Opinion
Case No. 2:02-CV-929TC
October 28, 2003
ORDER
The factual background of this case, as set forth in the parties' pleadings, is extensive. The facts are repeated here only to the extent necessary to understand the context of the parties' dispute.
Plaintiff IKANO Communications ("IKANO") is an Internet Service Provider ("ISP") offering dial-up and DSL access services. Defendant Big Planet ("Big Planet"), a wholly owned subsidiary of Defendant Nu Skin Enterprises ("Nu Skin"), is another ISP, also engaged in the business of marketing products and services using the Internet. IKANO and Big Planet entered into two related agreements under which IKANO was to provide Internet services to Big Planet's subscribers for a fixed monthly rate, and IKANO was to assume Big Planet's responsibilities to another company, UUNet Technologies, Inc. This action arises from certain alleged abuses by Big Planet and its subscribers in relation to these agreements, namely simultaneous logins and password sharing, leading to high rates of connection to the Internet, and correspondingly high costs for IKANO.
IKANO initially sued Big Planet and Nu Skin in Utah State Court, alleging only contract claims. IKANO has now filed this federal action against Big Planet, Nu Skin, and (in its First Amended Complaint ("FAC"), six new parties, all believed to be "individual subscriber[s] of Big Planet or distributor[s] of Nu Skin who . . . improperly accessed or used IKANO's services and [are] agent[s] of Nu Skin." (FAC ¶¶ 28-33). The bases for federal jurisdiction are IKANO's causes of action under the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1028 et seq. (2003), and the Electronic Communications Storage Act ("ECSA"), 18 U.S.C. § 2701 et seq. (2003). IKANO initially asserted a claim described in Count 4 as "Federal Unfair Competition and Business Practices Against All Defendants," but has since acknowledged that no such cause of action exists.
DISCUSSION
I. Legal Standard
Defendants bring this Motion to Dismiss IKANO's First Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) authorizes a court to dismiss a complaint if it "fail[s] to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b) (6). The Tenth Circuit has noted that a "motion to dismiss may be granted only if it appears beyond a doubt that the plaintiff is unable to prove any set of facts entitling her to relief under her theory of recovery." Id IKANO has submitted exhibits, and both parties refer to evidence outside the pleadings. Nonetheless, the court looks only to the pleadings themselves, and declines to treat this motion as one for summary judgment.
II. Analysis
As mentioned above, IKANO has conceded its "Federal Unfair Competition and Business Practices Against All Defendants" claim (Count 4). Additionally, the court finds that there is no civil private cause of action for aiding and abetting (Count 2), and that IKANO's arguments going to that claim are more appropriately addressed under the "agency" prong of the CFAA analysis. Accordingly, Count 2 and Count 4 are DISMISSED. Big Planet's remaining challenges address: Count 1-the CFAA claim, against all defendants; Count 3-the ECSA Claim, against all defendants; Count 8-Unjust Enrichment, against all defendants; Count 9-Fraudulent Inducement, against Big Planet and Nu Skin; Count 10-Intentional Interference with Contract, against Nu Skin; and Count 11-State Unfair Business Practices. Defendants' challenges are addressed in turn below.
A. Count 1-Computer Fraud and Abuse Act
Broadly stated, the CFAA prohibits obtaining access to a "protected computer" either "without authorization" or "exceeding authorized access," and thereby causing "damage." See 18 U.S.C. § 1030 (a)(4)-(a)(5). Contrary to Defendants' argument, one provision of the CFAA, 18 U.S.C. § 1030 (g), explicitly creates a private right of action, providing a legal basis for IKANO's claims.
Defendants argue that, as a matter of law, IKANO has failed to state a claim under the CFAA. Specifically, they argue that: (1) IKANO has not sufficiently alleged that the Defendants "accessed a protected computer;" (2) IKANO has not alleged properly that Defendants obtained access to IKANO's system "without authorization;" and (3) IKANO's damage allegations do not meet the CFAA's $5000 damages requirement. As discussed below, IKANO's pleadings easily meet the first two elements and also satisfy the more difficult question of the damages threshold.
1. Has IKANO sufficiently alleged that Defendants "accessed a protected computer"?
Defendants maintain that IKANO has failed to plead that either Big Planet or Nu Skin "accessed a protected computer" in violation of the CFAA. Specifically, they argue that IKANO has not sufficiently alleged either (1) that the Defendants themselves gained access to a protected computer, or (2) that Defendants' "agents" gained access to a protected computer.
