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Trans-Radial Solutions, LLC v. Burlington Medical, LLC

United States District Court, E.D. Virginia, Norfolk Division

August 5, 2019

TRANS-RADIAL SOLUTIONS, LLC, Plaintiff,
v.
BURLINGTON MEDICAL, LLC, MR. JOHN WILLIAMS, FOX THREE PARTNERS, LLC, and PHILLIPS SAFETY PRODUCTS, INC., Defendants.

          OPINION AND ORDER

          Robert G. Doumar United States District Judge.

         This matter comes before the Court on the defendants' partial motion to dismiss the plaintiffs complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Motion to Dismiss"). ECF No. 19. For the reasons stated herein, the defendants' partial Motion to Dismiss is GRANTED, IN PART, and DENIED, IN PART, consistent with the directives of this Opinion and Order.

         I. PROCEDURAL BACKGROUND

         On December 12, 2018, Trans-Radial Solutions, LLC ("TRS" or "Plaintiff) filed the instant action against four defendants: Burlington Medical, LLC ("Burlington"), John Williams ("Williams"), Fox-3 Partners LLC ("Fox Three"), and Phillips Safety Products, Inc. ("Phillips") (collectively, "Defendants"). See Complaint ("Compl."), ECF No. 1. The complaint asserts the following thirteen counts:

Count I: Patent Infringement (against Burlington and Phillips)
Count II: Copyright Infringement Reproduction (against Burlington and Phillips)
Count III: Copyright Infringement Marketing and Sale (against Burlington and Phillips)
Count IV: Unfair Competition, False Advertising and False Designation of Origin Pursuant to 15 U.S.C. § 1125(a) (against all Defendants)
Count V: Unfair Competition and Violation of the Virginia Consumer Protection Act, Va. Code Ann. § 59.1-200(A) (against all Defendants)
Count VI: Common Law Passing Off (against all Defendants)
Count VII: Tortious Interference with Prospective Contractual Relations (against all Defendants)
Count VIII: Conversion (against Williams and Burlington)
Count IX: Breach of Fiduciary Duty and Duty of Loyalty (against Williams)
Count X: Breach of Contract (against Williams and Burlington)
Count XI: Civil Conspiracy (against all Defendants)
Count XII: Misappropriation of Trade Secrets, 18 U.S.C. § 1836 (against Williams, Burlington, and Fox Three)
Count XIII: Negligence (against Williams and Burlington).

         On February 12, 2019, Defendants filed the instant Motion to Dismiss seeking dismissal of Defendant Williams from all relevant counts and dismissal of Counts IV-XIII in their entirety for failure to state a claim. ECF No. 19; see Memorandum in Support ("Mem."), ECF No. 20. On March 1, 2019, TRS filed its brief in opposition ("Opp."). ECF No. 27. On March 8, 2019, Defendants filed their reply. ECF No. 32. On June 27, 2019, the Court conducted a hearing on Defendants' partial Motion to Dismiss. Such motion is now before the Court.

         II. LEGAL STANDARD

         A Rule 12(b)(6) motion to dismiss for failure to state a claim should be granted if it appears that the plaintiff is not "entitled to relief under any legal theory which might plausibly be suggested by the facts alleged." Harrison v. United States Postal Serv., 840 F.2d 1149, 1152 (4th Cir. 1988) (citation omitted). To survive a motion to dismiss, the facts alleged in the complaint "must be enough to raise a right to relief above a speculative level" and must be sufficient "to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 547.

         In resolving a Rule 12(b)(6) motion, the court must assume the truth of all facts alleged in the complaint and construe the factual allegations in favor of the non-moving party. Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222 (4th Cir. 2009). However, the court is not bound by the complaint's legal conclusions. Id. In addition, the court may consider the complaint's attachments as well as documents "attached to the motion to dismiss, so long as they are integral to the complaint and authentic." Sec'y of State for Defence v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007). The court may also take judicial notice of items in the public record, Hall v. Virginia, 385 F.3d 421, 424 n.3 (4th Cir. 2004), including patent, copyright, and trademark registrations, Zinner v. Olenych, 108 F.Supp.3d 369, 377 n.2 (E.D. Va. 2015).

