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Keystone Transportation Solutions, LLC v. Northwest Hardwoods, Inc.

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

April 19, 2019

KEYSTONE TRANSPORTATION SOLUTIONS, LLC, Plaintiff,
v.
NORTHWEST HARDWOODS, INC., et al., Defendants.

          MEMORANDUM OPINION

          Elizabeth K. Dillon United States District Judge.

         Plaintiff Keystone Transportation Solutions, LLC (Keystone) filed this action against Northwest Hardwoods, Inc. (NWH) and Thomas Mereen and alleges the following interrelated claims, all of which arise from their business dealings and subsequent events: misappropriation of trade secrets, breach of contract, breach of fiduciary duty, aiding and abetting the breach of fiduciary duty, tortious interference with contractual relations, and business conspiracy. Pending before the court is defendants' motion for summary judgment, seeking judgment as a matter of law on all six counts. (Dkt. No. 63.) The motion has been fully briefed and argued before the court. For the reasons set forth herein, the motion for summary judgment will be granted as to Keystone's aiding and abetting the breach of fiduciary duty claim and denied as to all other claims.

         I. BACKGROUND[1]

         Keystone was a logistics company that specialized in the export of forest products and operated from the Inland Port of Virginia (VIP). David Steffens and Williams Ellis were the founders of Keystone. Steffens served as its CEO, and Ellis served as its CFO.

         Prior to Keystone's creation, Ellis and Steffens conducted research about transportation inefficiencies in the forest products market. Specifically, they found that the industry's reliance on trucking, with greater weight restrictions and increased fumigation costs, was inefficient. This led them to create Keystone. To operate at the VIP, Keystone acquired a license from Virginia International Terminals (VIT) beginning August 1, 2015, and continuing until the earlier of July 31, 2020, thirty days after written notice of termination, or immediately if terminated following an Event of Default. The license agreement allowed assignment only with the written consent of the VIT and provided that Keystone would assign any permits or licenses for fumigation operations to the VIT or its designee upon termination of the agreement.

         At the VIP, Keystone (1) established a central collection point for wood basket products; (2) fumigated those products on-site with a Department of Environmental Quality (DEQ) permit; (3) utilized direct access to freight trains running to Norfolk; (4) took advantage of the greater weight allowances on rail by transporting more product per load; and (5) corresponded with overseas customers for American hardwood. Keystone made $500, 000 worth of real property investments and $1.5 million worth of capital investments during the license agreement period. The DEQ permit was exclusive to the site.

         During the first few years of Keystone's existence, Steffens's research and experiences led him to develop the “Shipper Savings Model” (SSM). Steffens considered the SSM to be Keystone's most valuable trade secret. SSM's “high level conclusions” were not unique, but its specific findings on savings were confidential. The information, modeling, and data underlying Keystone's shipping savings was kept confidential by securing Keystone's physical site, restricting access to high-level officers, and entering into non-disclosure agreements before disclosing information to other companies. Keystone's model could only be conducted at this specific site at the VIP-any attempted replication elsewhere would suffer from the same inefficiencies originally identified by Steffens and Ellis. (Ellis Aff. ¶¶ 2-5, Dkt. No. 92-54; Steffens Aff. ¶¶ 2, 5-11, Dkt. No. 92-52; Steffens Expert Report, Dkt. No. 77-5 at 69; August 2015 License Agreement 4, 9, Dkt. No. 81-52; March 2017 License Agreement 22, Dkt. No. 81-53.)

