Run The World Inc. v. Jiang

Background

Run The World Inc. and Xuan Jiang co-founded Run The World, an online platform for virtual events. Jiang later asserted counterclaims against Run The World, Xiaoyin Qu, AH Capital Management, LLC, and Connie Chan. Her Second Amended Counterclaims included one federal claim under the Computer Fraud and Abuse Act (CFAA) and 18 remaining state-law claims.

Jiang alleged that Qu accessed her personal GoDaddy account without permission, changed the account’s password and email address, and prevented her from accessing the account and the “rtw.team” domain. She claimed that the account contained software and developer tools that she had created and used to earn a living. Her other counterclaims concerned alleged shareholder misconduct, her employment and termination, pregnancy discrimination, and rights to company equity.

Issues and legal standards

The Counterclaim Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a pleading states a legally sufficient claim, and Rule 12(b)(1), which tests the court’s subject-matter jurisdiction.

For the CFAA claim, Jiang relied on 18 U.S.C. § 1030(a)(5)(A), (B), and (C). The court explained that these provisions require allegations of qualifying harm to a computer or network and, for the civil claim at issue, at least $5,000 in qualifying loss during a one-year period.

For the state-law counterclaims, Jiang argued that the court could exercise supplemental jurisdiction because those claims were related to the federal CFAA claim. Supplemental jurisdiction allows a federal court to hear certain state-law claims connected to claims within federal jurisdiction. Jiang also argued that her counterclaims were compulsory counterclaims under Federal Rule of Civil Procedure 13 because they arose from the same transaction or occurrence as Run The World’s claims.

Court’s reasoning

The court focused on whether Jiang adequately pleaded the required harm and loss under the CFAA. It held that Jiang’s allegations about her time, money, resources, software, and developer tools described the value of her work and data rather than harm to a computer. The court also noted that Jiang could not identify a lasting effect on the computer code and that her counsel stated at the hearing that any reduced availability of data lasted little more than a day.

The court further held that allegations that Qu attempted to lock Jiang out of the GoDaddy account and that Jiang’s identity, developer tools, and stored code were compromised did not establish economic loss. Jiang also did not allege facts showing at least $5,000 in qualifying loss. When asked whether she could amend the CFAA claim, Jiang’s counsel said additional factual support would require discovery. The court found that this did not show that amendment could cure the deficiencies and concluded that amendment would be futile.

The court also found that Jiang’s state-law counterclaims concerned a different and broader set of facts than Run The World’s claims about alleged disruption of the company’s internal domains. The state-law counterclaims therefore did not arise from the same transaction or occurrence and were not compulsory counterclaims. After dismissing the only federal counterclaim, the court declined to exercise supplemental jurisdiction over the remaining state-law counterclaims.

Disposition

Judge Araceli Martinez-Olguin granted the Counterclaim Defendants’ motions to dismiss. The court dismissed Jiang’s CFAA counterclaim with prejudice. It dismissed the 18 remaining state-law counterclaims without prejudice to Jiang filing them in state court.