IKANO alleges that "[a]t all times herein, each of the Defendants was the agent of each of the other remaining Defendants and at all times were acting within the course and scope of that agency." (FAC J35; see also FAC ¶ 136.) Defendants argue that this allegation is "wholly conclusory," and not to be credited. See In re. Doubleclick. Inc. Privacy Litigation. 154 F. Supp.2d 497, 506 (S.D.N.Y. 2001) (quoting Hirsch v. Arthur Anderson Co., 72 F.3d 1085 (2d Cir. 1995). But IKANO makes more specific allegations.
In particular, IKANO points to its allegations that specific Big Planet and Nu Skin employees and agents, using the usernames "bigplanettemp," "bpsupport," "poptest," and "techroom," used those usernames "at the specific direction and benefit of Big Planet and Nu Skin/' thereby intentionally and improperly gaining access to IKANO's system. (FAC at ¶¶ 35, 67.) Ikano claims that the acts done under these four usernames are "directly attributable to Big Planet and Nu Skin." (Id. at ¶ 67.)
Ikano further alleges, on information and belief, "that Big Planet and Nu Skin view the Subscribers as employees and/or agents who make substantial amounts of money through their direct (aka multi-level) marketing businesses." (First Amd. Compl. at ¶ 35.)
Additionally, the following allegations bolster IKANO's general "agency" allegation: (1) "Big Planet subscribers, as well as employees and agents for Big Planet and Nu Skin, misused and abused IKANO's services" (FAC at ¶ 90); (2) "IKANO is informed and believes that some of the Overage Costs were created by Nu Skin's distributors, which distributors were so important to Nu Skin, that Nu Skin directed that Big Planet not enforce its Business Rules and the Subscriber Agreement" (Id. at ¶ 95); (3) "Big Planet, Nu Skin, their subscribers/distributors, and the individual Defendants have operated together in participating in the above described network abuse" (Id. at f 97); (4) "IKANO is informed and believes that Nu Skin distributors using the Big Planet/IKANO Internet services incurred many of the Overage Costs due to the excessive number of hours of Internet usage" (Id. at ¶ 99); and (5) "IKANO is further informed and believes that, despite the damage that it was causing IKANO, Nu Skin directed Big Planet to refrain from enforcing the Subscriber Agreement related to subscriber use because of the importance and benefits Nu Skin received from its distributors [sic] ability to have such access to IKANO's system." (Id. at ¶ 103.)
Defendants maintain that IKANO's allegations regarding the four specific usernames remain insufficient to make out a claim under the CFAA because the only limits on access that IKANO alleges have been violated are those that Big Planet itself imposed on its own customers through the Subscriber Agreement and Acceptable Use Policy, thereby targeting Big Planet's customers, not its own technical support. In fact, they argue, access through IKANO's system by Big Planet personnel was explicitly contemplated by the Original and Provider Agreements between the parties. But the specific terms of Big Planet's Subscriber Agreement and Acceptable Use Policy, as well as those of the Original and Provider Agreements, and the interpretation to be given those agreements, are factual issues to be explored at the summary judgment stage.
Additionally Defendants fault IKANO for its failure to plead the specific Restatement elements of agency, see Restatement of the Law (Second) Agency § 1 (1958), IKANO is correct that its allegations of agency need not "set forth the contract of agency or details about the relationship in the pleadings, inasmuch as the terms of the agency are evidentiary in nature." Greenberg v. Republic Fed. Sav. Loan Ass'n, 1995 WL 263457, *1 (N.D. Ill. 1995) ("allegation of agency does not . . . represent a legal conclusion").
Accordingly, IKANO has sufficiently pled agency at this stage of the proceedings.
2. Has IKANO sufficiently alleged that Defendants gained access to IKANO's system "without authorization"?
To state a claim under the CFAA, IKANO must demonstrate that Defendants gained access to a protected computer without authorization orexceeding authorized access. See 18 U.S.C.A. §§ 1030(a)(4)-(a)(5). Contrary to Defendants' argument, IKANO has made the required showing.
