Broker Genius, Inc. v. Seat Scouts LLC

• Decision Date: 14 May 2018
• Docket Number: 17-cv-8627 (SHS)
• Parties: BROKER GENIUS, INC. Plaintiff, v. SEAT SCOUTS LLC and DREW GAINOR Defendants.
• Court: U.S. District Court — Southern District of New York

BROKER GENIUS, INC. Plaintiff, v. SEAT SCOUTS LLC and DREW GAINOR Defendants.

17-cv-8627 (SHS)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

May 14, 2018

OPINION & ORDER

SIDNEY H. STEIN, U.S. District Judge.

Plaintiff Broker Genius, Inc., is a technology company serving ticket brokers on the secondary ticket market. Its product, AutoPricer v.3 ("AutoPricer"), is a web application that enables secondary-market ticket brokers to dynamically and automatically price their inventory of tickets. Through contractual Terms of Use, Broker Genius grants its customers a conditional license to use AutoPricer. Defendant Drew Gainor, a former Broker Genius customer, is the cofounder of defendant Seat Scouts LLC, whose Command Center product competes with AutoPricer for the business of ticket brokers. Broker Genius has now sued Gainor, Seat Scouts, and others alleging that Gainor improperly used the knowledge and information he gained while he was a Broker Genius customer to develop Command Center.

Defendants now move to dismiss all claims against all defendants other than Broker Genius's breach of contract claim against Gainor. For the reasons that follow, that motion is granted in part and denied in part.

I. BACKGROUND & PROCEDURAL HISTORY¹

Broker Genius, a Delaware corporation, is a technology company whose AutoPricer product assists ticket brokers on the secondary market in pricingand selling their inventory of tickets. (Second Amended Complaint ("SAC") ¶¶ 3, 23-25, ECF No. 108.) The Court has previously described AutoPricer in tortuous detail in its Opinion granting Broker Genius's motion for a preliminary injunction, see Broker Genius, Inc. v. Volpone et al., No. 17-Cv-8627, 2018 WL 2175552 (S.D.N.Y. May 11, 2018), as well as in its Opinion denying a preliminary injunction in the related case of Broker Genius, Inc. v. Zalta, 280 F. Supp. 3d 495 (S.D.N.Y. 2017).

Defendant Drew Gainor ("Gainor") is a former customer of Broker Genius. (SAC ¶ 36.) He is now the cofounder and CEO of defendant Seat Scouts LLC, which offers a product called Command Center that is substantially the same as Broker Genius's AutoPricer. (SAC ¶ 49-50.) Seat Scouts LLC is registered in Nebraska (SAC ¶ 12), and its members - the "Seat Scouts Owners" - are also named as defendants in this action.² Gainor was also employed by³ defendant Event Ticket Sales LLC, which is owned by defendant Guinio Volpone ("Volpone") and registered in Nebraska. (SAC ¶¶ 14, 39.)

On May 26, 2016, when Gainor signed up as a Broker Genius customer, he assented to Broker Genius's Terms of Use. (SAC ¶ 36.) The Terms of Use grant users a conditional license to use AutoPricer in exchange for, among other things, a promise not to "[r]eproduce, modify, display, publicly perform, distribute or create derivative works of [AutoPricer]." (Terms of Use, SAC Ex. 1.) Gainor accepted the Terms of Use a second time, on July 7, 2016, when they were updated. (SAC ¶ 37.) While a customer, Gainorcommunicated with Broker Genius using his email address associated with Event Ticket Sales: drew@eventticketsales.info. (SAC ¶ 39.)

During or after Gainor's time as a Broker Genius customer, he improperly used the knowledge he gained from using AutoPricer to develop the Command Center product. (SAC ¶¶ 51-52.) Gainor began marketing Command Center to ticket brokers as early as October 20, 2017. (SAC ¶¶ 44, 48.) Since the time Command Center entered the market, Broker Genius has lost at least two customers to defendants. (SAC ¶ 50.)

Broker Genius initiated this action on November 7, 2017, asserting both federal and state claims for relief. However, Broker Genius subsequently withdrew its two federal claims - for copyright and trade secret infringement - prior to filing the SAC. (Stipulation, Feb. 20, 2018, ECF No. 109.) See also Zalta, 280 F.Supp.3d 495 (AutoPricer did not benefit from trade secret protection). The Court retains supplemental jurisdiction over the gallimaufry of state law claims here. See 28 U.S.C. § 1367(a), (c)(3). Those claims are as follows: (1) breach of contract (as to defendants Gainor, Volpone, and Event Ticket Sales); (2) unfair competition; (3) conversion; (4) tortious interference with business relationships; (5) unjust enrichment; and (6) breach of the implied covenant of good faith and fair dealing (as to defendants Gainor, Volpone, and Event Ticket Sales). (SAC ¶¶ 55-100.) Broker Genius seeks injunctive relief, as well as compensatory damages, punitive damages, attorneys' fees, costs, and interest. (SAC ¶¶ a-e.)

