CrowdStrike, Inc. v. NSS Labs, Inc.
MEMORANDUM OPINION. Signed by Judge Maryellen Noreika on 12/21/2018. (dlw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
NSS LABS, INC.,
C.A. No. 17-146 (MN)
David E. Moore, Bindu A. Palapura, Stephanie E. O'Byrne, POTTER ANDERSON & C0RR00NLLP,
Wilmington, DE; Ryan Tyz, Erin Jones, Aaron Myers, TYZ LAW GROUP PC, San Francisco, CA attorneys for Plaintiff
Brian E. Farnan, Michael J. Farnan, FARNAN LLP, Wilmington, DE; Ian Feinberg, Elizabeth Day,
Marc Belloli, FEINBERG DAY ALBERTI LIM & BELL0LI LLP, Menlo Park, CA - attorneys for
December 21, 2018
Before the Court is a motion to dismiss (D.I. 40) filed by Defendant NSS Labs, Inc.
("Defendant" or "NSS"), alleging that Plaintiff CrowdStrike, Inc. ("CrowdStrike") has failed to
state a claim upon which relief can be granted with respect to Counts VI (Tortious Interference
with Contract) and VII (Common Law Fraud) of the Second Amended Complaint (D.I. 34). For
the reasons set forth below, the Court denies Defendant's motion to dismiss.
CrowdStrike is a privately-owned cybersecurity company founded in 2011. (D.I. 34 ,r 15).
CrowdStrike developed the "Falcon Platform" software to provide cybersecurity to its customers.
(Id.). NSS is a company that, among other things, tests cybersecurity software and tools available
in the marketplace to determine how well they stand up to attacks. (D.I. 34 ,r,r 22-23). In addition
to conducting public tests, NSS also conducts private tests of cybersecurity platforms under
contracts with vendors. (Id.).
On or about April 11, 2016, CrowdStrike and NSS entered a written private testing
agreement ("the Private Agreement") whereby NSS was to conduct a private test of CrowdStrike's
Falcon cybersecurity platform ("the Falcon Platform") and to provide CrowdStrike with a report
detailing the results of the test. (D.I. 34 ,r 31 ). CrowdStrike alleges that NSS failed to perform the
tests in a way that CrowdStrike deemed accurate. (Id.
NSS conducted additional testing in
an attempt to remedy the failures CrowdStrike identified. (Id.
On January 18, 2016,
during discussions regarding a third round of private testing, NSS notified CrowdStrike that it was
planning to perform a public test of the Falcon Platform. (Id. at ,r 40).
CrowdStrike alleges that the Private Agreement prohibited NSS from retaining or using
CrowdStrike's confidential information (including software) and prohibited NSS from using
CrowdStrike' s information to perform any public testing without separate express written approval
(Id. ,i,i 32, 35).
CrowdStrike never provided "separate express written
approval" to NSS. (Id. ,I 162). Moreover, CrowdStrike alleges that it told NSS that, because of
NSS's repeated testing failures, CrowdStrike would not participate in a public group test or
authorize use of its products for that purpose. (Id. ,I 42). NSS allegedly responded that it would
test CrowdStrike products anyway, using login credentials of a CrowdStrike customer. (Id. ,I 43).
CrowdStrike explained that any such access was unauthorized and forbidden under CrowdStrike's
terms and conditions of service. (Id. ,I 44). Nevertheless, according to CrowdStrike, NSS engaged
David Thomason of Thomason Technologies LLC ("Thomason") to find a client willing to enter
a contract with CrowdStrike for a Falcon Platform pilot license ("the License"). (Id. ,i,i 50-51 ).
NSS allegedly agreed to pay Thomason if he would gain access and credentials from the
client and provide those to NSS once the purchase order went through. (Id. ,i,i 51, 53). Thomason
submitted a purchase order to CrowdStrike. (Id. ,I 52). CrowdStrike alleges that, although NSS
and Thomason both knew that the purpose of the purchase order was for NSS to gain access to
CrowdStrike products and that neither Thomason nor his client would pay for the purchase, those
details were deliberately concealed from the purchase order and from CrowdStrike. (Id. ,i,i 52, 53,
164). It further alleges that had the purchase order disclosed that the purchase was made to enable
NSS to access and use CrowdStrike's Falcon Platform, CrowdStrike would never have approved
it. (Id. ,I 166). And it alleges that that NSS's access under false pretense caused CrowdStrike
When reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court conducts a two-
part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the Court
separates the factual and legal elements of a claim, accepting "all of the complaint's well-pleaded
facts as true, but [disregarding] any legal conclusions." Id at 210-11.
