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ATS Group LLC v. Legacy Tank and Industrial Services LLC

United States District Court, W.D. Oklahoma

August 16, 2019




         Before the Court is the Motion to Dismiss filed by Defendants (Doc. No. 38). Plaintiff responded in opposition thereto. Having considered the parties' submissions, the Court finds as follows.

         In considering a motion to dismiss under Rule 12(b)(6), the Court must determine whether the Plaintiff has stated a claim upon which relief may be granted. A motion to dismiss is properly granted when the Complaint provides no “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint must contain enough “facts to state a claim to relief that is plausible on its face” and the factual allegations “must be enough to raise a right to relief above the speculative level.” Id. (citations omitted). For the purpose of assessing the validity of the Complaint, the Court must accept all the well-pleaded allegations of the Complaint as true and must construe the allegations in the light most favorable to Plaintiff. Twombly, 550 U.S. at 555; Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 (10th Cir.2007); Moffett v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1231 (10th Cir.2002). However, the Court need not accept as true those allegations that are conclusory in nature. Erikson v. Pawnee Cnty. Bd. of Cnty. Comm'rs, 263 F.3d 1151, 1154- 55 (10th Cir.2001). “[C]onclusory allegations without supporting factual averments are insufficient to state a claim upon which relief can be based.” Hall v. Bellmon, 935 F.2d 1106, 1109-10 (10th Cir.1991).

         Plaintiff filed this action against three of its former employees, Defendants Phillip Reece, Brad Haltom, and Austin Prough, and Legacy Tank and Industrial Services LLC (“Legacy”), the entity founded by Defendants Reece and Haltom, allegedly during their tenure at ATS Group. The Complaint alleges a variety of federal and state claims stemming from the creation of Defendant Legacy and its subsequent competition with Plaintiff ATS. Plaintiff contends Defendants Reece and Haltom utilized its resources in the formation of Legacy, and thereafter began soliciting ATS's clients and employees. Plaintiff alleges claims under the Computer Fraud and Abuse Act (“CFAA”), specifically 18 U.S.C. § 1030(a)(5)(A), and the federal Defend Trade Secrets Act (“DTS”), 18 U.S.C. § 1836. Plaintiff also alleges that the individual Defendants breached their fiduciary duties/duty of loyalty to ATS, that they usurped or diverted ATS's business opportunities, tortiously interfered with contracts and prospective economic advantage, and violated the Oklahoma Uniform Trade Secrets Act, a parallel to the Defend Trade Secrets Act. Defendants move for dismissal of Plaintiff's claims. In response, Plaintiff objects to each of Defendants' arguments, with the exception of Defendants' contention that it cannot recover punitive damages under CFAA, which ATS concedes is correct.

         Computer Fraud and Abuse Act

         Plaintiffs seek relief under the CFAA from Defendants Reece and Prough, former employees who allegedly downloaded information and deleted files from the work computers provided by ATS. “The CFAA prohibits a number of different computer crimes, the majority of which involve accessing computers without authorization or in excess of authorization, and then taking specified forbidden actions, ranging from obtaining information to damaging a computer or computer data.” LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1131 (9th Cir. 2009); see 18 U.S.C. § 1030(a)(1)-(7). Although the CFAA is primarily a criminal statute, 18 U.S.C. § 1030(g) 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” but “only if the conduct involves 1 of the factors set forth in subclauses (I), (II), (III), (IV), or (V) of subsection (c)(4)(A)(i).” 18 U.S.C. § 1030(g). Plaintiff asserts that Defendants Reece and Prough violated 18 U.S.C. § 1030(a)(5)(A), which prohibits “knowingly caus[ing] the transmission of a program, information, code, or command, and as a result of such conduct, intentionally caus[ing] damage without authorization to a protected computer.” The Act defines “damage” as “any impairment to the integrity or availability of data, a program, a system, or information.” 18 U.S.C. § 1030(e)(8).[1] Defendants assert that Plaintiff has failed to sufficiently allege a claim under § 1030(a)(5)(A).

[T]he elements of a civil claim under [§ 1030(a)(5)(A)] are as follows: (1) the person or entity must intentionally cause the transmission of a program, information, code, or command; (2) the computer must be a ‘protected computer;' (3) the transmission must be without authorization; and (4) the transmission must cause damage.

