Run The World Inc. v. Jiang ( 2024 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 RUN THE WORLD INC., Case No. 23-cv-03130-AMO 8 Plaintiff, ORDER GRANTING MOTIONS TO 9 v. DISMISS COUNTERCLAIMS 10 XUAN JIANG, Re: Dkt. Nos. 80, 82, 85 Defendant. 11 12 13 This is a Computer Fraud and Abuse Act (“CFAA”) case. Counterclaim Defendants’ 14 several motions to dismiss were heard before this Court on August 1, 2024.1 Having read the 15 papers filed by the parties and carefully considered their arguments therein and those made at the 16 hearing, as well as the relevant legal authority, the Court hereby GRANTS the Counterclaim 17 Defendants’ motions to dismiss, for the reasons stated below. 18 I. BACKGROUND 19 In 2019, Xuan Jiang and Xiaoyin Qu co-founded Run The World, Inc. (“RTW”), an online 20 platform for hosting virtual events such as professional conferences. Second Am. Countercl. 21 (ECF 78, “SACC”) ¶¶ 2, 13. Qu was the company’s CEO, Jiang was its Director of Engineering 22 and Chief Technical Officer, and both were shareholders. SACC ¶ 14. RTW initially enjoyed 23 success under Qu’s leadership, with investors initially valuing the company at $60 million by May 24 2020. SACC ¶¶ 18, 23. 25 26 1 At the hearing, the Court granted the motions to stay discovery of Counterclaim Defendants Qu, 27 Chan, and AH Capital Management, LLC. ECF 101, ECF 103. The Court additionally denied 1 On April 3, 2023, Jiang sent an email to RTW’s primary investor saying that Jiang had 2 “made the decision to step down as the tech co-founder of Run The World” to “pursue a new 3 opportunity,” and expressing Jiang’s stated view that, even without her “continued involvement,” 4 RTW “ha[d] a bright future ahead.” SACC ¶ 208, Compl. (ECF 1) ¶¶ 23-24 & Ex. D; Answer 5 (ECF 16) ¶ 23. The parties disagree about what led to Jiang’s resignation email and what 6 happened next. 7 A. Run the World’s Claims Against Jiang 8 RTW alleges in its Complaint that its business depended on its customer-facing website, 9 www.runtheworld.today, which in turn relied on a network of internal domains and developer 10 tools, including the “rtw.team” and “rtw.today” domains. Compl. ¶¶ 12, 15-16, 33. RTW further 11 alleges that soon after Jiang resigned and then tried to retract that resignation, its websites began 12 experiencing outages that left 700,000 RTW user accounts inaccessible for over a week. Compl. 13 ¶¶ 23-33. These outages were linked to Jiang’s deletion or cancellation of the internal domains, 14 which were maintained by third-party domain registrar GoDaddy. Compl. ¶¶ 12, 28-32; see also 15 Answer ¶ 32 (acknowledging Jiang’s conduct). Jiang’s primary response to that admitted conduct 16 is that one of the domains, rtw.team, was her “personal property.” See Answer ¶¶ 7, 14-15. Jiang 17 also admits to having wiped her company-issued laptop and refusing to return other RTW 18 property. Compl. ¶¶ 36-43; Answer ¶¶ 37, 42. 19 B. Jiang’s Amended Counterclaims and the Allegations at Issue in These Motions 20 Jiang answered RTW’s suit and asserted a total of 20 counterclaims against RTW, Qu, one 21 of RTW’s investors (AH Capital Management, LLC, “a16z”), and one of that investor’s general 22 partners (Connie Chan). ECF 16. Jiang then filed her First Amended Counterclaims on February 23 6, 2024, listing the same 20 counterclaims. ECF 58. The parties stipulated to permit Jiang to file 24 her Second Amended Counterclaims, in which she would drop her Twentieth Counterclaim (abuse 25 of process), as well as related language in several other allegations. Compare ECF 58, ¶¶ 61,76 26 (partial), 90 (partial), 112 (partial) 118 (partial) 237-242 with ECF 78. 27 Jiang alleges in her SACC that she entered into a Restricted Stock Purchase Agreement 1 period. See SACC ¶ 14. Qu purportedly “recognized that the end of RTW was near” as a result of 2 Qu’s purported mismanagement and shifted her focus to winding down the company, thereby 3 harming its share value. See SACC ¶¶ 25-26, 29, 34-42. Qu then aimed to oust Jiang to prevent 4 her from blocking a potential sale of the company. SACC ¶¶ 34, 44. Despite the resignation 5 email mentioned above, Jiang contends that she never resigned, or that if she did, she was induced 6 to do so by misrepresentations that RTW would be wound down. SACC ¶¶ 198-209. 