Meyer Technology Solutions, LLC v. Kaegem Corp.

Filing 32

ORDER Signed by the Honorable Harry D. Leinenweber on 10/10/2017: Counter-Defendants' Motion to Dismiss Counterclaims 24 is granted in part and denied in part. Status hearing set for 12/7/2017 at 09:00 AM. Mailed notice(wp, )

Download PDF
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION MEYER TECHNOLOGY SOLUTIONS, LLC, Plaintiff, v. KAEGEM CORP., Case No. 17 C 281 Defendant. Judge Harry D. Leinenweber KAEGEM CORP., Counter-Plaintiff, v. MEYER TECHNOLOGY SOLUTIONS, LLC and MICHAEL MEYER, Counter-Defendants. ORDER Counter-Defendants’ Motion to Dismiss Counterclaims [ECF No. 24] is granted in part and denied in part. STATEMENT Pursuant Plaintiff developed to and a an its April sole software 19, 2013 member, platform consulting Michael known as agreement, Meyer “GCT” (“Meyer”), for Defendant. When Defendant allegedly ceased paying for certain upgrades to the GCT software, Plaintiff filed this lawsuit for breach of contract. against Defendant Plaintiff and then Meyer. asserted nine Defendant (9) alleges counterclaims that, after receiving ultimatums from Meyer regarding payment for GCT software upgrades, it learned in December 2014 that Meyer had accessed GCT accounts without authorization and removed certain passwords and client information. In February 2015, after determining that Meyer was at fault, Defendant’s insurer paid a claim for business interruption. Defendant asserts on information and belief that Meyer continued in this manner to access its software and client information as recently as April 2016. Plaintiff and Meyer have moved to dismiss Defendant’s counterclaims under FED. R. CIV. P. 12(b)(6). The Court takes each counterclaim in turn, assuming the truth of well-pleaded factual favor allegations of Defendant and drawing (the all inferences non-movant). See, therefrom Berger v. in Nat’l Collegiate Athletic Ass’n, 843 F.3d 285, 289-90 (7th Cir. 2016). Defendant brings its first two counterclaims against Plaintiff and Meyer under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq., and the Stored Communications Act, 18 U.S.C. § 2701 et seq. The statutes require that a civil plaintiff commence its action within 2 years of discovering the damage from the unauthorized access. See, 18 U.S.C. § 1030(g) (requiring a civil suit to be brought “within 2 years of the date of the act complained of or the date of the discovery of the damage”) (emphasis added); 18 U.S.C. § 2707(f) (“A civil action under this section may not be commenced later than two years after the date upon which the claimant first discovered or had a reasonable (emphasis added). opportunity to discover the violation.”) Here, Defendant learned of the unauthorized access in December 2014, notified its clients of the breach in January 2015, attendant and was interruption paid to on its its insurance business in claim for February the 2015. However, Defendant first filed its counterclaims on June 8, 2017 - 2 - – well over two years after it discovered the damage flowing from the unauthorized access, and thus outside the statute of limitations. See, Sewell v. Bernardin, 795 F.3d 337, 340-42 (2d Cir. 2015). That Meyer may have continued accessing certain of Defendant’s business information housed on the GCT platform in the same fashion as recently as April 2016 is irrelevant for timeliness purposes. The “continuing violation” exception to federal statutes of limitations only allows suit to be delayed in cases where the first instance of misconduct may be insufficient – and indeed the “cumulative effect” of a series of acts is necessary – to make out an actionable claim. Limestone Dev. Corp. v. Village of Lemont, Ill., 520 F.3d 797, 801 (7th Cir. 2008). Such is not the case here, meaning that Defendant’s counterclaims under the Computer Fraud and Abuse Act and the Stored Communications Act must be dismissed as time-barred. Defendant’s third counterclaim charges Plaintiff and Meyer with trade secret Secrets Act. misappropriation under the Illinois Trade Defendant asserts that the information accessed by Plaintiff and Meyer was “database information of clients and passwords,” customer client financial information of information, economic value, and other including client customer lists, that gave Plaintiff and Meyer an economic advantage in the marketplace and that Defendant took reasonable efforts to keep confidential. Combined with the balance of the counterclaim and the Confidentiality provision in the contract, Defendant’s identification of general categories of information and allegation of reasonable efforts to maintain confidentiality state a Illinois Blackbaud, claim law. Inc., for misappropriation See, 216 (collecting cases). of e.g., Mission F.Supp.3d 915, trade secrets Measurement 920-22 (N.D. under Corp. Ill. v. 2016) Thus, the Motion to Dismiss is denied in - 3 - relevant part, although at the merits stage Defendant will need to identify with specificity its allegedly misappropriated trade secrets. Fourth, Defendant brings its own claim against Plaintiff for breach of contract, alleging that Plaintiff failed to provide Defendant with the entire right, title, and interest to the GCT software despite Defendant’s payment for all services (other than upgrades) pertaining to GCT software. Plaintiff argues for dismissal based on Defendant’s admission that it did not pay for all upgrades to the software and the indiscriminate language of the contract, which obligated Plaintiff to transfer title only once it