*1
Hose Co. v. Smith,
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION MECKLENBURG COUNTY 24CV050767-590 THE HOSE COMPANY LLC,
Plaintiff,
v.
ORDER AND OPINION ON DEFENDANT’S MOTION TO DISMISS ROBERT M. SMITH,
Defendant.
THIS MATTER is before the Court on Defendant’s Motion to Dismiss (the Motion) filed pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure (the Rule(s)), (ECF No. 32). The Court, having considered the Motion, the briefs supporting and
opposing the Motion, and the parties’ arguments at a hearing held on 27 February 2025, concludes for the reasons stated below that the Motion should be GRANTED in part and DENIED in part .
Robinson, Bradshaw & Hinson, P.A. by Julian Wright and Kelley Storey, for Plaintiff.
Bell, Davis & Pitt, P.A. by Marc Gustafson and Kevin Roak, for Defendant.
Earp, Judge.
I. FACTUAL AND PROCEDURAL BACKGROUND
3. The Hose Company (THC) is a Wyoming corporation with operations in Union County, North Carolina. (Ver. Compl. ¶ 1, ECF No. 3.) It has operated in the hose industry for about ten years selling hydraulic, pressure washing, and industrial hose. In addition to hose, it also sells hose fittings, adapters, accessories, and bundles of complete, ready-to-install custom hose setups throughout the United States and Canada. (Ver. Compl. ¶ 3.)
4. THC’s hydraulic hose is sold under the brand name Hydrauli-Flex. Its general-purpose water and chemical hose is called Soft Jet, and its pressure-washing hose is known as Fierce Jet. (Ver. Compl. ¶¶ 5–7.) Robert M. Smith (Smith) worked at THC from approximately September
2016 to January 2024, first as Operations Manager and then as General Manager. (Ver. Compl. ¶ 8.) He became a shareholder in THC beginning in May 2021 and continuing until his resignation. (Ver. Compl. ¶ 9.) Smith’s duties included management of the design, manufacture, assembly,
and sale of hydraulic, pressure washing, and industrial hose. Further, Smith looked for, developed, and analyzed potential business partnerships with and acquisitions by THC of other companies and assets in the hose business. (Ver. Compl. ¶ 8.) Based on his position, Smith had access to THC’s confidential information including pricing; operating costs and expenses; budgeting; supplier data; customer data, needs and preferences; customer relations; proprietary technology; operational processes and tools; and market strategy and performance. (Ver. Compl. ¶ 10.) On 20 July 2022, Smith signed a Noncompetition Agreement (the Agreement) in exchange for increased compensation. (Ver. Compl. ¶ 11.) The agreement contained the following noncompetition provision:
1. Noncompetition.
(a) [Smith] agrees that, during the Restricted Period, [Smith] shall not accept employment to design, manufacture, assembly [sic], and sale [sic] of hydraulic and industrial hose, or to perform any other services which are the same as or similar to services [Smith] has performed or will perform for [THC], within the Restricted Territory.
(Ver. Compl., Exhibit 1 Noncompetition Agreement [Agreement] § 1(a).) The restricted territory and restricted period were defined in the Agreement as follows:
(b) As used herein, the following terms shall have the following meanings:
“Restricted Territory” means the following: (i) the geographic area within a 100-mile radius of [THC’s] facility at 301 Warehouse Drive, Matthews, North Carolina; (ii) Mecklenburg County, North Carolina; (iii) counties contiguous to Mecklenburg County, North Carolina; (iv) the State of North Carolina; (v) states contiguous to the State of North Carolina; (vi) the State of South Carolina; (vii) the State of Georgia; (viii) the State of Virginia; (ix) the State of Tennessee; (x) the State of Florida; (xi) the State of Texas; (xii) the contiguous United States; (xiii) the United States; (xiv) or in any geographic area within a 5-mile radius of [THC] locations or [THC] customer locations in which the Employee exercised responsibility or serviced customers of the Company.
