Jacam Chem. Co. 2013, LLC v. Shepard, 1:19-cv-093

• Court: United States District Courts. 8th Circuit. United States District Court of North Dakota
• Writing for the Court: Daniel L. Hovland, District Judge United States District Court
• Parties: Jacam Chemical Company 2013, LLC, Plaintiff, v. Arthur H. Shepard, Jr. and, GEO Chemicals, LLC, Defendants.
• Docket Number: 1:19-cv-093
• Decision Date: 03 January 2023

Jacam Chemical Company 2013, LLC, Plaintiff,
v.
Arthur H. Shepard, Jr. and, GEO Chemicals, LLC, Defendants.

No. 1:19-cv-093

United States District Court, D. North Dakota

January 3, 2023

ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

Daniel L. Hovland, District Judge United States District Court

Before the Court are motions for summary judgment filed by the Plaintiff Jacam Chemical Company 2013, LLC, and Defendants Geo Chemicals, LLC, and Arthur H. Shepard, Jr. See Doc. Nos. 149, 152, and 154. The motions have been fully briefed. See Doc. Nos. 152-1, 165, 167, 168, 171, 178, 185, 186, 189, and 190. For the reasons outlined below, the motions are granted in part and denied in part.

I. BACKGROUND

On May 31, 2019, Jacam Chemical Company 2013, LLC (“Jacam 2013”) filed this lawsuit against its former employee, Arthur H. Shepard, Jr. (“Shepard”), and the company Shepard went to work for, Geo Chemicals, LLC (“GeoChem”), after he was terminated by Jacam 2013. See Doc. No. 1. Jacam 2013's sole member is AES Drilling Fluids Holdings, LLC (“AES”) and AES's sole member is CES Operations, Ltd, (“CES”) a Canadian corporation with its principal place of business in Alberta, Canada. See Doc. No. 211. Shepard is a resident of North Dakota. GeoChem's sole member is The Sterling Group, LLC. The Sterling Group LLC's sole member is Peace Creek

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Holdings, LLC, which has five members, all irrevocable trusts whose trustees are residents of Kansas. See Doc. No. 211.

According to the complaint, Shepard served as district manager for Jacam Chemical Company, LLC, (“Jacam”) and its successor Jacam 2013 in Dickinson, North Dakota, from 2008 until 2019. In 2008, when he began his employment with Jacam, Shepard signed an Employee Agreement with the related entity, HCS, LLC. See Doc. No. 1-1. When Jacam was sold to CES Energy Solutions Corp. for $240 million in 2013, Jacam terminated Shepard's employment effective February 28, 2013. See Doc. No. 1-2. On March 1, 2013, Shepard immediately started work for Jacam's successor, Jacam 2013. Id. When Shepard went to work for Jacam 2013 he signed an Employment Offer and a Code of Business Conduct with Canadian Energy Services L.P. which is now called CES. See Doc. Nos. 1-2, 1-3, and 211. Jacam 2013 remains a subsidiary of CES. Jacam 2013 terminated Shepard's employment on April 16, 2019.

After his termination by Jacam 2013, Shepard went to work for GeoChem, a competitor of Jacam 2013. Gene Zaid is the CEO of GeoChem. Zaid was associated with Jacam and Jacam 2013, including as Jacam 2013's CEO, for nearly 40 years before he left Jacam 2013 in 2017. Zaid formed GeoChem after he left Jacam 2013. Jacam 2013 alleges Shepard recruited Jacam 2013 employees to work for GeoChem, misappropriated its trade secrets, and made false representations regarding Jacam 2013 to its customers. Jacam 2013 alleges Shepard took these actions with GeoChem's knowledge and such actions were in violation of Shepard's obligations under the Employee Agreement and Code of Business Conduct. On May 9, 2019, Jacam 2013 sent a cease and desist letter to Shepard demanding he stop the aforementioned conduct. After Shepard did not respond to Jacam 2013's letter, Jacam 2013 filed this lawsuit against Shepard and GeoChem.

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Jacam 2013 alleges claims against Shepard for breach of contract, tortious interference with existing business relations, breach of the duty of loyalty, breach of the North Dakota Uniform Trade Secrets Act, and civil conspiracy. See Doc. No. 205.^[1] Jacam 2013 has alleged claims against GeoChem for tortious interference with existing contract/ business relations and civil conspiracy. Id.

On July 10, 2019, GeoChem filed an answer to the original complaint, as well as a counterclaim against Jacam and a third-party complaint again CES Energy Solutions, Corp. (“CES”). See Doc. No. 40. CES was dismissed for lack of personal jurisdiction on November 16, 2020. See Doc. No. 136. For its counterclaim against Jacam 2013, GeoChem alleges claims for tortious interference with existing business relationships, tortious interference with prospective business relationships, and civil conspiracy. See Doc. No. 208.

Shepard has filed two counterclaims against Jacam 2013. See Doc. No. 207. The first counterclaim is for a declaratory judgment that the 2008 employee agreement is void and unenforceable and second is for tortious interference with business relations. All three parties have now moved for summary judgment. See Doc. Nos. 149, 152, and 154.

