Cranel, Incorporated v. Pro Image Consultants Group, LLC et al
Filing
59
OPINION AND ORDER granting 39 Motion to Dismiss for Failure to State a Claim; granting 40 Motion to Dismiss for Failure to State a Claim; granting 42 Motion to Dismiss for Failure to State a Claim. Signed by Judge James L Graham on 9/29/2014. (ds)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Cranel Inc.,
Case No. 2:13-cv-766
Plaintiffs,
Judge Graham
v.
Magistrate Judge Abel
Pro Image Consultants Group, LLC, et al,
Defendant.
OPINION AND ORDER
This matter is before the Court on the Defendants’ Partial Motions to Dismiss (docs. 39,
40, & 42). For the reasons that follow, the Court will GRANT the Defendants’ Motions and
DISMISS the remaining state law claims WITHOUT PREJUDICE.
I.
Background
The following allegations are taken from the Plaintiff’s Amended Complaint (doc. 36).
The Plaintiff, Cranel Inc., is an Ohio corporation that provides information technology
solutions and services to customers throughout North America. Am. Compl. at ¶ 11, doc. 36. The
Plaintiff specifically provides enterprise content management (ECM) software and hardware that
allows customers to scan, capture, manage, and store documents. Id. In addition, the Plaintiff
offers customer support services and technology maintenance and management services. Id.
V-CARE is an all-inclusive technology and maintenance service offered by the Plaintiff.
Id. at ¶ 12. The Plaintiff prices V-CARE for each customer based on a number of factors using a
confidential and proprietary pricing tool. Id. at ¶¶ 13–14. Among other security measures, the
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Plaintiff restricts employee access to the pricing tool and stores the pricing tool on its computer
system. Id. at ¶ 16.
Defendant Pro Image is a Connecticut-based corporation that provides document imaging
services to customers. Am. Compl. at ¶ 20. From October 2000 to April 2012, Defendant Pro
Image was a customer of Cranel, re-selling the V-CARE service from 2006 to the spring of 2012.
Id. During the relevant time period, Defendant Richard Morin was the President of Defendant
Pro Image. Defendant Frank Damico worked for the Plaintiff from October 17, 2005 to July 10,
2012, initially as a district manager and later as the National Sales Manager for the Plaintiff’s VCARE business. Id. at ¶ 18. As National Sales Manager, Defendant Damico was in charge of
sales of V-Care in the United States and Canada. Id. at ¶ 19. Defendant Damico interacted with
Defendant Morin on a regular basis concerning Defendant Pro Image’s reselling of V-Care. Id. at
¶ 21. According to the Plaintiff, in late 2011 and early 2012, Defendants Pro Image, Morin, and
Damico entered into a conspiracy to misappropriate the Plaintiff’s proprietary customer and
pricing information, which they then used to compete with the Plaintiff for technology service
and maintenance contracts. Id. at ¶ 23. Defendants Matthew Brown 1 and Joshua Fetter joined the
alleged conspiracy in 2012. Id. Defendants Damico, Fetter, and Brown are Ohio residents.
In January 2012, Defendant Pro Image began to compete with Cranel for new technology
maintenance contracts and for contracts with existing Cranel customers. Id. at ¶ 24. Defendant
Pro Image’s contract proposals indicated detailed knowledge of the Plaintiff’s own contracts
with its customers. Am. Compl. at ¶ 27. Defendant Pro Image’s contract proposals resembled the
Plaintiff’s proposal form. Id. After further investigation, the Plaintiff determined that its
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Defendant Brown worked for the Plaintiff from 1998 through January 2012. Id. at ¶ 17. After his
termination in January 2012, he began working for Defendant Pro Image. Id. at ¶ 25. During his employment with
the Plaintiff, Defendant Brown worked in a variety of sales positions in which he sold, among other products and
services, the Plaintiff’s V-CARE service. Id. Defendant Brown’s employment with the Plaintiff ended on January
20, 2012. Id. at ¶ 22. At the time of his termination, Defendant Brown signed a Confidential Severance Agreement
and Release and Waiver of All Claims. Id.
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proprietary business documents and information were being shared with Defendant Pro Image.
Id. at ¶¶ 28–29. The Plaintiff terminated its business relationship with Defendant Pro Image on
April 18, 2012. Id. at ¶ 24.
The Plaintiff’s internal investigation revealed that, from November 2011 through April
2012, Defendant Damico shared the Plaintiff’s proprietary information, including V-Care service
proposals, with Defendants Pro Image, Morin, Fetter, and Brown. Id. at ¶ 30. During that time
period, Defendant Damico and Defendant Morin had more than 30 telephone conversations in
which they allegedly discussed their plan to steal the Plaintiff’s proprietary information. Id. at ¶
31. After many of these phone conversations, Defendant Damico emailed the Plaintiff’s
proprietary information to his personal email address or printed the proprietary information. Am.
