United States District Court, E.D. Michigan, Southern Division
For American Furukawa, Inc., Plaintiff: Joseph J. Vogan, Varnum, Riddering, Grand Rapids, MI; Brett A. Rendeiro, Varnum, Riddering, Novi, MI.
For ISTHIHAR HOSSAIN, Defendant: Jason M. Shinn, Shinn Legal, PLC, Keego Harbor, MI.
HON. GERSHWIN A. DRAIN, United States District Judge. MICHAEL J. HLUCHANIUK, UNITED STATES MAGISTRATE JUDGE.
OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR
PARTIAL JUDGMENT ON THE PLEADINGS 
HON. GERSHWIN A. DRAIN,
United States District Judge.
American Furukawa, Inc. (" Furukawa" or " Plaintiff" ) commenced the instant action against its former employee, Isthihar Hossain (" Defendant" ), on September 19, 2014. See Dkt. No. 1. In the Complaint, Furukawa alleges that Hossain unlawfully accessed its computers to obtain confidential information in violation of the Computer Fraud and Abuse Act (" CFAA" ), 18 U.S.C. § 1030. Additionally, Furukawa brings claims under Michigan law for Fraud, Breach of Contract, Breach of Fiduciary Duty, Misappropriation of Trade Secrets, and Conversion. Id.
When it filed the Complaint, Furukawa simultaneously moved for a Temporary Restraining Order (" TRO" ). See Dkt. No. 4. On September 22, 2014, the Court entered a TRO enjoining Hossain from using Furukawa's information, and ordering Hossain to show cause why a preliminary injunction should not be issued; account for and return Furukawa's confidential information; and abide by a confidentiality agreement between the parties. See Dkt. No. 7. The parties entered a Stipulated Order leaving the terms of the TRO in place, while setting forth an agreed protocol for examining the computers and email accounts at issue. See Dkt. No. 18.
Presently before the Court is Defendant's Partial Motion for Judgment on the Pleadings Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. See Dkt. No. 30. Furukawa filed a Response to Hossain's Motion, but Hossain failed to file a Reply in accordance with the Court's Local Rules. See E.D. Mich. L.R. 7.1(e)(1)(C). After reviewing the briefing, the Court concludes that oral argument will not aid in the resolution of this matter. Accordingly, the Court will resolve the Motion on the briefs as submitted. See E.D. Mich. L.R. 7.1(f)(2). For the reasons discussed herein, the Court will DENY Hossain's Motion for Partial Judgment on the Pleadings Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure .
II. Factual Background
American Furukawa, Inc. is a Delaware corporation and its principal place of business is located at 47677 Galleon Ct, Plymouth, Michigan. Furukawa is a supplier of advanced technology automotive, electronics and specialty products to several high technology industries. Isthihar Hossain accepted employment with Furukawa in September, 2011 as a Power Systems Electrical Engineer. Hossain reported to Furukawa's General Manager and Vice President.
When Hossain began his employment with Furukawa, Furukawa asserts that Hossain agreed to abide by Furukawa's Policies regarding " Supplier and Vendor Information," " Conflicts of Interest," " Confidentiality," " Outside Employment," " Company Property" and " Removable Media Use." Furukawa also asserts that Hossain entered into an Invention Assignment & Secrecy Agreement (" Secrecy Agreement" ) with Furukawa, which dictated that Hossain " will regard and preserve as confidential all trade secrets pertaining to the Company's business that have been or may be obtained by me by reason of my employment." The Secrecy Agreement also dictated that Hossain would not " without prior authority from the Company to do so, use for my own benefit or purposes, nor disclose to others, either during my employment or thereafter" any trade secrets pertaining to Furukawa's business.