IKANO alleges that under the Provider Agreement, which governed the terms of the service IKANO was to provide to Big Planet subscribers, Big Planet agreed to require all of its subscribers to comply with its "Acceptable Use Policy and Subscriber Agreement" ("Subscriber Agreement"). (FAC ¶ 75.) In relevant part, this Subscriber Agreement prohibited (a) sharing of unlimited accounts with anyone other than immediate family outside the household, and (b) using programs to defeat system timers that would otherwise limit inactivity. (FAC ¶¶ 75-78)).7
IKANO cites various cases holding that conduct contravening approved uses or violating a "Policy and Terms of Service" is "unauthorized" for purposes of the CFAA. America Online. Inc. v. LCGM. Inc., 46 F, Supp.2d 444, 451 (E.D, Va. 1998) (Defendants' actions unauthorized where they "violated [Plaintiffs] Terms of Service"); Register.com, Inc, v. Verio, Inc., 126 F. Supp.2d 238, 249, 251 (S.D.N.Y. 2000) (Defendants' use of a "search robot" unauthorized where Plaintiff did not consent to such use, and where Defendant "is on notice that its search robot is unwelcome").
IKANO has sufficiently alleged that Defendants' access was without authorization.
3. Do IKANO'S allegations meet the CFAA's S5.000 damages requirement?
The difficult question is whether IKANO's allegations meet the Act's $5,000 damages threshold. Defendants identify (and IKANO does not appear to challenge) 18 U.S.C. § 1030 (a)(5)(B)(i) (2003) as the only damages provision relevant to IKANO's claims. That provision requires that a plaintiff prove
loss to 1 or more persons during any 1-year period (and, for purposes of any investigation, prosecution, or other proceeding brought by the United States only, loss resulting from a related course of conduct affecting 1 or more other protected computers) aggregating at least $5,000 in value.18 U.S.C. § 1030 (a)(5)(B)(i).
Section 1030(e)(8) defines "damage" as "any impairment to the integrity or availability of data, a program, a system, or information." Section 1030(e) (11) defines "loss" as "any reasonable cost to any victim, including the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service."
IKANO advances several grounds in support of its contention that it meets the threshold requirement: First, IKANO contends that its allegations of remedial expenses satisfies the $5,000 damages threshold. As mentioned above, the definition of "loss" (added to the statute by the Patriot Act in 2001) explicitly includes "restoring the data, program, system, or information to its condition prior to the offense." 18 U.S.C. § 1030 (e) (11). This amendment is consistent with pre-2001 case law requiring that to be recoverable under the CFAA, remedial measures must be necessary to "resecure" the integrity of a system (rather than to make a system more secure than it was before). See, e.g., United States v. Middleton. 231 F.3d 1207, 1213 (9th Cir. 2000). Defendants argue that IKANO has not alleged remedial costs necessary to "resecure" the integrity of its system. The court disagrees.
IKANO alleges that it "has incurred over $50,000 in remedial costs, exclusive of the hardware costs associated with implementing [a fraud protection] program. (FAC ¶ 106; see also. FAC ¶¶ 104-07 (describing all remedial damages)). The alleged purpose of the fraud protection program was to "identify subscribers who were abusing the network by either permitting simultaneous logins with a single account or using means to disable inactivity controls that effectively transformed the dial-up service into a dedicated connection (without paying for it)." (FAC ¶ 104.) IKANO further describes the remedial costs as representing "significant diagnostic measures to assess the damages being caused by the excessive usage." (FAC at ¶ 105.) Contrary to Defendants' argument, IKANO's allegations of remedial damages are sufficient to satisfy the threshold at this stage of the pleadings,
IKANO argues alternatively that it has met the damages threshold by aggregating the various abusive acts of Defendants, and that such aggregation is permissible. Defendants, relying on case law decided before the Patriot Act's 2001 amendments to the CFAA, argue that any alleged losses aggregated to meet the $5,000 damages threshold must be the result of a single act done in violation of the CFAA.8 See e.g., Chance v. Avenue A. Inc., 165 F. Supp.2d 1153, 1158 (W.D. Wash. 2001) ("The damage amount can be aggregated across both time and individual computers, but it cannot be aggregated across separate acts" according to the plain language of the statute, legislative history, and case law); Doubleclick, 154 F. Supp.2d at 523 ("damages and losses under [the CFAA] may only be aggregated across victims and over time for a single act," according to legislative history). But because IKANO meets the damages threshold by alleging remedial damages, the court need not reach this "single act" question.