Compl. at ¶ 32. Between October 2011 and May 2012, Defendant Damico emailed to his private
account twenty different Microsoft Excel, Microsoft Word, and PDF files containing Cranel’s
proprietary information. Id. These files contained the Plaintiff’s V-Care contract renewals and
contract proposals, billing information, and product information. Id. at ¶ 33. Defendant Damico
was not authorized to take these documents and he purportedly had no business reason to do so.
Id. at ¶ 34.
On January 4, 2012, Defendant Damico spoke with Defendant Morin by phone. Id. at ¶
35. After that phone conversation, Defendant Damico emailed multiple documents containing
the Plaintiff’s proprietary information to his personal account. Id. Included in these documents
was the Plaintiff’s pricing spreadsheet for V-Care products, which included its proprietary
pricing formula. Id. Defendant Damico was not authorized to access the proprietary pricing
formula. Am. Compl. at ¶ 36. The Plaintiff stored its pricing tool in a secure computer directory
and limited access to that tool. Id. Because he lacked authority to access the pricing tool directly,
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Defendant Damico persuaded a colleague authorized to access the pricing tool to email it to him.
Id. The other documents obtained by Defendant Damico included information about the
Plaintiff’s customer contacts, the customer’s equipment models and serial numbers, and the dates
on which the customers’ contracts with the Plaintiff terminated. Id. at ¶ 35. Defendant Pro Image
subsequently used that proprietary information in competing with the Plaintiff for new and
existing customers. Id. at ¶¶ 37–39.
On January 6, 2012, a new telephone number was added to Defendant Damico’s cellular
telephone plan. Id. at ¶ 40. Defendant Damico or Defendant Fetter, an employee of Defendant
Pro Image, began to use that telephone number to solicit business on behalf of Defendant Pro
Image. Am. Compl. at ¶ 41. Specifically, Defendant Damico or Defendant Fetter would contact
the Plaintiff’s customers; represent that they were Josh Fetter, a former employee of the Plaintiff;
gather information on the Plaintiff’s customers; and solicit business from those customers on
behalf of Defendant Pro Image. Id. at ¶¶ 43–49. Over the following six months, the new
telephone number was used to contact Defendant Morin and Defendant Brown on a regular
basis. Id. at ¶ 42.
After completing its investigation, the Plaintiff terminated Defendant Damico’s
employment on July 10, 2012. Id. at ¶ 50. Shortly thereafter, Defendant Damico began to
officially work for Defendant Pro Image. Id. at ¶ 51. Subsequently, Defendant Damico became
an officer and part owner of Defendant Pro Image. Id. at ¶ 52. Prior to the spring of 2012,
Defendant Pro Image sold services only to end user customers located in New England. Am.
Compl. at ¶ 53. In the spring of 2012, Defendant Pro Image began to sell its maintenance
services to the Plaintiff’s customers with whom Defendant Pro Image had no prior relationship.
Id.
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On August 1, 2013, the Plaintiff filed its Complaint (doc. 1) asserting eleven causes of
action against the Defendants. In February 2014, the Plaintiff filed an Amended Complaint (doc.
36) alleging: (1) violation of the Federal Computer Fraud and Abuse Act; (2) violation of the
Federal Racketeer Influenced and Corrupt Organizations Act; (3) corrupt activity in violation of
O.R.C. § 2923.31; (4) misappropriation of trade secrets; (5) conversion; (6) tortious interference
with customer business relationships; (7) unfair competition; (8) civil action for criminal
act/willful theft in violation of O.R.C. § 2307.60 & 2307.61; (9) injunctive relief; (10) tortious
destruction of evidence/spoliation of evidence; (11) breach of employee duty of loyalty; (12)
tortious interference with employment relationship; (13) breach of contract; and (14) tortious
interference with contract.
Defendants Pro Image, Morin, Damico, and Brown (the Defendants) subsequently filed
partial motions to dismiss (docs. 39, 40, & 42). Defendant Fetter is representing himself pro se
and has not filed any dispositive motion. The Defendants’ motions are fully briefed and ripe for
resolution.
II.
Standard of Review
Federal Rule of Civil Procedure 8(a) requires that a pleading contain a “short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
When considering a motion under Rule 12(b)(6) to dismiss a pleading for failure to state a claim,
a court must determine whether the complaint “contain[s] sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court should
construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded
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material allegations in the complaint as true. Iqbal, 556 U.S. at 679; Erickson v. Pardus, 551 U.S.
89, 93–94 (2007); Twombly, 550 U.S. at 555–56.
Despite this liberal pleading standard, the “tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Iqbal, 556 U.S. at 678; see also Twombly, 550 U.S. at 555, 557 (“labels and conclusions” or a
“formulaic recitation of the elements of a cause of action will not do,” nor will “naked
assertion[s]” devoid of “further factual enhancements”); Papasan v. Allain, 478 U.S. 265, 286
(1986) (a court is “not bound to accept as true a legal conclusion couched as a factual
allegation”). The plaintiff must provide the grounds of his entitlement to relief “rather than a
blanket assertion of entitlement to relief.” Twombly, 550 U.S. at 556 n.3. Thus, “a court
considering a motion to dismiss can choose to begin by identifying pleadings that, because they
are no more than conclusions, are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 679.
