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WIRES v. SARK-USA

May 25, 2004.

NEXANS WIRES S.A. and LACROIX & KRESS GmbH, Plaintiffs, -against- SARK-USA, INC. and SARKUYSAN ELEKTROLITIK BAKIR SANAYII VE TICARET A.S., Defendants


The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge

OPINION

Defendants Sark-USA, Inc. ("Sark-USA") and Sarkuysan Elektrolitik Bakir Sanayii Ve Ticaret A.S. ("Sarkuysan") have moved to dismiss this action under Fed.R.Civ.P. 12(b)(6) and 12(b) (1). Specifically, defendants contend that plaintiffs Nexans Wires S.A. ("Nexans") and Lacroix & Kress GmbH ("L&K") lack standing to sue under the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030. By order of October 16, 2003, defendants' motion to dismiss was converted into a motion for summary judgment. Plaintiffs were directed to submit the facts upon which they rely for standing under the CFAA, 18 U.S.C. § 1030(g), and defendants were directed to submit a response. For the reasons that follow, defendants' motion for summary judgment dismissing the federal claims is granted.

  BACKGROUND

  Plaintiffs filed this action against their wire and cable industry competitors Sark-USA and Sarkuysan for unfair competition. Plaintiff L&K, a German corporation, is wholly owned by plaintiff Nexans, a French corporation. Defendant Sark-USA is a Delaware corporation with its principal place of business in North Carolina and is the wholly owned subsidiary of defendant Sarkuysan, a Turkish corporation. The complaint*fn1 asserts claims of misappropriation of trade secrets under New York and North Carolina law, unfair competition under New York, North Carolina and South Carolina law, tortious interference with prospective economic advantage and conversion under New York law, and five claims under the CFAA. Federal jurisdiction is based on the CFAA claims.

  All of plaintiffs' claims arise out of the subject of a related action, A.E.B. International. Inc. and Atlantic Specialty Wire, Inc. v. Myron Daniel Schatzberg, Sark-USA, Inc., Brigit Skeet Finley, and Sarkuysan Elektrolitik Bakir Sanayii Ve Ticaret A.So, 02 Civ. 6312 (MGC). In that action, the plaintiffs, A.E.B. International, Inc. ("AEB") and its sister company, Atlantic Specialty Wire, Inc. ("ASW"), sue defendants Sarkuysan and Sark-USA and two former employees, Myron Daniel Schatzberg ("Schatzberg") and Brigit Skeet Finley ("Finley") for misappropriation of trade secrets, tortious interference with prospective economic advantage, unfair competition and violations of the CFAA.

  According to the complaint in this action, plaintiffs Nexans and L&K manufacture and supply "advanced copper and optical fiber wire and cable solutions to the infrastructure, industry and building markets." Compl. ¶ 13. Plaintiffs are a major supplier of AEB and produce products which AEB then distributes throughout the United States. Plaintiffs assert that in order to maintain this relationship with AEB, it was necessary for plaintiffs to store much of their "confidential proprietary information" on the computers of AEB and ASW. This information consisted of plaintiffs' pricing schedules as well as manufacturing information. The information was stored in AEB's secure centralized computer system in New York and in ASW's computer system in South Carolina. Plaintiffs' information was segregated from other files and password protected to insure confidentiality.

  Sarkuysan manufactures wire and cable products to be sold in the United States in direct competition with plaintiffs and AEB. Plaintiffs allege that at sometime prior to the departure of Schatzberg and Finley from AEB and ASW, Schatzberg, Finley and Sarkuysan, agreed to establish a new company, Sark-USA. The organization of Sark-USA enabled Sarkuysan to operate directly in the United States and to serve as the "repository" of plaintiffs' "stolen and misappropriated confidential, proprietary information." Compl. ¶ 28.

  The essence of plaintiffs' complaint is that defendants induced Finley and Schatzberg to steal plaintiffs' proprietary information from AEB and ASW. Specifically, the complaint alleges that Finley had full access to AEB's computer system, including the information plaintiffs provided to AEB. Plaintiffs allege that beginning in March 2002, under instructions from defendants, Finley used her personal Yahoo e-mail account to download plaintiffs' proprietary information, without AEB's approval, and then sent the information to defendants. The complaint alleges that on April 15, 2002, Schatzberg, acting at the request of defendants, unlawfully obtained access to ASW's computer systems, created a "back-up" tape of the files and deleted confidential business information, including certain of plaintiffs' proprietary information. From April 2002 through May 21, 2002, Schatzberg, without the authorization of his employer, allegedly photocopied or downloaded plaintiffs' information from AEB's computer system, for the benefit of defendants.

  In addition to the alleged misappropriation of plaintiffs' information from the computers of AEB and ASW, plaintiffs assert that Schatzberg misappropriated information gleaned from a visit to L&K's factory. In March 2002, Schatzberg traveled to L&K's factory in Germany with the Chairman of AEB, A. Erkan Buyuksoy ("Buyuksoy") where the two toured the L&K factories and learned detailed information about the manufacturing process, which each agreed to keep confidential. However, Schatzberg allegedly violated this agreement and divulged all that he had learned from the trip to defendants.

  DISCUSSION

  I. Basis for Jurisdiction

  Defendants moved under both Fed.R.Civ.P. 12(b)(1) and Fed.R.Civ.P. 12(b)(6) to dismiss the complaint. "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the court lacks the statutory or constitutional power to adjudicate the case. In contrast, a dismissal under Rule 12(b)(6) is a dismissal on the merits of the action-a determination that the facts alleged in the complaint fail to state a claim upon which relief can be granted." Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir. 1996)(noting the difficulties of distinguishing between the two). Therefore, the court must first have assumed jurisdiction over the matter before a 12(b)(6) motion can be decided. Id. (citing Bell v. Hood. 327 U.S. 678, 682-83 (1946)). As the Second Circuit has noted, "Bell v. Hood, instructs us that, when the contested basis of federal jurisdiction is also an element of plaintiff's asserted federal claim, the claim should not be dismissed for want of jurisdiction except when it `appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous.'" AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d 148 (2d Cir. 1984)(internal citations omitted). Plaintiffs' assertion of jurisdiction under the CFAA is not wholly insubstantial and frivolous. Therefore, this court has jurisdiction, and an examination under 12(b)(6), rather than under 12(b)(1) is appropriate.*fn2 II. Conversion of Defendants' Motion to Dismiss into a Motion for Summary Judgment

  "If, on a motion . . . to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12 (b). As noted above, defendants' motion to dismiss was converted into a motion for summary judgment by order of October 16, 2003. It became clear at oral argument that the real issue is whether plaintiffs can present sufficient evidence of "loss" to have standing to sue under the CFAA's civil provision, 18 U.S.C. § 1030(g). In order to have standing, plaintiffs must have suffered a "loss" of at least $5,000. 18 U.S.C. § 1030(g), (a)(5)(B)(i). The parties were given a full opportunity to present all relevant materials.*fn3 III. Standard for Summary Judgment

  Where there are no material facts in dispute, a motion for summary judgment should be granted. Fed.R.Civ.P. 56(c). "Rule 56(c) mandates the entry of summary judgment . . . against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "In such a situation, there can be `no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. at 322-23. In deciding whether a genuine issue exists, a court must "examine the evidence in the light most favorable to the party opposing the motion, and resolve ambiguities and draw reasonable inferences against the moving party." In re Chateaugay Corp., 10 F.3d 944, 957 (2d Cir. 1993).

  The issue in dispute is whether plaintiffs can prove an essential element of their CFAA claims, i.e. a "loss . . . aggregating at least $5,000 in ...


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