Reed Constr. Data Inc. v. the Mcgraw–hill Companies Inc., 09 Civ. 8578.

745 F.Supp.2d 343

REED CONSTRUCTION DATA INC., Plaintiff,

v.The McGRAW–HILL COMPANIES, INC., John Does One Through Five, and John Doe Entities One through Five, Defendants.

No. 09 Civ. 8578.

United States District Court, S.D. New York.

Sept. 14, 2010.

Troutman Sanders LLP, by: Aurora Cassirer, Esq., Matthew J. Aaronson, Esq., New York, NY, for Plaintiff.Patterson Belknap Webb & Tyler LLP, by: Saul B. Shapiro, Esq., Joshua A. Goldberg, Esq., New York, NY, for Defendant, The McGraw–Hill Companies, Inc.OPINIONSWEET, District Judge.

Defendant The McGraw–Hill Companies, Inc. (“Defendant” or “MHC”) has moved, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss Counts Three, Five, Six, Seven and Eight of Plaintiff Reed Construction Data Inc.'s (“Plaintiff” or “RCD”) Amended Complaint. These counts allege, respectively, misappropriation of confidential information (Count Three), tortious interference with prospective economic advantage (Count Five), violation of New York General Business Law (“GBL”) Section 349 (Count Six), violation of the Racketeer Influenced and Corrupt Organization Act (“RICO”), 18 U.S.C. § 1962(c) (Count Seven), and conspiracy to violate RICO (Count Eight). Upon the facts and conclusions set forth below, the motion is granted as to the RICO claims (Counts Seven and Eight) and the GBL § 349 claim (Count Six), and denied as to Counts Three and Five.

Prior Proceedings

RCD filed its original Complaint on October 8, 2009, alleging fraud (Count One), misappropriation of trade secrets (Count Two), misappropriation of confidential information (Count Three), unfair competition (Count Four), tortious interference with prospective economic advantage (Count Five), violation of GBL § 349 (Count Six), violation of RICO (Count Seven), RICO conspiracy (Count Eight), monopolization, pursuant to 15 U.S.C. §§ 15 and 26 (Count Nine), attempted monopolization (Count Ten), and unjust enrichment (Count Eleven). On November 20, 2009, MHC moved to dismiss five of the eleven counts. RCD filed an Amended Complaint on December 10, 2009, and, on January 22, 2010, MHC moved to dismiss Counts Three, Five, Six, Seven and Eight of the Amended Complaint.¹

The instant motion was heard and marked fully submitted on March 24, 2010.

The Facts

RCD and MHC are competing providers of national, regional, and local construction project news and information to the construction industry. (Am. Compl. ¶¶ 12, 13, 23.) The project information, which often includes building plans and specifications, is used by customers such as building manufacturers and contractors to identify projects for which they may seek specification of their product within the plans or seek to submit bids for products or services. ( Id. ¶ 13.) RCD and MHC are the only providers of such information on a national scale. ( Id. ¶ 23.)

RCD provides its customers a web-based subscription service known as “Reed Connect,” which permits subscribers to search RCD's database for construction projects and related data nationwide. ( Id. ¶¶ 14, 15.) MHC offers its customers an online search program similar to Reed Connect, described as the “Dodge Network.” ( Id. ¶¶ 1, 24.) RCD alleges that an annual subscription to the Dodge Network costs “generally twice as much as ... a subscription to Reed Connect,” and that MHC maintains an “80–90% share of the market for national online subscription[s].” ( Id. ¶¶ 32, 291.)

RCD alleges that employees in MHC's “Competitive Intelligence” unit hired several contractors to subscribe to Reed Connect by posing as customers of RCD between 2002 and 2009. ( Id. ¶¶ 34–37.) One contractor identified by RCD is an individual named Henning Lorenz, who allegedly subscribed to Reed Connect between 2002 and 2006 by representing that he was the President and CEO of a business named NE14T Corporation, Inc. (“NE14T”) and that NE14T was a consultant for Hager Hinge Company (“Hager Hinge”), a legitimate building product manufacturer. ( Id. ¶¶ 38–43.) When Hager Hinge subscribed to Reed Connect in December 2005, RCD determined that Lorenz did not work for the real Hager Hinge and cancelled his subscription. ( Id. ¶¶ 62–64.)