When the complaint does contain well-pleaded factual allegations, “a court should
assume their veracity and then determine whether they plausibly give rise to an entitlement to
relief.” Iqbal, 556 U.S. at 679. “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.” Id. at 678. Though “[s]pecific facts are not necessary,” Erickson, 551 U.S.
at 93, and though Rule 8 “does not impose a probability requirement at the pleading stage,”
Twombly, 550 U.S. at 556, the factual allegations must be enough to raise the claimed right to
relief above the speculative level and to create a reasonable expectation that discovery will reveal
evidence to support the claim. Iqbal, 556 U.S. at 678-79; Twombly, 550 U.S. at 555–56. This
inquiry as to plausibility is “a context-specific task that requires the reviewing court to draw on
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its judicial experience and common sense. . . . [W]here the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has alleged – but it has
not ‘show[n]’– ‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Fed. R.
Civ. P. 8(a)(2)).
As a general rule, when ruling on a Rule 12(b)(6) motion to dismiss, a district court may
not consider matters outside the pleadings. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d
565, 576 (6th Cir. 2008) (citing Kostrzewa v. City of Troy, 247 F.3d 633, 643 (6th Cir. 2001)). A
district court may, however, consider “matters of public record, orders, items appearing in the
record of the case, and exhibits attached to the complaint.” Henry v. Chesapeake Appalachia,
L.L.C., 739 F.3d 909, 912 (6th Cir. 2014) (internal quotation marks omitted). The Court
considers the Defendants’ Motions to Dismiss with these rules in mind.
III.
Discussion
The Defendants seek to dismiss Counts One and Two of the Amended Complaint for
failure to state a claim. The Court addresses each Count in turn.
A.
Count One – Computer Fraud and Abuse Act, 18 U.S.C. § 1030
The Defendants maintain that the Plaintiff has failed to state a claim against them under
the Computer Fraud and Abuse Act (CFAA). According to them, the Plaintiff has not alleged
that Defendants Pro Image, Morin, or Brown accessed the Plaintiff’s computers. Moreover, they
argue, the Plaintiff’s allegations are insufficient to establish that Defendant Damico was an agent
of Defendants Pro Image and Morin when he accessed the Plaintiff’s computers. Finally, the
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Defendants argue that the Plaintiff’s alleged damages are not the type of loss covered by the
CFAA.
In response, the Plaintiff contends that it has alleged sufficient facts to establish that
Defendant Damico acted as an actual or apparent agent of Defendants Pro Image and Morin.
Consequently, the Plaintiff insists, Defendants Pro Image and Morin are vicariously liable for
Defendant Damico’s conduct. The Plaintiff also rejects the Defendants’ argument concerning its
purported failure to allege losses of the kind contemplated by the CFAA. The Plaintiff
emphasizes that the CFAA covers a broad range of losses, including costs related to responding
and investigating unauthorized access of a plaintiff’s computer network. The Plaintiff therefore
concludes that it has stated a valid CFAA claim against the Defendants.
“Generally, the CFAA protects against unauthorized computer access.” Dice Corp. v.
Bold Techs., 556 F. App’x 378, 387 (6th Cir. 2014). “Although the CFAA is mainly a criminal
statute, the CFAA permits a person who suffers damage or loss by reason of a violation of this
section to maintain a civil action against the violator.” Riding Films, Inc. v. White, No. 2:13–
CV–00046, 2014 WL 3900236, at *5 (S.D. Ohio Aug. 11, 2014) (citing Jedson Eng’g, Inc. v.
Spirit Constr. Servs., Inc., 720 F. Supp. 2d 904, 228 (S.D. Ohio 2010)).
The Plaintiff alleges that the Defendants violated subsection (a)(2)(C) of 18 U.S.C. §
1030, which prohibits “intentionally access[ing] a computer without authorization or exceed[ing]
authorized access, and thereby obtain[ing] . . . information from any protected computer”;
subsection (a)(4), which prohibits “knowingly and with intent to defraud, access[ing] a protected
computer without authorization, or exceed[ing] authorized access, and by means of such conduct
further[ing] the intended fraud and obtain[ing] anything of value”; and subsection (a)(5)(B)-(C),
which provides for liability on the part of any person who “intentionally accesses a protected
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computer without authorization, and as a result of such conduct, recklessly causes damage.” To
state a claim under each of these subsections, the Plaintiff must allege facts demonstrating that
the Defendants knowingly accessed the Plaintiff’s protected computers without authorization or
exceeded their authorized access.
The allegations before the Court here are consistent with those in cases “in which an
employer brings a CFAA claim against an employee who accesses the employer’s computer to
misappropriate confidential or proprietary business information to start a competing business
venture or join a competitor.” Ajuba Intern., L.L.C. v. Saharia, 871 F. Supp. 2d 671, 685 (E.D.
