On July 14, 2023, a federal trial court in Oklahoma ruled on an electric cooperative’s motions to dismiss various breach of contract, trade secret, deceptive trade practices, and tortious interference claims brought by its former business collaborator, an internet service provider. The court allowed most of the challenged claims to proceed after reviewing the alleged facts, including several involving the parties’ statements on social media. Prof. Value Internet Servs., LLC v. Cent. Rural Elec. Coop., Case No. CIV-21-00765-PRW, 2023 WL 4553617, at *8 (W.D. Okla. July 14, 2023).
Facts
In 2011, internet service provider Professional Value (“ProValue”) entered into an agreement with Central Rural Electric Cooperative (“CREC”) where CREC leased excess tower space to ProValue. ProValue provided wireless and telecommunication access throughout CREC’s service territory in central Oklahoma. The agreement contained clauses that each party would not disclose the other’s confidential information or trade secrets, and the parties would not compete against each other during the agreement and for five years thereafter. The agreement also required CREC to promote ProValue to its customers, which it did using billboards, CREC’s website, and CREC’s social media posts, which described the relationship as a “partnership.” CREC offered its customers combined billing if they elected to use ProValue’s Internet service.
Everything proceeded smoothly until 2018. In late 2018, ProValue presented to the CREC board of directors ProValue’s plan to transition from wireless internet services to fiberoptic internet for its current and potential customers. ProValue announced that it planned to utilize CREC’s pole attachments for fiber access. CREC’s board approved the plan. In 2019, ProValue created a map of 55 miles of fiberoptic cable, and the parties discussed the route. CERC then halted the project, stating that it needed to replace the utility poles. In September 2020, CREC announced on its website and on social media that its board of directors had approved a “fiber build out,” which it called “Centranet.” According to ProValue, the route of fiberoptic internet services followed the ProValue map, but at lower prices to consumers.
The CREC announcements caused some of ProValue’s customers to switch to Centranet, but they continued to make service calls to ProValue, unaware that they were no longer ProValue customers. Even a month after CREC announced its plans for a fiberoptic network, the electronic billboard in front of CREC’s corporate offices advertised “high-speed rural internet” and encouraged customers to “add [ProValue] to [their] [CREC] bill.”
ProValue sued in federal court. The complaint included nine claims:
(1) misappropriation of trade secrets under the federal Defend Trade Secrets Act;
(2) misappropriation of trade secrets under the Oklahoma Uniform Trade Secrets Act;
(3) unfair competition in violation of the Lanham Act;
(4) deceptive trade practices under the Oklahoma Deceptive Trade Practices Act;
(5) breach of contract;
(6) tortious interference with prospective business or economic advantage;
(7) unjust enrichment;
(8) common-law unfair competition; and
(9) injunctive relief.
The Ruling
The court’s July 14 ruling related to defendant CREC’s motion to dismiss claims 1, 2, 4, 5, 6, and 7.
With respect to the trade secrets claims (claims 1 and 2), ProValue alleged that (a) it had disclosed customer lists, pricing information, and customer preferences to CREC, (b) it had presented its plan to transition to fiberoptic internet to the CERC board; (c) CREC then created a subsidiary to get into fiberoptic internet services; and (d) the CREC subsidiary used an identical course as ProValue’s map to roll out fiberoptic Internet to the same customers at lower prices. At this early stage, the court found ProValue’s allegations sufficient to defeat CREC’s motion to dismiss.
As for the deceptive trade practices claim (claim 4), ProValue alleged that CREC, through its communications and advertisements, knowingly and falsely represented that ProValue was the source of Centranet’s fiberoptic internet. The court found ProValue’s claims “bolstered by the fact, as ProValue alleges, that CREC’s communications and advertisements caused some of ProValue’s customers to inquire about its affiliation with Centranet, and that some even switched to Centranet and continued making service calls to ProValue, unaware that they were no longer ProValue customers.” ProValue’s claim could proceed.
ProValue’s breach of contract claim (claim 5) was based on two potential breaches: breach of the trade secret/confidentiality clause and breach of the non-competition clause. The court reached two very different conclusions on whether the breach of contract claim should be dismissed based on each theory. With respect to the trade secret theory, the court ruled, similar to claims 1 and 2, that this claim could proceed. With respect to the non-competition claim, however, the court began its analysis by pointing out that these clauses are unenforceable and therefore void under Oklahoma law, with two exceptions: (a) as part of goodwill associated with the sale of a business; or (b) in connection with a partnership. In Oklahoma, a partnership has three elements:
(1) an intent by the parties to form a partnership, (2) participation by all parties in both profits and losses, and (3) such a community of interest as far as third persons are concerned as enables each partner to make contracts, manage the business and dispose of partnership property.
ProValue could not maintain any of the three elements, despite CREC’s characterization on social media of the parties’ relationship as a “partnership.” For example, the agreement contained no mention of the parties sharing profits and losses. As such, the court held ProValue had not alleged facts sufficient to support the partnership exception to the general unenforceability of non-compete clauses under Oklahoma law, and instead found that “ProValue has alleged a horizontal relationship between potential competitors, so the parties’ noncompete provision is per se unreasonable under Oklahoma law.” Consequently, the court dismissed the breach of contract claim based on the non-compete provision.
The court found that ProValue had also alleged facts supporting each of the four elements for a tortious interference with prospective business or economic advantage (claim 6): (1) the existence of a valid contract; (2) knowledge of the expectancy; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy, and (4) damage. Among other things, ProValue alleged that CREC’s promotion of the Centranet service led to more than 500 ProValue customers switching to Centranet. This claim could proceed, along with the unjust enrichment claim (claim 7).
Takeaways
Statements on social media helped support the deceptive trade practices claim but did not help the breach of contract claim based on the non-compete provision. These conclusions underscore the importance of reviewing social media postings because they can be used in court proceedings, and not necessarily to your benefit.