Opinion
11 CV 4789 (VB)
02-01-2012
FTA MARKET INC. d/b/a TVALB, Plaintiff, v. VEVI, INC. d/b/a DIASPORATV, EDMOND PRUTHI, SHKELZEN PRUTHI and ILIR PRUTHI, Defendants.
MEMORANDUM DECISION :
Plaintiff FTA Market Inc., d/b/a TVALB, commenced this action asserting claims relating to its provision of television broadcasts. Now pending is defendants' motion to dismiss the complaint. (Doc. #4.) For the following reasons, the motion is GRANTED as to plaintiff's claims under the Computer Fraud and Abuse Act and for tortious interference with contract and defamation. It is also GRANTED as to defendants Vevi, Inc., Shkelzen Pruthi, and Ilir Pruthi as to plaintiff's claims for tortious interference with contract and breach of fiduciary duty. As to all other claims, the motion is DENIED.
The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 as to plaintiff's federal law claims and 28 U.S.C. § 1367(a) as to plaintiff's state law claims.
BACKGROUND
For purposes of ruling on defendants' motion to dismiss, the Court accepts all allegations of the complaint as true.
FTA Market ("FTA") is a corporation organized under the laws of New Jersey. Defendant Vevi, Inc. is a corporation organized under the laws of New York. Defendant Edmond Pruthi ("Edmond") is a former employee of plaintiff's. The complaint does not specify the relationship between Edmond and defendant Shkelzen Pruthi ("Shkelzen") or defendant Ilir Pruthi ("Ilir").
FTA provides television programming and broadcasts through IPTV service primarily to customers in the Albanian community. It does so through contracts with foreign television program providers. FTA's customers purchase a cable box from a third-party entity, and FTA provides programming for a monthly fee. In programming its customers' cable boxes, FTA creates a unique identification number which, according to FTA policies and procedures, can only be accessed by inputting a secure password known only to FTA's managing directors. At all times relevant to this action, FTA maintained a secure computer system consisting of computer hardware, an administrative console, and a company email account. The secure computer system could only be accessed by the managing directors. The administrative console was maintained on the FTA computer system and contained customers' names and addresses, the programs the customer was to receive, the cable box's password, the cable box's identification data, and the client's payment information. FTA maintained internal policies and procedures to ensure that only FTA's managing directors had access to the administrative console and the information contained therein.
"IPTV" stands for internet protocol television and refers to "a system through which television services are delivered using the Internet protocol suite over a packet-switched network such as the Internet, instead of being delivered through traditional terrestrial, satellite signal, and cable television formats." See http://en.wikipedia.org/wiki/IPTV (retrieved on January 26, 2012).
Edmond was hired by FTA prior to February 28, 2009. Edmond did not have permission to access the administrative console. On February 10, 2009, Edmond incorporated Vevi. On February 28, 2009, he resigned from FTA.
According to the complaint, on March 1, 2009, Edmond began to contact and solicit business from FTA's customers. He offered the customers the same programming package as FTA but at a discounted price. Further, he told the customers that they could keep the same cable box that FTA had used.
According to FTA, Edmond accessed the FTA computer system, including the administrative console, by installing a "keylogger" program. This allowed Edmond to obtain the customers' identification numbers and passwords. Defendants then reprogrammed the customers' cable boxes and created passwords only defendants knew. They allegedly used the information to lure FTA's customers away from FTA.
After Edmond left his position, plaintiff detected his IP address accessing FTA's computer systems without authorization. According to a document annexed to the complaint by plaintiff, Edmond accessed the systems on May 27 and 28, 2009.
In July 2009, defendants posted a video online alleging FTA was a pro-Serbian entity and Albanians should not do business with it. Further, defendants created a blog under the name "DiasporaTV" and posted false and defamatory statements against FTA.
Plaintiff alleges defendants sent email to several foreign television stations from whom FTA purchased programming falsely claiming FTA was in breach of its agreements with the providers.
In November 2009, FTA received a complaint from the Better Business Bureau ("BBB") alleging that FTA overcharged customers. Plaintiff alleges Edmond drafted and filed the complaint to the BBB.
This case was commenced on July 12, 2011, with the filing of a complaint. Plaintiff asserts claims for (1) violations of the Computer Fraud and Abuse Act, 28 U.S.C. § 1030(g) ("CFAA"); (2) violations of the Lanham Act, 15 U.S.C. § 1125(a); (3) tortious interference with contract; (4) unfair competition; (5) trespass to chattel; (6) defamation; and (7) breach of fiduciary obligations.