B. Count 3-Electronic Communications Storage Act
In 1986, Congress passed the Electronic Communications Privacy Act ("ECPA"), Pub. L No. 99-508, 100 Stat. 1848. Title I of the ECPA amended the Federal Wiretap Act to include interception of electronic communications. United States v. Steiger, 318 F.3d 1039, 1046 (11th Cir. 2003). Title II of the ECPA "created the [ECSA] to cover access to stored communications and records. Id. at 1047. Courts use a variety of names to refer to Title II, 18 U.S.C. § 2701-2711: The Electronic Communications Storage Act ("ECSA," which is used in this decision), see Fischer v. Mt. Olive Lutheran Church. Inc., 207 F. Supp.2d 914 (W.D. Wise, 2002); the Stored Communications Act,see Konop v. Hawaiian Airlines. Inc., 302 F.3d 868 (9th Cir. 2002), and the Electronic Communications and Transactional Records Act,see Sega Enterprises Ltd, v. Maphia. 948 F. Supp. 923, 930 (N.D. Cal. 1996).
The relevant provisions of the ECSA provide that, aside from the exceptions carved out by subsection (c) of § 2701, those who
(1) intentionally access without authorization a facility through which an electronic communication service is provided; or
(2) intentionally exceed an authorization to access that facility,
thereby "obtain[ing], alter[ing], or [preventing authorized access to a wire or electronic communication while it is in electronic storage in such system shall be punished as provided in subsection (b) of [§ 2701];" 18 U.S.C. § 2701 (a)(1)-(2). An exception in subsection (c) provides that "[s]ubsection (a) of this section does not apply with respect to conduct authorized . . . by a user of that service with respect to a communication of or intended for that user." 18U.S.C. § 2701(c)(2).
Defendants challenge IKANO's ECSA claim on two central grounds. First, they argue that IKANO has failed to allege "that Defendants, by their allegedly unauthorized access to the Internet through IKANO's system `thereby obtained], alter[ed], or prevent[ed] authorized access to a wire or electronic communication while it is in electronic storage.'" Second, they contend that IKANO has failed to allege that the conduct of Defendants' subscribers is not covered by the exception carved out by 18 U.S.C. § 2701(c)(2).9 Underlying both of these arguments is Defendants' contention that IKANO has, with its ECSA claim, attempted "to transform a statute that was designed to protect the privacy of information into a statute that protects the economic interests of ISPs." (Def.'s Reply Mem. Supp. Mot. to Dismiss FAC at 15 (emphasis in original).) For the reasons that follow, the court agrees with Defendants' position.
To state a claim under the ECSA, IKANO must sufficiently allege that Defendants gained access to (1) an electronic communication that was (2) in storage. On the second of these requirements, IKANO correctly states that the definition of "electronic storage" includes "any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof," as well as "any storage of such communication by an electronic communication service for purposes of backup protection of such communication." 18 U.S.C. § 2510 (17) (2003). As one of the cases cited by IKANO notes, this definition is "extraordinarily-indeed almost breathtakingly-broad." United States v. Councilman. 245 F. Supp.2d 319, 320 (D. Mass. 2003),
The more difficult question is whether Defendants obtained access to an "electronic communication," as contemplated by the ECSA. IKANO's FAC shows that the "electronic communication" to which Defendants allegedly gained unauthorized access is "the World Wide Web, the best known category of communication over the Internet." Konop. 302 F.3d at 874.10 Defendants contend that access of this "publicly available information" is not grounds for liability under the ECSA. (Def.'s Mem. Supp. Mot. to Dismiss FAC at 15.) They rely primarily on the legislative history of 18 U.S.C. § 2701, as support for the proposition that the ECSA contemplates only those communications in which there is an expectation of privacy. See, S. REP. No. 99-541 at 35-36 (1986) (describing the new Section 2701 (the ECSA) as "address[ing] the growing problem of unauthorized persons deliberately gaining access to, and sometimes tampering with, electronic or wire communications that are not intended to be available to the public"). The Senate Report further explained that accessing communications in a "public system" such as "bulletin boards or other similar services" accessible without a special access code "is not a violation of the Act, since the general public has been `authorized' to do so by the facility provider." Id. at 36.
