Snapt, Incorporated v. Ellipse Communications, Inc

Case: 10-11093 Document: 00511519107 Page: 1 Date Filed: 06/23/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 23, 2011
No. 10-11093 Lyle W. Cayce
Summary Calendar Clerk
SNAPT INC., a Florida Corporation,
Plaintiff–Appellant,
v.
ELLIPSE COMMUNICATIONS INC.; ELLIPSE COMMUNICATIONS I LP,
Defendants–Appellees.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:09-CV-661
Before WIENER, PRADO, and OWEN, Circuit Judges.
PER CURIAM:*
Snapt, Inc. filed suit against Ellipse Communications, Inc. and later joined
Ellipse Communications I, L.P. (together, Ellipse). Snapt’s amended complaint
alleged that it suffered injury as a result of Ellipse’s unfair competition. The
United States District Court for the Northern District of Texas dismissed some
of Snapt’s causes of action and subsequently granted summary judgment on the
remaining claim. We affirm.
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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I
Snapt filed suit against Ellipse, asserting the following causes of action in
its amended complaint: “Texas Common Law Conversion, Texas Common Law
Unfair Competition, Texas Competition and Trade Practices Common Law,
Infringement of the Texas Harmful Access by Computer Statute, Federal
Common Law Unfair Competition, Federal Lanham Act Violation, Federal
Antitrust Violation, [and] Federal Copyright Violation.” The relevant facts in
the amended complaint are contained in a single paragraph stating that Ellipse
“converted the proprietary Snapt computer software” by the process known as
“hacking” and that Snapt’s metadata was then redirected to Ellipse by a process
termed “scraping.” This was alleged to have occurred “beginning in 2005 and
continuing through mid-2008.”
Ellipse moved for judgment on the pleadings pursuant to Federal Rule of
Civil Procedure 12(c) and moved to dismiss the amended complaint under
Federal Rule of Civil Procedure 12(b)(6). Snapt responded with a four-page brief
in opposition, terming Ellipse’s motion “generic” and arguing that it had met its
requirement of “only plead[ing] a short plain statement of the claim.” It did not
address the challenged causes of action individually. The court granted the
motion in part, excluding only successor liability with respect to Ellipse
Communications I, L.P. and the claim under the Texas Harmful Access by
Computer Statute. In denying Ellipse’s motion in part, the court observed that
“the Amended Complaint is not clearly drafted, and Plaintiff’s response to
Defendants’ motion is unhelpful.” With respect to the Texas Harmful Access by
Computer Statute, the court read Ellipse’s motion as having alleged a lack of
evidence. Therefore, the court directed Ellipse to file a summary judgment
motion on the point.
Accordingly, Ellipse moved for summary judgment on the remaining claim.
Snapt filed a brief opposing summary judgment, attaching as evidence a district
2
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court opinion in another case, the declaration of Keith Caven, the declaration of
Nate Jones, compact discs (CDs), which Snapt contends contain logs evincing
“scraping” and “hacking,” and two emails. One email is purportedly from an
Ellipse address, and Snapt asserts that the email demonstrates Ellipse’s earlier
interest in acquiring Snapt. The other attached email is an invitation from a
third company, never mentioning Snapt, for Ellipse to “scrape” information from
the third company’s “associated website[s] to use for developing new websites.”
Snapt had previously designated Caven and Jones as “mixed fact/expert
witness[es].” At that time, Ellipse filed a motion to strike Snapt’s designation
of Caven and Jones as experts, arguing that their qualifications had not been
demonstrated. After Snapt filed its summary judgment response brief, Ellipse
filed a motion to strike Snapt’s summary judgment evidence, again noting the
lack of information to qualify Caven and Jones as experts. The Caven
declaration offered no information regarding Caven’s expertise. It stated that
Caven owned Snapt, and that Orin Olson—whose title and qualifications were
not provided in the declaration—told him that Snapt’s servers “were
compromised.” It then stated that Caven directed Nate Jones to research the
issue. Caven stated that he learned at mediation in another case involving the
parties that Ellipse had acquired Snapt’s server password. Caven also stated,
“From our research, which was conducted by Nate Jones . . . I have been able to
determine from at least as early as June 12, 2008 that Ellipse converted the
proprietary Snapt computer software.”
The Jones declaration identified Jones as a Snapt independent contractor
with “over 12 years experience developing software at all levels.” Jones declared
that “[d]uring the research I conducted for Snapt since June of 2008, I discovered
that Ellipse Communications I, L.P. formerly known as Ellipse Communications,
Inc. (‘Ellipse’) accessed Snapt’s secured servers and extracted and transferred
over 7,000 pieces of proprietary and protected intellectual property.” Jones did
3
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not indicate the methodology involved in his research. Ellipse argued, in its
motion to strike Snapt’s summary judgment evidence, that the evidence was
inadmissible as unqualified expert testimony and hearsay.
As a result, Snapt filed a motion for leave to supplement its response to
summary judgment and its summary judgment evidence. It declared that it
sought to clarify issues raised by Ellipse’s “hyper technical motion to strike.”
