Southern Parts & Engineering Company, LLC v. Air Compressor Services, LLC et al

Filing 25

ORDER denying 20 Motion to Dismiss for Failure to State a Claim. Signed by Judge Thomas W. Thrash, Jr on 2/19/2014. (ss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
SOUTHERN PARTS &
ENGINEERING COMPANY, LLC, a
Delaware limited liability company,
Plaintiff,
v.

CIVIL ACTION FILE
NO. 1:13-CV-2231-TWT

AIR COMPRESSOR SERVICES,
LLC, a South Carolina limited liability
company, et al.,
Defendants.

OPINION AND ORDER

This is a theft of trade secrets action. It concerns a competing business started
by two former employees of the Plaintiff Southern Parts & Engineering Company,
LLC. It is before the Court on the Defendants’ Motion to Dismiss Counts II, III, and
IV of the Plaintiff’s First Amended Complaint. For the following reasons, the Motion
to Dismiss [Doc. 20] is DENIED.
I. Background
The Plaintiff Southern Parts & Engineering Company, LLC (“Southern Parts”)
is in the business of selling and servicing air compressors. (Am. Compl. ¶ 1.) In
August of 2011, Leslie Shade and Millard Williamson began working for the Plaintiff.
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(Am. Compl. ¶¶ 17-18.) Williamson was a sales associate and Shade was the Director
of E-Commerce. (Am. Compl. ¶¶ 17-18.) In addition to maintaining the Plaintiff’s
website, Shade was responsible for developing the Plaintiff's internet-based sales
division for air compressor lubricants. (Am. Compl. ¶ 16.) This division was called
the Industrial Lubricant Store. (Am. Compl. ¶ 16.) Shade was also sent on business
trips to South Carolina to inspect properties that could potentially be used for the
Industrial Lubricant Store. (Am. Compl. ¶¶ 20-21).
On November 9, 2012, Shade and Williamson both resigned from their
positions with the Plaintiff. (Am. Compl. ¶ 12.) Then on November 29, 2012, they
registered a limited liability company called Air Compressor Services (“Air
Compressor Services”) with the South Carolina Secretary of State’s office. (Am.
Compl. ¶ 22.) Air Compressor Services – which also specializes in the sale of air
compressor parts and lubricants – uses several of the South Carolina properties that
Shade had previously inspected for the Plaintiff. (Am. Compl. ¶ 24.)
The Plaintiff came across the website that had been set up for Air Compressor
Services, which allegedly bears many similarities to the website that Shade was
supposed to create for the Industrial Lubricant Store. (Am. Compl. ¶¶ 24, 26.) The
Plaintiff then hired forensic computer experts to investigate the computer activity of
Shade and Williamson in the weeks leading up to their resignations. (Am. Compl. ¶

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27.) This investigation revealed that Shade and Williamson had (1) accessed the
Plaintiff’s databases which contain customer information, financials, and business
plans, (2) copied confidential information, including trade secrets, onto USB drives,
(3) used the Plaintiff’s computers to conduct preliminary research for Air Compressor
Services and its website, and (4) used the Plaintiff’s resources to contact a marketing
firm for services relating to Air Compressor Services. (Am. Compl. ¶¶ 28-29.) Even
more, the investigation revealed that Shade and Williamson had remotely accessed the
Plaintiff’s private network even after they had resigned in order to further collect
confidential information. (Am. Compl. ¶¶ 28-29.) Shade and Williamson have
allegedly used the appropriated information – e.g., the Plaintiff’s trade secrets and
website – to benefit Air Compressor Services. (Am. Compl. ¶ 30.)
The Plaintiff asserted claims against Air Compressor Services and Shade for (1)
misappropriation of trade secrets, (2) intentional interference with contractual and
business relations, and (3) violation of the Computer Fraud and Abuse Act (“CFAA”).
The Defendants only move to dismiss the claims for intentional interference with
contractual and business relations and violation of the CFAA.
II. Legal Standard
A complaint should be dismissed under Rule 12(b)(6) only where it appears that
the facts alleged fail to state a “plausible” claim for relief. Ashcroft v. Iqbal, 129 S.Ct.

