OTR Transportation, Inc. v. Data Interfuse LLC et al

Filing 141

MEMORANDUM Opinion and Order: For the reasons stated in the attached Memorandum Opinion and Order, OTR's motion to dismiss 61 is granted in part and denied in part. The motion is granted in that Count III, IV, V, VI, and VII of Data Interfuse's counterclaims are dismissed. The motion is denied with respect to Count II. Signed by the Honorable Thomas M. Durkin on 1/17/2023. Mailed notice. (ecw, )

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UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
OTR TRANSPORTATION, INC.,
Plaintiff,

No. 21 C 3415

v.

Judge Thomas M. Durkin

DATA INTERFUSE LLC,
Defendant.
MEMORANDUM OPINION AND ORDER
OTR Transportation contracted with Data Interfuse to help develop a software
program to manage OTR’s freight brokering business. OTR alleges that after it
declined to renew the contract, Data Interfuse hacked OTR’s network and stole its
trade secrets. In response, Data Interfuse has filed counterclaims alleging that OTR
breached their contract, poached a Data Interfuse employee, and stole Data
Interfuse’s “protected information.” OTR has moved to dismiss Data Interfuse’s
counterclaims for failure to state a claim pursuant to Federal Rule of Civil Procedure
12(b)(6). That motion is granted in part and denied in part.
Legal Standard
A Rule 12(b)(6) motion challenges the “sufficiency of the complaint.” Berger v.
Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must
provide “a short and plain statement of the claim showing that the pleader is entitled
to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with “fair notice” of
the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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This standard “demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed
factual allegations” are not required, “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.
The complaint must “contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.’” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d
362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In applying this standard,
the Court accepts all well-pleaded facts as true and draws all reasonable inferences
in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir. 2018).
Background
On November 22, 2019, the parties entered into a contract whereby Data
Interfuse agreed to provide software and information technology services to OTR. The
contract had a twelve-month term.
According to Data Interfuse, beginning in September 2020, the parties began
to contemplate an expanded project. Data Interfuse alleges that at a meeting that
month, OTR orally agreed to hire Data Interfuse to work on the expanded project
with a term of three years for $1.8 million. After the meeting, OTR paid Data
Interfuse $200,000, and Data Interfuse “delivered an operating cost budget to OTR
including a new team of eight individuals from [Data Interfuse] who would be needed

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to implement the OTR Expanded Project.” R. 53 at 62 (¶ 23). Data Interfuse then
hired the new employees. Id. The parties again met to discuss the expanded project
in November 2020, with one of Data Interfuse’s new employees, Karl Meyer,
participating in the meeting. At the meeting, OTR paid Data Interfuse $140,000.
Data Interfuse alleges that immediately after the November meeting, OTR
hired Meyer away from Data Interfuse. A week later, OTR told Data Interfuse that
it was ending their business relationship.
Contrary to Data Interfuse’s claims, OTR alleges that it was dissatisfied with
Data Interfuse’s work during the term of the first contract. OTR also alleges that the
expanded project Data Interfuse proposed was unacceptable because it provided a
license to Data Interfuse to use for its own purposes (presumably providing to other
clients) the programs Data Interfuse developed for OTR. OTR alleges it did not renew
the original contract and did not agree to an expanded project. Rather, OTR contends
that upon expiration of the original contract it demanded that Data Interfuse return
all confidential information OTR had provided to Data Interfuse during the course of
their work. OTR alleges that Data Interfuse failed to comply with this demand.
About two weeks after ending its relationship with Data Interfuse, OTR alleges
that it discovered that Data Interfuse was still linked to OTR’s database. OTR
disabled these links.
Then in February 2021, OTR alleges that it discovered “unauthorized peering
sessions” into its database, associated with a contractor for Data Interfuse who had
worked on OTR’s project. When OTR closed these links, its “operational database was

