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Mitchell Enterprises, Inc. v. Mr. Electric Corp.

United States District Court, D. Idaho

April 7, 2014

MITCHELL ENTERPRISES, INC., d/b/a MITCHELL ELECTRIC, an Idaho corporation, DANNY G. MITCHELL and TERESA A. MITCHELL, husband and wife, Idaho residents, Plaintiffs,
v.
MR. ELECTRIC CORP., a Texas corporation, THE DWYER GROUP, a Texas corporation, and DOES 1-10, inclusive, Defendants.

MEMORANDUM DECISION AND ORDER RE: DEFENDANTS' MOTION FOR SUMMARY JUDGMENT (DOCKET NO. 34)

RONALD E. BUSH, Magistrate Judge.

Currently pending before the Court is Defendants' Motion for Summary Judgment (Docket No. 34). Having carefully considered the record, heard the oral argument of counsel, and otherwise being fully advised, the Court enters the following Memorandum Decision and Order:

I. GENERAL BACKGROUND

1. Plaintiff Mitchell Electric is a family-owned and family-operated electrical contractor that specializes in renovations and troubleshooting in the Treasure Valley area of Idaho. See Compl., ¶ 11 (Docket No. 2). Mitchell Electric has provided electrical contractor services in the Treasure Valley since 1969. See id. Mitchell Electric's current owners and operators are Plaintiffs Danny and Teresa Mitchell. See id.

2. In the early- to mid-1990's, Mitchell Electric developed a copyrighted software system to manage all aspects of its business records, including customer lists, contact information, employee personnel files, time sheets, inventory, project bids, invoices, sales documents, and financial statements. See id. at ¶ 12.

3. In 2007, Mitchell Electric began to develop an upgraded version of its software with the intention of marketing it to other service providers. See id. at ¶ 13. According to Mitchell Electric, the original and upgraded versions of the software (collectively, the "Mitchell Dispatch Software"), along with the proprietary business information it contained (the "Data"), "served as the lifeblood of Mitchell Electric's business success." Id.

4. In the same 2007 year, Mitchell Electric explored the possibility of becoming a franchisee of Defendant Mr. Electric. See id. at ¶¶ 14 & 15; see also Defs.' U.F. No. 4 (Docket No. 34, Att. 2); Pls.' Stmt. of Disputed Facts No. 4 (Docket No. 53, Att. 1). Since 1994, Mr. Electric has offered franchises which sell, service, and repair electrical systems, equipment, components, and supplies, including installation, upgrades, and remodeling for residential and commercial customers. See Defs.' U.F. No. 1 (Docket No. 34, Att. 2); Pls.' Stmt. of Disputed Facts No. 1 (Docket No. 53, Att. 1).

5. On October 26, 2007, Mitchell Electric and Mr. Electric entered into a Franchise Agreement under which Mitchell Electric became Mr. Electric's franchisee in Ada County and Canyon County, Idaho. See Compl., ¶ 16 (Docket No. 2). Mitchell Electric claims that the Franchise Agreement (1) permitted Mitchell Electric to continue to own and develop the Mitchell Dispatch Software and the Data as a separate business opportunity, and (2) permitted Mitchell Electric to utilize the Mitchell Dispatch Software and the Data for its business operations rather than Mr. Electric's ZWARE software (a database system designed for Mr. Electric franchisees and customized for use in Mr. Electric's franchise system). See id. at ¶¶ 15 & 17; see also Defs.' U.F. No. 7 (Docket No. 34, Att. 2); Pls.' Stmt. of Disputed Facts No. 7 (Docket No. 53, Att. 1).

6. Also on October 26, 2007, Mitchell Electric and Mr. Electric executed a ZWARE License and Maintenance Agreement (the "ZWARE Agreement"), whereby Mitchell Electric agreed to license the ZWARE software from Mr. Electric and to cooperate in installing and supporting the ZWARE software on Mitchell Electric's computer network. See Compl., ¶ 18 (Docket No. 2); see also Defs.' U.F. No. 7 (Docket No. 34, Att. 2); Pls.' Stmt. of Disputed Facts No. 7 (Docket No. 53, Att. 1). Even so, Mitchell Electric insists that, at the time the parties executed the ZWARE Agreement, Mr. Electric assured Mitchell Electric that, although Mr. Electric required each franchisee to install the ZWARE software on its computer network, Mitchell Electric could nonetheless use the Mitchell Dispatch Software and the Data to conduct its business operations rather than the ZWARE software. See Compl., ¶ 19 (Docket No. 2). Soon thereafter, the ZWARE software was installed on Mitchell Electric's computer network. See Defs.' U.F. No. 9 (Docket No. 34, Att. 2).[1]

7. On August 23, 2009, Mitchell Electric met with Mr. Electric, expressing frustrations about various aspects of the franchise relationship and explained that Mitchell Electric was experiencing financial difficulties due to Mr. Electric's alleged inadequate support and pricing structure. See Compl., ¶ 20 (Docket No. 2); see also Ans., ¶ 20 (Docket No. 11).

