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Facebook, Inc. v. Vachani

United States District Court, N.D. California, San Jose Division

August 31, 2017

FACEBOOK, INC., Plaintiff,
v.
STEVEN SURAJ VACHANI, Defendant.

          ORDER DENYING MOTION FOR WITHDRAWAL OF REFERENCE RE: DKT. NO. 1

          LUCY H. KOH, UNITED STATES DISTRICT JUDGE

         The instant case arises from the motion of Plaintiff Facebook, Inc. (“Facebook”) to withdraw the reference to bankruptcy of Adversary Proceeding No. 13-4226 against Defendant Steven Vachani (“Vachani”), which is now pending before Bankruptcy Judge Roger L. Efremsky. Civ. ECF No. 1-1.[1] Pursuant to Bankruptcy Local Rule 5011-2(b), upon filing of the motion for withdrawal of reference in the Bankruptcy Court, the motion was assigned a new civil case number in the District Court and assigned to the undersigned judge. Having considered the briefing of the parties, the relevant law, and the record in the instant case and all related cases, the Court DENIES Plaintiff's motion for withdrawal of reference.

         I. BACKGROUND

         A. Factual Background

         The instant case is related to the case Facebook, Inc. v. Power Ventures, Inc. (“Power Ventures”), No. 08-CV-05780. The instant case and the Power Ventures case share the same factual background. Facebook owns and operates the social networking website located at facebook.com. Power ECF No. 9, ¶ 2. Power Ventures (“Power”) is a corporation incorporated in the Cayman Islands and doing business in California. Id. ¶ 10. At the times relevant to the instant case and the Power Ventures case, Power has operated the website www.power.com, which offered to integrate users' various social media accounts into a single experience. Id. Vachani is the Chief Executive Officer of power.com. Power Ventures Answer ¶ 11.

         In December 2008, Facebook brought against Power and Vachani (“Power Ventures Defendants”) the Power Ventures case, which alleges violations of the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CANSPAM Act”), 15 U.S.C § 7701; the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030; California Penal Code § 502; and the Digital Millennium Copyright Act (“DMCA”), 17 U.S.C. § 1201; copyright infringement under 17 U.S.C. § 101; trademark infringement under 15 U.S.C. §§ 1114 and 1125(a) and under California law; and violations of California Business and Professions Code Section 17200. Power ECF Nos. 1, 9. Facebook complained that the Power Ventures Defendants employed Facebook's proprietary data without its permission by inducing Facebook users to provide their login information and then using that information to “scrape” Facebook's proprietary material. Power ECF No. 9, ¶¶ 49, 50, 52. The Power Ventures Defendants then displayed Facebook's material on power.com. Id. ¶ 52. Facebook asserts that it never gave the Power Ventures Defendants permission to use its material in this way. Id. ¶ 54.

         Facebook also accuses the Power Ventures Defendants of sending unsolicited and deceptive email messages to Facebook users. Power FAC ¶¶ 65-69. To launch their site, the Power Ventures Defendants promised power.com users a chance to win $100 if they invited and signed up the most new users to the Power Ventures Defendants' site. Id. ¶ 65. The Power Ventures Defendants provided to their users a list of the users' Facebook friends from which the users could choose people to whom to send the invitation. Id. ¶ 66. Power.com sent commercial emails to those friends that included on the “from” line a “@facebookmail.com” address. Id. ¶¶ 66, 68. The content of the message included a line that the message was from “The Facebook Team.” Id. ¶ 69, 70. Facebook contends that it never gave permission to send these messages and that the emails were deceptive because they “do not properly identify the initiators of the messages, nor do they provide clear or conspicuous notice that the messages are advertisements for” power.com. Id. ¶ 71. The Court initially entered judgment in the Power Ventures case on September 25, 2013. Power ECF No. 374. After remand from the Ninth Circuit, the Court entered a revised judgment in the Power Ventures case on May 2, 2017. Power ECF No. 437.

         As discussed below, during the pendency of the Power Ventures case, Vachani filed for personal bankruptcy on August 27, 2012. Bankr. ECF No. 1; Power Ventures ECF Nos. 353-54. As part of that bankruptcy, Facebook filed the adversary proceeding at issue here, which alleged that the debt that Vachani owed Facebook as a result of the judgment in the Power Ventures case was nondischargeable. Adv. ECF No. 1. On May 30, 2017, Facebook filed the instant motion for withdrawal of reference of the adversary proceeding. Adv. ECF No. 36.

