United States District Court, E.D. Virginia, Richmond Division
Hannah Lauek United States District Judge
matter comes before the Court on Defendant Cabinets to Go,
LLC's ("CTG") Motion to Dismiss brought
pursuant to Federal Rule of Civil Procedure
12(b)(6). (ECF No. 3.) Plaintiff Lumber
Liquidators responded, (ECF No. 9), and CTG replied, (ECF No.
13). The matter is ripe for disposition. The Court dispenses
with oral argument because the materials before it adequately
present the facts and legal contentions, and argument would
not aid the decisional process. The Court exercises
jurisdiction pursuant to 28 U.S.C. § 1332. For the
reasons that follow, the Court will deny CTG's Rule
12(b)(6) Motion to Dismiss.
Factual and Procedural Background
breach of contract action arises out of CTG's alleged
violation of a covenant not to compete in the sale of
hardwood flooring with Lumber Liquidators.
1994, Thomas D. Sullivan founded Lumber Liquidators-a
retailer of hardwood flooring-and served for a number of
years as its "chairman of the Board of Directors, its
chief executive officer, and its president." (Compl.
¶ 6, ECF No. 1-A.) In early 2010, the Lumber Liquidators
Board of Directors (the "Board") learned that
Sullivan "owned and operated CTG," a company that
sold "kitchen and bath fixtures and building
supplies." (Id. ¶¶ 7-8.) CTG
did not, however, sell flooring products. (Id.
¶ 8.) At that time, Sullivan served as the
"Chairman of [the Board], was a full-time employee...
and was Lumber Liquidators' largest shareholder."
(Id. ¶ 7.) According to the Complaint, the
Board, concerned that Sullivan might "usurp corporate
opportunities from Lumber Liquidators" or otherwise use
"confidential information" to benefit his new
company, entered into several agreements with CTG.
(Id. ¶ 9.)
1, 2010, Lumber Liquidators and CTG's owners executed an
agreement allowing Lumber Liquidators "the option to
purchase the owner's interest in CTG for a period of ten
(10) years (the "Option Agreement")."
(Id. ¶ 11.) As part of the Option Agreement,
Lumber Liquidators agreed to deliver "advertising and
marketing consultation services, to [CTG] to assist [CTG] in
the development and implementation of a marketing strategy as
set forth in a Memorandum of Understanding."
(Id. ¶ 12.) The Memorandum of Understanding,
("MOU"), executed the same day as the Option
Agreement, "sets forth the specific marketing and sales
services that Lumber Liquidators was able to provide to
CTG." (Id. ¶ 15.) These services included
"the rental of Lumber Liquidators' customer lists;
use of Lumber Liquidators' commercial sales team; media
buying services; and cross-promotional marketing."
the close ties between the management of Lumber Liquidators
and CTG, both companies also agreed to enter into
"reciprocal restrictive covenants." (Id.
¶ 16.) Relevant here, CTG agreed to not "engage in
the sale of [hardwood] flooring or similar flooring products
worldwide" during the term of the MOU and for two years
following its termination. (Id. ¶ 17.) Lumber
Liquidators similarly agreed to refrain from selling kitchen
cabinets. (Id. ¶ 18.)
the enactment of the MOU, CTG utilized Lumber Liquidators
marketing and sales services "to generate internet
traffic, assist in the graphic design of CTG's
promotional catalog... and assist with direct mail marketing,
production services, and media buying." (Id.
¶ 21.) As a result of these services, Lumber Liquidators
alleges that CTG was able to "grow its market base and
opportunities" and thus received "substantial
economic benefit." (Id. ¶ 22.)
Liquidators now claims that CTG has failed to live up to its
side of the bargain. Specifically, despite the fact that the
MOU "remains in force," CTG "advertises,
markets, and sells hardwood flooring and similar flooring
products in e-commerce and in its approximately 60 retail
stores" in contravention of Section 2.7.1 of the MOU.
