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Jewel Systems, Inc. v. Centinel Group, Inc.

United States District Court, S.D. California

September 22, 2014

JEWEL SYSTEMS, INC., Plaintiff,
v.
CENTINEL GROUP, INC., et al., Defendants.

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIMS [doc. #30]

M. JAMES LORENZ, District Judge.

On April 1, 2014, Plaintiff Jewel Systems, Inc. commenced this action against Defendants Centinel Group Inc.; Richard Rutledge; Nicholas Condos; Arthur Javier; Thomas Coffman; Denis Morgan; Silvergate Investments, Inc. Retirement Trust; and Silvergate Retirements, Inc. Pension Plan. Plaintiff alleges violations of the Computer Fraud and Abuse Act, the Stored Communications Act, and other related state law claims based on Defendants' alleged misappropriation of Plaintiff's intellectual property and confidential business information which was used to start a competing business.

On May 28, 2014, Defendants Thomas Coffman and Silvergate Investments Inc. Retirement Trust (collectively, "Counterclaimants"), filed counterclaims against Plaintiff and non-parties Michael Fongemie and Three Jewels, L.P. (collectively, "Counterdefendants"), alleging breach of multiple contracts for monies loaned to Counterdefendants. Counterdefendants now move to dismiss the counterclaims. The motion has been fully briefed and is considered on the papers submitted without oral argument in accordance with Civil Local Rule 7.1(d.1). For the following reasons, the Court GRANTS Counterdefendants' motion to dismiss Counterclaimants' counterclaims.

I. BACKGROUND

Plaintiff Jewel Systems, Inc. ("JSI") is a California corporation. (Compl. ¶ 8.) Defendant Centinel Group, Inc. ("CGI") is a California corporation. ( Id. ¶ 9.) Defendants, Thomas Coffman ("Coffman"), Richard Rutledge, ("Rutledge"), Arthur Javier ("Javier"), Nicholas Condos ("Condos"), and Denis Morgan ("Morgan"), are all individuals and residents of San Diego County, California. ( Id. ¶¶ 10-14). Defendant Silvergate Investments, Inc. Retirement Trust ("SIIRT") is a trust; Defendant Coffman is the trustee. ( Id. ¶ 15.) Defendant Silvergate Investments, Inc. Pension Plan ("SIIPP") is a pension plan; Defendant Coffman is the administrator, trustee, and/or owner. ( Id. ¶ 16.)

Plaintiff JSI, formed in 2003, is an Internet-based shipping, insurance, and risk management company, specializing in valuables such as jewelry and watches. ( Id. ¶¶ 2, 8.) The Defendant individuals, except Morgan, are former JSI employees or contractors. ( Id. ¶¶ 10-13.) Defendant CGI, formed in 2013, is a competing company whose website is similar or identical to JSI's website. ( Id. ¶¶ 7, 32-37.) All of the individual defendants are currently employed by or affiliated with defendant CGI. ( Id. ¶¶ 10-14.)

For its services, JSI interacts with many carriers such as UPS, DHL, and the United States Parcel Service. ( Id. ¶ 2.) "Each of these shippers has numerous and highly-specific requirements for the processing, insuring, and shipping of valuables." ( Id. ) The shippers provide their requirements to JSI and other couriers by an "API" ("application program interface"), "a set of routines, protocols and tools for building software code necessary to interface with the shippers' computer systems." ( Id. ) Beginning in 2003, JSI spent "eight years and over $1 million to write and build its code and database, which JSI continues to refine to this day." ( Id. ¶ 3.) JSI's source code, which "powers JSI's website and business, " is "a custom-built code that must necessarily be developed and written from scratch and cannot be based on open source code." ( Id. ¶ 2.) "JSI's database is separate from its source code, " consisting of: "custom-built risk-management solutions, an anti-fraud management platform, a payments platform, a courier and post office platform, and "extensive customer information acquired and maintained over the years." ( Id. ¶ 3.)

Defendants Coffman, Rutledge, Javier, and Condos "worked for years in various capacities for JSI since as far back as 2003-2004." ( Id. ¶ 4.) In February 2013, Coffman resigned from JSI and, "within weeks after Coffman's departure, the remaining defendants one-by-one left JSI and went to work for CGI." ( Id. ¶ 6.) In March 2013, Defendant CGI was formed. ( Id. ¶ 6.)

In May 2013, JSI discovered CGI's existence and "immediately began investigating CGI, " by hiring a computer forensics expert "to analyze CGI's website and provide a professional opinion as to... whether CGI copied JSI's database." ( Id. ¶ 32.) The expert "confirmed that the code being used by CGI is substantially if not wholly identical to JSI's code." ( Id. ¶ 32.) JSI also had a third party computer programmer and consultant "analyze and compare the shipcgi.com and jwls.com websites in depth at code level." ( Id. ¶ 35.) The programmer confirmed "the structure of [the] shipcgi.com website is 100% identical to jwls.com with the exception of content and confirmed that CGI's html, CSS and Java Script code is all the same as JSI's." ( Id. )

JSI alleges the Defendants conspired with each other "to steal JSI's source code, database, and other confidential information to start a competing company (CGI)." ( Id. ¶ 7.) Additionally, Defendants "impermissibly and fraudulently used JSI's claim history and other confidential business information to seek and obtain cargo and shipping insurance through CGI's insurance broker." ( Id. ) JSI also alleges defendants Coffman, Rutledge, Javier, and Condos signed non-disclosure agreements ("NDAs") with JSI, "acknowledging that information acquired or developed during their tenure at JSI was confidential and proprietary to JSI and that such information belonged exclusively to JSI." ( Id. ¶ 22.) JSI concedes it does not have copies of the NDAs, and further alleges one or more of the defendants destroyed or stole the NDAs as "part of their conspiracy to steal JSI's source code and database to start a competing company." ( Id. ¶¶ 4, 22.)

On April 1, 2014, JSI filed a complaint in this Court asserting twelve causes of action: (1) violation of the Federal Fraud and Abuse Act; (2) violation of the Federal Stored Communications Act; (3) violation of the California Computer Data Access and Fraud Act; (4) intentional interference with prospective economic advantage; (5) negligent interference with economic advantage; (6) unfair competition; (7) conversion; (8) trespass to chattels; (9) unjust enrichment/restitution; (10) civil conspiracy; (11) breach of contract; and (12) breach of fiduciary duty. ( See id. ¶¶ 55-132.)

On May 28, 2014, Defendants Thomas Coffman and Silvergate Investments, Inc. Retirement Trust (collectively, "Counterclaimants"), filed their answer and counterclaims in this Court against Plaintiff, and non-parties, Michael Fongemie ("Fongemie") and Three Jewels, L.P. (collectively, "Counterdefendants"), asserting six claims for relief: (1) damages for breach of the First Amended Security Agreement ("FASA"); (2) declaratory relief for breach of the FASA; (3) damages for breach of the $150, 000 Loan Agreement; (4) declaratory relief for breach of the $150, 000 Loan Agreement; (5) damages for breach of the Promissory Note; and (6) declaratory relief for breach of the Promissory Note. Counterclaimants allege that Counterdefendants owe them for monies loaned in excess of U.S. $320, 000, plus interest and costs.

Currently pending is Counterdefendants' motion to dismiss all of ...


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