PAUL A. ENGELMAYER, District Judge.
In this action, plaintiffs JBCHoldings NY, LLC and Janou Pakter, LLC bring federal claims arising under the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. §§ 1030 et seq., and the Lanham Act, 15 U.S.C. §§ 1051 et seq., and common law claims of fraud, breach of contract, tortious interference with contract, tortious interference with business relations, and an accounting. Defendants Janou Pakter, Janou Talent Advisory International, and Jerry Tavin each move to dismiss some, but not all, of the claims against them. These motions are granted in part and denied in part. Defendant Ginger Puglia moves to dismiss all claims against her. That motion is granted in its entirety.
The central figure in this case is defendant Janou Pakter ("Janou"), who is alleged to be a prominent figure in the executive search industry. Together with defendant Jerry Tavin, Janou was the owner of Janou Pakter Inc. ("JPI"), an executive search firm. Am. Compl. ¶¶ 17-18.
Plaintiff JBCHoldings NY, LLC ("JBC") is a holding company for a number of entities in the same industry. Id. ¶¶ 2, 24. In mid-2011, JBC, seeking to expand its global recruitment operations, contacted JPI to discuss a possible transaction between the companies. Id. ¶ 27. In October and November 2011, JBC, through its managing member Bryan Zaslow, engaged in negotiations with Janou and Tavin. Id. ¶¶ 32-33. During these negotiations, Janou and Tavin made detailed projections regarding the amount of revenue JPI could earn with their assistance. Id. ¶¶ 33-37. For 2013, Janou and Tavin projected that JPI's American operations could earn between $4.2 and 6.375 million. Id. ¶ 35.
In January 2012, after months of negotiation, JBC purchased substantially all the assets of JPI pursuant to an Asset Purchase Agreement ("APA"). Id. ¶¶ 39-41, 53; see also Am. Compl. Ex. A (the APA). The APA was signed by Janou, Tavin, and Zaslow. Am. Compl. ¶ 53; APA 29. The nominal purchase price paid by JBC was $450,000. Am. Compl. ¶ 46.
To effectuate the purchase, JBC created Janou Pakter, LLC ("JP" and, collectively with JBC, "plaintiffs"), a wholly owned subsidiary, which would take on JPI's assets and thereafter continue in the executive search business. Id. ¶¶ 5, 16. Under the APA, plaintiffs purchased from JPI "everything from goodwill, customer lists, post closing accounts receivable, personal property owned by JPI and JPI's lease, to intellectual property, amongst other things." Id. ¶ 40.
Under the APA, Janou was required to continue to participate in the business. She agreed to help plaintiffs build their executive search business, and both Janou and Tavin agreed not to compete with plaintiffs and to make reasonable efforts to induce clients to work with plaintiffs. Id. ¶¶ 28, 30-31, 42; APA § 9.13. For her efforts, Janou was to be paid a commission-based salary, with a $120,000 salary guaranteed. She was also to receive a $20,000 signing bonus, and equity options that would vest at certain milestones. Am. Compl. ¶ 49. This compensation structure was based on Janou's representations that she could build a lucrative business for JP. Id. ¶¶ 34-38.
Janou's performance, however, fell short of these expectations: By May 2012, Janou had not signed a single new account for JP. Id. ¶ 56.
Plaintiffs allege that Janou failed to book any revenue for JP because, from the moment she sold JPI to JBC, she had been setting up and operating a competing enterprise, Janou Talent Advisory International ("JTAI"), in direct violation of her employment agreement. Plaintiffs allege
In June 2012, plaintiffs discovered Janou's infidelity when she left her personal email account open on a JP computer. Id. ¶ 62. Upon searching Janou's electronic communications, JBC and JP management found an array of emails that allegedly show that Janou: (1) had been in contact with present and former JBC clients; (2) had received fees from at least one client pursuant to an invoice marked "JTAI"; (3) had referred clients to Puglia, rather than retaining them for JP; and (4) had discussed fee-sharing arrangements with Puglia and Theobalt. Id. ¶ 64; see also id. Exs. 3-6. In essence, plaintiffs allege, these emails show that Janou was working with Tavin, Puglia, and Theobalt to steal business opportunities belonging to JBC and JP, and to divert them to her competing enterprise, JTAI. Plaintiffs further allege that Janou, Puglia, and JTAI presented their business to consumers so as to falsely trick consumers into thinking that they were receiving services from plaintiffs. Id. ¶ 65.