By 2014, Hossain had become a Production Manager and Senior Production Manager with access to Furukawa's trade secrets, know-how, intellectual property and other confidential information. On March 11, 2014, while he was still employed by Furukawa, Furukawa asserts that Hossain entered into an " Employment Agreement" (" Agreement" ) with Huatong--a competitor and supplier to Furukawa. As part of Hossain's alleged Agreement with Huatong, Hossain was to serve as CEO of a new sales company, American Huatong. Also on March 11, Furukawa asserts that Hossain downloaded 910 Furukawa files to his external hard drive without his manager's permission.
On March 14, 2014, Furukawa states that Hossain called into Furukawa's offices and indicated he was sick. Yet, on March 17, 2014, Furukawa asserts that Hossain downloaded another 875 Furukawa files and also moved two-and-a-half years of email from Furukawa's exchange server to his external hard drive without his manager's permission. While files were allegedly being downloaded on March 17, 2014, Furukawa states that Hossain informed Furukawa he was unable to work due to a basketball injury. Notably, pursuant to his alleged Agreement with Huatong, Hossain was scheduled to begin his employment with Huatong on March 17, 2014.
As a result of his reported injury, Hossain was granted a leave of absence, commencing March 18, 2014. Critically, as a condition for granting the leave of absence, Furukawa asserts that it instructed Hossain that he could not do " any work" for Furukawa during his leave of absence. Despite the instructions to the contrary, Furukawa asserts that Hossain accessed information on his company laptop and copied Furukawa files from his company email to his personal " gmail" account during his leave of absence. Furukawa purportedly did not learn of Hossain's activities until the following chain of events raised suspicion.
On March 20, 2014, Huatong announced that it would no longer sell Electrical Submersible Pump (" ESP" ) cables to the United States market through a partnership with Furukawa. Huatong also announced that it would no longer sell service drop cables to Kingwire, and photovoltaic (" PV" ) cables to the United States market, through Furukawa.
On Thursday, April 24, 2014, Hossain sent an email to Furukawa's Manager of Human Resources stating that his doctor had cleared him to return to work. On April 25, 2014, Furukawa claims Hossain reported for work late and left early. On Monday, April 28, 2014, Hossain announced that he was resigning his employment, effective May 2, 2014. Furukawa accepted Hossain's resignation, effective April 29, 2014, and paid him through May 2, 2014.
Despite his alleged Agreement with Huatong, when he resigned his employment, Hossain allegedly indicated he did not " have another job lined up or anything," but his " previous employer" had been contacting him, and he was " pretty sure" that he could get a job with them. Upon his departure from Furukawa, Hossain was asked to sign an " Employee Certification & Agreement on Termination," certifying that he had returned all property belonging to the Company, had complied with the Secrecy Agreement and would continue to abide by that Agreement. Hossain allegedly refused to sign.
On or about May 12, 2014, Furukawa learned that Huatong had approached WTEC--one of Furukawa's customers--about buying cable from Huatong. On May 16, 2014, Furukawa received an email from WTEC regarding WTEC's " compound" requirements and " payment terms." The email from WTEC was addressed to Hossain at his former Furukawa email address. On May 30, 2014, WTEC confirmed that Hossain was acting as Huatong's agent with respect to the sales negotiations between WTEC and Huatong. On June 5, 2014, Furukawa received another email from WTEC, addressed to Hossain's Furukawa email address purportedly asking Hossain to quote the price for " PV Wire 2kV AL S-8000" and " PV Wire 2kV CU."
Furukawa sent a letter to Hossain on June 9, 2014, reminding him of his obligations under the Secrecy Agreement. In the letter, Furukawa demanded that Hossain immediately cease and desist from any further solicitation of cable business from WTEC or any other customer of Furukawa. Furukawa also sought assurances that Hossain would abide by his trade secret obligations, and would not use or disclose any trade secret information that he acquired during his employment with Furukawa. Hossain purportedly refused to comply with this request. Furukawa attempted to negotiate with Hossain to resolve the dispute. Throughout the negotiations, Hossain purportedly maintained that he had returned all property belonging to Furukawa and fully complied with the Secrecy Agreement. After looking into the actions of Hossain, Furukawa brought the instant action pursuant to the CFAA and Michigan law.