Am. Online, Inc. v. Nat'l Health Care Disc., Inc., 174 F.Supp.2d 890, 898 (N.D. Iowa 2001). “Unauthorized damage and/or unauthorized transmission are elements of a cause of action under § 1030(a)(5)(A); unauthorized access to the protected computer is not.” Wentworth-Douglas Hosp. v. Young & Novis Prof'l Ass'n, No. 10-CV-120-SM, 2010 WL 3023331, at *3 (D.N.H. July 28, 2010).

         The Court finds that the Complaint pleads sufficient facts to state a claim under the CFAA against both Defendants Reece and Prough. The Complaint alleges that on July 12, 2018, just before his resignation, Reece deleted 1300 files from his ATS laptop's local drive. Plaintiff alleges that Reece was covering his tracks related to data he had previously downloaded. He also allegedly deleted his internet history from his work-issued laptop. Doc. No. 1, ¶ 16. Plaintiff further alleges that it has been unable to recover any data that Reece deleted. Id. ATS further alleges that, after Reece took these actions, he used Plaintiff's resources to solicit Plaintiff's customers for Legacy Tank. This allegation is sufficient to allege that Defendant Reece, without authorization, transmitted a command or commands which transmission damaged the protected computer. Accordingly, the Court denies Defendant's motion as it relates to Plaintiff's CFAA claim against Defendant Reece.

         The CFAA claim against Defendant Prough alleges that in his capacity as Sales Manager in the Cushing office of ATS, he had access to Salesforce, an account management system used to track and monitor sales opportunities. Plaintiff alleges it discovered that, on August 13, 2018, Defendant Prough accessed Salesforce and falsely changed the status of multiple accounts to either “cancelled” or “lost.” (Doc. No. 1, ¶ 19). Thirty-eight accounts were allegedly altered that night, and ATS has been unable to restore the original data to accurately reflect the status of those accounts. (Doc. No. 1, ¶ 20). The Complaint further alleges that Defendant Prough was not authorized to delete the “Contacts” file on his ATS laptop but did so after downloading it to an external storage device, resulting in the loss of metadata. Plaintiff further alleges Prough was not authorized to install CCleaner, a program designed to wipe hard drives and erase Internet history. (Doc. No. 1, ¶ 22).[2]

         To the extent Defendants argue that Prough had authority to download his Contacts file or to install CCleaner, the allegations are sufficient to establish that Defendant's authority was terminated by virtue of his self-dealing. The Complaint asserts that Prough was part of the June 2018 solicitation of Plaintiff's customers for Legacy, while Prough and Reece were on a business trip paid for by Plaintiff. According to the Restatement (Second) of Agency § 112, which Oklahoma follows, “the authority of an agent terminates if, without knowledge of the principal, he acquires adverse interests or if he is otherwise guilty of a serious breach of loyalty to the principal.” Soliciting a client for a business being created while ostensibly on a business trip on behalf of and paid for by ATS is an allegation sufficient to establish that Defendants Prough and Reece acquired adverse interests and were therefore stripped of their authority to act on behalf of ATS. Finally, although Plaintiff does not allege that Defendant Prough actually used CCleaner, its allegations that he was not authorized to delete the contacts from his laptop combined with its contention that certain metadata related to the files could not be retrieved is sufficient to state a claim under the CFAA.[3]

         Breach of Fiduciary Duty

         Citing the Oklahoma Limited Liability Company Act, Defendants Reece, Haltom, and Prough seek dismissal of Count III, Plaintiff's breach of fiduciary duty claim, arguing that only managing members of a limited liability company owe a fiduciary duty to the LLC. (Doc. No. 38, pp. 9-10). Plaintiff argues that its claims are not premised on the Act, but rather are common law breach of fiduciary duty claims.

         Before a plaintiff may proceed on a claim for breach of fiduciary duty the allegations in the complaint must be sufficient to allege the existence of such a duty. See Graves v. Johnson, 2015 OK CIV APP 81, ¶ 15, 359 P.3d 1151, 1155 (setting forth elements for breach of fiduciary duty claim). A fiduciary relationship may arise as a matter of fact where “there is confidence reposed on one side and resulting domination and influence on the other.” Lowrance v. Patton, 1985 OK 95, ¶ 17, 710 P.2d 108, 111. “[A] fiduciary relationship springs from an attitude of trust and confidence and is based on some form of agreement, either expressed or implied, from which it can be said the minds have been met to create a mutual obligation.” Id., ¶ 18, p. 112; see also Okla. Unif. Jury Instr. 26.2 (“A fiduciary relationship exists whenever trust and confidence are reasonably placed by one person in the integrity and loyalty of another, and the other person knowingly accepts that trust and confidence and then undertakes to act on behalf of the person.”). Plaintiff alleges that each of the individual Defendants was employed in a management capacity at its offices in Cushing, Oklahoma and privy to confidential corporate information in their respective capacities.