“Restricted Period” means a period that is two years after the termination of [Smith’s] employment with [THC], whether voluntary termination by [Smith] or termination for cause by [THC.] (Agreement § 1(b).) On 2 January 2024, Smith submitted his resignation letter, stating in
pertinent part:
My last working day will be January 19th, 2024, as I have accepted a new opportunity as the Director of Integration Business Development at Triosim, a paper and pulp manufacturing and servicing company based in Appleton, WI.
* * * *
Additionally, in accordance with my non-competition agreement, my new role at Triosim will not involve direct engagement or contact with any of The Hose Company's customers, vendors, or employees. I am committed to upholding the terms of our agreement and ensuring seamless transition.
(Ver. Compl., ¶ 19, Exhibit 2 Resignation Letter [Resignation Letter].) However, following Smith’s departure from THC, Plaintiff became aware of Smith’s involvement in the hose business on behalf of Triosim Corporation (Triosim) and others.
A. Smith’s Work with Triosim After leaving THC, Defendant began working as Director of Integration and
Business Development for Triosim. (Ver. Compl. ¶ 20.) THC believed that Smith was working in the paper and pulp industry. (Ver. Compl. ¶ 22.) After his departure, THC sent Smith a letter reminding him of his contractual obligations. (Ver. Compl. ¶ 53.) On 9 May 2024, Triosim’s counsel confirmed that Triosim was aware of THC’s Noncompetition Agreement and that it was utilizing Smith to perform services that did not compete with THC to ensure that Smith complied. (Ver. Compl. ¶ 55.) Plaintiff relied on these representations. (Ver. Compl. ¶¶ 70–71.) On 7 August 2024, however, an email inadvertently sent to Smith’s old THC
email address revealed that Smith was engaged in the industrial hose industry in *5 some capacity for a company called Albany Rubber & Gasket (Albany). (Ver. Compl. ¶ 23; Ver. Compl., Exhibit 3.) THC investigated and determined that Smith was working for Trident Services, LLC (Trident), a division of Triosim. (Ver. Compl. ¶¶ 24–25.) Albany, which sells industrial and hydraulic hose, is a subsidiary of Trident located in Georgia. (Ver. Compl. ¶ 26.)
14. Other subsidiaries of Trident include Montgomery Rubber & Gasket (Montgomery) located in Alabama, MS Rubber (MS) located in Mississippi, and Pensacola Rubber & Gasket (Pensacola) located in Florida. (Ver. Compl. ¶ 27.) Albany sells industrial and hydraulic hose; Montgomery and MS sell hydraulic and industrial hose and fittings; and Pensacola sells all types of hose products including industrial, hydraulic, metal, tubing, ducting, and automotive. (Ver. Compl. ¶¶ 29– 33.)
B. Christoper Inks and Manatee Christopher Inks (Inks), Smith’s longtime friend, began working for THC
on or about 29 April 2020. Inks was not required to sign a noncompetition agreement because Smith vouched for his character. (Ver. Compl. ¶¶ 35–36.) THC believes that Inks and Smith began discussing a partnership to develop and sell hoses and hose-related parts while they were both employed by THC, but they did not have the capital to do so on their own. (Ver. Compl. ¶ 45.) In November 2023, while both were employed by THC, Smith and Inks traveled to California with individuals from Manatee Pressure Washer Supply and Repair (Manatee), one of THC’s Fierce Jet hose customers, to identify warehouse *6 space and discuss a potential joint venture between THC and Manatee. (Ver. Compl. ¶¶ 41, 46.) The idea did not progress after the trip. (Ver. Compl. ¶ 47.)
