MThree Corporate Consulting Limited v. Wascak

Background

MThree Corporate Consulting Limited, doing business as Wiley Edge, sued its former employees Christopher Wascak and Robert Rolle. MThree sought declaratory and injunctive relief to enforce noncompete and nonsolicitation provisions in the defendants’ employment agreements. Wascak also had restrictive covenants in two restricted share unit grant agreements.

MThree alleged state-law claims for breach of contract and breach of the duty of loyalty, including the faithless servant doctrine, as well as a federal claim under the Defend Trade Secrets Act. MThree alleged that Wascak and Rolle improperly ended their employment, formed HTD Talent, a competing company, and might use MThree’s confidential information and trade secrets. The court had previously denied MThree’s requests for emergency relief in the form of a temporary restraining order and preliminary injunction.

Motion to dismiss

Wascak and Rolle moved to dismiss under Rule 12(b)(6), which asks whether a complaint alleges enough facts to state a legally plausible claim. On this motion, the court accepted the complaint’s factual allegations as true but did not accept unsupported conclusions.

Contract claims

The court held that MThree did not plausibly allege a breach of the employment agreements or Wascak’s restricted share unit agreements. The defendants formed HTD Talent in North Carolina, which the court said was outside the geographic scope of the noncompete provisions. MThree did not allege that HTD Talent operated, or was intended to operate, within the restricted area.

The court also found no specific allegations that either defendant solicited MThree’s employees, former employees, clients, prospective clients, or customers in violation of the nonsolicitation provisions. MThree’s allegations that the defendants violated “other” obligations were too vague. The court further found that MThree had not plausibly alleged a breach based on the defendants’ attempts to make their resignations effective earlier than MThree believed was permitted because MThree did not allege that the defendants continued receiving payments during that period, and therefore did not plausibly allege damages.

The court assumed, without deciding, that the restrictive covenants were enforceable. It did not reach the parties’ dispute over enforceability because MThree had not plausibly alleged that the defendants breached the provisions.

Duty of loyalty and faithless servant claims

The court held that MThree did not plausibly allege that Wascak or Rolle breached a duty of loyalty while employed. The defendants incorporated HTD Talent more than a month after their employment ended, and MThree did not allege a pattern of disloyal conduct during their employment. The court stated that preparing to compete, without evidence that the new business operated before the employment ended, did not violate the duty of loyalty.

The court also found that MThree did not allege that the defendants worked less for MThree before leaving, misappropriated business secrets, or engaged in the persistent pattern of disloyalty required for a faithless servant claim. The court added that no compensation could be recovered for activities during garden leave because the defendants did not receive payment during that period.

Trade-secret claim

The court held that MThree did not plausibly allege misappropriation under the Defend Trade Secrets Act. A trade-secret misappropriation claim requires allegations that the plaintiff possessed a trade secret and that the defendants used it improperly.

MThree identified its curriculum, sales materials, prospective-client pipeline, client relationships, pricing strategy, and master-service-agreement negotiation structure as confidential information or trade secrets. The court found, however, that the allegations showed only that the defendants had started a business in the same field using a business model that was not unique to MThree. The court stated that the identities and contacts of potential clients were publicly available and that MThree had not shown its sales strategies were unique or materially different from information other staffing or recruitment professionals might possess. The alleged misappropriation therefore remained speculative.

Injunctive and declaratory relief

The court dismissed MThree’s claims for injunctive relief because those claims depended on an alleged breach, and MThree had not plausibly alleged a breach or resulting irreparable injury. The court also dismissed the request for a declaratory judgment requiring the defendants to comply with the restrictive covenants because MThree sought coercive relief based on the same conduct.

Disposition

Judge Hellerstein granted the defendants’ motion to dismiss for failure to state a claim. The court granted MThree leave to replead by November 14, 2022. If MThree did not make that motion, the clerk was directed to grant judgment to the defendants with costs.