Plaintiffs further allege that Janou and her co-conspirators misappropriated JBC and JP's proprietary information, including client lists, and used these to advance their competing business. Plaintiffs theorize that Janou (or a co-defendant) obtained this information either by (1) copying it to her personal laptop and sharing it with her co-defendants; (2) lifting it from JBC's computers using a flash drive; and/or (3) obtaining it remotely via spyware. Id. ¶¶ 70-74.
On July 18, 2012, JP terminated Janou's employment. Id. ¶ 76.
On October 10, 2012, plaintiffs filed the original Complaint in this case. Dkt. 1. The Complaint alleged a violation of the CFAA, and state law causes of action for fraud, breach of contract, tortious interference with contract, and an accounting. On November 13, 2013,
On November 21, 2012, Puglia moved to dismiss the Complaint. Dkt. 17. On November 26, 2012, Janou, Tavin, and JTAI filed an opposition to plaintiffs' request for a preliminary injunction, Dkt. 21-24. On November 29, 2012, the Court held a preliminary injunction hearing. In an opinion read from the bench at the conclusion of that hearing, the Court denied plaintiffs' motion for a preliminary injunction. Among other things, the Court noted, plaintiffs could not show a likelihood of success on the merits of their only federal claim, based on the CFAA, because that claim appeared deficient as a matter of law. Dkt. 33.
On December 3, 2012, plaintiffs filed the Amended Complaint. Dkt. 40. It added an additional federal cause of action under the Lanham Act, as well as a state law claim of tortious interference with business relations. On January 3, 2013, Puglia moved to dismiss the Amended Complaint, Dkt. 45 ("Puglia Br."), as did Janou and
In resolving a motion to dismiss, the Court must "construe the Complaint liberally, accepting all factual allegations in the Complaint as true, and drawing all reasonable inferences in plaintiff['s] favor." Galiano v. Fid. Nat'l Title Ins. Co., 684 F.3d 309, 311 (2d Cir.2012). Nevertheless, the "[f]actual allegations must be enough to raise a right of relief above the speculative level," and the complaint must plead "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [plaintiff's claim]." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Put differently, "[t]o survive a motion to dismiss, a complaint must contain 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).
"The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). "A pleading that offers `labels and conclusions' or `a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders `naked assertion[s]' devoid of `further factual enhancement.'" Id. (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). "Where a complaint pleads facts that are `merely consistent with' a defendant's liability, it `stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).
In applying these principles, the Court "must confine its consideration to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Tarshis v. Riese Org., 211 F.3d 30, 39 (2d Cir.2000) (citing Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991)). Here, this includes the APA, as well as the emails attached as exhibits to the Amended Complaint. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002).
The Court begins by addressing plaintiffs' two federal claims, under the CFAA and the Lanham Act. The Court then addresses plaintiffs' five state law claims.
Plaintiffs' first claim, against all defendants, arises under the CFAA, which prohibits an enumerated list of computer crimes. See 18 U.S.C. § 1030(a)(1)-(7). The CFAA is primarily a criminal statute, but it also creates a private cause of action allowing compensatory and equitable relief for any person who suffers one of several classes of damages, including losses exceeding $5,000. 18 U.S.C. § 1030(g).
The Amended Complaint alleges violations of CFAA subsections 1030(a)(2)(C), (a)(4) & (a)(5)(C). See Am. Compl. ¶¶ 81-83. These subsections provide a cause of action against a person or entity who:
18 U.S.C. § 1030(a).
Each of the CFAA subsections here requires that the defendant have either acted "without authorization" or "exceed[ed] authorized access." The Court's analysis begins by analyzing the meaning of these terms — a point as to which the parties to this case, and various federal courts, have not agreed.
The CFAA does not define the term "without authorization." It defines "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).
There is no doubt that the CFAA applies to an "outside" hacker who remotely enters a computer system without authority to do so. The harder question, relevant here, is whether an employee acts "without authorization" or "exceeds authorized access" when that employee is authorized in the first instance to access certain information, but then uses that information for an improper purpose. Put differently, the question is whether an employee's misuse of an employer's information violates the CFAA where that information was obtained from a computer to which the employee was permitted access. This question has arisen frequently, in cases like this one, in which a faithless employee has allegedly misused an employer's information. The federal courts of appeal are divided on this issue of statutory construction.