18. Approximately three months later, American Pressure Equipment, LLC (APE), a company affiliated with Manatee, was incorporated in Florida. (Ver. Compl. ¶¶ 38, 40.) APE sells its own line of pressure washing hose under the brand name Rampage, which competes with THC’s Fierce Jet. (Ver. Compl. ¶ 44.) Plaintiff alleges that both Smith and Inks approached Manatee and “played roles” in starting the business. (Ver. Compl. ¶¶ 38, 48.) THC alleges that Inks began working for APE and Manatee in early 2024,
while he was still a THC employee. (Ver. Compl. ¶ 49.) During this time, THC believes that Inks consulted with Smith regarding APE products that compete with THC’s products. (Ver. Compl. ¶¶ 42–43.) THC also believes Inks coordinated with Smith to copy THC’s information. (Ver. Compl. ¶ 50.) When THC discovered the conflict of interest, it terminated Inks’ employment on 24 April 2024. (Ver. Compl. ¶ 51.) After Inks was terminated, THC learned from one of its customers, L&H
Industrial, that APE had been trying to lure it away. (Ver. Compl. ¶ 52.) THC’s Complaint, filed 30 October 2024, alleges claims against Smith for (1) breach of contract; (2) fraudulent concealment with respect to his work with Triosim and its affiliates in the hose industry; (3) fraudulent concealment with respect to his work with Inks, Manatee, and APE to develop a competing product while he was General Manager of THC; (4) misappropriation of trade secrets (THC’s *7 customer lists and pricing information); (5) violation of the North Carolina Unfair and Deceptive Trade Practices Act; and (6) civil conspiracy. ( See generally Ver. Compl.)
22. On 6 January 2025, Smith filed this Motion, as well as his Answer to the Complaint, (ECF No. 34). On 27 February 2025, the Court held a hearing on the Motion. Both parties appeared and were heard. The Motion is now ripe for decision.
II. LEGAL STANDARD
A motion to dismiss under Rule 12(b)(6) “tests the legal sufficiency of the
complaint.”
Isenhour v. Hutto
,
It recites below factual allegations from the Verified Complaint that are relevant to a determination of the Motion. See, e.g., White v. White , 296 N.C. 661, 667 (1979) (stating that the purpose of “a motion to dismiss is to test the law of a claim, not the facts which support it”). In deciding the motion, the Court must treat all well-pleaded allegations
as true and view the facts and permissible inferences in the light most favorable to
the nonmoving party.
See, e.g., Sykes v. Health Network Sols., Inc.
,
III. ANALYSIS Defendant contends that each of the claims brought by Plaintiff fails as a
matter of law and should be dismissed. (Def. Robert M. Smith’s Br. in Supp. of his Rule 12(b)(6) Mot. to Dismiss [Def.’s Br.] at 5, ECF No. 33.) The Court addresses each claim below.
A. Breach of Contract The Court has already addressed THC’s claim for breach of contract in response to THC’s Motion for Preliminary Injunction. (Order on Pl.’s Mot. for Prelim. Inj., ECF No. 58.) The claim is based solely on Smith’s alleged breach of a noncompetition provision in an agreement with THC that Smith signed while employed. Because the Court has concluded that the noncompetition provision at issue is unenforceable as a matter of law, the Motion shall be GRANTED, and THC’s claim for breach of contract is dismissed with prejudice. [1]
*9 B. Fraudulent Concealment THC brings two fraudulent concealment claims against Smith. The first
alleges that he fraudulently concealed the fact that, after leaving THC, his
employment with Triosim would involve working, identifying, and acquiring
companies and assets in the industrial hose industry, including Albany, Montgomery,
MS, and Pennsacola. (Ver. Compl. ¶¶ 65–66.) The second alleges that during his
employment with THC, Smith fraudulently concealed his work with Inks, Manatee,
and APE to develop a competing business. (Ver. Compl. ¶ 75.)
“[F]raudulent concealment or fraud by omission is, by its very nature,
difficult to plead with particularity.”
Lawrence v. UMLIC-Five Corp.
, 2007 NCBC
LEXIS 20, at **9 (N.C. Super. Ct. June 18, 2007) (quoting
Breeden v. Richmond Cmty.
Coll.
