Dewitt Ins., Inc. v. Horton

• Decision Date: 28 May 2014
• Docket Number: No. 4:13-CV-2585 JAR,4:13-CV-2585 JAR
• Court: U.S. District Court — Eastern District of Missouri
• Parties: DEWITT INSURANCE, INC., Plaintiff, v. GREGORY R. HORTON, et al., Defendants.

DEWITT INSURANCE, INC., Plaintiff, v. GREGORY R. HORTON, et al., Defendants.

No. 4:13-CV-2585 JAR

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION

Dated: May 28, 2014

MEMORANDUM AND ORDER

This matter is before the court on Defendants Gregory R. Horton and Sarah A. King's Motion to Dismiss Plaintiff's Amended Complaint for Failure to State a Claim Upon Which Relief Can Be Granted And To Decline Supplemental Jurisdiction of State Claims (ECF No. 13).¹ On February 26, 2014, Plaintiff filed a five-count Verified Amended Complaint for Damages ("Amended Complaint"). (ECF No. 12). Defendants argue that Plaintiff fails to state a claim as to the federal causes of action under the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. §§1030, et seq., and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§1961, et seq. In addition, Defendants argue that the state law fraud claims (fraudulent concealment against Horton, fraudulent concealment against King) must be dismissed because the claims lack specificity required by Fed.R.Civ.P. 9(b) and fail to properlyallege causation or damages. Finally, Defendants assert that the Court should decline to exercise supplemental jurisdiction as to the state law claims.

BACKGROUND²

Dewitt Insurance, Inc. ("Dewitt") is an insurance management company. (Verified Amended Complaint for Damages ("Amended Complaint"), ECF No. 12, ¶8). Horton worked for Dewitt as an independent agent and as a "producer" from March 20, 1998 through June 30, 2011. (Id., ¶¶9, 10).³ During some periods, Horton worked for DeWitt as a sole proprietor and, during other periods, he worked through Zigzak, Inc. ("Zigzak") and Cindeb, Inc. ("Cindeb").⁴ (Id., ¶10). Horton led Dewitt to believe that he owned both Zigzak and Cindeb. (Id.)

In 2000, Horton was working as a sole proprietor and he told DeWitt's John DePond that he was considering forming a company for his insurance business. (Id., ¶11). DePond told Horton that he could incorporate his business subject to some conditions. (Id., ¶12). Specifically, DePond told Horton that he had to notify DeWitt prior to transferring any ownership interest in his book of business to anyone else. (Id.)

Around the time of this conversation with DePond, on April 10, 2000, Horton formed Zigzak. (Id., ¶13).⁵ Despite the admonition to the contrary, Horton made his daughter, Sarah King, the sole shareholder of Zigzak. (Id., ¶15). King was only 17 years old when Zigzak wasformed. (Id., ¶16). King has at all times had access to all of the information of Zigzak and actively participated in Zigzak's activities and business decisions. (Id., ¶¶17-18).

DeWitt alleges that Horton and King actively concealed from DeWitt the fact that King was the owner of Zigzak and was actively involved in the management of Zigzak. (Id., ¶21).

DeWitt first learned that King was the owner of Zigzak in December 2013. (Id., ¶22). DeWitt claims that it would not have agreed to do business with Zigzak if DeWitt had known that King owned and controlled Zigzak. (Id., ¶25). Or, if DeWitt had known that King owned Zigzak, DeWitt would have paid Zigzak at most 60% sales commissions, instead of the 80% sales commissions that it paid. (Id.). DeWitt claims that Horton and King's concealment of King's ownership interest and control of Zigzak caused DeWitt to defraud it into paying Zigzak at least 33.33% more commissions than it should have received, based upon King's ownership and control. (Id., ¶29).

In its Amended Complaint, DeWitt alleged the following causes of action: Fraudulent Concealment against Defendant Horton (Count I), Violation of the Computer Fraud and Abuse Act, 18 U.S.C. §1030, et seq. against Defendant Horton (Count II), Fraudulent Concealment against Defendant King (Count III), Violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1961, et seq. against Defendants Horton and King (Count IV), and Civil Conspiracy against Defendants Horton and King (Count V),

STANDARD FOR MOTION TO DISMISS

In ruling on a motion to dismiss, the Court must view the allegations in the Complaint liberally in the light most favorable to Plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008) (citing Luney v. SGS Auto Servs., 432 F.3d 866, 867 (8th Cir. 2005)). Additionally, the Court "must accept the allegations contained in the complaint as true and drawall reasonable inferences in favor of the nonmoving party." Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005) (citation omitted). To survive a motion to dismiss, a complaint must contain "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) (abrogating the "no set of facts" standard for Fed. R. Civ. P. 12(b)(6) found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555; Huang v. Gateway Hotel Holdings, 520 F. Supp. 2d 1137, 1140 (E.D. Mo. 2007).