was “paid for services.” Without any other guidance to interpreting the contract – and in light of its lack of an integration clause – the Court finds that Defendant has stated an actionable breach-of-contract claim. Defendant’s position that Plaintiff was obligated to transfer title to the initial, paid-up version of the GCT software is at least as plausible as Plaintiff’s reading of the contract, which holds that Defendant was only entitled to ownership of the paid-up GCT software platform once Plaintiff was remunerated subsequent upgrade it developed for the platform. for each That several months allegedly passed between Defendant’s payment in full for the platform bolsters and the Defendant’s parties’ first reading. discussion Because the of upgrades Court cannot determine whether the contract shows unambiguously on its face that the relief prayed for is not warranted, LaSalle Nat’l Bank v. Service Merch. Co., 827 F.2d 74, 78 (7th Cir. 1987), Plaintiff’s Motion to Dismiss is denied in relevant part. Defendant’s fifth counterclaim alleges that Meyer, who owns 15,000 shares of Defendant’s closely held common stock, breached his fiduciary duty to Defendant. - 4 - Meyer argues that Defendant fails plausibly to allege that he owed Defendant a fiduciary duty, because the percentage of his stock ownership is unclear and the work he performed for Defendant was as an independent contractor. Interpreting Illinois law, the Seventh Circuit has held that “a shareholder in a close corporation owes a duty of loyalty to the corporation and to the other shareholders” and that “[m]inority shareholders have an obligation as de facto partners in the joint venture not to do damage to the corporate interests.” Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1218-19 (7th Cir. 1995). minority suspends Meyer cites no authority to establish that a shareholder’s his duty of work as an independent loyalty to the close contractor corporation, and indeed such a contention seems irreconcilable with the facts and logic of Rexford. Thus, Defendant has alleged a plausible claim that Meyer breached his fiduciary duty to Defendant by disabling company software, accessing company email accounts, and causing the loss of Defendant’s clients. In response to the Motion to Dismiss, Defendant requests leave to amend its sixth and seventh counterclaims for tortious interference with contractual relationships and interference with prospective economic advantage, respectively, to allege the required action directed toward a specific third party. See, Boffa Surgical Group LLC v. Managed Healthcare Assocs., Ltd., 47 N.E.3d 569, 577-78 (Ill. App. 2015). Neither Plaintiff nor Meyer appears to oppose amendment, and the Court accordingly grants Defendant leave to amend these two counts. Defendant’s eighth counterclaim invokes Illinois conversion law and avers that Plaintiff unlawfully retained possession and control of Defendant’s GCT software – presumably by accessing Defendant’s client information and refusing software or “tender the access code.” - 5 - to “restore” the Plaintiff contends that software is intangible property not amenable to conversion. a matter of Illinois law, the Court agrees. As See, First Nat’l Bank of Springfield v. Dept. of Revenue, 421 N.E.2d 175, 177 (Ill. 1981). Whatever the wisdom of expanding the sweep of the conversion tort, the Seventh Circuit has emphatically characterized Illinois law as refusing to “recognize an action for conversion of intangible rights.” Am. Nat’l Ins. Co. v. Citibank, 543 F.3d 907, 910 (7th Cir. 2008); accord, Joe Hand Promotions, Inc. v. Lynch, 822 F.Supp.2d 803, 809 (N.D. Ill. 2011) (“The Seventh Circuit thus agrees that Illinois courts have not expanded the tort of conversion, which should remain tethered to its common law roots requiring tangible property or some connection to a tangible document.”). Defendant has not alleged facts suggesting that its rights to the software merged into something tangible that was itself converted, nor can its counterclaims be read to request return of physical items remaining in Plaintiff’s possession. See, David Mizer Enters., Inc. No. v. 469423, Nexstar at Broadcasting, *4-5 (C.D. Ill. Inc., Feb. 3, 14 C 2015). 2192, To the 2015 WL extent Defendant charges Plaintiff with assuming unauthorized control over tangible current distinct recited information allegations from in the do housed not suggest allegedly Defendant’s within third that the this software, its material was misappropriated trade counterclaim. As secrets such, the Illinois Trade Secrets Act preempts Defendant’s currently pled conversion counterclaim inasmuch as it may implicate tangible information. See, 765 Ill. Comp. Stat. 1065/8(a); AutoMed Techs., Inc. v. Eller, 160 F.Supp.2d 915, 922 (N.D. Ill. 2001). The Court therefore dismisses this count, but the dismissal is without prejudice. - 6 - Defendant has agreed to dismiss its final counterclaim for invasion of privacy, as corporations have no right to seclusion that is protected by tort law. See, e.g., American States Ins. Co. v. Capital Assocs. of Jackson Cnty., Inc., 392 F.3d 939, 942 (7th Cir. 2004); Oberweis Dairy, Inc. v. Democratic Cong. Campaign Comm., Inc., No. 08 C 4345, 2009 WL 635457, at *2 (N.D. Ill. Mar. 11, 2009). For all the above reasons, Counter-Defendants’ Motion to Dismiss Counterclaims is granted in part and denied in part. Harry D. Leinenweber, Judge United States District Court Dated:10/10/2017 - 7 -

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?