Second, the Court
determines "whether the facts alleged in the complaint are sufficient to show a 'plausible claim for
relief."' Id at 211 (quotingAshcroftv. Iqbal, 556 U.S. 662,679 (2009)). "The issue is not whether
a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support
the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (quoting
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). The court may grant a motion to dismiss only if,
after "accepting all well-pleaded allegations in the complaint as true and viewing them in the light
most favorable to plaintiff, [the] plaintiff is not entitled to relief." Id
To survive a motion to dismiss, a complaint cannot rely on labels, conclusions, "and a
formulaic recitation of the elements of a cause of action," Bell Atlantic Corp. v. Twombly,
550 U.S. 644, 555 (2007), but instead "must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face," Zuber v. Boscov 's, 871 F.3d 255, 258
(3d Cir. 2017) (citing Santiago v. Warminster Twp., 629 F.3d 121, 128 (3d Cir. 2010). A claim is
facially plausible where "plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at
678. Further, "[t]he complaint must state enough facts to raise a reasonable expectation that
discovery will reveal evidence of [each] necessary element" of the plaintiff's claim. Wilkerson v.
New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotations omitted).
Lastly, "[i]n deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits
attached to the complaint, matters of public record, as well as undisputed authentic documents if
the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223,
230 (3d Cir. 2010) (emphasis added).
Rule 9(b) of the Federal Rules of Civil Procedure provides that "[i]n alleging fraud ... a
party must state with particularity the circumstances constituting fraud . . . . Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally." The purpose of
Rule 9(b) is to provide defendants with notice of the precise nature of the claim against them, not
to test the factual allegations of the claim. See Seville Indus. Mach. Corp. v. Southmost Mach.
Corp., 742 F.2d 786, 791 (3d Cir. 1984). Date, place, and time allegations are not required to
satisfy Rule 9(b ), so long as the circumstances of the alleged fraud are pled sufficiently "to place
the defendants on notice of the precise misconduct with which they are charged, and to safeguard
defendants against spurious charges of immoral and fraudulent behavior." Id.; Van Roy v. Sakhr
Software Co., C.A. No. 11-00863 (LPS), 2014 WL 3367275, at *3 (D. Del. July 8, 2014).
In their papers, the parties address dismissal of the two counts at issue in reverse order.
The Court will follow suit.
Count VII - Common Law Fraud
A claim of common law fraud requires Plaintiff to show that: "(1) the defendant falsely
represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or
believed that the representation was false or made the representation with a reckless indifference
to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the
plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its
DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005); see also
OpenGate Capital Grp. LLC v. Thermo Fisher Sci. Inc., C.A. No. 13-1475-GMS, 2014 WL
3367675, at *11-12 (D. Del. July 8, 2014). The "representation" can be an overt misrepresentation,
a deliberate concealment of materials facts, or silence in the face of a duty to speak.
Stephenson v. Capano Development, Inc., 462 A.2d 1069, 1074 (Del. Supr. 1983).
Delaware courts allow claims for fraudulent inducement of a contract. See OpenGate,
2014 WL 3367675, at *12 (citing Anvil Holding Corp. v. Iron Acquisition Co., 2013 WL 2249655,
at *4 (Del. Ch. May 17, 2013) (denying the defendant's motion to dismiss the plaintiffs claims
for fraud and fraudulent inducement)). "To plead fraudulent inducement, the plaintiff must allege
the same elements as for a claim of fraud by misrepresentation or omission."
E.1 DuPont de Nemours & Co. v. Florida Evergreen Foliage, 744 A.2d 457, 462 (Del. 1999)
(requiring the plaintiff to allege the defendant's false representation of a material fact, scienter,
intent to induce reliance, the plaintiffs action or inaction in justifiable reliance, and the plaintiffs
damages resulting from such reliance)).
