CourtAlert.com, Inc. v. American LegalNet, Inc.

Background

CourtAlert alleged that Robert Loeb, a former employee, took confidential information—including customer information, pricing information, and business information—from CourtAlert and shared it with American LegalNet, Inc. (ALN), a competitor. CourtAlert also alleged that Loeb used the information to solicit CourtAlert customers for ALN. CourtAlert sued Loeb, ALN, and Erez Bustan.

Loeb filed counterclaims against CourtAlert and a third-party complaint against Yaniv Schiller. He alleged that CourtAlert failed to pay him commissions under his employment agreement and that CourtAlert and Schiller accessed and downloaded information from his personal Yahoo account using login information saved on a former work-issued laptop.

The defendants moved to dismiss CourtAlert’s complaint or, alternatively, asked the court to treat the motion as one for summary judgment. CourtAlert and Schiller moved to dismiss Loeb’s counterclaims and third-party complaint.

CourtAlert’s claims

The court denied the request to convert the dismissal motion into a summary-judgment motion. It declined to consider Loeb’s declaration when evaluating whether CourtAlert had adequately pleaded its claims.

The court held that CourtAlert adequately pleaded claims under the federal Defend Trade Secrets Act and New York law for misappropriation of trade secrets. CourtAlert alleged that Loeb accessed its confidential customer-relationship database, which contained customer interactions and emails reflecting customer preferences, and used or shared that information. At the motion-to-dismiss stage, those allegations were enough to support an inference that the information was not readily available to others and could qualify as a trade secret.

The court also held that CourtAlert adequately pleaded breach of the employment agreement and tortious interference with that agreement. The claims were based on allegations that Loeb breached the agreement’s confidentiality and non-solicitation provisions and that ALN and Bustan caused or participated in those breaches. The court declined to rule at this stage that the non-solicitation provision was unenforceable as a matter of law, explaining that its reasonableness depended on the facts and would be a question for later resolution.

The court allowed CourtAlert’s breach-of-fiduciary-duty claim against Loeb to proceed because CourtAlert alleged that Loeb provided ALN with confidential information during the final weeks of his employment. It also allowed CourtAlert’s unfair-competition claim against ALN to proceed. The court concluded that the alleged secret transfer of CourtAlert’s information plausibly supported bad faith and could provide a non-duplicative theory of recovery even if some of the information ultimately did not qualify as a trade secret.

The court granted the motion to dismiss CourtAlert’s unjust-enrichment claim. It found that CourtAlert had adequate legal remedies and that the unjust-enrichment claim was based on the same conduct as its other surviving claims.

Loeb’s counterclaims and third-party claims

The court granted the motion to dismiss Loeb’s claim under the Computer Fraud and Abuse Act. Loeb alleged that he incurred more than $5,000 in investigation and response costs, but the court found that he provided no well-pleaded facts explaining what losses he suffered or how he incurred them.

The court denied the motion to dismiss Loeb’s Stored Communications Act claim. Loeb alleged that CourtAlert and Schiller used saved credentials to access his personal Yahoo account and download information stored there without authorization. The court found those allegations plausible, including because CourtAlert separately alleged that its examination of the laptop uncovered information from emails associated with Loeb.

The court granted the motion to dismiss Loeb’s unjust-enrichment claim against Schiller because Loeb did not adequately allege that Schiller personally received a benefit at Loeb’s expense. The court denied the motion to dismiss Loeb’s unjust-enrichment claim against CourtAlert, allowing it to proceed as an alternative to his contract claim if there is a genuine dispute about whether the employment agreement covers the commissions.

The court granted the motion to dismiss Loeb’s New York Labor Law claim under Section 191-c. The court stated that Section 191-c applies to independent contractors, while Loeb alleged that he was an employee. The court dismissed that claim without prejudice and granted Loeb leave to amend Count Four of his counterclaims to assert a claim under New York Labor Law Section 191(1)(c).

Disposition

The court granted in part and denied in part the defendants’ motion to dismiss CourtAlert’s complaint. Specifically, it granted dismissal of CourtAlert’s unjust-enrichment claim and denied dismissal of the other claims addressed in the opinion. The court also granted in part and denied in part CourtAlert’s and Schiller’s motion to dismiss Loeb’s counterclaims and third-party complaint: it dismissed Loeb’s Computer Fraud and Abuse Act claim, unjust-enrichment claim against Schiller, and New York Labor Law claim, while allowing the Stored Communications Act claim and certain commission-related claims to proceed. Judge Vernon S. Broderick granted Loeb permission to amend the New York Labor Law claim.