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1937, 1949 (2009); FED. R. CIV. P. 12(b)(6). A complaint may survive a motion to
dismiss for failure to state a claim, however, even if it is “improbable” that a plaintiff
would be able to prove those facts; even if the possibility of recovery is extremely
“remote and unlikely.” Bell Atlantic v. Twombly, 550 U.S. 544, 556 (2007). In ruling
on a motion to dismiss, the court must accept the facts pleaded in the complaint as true
and construe them in the light most favorable to the plaintiff. See Quality Foods de
Centro America, S.A. v. Latin American Agribusiness Dev. Corp., S.A., 711 F.2d 989,
994-95 (11th Cir. 1983); see also Sanjuan v. American Bd. of Psychiatry and
Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994) (noting that at the pleading stage,
the plaintiff “receives the benefit of imagination”). Generally, notice pleading is all
that is required for a valid complaint. See Lombard’s, Inc. v. Prince Mfg., Inc., 753
F.2d 974, 975 (11th Cir. 1985), cert. denied, 474 U.S. 1082 (1986). Under notice
pleading, the plaintiff need only give the defendant fair notice of the plaintiff’s claim
and the grounds upon which it rests. See Erickson v. Pardus, 551 U.S. 89, 93 (2007)
(citing Twombly, 127 S.Ct. at 1964).
III. Discussion
A. Intentional Interference with Contractual and Business Relations
The Plaintiff claims that the Defendants impermissibly used and converted the
Plaintiff’s resources to develop Air Compressor Services. The Plaintiff further argues

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that this made Air Compressor Services a competitive alternative to the Plaintiff, thus
interfering with the Plaintiff’s contractual and business relationships. “Tortious
interference claims, whether asserting interference with contractual relations, business
relations, or potential business relations, share certain common essential elements: (1)
improper action or wrongful conduct by the defendant without privilege; (2) the
defendant acted purposely and with malice with the intent to injure; (3) the defendant
induced a breach of contractual obligations or caused a party or third parties to
discontinue or fail to enter into an anticipated business relationship with the plaintiff;
and (4) the defendant's tortious conduct proximately caused damage to the plaintiff.”1
Disaster Servs., Inc. v. ERC P’ship, 228 Ga. App. 739, 740 (1997).
The Defendants claim that the Plaintiff has not alleged any wrongful conduct
that may support a tortious interference claim. In support, the Defendants first argue
that there is nothing wrong with soliciting a former employer’s customers. (Defs.’
Mot. to Dismiss, at 8-9.) This is correct. See Tom's Amusement Co., Inc. v. Total
Vending Servs., 243 Ga. App. 294, 298 (2000) (“[A]bsent a valid noncompete or

1

To be clear, “[t]ortious interference with business relations is a distinct and
separate tort from that of tortious interference with contractual relations, although
some of the elements of the two torts are similar . . . [p]roof of a valid and enforceable
contract is not required as an element of a cause of action for intentional tortious
interference with business relations.” Renden, Inc. v. Liberty Real Estate Ltd. P’ship
III, 213 Ga. App. 333, 334 (1994).
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nonsolicit covenant a former employee may go to customers whom he procured for
the old employer and endeavor to persuade them to change their trade to his
advantage.”). Here, however, the Plaintiff is not basing its claim on the Defendants’
customer solicitations. The wrongful conduct that forms the basis of the Plaintiff’s
claim is the misuse and conversion of its resources.2
The Defendants then argue that their use and conversion of the Plaintiff’s
resources were not wrongful because Shade was allowed to prepare the launch of Air
Compressor Services while still employed with the Plaintiff. (Defs.’ Mot. to Dismiss,
at 13-14.) It is true that “an employee breaches no fiduciary duty to the employer
simply by making plans to enter a competing business while he is still employed.”
E.D. Lacey Mills, Inc. v. Keith, 183 Ga. App. 357, 362 (1987). “Even before the
termination of his agency, he is entitled to make arrangements to compete . . . [and]
before the end of his employment, he can properly purchase a rival business and upon
termination of employment immediately compete.” Id. at 362-63 (internal quotation

