Llc v. Stelly

Decision Date17 August 2010
Docket NumberCivil Action No. 4:09-cv-1552
PartiesM-I LLC, Plaintiff, v. Chad Lee STELLY et al., Defendants.
CourtU.S. District Court — Southern District of Texas

Ben L. Aderholt, Looper Reed et al., Houston, TX, for Plaintiff.

Craig D. Dillard, Michel Perez, Boyar and Miller PC, Roger B. Greenberg, Jason Paul Sharp, Schwartz Junell Greenberg Oathout LLP, Houston, TX, for Defendants.


KEITH P. ELLISON, District Judge.

Pending before the Court are Defendants' Joint Motion to Dismiss for Plaintiff's Failure to State a Claim (Doc. No. 91); Defendants Benton T. Knobloch and Wellbore Energy Solutions, LLC's Motion for Partial Summary Judgment as a Matter of Law (Doc. No. 181); Defendants' Joint Expedited Motion for Protection from Discovery of Proprietary Trade Secret Information (Doc. No. 300). After considering the parties' filings, all responses and replies thereto, and the applicable law, the Court finds that Defendants' motion to dismiss should be granted in part and denied in part, Defendants' motion for partial summary judgment should be granted in part and denied in part, and Defendants' joint expedited motion for protection should be denied.


This suit involves the alleged misappropriation of trade secrets and violation of non-compete agreements by former employees of Plaintiff M-I LLC ("M-I"), including Chad Stelly, Stephen Squyres, and Benton T. Knobloch, three of the Defendants in this case.1

M-I LLC ("M-I") is an oilfield contractor that provides "products and services to oilfield drillers and operators who are involved in successful completion of downhole operations and the cleanout of wellbores." (Second Am. Compl., Doc. No. 355, ¶ 8.) Defendants Chad Stelly ("Stelly") and Stephen Squyres ("Squyres") were employees of M-I at its Houston offices. Both employees signed trade secret agreements and covenants not to compete during their employment at M-I. Pursuant to these and other agreements, Stelly and Squyres agreed to maintain confidential all of M-I's trade secrets and proprietary information both during employment and afterward, and also agreed not to compete against M-I for a period of two years after termination of employment. ( Id. ¶ 9.) In their employment capacity, Stelly and Squyres specialized in rental and technical support of wellbore cleanout equipment. Stelly and Squyres promoted tools to M-I customers throughout the Gulf of Mexico, Texas, Louisiana, and Alabama. M-I alleges that it "provided and entrusted" to Stelly and Squyres extensive trade secret and other proprietary information, including tool drawings, designs, and specifications. ( Id. ¶¶ 10-11.)

Defendant Benton T. Knobloch ("Knobloch") was an employee with Specialised Petroleum Services International, Inc. f/k/a Global Completion Services, Inc. ("SPS/GCS"), which was a subsidiary of SPS Petroleum Services Group Limited ("SPS"). M-I acquired SPS and SPS/GCS on August 2, 2006, and received assignment of all contractual rights. ( Id. ¶ 18.) Knobloch signed agreements promising not to disclose any confidential information, solicit SPS/GCS's customers, interfere with SPS/GCS's customer relationships, or compete with SPS/GCS. M-I avers that SPS/GCS and M-I gave Knobloch access to confidential information, including tool drawings, designs, and specifications.On August 21, 2006, Knobloch resigned his position with M-I, and was thereafter terminated. Knobloch was Manager of Sales for the Americas when his employment with M-I ended. M-I avers that, within one month of leaving his job at M-I, Knobloch formed a new company, Defendant Wellbore Energy Solutions, LLC ("WES"), and began serving as WES's president. ( Id. ¶ 24.)

After Knobloch formed WES, M-I alleges that he began "raiding" employees from M-I, ultimately hiring a total of thirteen employees from M-I. Squyres joined WES in 2008, and Stelly joined in 2009. M-I asserts that Defendants have both stolen M-I's trade secrets and other confidential information, and violated their respective covenants not to compete. ( Id. ¶¶ 15-16.) M-I believes that WES designed twelve of its wellbore tools by relying on M-I's trade secrets.