The First, Fifth, Seventh, and Eleventh Circuits have adopted what the Court will characterize as the "broad construction" of the statute. Although these courts have taken approaches to this outcome that differ subtly, each circuit has held that the statutory terms "without authorization" and/or "exceeds authorized access" are broad enough to reach the situation in which an employee misuses employer information that he or she is otherwise permitted to access. See, e.g., United States v. John, 597 F.3d 263, 271-72 (5th Cir.2010) (employee "exceed[ed] authorized access" when he used employer information, to which he had access for other purposes, to perpetrate a fraud); United States v. Rodriguez, 628 F.3d 1258, 1263-64 (11th Cir. 2010) (employee "exceed[ed] his authorized access" when he accessed information for a non-business reason in violation of
By contrast, the Fourth and Ninth Circuits have read these terms more narrowly (the "narrow approach"). They have held that the statute does not reach the mere misuse of employer information or violations of company use policies. See, e.g., WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d 199, 203-07 (4th Cir.2012) (rejecting agency-based theory and holding that employee who downloaded an employer's confidential information, emailed it to his personal account, and provided that information to employer's competitor was not liable under CFAA); United States v. Nosal, 676 F.3d 854, 863 (9th Cir.2012) (en banc) (holding that "the CFAA does not extend to violations of [employee] use restrictions," where employee of executive search firm used employer's information, in violation of a non-compete agreement, to set up competing executive search firm).
The Second Circuit has not squarely addressed the issue.
This Court finds the narrow approach to be considerably more persuasive:
In reaching this conclusion, the Court begins with the plain meaning of the statute. See Dobrova v. Holder, 607 F.3d 297, 301 (2d Cir.2010). The term "without authorization" is not defined. Accordingly, it must be given its "ordinary, contemporary, common meaning." Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 62 L.Ed.2d 199 (1979). The common meaning of "without authorization" is "without any permission at all." Aleynikov, 737 F.Supp.2d at 191 (collecting contemporary dictionary definitions); see also WEC Carolina, 687 F.3d at 204 (common meaning of "authorization" is "formal warrant, or sanction" (citing Oxford English Dictionary (2d ed. 1989; online version 2012))). Thus, an employee "accesses a computer without authorization" when he does so without permission to do so. This definition plainly speaks to permitted access, not permitted use.
As for the term "exceeds authorized access," it is defined to mean "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). By its plain terms, this definition also speaks to access, not use. It therefore does not speak to the misuse of permitted access or the misappropriation of information which an employee is authorized to access. See Aleynikov, 737 F.Supp.2d at 191-92; WEC Carolina, 687 F.3d at 204; see also Nosal, 676 F.3d at 857 (rejecting contrary statutory interpretations). Moreover, reading this definition to turn on the employee's purpose in making use of his permitted access to the information, as the Seventh Circuit does, would effectively add to the statute a subjective intent requirement that Congress did not impose. See LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1133 (9th Cir.2009) ("No language in the CFAA supports LVRC's argument that authorization to use a computer ceases when an employee resolves to use the computer contrary to the employer's interest."); Aleynikov, 737 F.Supp.2d at 194 (the broad approach "would require an analysis of an individual's subjective intent in accessing a computer system, whereas the text of the CFAA calls for only an objective analysis of whether an individual had sufficient `authorization'").
As between the two statutory terms within the CFAA, they cover distinct although parallel wrongs. See id.; Citrin, 440 F.3d at 420. An employee acts "without authorization" when he accesses a computer without permission to do so; an employee "exceeds authorized access" when he has permission to access certain information on a computer, but accesses other information as to which he lacks permission. See Nosal, 676 F.3d at 858; WEC Carolina, 687 F.3d at 204; Aleynikov, 737 F.Supp.2d at 191-92. Neither of these definitions, however, is addressed to the circumstance where an employee has permission to access certain information and then uses that information for an improper purpose.
A review of the statute as a whole confirms the narrow interpretation. See Orbit One Commc'ns., 692 F.Supp.2d at 385. The CFAA defines "loss" as "a reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption
Although the Court does not find the statute ambiguous, had there been ambiguity as between the broad and narrow constructions, the rule of lenity would apply, because the CFAA is primarily a criminal statute. See Univ. Sports Publ'ns, 725 F.Supp.2d at 384; Orbit One Commc'ns., 692 F.Supp.2d at 386. "The rule of lenity requires ambiguous criminal laws to be interpreted in favor of the defendants subjected to them." United States v. Santos, 553 U.S. 507, 514, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008) And, "when choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite." Jones v. United States, 529 U.S. 848, 858, 120 S.Ct. 1904, 146 L.Ed.2d 902 (2000) (citation omitted). Put differently, if Congress seeks to make a federal crime out of an employee's misuse of his work computer, it is required to say so clearly. See Nosal, 676 F.3d at 863.
