Zap Cellular, Inc. v. Weintraub et al
Filing
156
ORDER: For all of the reasons explained in the attached Memorandum & Order, Defendants' 153 motion for judgment on the pleadings is denied in its entirety. The parties shall submit a new joint pretrial order on or before October 20, 2022, and the Court will set a date for an Initial Pretrial Conference at which a trial date and related deadlines will be set. Ordered by Judge Pamela K. Chen on 9/19/2022. (Stephan, Keegan)
Case 1:15-cv-06723-PKC-VMS Document 156 Filed 09/19/22 Page 1 of 24 PageID #: 1292
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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ZAP CELLULAR, INC., doing business as
AMP Cellular,
MEMORANDUM & ORDER
15-CV-6723 (PKC) (VMS)
Plaintiff,
- against ARI WEINTRAUB, MORTON WEINTRAUB,
ESTI DRESDNER, STEVE WEINSTOCK, and
MAZAL TECH MEDIA, INC.,
Defendants.
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PAMELA K. CHEN, United States District Judge:
On November 23, 2015, Plaintiff Zap Cellular, Inc., d/b/a Amp Cellular (“Zap”), filed this
lawsuit against Defendants Ari Weintraub (“A. Weintraub”), Morton Weintraub (“M.
Weintraub”), Esti Dresdner, Steve Weinstock, and Mazal Tech Media, Inc. (“Mazal”). (Complaint
(“Compl.”), Dkt. 1.) Plaintiff alleges that A. Weintraub, the former Chief Executive Officer
(“CEO”) of Zap and current CEO of Mazal, violated Sections 1030(a)(2) and 1030(a)(5)(C) of the
Computer Fraud and Abuse Act (the “CFAA”), and that all Defendants violated various state laws,
by engaging in a scheme where Mazal—Zap’s former customer payment processor—continued
billing Zap customers after A. Weintraub was terminated as Zap’s CEO and the Zap-Mazal
payment processing agreement had expired. (Id. ¶¶ 49–112.)
At a May 13, 2021 pretrial conference—held after years of discovery and motion
practice—Defendants informed the Court of their desire to move for judgment on the pleadings
for lack of subject matter jurisdiction. (05/13/2021 Docket Entry.) Defendants’ motion is now
fully briefed. Defendants argue that (1) the Court lacks subject matter jurisdiction over M.
Weintraub, Dresdner, Weinstock, and Mazal because no federal claims are alleged against them;
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(2) the CFAA claims against A. Weintraub fail as a matter of law because (a) A. Weintraub had
authorization to access Plaintiff’s computers and servers and (b) Plaintiff did not suffer a “loss”
cognizable under the CFAA; and (3) with Plaintiff’s CFAA claims dismissed, this Court should
decline to exercise supplemental jurisdiction over Plaintiff’s state law claims.
Defendants are incorrect on all counts. First, as all of the parties have correctly assumed
throughout this litigation, the Court has supplemental jurisdiction over the claims against M.
Weintraub, Dresdner, Weinstock, and Mazal because they stem from the same common nucleus
of operative fact as Plaintiff’s CFAA claims against A. Weintraub. Second, the Complaint
plausibly alleges that A. Weintraub’s authorization to access Plaintiff’s computers and servers was
revoked when he was terminated as CEO and Mazal’s contract with Zap expired, and that Plaintiff
has suffered a “loss” cognizable under the CFAA. Third, even if the Court were to dismiss
Plaintiff’s CFAA claims, it would continue to exercise supplemental jurisdiction over Plaintiff’s
state law claims given the time and effort already invested in this case. Accordingly, Defendants’
motion for judgment on the pleadings is denied in its entirety and the parties will file a new joint
pretrial order, as explained below.
BACKGROUND
I.
Factual Background 1
Plaintiff is “an international telecommunications company” that “provides telecom
products and services to consumers.” (Compl., Dkt. 1, ¶ 9.) Plaintiff secures its customer payment
1
Because the standards of review for Rule 12(c) and Rule 12(b)(6) motions are identical,
Lively v. WAFRA Inv. Advisory Grp., Inc., 6 F.4th 293, 301 (2d Cir. 2021), the Court “accept[s] as
true all factual allegations [from the Complaint] and draw[s] from them all reasonable inferences;
but [it is] not required to credit conclusory allegations or legal conclusions couched as factual
allegations.” Hamilton v. Westchester Cnty., 3 F.4th 86, 90–91 (2d Cir. 2021) (quoting Dane v.
UnitedHealthcare Ins. Co., 974 F.3d 183, 188 (2d Cir. 2020)).
2
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information with an Authorize.Net account, and uses a third-party vendor to process payments
from customers. (Id. ¶¶ 11, 13.) From about May 2013 until August 2013, Zap contracted with
Mazal to provide this service, authorizing Mazal to access its customer payment information
through Authorize.Net and to charge for services rendered by Zap. (Id. ¶¶ 13–15.) Following
each billing cycle, Zap sent statements to customers and informed Mazal how much to charge the
customers, and Mazal charged customers accordingly.
(Id. ¶¶ 14–15.)
Mazal deposited
customer’s payments into a Mazal bank account (the “Mazal Account”), which was solely
dedicated to Zap transactions and was controlled by an officer of Zap. (Id. ¶¶ 16–17.) In addition,
A. Weintraub, the CEO of Mazal, was also CEO of Zap, which authorized him to “access . . .
accounts, passwords, and other administrative information belonging to [Zap].” (Id. ¶¶ 18–20.)
After the August 2013 billing cycle, Zap and Mazal agreed to discontinue their business
relationship, and Mazal was no longer authorized to process the credit cards of Zap customers.
(Id. ¶¶ 25–26.) In September 2013, A. Weintraub’s position as Zap CEO was terminated. (Id.
¶¶ 20 (stating A. Weintraub’s authorization was based solely on his employment), 27, 28.) As a
result, A. Weintraub’s was no longer authorized to access Zap’s computers and servers to obtain
customer and billing information. (Id. ¶ 56, 66, 67, 68, 73, 78, 84, 90.)