         B. Relevant Procedural History of Power Ventures

         On December 30, 2008, Facebook filed the complaint in the Power Ventures case. Power ECF No. 1. On January 13, 2009, Facebook filed a First Amended Complaint. Power ECF No. 9. On February 18, 2011, Judge Ware granted the parties' stipulation to dismiss Facebook's DMCA claim, copyright and trademark infringement claims, and claims for violations of California Business and Professions Code Section 17200. Power ECF No. 97. On May 9, 2011, Defendants moved for summary judgment on Facebook's CFAA, Section 502, and CAN-SPAM Act claims. Power Ventures ECF No. 98. On November 17, 2011, Facebook moved for summary judgment on Facebook's § 502 and CFAA claims. Power ECF No. 214 (“§ 502/CFAA Motion”). On November 18, 2011, Facebook moved for summary judgment on Facebook's CAN-SPAM Act claim. Power ECF No. 215. On February 16, 2012, Judge Ware issued an order denying Defendants' motion for summary judgment and granting summary judgment in Facebook's favor as to Facebook's § 502, CFAA, and CAN-SPAM Act claims. Power ECF No. 275 (“February 16, 2012 order”).

         In the February 16, 2012 order, Judge Ware requested additional briefing regarding Vachani's individual liability and the amount of damages Facebook should receive in light of the February 16, 2012 order. Id. at 19. On April 17, 2012, Facebook filed its supplemental brief regarding damages and the liability of Vachani. Power ECF No. 299 (“Facebook Damages/Liability Brief”). On August 15, 2012, Vachani submitted a supplemental brief regarding damages and Vachani's personal liability. Power ECF No. 317.

         On August 27, 2012, Defendants provided notice that both Power and Vachani had filed for bankruptcy. ECF Nos. 323, 324. Noting that pursuant to 11 U.S.C. § 362(a)(1), a voluntary petition for bankruptcy operates as an automatic stay of any judicial actions involving the petitioners, Judge Ware stayed the proceedings and administratively closed the case on August 29, 2012. ECF No. 325.

         On March 20, 2013, Facebook notified the Court that the Bankruptcy Court had dismissed Power's bankruptcy case and had granted Facebook's request for relief from the automatic stay in Vachani's bankruptcy case. Power ECF No. 327. Facebook sought to reopen the Power Ventures case. Id. Facebook also sought reassignment to a new judge because on August 31, 2012, while the automatic stay was in effect, Judge Ware resigned from the bench. Id. On April 8, 2013, the undersigned judge, as the Duty Judge at the time Facebook filed its motion, granted Facebook's request. Power ECF No. 328. The undersigned judge ordered that the stay be lifted, the case be reopened, and the case be reassigned. Id. The case then was reassigned to the undersigned judge. Power ECF No. 329.

         On April 25, 2013, Vachani moved for clarification of Judge Ware's February 16, 2012 order regarding whether Vachani's liability had been determined in the February 16, 2012 order. Power Ventures ECF No. 332. On April 29, 2013, the Power Defendants filed a case management statement in which they stated their intent to request leave to file a motion for reconsideration of the February 16, 2012 order. Power ECF No. 334. In Facebook's and the Power Defendants' respective case management statements filed on April 29, 2013, the parties acknowledged that Vachani's liability and the issues of damages and injunctive relief still needed to be addressed. Power ECF No. 333, 334.

         On May 2, 2013, following a case management conference, the Court issued a case management order. Power ECF No. 340. In that order, the Court clarified that the February 16, 2012 order did not decide Vachani's liability. Id. The Court also set a briefing schedule for the damages and injunctive relief issues. Id. The Court set a hearing date of September 26, 2013 to consider Vachani's liability and the issue of remedies. Id.

         On August 1, 2013, Power filed its request for leave to file a motion to reconsider Judge Ware's February 16, 2012 order. Power ECF No. 353. On August 1, 2013, Facebook filed its supplemental memorandum in support of its request for injunctive relief. ECF No. 354 (“Facebook Injunction Brief”). On September 25, 2013, Facebook filed a supplemental motion for a permanent injunction. Power ECF No. 369.

         On August 7, 2013, Magistrate Judge Spero issued an order requiring Vachani to pay Facebook $39, 796.73 as a discovery sanction because of Vachani's noncompliance during a Rule 30(b)(6) deposition. Power ECF No. 356. Specifically, Judge Spero found that Vachani “was not prepared for his Rule 30(b)(6) deposition, read from [a prepared] declaration, and was ‘argumentative' and ‘evasive.'” Id. at 5. In the same order, Judge Spero noted that Defendants had committed another discovery violation by failing to timely disclose relevant emails. Id. Following Judge Spero's order, Vachani immediately appealed the discovery sanction to the Ninth Circuit on September 6, 2013. Power ECF No. 360. Despite the appeal, this Court retained jurisdiction over aspects of the case unrelated to the discovery sanctions.