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compromised and OTR’s proprietary software program [was] rendered inoperable.”
R. 39 ¶ 54. This disrupted OTR’s business for 24 hours. OTR alleges further that Data
Interfuse “intentionally set up a network of unauthorized peering sessions, portals
and other backdoor access points to intentionally access and acquire without
authorization OTR’s proprietary electronic data system and otherwise monitor, copy
and acquire portions or all of OTR’s proprietary company information, pricing
modeling system and other pricing and transportation data.” Id. ¶ 71. OTR described
this activity as a “logic bomb.” Id. ¶ 72. The Court has stricken the allegation of a
“logic bomb” and ordered OTR to file an amended complaint omitting that term.
Data Interfuse brings a claim (Count V) for tortious interference with
prospective economic advantage, alleging that the “logic bomb” allegation has harmed
its reputation and its “ability to maintain needed security clearances” and to retain
the clients who require such clearances R. 53 at 66-67 (¶ 52). Data Interfuse also
alleges that the “logic bomb” allegation constitutes an abuse of process that violates
state law (Count VI). In addition to the alleged harm caused by the “logic bomb”
allegation, Data Interfuse brings claims for: (Count I) breach of the original contract,
alleging that OTR has failed to pay all invoices; (Count II) breach of the oral
agreement to expand the project for $1.8 million; (Count III) breach of Meyer’s
employment agreement by inducing Meyer to disclose Data Interfuse’s “protected
information”; (Count IV) fraud for failure to expand the project as contemplated; and
(Count VII) for “eavesdropping,” alleging that OTR’s officer recorded a conversation
with a Data Interfuse employee without the employee’s permission in violation of

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Illinois state law. 1 OTR has not moved to dismiss Data Interfuse’s claim for breach of
the original contract. 2
Analysis
I.

Statute of Frauds
OTR argues that Data Interfuse’s claim for breach of the oral contract for the

expanded project violates the statute of frauds based on Data Interfuse’s allegation
that the parties orally agreed to a term of three years. OTR argues that the statute
of frauds prohibits enforcement of oral contracts that are “not to be performed within
the space of one year.”
But the phrase “not to be performed within the space of one year” does not
prohibit all oral contracts with a term longer than a year. An oral contract with a
term longer than one year can comply with the statute of frauds if it is possible to
complete the contract within a year. See McInerney v. Charter Golf, Inc., 176 Ill. 2d
482, 490 680 N.E.2d 1347, 1352 (Ill. 1997) (“if performance is possible by its terms
within one year, the contract is not within the statute regardless of how unlikely it is
that it will actually be performed within one year”). Data Interfuse has made no

1

Count VII is mis-labeled as a second Count VI.

The parties dispute whether Illinois or Virginia law applies. But there is no conflict
of law for most of Data Interfuse’s claims. The Court directly addresses the applicable
law only where necessary. See Bridgeview Health Care Ctr., Ltd. v. State Farm Fire
& Cas. Co.,10 N.E.3d 902, 905 (Ill. 2014) (Illinois law permits a choice-of-law
determination only “when a difference in law will make a difference in the outcome.”);
Universal Underwriters Ins. Co. v. LKQ Smart Parts, Inc., 963 N.E.2d 930, 945 (Ill.
App. Ct. 1st Dist. 2011) (“If the law of the jurisdictions in question is essentially the
same on the disputed point, there is no need to apply a choice-of-law analysis . . . . In
the absence of a conflict, Illinois law applies as the law of the forum.”).
2

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allegation making it impossible for the renewed contract to have been fully performed
within a year.
Furthermore, the statute of frauds “does not require that the contract itself be
in writing, only that there be adequate documentary evidence of its existence and
essential terms.” Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 295 (7th Cir. 2002). And
the statute of frauds is an affirmative defense, meaning that dismissal at the pleading
stage is only appropriate if the complaint “sets forth everything necessary to satisfy
the affirmative defense,” United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005),
such that the plaintiff has “affirmatively plead himself out of court,” Chicago
Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 614 (7th Cir. 2014).
Data Interfuse does not allege that the agreement was embodied in a written
contract. But it alleges that it provided a budget to OTR, and OTR made payments to
Data Interfuse, allegedly in compensation for beginning the expanded project. These
allegations are a reasonable basis to infer that a writing exists setting forth the terms
of the expanded project. See Nikollbibaj v. US Foods, Inc., 2022 WL 16836407, at *4
(N.D. Ill. Nov. 9, 2022) (denying motion to dismiss based on the statute of frauds). No
allegation in the complaint makes it impossible that any of the communications
mentioned in the complaint embody the agreement, whether alone or in combination.
See Dargo v. Clear Channel Commc’ns, Inc., 2008 WL 2225812, at *2 (N.D. Ill. May
28, 2008) (denying a motion to dismiss because the plaintiff had not “pleaded any
facts which clearly indicate that no document memorializing the oral agreement
existed”). Like the issue of the alleged contract’s duration, the question of whether a

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writing exists is not foreclosed by Data Interfuse’s allegations. Thus, it is
inappropriate to dismiss the claim for breach of the oral contract at the pleading
stage.
II.

