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DHI Group, Inc. v. Kent

United States District Court, S.D. Texas, Houston Division

July 12, 2019

DHI GROUP, INC., F/K/A DICE HOLDINGS, INC. AND RIGZONE.COM, INC., Plaintiffs,
v.
DAVID W. KENT, JR., et al., Defendants.

          MEMORANDUM, RECOMMENDATION, AND ORDER

          NANCY K. JOHNSON, UNITED STATES MAGISTRATE JUDGE

         Pending before the court[1] is Plaintiffs DHI Group, Inc. f/k/a Dice Holdings, Inc. (“DHI Group”) and Rigzone.com, Inc.'s (“Rigzone”) (collectively, “Plaintiffs”) Affirmative Motion for Partial Summary Judgment (Doc. 227), Plaintiffs' Motion for Summary Judgment on Oilpro's Counterclaims (Doc. 228), Defendants Single Integrated Operations Portal, Inc. d/b/a Oilpro and OILPRO.com's (“Oilpro”) and David Kent's (“Kent”) (collectively, “Defendants”) Motion to Strike Plaintiffs' Expert Evelina Aslanyan (“Aslanyan”) (Doc. 230), Defendants' Motion for Summary Judgment (Doc. 231), Oilpro's Motion to Strike Plaintiffs' Expert Shane Johnson (“Johnson”) (Doc. 232), Plaintiffs' Motion for Attorneys' Fees (Doc. 263), and Plaintiffs' Motion to Exclude Trent Livingston (“Livingston”) (Doc. 266). The court has considered the motions, the responses, all other relevant filings, and the applicable law. For the reasons set forth below, the court RECOMMENDS that Plaintiffs' Affirmative Motion for Partial Summary Judgment be DENIED, Plaintiffs' Motion for Summary Judgment on Oilpro's Counterclaims be GRANTED IN PART AND DENIED IN PART, and Defendants' Motion for Summary Judgment be GRANTED IN PART AND DENIED IN PART, and it is hereby ORDERED that Defendants' Motion to Strike Aslanyan is DENIED, Oilpro's Motion to Strike Johnson is DENIED, Plaintiffs' Motion for Attorneys' Fees is GRANTED IN PART AND DENIED IN PART, and Plaintiffs' Supplemental Motion to Exclude Livingston is DENIED.

         I. Case Background[2]

         Plaintiffs filed this lawsuit against multiple defendants alleging violations of various federal statutes as well as state-law causes of action.[3] Oilpro has responded to Plaintiffs' lawsuit and filed counterclaims against Plaintiffs also alleging violations of various federal statutes and state-law causes of action.[4]

         A. Factual Background

         The present lawsuit concerns the sale of Rigzone, launch of Oilpro, and criminal conduct of Kent.

         1. Rigzone

         Rigzone offered an online platform for professionals in the oil and gas industry.[5] On Rigzone's website, oil and gas professionals were able to create a profile and upload their resumes.[6] When a resume was uploaded to the Rigzone website it was assigned a unique numerical identifier.[7] These resumes were maintained in a database by Rigzone.[8] This process allowed the Rigzone website users to apply for job openings that were posted by recruiters and employers.[9] Additionally, recruiters and employers who paid for access to the resume database were able to directly solicit professionals who had uploaded their resumes for job opportunities, subject to the user's privacy settings.[10]

         2. Ownership and Sale of Rigzone

         Kent became the majority owner of Rigzone in 2007 when he purchased the majority interest in Rigzone from his father.[11] At the same time, Kent assumed the positions of President and CEO of Rigzone.[12] In August 2010, DHI Group purchased Rigzone from Kent for approximately $51 million consisting of $38 million plus a performance-based bonus that eventually equaled $13 million.[13] The sale of Rigzone to DHI Group was memorialized in a stock purchase agreement (the “Purchase Agreement”) that Kent signed.[14] During the sale of Rigzone, Kent was represented by lawyers and a mergers and acquisitions firm that specialized in selling media businesses.[15]

         3. The Purchase Agreement

         The Purchase Agreement that Kent signed represented that Rigzone had “taken all necessary and otherwise reasonable steps to protect and preserve the confidentiality of all of its Trade Secrets and all use by, or disclosure to, any Person of such Trade Secrets has been pursuant to the terms of a [confidentiality agreement].”[16] Kent agreed that at the time he signed the Purchase Agreement, “all reasonable steps to protect the [Rigzone] website” had been taken.[17] The Purchase Agreement defined “Trade Secrets” to “mean any trade secrets or other proprietary and confidential information including . . . Personal Information, customer lists, . . . and data collections.”[18] “Personal Information” was defined as “all information or data associated with individual Persons, including customers and employees, that [was] collected by [Rigzone] in the course of its operations.”[19]

