Novelposter v. Group, Case No. 13-cv-05186-WHO

• Decision Date: 03 November 2014
• Docket Number: Case No. 13-cv-05186-WHO
• Court: U.S. District Court — Northern District of California
• Parties: NOVELPOSTER, Plaintiff, v. JAVITCH CANFIELD GROUP, et al., Defendants.

NOVELPOSTER, Plaintiff, v. JAVITCH CANFIELD GROUP, et al., Defendants.

Case No. 13-cv-05186-WHO

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

November 3, 2014

ORDER DENYING DEFENDANTS' SECOND MOTION FOR JUDGMENT ON THE PLEADINGS

Re: Dkt. No. 111

INTRODUCTION

This order concerns the second motion for judgment on the pleadings filed by defendants in this case. I granted the first motion with respect to plaintiff NovelPoster's claims under the Computer Fraud and Abuse Act ("CFAA") and California's Comprehensive Computer Data Access and Fraud Act ("CDAFA") on the ground that NovelPoster had failed to adequately plead damage or loss within the meaning of either statute. NovelPoster has since filed an amended complaint ("First Amended Complaint") with additional details concerning the damage and loss NovelPoster allegedly sustained as a result of defendant's conduct. Defendants contend that the First Amended Complaint still fails to adequately plead damage or loss under the CFAA and CDAFA, and that it fails to properly allege that defendants accessed or used a computer "without permission," as required to state a claim under the CDAFA. For the reasons discussed below, the motion is DENIED.

BACKGROUND

I. FACTUAL BACKGROUND

The following facts are alleged in the First Amended Complaint and are presumed true for the purposes of this motion. Except where otherwise indicated, most of the facts are also alleged in NovelPoster's initial complaint and are set out in the Court's August 4, 2014 order grantingdefendants' first motion for judgment on the pleadings. See Dkt. Nos. 1, 93. I repeat them here for ease of reference.

A. Failed business arrangement between the parties

NovelPoster is an online retailer that designs, sells, and distributes "text-based poster products." FAC ¶ 3. NovelPoster has no physical presence and is accessible only through its website, www.NovelPoster.com, and other online shopping portals. FAC ¶ 11. The business was founded by Matt Grinberg and Alex Yancher in 2011. FAC ¶ 10.

NovelPoster's operations are conducted exclusively online through a number of software programs and websites, including Google and Google Adwords, Goodsie, Etsy, Storenvy, Facebook and Facebook Ads, Twitter, MailChimp, Stripe, and PayPal. FAC ¶ 12. NovelPoster uses several email accounts hosted by Google. FAC ¶ 12. These include Contact@NovelPoster.com, Matt@NovelPoster.com, and Alex@NovelPoster.com. FAC ¶ 12. Contact@NovelPoster.com is the administrative account for all of NovelPoster's Google email accounts, and access to Contact@NovelPoster.com allows the user to access and control both Matt@NovelPoster.com and Alex@NovelPoster.com, which are the individual email accounts for Grinberg and Yancher, respectively. FAC ¶ 12. Grinberg and Yancher used Contact@NovelPoster.com and their individual email accounts to communicate with customers and to store contact information for designers, marketers, and other entities "essential to the growth and operation of NovelPoster." FAC ¶ 14.

NovelPoster first came into contact with defendants through Yancher, who met defendant Daniel Canfield at a social event in San Francisco, California in March 2013. FAC ¶ 16. Yancher and Canfield agreed to pursue a potential business arrangement by which Canfield's company, defendant Javitch Canfield Group, would assume responsibility for running NovelPoster "until it could be sold." FAC ¶ 16. Grinberg and Yancher met with Canfield and his business partner, defendant Mark Javitch, several times between March 2013 and May 2013 to discuss and negotiate the details of the arrangement. FAC ¶ 17.

On or around May 3, 2013, optimistic that an agreement with defendants would soon be reached, NovelPoster provided defendants with the passwords to a number of its online accounts,including Contact@NovelPoster.com and NovelPoster's accounts with Google Adwords, Goodsie, Facebook, Twitter, MailChimp, Stripe, and PayPal. FAC ¶ 18. Grinberg and Yancher did not authorize defendants to change the passwords to any of the accounts. FAC ¶ 18. Nevertheless, on or around May 8, 2013, defendants changed the passwords to each of the accounts without providing the new passwords to NovelPoster. FAC ¶19. Grinberg emailed defendants to inform them that while changing the passwords was "totally fine for now," Grinberg and Yancher "would need access to NovelPoster's accounts going forward." FAC ¶ 21. In the same email, Grinberg proposed final contract terms between the parties, including the following points:

(i) Javitch Canfield Group would "take over all aspects of operations except for poster design," while NovelPoster would "continu[e] to be responsible for additional poster design at a rate of one poster per month."