8. Later on August 23, 2009, Mrs. Mitchell attempted to remotely access Mitchell Electric's computer from a home computer. See Compl., ¶ 21 (Docket No. 2). Mitchell Electric claims that,

Upon doing so, [Mrs. Mitchell] noticed unusual activity in Mitchell Electric's computer network and observed what appeared to be the copying of certain Mitchell Electric computer files from some other remote location. Subsequently, the Mitchells not only lost all access to the Mitchell Electric computer network and the Mitchell Dispatch Software and the Data, but they also found that the Mitchells' home computers, including the personal computers of the Mitchells' five children, had seemingly crashed.

Id. In turn, on either August 23, 2009 or August 24, 2009, Mitchell Electric contacted Mr. Electric to ask if Mr. Electric's system had been compromised in a way that might explain the difficulties the Mitchells were experiencing with their office and home computers. See id. at ¶ 22; see also Answer, ¶ 22 (Docket No. 11). Mr. Electric responded that its computer network had not been compromised. See id.

9. Thereafter, Mitchell Electric retained the services of a computer forensics company to evaluate Mitchell Electric's computer network and the Mitchells' home computers. See Compl., ¶ 23 (Docket No. 2).

10. Mitchell Electric claims that on November 5, 2009, the forensics company (1) "reported that the ZWARE software had attempted to connect to all thirteen hard drives in Mitchell Electric's and the Mitchells' computer network, and the investigation also uncovered numerous link files in the server that referenced ZWARE, Mr. Electric, and [Defendant] Dwyer Group, " and (2) "concluded that Defendants had utilized the ZWARE software to gain unauthorized access to Mitchell Electric's and the Mitchells' computers." Id. at ¶ 24.

10. Claiming damages owing to Mr. Electric's allegedly "unlawful acts, " Plaintiffs filed a Complaint on November 4, 2011, asserting the following claims against Defendants: (1) violation of the Computer Fraud and Abuse Act ("CFAA") (Count 1); (2) violation of the Idaho Trade Secrets Act ("ITSA") (Count 2); (3) conversion (Count 3); and (4) tortious interference with prospective economic advantage (Count 4). See id. at ¶¶ 25-53.[2]

11. Defendants deny the allegations. In the pending Motion for Summary Judgment, Defendants argue that:

[P]laintiffs have failed to establish a genuine dispute of material fact on elements essential to their claims entitling Defendants to judgment as a matter of law on all claims stated in the Complaint. Plaintiffs have failed to produce any evidence to establish (a) that Defendants gained unauthorized access to Plaintiffs' computer network (or any specific computer) or (b) that, even assuming arguendo Defendants' unauthorized access, that Defendants (i) caused any damage to the computers or data contained on the computers, (ii) converted, used, disclosed, or otherwise misappropriated any data or software contained on the computers, or (iii) actually interfered with or caused any harm to any potential or actual economic relationship or expectation of Plaintiffs.

Mot. for Summ. J., p. 2 (Docket No. 34).

II. DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate where a party can show that, as to any claim or defense, "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). One of the principal purposes of the summary judgment "is to isolate and dispose of factually unsupported claims...." Celotex Corp. v. Catrett, 477 U.S. 317, 323-34 (1986). It is "not a disfavored procedural shortcut, " but is instead the "principal tool[ ] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). There must be a genuine dispute as to any material fact - a fact "that may affect the outcome of the case." Id. at 248.

The evidence must be viewed in the light most favorable to the non-moving party, and the Court must not make credibility findings. See id. at 255. Direct testimony of the non-movant must be believed, however implausible. See Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). On the other hand, the court is not required to adopt unreasonable inferences from circumstantial evidence. See McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).

The Court must be "guided by the substantive evidentiary standards that apply to the case." Liberty Lobby, 477 U.S. at 255. If a claim requires clear and convincing evidence, the question on summary judgment is whether a reasonable jury could conclude that clear and convincing evidence supports the claim. See id.

The moving party bears the initial burden of demonstrating the absence of a genuine dispute as to material fact. See Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir. 2001) (en banc). To carry this burden, if the nonmoving party bears the burden of persuasion at trial, the moving party need not introduce any affirmative evidence (such as affidavits or deposition excerpts) but may simply point out the absence of evidence to support the nonmoving party's case. See Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000).

This shifts the burden to the non-moving party to produce evidence sufficient to support a jury verdict in her favor. See Devereaux, 263 F.3d at 1076. The non-moving party must go beyond the pleadings and show "by her [ ] affidavits, or by the depositions, answers to interrogatories, or admissions on file" that a genuine dispute of material fact exists. See Celotex, 477 U.S. at 324.

However, the court is "not required to comb through the record to find some reason to deny a motion for summary judgment." Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001) (quotation omitted). Instead, the "party opposing summary judgment must direct [the court's] attention to specific triable facts." S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 889 (9th Cir. 2003).

B. Plaintiffs' CFAA Claim (Count 1) is Time-Barred

In addition to their substantive arguments attacking Plaintiffs' CFAA claim, Defendants contend that the claim is procedurally barred by the applicable statute of limitations. See Mem. in Supp. of MSJ, pp. 5-6 (Docket No. 34, Att. 1).