7 Jiang contends that she did not resign, she was wrongfully terminated. She explains that 8 she was forced out so that Qu and other shareholders could enrich themselves, and that Qu 9 harassed and terminated her because she was pregnant. SACC ¶¶ 32-33, 43-54, 60-61. Jiang 10 avers that the termination violated a contract that could only be terminated for cause – though her 11 written, integrated employment contract expressly and repeatedly described her employment as 12 “at-will.” SACC ¶¶ 122-26; Hayward Decl., Ex. 1, ¶ 5. Jiang also complains that her alleged 13 termination deprived her of rights to RTW equity that had not yet vested – though the RSPA on 14 which she relies made clear that equity vesting was contingent on Jiang’s continued at-will service 15 as an employee or director. SACC ¶¶ 192-96; Hayward Decl., Ex. 2 ¶ 10K. 16 Finally, Jiang alleges that Qu tortiously accessed, without Jiang’s permission, Jiang’s 17 personal account on GoDaddy that hosted the domain “rtw.team,” and which was used “to test 18 new features that could be implemented in RTW.” SACC ¶¶ 16, 21-22, 37-38, 169-74, 233-35. 19 II. DISCUSSION 20 Counterclaim Defendants all move to dismiss the Second Amended Counterclaim under 21 both Rule 12(b)(6) for failure to state a claim and Rule 12(b)(1) for lack of subject matter 22 jurisdiction. Jiang’s sole federal cause of action is her counterclaim under the Computer Fraud 23 and Abuse Act (CFAA), and Counterclaim Defendants all argue that, because she fails to state a 24 claim for violation of the CFAA, the Court should decline to exercise supplemental jurisdiction 25 over her remaining 18 counterclaims arising under state law. 26 27 1 A. Failure to State a Claim (Rule 12(b)(6)) 2 Counterclaim Defendants all argue that Jiang fails to state a claim under CFAA.2 3 1. Legal Standard 4 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the legal 5 sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199-1200 (9th 6 Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that a complaint include a 7 “short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. 8 P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a 9 cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal theory. 10 Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). 11 While the court is to accept as true all the factual allegations in the complaint, legally 12 conclusory statements, not supported by actual factual allegations, need not be accepted. Ashcroft 13 v. Iqbal, 556 U.S. 662, 678-79 (2009). The complaint must proffer sufficient facts to state a claim 14 for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 558-59 15 (2007) (citations and quotations omitted). 16 “A claim has facial plausibility when the plaintiff pleads factual content that allows the 17 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 18 Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well-pleaded facts do not permit the court 19 to infer more than the mere possibility of misconduct, the complaint has alleged – but it has not 20 ‘show[n]’ – that the pleader is entitled to relief.” Id. at 679. Where dismissal is warranted, it is 21 generally without prejudice, unless it is clear the complaint cannot be saved by any amendment. 22 Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 2005). 23 2. Computer Fraud and Abuse Act (Eleventh Counterclaim) 24 Jiang alleges that Qu violated portions of CFAA: Title 18 U.S.C. § 1030(a)(5)(A), (B), and 25 (C). SACC ¶ 170 (citation corrected). Those subsections require her to plead that Qu either: 26 2 Jiang argues that most of the Counterclaim Defendants lack standing to challenge the CFAA 27 cause of action because it is only alleged against Qu. The Court finds this argument unavailing 1 knowingly caused the transmission of a program, information, code, or command that 2 intentionally caused damage, without authorization, to a protected computer (subsection 3 (a)(5)(A)); intentionally accessed a protected computer, without authorization, and recklessly 4 caused damage (subsection (a)(5)(B)); or intentionally accessed a protected computer, without 5 authorization, and caused damage and loss (subsection (a)(5)(C)). 