Opinion
Case No. 1:00cv831.
March 12, 2001.
ORDER
In accordance with the opinion filed this date,
IT IS ORDERED that the motions and amended motion of defendants to dismiss or for summary judgment (docket ## 4, 9, 10) are GRANTED IN PART AND DENIED IN PART. The motions are GRANTED in such part as they request plaintiff's claim for punitive damages be dismissed. They are DENIED in all remaining respects.
OPINION RE MOTIONS TO DISMISS AND FOR SUMMARY JUDGMENT
This is a diversity action alleging five counts: (1) breach of employment agreement; (2) violation of the Michigan Trade Secrets Act, MICH. COMP. LAWS § 445. 1901 et seq.; (3) tortious interference with business relations; (4) tortious interference with contract; and (5) civil conspiracy. The matter presently is before the court on defendants' motions and amended motion to dismiss pursuant to FED. R. CIV. P. 12(b)(1) and for summary judgment pursuant to FED. R. CIV. P. 56 for lack of the jurisdictional amount in controversy, and to partially dismiss pursuant to FED. R. CIV. P. 12(b)(6), (docket ## 4, 9, 10). For the reasons that follow, the motions are GRANTED IN PART AND DENIED IN PART.
I.
The following facts are taken in the light most favorable to the plaintiff.
Plaintiff United Rentals (North America), Inc. ("United") is in the business of selling and renting construction and industrial equipment. Defendant Jerry Keizer ("Keizer") was a former owner and General Sales Manager of Kubota of Grand Rapids, Inc. ("GR Kubota"), which was a competitor of United. United ultimately purchased GR Kubota and, on or about June 1, 1998, Keizer sold all of his stock to United. Keizer contemporaneously signed an employment agreement that included non-competition, non-solicitation and confidentiality provisions that were to expire five years after the signing of the agreement, or June 1, 2003. Keizer resigned from his employment with United on April 27, 2000.
The non-competition, non-solicitation portion of the employment agreement provides in relevant part:
For a period commencing on the Closing Date and terminating five (5)years thereafter (the "Restricted Period"), neither the Employee nor any of his Affiliates shall, anywhere in the Target Area, (as herein defined), directly or indirectly, acting individually or as the owner, shareholder, partner, or employee of any entity, (i) engage in the operation of any equipment sale, rental or leasing business; (ii) enter the employ of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of any business engaged in such activities; or (iii) receive or purchase a financial interest in, make limitation, as sole proprietor, partner, shareholder, officer, director, principal, agent, trustee or lender. . . . For purposes hereof, the term "Target Area" shall mean the area within the state of Michigan west of I-75 and U.S. Route 23, but shall exclude Newaygo County.
The confidentiality provision of the employment agreement states:
During the Restricted Period and thereafter, the Employee shall keep secret and retain in strictest confidence, and shall not use for the benefit of himself or others, all data and information relating to the Business ("Confidential Information"), including, without limitation, know-how, trade secrets, customer lists, supplier lists, details of contracts, pricing policies, operational methods, marketing plans or strategies, bidding information, practices or procedures, product development techniques or plans, and technical processes; provided, however, that the term "Confidential Information" shall not include information that (i) is or becomes generally available to the public other than as a result of disclosure by the Employee, or (ii) is general knowledge in the equipment, rental, sales or leasing business and not specifically related to the Business.
Keizer is the owner of Grant Rent-All, which is in the business of selling construction and industrial equipment within Newaygo County. Mulder's Outdoor Power Equipment is also in the business of renting and selling construction and industrial equipment, but within the target area of the non-competition agreement. Ron Keizer, brother of defendant Keizer, is employed by Mulder's.
United alleges that since his resignation from United, Keizer, in conjunction with defendants Grant Rent-All and Mulder's Equipment, has surreptitiously competed against United within the target area identified in the non-competition, non-solicitation provisions of his contract and has used his confidential knowledge of plaintiff's business and customers to irreparably harm plaintiff. Specifically, plaintiff alleges that Keizer surreptitiously has sold equipment to United customers in the target area both directly and by running sales through Mulders; that Keizer has offered equipment for sale to the general public within the target area both directly and through Mulder's; and that Keizer has advertised and solicited customers in the target area, supplying those customers with the name, address and telephone number of his competing business.
United filed the instant complaint seeking monetary damages in excess of $75,000, together with injunctive relief.
II.