         4. Rigzone After the Sale and the Launch of Oilpro

         Kent continued as the president of Rigzone for about a year following its sale.[20] During that time, the company took steps to improve the security of the Rigzone website, including hiring Ernst & Young to do a security audit of the website.[21] The security audit highlighted some potential security issues that were remediated.[22]

         As a condition of the sale of Rigzone, Kent signed a non-compete agreement that prevented him from operating an oil and gas website until October 1, 2013.[23] On January 18, 2012, Kent started a new company called SIOPCO.[24] Under the umbrella of SIOPCO, Kent launched the Oilpro website on the day his non-compete agreement expired.[25] From the start, Oilpro operated a networking website for oil and gas professionals and competed directly with the Rigzone website.[26]

         5. Unauthorized Access of Rigzone Resume Database

         Shortly after launching Oilpro, Kent began downloading copies of resumes from the Rigzone resume database through a URL, www.rigzone.com/jobs/resume.asp, that he knew of from his previous work at Rigzone.[27] This first round of access occurred from October 17, 2013, to April 15, 2014, and resulted in Kent's downloading of just under 100, 000 resumes.[28]

         In June and July of 2015, Kent again downloaded resumes from the Rigzone resume database through a second URL, www.rigzone.com/jobs/resumes/resume_writer.asp.[29] For this second round of access, Kent wrote a program that automatically downloaded the resumes through the URL.[30] During this second round of access, Kent allegedly downloaded approximately 700, 000 resumes.[31]

         Kent downloaded the resumes from the Rigzone database to gain a commercial advantage for Oilpro.[32] After downloading the resumes, Kent invited some of the people whose resumes he had downloaded to join Oilpro.[33]

         6. Criminal Charges Against Kent

         On March 23, 2016, the United States brought criminal charges against Kent for the above conduct as well as other related acts.[34]On December 19, 2016, Kent pled guilty to a violation of the Computer Fraud and Abuse Act (“CFAA”).[35] At his plea hearing, Kent admitted that he accessed the Rigzone resume database without authorization and took resumes for his own commercial advantage and to help Oilpro.[36] Kent also admitted that he expected that the resumes would allow him to increase Oilpro's membership.[37]

         7. DHI Scrapes Data from Oilpro Website

         On or about June 16, 2015, DHI Group began scraping data from the Oilpro website.[38] The terms and conditions of Oilpro's website prohibited users from: (1) using “automated means, including spiders, robots, crawlers, agents, or the like to download data from any database of Oilpro, or from the site itself (for example, site or page scraping is prohibited)[;]” (2) “harvest[ing] or otherwise collect[ing] or stor[ing] information about others, including e-mail addresses[;]” (3) “us[ing], download[ing] or otherwise copy[ing], or provid[ing] (whether or not for a fee) to a person or entity any directory of users of the Services or other user or usage information or any portion thereof.”[39] The parties hotly dispute whether, in June 2015, there was a link to these terms and conditions on the home page or site map of the Oilpro website.[40]

         B. Procedural Background

         Plaintiffs commenced this action on June 10, 2016.[41] On November 15, 2016, Oilpro filed its second amended answer and counterclaims.[42] Plaintiffs filed a motion to dismiss Oilpro's counterclaims on December 5, 2016.[43] On April 21, 2017, the court entered a recommendation that Oilpro's counterclaims for trespass to chattels and unjust enrichment be dismissed.[44] The recommendation was adopted on October 26, 2017.[45]

         On July 20, 2018, Plaintiffs filed a motion to strike Livingston.[46] On October 12, 2018, Plaintiffs' filed: (1) a motion to exclude the testimony of Livingston; (2) their pending motion for partial summary judgment; and (3) their pending motion for summary judgment on Oilpro's counterclaims.[47] On the same day, Defendants filed their pending: (1) motion to strike Aslanyan; (2) motion for summary judgment; and (3) motion to strike Johnson.[48] On November 16, 2018, Defendants filed responses to Plaintiffs' motions for summary judgment.[49] On the same day, Plaintiffs filed responses to Defendants' October 12, 2018 motions.[50] On November 19, 2018, Defendants filed a response to Plaintiffs' motion to exclude Livingston.[51] On November 26, 2018, Plaintiffs filed replies in support of their October 12, 2018 motions.[52] On December 3, 2018, Defendants filed replies in support of their October 12, 2018 motions.[53]

         On March 21, 2019, the court held a hearing on Plaintiffs' motions to strike and exclude Livingston. As discussed in more detail below, on March 22, 2019, the court granted both motions in part.[54] Defendants objected to the court's order granting the motions in part, and, on May 1, 2019, the objections were overruled.[55]

         On April 19, 2019, Plaintiffs filed their pending supplemental motion to exclude Livingston.[56] Defendants filed a response to the supplemental motion to exclude on May 10, 2019.[57] Plaintiffs filed a reply in support of their supplemental motion to exclude on May 15, 2019.[58] Without leave of the court, Defendants filed a sur-reply to the supplemental motion to exclude on May 23, 2019.[59] The procedural history and merits of Plaintiffs' motions to exclude and strike Livingston are discussed further below.

