Sun West Mortgage Company, Inc. v. Matos-Flores

Filing 36

OPINION AND ORDER: Granting 25 Motion to Dismiss for Failure to State a Claim. Signed by Judge Gustavo A. Gelpi on 3/10/2016. (MET)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

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SUN WEST MORTGAGE COMPANY,
INC.,

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Plaintiff
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CIVIL NO. 15-1082 (GAG)

v.
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MIGUEL M. MATOS FLORES,
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Defendant.
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OPINION AND ORDER

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In this action, Plaintiff Sun West Mortgage Company (“Sun West”) contends that its

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former employee, Defendant Miguel Matos Flores (“Matos”) breached his employment agreement

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and made unauthorized disclosures regarding company trade secrets in violation of The Computer

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Fraud and Abuse Act, 18 U.S.C. § 1030, et seq. (“CFAA”), the Stored Wire and Electronic

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Communications and Transactional Records Access Act, 18 U.S.C. §§ 2071-2712 et seq. (the

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“Stored Communications Act” or the “SCA”), and the Wire and Electronic Communication and

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Interception of Oral Communications Act, 18 U.S.C. §§ 2510-2522 et seq. (the “Wiretap Act”).

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(Docket No. 1 ¶¶ 36-58.) In addition to these federal claims, Sun West also contends that Matos

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violated various Puerto Rico laws, invoking diversity jurisdiction.1 Id. ¶¶ 1, 59-93.

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Presently before the Court is Matos’ motion to dismiss the federal claims pursuant to FED.

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R. CIV. P. 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 25).

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Sun West asserts the following claims under Puerto Rico state law without providing citation to any specific
statute or provision of the Civil Code: misappropriation of confidential information and trade secrets under the Puerto
Rico Commercial and Industrial Secrets Protection Act; conversion; breach of employment agreements; breach of duty
of loyalty; breach of implied contractual and legal duty. (Docket No. 1 at 13, 15-18.) These claims are not the subject
of the instant motion to dismiss.

Civil No. 15-1082 (GAG)
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Additionally, Matos requests jurisdictional discovery in order to ascertain whether the parties are

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completely diverse and Sun West’s state law claims are properly before the Court. Id. at 17-18.
I.

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Relevant Factual and Procedural Background2

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Sun West hired Matos as a loan officer on April 11, 2011. (Docket No. 1 ¶ 5.) He was

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responsible for “sourc[ing] prospective consumer borrowers” and signing them up for single-

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family loan mortgage packages. Id. ¶ 6. As a result of his position, Matos had access to Sun

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West’s borrower, broker, customer and investors lists, contractual arrangements, lists of real estate

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agents, vendors, suppliers, and service providers that had contractual arrangements with Sun West,

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Sun West’s pricing and financial structures, marketing programs and plans, operational methods

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and cost information, accounting procedures, and research and development. Id. ¶ 7. Pursuant to

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the Employment Agreement (the “Agreement”), Matos agreed not to “publish, disclose or allow to

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be published or disclosed, Trade Secrets to any person who is not an employee of Sun West unless

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such disclosure is necessary for the performance of Loan Officer’s obligation under the

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Agreement.” Id. ¶ 8.

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Carlos Gaztambide is the Executive President of Multiples Mortgage Corp, a competitor of

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Sun West in Puerto Rico. (Docket No. 1 ¶¶ 14-15.) Sun West alleges that on December 5, 2014,

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Matos told Gaztambide that he wanted to refer a client to Multiples Mortgage and that he was

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unhappy at Sun West. Id. ¶¶ 15-16. Sun West also contends that Matos indicated he could set up

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a team of Sun West employees who would leave to join Multiples Mortgage. Id. ¶ 17. In an

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affidavit appended to the Complaint, Gaztambide states that he notified Matos that he would not

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hire anyone from Sun West without first speaking with Sun West’s Executive Vice President Raul

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In the Complaint, Sun West also describes an incident in which Matos allegedly improperly interfered with
a business transaction involving a Sun West client. (Docket No. 1 ¶¶ 25-35.) Because this alleged incident is
immaterial to the motion to dismiss, the Court omits it from its recitation of the facts.
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Civil No. 15-1082 (GAG)
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Padilla, and that Multiples Mortgage could not compensate any Sun West loan officers for

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referrals. (Docket No. 1-5 ¶¶ 5, 8.) Gaztambide also stated that after Matos complained that Sun

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West was not properly compensating loan originators, Gaztambide asked to see Sun West’s

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pricing. Id. ¶ 10. Gaztambide states that Matos accessed this information on his telephone and

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showed it to him. Id. Gaztambide states that later that day, Matos contacted him again to request

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that he keep their conversation confidential. Id. ¶ 11.