The Konop Court itself recognized that "[t]he legislative history of the ECPA suggests that Congress wanted to protect electronic communications that are configured to be private, such as email and private electronic bulletin boards." 302 F.3d at 875 (citing S. REP. No. 99-541, at 35-36); see also Sherman. 94 F. Supp.2d at 821 (noting that for access to be actionable under the ECPA, "the offender must have obtained the access to private files without authorization");Sega. 948 F. Supp. at 930 (noting that because the relevant bulletin board service was "open to the public, and normally accessed by use of an alias or pseudonym, it would appear that [Plaintiffs] employee's pseudonymous access was authorized"). Moreover, the communications at issue in Konop were stored on a restricted, secure website, where no such added restrictions apply here. 302 F.3d at 875 ("While most websites are public, many, such as Konop's, are restricted.")
Given the ECSA's purpose in protecting private electronic communications, the court concludes that IKANO's allegations are not covered by the statute. Although IKANO has shown that the access itself was without authorization or in excess of authorization, it is apparent that their purpose in bringing this action is not to ensure protection of the communications stored in their system, which are not private, but to recover for economic injury they have suffered as a result of Defendants' excessive access. Such is not the intended purpose of the ECSA.
Similarly, Defendants point out that pursuant to the exception in 18 U.S.C. § 2701 (c), conduct authorized "by a user of that service with respect to a communication of or intended for that user" is specifically excluded from the ECSA's scope. 18 U.S.C. § 2701(c). The court need not reach this issue, given the analysis above.
C. Count 8-Unjust Enrichment
"The elements of a quasi-contract, or a contract implied in law, are: (1) the defendant received a benefit; (2) an appreciation or knowledge by the defendant of the benefit; (3) under circumstances that would make it unjust for the defendant to retain the benefit without paying for it."Becker v. HSA/Wexford Bancgroup, LLC. 157 F. Supp.2d 1243, 1253 (D. Utah 2001) (quoting Davies v. Olson. 746 P.2d 264, 269 (Utah App. 1987)). IKANO's pleadings unquestionably meet these elements, where it has alleged (1) Defendants received the benefit of Internet service (FAC ¶¶ 183-84); (2) that Defendants received this benefit as a result of their allowing a "practice of Overage Costs to continue," (Id. at ¶ 184); and (3) that IKANO reasonably expected to be compensated for the "valuable work and services" (specifically, service, access, and support), and Defendants refused to pay for the benefit. (Id. at ¶¶ 183-84.)
Nonetheless, Defendants argue that IKANO cannot recover in quasi-contract because "there is an express contract covering the subject matter of the litigation." Am. Towers Owners Assoc., Inc. v. CCI Mechanical. Inc., 930 P.2d 1182, 1193 (Utah 1996) (quoting Mann v. Am. W. Life Ins. Co., 586 P.2d 461, 465 (Utah 1978)). It is true that IKANO cannot ultimately recover both for contract and for unjust enrichment. But IKANO correctly states that it is entitled to plead contract and quasi-contract in the alternative. Becker, 157 F. Supp.2d at 1253. IKANO has advanced both contract and unjust enrichment claims, (See FAC ¶¶ 157-67, 168-73, 182-86.) Accordingly, at this stage IKANO's unjust enrichment claim survives.
D. Count 9-Fraudulent Inducement
The Utah Supreme Court recently held that "to bring a claim sounding in fraud," a party must allege
(1) that a representation was made (2) concerning a presently existing material fact (3) which was false and (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation, (5) for the purpose of inducing the other party to act upon it and (6) that the other party, acting reasonably and in ignorance of its falsity, (7) did in fact rely upon it (8) and was thereby induced to act (9) to that party's injury and damage.Armed Forces Insurance Exch. v. Harrison. 70 P.3d 35, 40 (Utah 2003) (citations omitted). Defendants argue that IKANO's pleadings are inadequate with respect to (1) the "presently existing material fact" (or, as discussed below, "future promises with present intent not to perform") element; and (2) the requirement (cited in several Utah Supreme Court cases) that IKANO allege that Defendants had a duty to disclose by virtue of a relationship of special reliance or trust. For the following reasons, the court concludes that IKANO has stated a claim for common law fraud.
