CoStar Grp. v. Leon Capital Grp.

Docket Number21-cv-2227 (CRC)
Decision Date07 June 2022
CourtU.S. District Court — District of Columbia


Plaintiffs CoStar Group, Inc. and CoStar Realty Information, Inc. (collectively, CoStar) operate a commercial real estate database. CoStar here sues a former licensee of its database, Leon Capital Group, LLC (Leon Capital), over claims that Leon Capital is too closely tied to one of CoStar's competitors-the Commercial Real Estate Exchange, Inc. (“CREXi”). CoStar's complaint raises five claims, all of which Leon Capital has moved to dismiss. As explained below, the Court will dismiss Claim One, for breach of contract, because Leon Capital's payment of the amount due under the contract has mooted the claim. But the Court finds that CoStar has at least plausibly stated the other four claims for relief. The Court will accordingly, grant the motion to dismiss in part and deny it in part.

I. Background

CoStar operates “the nation's most comprehensive commercial real estate information database, ” which it licenses to users for a monthly fee.[1] Compl. ¶¶ 1, 19. Until May 2021, one of those licensees was Leon Capital, a Texas-based real estate investment and development firm. Id. ¶¶ 3, 11; Mem. in Supp. of Mot. Dismiss (“MTD”) at 2. Leon Capital's use of CoStar's database was governed by two sets of terms. Compl. ¶ 25.

First, by virtue of its License Agreement, Leon Capital agreed to abide by CoStar's Terms and Conditions. Id. ¶ 26; see generally Compl. Ex. A. Among those terms was a limitation on “access or use” of the database by any “direct or indirect competitor of CoStar.” Compl. ¶ 35; see Compl. Ex. A ¶ 2(c)(3). The Terms and Conditions also authorized CoStar, upon a “good faith determination” that a licensee had violated certain provisions-including the bar on competitor access-to terminate the license immediately. Compl. ¶ 37; Compl. Ex. A ¶ 6(b)(1). Such a termination would accelerate all fees due on the remainder of the license. Compl. ¶ 37; Compl. Ex. A ¶ 6(d).

Second, when Leon Capital employees logged on to CoStar's database, their conduct was governed by that product's Terms of Use. See Compl. ¶¶ 27-28, 30; see generally Compl. Ex. B. Like the Terms and Conditions, the Terms of Use forbade access to the database by “direct or indirect competitor[s] of CoStar.” Compl. ¶ 35; Compl. Ex. B at 6. The Terms of Use offered examples of what Costar considered to be its competitors, including “Internet listing services or other real estate information services.” Compl. ¶ 35; Compl. Ex. B at 6. In addition, the Terms of Use provided that only “Authorized User[s] could access CoStar's password-protected services. Compl. ¶ 38; Compl. Ex. B at 6. The Terms of Use defined “Authorized User” as “an individual (a) employed by a CoStar Client or an Exclusive Contractor . . . of a CoStar Client at a site identified in the License Agreement, and (b) who is specified in the License Agreement as a user of a specific Passcode Protected Product and represented by the Client to be an employee or Exclusive Contractor of the Client.” Compl. Ex. B at 3.

CoStar alleges that Leon Capital violated both sets of terms. The first set of allegations relates to the Terms and Conditions' prohibition on the use of CoStar products by any direct or indirect competitor. Compl. ¶ 42. In the spring of 2021, CoStar determined Leon Capital to be a competitor, based on the relationship of Leon Capital and its CEO with CREXi. Id. ¶¶ 42-52. At that point, CoStar had been embroiled in copyright litigation with CREXi for more than six months. See Compl., CoStar Grp., Inc. v. Com. Real Est. Exch., Inc., No. 20-cv-8819 (C.D. Cal. Sept. 25, 2020). After inquiring about Leon Capital's relationship to CREXi and receiving no substantive response, on May 24, 2021, CoStar exercised its right to terminate the contract. Compl. ¶¶ 45, 51-52. It requested $47, 081.28 in remaining annual fees under the acceleration clause. Id. ¶ 53. As of the filing of the complaint, Leon Capital had not paid that balance. Id.