Based on these averments, M-I brings fourteen counts against Stelly, Squyres, Knobloch, and WES. Those counts include: breaches of various employment agreements, including trade secret agreements, covenants not to compete, and confidentiality contracts; common law misappropriation of trade secrets; tortious interference with M-I's customer contracts, prospective business relations, and employment contracts; breach of fiduciary duty; violations of the Texas Theft Liability Act, Tex. Civ. Prac. & Rem.Code Ann. §§ 134.001-134.005 (Vernon 2005); conspiracy; unfair competition by misappropriation; violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030; and conversion.

Defendants have filed a motion to dismiss M-I's claims, arguing that they fail to state a claim upon which relief can be granted. They have also filed a motion for summary judgment, arguing that M-I's state tort claims are preempted by federal copyright law, and that Knobloch's covenants not to compete are unenforceable because they are unreasonable restraints of trade. Last, Defendants have filed a motion for protection, arguing that M-I has not made the requisite showing of necessity to obtain trade secret materials in discovery. The Court takes up each of the arguments in turn.


Defendants have filed a joint motion to dismiss for failure to state a claim. They argue that M-I's complaint fails to comply with Rule 8 under the Supreme Court's Twombly and Iqbal decisions. (Defs.' Joint Mot. to Dismiss for Pl.'s Failure to State Claim, Doc. No. 91, ¶ 14.) Specifically, Defendants argue that the complaint does not contain sufficient allegations to state a claim for misappropriation of trade secrets, fails to state facts in support of M-I's three tortious interference claims, and fails to state more than legal conclusions for the remaining ten claims. ( Id. ¶¶ 15-19.) M-I responds that Defendants' motion is untimely, and in any case, that their pleading meets Rule 12(b)(6) standards.

A. Legal Standard

A court may dismiss a complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "To survive a Rule 12(b)(6) motion to dismiss, a complaint 'does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true 'raise a right to relief above the speculative level.' " Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir.2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). That is, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quotingTwombly, 550 U.S. at 570, 127 S.Ct. 1955). A claim has facial plausibility "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). The plausibility standard is not akin to a "probability requirement," but asks for more than a sheer possibility that a defendant has acted unlawfully. Id. A pleading need not contain detailed factual allegations, but must set forth more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted).

When considering a Rule 12(b)(6) motion to dismiss, a court must "accept the complaint's well-pleaded facts as true and view them in the light most favorable to the plaintiff." Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir.2004); see also Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir.2007). A district court can consider the contents of the pleadings, including attachments thereto, as well as documents attached to the motion, if they are referenced in the plaintiff's complaint and are central to the claims. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 499 (5th Cir.2000). Furthermore, a Court may refer to matters of public record when deciding a motion to dismiss. Chauhan v. Formosa Plastics Corp., 212 F.3d 595, 595 (5th Cir.2000).

Ultimately, the question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff. The court must accept well-pleaded facts as true, but legal conclusions are not entitled to the same assumption of truth. Iqbal, 129 S.Ct. at 1950 (citation omitted). But the court should not " 'strain to find inferences favorable to the plaintiffs' " or "accept 'conclusory allegations, unwarranted deductions, or legal conclusions.' " R2 Investments LDC v. Phillips, 401 F.3d 638, 642 (5th Cir.2005) (quoting Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 362 (5th Cir.2004)). Importantly, the court should not evaluate the merits of the allegation, but must satisfy itself only that plaintiff has adequately pled a legally cognizable claim. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir.2004).

B. Analysis

The Court notes, at the outset, that subsequent to Defendants' motion to dismiss, M-I amended its complaint. The live pleading is M-I's Second Amended Complaint (Doc. No. 355). The Court will apply the motion to dismiss to the live pleading.

1. Waiver

The Court first considers whether Defendants have waived their Rule 12(b)(6) arguments by filing responsive pleadings before moving to dismiss. Defendants answered M-I's original complaint. ( See Doc. Nos. 7, 9, & 28.) They now move to dismiss M-I's amended complaint. M-I argues that Defendants have waived their Rule 12(b)(6) arguments, because the rule "expressly...

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