. For the reasons below, the motion is granted in part and denied in part.
This case arises from a Master Independent Sales Representative Agreement (the “ISR Agreement”) pertaining to ozone-based medical waste treatment systems. See Doc. No. 1-2. As alleged by CWS, Defendant WasteMedX, LLC (“WasteMedX”) and Miller (WasteMedX and Miller together, the “Defendats”) breached the ISR Agreement by misusing confidential information and dodging obligations in the months leading up to the ISR Agreement's termination. Further, CWS accuses the Defendants of interference with business expectancies, trade secret misappropriation, unfair competition, and conversion.
CWS is a North Dakota limited liability company principally located in Fargo that designs, manufactures, and services ozone-based medical waste treatment systems. Doc. No. 21, ¶ 2. WasteMedX is an Indiana limited liability company principally based in Carmel, Indiana that sells equipment to the medical industry. Doc. No. 12-1, ¶ 19. Miller is a citizen of Indiana and a member and employee of WasteMedX. Id. ¶¶ 2, 5.
The business relationship that resulted in this lawsuit formed more than 30 years ago. Doc. No. 20, ¶ 3. In the late 1980s, Miller began selling medical equipment to Imaging Solutions, Inc., a North Dakota corporation primarily operated by Michael Hofer, who is also CWS's majority owner. Id. ¶¶ 1, 3. For a time, Miller signed on as a contract employee to sell medical equipment for Imaging Solutions. Id. ¶ 6. Miller and Hofer also partnered on an unrelated business venture centered around three North Dakota limited liability companies. Id. ¶ 5.
Hofer eventually introduced Miller to CWS's medical waste treatment systems. Id. ¶ 7. Intrigued by what he heard, Miller expressed interest in starting a company to sell CWS's products. Id. CWS representatives agreed. Doc. No. 21, ¶ 8. Miller formed O'Day Medical, LLC (“O'Day”) on February 24, 2014. Doc. No. 21-2.
The ISR Agreement was executed the next day. Doc. No. 1-2. The complaint alleges Miller participated in the negotiations. Doc. No. 12-1, ¶ 24. The opening paragraph of the ISR Agreement stated: “This agreement is . . . between OZ Solutions, LLC, as the exclusive distributor of [CWS] . . ., and O'Day Medical, LLC.” Doc. No. 1-2, p. 1. The succeeding paragraph stated that “O'Day Medical/Timothy J Miller and Thomas L Miller (‘ISR') wishes to serve as an Independent Sales Representative for sales of CWS Products and Parts in a territory to be defined by OZ SOLUTIONS.” Id. The ISR Agreement imposed obligations and conferred commission-based compensation upon “ISR, ” which is uniformly referred to in the singular and termed an independent contractor. See id. at 1-5. The signature page designated the parties as O'Day and OZ Solutions. Id. at 9. For O'Day's part, the ISR Agreement was executed “By: Timothy J. Miller Its: Partner.” Id.
In addition, the ISR Agreement prohibited the unauthorized use or disclosure of CWS's confidential or propriety information. Id. at 3. It allowed for termination by either party with, as relevant here, 180 days written notice. Id. at 5. Upon termination, the ISR Agreement called for cessation of representing a connection with CWS and OZ Solutions, as well as for the return of all equipment and marketing materials. Id. at 6. A combined forum selection and consent to jurisdiction clause chose North Dakota courts for the adjudication of disputes “related to or arising out of” the ISR Agreement. Id. at 7.
Two written amendments and addendums occurred over the ensuing four years. On October 14, 2014, the parties agreed to adjust the commissions and sales expectations. Doc. No. 1-3. The amendment's signature block names O'Day and OZ Solutions as the parties. Id. at 2. O'Day's half was again signed “By: Timothy J. Miller Its: Partner.” Id. At some point following the amendment, O'Day assigned its rights and obligations under the ISR Agreement to WasteMedX; OZ Solutions did likewise to CWS. See Doc. No. 1, ¶ 11.
On March 1, 2018, the parties consented to an addendum “by and between OZ Solutions, LLC, (as now assigned to Clean Waste Systems, LLC), and O'Day Medical, LLC (‘ISR') (as now assigned to WasteMedX, LLC).” Doc. No. 1-4, p. 1 (some abbreviations omitted). The addendum granted exclusivity to sell CWS's products to hospitals within a defined region. Id. Miller's name never appeared in the addendum. See id. at 1-6. The addendum's signature block remained unsigned but identified CWS and WasteMedX as the parties. Id. at 2. The blank signature lines adhered to the same “By: Its:” format used in the ISR Agreement's previous versions. Id.