         II. Legal Standards

         The following standards are relevant to the court's resolution of the pending motions.

         A. Motion for Summary Judgment Standard

         Summary judgment is warranted when the evidence reveals that no genuine dispute exists regarding any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A., 759 F.3d 498, 504 (5th Cir. 2014). A material fact is a fact that is identified by applicable substantive law as critical to the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Ameristar Jet Charter, Inc. v. Signal Composites, Inc., 271 F.3d 624, 626 (5th Cir. 2001). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Coastal Agricultural Supply, Inc., 759 F.3d at 504 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

         The movant must inform the court of the basis for the summary judgment motion and must point to relevant excerpts from pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of genuine factual issues. See id. at 505 (quoting Celotex Corp., 477 U.S. at 323). If the movant carries its burden, the nonmovant may not rest on the allegations or denials in the pleading but must respond with evidence showing a genuine factual dispute. See id. The court must accept all of the nonmovant's evidence as true and draw all justifiable inferences in her favor. Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A., 759 F.3d 498, 505 (5th Cir. 2014)(quoting Anderson, 477 U.S. at 255).

         B. Expert Testimony Standard

         Under the Federal Rules of Evidence and related case law, an expert may be qualified by “knowledge, skill, experience, training, or education.” Fed.R.Evid. 702. “To qualify as an expert, the witness must have such knowledge or experience in [his] field or calling to make it appear that his opinion or inference will probably aid the trier in [the] search for truth.” United States v. Hicks, 389 F.3d 514, 524 (5th Cir. 2004)(quoting United States v. Bourgeois, 950 F.2d 980, 987 (5th Cir. 1992)). If an opinion is based solely or primarily on experience, it “must be grounded in an accepted body of learning or experience in the expert's field.” Fed.R.Evid. 702, advisory committee's note, 2000 Amends. The witness must connect the experience to the conclusion offered, must explain why the experience is a sufficient basis for the opinion, and must demonstrate the appropriateness of the application of the experience to the facts. Id.

         Although an expert need not be highly qualified to testify on a given topic, his testimony on subjects in which he is not qualified must be excluded. Huss v. Gayden, 571 F.3d 442, 452 (5thCir. 2009). An additional limitation on expert witnesses is that they may not offer conclusions of law. C.P. Interests, Inc. v. Cal. Pools, Inc., 238 F.3d 690, 697 (5th Cir. 2001)(citing Owen v. Kerr McGee Corp., 698 F.2d 236, 240 (5th Cir. 1983)).

         The expert's testimony must be both relevant and reliable. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999); Smith v. Goodyear Tire & Rubber Co., 495 F.3d 224, 227 (5th Cir. 2007); see also Fed.R.Evid. 702 & advisory committee's note, 2000 Amends. The burden of establishing this predicate for the expert's testimony falls on the party producing the expert. See Moore v. Ashland Chem. Inc., 151 F.3d 269, 276 (5th Cir. 1998). The trial court has the responsibility of determining whether that party has met its burden. Fed.R.Evid. 104(a); Mathis v. Exxon Corp., 302 F.3d 448, 459-60 (5th Cir. 2002); see also Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). The court also determines, as a matter of law, whether the expert is qualified to testify on the subjects on which he offers opinions. Mathis, 302 F.3d at 459. The trial judge has “wide latitude in determining the admissibility of expert testimony;” yet, “the rejection of expert testimony is the exception rather than the rule.” Fed.R.Evid. 702, advisory committee's note, 2000 Amends.; Wilson v. Woods, 163 F.3d 935, 936-37 (5th Cir. 1999)(quoting Watkins v. Telsmith, Inc., 121 F.3d 984, 988 (5th Cir. 1997)).

         To be relevant, the testimony must assist “the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702; see also United States v. Hicks, 389 F.3d 514, 524 (5th Cir. 2004); Daubert, 509 U.S. at 591. The Federal Rules of Evidence define relevant evidence as that which “has any tendency to make a fact more or less probable than it would be without the evidence” and “the fact is of consequence in determining the action.” Fed.R.Evid. 401. In other words, the expert testimony must be applicable to the facts in issue. Daubert, 509 U.S. at 592-93.