(ii) NovelPoster would maintain "ownership of all NovelPoster related accounts."

(iii) Javitch Canfield Group would receive 80 percent of all NovelPoster sales, as well as a ten percent equity share to vest in two years.

(iv) Javitch Canfield Group would not compete with NovelPoster "by creating their own text-based poster product."

FAC ¶ 21.

Defendants accepted the terms via email on May 9, 2013. FAC ¶ 24.

On or around May 13, 2013, in line with the contract provision that NovelPoster would maintain "ownership of all NovelPoster related accounts," Canfield provided NovelPoster with the new passwords the defendants had created. FAC ¶ 27. On or around June 6, 2013, however, defendants reversed course and again changed the passwords for Contact@NovelPoster.com, Google Adwords, Goodsie, Facebook, Twitter, MailChimp, Stripe, and PayPal, again without providing the new passwords to NovelPoster. FAC ¶ 29. On the same date, defendants also accessed and changed the passwords to Grinberg and Yancher's individual email accounts, Matt@NovelPoster.com and Alex@NovelPoster.com. FAC ¶ 30. Neither Grinberg nor Yancher had authorized defendants to access the individual email accounts or to change the accounts' passwords. FAC ¶ 30. The First Amended Complaint alleges that by changing the various onlineaccount passwords, defendants exceeded their authority "to operate, but not own, NovelPoster" and "prevented [NovelPoster] from restoring and reasserting the technical access barriers that defendants had just overcome." FAC ¶ 29-30, 92.

On June 10, 2013, Yancher emailed Canfield and Javitch, alerting them that he knew they had accessed the individual email accounts and read emails therein without permission. FAC ¶ 31. Javitch replied and suggested a meeting to discuss the situation. FAC ¶ 32. Yancher agreed to meet but reiterated that defendants were not authorized to access the individual email accounts or to change the accounts' passwords. FAC ¶ 32.

The parties met on June 13, 2013. FAC ¶ 33. Grinberg and Yancher told defendants that "their business relationship was not working" and that they wished to terminate the agreement. FAC ¶ 33. Defendants refused, insisting they would relinquish control of NovelPoster only for a $10,000 fee. FAC ¶ 33. The next day, Grinberg sent Canfield an email terminating the agreement and demanding that defendants return all of NovelPoster's business operations, including the passwords to NovelPoster's online accounts. FAC ¶ 34. In a reply email sent the same day, Javitch "refused to acknowledge the termination of the agreement, reasoning . . . there was no clause in the contract that addressed termination and therefore the termination was not valid." FAC ¶ 36.

Between June 2013 and January 2014, defendants maintained control of all aspects of NovelPoster's business and routinely accessed, without authorization from Grinberg or Yancher, NovelPoster's online accounts. FAC ¶ 41. Throughout that period, defendants "cross-marketed NovelPoster with other brands [they] promote" and misrepresented to vendors and other business contacts that defendants were authorized to enter binding agreements on NovelPoster's behalf. FAC ¶¶ 39-40. In early December 2013, NovelPoster discovered that defendants had shut down Novelposter's website. FAC ¶ 43. This was "right at the apex of the holiday season and the most profitable part of the year for NovelPoster." FAC ¶ 43. NovelPoster asserts that in 2012, it earned thirty percent of its revenues in December; because its website was shut down in December 2013, NovelPoster "could not conduct sales, interact with customers, or generally operate, and lost significant revenue as a result." FAC ¶ 43.

It was not until January 10, 2014 that defendants finally turned over the passwords to all but one of NovelPoster's online accounts. FAC ¶ 44.¹ Prior to returning access, defendants deleted the email accounts Mark@NovelPoster.com and Becky@NovelPoster.com, along with all data and communications stored within those accounts. FAC ¶ 45-46.² Defendants also withheld from NovelPoster all emails and other communications that had been sent or received through any of NovelPoster's online accounts during the approximately seven months that defendants controlled the business. FAC ¶ 48. On February 10, 2014, I ordered defendants to provide those emails and communications to NovelPoster within seven days. Dkt. No. 38.

B. NovelPoster's allegations concerning damage and loss

With respect to NovelPoster's CFAA and CDAFA causes of action, the damage and loss allegations in the initial complaint were limited to a single boilerplate sentence: "As a result of defendants' conduct, NovelPoster has suffered damages and/or loss in excess of $5,000 in the year preceding the date of this filing, but the damages grow each day that defendants refuse to acknowledge [the] termination of the agreement." Order at 14; Dkt. No. 1 ¶ 44.³

The damage and loss allegations in the First Amended Complaint are substantially more detailed. They can be grouped into three categories. First, NovelPoster alleges "impairment of data" damage caused by defendants' extended period of exclusive control over NovelPoster's online accounts. See FAC ¶ 42 ("Because plaintiff was...