No-Oral Modification
OTR argues that Data Interfuse’s claim for breach of the alleged oral

agreement to expand the scope of the original contract must be dismissed because the
original contract contained a provision prohibiting oral modifications. But both
Virginia and Illinois law provide circumstances in which parties can orally modify a
provision of a contract prohibiting oral modification. See Reid v. Boyle, 527 S.E.2d
137, 145 (Va. 2000) (“Nor does it make any difference that the original written
contract provided that it should not be substantially varied except by writing.”); R.J.
O’Brien & Assocs., Inc. v. Vierstra, 2003 WL 1627271, at *5 (N.D. Ill. Mar. 27, 2003)
(“[U]nder Illinois law, parties to a written contract may alter or modify its terms by
subsequent oral agreement, even though the terms of the contract preclude oral
modification.”). Application of this principle assumes compliance with the statute of
frauds. But as discussed, discovery is required on that issue. Similarly, discovery is
required on the question of whether the parties orally modified the agreement at all.
III.

Tortious Interference with Meyer’s Employment Contract
Data Interfuse alleges that OTR induced Meyer to breach his employment

agreement with Data Interfuse by revealing Data Interfuse’s “protected information”
to OTR. Meyer’s agreement prohibits him from disclosing:
confidential information of a special and unique nature and
value relating to such matters as Data Interfuse’s and its
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customers’ secrets, systems, programs, procedures,
manuals, confidential reports and communications, lists of
customers and clients, and any other materials or
information related to the business or activities of Data
Interfuse or its clients which are not generally known to
others engaged in similar businesses or activities. . . .
Protected Information shall also include materials and
information that is patentable or otherwise protectible by
copyright, patent, trademark, or trade secret laws . . . .
R. 53-2 at 2 (¶ 1.A).
OTR argues that this claim should be dismissed because Data Interfuse “fails
to allege any facts whatsoever to identify or put OTR on notice of the specific ‘material
and information’ Meyer allegedly disclosed to OTR that would violate the terms of
[his employment agreement].” R. 62 at 8. Data Interfuse argues that Rule 8’s pleading
standard does not require it to allege the information Meyer disclosed.
Perhaps Data Interfuse is not required to allege disclosure of specific
information. But it must be plausible that Meyer disclosed information he was
prohibited from disclosing. And the context of the pleadings in this case do not make
it plausible that OTR induced Meyer to reveal information about anything other the
project Meyer was already working on for OTR. Per the terms of its agreement with
Data Interfuse, OTR owned Data Interfuse’s work product performed for OTR. Thus,
to the extent that Meyer can be said to have “disclosed” information about the work
he performed while employed at Data Interfuse while working on the OTR
engagement, such disclosure could not violate his employment agreement because
OTR already owned that information.

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Furthermore, it is not plausible that Meyer possessed protected information
beyond the OTR project. Data Interfuse alleges that it hired Meyer specifically to
work on the OTR project and Data Interfuse does not allege that he was assigned to
any other client engagement. Without an express allegation that Meyer possessed
information OTR was not already entitled to possess, it is not plausible to infer that
he gained any such information in just two weeks of employment when OTR was his
only assignment. Without more, the claim of disclosure in violation of the employment
agreement isn’t plausible and must be dismissed.
IV.