DISCUSSION
The function of a motion to dismiss pursuant to Rule 12(b)(6) is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Ryder Energy Distrib. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984). When deciding a motion to dismiss, the court must accept all well-pleaded allegations as true and draw all reasonable inferences in favor of the pleader. Hishon v. King, 467 U.S. 69, 73 (1984). The complaint must contain the grounds upon which the claim rests through factual allegations sufficient "to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff is obliged to amplify a claim with some factual allegations to allow the court to draw the reasonable inference that the defendant is liable for the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009). To determine which allegations it may consider, the Court first identifies conclusory pleadings that are not entitled to the assumption of truth. Iqbal, 129 S. Ct. at 1949-50 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.").
The Supreme Court has held that a complaint in federal court must be read pursuant to a notice pleading standard. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). The complaint must contain "only enough facts to state a claim to relief that is plausible on its face." Iqbal v. Twombly, 550 U.S. at 569. This simplified notice pleading standard is provided by Federal Rule of Civil Procedure 8(a)(2) and "relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz, 534 U.S. at 512. "The provisions for discovery are so flexible and the provisions for pretrial procedure and summary judgment so effective, that attempted surprise in federal practice is aborted very easily, synthetic issues detected, and the gravamen of the dispute brought frankly into the open for the inspection of the court." Id. at 512-13 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure, ¶ 1202, p. 76 (2d ed. 1990)). Accordingly, this Court only requires the complaint put defendant on notice of the claims. See Stern v. General Electric Co., 924 F.2d 472, 476 n.6 (2d Cir. 1991).
Defendants move to dismiss plaintiff's CFAA claim on the ground that it is barred by the relevant statutes of limitations. In addition, defendants argue plaintiffs have failed to establish the elements of each asserted claim.
I. Claim Under the Computer Fraud and Abuse Act
Count One of the complaint alleges defendants violated CFAA by installing a keylogger program which traced a user's activities in the computer system. Plaintiff contends the keylogger disabled the computer system and made it inoperable, and it incurred unspecified costs in restoring the system.
"The CFAA, in relevant part, provides a private federal cause of action against a person who intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer." Penrose Computer Marketgroup, Inc. v. Camin, 682 F. Supp. 2d 202, 207 (N.D.N.Y. 2010). Subsection (g) of CFAA provides that "[a]ny person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief." 18 U.S.C. § 1030(g). As relevant to this action, plaintiff can only maintain an action if it relates to "loss to 1 or more persons during any 1-year period . . . ." 18 U.S.C. § 1030(c)(4)(A)(i)(I). In such case, damages are limited to economic damages. 18 U.S.C. § 1030(g). An action under this section must be brought within two years of "of the act complained of or the date of the discovery of the damage." Id.
Defendants argue this action was time-barred. The complaint indicates Edmond was employed by plaintiff in February 2009, and prior to resigning, Edmond installed the keylogger. The complaint indicates the keylogger was active and Edmond was accessing the computer system in May 2009.
The statute of limitations is an affirmative defense, and the burden is upon defendants to show plaintiff's claim is untimely. Bano v. Union Carbide Corp., 361 F.3d 696, 710 (2d Cir. 2004). Defendants generally meet this burden by demonstrating when the cause of action accrued. St. John's Univ. v. Bolton, 757 F. Supp. 2d 144, 157 (E.D.N.Y. 2010). Because the burden lies with defendants, "[t]he pleading requirements in the Federal Rules of Civil Procedure . . . do not compel a litigant to anticipate potential affirmative defenses, such as the statute of limitations, and to affirmatively plead facts in avoidance of such defenses." Abbas v. Dixon, 480 F.3d 636, 640 (2d Cir. 2007). On a Rule 12(b)(6) motion, the Court may only dismiss an action based on the statute of limitations if, on the face of the complaint, it is clear that the claim is untimely. Harris v. City of New York, 186 F.3d 243, 250 (2d Cir. 1999). For a court to dismiss a complaint based on the statute of limitations, plaintiff must "plead[ ] itself out of court." In re marchFIRST Inc., 589 F.3d 901, 904-05 (7th Cir. 2009); see also Harris v. City of New York, 186 F.3d 243, 250 (2d Cir. 1999).