IKANO alleges that Defendants falsely represented (1) that "Big Planet and Nu Skin would migrate 60,000 users to the IKANO system and . . . that its subscriber base was growing" and based on "information relating to the total hours of usage of the Internet . . . it appeared that Big Planet and Nu Skin actually had the number of subscribers that had been represented to IKANO by [Defendants]" (FAC ¶¶ 191-192); (2) that "[d]espite IKANO's request for additional information to confirm the subscriber size, Big Planet and Nu Skin failed to provide additional information and specifically omitted explaining to IKANO that the information provided overstated the actual number of subscribers Big Planet and Nu Skin planned to transfer to IKANO's system" (FAC ¶ 192); and (3) that Mr. Nelson, Mr. King, and Mr. Schwerdt of Big Planet "specifically omitted telling IKANO various relevant information regarding the multiple login abuse that Big Planet had already identified," (FAC ¶¶ 193.)
IKANO further alleges that "at the time the representations related to the subscriber base were provided to IKANO, the statements were false and misleading." (Id. at ¶¶ 192.) Defendants characterize these "subscriber base" representations as "promises of future performance." Under Utah law, such promises are actionable as fraud when they are "made with a present intent not to perform and made to induce a party to act in reliance on that promise." Von Hake v. Thomas. 705 P.2d 766, 770 (Utah 1985) (citations omitted); see also. Conder v. Williams Associates. 739 P.2d 634 (Utah App. 1987) (observing that "if [Defendants] did not intend to perform the future promises when they made them, the misrepresentations are actionable"). But as shown above, IKANO has alleged that Big Planet representatives misrepresented Big Planet's then current subscriber base to appear larger than it was, then provided misleading information supporting their misrepresentation and avoided giving further information requested by IKANO. (FAC ¶ 188, 191-92.) IKANO's allegations regarding the "subscriber base" representations are not properly characterized as "promises of future performance,"
In addition to the "subscriber base" allegations, IKANO makes numerous allegations that Defendants knew that they had problems with multiple logins by subscribers, but specifically omitted telling IKANO this at the time of the Provider Agreement, knowing that this would impact IKANO adversely under the terms of the parties' agreement (requiring IKANO to provide unlimited access for a flat fee) (FAC ¶ 189, 190, 193-94) Defendants argue that IKANO's allegations of "failure to disclose" certain information are unavailing where Big Planet had no "duty to disclose" under any special relationship evoking that duty.
Misrepresentation may be made by "material omission" only "where there exists a duty to speak." Copper State Leasing Co. v. Blacker Appliance Furniture Co., 770 P.2d 88, 93 (Utah 1988) (citing Sugarhouse Fin. Co. v. Anderson. 610P.2d 1369, 1373 (Utah 1980)). "Such a duty will not be found where the parties deal at arm's length, and where the underlying facts are reasonably within the knowledge of both parties. Under such circumstances, the plaintiff is obliged to take reasonable steps to inform himself, and to protect his own interests." Id. In this case, the parties apparently enjoy no special relationship creating a duty to disclose. Nonetheless, IKANO has alleged that it took reasonable steps to become informed and to protect its interests where it alleges that "[d]espite IKANO's request for additional information to confirm the subscriber size, [Defendants] failed to provide additional information and specifically omitted explaining to IKANO that the information provided overstated the actual number of subscribers [Defendants] planned to transfer to IKANO's system." (FAC ¶ 192.) Likewise, as discussed above, the parties included within their Provider Agreement the term that Big Planet was to require all of its subscribers to comply with its Subscriber Agreement, which prohibited password sharing and using programs to defeat system timers. (FAC ¶¶ 75-78.) Moreover, IKANO alleges that (1) the industry standard/average of Internet use is 30 hours of Internet usage per month (Id. at ¶ 192); (2) that Big Planet understood 30 hours to be the industry standard/average (Id. at ¶ 58); (3) that Defendants presented information representing the "total hours of usage of the Internet," and "[w]hen these total hours were divided by the [30 hour] industry standard/average, . . . it appeared that [Defendants] actually had the number of subscribers that had been represented," (Id. at ¶ 192); and (4) that Big Planet "failed to disclose to IKANO that many of its subscribers used well above the [30 hour standard]." (Id. at ¶ 193.)
Given these allegations, the court concludes that IKANO has demonstrated that it reasonably relied on representations or omissions made by Big Planet with the intention of inducing IKANO to "expand its obligations" and assume those of Big Planet. (FAC ¶¶ 200-01.) Accordingly, Defendants' Motion to Dismiss IKANO's fraud claim is DENIED.