Following his termination, A. Weintraub schemed with Defendants M. Weintraub, Esti
Dresdner, and Steve Weinstock to defraud Plaintiff’s customers by opening a Mazal merchant
bank account, continuing to access Plaintiff’s computers and servers—without authorization—to
obtain Plaintiff’s confidential customer and billing information, bill Plaintiff’s customers, and
deposit the proceeds into Mazal’s merchant bank account. (Id. ¶¶ 29–38.) Defendants billed Zap
customers the amount owed to Zap for its September 2013 services and continued billing Zap
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customers until at least January 2014, depositing the proceeds in Mazal’s merchant bank account.
(Id. ¶¶ 33–41.)
In January 2014, Plaintiff sent a communication to its customers asking them to contact
their credit card companies to report the charges as fraudulent, but Defendant A. Weintraub then,
without authorization, “accessed an external [] email server [belonging to Zap] and sent out an
email stating that the January 29, 2014 communications were a mistake.” (Id. ¶¶ 45–46.) Since
then, Zap has struggled to regain its customers’ trust and has had to expend time and resources to
resecure its computer system and investigate the unauthorized charges and vulnerabilities in its
computer system. (Id. ¶¶ 47–48, 57–58.) Furthermore, Zap service records indicate that, for the
relevant period of time, it was entitled to bill its customers more than $80,000, which it has not
recovered. (Id. ¶¶ 43–44.)
II.
Procedural History
On November 23, 2015, Zap filed a complaint against Defendants in this Court alleging
that Defendants had violated the CFAA, misappropriated trade secrets, and engaged in common
law conspiracy and conversion. (Id. ¶¶ 49–112.) Defendants filed counterclaims and a complaint
against various third parties on January 28, 2016. (Dkt. 17.) On November 16, 2017, the parties
participated in a settlement conference, but no settlement was reached. (Dkt. 92.) The parties then
engaged in several years of discovery, which was extended numerous times at the request of all
parties, and finally concluded on July 3, 2019. (See generally Dkts. 19, 39, 46, 48, 50, 58, 68, 75,
78, 80, 94, 104–108, 127.)
Plaintiff then moved for summary judgment on Defendants’
counterclaims and third-party claims. (See Dkt. 137.) The Court granted that motion on September
30, 2020, dismissing Defendants’ counterclaims and the third-party Defendants. (See Dkt. 140.)
With discovery and motion practice apparently complete, this Court held a conference on
May 13, 2021, to set pretrial deadlines and trial dates. (05/13/2021 Docket Order.) At that
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conference, however, Defendants informed the Court of their desire to file the present motion for
judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) for lack of subject
matter jurisdiction. (See id.) The motion is now fully briefed. (See Defendants’ Memorandum of
Law in Support of Motion for Judgment on the Pleadings Pursuant to Fed. R. Civ. P. 12(c) (“Def.
Mem.”), Dkt. 153; Memorandum of Law in Opposition to Defendants’ Motion to Dismiss (“Pl.
Mem.”), Dkt. 154; Defendants’ Reply Memorandum of Law in Further Support of Motion for
Judgment on the Pleadings Pursuant to Fed. R. Civ. P. 12(c) (“Def. Reply”), Dkt. 155.) For the
reasons explained below, the motion is denied in its entirety.
STANDARD OF REVIEW
“The standard for granting a Rule 12(c) motion for judgment on the pleadings is identical
to that for granting a Rule 12(b)(6) motion for failure to state a claim.” Lively v. WAFRA Inv.
Advisory Grp., Inc., 6 F.4th 293, 301 (2d Cir. 2021) (quoting Lynch v. City of New York, 952 F.3d
67, 75 (2d Cir. 2020)). 2 “To survive such a motion, ‘a complaint must contain sufficient factual
2
It is unclear why Defendants moved under Rule 12(c) rather than Rule 12(b). Rule 12(c)
is “little more than a relic of the common law and code eras” and, in contemporary practice, is
redundant of Rule 12(b). Lively, 6 F.4th at 302. In addition, Defendants’ invocation of Rule 12(c)
in this case conflates distinct issues. All of the binding precedent on Rule 12(c) liken it to Rule
12(b)(6). See, e.g., id. Defendants’ only argument that can be characterized as a Rule 12(b)(6)
motion, however, is their argument about Plaintiff’s CFAA claims. Defendants’ arguments that
this Court lacks subject matter jurisdiction over M. Weintraub, Dresdner, Weinstock, and Mazal,
and should decline to exercise supplemental jurisdiction over Plaintiff’s state law claims, are
strictly about subject matter jurisdiction and thus properly brought under Rule 12(b)(1), which
Defendants never once mention in their papers. See Brownback v. King, 141 S. Ct. 740, 749 n.8
(2021) (where “the court might lack subject-matter jurisdiction for non-merits reasons, . . . it must
dismiss the case under just Rule 12(b)(1)”). Even Defendants’ argument about Plaintiff’s CFAA
claim, which asserts that Plaintiff fails to plead an element of the only federal claim that would
establish federal question jurisdiction, can be addressed under Rule 12(b)(6) or Rule 12(b)(1). Id.
“In most circumstances, it makes little practical difference whether the district court labels
its dismissal of an action as one for lack of subject matter jurisdiction under Rule 12(b)(1) or for
failure to state a claim under Rule 12(b)(6).” Cohen v. Postal Holdings, LLC, 873 F.3d 394, 399
(2d Cir. 2017) (ellipsis omitted). The two distinctions are: (1) Rule 12(b)(1) dismissals do not
have res judicata effect; and (2) a court may retain supplemental jurisdiction over state law claims
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matter, accepted as true, to “state a claim to relief that is plausible on its face.”’” Vengalattore v.
Cornell Univ., 36 F.4th 87, 102 (2d Cir. 2022) (quoting Lynch, 952 F.3d at 74 (quoting Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009))). A claim is plausible on its face “when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (quoting Iqbal, 556 U.S. at 678). The plausibility standard under
Rule 12(b)(6) requires “more than a sheer possibility that a defendant has acted unlawfully,” and
determining whether a complaint meets this standard is “a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Id. (quoting Iqbal, 556
U.S. at 678–79). For purposes of this analysis, the Court “accept[s] as true all factual allegations
and draw[s] from them all reasonable inferences; but [it is] not required to credit conclusory
allegations or legal conclusions couched as factual allegations.” Hamilton v. Westchester Cnty., 3
F.4th 86, 90–91 (2d Cir. 2021) (quoting Dane v. UnitedHealthcare Ins. Co., 974 F.3d 183, 188 (2d
Cir. 2020)).
