LQD Bus. Fin., LLC v. Fundkite, LLC
| Decision Date | 11 February 2020 |
| Docket Number | Case No. 19 C 4416 |
| Parties | LQD BUSINESS FINANCE, LLC, Plaintiff, v. FUNDKITE, LLC, AKF, INC., and AZIZUDDIN ROSE, Defendants. AZIZUDDIN ROSE, Counterclaimant, v. LQD BUSINESS FINANCE, LLC and GEORGE SOURI, Counterclaim defendants. |
| Court | U.S. District Court — Northern District of Illinois |
LQD Business Finance, LLC has sued two of its competitors, Fundkite, LLC, and AKF, Inc., and a former employee, Azizuddin Rose, alleging that they misappropriated LQD's trade secrets. Rose has counterclaimed against LQD and its Chief Executive Officer, George Souri, alleging that they failed to pay him and prevented him from receiving a commission for securing a deal for Fundkite. Fundkite and AKF have moved to dismiss all of LQD's claims against them, and LQD and Souri have moved to dismiss Rose's counterclaims.
For the purposes of the motion to dismiss LQD's claims against Fundkite and AKF, the Court accepts as true the following allegations in LQD's complaint. See NewSpin Sports, LLC v. Arrow Elecs., Inc., 910 F.3d 293, 299 (7th Cir. 2018).
LQD is a finance company that offers loans to commercial borrowers, and it develops and maintains files for its current and prospective clients. These files contain information such as a borrower's cash flow, balance sheets, and income statements. Additionally, LQD's client files include borrowers' confidential business information, such as business development plans, pricing and marketing strategies, and market research. LQD uses what it contends are proprietary analytical methods to process all of the information in a borrower's file to determine its creditworthiness and the terms of any loan LQD might offer. These determinations are also part of LQD's client files.
LQD uses several measures to protect its client files. It requires employees to sign confidentiality agreements. Client files are encrypted and password protected. Additionally, LQD stores its client files and associated data on proprietary computer platforms and software, which require company-issued usernames and passwords for access. Logging on to LQD's computers also requires authorized usernames and passwords.
LQD hires business development officers to identify prospective lenders. Rose, a business development officer, initially worked for LQD as an independent contractor.In 2015, he signed an independent contractor agreement, which set forth the terms of his work for LQD from August 2015 to November 2015.1 The agreement included a confidentiality provision, prohibiting Rose from disclosing LQD's client files and data to any third party. Another provision of the agreement prohibited Rose from engaging in any work "competitive to, or incompatible with" his obligations to LQD. 2d Am. Compl., dkt. no. 48 ¶ 40. After the independent contractor agreement terminated, Rose continued to work for LQD until June 2019. Between 2015 and June 2019, Rose allegedly had access to all of LQD's client files and data.
LQD alleges that in May 2018, Fundkite and AKF—which LQD says are its competitors— started paying Rose to obtain LQD client files and data. Fundkite and AKF would then use this information to market and offer loans to LQD's clients and prospective clients. This scheme, LQD alleges, continued through June 2019, and Fundkite and AKF closed several loans with borrowers allegedly diverted from LQD. In addition, LQD alleges, one of its clients, Today's Growth Consultant, Inc. (TGC), contacted Rose in June 2019 seeking additional financing. Instead of informing LQD of the loan opportunity, Rose offered it to Fundkite and AKF. Rose also shared LQD's file on TGC with Fundkite and AKF. Fundkite and AKF financed TGC's loan.
In July 2019, LQD sued Fundkite, Rose, and AKF for misappropriating LQD's client files, which it alleges are protected as trade secrets. LQD's second amended complaint, filed in November 2019, includes claims against Fundkite and AKF forviolation of the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836(b) (count 1); the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/4 (count 2); and the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030 (count 9). The complaint also includes common law claims against Fundkite and AKF for: unfair competition (count 3); tortious interference with business relations (count 4); aiding and abetting breach of fiduciary duty (count 11); aiding and abetting conversion (count 12); inducement of a breach of fiduciary duty (count 14); and civil conspiracy (count 15).
Rose alleges the following facts in support of his counterclaim, which the Court accepts as true for the purposes of the motion to dismiss the counterclaim. See United Cent. Bank v. Davenport Estate LLC, 815 F.3d 315, 318 (7th Cir. 2016). Starting in August 2015, Rose worked for LQD under an independent contractor agreement that terminated in November 2015. In September 2016, Rose alleges, LQD rehired him as an employee. The company required Rose to work in its office from 8:30 am to 6:30 pm, Monday through Friday. Additionally, Rose had to work remotely for several additional hours each week. Rose typically worked between fifty and seventy hours each week for LQD. He says that he successfully helped LQD secure numerous loans between September 2015 and June 2019.
