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Patrick Patterson Custom Homes, Inc. v. Bach

November 14, 2008


The opinion of the court was delivered by: Morton Denlow United States Magistrate Judge

Magistrate Judge Morton Denlow


Plaintiffs, Patrick Patterson Custom Homes, Inc., Patrick Patterson Development, Inc., Patrick H. Patterson and Alicia Patterson ("Plaintiffs"), filed a three-count amended complaint ("Amended Complaint") against their administrative assistant, Kathleen M. Bach ("Defendant"), alleging that she embezzled substantial funds from Plaintiffs. Dkt. 23.*fn1 Plaintiffs' Amended Complaint raises the following claims: (1) Count I for violation of the federal Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030; (2) Count II for common law fraud; and (3) Count III for breach of the duty of loyalty. Defendant now moves to dismiss all three counts pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Dkt. 28. For the reasons stated below, the Court denies Defendant's motion to dismiss.


A. Factual Background

The following is alleged in the Amended Complaint. Plaintiffs Patrick Patterson Custom Homes, Inc. and Patrick Patterson Development, Inc. are Illinois corporations that operate a construction business in Libertyville, Illinois. Am. Comp. at ¶¶ 1-2, 8. Plaintiffs Patrick H. Patterson, the sole shareholder of both corporations, and Alicia Patterson both manage the business out of a home office. Id. at ¶¶ 1-4, 8.

Defendant worked for Plaintiffs as an administrative assistant from 1998 until April 30, 2007. Id. at ¶¶ 5, 9. Responsible for paying bills for Plaintiffs, Defendant had access to corporate accounts and the personal checkbook of the individual Plaintiffs. Id. at ¶ 10. She also used a signature stamp for Patrick H. Patterson in order to effectuate authorized payments. Id. Transacting business with Plaintiffs' customers, vendors and personal creditors in a number of states, Defendant used Plaintiffs' laptop computer to "engage in e-email communications and on-line remittance and transfer of funds in interstate commerce." Id.

Plaintiffs allege that in late 2006, Plaintiffs discovered Defendant had used their accounts and signature stamp to write checks to herself or to pay her personal expenses. Id. at ¶ 11. When Plaintiffs confronted Defendant, she admitted she had done so and agreed to make restitution of $3,850.65. Id. at ¶ 12-13. Defendant reimbursed Plaintiffs in that amount in January 2007. Id. at ¶ 14.

Subsequently, Plaintiffs learned that Defendant's use of Plaintiffs' accounts was more extensive. Id. at ¶ 15. Specifically, Defendant used Plaintiffs' signature stamp to write fifteen checks to "cash," totaling more than $13,000.00, all of which she endorsed and cashed. Id. at ¶ 16. Plaintiffs also discovered Defendant had made payments to herself or to her personal creditors using electronic fund transfers, Plaintiffs' signature stamp and Plaintiffs' checking accounts. Id. at ¶ 17.

Plaintiffs further allege Defendant attempted to conceal her misdeeds. Id. at ¶ 18-25. For example, in February 2007, Plaintiff Alicia Patterson observed Defendant attempting to take out a bag of garbage, which aroused Plaintiff's suspicions. Id. at ¶ 18. Accordingly, Plaintiff instructed Defendant not to carry the garbage outside. Id. However, after Plaintiff observed Defendant take the garbage out, she searched its contents and found "duplicate bank statements and copies of checks with white-out to obscure the memo notations." Id. at ¶¶ 18-19.

This discovery prompted Plaintiffs to obtain and review additional copies of their bank statements, which revealed "white-out on the copies" of bank statements and memo entries on various checks. Id. at ¶ 20-21. Plaintiffs also reviewed surveillance tapes created by a security camera, which showed Defendant removing boxes of documents from the home office and placing them in her car. Id. at ¶23.