Mich. 2012). “Courts around the country struggle with whether the CFAA applies in a situation
where an employee who had been granted access to his employer’s computers uses that access
for an improper purpose.” Id. The district court in Ajuba International helpfully summarized
courts’ competing interpretations of the terms “without authorization” and “exceeds authorized
access”:
Some courts have construed the terms narrowly, holding that an employee’s
misuse or misappropriation of an employer’s business information is not “without
authorization” so long as the employer has given the employee permission to
access such information. . . . In other words, courts adopting the narrow approach
hold that, once an employee is granted “authorization” to access an employer’s
computer that stores confidential company data, that employee does not violate
the CFAA regardless of how he subsequently uses the information.
Other courts have construed the terms broadly, finding that the CFAA covers
violations of an employer’s computer use restrictions or a breach of the duty of
loyalty under the agency doctrine. The broad approach holds that an employee
accesses a computer without authorization whenever the employee, without the
employer’s knowledge, acquires an interest that is adverse to that of his employer
or is guilty of a serious breach of loyalty.
Id. at 686 (internal citations and quotations omitted).
Numerous district courts within the Sixth Circuit have adopted the narrow interpretation
of the phrases “without authorization” and “exceeds authorized access.” See Dana Ltd. v. Am.
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Axle and Mfg. Holdings, Inc., No. 1:10–CV–450, 2012 WL 2524008, at *4 (W.D. Mich. June
29, 2012) (collecting cases). The Court agrees with these courts that the narrow interpretation is
proper under the CFAA.
First, the CFAA’s plain language supports a narrow interpretation of the phrases “without
authorization” and “exceeds authorized access.” “When presented with a matter of statutory
interpretation, we begin with the language of the Act itself.” Ashland Hosp. Corp. v. Serv. Emps.
Intern. Union, Dist. 1199 WV/KY/OH, 708 F.3d 737, 741 (6th Cir. 2013) (collecting cases). “If
the meaning of the Act’s language is plain, we give it effect and our analysis comes to an end.”
Id. (citing United States v. Ron Pair Enters., 489 U.S. 235, 240–41 (1989)). “Unless they are
otherwise defined, the words in a statute ‘will be interpreted as taking their ordinary,
contemporary, common meaning.’” Deutsche Bank Nat. Trust Co. v. Tucker, 621 F.3d 460, 462
(6th Cir. 2010). The Ninth Circuit’s interpretation of the CFAA is consistent with this approach:
Authorization is defined in the dictionary as “permission or power granted by an
authority.” Random House Unabridged Dictionary, 139 (2001); see also
Webster’s Third International Dictionary, 146 (2002) (defining authorization as
“the state of being authorized” and “authorize” as “to endorse, empower, justify,
permit by or as if by some recognized or proper authority”). Based on this
definition, an employer gives an employee “authorization” to access a company
computer when the employer gives the employee permission to use it.
LVRC Holdings L.L.C. v. Brekka, 581 F.3d 1127, 1133 (9th Cir. 2009). See also Pulte Homes,
Inc. v. Laborers’ Intern. Union of N. Am., 648 F.3d 295, 304 (6th Cir. 2011) (in nonemployment related context, adopting the Ninth Circuit’s interpretation of “without
authorization” under the CFAA in Brekka).
The CFAA’s definition of the phrase “exceeds authorized access” provides additional
support for the narrow interpretation. The statute defines “exceeds authorized access” as “to
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access a computer with authorization and to use such access to obtain or alter information in the
computer that the accesser is not entitled so to obtain or alter.” 18 U.S.C. § 1030(e)(6).
As this definition makes clear, an individual who is authorized to use a
computer for certain purposes but goes beyond those limitations is considered by
the CFAA as someone who has “exceed[ed] authorized access.” On the other
hand, a person who uses a computer “without authorization” has no rights, limited
or otherwise, to access the computer in question. In other words, for purposes of
the CFAA, when an employer authorizes an employee to use a company computer
subject to certain limitations, the employee remains authorized to use the
computer even if the employee violates those limitations. It is the employer's
decision to allow or to terminate an employee’s authorization to access a
computer that determines whether the employee is with or “without
authorization.”
This leads to a sensible interpretation of §§ 1030(a)(2) and (4), which
gives effect to both the phrase “without authorization” and the phrase “exceeds
authorized access”: a person who “intentionally accesses a computer without
authorization,” §§ 1030(a)(2) and (4), accesses a computer without any
permission at all, while a person who “exceeds authorized access,” id., has
permission to access the computer, but accesses information on the computer that
the person is not entitled to access.
Brekka, 581 F.3d at 1133.
Second, to the extent that the language of the CFAA could be considered ambiguous, the
CFAA’s legislative history provides additional support for adopting the narrow interpretation of
the statute. The legislative history indicates that the CFAA was designed to protect computer
owners against trespass, Black & Decker (US), Inc. v. Smith, 568 F. Supp. 2d 929, 935–36
(W.D. Tenn. 2008), and “‘to create a cause of action against computer hackers (e.g., electronic
trespassers),’” Shamrock Foods Co. v. Gast, 535 F. Supp. 2d 962, 965 (D. Ariz. 2008) (quoting
Int’l Ass’n of Machinists and Aerospace Workers v. Werner–Masuda, 390 F.Supp.2d 479, 495–
96 (D. Md. 2005)).
