Retail Service Systems, Inc. v. Mattress By Appointment, LLC

210 F. Supp. 3d 916, 2016 U.S. Dist. LEXIS 133855, 2016 WL 5476147
CourtDistrict Court, S.D. Ohio
DecidedSeptember 28, 2016
DocketCase No. 2:15-cv-2769
StatusPublished
Cited by3 cases

This text of 210 F. Supp. 3d 916 (Retail Service Systems, Inc. v. Mattress By Appointment, LLC) is published on Counsel Stack Legal Research, covering District Court, S.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Retail Service Systems, Inc. v. Mattress By Appointment, LLC, 210 F. Supp. 3d 916, 2016 U.S. Dist. LEXIS 133855, 2016 WL 5476147 (S.D. Ohio 2016).

Opinion

OPINION AND ORDER

Edmund A. Sargus, Jr., Chief United States District Judge

This matter is before the Court on Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction. (ECF No. 4.) For the reasons that follow, Defendants’ Mo[921]*921tion is DENIED IN PART and GRANTED IN PART.

I.

Plaintiff, Retail Service Systems, Inc. (“RSS”), is an Ohio corporation based in Dublin, Ohio. RSS operates a retail mattress and furniture business through which it licenses and franchises a proprietary marketing system to dealers across throughout the country. (Compl. ¶¶ 1, 6; ECF No. 1.) RSS purchased the intellectual-property rights to its particular marketing system in June 2013 through an asset purchase agreement with Power Marketing Direct, Inc. (“PMD”). (Id. ¶¶ 12-13.) According to RSS in the Complaint,

Over the course of several years, [PMD] developed a unique and comprehensive marketing program that they applied to the mattress and furniture industry. PMD licensed and/or franchised “dealers” to purchase mattresses and furniture exclusively through PMD, where over 55% of PMD’s sales were in mattresses. Further, PMD trained these dealers to market and sell those products through unique, non-traditional, retail-type stores using the PMD proprietary marketing, merchandising, and selling program that had been developed by PMD over time, utilizing PMD’s extensive marketing and sales experience.
... [The] proprietary program involves a unique by-appointment-only business with a much higher success rate than a typical retail start-up business. It combines scripted, low-cost advertising techniques; scripted and planned telephone conversations; and in-person merchandising and selling methodologies for selling mattresses and furniture by appointment. [The] program also includes a step-by-step trackable management process for measuring and developing licensed and/or franchised dealers.

(Id. ¶¶ 12, 14.)

Defendant, Mattress By Appointment, LLC (“MBA (FL) II”)1, is a Florida limited liability company with its principle place of business in Jacksonville, Florida. (Id. ¶ 7.) Defendant Mattress By Appointment, LLC (“MBA (SC)”) is a South Carolina limited liability company. (Id. ¶ 8.) Defendant C. Edwin Shoffner is a South Carolina citizen and the sole owner and operator of MBA (FL) II and MBA (SC). (Id. ¶ 9.) MBA (FL) II sells and markets mattresses through a network of independent dealers to customers through one-on-one appointments. Shoffner avers that MBA (SC) is a non-operational company that “conducts no business, whatsoever, in any state, has no checking account, is not funded, and has no assets.” (Defs.’ Mem. in Support of Mot. to Dismiss (“Mot. to Dismiss”) at 4, citing Shoffner Aff. ¶ 7; ECF Nos. 4, 4-1.)

From approximately 2000 to 2003, Darren Conrad worked for PMD as a dealer and manager in Columbus, Ohio. (Pl.’s Mem. in Opp. To Mot. to Dismiss (“Pl.’s Mem.”) at 2; ECF 8.) Conrad left PMD in 2003 to start his own business in South Carolina named Carolina Bedding and Furniture, Inc., which “operated using the exact same methodologies as PMD.” (Compl. ¶ 19; ECF No. 1.) Prior to his departure from PMD, Conrad signed a Separation Agreement that included a three-year noncompete clause. (Id. ¶ 17.) [922]*922Upon discovery of Conrad’s competing business, PMD sued Conrad in Ohio state court in 2004 and was granted a preliminary injunction. (Id. ¶ 21-22.) Following trial, the Franklin County Court of Common Pleas granted PMD a fifteen-month permanent injunction (to run from January 26, 2009 to June 26, 2010) in addition to $140,000 in compensatory damages and $40,000 in punitive damages. (Id. ¶ 23.) According to plaintiff, the trial court found that “PMD’s business materials and methodologies are trade secrets” and that Conrad violated the Uniform Trade Secrets Act by wrongfully using those trade secrets. (Id. citing Decision at 11; ECF No. 1-3.)

