OTR Transp. v. Data Interfuse LLC

• Decision Date: 17 January 2023
• Docket Number: 21 C 3415
• Parties: OTR TRANSPORTATION, INC., Plaintiff, v. DATA INTERFUSE LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

OTR TRANSPORTATION, INC., Plaintiff,
v.
DATA INTERFUSE LLC, Defendant.

No. 21 C 3415

United States District Court, N.D. Illinois, Eastern Division

January 17, 2023

Judge Thomas M. Durkin

MEMORANDUM OPINION AND ORDER

Honorable Thomas M. Durkin United States District Judge

OTR Transportation contracted with Data Interfuse to help develop a software program to manage OTR's freight brokering business. OTR alleges that after it declined to renew the contract, Data Interfuse hacked OTR's network and stole its trade secrets. In response, Data Interfuse has filed counterclaims alleging that OTR breached their contract, poached a Data Interfuse employee, and stole Data Interfuse's “protected information.” OTR has moved to dismiss Data Interfuse's counterclaims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). That motion is granted in part and denied in part.

Legal Standard

A Rule 12(b)(6) motion challenges the “sufficiency of the complaint.” Berger v. Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must provide “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.Civ.P. 8(a)(2), sufficient to provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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This standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir. 2018).

Background

On November 22, 2019, the parties entered into a contract whereby Data Interfuse agreed to provide software and information technology services to OTR. The contract had a twelve-month term.

According to Data Interfuse, beginning in September 2020, the parties began to contemplate an expanded project. Data Interfuse alleges that at a meeting that month, OTR orally agreed to hire Data Interfuse to work on the expanded project with a term of three years for $1.8 million. After the meeting, OTR paid Data Interfuse $200,000, and Data Interfuse “delivered an operating cost budget to OTR including a new team of eight individuals from [Data Interfuse] who would be needed

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to implement the OTR Expanded Project.” R. 53 at 62 (¶ 23). Data Interfuse then hired the new employees. Id. The parties again met to discuss the expanded project in November 2020, with one of Data Interfuse's new employees, Karl Meyer, participating in the meeting. At the meeting, OTR paid Data Interfuse $140,000.

Data Interfuse alleges that immediately after the November meeting, OTR hired Meyer away from Data Interfuse. A week later, OTR told Data Interfuse that it was ending their business relationship.

Contrary to Data Interfuse's claims, OTR alleges that it was dissatisfied with Data Interfuse's work during the term of the first contract. OTR also alleges that the expanded project Data Interfuse proposed was unacceptable because it provided a license to Data Interfuse to use for its own purposes (presumably providing to other clients) the programs Data Interfuse developed for OTR. OTR alleges it did not renew the original contract and did not agree to an expanded project. Rather, OTR contends that upon expiration of the original contract it demanded that Data Interfuse return all confidential information OTR had provided to Data Interfuse during the course of their work. OTR alleges that Data Interfuse failed to comply with this demand.

About two weeks after ending its relationship with Data Interfuse, OTR alleges that it discovered that Data Interfuse was still linked to OTR's database. OTR disabled these links.

Then in February 2021, OTR alleges that it discovered “unauthorized peering sessions” into its database, associated with a contractor for Data Interfuse who had worked on OTR's project. When OTR closed these links, its “operational database was

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compromised and OTR's proprietary software program [was] rendered inoperable.” R. 39 ¶ 54. This disrupted OTR's business for 24 hours. OTR alleges further that Data Interfuse “intentionally set up a network of unauthorized peering sessions, portals and other backdoor access points to intentionally access and acquire without authorization OTR's proprietary electronic data system and otherwise monitor, copy and acquire portions or all of OTR's proprietary company information, pricing modeling system and other pricing and transportation data.” Id. ¶ 71. OTR described this activity as a “logic bomb.” Id. ¶ 72. The Court has stricken the allegation of a “logic bomb” and ordered OTR to file an amended complaint omitting that term.

Data Interfuse brings a claim (Count V) for tortious interference with prospective economic advantage, alleging that the “logic bomb” allegation has harmed its reputation and its “ability to maintain needed security clearances” and to retain the clients who require such clearances R. 53 at 66-67 (¶ 52). Data Interfuse also alleges that the “logic bomb” allegation constitutes an abuse of process that violates state law (Count VI). In addition to the alleged harm caused by the “logic bomb” allegation, Data Interfuse brings claims for: (Count I) breach of the original contract, alleging that OTR has failed to pay all invoices; (Count II) breach of the oral agreement to expand the project for $1.8 million; (Count III) breach of Meyer's employment agreement by inducing Meyer to disclose Data Interfuse's “protected information”; (Count IV) fraud for failure to expand the project as contemplated; and (Count VII) for “eavesdropping,” alleging that OTR's officer recorded a conversation with a Data Interfuse employee without the employee's permission in violation of

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Illinois state law.^[1]OTR has not moved to dismiss Data Interfuse's claim for breach of the original contract.^[2]

Analysis

I. Statute of Frauds

OTR argues that Data Interfuse's claim for breach of the oral contract for the expanded project violates the statute of frauds based on Data Interfuse's allegation that the parties orally agreed to a term of three years. OTR argues that the statute of frauds prohibits enforcement of oral contracts that are “not to be performed within the space of one year.”

But the phrase “not to be performed within the space of one year” does not prohibit all oral contracts with a term longer than a year. An oral contract with a term longer than one year can comply with the statute of frauds if it is possible to complete the contract within a year. See McInerney v. Charter Golf, Inc., 176 Ill.2d 482, 490680 N.E.2d 1347, 1352 (Ill. 1997) (“if performance is possible by its terms within one year, the contract is not within the statute regardless of how unlikely it is that it will actually be performed within one year”). Data Interfuse has made no

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allegation making it impossible for the renewed contract to have been fully performed within a year.

Furthermore, the statute of frauds “does not require that the contract itself be in writing, only that there be adequate documentary evidence of its existence and essential terms.” Cloud Corp. v. Hasbro, Inc., 314 F.3d 289, 295 (7th Cir. 2002). And the statute of frauds is an affirmative defense, meaning that dismissal at the pleading stage is only appropriate if the complaint “sets forth everything necessary to satisfy the affirmative defense,” United States v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005), such that the plaintiff has “affirmatively plead himself out of court,” Chicago Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610, 614 (7th Cir. 2014).

Data Interfuse does not allege that the agreement was embodied in a written contract. But it alleges that it provided a budget to OTR, and OTR made payments to Data Interfuse, allegedly in compensation for beginning the expanded project. These allegations are a reasonable basis to infer that a writing exists setting forth the terms of the expanded project. See Nikollbibaj v. U.S. Foods, Inc., 2022 WL 16836407, at *4 (N.D. Ill. Nov. 9, 2022) (denying motion to dismiss based on the statute of frauds). No allegation in the complaint makes it impossible that any of the communications mentioned in the complaint embody the agreement, whether alone or in combination. See Dargo v. Clear Channel Commc'ns, Inc., 2008 WL 2225812, at *2 (N.D. Ill. May 28, 2008) (denying a motion to dismiss because the plaintiff had not “pleaded any facts which clearly indicate that no document memorializing the oral agreement existed”). Like the issue of the alleged contract's duration, the question of whether a

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writing exists is not foreclosed by Data Interfuse's allegations. Thus, it is inappropriate to dismiss the...