2

The Defendants misunderstand the Plaintiff’s argument. The Plaintiff is not
claiming – as the Defendants suggest – that the misuse and conversion of its resources
were “wrongful” only insofar as they rendered the Defendants’ customer solicitations
to be “wrongful.” The Plaintiff is arguing that the misuse and conversion of its
resources were independent wrongful acts that ultimately induced third parties to
breach a contract and/or fail to enter into or cease a business relationship with the
Plaintiff. To the extent that the Plaintiff references the customer solicitation efforts,
it is merely arguing that they were successful due to the Defendants’ misuse of the
Plaintiff’s resources.
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marks omitted). The difference here, of course, is that Shade did not simply make
plans for Air Compressor Services while working for the Plaintiff. He allegedly used
the Plaintiff’s resources for the benefit of Air Compressor Services, and to the
detriment of the Plaintiff. Assuming the Plaintiff’s allegations to be true, Shade
breached his duty of loyalty to the Plaintiff. See Crippen v. Outback Steakhouse Int'l,
L.P., 321 Ga. App. 167, 171 (2013) (“[A]n agent breaches a duty of loyalty owed to
his employer by using his position for his own personal benefit to the detriment of his
employer.”); DeKalb Collision Ctr., Inc. v. Foster, 254 Ga. App. 477, 481 (2002)
(“Under Georgia law, ‘an employee owes a duty of loyalty, faithful service and regard
for an employer's interest.’”). Consequently, his conduct may form the basis of a
tortious interference claim. See DeLong Equip. Co. v. Washington Mills Abrasive
Co., 887 F.2d 1499, 1518-19 (11th Cir. 1989) (“The privilege defense is not available
where interference is achieved through actions taken in violation of a confidential
relationship.”). That is what distinguishes this case from the one cited by the
Defendants, Gresham & Associates, Inc. v. Strianese, 265 Ga. App. 559 (2004).
(Defs.’ Reply in Supp. of the Mot. to Dismiss, at 6-9.) There, the court found that
there was no wrongful act because the defendant had not used any improper means in
establishing a competing business. See id. at 561-562 (“[N]or is there any evidence
that Strianese profited at Gresham’s expense or otherwise failed to fulfill his duties

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as vice president during his employment with Gresham . . . a corporate employee
owing fiduciary duties to the corporation is not a privileged competitor of the
corporation.”).
Finally, the Defendants argue that the alleged wrongful acts occurred before Air
Compressor Services was launched and began competing with the Plaintiff. (Defs.’
Mot. to Dismiss, at 12-13.) Consequently, the Defendants argue, these wrongful acts
cannot support a tortious interference claim. (Id.) The Defendants conflate the
different elements of the tortious interference test. If the Plaintiff shows that the
Defendants engaged in wrongful conduct, then the “wrongful conduct” requirement
is met.3 The circumstances regarding the wrongful conduct – e.g., when it occurred
and how it impacted the Plaintiff’s contractual or business relationships – may be
relevant to other elements such as scienter, see Hayes v. Irwin, 541 F. Supp. 397, 429
(N.D. Ga. 1982) (“The act is malicious when it is done with knowledge of the
plaintiff’s rights and with the intent to interfere with them.”), and causation, see Camp
Creek Hospitality Inns, Inc. v. Sheraton Franchise Corp., 139 F.3d 1396, 1409 (11th
Cir. 1998) (“Georgia law requires a plaintiff to offer evidence that the defendant acted

