Opinion
No. C-2-00-627
March 8, 2001
OPINION AND ORDER
Plaintiff, in its amended complaint, asserts state law claims of breach of contract, misappropriation of trade secrets, tortious interference with contract, civil conspiracy, aiding and abetting, breach of fiduciary duty, and tortious interference with a business relationship. Defendants move to dismiss (Doc. 14 and 15). For the reasons that follow, the Court grants defendants' motions.
I. Facts
For purposes of ruling on defendants' motions to dismiss, the Court accepts as true the well-pleaded facts set forth in the amended complaint.
Plaintiff CDA of America, Inc. ("CDA") is a Florida corporation in the business of insurance conservation, which involves enticing past or present policy holders to purchase new or additional policies or annuities. CDA maintains that it has developed a unique conservation program consisting of a direct marketing system of mailing strategies, employment packages, accounting and marketing methods, actuarial builds, and scripted presentation.
Defendant The Midland Life Insurance Company ("Midland") is a life insurance company with its principal place of business in Columbus, Ohio. Individual defendants Mike Loffa, Garth Garlock, Toby Thompson, Dan Flahive, and Ron bind are officers of Midland.
Defendant Professional Direct Agency, Inc., aka Pivot ("Pivot") is an Ohio corporation with its principal place of business in Columbus, Ohio. Pivot is in the business of insurance conservation. Individual defendants David Florian and Lou Hensley are officers of Pivot.
On October 16, 1996, Midland and CDA entered into a marketing agreement ("Marketing Agreement I") whereby CDA agreed to implement its conservation program to induce Midland annuity policy holders either to retain their Midland annuities or to purchase another Midland annuity or cash value insurance product. Marketing Agreement I contains a confidentiality clause that defines "confidential information" as "all information obtained by Midland from CDA or disclosed by CDA to Midland which relates to CDA's business activities, clients or which results from Midland's activities under the Agreement." The confidentiality clause further provides "[b]oth parties shall hold such confidential information in trust and confidence and shall use such confidential information only for purposes of this Agreement."
On September 1, 1997, Midland and CDA entered into a marketing agreement (Marketing Agreement II") whereby Midland and CDA formed a joint venture for the purpose of developing a comprehensive conservation program to induce Midland term life policyholders either to retain their Midland life policies or to purchase or exchange to another Midland insurance product. CDA calls its program under this agreement "reactive conservation." Marketing Agreement II contains the same confidentiality clause found in marketing Agreement I.
In the fall of 1997, defendant David Florian, who had been a Midland executive working on conservation activities, left Midland and began developing the entity that would become known as Pivot. Pivot was incorporated on July 20, 1998. In November 1998, Florian told a Midland employee that Pivot planned to enter the insurance conservation business. CDA avers upon information and belief that in December 1998, Midland approved a several million dollar loan to Pivot to facilitate its entry into the conservation business. Also in December 1998, defendant Dan Flahive told a Midland employee that Midland was considering moving its conservation unit to Pivot.
On January 6, 1999, defendant Florian submitted to defendant Flahive a proposal that Midland outsource its conservation work to Pivot. CDA alleges upon information and belief that in January 1999, Midland began to develop a compensation structure for outsourcing its conservation work to Pivot.
On January 21, 1999, Lawrence Bahneman, a consulting partner with CDA, sent a letter to defendant Flahive expressing concern about Midland's plan to outsource the conservation work to Pivot, and reiterating the confidential nature of the conservation program and the details of the joint venture between CDA and Midland. The letter was copied to Kevin Short, defendant Garth Garlock, defendant Ihor Hron, and Patrick Sheehan, the President and Chief Executive officer of CDA.
CDA states upon information and belief that in February 1999, Midland transferred its conservation division to Pivot. The transfer included several present and/or former Midland employees who were trained under the direct supervision of CDA.
On February 22, 1999, defendant Toby G. Thompson sent a letter to CDA's Bahneman, acknowledging that Midland had entered into an agreement with Pivot whereby Pivot was to handle "virtually all of The Midland's conservation efforts." On March 4, 1999, CDA's Bahncman sent a letter to defendant Hron reiterating CDA's concerns about the dissemination of confidential CDA information from Midland to Pivot) and requesting an immediate rectification of the situation. Also on March 4, 1999, CDA's CEO, Patrick Sheehan, sent a letter to defendant Thompson insisting that Midland and Pivot immediately cease any and all conservation initiatives, and return any and all conservation materials, and return all CDA-trained Midland representatives back from Pivot. The letter also informed defendant Thompson that CDA had consulted with legal counsel about the situation. The letter was copied to Bahneman, Robert Hunt (Floroda legal counsel for CDA), and defendant Hron.
