United States District Court, N.D. Illinois, Eastern Division
September 16, 2004.
LIEBERT CORPORATION, an Ohio corporation and ZONATHERM PRODUCTS, INC., an Illinois corporation, Plaintiffs,
JOHN MAZUR and AERICO, INC., an Illinois corporation, Defendants.
The opinion of the court was delivered by: WILLIAM HART, Senior District Judge
MEMORANDUM OPINION AND ORDER
On May 28, 2004, plaintiffs Liebert Corporation and Zonatherm
Products, Inc. filed this lawsuit naming John Mazur and Aerico,
Inc. as defendants. The one-count complaint alleges that
defendants violated the Computer Fraud and Abuse Act ("CFAA"),
18 U.S.C. § 1030, when Mazur took computer files with him upon
resigning as a Sales Manager for Zonatherm. Zonatherm acted as
Liebert's exclusive sales agent in the Chicago area. Much of the
information contained in the computer files allegedly taken by
Mazur was information concerning Liebert and its products. Mazur
is presently the President of Aerico, a company he founded with
two other individuals a few months before Mazur resigned from Zonatherm. When taking the computer files, Mazur allegedly acted
as a agent of Aerico. Aerico is American Power Conversion
Corporation's ("APC") exclusive authorized representative in the
Chicago area. APC is a competitor of Liebert. On February 5,
2004, prior to filing their federal lawsuit, plaintiffs filed a
lawsuit in the Circuit Court of Cook County, Illinois against
Mazur and Aerico and also naming APC and four other individuals
as defendants. Based on essentially the same underlying facts as
the federal lawsuit, the state lawsuit included claims for
violation of the Illinois Trade Secrets Act ("ITSA"),
765 ILCS 1065, and related common law counts.*fn1 Invoking Colorado
River Water Conservation District v. United States, 424 U.S. 800
(1976), defendants move to stay the federal proceeding in light
of the related state court proceeding.*fn2
Federal courts have "the virtually unflagging obligation . . .
to exercise the jurisdiction given them." Colorado River,
424 U.S. at 817; Clark v. Lacy, 376 F.3d 682, 685 (7th Cir. 2004); Interstate Material Corp. v. City of Chicago,
847 F.2d 1285, 1287 (7th Cir. 1988). Other than in instances raising
special constitutional or federalism concerns, a federal court
should only defer to the concurrent jurisdiction of a parallel
state court proceeding in "exceptional circumstances." Colorado
River, 424 U.S. at 818; Clark, 376 F.3d at 685. In exceptional
circumstances, "[w]ise judicial administration," including regard
for the "conservation of judicial resources and comprehensive
disposition of litigation" may counsel abstention on the part of
a federal court. Colorado River, 424 U.S. at 818.
There is no basis for staying a case under the Colorado River
doctrine unless the state and federal proceedings are parallel.
Clark, 376 F.3d at 685; Interstate Material,
847 F.2d at 1287. The "initial step in determining whether the Colorado
River doctrine is applicable is to inquire whether the
concurrent state and federal proceedings are parallel. It is
important to note that `the requirement is of parallel suits, not
identical suits. A suit is parallel when substantially the same
parties are contemporaneously litigating substantially the same
issues in another forum.'" Caminiti & Iatarola, Ltd. v. Behnke
Warehousing, Inc., 962 F.2d 698, 700 (7th Cir. 1992) (quoting
Interstate Material, 847 F.2d at 1288)) (emphasis in
Caminiti). Accord Clark, 376 F.3d at 686. In determining
whether cases are parallel, a court "look[s] not for formal
symmetry between the two actions, but for a substantial likelihood that the state
litigation will dispose of all claims presented in the federal
case." Lumen Construction, Inc. v. Brant Construction Co.,
780 F.2d 691, 695 (7th Cir. 1985). Accord Clark, 376 F.3d at 686.
If the two suits are parallel, there are ten nonexclusive
factors that a district court can consider in deciding whether
"exceptional circumstances" exist that would justify deference to
the state courts under the Colorado River doctrine. These
factors are: "(1) whether the state has assumed jurisdiction over
property; (2) the inconvenience of the federal forum; (3) the
desirability of avoiding piecemeal litigation; (4) the order in
which jurisdiction was obtained by the concurrent forums; (5) the
source of governing law, state or federal; (6) the adequacy of
state-court action to protect the federal plaintiff's rights; (7)
the relative progress of state and federal proceedings; (8) the
presence or absence of concurrent jurisdiction; (9) the
availability of removal; and (10) the vexatious or contrived
nature of the federal claim." Clark, 376 F.3d at 685. "No one
factor is necessarily determinative; a carefully considered
judgment taking into account both the obligation to exercise
jurisdiction and the combination of factors counseling against
that exercise is required." Colorado River, 424 U.S. at 818-19.
The checklist is not to be applied mechanically, but flexibly and pragmatically. LaDuke v.
Burlington Northern R.R., 879 F.2d 1556, 1559 (7th Cir. 1989).
Both the CFAA claims in the federal case and the ITSA claims in
the state case arise from the same occurrence and set of facts.
