IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA USCONNECT, LLC, ) ) Plaintiff, ) ) v. ) 1:25CV692 ) VENDORS EXCHANGE ) INTERNATIONAL, INC. and ) VENDORS EXCHANGE ) INTERNATIONAL, LLC, d/b/a ) VE SOLUTIONS, ) ) Defendants. ) MEMORANDUM OPINION, ORDER, AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE The plaintiff, USConnect, LLC Carolina law (Count Seven), and (“USConnect”), and the defendant, unjust enrichment (Count Eight). Vendors Exchange International, Inc. (“Vendors Exchange”), had a fruitful Before the Court is the defendants’ business partnership for several years Motion to Dismiss Counts Three in the vending services industry. That through Eight. relationship then soured. Broadly, USConnect alleges that Vendors On March 9, 2026, this Court Exchange misappropriated recommended dismissal of a number USConnect’s confidential information of USConnect’s claims, including its to create and sell its own products, unfair and deceptive business giving rise to claims of breach of practices claims and Lanham Act contract (Count One), contractual reverse passing off claim. See Mem. indemnification (Count Two), Op. & R. & R. of U.S. Mag. Judge, misappropriation of trade secrets Docket Entry 22. USConnect under North Carolina and federal law objected, directing the Court’s (Counts Three and Four respectively), attention to case law at odds with the passing off in violation of the Lanham unfair and deceptive business Act (Count Five), common law unfair practices determination. The Court competition (Count Six), unfair and has considered the parties’ arguments deceptive trade practices under North and hereby withdraws the March 9, 2026 Memorandum Opinion and suite of technology features that Recommended Ruling. include credit/debit card processing, hosted balance cards, consumer Because USConnect has pled facts engagement services, product sufficient to support the claims promotions[,] and consumer loyalty alleged in Counts Three and Four and programs (‘USConnect Technology’) Six through Eight, the Court should that are available as part of the deny the motion as to those counts. USConnect Network (‘the USConnect Because USConnect has not pled facts System’).” Id. ¶ 15. This System establishing that it was the origin of “allows users to access and make the goods central to its Lanham Act purchases from internet-enabled passing off claim, the Court should vending machines and micro-market grant the motion as to Count Five. kiosks that contain within them the applications that enable and enhance I. FACTS the user’s interface experience . . . .” Id. ¶ 16. Users “interfac[e] with text, Because all well-pled facts are graphics, artwork, logos[,] and accepted as true and considered in the trademarks (the ‘USConnect light most favorable to the plaintiff, Intellectual Property and Content’).” below are the facts as USConnect has Id. alleged in the Complaint, Docket Entry 3. See Nemet Chevrolet, Ltd. v. USConnect “maintains a consumer Consumeraffairs.com, Inc., 591 F.3d loyalty program (the ‘Loyalty 250, 255 (4th Cir. 2009) (citation Program’)” “[a]s part of US Connect modified). Technology within the USConnect System.” Id. ¶ 17. This Loyalty “For more than a decade, USConnect Program “enables consumers to earn developed and refined a business loyalty points that can then be model and internet network system to redeemed for various rewards . . . .” link thousands of internet-enabled Id. The “availability of these vending machines, micro-market programs increases sales” because the kiosks, and other point-of-sale (‘POS’) “Loyalty Program is a significant devices . . . (the ‘USConnect driver of repeat business for the Network’).” Compl. ¶ 14. USConnect’s Affiliates.” Id. “Through the Affiliates own the vending machines USConnect Intellectual Property and and kiosks. Id. ¶ 16. Customers of Content, the kiosk interfaces with the these Affiliates and end-use- USConnect Account” to reduce the consumers use a USConnect Account, user’s Account balance while “enabled through a unique increasing the user’s loyalty points in USConnect Card or an online the Loyalty Program. Id. ¶ 18. “The downloadable application (or ‘app’),” USConnect Intellectual Property and to “facilitate vending telemetry and Content also enables the end-user to cashless payment systems through a reload the USConnect Account with any competitive program, product[,] funds . . . .” Id. or process.” Id.
USConnect was interested in After further negotiations, the parties “develop[ing] more advanced kiosks entered into a Master Services that could use the USConnect Agreement (“MSA”) in November Intellectual Property and Content on 2018, pursuant to which USConnect and as part of the USConnect System” would afford Vendors Exchange “full so it began vetting manufacturers in access to USConnect Intellectual 2017. Id. ¶ 20. One of those Property and Content” so that manufacturers was Vendors Vendors Exchange could “develop (at Exchange which, at the time, USConnect’s directions and “designed and manufactured kiosks specifications) and manufacture for use in unattended retail situations, kiosks that contained and were based like micro-markets in employee on the USConnect Intellectual breakrooms,” but “those kiosks were Property and Content for use on and very basic in their technology-related as part of the USConnect System.” Id. features.” Id. ¶¶ 21–22. “The kiosks ¶¶ 24–25. were not user-friendly, had no ability to track any type of loyalty rewards Under the MSA, “USConnect retained program, and could not handle Vendors Exchange to aid in the declining balance requirements.” Id. development, manufacture[,] and sale ¶ 22. of such Integrated Products [that were based on and contained the In April 2017, USConnect and USConnect IP and designs as well as Vendors Exchange entered into a Vendors Exchange’s software written Confidentiality Agreement (“NDA”) to USConnect’s specifications] to the “pursuant to which Vendors Affiliates.” Id. ¶ 25. Exchange agreed to maintain the confidentiality of USConnect’s While “USConnect continued to own confidential and proprietary all right, title[,] and interest in and to information” including, but not the USConnect IP,” it “granted limited to, “its business methods, Vendors Exchange . . . a non-exclusive supplier relationship, membership license to use the USConnect IP solely relationships, technology systems, for purposes of fulfilling its user experience, proprietary APIs, obligations under the MSA for the life trade secrets, customer lists, and of the MSA. Id. ¶¶ 26–27. In return, specifications . . . .” Id. ¶ 23. Vendors Vendors Exchange “expressly agreed Exchange also agreed “that it would that it would not” do a litany of things not use such information to develop such as use or modify “any portion of the USConnect IP separately from the Integrated Products,” “[u]se the USConnect IP in any manner except as permitted by the MSA,” “[c]reate functionality for the consumer kiosk derivative works based on the interfaces and interface features USConnect IP,” or “[a]ccess the (including, for example, quick USConnect’s IP to [] build a checkout or Scan-N-Go),” “customer competitive product.” Id. ¶ 28. lists, customer contacts, customer locations, particularities of the Pursuant to the MSA, Vendors customer’s business (including size, Exchange was to “manufacture and number of kiosks, kiosk serial sell the Integrated Products numbers[,] and purchasing exclusively for and to USConnect and potential), [and] potential its Affiliates.” Id. ¶ 30. And “the customers,” and the “loyalty rewards Integrated Products would bear system business model, including various USConnect trademarks on the details regarding process rates, flow screens . . . .” Id. Furthermore, “each of funds, redemption protocol, party was precluded from divulging assignment percentages, data flow, the other party’s ‘Confidential micro-market vending Information’ to any third party.” Id. characteristics, scan and go ¶ 31. functionality, and system architecture and connectivity.” Id. In February 2020, the parties entered into an Amended MSA to include USConnect considers the USConnect “USConnect’s Loyalty Programs Confidential Information to be trade Bistro to Go!