,
(1) the relationship [between the plaintiff and defendant] giving rise to the duty to speak; (2) the event or events triggering the duty to speak and/or the general time period over which the relationship arose and the fraudulent conduct occurred; (3) the general content of the information that was withheld and the reason for its materiality; (4) the identity of those under a duty who failed to make such disclosures; (5) what [the defendant] gained by withholding information; (6) why [the] plaintiff's reliance on the omission was both reasonable and detrimental; and (7) the damages proximately flowing from such reliance.
Breeden
,
duty arises when: (1) a fiduciary relationship exists between the parties to the
transaction; (2) a party has taken affirmative steps to conceal material facts from the
other; or (3) one party has knowledge of a latent defect in the subject matter of the
*10
negotiations about which the other party is both ignorant and unable to discover
through reasonable diligence.
See, e.g.
,
Hardin v. KCS Int'l, Inc
.,
was under no obligation to make disclosures to THC. He argues that THC has not pled either (1) that while employed as a manager, he exercised sufficient dominance and control over THC to be required to make disclosures as its de facto fiduciary or (2) that when he left THC, he took affirmative steps to conceal material facts regarding his job with Triosim. (Def.’s Br. at 17–20.) “North Carolina recognizes two types of fiduciary relationships: de jure , or
those imposed by operation of law, and
de facto
, or those arising from the particular
facts and circumstances constituting and surrounding the relationship.”
Hager v.
Smithfield E. Health Holdings, LLC
,
because it has alleged that, as General Manager, Smith was a “company official” and company officials owe fiduciary duties to their companies as a matter of law. (Pl.’s Opp. to Def.’s Mot. to Dismiss [Pl.’s Opp] at 18–20, ECF No. 48, citing N.C.G.S. § 57D- 3-23.) But that is not what the Verified Complaint actually says. THC has alleged only that Smith’s duty to disclose arose from his status as a THC employee and shareholder , not as a manager or other official of this limited liability company. (Ver. Compl. ¶¶67, 76.) A fiduciary relationship can also arise de facto and “extends to any
possible case in which a fiduciary relationship exists in fact, and in which there is
confidence reposed on one side, and
resulting domination and influence on the
other
.”
Dalton v. Camp
,
positions, typically do not owe a fiduciary duty to their employers. “North Carolina's
courts have consistently held that such a position does not give rise to fiduciary
responsibilities absent allegations of extraordinary facts that, if proven, would
establish that the employee controlled his employer to the point of domination.”
Langley v. Autocraft, Inc
.,
GRANTED with respect to Count III of the Verified Complaint, THC’s claim for fraud that occurred while Smith was employed, and this claim is dismissed without prejudice. As for Smith’s post-employment activity on behalf of Triosim, THC argues
that Smith’s decision to word his resignation letter as he did amounted to an affirmative step to conceal the true nature of his activity in the hose industry. (Pl.’s Opp. at 20–21.) Interpreting the allegations in the Verified Complaint in the light most favorable to THC, the Court agrees that THC has sufficiently alleged that Smith *13 intentionally misled THC by wording his resignation letter to conceal the true nature of his new job. Given the liberal standard the Court must employ at this stage, the Motion shall be DENIED with respect to Count II of the Verified Complaint, THC’s claim for Smith’s alleged fraudulent concealment relating to his work for Triosim . [3] C. Misappropriation of Trade Secrets THC alleges that Smith misappropriated its “customer lists and pricing
information,” both of which it asserts are trade secrets. Smith responds that THC has not identified its alleged trade secrets with sufficient particularity and further that THC’s customer list is comprised of publicly available information. (Def.’s Br. at 21.) Similarly, Smith argues that THC’s reference to “pricing information” is not specific and that there is no indication that THC took steps to keep its prices confidential. (Def.’s Br. at 24.) THC responds that courts have regularly held that these two types of
information are trade secrets. (Pl.’s Opp. at 22.) THC argues that, even if publicly
available information is included, its allegation that it built its customer lists
throughout its 10 years of operation is sufficient to allege a compilation trade secret.
