Opinion
01 Civ. 3856 (RCC) (DF)
August 29, 2003
REPORT AND RECOMMENDATION
INTRODUCTION
On May 7, 2001, plaintiff Tyco. International (US) Inc. ("Tyco") filed a Complaint with this Court, alleging trespass to chattels and violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 ("CFAA"), by three "John Doe" defendants. On February 5, 2002, after amending the Complaint to identify Alan H. Kominz ("Kominz") as John Doe 1, Tyco served copies of the Summons and Amended Complaint upon defendant Kominz pursuant to Rule 4(e)(1) of the Federal Rules of Civil Procedure. Kominz has not appeared, answered or otherwise moved with respect to the Amended Complaint.
Although Tyco. made this identification in the body of the Amended Complaint ( see Amended Complaint, dated February 4, 2002 ("Am. Compl."), ¶ 7), Tyco. did not amend the caption, and the caption was never changed on the Court's docket.
On September 13, 2002, Judge Richard C. Casey granted Tyco. a default judgment, and referred the matter to me to conduct an inquest and to report and recommend concerning Tyco's damages. For the reasons that follow, I recommend that, on the default judgment, Tyco. be awarded injunctive relief and damages as set forth below.
BACKGROUND
As alleged in Tyco's Complaint, and supported as necessary by the documentation submitted by Tyco. in support of its Proposed Findings of Facts and Conclusions of Law ("Proposed Findings"), the relevant facts are as follows:Tyco. is a corporation organized under the laws of the State of Nevada, with its principal place of business at One Tyco. Park, Exeter, New Hampshire. (Am. Compl. ¶ 5.) Defendant Kominz resides at 5825 Southgrove Drive, Citrus Heights, CA 95610, and also at 2781 Northrop Avenue, Sacramento, CA 95864. ( Id. ¶ 6.)
As part of its operations, Tyco. maintains a worldwide computer network, which provides electronic mail ("e-mail") accounts to authorized users. (Proposed Findings at 1; Am. Compl. ¶ 11.) On February 22, 2001, Kominz attempted to overload the Tyco. e-mail server with e-mail messages, in what is called a "denial of service" or "spamming attack," causing the server to send or receive more than 33,000 e-mail messages over a short period of time. (Proposed Findings at 2.) The attack was unsuccessful and did not cause any service outage. (Am. Comp. ¶ 14.)
That same day, Tyco. contacted the internet service provider ("ISP") that provided the dial-in account from which the attack was sent. ( Id. ¶ 15.) Although the ISP informed Tyco. that it planned to investigate the owner of the account, Tyco. initiated an investigation of its own through the investigative firm Kroll Associates ("Kroll"). (Proposed Findings at 5.) Tyco. determined that the attack was sent from an ISP account that Kominz had created using fraudulent information. (Am. Compl. ¶ 16.) Kroll's investigation, which consisted of locating Kominz and conducting surveillance of his home, lasted approximately 13 months and cost over $136,000.00. (Proposed Findings at 4-5; Kroll Decl., Ex. A.)
On May 7, 2001, Tyco. commenced this action, alleging that John Does 1-3, then unidentified, committed common law trespass to chattels and violated the CFAA. (Comp. ¶¶ 17-21, 24-25.) On February 4, 2002, after locating Kominz through its investigation, Tyco. amended its Complaint to identify Kominz as a defendant. ( See n. 1, supra.) Kominz failed to respond to the Amended Complaint, and, as noted above, Judge Casey entered a default judgment against Kominz on September 13, 2002, referring the matter to me for the purpose of conducting an inquest concerning Tyco's alleged damages. Tyco. seeks injunctive relief, compensatory and punitive damages, and attorneys' fees and costs. (Proposed Findings at 4-6.)
On October 4, 2002, I issued a Scheduling Order requiring Tyco to serve and file Proposed Findings of Fact and Conclusions of Law no later than November 4, 2002. In that Order, I cautioned Kominz that if, by December 4, 2002, he did not respond to Tyco's submissions or contact my chambers in writing to request an in-court hearing, it would be my intention to issue a report and recommendation concerning damages on the basis of Tyco's written submissions alone.