Indeed, the broad reading of "exceeds authorized access" has breathtaking implications. It would federalize, and potentially subject to federal criminal law, quotidian abuses by employees that have historically been the sole ambit of state employment and criminal law. See generally Nosal, 676 F.3d at 860-63 (describing the many common violations of employer computer use policies that would subject employees to criminal liability under the broad reading of the statute).
The broad reading would also, therefore, create a federal cause of action for incidents and injuries traditionally governed by state contract and tort laws. See Nosal, 676 F.3d at 860. This case, in fact, supplies an excellent example. If plaintiffs' federal claims (under the CFAA and the Lanham Act) were to fall, plaintiffs would not want for a remedy: They have also alleged a host of state law contract and tort claims. Those state law causes of action have traditionally been used to remedy misappropriation of information by faithless employees. Yet because computers today are ubiquitous, the broad reading of the CFAA would permit such localized wrongs — breaches of contract, in form if not substance — to be litigated in federal court. Absent a clearer statement, the Court does not ascribe to Congress an intent thus to dramatically expand federal criminal and civil jurisdiction.
Applying these principles to the Amended Complaint, plaintiffs plausibly allege that Janou and Theobalt took JBC's client lists and other proprietary information and used that information to set up a competing enterprise. See Am. Compl. ¶¶ 71, 73, 74. However, nowhere in the Amended Complaint is there any allegation that Janou or Theobalt lacked the authority to access this information. Compare id. ¶ 74 ("Janou and Theobalt exceeded their authorized access ... when they took the names of candidates...") with ¶ 75 ("Puglia and Tavin never had authorization to access, or use, Plaintiffs' electronically stored information."). Thus, although Janou's alleged actions violated plaintiffs' electronic media policy, see id. ¶ 55, such misuse does not state a claim under the CFAA, because an employee does not "exceed[] authorized access" or act "without authorization" when she misuses information to which she otherwise has access.
Plaintiffs' allegation that Janou "still has not returned two company notebook computers ... with Plaintiffs' electronically stored information still contained thereupon" fares no better. Am. Compl. ¶ 84. There is no allegation that Janou lacked access to these computers, or the information stored therein, in the first instance. Janou's failure to return these computers upon her discharge might give rise to one or more common law causes of action. It does not state a claim under the CFAA.
The Amended Complaint does, however, include certain allegations that, if sufficiently pled, would state a cause of action under the CFAA. As noted, the CFAA does apply to the situation where an "outside hacker" obtains information to which he never had access. In this vein, plaintiffs allege that "someone, currently
Id. ¶ 72. Plaintiffs also allege that, upon information and belief, "all Defendants" have been using the two notebooks belonging to plaintiffs that Janou has yet to return. Id. ¶ 84. Notably, however, plaintiffs qualify these allegations by stating that "damage to Plaintiffs' servers renders it difficult, at this time, to say for certain [what happened]" and that plaintiffs' "investigation is as of yet, incomplete." Id. ¶¶ 72, 85.
These are precisely the sort of speculative, "naked assertion[s]" that do not suffice to survive a motion to dismiss. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Although the plausibility requirement "is not akin to a `probability requirement' ... it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Plaintiffs' pleadings are repeatedly couched in terms of sheer possibility, otherwise known as conjecture. See, e.g., Am. Compl. ¶ 71 ("someone, currently believed to be Janou or one of her agents" (emphasis added)); ¶ 72 ("They believe the spyware to have been possibly remotely placed. Further, they believe it possible that information was taken remotely ... Janou could have passed along her loginin-formation... which would explain the placement ... of spyware." (emphasis added)). Such allegations "stop[] short of the line between possibility and plausibility." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955). Such conjecture is not enough to state a claim.
The implausibility of plaintiffs' allegations is reinforced by their internal inconsistency. Plaintiffs allege that during Janou's alleged scheme, she was employed by JBC and had ready access to the proprietary information at issue. She could have — as plaintiffs allege she did, see Am. Compl. ¶ 72 — simply copied the information to her personal laptop and shared it with her co-conspirators. This would have obviated the need for her to resort to the type of elaborate "outside hacker" activities in which plaintiffs alternatively speculate she engaged, such as ripping information from, or remotely placing spyware on, plaintiffs' servers. Nor would there have been any need — if the information was indeed copied to Janou's personal laptop — for Janou or her agents to continue accessing that information from retained company laptops. In sum, plaintiffs' allegations do not allow the Court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Rather, the reasonable inference that the Court draws, drawing upon "judicial experience and common sense," is that these speculative actions have been alleged for the sole purpose of salvaging a cause of action under the CFAA in the event that the Court adopts (as it has) the narrower reading of the CFAA. Id.
