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Physiotherapy Associates, Inc. v. ATI Holdings, LLC

United States District Court, N.D. Alabama, Southern Division

September 16, 2019

PHYSIOTHERAPY ASSOCIATES, INC., Plaintiff,
v.
ATI HOLDINGS, LLC, et al., Defendants.

          MEMORANDUM OPINION

          KARON OWEN BOWDRE, CHIEF UNITED STATES DISTRICT JUDGE.

         As the proverb goes, “All is fair in love and war.” But does Alabama tort law agree?

         In a battle for Alabama's physical therapy market, Plaintiff Physiotherapy Associates, Inc. alleges Defendant ATI Holdings, LLC and its subsidiaries[1] aided and abetted an employee's breach of fiduciary duties and duty of loyalty, misappropriated Physiotherapy's trade secrets, and intentionally interfered with several of Physiotherapy's contractual and business relationships. (Doc. 29). In its motion to dismiss now before this court, ATI contends that nothing it did to woo away Physiotherapy's employees, clients, and referral sources violated the law and that all of Physiotherapy's claims fail. (Docs. 32 & 33). For the reasons stated below, the court finds ATI's arguments only partially convincing and WILL GRANT IN PART and DENY IN PART ATI's motion to dismiss.

         I. Factual Background

         James DeLoach worked for Plaintiff Physiotherapy, an outpatient rehabilitation services company, from February 2013 until October 2016, at which time he voluntarily left to work for ATI, a direct competitor of Physiotherapy that was looking to enter the Alabama market. (Doc. 29 at ¶¶ 11, 25).

         Two months prior to leaving Physiotherapy, Mr. DeLoach and ATI allegedly began communicating about Mr. DeLoach's potential employment with ATI. (Doc. 29 at ¶ 16). These communications included Mr. DeLoach sending ATI a memo entitled “Denovo and Acquisition Strategy, ” which included suggested geographic areas for ATI to either acquire or open clinics. (See Doc. 33-2). DeLoach subsequently resigned from his position with Physiotherapy and went to work for ATI. (Doc. 29 at ¶¶ 24-25, 29).

         In December 2016, Physiotherapy filed a lawsuit against Mr. DeLoach in the Northern District of Alabama, Physiotherapy v. DeLoach, No. 1:16-cv-2014-ACA (N.D. Ala., Dec. 15, 2016). In DeLoach, Physiotherapy alleged Mr. DeLoach breached his employment contract by soliciting Physiotherapy's clients, referral sources, and employees on ATI's behalf, as well as helping ATI compete against Physiotherapy within a prohibited market area. During the pendency of Deloach, ATI filed a motion to amend its complaint, seeking to add ATI as a defendant and to add new claims. Judge Axon denied the motion to amend because Physiotherapy had not shown good cause for failing to amend its complaint sooner.

         After its motion for leave to amend was denied, Physiotherapy filed the instant action against ATI in the Jefferson County Circuit Court, which ATI removed to this court on July 21, 2017. (Doc. 1). ATI moved to stay this case pending resolution of the case filed against Mr. DeLoach, which this court granted on October 16, 2017. (Doc. 15).

         Judge Axon entered judgment for Mr. DeLoach and against Physiotherapy on all its claims on September 17, 2018. Physiotherapy Assocs., Inc. v. DeLoach, No. 1:16-CV-2014-ACA, 2018 WL 4409349 (N.D. Ala. Sept. 17, 2018). Judge Axon found that Physiotherapy had failed to produce evidence sufficient to create a question of fact regarding whether Mr. DeLoach breached his non-solicitation agreement by soliciting Physiotherapy's employees. Id. at *5-6.

         She also concluded that Mr. DeLoach did not violate his employment contract by soliciting Physiotherapy's customers because the employment contract's poor drafting defined Physiotherapy's customers to be Physiotherapy itself. Id. at *6. Finally, Judge Axon concluded that Mr. DeLoach did not breach his non-compete clause because the contract did not prohibit him from helping competitors “prepare to compete, ” which was the extent of Mr. DeLoach's activity before the non-compete clause expired. Id. at *8.

         Upon entry of the judgment in the DeLoach case, this court lifted the stay in this matter on October 3, 2018. (Doc. 27). Physiotherapy filed its amended complaint on November 16, alleging six counts against ATI: aiding and abetting Mr. DeLoach's breach of fiduciary duties and duty of loyalty (Count I); violation of the Alabama Trade Secrets Act (Count II); tortious interference with Physiotherapy's business and contractual relationships with customers (Count III), employees (Count IV), and Mr. DeLoach (Count V); and civil conspiracy (Count VI) to commit the violations described in Counts I-V. (Doc. 29).

