Kelco Constr. v. Spray in Place Sols, LLC
| Decision Date | 18 September 2019 |
| Docket Number | 18-CV-5925(SJF)(SIL) |
| Parties | KELCO CONSTRUCTION, INC., d/b/a Belco Pipe Restoration, Plaintiff, v. SPRAY IN PLACE SOLUTIONS, LLC, JEFFREY SAUSELE, DAVID BARNETT, and DTB RGK CONSULTING, LLC CORP., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
I. Introduction
On October 23, 2018, plaintiff Kelco Construction, Inc., d/b/a Belco Pipe Restoration ("plaintiff" or "Belco") commenced this action against defendants Spray in Place Solutions, LLC ("SIPS"), Jeffrey Sausele ("Sausele"), David Barnett ("Barnett") and DTB RGK Consulting, LLC Corp. ("DTB") (collectively, "defendants"), asserting claims for unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and the common law; for racketeering in violation of the civil Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a); and under state law for misappropriation of trade secrets, conversion, breach of fiduciary duty, defamation, tortious interference with contract, tortious interference with business relations and tortious interference with prospective economic advantage. Pending before the Court is defendants' motion to dismiss plaintiff's civil RICO and breach of fiduciary duty claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim for relief. For the reasons set forth below, defendants' motion is denied in its entirety. II. Background
Plaintiff "is a leading provider of spray in place pipe restoration services, which involves using proprietary processes to clean and add a protective coating to piping and, in particular, municipal water pipes." . "Spray in place pipe restoration offers substantial benefits over traditional open-trench excavation and restoration processes, including lower cost and faster return to service." (Id., ¶ 11).
Sausele and Barnett (collectively, the "individual defendants") are plaintiff's former project manager and director of business development2, respectively, (Compl., ¶¶ 2, 12), "who were tasked with implementing a joint venture with a third-party, Utility Service Co., Inc. ('USCI'), pursuant to a written Memorandum of Understanding ('2016 MOU') related to Plaintiff's proprietary spray in place pipe restoration process." (Id., ¶ 2). Specifically, "[i]n or around 2016, Belco began negotiating a transaction with USCI, and its affiliated 'SUEZ' group of companies, wherein USCI would become the exclusive entity through which Belco would bid for and negotiate municipal contracts for pipe restoration throughout the United States (except for New York, New Jersey, and Connecticut), and Belco would become USCI's exclusive supplier and/or subcontractor for spray in place pipe restoration." (Id., ¶ 17). The individual defendants "were directly involved with Belco's negotiations with USCI." (Id., ¶ 18).
On or about September 27, 2016, USCI and Barnett, on behalf of Belco, in his capacity as Belco's "Director of Business Development," executed the 2016 MOU, "memorializing theirarrangement for a period of at least one year, continuing through at least September 27, 2017." (Compl., ¶¶ 20-21).
Plaintiff alleges that the individual defendants, through their employment and/or relationship with it, "had access to trade secrets and other confidential and proprietary information." (Compl., ¶¶ 13, 16). With respect to Barnett, such information allegedly includes, but is not limited to, "technical know-how, direct access to USCI, customer lists, prospective customer lists, business development strategies, business negotiations, business operations, supplier information, bidding and pricing strategies, and details regarding Belco's spray in place pipe restoration process." (Id., ¶ 16). With respect to Sausele, such information allegedly includes, but is not limited to, "the materials, processes and techniques used in the spray in place pipe restoration process." (Id., ¶¶ 13). In addition, plaintiff provided Sausele "with extensive training, including, among other things, all technical and operational aspects of the spray in place restoration process; equipment operation, maintenance and calibration; the identity and operation of software programs utilized in the process; material supplier information; customer information; and pricing information." (Id., ¶¶ 14).