On March 10, 1999, CDA's Patrick Sheehan sent a letter to defendant Thompson proposing that Midland execute a supplemental agreement whereby CDA could protect itself from disclosures by Midland of CDA confidential information and potentially permit CDA and Midland to continue their joint venture. The letter was copied to defendant Hron, as well as Bahneman, Short, and Hunt. On March 12, 1999, defendant Thompson sent a letter to Sheehan telling him that Midland was going to transfer the conservation program back from Pivot to Midland, and expressing that Midland wished to preserve a business relationship with CDA.
CDA states upon information and belief that since Pivot became independent from Midland, it has approached several life insurance carriers for the purpose of soliciting conservation business. CDA also avers upon information and belief that Pivot has secured several clients for which Pivot provides conservation and/or conservation related services.
CDA filed its initial complaint in this action on June 5, 2000, and an amended complaint on September 21, 2000. CDA asserts the following counts in its amended complaint:
1. Breach of Contract — against Midland for failure to hold CDA confidential material in trust as required under Marketing Agreement I and Marketing Agreement 11.
2. Misappropriation of Trade Secrets — against defendants Midland, Pivot, Hron, Loffa, Oarlock, Thompson, Hensley, Florian, Flahive, and Lynd, for "willfully and maliciously misappropriating the reactive conservation program developed by CPA."
3. Tortious Interference with a Contract — against defendants Hensley, Florian, and Pivot for procuring Midland's breach of Marketing Agreement I and marketing Agreement II.
4. Civil Conspiracy — against defendants Midland, Hron, Loffa, Garlock, Thompson, Hensley, Florian, Flahive, Lynd, and Pivot for conspiring to misappropriate trade secrets belonging to CDA.
5. Aiding and Abetting — against defendants Midland, Hron, Loffa, Oarlock, Thompson, Hensley, Florian, Flahive, Lynd, and Pivot for aiding the performance of the misappropriation of trade secrets belonging to CPA.
6. Breach of Fiduciary Duty — against defendant Midland as joint venturer with CPA, and against defendants, Hron, Loffa, Oarlock, Thompson, Hensley, Florian, Flahive, and Lynd, as officers of Midland, for failing to fully disclose the details of their relationship and activities with Pivot, engaging in self-dealing, or misappropriating a business opportunity that belonged to CDA.
7. Tortious Interference with a Business Relationship — against defendants Hensley, Florian, and Pivot for intentionally interfering with CDA's business relationship with Midland without privilege.
It is undisputed that when this action was filed, plaintiff was not licensed to conduct business in Ohio. Plaintiff, however, submitted a Foreign Corporation Application for Licence to the Ohio Secretary of State on November 29, 2000.
Defendants move to dismiss all counts of the amended complaint. Midland moves, in the alternative, to compel arbitration.
II. Motion to Dismiss
A motion to dismiss for failure to state a claim "should not be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). All well-pleaded allegation must be taken as true and be construed most favorably toward the non-movant.Schuer v. Rhodes, 416 U.S. 232, 236 (1974). A 12(b)(6) motion to dismiss is directed solely to the complaint and any exhibits attached to it. Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983). The merits of the claims set forth in the complaint are not at issue on a motion to dismiss for failure to state a claim. Consequently, a complaint will be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) only if there is no law to support the claims made, or if the facts alleged are insufficient to state a claim, or if on the face of the complaint there is an insurmountable bar to relief. See Rauch v. Day Night Mfg. Corp., 576 F.2d 857, [ 576 F.2d 697] 858 (6th Cir. 1976). Rule 12(b)(6) must be read in conjunction with Fed.R.Civ.P. 8(a) which provides that a pleading for relief shall contain "a short and plain statement of the claim showing that the pleader is entitled to relief" 5A Wright Miller, Federal Practice and Procedure § 1356 (1990). The moving party is entitled to relief only when the complaint fails to meet this liberal standard. Id.
On the other hand, more than bare assertions of legal conclusions is required to satisfy the notice pleading standard. Scheid v. Fanny Farmer Candy Shops. Inc., 859 F.2d 434, 436 (6th Cir. 1988). "In practice, a complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Id. (emphasis in original, quotes omitted).
"[w]e are not holding the pleader to an impossibly high standard; we recognize the policies behind rule 8 and the concept of notice pleading. A plaintiff will not be thrown out of court for failing to plead facts in support of every arcane element of his claim. But when a complaint omits facts that, if they existed, would clearly dominate the case, it seems fair to assume that those facts do not exist."Id.
