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