3

The Defendants cite to no Georgia caselaw qualifying the manner and time in
which the “wrongful conduct” must occur in order to satisfy the first prong of the
tortious interference test. Georgia courts appear to construe this element broadly. See,
e.g., Disaster Servs., 228 Ga. App. at 741 (“Improper actions constitute conduct
wrongful in itself.”).
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improperly and that those acts induced a breach of contract or prompted a third party
to discontinue or fail to enter an anticipated business relationship.”).4 Because the
Defendants made no argument regarding scienter and causation, the Court need not
consider them at this stage. The Defendants’ Motion to Dismiss the Plaintiff’s claims
for intentional interference of contractual and business relations should be denied. The
Defendants also argue that the Plaintiff’s tortious interference claims are superseded
by the Georgia Trade Secrets Act. “Section 10-1-767(a) provides that the GTSA
‘supersede[s] conflicting . . . laws of [Georgia] providing civil remedies for
misappropriation of a trade secret.’” Penalty Kick Management Ltd. v. Coca Cola Co.,
318 F.3d 1284, 1296 (11th Cir. 2003). “Subpart (b) . . . goes on to state, however, that
the statute does not affect . . . [other civil remedies that are not based upon
misappropriation of a trade secret.’” Id. Generally, “where the ‘full extent’ of the
plaintiff’s tort claims rely on the same allegations as those underlying the plaintiff’s
claim for misappropriation of a trade secret . . . the claims are ‘conflicting’ and thus
precluded.” Diamond Power Intern., Inc. v. Davidson, 540 F. Supp. 2d 1322, 1344-45
(N.D. Ga. 2007); see also Penalty Kick, 318 F.3d at 1297 n.11 (A claim is “preempted

4

For example, a party may argue that a particular wrongful act was so far
attenuated from the injury that one cannot infer that it was done with the intent to
cause that injury. Likewise, a large temporal gap may also suggest that the wrongful
act was not what truly induced a third party into breaking a contract or forgoing a
business relationship with the plaintiff.
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by the GTSA only to the extent [that] it involve[s] a trade secret.”). Here, the Plaintiff
is not relying on the alleged misappropriation of the Plaintiff’s trade secrets. The
Plaintiff’s tortious interference claims are based on the Defendants’ use and
conversion of the Plaintiff’s resources, such as the Plaintiff’s computers and website.
B. The Computer Fraud and Abuse Act
The Plaintiff claims that the Defendants accessed the Plaintiff’s computers and
computer networks without authorization, or exceeded the authorization they may
have had, in violation of the CFAA. The CFAA created a private right of action for
“[a]ny person who suffers damage or loss by reason of a violation of” section 1030.
18 U.S.C. § 1030(g). A violation may exist if a party “intentionally accesses a
computer without authorization or exceeds authorized access, and thereby obtains .
. . (C) information from any protected computer.” 18 U.S.C. § 1030(a)(2). Moreover,
a civil action may be brought “if the conduct involves 1 of the factors set forth in”
subsection (c)(4)(A)(i)(I)-(V). 18 U.S.C. § 1030(g). One such factor is that the offense
has caused “loss to 1 or more persons during any 1-year period . . . aggregating at least
$5,000 in value.” 18 U.S.C. § 1030(c)(4)(A)(i)(I).
The Plaintiff alleged that it had to hire computer forensic experts to determine
the nature of the Defendants’ unauthorized access, and that this alone cost at least
$5,000. (Am. Compl. ¶ 66; Pl.’s Resp. to Defs.’ Mot. to Dismiss, at 13.) In response,

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the Defendants argue that in order to be a “loss,” as the term is used in the CFAA, the
costs must be a consequence of an “interruption in service.” (Defs.’ Reply in Supp.
of the Mot. to Dismiss, at 12-13.) The Defendants thus argue that because the Plaintiff
alleged no interruption in service, it has failed to allege a “loss” aggregating to at least
$5,000 in value. (Id.)
The CFAA defines “loss” as “any reasonable cost to any victim, including the
cost of responding to an offense, conducting a damage assessment, and restoring the
data, program, system, or information to its condition prior to the offense, and any
revenue lost, cost incurred, or other consequential damages incurred because of
interruption of service.” 18 U.S.C. § 1030(e)(11) (emphasis added). One possible
reading would be that the “interruption of service” language only applies to the second
half of the definition, “any revenue lost, cost incurred, or other consequential damages
incurred.” 18 U.S.C. § 1030(e)(11). Conversely, under the Defendants’ suggested
reading, the “interruption of service” language applies to all of the listed items. There
is a split among District Courts regarding this question. See Continental Group, Inc.
v. KW Property Management, LLC, 622 F. Supp. 2d 1357, 1371 (2009). The Court