         Reliability hinges on the sufficiency of the facts or data upon which the opinion is based, the dependability of the principles and methods employed, and the proper application of the principles and methods to the facts of the case. See Fed.R.Evid. 702. The trial judge must make certain that the expert applied “the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.” Kumho Tire Co., Ltd., 526 U.S. at 152.

         III. Analysis

         Plaintiffs have moved: (1) for summary judgment on all of Oilpro's counterclaims; (2) for summary judgment against Defendants on their claim for misappropriation of trade secrets; (3) to exclude Livingston; and (4) for their attorney's fees based on their previous motion to exclude Livingston. Defendants have moved: (1) for summary judgment on all of Plaintiffs' claims; (2) to strike Johnson; and (3) to strike Aslanyan.

         A. Plaintiffs' Affirmative Motion for Summary Judgment

         Plaintiffs move for affirmative summary judgment on their claims against Kent for misappropriation of trade secrets under the Texas Uniform Trade Secrets Act[60] (“TUTSA”).[61] Additionally, Plaintiffs argue that Oilpro is liable for these claims under the vice-principal theory.[62]

         Under the TUTSA, there are six avenues for a plaintiff to establish a misappropriation of a trade secret. See Tex. Civ. Prac. & Rem. Code § 134A.002(3). Plaintiffs have pled their TUTSA causes of action through two of these six avenues, the TUTSA Sections 134A.002(3)(A) (“Section 3(A)”) and 134A.002(3)(B)(i) (“Section 3(B)(i)”).[63] Section 3(A) provides that a misappropriation is defined as the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means . . . .” Tex. Civ. Prac. & Rem. Code § 134A.002(3)(A). Section 3(B)(i) provides that a misappropriation is defined as the “disclosure or use of a trade secret of another without express or implied consent by a person who . . . used improper means to acquire knowledge of the trade secret . . . .” Tex. Civ. Prac. & Rem. Code § 134A.002(3)(B)(i).

         Plaintiffs argue that the contents of the Rigzone resume database are trade secrets that Kent misappropriated.[64] In their response, Defendants do not argue that either Section 3(A) or 3(B)(i) is inapplicable to Kent's conduct, but rather, that the contents of the Rigzone resume database are not trade secrets protected by the TUTSA.[65] The established facts show that Kent's conduct violated Sections 3(A) and 3(B)(i) if the contents of the Rigzone resume database are in fact trade secrets. Accordingly, the only question for the court is whether the contents of the Rigzone resume database are trade secrets.

         1. Trade Secrets Under the TUTSA

         Under the TUTSA, a trade secret is defined as:

all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:
(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

         Tex. Civ. Prac. & Rem. Code § 134A.002(6). The TUTSA “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” Tex. Civ. Prac. & Rem. Code § 134A.007(a). While the TUTSA does not affect contractual remedies, it does not provide that its definition of a trade secret may be supplanted by a contract between parties. See Tex. Civ. Prac. & Rem. Code § 134A.007(b). Accordingly, Plaintiffs' attempted reliance on the definition of a trade secret in the Purchase Agreement is misplaced when addressing Plaintiffs' TUTSA claims.[66] It is the TUTSA's definition of a trade secret that controls.[67]

         Turning back to the TUTSA's definition, Defendants' argue that the contents of the Rigzone “resume database [are] not a compilation protected under the TUTSA” and “Rigzone took no measures to maintain the secrecy of the resume database.”[68] Although it is not a contested issue, the court will also address whether the TUTSA's economic value requirements are met.

         i. Information Protected by the TUTSA

         As to Defendants' first argument, the TUTSA broadly defines the various forms and types of information that can be trade secrets before narrowing its scope to include only those forms and types that meet certain secrecy (§ 134A.002(6)(A)) and economic value (§ 134A.002(6)(B)) requirements. See Tex. Civ. Prac. & Rem. Code § 134A.002(6). Within its broad preliminary scope, the TUTSA defines a trade secret to include “all forms and types of information . . . and any . . . compilation[, ]” regardless of how it is compiled as long as it meets the more narrow secrecy and economic value requirements. See id. The contents of the Rigzone resume database are a compilation of resumes which are undeniably a “type[] of information[.]” See id. Thus, the pertinent question is whether the contents of the resume database meet the TUTSA's secrecy and economic value requirements.

         ii. Secrecy of the Resume Database

         The contents of the Rigzone resume database are only trade secrets if Rigzone took reasonable measures under the circumstances to keep the contents secret. See Tex. Civ. Prac. & Rem. Code § 134A.002(6)(A). After Rigzone was purchased from Kent, DHI hired Ernst & Young to perform a security audit of the website and remediated any issues that were discovered.[69] Kent himself stated that he thought the security on the website was fine prior to the Ernst & Young audit, which he found to be unnecessary.[70]Furthermore, Kent signed the Purchase Agreement warranting that “all necessary and otherwise reasonable steps to protect and preserve the confidentiality of” the contents of the Rigzone resume database had been taken at the time of signing.[71] At his deposition, Kent confirmed that when he signed the Purchase Agreement, “all reasonable steps to protect the [Rigzone] website” had been taken.[72]