Plaintiff asserts defendants continue to access its computer systems, as alleged in the complaint. See Compl. ¶ 36 ("Defendants . . . during all relevant times and to date, remotely accessed FTA['s] computer system[s] . . . ."). This argument is inconsistent with the rest of the complaint and does not extend the limitations period. The statute of limitations begins to run on the date of the discovery of the damage, a date which was no later than May 2009 when defendants allegedly accessed the system as reported in Exhibit 3 to the complaint. See Smartix Int'l Corp. v. Mastercard Int'l LLC, 2008 U.S. Dist. LEXIS 108548, *11 (S.D.N.Y. Sept. 30, 2008) (statute of limitations on CFAA claim start to run when damage to computer equipment is discovered). Further, plaintiff's allegations do not allege when its computer systems were compromised. It would seem the injury was felt no later than May 2009.
Finally, the allegations of paragraph 36 are based on "information and belief." While the Court accepts all allegations of the complaint as true for purposes of ruling on a motion to dismiss, the Court will not accept facts alleged upon information and belief when such information is within the control of plaintiff. See Arista Records LLC v. Doe, 604 F.3d 110, 120 (2d Cir. 2010). Plaintiff should know whether its system is compromised. If it doesn't, it should plead specific facts to support its statement that the tortious access continues, as it did with the access in May 2009. This claim is dismissed without prejudice.
Because the Court dismisses plaintiff's CFAA claim on statute of limitations grounds, it will not address whether plaintiff has properly stated a claim under CFAA.
II. Lanham Act Claim
Count Four of the complaint alleges defendants violated the Lanham Act by making false statements concerning plaintiff's association with the country of Serbia, to the BBB, and to the foreign content providers. Defendants argue the allegations of the complaint are insufficient to state a claim. The Court disagrees.
Section 1125 of the Lanham Act provides:
Any person who, on or in connection with any goods or services, or
any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.15 U.S.C. § 1125(a)(1)(B). To state a claim under this section, plaintiff must allege "(1) defendants made a false or misleading representation regarding the nature, characteristics or quality of plaintiff's services; (2) the representations were used in commerce; (3) the representations were made in the context of commercial advertising or promotion; and (4) defendants' actions made plaintiff believe it would be damaged by the representations." Gmurzynska v. Hutton, 257 F. Supp. 2d 621, 629 (S.D.N.Y. 2003), aff'd, 355 F.3d 206 (2d Cir. 2004).
Defendants argue plaintiff has failed to specify which statements were made to which recipient, how such statements were false, and how such statements were a form of "commercial advertising or promotion."
Although the complaint is silent as to how the statements to the BBB, to the content providers, and related to Serbia were actually false, the complaint suffices to put defendants on notice of the nature of the claims against them. Further, plaintiff need not attach to the complaint exhibits that specifically identify how these statements were false. By alleging they were false, plaintiff has met its burden under Rule 8(a)(2) for a short, plain statement of the claim it is asserting.
Defendants assert the statements to the foreign content providers did not constitute "commercial advertising or promotion," but fail to cite any case law defining what is meant by that phrase. The case law indicates this phrase is to be read broadly - though not limitlessly - to include the type of communications of which plaintiff complains. See Fashion Boutique v. Fendi, USA, Inc., 942 F. Supp. at 215 ("In order to constitute 'advertising or promotion' under section 43(a)(1)(B), the allegedly false representations must be made by someone who is in commercial competition with the plaintiff."); Gordon & Breach Science Publrs. S.A. v. American Inst. of Physics, 859 F. Supp. 1521, 1534-35 (S.D.N.Y. 1994); National Artists Management Co. v. Weaving, 769 F. Supp. 1224, 1235 (S.D.N.Y. 1991). This claim will not be dismissed.
III. Tortious Interference with Contract
Count Two of the complaint asserts a claim for tortious interference with contract. To assert a claim for tortious interference with contractual relations under New York law, plaintiff must allege (1) that a valid contract exists; (2) that a third party had knowledge of the contract; (3) that the third party intentionally and improperly procured the breach of the contract; and (4) that the breach resulted in damage to the plaintiff. Albert v. Loksen, 239 F.3d 256, 274 (2d Cir. 2001); Israel v. Wood Dolson Co., 1 N.Y.2d 116, 120 (1956). Plaintiff must allege a breach of the contract, as that is an essential element of the claim. Israel, 1 N.Y.2d at 120. "An actor intentionally procures a breach of a third party's contract even where the breach 'is incidental to the actor's independent purpose and desire but known to him to be a necessary consequence of his action.'" St. John's Univ. v. Bolton, 757 F. Supp. 2d 144, 173 (E.D.N.Y. 2010) (quoting Restatement (Second) of Torts § 766 cmt. j); see also Kronish Lieb Weiner & Hellman LLP v. Tahari, Ltd., 829 N.Y.S.2d 7, 9 (App. Div. 2006) ("[I]t is not necessary to allege that defendant used improper means or that its conduct was for the sole purpose of harming plaintiff."). "The essential thing is the intent to cause the result." Restatement (Second) of Torts § 766 cmt. h.