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concludes that the “interruption of service” limitation only applies to “any revenue
lost, cost incurred, or other consequential damages incurred.”5
First, “[t]o the extent possible, the rules of statutory construction require courts
to give meaning to every word and clause in a Statute.” Brotherhood of Locomotive
Engineers & Trainmen Gen. Comm. of Adjustment CSX Transp. N. Lines v. CSX
Transp., Inc., 522 F.3d 1190, 1195 (11th Cir. 2008). “[C]ourts must reject statutory
interpretations that would render portions of a statute surplusage.” Id. The
Defendants’ reading would make the first half of the definition surplusage. The first
half lists specific costs: “the cost of responding to an offense, conducting a damage
assessment, . . ..” 18 U.S.C. § 1030(e)(11). The second half of the definition broadly
states that “loss” includes “any . . . cost incurred . . . because of interruption of
service.” Id. (emphasis added). If the “interruption of service” language applied to the
first half of the definition as well, then it would be entirely subsumed by the broader

5

Multiple District Courts have reached the same conclusion. See, e.g.,
Trademotion, LLC v. Marketcliq, Inc., 857 F. Supp. 2d 1285, 1293 (M.D. Fla. 2012)
(“[T]he Court finds ‘loss’ as used in the provision does not relate solely to losses
incurred due to an interruption of service.”); Quantlab Technologies Ltd. (BVI) v.
Godlevsky, 719 F. Supp. 2d 766, 776 (S.D. Tex. 2010) (“[T]he term ‘loss’
encompasses . . . two types of harm: costs to investigate and respond to a computer
intrusion, and costs associated with a service interruption.”); Bashaw v. Johnson,
11-2693-JWL, 2012 WL 1623483, at *3 (D. Kan. May 9, 2012) (“The majority of
courts have construed the term ‘loss’ to include only two types of injury-costs
incurred (such as lost revenues) because the computer's service was interrupted and
costs to investigate and respond to computer intrusion or damage.”).
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wording of the second half. By contrast, the Plaintiff’s reading would give effect to
both halves. The latter half refers to general costs incurred because of interruptions in
service, and the former refers to certain specific costs that are not necessarily based
upon interruptions in service.
Second, the Court “may turn to legislative history as an interpretive aid,” but
it must “do so with due regard for its well-known limitations and dangers.” Garcia v.
Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1247 (11th Cir. 2008). The Eastern
District of Michigan explained:
The legislative history . . . suggests that Plaintiff has the better argument.
As initially proposed, the bill that later became law provided:
“the term ‘loss’ includes(A) the reasonable costs to any victim of(i) responding to the offense;
(ii) conducting a damage assessment; and
(iii) restoring the system and data to their condition prior to the
offense; and
(B) any lost revenue or costs incurred by the victim as a result of
interruption of service.” Enhancement of Privacy and Public Safety in
Cyberspace Act, S. 3083, 106th Cong. (2000) . . . Although this internal
structure was omitted from the definition enacted the following year, it
strongly suggests that the drafters did intend that “loss” embrace two
types of injury.
Dice Corp. v. Bold Technologies, No. 11-13578, 2012 WL 263031, at *2 (E.D. Mich.
Jan. 30, 2012). The modification to the bill as initially proposed was largely stylistic.
This does not suggest a congressional intention to now subjugate the entire list to the
“interruption of service” qualifier. See id. at *6 (“[N]othing suggests that this
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modification was intended to be substantive . . . although minor stylistic changes were
made, in substance . . . [the] bill was adopted in full.”). As the Plaintiff has an alleged
loss amounting to at least $5,000, the Defendants’ Motion to Dismiss the Plaintiff's
CFAA claim should be denied.
IV. Conclusion
For these reasons, the Court DENIES the Defendants’ Motion to Dismiss [Doc.
20].
SO ORDERED, this 19 day of February, 2014.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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