/My Vending Rewards” secrets that give it “a unique in “the USConnect IP” and add them competitive advantage in the “to the Integrated Products that marketplace” and which USConnect Vendors Exchange was to develop, treats “as confidential,” and which “is manufacture[,] and sell to the not generally known by USConnect USConnect Affiliates.” Id. ¶¶ 35–36. competitors.” Id. ¶ 40. “[T]o maintain the confidential nature of the “As part of the development process, information[,]” “the information is and pursuant to the NDA, MSA[,] and subject to confidentiality provisions [Amended] MSA . . ., USConnect set forth in [] Agreements,” it is shared highly sensitive confidential “password-protected” with access and propriety information with limited to “employees that have a Vendors Exchange.” Id. ¶ 34. This need to access the information in “USConnect Confidential order to perform his/her job,” and, if Information” included, but was not shared with vendors or suppliers, is limited to, “the underlying first protected by third-party non- requirements of the full suite of disclosure agreements. Id. ¶ 41. technical services and other account service products that USConnect Despite its agreement with offers its customers,” “descriptions, USConnect, “upon [USConnect’s] design specifications[,] and information and belief, in or around 2023, Vendors Exchange began while properly recording such entries working with [Vendors Exchange in the customer’s account.” Id. ¶ 51. It International, LLC d/b/a VE also includes USConnect’s “unique” Solutions (‘VE Solutions’)] to develop ‘Scan-N-Go’ program’ . . . that enabled its own competitive loyalty program the kiosk to recognize the difference and declining balance program to between a barcode on merchandize incorporate into a competing kiosk [sic] and the barcode on the that they could take directly to USConnect Card, thereby enabling market.” Id. ¶ 43. The use of the consumer to simply scan the USConnect’s IP and the USConnect barcode of each item to complete a Confidential Information purchase without having to touch the “accelerate[d] the process for touchscreen . . . .” Id. developing a fully functioning kiosk that contained many of the features of “Prior to being exposed to and having the Integrated Products which they access to USConnect IP and the could then take to market.” Id. ¶ 47. USConnect Confidential Information, Vendors Exchange was unable to Indeed, “[t]hese efforts eventually led create the loyalty programs or the to the VE Product.” Id. ¶ 43. “The VE declining balance programs for use Product contained or was otherwise with their rudimentary kiosks in the based on or derived from the manner or in the way that the USConnect IP and the USConnect USConnect Network handles such Confidential Information and programs.” Id. ¶ 49. “[U]pon included many of the features, [USConnect’s] information and belief, functions[,] and graphics of the had [the defendants] not used the Integrated Products.” Id. ¶ 44. USConnect IP and the USConnect “[A]spects” of the VE Product’s “user Confidential Information, it would interface screens” either “duplicate or have taken [them] much longer and are substantially similar to those of been more expensive to create the VE the Integrated Products.” Id. ¶ 45. Product with the functions and features that it currently has . . . .” Id. “The VE Product also incorporated a ¶ 50. loyalty and declining balance program that was developed based While developing the VE Product, VE on, derived from, and/or that Solutions “registered a fictitious otherwise utilized the USConnect IP name, ‘VE Solutions,’” after which the and the USConnect Confidential defendants “began creating marks Information.” Id. ¶ 46; see also id. and logos for ‘VE Solutions’ that ¶ 48. In addition, the VE Product has would distinguish the Vendors USConnect’s “unique” “‘Promotions’ Exchange brand from USConnect.” program [that] enables the kiosk to Id. ¶ 54. Although the Amended MSA create, recognize[,] and account for required Vendors Exchange “to promotions offered to the customer implement the design of the images dictated by USConnect [including similar loyalty programs and other USConnect’s marks, logos[,] and features/programs that were then[] trademarks] into the Integrated offered by USConnect within the Product’s user interface screens[,]” in Integrated Product.” Id. ¶ 64. 2024 the defendants “began replacing the USConnect images on the USConnect’s Chief Executive Officer Integrated Product’s user interface contacted the defendants’ President screens with the marks and logos of who “admitted that [the defendants] VE Solutions.” Id. ¶¶ 55–56. “[U]pon had developed the VE Product and [USConnect’s] information and that, in doing so and by its actions, belief,” the defendants “hoped . . . that Vendors Exchange had breached the consumers would associate MSA.” Id. ¶¶ 66–67. But he “denied Integrated Products with VE that the VE Product used, Solutions such that, when [the contained[,] or was developed with defendants] began to roll out their VE the USConnect IP or the USConnect Product with a user interface screen Confidential Information.” Id. ¶ 68. that had images and marks of VE Solutions, the VE Product would Pursuant to the terms of the Amended seamlessly be accepted by the vending MSA, “[t]he parties met in market. Id. ¶ 59. Greensboro, North Carolina,” and the defendants’ President “made it clear The Amended MSA was set to expire that [the defendants] intended to in November 2024. Id. ¶ 60. In the compete directly against USConnect meantime, “Vendors Exchange made with their VE Product.” Id. ¶¶ 69–70. it appear that it intended to renew the Although he earlier admitted that the MSA” and, in the spring of that year, defendants approached an Affiliate, “engaged in discussions with he now “claimed the Affiliate was USConnect about extending the MSA lying.” Id. ¶ 70. for another four[-]year term.” Id. ¶¶ 60–61. However, “[w]hile these The Amended MSA expired in discussions were ongoing, [the November 2024 and, along with it, defendants] were in the final stages of Vendors Exchange’s license to use integrating numerous programs” into USConnect’s IP. Id. ¶ 72. But Vendors the VE Product and “devis[ing] a plan Exchange “continued to market and to market and sell the VE Product sell the VE Product which, upon directly to USConnect’s Affiliates.” Id. [USConnect’s] information and belief, ¶ 62. Indeed, “[i]n the Summer of incorporates or is otherwise based 2024, using USConnect’s Affiliate list, on/derived from the USConnect IP Vendors Exchange approached at and USConnect Confidential least one . . . USConnect Affiliate and Information.” Id. ¶ 73; see also id. offered to sell them the VE Product” ¶ 75. “Upon [USConnect’s] that “would not be connected to the information and belief, [the USConnect Network but would offer defendants] have generated thousands of dollars of profits from Atl. Corp. v. Twombly, 550 U.S. 544, the sale, rental and/or lease of the VE 570 (2007)). Legal conclusions “must Product.” Id. ¶ 76. be supported by factual allegations” that amount to more than II. PROCEDURAL “unadorned, the-defendant- POSTURE unlawfully-harmed-me accusation[s].” Iqbal, 556 U.S. at 678 On June 27, 2025, USConnect filed (citing Twombly, 550 U.S. at 555). A suit against the defendants in plaintiff is not required to prove its Guilford County Superior Court. See case in the complaint, see, e.g., Compl. The Complaint alleges claims Robertson v. Sea Pines Real Est. Cos., of breach of contract, contractual 679 F.3d 278, 291 (4th Cir. 2012); indemnification, misappropriation of Scott v. City of Durham, 2021 WL trade secrets under state and federal 3856168, at *2 (M.D.N.C. August 27, law, passing off, unfair competition, 2021), but the complaint’s allegations unfair and deceptive trade practices, should “allow the court to draw a unjust enrichment, and breach of reasonable inference that the implied covenant of good faith and defendant is liable for the misconduct fair dealing. See generally id. alleged,” Int’l Refugee Assistance Project v. Trump, 961 F.3d 635, 648 The defendants removed the case to (4th Cir. 2020) (cleaned up). federal court on July 30, 2025, Docket Entry 1, and moved one week later to On a motion to dismiss, courts view dismiss six of USConnect’s claims, see the allegations in the complaint as Docket Entry 9. true, drawing all inferences in the plaintiff's favor. See Twombly, 550 at Specifically, the defendants move to 555–56 (2007); Langford v. Joyner, dismiss for failure to state a claim as 62 F.4th 122, 124 (4th Cir. 2023). But to Counts Three and Four alleging courts are not required to “accept as misappropriation of trade secrets, true ‘legal conclusions drawn from the Count Five alleging passing off, Count facts’ or any other ‘unwarranted Six alleging unfair competition, Count inferences, unreasonable conclusions, Seven alleging unfair and deceptive or arguments.’” Just Puppies, Inc. v. trade practices, and Count Eight Brown, 123 F.4th 652, 660 (4th Cir. alleging unjust enrichment. See id. 2024) (quoting Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. III. DISCUSSION 2008)).
“To 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.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell A. USConnect has sufficiently 1:12CV967, 2016 WL 3892416, at *3 alleged misappropriation of (M.D.N.C. July 14, 2016). Both trade secrets. statutes “define a trade secret in substantially the same terms[,]” as USConnect alleges that the well. Sysco Mach. Corp. v. DCS USA defendants misappropriated its trade Corp., 143 F.4th 222, 228 (4th Cir. secrets by using them without 2025). A trade secret is information authorization in the VE Product, in for which a business uses “reasonable violation of North Carolina General measures to keep” secret and from Statutes § 66-152, et seq. (North which a business “derives Carolina Trade Secrets Protection Act, independent economic value[.]” Id. “NCTSPA”) and 18 U.S.C. § 1836(b) (citations omitted). (Defend Trade Secrets Act of 2016, “DTSA”). See Compl. ¶¶ 91-108 As is especially relevant here, the (Counts Three and Four). Fourth Circuit Court of Appeals has explained that “[t]he federal and The defendants argue that pleading North Carolina statutes are similar in misappropriation of trade secrets another way: both require the requires more specificity under Rule 8 plaintiff to identify with sufficient and USConnect’s allegations lack that particularity the trade secret it claims requisite specificity and otherwise fail has been misappropriated.” Id. to state a claim. See Defs.’ Am. Br. in (citations omitted). “At the pleading Supp. of Mot. to Dismiss at 11–20, stage, identifying the trade secret with Docket Entry 11 (“Am. Br. in Supp.”). sufficient particularity means USConnect disagrees, argues that describing the trade secret at a level of there is no applicable heightened detail that enables a defendant to pleading standard, and contends that delineate that which he is accused of it has sufficiently pled misappropriating . . . and that enables misappropriation of trade secrets. See a court to determine whether the Pl. USConnect’s Resp. in Opp’n to plaintiff has plausibly satisfied the Defs.’ Mot. to Dismiss at 6–15, Docket reasonable secrecy and independent Entry 17 (“Resp. Br.”). economic value requirements.” Id. (internal citations omitted). A claim for a violation of the NCTSPA and DTSA requires that the defendant For example, in Sysco Machinery “knew or should have known of the Corporation, Sysco defined its trade trade secret” and “had a specific secrets as “‘Sysco’s compilation of opportunity to acquire it for machinery, software, and confidential disclosure or use, or has acquired, information,’” “‘Sysco’s proprietary disclosed, or used it without the and confidential Information, express or implied consent or including the Copyrighted Works, and authority of” the plaintiff. RF Micro technical, financial, operations, Devices, Inc. v. Xiang, No. strategic planning, product, pricing vendor, and customer information,’” methods, techniques, and and “‘the technical documents, test processes from which Plaintiffs videos, statistical data, client derive actual or potential contracts, and other confidential commercial value from not information used by Sysco to develop being generally known or and manufacture’ rotary die cutting readily ascertainable through machines.” Id. at 228–29 (quoting the independent development or complaint). Essentially, Sysco was reverse engineering by a “suggest[ing] that nearly [its] entire persons who can otherwise business [was] a trade secret.” Id. at obtain economic value from its 229. disclosure or use” and “confidential and valuable As a result, the Court explained, “it is technical knowledge, impossible for DCS to know what it engineering specifications, has been accused of misappropriating market knowledge, and or for the court to assess whether intellectual and practical Sysco has met the reasonable secrecy knowhow relating to, and independent economic value developed for, and necessary requirements.” Id. for the design and construction of cabinetry, such cabinetry Courts have found the following trade used, in particular in higher- secret pleadings insufficient: end residences,”1 see Design Gaps, Inc. v. Hall, No. 3:23-cv- - “specialized marketing 186-MDC, 2023 WL 8103156, strategies and materials” and at *9 (W.D.N.C. Nov. 21, 2023); “Brand Standards Manual” without further factual - “proprietary training, PHS’s allegations, see Willett v. proprietary practices, methods, Window Gant, LLC, No. 3:25- techniques, and pricing cv-00044, 2026 WL 575903, at models, confidential customer *7 (W.D. Va. Mar. 2, 2026); databases, including the entire PHS’s SalesForce database, and - “business and technical PHS proprietary quote information, including but not software, confidential sales limited to formulas, patterns, memos, sales training manuals, programs, devices, and information concerning compilations of information, PHS’s relationship with its
