FlagCo, LLC v. Winstead
| Docket Number | 5:23-CV-172-D |
| Decision Date | 03 November 2023 |
| Parties | FLAGCO, LLC, Plaintiff, v. BOBBY WINSTEAD, and NATIONAL YOUTH FOOTBALL ORGANIZATION, INC., Defendants. |
| Court | U.S. District Court — Eastern District of North Carolina |
On April 4, 2023, FlagCo, LLC, (“FlagCo,” “Gridiron,” or “plaintiff') filed a verified complaint against Bobby Winstead (“Winstead”) and National Youth Football Organization, Inc. (“NYFO”) (collectively “defendants”) alleging breach of contract, breach of fiduciary duty, constructive fraud, and unfair and deceptive trade practice claims [D.E. 1], On July 3,2023 Bobby Winstead and NYFO moved to dismiss [D.E. 9] and filed a memorandum in support [D.E. 9-1]. On July 24,2023, FlagCo responded in opposition [D.E. 10]. On August 8,2023 defendants replied [D.E. 13].
Defendants argue that this court lacks subject-matter jurisdiction because FlagCo lacks standing to bring these claims and fails to plead the amount-in-controversy requirement for diversity jurisdiction [D.E. 9-1] 3. Alternatively, defendants argue that FlagCo fails to state a claim upon which relief can be granted for breach of contract, breach of fiduciary duty constructive fraud, and unfair and deceptive trade practices [D.E. 9-1] 8. As explained below, the court has subject-matter jurisdiction and dismisses without prejudice FlagCo's breach of fiduciary duty, constructive fraud and unfair and deceptive trade practices claims for failure to state a claim upon which relief can be granted.
FlagCo operates recreational and competitive youth flag football and other non-tackle football programs, including flag football leagues, camps, and tournaments. See Compl. [D.E. 1] ¶ 2. FlagCo is organized and exists under Delaware law, has its principal place of business in Washington, and is authorized to do business in North Carolina under the trade name Gridiron Football. See id. at ¶ 3. Bobby Winstead is a North Carolina resident and was the sole owner of NYFO. See Id. at ¶¶ 4,6. NYFO is a corporation organized and existing under the laws of North Carolina with its principal place of business in Raleigh, North Carolina. See id. at ¶ 5. For decades, Winstead has served as a youth football coach in North Carolina. See [D.E. 9-1] 2. Winstead started NYFO to provide opportunities for young players to participate in spring 7-on-7 leagues in the Raleigh area. See Id. NYFO operates youth non-contact football leagues, camps, and tournaments in North Carolina, and Winstead has promoted the organization and its offerings through social media. See Compl. ¶ 9.
On January 6, 2021, FlagCo entered into an Asset Purchase Agreement (“APA”) with Winstead and NYFO, in which NYFO sold to FlagCo the assets and properties NYFO used to conduct its then existing “Business” operating youth football activities in North Carolina. See id, at ¶ 10. On January 7,2021, the transaction closed, and the APA included all goodwill associated with the business, its “Confidential Information,” and all other rights and tangible or intangible properties or assets used in or relating to the operation of the business. See Id. at ¶ 11. Under the APA, defendants agreed to express covenants including Non-Compete Covenants (“APA Non- Compete”), Non-Solicitation Covenants (“APA Non-Solicitation”), and Confidentiality Covenants (“APA Confidentiality”) (collectively “APA Covenants”). See Id. at ¶ 14. Under the APA, defendants also agreed to change NYFO's name and all assumed names on or before January 17, 2021. See id. at ¶ 13.
The APA Non-Compete Covenants state that defendants would not directly or indirectly compete against the Business for a five-year period from the effective date of the APA. See id. at ¶ 15. The APA Non-Solicitation Covenants state that defendants, for five years, would not solicit or employ employees or other representatives of FlagCo, or solicit customers or other business relations of FlagCo that existed during the two years before the APA. See Id. at ¶ 16. The APA Confidentiality Covenants state that defendants agreed, for five years, not to use any Confidential Information for their own account or for the benefit of any other person. See Id. at¶ 17.
As part of the APA, defendant Winstead terminated his employment with NYFO and entered into an Executive Employment Agreement (“Employment Agreement”) with FlagCo, effective January 7,2021. See id. at ¶ 20. The Employment Agreement designated Winstead as the district manager for FlagCo, meaning that Winstead was responsible for establishing and maintaining league infrastructure, procuring field space for practices and games, hiring coaches and referees, marketing the leagues, and onboarding new players. See Id. at ¶¶ 21-22. The Employment Agreement required Winstead to devote his best efforts and substantially all of his active business time to the FlagCo business and not to engage in any outside business activity without prior written approval. See Id. at ¶ 25. As part of the Employment Agreement, Winstead agreed to certain express covenants that largely mirrored the covenants in the APA, including Employment Non-Compete Covenants, Employment Non-Solicitation Covenants, and Employment Confidentiality Covenants. See Id. at ¶¶ 29-30.
