Watts v. Jackson Hewitt Tax Service Inc.

• Decision Date: 13 November 2009
• Docket Number: No. 06-CV-6042 (DLI)(SMG).,06-CV-6042 (DLI)(SMG).
• Citation: 675 F.Supp.2d 274
• Parties: Dana WATTS and Yadira Mosquera, on behalf of themselves and all others similarly situated, Plaintiffs, v. JACKSON HEWITT TAX SERVICE INC., Jackson Hewitt Inc., Tax Services of America, Inc., Map Computax NY, Inc. Mandeep Sobti, and Anjeet Sobti, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 274

675 F.Supp.2d 274

Dana WATTS and Yadira Mosquera, on behalf of themselves and all others similarly situated, Plaintiffs, v. JACKSON HEWITT TAX SERVICE INC., Jackson Hewitt Inc., Tax Services of America, Inc., Map Computax NY, Inc. Mandeep Sobti, and Anjeet Sobti, Defendants.

No. 06-CV-6042 (DLI)(SMG).

United States District Court, E.D. New York.

November 13, 2009.

COPYRIGHT MATERIAL OMITTED

Lester L. Levy, Chet B. Waldman, and James Kelly-Kowlowitz of Wolf Popper LLP (New York, NY); Paul J. Napoli, Alan Ripka and W. Steven Berman of Napoli Bern Ripka LLP (New York, NY) for plaintiffs.

Douglas A. Rappaport and Stephanie K. Vogel of DLA Piper LLP (New York, NY) for defendants Jackson Hewitt Tax Service Inc., Jackson Hewitt Inc., Tax Services of America, Inc.

Felicia S. Ennis and Alan M. Pollack of Robinson Brog Leinwand Greene Genovese & Gluck P.C. (New York, NY) for defendants Map Computax NY, Inc., Mandeep Sobti, Anjeet Sobti.

MEMORANDUM AND ORDER

DORA L. IRIZARRY, District Judge.

Plaintiffs Dana Watts and Yadira Mosquera, on behalf of themselves and other similarly-situated customers of Jackson Hewitt Tax Services, Inc., brought an action against the latter for its allegedly deceptive pricing practices, naming as additional defendants Map Computax NY, Inc. (a Jackson Hewitt agent), its owner Mandeep Sobti, and Anjeet Sobti, a Jackson Hewitt franchisee (collectively, the "Sobti Defendants"). On April 24, 2007, Jackson Hewitt and the Sobti Defendants moved to dismiss all causes of action. On August 16, 2008, 579 F.Supp.2d 334 (E.D.N.Y.2008), this court granted the motions as to plaintiffs' New Jersey Consumer Fraud Act claim, but denied them as to plaintiffs' other four claims.¹

On August 26, 2008, the Sobti Defendants counterclaimed, alleging that plaintiffs: (1) misappropriated confidential information; (2) aided and abetted certain unnamed Sobti Defendant employees in breaching their fiduciary duty; and (3) tortiously interfered with the contracts of those employees. (Answer at 21-24.) On December 1, 2008, plaintiffs moved to dismiss the counterclaims pursuant to Fed. R.Civ.P. 12(b)(6). (Mot. to Dismiss at 10-20.) For the reasons set forth below, plaintiffs' motion is granted in its entirety.

I. Factual Allegations

The parties' familiarity with the facts and procedural history of this matter is assumed. See generally Watts, 579 F.Supp.2d 334. All of the counterclaims arise out of the same factual allegation. The Sobti Defendants claim that certain of their unnamed employees or former employees acted in concert with plaintiffs in order to misappropriate confidential information. (Answer at 21.) Specifically, they contend that plaintiffs induced these unnamed employees to bring them unredacted customer tax return information. (Sur-Reply at 2.) The Sobti Defendants also claim that plaintiffs were aware of these employees' employment/confidentiality agreements with the Sobti Defendants (the "Agreements"). (Answer at 23.) The Sobti Defendants have incorporated three of these Agreements into their filings, as examples of their typical employment contracts. (See generally id. Ex. A-B; Sur-Reply, Ex. C).²

In support of their allegations, the Sobti Defendants also refer to two additional groups of documents produced by plaintiffs during pre-trial discovery. The first are several third-party customer bills (the "2005 Bills"), each containing the customer's name, contact information, and Social Security number, along with a single, non-itemized charge called the "Tax Preparation" fee. The latter is in some cases supplemented with applicable taxes and discounts, but the 2005 Bills do not provide an itemized breakdown of individual service fees. (See Sur-Reply, Ex. A at 1, 5, 9, 12.) The second group of documents consists of several printed computer screen images, displaying the Jackson Hewitt ProFiler® computer program (the "screen shots"). The screen shots, which were neither viewable by nor provided to the third-party customers, each display the customer's name and the specific fees for individual services, such as preparation of a 1040 Short Form. (See Sur-Reply, Ex. A at 3, 8, 10, 13.)