         III. FACTUAL BACKGROUND

         As set forth above, when deciding Defendants' motion to dismiss, the Court must assume the truth of the factual allegations in the complaint as well as any exhibits attached to the complaint or to the motion to dismiss that are authentic and integral to the complaint. A summary of the facts alleged in or properly incorporated into Plaintiffs complaint follows.

         The Parties

         Plaintiff TRS is a South Carolina limited liability company with its principal place of business in Roebuck, South Carolina. Compl. ¶ 7. TRS researches, develops, manufactures, markets, and sells radiation shielding products. Id. ¶ 17. Since 2014, dozens of healthcare providers have used TRS's Rad-Guard™ brand Radiation Shields and other TRS products to decrease radiation exposure to medical personnel. Id.

         Defendant Burlington is a Virginia limited liability company with its principal place of business in Newport News, Virginia. Id. ¶ 8. Burlington makes, sells, or offers to sell radiation shields for use by medical professionals. Id. ¶ 25. Defendant Williams is the CEO and owner of Burlington and resides in Virginia. Id. ¶ 9. Defendant Fox Three is a Virginia investment company that acquired Burlington in or about May 2015. Id. ¶¶ 10, 35. Prior to such acquisition, Burlington operated as Burlington Medical Supplies, Inc., which, according to TRS, was "the same enterprise operating out of the same location using essentially the same name, the same CEO, and the same website [www.burmed.com] to market and distribute the same products and services." Id. ¶ 38. Defendant Phillips is a New Jersey corporation that manufactures radiation protection products for itself and the other defendants. Id. ¶ 11.

         TRS's Relevant Intellectual Property

         On October 24, 2017, the United States Patent and Trademark Office ("USPTO") issued Patent No. 9, 795, 346, entitled "Radiation Shield Assembly," relating to a radiation shield affixed to a medical device hangar (hereinafter, "the '364 Patent"). Id. ¶ 20; Id. at Ex. A. TRS is the owner and assignee of all rights, title and interest in the '346 Patent. Id. ¶ 21.

         On September 11, 2016, the United States Copyright Office issued Registration No. VAu 1-260-031 registering original works of authorship entitled "TRS Web Images" (hereinafter, "the '031 Registration"). Id. ¶ 23. The TRS Web Images are assigned to and beneficially owned by TRS and are used to depict TRS's Rad-Guard™ Radiation Barrier. Id. ¶¶ 23-24.

         The 2014 Distribution Agreement

         On October 15, 2014, TRS and Burlington's precursor entity, Burlington Medical Supplies Inc., entered into a "Non-Exclusive Distributorship Agreement" by which Burlington Medical Supplies Inc. agreed to distribute certain TRS products, including Rad-Guard™ shields and Cardio-TRAP systems, at agreed-upon prices (hereinafter "Distribution Agreement"). See Redacted Distribution Agreement, Exhibit 1 to Def. Mem., ECF No. 20-1. The contract term was one year, commencing on October 15, 2014, and would "automatically continue unless terminated by either party with at least 30 Days prior written notice." Id. ¶ 14.

         In connection with such agreement, on or about December 29, 2014, TRS provided twenty-four (24) miniature Cardio-TRAP systems called "Mini-TRAPs" to Burlington to be used for Burlington sales demonstrations. Id. ¶ 30. In addition, in or around January 2015, TRS provided four (4) Rad-Guard™ Radiation Shields to Burlington for demonstration purposes. Id. ¶ 31. In early 2015, TRS also provided training for Burlington salespeople and supplied copyrighted photographs of TRS products to Burlington for use in its sales brochures. Id. ¶¶ 32-33.