DISCUSSION
Until now, this case has proceeded based on the seeming assumption that Plaintiff had
plausibly alleged claims against A. Weintraub under the CFAA, giving this Court federal question
jurisdiction as to those claims under 28 U.S.C. § 1331 and authority to exercise supplemental
jurisdiction over Plaintiff’s state law claims against all Defendants under 28 U.S.C. § 1357(a).
under 28 U.S.C. § 1367(c) if the dismissal of the federal claims is under Rule 12(b)(6), but not if
the dismissal is under Rule 12(b)(1). Nowak v. Ironworkers Loc. 6 Pension Fund, 81 F.3d 1182,
1188 (2d Cir. 1996). Here, however, the Court does not dismiss any federal claims, so the
distinction is immaterial. Furthermore, even though there would be no res judicata effect if the
Court dismissed the federal claims under Rule 12(b)(1), the Court would exercise its discretion to
retain supplemental jurisdiction over Plaintiff’s state law claims given the substantial resources
the parties have already spent litigating before this Court. Accordingly, the Court analyzes the
motion under the Rule 12(c)/12(b)(6) framework discussed by the parties.
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Now, after years of litigation and at the moment trial was to be scheduled, Defendants argue for
the first time that the Court lacks jurisdiction over M. Weintraub, Dresdner, Weinstock, and Mazal
because no federal claims are alleged against them, that the CFAA claims against A. Weintraub
fail as a matter of law, and that the Court should decline to exercise supplemental jurisdiction over
Plaintiff’s state law claims. The Court entirely disagrees.
I.
Plaintiff’s Claims Against Defendants M. Weintraub, Dresdner, Weinstock,
and Mazal
Defendants argue that the Court does not have subject matter jurisdiction over Plaintiff’s
claims against Defendants M. Weintraub, Dresdner, Weinstock, and Mazal because “[n]one of the
claims asserted against [these Defendants] remotely involves any question of federal law.” (Def.
Mem., Dkt. 153, at 4.) This is the first argument in Defendants’ motion and does not even purport
to rely on Defendants’ assertion that Plaintiff’s CFAA claims against A. Weintraub must be
dismissed. (Id. at 3–5.) Defendants instead argue that, regardless of what happens with the CFAA
claims against A. Weintraub, Defendants M. Weintraub, Dresdner, Weinstock, and Mazal must be
dismissed because the Complaint asserts only state law claims against those Defendants. (Id. at
5.)
This argument is late and frivolous. The operative Complaint was filed on November 23,
2015, and has been litigated for nearly seven years now. (See Compl., Dkt. 1.) It has been clear
from the start that all of the claims against M. Weintraub, Dresdner, Weinstock, and Mazal are
based on state law. For Defendants to step up at this late hour and argue for the first time that
these claims must be dismissed, simply because they are state law claims, smacks of
gamesmanship and a desire to delay trial. Defendants’ initial memorandum in support of its motion
did not even attempt to argue that Plaintiff’s CFAA claims against A. Weintraub are not related to
the state law claims against M. Weintraub, Dresdner, Weinstock, and Mazal. (Def. Mem., Dkt.
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153, at 4.) Instead, Defendants merely asserted that a federal court simply can never have subject
matter jurisdiction whenever only state law claims are brought against a defendant. 3 That position
is, of course, flatly incorrect.
Except in certain circumstances not applicable here, 28 U.S.C. § 1367(a) gives federal
courts
supplemental jurisdiction over all other claims that are so related to claims [of
which the district courts have original jurisdiction] that they form part of the same
case or controversy under Article III of the United States Constitution. Such
supplemental jurisdiction shall include claims that involve the joinder or
intervention of additional parties.
28 U.S.C. § 1367(a). “A state law claim forms part of the same controversy if it and the federal
claim derive from a common nucleus of operative fact . . . even if the state law claim is asserted
against a party different from the one named in the federal claim.” Briarpatch Ltd. v. Phoenix
Pictures, Inc., 373 F.3d 296, 308 (2d Cir. 2004) (emphasis added) (internal quotation marks and
citations omitted); see also Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 558 (2005)
(“The last sentence of § 1367(a) makes it clear that the grant of supplemental jurisdiction extends
to claims involving joinder or intervention of additional parties.”); F5 Cap. v. Pappas, 856 F.3d
61, 78 (2d Cir. 2017) (“In enacting the supplemental jurisdiction statute, Congress . . . embraced
pendent parties jurisdiction in federal question cases.” (internal quotation marks and brackets
omitted)); Hogan v. Consol. Rail Corp., 961 F.2d 1021, 1027 (2d Cir. 1992) (“[A] district court
generally has supplemental jurisdiction over state-law claims against a non-diverse party if it has
original jurisdiction over related claims against another party.”).
3
Defendants acknowledge the existence of diversity jurisdiction under 28 U.S.C. § 1332,
which no one has ever attempted to assert in this case, and then waste time vanquishing that
strawman of their own creation. (Def. Mem., Dkt. 153, at 4.)
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Here, Plaintiff’s state law claims against M. Weintraub, Dresdner, Weinstock, and Mazal
all “derive from a common nucleus of operative fact” with the federal claims. Briarpatch, 373
F.3d at 308. All of the state and federal claims stem from Defendants’ alleged scheme to defraud
Plaintiff’s customers by continuing to bill Plaintiff’s customers after Plaintiff’s contract with
Mazal had expired and by depositing the proceeds of those unauthorized and fraudulent billings in
a Mazal bank account. (See Compl., Dkt. 1, ¶¶ 24–38, 49–112.)
As noted, Defendants’ opening brief in support of its motion did not even attempt to argue
otherwise. (Def. Mem., Dkt. 153, at 3–5.) It was only after Plaintiff responded that “the allegations
in the Complaint plainly allege a common nucleus of operative fact” (Pl. Mem., Dkt. 154, at 3–5),
that Defendants, on reply, attempted to argue that the claims are not part of the same nucleus of
operative fact. (Def. Reply, Dkt. 155, at 6–7.) By not making this argument until their reply brief,
Defendants have forfeited it. Browe v. CTC Corp., 15 F.4th 175, 191 (2d Cir. 2021) (“[I]t is
hornbook law that ‘arguments may not be made for the first time in a reply brief.’” (brackets
omitted) (quoting Knipe v. Skinner, 999 F.2d 708, 710–11 (2d Cir. 1993) (collecting cases)). The
Court may thus decline to even consider this argument. Id. The Court notes, however, that even
if the argument had been timely and properly raised, it is meritless.
