Clark St. Wine v. Emporos Sys. Corp..

• Decision Date: 24 November 2010
• Docket Number: No. 10–CV–1392.,10–CV–1392.
• Citation: 754 F.Supp.2d 474
• Parties: CLARK STREET WINE AND SPIRITS (d/b/a Michael Towne Wine and Spirits) and 88 Seventh Avenue, Inc. (d/b/a Seventh Avenue Wine and Liquors), Plaintiffs,v.EMPOROS SYSTEMS CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of New York

754 F.Supp.2d 474

CLARK STREET WINE AND SPIRITS (d/b/a Michael Towne Wine and Spirits) and 88 Seventh Avenue, Inc. (d/b/a Seventh Avenue Wine and Liquors), Plaintiffs,

v.EMPOROS SYSTEMS CORPORATION, Defendant.

No. 10–CV–1392.

United States District Court, E.D. New York.

Nov. 24, 2010.

Emily Mulder Milman, Neal Gerber & Eisenberg LLP, Chicago, IL, Matthew John Galluzzo, Galluzzo & Johnson LLP, New York, NY, for Defendant.Ryan Gordon Blanch, The Blanch Law Firm, New York, NY, for Plaintiff.

MEMORANDUM & ORDER

JACK B. WEINSTEIN, Senior District Judge.

Table of ContentsI.

Introduction

II.

Facts and Procedural History

III.

Contentions of the Parties, Law, and Application to Facts

A.

Motion to Dismiss Standard

B.

Propriety of Emporos' Motion to Dismiss Under the Federal Rules

1. Contentions of the Parties

2.

Law

3.

Application to Facts

C.

Arguments to Dismiss Each of Plaintiffs' Counts

1.

Gross Negligence

a.

Contentions of the Parties

b.

Law and Application to Facts

2.

Negligent Supervision

a.

Contentions of the Parties

b.

Law and Application to Facts

3.

Conversion

a.

Contentions of the Parties

b.

Law and Application to Facts

i.

Choice of Law

ii.

New York Conversion Law

iii.

Application of New York Conversion Law

4.

Breach of Contract

a.

Contentions of Parties

b.

Law and Application to Facts

5.

Violation of Computer Fraud and Abuse Act

a.

Contentions of the Parties

b.

Law and Application to Facts

i.

Generally

ii.

Two–Year Statute of Limitations

iii.

Responsibility for Emporos' Employees

iv.

Misuse of Information vs. Improper and Unauthorized Access

6.

Declaratory Judgment

a.

Contentions of the Parties

b.

Law and Application to Facts

IV.

Conclusion

I. Introduction

This case rests on serious charges that the defendant and its employees breached plaintiffs' electronic credit and sales system (supplied largely by defendant), resulting in the stealing of credit card information and losses to plaintiffs' customers, and ultimately, to plaintiffs. In view of the large damage that can be done by such thievery and negligence this case must be taken seriously. See, e.g., James Verini, The Great Cyberheist, N.Y. Times Mag., Nov. 10, 2010 (detailing the vast damage caused by online credit card frauds). A jury could find that the defendant—an expert selling computer secrecy protections—did not act appropriately.

Clark Street Wine and Spirits and 88 Seventh Avenue Inc. (“Plaintiffs”) sue Emporos Systems Corporation (“Emporos”) alleging violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (“CFAA”), and common law claims of gross negligence, negligent supervision, conversion, and breach of contract. It is alleged that a current or former employee of Emporos, which installed credit card processing services for Plaintiffs, misappropriated customers' information. Sought are compensatory and punitive damages. Also requested is a declaratory judgment finding that any fines, penalties, or other judgments against Plaintiffs resulting from this delict are the legal responsibility of Emporos.

Emporos moves to dismiss the First Amended Complaint and Jury Demand for failure to state a claim upon which relief may be granted. Fed. R. Civ. Proc. 12(b)(6).

For the reasons set out below, the motion to dismiss is denied. A motion for sanctions based on Rule 11(c) was denied for reasons stated orally on the record.

II. Facts and Procedural History

For purposes of this motion, the plaintiff's factual allegations are accepted as true, with all reasonable inferences drawn in plaintiff's favor. Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996). Further discovery is required, particularly to determine if the culprit who stole Plaintiffs' customers' credit card information was an employee of Emporos. By separate order, the magistrate judge was respectfully requested to expedite discovery so that the case can be set for trial in May, 2011.

