Lonestar Geophysical Surveys, L.L.C. v. Frontier State Bank, Cypress Springs Assocs., LLC (In re Lonestar Geophysical Surveys, L.L.C.), Case No. 15-11872-SAH

• Decision Date: 29 December 2015
• Docket Number: Case No. 15-11872-SAH,Adv. No. 15-01257
• Court: U.S. Bankruptcy Court — Western District of Oklahoma
• Parties: In re: LONESTAR GEOPHYSICAL SURVEYS, L.L.C., Debtor. LONESTAR GEOPHYSICAL SURVEYS, L.L.C., Plaintiff, v. FRONTIER STATE BANK, CYPRESS SPRINGS ASSOCIATES, LLC, CYPRESS SPRINGS INVESTMENTS, LP, BROOKS F. BOCK, M.D., JAMES E. BRAND, M.D. and JOHN H. STUEMKY, M.D., Defendants.

In re: LONESTAR GEOPHYSICAL SURVEYS, L.L.C., Debtor.LONESTAR GEOPHYSICAL SURVEYS, L.L.C., Plaintiff, v. FRONTIER STATE BANK,CYPRESS SPRINGS ASSOCIATES, LLC,CYPRESS SPRINGS INVESTMENTS, LP,BROOKS F. BOCK, M.D., JAMES E. BRAND, M.D.and JOHN H. STUEMKY, M.D., Defendants.

Case No. 15-11872-SAH

Adv. No. 15-01257

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF OKLAHOMA

December 29, 2015

Chapter 11

ORDER GRANTING DEFENDANTS CSA, CSI, DR. BOCK, DR. BRAND, AND DR. STUEMKY'S MOTION TO DISMISS PLAINTIFF'S ADVERSARY COMPLAINT AND BRIEF IN SUPPORT THEREOF [DOC. 11]

Before the Court are the following: 1. Defendants CSA, CSI, Dr. Bock, Dr. Brand and Dr. Stuemky's Motion to Dismiss Plaintiff's Adversary Complaint and Brief in Support Thereof [Doc. 11], filed by defendants Cypress Springs Associates, LLC ("CSA"), Cypress Springs Investments, LP ("CSI"), Brooks F. Bock, M.D. ("Bock"), James E. Brand, M.D. ("Brand") and John H. Stuemky, M.D. ("Stuemky"; CSA, CSI, Bock, Brand and Stuemky collectively, "Defendants") on October 30, 2015 (the "Motion")¹; and

2. Plaintiff's Response to Motion to Dismiss Filed by Defendants CSA, CSI Dr. Bock, Dr. Brand and Dr. Stuemky [Doc. 22], filed by plaintiff Lonestar Geophysical Surveys, LLC ("Debtor") on November 20, 2015 (the "Response").

Defendants argue that the four counts of the Adversary Complaint [Doc. 1] filed on September 18, 2015 (the "Complaint") applicable to them (Counts 2 - 5) fail to state claims as a matter of law.

Background

This adversary proceeding concerns soured lending relationships between (i) Debtor and Frontier State Bank ("FSB") and (ii) Debtor and CSA and CSI. The situation was exacerbated by lender decisions to participate in the management of Debtor by having the owner and directors of FSB and the owners of CSA and CSI serve on Debtor's board of directors. In those positions, they allegedly took actions consistent with the interests of FSB, CSA and CSI rather than of Debtor. Arising out of this tangled mess are Debtor's claims against CSA, CSI, Bock, Brand and Stuemky: (i) breach of fiduciary duty; (ii) aiding and abetting breach of fiduciary duty; (iii) misuse of trade secrets and confidential and proprietary information; and (iv) civil conspiracy.

Standards Governing Motions to Dismiss

A plaintiff bears the burden to frame the complaint with enough factual matter to suggest that he or she is entitled to relief. Robbins v. Okla. ex rel. Okla. Dep't of Human Servs. 519 F.3d 1242, 1247 (10^th Cir. 2008). To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure, "a plaintiff must include in the complaint 'enough facts to state a claim to relief that is plausible on its face.'" Barenburg v. Burton (In re Burton), 2010 WL 3422584 (10^th Cir. Aug. 31, 2010) (unpub.) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard requires that factual allegations contained in an adversary complaint be sufficient to raise a right to relief above mere speculation. Twombly, 550 U.S. at 555. See also, Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10^th Cir. 2007) (stating complaint must give the court reason to believe that the plaintiff has a reasonable likelihood of mustering factual support for the claims raised). Bare legal conclusions and simple recitations of the elements of a cause of action do not satisfy this standard. Twombly, 550 U.S. at 555.

In ruling on the Motion, this Court is mindful that it must construe the Adversary Complaint (the "Complaint") in the light most favorable to Debtor, taking as true all factual allegations and making all reasonable inferences in Debtor's favor that can be drawn from the pleadings. Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10^th Cir. 2010); Burton, 2010 WL 3422584, at *3. While factual assertions are taken as true, legal conclusions are not. A plaintiff is "not required to set forth a prima facie case for each element, [but] is required to set forth plausible claims." Cook v. Baca, 2013 WL 828814 (10^th Cir. 2013) (citing Khalik v. United Air Lines, 671 F.3d 1188, 1193) (10^th Cir. 2012)).