DISCUSSION

I. CFAA in Count II

In Count II, Plaintiff attempts to allege a violation of the CFAA, 18 U.S.C. §1030(a)(4),⁶ which provides:

Whoever knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer and the value of such use is not more than $5,000 in any 1-year period shall be punished as provided in subsection (c) of this section.

Defendants contend that Count II under the CFAA fails to state a claim. First Defendants argue that Plaintiff does not allege any of the essential elements of a CFAA claim. Defendants argue that Plaintiff, for example, does not allege: that its computer system was hacked, thatHorton did not have authorization to access information, that information was deleted or destroyed, that there was any service interruption, or that a computer was taken and not returned. (ECF No. 14 at 6). In addition, Defendants maintain that Plaintiff fails to allege that its claimed damages arose from any of the above-discussed the CFAA violations. (Id.) Defendants state that Plaintiff has not identified how any damage was done to it through Horton's alleged use of Plaintiff's computer systems. (Id.) Defendants note that Plaintiff alleges that Horton used Plaintiff's system to create loan applications, insurance applications, and tax returns containing false and deceptive information, but Defendants maintain that Plaintiff has not identified what information was false or deceptive or how the alleged acts are the cause of Plaintiff's damages. (Id.)

Plaintiff asserts that it has alleged all of the elements of a CFAA action under §1030(a)(4). Plaintiff states that it alleged that Horton "intentionally" and "knowingly," and "with intention of defrauding DeWitt Insurance," "exceeded his authorization to access DeWitt Insurance's protected computers," and as a result "thereby obtain[ed] inflated commissions from DeWitt Insurance in an amount at least 33.33% more than Zigzak, Inc. was entitled to." (ECF No. 15 at 3 (citing Amended Complaint, ¶¶8-35, 46, 48, 49)). In support of its damages allegation, Plaintiff notes that it alleged "Horton's unauthorized access proximately caused DeWitt Insurance loss in excess of $5,000 during a one-year period. Specifically, DeWitt Insurance suffered loss in the amount of 20% of all the commissions DeWitt Insurance paid to Zigzak, Inc." (ECF No. 15 at 3 (citing Amended Complaint, ¶50)). Plaintiff expansively claims that this allegation qualified as a "loss" under the CFAA because a loss is defined only as "any reasonable cost to any victim." Plaintiff claims that the descriptions of "loss" in §1030(e)(11) after the word "including" are only "examples." (ECF No. 15 at 4); see 18 U.S.C. §1030(e)(11).

"The CFAA criminalizes various fraudulent or damaging activities related to the use of computers." Fiber Sys. Int'l v. Roehrs, 470 F.3d 1150, 1156 (5th Cir. 2006). A claim "alleging a violation of Section 1030(a)(4) requires a showing that the defendant: (1) accessed a protected computer, (2) without authorization or exceeding such authorization that was granted, (3) knowingly and with intent to defraud, and thereby (4) furthered the intended fraud and obtained anything or value, causing (5) a loss to one or more persons during any one-year period aggregating at least $5,000 in value." Absolute Energy Solutions, LLC v. Trosclair, CIV.A. H-13-3358, 2014 WL 360503, at *2 (S.D. Tex. Feb. 3, 2014)(internal quotations and citations omitted). The CFAA recognizes "private causes of action for individuals damaged by computer fraud: 'Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief.'" In re AOL, Inc. Version 5.0 Software Litig., 168 F. Supp. 2d 1359, 1368 (S.D. Fla. 2001) (quoting 18 U.S.C. § 1030(g)). The CFAA defines "loss" as "any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service." 18 U.S.C. §1030(e)(11).

The Court finds that Plaintiff's Amended Complaint fails to allege a "loss" as defined under the CFAA. "The weight of relevant authority restricts the CFAA 'loss' requirement to actual computer impairment." Harley Auto. Grp., Inc. v. AP Supply, Inc., CIV. 12-1110 DWF/LI...