Snapt also opposed the motion to strike, arguing that it was “Ellipse’s plan to
ignore the plain meaning of these declarations, and focus[] on irrelevant hyper
technical issues.” The court determined that the relevant information in the
Caven declaration constituted inadmissible hearsay and that the Jones
declaration was inadmissible as the expert testimony of one without
demonstrated expertise in hacking. The court denied the motion for leave,
observing that Snapt had notice of Ellipse’s objections to its witnesses given the
earlier filed motions. Moreover, the court noted that the motion did not indicate
the manner in which Snapt would cure these defects if provided additional time.
Therefore, as it concluded that Snapt lacked admissible evidence with which to
oppose summary judgment, the court granted summary judgment to Ellipse.
Alternatively, the district court concluded that Snapt failed to provide proof of
allegations falling within the time period covered in the amended complaint, and
thus Ellipse was entitled to summary judgment on that ground as well.
II
We have jurisdiction over a properly filed appeal of a final decision of the
district court.1 That said, Snapt contends on appeal that the district court lost
subject matter jurisdiction over the case after it granted Ellipse’s motion to
1
28 U.S.C. § 1291.
4
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dismiss with respect to the included federal causes of action. We review the
decision to retain jurisdiction over pendent state claims for abuse of discretion.2
Under 28 U.S.C. § 1367(c)(3), the district court “may” decline to exercise
supplemental jurisdiction when all the claims over which it had original
jurisdiction have been dismissed. We look to statutory factors—whether the
claim raises a novel or complex issue of state law, whether the state law claim
predominates, whether the district court has dismissed all of the claims over
which it had original jurisdiction, and, in exceptional circumstances, whether
there are other compelling reasons for declining jurisdiction—as well as common
law considerations—judicial economy, convenience, fairness, and comity—in
reviewing a district court’s decision.3 In Mendoza v. Murphy, we said that “no
single factor is dispositive” in this supplemental jurisdiction inquiry.4 Indeed,
in that case we held that, though no claims of original jurisdiction remained, the
district court did not abuse its discretion in exercising jurisdiction. This was so
because the claims in the case “were neither novel nor complex,” and, as relevant
to the “common-law factors of judicial economy, convenience, fairness, and
comity,” the claims were well-known to the district court and were ripe for
disposition on summary judgment.5 In the instant case the district court noted
the potential ripeness of a summary judgment motion on the remaining state
law claim in its dismissal order, and the common-law factors similarly provided
support for retaining jurisdiction given, for instance, the familiarity of the
2
Parker & Parsley Petroleum Co. v. Dresser Indus., 972 F.2d 580, 585 (5th Cir. 1992).
3
Mendoza v. Murphy, 532 F.3d 342, 346 (5th Cir. 2008) (citing McClelland v.
Gronwaldt, 155 F.3d 507, 519 (5th Cir. 1998), overruled on other grounds by Arana v. Ochsner
Health Plan, 338 F.3d 433 (5th Cir. 2003)).
4
Id. (citing Parker & Parsley Petroleum Co., 972 F.2d at 587).
5
Id. at 346–47.
5
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district court with the ambiguous pleadings. Therefore, the district court did not
abuse its discretion in exercising jurisdiction over the remaining state law claim.
III
Snapt next contends that the district court improperly dismissed its Texas
common law unfair competition cause of action for failure to state a claim. The
district court held that unfair competition under the Texas common law requires
an independent tort that interfered with Snapt’s ability to conduct its business,
citing Taylor Publishing Co. v. Jostens, Inc.6 In fact, Ellipse had relied on Taylor
Publishing Co. in its motion to the district court. In its short brief in opposition
to the motion to dismiss, Snapt did not address this case, neither attempting to
distinguish it nor indicating the independent tort it believed it had pled.
Instead, it argued only that “[p]ursuant to the controlling case law and the
standard for FRCP Rule 12(b)6 [sic], Plaintiff need only plead a short plain
statement of the claim showing that the Plaintiff is entitled to relief under Rule
8.”
On appeal, Snapt does not renew its earlier argument regarding pleading
standards. Instead, it argues, for the first time, that unfair competition includes
an independent tort under Texas law and, alternatively, that its cause of action
under the Texas Harmful Access by Computer Statute—which was addressed
after the motion to dismiss on summary judgment—served as an underlying tort.
Snapt appears to contend that the result of United States Sporting Products, Inc.
v. Johnny Stewart Game Calls, Inc.7 alters our rule enunciated in Taylor
Publishing Co. The proper time to advance such an argument was before the
district court. As we have said, “In the absence of exceptional circumstances
which would result in a miscarriage of justice . . . questions not presented to the
6
216 F.3d 465, 486 (5th Cir. 2000).
7
865 S.W.2d 214 (Tex. App.–Waco 1993, writ denied).
6
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trial court will not be considered on appeal.”8 No such exceptional circumstances
are present here.