         Defendants argue that a lengthy list of reasons, including but not limited to the following, show that Plaintiffs did not take reasonable steps to protect the contents of the Rigzone resume database: (1) at one point, Rigzone sent 1, 775, 375 resume profiles to WorkDigital, a company affiliated with DHI Group, without making it sign a non-disclosure agreement; (2) Rigzone allowed paying customers to access and download large quantities of resumes and did not monitor their access; (3) Rigzone did not require its employees who had access to the resume database to sign nondisclosure agreements; (4) a Rigzone employee was allowed to take and keep two servers that had the resume database on them without signing a non-disclosure agreement and was not told to delete the resumes; (5) the resumes were not encrypted; and (6) Rigzone employees were not informed that the resumes were a trade secret.[73]

         The evidence presented by the parties establishes that it is a contested issue of fact as to whether Rigzone took reasonable measures under the circumstances to keep the contents of its resume database secret. The trier of fact will need to weigh the evidence presented by the parties on this issue. Accordingly, Plaintiffs' affirmative motion for summary judgment should be DENIED.

         Given that there is a fact issue on whether the contents of the Rigzone resume database are trade secrets, at this time, the court will not address the TUTSA's economic value requirements or Plaintiffs' vice-principal theory.

         B. Defendants' Motion for Summary Judgment

         Plaintiffs currently allege the following causes of action: (1) violations of the Computer Fraud and Abuse Act (“CFAA”) against Defendants; (2) violations of the Stored Wire and Electronic Communications and Transactional Records Access Act (“SCA”) against Defendants; (3) violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against Kent; (4) violations of the TUTSA against Defendants; (5) misappropriation of confidential information against Defendants; (6) violation of the Texas Harmful Access by Computer Act (“THACA”) against Defendants; (7) violation of the Texas Theft Liability Act (“TTLA”) against Defendants; and (8) breach of fiduciary duties against Kent.[74]

         Defendants argue that they are entitled to summary judgment on all of Plaintiffs' claims because: (1) the TUTSA preempts Plaintiffs' state law claims; (2) Plaintiffs' state-law claims lack merit; (3) Plaintiffs' resumes are not a trade secret under the TUTSA and, even if they are, Plaintiffs did not suffer damages; (4) the SCA does not apply; (5) RICO does not apply; (6) Plaintiffs have no overall damages; and (7) the statute of limitations bars some of Plaintiffs' claims arising from the first round of access by Kent.

         1. Trade Secrets Under the TUTSA

         Defendants argue that Plaintiffs' claims under the TUTSA fail because the contents of the Rigzone resume database, Plaintiffs' internet search techniques, and Plaintiffs' Google analytics data are not trade secrets.[75] As discussed above, a factual dispute exists whether the contents of the Rigzone resume database are trade secrets. Accordingly, summary judgment should not be granted on Plaintiffs' TUTSA claims based on the contents of the Rigzone resume database.

         Plaintiffs have not responded to Defendants' arguments that Plaintiffs' internet search techniques and Google analytics data are not trade secrets. The court interprets this to mean that Plaintiffs' have abandoned their TUTSA claims related to the alleged misappropriation of their internet search techniques and Google analytics data. Accordingly, summary judgment should be GRANTED on Plaintiffs' TUTSA claims related to the Google analytics data and internet search techniques.

         2. Damages Under the TUTSA

         Defendants also argue that Plaintiffs' TUTSA claims fail because the access of the Rigzone resume database caused no damage.[76] “Remedies available under the [TUTSA] include injunctive relief; damages measured by actual loss plus unjust enrichment not included in computing actual loss; a reasonable royalty; and exemplary damages capped at two times actual damages.” Sw. Energy Prod. Co. v. Berry-Helfand, 491 S.W.3d 699, 711 n.7 (Tex. 2016)(citing Tex. Civ. Prac. & Rem. Code §§ 134A.003-.004).

         Plaintiffs have presented evidence that Kent illicitly obtained hundreds of thousands of resumes, and Kent admits that the resumes “create value for the business line” that the parties are in.[77] Accordingly, Plaintiffs have provided sufficient evidence that they were damaged for their TUTSA claim to survive summary judgment.

