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Hill v. Lynn

United States District Court, N.D. Illinois, Eastern Division

June 12, 2018



          Edmond E. Chang Judge

         Andrew Hill and Riana Lynn are co-founders of a company called FoodTrace. After their business relationship soured, Hill brought this lawsuit against Lynn. His complaint alleges a variety of federal and state-law claims on his own behalf and on behalf of FoodTrace.[1] See generally, R. 40, Am. Compl.[2] Lynn moves to dismiss four of these claims for failure to state a claim upon which relief can be granted. R. 49, Mot. Dismiss. For the reasons stated below, the motion is denied as to Counts 1 (the CFAA), 9 (fraud), and 4 (unjust enrichment), but granted as to Count 6 (the shareholder derivative claim).

         I. Background

         For purposes of the motion to dismiss, the Court accepts as true the factual allegations in the Amended Complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). In Summer 2014, Lynn approached Hill about developing a business venture, specifically a company called FoodTrace. Am. Compl. ¶¶ 10-15. Hill agreed to assist by coding a software application that would form the basis of the business, in exchange for an equity share in FoodTrace. Id. ¶¶ 15-16. Hill began work on the code and constructed an application using GitHub, a software development platform. Id. ¶ 21.

         Hill devoted a lot of time to working on FoodTrace, and by December 2014 Hill and Lynn began to discuss having Hill leave his day job in order to work fulltime at FoodTrace. Id. ¶¶ 24-33. In January 2015, Hill agreed to quit his other job and work exclusively for FoodTrace. Id. ¶ 35. Instead of receiving salary or wages, Hill and Lynn agreed that Hill would receive a 22.671% equity share in FoodTrace. Id. ¶ 36. At some point, Lynn presented Hill with a draft contract that incorrectly listed him as having only a 15% interest in FoodTrace. Id. ¶ 39. Lynn told Hill that she would fix the mistake and return a clean copy to Hill, but she never did, and Hill never signed a written agreement. Id. ¶ 40. Even so, Hill did eventually resign from his trading job and began to work full-time for FoodTrace. Id. ¶¶ 44-45.

         Unfortunately, trouble was on the horizon. By the summer of 2015, Lynn had begun to be more and more absent from FoodTrace's office, and was often out of contact with Hill for long periods of time, despite his many attempts to contact her. Id. ¶¶ 51-52. Lynn (who handled the payroll) stopped paying FoodTrace's employees, which, not surprisingly, caused them all to quit. Id. ¶¶ 57-62. Despite these problems, Hill continued to work on FoodTrace, and attempted to reach out to Lynn for input on business decisions, but Lynn was not responsive. Id. ¶¶ 63-67. Eventually, Hill and Lynn both decided that they should sell FoodTrace, but Lynn did not communicate well with Hill about the process of selling FoodTrace. Id. ¶¶ 80-82. Because of the plan to sell FoodTrace, Hill got a new job in February 2016. Id. ¶ 84.

         Relations between Hill and Lynn continued to decline. Around August 2016, Lynn cut off Hill's access to the FoodTrace email systems. Id. ¶ 91. During this time, Lynn accessed Hill's GitHub account, downloaded FoodTrace's computer code, deleted the code from GitHub, and deleted the history of edits made to the code. Id. ¶¶ 93-95. Hill immediately tried to contact Lynn to find out what was happening, but Lynn never responded. Id. ¶ 96.

         In August 2017, Hill saw an announcement stating that FoodTrace had been sold for $14 million. Id. ¶ 100. Hill was not informed of a sale, and never received any profits from the sale. Id. ¶¶ 101-103. Hill alleges that Lynn misappropriated the share of the profits to which he was entitled for her own benefit. Id. ¶ 103. According to Hill, Lynn sold or dissolved FoodTrace in order to prevent Hill from recovering his fair share of FoodTrace's profits. Id. ¶ 104. Hill also asserts that Lynn used FoodTrace's funds for her own personal expenses. Id. ¶ 155.

         II. Legal Standard

         A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted. Hallinan v. Fraternal Order of Police Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint.” Erickson, 551 U.S. at 94. A “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). These allegations “must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. And the allegations that are entitled to the assumption of truth are those that are factual, rather than mere legal conclusions. Iqbal, 556 U.S. at 679. The complaint is sufficient only if it gives enough factual detail to “present a story that holds together.” Swanson v. Citibank, 614 F.3d 499, 404 (7th Cir. 2010).

         III. Analysis

         A. The CFAA

         Hill's first claim against Lynn is that Lynn violated the Computer Fraud and Abuse Act (often referred to as the CFAA), 18 U.S.C. § 1030, by accessing Hill's GitHub account and deleting FoodTrace's code. Although the CFAA “is primarily a criminal anti-hacking statute, ” Section 1030(g) “provides a civil remedy for any person who suffers damage or loss due to a violation of § 1030.” Fidlar Techs. v. LPS Real Estate Data Solns., Inc., 810 F.3d 1075, 1079 (7th Cir. 2016).

         To succeed on the CFAA claim, Hill would need to prove a loss of at least $5, 000 in a one-year period.[3] Lynn argues that Hill has not pled a loss of $5, 000, and asserts that the CFAA claim must be dismissed on that basis. R. 50, Def. Mem. at 3. That argument is rejected. Hill alleges that he has been damaged by Lynn's deletion of the code “in excess of $75, 000.” Am. Compl. ¶ 126. Specifically, Hill lost out because the code was deleted and sold without any profits being distributed to Hill. Id. Although there is not much explanation for the $75, 000 figure, the allegations in the complaint are enough for a plausible inference that the code was worth at least that much, and indeed much more. FoodTrace was reportedly sold for ...

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