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Hawkins v. Fishbeck

United States District Court, W.D. Virginia, Charlottesville Division

October 16, 2017

Todd Hawkins, Plaintiff,
v.
Jonathan B. Fishbeck, ET AL., Defendants.

          MEMORANDUM OPINION

          NORMAN K. MOON, UNITED STATES DISTRICT JUDGE

         Todd Hawkins and Jonathan Fishbeck founded the BuilderFish entities, three software development companies. But the partners split, and Hawkins alleges that Fishbeck and the other defendants (a co-worker, Fishbeck's father, and two companies) utilized BuilderFish's resources improperly for their own gain. He claims that they collectively misappropriated trade secrets and infringed copyrights, and that Fishbeck violated a non-compete agreement.

         Defendants respond to these allegations in two ways. First, Jonathan Fishbeck argues that the claims against him are subject to arbitration. Because the employment agreement containing the arbitration clause has a significant relationship to the claims against him, the Court will grant the motion for all claims for damages against him, but the claims for injunctive relief are explicitly excepted by the agreement. Second, Defendants collectively argue that Hawkins does not plead sufficient facts to plausibly state his claims against them. While Hawkins properly pleads facts that state a trade secret claim, his copyright and covenant not to compete claims are both fatally flawed. The motion will accordingly be granted in part.

         I. Legal Standard

         A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) tests the legal sufficiency of a complaint to determine whether a plaintiff has properly stated a claim. The complaint's “[f]actual allegations must be enough to raise a right to relief above the speculative level, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), with all allegations in the complaint taken as true and all reasonable inferences drawn in the plaintiff's favor. King v. Rubenstein, 825 F.3d 206, 212 (4th Cir. 2016). A motion to dismiss “does not, however, resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Id. at 214.

         Although the complaint “does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his entitle[ment] to relief requires 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. A court need not “accept the legal conclusions drawn from the facts” or “accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Simmons v. United Mortg. & Loan Inv., LLC, 634 F.3d 754, 768 (4th Cir. 2011) (quotation marks omitted). This is not to say Rule 12(b)(6) requires “heightened fact pleading of specifics, ” instead the plaintiff must plead “only enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. Still, “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

         II. Facts Alleged

         Plaintiff Todd Hawkins and Defendant Jonathan Fishbeck co-founded the BuilderFish entities in 2010. (Dkt. 6 ¶¶ 3, 10). BuilderFish Enterprises, LLC, BuilderFish, LLC, and BuilderFish Services, LLC (collectively “the BuilderFish entities”) are each Virginia limited liability companies. (Id. ¶ 2). BuilderFish, LLC and BuilderFish Services, LLC are wholly owned subsidiaries of Builderfish Enterprises, LLC. (Id.). Plaintiff and Jonathan Fishbeck each own 50% of BuilderFish Enterprises, LLC, the parent company. (Id. ¶ 10). Plaintiff and Jonathan Fishbeck contributed to the BuilderFish entities in different manners. Plaintiff provided financial backing for the companies, while Jonathan Fishbeck worked as an employee and officer. (Id. ¶¶ 3, 10-11). The companies also employed at least one other individual. Defendant William Heapes started working for the BuilderFish entities as Chief Technology Officer in early 2016, but has no ownership stake in the company. (Id. ¶¶ 4, 12).

         Over the past three years, the BuilderFish entities have invested $4 million dollars and the labor of its employees in the development of the “Navigator/Gravity” software. (Id. ¶ 11). Starting in September 2016, Defendants Jonathan Fishbeck, Heapes, and Ronald Fishbeck (Jonathan's father) allegedly removed this software from the BuilderFish entities. (Id. ¶¶ 13, 14, 21). Defendants Ultra Lifestyle, LLC and Griffin Group Global, LLC allegedly received this software code and used it to create unauthorized derivative products. (Id. ¶¶ 21, 22). Defendants Jonathan Fishbeck, Ronald Fishbeck, and Heapes have at least partial ownership of these two LLCs. (Id. ¶¶ 6, 7).

         III. Discussion

         Plaintiff alleges violations of the Defend Trade Secrets Act, 18 U.S.C. § 1831, et seq., the Copyright Act, 17 U.S.C. § 101, et seq., and the covenant not to compete in Jonathan Fishbeck's employment agreement. (Dkt. 6 at 8-10). But before getting to those claims, Defendants challenge whether Plaintiff can represent the BuilderFish entities under Virginia corporate law.