Emporos is a North Carolina corporation that provides credit card processing services to businesses. Amended Complaint (“Am. Compl.”) at ¶ 3. In January 2004, Plaintiffs, New York corporations that sell wine and spirits, entered into Software License Agreements with Emporos to provide credit card software hardware and services. Together, these features are known as a “point-of-sale” system. Am. Compl. at ¶¶ 18, 20; Emporos' Motion to Dismiss (“Def.'s Mot. Dismiss”) at Ex. B. As part of this system, Plaintiffs allege that Emporos required the installation of a program called “LogMeIn.” Am. Compl. at ¶ 27. This program allows persons with the specific user name and password to log into Plaintiffs' computers to update and support Emporos' point-of-sale system, no matter where they are physically located. Id. at ¶¶ 28–29.

During the course of 2007, through communications with American Express, Visa, MasterCard, and Cynergydata (Seventh Avenue's credit card processor), Plaintiffs learned that a consumer fraud had been traced to their stores. Am. Compl. at ¶¶ 30–46. Consumers' credit card information was compromised and fraudulent purchases were made on their accounts. Am. Compl. at ¶¶ 30, 33. They were assessed fines and penalties from credit card companies for non-compliance with security protocols; eventually they replaced the proprietary system installed by Emporos. Am. Compl. at ¶¶ 41, 67, 69. To determine the cause of the breach, Plaintiffs employed various information technology services and consultants.

The complaint was filed on March 29, 2010. Plaintiffs' Complaint and Jury Demand (“Original Complaint”) (“Orig. Compl.”). On May 13, 2010, Emporos moved to dismiss the Original Complaint on numerous grounds: (1) Plaintiffs' failure to allege their capacity to sue as required under Federal Rule of Civil Procedure 9(a); (2) failure to allege subject matter jurisdiction; and (3) with respect to the alleged violation of the CFAA, failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Emporos' Motion to Dismiss Plaintiffs' Complaint (“Original Motion to Dismiss”) (“Orig. Mot. Dismiss”), at 3–5. On May 28, 2010, Plaintiffs' Amended Complaint added allegations regarding Plaintiffs' corporate status and the elements of a private CFAA claim. Am. Compl. at ¶ 1, 2, 105. Emporos thereafter filed the present Motion to Dismiss.

III. Contentions of the Parties, Law, and Application to FactsA. Motion to Dismiss Standard

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss for “failure to state a claim upon which relief may be granted.” In reviewing a Rule 12(b)(6) motion, the task of the court “is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.” Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir.1980). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). A court must accept the plaintiff's factual allegations as true, drawing all reasonable inferences in plaintiff's favor. Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996); see also Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” (citation omitted)); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (“Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage ....”).

B. Propriety of Emporos' Motion to Dismiss Under the Federal Rules

1. Contentions of the Parties

Plaintiffs argue that because Emporos already filed a motion to dismiss that sought to dismiss one of Plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6), the current motion to dismiss is improper. Plaintiffs' Memorandum of Law in Opposition to Emporos' Motion to Dismiss (“Pl. Mem. L. Opp.”) at 6–8. It is argued that since Emporos' current arguments could have been made in the Original Motion to Dismiss, Emporos may only raise 12(b)(6) arguments in an answer, in a 12(c) motion (which requires an answer), or at trial. Id.

Emporos maintains that this court still has discretion to entertain the 12(b)(6) motion, citing cases which allowed multiple 12(b)(6) motions where the second motion was “not interposed for delay, and its consideration will expedite the disposition of the case on the merits.” Def.'s Mot. Dismiss at n. 1. It asserts that the current motion was not interposed for delay. Id. It is contended that even if Plaintiffs' position were correct, Emporos may file an answer and convert the current motion to dismiss into a motion for judgment on the pleadings under Rule 12(c), because the defense of failure to state a claim is not waivable under Rule 12(h). Id.

2. Law

Federal Rule of Civil Procedure Rule 12(g) generally provides that “a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.” The defense provided by Rule 12(b)(6) for failure to state a claim upon which relief may be granted is not waivable, but if not raised in an initial 12(b)(6) motion, it can only be raised (1) in any pleading allowed or ordered under Rule 7(a); (2) by a motion under Rule 12(c); or (3) at trial. See Fed.R.Civ.P. 12(h)(2). But successive 12(b)(6) motions may be allowed if the pending motion is not interposed for delay and its consideration will expedite the disposition of the case on the merits. See, e.g., Sharma v. Skaarup Ship. Mgmt. Corp., 699 F.Supp. 440, 444 (S.D.N.Y.1988); Thorn v. New York City Dept. of Social Servs., 523 F.Supp. 1193, 1196 n. 1 (S.D.N.Y.1981).

3. Application to Facts

Emporos' current motion is neither frivolous...