Here, the Second Amended Complaint alleges that NSS knew CrowdStrike had "refused
to give NSS access for comparative testing" and thus NSS "orchestrated a scheme to covertly and
fraudulently obtain CrowdStrike login credentials" by hiring Thomason "to find a company willing
to contract with CrowdStrike for a Falcon Platform pilot license under the guise of being a potential
customer." (D.I. 34 ,r,r 50-51, see also id
It alleges that Thomason, acting on NSS's
behalf, then engaged Constellation to act as a potential customer even though the information being
obtained was being paid for and given to NSS. (Id
CrowdStrike alleges that it relied
on the false representations that NSS induced and would not have approved the purchase order and
provided login credentials had it known that NSS would be gaining access to the Falcon Platform.
And it alleges that, as a result, it was injured. (Id
In its motion, NSS argues that there were no false statements in the purchase order - that
the "customer name," "sold to" party, and "billing party" listed were facially true and thus the
purchase order is not fraudulent. (D.I. 41 at 6, 9). In Delaware, however, "facially true" statements
may constitute fraud if they "cause a false impression as to the true state of affairs, and the actor
fails to provide qualifying information to cure the mistaken belief." Norton v. Poplos, 443 A.2d
1, 5 (Del. 1982) (a "half-truth may be as misleading as an assertion that is wholly false"). Here,
CrowdStrike alleges that the purchase order's identification of Thomason's client as the
"Customer" and the software's "Sold To" party, and Thomason as the "Billing" party, were
deliberately made to conceal NSS's attempts to obtain access to CrowdStrike's information and to
deceive CrowdStrike about who it was dealing with, because CrowdStrike would have rejected the
purchase order had it identified NSS. (D.I. 34 ,r,r 164-66). Consequently, even if all the statements
on the purchase order were facially true, it asserts that NSS and its agent (i.e., Thomason) actively
concealed material facts from CrowdStrike to deceive CrowdStrike to enter into the agreement
with the putative customer. Taking these allegations as true, as the Court must at this stage,
CrowdStrike has plausibly pleaded a claim of fraudulent inducement.
Count VI -- Tortious Interference
Defendant argues that "[i]f the Court should find it plausible that NSS was a real party in
interest to the Quote and Purchase Order, then Count VI for tortious interference should be
dismissed because it is 'hombook law' that one 'cannot tortiously interfere with its own contractual
relations."' (D.I. 41 at 15) (citing The Renco Group, Inc. v. MacAndrews AMG Holdings LLC,
No. 7668, 2015 WL 394011, at *9 (Del. Ch. Jan. 29, 2015)). As an initial matter, CrowdStrike
disputes that there is any allegation that NSS had a contractual interest in the License for purposes
of the fraud claim. (D.I. 44 at 10 ("CrowdStrike never made that allegation.")). The Court,
however, need not resolve that dispute in connection with that motion. Pursuant to Rule 8 of the
Federal Rules of Civil Procedure, CrowdStrike may plead claims or defenses in the alternative or
ones that are consistent with one another. See Indep. Enters. v. Pittsburgh Water & Sewer Auth.,
103 F.3d 1165, 1175 (3d Cir. 1997) ("[Rule 8] permits inconsistency in both legal and factual
allegations," especially when alternative claims "may require 'complex inquiries into the parties'
intent."'). Rule 8(d)(2) entitled "Alternative Statements of a Claim or Defense" provides that"[a]
party may set out 2 or more statements of a claim or defense alternatively or hypothetically, either
in a single count or defense or in separate ones. If a party makes alternative statements, the
pleading is sufficient if any one of them is sufficient." Rule 8(d)(3) entitled "Inconsistent Claims
or Defenses" states that "[a] party may state as many separate claims or defenses as it has,
regardless of consistency."
NSS's motion to dismiss Count VI is based on the assertion that, if the Court were to find
a basis for Count VII, then Count VI must be dismissed. In essence, NSS seeks dismissal of Count
VI as being inconsistent with Count VII.
As stated above, CrowdStrike may plead in the
alternative - or plead inconsistently with other counts. Thus, NSS's motion to dismiss Count VI
For the forgoing reasons, Defendant's Motion to Dismiss Counts VI and VII (D.I. 40) is
DENIED. An appropriate order will follow.
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