Additionally, Defendant deleted files from the laptop computer and installed a "shredding" software to destroy files on the laptop computer and render them unrecoverable. Id. at ¶ 24. As a result of Defendant's conduct, Plaintiffs were required to expend "substantial funds, in excess of five thousand dollars," in order to retrieve their "deleted and destroyed" financial records. Id. at ¶ 25. Plaintiffs' efforts in this regard included retaining computer forensic experts to attempt to restore deleted files; obtaining duplicate financial records from various financial institutions; and hiring an accountant to attempt to reconstruct their financial information. Id.

B. Procedural History

On December 21, 2007, Plaintiffs filed their original complaint ("Original Complaint"). Dkt. 1. Plaintiffs' Original Complaint asserted three counts against Defendant for: (1) violation of the CFAA, 18 U.S.C. § 1030; (2) common law fraud; and (3) breach of the duty of loyalty. Id. On February 18, 2008, Defendant filed a motion to dismiss all three counts. Dkt. 13. The district court granted Defendant's motion on June 25, 2008, dismissing Plaintiffs' Original Complaint, without prejudice, and granting Plaintiffs leave to file an amended complaint. Dkt. 22. Specifically, the district court found Plaintiffs had failed to state a claim under the CFAA because their mere allegation that the computer at issue qualified as a "protected computer" under the statute was "pure speculation," as "[t]he complaint contain[ed] no allegations that would suggest that the computer was used in interstate commerce." Id. Thus, the district court dismissed Count I for failure to state a claim, and also dismissed, without prejudice, the state law claims. Id.

Plaintiffs filed an Amended Complaint, which contains the same three counts alleged in the Original Complaint. Dkt. 23. In their Amended Complaint, Plaintiffs include additional allegations. Defendant moved to dismiss all three counts. Dkt. 28.


Under Federal Rule of Civil Procedure 12(b)(6), to survive a motion to dismiss for failure to state a claim upon which relief can be granted, the complaint must contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2); EEOC v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007). The complaint must "describethe claim in sufficient detail to give the defendant 'fair notice of what the . . . claim is and the grounds upon which it rests.'" Concentra, 496 F.3d at 776 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. ----, 127 S.Ct. 1955, 1964 (2007)). The "plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct at 1964-65. Additionally, the complaint "must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level.' " Concentra, 496 F.3d at 776 (quoting Twombly, 127 S.Ct. at 1965). If the allegations do not suggest such a right to relief, "the plaintiff pleads itself out of court." Id. When ruling on a motion to dismiss, the Court takes "as true all well-pleaded factual allegations in the complaint and make[s] all plausible inferences from those allegations in the plaintiffs' favor." Levy v. Pappas, 510 F.3d 755, 764 (7th Cir. 2007).


Defendant now seeks to dismiss all three counts of Plaintiffs' Amended Complaint. First, Defendant seeks to dismiss Count I pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. In addition, Defendant argues that if the Court dismisses Count I, this Court should decline to exercise subject matter jurisdiction over the state court claims in Counts II and III. Second, Defendant seeks to dismiss Count II pursuant to Rule 10(b) for failure to state claims based on separate legal theories in separate counts. Third, Defendant seeks to dismiss Count III pursuant to Rule 8 as being redundant of Count II.

A. Count I -- Violation of CFAA, 18 U.S.C. § 1030

Defendant seeks to dismiss count I of Plaintiffs' Amended Complaint pursuant to Rule 12(b)(6), for failure to allege the requisite elements of a CFAA claim. To state a claim under the CFAA, Plaintiffs need only allege the required elements pursuant to Rule 8(a)(2)'s notice pleading standard, not the heightened pleading standard of Rule 9(b). P.C. of Yonkers, Inc. v. Celebrations! The Party and Seasonal Superstore, LLC, 2007 WL 708978, at *6 (D.N.J. Mar. 5, 2007) (citing cases holding CFAA claims must satisfy general notice pleading requirements of Rule 8(a), not the heightened pleading standard of Rule 9(b)). The CFAA is primarily a criminal statute, but it provides for a private cause of action where a plaintiff meets certain requirements. See 18 U.S.C. § 1030(g).*fn2 To bring a civil action, a plaintiff must show a violation of one of the CFAA's substantive provisions, as ...

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