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Walloon Lake Distribution, LLC v. Incipio Technologies, Inc.

United States District Court, E.D. Michigan, Southern Division

March 6, 2017

INCIPIO TECHNOLOGIES, INC., et al., Defendants.



         This matter is before the Court on Plaintiffs/Counterclaim-Defendants' (“Plaintiffs”) motion to dismiss certain of Defendants/Counterclaimants' (“Defendants”)[1] counterclaims. (Docket 21.) Defendants filed a response (dkt. 29), and Plaintiffs filed a Reply (dkt. 39). Plaintiffs initially brought this action claiming breach of contract and breach of a promissory note, and seeking declaratory judgment. (Am. Compl., dkt. 10.) Defendants filed counterclaims alleging breach of contract (Count I), common law conversion under California law, or, in the alternative, statutory conversion under Michigan law (Count II), and violation of the California Uniform Trade Secrets Act, or, in the alternative, violation of the Michigan Uniform Trade Secrets Act (Count III). (Countercl., Dkt. 14.) The Court heard this matter on January 18, 2017.


         Plaintiffs are Walloon Lake Distribution, LLC (“Walloon”) and CCWU, LLC f/k/a ClamCase, LLC (“ClamCase”). Plaintiffs originally brought suit against Defendant Incipio Technologies, Inc. (“Incipio”), on June 23, 2016. (Dkt. 1.) Plaintiffs filed their motion to dismiss on October 31, 2016. (Dkt. 21.) On December 27, 2016, the Court entered a stipulated order (dkt. 41) joining the following additional parties: Incipio LLC[2] as defendant/counterclaimant; and Anthony Ahee (“Ahee”), John Schoenith, Charles J. Thomas, III (“Thomas”), and MJK (US) Electronic Investments, Inc. (“MJK”, together “Counterclaim-Defendants”) as Counterclaim-Defendants[3].

         II. FACTS

         ClamCase was in the business of designing, developing and selling tablet keyboard cases. (Countercl. ¶ 8.) On June 4, 2015, Incipio entered into an Asset Purchase Agreement (“APA”) with ClamCase and ClamCase Members (together, “Sellers”). (Countercl. ¶ 8.) Under the APA, Incipio was to acquire the “Transferred Assets, ” defined as “all of Seller's right, title and interest in and to all of Seller's property and assets, real, personal or mixed, tangible or intangible, of every kind or description.” (Countercl. ¶ 8.) The APA also provided for the parties to enter into an Escrow Agreement, pursuant to which Incipio deposited $1, 000, 000 of the purchase price into escrow with Citibank, N.A. The escrow was to be held to secure Incipio's right to indemnification under the APA in the event that Incipio made a post-closing claim under the APA and Escrow Agreement. (Countercl. ¶ 9; APA section 9.2.)

         Nearly one year later, on May 26, 2016, Incipio delivered a claim notice under the Escrow Agreement. (Countercl. ¶ 10.) The claim notice arises from the actions of Stephen Schoenith, which, according to Defendants, constituted unauthorized access and misappropriation of Incipio's proprietary data and other information, including files and records of ClamCase executives and employees. (Countercl. ¶ 11.) Defendants allege that Stephen Schoenith is related to ClamCase member John Schoenith, that John hired Stephen to work for ClamCase, and that John made arrangements for Stephen to continue to provide services to Incipio after its acquisition of ClamCase. (Countercl. ¶ 12.)

         Defendants call Stephen one of the “inner circle” of ClamCase. (Countercl. ¶ 14.) The APA identifies Stephen Schoenith as ClamCase's Vice President of Technology and Web Services. (Countercl. ¶ 14, citing APA, Schedule 3.24(a)(I).) Defendants also allege that he is one of a group of four ClamCase “insiders.” (Countercl. ¶ 14, citing APA, Schedule 3.25(a).) Defendants allege that the inclusion of Stephen Schoenith in this manner is an admission by the sellers that at the time of the APA, Stephen was within an inner circle of ClamCase that consisted of “members, officers, directors or managers of the Seller or persons under control of a member, officer, director or manager of the Seller.” (Countercl. ¶ 14, citing APA, Section 3.25 and Schedule 3.25(a).) The APA also identifies Stephen Schoenith by name as one of a limited group of people whose knowledge would be attributed to the Sellers for the purposes of the Sellers' Knowledge definition in the APA. (Countercl. ¶ 14, citing APA Section 1.1.)

         On or about June 20, 2015, shortly after entering into the APA, John Schoenith set up a consulting contract by which Stephen Schoenith would provide consulting services to Incipio through a third-party consulting service called Upwork. (Countercl. ¶ 16.) While Stephen consulted for Incipio, he continued to stay in communication with members of what Defendants describe as the ClamCase “inner circle, ” including John Schoenith and Ahee, who were allegedly making plans to revive the ClamCase team for a new project. (Countercl. ¶ 17.) On June 26, 2015, Stephen Schoenith participated in a Skype conversation with a former ClamCase colleague, Lowell Ahee. Stephen described to Lowell as follows an invitation that Stephen had received from John Schoenith to work on a new project: “john asked me a while ago like would you want to work with me on a new project later on? I'm like it depends what happens.” (Countercl. ¶ 17.) On November 16, 2015, Stephen communicated via Skype with Tusher Garach, a former ClamCase industrial designer, as follows: “John has some stuff in the works that he might be trying to ge[sic] the team back together.” (Countercl. ¶ 17.)

