United States District Court, W.D. Virginia, Lynchburg Division
K. MOON UNITED STATES DISTRICT JUDGE
Darton Environmental refines cooking oil and sells it to
biofuel companies. Three of the Defendants, Andy Chen, Daniel
Zheng, and Adam Zheng, visited Plaintiff on behalf of
Defendant FJUVO Collections. Like Plaintiff, Defendant FJUVO
Collections collects, refines, and sells cooking oil. At this
visit, Plaintiff and Defendant FJUVO entered into a contract
whereby Defendant FJUVO would be allowed to inspect
Plaintiff's refining facility “solely for the
purpose of evaluating a potential business
relationship” in exchange for providing Plaintiff with
truckloads of oil. Defendant FJUVO delivered Plaintiff the
oil. However, Plaintiff alleges Defendant FJUVO and two
spinoff companies, Defendants TG Recycle Oil and Green Oil
Recycle, used its proprietary technology for their own ends.
Plaintiff alleges that this violated Virginia tort law,
contract law, and trade secret law. While the majority of these
claims must be dismissed, the trade secret claims are
adequately pled. Defendants' motion to dismiss will be
granted only in part.
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. “To survive a
motion to dismiss, Plaintiffs' factual allegations, taken
as true, must ‘state a claim to relief that is
plausible on its face.'” Hall v. DIRECTV,
LLC, 846 F.3d 757, 765 (4th Cir. 2017) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“When ruling on a motion to dismiss, courts must accept
as true all of the factual allegations contained in the
complaint and draw all reasonable inferences in favor of the
plaintiff.” Id. However, 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). Finally, “a court may consider
documents attached to the complaint or the motion to dismiss
so long as they are integral to the complaint and
authentic.” Kensington Volunteer Fire Dep't,
Inc. v. Montgomery Cty., Md., 684 F.3d 462, 467 (4th
FACTS AS ALLEGED
Darton Environmental “is a corporation engaged in the
business of collecting and refining used cooking oil and
selling it to biofuel companies.” (Dkt. 50 at ¶9).
FJUVO Collections “has historically been primarily
engaged in collecting, refining and selling used cooking
oil.” (Id. at ¶10). Defendants Andy Chen,
Daniel Zheng, and Adam Zheng have each served as agents of
FJUVO. (Id. at ¶¶10, 17-18).
Andy Chen is also the principal of Defendant TG Recycle Oil.
(Id. at ¶11). Like Plaintiff and Defendant
FJUVO, Defendant TG Recycle Oil is “engaged in
collecting, refining and selling used cooking oil.”
(Id.). It “is a spin-off company of
Daniel Zheng also serves as the principal of Defendant Green
Oil Recycle, Inc. (Id. at ¶12). Defendant Green
Oil Recycle is “engaged in collecting, refining and
selling used cooking oil.” (Id.).
Prior business dealings
this dispute, FJUVO “collected and supplied [Darton]
with used cooking oil for [Darton]'s refining
operation.” (Dkt. 50 at ¶13). Darton
“refines the cooking oil through a process called
‘heat and settle' involving superheated water,
which separates waste material from the oil.”
(Id. at ¶9). This process was
“significantly less labor-intensive and less
costly” than the refining method FJUVO had previously
used. (Id. at ¶15).
Negotiations and the agreements
began negotiating with Darton for use of its technology in
2015. (Dkt. 50 at ¶16). Andy Chen, Daniel Zheng, and
Adam Zheng negotiated on behalf of FJUVO. (Id. at
¶17). Daryl Hubbard negotiated on behalf of Darton.
