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Sealord Holdings, Inc., Sealord LLC, and First Sealord Surety, Inc v. Joseph Radler

March 6, 2012

SEALORD HOLDINGS, INC., SEALORD LLC, AND FIRST SEALORD SURETY, INC., PLAINTIFFS,
v.
JOSEPH RADLER,
DEFENDANT.



The opinion of the court was delivered by: Robert F. Kelly, Sr. J.

MEMORANDUM

Presently before the Court is Defendant, Joseph Radler's ("Radler"), Motion to Dismiss Plaintiffs, Sealord Holdings, Inc. ("Sealord Holdings"), Sealord LLC, and First Sealord Surety, Inc.'s ("FSSI") (collectively, "Sealord"),*fn1 Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons stated below, we will grant the Motion, but grant Sealord leave to amend its Complaint in accordance with this Memorandum Opinion.

I. PROCEDURAL AND FACTUAL HISTORY

Radler is a former employee of Sealord. He began his employment with FSSI as the Chief Technology Officer ("CTO") on October 21, 2009. (Compl. ¶ 11.) Radler worked in this capacity until he resigned effective 5:00 p.m. on July 26, 2011. (Id.) Sealord asserts that as CTO, Radler had knowledge of, and dominion and control over FSSI's computer systems, and the information contained in them, including confidential, proprietary and trade secret information. (Id. ¶¶ 11- 13.) Sealord alleges that because of Radler's in-depth knowledge of its computer systems, where the vast majority of the company's confidential information is stored, Radler had the potential to access, obtain, and disseminate the entirety of this information. (Id. ¶ 13.) Sealord asserts that by virtue of Radler's assistance to its executives in using the computer network system, including the Chief Financial Officer ("CFO"), who is Radler's brother-in-law, Radler knew the user names and passwords for these executives' computers, including the CFO's computer. (Id.)

Sealord states that some of the information that Radler was made privy to included highly confidential information concerning a "potential merger, sale, or similar transaction" ("Transaction"). (Id. ¶ 14.) Sealord avers that prior to Radler's resignation in March 2011, it began to contemplate this potential Transaction, and engaged Dowling Hales ("Hales"), an investment banking firm in New York, to act as its financial advisor to assist in the potential Transaction. (Id. ¶ 15.) Hale introduced a number of potential participants to Sealord for a proposed Transaction, each of whom signed confidentiality/non-disclosure agreements with Sealord (the "Suitors").*fn2 (Id.) Sealord states that it took appropriate measures to ensure that negotiations were kept confidential and not disclosed outside a small circle of individuals in its company, including Radler. (Id. ¶ 16.) Sealord continued to pursue the potential Transaction after Radler left the company. (Id.)

Two days after Radler left Sealord, Radler contacted Sealord and demanded payment for vacation time and bonus. (Id. ¶ 26.) On August 4, 2011, Sealord told Radler that, consistent with the company's policies, he was not entitled to payments for bonus or vacation time. (Id. ¶ 27.) Sealord asserts that eight days after it informed Radler that he was not entitled to the monies claimed, Confidential Suitor #1 received an anonymous typewritten note warning this suitor about the pitfalls of entering into the Transaction with Sealord. (Id. ¶ 28.) The typewritten note was addressed to two executives of Confidential Suitor #1 whose names were associated with the Transaction in Sealord's confidential computer files, including those on the CFO's computer. (Id.) Sealord learned about this anonymous note on September 7, 2011, and on that same day, Confidential Suitor #1 also advised it that it had received an email sent on August 31, 2011, from Sealordlies@gmail.com warning it about making "large purchases." (Id. ¶ 29.) It was sent to the leading officer of Confidential Suitor #1 whose name was associated with the Transaction in Sealord's confidential computer files, including those on the CFO's computer. (Id.)

On September 12, 2011, Sealord learned that another disparaging email was sent on September 11, 2011, from bondsclaims@yahoo.com to most of the due diligence team from Confidential Suitor #1, as well as the lead officer at Confidential Suitor #2, warning about Sealord's operating practices and questioning its integrity. (Id. ¶ 30.) This same email was also sent to the Deputy Commissioner at the Pennsylvania Department of Insurance who is the principal regulator of FSSI, and to a competitor in California with whom FSSI recently had a dispute. (Id.) This confidential information was in Sealord's confidential computer files, including those on the CFO's computer. (Id.)