         ATI filed its answer on November 30 and asserted the complaint's failure to state a claim upon which relief can be granted as its “First Defense.” (Doc. 30 at 10). Almost three months later, on February 18, 2019, ATI filed the motion to dismiss now before this court, in which it moved to dismiss each of Physiotherapy's claims. (Doc. 32). After reviewing the parties' briefs on the issues and for the reasons stated below, the court WILL GRANT IN PART and DENY IN PART Defendant ATI's motion to dismiss.

         II. Standard of Review

         A Rule 12(b)(6) motion to dismiss attacks the legal sufficiency of the complaint. Generally, the Federal Rules of Civil Procedure require only that the complaint provide “‘a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed.R.Civ.P. 8(a)). A plaintiff must provide the grounds of its entitlement, but Rule 8 generally does not require “detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley, 355 U.S. at 47). It does, however, “demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Pleadings that contain nothing more than “a formulaic recitation of the elements of a cause of action” do not meet Rule 8 standards nor do pleadings suffice that are based merely upon “labels or conclusions” or “naked assertions” without supporting factual allegations. Twombly, 550 U.S. at 555, 557.

         The Supreme Court explained that “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting and explaining its decision in Twombly, 550 U.S. at 570). To be plausible on its face, the claim must contain enough facts that “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Although “[t]he plausibility standard is not akin to a ‘probability requirement, '” the complaint must demonstrate “more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are merely consistent with a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557). If the court determines that well-pleaded facts, accepted as true, do not state a claim that is plausible, the claim must be dismissed. Id.

         III. Discussion

         As previously stated, Physiotherapy's amended complaint includes six counts: one count of aiding and abetting breach of fiduciary duty and duty of loyalty; one count of violation of the Alabama Trade Secrets Act; three counts of intentional interference with contractual/business relations; and one count of civil conspiracy to commit the other five counts. (Doc. 29). ATI moves to dismiss each count, and this Memorandum Opinion addresses each one in turn. But it must first address threshold issues the parties raise regarding the timeliness of ATI's motion and collateral estoppel.

         A. Timeliness of ATI's Motion to Dismiss

         As an initial matter, Physiotherapy argues the court should deny ATI's entire motion to dismiss as procedurally defective, because ATI filed the motion nearly three months after it filed an answer to the amended complaint. (Doc. 38 at 4-5). Physiotherapy cites Fed.R.Civ.P. 12(b), which states that a “motion asserting any of these defenses must be made before pleading if a responsive pleading is allowed.” Despite the technical correctness of Physiotherapy's timeliness argument, the court accepts ATI's filing.

         Although a Rule 12(b) motion must be filed before a responsive pleading, a party can still properly raise the defense of failure to state a claim after an answer in a Federal Rule of Civil Procedure 12(c) motion for judgment on the pleadings. See Fed. R. Civ. P. 12(h) (stating that the defense of failure to state a claim may be raised by a motion under Rule 12(c) and is not waived by the failure to raise the defense in a responsive pleading). Considering Rule 12(h), the Eleventh Circuit has noted that an untimely Rule 12(b)(6) motion “may be construed as a request for judgment on the pleadings pursuant to [Rule] 12(c).” Skrtich v. Thornton, 280 F.3d 1295, 1307 n. 13 (11th Cir. 2002) (emphasis original); see also Whitehurst v. Wal-Mart Stores East, L.P., 329 Fed.Appx. 206, 208 (11th Cir. 2008) (per curiam) (rejecting plaintiff's argument that Rule 12(b)(6) motion was untimely because the court could construe it as a Rule 12(c) motion).

         Additionally, the court analyzes a Rule 12(c) motion for judgment on the pleadings the same way as a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. See Dial v. City of Bessemer, No. 2:14-CV-1297-RDP, 2016 WL 3054728, at *3 (N.D. Ala. May 31, 2016) (“A Rule 12(c) motion to judgment on the pleadings is analyzed the same as a Rule 12(b)(6) motion to dismiss.”). As such, whether the court construes ATI's motion as a motion to dismiss under 12(b)(6) or a motion for judgment on the pleadings under 12(c) has no impact on the court's analysis. See Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999) (holding “the district court did not err when it construed the defendants' motion as one for judgment on the pleadings”). Finally, while ATI filed its motion to dismiss after its answer, ATIs argument is not new because it included the grounds of its motion to dismiss in its answer. (Doc. 30 at 10). In the interests of judicial economy, the court construes ATI's motion as a timely Rule 12(c) motion for judgment on the pleadings.

