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Fidlar Technologies v. LPS Real Estate Data Solutions, Inc.

United States District Court, Seventh Circuit

November 8, 2013



SARA DARROW, District Judge.

LPS Real Estate Data Solutions, Inc. ("LPS") is suing Fidlar Technologies ("Fidlar") for telling third parties that LPS engaged in illegal conduct, thereby causing those parties (here, county officials) to break their contracts with LPS. According to LPS, Fidlar's damaging words give rise to causes of action for tortious interference with contract and tortious interference with business expectancy. LPS also seeks a preliminary injunction from the Court to prevent further harm arising from this interference. See ECF No. 9 and 14. For reasons discussed below, the Court finds that Fidlar's statements to the counties were privileged, and accordingly denies LPS's motions for injunctive relief.

Also before the Court is Fidlar's Complaint against LPS for computer fraud and tampering and trespass to chattels. LPS moves to dismiss Fidlar's Complaint, see ECF No. 35, which the Court denies for reasons set out below.


Fidlar Technologies' Software Services to Counties

Fidlar is a technology company incorporated in Michigan, with its principal place of business in Rock Island, Illinois. Fidlar markets its services to a number of governmental entities in the Midwest, such as county clerks' offices, who engage Fidlar to make public records available over the Internet. Evid. Hr'g Tr. at 129-34.[1] To that end, Fidlar sells the counties its Laredo program, a computer program that facilitates public access to the counties' records.[2] Id. Members of the public interested in accessing the counties' records online download Laredo, sign an End-User Agreement, and obtain a username and password from the county. Once a user logs into Laredo with her username and password, she can search for and view the public records for that county online. Id. at 80. Laredo is designed to track the time a user spends logged into the program. Id. at 227-28.

The convenience of online access comes at a price, though, as the counties charge users a subscription fee for access to Laredo, usually on a per-minute or monthly basis. See Evid. Hr'g LPS Ex. B. Laredo is also designed to prevent users from downloading or electronically capturing the documents they view, and a user that desires a copy of a public record must pay the county a fee to print it. Id.; Evid. Hr'g Tr. at 224. Fidlar is not merely aware that Laredo enables the counties to make money from users' viewing and printing public documents, it markets Laredo as a revenue-generator for the counties. See Evid. Hr'g Tr. at 136 (quoting Scott Moore Dep. at 140); see also Sandy Leitheiser Dep. at 10 ("[T]his entire issue comes down to a revenue loss for [our county][.]"). Fidlar receives a portion of the subscription revenue that the counties collect, but none of the fees that the counties charge to print. Ultimately, only the counties (not Fidlar) determine whether to grant a public user access to Laredo and what price to charge for access and printing. Evid. Hr'g Tr. at 137, 140, 184.

LPS's Collection of Property Data from Public Records

LPS is a real estate data analytics company incorporated in California with its principal place of business in that state. LPS gathers, aggregates, and standardizes real property data for a variety of customers, including mortgage companies, banks, real estate companies, and title industry representatives. Evid. Hr'g Tr. at 31-34. LPS obtains property data from public record sources-primarily county assessor and recorder offices-then standardizes that data, aggregates it with information from third parties, and licenses it to its customers. Id. All of this is done on a vast scale: of the 3, 142 county recorders' offices in the nation, LPS has relationships with 2, 600 of them to access their public information. Id. at 64. LPS's ultimate success is dictated by the completeness, accuracy, and timeliness of the data that it collects and sells. Id. at 51.

LPS uses several methods to collect its property data. The most preferable option, from LPS's standpoint, is to contract with counties to receive bulk image transfers of electronic records via a file transfer protocol (FTP) or on a media device like a USB drive. Evid. Hr'g Tr. at 40, 71-73. If a bulk data transfer is not feasible or not offered by a county, then LPS uses software like Laredo to view records online (as will be discussed in more detail below). There are also less preferable ways for LPS to collect public record data, such as receiving documents on microfilm or microfiche, obtaining paper copies, or engaging in field collection. Id. at 72-73. Field collection is especially problematic in LPS's view because it requires LPS to train contract workers to physically enter county recorders' offices and manually transcribe data. Id. at 53-54. Field collection is limited not only by the slow pace at which the contractors can copy the desired information from the records, but also by the fact that some counties prohibit electronic equipment in their offices, thus requiring the contractors to transcribe the information longhand. Id. at 38, 53-54. Given the tedious nature of this work, it is not surprising that there is significant turnover among contractors, which further weighs against LPS using field collection whenever possible.