1 The plaintiff also alleged that its trade alleged trade secrets “primarily secrets included “product sources, refer[red] to knowledge Hall would have products, price lists, advertising plans, gained while working for Plaintiffs.” designs and materials, technical Design Gaps, Inc., 2023 WL 8103156, at drawings,” and more, but the court found *10. Such knowledge of an employee is this definition failed because these not a trade secret. Id. (citing cases). suppliers and vendors” without confidential service agreements “specific information about the between the previous business unique nature of its customer owner and customers, and identification and targeted pricing templates,” see Omni marketing practices, including Logistics, LLC v. Wells, No. how this information is 1:25-cv-00023-MR-WCM, developed, ascertained, and 2025 WL 4036404, at *3 protected,” see Power Home (W.D.N.C. Dec. 22, 2025), Solar, LLC v. Sigora Solar, adopted, 2026 WL 95428 LLC, No. 3:20-cv-00042, 2021 (W.D.N.C. Jan. 13, 2026); WL 3856459, at *10 (W.D. Va. Aug. 30, 2021); and - “financial business, scientific, technical and engineering - “the ‘structure and design of the information, client lists, and Ventures VRX Simulators’ that vendor lists,” see Townsend v. are the ‘subject of pending Advanced Energy Machs., patent applications’,” VRX LLC, No. 24-cv-2520-ABA, USA, LLC v. VRX Ventures, 2025 WL 2659834, at *6 (D. Ltd., No. 3:20CV409-GCM, Md. Aug. 29, 2025); and 2020 WL 7229672, at *7 (W.D.N.C. Dec. 8, 2020). - the plaintiff’s “business model and the development and On the other hand, courts have processing of certain SAP deemed the following trade secret Products, including Plaintiff’s allegations sufficient: pricing and Financials for those products, and ‘customers’ - “flat-rate job pricing formula” technical specifications’” and “lead-tracking system, because “[b]ased on the alleged including leads from the call relationship between Plaintiff center” where the plaintiff and [one of the defendants,] further defined the flat-rate Barefoot, and the subsequent pricing formula as “provid[ing] involvement between [the two larger profit margins than jobs defendants], the . . . Plaintiff’s done on a T&M (time and identification of the claimed materials) basis,” see Willett, trade secrets enables 2026 WL 575903, at *7; Defendants to delineate what they are accused of - “business methods, techniques, misappropriating,” see Chase processes, . . . lists of actual or Corp. v. Barefoot, No. potential customers or 1:24CV351, 2025 WL 641932, suppliers[,] . . . key account at *11 (M.D.N.C. Feb. 27, 2025), contacts and customer lists, adopted, 2025 WL 969359 insurance requirements and (Mar. 31, 2025). rudimentary kiosks in the manner or Here, USConnect’s allegations are in the way that the USConnect more akin to those in Omni Logistics, Network handles such programs.” Id. LLC, Townsend, and Chase ¶ 49. But, once exposed to Corporation where the courts found USConnect’s protected information, the trade secret allegations the defendants developed the VE sufficiently particular, especially Product which incorporates “a loyalty when read in the context of and declining balance program” USConnect’s other allegations. which is “an attempt to replicate the USConnect alleges that the USConnect Network and the USConnect Confidential Information USConnect System” using protected are trade secrets. See Compl. ¶ 40. It information. Id. ¶ 46. then alleges that the defendants misappropriated at least a portion of Despite their argument otherwise, the the USConnect Confidential defendants can “delineate that which Information related to its loyalty [they are] accused of rewards program: its “costs and misappropriating,” and the Court can pricing rates and structures for loyalty assess whether USConnect has also reward systems and kiosks[,]” its alleged the secrecy and independent “customers and potential customers economic value of the trade secrets. for loyalty reward systems and kiosks, See Sysco Mach. Corp., 143 F.4th at including customer names, locations, 228. contact information, size, number of kiosks, kiosk serial numbers[,] and The defendants also argue that some purchasing potential[,]” and its of the alleged trade secrets are not “loyalty rewards system business secret at all. This includes “cost and model, including details regarding pricing information” and “customer processing rates, flow of funds, information” that are “readily redemption protocol, assignment available to the public.” Am. Br. in percentages, data flow, micro-market Supp. at 14–15. But USConnect’s vending characteristics, scan and go allegations are not so basic. A functionality, and system architecture USConnect Affiliate may very well and connectivity.” Id. ¶¶ 94, 104. know how much it pays USConnect, but it would not necessarily know Earlier in the Complaint, USConnect USConnect’s “costs and pricing rates describes its Loyalty Program and and structures for the loyalty reward how “the kiosk interfaces with the systems and kiosks[.]” See Compl. USConnect Account” as part of its ¶ 34. Similarly, while the identity of Loyalty Program. Id. ¶¶ 17–19. Until USConnect’s existing customers may it worked with USConnect, “Vendors be public because they have a kiosk Exchange was unable to create the with USConnect’s marks, other loyalty programs or the declining customer information such as balance programs for use with their customer “purchasing potential[]” and “potential customers for loyalty Torts § 757 cmt. a (Am. Law Inst. rewards systems and kiosks” are not 1939)). necessarily publicly available. See id. Relying on Sysco Machinery Furthermore, USConnect alleges that Corporation, the defendants contend its trade secrets are password- that whatever trade secrets they are protected and only available to alleged to have used to develop the VE employees who require the Product, “USConnect deliberately and information to perform their jobs, and voluntarily provided [those trade third parties that receive protected secrets] . . . to Vendors Exchange[] information must enter into non- under the parties’ agreement.” Am. disclosure agreements. Id. ¶ 41. At Br. in Supp. at 19. The problem in least for this pleading stage, Sysco Machinery Corporation was USConnect has sufficiently alleged Sysco’s failure to “allege that, prior to that the information was confidential the activity at issue, it ever informed and it took reasonable measures to [the defendant] that such information maintain its secrecy. contained trade secrets” so the “information [the defendant] The defendants also challenge what possessed about Sysco appear[ed] to they