         A. Plaintiff's ability to bring a derivative suit under Virginia law

          It is “well settled” that “Virginia law does not accord a shareholder standing to sue in his own right for compensatory damages caused by injury to a corporation.” Womble v. Dixon, 752 F.2d 80, 82 (4th Cir. 1984) (citing Keepe v. Shell Oil Co., 220 Va. 587, 591 (Va. 1979)). “The rule is that an officer or a shareholder of a corporation, even if he is the sole shareholder, has no personal or individual right of action against third parties for a wrong or injury inflicted by those third parties upon the corporation.” Mullins v. First Nat. Exch. Bank of Va., 275 F.Supp. 712, 721 (W.D. Va. 1967); see Mission Residential, LLC v. Triple Net Properties, LLC, 275 Va. 157, 161-62 (Va. 2008) (applying this principle to limited liability companies).

         While Plaintiff cannot sue directly for any alleged injuries to the BuilderFish entities, he can sue on behalf of the limited liability companies, or “derivatively.” “A derivative action is an equitable proceeding in which a member asserts, on behalf of the limited liability company, a claim that belongs to that entity rather than the member.” Mission Residential, 275 Va. at 161- 62. Va. Code § 13.1-1042 governs derivative actions brought on behalf of limited liability companies. Plaintiff can only bring a derivative action if he was a member of the company during the alleged injury, made a written demand on the company to take action, and waited ninety days to see whether the company would take action on its own behalf. Va. Code § 13.1-1042. Plaintiff must also “fairly and adequately” represent the interests of the limited liability company. Id. at §§ 13.1-1042, 13.1-1043.

         Plaintiff made a written demand on the company, and the first three requirements are satisfied. (Dkt. 6 ¶¶ 10, 27).[1] However, Defendants dispute whether Plaintiff can “fairly and adequately” represent the interests of the company. (Dkt. 12 at 3-4). They claim that “economic antagonisms between representative and class” and “other litigation pending between the plaintiff and defendants” weigh against the Plaintiff's ability to fairly and adequately represent the BuilderFish entities. (Dkt. 12 at 3 (quoting Office of Strategic Servs., Inc. v. Sadeghian, 528 F. App'x 336, 350 (4th Cir. 2013))).[2]

         But the parties' animosity does not necessarily doom a derivative action. See Cattano v. Bragg, 283 Va. 638, 647-48 (Va. 2012). In Cattano, the Virginia Supreme Court upheld the ability of one shareholder in a two-shareholder corporation to fairly and adequately bring a derivative action against the other. In that case, there was also “economic antagonism as well as apparent animosity between the Firm's only two shareholders, ” but the court was unwilling to find that this was determinative. Id. “To so hold would be to enact a de facto bar on derivative suits in two-shareholder corporations.” Id. Instead, a court “must look beyond the mere presence of economic and emotional conflict, placing more emphasis on whether the totality of the circumstances suggest that the plaintiff will vigorously pursue the suit and that the remedy sought is in the interest of the corporation.” Id.

         Here, the totality of the circumstances demonstrate that Plaintiff is able to vigorously pursue the derivative suit in the interest of the corporation and that the remedy sought is in the interest of the corporation. First, because of Plaintiff's large interest in the company, Plaintiff would vigorously pursue these claims and be “the driving force behind the litigation.” Jennings, 275 Va. at 601. This would resound to the benefit of the BuilderFish entities as a whole. Second, the remedy sought (the return of any trade secrets or money derived from them) is the same type of remedy that the company would seek on its own behalf. See Cattano, 283 Va. at 648 (“The remedy sought-the return of funds, misappropriated by an officer, to the corporation-is highly appropriate for a derivative claim.”). Third, Plaintiff is intimately familiar with the litigation and, as the BuilderFish entities are owned only by Plaintiff and Defendant Jonathan Fishbeck, there is no one more familiar with the dispute who could bring a derivative action.

         There is “other litigation pending between the plaintiff and defendants.” Jennings, 275 Va. at 601. This distinguishes this case from Cattano, but the underlying concern of Cattano still holds: Allowing the “[c]harged emotions and economic antagonism [that] are virtually endemic to disputes in closely held corporations” to prevent derivative actions “would be to enact a de facto bar on derivative suits in two-shareholder corporations.” 283 Va. at 647. The totality of these circumstances ...


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