In their reply brief, Defendants try to distinguish the CFAA claim against A. Weintraub
and the claims against the remaining Defendants by asserting that “[t]he CFAA claim is predicated
on the allegation that A. Weintraub had accessed the plaintiff’s server ‘without authorization’ and
had caused a ‘loss’ to the plaintiff that is cognizable under the statute,” while the other Defendants
are only alleged to have “‘opened’ or ‘created’ a bank account into which A. Weintraub had
deposited the $80,000 which Plaintiff claims he had diverted from Plaintiff’s business.” (Def.
Reply, Dkt. 155, at 6–7.) That is simply an incorrect reading of the Complaint. In reality, the
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Complaint alleges that all Defendants “opened the merchant bank account with full knowledge
that it would be used as a depository for illicitly gained monies” (Compl. Dkt. 1, ¶ 31), that the
Mazal bank account substantially assisted with the scheme to defraud Plaintiff’s customers (id.
¶ 92), that M. Weintraub, Weinstock, and Dresdner assisted A. Weintraub in “access[ing] the
corporate files of [Zap] pilfer[ing] the personal information and credit card information of the
customers of Amp Cellular” (id. ¶¶ 32, 77, 79, 92), and that all Defendants “exercised unauthorized
dominion and control over Plaintiff[’s] funds by stealing and refusing to return the monies” (id.
¶ 97).
Defendants’ attempt to take a scalpel to the Complaint and excise the allegations about the
state-law-claim Defendants’ knowing participation in the fraud scheme with A. Weintraub—aside
from being carelessly or purposely misleading—is inconsistent with the Court’s duty in evaluating
a Rule 12(c) or Rule 12(b)(6) motion. Vengalattore, 36 F.4th at 102 (quoting Kaplan v. Lebanese
Canadian Bank, SAL, 999 F.3d 842, 854 (2d Cir. 2021) (explaining that, on a Rule 12(c) or
12(b)(6) motion, “[t]he proper question is whether there is a permissible relevant inference from
‘all of the facts alleged, taken collectively,’ not whether an inference is permissible based on ‘any
individual allegation, scrutinized in isolation.’”) (quoting Tellabs, Inc. v. Makor Issues & Rts.,
Ltd., 551 U.S. 308, 323 (2007))). Furthermore, Defendants’ argument is plainly unavailing. The
Complaint clearly ties the creation of the merchant bank account to the actions of A. Weintraub
that are alleged to constitute a CFAA violation, and implicates the other Defendants in more of A.
Weintraub’s actions alleged to violate the CFAA than just opening the bank account. Taken
together, the allegations in the Complaint describe a scheme involving all Defendants that gave
rise to all counts in the Complaint. Accordingly, even if Defendants’ argument attempting to sever
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the actions of A. Weintraub from the other Defendants were properly before the Court, it would
be rejected.
For all of the reasons explained above, the Court denies Defendants’ motion to dismiss the
claims against Defendants M. Weintraub, Dresdner, Weinstock, and Mazal. Those claims will
proceed to trial.
II.
Plaintiff’s CFAA Claims Against Defendant A. Weintraub
Plaintiff asserts two CFAA claims against Defendant A. Weintraub: (1) a claim under 18
U.S.C. § 1030(a)(2)(C), which imposes liability on anyone who “intentionally accesses a computer
without authorization or exceeds authorized access, and thereby obtains information from any
protected computer”; and (2) a claim under 18 U.S.C. § 1030(a)(5)(C), which imposes liability on
anyone who “intentionally accesses a protected computer without authorization, and as a result of
such conduct, causes damage and loss.” 18 U.S.C. § 1030(a)(2)(C), (a)(5)(C); (Compl., Dkt. 1,
¶¶ 49–70).
Defendants argue that (1) under the Supreme Court’s recent interpretation of “without
authorization” and “exceeded authorized access” in Van Buren v. United States, 141 S. Ct. 1648
(2021), the Complaint does not allege that A. Weintraub violated the CFAA, and (2) the Complaint
does not allege that Plaintiff suffered a “loss” under the CFAA that would enable Plaintiff to sue.
(Def. Mem., Dkt. 153, at 5, 11.)
A.
Without Authorization and Exceeding Authorized Access
The CFAA does not define “without authorization,” but does define “exceeds authorized
access.” Exceeding authorized access means “access[ing] a computer with authorization and to
use such access to obtain . . . information in the computer that the accesser is not entitled so to
obtain.” 18 U.S.C. § 1030(e)(6); United States v. Valle, 807 F.3d 508, 523 (2d Cir. 2015). In Van
Buren, a police sergeant in Georgia named Nathan Van Buren accepted a bribe from an FBI
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informant named Andrew Albo to search a state law enforcement database, to which he had
authorized access, for a license plate purportedly belonging to a woman who Albo had met at a
strip club. 141 S. Ct. at 1652–53. The federal government then charged and successfully
prosecuted Van Buren for violating the “exceeds authorized access” clause of 18 U.S.C.
§ 1030(a)(2). Id. at 1653. On appeal, the government’s position was that “exceeds authorized
access” encompassed misusing access that one otherwise has, while Van Buren argued that
“exceeds authorized access” applied only to accessing information to which one’s valid access
does not extend. Id. The Supreme Court sided with Van Buren, finding that because he was
authorized to access the information he obtained from the law enforcement computer database,
even if he did so for an unauthorized purpose, he did not violate Section 1030(a)(2). Id. at 1655.
Importantly, the Court also noted that “[t]he interplay between the ‘without authorization’
and ‘exceeds authorized access’ clauses of subsection (a)(2) is particularly probative.” Id. at 1658.
The “without authorization” clause . . . protects computers themselves by targeting
so-called outside hackers—those who acces[s] a computer without any permission
at all. . . . [T]he “exceeds authorized access” clause . . . provide[s] complementary
protection for certain information within computers. It does so . . . by targeting socalled inside hackers—those who access a computer with permission, but then
“exceed” the parameters of authorized access by entering an area of the computer
to which that authorization does not extend.