Sealord asserts that the words in the September 11, 2011 emails from this address closely mirrored those contained in an internal email sent by Sealord's Executive Vice President on September 9, 2011, to only four other executives at FSSI, including the CFO. (Id. ¶ 32.) Sealord avers that on September 12, 2011, it learned that another email from this same address had been sent to the lead officer at Confidential Suitor #1 and the investment banker for Confidential Suitor #2 urging caution in proceeding with the Transaction with FSSI. This confidential information was in Sealord's computer files. (Id. ¶ 33.) On September 12, 2011, Sealord learned from Confidential Suitor #2 that it had received a typewritten letter from an anonymous source, addressed to its President of Commercial Lines, alleging inflated value and revealing Sealord's negotiations with a prior suitor. (Id. ¶ 34.) The identity of this prior suitor and the identity of Confidential Suitor #2 were confidential information that was kept in Sealord's computer files, including in those files kept on the CFO's computer. (Id. ¶ 35.)

Sealord asserts that at this point, a total of four disparaging emails and two typewritten notes had been received by its potential business partners, competitors, and regulating authorities, and such had an impact upon its relationship with its potential suitors. (Id. ¶ 34.) On September 12, 2011, Confidential Suitor #1 withdrew from negotiations on the Transaction, and on September 19, 2011, Confidential Suitor #2 withdrew from the Transaction. (Id. ¶ 36.)

With serious concerns about these emails, Sealord hired Lexington Technology Auditing, Inc. ("Lexington") to conduct an investigation and damage assessment. (Id. ¶ 37.) On September 13, 2011, the day after Lexington was hired, certain members of Sealord's Board of Directors received an email purportedly sent from the America Online account of one of its former employees (not Radler), verbally attacking the competence and leadership of Sealord's senior management. (Id. ¶ 38.) Sealord received no further contact from this email address, and believed that the email was not sent by the former employee. (Id.) Lexington investigated the email address and discovered that it was registered to a BTK Communications, Inc. ("BTK") with an address of 684 Korisa Drive, Lower Moreland, Pennsylvania. (Id. ¶ 39.) The website of BTK lists Radler's wife as the company principal with this same address. This address is also Radler's home address. (Id.)

Sealord asserts further that this same day, Lexington also learned that Sealord's executives had not changed their passwords in over a year, and because of this, it changed the passwords of certain Sealord employees, including the CFO, Radler's brother-in-law. (Id. ¶ 40.) Sealord alleges that within an hour of the changing of the CFO's password, there were two failed attempts to access this computer, and during this same time frame, Radler unexpectedly telephoned the CFO who was in his office. (Id.) The CFO immediately reported this call to Lexington who found out that the Internet Protocol Address ("IP") of the source of the computer attempting to access the CFO's computer was a location in Huntington Valley, Pennsylvania, which was located approximately 800 yards from Radler's address. (Id.) No other employees of Sealord reside in that vicinity. (Id.)

Sealord also asserts that Lexington conducted a damage assessment of its compromised computer system which has resulted in damages and that it continues to suffer damages in the future. (Id. ¶¶ 42-44.) Sealord avers that "[b]ecause Defendant accessed Sealord's computer systems without authorization and then disclosed the proprietary and confidential information that he obtained via his unauthorized access, Sealord has suffered and continues to suffer an impairment to the integrity and availability of its computer files, programs, systems, source code, equipment, and other information, data, and property." (Id. at 51.)

In its Complaint, Sealord asserts violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. ("CFAA"). Specifically, Sealord claims violations of 18 U.S.C. §§ 1030(a)(2)(c) and (a)(4) of the CFAA. Sealord also asserts state law claims for breach of contract, misappropriation of trade secrets under 12 Pa. C.S. 5301, et seq., conversion, and tortious interference with prospective economic advantage. On September 28, 2011, Sealord filed a Motion for Temporary Restraining Order and Preliminary Injunction. This Court held a hearing on this Motion on October 7, 2011. During the hearing, the parties negotiated and agreed to the terms of an Interim Consent Order which we subsequently signed on October 14, 2011, and made part of ...


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