Senate report[s have] suggested a difference between access without authorization
and exceeding authorized access based on the difference between insiders and
outsiders. Insiders were those with rights to access computers in some
circumstances (such as employees), whereas outsiders had no rights to access
computers at all (such as hackers). . . . Thus, the legislative history confirms that
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the CFAA was intended to prohibit electronic trespassing, not the subsequent use
or misuse of information.
Shamrock Foods Co., 553 F. Supp. 2d at 966 (internal citations and quotations omitted). This
understanding is consistent with the narrow interpretation of the CFAA adopted by the Court
here.
Third, the rule of lenity provides additional support for the narrow interpretation of the
CFAA. The CFAA is a criminal statute, and “even though it is being applied in a civil context,
the Court must apply the rule of lenity, so that the statute is interpreted consistently.” Black &
Decker (US), Inc., 568 F. Supp. 2d at 935 (citing Leocal v. Ashcroft, 543 U.S. 1, 12 n.8 (2004);
Crandon v. United States, 494 U.S. 152, 158 (1990)). Under the rule of lenity, “ambiguities are
generally resolved in favor of the party accused of violating the law,” United States v. One
TRW, Model M14, 7.62 Caliber Rifle, 441 F.3d 416, 420 n.3 (6th Cir. 2006). The narrow
interpretation of the CFAA resolves any ambiguities accordingly.
The Court must now determine whether the Plaintiff has pled sufficient facts to state a
claim that the Defendants accessed the Plaintiff’s protected computers without authorization or
in excess of their authorized access. In the instant case, the Plaintiff alleges that Defendant
Damico accessed the Plaintiff’s computers and e-mailed to himself Microsoft Excel, Microsoft
Word, and PDF files containing the Plaintiff’s confidential, proprietary, or trade secret
information. Am. Compl. at ¶ 32. Further, the Plaintiff alleges, “Defendant Damico did not have
Cranel’s authorization to take Cranel documents, and he had no business reason to do so.” Id. at
¶ 34. In its Amended Complaint, the Plaintiff identifies one instance of particular concern in
which Defendant Damico emailed himself a blank V-Care pricing spreadsheet that included the
Plaintiff’s proprietary pricing tool. Id. at ¶ 35. According to the Plaintiff, Defendant Damico “did
not have direct access to Cranel’s proprietary pricing tool. In order to gain access to it, he
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persuaded another Cranel employee who had access to [it] . . . to email it to Damico’s work
account.” Id. at ¶ 36.
Here, the Plaintiff’s allegations are consistent with a scenario in which “an employee who
had been granted access to his employer’s computers uses that access for an improper purpose,”
Ajuba Intern., L.L.C., 871 F. Supp. 2d at 685. During the relevant time period, Defendant
Damico worked for the Plaintiff as a district manager and later as the National Sales Manager for
the Plaintiff’s V-CARE business. Am. Compl. at ¶ 18. The Plaintiff does not allege that
Defendant Damico accessed its computers without authorization; rather, it alleges that Defendant
Damico’s use of its business documents was unauthorized. This is not the type of conduct
prohibited by the CFAA. “[O]nce an employee is granted ‘authorization’ to access an employer’s
computer that stores confidential company data, that employee does not violate the CFAA
regardless of how he subsequently uses the information.” Ajuba Intern., L.L.C., 871 F. Supp. 2d
at 686. See also id. at 687 (“[A] violation for accessing ‘without authorization’ under the CFAA
occurs only where initial access is not permitted”).
Nor do the Plaintiff’s allegations demonstrate that Defendant Damico exceeded his
authorization when he accessed numerous Microsoft Excel, Microsoft Word, and PDF files
containing the Plaintiff’s confidential, proprietary, or trade secret information, Am. Compl. at ¶
32. The CFAA defines the term “exceeds authorized access” as “to access a computer with
authorization and to use such access to obtain or alter information in the computer that the
accesser is not entitled so to obtain or alter.” 18 U.S.C. § 1030(e)(6). The Plaintiff does not
allege that Defendant Damico was not entitled to obtain these documents. Instead, the Plaintiff
again asserts that Defendant Damico’s actions after obtaining those documents was
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unauthorized. This is insufficient to state a claim upon which relief may be granted under the
CFAA.
The Courts next considers whether Defendant Damico exceeded his authorization to
access the Plaintiff’s protected computers when he obtained the Plaintiff’s proprietary pricing
tool. Although authorized to access the Plaintiff’s protected computers, Defendant Damico “did
not have access to Cranel’s proprietary pricing tool. . . . The proprietary pricing tool is stored in a
secure directory in the Cranel system and limited access is granted to only the individuals
authorized to access the tool. Damico was not one of the authorized individuals.” Am. Compl. at
¶ 36. The Plaintiff’s allegations do not demonstrate that Defendant Damico exceeded his
authorized access. Instead, the Plaintiff’s allegations indicate that Defendant Damico
“persuaded” a colleague who did have authorization to access the Plaintiff’s proprietary pricing
tool to provide him a copy of that tool. Am. Compl. at ¶ 36. Because Defendant Damico did not
access the Plaintiff’s protected computers in obtaining the proprietary pricing tool, he did not
violate the CFAA.