6 Jiang contends that Qu violated CFAA by accessing and taking possession of the rtw.team 7 domain by accessing Jiang’s personal GoDaddy account without Jiang’s authorization, and 8 changing Jiang’s password and email address on the account “to lock-out Jiang from accessing her 9 own personal account.” SACC ¶ 172. Counterclaim Defendants advance two challenges to the 10 CFAA counterclaim: (a) that Jiang fails to allege damage to a “computer” rather than to an online 11 account and (b) that Jiang fails to allege the required “harm” and “loss” under the CFAA. The 12 Court focuses only on the latter – whether Jiang sufficiently pleads “harm” and “loss.” 13 “The CFFA was enacted to prevent intentional intrusion onto someone else’s computer – 14 specifically, computer hacking” and “is best understood as an anti-intrusion statute and not as a 15 misappropriation statute.” HiQ Labs, Inc. v. LinkedIn Corp., 31 F.4th 1180, 1196 (9th Cir. 2022) 16 (internal quotations and citations omitted). The damage asserted in support of a CFAA claim must 17 be “harm to computers or networks, not economic harm due to the commercial value of the data 18 itself.” NetApp, Inc. v. Nimble Storage, Inc., 41 F. Supp. 3d 816, 834 (N.D. Cal. 2014) (collecting 19 cases). Separately and in addition to harm to computers, a civil claim under the CFAA requires 20 “loss to 1 or more persons during any 1-year period . . . aggregating at least $5,000 in value.” 18 21 U.S.C. § 1030(c)(4)(A)(i)(I); Andrews v. Sirius XM Radio Inc., 932 F.3d 1253, 1262 (9th Cir. 22 2019). The CFAA “defines ‘loss’ as ‘any reasonable cost to any victim, including the cost of 23 responding to an offense, conducting a damages assessment, and restoring the data, program, 24 system, or information to its condition prior to the offense, and any revenue lost, cost incurred, or 25 other consequential damages incurred because of interruption of service.’” Andrews, 932 F.3d at 26 1262 (quoting 18 U.S.C. § 1030(e)(11)). Recovery in a civil action based on an alleged violation 27 of subsection (c)(4)(A)(i)(I) – the subsection at issue in this case – is expressly limited to 1 Jiang fails to plead economic damages based on access to her GoDaddy account. See 2 Brodsky v. Apple Inc., 19-CV-00712, 2019 WL 4141936, at *8 (N.D. Cal. Aug. 30, 2019). She 3 claims only damages based on “Jiang’s own ingenuity, time, money, and resources in creating, 4 developing, and maintaining the software and developer tools hosted on her personal GoDaddy 5 account, which Jiang routinely used to earn a living as a software developer.” SACC ¶ 174. This 6 does not constitute harm to a computer, particularly where Jiang cannot specify any lasting impact 7 to the computer code. Moreover, Jiang’s counsel stated at the hearing that any impairment to the 8 availability of data lasted little more than a day. Jiang cannot establish harm to a computer on 9 these facts. Cf. NovelPoster v. Javitch Canfield Grp., 140 F. Supp. 3d 954, 961-62 (N.D. Cal. 10 2014) (finding seven-month interruption of service to constitute damage under CFAA). 11 Regarding loss, Jiang contends that Qu attempted to lock her out of the GoDaddy account 12 and that her “identity” and “developer tools and stored code bases . . . were compromised.” SACC 13 ¶¶ 172-173. None of these allegations establish economic damages. See, e.g., NetApp, Inc., 41 F. 14 Supp. 3d at 834 (“NetApp alleges only that Reynolds accessed its databases without permission, 15 not that he damaged any systems or destroyed any data.”). Even if Jiang could allege any 16 qualifying damage, she fails to allege facts showing at least $5,000 of loss as required by the 17 CFAA. See Brodsky, 2019 WL 4141936, at *8 (finding conclusory allegations about loss 18 insufficient, especially so when plaintiff failed to allege a dollar value of any alleged damage). 19 The Court therefore DISMISSES the CFAA cause of action on this basis. 20 At the hearing, the Court asked if Jiang could bolster the harm and loss aspects of her 21 CFAA claim if granted leave to amend. Counsel stated that fact discovery would be necessary to 22 produce additional factual support, particularly with regard to any file corruption of the code 23 accessed through the contested GoDaddy account. This falls short of showing that Jiang would be 24 able to add facts in support of her claim, and the Court accordingly finds that amendment would 25 prove futile. See Sparling, 411 F.3d at 1013. Jiang’s CFAA cause of action is accordingly 26 DISMISSED WITH PREJUDICE. 27 // 1 B. Subject Matter Jurisdiction Over Remaining State Law Claims (Rule 12(b)(1)) 2 As noted above, Counterclaim Defendants move to dismiss the remainder of Jiang’s state 3 law counterclaims in light of the deficiencies in her CFAA counterclaim, arguing that the court 4 should decline supplemental jurisdiction over them. 5 A motion under Rule 12(b)(1) tests the Court’s subject-matter jurisdiction. Where, as here, 6 the challenge relies solely on the pleadings, the question is whether the “allege[d] facts” are 7 “sufficient as a legal matter to invoke the court’s jurisdiction.” Leite v. Crane Co., 749 F.3d 1117, 8 1121 (9th Cir. 2014). Federal courts have limited jurisdiction but may, in specific instances, 9 maintain supplemental jurisdiction over claims and counterclaims which have no other basis for 10 jurisdiction in federal court. 