         3. Preemption Under the TUTSA

         Defendants argue that the TUTSA preempts Plaintiffs claims for misappropriation of confidential information, violation of the TTLA, violation of the THACA, and breach of fiduciary duty.[78]Plaintiffs agree that summary judgment should be granted on their TTLA claim, but argue that the other claims are not preempted.[79]

         The TUTSA “displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret.” Tex. Civ. Prac. & Rem. Code § 134A.007(a). “Where a claim is based on a misappropriation of a trade secret, then it is preempted by the [TUTSA].” Super Starr Int'l, LLC v. Fresh Tex Produce, LLC, 531 S.W.3d 829, 843 (Tex. App.-Corpus Christi 2017, no pet.)(citing Tex. Civ. Prac. & Rem. Code § 134A.007(a)). The TUTSA has no effect on “other civil remedies that are not based upon misappropriation of a trade secret . . . .” Tex. Civ. Prac. & Rem. Code § 134A.007(b)(2).

         Texas federal courts have come to differing conclusions on whether the TUTSA's preemption provision encompasses the misappropriation of information that is not a trade secret. See AMID, Inc. v. Medic Alert Found. United States, Inc., 241 F.Supp.3d 788, 827 (S.D. Tex. 2017) (holding that the plaintiff was allowed to plead that the defendant “misappropriated information protected as trade secrets, and alternatively under the theory that the misappropriated information was not a trade secret but was confidential”); but see Embarcadero Techs., Inc. v. Redgate Software, Inc., 1:17-CV-444-RP, 2018 WL 315753, at *3 (W.D. Tex. Jan. 5, 2018)(following the “majority approach” and holding that the “TUTSA's preemption provision encompasses all claims based on the alleged improper taking of confidential business information”).

         In Embarcadero, the court addressed “whether a breach of fiduciary duty claim alleging only the misappropriation of confidential information is preempted by [the] TUTSA.” Embarcadero, 2018 WL 315753 at *2-3. The court recognized that Texas courts had not addressed the issue. See id. However, for guidance, the court looked to Super Starr, a Texas appellate court case finding that a breach of fiduciary duty claim was preempted by the TUTSA. See Id. at *3. The Embarcadero court recognized that the Super Starr court did not conclusively find that a claim based on the misappropriation of information that was not a trade secret is preempted by the TUTSA because the Super Starr court based its conclusion on a finding that the theft of trade secrets was a necessary component of the underlying breach of fiduciary duty claim. See id.

         “After reviewing the reasoning in Super Starr and that of various other courts across the country applying Uniform Trade Secrets Act preemption, the [Embarcadero court found] that [the] TUTSA's preemption provision encompasses all claims based on the alleged improper taking of confidential business information.” Id. The court reasoned that the majority of courts across the country have come to the same conclusion, and that this conclusion is supported by the TUTSA's preemption provision's purpose to “‘prevent inconsistent theories of relief for the same underlying harm by eliminating alternative theories of common law recovery which are premised on the misappropriation of a trade secret.'” Id. (quoting Super Starr, 531 S.W.3d at 843).

         Embarcadero and Super Starr both recognize that the TUTSA's preemption provision was intended to eliminate common law theories that were based on a “misappropriation of a trade secret.” And, the plain language of the TUTSA's preemption provision states that it has no effect on “other civil remedies that are not based upon misappropriation of a trade secret . . . .” Tex. Civ. Prac. & Rem. Code § 134A.007(b)(2). Yet, Embarcadero and the majority of courts from other jurisdictions hold that the preemption provision eliminates common law theories that are based on a misappropriation of trade secrets and theories that are based on a misappropriation of information that is not a trade secret. These holdings directly conflict with the TUTSA's plain language stating that it is to have no effect on civil remedies not based on trade secret misappropriation. See Tex. Civ. Prac. & Rem. Code § 134A.007(b)(2).

         The court fails to see how the plain language of the TUTSA's preemption provision can be read to preempt civil remedies for the misappropriation of information that is not a trade secret. Accordingly, without further guidance from Texas courts, the court finds the reasoning in AMID persuasive and finds that Plaintiffs may maintain their causes of action for the misappropriation of trade secrets under the TUTSA as well as their causes of action for the misappropriation of information that is not a trade secret.