characterize as conclusory have been acquired lawfully as part of allegations that they misappropriated the parties’ ordinary manufacturer- or used trade secrets. See Am. Br. in distributor relationship.” Id. Supp. at 17. Those facts thus differ from the ones The definitions of “misappropriation” USConnect alleges. USConnect only in the DTSA and NCTSPA are disclosed its trade secrets to Vendors “substantially identical.” Sysco Mach. Exchange because Vendors Exchange Corp., 143 F.4th at 229. Those entered into the NDA, MSA, and statutes instruct that Amended MSA and legally bound “[m]isappropriation involves itself to the terms of those ‘acquisition,’ ‘disclosure,’ or ‘use’ of a agreements, including maintaining trade secret by ‘improper means’ or the “confidentiality of . . . trade without consent.” Id. In other words, secrets[.]” Compl. ¶23. USConnect “‘the core’ of a misappropriation claim explicitly alleges that it “shared highly is a ‘breach of a duty of trust or sensitive confidential and propriety confidentiality.’” Id. (citation information [that included the trade omitted). But “‘[a]part from breach of secrets identified in Counts Three and contract, abuse of confidence[,] or Four] with Vendors Exchange” impropriety in the means of “pursuant to the NDA, MSA[,] and procurement, trade secrets may be MSA as amended . . . .” Id. ¶ 34 copied as freely as devices or (emphasis added). processes which are not secret.’” Id. at 230 (quoting Restatement (First) of USConnect also sufficiently alleges sets forth unfair competition causes of that the defendants misappropriated action for false association and false or used the trade secrets to develop advertising . . . .” Belmora LLC, 819 the VE Product as a competitor to the F.3d at 706. Integrated Product. As alleged, the defendants necessarily employed In this case, USConnect has alleged USConnect’s trade secrets to create “‘reverse passing off,’ which occurs and execute the VE Product because when a ‘producer misrepresents Vendors Exchange was otherwise someone else’s goods or services as incapable of doing so on its own. his own.’” Universal Furniture Int’l, Inc. v. Collezione Europa USA, Inc., At this stage of litigation, USConnect 618 F.3d 417, 438 (4th Cir. 2010) has sufficiently alleged that the (quoting Dastar Corp., 539 U.S. at 28 defendants misappropriated its trade n.1). secrets in violation of North Carolina and federal law. The Court should Reverse passing off “occurs when deny the defendants’ motion to either (1) ‘the wrong doer [sic] dismiss Counts Three and Four. removes the name or trademark on another party’s product and sells that B. USConnect’s “reverse passing product under a name chosen by the off” claim fails as a matter of wrongdoer’ or (2) ‘the wrongdoer . . . law. removes or otherwise obliterates the name of the manufacturer or source USConnect alleges that the and sells the product in an unbranded defendants’ removal of USConnect’s state.’” Siler v. Lejarza, 415 F. Supp. trademark images on the Integrated 3d 687, 699 (M.D.N.C. 2019) (quoting Product’s user screen and Rutledge v. High Pt. Reg’l Health replacement with the VE Solutions Sys., 558 F. Supp. 2d 611, 620 trademark violated the Lanham Act, (M.D.N.C. 2008)). 15 U.S.C. § 1125, et seq. Compl. ¶¶ 110–115. To state a claim for reverse passing off, a plaintiff must sufficiently allege: “While much of the Lanham Act “‘(1) that the work at issue originated addresses the registration, use, and with the plaintiff; (2) that origin of the infringement of trademarks and work was falsely designated by the related marks, § 43(a) . . . goes beyond defendant; (3) that the false trademark protection.” Dastar Corp. designation of origin was likely to v. Twentieth Century Fox Film Corp., cause consumer confusion; and (4) 539 U.S. 23, 28–29 (2003), quoted in that the plaintiff was harmed by the Belmora LLC v. Bayer Consumer defendant’s false designation of Care AG, 819 F.3d 697, 706 (4th Cir. origin.’” Id. at 701 (quoting Universal 2016). “Written in terms of the Furniture Int'l, Inc., 618 F.3d at 438). putative defendant’s conduct, § 43(a) Regarding the first element, “[i]f the Here, per the Complaint: defendant supplies a product it manufactured, even if copied from a - Vendors Exchange “was to competitor, a reverse passing off develop (at USConnect’s claim generally will not attach.” John directions and specifications) Bean Techs. Corp. v. B GSE Grp., and manufacture kiosks that LLC, 480 F. Supp. 3d 1274, 1306 (D. contained and were based on Utah 2020). To that end, the Supreme the USConnect Intellectual Court has held that “[origin] refers to Property and Content for use the producer of the tangible goods on and as a part of the that are offered for sale, and not to the USConnect System,” Compl. author of any idea, concept, or ¶ 24; communication embodied in those - “The Integrated Products were goods.” Dastar Corp., 539 U.S. at 37. based on and contained the This is because the Lanham Act was USConnect IP and designs as “not designed to protect originality or well as Vendors Exchange’s creativity”—that is the province of software written to copyright. See id. USConnect’s specifications,” id. ¶ 25; The Dastar Corp. Court also - “USConnect granted Vendors recognized that “[t]he concept [of the Exchange a non-exclusive origin of goods] might be stretched . . . license to use the USConnect IP to include not only the actual solely for purposes of fulfilling producer, but also the trademark its obligations under the MSA owner who commissioned or assumed for the life the of the MSA,” id. responsibility for (‘stood behind’) ¶ 27; production of the physical product.” - Vendors Exchange Id. at 31-32. See also DJ Direct, Inc. v. “manufacture[d] and s[old] the Margaliot, 512 F. Supp. 3d 396, 415- Integrated Products exclusively 17 (E.D.N.Y. 2021) (applying Dastar for and to USConnect and its Corp. and Universal Furniture Int’l, Affiliates,” id. ¶ 30; and Inc. and finding that the plaintiff - “[T]he Integrated Product established a likelihood of success (for would bear various USConnect purposes of an injunction) that it was trademarks on the screens to the origin of the karaoke machines designate to Affiliates and their even though it did not manufacture customers that the Integrated the machines); Universal Furniture Products were USConnect’s Int’l, Inc., 618 F.3d at 424–25, 438 kiosks operating on the (applying Dastar Corp. and finding USConnect System,” id. that the plaintiff was the origin of the furniture even though it did not Thus, as to origin (as pled), the manufacture the furniture). question is who is the origin of the Integrated Product from which Vendors Exchange removed all of the furniture in the EMC USConnect’s images and replaced line is initially distributed with VE Solutions’ marks and logos? through Plaintiff. Accordingly, The answer is clear. Vendors Plaintiff is the producer of the Exchange is the origin of the EMC furniture line and will be Integrated Product. It manufactured considered the “origin” despite the tangible product while USConnect the fact that it is not the direct contributed the intellectual property, manufacturer. and the Lanham Act does not protect such a contribution. Id. at *13.