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Sun West alleges that Matos sent and downloaded to his personal e-mail account 270

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transmissions containing Sun West’s confidential information and trade secrets without

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authorization, though it has not determined if Matos reproduced or revealed any of this

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information. (Docket No. 1 ¶¶ 22-23.)
II.

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Standard of Review

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When considering a motion to dismiss for failure to state a claim upon which relief can be

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granted, see FED. R. CIV. P. 12(b)(6), the court analyzes the complaint in a two-step process under

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the current context-based “plausibility” standard established by the Supreme Court. See Schatz v.

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Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012) (citing Ocasio-Hernández v.

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Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) which discusses Ashcroft v. Iqbal, 556 U.S. 662

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(2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). First, the court must “isolate and

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ignore statements in the complaint that simply offer legal labels and conclusions or merely rehash

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cause-of-action elements.”

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“[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice.” Iqbal, 556 U.S. at 678-79. Second, the court must then “take the

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complaint’s well-[pleaded] (i.e., non-conclusory, non-speculative) facts as true, drawing all

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reasonable inferences in the pleader’s favor, and see if they plausibly narrate a claim for relief.”

Id.

A complaint does not need detailed factual allegations, but

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Civil No. 15-1082 (GAG)
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Schatz, 669 F.3d at 55. Plausible, means something more than merely possible, and gauging a

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pleaded situation’s plausibility is a context-specific job that compels the court to draw on its

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judicial experience and common sense. Id. (citing Iqbal, 556 U.S. at 678-79). This “simply calls

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for enough facts to raise a reasonable expectation that discovery will reveal evidence of” the

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necessary element. Twombly, 550 U.S. at 556.

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“[W]here the well-pleaded facts do not permit the court to infer more than the mere

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possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’—’that the pleader is

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entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting FED. R. CIV. P. 8(a)(2)). If, however, the

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“factual content, so taken, ‘allows the court to draw the reasonable inference that the defendant is

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liable for the misconduct alleged,’ the claim has facial plausibility.” Ocasio-Hernández, 640 F.3d

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at 12 (quoting Iqbal, 556 U.S. at 678).

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III.

Legal Analysis

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In the motion to dismiss, Matos argues that “the bare assertion that the[ ] 270 emails sent to

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his personal email were trade secrets is insufficient to state a claim under CFAA, SECA or the

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Wire Tap Act.” (Docket No. 25 ¶ 4.3.) The Court will address each in turn.
A. The Computer Fraud and Abuse Act

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The CFAA provides a civil remedy for victims who suffer damages in excess of $5,000 as

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a result of an individual who “knowingly and with intent to defraud, accesses a protected computer

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without authorization, or exceeds authorized access” in furtherance of fraud.

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1030(a)(4). Accordingly, to state a claim under the CFAA, Sun West must demonstrate that Matos

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accessed a protected computer “without authorization” or that he “exceeded” his “authorized

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access” in order to commit a fraud. Id. Despite the CFAA’s expansive language, the statute was

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not intended to criminalize “benign activities such as workplace procrastination.” Advanced
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18 U.S.C. §

Civil No. 15-1082 (GAG)
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Micro Devices, Inc. v. Feldstein, 951 F. Supp. 2d 212, 218 (D. Mass. 2013) (citing United States v.

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Nosal, 676 F.3d 854, 866 (9th Cir. 2012)).

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The term “without authorization” is not defined by the statute and courts have split on

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whether to take a broad or narrow view of the language. Advanced Micro Devices, Inc, 951 F.

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Supp. 2d at 217-18 (describing CFAA interpretations). The narrow interpretation of the CFAA

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holds that the term “without authorization” only reaches conduct by outsiders who did not have

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permission to access the plaintiff’s computer. E.g., Shamrock Foods v. Gast, 535 F. Supp. 2d 962,

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967 (D. Ariz. 2008). This interpretation of the statute would preclude a claim under the CFAA by

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an employer against its employee. Conversely, the broad view allows for an employer’s CFAA

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claim against an employee who accesses a computer whenever he, without the employer’s

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knowledge, “acquires an interest that is adverse to that of his employer or is guilty of a serious

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breach of loyalty.” Guest-Tek Interactive Entm’t, Inc. v. Pullen, 665 F. Supp. 2d 42, 45 (D. Mass.

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2009) (analyzing CFAA interpretations). Although the First Circuit has not specifically addressed

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the meaning of “without authorization” or “exceeded authorization,” it has favored a broader

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reading of the statute.3 Id. at 45 (citing EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577,

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582-84 (1st Cir. 2001)).
Even under a broad interpretation of the statute, Sun West failed to satisfy the Twombly

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and Iqbal pleading requirements as to the CFAA claim.