(Id. at ¶18). The parties agreed to allow FJUVO
to inspect Darton's refining facility “solely for
the purpose of evaluating a potential business
relationship” in exchange for “six truckloads of
oil per month for eighteen months.” (Id. at
¶¶24-25). Each truckload contained at least 45, 000
pounds. (Dkt. 7-1). Darton would pay “one cent below
the IL Jacobsen market price” for the oil, and could
re-sell it for two cents over the market price. (Dkt. 50 at
¶25). On October 21, 2015, the parties entered into the
“buy and sell” agreement, memorializing these
terms. (Id. at ¶29; dkt. 7-1). That same day,
the parties also executed non-compete and confidentiality
agreements. (Dkt. 50 at ¶32; dkt. 7-1; dkt. 7-2). These
agreements made clear that FJUVO was to “use the
Confidential Information only for the purpose of evaluating
potential business and investment relationships with
[Darton].” (Dkt. 7-2). The agreements were signed for
FJUVO by Andy Chen and for Darton by Daryl Hubbard. (Dkt. 50
FJUVO begins using Darton technology and selling refined
then “allowed Chen and Daniel and Adam Zheng to examine
the proprietary equipment at the Darton refinery. Daniel
Zheng also took photographs of the equipment.” (Dkt. 50
at ¶44). Afterwards, “FJUVO quickly set up its own
refinery in Hammond, Indiana, and later converted its old
centrifuge refinery in Murfreesboro, Tennessee to a
‘heat and settle' facility using the Darton
technology, and began selling refined oil therefrom.”
(Id. at ¶47). Defendants Andy Chen and TG
Recycle Oil used the Darton technology in Defendant TG
Recycle Oil's refinery in Highland, Indiana.
(Id. at ¶48). Likewise, Defendants Daniel Zheng
and Green Oil Recycle used the Darton technology at their
refinery in Highland, Indiana. (Id. at ¶49).
Defendants began selling this refined oil to other buyers.
(Id. at ¶¶52, 54).
seven counts include claims for breach of contract,
conversion, tortious interference with business expectancy,
Virginia statutory business conspiracy, common law
conspiracy, and violations of the Virginia Uniform Trade
Secrets Act. The Court takes them one at a time.
Count I: Breach of Contract
alleges Defendant FJUVO breached the contract the parties
signed. Plaintiff concedes this claim is only against
Defendant FJUVO. Plaintiff also concedes the “buy and
sell” agreement was completed, and so the breach of
contract claim turns on alleged breaches of the non-compete
and confidentiality agreements. “[T]he threshold question
is whether [these agreements are] enforceable.”
Home Paramount Pest Control Companies, Inc. v.
Shaffer, 282 Va. 412, 420 (2011).
Court starts with the non-compete agreement. (Dkt. 7-3).
Under Virginia law, the non-compete agreement faces an uphill
climb: “Covenants not to compete are restraints on
trade and accordingly are not favored.” Motion
Control Sys., Inc. v. East, 262 Va. 33, 37, 546 S.E.2d
424, 425 (2001). Accordingly, non-compete agreements are to
be “strictly construed.” Alston Studios, Inc.
v. Lloyd V. Gress & Assocs., 492 F.2d 279, 285 (4th
Cir. 1974) (applying Virginia law). In evaluating the
enforceability of non-compete agreements, Virginia courts ask
whether the agreement is (1) “narrowly drawn” to
protect a legitimate business interest, (2) “not unduly
burdensome” on the contracting party's
“ability to earn a living, ” and (3) “not
against public policy.” Preferred Sys. Sols., Inc.
v. GP Consulting, LLC, 284 Va. 382, 392-93 (2012);
see also Double Diamond Properties, LLC v. BP Prod. N.
Am., Inc., 277 Fed.Appx. 312, 317 (4th Cir. 2008)
(“A court must ‘consider (1) whether or not the
agreement in question is reasonable as between the parties;
and (2) if so, whether or not the agreement is injurious to
the public interest by reason of its effect upon trade and,
therefore, void.'” (quoting Klaff v.