USConnect cites to DJ Direct, Inc, 512 The district court in DJ Direct, Inc. F. Supp. 3d at 415 for the proposition came to the same conclusion where that it, as the commissioner of the the defendants passed off karaoke goods, originated them. See Resp. Br. machines as their own that the at 16. But those facts are inapposite plaintiff’s supplier had manufactured. from the facts pled here. To that end, the district court’s opinion in Although . . . Plaintiff’s supplier Universal Furniture International, manufactured the tangible Inc. v. Collezione Europe USA, Inc. is goods offered for sale in this illustrative. See No. 1:04CV977, 2007 case, the fact that Plaintiff WL 2712926 (M.D.N.C. Sept. 14, ordered the machines in 2007), aff’d, 618 F.3d 417. There, the question to be built to its court found that the plaintiff was the specifications and to bear the “origin” of a furniture line that the KaraoKing mark, and that it defendant passed off as its own even provided customer service and though the plaintiff did not support through its website . . . manufacture the furniture itself. , supports the conclusion that Plaintiff commissioned the In this case, Plaintiff is not the machines and stood behind actual manufacturer of the their production. . . . furniture in question, but can Accordingly, because the be viewed as its producer. Supreme Court has Plaintiff’s sister company, contemplated that the phrase Lacquercraft, manufactures the “origin of goods” might be EMC line exclusively for stretched to include the Plaintiff. Plaintiff, in turn, trademark owner who holds the copyrights for all the commissioned the goods and designs and manages and stood behind their production, markets the furniture line. The Plaintiff has shown at least a badging and branding of the serious question going to the furniture is solely the merits on this point, if not a responsibility of Plaintiff, and likelihood of success. unreasonable conclusions, or 512 F. Supp. 3d at 415. arguments’”) (quoting Giarratano, 521 F.3d at 302). But those are not the facts alleged here. USConnect did not manufacture The claim here is akin to a licensing the Integrated Product. It contracted misrepresentation, which courts have with Vendors Exchange to do so. In rejected as giving rise to a Lanham Act that relationship, USConnect reverse passing off claim. For provided Vendors Exchange with example, in Micro/sys, Inc. v. DRS USConnect Intellectual Property and Technologies, Inc., No. CV 14-3441 Content for use on and as a part of the DMG (CWX), 2015 WL 12748631, at USConnect System. Vendors *1 (C.D. Cal. Feb. 18, 2015), the Exchange then manufactured the district court dismissed such a claim Integrated Product which was based where the defendant sold computer on and contained the USConnect boards to the United States Postal Intellectual Property and designs as Service that included an unlicensed well as Vendors Exchange’s software version of the plaintiff’s software. In written to USConnect’s specifications. so doing, the court noted that the “sole factual predicate for Micro/sys’s Although the Dastar Court Lanham Act claims is that DRS recognized that “[t]he concept [of the misrepresented to USPS that it had origin of goods] might be stretched . . acquired all necessary rights to the . to include not only the actual XDOS software,” which was producer, but also the trademark insufficient as “false designation of owner who commissioned or assumed origin or association.” See id. at *3. responsibility for (‘stood behind’) See also Agence France Presse v. production of the physical product,” Morel, 769 F. Supp. 2d 295, 307 539 U.S. at 32 (emphasis added), (S.D.N.Y. 2011) (rejecting Lanham there is no need to do so to reach the Act reverse passing off claim where facts of this case. the harm was misrepresentation of sourcing and authorship). And USConnect cannot clear that origin hurdle with the conclusory, The allegations in the Complaint here legal assertion in its Complaint, belied are that Vendors Exchange “began by its other facts pled, that the creating marks and logos for ‘VE Integrated Products “originated with Solutions’ . . . .” Compl. ¶ 54. Then, USConnect.” See Resp. Br. at 17 “in 2024, [they] began replacing the (citing Compl. ¶¶ 55, 112). See Just USConnect images on the Integrated Puppies, Inc., 123 F.4th at 660 Product’s user interface screens with (explaining that courts are not the marks and logos of VE Solutions.” required to “accept as true ‘legal Id. ¶ 56. At the same time, the conclusions drawn from the facts’ or defendants had been developing their any other ‘unwarranted inferences, own kiosk, the VE Product, to compete with the Integrated Product. 1. Unfair or deceptive trade Id. ¶¶ 4, 43–46, 53–54, 62. “In the practices defined. Summer of 2024, using USConnect’s Affiliate list, Vendors Exchange “To state a claim for unfair and/or approached at least one . . . deceptive trade practices, the USConnect Affiliate and offered to sell plaintiffs must allege that (1) the them the VE Product.” Id. ¶ 64. defendants committed an unfair or deceptive act or practice, or an unfair While both Micro/sys, Inc. and method of competition, (2) in or Agence French Presse involved affecting commerce, (3) which allegations of copyright infringement, proximately caused actual injury to which this matter does not, the fact the plaintiff or to the plaintiffs’ remains that Vendors Exchange business.” Walker v. Sloan, 529 allegedly acted as the defendants did S.E.2d 236, 243 (N.C. Ct. App. 2000). in both of those cases: representing authorized access to and/or Courts analyze a claim for common ownership of a good, the USConnect law unfair competition the same way System, contained within a tangible as they analyze a claim for unfair and product, the VE Product (kiosk), that deceptive trade practices under North Vendors Exchange actually produced. Carolina General Statute § 75-1.1 (“UDTPA” and “UTPA”). Distrib. Co. Because USConnect has failed to LLC v. Mood Prod. Grp. LLC, No. allege sufficiently a claim for passing 24CVS000619-100, 2024 WL off, the Court should grant the 4298296, at *6 (N.C. Super. Ct., Bus. defendants’ motion as to Count Five. Ct. Sept. 26, 2024).