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forwarded information to his personal e-mail account, sending 270 transmissions, is insufficient to

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state a claim. Sun West specifically does not allege that he copied, revealed to third parties, or

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Sun West’s allegation that Matos

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In EF Cultural, the First Circuit permitted an employer’s claim pursuant to the CFAA against employees
who collected pricing information from the employer’s website in order to develop a competing business with lower
prices. In Guest-Tek, the court found that the EF Cultural court held that the employees’ reliance on the pricing
information “reeked of use – and indeed, abuse – of proprietary information that goes beyond any authorized use of
EF’s website.” Guest-Tek Interactive Entm’t, Inc., 665 F. Supp. 2d at 45
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Civil No. 15-1082 (GAG)
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reproduced any information, proprietary or otherwise. (Docket No. 1 ¶ 23.) Sun West also does

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not allege that Matos sent such emails with “intent to defraud,” in furtherance of a fraud, or that he

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obtained anything of value. 18 U.S.C. § 1030(a). Similarly, Sun West’s allegation that Matos

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showed confidential pricing information to Gaztambide on his telephone is insufficient to support

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an inference that he accessed a Sun West computer without authorization, or in excess of his

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authorization, absent allegations he did so in furtherance of a fraud. At most, the Court interprets

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this alleged incident as an attempt to justify his desire to leave Sun West to Gaztambide, who

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expressed skepticism that Matos was being mistreated by Sun West. (Docket No. 1-5 ¶ 10.)

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Sun West’s claim under the CFAA also fails to satisfy the damages requirement. The

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CFAA defines damage as “any impairment to the integrity or availability of data, a program, a

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system or information . . . .”

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harm resulting from the disclosure to a competitor of trade secrets or other confidential

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information. Courts have interpreted this to include “the destruction, corruption, or deletion of

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electronic files, the physical destruction of a hard drive, or any diminution in the completeness or

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usability of the data on a computer system.” E.g., New South Equip. Mats, LLC v. Keener, 989 F.

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Supp. 2d 522, 529 (S.D. Miss. 2013) (finding that mere copying of electronic information is not

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enough to satisfy the CFAA’s damage requirement). Although the First Circuit has not limited

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“loss” under the statute to purely physical damages, the statute does not permit claims for matters

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unrelated to the computer. See Shirkov v. Dunlap, Grubb & Weaver, PLLC, No. 10-12043, 2012

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WL 1065578, at *24 (D. Mass. Mar. 27, 2012).

18 U.S.C. § 1030(e)(8). This language does not encompass any

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Sun West asserts that its damages include “the hiring of a forensic computer examiner to

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determine the scope of Matos’ breach and a damages assessment; the hiring of counsel to bring

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this legal action; the management’s time necessary for addressing, responding to and remediating
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Civil No. 15-1082 (GAG)
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Matos’ wrongdoings; and the value of the information Matos retrieved from the Sun West

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premises.” (Docket No. 1 ¶ 41.) These damages are not sufficient to trigger the CFAA. Courts

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have held that legal fees do not constitute a loss under the CFAA. Wilson v. Moreau, 440 F. Supp.

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2d 81, 109-10 (D.R.I. 2006). Similarly, management’s time spent evaluating whether Matos’

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conduct is actionable is not recoverable under the CFAA. Id. The value of information Matos

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may have retrieved from Sun West is speculative at best because Sun West concedes it has no

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basis to believe Matos “copied, revealed to third parties [or] reproduced” any of this information.

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(Docket No. 1 ¶ 23.) Sun West does not allege that its computers or network were out of

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commission or damaged in any way. Neither does Sun West contend that it incurred costs

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repairing its computers. Thus, the motion to dismiss Sun West’s claim pursuant to the CFAA is

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hereby GRANTED.
B. The Stored Communications Act

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The SCA prohibits an individual from intentionally accessing, without authorization, a

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facility that provides an electronic communication service or exceeding an authorization to access

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that facility, and thereby obtaining, altering or preventing authorized access to a wire or electronic

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communication while it is in electronic storage in such system. 18 U.S.C. § 2701(a). Under the

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statute, “any person aggrieved” by knowing and intentional conduct that violates the SCA has a

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private right of action. 18 U.S.C. § 2707(a). An aggrieved person is one who was a party to an

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intercepted electronic communication, or against whom the interception was directed.

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Padmanabhan v. Healey, No. 15-13297, 2016 WL 409673, at *3 (D. Mass. Feb. 2, 2016).

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Since the SCA was established in 1986, courts have struggled with the same language at

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issue under the CFAA, namely “access without authorization” and “exceed [ ] an authorization to

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access” a facility. Cheng v. Romo, No. 11-10007, 2012 WL 6021369, at *3 (D. Mass. Nov. 28,
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Civil No. 15-1082 (GAG)
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2012). As with the CFAA, the First Circuit has not directly addressed the meaning of these terms

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under the SCA; however, courts in the First Circuit have consistently applied CFAA caselaw in

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analyzing the SCA. Id. at *4 (citing Guest-Tek Interactive Entm’t, Inc. v. Pullen, 665 F. Supp. 2d

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42 (D. Mass. 2009)). Thus, the Court’s analysis under this statute is the same as under the CFAA.