On November 9, 2017, the Court issued a temporary restraining order at the conclusion of a hearing in which all counsel participated. (Order to Show Cause for Prelim. Inj. and TRO, Nov. 9, 2017, ECF No. 8.) The TRO did not specifically enjoin defendants from marketing or selling their product, but it did enjoin them from violating the Terms of Use. (Id. at 2-3.)

On May 11, 2018, the Court granted Broker Genius's request for a preliminary injunction following a five-day hearing at which the Court heard witnesses and documentary evidence was presented. Volpone, 2018 WL 2175552. The Court found that Broker Genius was likely to succeed on its breach of contract claim and enjoined defendants from marketing Command Center or making it available for use.

While the preliminary injunction motion was pending before the Court, defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the claims other than the breach of contract claim as against Gainor, and to dismiss Broker Genius's request for attorneys' fees and punitive damages as a form of relief.

II. DISCUSSION

In evaluating a motion to dismiss a complaint brought pursuant to Federal Rule of Civil Procedure 12(b)(6), a court accepts the truth of the facts alleged in the complaint and draws all reasonable inferences in the plaintiff's favor. Wilson v. Merrill Lynch & Co., Inc. et al., 671 F.3d 120, 128 (2d Cir. 2011). In order to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint must be dismissed pursuant to Rule 12(b)(6) where the claims have not been "nudged . . . across the line from conceivable to plausible." Twombly, 550 U.S. at 570.

With one exception, the parties rely on New York substantive law to describe the state law issues raised in this motion; that is sufficient to establish choice of law. See Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000). With respect to the veil-piercing issue, the Court will undertake a choice-of-law analysis.

A. Breach of Contract

Broker Genius's breach of contract claim is asserted against Gainor, Volpone, and Event Ticket Sales. Plaintiff alleges that Gainor assented to the contract - the Terms of Use - on his own behalf as well as on behalf of Volpone and Event Ticket Sales. According to Broker Genius, Gainor had apparent authority to bind Volpone and Event Ticket Sales to the contract.

For the purposes of this motion, defendants concede that Gainor assented to the Terms of Use, but argue that the factual allegations in the SACdo not plausibly suggest that he had authority to bind Volpone and Event Ticket Sales to the contract.

A third party's reasonable belief that someone was acting on behalf of a principal will bind that principal, if the actor had apparent authority to enter the transaction. However,

[i]f a third party believes that an actor represents no one else's interests, the third party does not have a reasonable belief in the actor's power to affect anyone else's legal position. If the third party is in doubt about whether the actor represents only the actor's own interests, the third party does not have a basis reasonably to believe that the actor has the power to affect anyone else's legal position.

Restatement (Third) Of Agency § 2.03 cmt. f (2006). An actor has apparent authority to enter a transaction where "words or conduct of the principal, communicated to a third party, . . . give rise to the appearance and belief that the agent possesses authority to enter into a transaction." Hallock v. State, 64 N.Y.2d 224, 231 (1984); see F.D.I.C. v. Providence Coll., 115 F.3d 136, 140 (2d Cir. 1997) (quoting Hallock, 64 N.Y.2d at 231).

Here, Broker Genius contends that Gainor's use of an email address associated with Event Ticket Sales "g[a]ve rise to the appearance and belief that [Gainor] possesse[d] authority to enter into a transaction" on behalf of Volpone and Event Ticket Sales.⁴ Hallock, 64 N.Y.2d at 231.

That argument is unavailing, because the well-pleaded facts cannot support an inference that Broker Genius reasonably believed that Gainor was transacting on behalf of a principal in the first place, whether or not he had any authority to do so.⁵

According to the SAC, it was Gainor who signed up for Broker Genius, created a Broker Genius account, and assented to the Terms of Use, and there are no facts to support the conclusory assertion that he also did so "on behalf of . . . Volpone and Event Ticket Sales." (SAC ¶¶ 36-37.) Indeed, other than the email address, there are no facts suggesting that the names "Event Ticket Sales" or "Volpone" came up at any point in Gainor's customer registration process, or at any time while he was a Broker Genius customer. Although Gainor's use of his workplace email address may arguably have created some "doubt about whether [he] represent[ed] only [his] own interests," that would not be sufficient for Broker Genius to form a reasonable belief that Gainor was acting to bind Event Ticket Sales and Volpone. See Restatement (Third) Of Agency § 2.03 cmt. f (2006). The conclusion that Broker Genius lacked a...