On November 4, 2002, Tyco. submitted its Proposed Findings (Dkt. No. 14), to which Kominz did not respond. Upon review, I found preliminarily that Tyco's submissions were insufficient to support compensatory the damages it sought, and on July 10, 2003, I issued a Memorandum and Order granting Tyco. an opportunity to supplement those submissions. In that Order, I cautioned Kominz that if, by September 1, 2003, he did not respond to Tyco's submissions or contact my chambers to request a hearing, I would issue a report and recommendation on the basis of Tyco's submissions alone. On July 31, 2003, Tyco's counsel informed the Court, by telephone, that Tyco. would not be making any supplemental submissions.
To date, Kominz has not responded to Tyco's submissions, nor has he requested a hearing with respect to damages. I therefore issue this report and recommendation based solely on Tyco's submissions.
DISCUSSION
Although "a default judgment entered on well-pleaded allegations in a complaint establishes a defendant's liability," it does not reach the issue of damages. Bambu Sales, 58 F.3d at 854 (quoting Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 69 (2d Cir. 1971), rev'd on other grounds, 409 U.S. 363 (1973)). A plaintiff must therefore substantiate a claim with evidence to prove the extent of damages. See Trehan v. Von Tarkanyi, 63 B.R. 1001, 1008 n. 12 (S.D.N.Y. 1986) (plaintiff must introduce evidence to prove damages suffered and the court will then determine whether the relief flows from the facts) (citing Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974). Although courts may hold hearings to assess these damages, a hearing is not required where a sufficient basis to make a calculation exists. See Fed.R.Civ.P. 55(b)(2) (a court may conduct hearings on damages "as it deems necessary and proper"); see also Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993) (district judges are given much discretion to determine whether an inquest need be held); Action S.A. v. Marc Rich Co., 951 F.2d 504, 508 (2d Cir. 1991) (Fed.R.Civ.P. 55(b)(2) "allows but does not require . . . a hearing"). I. INJUNCTIVE RELIEF
Tyco. seeks to have Kominz permanently enjoined from "accessing in anyway the Tyco. worldwide corporate computer network, including but not limited to sending e-mail to any address at tyco.com or other servers owned or used by Tyco, or attempting to gain access to Tyco's computer system by any means." (Proposed Findings at 3-4.) Injunctive relief is expressly authorized by 18 U.S.C. § 1030(g), and several courts considering claims under the CFAA have issued injunctions similar to the one sought here. See America Online, Inc., v. Nat'l Health Care Discount, Inc., 174 F. Supp.2d 890, 902 (N.D. Iowa 2001); America Online, Inc. v. CN Prods., Inc., Civ. A. No. 98-552-A, 272 B.R. 879 (E.D. Va. Feb. 10, 1999); America Online, Inc. v. LCGM, Inc., 46 F. Supp.2d 444, 452-53 (E.D. Va. 1998); America Online, Inc. v. Prime Data Systems, Civ. A. No. 97-1652-A, 1998 WL 34016692, at *5 (E.D. Va. Nov. 20, 1998).
I therefore recommend that Tyco. be granted a permanent injunction barring Kominz from: (1) accessing or attempting to access in any way the Tyco. worldwide corporate computer network; and (2) sending e-mail to any address at tyco.com. I do not recommend, however, that the injunction be worded more broadly, so as to enjoin Kominz from sending e-mail to "other servers owned or used by Tyco," as this requested language is unduly vague. An injunction must provide fair notice as to what conduct is being enjoined. Metropolitan Opera Ass'n, Inc. v. Local 100, Hotel Employees and Rest. Employees Int'l Union, 239 F.3d 172, 174 (2d Cir. 2001) ("we hold that the injunction is impermissibly vague because it fails to provide the [defendant] with adequate notice of what conduct is being enjoined"). Because Tyco. has not provided the Court with any specific information as to what "other servers" are "owned or used by Tyco," I recommend that the injunction be limited as set forth above. II. COMPENSATORY DAMAGES
Tyco. does not seek any compensatory damages on its trespass to chattels claim. ( See generally Proposed Findings.) Rather, it argues that, under Section 1030 of the CFAA, it is entitled to recover $136,026.94 in investigator's fees as the "natural and foreseeable result" of Defendant's spamming attack. (Proposed Findings at 4.) These costs, however, fall outside the scope of what courts have held to be recoverable as damages under the CFAA.