A. Legal Standard
Federal courts review motions for judgment on the pleadings brought pursuant to Federal Rule of Civil Procedure 12(c) using the standards applicable to motions filed under Rule 12(b)(6). See Wee Care Child Ctr., Inc. v. Lumpkin, 680 F.3d 841, 846 (6th Cir. 2012). Though litigants employ these procedural mechanisms at different stages of the proceedings, the purpose of both motions is to test the legal sufficiency of a plaintiff's pleadings. Thus, as with Rule 12(b)(6) motions, a Rule 12(c) motion allows a court to make an assessment as to whether a plaintiff has stated a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6).
As articulated by the Supreme Court of the United States, " [t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). This facial plausibility standard requires claimants to put forth " enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of" the requisite elements of their claims. Twombly, 550 U.S. at 557. Even though a complaint need not contain " detailed" factual allegations, its " factual allegations must be enough to raise a right to relief above the speculative level." Ass'n of Cleveland Fire Fighters v. City of Cleveland, 502 F.3d 545, 548 (6th Cir. 2007) (citing Twombly, 550 U.S. at 555) (internal citations omitted).
While courts are required to accept the factual allegations in a complaint as true, Twombly, 550 U.S. at 556, the presumption of truth does not apply to a claimant's legal conclusions, Iqbal, 556 U.S. at 678. Therefore, to survive a motion to dismiss, a plaintiff's pleading for relief must provide " more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Ass'n of Cleveland Fire Fighters, 502 F.3d at 548 (quoting Twombly, 550 U.S. at 555) (internal citations and quotations omitted).
In addition to evaluating the sufficiency of the factual allegations within the four corners of a complaint, courts may consider any exhibits attached to the complaint, matters of public record, and exhibits attached to a defendant's 12(b)(6) motion, provided that the latter are referred to in the complaint and are central to the claims therein. See Bassett v. NCAA, 528 F.3d 426, 430 (6th Cir. 2008) (citing Amini v. Oberlin Coll., 259 F.3d 493, 502 (6th Cir. 2001)).
B. Legal Analysis
The central question presented by Hossain's Motion is whether this Court should adopt the approach taken by other district courts in Michigan to find that Hossain did not violate the CFAA when he removed files from Furukawa servers in contravention of a confidentiality agreement and computer policy.
The Court must also resolve the following questions presented by Hossain' Motion: whether the Michigan Uniform Trade Secrets Act (" MUTSA" ) preempts Furukawa's claims for Fraud, Breach of Contract, Breach of Fiduciary Duty, and Conversion; whether Furukawa's Breach of Contract claim is precluded by disclaimer language in the Furukawa Policies and Practices Handbook; and whether Furukawa can bring a claim for Conversion.
With respect to the central question advanced in Hossain's Motion, the Court navigated a deep circuit split regarding interpretations of the CFAA's phrases " without authorization" and " exceeds authorized access." The Sixth Circuit has given separate meaning to both of these phrases. Following the Sixth Circuit's guidance, this Court finds that Furukawa has stated a proper claim under the CFAA, because Furukawa has plead that Hossain accessed some files when he was told not to work for Furukawa--" without authorization" --and accessed other files in violation of a computer policy--" exceeds authorized access."
With respect to the remaining questions presented by Hossain's Motion, the Court finds that Furukawa's claims under Michigan law are not preempted by MUTSA because Furukawa's claims are not based solely on trade secrets. Additionally, the Court finds that Furukawa's Breach of Contract claim is not premised on the Furukawa Policies and Practices Handbook, so the handbook does not warrant the dismissal of Furukawa's claim. Lastly, the Court finds that Furukawa has presented a proper claim for Conversion because Hossain took information from Furukawa's servers. The Court's findings are addressed in detail below.
