304 F.R.D. 520
W.D. Tenn.2015Background
- WSDI sued Arhaus, Stover, Daugherty, and Voelpel alleging TUTSA misappropriation, breach of contract, breach of duty of loyalty, and tortious interference; WSRSI was later added as a plaintiff.
- The individual defendants had signed a Williams‑Sonoma Code of Business Conduct (the "Code") that defined "Company" to include Williams‑Sonoma, Inc. and its subsidiaries and included confidentiality and 12‑month non‑solicitation provisions.
- Stover left WSDI in July 2014, joined Arhaus shortly thereafter, and Plaintiffs allege he took confidential documents and solicited WSDI employees (including Daugherty and Voelpel) who forwarded confidential materials to him.
- A TRO and later preliminary‑injunction proceedings were held; permanent injunctions and judgments were entered as to Voelpel and Daugherty by joint motion; Stover and Arhaus moved to dismiss under Rules 12(b)(1) and 12(b)(7) (also seeking summary judgment, which the court reserved).
- Defendants argued lack of diversity jurisdiction because parent Williams‑Sonoma, Inc. (WSI), a Delaware citizen, is the real party in interest or an indispensable party, and that diversity was collusively manufactured in violation of 28 U.S.C. § 1359.
- The court addressed only the Rule 12(b)(1) and 12(b)(7) dismissal arguments and denied those portions of the motions, finding Plaintiffs are real parties in interest and WSI is not an indispensable party; the court reserved ruling on summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Real party in interest for TUTSA/trade secrets | WSDI/WSRSI possess the trade secrets and thus have the substantive right to sue | WSI (parent) actually owns the secrets so subsidiaries lack standing; diversity destroyed if WSI is real party | Court: possession, not formal ownership, determines right; WSDI/WSRSI shown to possess secrets and are real parties in interest |
| Contract claims (Code of Conduct) | The Code is a contract binding on employees and covers subsidiaries ("Company" includes them); WSDI/WSRSI are parties | Defendants say only WSI is the contracting party | Court: Code contains contractual language; definition of "Company" includes subsidiaries; WSDI/WSRSI are parties and may sue for breach |
| Breach of duty of loyalty | WSDI/WSRSI had employment relationships with Stover/Voelpel (Code memorialized employment) and can sue for loyalty breaches | Defendants contend employees were employed by WSI, not subsidiaries | Court: employment can be joint; evidence shows subsidiaries employed/paid the individuals; Plaintiffs may pursue loyalty claims |
| Indispensable party (Rule 19) / manufactured diversity (§1359) | WSDI/WSRSI as plaintiffs are proper; WSI need not be joined because it is adequately represented and joinder would destroy diversity | WSI is a necessary/indispensable party; absent joinder case must be dismissed for lack of jurisdiction; parties collusively used subsidiaries to create diversity | |
| Court: WSI has an interest but is adequately represented by the subsidiaries and is likely precluded from relitigating; WSI is not a necessary/indispensable party; no evidence of collusive creation of diversity under §1359 |
Key Cases Cited
- DLX, Inc. v. Kentucky, 381 F.3d 511 (6th Cir.) (distinguishes facial and factual Rule 12(b)(1) attacks)
- United States v. Ritchie, 15 F.3d 592 (6th Cir.) (standard for factual vs. facial jurisdictional attacks)
- DTM Research, L.L.C. v. AT & T Corp., 245 F.3d 327 (4th Cir.) (trade‑secret right focuses on possession/knowledge rather than formal ownership)
- Metso Minerals Indus. v. FLSmidthNExcel LLC, 733 F. Supp. 2d 969 (E.D. Wis.) (treats standing/possession issues under UTSA‑type statutes)
- Glancy v. Taubman Centers, Inc., 373 F.3d 656 (6th Cir.) (Rule 19 pragmatic approach discussion)
- Jenkins v. Reneau, 697 F.2d 160 (6th Cir.) (absent party need only have a legal interest for Rule 19(a))
- American Express Travel Related Servs., Co. v. Bank One‑Dearborn, N.A., [citation="195 F. App'x 458"] (6th Cir.) (adequate representation can negate necessity under Rule 19)
- Taylor v. Sturgell, 553 U.S. 880 (U.S.) (exceptions to nonparty preclusion, including when nonparty assumed control of prior litigation)