According to the standard set forth in the Restatement (Second) of Torts, which has been adopted by this Court as the standard of damages for trespass to chattels, see, e.g., Register.com v. Verio, Inc., 126 F. Supp. 238, 249 (S.D.N.Y. 2000), one in possession of chattel, who makes out an actionable trespass claim, may recover the amount that the chattel has been damaged or impaired. See Restatement (Second) of Torts § 218 cmt. g, § 256 (1965). Tyco fails to demonstrate any such damage. (See generally Proposed Findings.)
While, as Tyco. points out, it is true that the CFAA allows recovery for losses beyond mere physical damage to property ( see id.), the additional types of damages awarded by courts under the Act have generally been limited to those costs necessary to assess the damage caused to the plaintiff's computer system or to resecure the system in the wake of a spamming attack. See EF Cultural TravelBVv. Explorica, Inc., 274 F.3d 577, 584-85 (1st Cir. 2001) (awarding costs of assessing damage); U.S. v. Middleton, 231 F.3d 1207, 1213-14 (9th Cir. 2000) (awarding costs of "investigating and repairing the damage," which involved only assessing the damage to the system, not locating and collecting information about the hacker); In re DoubleClick Inc. Privacy Litigation, 154 F. Supp.2d 497, 524-25 (S.D.N.Y. 2001) (recognizing only costs in remedying damage as recoverable under CFAA).
Tyco. cites U.S. v. Sablan, 92 F.3d 865 (9th Cir. 1996), for the proposition that it is "foreseeable" that the victim of a hacking attack would incur costs in investigating that attack, see id. at 870, and then argues that such foreseeability supports a finding that investigative costs are compensable under the CFAA. (See Proposed Findings at 4.) Sablan, however, was a criminal proceeding in which the court never reached the question of whether investigative costs could be recoverable as compensatory damages in a civil action. Rather, the court held that, for purposes of sentencing and calculating the proper amount of restitution, the victim's repair costs should be considered by the court, while the victim's cost of meeting with the FBI in response to the hacking attack should not. Sablan, 92 F.3d at 870.
Although Tyco. may well have incurred some losses that, if claimed, would be compensable as actual damages under either the law of trespass to chattels or the CFAA, Tyco. has failed to set forth such losses in any of its submissions. I therefore recommend that Tyco. be awarded nominal compensatory damages of $1.00. See Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 926 (2d Cir. 1977) (finding that nominal damages are proper "when the existence of damage is uncertain or speculative").
For example, it would seem likely that Tyco. incurred at least some costs in assessing the damage and restoring its server after the attack. Such costs, if requested, would be compensable under the CFAA. See, e.g., EF Cultural Travel BV, 274 F.3d at 584-85. Further, Tyco's allegation that the e-mail attack rendered a significant portion of the Tyco. server unavailable for authorized users ( see Proposed Findings at 2) suggests that the value of the server was probably diminished in some measurable way. This loss, if claimed, would be compensable under the common law of trespass to chattels. See, e.g., Register.com, 126 F. Supp. at 249-50.
III. PUNITIVE DAMAGES
While compensatory damages serve generally to make plaintiffs whole by compensating them for concrete losses suffered as a result of defendants' harmful conduct, "punitive damages serve a broader function; they are aimed at deterrence and retribution." State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S.Ct. 1513, 1519 (2003) (quoting Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 243 (2001)). In general, punitive damages, based on the degree of the defendant's culpability, may be awarded "in actions of trespass and all action on the case for torts." Molzof v. U.S., 502 U.S. 301, 306 (1992). Specifically, punitive damages have been awarded in trespass to chattels cases involving e-mail spam attacks, where the spammer's actions were willful and wanton. See, e.g., Nat'l Health Care Discount, Inc., 174 F. Supp.2d at 902.