Throughout the duration of the ISR Agreement, Miller served as the primary contact for O'Day and WasteMedX, routinely engaging in communications with OZ Solutions and CWS. Doc. Nos. 1, ¶ 12; 12-1, ¶ 29. Over the course of six years, Miller traveled to North Dakota four times on O'Day or WasteMedX's behalf for business with OZ Solutions or CWS. Doc. No. 12-1, ¶¶ 30-31. Miller collaborated with CWS on pricing models, marketing information, and sales strategies. Doc. No. 21, ¶ 12. CWS also provided Miller with drawings for new product models, testing information, and various operations and installation manuals. Id. ¶ 13.
Around late summer or early fall of 2018, WasteMedX and Miller commenced negotiations with Indiana University Bloomington (“IU”) regarding the potential sale of a CWS treatment system. Doc. No. 1, ¶ 14. CWS representatives had extended discussions with IU's architect and hospital personnel about designing the system to meet special requirements. Id. ¶ 15. The Defendants soon noticed CWS that IU likely intended to purchase the treatment system, with an expected closing date in late 2019 or early 2020. Id. ¶ 16.
However, as negotiations progressed, the parties' relationship deteriorated over alleged missed sales goals, unpaid commissions, and other tension points. See Doc. No. 21, ¶¶ 19-20. On January 29, 2020, WasteMedX tendered a letter to CWS with notice of intent to terminate the ISR Agreement effective July 29, 2020. Doc. No. 1-5. The termination letter acknowledged the ISR Agreement's requirement for WasteMedX to cease representing itself as having a connection with CWS and to return specified materials in its possession. Id. at 2. Miller signed the letter as WasteMedX's owner and partner. Id.
After presenting the termination letter, the Defendants allegedly failed to further advance negotiations with IU. Doc. No. 1, ¶ 18. Then in May or June 2020, CWS learned through one of its vendors that Miller had inquired about using ozone to treat medical waste. Id. ¶ 21. An engineer later informed CWS that he worked with Miller to design and produce an ozone-based medical waste treatment system. Id. ¶ 22. The engineer relayed that the Defendants had sold or leased the new system to IU. Id. CWS alleges that the Defendants' system exploited confidential information and trade secrets. Id. In addition, CWS claims that despite the termination letter, the Defendants continue to represent themselves as affiliated with CWS and have yet to return any promised materials. Id. ¶ 20.
CWS commenced the instant action on February 24, 2021. See Doc. No. 1. The complaint pleads six claims against both WasteMedX and Miller: (1) breach of contract; (2) unlawful interference with business expectancies; (3) misappropriation of trade secrets, in violation of North Dakota Century Code § 47-25.1, et seq.; (4) misappropriation of trade secrets, in violation of 18 U.S.C. § 1836, et seq.; (5) unfair competition; and (6) conversion. Id. WasteMedX responded with an answer and counterclaim on April 15, 2021. Doc. No. 10. The next week, Miller separately moved to dismiss the complaint against him. Doc. No. 11.
Miller maintains that the complaint fails to state a claim against him individually because only WasteMedX is bound by the ISR Agreement. In his view, each claim is grounded on actions he undertook as a member and employee of WasteMedX, hence precluding individual liability. Alternatively, Miller asserts a lack of personal jurisdiction due to his limited contacts with North Dakota. The Court addresses the personal jurisdiction question before turning to the merits. See Falkirk Mining Co. v. Japan Steel Works, Ltd., 906 F.2d 369, 372 (8th Cir. 1990) ().
When confronted with a motion to dismiss for lack of personal jurisdiction, “a plaintiff must make a prima facie showing that personal jurisdiction exists.” K-V Pharm. Co. v. J. Uriach & CIA, S.A., 648 F.3d 588 591 (8th Cir. 2011) (citing Dever v. Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004)). This showing is tested “not by the pleadings alone, but by the affidavits and exhibits presented with the motions and opposition thereto.” Miller v. Nippon Carbon Co., Ltd., 528 F.3d 1087, 1090 (8th Cir. 2008) (citation omitted). The...
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