Id. (internal quotation marks, citations, and brackets omitted).
Finally, the Court noted in Van Buren—explicitly as dicta that was not necessary to its
holding and merely as “extra icing on a cake already frosted”—that “the Government’s
interpretation of the statute would attach criminal penalties to a breathtaking amount of
commonplace computer activity.” Id. at 1661. The Court observed that “[i]f the ‘exceeds
authorized access’ clause criminalizes every violation of a computer-use policy, then millions of
otherwise law-abiding citizens are criminals,” such as “an employee who sends a personal email
or reads the news using her work computer.” Id.
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As significant as the Supreme Court’s holding in Van Buren was, it does not “render[]
[P]laintiff’s CFAA claims against A. Weintraub untenable as a matter of law,” as Defendants
argue. (Def. Mem., Dkt. 153, at 10.) Van Buren is easily and materially distinguishable. In Van
Buren, the criminal defendant was a police sergeant authorized to use the law enforcement
database that he had accessed. 141 S. Ct. at 1654–66. Here, the Complaint alleges that Defendant
A. Weintraub accessed Plaintiff’s computers and servers after he was no longer authorized to do
so, having been terminated as Zap’s CEO, and Mazal’s vendor contract with Zap having expired.
(Compl., Dkt. 1, ¶¶ 53–54; see id. ¶¶ 25–28, 33–42, 56, 66–68, 73, 78, 84, 90.)
While the Complaint does not explicitly state that A. Weintraub’s authorization to access
Plaintiff’s computers and servers was terminated along with his position as CEO, that is the clear,
reasonable inference from the allegations in the Complaint as a whole, which states that A.
Weintraub had authorization to access Plaintiff’s “accounts, passwords, and other administrative
information” solely because of his position as CEO and, after he was terminated as CEO, he
accessed Plaintiff’s computers and servers “without authorization.” (Id. ¶¶ 20, 56, 66–68, 73, 78,
84, 90); Vengalattore, 36 F.4th at 102 (on a Rule 12(c) or 12(b)(6) motion, courts must draw all
permissible relevant inference from all of the facts alleged, taken collectively).
The Court disagrees with Defendants’ hyperbolic assertion that A. Weintraub “cannot by
any stretch be deemed an ‘outside hacker’.” (Def. Mem., Dkt. 153, at 10.) Indeed, the reasonable
inference to be drawn from Plaintiff’s allegations is that after A. Weintraub was terminated as
Zap’s CEO and after Mazal’s contract with Zap had expired, A. Weintraub’s alleged accessing of
Zap’s computer system, for the purpose of committing fraud, amounted to hacking, even if he did
not use any advanced or specialized computer skills, as “hackers” sometimes do, to accomplish it.
The Court therefore finds, based on the allegations in the Complaint, that A. Weintraub qualifies
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as a “so-called outside hacker[] . . . who access[es] a computer without any permission at all[,]”
Van Buren, 141 S. Ct. at 1658, as to whom Section 1030(a)(2) still applies after Van Buren.
Furthermore, holding such a former CEO liable for the misconduct alleged here does not run afoul
of the Supreme Court’s concerns in Van Buren about “attach[ing] criminal penalties to a
breathtaking amount of commonplace computer activity,” “criminaliz[ing] every violation of a
computer-use policy,” and turning “millions of otherwise law-abiding citizens [into] criminals,”
such as “an employee who sends a personal email or reads the news using her work computer.”
Id. at 1661. A. Weintraub’s alleged conduct was far from “commonplace computer activity,” it
was already unlawful under state law, as the other claims against him demonstrate, and A.
Weintraub was not an employee sending a personal email or reading the news—he was no longer
an employee at all, yet was allegedly accessing Zap’s computers and servers without authorization
to steal confidential client and billing information, and ultimately money.
Defendants contend that because the Complaint alleges that A. Weintraub, while CEO,
“had access to [Plaintiff’s] accounts, passwords, and other administrative information,” “[t]here is
thus no question that A. Weintraub was authorized to access the information at issue.” (Def. Mem.,
Dkt. 153, at 8.) This argument completely ignores the allegations in the Complaint and is plainly
meritless. Clearly, a CEO or any employee can have authorization to access the company’s
computers and servers while working there, but lose that authorization upon being terminated from
the company—which is what Plaintiff is alleging here as to A. Weintraub. Indeed, as discussed
below, courts have accepted this theory of liability and have found terminated employees liable
under the CFAA for accessing computers that they were previously authorized to access.
Defendants also argue that, even after A. Weintraub was terminated as CEO, he still “had
full access to the company’s documents and databases” because he “continued to be a shareholder
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of the company.” (Id. at 8–9.) This argument is completely inappropriate for the present motion,
as to which the Court must accept as true all allegations in the Complaint and draw all reasonable
inferences in Plaintiff’s favor. Vengalattore, 36 F.4th at 102. As discussed, the Complaint clearly
alleges that Plaintiff revoked A. Weintraub’s authorization to access Plaintiff’s computers and
servers after he was terminated as CEO and once Mazal’s vendor contract with Plaintiff ended.
The Complaint does not allege that merely being a shareholder authorizes A. Weintraub to access
Plaintiff’s computers and servers—a proposition that, on its face, seems highly unlikely. Indeed,
despite Defendants suggesting that it is an undisputed fact (Def. Mem., Dkt. 153, at 10), Plaintiff’s
do in fact dispute this assertion, and cite a relevant New York Business Law to the contrary (Pl.
Mem., Dkt. 154, at 7 (citing N.Y. Bus. L. § 624).) Defendants offer no evidence to support their
contrary position, and even if they did, proffering such evidence to contradict the allegations in
the Complaint would be inappropriate on this motion for judgment on the pleadings. 4
Defendants also inexplicably assert that “[i]t is conceded that this authorization was not
revoked or rescinded, explicitly or otherwise.” (Def. Mem., Dkt. 153, at 10.) Because of
Defendants’ passive sentence construction, it is impossible to tell who they believe conceded this
fact, but it is surely not Plaintiff. As discussed in detail, Plaintiff’s Complaint clearly alleges that
A. Weintraub’s authorization was revoked after he was terminated as CEO, and Plaintiff explicitly
argues that point in opposition to the present motion. (Pl. Mem., Dkt. 154, at 7.)