Although the taking of trade secrets is not a necessary element
of the CFAA claim, plaintiffs do expressly allege in the federal
suit that information that was allegedly taken by Mazur included
"confidential, proprietary, and trade secret information." See
Compl. ¶¶ 17-19, 25, 30-31, 33. See also id. ¶¶ 7-11. While
plaintiffs may not need to prove the existence of a trade secret
(as that term is used in the ITSA) in order to succeed on their
CFAA claim, the allegations of the complaint indicate that, in
proving the damages they allegedly sustained, plaintiffs will
indeed attempt to prove the information that was taken was a
trade secret. Plaintiffs will at least have to show that the
information was taken "without authorization" or "exceed[ed
Mazur's] authorized access." See 18 U.S.C. § 1030 (a).
While it is possible that plaintiffs could succeed on their
CFAA claims without also succeeding on their ITSA claims, or
vice versa, litigation of the two claims will involve identical
or almost identical discovery and very similar factual proof at
trial. Also, even if plaintiffs do not amend the state law suit
to add CFAA claims, resolution of the state law case would likely dispose of the CFAA claims as well because of
Illinois law as to res judicata and claim splitting. Nothing in
the CFAA's jurisdictional provision indicates that civil claims
under the statute may only be brought in federal court. See
18 U.S.C. § 1030(g). Plaintiffs could have, and likely still may,
include the CFAA claims in the state action. Since the CFAA
claims arise from the same occurrence as the ITSA claims, the
CFAA claims would likely be found to be part of the same cause of
action that has already been raised in the state lawsuit.
Illinois res judicata rules apply to claims that are part of
the same cause of action if those claims could have been raised
in the prior lawsuit. See Jones v. Grinnell, 1995 WL 699653
*2 (N.D. Ill. Nov. 24, 1995); Erickson v. Village of Willow
Springs, 876 F.Supp. 951, 958 (N.D. Ill. 1995). Even if
plaintiffs are successful in their state lawsuit and believe they
can obtain additional relief by continuing to pursue the CFAA
claims in federal court, the Illinois rule against claim
splitting would likely preclude such an attempt. See Saxon
Mortgage, Inc. v. United Financial Mortgage Corp.,
312 Ill. App. 3d 1098, 728 N.E.2d 537, 545-46 (1st Dist. 2000). Thus,
resolving the state case on its merits would likely preclude continuing
with the federal lawsuit based on the res judicata effect of
the state lawsuit. The state lawsuit and the federal lawsuit are
parallel proceedings. Cf. Jones, 1995 WL 699653 at *2. Turning to the customary factors to consider. First, this is
not a case in which the state court has assumed jurisdiction over
a piece of real or personal property.
There is no distinction as to which forum is more convenient.
The two courthouses are located within a few blocks of each other
and the parties do not point to any potential problems regarding
obtaining jurisdiction over any potential witness.
Avoiding piecemeal litigation strongly favors staying the
present action. See Clark, 376 F.3d at 687. Proceeding with
both cases could result in duplicative discovery, summary
judgment motions based on nearly identical facts, and/or two
different juries hearing nearly identical evidence.
The state court action was filed almost four months prior to
the federal action. More importantly, substantial discovery has
already occurred in the state court proceeding and the state
court has already ruled on a summary judgment motion and is
considering preliminary relief. No substantive proceedings have
been held in the federal case and it appears that the parties
have not yet exchanged any discovery.
State law applies to the claims presently raised in state court
and federal law applies to the claims presently raised in federal
court. Plaintiffs seek the same type of relief in both courts,
damages and injunctive relief. Relief available under the ITSA is broader than that available under the CFAA. Under
appropriate circumstances, the ITSA allows unjust enrichment
damages in addition to damages based on actual losses or
alternatively permits damages based on a royalty.
765 ILCS 1065/4(a). If willful or malicious misappropriation is shown,
plaintiffs may recover exemplary damages equal to as much as
double § 4(a) damages. Id. § 4(b). The ITSA also permits an
award of attorney fees if there is willful or malicious
misappropriation or a motion for injunctive relief is resisted in
bad faith. Id. § 5. The CFAA limits damages to actual
compensatory damages and, for certain violations, economic
damages. There is no express provision for exemplary damages or
attorney fees. See 18 U.S.C. § 1030(g). The state court case is
sufficient to fully protect plaintiffs' rights, especially if
plaintiffs seek to amend that case to add the federal claim.
As presently constituted, the state case is not subject to
removal because diversity of citizenship is lacking.
The federal claims do not appear to be vexatious or contrived.
The two cases are based on the same facts. They only involve
somewhat different legal grounds for the claims. Judicial economy
would strongly favor joining all the claims in a single case.
Cf. Clark, 376 F.3d at 687. Since the state case was filed
first and has proceeded substantially further than the federal case, it is appropriate to stay the federal case pending
resolution of the state case. Cf. id. at 687-88; Jones,
1995 WL 699653 at *2-3. A stay will be effectively imposed by
dismissing the case without prejudice with leave to move to
reinstate this case within 30 days after the state case becomes
final in the event that further proceedings in the federal case
would be appropriate.
IT IS THEREFORE ORDERED that defendants' motion to stay
proceedings [3-1] is granted. Defendants' motion to strike [8-1]
is denied as moot and defendants' motion for sanctions [8-2] is
denied. Plaintiffs' cause of action is dismissed without
prejudice with leave to move to reinstate this case within 30
days after the state case becomes final in the event that further
proceedings in the federal case would be appropriate. Each party
shall bear its own costs.