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BFV Perspectives, Noncompete & Trade Secrets, | Mar 12, 2014

Direct Response Products: Round Two

In a previous blog entry, pleading standards for non-compete cases as addressed in Direct Response Products, Inc. v. Thomas, 2013 WL 5890473 (N.D. Ga. Nov. 1, 2013) were discussed.  The companion case, Direct Response Products, Inc. v. Roderick, 2013 WL 5890407 (N.D. Ga. Nov. 1, 2013), considers a series of procedural issues that often arise in non-compete cases.

Plaintiff Direct Response Products, Inc. (“Direct Response”) brought suit against Roderick, a former independent contractor who left Direct Response to work for the same competitor that was the subject of litigation in the Thomas case.  The independent contractor agreement between Direct Response and Roderick contained six-month non-compete, non-solicitation, and non-disclosure provisions. 

Direct Response alleged that Roderick had competed with Direct Response, solicited those who were working for Direct Response, and used confidential business information in doing so.  Id. at *1.  Bringing claims for breach of contract, tortious interference, breach of fiduciary duty, attorneys’ fees, and punitive damages, Direct Response alleged damages in the amount of $829,500.00.  Id.  Roderick moved to dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(1), (3) and (6) on the grounds that the Court lacked jurisdiction, that venue was improper, and that Direct Response had failed to state a claim. 

With respect to the defendant’s first argument, diversity of citizenship was the only basis claimed for subject matter jurisdiction.  The Court noted that Roderick was correct in showing that the complaint failed to allege his citizenship.  Id. at *3.  The Court granted Direct Response an opportunity to amend its complaint to fix this, however. 

Roderick also argued that Direct Response had failed to plead the requisite amount in controversy greater than $75.000.00.  The Court noted that, “[t]he damages recoverable for breach of a restrictive covenant are lost profits, as well as the loss of customers, the loss of employees and the decreased value of the business property purchased in reliance on the covenant.”  Id. at *4.  Direct Response had alleged that Roderick solicited its employees and induced them to terminate their relationship with Direct Response and that, as a result, Direct Response was denied the revenue that these employees generated.  Id at *4.  The Court found that these allegations were sufficient to meet the amount in controversy required for diversity jurisdiction.

Roderick’s motion to dismiss for failure to state a claim was denied on the basis that Roderick was merely contesting the facts as alleged in the Complaint.  Id. at *5.  Because the allegations were sufficient to state a claim, they had to be taken as true and the motion to dismiss could not be granted.

Finally, Roderick moved to dismiss the complaint for improper venue.  Direct Response argued that venue was proper pursuant to 28 U.S.C. section 1391(2), which provides for venue where a “substantial part of the events” giving rise to the claim occurred.  Direct Response argued that this standard was met because Roderick had executed his independent contractor agreement in the Northern District of Georgia and had been a resident there when he did so.  Direct Response opposed the motion to dismiss, pointing to the choice of venue provision in the contract between the parties.  Roderick argued that venue was improper in the Northern District of Georgia because, after the execution of the independent contractor agreement, he had moved to the Middle District of Florida and committed his alleged misconduct there.  Further, the area for which he was responsible in his work for Direct Response did not include the State of Georgia – his work for them was based in the Middle District of Florida.  Roderick therefore argued that the case should be transferred to the Middle District of Florida.  Though Direct Response opposed dismissal on venue grounds, it did not oppose a transfer.

The Court held that, if and when it was convinced that it had subject matter jurisdiction over the case, it would not dismiss but, rather, would transfer the case to the United States District Court for the Middle District of Florida.  In analyzing venue, the Court focused on the alleged conduct of the defendant rather than that of the plaintiff.  The Court looked not to the execution of the contract but, rather, to the location of the alleged breach and Roderick’s obligation to perform. 

The Roderick case, then, provides an interesting take on a variety of procedural issues common to non-compete cases.

BFV Perspectives, Noncompete & Trade Secrets, | Mar 12, 2014