Keizer and Grant Rent-All (hereafter, collectively, "Keizer") have filed a motion and amended motion to dismiss pursuant to FED. R. CIV. P. 12(b)(1) or for summary judgment pursuant to FED. R. CIV. P. 56, alleging that the amount in controversy does not approach the $75,000 jurisdictional minimum set forth in 28 U.S.C. § 1332. Keizer also moves to dismiss for failure to state a claim, FED. R. CIV. P. 12(b)(6), plaintiff's claims for punitive damages alleged in Counts II, III and V. Finally, Keizer moves to dismiss for failure to state a claim Count III of the complaint, which alleges tortious interference with business relations.
A. Standards of Review
"Where subject matter jurisdiction is challenged pursuant to Rule 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion." Moir v. Greater Cleveland Regional Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990); Rogers v. Stratton Industries, Inc., 798 F.2d 913, 915 (6th Cir. 1986). Moreover, the court is empowered to resolve factual disputes when subject matter jurisdiction is challenged. Moir, 895 F.2d at 269; Rogers, 798 F.2d at 918 (contrasting analysis under Rule 12(b)(6) where existence of genuine issues of material fact warrants denial of the motion to dismiss).
Pursuant to FED. R. CIV. P. 12(c), if a motion is supported by matters outside the pleadings, "the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56. . . ." Id. On a motion for summary judgment, the court must consider all pleadings, depositions, affidavits and admissions and draw all justifiable inferences in favor of the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The party moving for summary judgment has the burden of pointing the court to the absence of evidence in support of some essential element of the opponent's case. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Street v. J.C. Bradford Co., 886 F.2d 1472, 1479 (6th Cir. 1989). Once the moving party has made such a showing, the burden is on the nonmoving party to demonstrate the existence of a genuine issue for trial. Id.
Under Fed.R. CIV. P. 12(b)(6), a complaint may be dismissed for failure to state a claim for relief if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Hishon v. King Spalding, 467 U.S. 69, 73 (1984). The complaint must be construed in the light most favorable to the plaintiff, and its well-pleaded facts must be accepted as true. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). However, the court need not accept as true legal conclusions or unwarranted factual inferences. Lewis v. ACB Business Serv., Inc., 135 F.3d 389, 405 (6th Cir. 1998). A complaint fails to state a claim upon which relief can be granted when it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations of the complaint. Jones v. City of Carlisle, 3 F.3d 945, 947 (6th Cir. 1993), cert. denied, 510 U.S. 1177 (1994).
B. Subject Matter Jurisdiction
Defendants contend that the amount in controversy is less than the jurisdictional minimum provided by 28 U.S.C. § 1332, which provides in relevant part:
The district courts shall have original jurisdiction of all civil actions where the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between — (1) citizens of different states. . . .
Id. The federal courts do not have subject matter jurisdiction to decide diversity disputes if the amount in controversy fails to meet the jurisdictional minimum. Zahn v. International Paper Co., 414 U.S. 291, 292-93 (1973).
The amount in controversy is to be determined as of the time the action is commenced. Worthams v. Atlanta Life Ins. Co., 533 F.2d 994, 998 (6th Cir. 1976). If a plaintiff brings an action in federal court and a defendant seeks dismissal on amount-in-controversy grounds, the case will not be dismissed unless it appears that the plaintiff's assertion of the amount in controversy was made in bad faith. See Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353 (1961); Wood v. Stark Tri-County Bldg. Trades Council, 473 F.2d 272, 273 (6th Cir. 1973); Gafford v. General Elec. Co., 997 F.2d 150, 157 (6th Cir. 1993). Once a defendant challenges the amount in controversy, the plaintiff bears the burden of supporting the allegations by competent evidence. Gafford 997 F.2d at 157; Thomson v. Gaskill, 315 U.S. 442, 446 (1942).
Defendants contend that plaintiff has failed to meet the jurisdictional minimum in reliance upon the affidavit of Jerry Keizer. (Def. Br. Ex. B.) Keizer avers that the amount of profit associated with both questionable sales by Grant Rent-All and purchases from Minders totals at most $4,250.00, far below the required amount in controversy. Defendants assert that because the amount in controversy is to be measured by the amount defendants would lose if the plaintiff were granted the relief requested, see Mississippi M.R. Co. v. Ward, 67 U.S. 485 (1862), defendants are entitled to dismissal for want of jurisdiction.