Plaintiffs do not deny that they are in possession of these documents. However, they dispute the allegation that they obtained them through tortious conduct. According to plaintiffs, "prior to commencement of this action, various seasonal employees at Jackson Hewitt franchise offices owned by the Sobti Defendants . . . voluntarily approached a law firm bearing [the] documents. . . ." (Pls.' Resp. to Sur-Reply at 1.) Although plaintiffs concede that the documents might contain confidential information, they deny wrongdoing on the grounds that they did not "use any confidential customer identifying information in their Complaint or elsewhere." (Id. at 2.) Furthermore, plaintiffs contend that they require these documents to establish their own harm at the hands of the Sobti Defendants. (Mot. to Dismiss at 22-23.) Accordingly, plaintiffs move to dismiss all three counterclaims pursuant to Fed.R.Civ.P. 12(b)(6).

Plaintiffs also move to dismiss pursuant to the equitable doctrines of laches and unclean hands. With respect to the former, plaintiffs claim that the Sobti Defendants' delay of 21 months between the initiation of this action and the filing of their counterclaims causes them undue prejudice. (Mot. to Dismiss at 20.) Regarding the unclean hands doctrine, plaintiffs claim that because the Sobti Defendants are the ultimate tortfeasors, they "should be the ultimate bearer of any damages that they sustain as a result." (Id. at 25.) As set forth more fully below, because defendants have failed to state a claim upon which relief can be granted as to any of their counterclaims, the court need not address either equity doctrine at this time.

II. Discussion

A. Standard of Review

"In deciding a motion to dismiss a counterclaim for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must accept the allegations in the counterclaim as true and draw all reasonable inferences in the counterplaintiff's favor." Mercer Capital, Ltd. v. U.S. Dry Cleaning Corp., No. 08-CV-5763 (LTS)(JCF), 2009 WL 2163598 (S.D.N.Y. July 21, 2009) (citations omitted). "To survive a motion to dismiss, [the counterclaim] must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint . . . has not shown that the pleader is entitled to relief." Ashcroft, 129 S.Ct. at 1950 (citations and internal quotations omitted).

A counterclaim cannot make merely "a formulaic recitation of the elements of a cause of action," but must allege facts that "raise a right of relief above the speculative level on the assumption that all allegations in the [counterclaim] are true (even if doubtful in fact)." Twombly, 550 U.S. at 555-56, 127 S.Ct. 1955 (citations omitted). The Second Circuit has interpreted the foregoing language to "requir[e] a flexible `plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the [counterclaim] plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007). Recently, this standard was clarified by the Supreme Court, which stated that "[t]he plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft, 129 S.Ct. at 1949 (citations and internal quotations omitted).

B. Misappropriation of Confidential Information

Misappropriation of confidential information is a common-law business tort applicable to cases involving unfair competition. See American Bldg. Maint. Co. of N.Y. v. Acme Prop. Servs., Inc., 515 F.Supp.2d 298, 311 (N.D.N.Y.2007). In New York, this tort "generally applies to cases where former employees utilize confidential information in the form of trade secrets." Feinberg v. Poznek, No 113133/05 (EHL), 12 Misc.3d 1185(A), 2006 WL 2056489, at *3 (N.Y.Co.Sup.Ct. July 5, 2006) (emphasis added); see also Roy Exp. Co. Establishment v. Columbia Broad. Sys., Inc., 672 F.2d 1095, 1105 (2d Cir. 1982) (noting that such claims involve the misappropriation of another's labor for "commercial advantage"). Plaintiffs in this case have never been employees of the Sobti Defendants, nor are they involved in a competing business. As such, they are not within the category of persons against whom a misappropriation action may be brought. See Roy Exp. Co. Establishment, 672 F.2d at 1105; see also Vision Specialty Food Prod., Inc. v. Ultimate Gourmet, L.L.C., No. 01-CV-3497 (LMM), 2001 WL 1506008, at *5 (S.D.N.Y. Nov. 26, 2001) (dismissing misappropriation claim in part for failing to allege that defendants were employees of plaintiff); Feinberg, 2006 WL 2056489, at *4 (dismissing misappropriation claim in part because documents in question were not used to create a competing business).

The Sobti Defendants attempt to circumvent this threshold requirement by alleging a conspiracy between plaintiffs and "unnamed former employees." (Defs.' Mem. Opp'n Mot. at 11.) As an initial matter, "New York does not recognize an independent cause of action for civil conspiracy to commit a tort." Campbell v. Barclays Bank PLC, No. 9443/08 (AMS), 2009 WL 1912098, at *3 (Kings Co. Sup.Ct. July 2, 2009) (citing Pappas v. Passias, 271 A.D.2d 420, 421, 707 N.Y.S.2d 178 (2d Dep't 2000)). "Allegations of conspiracy are permitted only to connect the actions of separate defendants with an otherwise actionable tort." Alexander & Alexander of New York, Inc. v. Fritzen, 68...