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, )

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

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– 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

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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.

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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.”

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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.

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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

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