In so holding, the Court is mindful that Twombly does not prevent a plaintiff from pleading facts "on information and belief" in appropriate circumstances. See Boykin
For these reasons, plaintiffs' CFAA claim must be dismissed as to each defendant.
Plaintiffs' second claim, against all defendants except Theobalt, arises under section 43 of the Lanham Act, which provides, in relevant part:
15 U.S.C. § 1125(a). To succeed on a claim under this section, "a plaintiff must prove (1) that the mark or dress is distinctive as to the source of the good or service at issue, and (2) that there is the likelihood of confusion between the plaintiff's good or service and that of the defendant." ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 154 (2d Cir.2007).
Here, plaintiffs' claim is premised on "Defendants' unauthorized use of Plaintiffs' service marks, trade names and trade dress acquired from JPI and including, but not limited to, the names `Janou,' `Pakter,' `Janou Pakter' and the JP logo."
Defendants do not argue, on this motion, that Janou's personal name has not acquired a secondary meaning, nor do defendants argue that the alleged uses of Janou's name did not create a likelihood of confusion. Rather, they argue that plaintiffs cannot "demonstrate [their] own right to use the mark or dress in question," a necessary precondition of a Lanham Act claim. Punchgini, 482 F.3d at 154. That is, defendants argue that plaintiffs never purchased any right to use Janou's name as a mark, let alone exclusive rights to do so.
"[Al]though an individual may sell the right to use his personal name, a court will not bar him from using that name unless
Under the APA, JPI is the "Seller," and Janou and Tavin are "Principal Stockholders." Am. Compl. Ex. A ("APA") at 1. The assets to be purchased under the APA are listed in § 2.1. That list includes "Personal Property." Id. § 2.1. "Personal Property" is defined to include "Intellectual Property Assets." Id. § 1.27. "Intellectual Property Assets," in turn, are defined to include "unregistered trademarks and service marks owned or used by Seller in respect of the Business and all business names and trading names currently used by Seller, including, but not limited to, Seller's corporate name." Id. § 1.17.
The terms of the APA are therefore clear as to at least the following proposition: Plaintiffs purchased the right to use any unregistered trademarks or service marks "owned or used" by JPI at the time the APA was executed. Whether plaintiffs purchased any right in Janou's personal name, therefore, turns on whether, at the time of the agreement, that name was an unregistered trademark or service mark owned or used by JPI.
Plaintiffs' pleadings on this point get across the goal line, but just barely. Plaintiffs have alleged that Janou's personal name was among the marks purchased from JPI. Am. Compl. ¶¶ 66, 91. Plaintiffs have not specifically alleged that Janou at some point sold the rights in her personal name to JPI, but that allegation is implicit within the broader allegation that Janou's personal name was among the marks purchased. It can be fairly inferred from this allegation that Janou, as the principal shareholder of the company that bore her name, transferred some right to use her personal name as a trade name to JPI — after all, the company's name was Janou Pakter Inc. And as a practical business matter, it follows that the purchaser of JPI's assets negotiated the APA at least in part on the understanding that it would be purchasing some rights in the name of the
Defendants argue, nevertheless, that the explicit terms of the APA indicate that plaintiffs did not purchase any right to use Janou's name. Janou Br. 19-21; Puglia Br. 9-11. The express terms of the APA, however, do not so state. Janou's personal name is neither expressly included within nor excluded from the list of intellectual property assets sold to plaintiffs.
To be sure, discovery may well prove plaintiffs' allegations to be incorrect. It may be that JPI neither owned nor used Janou's name as a mark, and thus that JPI could not and did not sell the right to use Janou's name in the APA.
These, however, are questions that cannot be determined on this motion. Accordingly, discovery must proceed on plaintiffs' Lanham Act claims, at least as against Janou and JTAI.
There is, however, no basis for allowing plaintiffs' Lanham Act claims to proceed against Tavin. Although Tavin is nominally included as a defendant on the Lanham Act count, there are no particularized allegations that Tavin took any action that would violate the Lanham Act. Rather, every alleged action that would violate the Lanham Act is alleged to have been taken by Janou and/or Puglia. See Am. Compl. ¶¶ 65-67, 94-97, 100. Tavin's name is only specifically invoked in two boilerplate sentences setting forth the elements of a Lanham Act violation. See id. ¶¶ 92, 101. Tavin is also lumped together with all "Defendants" in a number of other boilerplate allegations. See id. ¶¶ 91, 93, 98-99, 102. These conclusory allegations against Tavin are insufficient to survive a motion to dismiss. See Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Therefore, plaintiffs' Lanham Act claim is dismissed as to Tavin.
