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ALLIED INSURANCE BROKERAGE v. WOODRUFF-SAWYER

September 25, 2005.

ALLIED NORTH AMERICA INSURANCE BROKERAGE CORP. OF CALIFORNIA, Plaintiff,
v.
WOODRUFF-SAWYER, a California Corporation, and DERMOD HOUWELING, an individual, Defendants.



The opinion of the court was delivered by: MARTIN JENKINS, District Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT; DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Before the Court are Defendant Dermod Houweling's ("Houweling") and Defendant Woodruff-Sawyer's ("Woodruff") motions for summary judgment. Plaintiff Allied Insurance Brokerage Corporation of California ("Allied") has also moved for summary judgment on the Third, Fourth, and Tenth Causes of Action of Plaintiff's First Amended Complaint. For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART Houweling's motion, GRANTS IN PART AND DENIES IN PART Woodruff's motion, and DENIES Allied's motion.

BACKGROUND

  This action arises out of Houweling's change of employment from Allied to Woodruff, an insurance brokerage and competitor of Allied's, in June 2004. In 1998, Houweling joined Allied (having come from another brokerage firm, ABD Insurance and Financial Services) as a stockholder and President. On December 1, 2001, Houweling sold his stock to Allied and one of the company's founders, James Untiedt. As part of this sale, Houweling and Untiedt entered into the "Stock Purchase Agreement." In that agreement, Houweling agreed to hold Allied confidential information in a fiduciary capacity for a period of thirty months and not to induce several of Allied's clients to move their business to a competitor during that time. On the same day, Houweling entered into an employment agreement, the "Producer Agreement," whereby he was to continue his employ with Allied under the new title "Executive Vice President" for a period of five years.*fn1 As part of that agreement, Houweling agreed to protect and maintain the confidentiality of Allied's client information and not to "interfere" with Allied's client relationships, that is, in essence, solicit or otherwise induce Allied's clients to break off their relationship with Allied, throughout his employment and for a period of two years following the termination thereof. He also agreed to return all of Allied's property immediately upon termination of his employment.

  During his tenure as Executive Vice President, Houweling transferred many electronic files to his home computer, including company contact lists and client files, both via email and utilizing disks supplied by Allied. Allied alleges that Houweling made these transfers intending to utilize the information contained therein to compete with Allied in future employment. Houweling stated that he transferred these files to his home computer in order to work from home. Further, Untiedt testified that this is a common practice at Allied — the company even supplies employees with software to better facilitate the availability of company data for home work — and, specifically, that he was aware that Houweling regularly worked from home, utilizing Allied files, and was free to do so.

  Some time in late April 2004, Houweling contacted Chuck Shoemaker, Woodruff's Construction Group Practice Leader. At that time, he indicated that he was considering leaving his employment with Allied and, though he was not yet prepared to take that step, inquired about Woodruff's business practices. On June 2, Houweling and Shoemaker met for the first time and discussed Houweling's possible move to Woodruff. At that time, Houweling gave Shoemaker copies of the Producer Agreement and Stock Purchase Agreement. It appears from handwritten notes on Woodruff's copies of those agreements that Woodruff was informed of the existence of confidential Allied files on Houweling's computer in conjunction with this meeting. Subsequently they entered into employment negotiations and Woodruff made a written offer to Houweling on June 11. On June 13, Houweling entertained, at Allied's expense, four representatives of Allied clients, including two from S.J. Amoroso Construction Co., Inc. ("Amoroso").*fn2 On June 14, Houweling emailed a list of contacts for several Allied clients including contacts at Amoroso, Gonsalves & Stronck ("G&S"), and Overaa Construction ("Overaa")*fn3 to John Ward, a Woodruff employee.

  On June 15 at 8:30 am, Houweling gave written notice of his resignation to Untiedt. Houweling stated that he raised the issue of returning confidential documents to Untiedt at that time and raised it again in the ensuing days without response. Untiedt asserts that he regularly attempted to contact Houweling to discuss the return of these documents without response.

  Houweling began his employment at Woodruff later in the day on June 15. At 11:30 am, Woodruff sent a general "announcement" of Houweling's move to Woodruff clients, prospects, underwriters, and other professionals including contacts listed in Houweling's June 14 email to John Ward.*fn4 Houweling later confirmed these contacts with phone calls and a personal visit to G&S's offices. Having received the announcement from Woodruff, both Amoroso and G&S made arrangements to move their business to Woodruff that same day. Gerry Overaa, having not yet received Woodruff's announcement, received a phone call from Untiedt who informed him of Houweling's move and made a pitch to retain Overaa's business. After conversations with Untiedt and Houweling, Overaa moved its business to Woodruff on June 21.