         Northwest Hardwoods (NWH) is a supplier and manufacturer of hardwood. (Keeling Decl. ¶ 6, Dkt. No. 77-1 at 7.) On February 22, 2016, a formal introduction was made between NWH and Keystone, in which Mark Fornasiero, a Keystone board member, stated that Keystone had “an innovative approach to the supply chain for exporting hardwoods, ” and was “leveraging an exclusive partnership” that it had with the VIP. Around March 2016, Mike Knavenshue, NWH's transportation head, and Bo Hammond, NWH's head of log sales, visited Keystone's site at the VIP and met with Steffens and Ellis. During this meeting, Steffens and Ellis emphasized Keystone's ability to ship more logs per container and their onsite fumigation. (Ellis Aff. ¶ 7; NWH Follow-up Email, Dkt. No.77-4 at 83; Knavenshue Dep. 22-24, Dkt. No. 77-4 at 59.) The parties' business proposal involved NWH selling hardwood logs to Keystone, who would then aggregate, fumigate, and transport those logs to Keystone's foreign customers. In May 2016, the parties conducted a test run where NWH shipped its lumber to the VIP for Keystone to “stuff” in containers there and ship. (Ellis Aff. ¶¶ 7-8; Knavenshue Dep. 34-40.) Prior to the test run, Steffens visited NWH's site to watch how it loaded lumber, and Knavenshue emailed Ellis about how he wanted the containers to be loaded. (Knavenshue Dep. 30, 40-41; Ellis Dep. 258, Dkt. No. 77-1 at 55.) Loading at the port during the test run gave NWH an additional $5, 371.40 in revenue and allowed it to ship an additional 4, 280 board feet. (Knavenshue Dep. 41-42.) Using its own data and observations from the test load, as well as the $600 ocean rates Ellis disclosed to Noel Adcock, NWH's transportation manager, NWH compared the cost of shipping lumber through the VIP versus by truck. (Keeling Decl. ¶ 23, Dkt. No. 77-1 at 1; Call Follow-up email, Dkt. No. 77-5 at 29.)

         In July 2016, NWH and Keystone began discussing a joint venture for exporting log sales. In response to Ellis's outline of their potential business partnerships, Darrell Keeling, the COO of NWH, responded that NWH needed “to make sure [it is] as profitable with a partner as [it] would be on [its] own, ” and sought information about Keystone's profitability, stating, “of course, the last part of that statement will come with the information through the [non-disclosure agreement] NDA.” (NWH Log Program email, Dkt. No. 92-8 at 1; Keeling Dep. 50-51, Dkt. No. 92-6 at 7.) On August 11, 2016, the parties signed an NDA. It defines “confidential information” as “all information or material that has or could have commercial value or other utility in the business in which Disclosing Party is engaged, ” and states that the disclosing party shall stamp written confidential material with the word “confidential.” Under the NDA, the receiving party agreed to “hold and maintain the Confidential Information in strictest confidence for the sole and exclusive benefit of the Disclosing Party.” (NDA, Dkt. No. 77-5 at 49-50.) After the NDA was signed, Keeling asked Ellis for Keystone's financial data “[s]ince we have an NDA.” (Meeting Confirmation 9/1/16 email, Dkt. No. 92-10.) In response, Ellis shared “hard financial data” with Keeling. (Meeting Confirmation 9/1/16 email, Dkt. No. 92-11.) Keystone believed that all electronically shared documents between the parties following the NDA were subject to the NDA. (Ellis Aff. ¶ 10.)

         On September 1, 2016, the parties held a meeting at the VIP, and afterwards, NWH sent Keystone a list of due diligence requests and stated: “[s]ince we are already under an NDA I think you should be comfortable in providing this.” (Ellis Aff. ¶¶ 12-15; Follow-ups from our meeting email, Dkt. No. 92-13 at 1.) On September 6, 2016, Keystone sent NWH a model “to evaluate the logistics and transportation opportunities that [Keystone] offers.” (Re: Follow-ups from our meeting email, Dkt. No. 92-14.) On September 19, 2016, Ellis created a password-protected Google Drive for specific individuals from NWH and Keystone, and uploaded the requested due diligence documents and Keystone's SSM to the Google Drive. (Ellis Aff. ¶ 14.) The SSM was an electronic spreadsheet that set forth a “coherent economic model of the sustained savings that would accrue to [NWH] both through logs and lumber on the export side” with “sustained analyses” that allowed the user to change the mill location, the destination of the logs and lumber, how the logs and lumber would be transported, and whether fumigation was needed. Following the creation of the Google Drive, NWH also asked for Keystone's monthly balance sheets since January 2015. (Steffens Dep. 288-90, Dkt. No. 77-1 at 71-72; Monthly Balance Sheets email, Dkt. No. 92-22.)

