Redcell Corp. v. A.J. Trucco, Inc.

Background

Redcell Corp. and Redcell Systems, LLC sued A.J. Trucco, Inc. and Trucconova, LLC. Redcell asserted a claim under the Defend Trade Secrets Act and a breach-of-contract claim. Trucco sought permission to amend its answer to add four counterclaims against Redcell: a claim under the Computer Fraud and Abuse Act, an unjust-enrichment claim, a Defend Trade Secrets Act claim, and a copyright-infringement claim.

Judge Sarah L. Cave issued a report and recommendation advising that the motion be denied because the proposed counterclaims would be futile. In this context, futility means that a proposed claim could not survive a motion to dismiss for failure to state a legally sufficient claim. Both sides objected to parts of the recommendation. Judge Torres reviewed specific objections from Trucco anew and reviewed the remaining portions for clear error.

Computer Fraud and Abuse Act counterclaim

The court rejected the portion of the recommendation addressing Trucco’s proposed Computer Fraud and Abuse Act counterclaim, but denied Trucco’s motion for leave to file that counterclaim after conducting its own review. The statute provides a limited private claim when a plaintiff alleges access to a protected computer without authorization or beyond authorized access and qualifying losses exceeding $5,000.

The court held that Trucco adequately alleged qualifying losses because costs of investigating a computer incident, assessing damage, repairing systems, or preventing future unauthorized access may count as losses under the statute. But Trucco did not adequately plead two other required elements. First, it alleged that Trucco operated across multiple states and distributed products in interstate commerce, but did not allege that the particular server was involved in interstate commerce or used for the business in the relevant way. Second, its allegations did not plausibly show unauthorized access or access beyond authorization. Trucco did not clearly describe the scope of Redcell’s access during the parties’ relationship, alleged both that Redcell had been given access to certain information and that it had never been authorized to access that information, and did not allege that Trucco revoked Redcell’s access codes or notified Redcell that access was no longer permitted after the relationship ended.

The court also distinguished unauthorized access from misuse of information that a person was authorized to access. It concluded that allegations that Redcell made additional backups for its own purposes or used information for an improper purpose did not, without more, establish a Computer Fraud and Abuse Act violation.

Copyright counterclaim

The court overruled Trucco’s objections and adopted the recommendation to deny leave to assert the copyright counterclaim. Trucco alleged that it owned copyrights in software created under the software development agreement and that Redcell made unauthorized copies and derivative works. The court found those allegations too general because they did not identify the copyrighted software with sufficient specificity, give examples of what Redcell allegedly copied, identify the elements copied or incorporated into derivative software, or explain how the allegedly infringing software was similar. Trucco’s additional assertion that Redcell copied the entire IMP software was raised for the first time in its objections and was not considered as a new factual assertion.

Defend Trade Secrets Act counterclaim

The court also overruled Trucco’s objections and adopted the recommendation to deny leave to assert the trade-secret counterclaim. Trucco identified tax returns and a confidential settlement document but otherwise referred generally to confidential business-strategy and proprietary information. The court held that these broad descriptions did not give Redcell adequate notice of the alleged trade secrets.

The court further found that Trucco did not adequately allege that the specifically identified documents had independent economic value from being secret or that Trucco took reasonable measures to protect them. Trucco alleged that Redcell had been given access to at least some of the documents, including tax returns, and did not allege sufficient steps to prevent disclosure or revoke Redcell’s continuing access codes. The court also found that Trucco’s allegations about whether Redcell was authorized to access the information were contradictory and that Trucco did not sufficiently describe Redcell’s alleged misuse, any confidentiality obligations, or how those obligations were breached.

Other rulings and disposition

The court overruled Redcell’s objection to the recommendation’s treatment of the motion’s timeliness because the objection was filed late and repeated an earlier argument. The court found no clear error in the remaining portions of the recommendation. It rejected the portion addressing the proposed Computer Fraud and Abuse Act counterclaim, denied Trucco’s motion for leave to file that counterclaim, adopted the remainder of the recommendation in its entirety, and denied Trucco’s motion to file counterclaims against Redcell. The clerk was directed to terminate the motion at ECF No. 57.