C. USConnect’s claims regarding “It has been said that because ‘[p]roof unfair and deceptive business of unfair or deceptive trade practices survive the pleading stage. entitles a plaintiff to treble damages,’ a UTPA count ‘constitutes a USConnect alleges that the boilerplate claim in most every defendants’ “replacing [of] the complaint based on a commercial or USConnect Trademark images on the consumer transaction in North Integrated Product’s user interface Carolina.’” Broussard v. Meineke screens with the marks and logos of Disc. Muffler Shops, Inc., 155 F.3d VE Solutions” is unfair competition in 331, 347 (4th Cir. 1998) (quoting and violation of North Carolina common citing Allied Distribs., Inc. v. Latrobe law. Compl. ¶ 117. USConnect also Brewing Co., 847 F. Supp. 376, 379 alleges that the defendants’ “wrongful (E.D.N.C. 1993)). “To correct this conduct” constituted unfair and tendency, and to keep control of the deceptive trade practices. Id. ¶ 120. extraordinary damages authorized by the UTPA, North Carolina courts have repeatedly held that ‘a mere breach of contract, even if intentional, is not Cir. 1997) (quoting Marshall v. sufficiently unfair or deceptive to Miller, 276 S.E.2d 397, 403 (N.C. sustain an action under [the UTPA,] 1981)). See also McGriff Ins. Servs., N.C.G.S. § 75-1.1.’” Broussard, 155 LLC v. Wilson, No. 1:23-CV-295, 2025 F.3d at 347 (citing cases) (alteration WL 69073, at *15 (M.D.N.C. Jan. 10, in original). 2025) (citing Garlock v. Henson, 435 S.E.2d 114, 115–16 (N.C. Ct. App. Thus, a practice is “unfair [under 1993)) (“[A] breach of contract may UDTPA] if it offends established give rise to an unfair and deceptive public policy, is immoral, unethical, trade practice when accompanied by oppressive, unscrupulous, or egregious or aggravated substantially injurious to consumers, circumstances.”). or amounts to an inequitable assertion of . . . power or position.” USConnect objected, directing the Rahamankhan Tobacco Enters. Pvt. Court’s attention to a handful of Ltd. v. Evans MacTavish Agricraft, North Carolina intermediate court Inc., 989 F. Supp. 2d 471, 477 opinions, specifically Medical (E.D.N.C. 2013) (internal quotation Staffing Network, Inc. v. Ridgway, and citation omitted) (citing cases). 670 S.E.2d 321, 329 (2009), wherein The circumstances must be the North Carolina Court of Appeals “egregious or aggravating.” Id. at 478. held, without further analysis, that “Whether an act or practice is unfair “[a] violation of the Trade Secrets or deceptive under the UDTPA is a Protection Act constitutes an unfair question of law for the court.” Kelly v. act or practice under N.C. Gen. Stat. Ga.–Pac., LLC, 671 F.Supp.2d 785, § 75–1.1.” (citing N.C. Gen. Stat. § 66– 799 (E.D.N.C. 2009) (collecting 146 (2007)). cases). USConnect argues that by sufficiently 2. Parallels between unfair trade alleging a violation of the Trade practice and theft of trade Secrets Protection Act, it has de facto secret claims under state law. done the same for its unfair and deceptive practices claim. In its withdrawn R&R, the Court found that the defendants’ alleged 3. Federal courts’ treatment of the conduct did not meet the first prong overlap between the two of an unfair trade practice claim, as it claims. was not alleged in the Complaint to “‘offend[] established public policy,’” At least two federal courts disagree. nor constitute conduct “‘immoral, Specifically, in Qorvo, Inc. v. Akoustis unethical, oppressive, unscrupulous, Techs., Inc., No. 1:21-CV-01417-JPM, or substantially injurious to 2024 WL 5334785, at *1 (D. Del. Oct. consumers.’” See Canady v. Crestar 15, 2024), a jury found the defendants Mortg. Corp., 109 F.3d 969, 975 (4th liable for violating the federal Defend Trade Secrets Act (“DTSA”) and the In so doing, it noted that the “highest North Carolina Trade Secrets court in North Carolina has not Protection Act (“NCTSPA”). But the determined whether jury found the defendants did not misappropriation of trade secrets is violate the North Carolina UDTPA. Id. an ‘unfair or deceptive’ act or practice The plaintiff moved the district court as a matter of law,” and while the to amend the judgment to reflect a appellate court in Medical Staffing finding of liability on the UDTPA Network, Inc. (the case the plaintiff claim, arguing that “that the jury’s cited in support) so found, the district findings on the DTSA and NCTSPA— court noted that “the Court of Appeals different laws with different cited section 66-154(b) of the North elements—entitle them to the same Carolina General Statute for this verdict under the UDTPA given the proposition, which addressed distinguishable findings of three violations under Article 23—not North Carolina Courts[,]” see id. at *2, Article 24 where NCTSPA is codified.” effectively the same argument Id. at *16. USConnect advances here.
The district court disagreed, finding To that end, in Drouillard v. Keister that violation of the NCTSPA and Williams Newspaper Services, Inc., DTSA did not, per se, compel the 423 S.E.2d 324, 326 (N.C. Ct. App. finding that the conduct met the 1992), the court found that “[i]f the second and third elements of an violation of the Trade Secrets UDTPA violation – affecting Protection Act satisfies [the] three interstate commerce and causation. prong test, it would be a violation of Id. at *3. N.C. Gen. Stat. § 75-1.1.” (emphasis added). “Drouillard, thus, suggests In Legacy Data Access, LLC v. that there is no per se rule that a MediQuant, Inc., No. 3:15-CV- violation of the NCTSPA is an unfair 00584-FDW-DSC, 2017 WL 6001637, or deceptive act or practice under N.C. at *15 (W.D.N.C. Dec. 4, 2017), a jury Gen. Stat. § 75-1.1(a).” Legacy Data found the defendant liable for Access, LLC, 2017 WL 6001637, at violating the NCTSPA; the plaintiff *16. moved the court, post-verdict, to amend the judgment to reflect a The district court in Legacy Data finding of liability on its unfair and Access, LLC did not rely wholly upon deceptive practices claim, as well, this line of reasoning, though. Rather, arguing that a violation of the former it then examined the (few) instances was a violation of the latter “as a where the North Carolina Supreme matter of law.” The district court, Court determined that “a violation of sitting in diversity and applying North another North Carolina statute Carolina law, disagreed. constitutes a violation of section 75- 1.1 as ‘a matter of law.’” See id. at *16 (discussing cases). These cases summary judgment on the UDTPA “involved regulatory statutes that did claim because of “substantial not create private causes of actions evidence of fraud” and noting that but specifically defined unfair or “fraud is usually sufficient to support deceptive trade practices in the a conclusion that an action was unfair applicable industry or disallowed or deceptive as is a violation of the conduct to protect the consuming TSPA”); Dental Care Leasing, LLC v. public.” Id. (citing Winston Realty Co. Miller, No. 7:19-CV-46-BO, 2019 WL v. G.H.G., Inc., 331 S.E.2d 677, 681 3822511, at *5 (E.D.N.C. Aug. 14, (N.C. 1985) and Pearce v. Am. 2019) (finding without specific Defender Life Ins. Co., 343 S.E.2d analysis of the UDTPA factors that 174, 179 (N.C. 1986)). because the plaintiffs plausibly alleged that the defendant “breached This led the Legacy Data Access, LLC the redemption agreement, infringing court to conclude that, contrary to the any trademarks, [and] plaintiff’s assertion, “there is no per se misappropriated any trade secrets,” rule that a violation of the NCTSPA is they had sufficiently alleged a UPDTA an unfair or deceptive act or practice violation). under N.C. Gen. Stat. § 75-1.1,” and so that court declined to adopt one. Id. 4. USConnect’s allegations. The Fourth Circuit affirmed this aspect of the judgment: that is, that Ultimately, though, the issue the plaintiffs had not proven the presented is whether the Complaint