         On September 25, 2013, the Court filed an Order Denying Leave to File Motion for Reconsideration, Finding Defendant Steven Vachani Liable as a Matter of Law, and Granting Damages and Permanent Injunctive Relief. Power ECF No. 373. In the order, the Court first found that Defendants had not identified any new material facts, changes in law, or issues that Judge Ware manifestly failed to consider in his February 16, 2012 order. The Court therefore denied leave to file a motion for reconsideration of the February 16, 2012 order. Id. at 15. The Court also found that because Vachani directed and authorized the activities at issue, Vachani was personally liable for violations of the CAN-SPAM Act, CFAA, and California Penal Code § 502 along with Power. Id. at 17.

         The Court then addressed the issue of damages for the first time. The Court noted that under the CAN-SPAM Act, Facebook was entitled to elect between statutory damages and monetary damages in the amount of actual losses. Id. at 22. Facebook elected to recover statutory damages, and the Court ordered Defendants to pay $50 for each of 60, 627 spam messages sent, for a total of $3, 031, 350. Id. at 25-26. The Court then held that Facebook was entitled to compensatory damages under the CFAA. The Court held that “Facebook has established through undisputed testimony that it expended $80, 543 to investigate Defendants' actions and for outside legal services in connection with the Defendants' actions.” Id. at 26.

         Finally, the Court issued a permanent injunction against Defendants that enjoined Defendants from (1) making any misleading statement in advertising, including statements that Facebook had authorized a particular communication; (2) accessing Facebook's website or servers “for any purpose” without Facebook's prior permission; (3) using any data obtained from the unlawful conduct; and (4) developing or using any software to commit the illegal acts alleged in the complaint. Id. at 33-34. The injunction also required Defendants to destroy all the software at issue, destroy all data obtained from Facebook with the illegal software, and take measures to ensure that the injunction was obeyed. Id. at 34. The Court entered judgment against the Power Defendants the same day, September 25, 2013. Power ECF No. 374.

         On October 23, 2013, Defendants appealed the Court's grant of summary judgment. Power ECF No. 379. On November 21, 2013, the Ninth Circuit dismissed Vachani's appeal of Magistrate Judge Spero's August 7, 2013 order granting discovery sanctions because the August 7, 2013 order was not final or appealable. Power ECF No. 386.[2]

         On December 9, 2016, the Ninth Circuit affirmed in part and reversed in part this Court's grant of summary judgment. Power ECF No. 401. The Ninth Circuit reversed the Court's finding that Defendants had violated the CAN-SPAM Act because the Ninth Circuit found that Facebook initiated the email messages at issue and that the sender of the messages was not materially misleading within the meaning of the CAN-SPAM Act. Id. at 9-13. The Ninth Circuit then held that Defendants had violated CFAA, but only for the period “after receiving written notification from Facebook on December 1, 2008.” Id. at 19. The Ninth Circuit held that by sending the December 1, 2008 notification, Facebook revoked Defendants' permission to use Facebook's computers. Id.

         With respect to damages, the Ninth Circuit held that “[i]t is undisputed that Facebook employees spent many hours, totaling more than $5, 000 in costs, analyzing, investigating, and responding to Power's actions.” Id. at 14. However, in light of the Ninth Circuit's finding that the violation began only after Facebook sent its cease and desist letter on December 1, 2008, the Ninth Circuit remanded to “calculate damages only for the period after Power received the cease and desist letter . . . .” Id. at 22.

         After remand, the Court held a case management conference on February 15, 2017. At the case management conference, the Court set a briefing schedule for the remanded issue of remedies. ECF No. 410. The Court also ordered Defendants to pay by March 15, 2017 the $39, 796.73 discovery sanction that the Ninth Circuit affirmed.

         On May 2, 2017, after briefing on the issue was complete, the Court ruled on the remanded issue of damages. Power ECF No. 435. The Court found that Facebook was entitled to $79, 640.50 in compensatory damages. This figure did not include the $3, 031, 350 in CAN-SPAM damages that were reversed by the Ninth Circuit. This figure also did not include $902.50 in damages incurred on or before December 1, 2008, when Facebook sent the cease and desist letter. Instead, this figure reflected only the damages incurred by Facebook after December 1, 2008 in responding to Defendants' CFAA violation. The Court also issued a permanent injunction against Defendants that was narrowly tailored to Defendants' CFAA violation. Finally, the Court ...


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