4
As discussed, Defendants inexplicably have chosen to make a Rule 12(c) motion after
seven years of litigation, and not a summary judgment motion. Indeed, given the history of this
case, and Defendants’ decision to file what is essentially a Rule 12(b) motion at this late stage in
the proceedings, the Court would view any request by Defendants to file for summary judgment
with great skepticism.
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Defendants next argue that Advanced Aerofoil Technologies v. Todaro, No. 11-CV-9505
(ALC) (DCF), 2013 WL 410873 (S.D.N.Y. Jan. 30, 2013), is directly on point. (Def. Mem., Dkt.
153, at 9.) Defendants characterize that case as follows:
In that case, plaintiff AAT brought a CFAA claim against several former employees
who allegedly continued to access AAT’s computer system to obtain its
confidential information after they had resigned. Noting that AAT had not revoked
the former employees’ authority to access its computer system at the time of their
access of the system, the Court granted defendant’s motion to dismiss holding that
“plaintiffs cannot state a cognizable claim under CFAA . . . .”
(Id. (citation omitted).)
Defendants’ description of Advanced Aerofoil is misleading, at best. In fact, the complaint
in Advanced Aerofoil alleged that the defendants had secretly resigned and thus the plaintiff “did
not know about the resignations and had not terminated [the defendants’] access to its systems.”
2013 WL 410873, at *5. Accordingly, in Advanced Aerofoil, the court could not reasonably infer
from the complaint that the plaintiff had revoked the defendants’ authorization to access the
relevant information. Here, on the other hand, that is the only reasonable inference to draw from
the allegations in the Complaint—which Defendants studiously seek to ignore.
Indeed, in
Advanced Aerofoil, the plaintiff did not even argue that the defendants did not have authorization
to access the information at issue, but that the plaintiff “clearly would not have allowed [the
defendants] to retrieve its confidential information for the purposes for which [the defendants]
ultimately used it.” Id. That is effectively the same argument ultimately rejected in Van Buren,
i.e., accessing information that the defendant is authorized to access, but for an unauthorized or
improper purpose, does not constitute exceeding authorized access under Section 1030(a)(2). In
this case, however, Plaintiff argues that, after being terminated, A. Weintraub was not authorized
to access Plaintiff’s computers or servers at all and that merely by accessing Plaintiff’s computer
system, Defendant A. Weintraub violated Section 1030(a)(2).
16
(Pl. Mem., Dkt. 154, at 7.)
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Furthermore, in Advanced Aerofoil, the court explicitly relied on the defendants’ status as current
employees in “declin[ing] the opportunity to expand the CFAA to include situations where an
employee takes confidential information, using authorization given to him and controlled by his
employer.” Id. at *7 (emphasis added). Here, the Court similarly is not expanding the CFAA to
include situations where an employee took confidential information by using authorization given
to him by his employer, but is applying the CFAA to a situation where an ex-employee allegedly
took confidential information by using authorization that had been revoked by his employer. 5
Finally, Defendants argue that,
[w]hile the Second Circuit has not specifically addressed the question whether an
ex-employee whose access to his former employer’s computer has not been revoked
can be deemed to act “without authorization” in accessing it, the Ninth Circuit has
answered this question firmly in the negative. If the computer owner has not
affirmatively rescinded the defendant’s right to access the computer, any existing
authorization/permission remains. LVRC Holdings LLC v. Brekka, 581 F.3d 1127,
1134–35 (9th Cir. 2009).
(Def. Mem., Dkt. 153, at 10.) This argument rests on both a mischaracterization of the Complaint
and a mischaracterization of LVRC. First, Plaintiff’s argument once more assumes that the
Complaint alleges that A. Weintraub’s authorization to access Plaintiff’s computers and servers
had “not been revoked” when he was terminated. The Court will not belabor this point, but as
discussed, the only reasonable inference to draw from the Complaint as a whole is that A.
Weintraub’s authorization had been revoked by the time he began accessing Zap’s computers as
part of the alleged fraud scheme. Plaintiff’s opposition to the present motion confirms that reading.
5
Loop AI Labs. Inc. v. Gatti, No. 15-CV-798 (HSG), 2015 WL 5158639, at *3 (N.D. Cal.
Sept. 2, 2015), also cited by Defendants (Def. Mem., Dkt. 53, at 9), similarly involved a plaintiff
arguing that a defendant’s authorization had been “impliedly revoked” when the defendant began
working for another company but was still employed by the plaintiff. Id. That case actually
strongly supports Plaintiff’s position, noting that if any of the alleged access had occurred after the
defendant had actually stopped working for plaintiff, that would have constituted a CFAA
violation. Id.
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(Def. Mem., Dkt. 154, at 7.) Second, Defendants’ citation to LVRC for the above proposition, like
Defendants’ characterization of Advanced Aerofoil, is grossly misleading. LVRC says absolutely
nothing about an ex-employee accessing his former employer’s computer.
In LVRC, an employee accessed a company computer while he was an employee, then
emailed the information to himself and his wife, and later viewed that information on his own
computer after he was no longer an employee. 581 F.3d at 1129–30. The court’s holding, finding
no liability under Section 1030(a)(2), was entirely based on the fact that the defendant’s “access
occurred during the term of his employment.” Id. at 1132–33 (emphasis added). As to emailing
the information to himself and accessing it later, the Court noted that the defendant had not
accessed the company’s computer after his employment, and that “there was no evidence that [the
defendant] had agreed to keep the emailed documents confidential or to return or destroy those
documents upon the conclusion of his employment.” Id. at 1132. By contrast, in this case, the
information was in fact confidential and was allegedly taken by A. Weintraub only after he had
been terminated from Zap. Here, there are no allegations, like those in LVRC, that A. Weintraub
accessed the confidential information while serving as Zap’s CEO, emailed it to himself, and then
later accessed it on his own computer. Indeed, much of the relevant information, such as customer
charges for subsequent months, was necessarily generated after A. Weintraub was terminated as
CEO in September 2013. Accordingly, LVRC does not support Defendants’ position. 6
Lastly, the Court must note that Defendants argue that Van Buren’s construction of the
CFAA was the law in this Circuit since 2015, when the Second Circuit decided Valle, 807 F.3d at
6
Defendants also cite Facebook, Inc. v. Power Ventures, Inc., 844 F.3d 1058, 1067 (9th
Cir. 2016), for the proposition that the “without authorization” provisions of the CFAA are only
violated “when [a defendant] has no permission to access a computer or when such permission has
been revoked explicitly.” (Def. Mem., Dkt. 153, at 10.) Again, in this case, Plaintiff alleges that
A. Weintraub’s authorization was explicitly revoked. (See Pl. Mem., Dkt. 154, at 7.)
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523–28, and that this construction was fastidiously followed by the lower courts of this Circuit.