Puglia argues that, even assuming plaintiffs had some rights in Janou's name, Puglia's alleged use of Janou's personal name constitutes fair use as a matter of law. Section 33(b)(4) of the Lanham Act provides that fair use is a defense to liability under the Lanham Act, even if a defendant's conduct would otherwise constitute infringement. See Cosmetically Sealed Indus., Inc. v. Chesebrough-Pond's USA Co., 125 F.3d 28, 30 (2d Cir. 1997). "Fair use" is defined as "a use, otherwise than as a mark, of ... a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of [a] party." 15 U.S.C. § 1115(b)(4). Thus, to establish a defense of fair use, Puglia must show that (1) her use is "otherwise than as a mark"; (2) the words are used in their "descriptive sense"; and (3) she acted in good faith. See Cosmetically Sealed Indus., 125 F.3d at 30. Although fair use is an affirmative defense, it is nevertheless appropriate to grant a motion to dismiss based on this defense where the alleged conduct is fair use as a matter of law. See Naked Cowboy v. CBS, 844 F.Supp.2d 510, 515-16 (S.D.N.Y.2012); Arnold v. ABC, Inc., No. 06 Civ. 1747(GBD), 2007 WL 210330, at *3 (S.D.N.Y. Jan. 29, 2007).
As to the first element, the Second Circuit has "equated `use ... as a mark' with `the use of [a] term as a symbol to attract public attention.'" Abboud, 568 F.3d at 400 (quoting Safeway Stores, Inc. v. Safeway Props., Inc., 307 F.2d 495, 499 (2d Cir.1962)). "When use of the challenged words or phrase is accompanied by a defendant's own, conspicuously visible mark, this generally does not constitute trademark use." JA Apparel Corp. v. Abboud, 682 F.Supp.2d 294, 310 (S.D.N.Y.
As to the second element, the use of a mark is descriptive not merely when it is used to describe characteristics of goods, such as their size and quality, but also when words are used "in their descriptive sense." Cosmetically Sealed Indus., 125 F.3d at 30. "Descriptive use is evident in such situations `[w]here a mark incorporates a term that is the only reasonably available means of describing a characteristic of another's goods.'" Dessert Beauty, Inc. v. Fox, 568 F.Supp.2d 416, 426 (S.D.N.Y.2008) (quoting EMI Catalogue P'ship v. Hill, Holliday, Connors, Cosmopulos, Inc., 228 F.3d 56, 65 (2d Cir.2000)). Here, Puglia's use of Janou's name was descriptive: There was no way for Puglia to inform her clients that the services she would be providing would include the assistance of Janou Pakter without invoking Janou's name. See Abboud, 682 F.Supp.2d at 313 ("Abboud's use of his name is the only `reasonably available means' by which he can inform his potential customers that he is the designer of the jaz' line.").
Finally, "[a]n inference of a lack of good faith may arise from a defendant's use of a plaintiff's mark with the intent to trade upon the good will represented by that mark." EMI Catalogue, 228 F.3d at 66-67. In the email in which Puglia invokes Janou's name, she simply states that Janou and Puglia would give the client a call at the end of the week. See Am. Compl. Ex. D. Nothing whatsoever about that statement bespeaks an intention to trade on plaintiffs' good will. And plaintiffs' allegations about Puglia's malicious intent are both conclusory and contrary to the emails attached to the Amended Complaint. Furthermore, Puglia's use of her own marks in the email exchange in which she invoked Janou's name is evidence of Puglia's good faith. See Abboud, 682 F.Supp.2d at 310; Cosmetically Sealed Indus., 125 F.3d at 30-31; Car-Freshner Corp. v. S.C. Johnson & Son, Inc., 70 F.3d 267, 270 (2d Cir.1995). Thus, Puglia's alleged use of Janou's personal name constitutes fair use as a matter of law. Plaintiffs' Lanham Act claim against Puglia is, therefore, dismissed.
Plaintiffs also bring the following state law causes of action, each against various combinations of defendants: fraud in the inducement; tortious interference with contract; tortious interference with business relations; breach of contract; and accounting. The Court addresses each in turn.