As plaintiff notes, however, governing case law clearly holds that a determination of the amount in controversy is measured from the plaintiff's perspective. See Sherwood v. Microsoft Corp., 91 F. Supp.2d 1196, 1203-04 (M.D.Tenn. 2000) (citing Pennsylvania R.R. v. City of Girard, 210 F.2d 437 (6th Cir. 1954) (citing Glenwood Light Water Co. v. Mutual Light, Heat Power Co., 239 U.S. 121, 125 (1915) (holding that lower court erred in testing jurisdiction by the amount that it would cost defendants to comply with restrictions not to interfere with plaintiff's business))). Further, "[i]n actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation." Hunt v. Washington State Apple Adver. Comm'n, 432 U.S. 333, 347 (1977); Goldsmith v. Sutherland, 426 F.2d 1395,1398 (6th Cir. 1970). Moreover, dismissal for lack of subject matter jurisdiction is proper only where it appears to a legal certainty that the amount cannot exceed the jurisdictional minimum. Horton, 367 U.S. at 353; St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289-92 (1938).
In the instant case, jurisdiction is not measured by the amount of defendants' allegedly unlawful profits to date. Instead, the court must consider all of the losses alleged by plaintiff, not just profits as experienced by defendants, including loss of business, loss of goodwill and other intangible losses. Keizer's own affidavit supports a finding that defendants have engaged in sales, rentals and purchases within the target area totaling approximately $78,000.00. As a result, regardless of Keizer's own profit margin, a jury arguably could find an impact on plaintiff's market that reaches the jurisdictional minimum. In addition, the court must consider the value to plaintiff of preventing further breaches during the remaining two years of the agreements not to compete and to protect trade secrets.
Further, plaintiff alleges that it purchased the business of GR Kubota and another company for $22,750,000, including customers, good will and trade secrets. Plaintiff alleges that without Keizer's covenant not to compete, the good will purchased would be illusory.
Moreover, the employment agreement provided that Keizer was to be paid $75,000 per year for his services, arguably establishing an agreed value to the company of Keizer's knowledge and ability. At the time Keizer left plaintiff's employment, three years allegedly remained on the agreement.
Finally, the affidavit of Shawn Grasman states that during 1999, Keizer was responsible for $2.4 million in sales for plaintiff. He avers that Keizer was intimately aware of such confidential information as plaintiff's customer lists, customer files and information concerning customer requirements, as well as company discount structures, price lists and profit lines. (Pl. Ex. B., ¶ 2-3.) These allegations provide evidence of the value to plaintiff that Keizer refrain from breaching the non-competition and confidentiality agreements.
On the basis of these alleged facts, it "does not appear to a legal certainty that the claim is really for less than the jurisdictional amount. . . ." Red Cab, 303 U.S. at 289. Accordingly, defendants' motion to dismiss for lack of subject matter jurisdiction is DENIED.
C. Punitive Damages
Defendants move to dismiss plaintiff's claims for punitive damages under counts II, III and V. As defendants argue, "[i]t is well established that generally only compensatory damages are available in Michigan and that punitive sanctions may not be imposed." McAuley v. General Motors Corp., 457 Mich. 513, 578 N.W.2d 282, 285 (1998). Plaintiff admits that punitive damages are not recoverable, but seeks leave to amend its complaint to seek exemplary damages.
Punitive damages clearly are unavailable in Michigan. As a consequence, defendants' motion to dismiss claims for punitive damages is GRANTED. Plaintiff's request for leave to amend the complaint is not properly before the court on a motion. The court notes that pursuant to the case management order in this case, plaintiff has until May 1, 2001 to file a timely motion to amend.
D. Tortious Interference with Business Relations
Defendants last contend that they are entitled to dismissal of plaintiff's claim for tortious interference with business relations. Defendants assert that plaintiff has failed properly to allege each of the elements of the tort.
Michigan courts routinely have described the elements of a claim of tortious interference with business relations as follows: (1) the existence of a valid business relationship or expectancy; (2) the interferer's knowledge of the relationship or expectancy; (3) an intentional interference that breaches or terminates the relationship or expectancy; and (4) resultant damage to the party whose relationship has been disrupted. See, e.g. BPS Clinical Labs. v. Blue Cross Blue Shield, 217 Mich. App. 687, 552 N.W.2d 919, 925 (1996); Lakeshore Community Hosp., Inc. v. Perry, 212 Mich. App. 396, 401, 538 N.W.2d 24 (1995); Trepel v. Pontiac Osteopathic Hosp., 135 Mich. App. 361, 354 N.W.2d 341 (1984); Winiemko v. Valenti, 203 Mich. App. 411, 416-17, 513 N.W.2d 181 (1994). Michigan courts have recognized, however, that in order to be tortious, defendant's interference with business relations must be wrongful. See Trepel, 354 N.W.2d at 346 (requiring that the interference be illegal, unethical or fraudulent); Winiemko, 513 N.W.2d 181 (requiring that conduct be "improper"); see also BPS Labs. v. Blue Cross Blue Shield, 217 Mich. App. 687, 552 N.W.2d 919, 925 (1996) (requiring that the act be per se wrongful or be done with malice and without justification); Lakeshore Community Hosp. v. Perry, 212 Mich. App. 396, 401, 538 N.W.2d 24 (1995) (requiring actual malice where alleged wrongful interference was allegedly defamatory statement about public figure); Michigan Podiatric Medical Ass'n v. National Foot Care Program, Inc., 175 Mich. App. 723, 438 N.W.2d 349 (1989) (requiring the intentional doing of a per se wrongful act or the doing of a lawful act with malice for the purpose of invading the business relationship of another) (quoting Feldman v. Green, 138 Mich. App. 360, 378, 360 N.W.2d 881 (1984)).
