Grubbs v. Sheakley Grp., Inc.

Decision Date07 December 2015
Docket NumberNo. 15–3302.,15–3302.
Citation807 F.3d 785
Parties Linda GRUBBS ; Tri–Serve, LTD.; Tri–Serve # 1, LLC; Capital Concepts, Inc., Plaintiffs–Appellants, v. SHEAKLEY GROUP, INC., et al., Defendants–Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED:Robert A. Winter, Jr., Fort Mitchell, Kentucky, for Appellants. Rachael A. Rowe, Keating Muething & Klekamp PPL, Cincinnati, Ohio, for Sheakley Appellees. ON BRIEF:Robert A. Winter, Jr., Fort Mitchell, Kentucky, for Appellants. Rachael A. Rowe, James E. Burke, Thomas F. Hankinson, Anthony M. Verticchio, Keating Muething & Klekamp PPL, Cincinnati, Ohio, for Sheakley Appellees. James Papakirk, Flagel & Papakirk, LLC, Cincinnati, Ohio, for Appellee First Financial Bank. Angela Strunk Zwick, Hamilton, Ohio, pro se.

Before: SILER, CLAY, and GIBBONS, Circuit Judges.

OPINION

CLAY, Circuit Judge.

Plaintiffs Linda Grubbs and the companies she owns, Tri–Serve, Ltd.; TriServe # 1, LLC; and Capital Concepts, Inc., appeal the order of the district court dismissing Plaintiffs' claims under the Lanham Act, 15 U.S.C. § 1125, and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, for failure to state a claim, and dismissing all remaining state law claims over which the district court had pendent jurisdiction. For the reasons that follow, we AFFIRM in part, and REVERSE in part, the order of the district court, and remand for further proceedings consistent with this opinion.

BACKGROUND

Plaintiff Linda Grubbs is the owner of Plaintiff Capital Concepts, Inc., a financial planning, wealth management, and tax preparation firm providing, among other things, 401(k) planning. At all relevant times, she was also the owner of Plaintiffs Tri–Serve, Ltd. and TriServe # 1, LLC ("Tri–Serve"), the successors to four professional employment organizations ("PEOs") she purchased on October 13, 2008. A PEO is a type of Ohio regulated entity to which employers may outsource certain administrative tasks, such as payroll, workers' compensation, and benefits. PEOs serve as co-employers with their clients and are contractually responsible for those functions outsourced to them. Tri–Serve is based in Harrison, Ohio and provides PEO services to the greater Cincinnati, Ohio market. It is unclear from the record whether Tri–Serve had any clients outside of Ohio. After the purchase of Tri–Serve, Grubbs asked Defendant Angelia Strunk–Zwick to manage the newly acquired companies because of her expertise with PEOs. During her employment with Tri–Serve, Strunk–Zwick was subject to a non-competition agreement.

Defendant Larry Sheakley owns and operates the Sheakley Group of Companies, comprising at least fifteen entities, all named as defendants. According to their own marketing material, the Sheakley Group of Companies (collectively, "Sheakley") also provide "401(k) services, flexible benefit plans, workers' compensation, payroll, [and] human resources outsourcing solutions." Sheakley is headquartered in Cincinnati, Ohio.

On February 25, 2009, the President of Defendant Sheakley HR Solutions e-mailed Strunk–Zwick to ask for her assistance with Sheakley's PEO division. During March and April 2009, Strunk–Zwick was paid by Sheakley on a consulting basis, and was sometimes absent from the Tri–Serve office during business hours in order to provide services to Sheakley. On May 27, 2009, Strunk–Zwick met with employees of Sheakley to discuss moving Tri–Serve and its clients to Sheakley. At a follow-up meeting on June 2, 2009, Defendant Larry Sheakley agreed that Strunk–Zwick and two other Tri–Serve staff members would join Sheakley. Over the next several weeks, Strunk–Zwick and various Sheakley employees planned and coordinated the transfer of the Tri–Serve clients to Sheakley via e-mail and phone. Defendant Steve Wolf, acting senior vice-president for Sheakley HR, LLC, suggested in an e-mail on June 21, 2009 to Strunk–Zwick that she contact the Tri–Serve clients to inform them that "we are partnering with Sheakley and that we may transition them over to give them better service etc." (R. 87, Compl.¶ 971(h), Page ID 3221.) Strunk–Zwick's first day at Sheakley was to be July 6, 2009.