Pratt, 117 Va. 739 (1915)). Additionally, courts are to
consider the “function, geographical scope, and
duration” of the agreement. Simmons v. Miller,
261 Va. 561, 581 (2001). Finally, “when the non-compete
clause is ambiguous and susceptible to two or more differing
interpretations, at least one of which is functionally
overbroad, the clause is unenforceable.” Nortec
Commc'ns, Inc. v. Lee-Llacer, 548 F.Supp.2d 226, 230
(E.D. Va. 2008) (citation omitted).
non-compete agreement's primary problem is that it is
overbroad, and the Court concludes it is unenforceable as an
unreasonable restraint of trade. The agreement states that
FJUVO “shall not, in any manner, represent, provide
services or engage in any aspects of business that would be
deemed similar in nature to the business of Darton . . .
.” (Dkt. 7-3). It continues by preventing FJUVO from
“directly or indirectly engag[ing] in any business that
would be considered similar in nature to with [sic]
Darton Environmental, Inc, its subsidiaries, and any current
or former clients and/or customers.” (Id.).
Under the agreement, FJUVO also may not “solicit any
client, customer, officer, staff or employee for the benefit
of [itself] or a third party that is or may be engaged in a
similar business.” (Id.).
language is both ambiguous and overbroad. Its terms prevent
FJUVO from engaging in “business that would be deemed
similar in nature to the business of Darton.” But
Plaintiffs allege FJUVO “has historically been
primarily engaged in collecting, refining and selling used
cooking oil.” (Dkt. 50 at ¶10). And so FJUVO's
practice is almost identical and certainly “similar in
nature to the business of Darton.” These terms would
force FJUVO to stop the work it had historically been
engaged, a result that was both unanticipated by the parties
and unreasonable. Plaintiff, in its opposition to the motion
to dismiss, admits that reading this language by itself
“would lead to an absurd result.” (Dkt. 63 at
16). But its attempt to limit the terms to a “rational
reading” that only protects “its specific method
of ‘heat and settle' refining” relies on
limitations found nowhere in the agreement. (Id.).
Parties cannot write facially overbroad non-compete
agreements and then seek to tailor them after the fact.
agreement's terms would likewise prevent FJUVO's
ongoing solicitation of its own clients because it may not
“solicit any client . . . engaged in a similar
business.” (Dkt. 7-3). This language is problematic
because it goes far beyond Darton's proprietary
technology and instead limits conduct that is
“similar” to its general business. See Klaff
v. Pratt, 86 S.E. 74, 78 (Va. 1915) (“The
agreement restraining trade must be incidental to and in
support of the contract or sale by which the one in whose
favor it runs acquired some interest in the business he seeks
to protect.”) Again, any limitation on this broad
language is only created by Plaintiff ex post; it is
nowhere to be found in the agreement.
the agreement is missing traditional geographic and temporal
limitations. Similar contracts containing no geographic scope
have long been found unenforceable. See Alston Studios,
Inc. v. Lloyd V. Gress & Assocs., 492 F.2d 279, 283
(4th Cir. 1974) (“[B]ecause of its limitless geographic
application . . ., we hold the provision unenforceable and
void.”). The non-compete purports to be in effect for
ten years. (Dkt. 7-3). Plaintiff points to no contracts of
this length that have been upheld.
responds by noting that the Supreme Court of Virginia has
said “[t]he possession of trade secrets and
confidential information is an important consideration in
testing the reasonableness of a restriction on
competition.” Meissel v. Finley, 198 Va. 577,
583 (1956). While this is undoubtedly true, the non-compete
here goes significantly beyond the underlying trade secrets
at issue. It would instead prevent FJUVO from engaging in its
day-to-day business, a result that Plaintiff acknowledges is
absurd. The agreement is overbroad, even if it aims at
protecting legitimate interests.
recourse to Consol. Indus. Roofing v. Williams, 17
Va.Cir. 341 (Roanoke Cir. Ct. 1989), is likewise unavailing.
This thirty-year-old circuit court case simply stands for the
unobjectionable proposition that non-compete agreements must
be read holistically. While the Court does look at the whole
agreement, the limiting terms Plaintiff seeks to introduce
now are found nowhere on the face of the document. And unlike
the agreement upheld in that case, which restricted