Plaintiffs allege that Janou and Tavin committed fraud in the inducement during the negotiation of the APA. Specifically, they allege that Janou and Tavin made false representations about their intentions to work for and not compete with JBC, and the amount of revenue they expected to generate for JBC. Am. Compl. ¶¶ 34-38, 46, 52, 104.
A claim for common law fraud under New York law must satisfy the requirements of the heightened pleading standard under Federal Rule of Civil Procedure 9(b). See Landesbank Baden-Wurttemberg v. Goldman, Sachs & Co., 478 Fed.Appx. 679, 681 (2d Cir.2012) (summary order) (citing Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co.
"Proof of fraud under New York law requires a showing that `(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance.'" Wall v. CSX Transp., Inc., 471 F.3d 410, 415-16 (2d Cir.2006) (quoting Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19 (2d Cir.1996)); see also Sawabeh Info. Servs. Co. v. Brody, 832 F.Supp.2d 280, 297-98 (S.D.N.Y.2011). These elements are essentially the same as those which must be alleged in order to establish a claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. See In re Merrill Lynch Auction Rate Secs. Litig., No. 09 MD 2030(LAP), 2011 WL 1330847, at *11 (S.D.N.Y. Mar. 30, 2011); 380544 Canada v. Aspen Tech., Inc., 544 F.Supp.2d 199, 216 (S.D.N.Y.2008) (pleading requirements for § 10(b) and fraudulent inducement are "identical"); Morse v. Weingarten, 777 F.Supp. 312, 319 (S.D.N.Y.1991) (elements of common law fraud in New York are "substantially identical to those governing § 10(b)" and "the identical analysis applies"); see also Iconix Brand Grp. Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 505 Fed.Appx. 14, 17 (2d Cir.2012) (summary order) (assuming that "elements of common law fraud claim essentially mirror those involved in a section 10(b) claim" (citation and alterations omitted)).
Janou and Tavin's projections about anticipated revenue are the type of forward-looking statements that generally do not state a claim of fraud. See Buckman v. Calyon Secs. (USA) Inc., 817 F.Supp.2d 322, 334 (S.D.N.Y.2011) ("[S]tatements will not form the basis of a fraud claim when they are mere `puffery' or opinions as to future events." (quoting Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir.1994))); see also Global Energy & Mgmt., LLC v. Xethanol Corp., No. 07 Civ. 11049(NRB), 2009 WL 464449, at *3 (S.D.N.Y. Feb. 24, 2009) (forward-looking statements not actionable); ABF Capital Mgmt. LP v. Askin Capital Mgmt., LP, 957 F.Supp. 1308, 1324 (S.D.N.Y.1997) ("[B]ad forecasting alone is not actionable."); cf. Prime Mover Capital Partners, L.P. v. Elixir Gaming Techs., Inc., 793 F.Supp.2d 651, 672 (S.D.N.Y.2011) (observing that "[w]hile the federal statutory safe harbor for forward-looking statements does not itself protect such statements from common law fraud claims, essentially the same considerations ... dictate dismissal" where "plaintiffs have alleged no facts, as opposed to conclusory assertions, showing that defendants who made the statements did not believe them at the time").
However, to meet the heightened pleading standard under Rule 9(b), plaintiffs must allege facts sufficient to support "a strong inference of fraudulent intent," which may be established either "(a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Shields, 25 F.3d at 1128; see also Lerner, 459 F.3d at 290-91. In the analogous context of federal securities law claims, the Supreme Court has held that "in determining whether the pleaded facts give rise to a `strong' inference of scienter, the court must take into account plausible opposing inferences." Tellabs Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Plaintiffs offer precious few allegations that would support a strong inference of
Plaintiffs bring a claim of tortious interference with contract against all defendants, alleging that their actions in building a competing enterprise induced Janou and Tavin to breach the APA. See Am. Compl. ¶¶ 118-125.
"Under New York law, a tortious interference claim requires a showing that a valid contract exists and that a third party with knowledge of the contract intentionally and improperly procured its breach." TVT Records v. Island Def Jam Music Group, 412 F.3d 82, 88 (2d Cir. 2005). "One asserting a tortious interference claim must also show that the defendant was not a party to the contract with which he allegedly interfered." Id.; see also Thompson v. Bosswick, 855 F.Supp.2d 67, 88 (S.D.N.Y.2012) ("[O]nly a stranger to a contract, such as a third party, can be held liable for tortious interference with the contract."). Because Janou and Tavin are parties to the APA, the contract on which these allegations are based, this claim must be dismissed as to those two defendants. Additionally, although JTAI was not itself a party to the APA, plaintiffs make no specific allegations as to how any actions by JTAI procured Janou or Tavin's breach (which is hardly surprising, as Janou herself is alleged to have created and operated JTAI). Accordingly, this claim must also be dismissed as to JTAI.