In or around February 2017, Sausele terminated his employment, and Barnett terminated his and/or DTB's business relationship, with plaintiff. (Compl., ¶¶ 22-23). According to plaintiff, the individual defendants "started a competing company[;] claimed to have acquired Plaintiff[;] [and] misappropriated Plaintiff's tools, equipment, trade secrets, proprietary processes, client and supplier information, pricing information[,] website content, and marketing material - in effect masquerading as Plaintiff - so as to reap the benefits of the joint venture for themselves." (Id., ¶ 2). Specifically, plaintiff alleges that the individual defendants: (i) "misappropriated approximately $150,000 in tools and equipment from Plaintiff" in February 2017, (id., ¶ 24); (ii)purchased the domain name "sprayinplace.com" on March 5, 2017 and then "substantially copied . . . Belco's website in all material respects to their sprayinplace.com domain, except to replace Belco's name, logo, and contact information with their own[,] . . . [even] claiming that Belco's projects . . . were performed by SIPS," (id., ¶¶ 26-28); and (iii) formed SIPS by filing articles of organization with the State of Florida on March 7, 2017, (id., ¶ 30), and then "filed a certificate with the New York Department of State as a foreign business entity doing business in the State of New York" on or about June 21, 2017. (Id., ¶ 32).
Plaintiff further alleges, inter alia, that defendants (i) "have obtained numerous municipal and other contracts, through USCI and otherwise, through intentional, deceptive and knowing misrepresentations," including that they acquired Belco, that they were the successor to Belco's rights under the 2016 MOU, that Belco no longer existed or operated as an independent entity, that they were the only contractor in North America that provides spray in place pipe restoration, and that they hold a patent for the spray in place pipe restoration process, (Compl., ¶ 33; see also id., ¶ 35-36, 39-40, 55); and (ii) gave a presentation at the Wisconsin Rural Water Association ("WRWA") in or around August 2017, during which they "misappropriated and copied Belco's marketing and sales presentations[,] . . . falsely claim[ed] that Belco's proprietary processes, know-how, labors, skill, expenditures, and/or good will belonged to [them,] . . . masqueraded as Belco and/or the successor-in-interest to Belco's business[,] . . . utilized photographs from Belco's prior projects and falsely claimed that said photographs were examples of their own work[,] . . . [and] falsely claimed to have seventeen [17] years of experience with spray in place pipe restoration, misrepresenting Belco and its affiliates' prior experience and history as their own." (Id., ¶¶ 42-46).
In addition, plaintiff alleges, "[u]pon information and belief," (i) that "in or around early 2017, Defendants falsely claimed to USCI that they had acquired Belco[,]" (Compl., ¶ 25); (ii) that defendants "have copied text and diagrams from Belco's promotional literature and used said material for promotional purposes," (id., ¶ 29); (iii) that defendants "have given various presentations at trade and industry events," during which they allegedly made similar misrepresentations to those they allegedly made during the WRWA presentation, (id., ¶ 47); and (iv) that defendants "importuned Warren Environmental to cease supplying products to Plaintiff" by providing it with "financial incentives" to do so. (Id., ¶¶ 49-50). According to plaintiff, Warren Environmental, Inc. ceased supplying products to it in or around April 2018, (id., ¶ 51); and defendants obtained at least two (2) contracts, totaling approximately one million three hundred ninety-nine thousand dollars ($1,399,000.00), "by fraudulently claiming entitlement to [its] rights under the 2016 MOU with USCI." (Id., ¶ 2; see also Id., ¶¶ 34-41).
Moreover, plaintiff alleges that on December 14, 2017, Barnett published a promotional video on YouTube and www.sprayinplace.com that "substantially duplicates, with only minor changes, a promotional video that Plaintiff and/or one of its affiliates developed and published on or about June 18, 2012." (Compl., ¶ 48).
On October 23, 2018, plaintiff commenced this action against defendants, asserting claims for unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and the common law (first and third causes of action, respectively); for civil RICO violations under 18 U.S.C. § 1962(a) (); and under state law for misappropriation of trade secrets, conversion, breach of fiduciary duty, defamation, tortiousinterference with contract, tortious interference with business relations and tortious interference with prospective economic advantage (fourth through tenth causes of action, respectively).
Defendants now move to dismiss plaintiff's civil RICO and breach of fiduciary duty claims (second and sixth causes of action, respectively) pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim for relief.
III. Discussion
The standard of review on a motion made pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure is that a party plead sufficient facts "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the...
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