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The Complaint fails to allege sufficient facts to support an inference that Matos obtained, altered,

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or prevented authorized access to a wire or electronic communication. The mere assertion that he

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sent Sun West’s confidential information and trade secrets to his personal e-mail account, without

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more, does not satisfy the Plaintiff’s pleading requirements under Twombly and Iqbal. The motion

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to dismiss Sun West’s claim pursuant to the SCA is GRANTED.
C. The

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Wire

and

Electronic

Communication

and

Interception

of

Oral

Communications Act

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Without providing citation to a specific chapter or provision of the U.S. Code, Sun West

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claims that “Matos’ actions were in violation of the Wiretap Act, which entitles Sun West to

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recover damages (compensatory and punitive) costs and attorneys’ fees against Matos and

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injunctive relief to enjoin Matos from further violating the Wiretap Act.” (Docket No. 1 ¶ 58.) 18

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U.S.C. § 2511 prohibits any person from intentionally intercepting, endeavoring to intercept, or

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procuring any other person to intercept any wire, oral or electronic communication. It also

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prohibits disclosure and intentional use of information or the contents of such communications. Id.

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Under the statute, “intercept” is the “acquisition of the contents of any . . . electronic

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communication . . . through the use of any electronic, mechanical or other device.” 18 U.S.C. §

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2510(4).

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To prevail under this statute, a plaintiff must demonstrate that the defendant “acted with the

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purpose of committing a criminal or tortious act other than the recording of the communication
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Civil No. 15-1082 (GAG)
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itself.” Vazquez-Santos v. El Mundo Broad. Corp., 283 F. Supp. 2d 561, 566-67 (D.P.R. 2003)

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Similarly, “a disclosure or use of the contents of any intercepted communication is only unlawful

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if the person knows or has reason to know that the interception was illegal.” Id. at 566-67.

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Importantly, the Wiretap Act permits interception of electronic communications if consent is given

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by at least one of the parties to the communications. United States v. Bennett, 538 F. Supp. 1045,

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1047-48 (D.P.R. 1982).
In this case, Sun West has not specified which factual allegations in its Complaint support

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this claim.

To the extent Sun West bases this claim on its allegations regarding the “270

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transmissions to [Matos’] personal email from Sun West’s information computer system,” Sun

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West offers nothing to support its claim under the Wiretap Act that Matos acted with a criminal or

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tortious intent. (Docket No. 1 ¶ 22.) Sun West presents exclusively conclusory statements that

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support only a threadbare recitation of the elements of a claim.

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“intercepted the confidential information with a tortious intent” and that he “intends to benefit

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economically from the confidential information he intercepted” are insufficient to satisfy the

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pleading requirements. These allegations do not allow the Court to infer more than a mere

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possibility of misconduct, and thus, do not support a reasonable inference that Sun West is entitled

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to relief under the Wiretap Act. The motion to dismiss this claim is GRANTED.

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IV.

Allegations that Matos

Conclusion

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In sum, the Court GRANTS Defendant’s motion to dismiss the federal claims under

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CFAA, the Stored Communications Act, and the Wiretap Act. These claims are DISMISSED

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with prejudice. Judgment shall be entered accordingly.

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Additionally, because the only remaining claims are based on Puerto Rico state law, the

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Court GRANTS Defendant’s motion for jurisdictional discovery. In order to remain in this Court,
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Civil No. 15-1082 (GAG)
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Plaintiff has the burden to establish diversity jurisdiction pursuant to 28 U.S.C. § 1332 by

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demonstrating that the parties are completely diverse and the amount in controversy of the

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remaining state law claims exceeds $75,000.4 The parties shall conduct jurisdictional discovery

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which shall conclude on or before May 1, 2016. No extensions will be allowed. The parties, on or

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before March 18, 2016 shall agree to a jurisdictional discovery timetable and file a joint

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informative motion. A renewed motion to dismiss for lack of subject matter jurisdiction shall be

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filed on or before May 20, 2016, and, if the same is not filed an answer to the complaint shall be

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filed within the same date.
SO ORDERED.

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In San Juan, Puerto Rico this 10th day of March, 2016.

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s/ Gustavo A. Gelpí
GUSTAVO A. GELPI
United States District Judge

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The Court notes that, according to the Complaint, Sun West is a California corporation authorized to do
business in Puerto Rico and Matos is a “resident” of Puerto Rico. (Docket No. 1 ¶ 3.) Thus, Plaintiff must inform the
Court of its principal place of business so that the Court can determine its citizenship. Similarly, Defendant shall
inform the Court whether he is a citizen of Puerto Rico. Finally, Plaintiff must demonstrate that the remaining claims
meet the amount in controversy.
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