  Although Allied alleges otherwise, the principals of the Id'd Clients, McManus, Stronck, and Overaa, all state in their declarations that they did not know of Houweling's move until after Woodruff sent out the announcement on June 15. Additionally, all stated that they moved their business because of their extensive and positive experiences with Houweling in the past and not because of any solicitation by Houweling or Woodruff.

  As part of its employment offer, Woodruff instructed Houweling not to use any of Allied's files to service his clients at Woodruff. As a result, Houweling requested information from the Id'd Clients in order to build new files in the first weeks of his employment at Woodruff. Houweling also emailed 14 messages from his home computer to his Woodruff email account, at least some of which related to Allied clients. Allied has also produced evidence that at least some of these documents were originally created before Houweling's resignation. (See generally Third Declaration of Andrew Crain in Support of Plaintiff's Motion for Preliminary Injunction (3d Crain Decl.)) Other than three documents allegedly shown exclusively to Shoemaker, none of those documents have been sent beyond Houweling's computer to any other employee at Woodruff.

  On June 24, 2004, Allied filed its complaint in this action. On July 1, 2004, the Court issued a Temporary Restraining Order ("TRO") that required Houweling and Woodruff to return to Allied all Allied property in their possession.*fn5 Houweling passed away on November 20, 2004. His estate was substituted in as a defendant on March 24, 2005.

  On June 21, 2005, Allied filed its First Amended Complaint. Allied initially failed to obtain the stipulation of Houweling or an order from the Court for leave to file an amended complaint. Allied eventually moved for leave of Court to file the amended complain, and Defendants opposed the motion. After hearing oral argument on the motion, the Court denied Allied leave to file the amended complaint.

  LEGAL STANDARD

  The summary judgment procedure is a method for promptly disposing of actions. See FED. R. CIV. PROC. 56. The judgment sought will be granted if "there is no genuine issue as to any material fact and ? the moving party is entitled to judgment as a matter of law." FED. R. CIV. PROC. 56(c). "[A] moving party without the ultimate burden of persuasion at trial ? may carry its initial burden of production by either of two methods. The moving party may produce evidence negating an essential element of the nonmoving party's case, or, after suitable discovery, the moving party may show that the nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co., Ltd., v. Fritz Companies, 210 F.3d 1099, 1102 (9th Cir. 2000). If the movant meets its burden, the nonmoving party must come forward with specific facts demonstrating a genuine factual issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

  If the nonmoving party 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, "the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In opposing summary judgment, the nonmoving party may not rest on her pleadings. She "must produce at least some `significant probative evidence tending to support the complaint.'" T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (quoting First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 290 (1968)).

  The Court does not make credibility determinations with respect to evidence offered, and is required to draw all inferences in the light most favorable to the non-moving party. See T.W. Elec., 809 F.2d at 630-31 (citing Matsushita, 475 U.S. at 587). Summary judgment is therefore not appropriate "where contradictory inferences may reasonably be drawn from undisputed evidentiary facts. . . ." Hollingsworth Solderless Terminal Co. v. Turley, 622 F.2d 1324, 1335 (9th Cir. 1980). ANALYSIS

  I. Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 et. seq., ("CFAA")

  Allied alleges violations of the CFAA, 18 U.S.C. Sections 1030(a)(4) & (a)(5)(iii). Both sections initially require that the defendant access a protected computer without authorization. Id. Once a plaintiff establishes unauthorized access, section 1030(a)(4) requires proof that a defendant accessed that computer with fraudulent intent and in furtherance of a fraudulent scheme. Alternatively, a plaintiff can prove that a defendant caused damage to a computer, 18 U.S.C. § 1030(a)(5)(A)(iii), causing loss to an individual in excess of $5,000 in one year. 18 U.S.C. § 1030(a)(5)(B)(I).

  There is no dispute between the parties that Allied's computers are "protected" within the meaning of the statute. The parties do, however, contest the question of authorization. Allied argues that Houweling either exceeded his authority by accessing data bearing no relationship to his work or lost his authority by acquiring interests adverse to Allied. Allied also argues that Houweling acted with fraudulent intent, as that phrase is used in the CFAA context, acquired information valued in excess of $5,000, and that his actions caused a loss to Allied exceeding $5,000.

  Defendants argue that Allied has produced no evidence to support its CFAA claim. First, they point out that Houweling was authorized to access Allied's computers and data and that his post-resignation access of Allied files was on his home computer which he also had authorization to access. Defendants also contend that there is no evidence that Houweling was acting at Woodruff's direction between April and June 2004. Additionally, Defendants argue that Allied cannot demonstrate fraudulent ...


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