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Capstone Associated Services, Ltd. v. Organizational Strategies, Inc.

United States District Court, S.D. Texas, Houston Division

August 14, 2019




         This case is before the Court on the Motion to Dismiss or in the Alternative for Summary Judgment (“Motion”) [Doc. # 27] filed by Defendants Organizational Strategies, Inc. (“OSI”), Nicolette Hendricks, William Hendricks, Integration Casualty Corp., System Casualty Corp., and Optimal Casualty Corp., to which Plaintiffs Capstone Associated Services, Ltd. and Capstone Associated Services (Wyoming), Limited Partnership (collectively, “Capstone”) filed a Response [Doc. # 35]. Defendants filed a Reply [Doc. # 37].

         After a stay pending arbitration of other claims in the lawsuit, the case was reinstated on the Court's active docket and Defendants filed a Supplemental Brief [Doc. # 62] in support of their Motion. Plaintiffs filed a Supplemental Response [Doc. # 63], and Defendants filed a Supplemental Reply [Doc. # 64]. On August 6, 2019, the parties presented oral argument to the Court in support of their respective positions.

         The Court has carefully reviewed the full record and applicable legal authorities. Based on that review, the Court grants the Motion as to the common law trade secret misappropriation claim and the Texas Uniform Trade Secrets Act (“TUTSA”) claim, and denies the Motion as to the breach of contract claim.

         I. BACKGROUND

         A captive insurance company is a property and casualty insurance company specifically established to insure the risks of an associated business. Plaintiffs and their affiliates offer comprehensive captive management plans, including “Captive Planning” services.

         Capstone entered into a Services Agreement [Doc. # 21-1] with Defendants to provide services in connection with the formation and administration of three captive insurance companies - Integration Casualty Corp., System Casualty Corp., and Optimal Casualty Corp. (collectively, the “Captives”). The Services Agreement included a limited license for Defendants to receive and use Capstone's “Documents, ” defined in the Services Agreement to mean “documents prepared by or at the direction of Capstone for the Companies, [1] including but not limited to insurance policies, insurance contracts, insurance coverage agreements, reinsurance agreements and treaties, and loan agreements.” See Services Agreement, Art. V. The Services Agreement provided that the license would expire upon the termination of the agreement.[2]

         In 2012, Defendants expressed concern regarding the Captives' insurance polices and potential tax implications. In connection with those concerns, Mrs. Hendricks requested certain policy and pricing information from Capstone. Capstone alleges that it provided the documents and information to Defendants to address these concerns, having been assured by Mrs. Hendricks that the information would not be redistributed, copied, or provided to any party other than Defendants and their accounting firm. Capstone alleges that Defendants did not intend to keep the information confidential and, instead, intended to share the information “with an unauthorized third party that is one of Plaintiffs' competitors” - specifically Intuitive Captive Solutions, LLC (“Intuitive”). See Amended Complaint [Doc. # 21], ¶ 23. Capstone did not, in the Amended Complaint, in its briefing, or during oral argument, identify any documents it provided to Defendants in 2012 that Defendants were not entitled to receive under the terms of the Services Agreement.

         Capstone alleges that the Services Agreement terminated effective December 31, 2012. Capstone further alleges that, at that point, Defendants were contractually obligated to return Plaintiffs' documents to Capstone. Capstone alleges that Defendants failed to return the documents and, instead, disseminated copies of the documents to a second competitor.

         Capstone filed this lawsuit in Texas state court, asserting causes of action for trade secret misappropriation, violation of TUTSA, and breach of contract. Defendants removed the case to federal court, then filed their Motion to Dismiss. The Court granted the Motion to Dismiss the trade secret misappropriation and TUTSA claims, with leave to replead. See Memorandum and Order [Doc. # 18]. Plaintiffs then filed an Amended Complaint, again asserting each of the three claims. Defendants filed the pending Motion.

         Meanwhile, Plaintiffs sought and obtained an order from this Court compelling arbitration pursuant to the arbitration provision in the parties' Engagement Letter. See Memorandum and Order [Doc. # 42]. The Engagement Letter required arbitration of disputes relating to or arising out of services provided by the Feldman Law Firm LLP and its principal attorney Stewart Feldman (collectively, “Feldman”), who were the attorneys for Capstone in connection with its business of providing planning services for captive insurance companies. The Final Arbitration Award [Doc. # 49-1] was issued February 25, 2019, and resolved issues not asserted in this lawsuit.

         Following entry of the Final Arbitration Award, this case was reinstated on the Court's active docket. The parties filed supplemental briefing on the pending Motion, and presented oral argument in support of their respective positions. The Motion is now ripe for decision.


         A. Standard for Rule 12(b)(6) Motion to Dismiss

         A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor and is rarely granted. Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (citing Harrington v. State Farm Fire & Cas. Co., 41');">563 F.3d 141, 147 (5th Cir. 2009)). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true. Harrington, 563 F.3d at 147. The complaint must, however, contain sufficient factual allegations, as opposed to legal conclusions, to state a claim for relief that is “plausible on its face.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Patrick v. Wal-Mart, Inc., 4');">681 F.3d 614, 617 (5th Cir. 2012). When there are ...

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