Rose and LQD never executed a written contract formalizing their relationship after the termination of the independent contractor agreement. LQD would sporadically pay Rose, but between October 2017 and July 2018, he did not receive any compensation. During his employment at LQD, Rose would periodically e-mail Souri requesting overdue wages.
In 2017, Rose says, LQD began experiencing financial difficulties and instructed its business development officers to offer loan opportunities to other lenders. In August 2017, Souri held a company-wide meeting announcing that LQD could no longer fund loans and that employees should start looking for other employment. After this announcement, Souri told Rose that LQD was working to secure more funding and asked him to stay with the company. Souri offered to pay Rose when LQD secured additional funding. Rose agreed.
In May 2019, TGC contacted Rose seeking, within a week of its request, a $1.7 million loan. Rose says that because the TGC request did not meet LQD's lending requirements, he sent TGC's request to Fundkite. In June 2019, Fundkite approved and funded TGC's loan request. Under the terms of Fundkite's contract with Rose regarding this deal, Fundkite was to pay Rose a commission of $78,000. When LQD learned of the TGC deal, it fired Rose and contacted Fundkite, asserting that LQD—not Rose—was entitled to the commission. Fundkite did not pay Rose the commission.
In October 2019, Rose filed a counterclaim against LQD and Souri, alleging violations of the following: the minimum wage provision of the Illinois Minimum Wage Law (IMWL), 820 ILCS 105/4(a)(1) (count 4); the overtime wage provision of the Federal Labor Standards Act (FLSA), 29 U.S.C. § 207(a)(1) (count 1); the overtime wage provision of the IMWL, 820 ILCS 105/4a (count 3); the FLSA's retaliatory termination prohibition, 29 U.S.C.§ 215(a)(3) (count 2); the pay-period requirements of the Illinois Wage Payment and Collection Act (IWPCA), 820 ILCS 115/3 (count 5); the IWPCA's retaliatory termination prohibition, 820 ILCS 115/14(c) (count 6); and recordkeeping requirements of the ICWPCA, 820 ICLS 115/10 (count 7). Rose has alsoasserted a claim for tortious interference with a contractual relationship (count 8).
Fundkite and AKF have moved to dismiss all of LQD's claims against them for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). And LQD and Souri have likewise moved to dismiss all of Rose's claims under Rule 12(b)(6).2 "To survive a motion to dismiss the complaint must 'state a claim for relief that is plausible on its face.'" Doe v. Columbia Coll. Chi., 933 F.3d 849, 854 (7th Cir. 2019) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The suggestion of Fundkite and AKF that LQD must plead its trade secrets "with particularity" is inconsistent with the Federal Rule of Civil Procedure 8, which requires only notice pleading. See Twombly, 550 U.S. at 555. In ruling on this motion, the Court accepts as true all well-pleaded facts and draw all reasonable inferences in favor of the non-moving party. See Columbia Coll. Chi., 933 F.3d at 854.
Preliminarily, Fundkite and AKF argue that Fundkite should be dismissed from all claims because the complaint lacks any specific allegations regarding its actions as anentity separate from AKF. But defendants do not point to any authority requiring LQD to allege, for any of its claims, that Fundkite acted independently of AKF. And because LQD has named Fundkite specifically in the allegations of misconduct supporting each of the claims against it, the Court denies the motion to dismiss Fundkite.
Fundkite and AKF have moved to dismiss the trade secret misappropriation claims (counts 1 and 2), the common law claims (counts 3, 4, 7, 11, 12, 14, and 15), and the CFAA claim. Fundkite and AKF have also moved to dismiss LQD's claims for injunctive relief (count 5) and unjust enrichment (count 6), which are requests for remedies and not separate causes of action. See Knutson v. Village of Lakemoor, 932 F.3d 572, 576 n.4 (7th Cir. 2019) (injunctive relief); Vanzant v. Hill's Pet Nutrition, Inc., 934 F.3d 730, 739-40 (7th Cir. 2019) (unjust enrichment). The fate of counts 5 and 6 is therefore "tied to" that of LQD's statutory and common law claims against Fundkite and AKF. See Vanzant, 934 F.3d at 740. The Court will now address the motion to dismiss LQD's statutory and common law claims against Fundkite and AKF.
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