(Def. Mem., Dkt. 153, at 6–8.) Defendants are actually correct on this point. However, that does
not help them because, as discussed, Van Buren’s construction of the CFAA does not support their
position nor bar Plaintiff’s CFAA claims against A. Weintraub. Indeed, it has been consistently
noted by courts in this Circuit that allegations that an ex-employee accessed their former
employer’s computers or servers after that access had been revoked would state a claim under the
CFAA. 7 Sell It Soc., LLC v. Strauss, No. 15-CV-970 (PKC), 2018 WL 2357261, at *3 (S.D.N.Y.
Mar. 8, 2018) (collecting cases); Apple Mortgage Corp. v. Barenblatt, 162 F. Supp. 3d 270, 287
(S.D.N.Y. 2016); Amphenol Corp. v. Paul, 993 F. Supp. 2d 100, 110 (D. Conn. 2014); Poller v.
BioScrip, Inc., 974 F. Supp. 2d 204, 233 (S.D.N.Y. 2013); Advanced Aerofoil, 2013 WL 410873,
at *5. 8
7
The fact that the Supreme Court’s holding in Van Buren has been the law in this Circuit
since 2015—the year this lawsuit was filed—again raises the question of why Defendants waited
until 2021, almost on the eve of trial, to raise this argument as a basis for dismissal under Rule
12(c). Defendants’ current counsel appeared in this case on May 9, 2018, a full three years before
raising the issues in this motion. (See Dkts. 98, 99.) And while Defendants’ brief relies
extensively on Van Buren, that case was decided after the pre-motion conference on Defendants
proposed Rule 12(c) motion and thus could not have been the impetus for Defendants late-filed
Rule 12(c). The Court again voices its concerns about Defendants’ motivation and the specter of
bad faith and dilatory tactics in order to cause undue delay and prejudice to Plaintiff. The defense
is on notice that the Court will not permit the defense to engage in such tactics to delay trial in this
case and that the Court has given serious consideration to whether sanctions are appropriate, given
how defense counsel has handled this case, including all of the last-minute, meritless arguments
and mischaracterization of cases that Defendants have made in the present motion.
8
To the extent Defendants are arguing that A. Weintraub was still “authorized” to access
Plaintiff’s computers and servers because he somehow was still able to log into those computers
and servers, that argument is also incorrect. Sell It Soc., 2018 WL 2357261, at *3 (“Persuasive
precedent and common sense . . . belie [the defendant’s] argument, which equates having login
credentials with being authorized to access the database.” (collecting cases)); Poller, 974 F. Supp.
2d at 233 (“[W]here an employee has certain access to a computer or system associated with her
job, that access will be construed as unauthorized within the meaning of the CFAA only where it
occurs after the employee is terminated or resigns.”); see Apple Mortgage Corp., 162 F. Supp. 3d
at 287; Amphenol Corp., 993 F. Supp. 2d at 110.
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For all of the reasons explained above, Defendant’s “without authorization” argument fails,
and Plaintiff’s CFAA claims against A. Weintraub will proceed to trial.
B.
Plaintiff’s Private Right of Action under the CFAA
The CFAA is both a criminal and civil statute. 18 U.S.C. § 1030(a)(2)(B); Valle, 807 F.3d
at 523. “A civil action for a violation of [the CFAA] may be brought [by a private person or entity]
only if the conduct involves”:
(I) loss to 1 or more persons during any 1-year period . . . aggregating at least
$5,000 in value; (II) the modification or impairment, or potential modification or
impairment, of the medical examination, diagnosis, treatment, or care of 1 or more
individuals; (III) physical injury to any person; (IV) a threat to public health or
safety; [or] (V) damage affecting a computer used by or for an entity of the United
States Government in furtherance of the administration of justice, national defense,
or national security.
18 U.S.C. § 1030(g), (c)(4)(A)(i)(I)–(V). The only subsection at issue here is “loss to 1 or more
persons during any 1-year period . . . aggregating at least $5,000 in value.”
Id.
§ 1030(c)(4)(A)(i)(I).
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.” Id. § 1030(e)(11). In
addition, “[d]amages for a violation involving only conduct described in subsection (c)(4)(A)(i)(I)
are limited to economic damages.” Id. § 1030(g); Hancock v. Cnty. of Rensselaer, 882 F.3d 58,
64 (2d Cir. 2018).
Plaintiff has adequately alleged more than $5,000 of economic damages that occurred
during a one-year period and stemmed from both “revenue lost . . . because of interruption of
service” and the cost of “responding to an offense [and] conducting a damage assessment.” 18
U.S.C. § 1030(e)(11). Plaintiff lost roughly $80,000 of revenue within six months as a direct result
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of A. Weintraub’s alleged unauthorized computer access and Defendants’ fraud scheme. (Compl.,
Dkt. 1, ¶¶ 43–44.)
Common sense and a reasonable inference from the Complaint also
demonstrate that Plaintiff expended economic resources to “investigate the unauthorized charges,
investigate vulnerabilities in the security of the computer system, and re-secure the computer
system.” (Id. ¶ 69.)
Nevertheless, Defendants attempt to argue that Plaintiff has not alleged a loss cognizable
under the CFAA. Once again, like all of Defendants’ arguments in the present motion, this
argument is based on a blatant misreading of the case law and is brought inappropriately late in
the litigation. First of all, Defendants conflate “revenue lost . . . because of interruption of service”
and the cost of “responding to an offense [and] conducting a damage assessment.” They rely on a
number of district court cases which, under Defendants’ reading, held that only losses “related to
remedying any damage to plaintiff’s computer” are cognizable under the CFAA. (Def. Mem., Dkt.