Upon issue of the permanent injunction, Conrad transferred all of his dealers with Carolina Bedding 'and Furniture, Inc. to other parties. (Id. ¶ 27.) During that time, defendant Shoffner was working as a sales representative at a mattress manufacturer named Park Place. (Pl.’s Mem. at 3; ECF No. 8.) Plaintiff alleges that Conrad entered into an arrangement with Shoffner in which Conrad would receive a portion of the mattress sales made to Conrad’s former dealers. (Id.) Plaintiff alleges that Shoffner was aware of the court’s injunction against Conrad and helped Conrad to violate the court’s order through this scheme. (Id. at 4.) Defendants dispute this characterization and argue that Shoffner worked at Park Place as a Sales Representative where he was paid the standard sales commission. (Defs.’ Reply at 4; ECF No. 15.)

In October 2011, Conrad created Carolina Bedding Direct, LLC in North Carolina. (Pl.’s Mem. at 4; ECF No. 8.) Defendant Shoffner invested seed money and additional capital into the company. (Id.) Plaintiff alleges that this new business again relied on the same marketing materials and techniques developed by PMD. (See Compl. ¶ 29; ECF No. 1) (“Using PMD’s marketing, merchandising, sales, and management systems in this way, as well as continuing his supply relationship with defendant Shoffner, Conrad quickly grew his network to over 100 dealers.”) Conrad then-moved to Florida and “informally” transferred all of the assets of the North Carolina company to a newly formed Florida company by the same name, Carolina Bedding Direct, LLC. (Id. ¶ 30-31.) As sole owner of both companies, Conrad transferred the company’s assets—including dealers, employees, playbook, bank accounts, and federal Employer Identification Number—to- the Florida entity and thereafter dissolved the North Carolina entity in April 2012. (Id. ¶ 31-32.) In November 2012, Conrad registered another Florida entity, Mattress By Appointment, LLC (“MBA (FL) I”), intending for it to replace Carolina Bedding Direct (FL), though no transfer ultimately occurred. (Id.) In March 2013, Shoffner purchased a 45% ownership interest in Carolina Bedding Direct (FL). (PL’s Mem. at 5; ECF No. 8.) Plaintiff alleges that “Shoffner knew that the company’s business model was based on the system stolen from PMD, and Shoffner also knew of PMD’s prior lawsuit against Conrad ...” (Id.)

In February 2014, Conrad and Shoffner renamed Carolina Bedding Direct (Florida) as Mattress By Appointment (MBA (FL) II)—the second Florida entity by that name and present defendant in this action. (Compl. ¶ 37; ECF No. 1.) Conrad filed for personal bankruptcy in July 2014. (Id. ¶ 42.) Shoffner subsequently purchased Conrad’s remaining 55% interest in •MBA (FL) II, thereby giving him sole ownership. (Id. ¶ 43.) Around the same time, Shoffner formed MBA (SC) with the intent to ultimately relocate MBA (FL) II to South Carolina; however, no such transfer has occurred to date. (Defs.’ Reply at 6; ECF No. 15.)

[923]*923Just prior to these events, in October 2013 (by which time RSS had purchased the rights to PMD’s marketing system), RSS brought suit against Carolina Bedding Direct (North Carolina) and MBA (FL) I in the Southern District of Ohio for the ongoing misappropriation of its trade secrets. (Id. ¶ 36.) See Retail Service Systems, Inc. v. Carolina Bedding Direct, LLC, et al., No. 2:13-CV-994 (S.D. Ohio).

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
210 F. Supp. 3d 916, 2016 U.S. Dist. LEXIS 133855, 2016 WL 5476147, Counsel Stack Legal Research, https://law.counselstack.com/opinion/retail-service-systems-inc-v-mattress-by-appointment-llc-ohsd-2016.