         B. Scope and Impact of Judge Axon's Summary Judgment Ruling in Related Case

         Defendant ATI contends that summary judgment against Physiotherapy in the DeLoach case estops Physiotherapy from now alleging similar claims against ATI. Physiotherapy argues that collateral estoppel does not apply in this case and that, even if it did, the court's prior factual determinations in Deloach do not preclude any of its claims against ATI.

         In the Eleventh Circuit, “federal common law borrows the state rule of collateral estoppel to determine the preclusive effect of issues decided by a federal court that exercised diversity jurisdiction.” CSX Transportation, Inc. v. Gen. Mills, Inc., 846 F.3d 1333, 1340 (11th Cir. 2017) (emphasis in original). The DeLoach court exercised diversity jurisdiction over the matter, so this court must determine whether Alabama's doctrine of collateral estoppel applies to preclude this suit.

         Alabama's doctrine of collateral estoppel requires “(1) an issue identical to the one litigated in the prior suit; (2) that the issue was actually litigated in the prior suit; (3) that resolution of the issue was necessary to the prior judgment; and (4) the same parties.” Stinnett v. Kennedy, 232 So.3d 202, 219-20 (Ala. 2016) (quoting Dairyland Ins. Co. v. Jackson, 556 So.2d 723, 726 (Ala. 1990)).

         ATI's motion identifies at least seventeen findings of fact and conclusions of law from the DeLoach ruling that it purports command preclusive effect under Alabama's doctrine of collateral estoppel. (Doc. 33 at 10-11; Doc. 39 at 5-7). Physiotherapy, on the other hand, contends the court only determined five issues possibly subject to collateral estoppel, and that it does not seek to re-litigate any of them in this case. (Doc. 38 at 7).

         The court notes that the DeLoach case concerned only Mr. DeLoach's contractual liability. DeLoach, 2018 WL 4409349, at *4 (“Mr. DeLoach asks the court to enter summary judgment in his favor on Physiotherapy's breach of contract claims.”) (emphasis added). Here, Physiotherapy's claims chiefly stem from Mr. DeLoach's alleged fiduciary duties and duty of loyalty, not his contractual duties. (Doc. 29 at ¶ 40). But Physiotherapy's complaint still references Mr. DeLoach's contractual duties to Physiotherapy as at least partial basis for ATI's liability in this action. For example, Physiotherapy alleged that ATI intentionally interfered with the relationships between Physiotherapy and its employees by “utilizing DeLoach to solicit Physiotherapy's employees in violation of his legal and contractual duties.” (Doc. 29 at ¶ 59). Physiotherapy also alleged that ATI intentionally employed DeLoach to solicit Physiotherapy's employees in violation of his contract and that ATI and DeLoach acted together to violate contractual and legal duties to Physiotherapy. (Doc. 29 at ¶¶ 64-65, 69). So, to the extent Physiotherapy attempts to base its claims against ATI on Deloach's contractual obligations that the ruling in DeLoach determined did not exist or contractual violations that the ruling determined did not occur, the court finds those issues identical to ones litigated in the prior suit.[2]

         The court also finds those issues to have been actually litigated and necessary to the prior judgment, pursuant to the second and third elements of collateral estoppel. Physiotherapy had its opportunity to argue that its employment agreement with Mr. DeLoach restricted him from soliciting Physiotherapy customers; it failed. DeLoach, 2018 WL 4409349, at *6-8 (interpreting the non-solicitation provision to define Physiotherapy's “customers” as Physiotherapy itself, precluding claims that Mr. DeLoach violated that provision). Physiotherapy also had its opportunity to argue that Mr. DeLoach violated the agreement by soliciting Physiotherapy employees; again, it failed. DeLoach, 2018 WL 4409349, at *5-6 (“Mr. DeLoach is entitled to summary judgment on Physiotherapy's breach of contract claim to the extent the claim is based upon his alleged solicitation of Physiotherapy's employees.”).

         Physiotherapy attempts to narrow those prior determinations to a specific customer and employee-i.e., Physiotherapy construes the DeLoach court to have concluded that “Andrews Group was not Physiotherapy's customer as defined in the contract” and that “there was insufficient evidence to show that DeLoach solicited Alex Wolf.”

         As to the non-solicitation of customers, this court understands the DeLoach court to have determined as a matter of law that the Physiotherapy-DeLoach agreement did not prohibit Mr. DeLoach from soliciting any Physiotherapy customer because the agreement defined “customer” to be Physiotherapy itself. So the court rejects Physiotherapy's attempt to recast the DeLoach ruling as being specific to any one customer. The DeLoach court's ruling on the enforceability of the agreement's non-solicitation of customers provision satisfies the second and third elements of collateral estoppel.