Of the methods for collecting public records data that LPS has at its disposal, LPS's use of Laredo is the most relevant here. LPS contracts with approximately 81 counties to access their public records over the Internet using Laredo. Evid. Hr'g Tr. at 44-45; Evid. Hr'g LPS Ex. B. LPS resorts to using Laredo in these counties because obtaining the records via bulk data transfer is not an option, and Laredo is still preferable to the more cumbersome methods of data collection. Evid. Hr'g Tr. at 46, 70. Like any other Laredo user, LPS pays each of these counties a monthly subscription fee based on LPS's use of Laredo; executes an End-User Agreement; and receives a username and password from each county. See Evid. Hr'g Ex. B. But LPS's actual use of Laredo differs very much from that of the regular user, and forms the basis of this case.

LPS's Use of Web Harvesting Software to Access Laredo

As discussed above, Laredo allows users to search for and view public records. But a user can only view documents one-at-a-time, and cannot electronically capture or download them onto her own computer. Thus, if a Laredo user wants to keep the information contained in a public record, she would have to either manually transcribe the data or pay the county a fee to print a copy of the document. See Evid. Hr'g Tr. at 47. These limitations make using Laredo more expensive and time-consuming than LPS prefers. Id. LPS therefore developed a computer program that enables it to electronically capture the information contained on public records, at a faster rate than normally possible and without incurring print fees. This program is commonly referred to as a "web harvester"; web harvesting generally refers to the creation of a computer code in order to acquire data from images. Id. at 80.

To create its web harvester, LPS first downloaded Laredo, logged in with its username and password, and searched for a public record. Evid. Hr'g Tr. at 80. Using an HTTP Analyzer, LPS then viewed and saved the resulting traffic. Evid. Hr'g Tr. at 81. Traffic is the trail left on a computer after completing certain actions; in this case, the traffic that LPS viewed and downloaded consisted of commands between Laredo's web interface and the counties' (or, in some cases, Fidlar's) servers whenever a user logs in and searches for records. Id. at 81, 100-02. Fidlar wrote these commands specifically for the Laredo program, but upon viewing them LPS observed that they conformed to a SOAP protocol, which is a common protocol for communicating with servers. Id. at 83, 98-99. By isolating and analyzing the SOAP calls (or commands) that Laredo sent to the servers, LPS was able to identify the specific calls that yielded certain data contained in the records. Id. at 84. LPS then used those specific calls to create a program that harvested information from county servers in a way not possible for the typical Laredo user.

To operate its web harvester to access records in a given county, an LPS employee would manually start the program, which then connects to the servers containing the county's records.[3] Evid. Hr'g Tr. at 86-87. The web harvester then queries the servers for records, streams the images of the records one at a time (although at a much faster rate than could be accomplished manually), and saves the data that comprises those images. Id. at 88, 91-92. The most important practical effect is that the web harvester allows LPS to download data contained in public records without paying the counties to print them and without having to manually transcribe the desired information. LPS's use of the web harvester also prevents Laredo from recording the minutes LPS logs on the program or the documents LPS searches for. Id. at 96, 112. Prior to this lawsuit, LPS would typically run its web harvesters once or twice a week in the counties where it had a Laredo contract. Id. at 91. LPS would then send the captured data to a vendor that manually inputs the information from the records into a database owned by LPS. Id. at 108. LPS then standardizes the data, supplements it, and sells it to its customers. Id. at 31, 33.

Not surprisingly, LPS never sought or received consent from Fidlar or the counties to copy the traffic from Laredo or to save the data contained in the images of public records. Evid. Hr'g Tr. at 97. But LPS would review its subscription contract with a given county before using a web harvester to access Laredo there, and in LPS's view none of its contracts prohibited LPS from using its web harvester. Id. at 68, 75. Nor did any county ever affirmatively tell LPS that its use of a web harvester was prohibited. Id. Nevertheless, the counties and Fidlar were not pleased when they found out what LPS was doing.

Fidlar's Discovery of LPS's Web Harvesting

Beginning in January 2012, a number of counties that had purchased Laredo from Fidlar began contacting Fidlar to express concern regarding LPS's use of the program. While LPS had paid the counties a monthly fee to access public records via Laredo, it appeared to the counties that LPS was not logging any minutes. See, e.g., Ronald Voigt Dep. at 17; Cheryl Cochran-Wilson Dep. at 14-17; Julie Kae Kalkbrenner Dep. at 13-16. In response, Fidlar conducted an internal audit of LPS's Laredo use, which revealed that LPS was indeed conducting searches on Laredo without logging minutes. Evid. Hr'g Tr. at 221. The audit also showed that, in approximately 74 counties, LPS was using a web harvester to download documents from the counties' (and, to a lesser extent, Fidlar's) servers. Evid. Hr'g Tr. at 221-25. Fidlar memorialized the audit in written reports that summarized Fidlar's findings and made specific reference to "illegal" searches on LPS's part. Evid. Hr'g LPS Ex. C.

