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Enki Corporation v. Freedman

United States District Court, Ninth Circuit

January 23, 2014

ENKI CORPORATION, Plaintiff,
v.
KEITH FREEDMAN et al., Defendants.

ORDER GRANTING-IN-PART DEFENDANTS' MOTION TO DISMISS (Re: Docket No. 32)

PAUL S. GREWAL, Magistrate Judge.

When a former employee uses a customer's working log-in credentials to access his former employer's scripts, are he and the customer hackers? Plaintiff Enki Corporation says yes; Defendant Keith Freedman, along with his current employer and co-defendant, Zuora, Inc., say no. Freedman and Zuora now move to dismiss Enki's claims under the Computer Fraud and Abuse Act[1] and the California Computer Data Access And Fraud Act[2] for failure to state a claim upon which relief may be granted and the remainder of Enki's claims for lack of subject matter jurisdiction. Having reviewed the papers and considered the arguments of counsel, the court GRANTS Defendants' motion.

I. BACKGROUND

The court draws the following facts, taken as true for the purposes of the motion to dismiss, from Enki's First Amended Complaint.

From 2006-2011, Freedman was a 12% interest holding member of Enki.[3] Enki's business is to acquire, manage, develop, improve, and operate cloud computing and other IT services for enterprises.[4] In May of 2011, Freedman resigned.[5] Under the terms of Freedman's separation agreement with Enki, Enki bought out Freedman's interest, neither party was to disparage the other in any way, and Freedman was barred from soliciting Enki's clients or competing with Enki for a year.[6]

Shortly after Freedman's departure, Enki entered into a master service agreement with Zuora under which Enki was to provide consulting, cloud computing services, and other IT services.[7] As part of these services, and as set forth in various statements of work, Enki installed "Nimsoft" on Zuora's network.[8] Nimsoft is a "software based system monitor" used to monitor computer resources and performance.[9] Although the software was installed on Zuora's network, under the terms of the agreement Enki was the sole administrator of the software and the only one allowed to "write" Nimsoft scripts.[10]

In order to fulfill this contract, Enki hired Freedman and retained his new company, Freeform, as a contractor to provide certain services to Zuora.[11] Even though the separation agreement remained in effect, Freedman proceeded to spread negative stories about Enki and its work product throughout Zuora for several months, leading to the termination of his contract with Enki.[12] Zuora then hired Freedman and retained Freeform's services directly.[13]

In February 2013, Zuora terminated its contract with Enki "for convenience."[14] Before this termination, however, Freedman and Zuora accessed the Nimsoft servers on Zuora's network without authorization.[15] Freedman and Zuora then copied Enki's proprietary information, including Enki's Nimsoft scripts, in order to terminate the contract and receive the benefits of Enki's enterprise and technology without continuing to pay for Enki's services.[16] Enki brings this action to recover for various breaches of contract, as well as violations of state and federal anti-hacking statutes.

II. LEGAL STANDARDS

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."[17] If a plaintiff fails to proffer "enough facts to state a claim to relief that is plausible on its face, " the complaint may be dismissed for failure to state a claim upon which relief may be granted.[18] A claim is facially plausible "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[19] Accordingly, under Fed.R.Civ.P. 12(b)(6), which tests the legal sufficiency of the claims alleged in the complaint, "[d]ismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."[20] "A formulaic recitation of the elements of a cause of action will not do."[21]

On a motion to dismiss, the court must accept all material allegations in the complaint as true and construe them in the light most favorable to the non-moving party.[22] The court's review is limited to the face of the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice.[23] However, the court need not accept as true allegations that are conclusory, unwarranted deductions of fact, or unreasonable inferences.[24]

"Dismissal with prejudice and without leave to amend is not appropriate unless it is clear... that the complaint could not be saved by amendment."[25]

III. DISCUSSION

A. Enki's CFAA Claim Fails to Allege Sufficient ...


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