         Defendants then allege that in the fall of 2015, Stephen Schoenith engaged in a series of steps to obtain information from Incipio that consisted of the Google business files of eleven key ClamCase individuals. (Countercl. ¶ 18.) These authorized ClamCase users had been provided a Google for Business account, a cloud-based platform, through which to conduct ClamCase business. (Countercl. ¶ 18.) The information consisted of emails and attachments, files where documents were stored, contacts and calendars. Defendants further allege that the Google for Business platform continued to be used after Incipio's acquisition of the ClamCase business and that the files of these eleven individuals would have unique usefulness in getting the ClamCase team back together, if the files could be secreted out of Incipio. (Countercl. ¶ 18.)

         On November 5, 2015, Stephen Schoenith opened an account with a service called “Backupify, ” a cloud-based service provider that allows users to perform backups of data and information. (Countercl. ¶ 19.) Defendants allege that the Backupify account provided Stephen Schoenith with the ability to copy information from the ClamCase accounts on the Incipio system to a location outside Incipio's password protected system, thus allowing him to access the information after he left Incipio. (Countercl. ¶ 19.) Stephen did not seek Incipio's permission to open the account and back up the information, nor was Incipio aware of these actions when they occurred. (Countercl. ¶ 19.) When Stephen opened the Backupify account, he identified himself as the subscriber/user, he used his personal credit card to pay for it, and he used his home address as the account's billing address. (Countercl. ¶ 19.)

         From November 5 to November 6, 2015, Stephen Schoenith uploaded eleven ClamCase Google for Business accounts to Backupify. (Countercl. ¶ 20.) On November 6, 2015, Stephen notified Incipio that he was resigning with two weeks' notice. (Countercl. ¶ 22.) On November 12, 2015, he used Backupify to execute a full-service export of the Google Business Applications of at least ten former ClamCase executives and employees. (Countercl. ¶ 23.) The exported information included all information and data stored in these executives' and employees' Gmail, Google Drive, Google Calendar and Google Contacts applications. (Countercl. ¶ 23.) By doing so, the export application prepared a zip file of the complete Google account. (Countercl. ¶ 24.) Defendants further allege that all of this information and data was acquired by Incipio in its ClamCase acquisition and remains the property of Incipio. (Countercl. ¶ 24.)

         On November 16, 2015, Stephen Schoenith was notified that his employment was terminated as of that day. (Countercl. ¶ 25.) As part of Incipio's normal termination process, Stephen's supervisor, Kevin Suda, Incipio Director of Technology, took control of Stephen's ClamCase Google account including the email account, changed the login credential and password for those accounts, and created an email instruction to automatically forward incoming messages directed to Schoenith's email inbox directly to Suda's inbox. (Countercl. ¶ 25.)

         Upon being notified that he was being terminated, Stephen Schoenith attempted to log into his Backupify account via his ClamCase Google account, unaware that the Google account password had been changed. (Countercl. ¶ 26.) Stephen's multiple unsuccessful attempts at logging in caused the Backupify administrator to generate an email to Stephen's ClamCase email address to notify him of the excessive number of sign-in attempts, as well as the locking of his account in response. (Countercl. ¶ 26.) Stephen did not received the email; it was redirected to Suda and was the first knowledge Incipio had of Stephen Schoenith's Backupify account. (Countercl. ¶¶ 25, 26.)

         Unable to access his accounts, Stephen Schoenith contacted Suda to request access to his accounts for the purpose of retrieving personal information. (Countercl. ¶ 26.) Suda advised Schoenith via Skype that due to company policy, a former employee cannot have access to company information or accounts, and Suda advised that he would speak with the IT department to see if arrangements could be made to retrieve any of Schoenith's personal information. (Countercl. ¶ 27.) Stephen Schoenith then contacted Backupify to request access to the Backupify account and persuaded Backupify technical support staff to allow him to bypass the Incipio Google login password, and allow Stephen to login to Backupify manually. (Countercl. ¶ 28.) The Backupify technician verified Stephen by the last four digits of the credit card number on file. (Countercl. ¶ 28.) Upon accessing the Backupify account, Schoenith used the manual log in access to export material out of Incipio's password protected system. (Countercl. ¶ 28.) The download file folder on the hard drive of Schoenith's laptop computer reflects a timestamp of November 16, 2015, in the date-created field for three zip files exported from the Backupify account. (Countercl. ¶ 28.)

         When Suda contacted Backupify at 4:32 p.m. on the same date to notify Backupify that Stephen Schoenith should not have access to the Incipio information in the account, he learned that Schoenith had already been provided access to the account via a manual access procedure by bypassing the Incipio password. Suda then arranged for the account to be transferred to Incipio. (Countercl. ¶ 29.)

         On November 19, just three days later, Stephen Schoenith communicated with John Schoenith via Skype and transferred an audit log export file from Backupify, which detailed administrative activity in the Backupify account and allowed John to see what trail had been left by Stephen Schoenith's activities in the account. (Countercl. ¶ 30.) Defendants further allege that while their investigation continues, Incipio has so far determined that its property was stolen, the property was transported by Stephen Schoenith to his laptop hard drive and he accessed the downloaded files on his hard drive on multiple occasions. (Countercl. ¶ 31.) Defendants allege that they no longer have exclusive possession and control of the ClamCase property Incipio acquired, the integrity of the information for which it paid value in the APA has been compromised, and these actions are breaches of the APA. (Countercl. ¶ 32.)

         III. ...

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