In light of the audit reports, Fidlar recognized that LPS's conduct could have a potentially negative impact on the relationship between Fidlar and the counties, since Fidlar marketed its software as a way for the counties to gain revenue from print fees. Evid. Hr'g Tr. at 135-36, 141-42; Evid. Hr'g LPS Ex. L. That revenue from print fees would disappear if LPS could save the data from public records on its own computers. Fidlar thus commenced two courses of action: developing an upgrade of Laredo to prevent web harvesting, and contacting the affected counties.

Fidlar's Communications with the Counties Regarding LPS's Web Harvesting

In late February 2013, Fidlar President and Co-owner Ernest Riggen personally called Dawn Young, Recorder of Deeds for Whiteside County, Illinois, and informed her of LPS's activities. Evid. Hr'g Tr. at 210-11. A week later, Young unilaterally terminated LPS's Laredo access in Whiteside County. Id.; Evid. Hr'g LPS Ex. J-8. Shortly thereafter, Fidlar Vice President of Sales and Marketing Scott Moore began calling each affected county regarding LPS's web harvesting, making over 300 calls to about 60 counties in all. Evid. Hr'g Tr. at 128, 143-44. While there is no record of what exactly Moore said on those calls, his prepared talking points stated that Fidlar had discovered LPS's web harvesting; that LPS had gained "improper" access to Fidlar's system and had engaged in "unauthorized" use of Laredo; that the county records had been "compromised"; and that Fidlar was considering legal action against LPS. Id. at 148-51 (quoting Moore Dep. at 82, 91). Some county recorders who were party to the calls later confirmed that Moore described LPS's access as "unauthorized." See Kalkbrenner Dep. at 10; Cochran-Wilson Dep. at 9; Leitheiser Dep. at 25; Voigt Dep. at 12-13.

On March 8, 2013, Fidlar sent a newsletter to every county where LPS had a Laredo account. Evid. Hr'g LPS Ex. D. The newsletter discussed LPS's web harvesting and indicated that Fidlar would be releasing a new version of Laredo that would prevent it in the future. The letter also stated that the counties could "stop this type of web harvesting by calling or emailing us and we will eliminate [LPS's] Laredo account in your county." Id. On March 11, 2013, Fidlar filed its Complaint against LPS in this Court alleging causes of action under the Computer Fraud and Abuse Act, the Illinois Computer Crime Prevention Law, and also for trespass to chattel. See ECF No. 1. Riggen forwarded a copy of the Complaint to the recorders of the counties listed in the Complaint, and told them: "I am sending you a copy because we have made the decision to include actual evidential examples of the type of fraud committed...." Evid. Hr'g LPS Ex. O, P; Evid. Hr'g Tr. at 207-08. In an email to the recorder for Clay County, Minnesota, Riggen said he was "sickened" by LPS's behavior. Evid. Hr'g LPS Ex. O; Evid. Hr'g Tr. at 205.

On March 13, 2013, Fidlar sent another newsletter to the counties that discussed the web harvesting activities of two unnamed companies, and indicated that Fidlar had filed suit against both companies. Evid. Hr'g LPS Ex. E. The newsletter closed by saying: "It doesn't surprise us that we must continue to be vigilant in this area. What does surprise us is the lengths some will go to collect YOUR information. As your partner, we will always go to extreme lengths to help make sure YOU ARE THE SOURCE!" Id. At about that time, Fidlar also began sending counties the audit reports it had prepared for the 74 counties where LPS was a Laredo user: those reports referred to LPS's searches as "illegal." Evid. Hr'g Tr. at 164-69, 225; Evid. Hr'g LPS Ex. C.

Beginning in mid-March, 2013, Fidlar conducted state-wide conference calls with the recorders of deeds from Illinois, Indiana, Minnesota, Missouri, and Wisconsin with whom Fidlar had relationships. See Evid. Hr'g LPS Ex. H, I, Q. In anticipation of the conference calls, Fidlar emailed the recorders a diagram depicting how Fidlar thought LPS had obtained "foreign" access of Laredo with its web harvester. Evid. Hr'g LPS Ex. F. On each conference call, Fidlar Director of Operations Adam Watkins walked through the contents of the audit report that had been sent to the counties. Evid. Hr'g Tr. at 170. Watkins and Scott Moore then took questions from the county recorders. During the Minnesota conference call, the following exchange took place:

FEMALE VOICE: So with this proof that you have, is that enough to terminate their Laredo contract with no notice?
SCOTT MOORE: That's a decision you have to make. I - I- you have to understand that with our current situation and with the fact that we have a lawsuit filed against them, we have to be a little careful on how we recommend and what we can and can't say in that regard.
FEMALE VOICE: (Inaudible) - easy.[4]
SCOTT MOORE: Yeah. If you could see my head nodding in a certain direction, that might help you.