         As discussed above, neither party has established the trade secret status of any of the information that was illicitly obtained. Accordingly, at this time, the court cannot say whether any of Plaintiffs' non-TUTSA claims are preempted. If it is later established that any of the illicitly obtained information is a trade secret under the TUTSA, then the TUTSA preempts Plaintiffs' claims involving the misappropriation of that information.[80]

         4. Merits of Plaintiffs' State-Law Claims

         Defendants argue that Plaintiffs' state-law claims for misappropriation of confidential information and breach of fiduciary duties fail on their merits.

         i. Misappropriation of Confidential Information

         Defendants argue that Plaintiffs' claim for misappropriation of confidential information fails because Plaintiffs did not suffer commercial damage.[81] Defendants incorrectly cite to the elements of a cause of action for misappropriation of a business opportunity which requires commercial damage.[82] See e.g., Playboy Enters., Inc. v. Webbworld, Inc., 991 F.Supp. 543, 558 (N.D. Tex. 1997)(listing the elements of misappropriation of a business opportunity), aff'd, 168 F.3d 486 (5th Cir. 1999). A cause of action for misappropriation of confidential information does not require a showing of commercial damage. See e.g., Samsung Elecs. Am., Inc. v. Yang Kun Chung, Civ. Act. No. 3:15-CV-4108-D, 2017 WL 635031, at *14 (N.D. Tex. Feb. 16, 2017)(listing the elements of misappropriation of confidential information). Accordingly, Defendants' argument lacks merit.

         ii. Breach of Fiduciary Duty

         Defendants argue that Kent owed no fiduciary duties to Plaintiffs that were breached by Kent's actions.[83] Defendants claim that the only fiduciary duty that survived Kent's employment with Rigzone was the duty to not disclose trade secrets.[84] This is incorrect. Following his employment, an ex-employee has a fiduciary duty that forbids the employee “from using confidential or proprietary information acquired during the relationship in a manner adverse to the employer.” T-N-T Motorsports, Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 22 (Tex. App.-Houston [1st Dist.] 1998, pet. dism'd)(citing Miller Paper Co. v. Roberts Paper Co., 901 S.W.2d 593, 600 (Tex. App.-Amarillo 1995, no writ).

         Kent accessed the Rigzone resume database through URLs of which he was aware because of his previous employment at Rigzone.[85]He then used the information he retrieved to help Oilpro, a company that was directly competing with Rigzone.[86] These facts are sufficient for Plaintiffs' breach of fiduciary duty claim to survive summary judgment.

         5. Violation of the SCA

         The SCA provides a civil cause of action against a defendant who “(1) intentionally accesses without authorization a facility through which an electronic communication service is provided; or []intentionally exceeds an authorization to access that facility; and [(2)] thereby obtains, alters, or prevents authorized access to a wire or electronic communication while it is in electronic storage in such system . . . .” See 18 U.S.C. §§ 2701(a), 2707. Defendants argue that Plaintiffs cannot meet their summary judgment burden on the second element of their SCA claim because Defendants “did not access an electronic communication while it was in electronic storage.”[87] The SCA defines “electronic storage” to mean “(A) any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof; and (B) any storage of such communication by an electronic communication service for purposes of backup protection of such communication[.]” See 18 U.S.C. §§ 2711(1), 2510(17).

         Plaintiffs argue that each resume stored in the Rigzone resume database is a backup copy for the user, and, thus, the resumes within the database are in “electronic storage” as defined by the SCA.[88] As support, Plaintiffs cite to Theofel v. Farey-Jones, 359 F.3d 1066 (9th Cir. 2004). In Theofel, the Ninth Circuit held that an obvious purpose of emails stored on an internet service provider's server after delivery was to function as backup copies for users. See id. at 1075. Accordingly, the Ninth Circuit held that the emails were stored “for purposes of backup protection” under the SCA. See id.

         Plaintiffs specifically quote the following passage from Theofel to support their argument:

An obvious purpose for storing a message on an ISP's server after delivery is to provide a second copy of the message in the event that the user needs to download it again-if, for example, the message is accidentally erased from the user's own computer. The ISP copy of the message functions as a “backup” for the user. Notably, nothing in the Act requires that the backup protection be for the benefit of the ISP rather than the user. Storage under these circumstances thus literally falls within the statutory definition.

Id. However, Plaintiffs have made alterations to this quotation so that it reads as follows:

[a]n obvious purpose for storing [the resume] . . . after delivery is to provide a second copy of the [resume] in the event that the user needs to download it again-if, for example, the [resume] is accidentally erased from the user's own computer. The [Rigzone] copy of the message functions as a “backup” for the user. Notably, nothing in the Act requires that the backup protection be for the benefit of [Rigzone] rather than the user. Storage under these circumstances thus literally falls within the statutory definition.[89]

         Plaintiffs ask that, based on the altered Theofel quote, the court find that one of the obvious purposes of the resumes being stored in the Rigzone resume database was “for purposes of backup protection” for Rigzone's users. Plaintiffs cannot just replace “message” with “resume, ” replace “ISP” with “Rigzone, ” and omit that the email messages in Theofel were stored on an ISP's server, to meet their summary judgment burden to produce evidence showing that a purpose of resumes stored in the database was for backup protection.