Although Tyco. has failed to establish compensable losses, it has demonstrated that Kominz acted willfully, with fraud and malice. Tyco. has alleged that, on February 22, 2001, Kominz launched a "denial of service" attack on Tyco's computer server by sending more than 11,000 e-mail messages from fraudulent sender addresses to non-existent tyco.com e-mail addresses. (Proposed Findings at 2; Am. Compl. at 12-16.) It appears that this attack was intended to overload the Tyco. server and cause it to crash. A punitive award against Kominz would serve specifically to discourage him from repeating this behavior, and generally to deter other computer hackers from initiating similar "denial of service" attacks.
The factual allegations in the Complaint must be taken as true in light of a default judgment. Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993).
Punitive damages are especially appropriate here because, as Kominz's attack was unsuccessful, there are no significant compensatory damages which might otherwise serve a deterrent function. See State Farm Mut. Ins. Co., 123 S.Ct. at 1519 (although ratio of punitive damages to compensatory damages should ordinarily not exceed a "single-digit ratio," a higher ratio may be appropriate where "a particularly egregious act has resulted in only a small amount of economic damages") (quoting BMW of North America, Inc. v. Gore, 517 U.S. 559, 582 (1996)); see also Ginzburg v. Goldwater, 396 U.S. 1049 (1970) (upholding award of $1.00 in compensatory damages and $75,000.00 in punitive damages).
Under New York law, nominal compensatory damages are sufficient to support a punitive award. See Action House v. Koolik, 54 F.3d 1009, 1014 (2d Cir. 1995); Reynolds v. Pegler, 223 F.2d 429, 434 (2d Cir. 1955) ("As the finding of compensatory damages was in the nominal sum of $1.00, defendants insist that under New York law there can be no award of punitive damages. But we have already held otherwise.").
For the reasons stated above, I recommend that Tyco. be awarded punitive damages in the amount of $10,000.00.
IV. ATTORNEYS' FEES
Tyco. apparently seeks attorneys' fees of $98,277.50, contending that where a defendant refuses to answer a complaint and causes the plaintiff to apply for default, the plaintiff is entitled to recover attorneys' fees. (Proposed Findings at 6-7.) Attorneys' fees, however, "are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor." Fleischmann Distilling Corp v. Maier Brewing Co., 386 U.S. 714, 717 (1967); accord Summit Valley Industries, Inc. v. United Brotherhood of Carpenters Joiners, 456 U.S. 717, 721 (1982), and the fact that a judgment is obtained on default does not alter this principle, see Kaleidoscope Media Group, Inc. v. Entertainment Solutions, Inc., No. 97 Civ. 9369, 2001 WL 849532, at *4 (S.D.N.Y. July 19, 2001) (attorneys' fees were recoverable on default judgment because parties had previously contracted that such fees would be recoverable in the event of a breach of contract). Tyco. does not allege that there is any statutory or contractual basis for an award of attorneys' fees in this case.
Although Tyco. requests attorneys' fees of $110,763.64 ( see Proposed Findings at 13), its supporting documentation shows that it incurred $98,277.50 in attorneys' fees and an additional $12,486.14 in attorney "office charges and expenses" ( see Declaration of John M. Griem, Jr., dated August 16, 2002, ("Griem DecL."), Ex. A), for a total of $110,763.64 in fees and expenses.
Tyco. cites several cases where this Court has awarded limited attorneys' fees as a condition of vacating a default judgment under Rule 55(c) of the Federal Rules of Civil Procedure. ( See Proposed Findings at 6, citing RLS Associates, LLC. v. United Bank of Kuwait, No. 01 Civ. 1290, 2002 WL 122927, at *8 (S.D.N.Y. Jan. 29, 2002); Bicicletas Windsor, S.A. v. Bicycle Corp. of America, 783 F. Supp. 781, 788 (S.D.N.Y. 1992); Protec Management Corp. v. Worley, No. 89 Civ. 3026, 1991 WL 190582, at *4 (S.D.N.Y. Sep. 18, 1991); Roundball Enterprises, Inc. v. Richardson, 99 F.R.D. 174, 177 (S.D.N.Y. 1983).) As the Court does not have before it a Rule 55(c) motion, these cases are inapplicable to the instant case.