(Pl.’s Opp. at 22.) Similarly, THC contends that it has sufficiently identified the
pricing information as pertaining to its dealer network. (Pl.’s Opp. at 22.)
“To plead misappropriation of trade secrets, ‘a plaintiff must identify a
trade secret with sufficient particularity so as to enable a defendant to delineate that
which he is accused of misappropriating and a court to determine whether
misappropriation has or is threatened to occur.’ ”
Washburn v. Yadkin Valley Bank
& Tr. Co.
,
secret as “business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process” that both:
a. [d]erives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and
b. [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
N.C.G.S. § 66-152(3). Six factors assist the Court to determine whether particular information is
actually a trade secret:
(1) the extent to which the information is known outside the business; (2) the extent to which it is known to employees and others involved in *15 the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of information to the business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be acquired or duplicated by others.
Combs & Assocs. v. Kennedy
,
customer lists are,
ipso facto
, trade secrets. Whether they are depends on the context
in which these terms are used. It is up to the plaintiff to define that context.
See,
e.g., Aecom, Tech. Corp
., 2012 NCBC LEXIS 9, at **8 (Plaintiffs’ allegation that
Defendants misappropriated confidential information including “customer lists,
customer contract information, pricing information, and product information” was too
sweeping and conclusory to identify a trade secret);
Krawiec v. Manly
,
an often cited case involving a dispute between a dance studio and its former
employee, we recognize that ‘[t]here is no presumption that a thing is a secret,’ and
emphasize the shortcomings of ‘general allegations’ in making a case for
misappropriation of trade secrets.”
Krawiec
,
information included in the list or describe the effort and cost it incurred to put the
list together. More information is necessary to allege a compilation trade secret.
See,
e.g., Mech. Sys. & Servs. v. Howard
,
that applies to its dealer network. It does not explain how this information, once
released externally, is kept secret. Clearly, its dealers know what they are charged,
and there is nothing in the pleading to indicate that THC’s dealers cannot themselves
use this information to negotiate better deals with THC’s competitors. It is up to
THC to plead the existence of a trade secret with particularity. Further, its general
allegations regarding only internal security measures do not suffice.
Cf
.
Area
Landscaping, LLC v. Glaxo-Wellcome, Inc.,
48. The Court concludes that THC has failed to allege the identity of a trade secret with sufficient particularity to support its claim, and its allegations regarding the security measures it used to keep its pricing information secret are lacking. Accordingly, the Motion as to Count IV, Misappropriation of Trade Secrets, is GRANTED , and this claim is dismissed without prejudice.
D. Unfair and Deceptive Trade Practice Under North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA) “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” N.C.G.S. § 75- 1.1(a). Three elements are needed to maintain a cause of action under this statute:
“(1) an unfair or deceptive act or practice, or an unfair method of competition, (2) in or affecting commerce, (3) proximately causing actual injury to defendant or defendant business.” Drouillard v. Keister Williams Newspaper Servs., Inc. , 108 N.C. App. 169, 172 (1992). Smith argues that the unfair and deceptive trade practices claim must be
dismissed because the claims underlying it fail. (Def.’s Br. at 27.) THC relies on both its fraud and its misappropriation of trade secrets claims, (Pl.’s Opp. at 25), but says that, regardless of those claims, it has alleged that Smith acted in an unethical or *18 unscrupulous manner by deceiving THC about his work at Triosim, consulting with Inks to develop Rampage, and concealing his work with Inks and APE. (Pl.’s Opp. at 26.) To the extent THC refers to Smith’s conduct while employed, the Court
observes that most employer-employee disputes do not affect commerce and are
therefore beyond the scope of the UDTPA.
See Dalton,
v. Carter
, 351 N.C. 27 (1998), for support. In
Sara Lee
, the Supreme Court
determined that the wrongdoer, Carter, was more than just an employee acting to
harm his own employer. He was also a vendor who had engaged with the company
in commercial transactions in the marketplace. In this unusual fact scenario, the
Court held that Carter’s status as an employee could not be used as a shield against
his liability as a vendor.
