Swimwear Solution, Inc. v. Orlando Bathing Suit, LLC

Decision Date30 March 2018
Docket NumberCase No. 17–CV–02691–JAR–GLR
Citation309 F.Supp.3d 1022
Parties SWIMWEAR SOLUTION, INC., Plaintiff, v. ORLANDO BATHING SUIT, LLC, d/b/a Everything but Water, Defendant.
CourtU.S. District Court — District of Kansas

Cody N. Wood, Pro Hac Vice, Jason R. Scheiderer, Mark P. Johnson, Dentons US, LLP, Kansas City, MO, for Plaintiff.

Brian R. Markley, Monique M. McElwee, Stinson Leonard Street LLP, Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, CHIEF UNITED STATES DISTRICT JUDGE

Plaintiff Swimwear Solution, Inc. ("Swimwear") filed this action against Defendant Orlando Bathing Suit, LCC, d/b/a Everything But Water ("EBW"), in the District Court of Johnson County, Kansas on November 6, 2017, bringing claims for breach of contract (Count I), tortious interference with existing, exclusive supplier contracts (Count II), tortious interference with existing employee contracts (Count III), tortious interference with prospective business (Count IV), breach of fiduciary duty (Count V), misappropriation of trade secrets under Kansas law (Count VI), misappropriation of trade secrets under New York law (Count VII), misrepresentation and fraud (Count VIII), unjust enrichment (Count IX), conversion (Count X), and declaratory judgment (Count XI).1

After removing the action to this Court, Defendant filed its Answer and Counterclaim on December 15, 2017, asserting a breach-of-contract counterclaim against Plaintiff.2 This matter now comes before the Court on Defendant's Motion to Dismiss Counts III, V, VI, VII, IX and X of the Complaint (Doc. 5), Plaintiff's Motion to Dismiss EBW's Counterclaim (Doc. 14), and Defendant's Motion for a More Definite Statement (Doc. 7) as to Count VIII. The motions are fully briefed, and the Court is prepared to rule. For the reasons set forth below, Defendant's Motion to Dismiss is granted, with leave to amend as to Count IX, Plaintiff's Motion to Dismiss EBW's Counterclaim is denied, and Defendant's Motion for a More Definite Statement is granted.

I. Motions to Dismiss
A. Legal Standard

To survive a motion to dismiss brought under Fed. R. Civ. P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, "raise a right to relief above the speculative level"3 and must include "enough facts to state a claim for relief that is plausible on its face."4 Under this standard, "the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims."5 The plausibility standard does not require a showing of probability that "a defendant has acted unlawfully," but requires more than "a sheer possibility."6 "[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim."7 Finally, the court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.8

The Supreme Court has explained the analysis as a two-step process. For the purposes of a motion to dismiss, the court "must take all the factual allegations in the complaint as true, [but is] ‘not bound to accept as true a legal conclusion couched as a factual allegation.’ "9 Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.10 Second, the court must determine whether the factual allegations, when assumed true, "plausibly give rise to an entitlement to relief."11 "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."12

B. Factual Allegations

The following facts are taken from Plaintiff's Complaint and Defendant's First Amended Answer and Counterclaim, and are assumed to be true for the purposes of the parties' respective motions to dismiss. Plaintiff is a local, family-owned boutique retailer of swimwear and other apparel. Plaintiff's retail shop is located in the Kansas City suburb of Overland Park, Kansas, and Plaintiff has been serving the metropolitan area for nearly thirty years by being "the go-to shop for access to unique and fashionable swimwear and apparel."13 Plaintiff is widely known throughout the community and enjoys a loyal customer base due to its knowledgeable customer service and unmatched selection. Plaintiff "has established and built its unique brand on the foundation of its owner, Laurel Jones' intimate knowledge of the preferences, style, and buying trends of the local market."14 Plaintiff's "marketplace knowledge has taken years to develop,"15 and Plaintiff has grown its business through "the cultivation of exclusive, valuable relationships with a substantial number of luxury swimwear and apparel vendors" that supply its inventory.16 The success of Plaintiff's business depends upon the exclusivity of these relationships with vendors, as well as the retention of its highly-trained staff.