interstate commerce element of alleges facts that meet the elements of UDTPA. See Legacy Data Access, LLC an unfair and deceptive practice v. Cadrillion, LLC, 889 F.3d 158, 170– claim, not a Trade Secrets Protection 71 (4th Cir. 2018). Act claim: (1) the defendants committed a deceptive practice (2) in And this makes sense: the North or affecting commerce that (3) Carolina Supreme Court has not proximately caused actual injury to weighed in on the issue, nor have its USConnect’s business. See Walker, appellate courts uniformly made such 529 S.E.2d at 243. a finding. In its Complaint, USConnect That being said, courts in this Circuit specifically identifies one offending have found a sufficient overlap act – the defendants’ replacement of between misappropriation of trade USConnect’s marks with their VE secrets and a violation of UDTPA to Solutions mark. See Compl. ¶ 117. allow both claims to proceed if one That conduct merely supported a can survive a dispositive motion. See breach of contract allegation. See McGriff Ins. Servs., LLC v. Wilson, Canady, 109 F.3d at 975 (finding that No. 1:23-CV-295, 2025 WL 69073, at a “breach of contract, even if *15 (M.D.N.C. Jan. 10, 2025) (denying intentional, is not sufficient[]” to state a claim for unfair and deceptive trade “engag[ing] in discussions with practices under North Carolina law). USConnect about extending the MSA for another four (4) year term,” id. In its objections to the original R&R, ¶ 61. “While those discussions were though, USConnect argues that it also ongoing, [the defendants] were in the pled the defendants’ knowing final stages of integrating numerous concealment of its breach to prevent programs into [the VE Product].” Id. USConnect from taking steps to ¶ 62. At the same time, they also protect its intellectual property. See “devised a plan to market and sell the Pl. USConnect, LLC’s Objs. to the VE Product directly to USConnect’s Mem. Op. & R. & R., Docket Entry 24, Affiliates[.]” Id. at 5; see also Resp. Br. at 19–20. And, indeed, in the UDTPA context, As to the second and third elements of “[e]xamples of such aggravating and a UDTPA claim, USConnect alleges in egregious behavior include: (1) lying summary fashion that the conduct is and concealing a breach combined in or affecting commerce and caused with acts to deter further injury. See Compl. ¶¶ 120, 122. investigation; and (2) intentional deception for the purpose of In light of the generous pleading continuing to receive the benefits of standard, within-district precedent an agreement.” Foodbuy, LLC v. finding that the fraud giving rise to Gregory Packaging, Inc., 987 F.3d NCTSPA violations supports UDTPA 102, 121 (4th Cir. 2021). See also violations, and binding precedent Garlock v. Henson, 435 S.E.2d 114, suggesting this form of lulling can be 115 (N.C. Ct. App. 1993) (finding the a deceptive trade practice, defendant’s actions “sufficiently USConnect’s UDTPA claim may move aggravating” to show unfair and forward to the discovery stage. deceptive practices where, for three years, he “repeatedly denied the sale And the economic loss doctrine does of the bulldozer when he knew it had not bar that. “In general, the doctrine been sold” and he “forged a bill of sale provides that a mere breach of in an attempt to extinguish [the] contract does not ordinarily give rise plaintiff’s ownership interest in the to a tort action by promisee against bulldozer”). promisor.” ITW Charlotte, LLC v. ITW Com. Constr., N. Am., No. 3:17- Specifically, USConnect alleges that cv-00473-FDW-DCK, 2017 WL “in or around 2023” Vendors 6542511, at *3 (W.D.N.C. Dec. 21, Exchange began devising its plan to 2017) (citing Severn Peanut Co. v. create a competing product using Indus. Fumigant Co., 807 F.3d 88, 94 USConnect trade secret information, (4th Cir. 2015)). “North Carolina’s Compl. ¶ 43, and, in “the Spring of economic loss doctrine . . . prohibits 2024,” Vendors Exchange attempted recovery for purely economic loss in to conceal its wrongdoing by tort when a contract, a warranty, or the UCC operates to allocate risk.” information pursuant to its alleged Severn Peanut Co., 807 F.3d at 94 trade secret status, as well as the (internal quotations and citations aforementioned lulling conduct. See omitted). Thus, “[t]o state a tort claim Compl. ¶¶ 61–62; 93–108; 120–21. As and breach of contract claim arising alleged, the lulling in and of itself can from the same actions, a plaintiff constitute willful behavior on the part must allege a duty owed him by the of the defendant. defendant separate and distinct from any duty owed under a contract.” The Court should deny the Schumacher Immobilien Und defendants’ motion to dismiss Counts Beteiligungs AG v. Prova, Inc., No. Six and Seven. 1:09cv00018, 2010 WL 3943754, at *2 (M.D.N.C. Oct. 7, 2010) (internal D. USConnect has appropriately quotation and citation omitted) alleged unjust enrichment in (citing cases). the alternative.
However, the doctrine is not an USConnect alleges that it “conferred automatic bar to any tort claim arising benefits upon [the defendants] in the from conduct that also breached a form of the USConnect IP and contract between parties. See USConnect Confidential Broussard, 155 F.3d at 346 (“In Information,” the defendants recognition of the fundamental “consciously accepted those benefits,” difference between tort and contract and USConnect did not confer them claims, . . . North Carolina has gratuitously. Compl. ¶¶ 125–26. The recognized an ‘independent tort’ defendants argue that the presence of arising out of breach of contract only express contracts dooms this claim. in ‘carefully circumscribed’ Am. Br. in Supp. at 26. They circumstances.”). The “tortious recognize, though, that an unjust conduct must also be accompanied, enrichment claim and a breach of however, by a sufficient aggravating contract claim may be alleged in the element such as fraud, malice, alternative. Id. The defendants assert, reckless indifference, oppression, “Here, neither party disputes the insult, or willfulness.” ITW Charlotte, validity of the MSA.” Id. Because LLC, 2017 WL 6542511, at *3 (citing there is no dispute about the existence cases). of a contract, they argue that the plaintiff should not be able to pursue Here, USConnect alleges breach of its unjust enrichment claim. Id. contract based on Vendor Exchange’s improper use and dissemination of “The fact that a plaintiff cannot information provided pursuant to simultaneously recover damages for three written contracts. See Compl. both breach of an express contract ¶¶ 78–85. Its UDTPA claim relies and unjust enrichment does not upon the specific value of that preclude the plaintiff from pleading both theories in [its] complaint.” Hill its breach of contract’ claim. v. AQ Textiles LLC, 582 F. Supp. 3d Therefore, at this stage, the Court 2907, 322 (M.D.N.C. 2022) (citations should deny the defendants’ motion omitted). “Until the existence of an as to Count Eight. express contract is proven, [a plaintiff] is allowed to plead quantum IV. CONCLUSION meruit and unjust enrichment as alternative theories of recovery [to It is therefore ORDERED that the breach of contract].” Performance Memorandum | Opinion and Sales & Mktg., LLC v. Lowe’s Cos., Recommendation of United States
9294323, at *5 (W.D.N.C. June 4, dated March 9, 2026, □□□□ 2010). WITHDRAWN. Here, the defendants merely admit It is further RECOMMENDED that the plaintiff sufficiently alleged a the Court grant in part and deny m breach of contract and, through part the defendants’ Motion to counsel, state in their brief that Dismiss, in that the Court should “neither party disputes the validity of grant in part the Motion to Dismiss as the MSA.” But more is needed for the to Count Five, dismissing that claim, plaintiff ultimately to recover under and otherwise deny the Motion.
J a Gibson McFadden United States Magistrate Judge
May 22, 2026 Durham, North Carolina