The Plaintiff has failed to state a claim upon which relief may be granted under the
CFAA as to Defendant Damico. Because the Plaintiff’s CFAA claim against Defendants Pro
Image, Morin, and Brown are dependent upon their claim against Defendant Damico, the
Plaintiff has failed to state a claim upon which relief may be granted as to these Defendants as
well.
B.
Count Two – RICO
Next, the Defendants argue that the Plaintiff has failed to plead sufficient facts to state a
RICO claim upon which relief may be granted. According to the Defendants, the Plaintiff has not
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alleged sufficient facts to establish the existence of an enterprise, a predicate act, or a pattern of
racketeering. Further, the Defendants contend, the Plaintiff has failed to plead sufficient facts
establishing an agreement among them to engage in illegal activity.
In response, the Plaintiff emphasizes the expansive nature of the RICO statute and insists
that it has pled sufficient facts as to each element of a RICO claim.
The Racketeer Influenced and Corrupt Organizations Act provides:
It shall be unlawful for any person employed by or associated with any enterprise
engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such enterprise’s
affairs through a pattern of racketeering activity or collection of unlawful debt.
18 U.S.C. § 1962(c). To establish a cause of action under § 1962(c), a plaintiff must adequately
plead that a defendant engaged in “‘(1) conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity.’” In re ClassicStar Mare Lease Litig., 727 F.3d 473, 483 (6th Cir. 2013)
((quoting Moon v. Harrison Piping Supply, 465 F.3d 719, 723 (6th Cir. 2006)).
Although the Defendants challenge each of these four elements, the Court focuses its
attention on the third and fourth elements of the Plaintiff’s § 1962(c) claim. The Defendants
argue that the Plaintiff has failed to plead sufficient facts establishing the predicate acts
necessary to meet RICO’s definition of “racketeering activity.” In order to establish
‘racketeering activity’ the plaintiffs must allege a predicate act . . . . under 18 U.S.C. § 1961(1).”
Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass’n, 176 F.3d 315, 322 (6th
Cir.1999) (citing Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 389 (6th Cir. 1996)). Here,
the Plaintiff alleges that the Defendants committed wire fraud in violation of 18 U.S.C. § 1343;
violated the CFAA, § 18 U.S.C. 1030; and committed obstruction of justice in violation of 18
U.S.C. § 1503.
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“Mail fraud and wire fraud are among the enumerated predicate offenses that can
constitute ‘racketeering activity.’” In re ClassicStar Mare Lease Litig., 727 F.3d at 484 (citing
18 U.S.C. § 1961(1)). To state a RICO claim based on predicate acts of wire fraud, a plaintiff
must “adequately allege[ ] a scheme to defraud, the use of the mail or wires in furtherance of the
scheme, and a sufficient factual basis from which to infer scienter.” Heinrich v. Waiting Angels
Adoption Servs., Inc., 668 F.3d 393, 409 (6th Cir. 2012). “A scheme to defraud is any plan or
course of action by which someone intends to deprive another of money or property by means of
false or fraudulent pretenses, representations, or promises.” In re ClassicStar Mare Lease Litig.,
727 F.3d at 484 (internal citations and ellipses omitted). “A plaintiff must also demonstrate
scienter to establish a scheme to defraud, which is satisfied by showing the defendant acted
either with a specific intent to defraud or with recklessness with respect to potentially misleading
information.” Heinrich, 668 F.3d at 404.
When the predicate act alleged is a fraud-based offense, the “racketeering activity” must
be pled with sufficient particularity to meet the heightened standard of Fed. R. Civ. P. 9(b).
Arnold v. Alphatec Spine, Inc., No. 1:13–cv–714, 2014 WL 2896838, at *11 (S.D. Ohio June 26,
2014) (citing Brown v. Cassens Transp. Co., 546 F.3d 347, 365 n. 4 (6th Cir. 2008)). Rule 9(b)
instructs that, “[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” To satisfy Rule 9(b)’s heightened pleading
requirements, “the plaintiffs, at a minimum, must ‘allege the time, place, and content of the
alleged misrepresentation . . . the fraudulent scheme; the fraudulent intent of the defendants; and
the injury resulting from the fraud.’” Heinrich, 668 F.3d at 403 (quoting United States ex rel.