Defendant is a national chain of approximately 100 retail stores, operating under the name "Everything But Water," that sells swimwear and apparel "predominately throughout California, Florida, and Texas, as well as other states."17 In early June 2012, Plaintiff was approached by Defendant's Chairman, Randall Blumenthal, for the purported purpose of discussing Defendant's acquisition of Plaintiff.

On July 9, 2012, Plaintiff and Defendant entered into a Mutual Nondisclosure Agreement ("MNDA"). The MNDA, attached as an exhibit to Plaintiff's Complaint, protected:

... any information disclosed by either party to the other party, either directly or indirectly, in writing, orally or by inspection, including without limitation documents, prototypes, samples, and information relating to, without limitation, (i) each party's trade secrets, past, present and future research, development or business activities or the results from such activities, business plans, strategies, methods and/or practices; and (ii) each party's business that is not generally known to the public, including, but not limited to, information about each party's personnel, products, customers, marketing strategies, services or future business plans.18

The MNDA forbade each party from using the confidential information of the other party "for any purpose except to evaluate and engage in discussions concerning a potential business relationship between the parties."19

Each party was obligated under the MNDA to use its best efforts to protect the other party's confidential information, and to return any copies of information provided to it upon request. The MNDA further stated that:

The obligations of each receiving party hereunder with respect to any particular Confidential Information shall survive until the earlier of such time as such Confidential Information of the other party disclosed hereunder becomes publicly known and made generally available through no action or inaction of the receiving party, or two (2) years from the date such Confidential Information was disclosed to the receiving party hereunder.20

Over the course of three years, the parties engaged in discussions during which Defendant sought—and Plaintiff provided—certain confidential information that Plaintiff had acquired "through years of effort to become the leading swimwear boutique in the area."21 This information included Plaintiff's "advertising strategies, exclusive vendor contracts, local market reports, employee compensation and retention policies, revenues and operating figures, optimal store locations, sales records, reports of the strongest selling products, and the company's financial history, all of which fell under the protections of the MNDA."22

During the parties' negotiations, Mr. Blumenthal "admitted he had little to no knowledge of the business climate that would support the existence of a boutique swimwear store in Johnson County,"23 and "offered wildly differing valuations of [Plaintiff's] business."24 As negotiations continued, the parties renewed the MNDA on January 21, 2015 and July 16, 2015. However, Defendant refused to enter into a non-compete agreement that Plaintiff proposed in July 2015.

On or about August 31, 2015, Defendant communicated to Plaintiff that Defendant was under time pressure to make the deal happen. Plaintiff then reviewed, amended, and emailed contracts to Defendant with the intent of selling its business, despite having become skeptical about Defendant's true intentions. In an October 27, 2015 email transmitting the amended contracts to Defendant, Jones reminded Blumenthal that pursuant to the terms of the MNDA, Defendant was not permitted to "use any of [Plaintiff's] confidential information to facilitate the opening of a retail or wholesale operation in competition with [Plaintiff's] store."25 Jones further stated: "I hope our negotiations are successful, but if they are not, please understand that I am prepared to take all necessary action if you or your company should open a competing store in the Kansas City area."26

On October 28, 2015, Defendant's attorney sent Jones a letter terminating business negotiations between the parties due to Jones's "threat" to take any action necessary to protect her business.27 On November 9, 2015, Blumenthal followed up with an email confirming that Defendant would not follow through with the transaction because it was not the "right fit."28 On the same day, Blumenthal relayed to Jones in conversation that he had not looked at the terms of the revised contract prior to rejecting it.

Shortly after Defendant ceased negotiations with Plaintiff, Defendant began entering into lease and construction agreements to open a store directly across the street and approximately 600 feet from Plaintiff's location. Defendant's "primary development, planning, and creative actions...

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