The Tenth Circuit holds that Twombly's conception of "plausibility," "refer[s] to the scope of the allegations in a complaint" rather than the likelihood that such allegations are true. Robbins, 519 F.3d at 1247. Thus, "if [allegations] are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible." Robbins, 519 F.3d at 1247. (internal quotations omitted). "The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for relief." Robbins, 519 F.3d at 1247. "This requirement of plausibility serves not only to weed out claims that do not (in the absence of additional allegations) have a reasonable prospect of success, but also to inform the defendants of the actual grounds of the claim against them." Robbins, 519 F.3d at 1248. The Tenth Circuit instructs that "the degree of specificity necessary to establish plausibility and fair notice, and therefore the need to include sufficient factual allegations, depends on context" and that whether a defendant receives fair notice "depends on the type of case." Robbins, 519 F.3d at 1248. "[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Tullius v. Metropolitan Prop. & Cas. Ins. Co., 2010 WL 3259837 (W.D. Okla. 2010) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

I. THE COMPLAINT FAILS TO STATE A CLAIM FOR MISAPPROPRIATION OF TRADE SECRETS.

Defendants contend that Debtor has not adequately plead facts supporting the misappropriation of trade secrets claim as the Complaint has not identified (i) the "trade secrets" and (ii) the purported misappropriation or use by Defendants. To prove misappropriation oftrade secrets, a plaintiff must show: (i) the existence of a trade secret; (ii) misappropriation of the secret by defendant; and (iii) use of the secret to the plaintiff's detriment. Musket Corp. v. Star Fuel of Oklahoma, LLC, 606 F.App'x 439, 451 (10^th Cir. 2015) (citing MTG Guarnieri Mfg., Inc. v. Clouatre, 239 P.3d 202, 209 (Okla. Ct. App. 2010)); Pre-paid Legal Servs., Inc. v. Cahill, 924 F.Supp.2d 1281, 1288 (E.D. Okla. 2013) (citing Pre-paid Legal Servs. v. Harrell, 2008 WL 111319, *10 (E.D. Okla. Jan. 8, 2008) (citing Micro Consulting, Inc. v. Zubeldia, 813 F.Supp. 1514 (W.D. Okla. 1990))); Gaedeke Holdings VII, Ltd. v. Mills, 2014 WL 347629 (W.D. Okla. 2014) (citing MTG Guarnieri Mfg., Inc. v. Clouatre, 239 P.3d 202, 209 (Okla. Ct. App. 2010)).

A trade secret is defined by Oklahoma law as "information, including a formula, pattern, compilation, program, device, method, technique or process that:

a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

Pre-paid Legal, 924 F.Supp.2d at 1288 (citing 78 Okla. Stat. §§ 78 and 86(4)); Proline Prod., L.L.C. v. McBride, 324 P.3d 430, 432 (Okla. Ct. App. 2014). To state a claim for misappropriation of trade secrets, a plaintiff must plead facts with sufficient particularity to provide defendants with fair notice of what the claim is and the grounds upon which it rests. This requires, at a minimum, that the plaintiff identify generally the trade secrets at issue although specificity as to the precise trade secrets misappropriated is not required to defeat a motion to dismiss. Sorias v. Nat'l Cellular USA, Inc., 2015 WL 5093344 (E.D. N.Y. 2015)(citing Alexander Interactive, Inc. v. Leisure Pro Ltd., 2014 WL 4651942, at *5 (S.D. N.Y. 2014)).

A defendant is entitled to fair notice of what the claim is and the grounds upon which it rests. Sorias, 2015 WL 5093344. Thus, plaintiff must identify specific types of business information and specific efforts taken to protect that business information to establish a trade secret. Covenant Aviation Sec., LLC v. Berry, 15 F.Supp.3d 813, 818 (N.D. Ill. 2014) (citing Composite Marine Propellers, Inc. v. Van Der Woudeu, 962 F.2d 1263, 1266 (7^th Cir. 1992) and AutoMed Techs., Inc. v. Eller, 160 F.Supp.2d 915, 921 (N.E. Ill. 2001) (quoting Leucadia, Inc. v. Applied Extrusion Techs., Inc., 755 F.Supp. 635 636 (D. Del. 1991))).

The Court agrees with Defendants that the Complaint fails to state a claim for misappropriation of trade secrets as the Complaint fails to identify (i) the trade secrets allegedly misappropriated and (ii) the manner in which Defendants used that information or shared it with third parties. See Pension Advisory Group, Ltd. v. Country Life Ins. Co., 771 F.Supp.2d 680, 701 (S.D. Tex. 2011). Accordingly, the Motion is granted with respect to the misappropriation of trade secrets claim, with Debtor having leave to amend its Complaint consistent with this Order within twenty (20) days of entry of this Order.

II. THE COMPLAINT DOES NOT STATE A CLAIM FOR BREACH OF FIDUCIARY DUTY.

Defendants Bock, Brand and Stuemky urge this Court dismiss Debtor's breach of fiduciary duty claim because no claim exists based on an "inherent conflict" and because no damages from any breach have been plead. To adequately state a claim for breach of fiduciary duty against corporate directors, a complaint must (i) state the defendant breached his fiduciaryduty to manage a corporation for the benefit of all shareholders, (ii) describe specific acts that evidence the breach of fiduciary duty and self dealing, and (iii) allege damages resulting from such actions. Beard v. Love, 173 P.3d 796, 802 (Okla. Ct. App. 2007) (citing ...