         As to the non-solicitation of employees, while the opinion in DeLoach discussed only Mr. DeLoach's alleged solicitation of Mr. Wolf, it did so because Physiotherapy apparently failed to produce any evidence that Mr. DeLoach solicited or attempted to solicit anyone else. The court in DeLoach did not enter judgment on Physiotherapy's claim that Mr. DeLoach solicited Mr. Wolf; it entered judgment “on Physiotherapy's breach of contract claim to the extent the claim is based upon his alleged solicitation of Physiotherapy's employees.” DeLoach, 2018 WL 4409349, at *6 (emphasis added). So, the DeLoach ruling satisfies the second and third elements of collateral estoppel as to any claim based on Mr. DeLoach's unlawful solicitation of any Physiotherapy employees.

         Finally, the court must determine whether the instant suit constitutes an action between “the same parties” as contemplated in the fourth element of Alabama's doctrine of collateral estoppel. The Alabama Supreme Court has indicated that the “same parties” requirement can be met even without identical parties if the party at issue is “in privity with a party to the prior action.” Dairyland, 566 So.2d at 726. Privity is a flexible term that generally applies when a non-party “has his interests adequately represented by someone with the same interests who is a party, ” such that the parties have an “identity of interest.” Jim Parker Bldg. Co. v. G & S Glass & Supply Co., 69 So.3d 124, 132 (Ala. 2011) (quoting EEOC v. Pemco Aeroplex, Inc., 383 F.3d 1280, 1286 (11th Cir. 2004)); Dairyland Ins. Co., 566 So.2d at 726. Alabama law has not defined the precise contours of privity, so “the existence of privity has generally been resolved ‘on an ad hoc basis in which the circumstances determine whether a person should be bound by or entitled to the benefits of a judgment.'” Leon C. Baker, P.C. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 821 So.2d 158, 165 (Ala. 2001) (quoting Hughes v. Martin, 533 So.2d 188, 191 (Ala. 1988)). In other words, the party seeking estoppel must be “one who would have been prejudiced by a contrary decision in the prior case.” Dairyland Ins. Co., 566 So.2d at 727.

         ATI argues that it had an identity of interest with Mr. DeLoach in the DeLoach case because “Physiotherapy seeks to hold ATI liable for alleged violations of Mr. DeLoach's contractual duties” and that “each and every one of Plaintiff's claims against ATI is based on conduct of DeLoach.” (Doc. 39 at 7). So, according to ATI, a ruling against Mr. DeLoach in that first lawsuit would have prejudiced ATI in the instant action.

         The court agrees, but only insofar as Physiotherapy's complaint actually attempts to base its claims on Mr. DeLoach's contractual obligations. As noted above, Physiotherapy's instant complaint makes at least four references to Mr. DeLoach's contractual duties to Physiotherapy and ATI's role in Mr. DeLoach breaching those duties. (Doc. 29 at ¶¶ 59, 64-65, 69). Proving that ATI played a role in Mr. DeLoach breaching a contractual duty necessarily requires proving that Mr. DeLoach did in fact breach one. That is, if the ruling in DeLoach had determined that Mr. DeLoach had breached his employment agreement with Physiotherapy, that determination would clearly prejudice ATI in the instant action by vitiating one potential defense to Physiotherapy's allegations. Put another way, when Mr. DeLoach defended the contract claims against him in Deloach, he was adequately representing ATI's interests regarding any potential liability for its involvement in the alleged contractual violations, such that ATI and Mr. DeLoach were in privity because they had an identity of interest. See Jim Parker Bldg. Co., 69 So.3d at 132 (Ala. 2011); Dairyland Ins. Co., 566 So.2d at 726. So, the court concludes that ATI and Mr. DeLoach meet the “same parties” requirement for the purposes of collaterally estopping Physiotherapy from re-litigating issues related to Mr. DeLoach's contractual obligations and compliance.

         Accordingly, this case satisfies all four elements of Alabama's doctrine of collateral estoppel. Therefore, Physiotherapy is precluded from relitigating legal and factual issues common to its claims regarding Mr. DeLoach's alleged breach of contract in supposed solicitation of Physiotherapy's employees or customers in violation of Mr. DeLoach's non-solicitation agreement with Physiotherapy that the court decided in DeLoach. See Lee L. Saad Const. Co. v. DPF Architects, P.C., 851 So.2d 507, 519 (Ala. 2002) (stating that collateral estoppel prevents parties from relitigating factual issues common to its claims that have already been determined).

         C. Aiding and Abetting Breach of Fiduciary Duty ...


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