FlagCo employed Winstead from January 7,2021, until November 30,2022. See Id. at ¶ 34. “While employed with FlagCo, Winstead was FlagCo's top executive in North Carolina, responsible for operating youth football leagues, camps, tournaments, and related activities throughout the state.” Id.,
On November 3,2022, Winstead emailed Todd Cadwallader of FlagCo and resigned. See Id. at ¶ 35. Winstead blind copied several FlagCo employees, including FlagCo's top executives in Florida, Wisconsin, Arizona, and Texas. See id. at ¶ 36. Before emailing Cadwallader, Winstead told Cadwallader that he was aware of, but did not intend to honor, the Employment Covenants and APA Covenants. See id. at ¶ 37.
On February 3,2023, FlagCo became aware that Winstead allegedly was competing with its Business by operating flag football leagues in North Carolina in violation of the APA and Employment Covenants. See id. at ¶ 38. According to FlagCo, Winstead's social media accounts indicate that as early as August 2,2022, while still employed with FlagCo, Winstead was marketing and operating recreation youth football activities under the name “7 on 7 Football,” which FlagCo calls the “Competitive Business.” See Id. at ¶¶ 38-40. As of April 4,2023, FlagCo alleges that the 7 on 7 fb.com “website” was advertising spring leagues in multiple North Carolina locations for the spring 2023 season. See Id. at ¶¶ 40-42. FlagCo has no association with 7 on 7 Football and never authorized Winstead's use of the website in association with FlagCo business activities. See id. at ¶ 43. FlagCo alleges that the 7 on 7 Facebook account, which on August 2,2022, was providing registration access for customers to sign up for spring football leagues, was the same Facebook page that Winstead used to advertise, market, and provide registration for Girdiron Football (i.e., the trade name that FlagCo used for its North Carolina business). See id. at ¶¶ 44-45. On October 19,2022, Winstead used his personal Twitter account to advertise the 7 on 7 Football spring league for 2023 and said that NYFO was sponsoring the league. See Id. at ¶¶ 47-48. FlagCo also alleges that Winstead is using two other twitter accounts, one labeled @ 7 on 7 Champ, and @NYFOCorporate, to advertise and market the 7 on 7 Football spring league and direct customers to the “website.” See id. at ¶¶ 48-50. FlagCo alleges that Winstead is operating this Competitive Business in association with NYFO. See id. at¶51.
FlagCo alleges that Winstead and NYFO are using the Confidential Information and assets purchased in the 2021 APA to solicit and divert FlagCo customers and prospective customers to the Competing Business. See Id. at ¶ 54. FlagCo alleges that it cannot effectively advertise and operate its business in North Carolina due to defendants' conduct. See Id. at ¶ 62. FlagCo seeks compensatory damages and injunctive relief. See Id. at ¶¶ 18-20.
“The burden of proving subject matter jurisdiction on a motion to dismiss is on the plaintiff, the party asserting jurisdiction.” Adams v. Bain- 697 F.2d 1213,1219 (4th Cir. 1982). Where a defendant raises a facial challenge to subject-matter jurisdiction, the court “effectively affords a plaintiff the same procedural protection as he would receive under a Rule 12(b)(6) consideration, taking the facts as true and denying the Rule 12(b)(1) motion if the complaint alleges sufficient facts to invoke subject matter jurisdiction.” Azima v. Nicholas Del Rosso & Vital Mgmt, Servs., Inc., No. 1:20CV954,2022 WL 4537807, at *2 (M.D. N.C. Sept. 28,2022) (unpublished) (quotation omitted); Kerns v. United States, 585 F.3d 187,192-93 (4th Cir. 2009).
“[T]he procedural posture of the case dictates the plaintiffs burden as to standing.” Beck v. McDonald, 848 F.3d 262,270 (4th Cir. 2017). “At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we presume that general allegations embrace those specific facts that are necessary to support the claim.” Id. (quotation omitted). “We do not, however, apply the same presumption of truth to conclusory statements and legal conclusions.” Id. (quotation omitted).
A motion to dismiss under Rule 12(b)(6) tests the complaint's legal and factual sufficiency. See Ashcroft v. Iqbal, 556 U.S. 662,677-80 (2009); Bell Ati. Corp, v. Twombly, 550 U.S. 544,55463 (2007); Coleman v. Md. Ct, of Appeals, 626 F.3d 187,190 (4th Cir. 2010), affd, 566 U.S. 30 (2012); Giarratano v....
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