153, at 12–13.) Those cases, however, all discuss the types of losses cognizable for investigations
related to unauthorized computer access, not lost revenue. “[T]he plain language of [§ 1030] treats
lost revenue as a different concept from incurred costs.” Nexans Wires S.A. v. Sark-USA, Inc., 166
F. App’x 559, 562 (2d Cir. 2006). Here, Plaintiff clearly alleges that it lost revenue because of the
interruption of its billing service caused by Defendants’ conduct, and Defendants simply have no
valid argument that such a loss is not cognizable under the CFAA. Indeed, it would be absurd to
conclude that revenue diverted from a plaintiff’s billing service by someone hacking into the
plaintiff’s computers and servers would not be cognizable under the CFAA.
Furthermore, Defendants read the district court cases about losses associated with
investigations far too narrowly. It is true that courts in this district are “reluctant to allow losses
stemming from prophylactic preventative measures to constitute ‘losses’ under the statute, even if
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such measure is prompted by a specific breach.” Reis, Inc. v. Spring11 LLC, No. 15-CV-2836
(PGG), 2016 WL 5390896, at *8 (S.D.N.Y. Sept. 26, 2016) (brackets omitted). However, “[t]he
weight of caselaw in this Circuit holds that a Plaintiff can satisfy the CFAA § 1030(g) ‘damage or
loss’ requirement by pleading a loss stemming from a damage assessment and/or remedial
measures, even without pleading actual damage.” Id. (collecting cases) (brackets omitted). “For
example, if the alleged loss seeks to identify evidence of a breach of computer security, assess any
damage it may have caused, and determine whether any remedial measures were needed to
resecure the network, then it qualifies as a ‘loss’ pursuant to the CFAA.” Id. (collecting cases)
(internal quotation marks and brackets omitted). In addition, the Second Circuit has recently held
that the cost of “investigat[ing] . . . unauthorized access to [a database]” qualifies as a “cost[] of
‘conducting a damage assessment’” under the CFAA. Saunders Ventures, Inc. v. Salem, 797 F.
App’x 568, 570, 572 (2d Cir. 2019). These are the exact types of allegations Plaintiff puts forth
here. (Compl., Dkt. 1, ¶ 69 (alleging that the breach prompted Plaintiff to “investigate the
unauthorized charges, investigate vulnerabilities in the security of the computer system, and resecure the computer system”).)
Finally, the Court must note once again that the argument that Plaintiff did not plead a loss
cognizable under the CFAA could have been made at any stage of the litigation, but Defendants
waited to raise it until virtually the eve of trial. That is entirely inappropriate. Discovery has
closed. If, at this stage, Defendants believe that Plaintiff has no evidence that Plaintiff actually
suffered a loss cognizable under the CFAA, Defendants should have moved for summary
judgment. The fact that they did not do so only reinforces how meritless this argument is.
III.
Supplemental Jurisdiction
Even if this Court were to dismiss Plaintiff’s CFAA claims, it would retain jurisdiction
over Plaintiff’s state law claims. As discussed, the Court has supplemental jurisdiction over the
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state law claims in this case pursuant to 28 U.S.C. § 1367(a). “In order for a district court to
decline to exercise supplemental jurisdiction, where section 1367(a) is satisfied, the discretion to
decline supplemental jurisdiction is available only if founded upon an enumerated category of
subsection 1367(c).” Catzin v. Thank You & Good Luck Corp., 899 F.3d 77, 85 (2d Cir. 2018).
One of those subsections is where “the district court has dismissed all claims over which it has
original jurisdiction.” Id. (quoting 28 U.S.C. § 1367(c)(3)). “[I]n the usual case in which all
federal-law claims are eliminated before trial, the balance of factors to be considered under the
pendent jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point
toward declining to exercise jurisdiction over the remaining state-law claims.” Valencia ex rel.
Franco v. Lee, 316 F.3d 299, 305 (2d Cir. 2003).
However, even “[w]hen § 1367(c)(3) applies, the district court must still meaningfully
balance the supplemental jurisdiction factors” and, ultimately, “[t]he declining of supplemental
jurisdiction must actually promote those values.” Catzin, 899 F.3d at 81–82, 85–86 (reversing the
district court’s decision to decline supplemental jurisdiction when federal claims were dismissed
on “the eve of trial” based on speculation that the plaintiffs brought their federal claims just to be
in federal court).
Here, even if the Court were to dismiss all of Plaintiff’s federal claims, the declining of
supplemental jurisdiction would not “actually promote” judicial economy, convenience, fairness,
or comity. To the contrary, declining supplemental jurisdiction after extensive discovery and
motion practice has taken place in this Court—and sending this case to a new court unfamiliar
with its details and history—would actively work against the values of judicial economy,
convenience, and fairness. Such a result would be particularly and acutely unfair here, given, as
repeatedly noted, Defendants’ decision to wait until almost the eve of trial to make a motion that
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could and should have been made at the beginning of this case, some seven years ago. Finally,
this case involves relatively common, run-of-the mill state law claims, so comity would not be
offended by this Court retaining supplemental jurisdiction even if only state law claims remained.
CONCLUSION
For all of the reasons explained above, Defendants’ motion for judgment on the pleadings
is denied in its entirety. The parties shall submit a new joint pretrial order on or before October
20, 2022, and the Court will set a date for an Initial Pretrial Conference at which a trial date and
related deadlines will be set. 9
SO ORDERED.
/s/ Pamela K. Chen
Pamela K. Chen
United States District Judge
Dated: September 19, 2022
Brooklyn, New York
9
As the Court has noted at various points in this decision, because Defendants chose to
wait until now to file a Rule 12(b)(6) motion—a motion that could and should have been filed at
the outset of litigation—the Court will look askance at any request by Defendants to file a summary
judgment motion. As discussed, had discovery in this case over the past seven years yielded
evidence to support such a motion, that is the motion that Defendants should have filed before
trial, instead of the one they chose to file. Indeed, Defendants only requested permission to file
the instant motion after discovery had long closed, after the parties had filed a Joint Pretrial Order
in preparation for trial, and at the Initial Pretrial Conference held by the Court to prepare for trial.
As it is, the Court finds that the current motion is entirely frivolous and borderline sanctionable.
The Court will not allow Defendants to further waste Plaintiff’s or the Court’s time and resources
with a frivolous summary judgment motion. Thus, the parties should prepare to move forward to
trial.
24
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