(Id. ¶¶ 20, 23.)
Liquidators originally filed its Complaint in the Circuit
Court for Henrico County, Virginia. (Not. Removal ¶ 9,
ECF No. 1.) CTG properly removed the action to this Court
pursuant to 28 U.S.C. §§ 1332, 1441, and
1446. (Id. 1.)
Liquidators' eight-page Complaint brings a single breach
of contract claim against CTG. CTG filed the Motion to
Dismiss alleging that the underlying MOU "violates both
federal antitrust and Virginia law." (Mem. Supp. Mot.
Dismiss 1, ECF No. 4.) Lumber Liquidators filed its response,
and CTG replied.
Standard of Review: Rule 12(b)(6)
motion to dismiss under Rule 12(b)(6) tests the sufficiency
of a complaint; importantly, it does not resolve contests
surrounding the facts, the merits of a claim, or the
applicability of defenses." Republican Party of N.C.
v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5 A
Charles A. Wright & Arthur R. Miller, Federal
Practice and Procedure § 1356 (1990)). To survive
Rule 12(b)(6) scrutiny, a complaint must contain sufficient
factual information to "state a claim to relief that is
plausible on its face." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007); see also
Fed. R. Civ. P. 8(a)(2) ("A pleading that states a claim
for relief must contain... a short and plain statement of the
claim showing that the pleader is entitled to relief.").
Mere labels and conclusions declaring that the plaintiff is
entitled to relief are not enough. Twombly, 550 U.S.
at 555. Thus, "naked assertions of wrongdoing
necessitate some factual enhancement within the complaint to
cross the line between possibility and plausibility of
entitlement to relief." Francis v. Giacomelli,
588 F.3d 186, 193 (4th Cir. 2009) (internal quotation marks
complaint achieves facial plausibility when the facts
contained therein support a reasonable inference that the
defendant is liable for the misconduct alleged.
Twombly, 550 U.S. at 556; see also Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). This analysis is
context-specific and requires "the reviewing court to
draw on its judicial experience and common sense."
Francis, 588 F.3d at 193. The Court must assume all
well-pleaded factual allegations to be true and determine
whether, viewed in the light most favorable to the plaintiff,
they "plausibly give rise to an entitlement to
relief." Iqbal, 556 U.S. at 676-79; see
also Kensington, 684 F.3d at 467 (finding that the court
in deciding a Rule 12(b)(6) motion to dismiss "must
accept as true all of the factual allegations contained in
the complaint' and "draw all reasonable inferences
in favor of the plaintiff" (quoting Kolon Indus.,
Inc., 637 F.3d at 440)). This principle applies only to
factual allegations, however, and "a court considering a
motion to dismiss can choose to begin by identifying the
pleadings that, because they are no more than conclusions,
are not entitled to the assumption of truth."
Iqbal, 556 U.S. at 679.
a motion pursuant to Rule 12(b)(6) invites an inquiry into
the legal sufficiency of the complaint, not an analysis of
potential defenses to the claims set forth therein, dismissal
nevertheless is appropriate when the face of the complaint
clearly reveals the existence of a meritorious affirmative
defense." Occupy Columbia v. Haley, 738 F.3d
107, 116 (4th Cir. 2013) (quoting Brockington v.
Boykins, 637 F.3d 503, 506 (4th Cir. 2011)).
does not dispute that it entered into the Option Agreement
and the MOU with Lumber Liquidators, nor does it dispute that
it now sells hardwood flooring in contravention of the MOU.
Rather, it contends that the "MOU is unenforceable on
its face" because it: (1) violates Section 1 of the
Sherman Antitrust Act (the "Sherman Act"); and (2)
constitutes an invalid and unreasonable restraint of trade
under Virginia law. (Mem. Supp. Mot. Dismiss 4-5.) The
Court addresses these contentions in turn.
The Court Will Deny the Motion to Dismiss on the Sherman
Legal Standard; ...