On July 2, 2009, Strunk–Zwick sent an e-mail to a potential client stating, "[W]e will be moving our offices over the weekend, so on Monday, my direct dial number will be 513.728.xxxx and my email will beastrunk@sheakleyhr. com." (Id. ¶ 967(ba), Page ID 3215.) The following day, Strunk–Zwick sent another e-mail to twenty-two Tri–Serve clients:
Customers:
We are moving! In order to better serve you, we are partnering with Sheakley HR and moving our offices. As many of you know, we have partnered with Sheakley over the years with regards to our workers compensation and unemployment management. We have been blessed to have experienced tremendous growth over the last 6 months. We find ourselves needing more office space and more resources to ensure that our customer service level continues to meet your expectations. By moving into Sheakley Group we will be able to provide you and your employees with additional resources, services, and benefits, while continuing to provide you with the service that you have grown accustomed to expect from TriServe. Nothing will change from your standpoint. We will have new contact information, but nothing else will change. You will begin to see the Sheakley HR name and we will be introducing new benefits and new services to assist you with growing your business. Our focus has always been and will continue to be assisting you, the small business owner, with Rediscovering Your Passion. We appreciate your business over the years and look forward to continuing a long, beneficial relationship with you and your employees. As always, if you have any questions or concerns please feel free to call me.
Effective Monday, July 6, 2009 our Contact Information will be:
TriServe LTD c/o Sheakley HR Solutions
One Sheakley Way
Cincinnati, OH 45246
513–728–xxxx P
513–672–xxxx F
Payroll Time Submission via web:www.triservehr.com
Payroll Time Submission via fax: 513–672–xxxxPayroll Time Submission via email: sfernbach@sheakleyhr.com
Angie Strunk Direct Dial: 513–728–xxxxEmail: astrunk@sheakleyhr.com
Susan Fernbach Direct Dial: 513–728–xxxxEmail: sfernbach@sheakleyhr.com
Kym Martin Direct Dial: 513–728–xxxxEmail: kmartin@sheakleyhr.com
Thanks,
Angie Strunk

(R. 87, Compl. ¶ 840, Page ID 3185–86.) That same day, she mailed a hard copy of the e-mail to most of the same clients. Several Tri–Serve clients expressed dissatisfaction with the move, were upset that they had received no notice, and worried that all of their information had been transferred to Sheakley. On July 5, 2009, Strunk–Zwick sent notice of her resignation from Capital Concepts by e-mail to Grubbs. Before leaving the Capital Concepts office, Strunk–Zwick removed all files, including all customer files, and deleted computer files and e-mails. She also took Tri–Serve's tax returns for 2009. Sheakley continued to use the Tri–Serve name thereafter, including in promotional materials.

For the next several months, Grubbs had sporadic contact with Strunk–Zwick and Sheakley as they tried to work out various issues with payroll, taxes, and similar matters for 2009. By August 2009, health insurers and workers' compensation departments were still sending third-quarter invoices to Tri–Serve at Grubbs' office, but Sheakley, not Grubbs, received the client payments. From August 26–28, 2009, Grubbs communicated at length with Defendant Tom Pappas, a Sheakley employee, via e-mail regarding the location of various Tri–Serve files, including Tri–Serve's own tax documents. On August 30, Strunk–Zwick stated, in an e-mail to Pappas to be forwarded to Grubbs, that she did not have the tax records in question. Through at least November 2009, Ms. Grubbs continued receiving bills for Tri–Serve, which she paid from her retirement account.

On April 15, 2013, Plaintiffs filed a complaint in the United States District Court for the Southern District of Ohio against Strunk–Zwick, some fifteen Sheakley entities ("the Sheakley Entity Defendants"), several other former Sheakley employees (collectively, the "Sheakley Defendants," a term Plaintiffs use to denote both the entities and the employees).1 Plaintiffs twice amended their complaint, adding additional defendants not before this Court.2 The nineteen-count complaint, some 1,018 paragraphs long, contained four claims arising under federal law: trade name infringement and false designation of origin (against the Sheakley Entity Defendants); false advertising (against the Sheakley Entity Defendants and Strunk–Zwick); and substantive RICO and RICO conspiracy claims (against all Sheakley Defendants and Strunk–Zwick). It also asserted fifteen additional state law claims over which it requested the court exercise pendent jurisdiction.

The Sheakley Defendants, Strunk–Zwick, and other defendants moved separately to dismiss for failure to state a claim. The case was referred to a magistrate judge, who issued a Report and Recommendation recommending that the false designation of origin, false advertising, and RICO claims be dismissed and that the district court dismiss the remaining state-law claims. The district court adopted the Report and Recommendation without changes and entered an order dismissing the Lanham Act claims and the RICO claims for failure to state a claim. The remaining state-law claims were dismissed without prejudice. Plaintiffs now appeal.

DISCUSSION

Standard of review

We review de novo the grant of a motion to dismiss for failure to state a claim. Casias v. Wal–Mart Stores, Inc., 695 F.3d 428, 435 (6th Cir.2012). In reviewing a motion to dismiss, we are obliged to "accept all factual allegations as true," construing the complaint "in the light most favorable to the plaintiff." Laborers' Local 265 Pension Fund v. iShares Trust, 769 F.3d 399, 403 (6th Cir.2014). To survive a motion to dismiss, plaintiff...

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