28 U.S.C. § 1367. A court has jurisdiction over state law claims 11 “that are so related to claims” brought under the Court’s federal question jurisdiction “that they 12 form part of the same case or controversy under Article III.” Id. The assessment of whether such 13 a claim forms part of the same “case or controversy,” requires the Court to determine whether the 14 federal claim and the state law claim arise from the same “common nucleus of operative fact.” In 15 re Pegasus Gold Corp., 394 F.3d 1189, 1195 (9th Cir. 2005) (citing United Mine Workers v. 16 Gibbs, 383 U.S. 715, 725 (1966)); Bahrampour v. Lampert, 356 F.3d 969, 978 (9th Cir. 2004). 17 Closely related to the jurisdictional inquiry under Section 1367 is Federal Rule of Civil 18 Procedure 13, which governs the process by which a defendant may allege counterclaims. 19 Counterclaims may be compulsory or permissive. Fed. R. Civ. P. 13. If a counterclaim “arises 20 out of the transaction or occurrence that is the subject matter of the opposing party's claim,” it is 21 compulsory and must be raised in response to the opposing party’s claim unless an exception 22 applies. Fed. R. Civ. P. 13(a). Thus, under Rule 13(a), a court must consider whether “the 23 essential facts of the various claims are so logically connected that considerations of judicial 24 economy and fairness dictate that all the issues be resolved in one lawsuit.” Pochiro v. Prudential 25 Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987). All other counterclaims are permissive and 26 need not be raised in the same lawsuit. Fed. R. Civ. P. 13(b). 27 Here, the only basis for federal subject matter jurisdiction that Jiang alleges is federal 1 remaining counterclaims under Section 1367. SACC ¶ 7. Jiang argues that all of her state court 2 claims arise from the same case or controversy and are compulsory counterclaims, if not 3 permissive counterclaims. Opp. (ECF 87) at 11-12. 4 RTW’s Complaint alleges that Jiang accessed protected computers and sabotaged RTW’s 5 business, mostly in April 2023. See Compl. (ECF 1) ¶¶ 26-52. In contrast, Jiang’s Counterclaims 6 center on a related, though different set of facts spanning a greater amount of time, including a 7 purported scheme to enrich other shareholders, wrongful termination of her employment, and 8 employment discrimination based on her pregnancy. See, e.g., SACC ¶¶ 11-64. Jiang’s state law 9 counterclaims do not arise out of the same transaction or occurrence as her alleged disruption of 10 the company’s internal domains, and they are thus not compulsory counterclaims to RTW’s 11 CFAA claim under Rule 13. 12 Because the Court dismissed the sole federal claim among Jiang’s Counterclaims, the 13 Court declines to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c)(3) over the 14 remaining state law claims. See Wade v. Reg’l Credit Ass’n, 87 F.3d 1098, 1101 (9th Cir. 1996) 15 (“Where a district court dismisses a federal claim, leaving only state claims for resolution, it 16 should decline jurisdiction over the state claims and dismiss without prejudice.”); see, e.g., Sikhs 17 for Just. “SFJ”, Inc. v. Facebook, Inc., 144 F. Supp. 3d 1088, 1096-97 (N.D. Cal. 2015), aff’d sub 18 nom. Sikhs for Just., Inc. v. Facebook, Inc., 697 F. App’x 526 (9th Cir. 2017) (declining to 19 exercise supplemental jurisdiction over state law claims where the case had not proceeded beyond 20 the pleadings and dismissal “promote[d] comity by allowing the California courts to interpret state 21 law in the first instance”). The Court therefore DISMISSES the counterclaims without prejudice 22 to Jiang filing them in state court. 23 // 24 // 25 // 26 // 27 // 1 || CONCLUSION 2 For the foregoing reasons, the Court DISMISSES Jiang’s CFAA counterclaim with 3 || prejudice. The Court declines to exercise jurisdiction over Jiang’s 18 remaining state law claims 4 || and accordingly DISMISSES those counterclaims without prejudice to filing in state court. 5 IT ISSO ORDERED. 6 || Dated: August 2, 2024 7 - 3 . ARACELI MARTINEZ-OLGUIN 9 United States District Judge 10 11 12 15 16 & it Z 18 19 20 21 22 23 24 25 26 27 28