Nor do the remaining cases cited in the Proposed Findings support Tyco's claim for attorneys' fees, as those cases involved statutory awards of attorneys' fees under the Lanham Act, 15 U.S.C. § 1117(a). ( See Proposed Findings at 6, citing America Online, Inc. v. CN Prods., Inc., Civ. A. No. 98-552-A; America Online, Inc. v. LCGM, Inc., 46 F. Supp.2d at 453.) There is no analogous provision under the CFAA. See 18 U.S.C. § 1030.
I therefore recommend that Tyco's request for attorneys' fees be denied.
V. COSTS
As a prevailing party, Tyco. is entitled to recover costs under 28 U.S.C. § 1920. Globe Indem. Co. v. J.T. Falk Co., Inc., No. 91 Civ. 0271 (PKL), 1993 WL 299302, at *1 (S.D.N.Y. Aug. 4, 1993) (party awarded default judgment is considered the prevailing party for the purposes of 28 U.S.C. § 1920). By seeking recovery of all charges billed by its counsel ( see n. 6, supra), Tyco. is apparently requesting costs that fall within several categories, only some of which are enumerated in Section 1920. Tyco's costs for telephone or telecommunications usage, research, mail or messenger service, subpoena services, local travel and overtime meals (see Griem Decl., Ex. A), are not compensable under that section. On the other hand, Tyco's document copying costs ( see id.), may be compensable, but only if the copied papers were "necessarily obtained for use in the case," 28 U.S.C. § 1920(4). The cost of "copies produced for the attorneys' own use" or convenience are not taxable. Universal City Studios, Inc. v. Nintendo Co., Ltd., No. 82 Civ. 4259 (RWS), 1986 WL 11462 at *2 (S.D.N.Y. 1986).
Tyco. seems to be seeking $1,860.95 for "document production/duplication" costs (Griem Decl. Ex. A), without specifying the nature of the documents for which it seeks costs or explaining why the copies were "necessarily obtained for use in the case." When the Court is unable to determine from a party's submissions whether its claimed copying costs are properly taxable under the governing rules, the requested costs should be reduced. See U.S. ex rel. Evergreen Pipeline Constr. Co. v. Merritt Meridian Constr. Co., 95 F.3d 153, 173 (2d Cir. 1996) (affirming reduction of copying costs where requesting party failed to itemize costs or explain their necessity). An overall reduction is appropriate because, absent an explanation, the Court is unable to determine "whether a portion of the photocopying claimed was for the convenience of counsel . . . or otherwise unnecessary to the litigation." Meacham v. Knolls Atomic Power Lab., 185 F. Supp.2d 193, 243 (N.D.N.Y. 2002); see also Gen. Elec. Co. v. Compagnie Euralair, S.A., No. 96 Civ. 0884 (SAS), 1997 WL 397627, at *6 (S.D.N.Y. 1997) (copying costs reduced where counsel "provided no information as to what was photocopied and whether any copying expenses were for the convenience of the many lawyers working on the case"); Baker v. Power Securities Corp., 174 F.R.D. 292, 295 (W.D.N.Y. 1997) (reducing requested copying costs where requesting party had "not sufficiently documented the reasonableness of those costs").