Defendants contend that BPS Labs, 552 N.W.2d at 925, and Michigan Podiatric, 438 N.W.2d at 355, impose an additional obligation on plaintiff to plead specifically that defendants' actions were taken with malice and not for a legitimate business purpose. Defendants argue, therefore, that plaintiff's complaint, alleging only a violation of contract, fails to state a claim of tortious interference with business relationship.
I am persuaded that plaintiff's complaint properly alleges a claim of tortious interference. First, defendants cite no authority for their suggestion that Michigan law requires plaintiff to allege malice and that the actions were not motivated by legitimate business reasons in order to properly plead a claim for relief. Indeed, the cases cited by defendants require plaintiff to show either that the act was wrongful or that the act was done with malice. See BPS Labs, 552 N.W.2d at 925, and Michigan Podiatric, 438 N.W.2d at 355. See also Dolenga v. Aetna Cas. Surety Co., 185 Mich. App. 620, 627, 463 N.W.2d 179, 182-83 (1990) (insurance carrier's refusal to pay for provider's services wrongful if refusal based on carrier's desire to control and limit the services provided to the insured).
Here, plaintiffs allege that the interference was wrongful because illegal under the parties' contract. Neither BPS Labs, 552 N.W.2d at 925, nor Michigan Podiatric, 438 N.W.2d 349, involved a situation like the instant case in which the actions taken were specifically prohibited by a contract signed by defendant. Neither case precludes the instant claim.
In Count III of its complaint, plaintiff directly alleges that defendants' conduct was "wrongful." In addition, in setting forth the claim, plaintiff incorporates by reference all previous allegations of the complaint, which detail precisely how defendants' conduct is alleged to be wrongful. Specifically, the complaint clearly alleges that defendants Keizer and Grant Rent-All were aware of plaintiff's business relations with its customers and that despite knowing that Keizer had contracted not to compete with plaintiff or to use confidential information, Keizer and Grant Rent-All did just that. Such conduct, if believed, could be found to be wrongful per se. Moreover, unlike in BPS Labs and Michigan Podiatric, the actions reasonably could be considered not to have been taken with a legitimate business purpose since such purpose was expressly prohibited under the parties' contract.
The conduct alleged in the instant case is most closely akin to the facts present in Bonelli v. Volkswagen of America, Inc., 166 Mich. App. 483, 421 N.W.2d 213 (1988). In Bonelli, plaintiff alleged and proved that defendants, knowing that plaintiff already had purchased the exclusive rights to distribute an Olympic hockey team poster, nonetheless offered free posters of the team in conjunction with an advertising campaign. The court held that the interference was intentional and improper based on evidence that defendants "chose to appropriate to themselves, without payment and under the authority of generalized and vague language in a release form, the rights which they knew had previously been purchased by plaintiff." Id. at 221. Similarly here, plaintiff alleges that defendants Keizer and Grant Rent-All, knowing that plaintiff had contracted with Keizer to exclude him from conducting business in the target area, "chose to appropriate to themselves without payment" the right to engage in business in the target area.
In sum, I am persuaded that plaintiff's complaint squarely identifies the nature of the claim being made and the nature of the wrongful conduct alleged. Count III of plaintiff's complaint provides ample notice to defendants of the nature of plaintiff's theory of relief within the meaning of the federal notice pleading requirements of FED. R. CIV. P. 8(a)(2). Moreover, the facts as alleged state a claim for relief under Michigan law.
III.
For the foregoing reasons, the motions and amended motion of defendants to dismiss or for summary judgment (docket ## 4, 9, 10) are GRANTED IN PART AND DENIED IN PART. The motions are GRANTED in such part as they request plaintiff's claim for punitive damages be dismissed. They are DENIED in all remaining respects.