Reed alleges that MHC hired another contractor named Glenn Lewin to subscribe to Reed Connect, paying Lewin the cost of the subscription and a monthly fee for his services. ( Id. ¶¶ 67–68, 73–75.) Between March 2003 and January 2009, Lewin purchased at least three subscriptions to Reed Connect under his name and under an alias, John Carlson, by claiming that he worked for Northern Construction Development Company (“NCDC”), Central Business Services (“CBS”), and Arrington Partners (“Arrington”), all allegedly fictitious entities. ( Id. ¶¶ 68–95.) Each time Lewin purchased a subscription he signed an agreement with RCD containing a nondisclosure provision prohibiting him from sharing the information obtained from Reed Connect with any person other than employees of the company for which he claimed to work. ( Id. ¶¶ 76, 87.) The nondisclosure provision in Arrington's agreement with RCD also contained a direct representation that Arrington was not subscribing under a fictitious name to provide RCD's competitors with access to Reed Connect. ( Id. ¶ 87.) RCD alleges that Lewin regularly shared his access to Reed Connect with MHC, in violation of these nondisclosure provisions.

In January 2009, Lewin is alleged to have purchased a national subscription to Reed Connect through another fictitious company, Site Amenities, under another alias, Andy Anderson. ( Id. ¶¶ 90–92.) In July or August of 2009, in connection with an audit of Site Amenities conducted by RCD, Lewin allegedly admitted that he worked for MHC, that NCDC, CBS, Arrington and Site Amenities were all fictitious companies, that John Carlson and Andy Anderson were aliases, that MHC paid for the subscriptions and Lewin's services and regularly accessed Reed Connect through Lewin's subscriptions, and that MHC had used other consultants prior to Lewin. ( Id. ¶¶ 99–101.) RCD then terminated Lewin's subscription to Reed Connect. ( Id. ¶¶ 101–104.)

RCD alleges that MHC used its unauthorized access to Reed Connect to compete unfairly in several ways. First, MHC allegedly shared information obtained from Reed Connect with its sales agents and “manipulated” that information to create “misleading” and favorable comparisons between the Dodge Network and Reed Connect for use in competition for customer accounts. ( Id. ¶¶ 107–110.) Second, RCD alleges that MHC used this information to develop and alter the Dodge Network. ( Id. ¶ 109.) Third, RCD claims that MHC presented its misleading comparisons to Roper Public Affairs & Media (“Roper”), an independent consulting firm that issues a report comparing the number of projects available in Reed Connect and the Dodge Network (the “Roper Report”), resulting in the publication of “demonstrably false and misleading” information. ( Id. ¶ 110–116.) Finally, RCD alleges that MHC used its access to Reed Connect to misappropriate project information and populate its own project database, either by directly copying RCD's information or by using Reed Connect to identify projects that were available in RCD's database but not in MHC's and then contacting the source to obtain the information for such projects. ( Id. ¶¶ 130–134.)

RCD asserts that at least 221 existing and prospective national account customers have switched from RCD to MHC or chosen to subscribe with MHC instead of RCD as a result of MHC's alleged misconduct. ( Id. ¶ 136–137.)

The 12(b)(6) Standard

On a motion to dismiss pursuant to Rule 12, all factual allegations in the complaint are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir.1993). The issue “is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235–36, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).

To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Though the court must accept the factual allegations of a complaint as true, it is “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Plaintiffs must allege sufficient facts to “nudge[ ] their claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955.

The Amended Complaint has Failed to Establish the RICO Claims Alleged in Counts Seven and Eight

To establish a RICO violation under 18 U.S.C. § 1962(c), a plaintiff must allege and prove four elements: “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). In addition, under § 1964(c), a civil RICO claimant “must plead, at a minimum, ‘(1) the defendant's violation of § 1962, (2) an injury to the plaintiff's business or property, and (3) causation of the injury by the defendant's violation.’ ” Lerner v. Fleet Bank, N.A., 318 F.3d 113, 120 (2d Cir.2003) (quoting Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir.2001)).

A. RCD's RICO Allegations

RCD alleges that MHC violated and conspired to violate RICO by forming an association-in-fact RICO enterprise with Lorenz, Lewin, Roper, and various other unnamed entities and employees (the “John Does” and “John Doe Entities”) for the purpose of “defrauding RCD and obtaining unauthorized access to Reed...