Fraud
Data Interfuse alleges that OTR is liable for fraud because OTR’s officer “did

not plan [to] follow-through” on promises he made to Data Interfuse. See R. 71 at 7.
But a failure to satisfy a promise to do something in the future—which is the essence
of a contractual agreement—is not fraudulent as a matter of law. See Supervalu, Inc.
v. Johnson, 666 S.E.2d 335, 342 (Va. 2008) (“Under no circumstances, however, will
a promise of future action support a claim of constructive fraud.”). Rather, to state a
claim for fraud, “the alleged misrepresentations must be statements of present or
preexisting facts, not statements of future intent or conduct.” Ault v. C.C. Servs., Inc.,
597 N.E.2d 720, 722 (Ill. App. Ct. 3d Dist. 1992); see also Avery v. State Farm Mut.
Auto. Ins. Co., 835 N.E.2d 801, 844 (Ill. 2005) (“A breach of contractual promise,
without more, is not actionable under the Consumer Fraud Act.”). Therefore, Data
Interfuse’s fraud claim must be dismissed.

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V.

Tortious Interference with Prospective Economic Advantage
The parties agree that a claim for tortious interference with prospective

economic advantage requires the plaintiff to allege that the defendant caused an
intentional and unjustified interference that induced or caused a breach or
termination of a reasonable business expectancy. OTR also notes, and Data Interfuse
does not dispute, that the act causing the interference must be taken by the defendant
and “directed toward the party with whom the plaintiff expects to do business.”
Unique Envelope Corp. v. GSAmerica, Inc., 2002 WL 598511, at *4 (N.D. Ill. Apr. 18,
2002).
Data Interfuse alleges that OTR’s “logic bomb” allegation caused it to lose
security clearances and to lose clients as a result. This allegation proves too much.
Data Interfuse does not allege that OTR told its clients that Data Interfuse hacked
OTR’s systems. Rather, Data Interfuse contends that the “logic bomb” allegation
made Data Interfuse unqualified to serve certain clients. Whether or not Data
Interfuse’s loss of clients is a proximate result of the “logic bomb” allegation, it is not
the result of any action taken directly towards Data Interfuse’s clients. There is an
intermediate step of the loss of security clearances which takes Data Interfuse’s
allegations out of the realm of tortious interference. Courts have dismissed similar
claims in which the plaintiff did not allege that the defendant took direct action
towards the plaintiff’s clients or customers, but instead the plaintiff alleges that the
defendant’s action diminished the plaintiff’s reputation or ability to provide some
service to its clients, thereby causing the plaintiff to lose customers. See Della Parola

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Cap. Mgmt., LLC v. Blaze Portfolio Sys., LLC, 2021 WL 3674613, at *6 (N.D. Ill. Aug.
19, 2021) (dismissing tortious interference claim against a financial software
company even though the company knew its software would fail, which eventually
caused the plaintiff that purchased the software to lose clients); Boffa Surgical Grp.
LLC v. Managed Healthcare Assocs. Ltd., 47 N.E.3d 569, 577-78 (Ill. App. Ct. 1st Dist.
2015) (“Even if defendants’ conduct of not offering the [plaintiff] membership in
defendants’ network was likely to dissuade other physicians from making referrals to
the [plaintiff] or dissuade other patients from using their services, courts have
rejected this argument, instead requiring that the interfering action be directed in
the first instance at the third party.”).
An action that causes the loss of prospective clients or customers can be
actionable under a claim for tortious interference. But the plaintiff must allege that
the defendant directly communicated with or acted towards the prospective clients or
customers. See Logan Graphic Prod., Inc. v. Textus USA, Inc., 2002 WL 31507174, at
*1 (N.D. Ill. Nov. 8, 2002) (denying motion to dismiss tortious interference claims
because the plaintiff alleged that the defendant communicated with prospective
“retailers and distributors” of a product the plaintiff planned to sell); Kozlowski v.
Greenridge Farm, Inc., 338 F. Supp. 3d 828, 840-41 (N.D. Ill. 2018) (denying motion
to dismiss tortious interference claims because the plaintiff alleged that the
defendant told the plaintiff’s customers that the plaintiff had discriminated against
her based on her pregnancy). Data Interfuse does not allege that OTR contacted its
clients and told them Data Interfuse had hacked its system. Without an allegation of

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such direct contact, Data Interfuse has failed to state a claim for tortious interference
with business.
VI.

