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Catalinbread LLC v. Gee

United States District Court, D. Oregon

April 12, 2019

CATALINBREAD LLC, Plaintiff,
v.
HOWARD GEE, SCOTT MILLER, BORIS LUTSKOVSKY, and MICHAEL ERICKSON, Defendants.

          AARON J. CRONAN CRONAN LAW LLC ATTORNEY FOR PLAINTIFF

          CHRISTOPHER G. LUNDBERG HAGLUND KELLY LLP ATTORNEY FOR DEFENDANTS HOWARD GEE, SCOTT MILLER, BORIS LUTSKOVSKY

          MEGAN K. HOULIHAN JON P. STRIDE TONKON TORP LLP ATTORNEYS FOR DEFENDANT MICHAEL ERICKSON

          OPINION & ORDER

          MARCO A HERNÁNDEZ UNITED STATES DISTRICT JUDGE

         Plaintiff Catalinbread LLC alleges that four former employees, Defendants Howard Gee, Scott Miller, Boris Lutskovsky, and Michael Erickson, conspired to misappropriate Plaintiff's intellectual property, tangible property, and protected trade secrets. Plaintiff brings eight claims against Defendants-two pursuant to federal statutes, the Computer Fraud and Abuse Act (“CFAA”) and the Defend Trade Secrets Act (“DTSA”); and six based on state statutes or common law. Defendants[1] move to dismiss Plaintiff's complaint. Defendants argue that Plaintiff fails to state a claim under the CFAA or the DTSA, and that the Court should decline to exercise supplemental jurisdiction over Plaintiff's state and common law claims. The Court grants Defendants' motion in part by dismissing the CFAA claim. However, the Court denies the remainder of Defendants' motion and grants Plaintiff leave to amend.

         BACKGROUND

         Plaintiff produces “unusual and innovative” guitar pedals which are sold across the United States and internationally. First Am. Compl. (“FAC”) ¶ 12. Plaintiff was founded in 2003 by Nicholas Harris, who passed away unexpectedly on March 9, 2016. FAC ¶¶ 3, 10, 17. Mr. Harris' mother, Mary Burkett, assumed control of the company in June of 2017. FAC ¶¶ 17-18.

         Defendants are former employees of Plaintiff. Mr. Miller was Plaintiff's Sales Representative and temporary manager after Mr. Harris passed away. FAC ¶ 3. Mr. Gee designed guitar pedals. FAC ¶ 4. Mr. Lutskovsky provided information technology and computer support. FAC ¶ 5. Mr. Erickson provided customer service and artist relations. FAC ¶ 6.

         Plaintiff alleges that it developed and continues to maintain the following proprietary and confidential information:

- Build of Material (“BOM”), specifying exactly which parts are required for each pedal manufactured;
- Cost of Goods (“COG”), the proprietary list of wholesale cost for each component of the pedals, since Plaintiff's costs necessarily vary from other manufacturers because the sources and purchase prices are negotiated confidentially;
- Schematics, describing the circuit structure and signal flow of the pedals, which are confidential and protected information, especially for new or unreleased pedals, because a competitor would require significant time and effort to reverse engineer them; - Product structures, defining the exact measurements and methods for building the pedals;
- Project files, including the application or program specific files that allow Plaintiff to design and test schematics, product structures, printed circuit boards, program microchips and even the images printed on the pedal itself; and
- Data files, which are the final exported versions of the project files, used primarily to cut circuit boards, shape enclosures, flash machine code onto microchips, and print graphics on the pedals.

FAC ¶ 13. Collectively, this information constitutes Plaintiff's trade secrets. FAC ¶ 14. Plaintiff took steps to secure and protect the trade secrets, including adopting confidentiality policies and procedures in its employee handbook; maintaining a secure computer network, protected by passwords and limiting user accounts to employees with password requirements; and deprovisioning employees who left employment. FAC ¶ 16.

         According to Plaintiff, once Ms. Burkett assumed control of the company in June of 2017, production suddenly and without explanation fell significantly below prior levels. FAC ¶ 18. At the same time, Defendants were conspiring to force Ms. Burkett to sell them the company by making it difficult, if not impossible, to continue the operations if she refused. FAC ¶ 20. In approximately August of 2017, Mr. Miller and Mr. Gee began insisting that Ms. Burkett sell them the company and that she provide financing for the sale. FAC ¶ 22.

         In approximately September of 2017, Defendants started taking the following steps towards founding a company to compete with Plaintiff:

- Using Plaintiff's laptops to communicate privately on the online messaging service Slack;
- Removing components for building product, including proprietary development parts;
- Making plans to raise money for their competing venture;
- Purchasing domain names for use with the competing company; and
- Continuing to work for Plaintiff while surreptitiously planning their competing company.

FAC ¶¶ 20, 23, 24.

         In approximately October of 2017, concerned that Plaintiff would discover their plans, Defendants accessed Plaintiff's Slack account and Plaintiff's on-site computers and, without authorization, deleted information that could reveal their plans for a new company. FAC ¶ 25. At the same time, Mr. Gee and Mr. Lutskovsky created a second Slack channel that allowed Defendants to communicate outside of Plaintiff's system. FAC ¶ 26. Defendants began using Plaintiff's proprietary engineering to develop a line of competing products. FAC ¶ 28. They also initiated a smear campaign against Plaintiff. FAC ¶ 40.

         On or about October 13, 2017, Defendants conspired to coerce Ms. Burkett to sell Plaintiff to them or they would cause the company to self-destruct. FAC ¶ 29. The following day, Defendants resolved to stop producing, in order to coerce Plaintiff to fire them or sell them the business. FAC ¶ 31.

         On or about October 16, 2017, Defendants “falsely and without authorization mark[ed] supplies as out of stock and download[ed] protected build of material (“BOM”), cost of goods (“COG”) schematics, product structures, files, and other data from Catalinbread computers and ma[de] copies for later appropriation.” FAC ¶ 32. They also expressed their plans on Slack to destroy or render inaccessible critical and proprietary information. FAC ¶ 35. Defendants purged their company phones, deleted information from Plaintiff's computers, changed and deleted online passwords, purged Plaintiff's laptops, and took Plaintiff's property. FAC ¶ 39. Then, Mr. Miller, Mr. Gee, and Mr. Erickson quit. FAC ¶ 39. Mr. Lutskovsky was fired a few days later. FAC ¶ 39.

         According to Plaintiff, “[f]ollowing the end of Defendants' employment with Plaintiff, there was evidence of unusual traffic on the Catalinbread network, including multiple instances where some of the shop computers showed signs that someone had attempted to login to the computer and/or the company network. One of the primary targets was the main shop computer discussed in the Slack threads as a target for deletion.” FAC ¶ 41. Based on the plans discussed over Slack by Defendants as well as the “targeted nature of the actions, ...


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