CoStar also alleges that, notwithstanding the termination of its License Agreement, Leon Capital continued to access its database in May and June of 2021, in violation of the product's Terms of Use. Id. ¶ 54. Here, CoStar focuses on the actions of Leon Capital's Managing Director Sean Wood, who joined Leon Capital in May 2021. Id. ¶¶ 55, 57, 59. CoStar alleges that, beginning on May 25, 2021-the day after the termination of the License Agreement- Wood began logging on to CoStar's database with credentials issued to his previous employer, Dalfen Industrial. Id. ¶¶ 56-65. Acting on behalf of and in the course of his employment with Leon Capital, and using a Leon Capital device, Wood allegedly “mined the CoStar database for data”-ultimately exporting several hundred records. Id. ¶¶ 58, 61. On August 12, 2021, CoStar terminated Wood's Dalfen username. Id. ¶ 65. At the same time, it terminated the access of another Leon Capital employee who had similarly employed a username connected with an old employer. See id. ¶¶ 66-70.

A week later, CoStar filed suit. The complaint raises five claims. CoStar first seeks payment of the amount due under the Terms and Conditions' termination clause, which CoStar triggered based on Leon Capital's alleged violation of the non-competition provision. Id. ¶¶ 7886. The remaining claims all relate to Wood's continued use of CoStar's database after May 24, 2021, in his capacity as Leon Capital's Managing Director. These include a second breach of contract claim, this time for alleged violations of the Terms of Use. Id. ¶¶ 87-98. Two more claims-one for fraud and one for unjust enrichment-are pled in the alternative to Claim Two, in the event the Court finds the Terms of Use did not constitute a binding contract between Leon Capital and CoStar. Id. ¶¶ 107-15, 116-23. Finally, CoStar alleges in Claim Three that Wood's access to and downloading of data from CoStar's servers violated the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. Id. ¶¶ 99-106. Leon Capital has moved to dismiss all five claims under Federal Rule of Civil Procedure 12(b)(6).

II. Legal Standards

Rule 12(b)(6) requires dismissal of a complaint that fails “to state a claim upon which relief can be granted.” When evaluating a 12(b)(6) motion, the court must determine whether the complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

A court “must treat the complaint's factual allegations as true and must grant plaintiff the benefit of all inferences that can be derived from the facts alleged.” Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (internal citation and quotation marks omitted). Although a complaint need not provide “detailed factual allegations” to withstand a 12(b)(6) motion, it must offer “more than labels and conclusions.” Twombly, 550 U.S. at 555. “In determining whether a complaint states a claim, the court may consider the facts alleged in the complaint, documents attached thereto or incorporated therein, and matters of which it may take judicial notice.” Stewart v. Nat'l Educ. Ass'n, 471 F.3d 169, 173 (D.C. Cir. 2006).

III. Analysis

The Court organizes its discussion of each claim based on the relevant allegations-first taking up CoStar's breach of contract claim relating to non-payment of the accelerated license fees; then considering its breach of contract claim relating to Wood's unauthorized access, as well as the fraud and unjust enrichment claims pled in the alternative to this claim; and finally turning to the CFAA claim. As explained below, the Court will dismiss only CoStar's first claim, and will otherwise deny Leon Capital's motion to dismiss.

A. Breach of Subscription License Agreement and Terms and Conditions (Claim One)

With its first breach of contract claim, CoStar relies on several provisions of its standard Terms and Conditions, which was incorporated by reference in the parties' License Agreement. Compl. ¶ 26. CoStar alleges that it validly terminated Leon Capital's License Agreement upon its good faith determination that Leon Capital had violated the Terms and Conditions' noncompetition provision. Id. ¶ 84. CoStar then claims that Leon Capital improperly withheld the payment due under a term accelerating the remainder of the license fees. Id. ¶¶ 85-86.

“To prevail on a claim of breach of contract, a party must establish (1) a valid contract between the parties; (2) an obligation or duty arising out of the contract; (3) a breach of that duty; and (4) damages caused by breach.” Tsintolas Realty Co. v. Mendez, 984 A.2d 181, 187 (D.C. 2009). Leon Capital offers two arguments in favor of dismissal: First, it disputes the existence of a breach because, in its view, CoStar has offered “no plausible basis on which the court could determine Leon Capital's private investment business is an actual competitor” of CoStar. MTD at 4. Second, Leon Capital reports that it has paid the amount due under the acceleration clause-the full damages CoStar seeks with Claim One. See id. at 1. It therefore asks the Court to find the claim moot. See Reply at 4. The Court only needs to reach this second argument, as it agrees that there is nothing left of CoStar's contract claim as currently pled.


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