Bledsoe v. Cmty. Health Sys., 342 F.3d 634, 643 (6th Cir. 2003)). See also Frank v. Dana Corp.,
547 F.3d 564, 570 (6th Cir. 2008) (To comply with Rule 9(b), a complaint alleging a fraudulent
16
representation “must (1) specify the statements that the plaintiff contends were fraudulent, (2)
identify the speaker, (3) state where and when the statements were made, and (4) explain why the
statements were fraudulent”). In short, Rule 9(b) “requires that the circumstances of the fraud be
pled with enough specificity to put defendants on notice as to the nature of the claim.” Williams
v. Duke Energy Int’l, 681 F.3d 788, 803 (6th Cir. 2012) (internal quotation marks omitted).
The Court finds that the Plaintiff fails to state a plausible claim of wire fraud under
RICO. First, the Plaintiff’s allegations fail to plausibly establish a scheme to defraud among the
Defendants. Accepting all well-pled allegations as true, it is clear that Defendant Damico
obtained the Plaintiff’s proprietary business information and provided that information to
Defendants Pro Image, Morin, Brown, and Fetter. However, other than the isolated incident in
which Defendant Damico fraudulently persuaded a colleague to provide him with the Plaintiff’s
proprietary pricing tool, the Plaintiff’s allegations do not identify any money or property that the
Defendants’ attempted to obtain by means of false or fraudulent pretenses, representations, or
promises. See In re ClassicStar Mare Lease Litig., 727 F.3d at 484 (“A scheme to defraud is any
plan or course of action by which someone intends to deprive another of money or property by
means of false or fraudulent pretenses, representations, or promises”). The Plaintiff’s allegations
are consistent with a scheme among the Defendants to misappropriate or steal the Plaintiff’s
proprietary business information and trade secrets, but they do not support a claim for fraud. The
Defendants did not need to resort to fraud to gain access to the Plaintiff’s proprietary
information. They needed only to misappropriate that proprietary information to which
Defendant Damico already had lawful access.
Second, many of the Plaintiff’s allegations concerning the Defendants’ alleged wire fraud
fail to satisfy Rule 9(b)’s particularity requirement. The Plaintiff alleges, “[d]uring and after his
17
employment with Cranel, Defendant Damico fraudulently represented to Cranel that he would
abide by his duty of loyalty to Cranel and not divulge Cranel’s trade secrets to third parties.”
Am. Compl. at ¶ 84. The Plaintiff also alleges that “Defendant Damico fraudulently
misrepresented to another employee that he needed a copy of Cranel’s proprietary pricing tool
for a legitimate business purpose and duped that employee into providing it to him in order to
further Defendants’ scheme.” Id. at ¶ 86. See also id. at ¶ 36 (providing details on Defendant
Damico’s conduct in obtaining the Plaintiff’s proprietary pricing tool). The Plaintiff does not
identify with particularity where and when these statements were made. See Frank, 547 F.3d at
570 (To comply with Rule 9(b), a complaint alleging a fraudulent representation “must . . . state
where and when the statements were made”). Nor does the Plaintiff identify any injury resulting
from Defendant Damico’s alleged misrepresentations that he would abide by his duty of loyalty
and not divulge the Plaintiff’s trade secrets to third parties. Heinrich, 668 F.3d at 403 (To satisfy
Rule 9(b)’s heightened pleading requirements, “the plaintiffs, at a minimum, must ‘allege . . . the
injury resulting from the fraud’” (quoting United States ex rel. Bledsoe, 342 F.3d at 643)).
Consequently, these allegations do not comply with Rule (9)(b)’s particularity requirement.
The Plaintiff further alleges, “[n]umerous times throughout the years prior to April 2012,
Defendants Pro Image and Morin fraudulently represented to Cranel that they would deal with
Cranel fairly and in good faith, and that they would not unfairly compete with Cranel.” Am.
Compl. at ¶ 85. As with Defendant Damico’s alleged misrepresentations, the Plaintiff does not
identify with particularity “where and when the statements were made,” Frank, 547 F.3d at 570,
nor does it specify any injury resulting from the misrepresentations, Heinrich, 668 F.3d at 403.
Consequently, these allegations do not comply with Rule (9)(b)’s particularity requirement.
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Third, the Plaintiff fails to allege sufficient facts to support a finding that it reasonably
relied on many of the Defendants’ alleged misrepresentations to its detriment. The Plaintiff
alleges that “[e]ither Defendant Damico (misrepresenting himself to be an individual named Josh
Fetter) or Defendant Fetter misrepresented himself to Cranel customers to be a former Cranel
employee.” Am. Compl. at ¶ 87. In its Amended Complaint, the Plaintiff identifies two specific
instances in which Defendant Fetter (or Defendant Damico posing as Defendant Fetter)
contacted the Plaintiff’s customers and attempted to solicit their business on behalf of Defendant
Pro Image. See id. at ¶¶ 44–49. Any statements made by Defendant Fetter or Defendant Damico
in these instances were made to the Plaintiff’s customers and not the Plaintiff. Therefore, the
Plaintiff’s allegations do not and cannot demonstrate that it reasonably relied on those statements
and suffered an identifiable injury as a result.