The CFAA contains a two-year statute of limitations period. It begins on "the date of the act complained of or the date of the discovery of the damage." 18 U.S.C. § 1030(g). "Damage" is defined as "any impairment to the integrity or availability of data, a program, a system, or information." 18 U.S.C. § 1030(e)(8). Defendants argue that Plaintiffs were aware of the damage to their computer network (and even suspected Defendants and/or the ZWARE software to be the cause of that damage) as of August 23 or 24, 2009 - more than 26 months before filing their Complaint on November 4, 2011. See id. at p. 6 ("On this evidentiary record, there can be no genuine dispute that Plaintiffs' filed their action under the CFAA beyond the Act's limitations period. Their CFAA claim is time-barred."). In response, Plaintiffs do not deny that, on or around August 23, 2009, they suspected that their computer network was compromised in some way. See Pls.' Stmt. of Disputed Facts No. 10 (Docket No. 53, Att. 1) (not disputing that "act complained of" for purposes of CFAA occurred on August 23, 2009). However, they submit that their CFAA claim did not actually "accrue" until November 5, 2009, when they received the first computer forensics report detailing the damage to its computer network, the Mitchell Dispatch Software, and the Data. See Opp. to MSJ, p. 4 (Docket No. 53). In other words, Plaintiffs take the position that a later-alleged date reflecting their discovery of the "details of damage" should control the date the statute of limitations begins to run on their CFAA claim.

Plaintiffs' argument that the statute of limitations only began to run upon a forensic confirmation of their behalf of damage, rather than the date that such apparent damage became known to them is without merit. They admit that the act complained of - Mr. Electric's alleged intrusion of Defendants' computers - occurred more than two years before they filed this lawsuit. Their argument, however, would add an otherwise unexpressed layer to the statute's description of the statute of limitations - one that contemplates a more developed level of knowledge surrounding the discovery of claimed damage. To be clear, the CFAA requires a plaintiff to file suit within two years of discovering "any impairment to the integrity or availability of data, a program, a system, or information.'" Clark Street Wine and Spirits v. Emporos Sys. Corp., 754 F.Supp.2d 474, 486 (E.D.N.Y. 2010) (quoting 18 U.S.C. § 1030(e)(8)). Through their Complaint, Plaintiffs admit that the genesis of their CFAA claim began around August 23, 2009 when they first became aware of problems with their computer network, including unauthorized file copying, loss of computer access, and system crashes. See Compl., ¶¶ 21 & 22 (Docket No. 2).[3] There is no requirement that the damage be confirmed by some sort of independent forensic examination. To add such a requirement would create a wandering line in the application of the statute of limitations, a line that would only be set if and when a party obtained such a separate or independent confirmation. That is not required to constitute the "discovery" of "damage" under the CFAA. The fact that Defendants were not exactly aware of whom or what caused the damage as of August 24, 2009 is immaterial, when considering that such detail is unequivocally not required under the CFAA to trigger its two-year limitations period. See, e.g., Higgins v. NMI Enters., Inc., 2013 WL 4525635, *10-11 (E.D. La. 2013) ("There is no mention [in the CFAA] that a plaintiff must know the alleged perpetrator for the statute of limitations to begin.... Here, Smith knew of unauthorized access to the computer system, which prompted Smith to initiate an internal investigation.... Thus, it is clear that Smith had an awareness of an unauthorized access into [Thundervision's] computer system, ' which began the statute of limitations period more than two years before this action was filed.").

Plaintiffs identified what they alleged to be (1) an unauthorized access into their computer system that (2) caused corresponding damage, before November 4, 2009. Accordingly, their CFAA claim against Defendants, even if otherwise viable, is time-barred under the CFAA's statute of limitations. Defendants' Motion for Summary Judgment is granted in this respect.[4]

C. Defendants are Entitled to Summary Judgment on Plaintiffs' ITSA Claim (Count 2)

The parties agree that, to prevail on a claim for misappropriation of trade secrets under the ITSA, a plaintiff must show that (1) it owned a trade secret; (2) the defendant acquired, disclosed, or used that trade secret through improper means, and (3) the defendant's actions damaged the plaintiff. See Northwest Bec-Corp v. Home Living Serv., 41 P.3d 263, 268 (Idaho 2002); Basic American, Inc. v. Shatila, 992 P.2d 175, 183 (Idaho 1999); see also I.C. § 48-801(2); Compare Mem. in Supp. of MSJ, p. 12 (Docket No. 34, Att. 1), with Opp. to MSJ, pp. 12-13 (Docket No. 53). Defendants argue that "there is no evidence that Defendants acquired, disclosed, or used the Mitchell Dispatch Software or any information, data, or other possible trade secret material belonging to Mitchell Electric." Mem. in Supp. of MSJ, p. 11 (Docket No. 34, Att. 1).

In response, Plaintiffs do not identify evidence that Defendants either disclosed or used the alleged trade secrets; rather, Plaintiffs submit that "[t]here is evidence that Defendants acquired the [Mitchell Dispatch Software] and the data contained therein." Opp. to MSJ, p. 13 (Docket No. 53). According to ...


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