This Court sitting in diversity will not establish new Oklahoma law. See Taylor v. Phelan, 9 F.3d 882, 887 (10th Cir.1993) (“As a federal court, we are generally reticent to expand state law without clear guidance from its highest court....”). To date, Oklahoma courts have not expressly recognized a fiduciary duty of loyalty owed by an employee to his employer as set forth in the Restatement (Third) of Agency (2006).
*** The Oklahoma Supreme Court has noted, however, that “[t]he essence of an agency relation is the right of the principal to give directions that the agent is under a duty to obey as long as he remains the agent. The agent should act in the principal's interest and at his control.” Enter. Mgmt. Consultants, Inc. v. State ex rel. Okla. Tax Comm'n, 768 P.2d 359, 362 n. 13 (Okla.1988) (emphasis added). This rule of law derives from the Restatement (Second) of Agency (1958), which Oklahoma courts have repeatedly cited in their analysis of agency relationships. See Douglas v. Steele, 816 P.2d 586, 589 (Okla.Civ.App.1991) (finding that a travel agent had a duty to act with “the care, skill and diligence a fiduciary rendering that kind of service would reasonably be expected to use.”); Morrison v. State, 792 P.2d 1189, 1191 (Okla.Crim.App.1990) (explaining that agents are “ ‘fiduciaries; they owe to the principal the basic obligations of agency: loyalty and obedience ....‘ “ (quoting Restatement (Second), supra, § 14N cmt. a)) (alterations in original); Smith v. St. Francis Hosp., Inc., 676 P.2d 279, 281 (Okla.Civ.App.1983) (“A principal-agent relationship denotes a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act for his benefit and subject to his control, and consent by the other so to act.”).

Southwest Stainless, L.P. v. Sappington, No. 07-CV-0334-CVE-FHM, 2008 WL 3013548, at *26-27 (N.D. Okla. Aug. 1, 2008), aff'd in part, rev'd in part and remanded 582 F.3d 1176 (10th Cir. 2009)(footnotes omitted).[4] Because the existence of a fiduciary duty is generally an issue of fact, in light of Plaintiff's allegation, the Court finds that at the pleading stage the allegations are sufficient to avoid dismissal under Rule 12(b)(6). See Horton v. Hamilton, 2015 OK 6, 345 P.3d 357, 364.

         Usurping Corporate Opportunities

         Defendants seek dismissal of Plaintiff's claim that Defendants Reece, Haltom, and Prough usurped a corporate opportunity, asserting that such a claim extends only to officers, directors, and majority shareholders. Defendants additionally argue that Plaintiff fails to identify any specific opportunities allegedly usurped. Although the Court concludes that Plaintiff pled sufficient facts to allege that the individual Defendants were fiduciaries, the Court concurs with Defendants that, with regard to Plaintiff's contention that any Defendant usurped one or more corporate opportunities, dismissal is appropriate.

         First, the Court notes it has been unable to find any case dependent on Oklahoma law wherein the court addressed the liability of employees other than officers, directors, and majority shareholders for usurping a corporate opportunity. Plaintiff cites to a case wherein the Tenth Circuit affirmed the liability of a manager to his employer for profits he obtained as a result of self-dealing; specifically, he received a percentage of the profits from the borrower, at times forgoing interest on behalf of his employer. Byer v. Int'l Paper Co., 314 F.2d 831, 833 (10th Cir. 1963). The Court does not interpret this case as asserting a claim for usurping corporate opportunity, which requires allegations that the corporation had an expectancy, that it was able to take advantage of the opportunity, and that the alleged usurper acted in an official as opposed to individual capacity. Warren v. Century Bankcorporation, Inc., 1987 OK 14, 714 P.2d 846. In Byer, the employee engaged in self-dealing, but he was not found liable because he usurped his employer's ability to extend credit and reap the benefit of interest payments. Rather, he entered into a side agreement whereby the borrower paid him a percentage of his building profits, at times to the detriment of his employer, because he ignored the required interest payments. Therefore, the Court finds that Byer does not control the outcome herein.

         Finally, Defendants' position and the Court's conclusion finds support in the Restatement (Third) of Agency ...

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