Similarly, the Plaintiff alleges that “Defendant Brown fraudulently represented to Cranel
in the Severance Agreement that he would not divulge Cranel’s confidential information and
trade secrets to third parties.” Am. Compl. at ¶ 88. The Plaintiff does not offer allegations to
support the conclusion that it reasonably relied on Defendant Brown’s representations or that it
suffered an identifiable injury as a result of that reasonable reliance. At most, the Plaintiff offers
conclusory allegations that, “Cranel reasonably relied upon each of the above representations,”
id. at ¶ 90. Without additional factual allegations, this bare-bones legal conclusion is insufficient
to support a claim of wire fraud as a predicate act under RICO.
Fourth, and finally, the Plaintiff’s RICO claims based on wire fraud fail because the
Plaintiff offers only a conclusory assertion regarding the Defendants’ scienter, stating, without
elaboration, “Defendants made each of the above representations with the specific intent to
defraud Cranel,” id. at ¶ 89. Although the allegations in the Amended Complaint are sufficient to
19
support the inference that the Defendants intended to misappropriate the Plaintiff’s property,
they are insufficient to support the inference that the Defendants intended to defraud the
Plaintiff.
The Plaintiff’s claims that the Defendants violated the Computer Fraud and Abuse Act
and committed obstruction of justice are similarly unsuccessful. To its credit, the Plaintiff now
concedes that its allegations of obstruction of justice as a predicate act were “misplaced” and
does not rely on them to support its RICO claim. Def.’s Resp. in Opp. at 11 n.4, doc. 51. With
respect to the Plaintiff’s allegations regarding the CFAA, the Court has already concluded that
the Plaintiff has failed to state a claim upon which relief may be granted. Therefore, neither the
Defendants’ alleged obstruction of justice nor their alleged violation of the CFAA constitute
predicate acts to support the Plaintiff’s RICO claim presently before the Court.
The Plaintiff’s allegations fail to establish two predicate acts under RICO that would be
sufficient to establish a pattern of racketeering activity. Consequently, the Court will grant the
Defendants’ partial motions to dismiss as to the Plaintiff’s RICO claim.
C.
Defendant Joshua Fetter
Defendant Fetter is representing himself pro se in the instant action. He has not filed any
dispositive motion of his own and has not moved to join the other Defendants’ partial motions to
dismiss. Nonetheless, the legal issues concerning the CFAA and RICO claims have been fully
briefed, Defendant Fetter’s interests align with those of the other Defendants, and the basis for
the Court’s dismissal of those claims applies with equal force to Defendant Fetter. Consequently,
this Opinion and Order will apply to all of the Defendants in the instant action. See Melton v.
Blankenship, 2009 WL 87472, at *4 (6th Cir. Jan. 13, 2009) (affirming district court’s dismissal
20
of nonmoving parties who were in the same factual and procedural posture as the moving
parties); see also Bonny v. Society of Lloyd’s, 3 F.3d 156, 162 (7th Cir. 1993) (“A court may
grant a motion to dismiss even as to nonmoving defendants where the nonmoving defendants are
in a position similar to that of moving defendants or where the claims against all defendants are
integrally related”); Silverton v. Dep’t of Treasury, 644 F.2d 1341, 1345 (9th Cir. 1981) (“A
District Court may properly on its own motion dismiss an action as to defendants who have not
moved to dismiss where such defendants are in a position similar to that of moving defendants”).
IV.
Supplemental Jurisdiction
The Plaintiff filed the instant action in this Court based on federal question jurisdiction.
Here, the Court concludes that Plaintiff’s Amended Complaint fails to state a claim upon which
relief may be granted as to its federal law claims under the CFAA and RICO. Consequently, only
state law claims remain in the action. 2 “A district court may decline to exercise supplemental
jurisdiction over state law claims if it has dismissed all claims over which it had original
jurisdiction.” Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 583 (6th Cir. 2007) (citing 28
U.S.C. § 1367(c)(3)). Having considered the “values of judicial economy, convenience, fairness,
and comity,” Gamel v. City of Cincinnati, 625 F.3d 949, 951–52 (6th Cir. 2010) (quoting
Carnegie–Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988)), the Court declines to exercise
supplemental jurisdiction over the Plaintiff’s state law claims and dismisses them without
prejudice. See Musson Theatrical, Inc. v. Fed. Express Corp., 89 F.3d 1244, 1254–55 (6th Cir.
1996) (“When all federal claims are dismissed before trial, the balance of considerations usually
will point to dismissing the state law claims”).
2
The Court cannot exercise jurisdiction over the remaining claims on the basis of diversity jurisdiction
because there is not complete diversity between the parties; the Plaintiff and three of the individual Defendants are
citizens of Ohio. See 28 U.S.C. § 1332(a)(1).
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V.
Conclusion
For the foregoing reasons, the Court GRANTS the Defendants’ Partial Motions to
Dismiss (docs. 39, 40, & 42). The Plaintiff’s remaining state law claims are DISMISSED
WITHOUT PREJUDICE.
IT IS SO ORDERED.
s/ James L. Graham
JAMES L. GRAHAM
United States District Judge
DATE: September 29, 2014
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