         The 2015 Acquisition

         In or around May 2015, Fox Three acquired Burlington Medical Supplies, Inc., changed its name to Burlington Medical, LLC, and maintained Williams' leadership role as CEO of the newly-acquired company. Id. ¶ 38. Shortly after the acquisition, TRS's Chief Financial Officer, Robert Shealy, met with Williams to confirm that the business relationship between TRS and Burlington would continue. Id. ¶ 40. During such meeting, Williams expressly confirmed to Mr. Shealy that it would. Id. From that time through the first quarter of 2018, Burlington continued to distribute TRS products. Id. ¶ 41. Indeed, during and after the acquisition, "Burlington was still serving as a sales representative and distributor for TRS's products" and "Williams worked with TRS and its employees to sell TRS products to customers." Id. ¶ 39. As a result, between 2015 and 2018, "Williams had access to TRS customer contracts, testing results, and technical information relating to the TRS products with the express understanding that all such information belonged to TRS." Id.

         Defendants' Alleged Infringement and Other Alleged Misconduct

         The complaint alleges that Fox Three and Williams formed Burlington, in part, to manufacture, market, and sell products to compete with TRS's products, including Burlington's IV Mounted Barrier. Id. ¶ 43. Specifically, TRS alleges that "Defendants copied TRS's patented technology and copyrighted materials and have incorporated TRS's intellectual property into their 'IV Mounted Barriers'" in order to "compete with TRS's Rad-Guard™ brand Radiation Shields" and "capture the radiation shield market." Id. ¶ 42-43.

         The complaint further alleges that, in 2016, TRS discovered that Burlington was producing, marketing and selling a copy of TRS's Rad-Guard™ Radiation Shield, which Burlington advertised as its own product called the "IV Mounted Barrier." Id. ¶ 44. Burlington's website depicted the IV Mounted Barrier using photographs that were "willfully copied from TRS's registered photographs" and then intentionally doctored by photo-editing. Id. ¶ 45. Specifically, TRS alleges that Burlington doctored such photographs to remove the TRS Rad-Guard™ mark and replace it with the Burlington mark. Id. ¶ 46. TRS claims that, through this alleged infringement, "Burlington has deceived TRS's customers and potential customers, defeated the designation of origin purpose of TRS's marks and trade dress, thwarted the further development of goodwill in TRS marks, and usurped a stream of advertising rightfully belonging to TRS." Id. ¶46.

         On September 20, 2016, TRS, by counsel, sent a letter to Williams objecting to Burlington's infringing activity related to the IV Mounted Barrier. Id. ¶ 47. In response, Williams agreed to cease marketing the IV Mounted Barrier, and Burlington continued to distribute other TRS products. Id. Nonetheless, TRS claims that Williams and Burlington continued to use TRS's trade secrets and continued to market and sell the IV Mounted Barrier for at least two more years and made sales of such product to actual and potential TRS customers, including McLaren Bay Region Hospital in 2017. Id. ¶49.

         On April 13, 2017, Mr. Shealy of TRS sent a letter to Williams stating the following:

Mr. Williams,
The contract between our companies provides in Section 14 (Page 4) that either party may terminate the contract with at least 30 days notice. We hereby give notice to that effect. Please arrange to return all demonstration units of the Rad-Guard and Cardio-TRAP which we loaned to Burlington early in our business relationship.
We appreciated your company's professional attitude toward ordering and payment of invoices. Although we must seek other distributors to increase our market presence, your company has been a pleasure to work with.

See April 13, 2017 Letter, Exhibit 2 to Def Mem., ECF No. 20-2.

         In or about August 2018, TRS allegedly sent a letter to Fox Three requesting a meeting to address the alleged infringing activity of Williams and Burlington. Id. ¶ 50. TRS claims that Fox Three then ceased communications with TRS "except for the completion of a few outstanding purchase orders." Id. ¶ 51.