Abuse of Process
Unlike tortious interference with prospective economic advantage, the claim of

abuse of process does not require direct contact between the defendant and the
relevant third party. Instead, the claim merely requires allegation of: (1) the existence
of an ulterior motive or purpose; and (2) an act in the use of a legal process that is not
proper in the regular prosecution of the proceedings. See Podolsky v. Alma Entergy
Corp., 143 F.3d 364, 372 (7th Cir. 1998) (citing Kirchner v. Greene, 691 N.E.2d 107,
116 (1st Dist. 1998); Eubanks v. Thomas, 861 S.E.2d 397, 403 (Va. 2021)). “Legal
process,” in the context of this claim, means something “issued by the court, under its
official seal and must be distinguished from pleadings.” Sweports, Ltd. v. Abrams,
2021 WL 2697177, at *7 (Ill. App. Ct. 1st Dist. 2021).
Here, Data Interfuse alleges that it has been injured by OTR’s “logic bomb”
allegation. But an allegation in a complaint is not “legal process” because it is not an
action by the court. See id. (dismissing an abuse of process claim because “the
plaintiffs’ allegation that [the defendant] knowingly filed a time-barred derivative
action is based on a ‘pleading’ – not a court ‘process’ – and is thus outside of the scope
of an abuse of process claim”); Am. Transp. Grp., LLC v. Power, 2018 WL 1993204, at
*7 (N.D. Ill. Apr. 27, 2018) (“Despite Defendants’ argument that their alleged abuse
of process does not arise from the pleadings, their complaint that [the plaintiff’s]
actions in filing this lawsuit (on what they believe to be improper grounds) and

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seeking injunctive relief leads the Court to no other conclusion.”). Because Data
Interfuse does not allege that it was injured by any court action, its abuse of process
claim must be dismissed.
VII.

Wiretap Act
Data Interfuse claims that OTR’s officer violated the Illinois Wiretap Act by

recording a conversation with a Data Interfuse employee without the employee’s
permission. See 720 ILCS 5/14-2. OTR argues that Virginia law should govern,
because that is where the Data Interfuse employee received the call, and Virginia law
permits unilateral recording of phone calls. See Va. Code Ann. § 19.2.62.B.2 (“It shall
not be a [violation] under this chapter for a person to intercept a wire, electronic or
oral communication, where such person is a party to the communication or one of the
parties to the communication has given prior consent to such interception.”).
Illinois choice-of-law rules apply to this case because this Court is located in
Illinois. See McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014).
Illinois follows the choice-of-law approach set out in the Restatement (Second) of
Conflict of Laws, under which the law governing a claim is that of the state with the
most significant contacts relating to that claim. See Morris B. Chapman & Assocs.,
Ltd. v. Kitzman, 739 N.E.2d 1263, 1269 (Ill. 2000); Curran v. Kwon, 153 F.3d 481,
488 (7th Cir. 1998). This approach requires application of the law of the place where
the injury occurred, “unless another state has a more significant relationship to the
claim.” Pittway Corp. v. Lockheed Aircraft Corp., 641 F.2d 524, 526 (7th Cir. 1981);
Townsend v. Sears, Roebuck & Co., 879 N.E.2d 893, 904 (Ill. 2007). Factors considered

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include the place where the injury occurred; the place where the conduct causing the
injury occurred; the domicile, residence, nationality, place of incorporation and place
of business of the parties; and the place where the parties’ relationship is centered.
See Restatement (Second) of Conflict of Laws § 145(2) (1971).
Here, OTR’s officer made the recording in Illinois. But Data Interfuse is based
in Virginia and its employee received the call in Virginia. Because the injured party
was located in Virginia, any injury from the eavesdropping occurred in Virginia. See
Quarasan Grp., Inc. v. Nozani, LLC, 2020 WL 6118536, at *2 (N.D. Ill. Oct. 17, 2020)
(dismissing an Illinois Wiretap Act claim, even though the call was made from
Illinois, because the call was received in Utah, and Utah law permits unilateral
recording). And since Virginia permits unilateral recording by a party to a phone call,
Data Interfuse has failed to state a claim for eavesdropping in violation of Virginia
law. 3
Conclusion
Therefore, OTR’s motion to dismiss [61] is granted in part and denied in part.
The motion is granted in that Count III, IV, V, VI, and VII of Data Interfuse’s
counterclaims are dismissed. The motion is denied with respect to Count II.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge

Dated: January 17, 2023

To the extent the parties contractual choice of law provision governs injury from the
phone call, Virginia is the applicable law under the contract.

3

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