E. Count 10-Intcntional Interference with Contract (against NuSkin)
Utah courts have found that the tort of intentional interference with contract requires "conduct which `intentionally and improperly interferes with the performance of a contract." Hill v. State Farm Mutual Automobile Ins Co., 829 P.2d 142, 149 (Utah Ct.App. 1992) (citingLeigh Furniture and Carpet Co. v. Isom, 657 P.2d 293, 301 (Utah 1982)). But such interference is not actionable where it is done "with just cause of excuse" or where "the breach was caused by the doing of an act which [the alleged tortfeasor] has a legal right to do." Bunnell v. Bills, 368 P.2d 597, 602 (Utah 1962) (citations omitted), Nu Skin advances two theories of privilege against IKANO's tortious interference claim: (1) the parent-subsidiary privilege, which provides that "as a matter of law, a parent corporation cannot be a stranger to its subsidiaries' business or contractual relations, and that no claim can be sustained against a parent for tortious interference with such relations," In re Hercules Auto, Prods., Inc., 245 B.R. 903, 910 (Bankr. M.D. Ga. 1999); and (2) the similar, but broader, privilege of competition and economic interest.
A number of jurisdictions have adopted the parent-subsidiary privilege. But as both Nu Skin and IKANO emphasize, Utah law is silent on the existence of the privilege. NuSkin has asserted that a second privilege applies where a defendant has "a present, existing economic interest to protect, such as the ownership or condition of property, or a prior contract of his own, or a financial interest in the affairs of the person persuaded." Bunnell 368 P.2d at 602-03 (citing W. PROSSER, LAW OF TORTS, § 106, p. 737 (2d. ed. 1955)); see also Gull Labs, Inc. v. Diagnostic Tech, Inc., 695 F. Supp. 1151, 1155 (D. Utah 1988) (citations omitted) ("[c]ompetition is a major privilege justifying interference with economic advantage, and competitors are not liable for interference with contract if the interference advances the competitors' own interest and is not otherwise unlawful.") However, this privilege applies to situations where "competing parties are allowed to contact each others' potential customers." Id. (citations omitted). Nu Skin has not shown, and it is not evident from the facts, how Nu Skin and IKANO are "competitors" justifying application of this doctrine. Similarly, theBunnell court, citing Prosser, observed that a person possessing the requisite "present, existing economic interest . . . is privileged to prevent performance of the contract of another which threatens [that interest]." 368 P.2d at 602-03. Nu Skin has entirely neglected to explain how the contract between Big Planet and IKANO threatened Nu Skin's economic interest. In the absence of any demonstration that the facts of this case provide justification for applying the competition/economic interest privilege, the court declines to apply it, and Defendants' motion is DENIED.
F. Count 11-tnfair Competition and Business Practices
As mentioned above, IKANO has conceded its "Federal Unfair Competition and Business Practices" claim (Count 4). But IKANO also brings a claim of state unfair competition and business practices. The Tenth Circuit has recently observed that "the Utah Supreme Court has considered the tort of unfair competition primarily in the context of palming off and misappropriation of goodwill," which both involve "situations in which a company attempts to profit from the reputation of its competitor by selling one of its own products as that of its competitor or misappropriating a trademark belonging to its competitor." Proctor Gamble Co. v, Haugen. 222 F.3d 1262, 1279-80 (1 Cir. 2000);Proctor Gamble Co. v. Haugen, 947 F. Supp. 1551, 1554 and n. 4 (D. Utah 1996) (recognizing a broad definition of unfair competition, but declining to extend the cause of action to include defamation in the workplace, where the plaintiffs had alleged neither of the two recognized types of claim in Utah.) As in Proctor Gamble, "[t]hat is not what occurred in the instant case," and it is not this court's place "to expand Utah state law beyond the bounds set by the Utah Supreme Court or, in the absence of Utah Supreme Court precedent, by the lower Utah courts." 222 F.3d at 1280. IKANO has evidently not attempted to allege that its unfair competition claim arises out of facts establishing "palming off or "misappropriation" on Defendants' part; nor has it alleged or argued facts justifying a departure from Utah precedent. Accordingly, IKANO's state unfair competition claim is DISMISSED.
CONCLUSION
The court DENIES Defendants' Motion to Dismiss the following claims: Count 1 (CFAA); Count 8 (unjust enrichment); Count 9 (fraudulent inducement); and Count 10 (intentional inference with contract). The court GRANTS Defendants' Motion to Dismiss the following claims: Count 2 (aiding and abetting); Count 3 (ECSA); Count 4 (federal unfair competition) and Count 11 (state unfair business practices).