         The complaint further alleges that Burlington, Williams and Fox Three hired and directed Phillips, a manufacturer of occupational safety products, to build or cause to be built Burlington's IV Mounted Barriers. Id. ¶ 59. In addition, Phillips allegedly "makes its own unauthorized copies that infringe both the '346 Patent and the '031 Registration, which Phillips markets and sells as 'IV Mounted Barrier'." Id. ¶ 60. TRS claims that Phillips' depictions of this product on its website and in its sales brochures are "willfully copied from TRS's registered photographs." Id. ¶¶ 62-63.

         The complaint further alleges that TRS has asked Burlington to return the twenty-four (24) Mini-TRAPs and four (4) Rad-Guard™ Radiation Shields that TRS provided to Burlington for demonstration purposes in late 2014 and early 2015, respectively, but "Burlington continues to unlawfully possess them." Id. ¶¶ 30, 31. TRS claims that the Mini-TRAPs are collectively valued at approximately $6, 000.00 and the Rad-Guard™ Radiation Shields are collectively valued at approximately $4, 000.00. Id. ¶¶ 30, 31.

         IV. MOTION TO DISMISS ALL COUNTS AGAINST DEFENDANT WILLIAMS

         The first part of Defendants' Motion to Dismiss seeks dismissal of Counts IV-XIII as to Defendant Williams on the grounds that he is not properly named as a defendant in those counts. The crux of Defendant's argument is that TRS improperly seeks to hold Williams, the CEO of Burlington, personally liable for the actions of Burlington without stating facts sufficient to pierce the corporate veil. For example, the complaint alleges that "the evidence will show that . . . Burlington is merely the alter ego of Williams." Compl. ¶ 28. But, according to Williams, the complaint fails to allege any facts showing a unity of interest, a disregard of corporate formalities, comingling of assets, or use of the corporate form to commit a crime, fraud, or other injustice. ECF No. 20 at 6. Therefore, Williams argues that the conclusory allegation that he is the "alter ego" of Burlington is insufficient to establish his liability for the actions of Burlington. Id. at 7.

         However, TRS need not "pierce the corporate veil" to sue Williams if TRS alleges sufficient facts to show that Williams, as officer or director of Burlington, took intentionally tortious actions on behalf of the corporation. Airlines Reporting Corp. v. Pishvaian, 155 F.Supp.2d 659, 666 (E.D. Va. 2001) (citing Sit-Set. A.G. v. Universal Jet Exch., Inc., 747 F.2d 921, 929 (4th Cir. 1984) ("Corporate officers may of course be liable jointly and severally with their corporation for obligations arising out of tortious conduct of the officers that subject the corporation to liability.")). For example, a corporate officer is not liable for the corporation's contractual obligations, but such officer may be jointly and severally liable for fraud if "the corporate office directly engaged in the transaction .. . [for] which liability was found." Sit-Set 747 F.2d at 929.[1]

         Here, the complaint does not seek to hold Williams liable merely because he is the alleged CEO of Burlington. Rather, the complaint alleges that Williams personally directed and/or engaged in nearly all of the tortious conduct alleged. For example, the complaint alleges that:

• Williams, along with Fox Three and Phillips, directed Burlington to "make, sell, or offer to sell radiation shields that are covered by one or more of the claims of the '346 Patent;" Compl. ¶ 25, and directed Burlington to "hire[] Phillips to produce the [infringing] IV Mounted Barrier," Id. ¶ 128:
• "Williams worked with TRS and its employees to sell TRS products to customers," Id. ¶ 39;
• "Fox Three and Williams formed Burlington in part to manufacture, market, and sell competing products to compete with TRS," Id. ¶ 43;
• Williams sold "the IV Mounted Barriers to compete with TRS's Rad-Guard™ brand Radiation Shields," id. ¶ 43;
• "Williams and Burlington used TRS's trade secrets and continued to market and sell the infringing product [the IV Mounted Barrier] for at least two more years," id. ¶ 49;
• "Burlington, Williams, and Fox Three copied or caused to be copied the TRS Web Images under the '031 Registration belonging to TRS and/or created or caused to be created a ...

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