1. Furukawa Properly Asserts Claims Under the CFAA
The CFAA prohibits seven types of conduct involving unauthorized access to computers. See 18 U.S.C. § 1030(a)(1)-(7). While the CFAA was initially just a criminal statute, in 1994 Congress added private civil causes of action to permit " [a]ny person who suffers damage or loss by reason of a violation of [the statute]" to " maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief." 18 U.S.C. § 1030(g).
Furukawa contends that Hossain violated 18 U.S.C. § 1030(a)(2)(C) (" Subsection (a)(2)(C) of the CFAA" ), which imputes liability to anyone who " intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer." 18 U.S.C. § 1030(a)(2)(C). Additionally, Furukawa asserts that Hossain violated 18 U.S.C. § 1030(a)(4) (" Subsection (a)(4) of the CFAA" ), which imputes liability to anyone who " 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[.]" 18 U.S.C. § 1030(a)(4).
Under both Subsection (a)(2)(C) and Subsection (a)(4) of the CFAA, Hossain would be liable if Furukawa is able to demonstrate that he accessed a " protected computer"  either " without authorization" or in a manner that " exceeds authorized access." However, Furukawa must also show that it suffered " damage"  or " loss"  as a result of Hossain's purported violation of the CFAA, and must demonstrate that the purported violation involved at least one of five aggravating factors " set forth in subclauses (I), (II), (III), (IV), or (V) of subsection (c)(4)(A)(i)." 18 U.S.C. § 1030(g). Only one factor is relevant to the present claim: 18 U.S.C. § 1030(c)(4)(A)(i)(I), which requires the showing of " loss to 1 or more persons during any 1--year period . . . aggregating at least $5,000 in value." 18 U.S.C. § 1030(c)(4)(A)(i)(I).
Thus, to set forth a proper civil claim under the CFAA based on a violation of Subsection (a)(2), Furukawa must show that Hossain: (1) intentionally accessed a computer, (2) without authorization or exceeding authorized access, and that he (3) thereby obtained information (4) from any protected computer (if the conduct involved an interstate or foreign communication), and that (5) there was loss to one or more persons during any one-year period aggregating at least $5,000 in value. See LVRC Holdings LLC v. Brekka, 581 F.3d 1127, 1132 (9th Cir. 2009).
To successfully bring an action under the CFAA based on a violation of Subsection (a)(4), Furukawa must show that Hossain: (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) " further[ed] the intended fraud and obtain[ed] anything of value," causing (5) a loss to one or more persons during any one-year period aggregating at least $5,000 in value. See id. (citing P.C. Yonkers, Inc. v. Celebrations the Party and Seasonal Superstore, LLC, 428 F.3d 504, 508 (3d. Cir. 2005)).
Here, Hossain contends that he is entitled to partial judgment on the pleadings because Furukawa cannot satisfy the first and second factors of either of these inquiries. In other words, Hossain contends that Furukawa cannot show he accessed a protected computer either " without authorization" or in a manner that " exceeds authorized access." The Court disagrees.
The CFAA does not define the phrase " without authorization," however the CFAA does define " exceeds authorized access" as follows: " [T]o access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter." 18 U.S.C. § 1030(e)(6). Given the similarity of the phrases, there is a deep circuit split regarding interpretations and the scope of the CFAA. The circuit split has been cast as a clash between " broad" and " narrow" interpretations of the CFAA's phrases " without authorization" and " exceeds authorized access."
The " broad" approach was first adopted by the First Circuit, which found that an employee " exceeds authorized access" by violating a confidentiality agreement. See EF Cultural Travel BV v. Explorica, Inc., 274 F.3d 577, 581-84 (1st Cir. 2001). Later, the Seventh Circuit adopted a " broad" view based on principles of agency when it found that an employee acted " without authorization" as soon as the employee severed the agency relationship through disloyal ...