         Plaintiffs have presented no summary judgment evidence that the resumes were stored “for purposes of backup protection.” Rather, the summary judgment evidence shows that the resumes were stored so that: (1) Rigzone website users could apply for job openings that were posted by employers and recruiters; and (2) recruiters and employers who paid for access to the resume database could directly solicit users who had uploaded their resumes.[90]Furthermore, the court is not prepared to hold as a matter of undisputed fact that: (1) emails are indistinguishable from resumes; (2) Rigzone is identical to an internet service provider; and (3) uploading resumes to a database is factually comparable to email traffic.

         For these reasons, the court finds that Plaintiffs have failed to present evidence that Defendants accessed an electronic communication while it was in electronic storage within the meaning of the SCA. Accordingly, summary judgment should be GRANTED on Plaintiffs' cause of action for violations of the SCA.

         6. RICO

         Defendants argue that summary judgment should be granted on Plaintiffs' RICO claims against Kent because: (1) Plaintiffs have failed to establish the continuity required for RICO claims; (2) Plaintiffs have not suffered RICO damages; (3) there is no RICO enterprise; and (4) Plaintiffs' have no evidence of the investment of income required for one of their RICO claims.[91] Plaintiffs argue that they have established continuity, suffered RICO damages, and that there is a RICO enterprise.

         Congress enacted RICO to prohibit conduct involving a pattern of racketeering activity. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 453 (2006); Word of Faith World Outreach Ctr. Church, Inc. v. Sawyer, 90 F.3d 118, 122 (5th Cir. 1996). “One of RICO's enforcement mechanisms is a private right of action, available to ‘[a]ny person injured in his business or property by reason of a violation' of the RICO's substantive restrictions.” Anza, 547 U.S. at 453 (quoting 18 U.S.C. § 1964(c)).

         Plaintiffs allege violations of 18 U.S.C. §§ 1962(a) (“Section 1962(a)”), (b) (“Section 1962(b)”), and (d) (“Section 1962(d)”).[92]Section 1962(a) punishes certain uses of income obtained from a pattern of racketeering activity. Section 1962(c) makes it unlawful for “any person employed by or associated with any enterprise engaged in, or in the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). Section 1962(d) makes it unlawful to conspire to violate any Section 1962 provision. The substantive requirements of 18 U.S.C. § 1962 are the same regardless of whether the suit is civil or criminal. St. Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 446 n.15 (5thCir. 2000).

         A pattern of racketeering activity is created by two or more predicate acts that are related and constitute or pose a threat of continued criminal activity. 18 U.S.C. § 1961(5); Brown v. Protective Life Ins. Co., 353 F.3d 405, 407 (5th Cir. 2003). Continuity of criminal activity may refer to either a closed period of repeated conduct or an open-ended period that threatens repetition. Zastrow v. Hous. Auto Imports Greenway Ltd., 789 F.3d 553, 561 (5th Cir. 2015)(quoting Word of Faith World Outreach Ctr. Church, Inc. 90 F.3d at 122)).

         i. Continuity

         Kent's illegal conduct spanned from at least October 2013 to August 2015.[93] During this time period, Kent illegally downloaded resumes from the Rigzone resume database on approximately fourteen or more distinct occasions.[94] Additionally, despite Kent's argument that his conduct would have ceased when he sold Oilpro to an unwitting purchaser, there is no evidence that Kent would have ceased his illicit conduct had he not been caught. Kent's illegal downloading and the period over which it occurred creates a triable issue of fact on whether continuity exists for the purposes of RICO.

         ii. RICO Damages

         Regarding Defendants' second argument, RICO provides that “any person injured in his business or property” by a violation of RICO “shall recover threefold the damages he sustains and the cost of the suit . . . .” See 18 U.S.C. § 1964(c). Defendants stole hundreds of thousands of resumes from Plaintiffs. The value of these resumes is disputed. At trial, Plaintiffs will have to prove that they were damaged and that the stolen resumes had a value. However, at this stage, Plaintiffs have met their burden to produce evidence that they sustained RICO damages.

         iii. RICO Enterprise

         Under RICO, an enterprise “includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]” 18 U.S.C. § 1961(4). Kent is a distinct legal entity from Oilpro and through their association, they form an “enterprise” under RICO. See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001)(“The corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status. And we can find nothing in [RICO] that requires more ‘separateness' than that.”). Accordingly, Defendants argument fails on this issue.

         iv. Investment of Income

         Plaintiffs' RICO claim pursuant to Section 1962(a) requires them to prove that Kent used or invested income derived from racketeering activity “in [the] acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.” Defendants argue that Plaintiffs failed to present evidence of any income from racketeering activity or the investment of such income. Plaintiffs did not respond to this argument. Accordingly, because the court has not been directed to any evidence satisfying Plaintiffs' Section 1962(a) claim, summary judgment should be GRANTED on this claim.

         7. ...


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