Courts, however, have not been consistent in determining the amount of an appropriate reduction, where requested copying costs have not been set out with sufficient detail or explanation. For example, in Meacham, 185 F. Supp.2d at 243, the court reduced the claimed number of copies by approximately 25 percent, while in Gen. Elec., 1997 WL 397627, at *6, the court reduced the copying costs sought by 50 percent, and in Evergreen Pipeline, 95 F.3d at 173, the Second Circuit affirmed a cost reduction of nearly 75 percent. In this case, Tyco. has failed to provide the Court with any information regarding the nature of the materials copied, or even the number of copies made or the cost per page. Indeed, it is not even clear that Tyco. is actually requesting copying costs, as it has not submitted any proposed findings specifically relating to such costs. Given the total lack of information and clarity offered by Tyco. on this issue, I recommend that Tyco. be awarded $620.00 in copying costs, reflecting an approximate two-thirds reduction from the unspecified "document production/duplication" charges shown on Tyco's submitted attorney invoices.
As noted above, Tyco. also seeks to recover investigative costs, which are not covered by 28 U.S.C. § 1920. Tyco, nonetheless, cites three cases in which such costs have been held recoverable by the prevailing party, at least to some extent. ( See Proposed Findings at 3-4 (citing Brown v. Party Poopers, No. 00 Civ. 4799, 2001 WL 1380536, at *7 (S.D.N.Y. Jul. 9, 2001) (awarding $1,373 in investigator fees on a default judgment, but noting that the amount "seems a bit high"); Arthur Kaplan Co., Inc. v. Panaria Intern., Inc., No. 96 Civ. 7973, 1999 WL 253646, at *3 (S.D.N.Y. Apr. 29, 1999) (awarding $1,056.38 in investigative costs); Reuters Television Ltd. v. Cel Communications, Inc., No. 94 Civ. 1111, 1995 WL 13188, at *3 (S.D.N.Y. Jan. 13, 1995) (awarding $4,000 for such costs).) The cited cases, however, are all copyright cases, in which the plaintiffs were entitled to attorneys' fees under the Copyright Act.
Where attorneys' fees are recoverable, certain additional expenses — as the "reasonable, out-of-pocket expenses incurred by the attorney" — may also be recoverable, as long as such expenses are "incidental and necessary to the litigation." Arthur Kaplan, 1999 WL 253646, at 2 (quoting Reichman v. Bonsignore, Brignati Mazzota P.C., 818 F.2d 278, 283 (2d Cir. 1987)). Thus, while the language of 28 U.S.C. § 1920 does not preclude a court from assessing costs not specifically listed therein, the rationale for awarding any additional costs is that such costs may be "included in the concept of attorneys' fees." Swift v. Blum, 502 F. Supp. 1140, 1148 (S.D.N.Y. 1980); see also, e.g., Bridges v. Eastman Kodak Co., No. 91 Civ. 7985 (RLC), 1996 WL 47304, at *14 (S.D.N.Y. Feb. 6, 1996) ("It is clear, then, that reasonable attorneys' expenses may be recovered by the prevailing party in civil rights cases as a part of the attorneys' fees.") (emphasis added). Here, where there is no statutory or other authority for awarding attorneys' fees, there is also no authority for expanding upon the categories of costs permitted under 28 U.S.C. § 1920. Accordingly, even though it appears that at least some amount of investigative fees was reasonably and necessarily incurred in this case to identify and locate Kominz, Tyco. has not demonstrated that there is a basis for awarding it such fees.
CONCLUSION
For all of the foregoing reasons, I recommend that:
(1) Kominz be permanently enjoined from accessing or attempting to access in any way the Tyco worldwide corporate computer network, and sending e-mail to any address at tyco.com;
(2) Tyco. be awarded $1.00 in nominal compensatory damages, $10,000.00 in punitive damages, and $620.00 in costs, for a total monetary award of $10,621.00; and
(3) Tyco's application for attorneys' fees be denied.
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Richard C. Casey, U.S. Courthouse, 500 Pearl Street, Room 1950, New York, New York 10007-1312, and to the chambers of the undersigned, U.S. Courthouse, 40 Centre Street, Room 631, New York, New York, 10007-1581. Any requests for an extension of time for filing objections must be directed to Judge Casey. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Am, 474 U.S. 140, 155 (1985); IUE AFL-CIO Pension Fund v. Hermann, 9 F.3d 1049, 1054 (2d Cir. 1993); Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).