As to Puglia, who was not a party to the APA, plaintiffs must allege that her actions were the "but for" cause of their injury, namely Janou and/or Tavin's breach. See RSM Production Corp. v. Fridman, 387 Fed.Appx. 72, 74 (2d Cir. 2010) (summary order); Sharma v. Skaarup Ship Mgmt. Corp., 916 F.2d 820, 828 (2d Cir. 1990) ("[P]laintiff must allege that there would not have been a breach but for the activities of defendants." (citation omitted)). This, plaintiffs have not plausibly
Next, plaintiffs bring a claim of tortious interference with business relations against Janou and Puglia, alleging that they interfered with plaintiffs' client relationships. Only Puglia moves to dismiss this claim.
Under New York law, the elements of tortious interference with business relations are: "(1) [plaintiff] had a business relationship with a third party; (2) the defendant knew of that relationship and intentionally interfered with it; (3) the defendant acted solely out of malice, or used dishonest, unfair, or improper means; and (4) the defendant's interference caused injury to the relationship." Kirch v. Liberty Media Corp., 449 F.3d 388, 400 (2d Cir.2006) (quoting Carvel Corp. v. Noonan, 350 F.3d 6, 17 (2d Cir.2003)). The New York Court of Appeals has explained that:
Carvel Corp. v. Noonan, 3 N.Y.3d 182, 190, 785 N.Y.S.2d 359, 818 N.E.2d 1100 (2004). An exception to the rule requiring criminal or independently tortious conduct "has
Here, plaintiffs allege that "Puglia acted solely out of malice in interfering with Plaintiffs' relationships with [clients]." Am. Compl. ¶ 132. This allegation is not only conclusory, but it is also inconsistent with plaintiffs' other allegations that Puglia interfered with plaintiffs' relationships to gain a competitive advantage. See id. ¶¶ 64, 69, 95. Such competitive behavior — i.e., actions taken in furtherance of "normal economic self-interest" — is not actionable under New York law. Carvel, 3 N.Y.3d at 190, 785 N.Y.S.2d 359, 818 N.E.2d 1100. Nor has plaintiff plausibly alleged that any of Puglia's conduct constituted criminal or independently tortious conduct: As discussed in Part III(A), supra, plaintiffs allegations that Puglia used "improper and illegal means in impermissibly obtaining Plaintiffs' trade secrets," see Am. Compl. ¶ 133, fail to state a claim under the CFAA. Accordingly, this claim must be dismissed as to Puglia.
Plaintiffs also bring a breach of contract claim against Janou and Tavin, who have not moved to dismiss this cause of action.
Finally, plaintiffs bring a claim for an accounting. Although originally alleged as to all defendants, plaintiffs have since withdrawn the claim as to Puglia. See Pl. Br. 24. The other defendants have not moved to dismiss this claim.
For the foregoing reasons, the Court holds as follows: Count I (CFAA) is dismissed as to all defendants; Count II (Lanham Act) is dismissed as to Puglia and Tavin, but not as to Janou and JTAI; Count III (fraud) is dismissed as to Janou and Tavin; Count IV (breach of contract) survives as to Janou and Tavin; Count V (tortious interference with contract) is dismissed as to all defendants; Count VI (tortious interference with business relations) is dismissed as to Puglia, but not Janou; and Count VII (accounting) is dismissed as to Puglia, but not Janou, Tavin, or JTAI.
Put another way, the following claims remain as to the following defendants: Lanham Act (Janou and JTAI); fraud (Janou and Tavin); breach of contract (Janou and Tavin); tortious interference with business relations (Janou); and accounting (Janou, Tavin, and JTAI).
All counts have been dismissed as to Ginger Puglia. The Clerk of Court is therefore directed to terminate her from this case.
The Clerk of Court is also directed to terminate the motions pending at docket numbers 41 and 48.
The parties remaining in the case are directed to submit a joint civil case management in accordance with the Court's Individual Rules no later than March 28, 2013. That plan should provide for the close of discovery on July 12, 2013. Any party wishing to move for summary judgment shall file a pre-motion letter, in accordance with the Court's Individual Rules, no later than July 26, 2013. Any party opposing such a motion shall file a responsive letter by July 31, 2013. The next conference in the case will be held on August 1, 2013, at 10:00 a.m.
SO ORDERED.