Defendants argue plaintiff has failed to specifically allege it had any contracts with which defendants interfered. In response, plaintiff asserts several allegations of the complaint sufficiently plead the existence of contracts between plaintiff and its customers and content providers. See Compl. ¶¶ 12, 16-17. These allegations only plead plaintiff had commercial relationships with its customers and content providers. They are not sufficient to demonstrate that plaintiff had contractual relations with any of those parties. See Int'l Minerals & Resources v. Pappas, 1992 U.S. Dist. LEXIS 17588, *7-9 (S.D.N.Y. Nov. 17, 1992). Therefore, this claim is dismissed without prejudice.
IV. Unfair Competition Claim
Count Three asserts a claim for common law unfair competition under New York law. A claim for unfair competition requires plaintiff to plead: "(1) that the defendant's activities have caused confusion with, or have been mistaken for, the plaintiff's activities in the mind of the public, or are likely to cause such confusion or mistake; or (2) that the defendant has acted unfairly in some manner." 104 N.Y. Jur. 2d Trade Regulation § 196; Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980) ("The essence of an unfair competition claim under New York law is that the defendant has misappropriated the labors and expenditures of another."); Kwan v. Schlein, 441 F. Supp. 2d 491, 502 (S.D.N.Y. 2006) ("Claims for unfair competition under New York law typically fall into one of two categories: passing off, or malicious or fraudulent interference with good will."). A claim for unfair competition "has been broadly described as encompassing any form of commercial immorality, or simply as endeavoring to reap where one has not sown; it is taking the skill, expenditures and labors of a competitor, and misappropriating for the commercial advantage of one person . . . a benefit or property right belonging to another." Roy Exp. Co. Establishment of Vaduz, Liechtenstein v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir. 1982). A defendant has acted unfairly when he misappropriates the skill, expenditures, or labor of a competitor. ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467, 476-77 (2007).
The allegations of the complaint are sufficient to support this claim. It will not be dismissed.
The case cited by defendants, Stern Stewart & Co. v. KPMG Peat Marwick, LLP, 1997 N.Y. Misc. LEXIS 737 (N.Y. Sup. Ct. 1997), is clearly distinguishable. The court there dismissed the unfair competition claim after the plaintiff had failed to adduce any evidence at trial in support of it. This case, on the other hand, is still at the pleadings stage.
V. Claim for Trespass to Chattel
Count Five asserts a claim for trespass to chattel. Such a claim requires allegations that "(1) defendants acted with intent, (2) to physically interfere with (3) plaintiffs' lawful possession, and (4) harm resulted." Biosafe-One, Inc. v. Hawks, 639 F. Supp. 2d 358, 359 (S.D.N.Y. 2009). To be held liable, the tortfeasor must act with intent to invade the victim's chattels; he need not intend to cause injury. Phillips v. Sun Oil Co., 307 N.Y. 328, 331 (1954).
The complaint alleges defendants intended to interfere with plaintiff's computer systems with the installation of the keylogger software. The complaint alleges Edmond installed the keylogger. Therefore, according to the complaint, only he committed trespass of chattel. See Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004) (recognizing trespass when defendant accessed plaintiff's network with automated software). This claim will not be dismissed as to Edmond, but is dismissed as to defendants Vevi, Shkelzen, and Ilir.
VI. Claim for Defamation
Count Six of the complaint asserts a claim for defamation, which requires plaintiff to plead (1) a defamatory statement of fact; (2) that is false; (3) published to a third party; (4) "of and concerning" the plaintiff; (5) made with the applicable level of fault on the part of the speaker; (6) either causing special harm or constituting slander per se; and (7) not protected by privilege. Albert v. Loksen, 239 F.3d 256, 265-66 (2d Cir. 2001). Defendants argue that this claim is barred by the relevant statute of limitations and that plaintiff has failed to state a claim.
According to the complaint, defendants posted a defamatory video online about plaintiff in July 2009. In addition, defamatory statements were made on a blog from March until July 2009. Defamatory emails were sent by defendants in March and August 2009, and the BBB complaint was made in November 2009.