Sara Lee Corp.
,
commerce,” the Motion shall be GRANTED , and Count V, the claim for violation of the UDTPA, is dismissed without prejudice.
E. Civil Conspiracy
“Civil conspiracy is not an independent cause of action in North Carolina.
Rather, liability for civil conspiracy must be alleged in conjunction with an underlying
claim for unlawful conduct.”
Glob. Textile All., Inc. v. TDI Worldwide, LLC
, 2018
NCBC LEXIS 104, at **18 (N.C. Super. Ct. Oct. 9, 2018) (citing
Toomer v. Garrett
,
Accurately speaking, there is no such thing as a civil action for conspiracy. The action is for damages caused by acts committed pursuant to a formed conspiracy, rather than by the conspiracy itself; and unless something is actually done by one or more of the conspirators which results in damage, no civil action lies against anyone. The gist of the civil action for conspiracy is the act or acts committed in pursuance thereof – the damage – not the conspiracy or the combination. The *20 combination may be of no consequence except as bearing upon rules of evidence or the persons liable.
Reid v. Holden
,
agreement between two or more individuals; (2) to do an unlawful act or to do a lawful
act in an unlawful way; (3) resulting in injury to plaintiff inflicted by one or more of
the conspirators; and (4) pursuant to a common scheme.’ ”
Glob. Textile All., Inc.
, 2018
NCBC LEXIS 104, at **18–19 (quoting
Piraino Bros., LLC v. Atl. Fin. Grp., Inc.
, 211
N.C. App. 343, 350 (2011)). As stated above, however, proof of a civil conspiracy “does
no more than associate the defendants together . . . The gravamen of the action is the
resultant injury, and not the conspiracy itself.”
Henry v. Deen
,
fraudulent concealment while he was employed, and UDTPA claims fail, there is no viable allegation that a wrongful act was taken in furtherance of any agreement with Inks, Manatee, and APE to violate the law. (Def.’s Br. at 28.) Therefore, Smith contends, the conspiracy claim fails. The Court agrees. Because the claims alleging conduct that involved Smith,
Inks, Manatee, and APE, have been dismissed, the conspiracy theory based on those *21 claims has no application. Accordingly, the Court GRANTS the Motion with respect to Count VI, civil conspiracy, and dismisses this count without prejudice.
IV. CONCLUSION WHEREFORE , the Court hereby GRANTS in part and DENIES in part
the Motion and ORDERS as follows:
a. With respect to the First Cause of Action (Breach of Contract), the Motion
is GRANTED, and the claim is dismissed with prejudice.
b. With respect to the Second Cause of Action (Fraud – Work with Albany
Rubber & Gasket), the Motion is DENIED .
c. With respect to the Third Cause of Action (Fraud – Work with Mr. Inks, Manatee, and APE), the Fourth Cause of Action (Misappropriation of Trade Secrets), the Fifth Cause of Action (Violation of the North Carolina Unfair and Deceptive Trade Practices Act), and the Sixth Cause of Action (Civil Conspiracy), the Motion is GRANTED , and these claims are dismissed without prejudice.
SO ORDERED , this the 28th day of March 2025.
/s/ Julianna Theall Earp Julianna Theall Earp Special Superior Court Judge for Complex Business Cases
Notes
[1] “The decision to dismiss an action with or without prejudice is in the discretion of the trial
court.”
First Fed Bank v. Aldridge
,
[2] Likewise, the fact that Smith was a THC shareholder is not enough to create a
de facto
fiduciary relationship. “As a general rule, shareholders do not owe a fiduciary duty to each
other or to the corporation.”
Freese v. Smith
,
[3] Ultimately, to succeed on this claim, THC will be required to prove that Smith’s concealment
led to actual damage, an essential element for a fraud claim.
See, e.g., Speller v. Speller
, 273
N.C. 340, 343 (1968) (citing
Johnson v. Owens
,