II. LEGAL DISCUSSION

A. Defendants' Motions for Summary Judgment

1. Breach of Contract Claims

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Shepard contends the breach of contract claims in Count I (asserting breach of contract for disclosure of confidential information) and Count II (asserting breach of contract solicitation of Jacam 2013 employees) fail because there was no contract between Shepherd and Jacam 2013. Jacam 2013 maintains the Employee Agreement (Doc. No. 1-1) and the CES Code of Business Conduct (Doc No. 1-3) are enforceable contracts. Jacam 2013 has abandoned its claim that the Employment Offer (Doc. No. 1-2) constitutes a valid contract by failing to respond to Shepard's summary judgment arguments regarding that document. See Wegmann v. Ethicon, Inc., No. 4:20-CV-00704, 2020 WL 6680893, at *3 (E.D. Mo. Nov. 12, 2020) (noting when a party fails to respond to a motion for summary judgment with respect to certain claims or arguments, that party is deemed to have abandoned the claim). The Court agrees with Shepard that none of these documents, including the Employment Offer, can be considered a legally binding contract. All of the agreements or contracts clearly reveal that Shepard was at all times simply an “at will” employee. None of the documents at issue can be considered contracts of employment.

a. Employee Agreement

As a preliminary matter, Jacam 2013 contends the Employee Agreement from 2008 is governed by Kansas law because it contains a choice of law provision calling for the application of Kansas law to the agreement. Shepard maintains North Dakota law applies as doing otherwise would thwart North Dakota's public policy. The Court agrees with Shepard as North Dakota law clearly governs this dispute.

Shepard is a resident of North Dakota and his “at will' employment relationship with Jacam and Jacam 2013 occurred in North Dakota. It is clear that a choice of law provision is ineffective

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“when application of another state's law would result in enforcement of a contract that thwarts North Dakota public policy.” Woodmont Co. v. LaSalle Shopping Ctr., LLC, No. 1:17-CV-073, 2020 WL 2857164, at *8 (D.N.D. June 2, 2020). The choice-of-law or forum selection clause which provides that Kansas law governs is clearly invalid and unenforceable against Shepard, or any other former Jacam 2013 employees who are North Dakotans and were working in North Dakota. The North Dakota Supreme Court has expressly held that a forum selection clause may be set aside if enforcement would contravene a strong public policy of the forum in which the lawsuit is brought. Osborne v. Brown & Saenger, Inc., 904 N.W.2d 34, 37 (N.D. 2017). To enforce the Kansas forum selection in this case clause would clearly violate North Dakota's strong public policy against noncompete agreements. The Employee Agreement contains very restrictive non-competition covenants that are clearly illegal and unenforceable under well-established North Dakota law. See Doc. No. 1-1, §§ 5.2 and 5.3. A contract that contravenes North Dakota public policy favoring the right to work is void. N.D.C.C. § 9-08-06; Osborne, 904 N.W.2d at 38-39 (noting non-compete covenants are void and unenforceable). “North Dakota law does not recognize as lawful any contract or agreement which is designed to impose a restraint on the exercise of one's lawful profession, trade, or business.” CDI Energy Servs., Inc. v. W. River Pumps, Inc., No. 1:07-CV-085, 2007 WL 4395703, at *6 (D.N.D. Dec. 13, 2007). The Employee Agreement is clearly such an agreement as the entire focus of the agreement is the non-compete clause. The Court concludes that North Dakota law, which has a strong public policy against non-compete clauses, governs the Employee Agreement. To hold otherwise would thwart North Dakota's long-standing public policy. In so holding the Court grants summary judgment in favor of Shepard on his first counterclaim for declaratory judgment regarding the Employee Agreement.

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The legal arguments of Jacam 2013 in support of the non-compete clauses and forum selection clauses are devoid of any merit. N.D.C.C. § 9-08-06 provides, “A contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except: 1. A person that sells the goodwill of a business . . . 2. Partners, members, or shareholders, upon or in anticipation of a dissolution of a partnership, limited liability company, or corporation . . . .” See Osborne, 904 N.W.2d at 38-39 (North Dakota has a “longstanding and strong public policy against non-compete agreements.”). The North Dakota Supreme Court made it crystal clear in Osborne that non-compete clauses are void and unenforceable, as is a choice of law or forum selection clauses if such clauses restrain competition by North Dakotans working in North Dakota. The exhaustive efforts undertaken by Jacam 2013 to enforce their illegal non-compete and forum selection clauses against Shepard (and other former employees) is vindictive, unreasonable, and beyond bullish.

Jacam 2013, which was created in 2013, is not a party to the 2008 Employee Agreement between Shepard and HCS, LLC, (“HCS”). See Doc. No. 1-1. HCS was a separate and distinct entity from Jacam that was “created as a payroll company.” See Doc. No. 173-6. HCS was dissolved in 2013 when Jacam was...