The statute of limitations in New York for defamation is one year from the date of the publication of the statement. N.Y. C.P.L.R. § 215(3). "[U]nder the 'single publication rule', a reading of libelous material by additional individuals after the original publication date does not change the accrual date for a defamation cause of action but, rather, the accrual date remains the time of the original publication." Gelbard v. Bodary, 706 N.Y.S.2d 801, 802 (App. Div. 2000). An exception to the single publication rule applies when a defamatory statement is "reissued" or "republished," which gives rise to a new limitations period. Gold v. Berkin, 2001 U.S. Dist. LEXIS 1206, *11 (S.D.N.Y. Feb. 9, 2001). This exception does not apply to statements published online continuously available to the public. Van Buskirk v. N.Y. Times Co., 325 F.3d 87, 89-90 (2d Cir. 2003); Firth v. State, 98 N.Y.2d 365, 370 (2002); Young v. Suffolk County, 705 F. Supp. 2d 183, 212 (E.D.N.Y. 2010) ("[U]nder the single publication rule, the fact that a story remains available online does not restart the statute of limitations.").
Plaintiff's claim for defamation is barred by the applicable statute of limitations and is hereby dismissed.
VII. Claim for Breach of Fiduciary Obligation
Count Seven of the complaint asserts a claim that defendants breached their fiduciary obligations to plaintiff. To plead a claim for breach of fiduciary duty, plaintiff must allege (1) the existence of a fiduciary relationship; (2) misconduct by defendant; and (3) damages directly caused by defendant's misconduct. Rut v. Young Adult Institute, Inc., 901 N.Y.S.2d 715, 717 (App. Div. 2010). A fiduciary relationship may be found "when one person is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation." Thermal Imaging, Inc. v. Sandgrain Sec., Inc., 158 F. Supp. 2d 335, 343 (S.D.N.Y. 2001); see also Flickinger v. Harold C. Brown & Co., 947 F.2d 595, 599 (2d Cir. 1991). The existence of a fiduciary relationship cannot be determined "by recourse to rigid formulas." Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb Inc., 767 F. Supp. 1220, 1231 (S.D.N.Y. 1991), rev'd on other grounds, 967 F.2d 742 (2d Cir. 1992). Rather, the focus is on whether one person has reposed trust or confidence in another who thereby gains a resulting superiority or influence over the first." Id.
Plaintiff alleges defendants breached their fiduciary duty by inappropriately accessing its computer system and installing the keylogger. Defendants contend plaintiff has failed to adequately plead defendants diverted business from plaintiff.
Under New York law, an employee owes a fiduciary duty to his employer. Lamdin v. Broadway Surface Advertising Corp., 272 N.Y. 133, 138 (1936). "While an employee is free to compete with his . . . former employer as to matters for which he . . . has been employed, he . . . is not free to exploit the same trade if the opportunity was facilitated by acts of preparation and disloyalty during his . . . employment and before his . . . termination, and by the breach of his . . . obligation to use his . . . best efforts in the interest of the employer." 52 N.Y. Jur. Employment Relations § 228. "Diversion of assets to a secretly created competitive organization constitutes a breach of fiduciary duty." Don Buchwald & Assocs. v. Rich, 723 N.Y.S.2d 8, 9 (App. Div. 2001).
Plaintiff alleges Edmond installed the keylogger software while still in plaintiff's employ. This satisfies plaintiff's burden to state a claim for breach of Edmond's fiduciary duty insofar as it constitutes an act of "preparation and disloyalty" during his tenure. See 52 N.Y. Jur. Employment Relations § 229; Paz Sys. v. Dakota Group Corp., 514 F. Supp. 2d 402, 410 (E.D.N.Y. 2007). This claim is not dismissed as to Edmond, but is dismissed as to the other defendants because there are no allegations upon which the Court could find they owed a fiduciary duty to plaintiff.
CONCLUSION
For the foregoing reasons, the Court GRANTS defendants' motion to dismiss (Doc. #4) as to (1) plaintiff's claims under the Computer Fraud and Abuse Act, for tortious interference with contract, and for defamation; and (2) plaintiff's claims against Vevi, Inc., Shkelzen Pruthi, and Ilir Pruthi for trespass and breach of fiduciary duty. The dismissal of plaintiff's claims under the CFAA and for tortious interference with contract are without prejudice to plaintiff's filing an amended complaint by no later than February 15, 2012. As to all other claims, the motion is DENIED.
The Clerk is instructed to terminate the pending motion. Dated: February 1, 2012
White Plains, New York
SO ORDERED:
/s/_________
Vincent L. Briccetti
United States District Judge