Evid. Hr'g LPS Ex. I, at 13:19-15:9. Moore later confirmed that he was shaking his head "yes, " and that he intended to convey that the counties had sufficient reason to terminate LPS's Laredo contract without notice. Evid. Hr'g Tr. at 172-73.

The conference call with the Indiana recorders was also attended by Ernest Riggen. In response to a question about the nature of Fidlar's lawsuit against LPS, Riggen stated: "[T]hey have broken several state and federal laws by circumventing the user interface of our software and, for lack of a better term, hacking into the servers at our location." Evid. Hr'g LPS Ex. H, at transcript 32:7-10.

The Counties Terminate LPS's Laredo Access and Install Laredo Upgrade

In response to the communications from Fidlar discussed above, in March of 2013 a number of counties began unilaterally cutting off LPS's access to Laredo. Evid. Hr'g Tr. at 49-50. Of the 81 counties with whom LPS had Laredo contracts, 42 eventually terminated LPS's Laredo account. Id. Each of those 42 counties had been contacted by Fidlar; some county recorders later stated that they terminated LPS based on information received from Fidlar. See Kalkbrenner Dep. at 12; Voigt Dep. at 17; Cochran-Wilson Dep. at 17-19; Leitheiser Dep. at 26-27. At the time of termination, though, the counties provided LPS a variety of reasons for shutting off its Laredo accounts, such as breach of contract, discrepancies in Laredo usage, questionable activity, gaining unauthorized access to portions of Laredo, inactivity, and the pending lawsuit by Fidlar. See Evid. Hr'g LPS Ex. J. Some of the counties gave LPS no explanation at all.

Additionally, many affected counties authorized Fidlar to install an upgrade of Laredo that prevents web harvesting by encrypting Laredo's traffic. Evid. Hr'g Tr. at 232. Of the 81 counties that have Laredo contracts with LPS, approximately 60 have upgraded. Id. Even though the upgrade disables LPS's ability to web harvest, some of the counties that initially terminated LPS's Laredo access have still not reinstated it post-upgrade. Evid. Hr'g Tr. at 56.

According to LPS, the counties' actions have had dire consequences for LPS's business. LPS's success is governed by the timeliness and completeness of the property data it collects, and LPS has been unable to keep its data current in those counties that terminated its Laredo access. Evid. Hr'g Tr. at 51-56. While LPS has not undertaken alternate means to gather data in those counties that terminated its Laredo account, LPS claims this is because such options are either unavailable or not feasible. Evid. Hr'g Tr. at 60-67. For example, LPS has not resorted to field collection due to its slow and cumbersome nature; according to LPS, it would take about six to eight months to get field collection efforts up and running in each of the 42 counties that terminated LPS's Laredo access. Id. at 276. Similarly, in the counties where LPS still has a valid Laredo account, and where the Laredo upgrade was installed, LPS has not used Laredo to collect data because it considers the conventional way of using the program (i.e. without web harvesting) to be nearly as inefficient as manual field collection. Evid. Hr'g Tr. at 74.

The Present Litigation

Following the aforementioned actions taken by Fidlar and the counties, this litigation quickly escalated. On April 8, 2013, LPS filed its Motion to Dismiss Fidlar's Complaint, ECF No. 6, and its Counterclaim against Fidlar alleging tortious interference with contract and business expectancy, ECF No. 8. LPS concurrently moved for a temporary restraining order and preliminary injunction prohibiting further disparaging communication between Fidlar and the counties and ordering Fidlar to ask the counties to restore LPS's Laredo access pending this litigation. ECF No. 9. LPS also sought a declaratory judgment from the Court that the counties' use of Laredo to make their public records available violates Illinois' Freedom of Information Act.

Following a hearing on April 15, 2013, the Court denied LPS's Motion for a TRO, finding that the evidence presented at that point only showed that Fidlar had made truthful statements to the counties regarding LPS's actions. The Court set the matter for an evidentiary hearing on May 17, 2013, regarding LPS's request for a preliminary injunction, with expedited discovery to be completed in the interim. Prior to the evidentiary hearing, LPS filed another motion for a temporary restraining order to bar Fidlar's release of the Laredo upgrade. ECF No. 14. At the May 17, 2013, hearing, the Court heard evidence and argument from the parties and took the matter under advisement. Now before the Court are LPS's Motion to Dismiss Fidlar's Complaint and motions for injunctive relief, which the Court rules on in turn.


I. LPS's Motion to Dismiss ...

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