         Between July and November 2016, Keeling and Thomas Mereen, who was the president of Keystone at that time and who is now the current log export lead at NWH, exchanged twenty-nine text messages and had fifteen phone calls (Phone Records, Dkt. No. 92-24), and on November 11, 2016, Mereen emailed Keeling, asking if he could work at NWH (Work Relationship email, Dkt. No. 92-26). On November 14, 2016, Keeling emailed TJ Rosengarth, the CEO of NWH, sending him information about Keystone that was not publically available and not otherwise known to the public. (Log Trading Proposal email, Dkt. No. 92-27.) Following this exchange, Keeling and Rosengarth planned for Knavenshue to approach Stan Crockett, an on-site port manager with the VIP, to “know what the real situation is with the lease.” They discussed how to “coach” Knavenshue so he would “not telegraph NWH cutting [Keystone] out, ” and that they would do so “under [the] guise of due diligence for working with Keystone.” (Log Trading Proposal email, Dkt. No. 92-30.) Crockett and Knavenshue spoke the next day. (RE: Call email, Dkt. No. 92-31.)

         The day after that conversation, on November 16, 2016, Barnes-Smith, the business manager of the VIP, contacted NWH seeking a business partner for the log stuffing operations at the VIP. (Barnes-Smith Dep. 125-27, Dkt. No. 92-32.) Barnes-Smith communicated to Keeling that the VIP was “tired of dealing with” Keystone, and Keeling responded that NWH could take over the operation as soon as possible. (Barnes-Smith Voicemail email, Dkt. No. 92-34 at 2.)

         On November 23, 2016, Keystone presented a $4 million offer for its purchase to NWH, and on November 29, 2016, Keeling told Ellis and Steffens that the Keystone acquisition was scheduled to be discussed at NWH's upcoming Board of Directors meeting. At this point, Keystone was not aware that NWH had been communicating with the VIP. (Ellis Aff. ¶¶ 19- 20.) On December 1, 2016, Barnes-Smith circulated an internal memorandum that recommended sending a notice of default to Keystone (with a five-day cure period) and contacting NWH to take over the log stuffing operations at the VIP. (VIP Land License and Log Operations, Dkt. No. 92-37.)

         On December 8, 2016, Mereen met with Steffens and Ellis to notify them that he was resigning and going to work for NWH. On December 12, 2016, Keeling notified Keystone that NWH would not be moving forward with the deal. Keystone never received a response from NWH to its request for the return of its confidential information. (Ellis Aff. ¶¶ 22-23, 26-27.) Keeling attempted to contact Barnes-Smith twice following NWH's rejection of Keystone's offer. (Dkt. Nos. 92-38, 92-40.) While waiting for the VIP to send the notice of default to Keystone, Keeling expressed to the VIP that NWH was “standing by with the financial and human capital to take over the existing operation or start a new one.” (VIP email, Dkt. No. 92-41.)

         Throughout its negotiations with NWH and afterwards, Keystone also was discussing its potential purchase with World Distribution Services (WDS). On February 2, 2017, Keystone and WDS signed a letter of intent (LOI) about WDS purchasing Keystone and paying its debt to VIT in full. However, by letter dated February 10, 2017, WDS rescinded the LOI because it had been informed by the VIT that a notice of default had been sent to Keystone and that it was in advanced discussions with an unnamed party who would assume Keystone's license. (Ellis Aff. ¶¶ 21, 28, 31-32.) Although the notice of default was dated January 13, 2017, Keystone claims it was not aware of the notice until mid-February-after it entered into the LOI with WDS.[2](Mem. Opp'n Mot. Summ. J. 13-14, Dkt. No. 92; Notice of Default, Dkt. No. 92-47.)

         After WDS rescinded the LOI, Keystone ceased operations on March 2, 2017. (Ellis Aff. ¶¶ 33, 35.) On March 3, 2017, NWH executed a license agreement with the VIT for Keystone's former premises. (NWH License Agreement, Dkt. No. 92-51.) Since entering into this license agreement, NWH has performed the log loading services at the VIP. (Keeling Decl. ¶ 35.) There is no material difference between the work that was performed at the VIP by Keystone and the work that is performed now by NWH. (Mereen Dep. 34-35, Dkt. No. 92-48.)

         Keystone asserts the following claims: 1) violation of the Defend Trade Secrets Act, 18 U.S.C. § 1832 et seq., against NWH; 2) breach of contract against NWH; 3) breach of fiduciary duty against Mereen; 4) aiding and abetting the breach of fiduciary duty against NWH; 5) tortious interference with contractual relations and prospective business relations against NWH and Mereen; and 6) business conspiracy against NWH and Mereen. (Compl. 26-35, Dkt. No. 1.)

         II. ...


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