III. Discussion
Defendants argue, inter alia, that each of plaintiff's claims is subject to dismissal because plaintiff has failed to plead sufficient specific facts to support each of its claims, Defendant Midland farther argues that any claims against it that are not dismissed should be referred to arbitration under the parties' agreements. In addition, defendants challenge plaintiffs capacity to bring this lawsuit. The Court finds the latter argument to be dispositive, and will restrict its discussion to lack of capacity.
"[C]apacity to sue or be sued shall be determined by the law of the state in which the district court is held." Fed.R.Civ.P. 17(b). Thus the capacity of plaintiff to bring suit in this court is determined by Ohio law. Ohio provides that an unlicenced foreign corporation may not "maintain any action in any court" Ohio Rev. Code § 1703.29.
In the instant case, it is undisputed that at the time the complaint was filed, plaintiff was not registered as required by Ohio law. Plaintiff, however, maintains that this action should not be dismissed because it applied for a license on November 29, 2000. For the proposition that obtaining a licence prior to judgment satisfies the statutory requirement, plaintiff relies upon Moore v. Ochiltree, 16 Ohio Misc. 45 (1968). In Moore, the Montgomery County Common Pleas Court held that a corporation's failure to obtain an Ohio license is a technical requirement, and that a corporation can comply with the statutory requirement by obtaining the license at any time prior to judgment. 16 Ohio Misc. at 48.
But Moore does not appear to be the law of Ohio. At least one Ohio Appellate Court, in a reported decision, disagreed with Moore, stating:
As stated previously, R.C. 1703.29(A) specifically provides that an unlicensed corporation may not maintain an action until it acquires an Ohio license. The phrase "maintain an action" may mean either the commencement of an action or the continuation of an action already begun. Black's Law Dictionary (5 Ed. Rev. 1979) 859. Thus, the beginning or continuation of an action by an unlicenced corporation clearly violates R.C. 1703.20(A). Furthermore, the statute does not expressly provide an exception in cases where the corporation acquires a license prior to judgment, or indeed at any time after it commences the action. Thus, the failure of a corporation to procure the required license prior to maintaining an action violates R.C. 1703.29(A) and may be a sufficient basis for a judicial remedy for that violation, regardless of whether the corporation obtains a license prior to final judgment.P.K. Springfield. Inc. v. Hogan, 86 Ohio App.3d 764, 771 (1993) (italics in original). The defense of failure to obtain a license may be waived if it is not raised before the license is obtained. Id.
Two unreported Ohio Appellate decisions have reached the same conclusion, citing P.K.Springfield. L W. Supply Co. Inc. v. Construction One, Inc., 2000 Ohio App. LEXIS 1414, at * 10-11 (Hancock Cty. Mar.31, 2000); Stults Associates. Inc. v. United Mobile Homes. Inc., 1998 Ohio App. LEXIS 5097, at 13-15 (Marion Cty. Oct. 14, 1998). In both L W and Stults, the appellate courts upheld dismissal of claims by foreign corporations that had not obtained licences prior to the filing of the lawsuit, even though the corporations procured licenses before judgment was entered. There are no Ohio Supreme Court decisions on point.
Clearly, in determining Ohio law, three Ohio Appellate decisions are entitled to far greater weight than a single, older trial court decision. The Court concludes that under the current law of Ohio, a foreign corporation must obtain a license before filing an action in Ohio, that failure to obtain a license before commencing the lawsuit renders the action subject to dismissal, and that failure to obtain a licence before filing the lawsuit cannot be "cured" by obtaining a license after filing the action but prior to judgment. P.K. Springfiled; L W Supply; Stults.
In the instant case, the defense of lack of capacity to sue was timely raised. Plaintiff was not licenced to do business in Ohio when this lawsuit was filed. Plaintiffs attempt to obtain a license after the filing of the lawsuit does not allow plaintiff to avoid dismissal. In sum, the Court finds that plaintiff's action is subject to dismissal for lack of capacity.
The result may seem harsh, but dismissal will, of course, be without prejudice. The additional expense and delay of re-filing is certainly preferable to allowing this action to go forward, perhaps to judgment, only to have any judgment later called into question on the basis of plaintiff's lack of capacity to sue.
IV. Disposition
Based on the above, the Court GRANTS defendants' motions to dismiss.
The Clerk shall enter final judgment in favor of defendants, and against plaintiff, dismissing this action in its entirety WITHOUT PREJUDICE.
The Clerk shall remove this case from the Court's pending cases and motions lists.