Alternatively, we observe that Taylor Publishing Co. not only postdates,
but also included a citation to, United States Sporting Products, Inc.9 As a
result, Snapt’s contention that United States Sporting Products, Inc. alters our
holding in Taylor Publishing Co. that a Texas unfair competition claim requires
an independent tort is unavailing.10 Moreover, we note that Snapt’s alternative
argument relies upon the viability of its claim dismissed on summary judgment,
the grant of which we affirm in the following section.11
IV
Snapt also challenges the district court’s grant of summary judgment to
Ellipse and the court’s related evidentiary rulings. Snapt argues that the Caven
and Jones declarations are admissible evidence, and that these support Snapt’s
claim under the Texas Harmful Access by Computer Statute. Snapt asserts that
the declarations provide an explanation of the data it seeks to admit—“logs from
Rackspace that evidence this ‘scraping’ and ‘hacking’ by Ellipse.”
First, we observe that the district court held that Snapt failed to allege
computer malfeasance within the time period provided in the complaint. As a
result, the court held that there was an alternative ground on which its
summary judgment rested. Snapt has not contested this on appeal, and this
8
C.F. Dahlberg & Co. v. Chevron U.S.A., Inc., 836 F.2d 915, 920 (5th Cir. 1988).
9
Taylor Publ’g Co., 216 F.3d at 486 (citing U.S. Sporting Prods., Inc., 865 S.W.2d at
217).
10
Teague v. City of Flower Mound, Tex.,179 F.3d 377, 383 (5th Cir. 1999) (“the rule of
orderliness forbids one of our panels from overruling a prior panel”).
11
See infra Part IV.
7
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constitutes waiver.12 Thus, we could affirm the grant of summary judgment on
this ground alone.
Alternatively, Snapt has failed to point to evidence indicating an issue of
material fact necessitating a reversal of the grant of summary judgment.13 To
support its claim under the Texas Harmful Access by Computer Statute, Snapt
relies on its repeated statement that the Caven and Jones declarations
constitute the personal knowledge of Caven and the “mixed fact/expert”
testimony of Jones, respectively. That said, Federal Rule of Evidence 702
permits expert testimony only by:
a witness qualified as an expert by knowledge, skill, experience,
training, or education . . . if (1) the testimony is based upon
sufficient facts or data, (2) the testimony is the product of reliable
principles and methods, and (3) the witness has applied the
principles and methods reliably to the facts of the case.
We review an order striking expert witness affidavits for an abuse of
discretion, and have noted the “broad discretion afforded to district courts in
ruling on the admissibility of expert testimony in the summary judgment
context.”14 The district court struck the Caven affidavit’s statements regarding
the information given to him by Orin Olson, as the affidavit failed to provide
either Olson’s methodology for providing information about hacking or
information identifying Olson. Given the lack of information to qualify Caven
or Olson as an expert, the affidavit’s exclusion was not an abuse of discretion.15
Alternatively, the court also correctly noted that to the extent the Olson
statements were offered to prove the truth of the matter asserted, they
12
United States v. Thibodeaux, 211 F.3d 910, 912 (5th Cir. 2000).
13
Hinojosa v. Butler, 547 F.3d 285, 297 (5th Cir. 2008).
14
Mayfield v. Tex. Dep’t of Criminal Justice, 529 F.3d 599, 606 (5th Cir. 2008) (citing
Boyd v. State Farm Ins. Cos., 158 F.3d 326, 331 (5th Cir. 1998)).
15
Id.8
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constitute hearsay.16 As we have said, “Neither the district court nor this court
may properly consider hearsay evidence in affidavits . . . .”17 Similarly, the
district court struck as hearsay Caven’s statement alleging, without providing
a source, that “it was learned” at mediation that Ellipse had acquired a password
to Snapt’s servers. Again, the district court cannot consider hearsay in
affidavits.18 The district court also struck the Caven declaration’s discussion of
Jones’s research and Caven’s inferences drawn from it. It observed that no
explanation was provided for the methodology underlying the research or
Caven’s inferences. Indeed, the affidavit is devoid of any explanation of how
Caven or Jones came to the relevant conclusions. Thus, the district court did not
abuse its discretion in striking those elements of the Caven declaration.19
The district court struck the Jones declaration for failure to provide
qualifications that demonstrate Jones’s expertise or the methods by which he
reached his conclusion. Jones offered conclusory statements accusing Snapt of
computer malfeasance, but offered no explanation of the methods he used to
discover this malfeasance. Instead, he stated only that these bad acts were
uncovered “[d]uring the research” he conducted. Striking these statements was
not an abuse of discretion.20 Similarly unavailing is Snapt’s contention on
appeal that the district court abused its discretion by concluding that Jones’s
twelve years of “experience developing software” was insufficient to provide a
basis for testimony regarding hacking. The district court possesses “broad
16
FED . R. EVID . 801(c).
17
Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549 (5th Cir. 1987) (per
curiam).
18
Id.19
Mayfield, 529 F.3d at 606.
20
Id.9
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discretion” in such matters,21 and it is not apparent that an individual with
expertise in general software development ipso facto possesses expertise in
hacking and scraping.
We consider the denial of Snapt’s motion for leave to supplement its
summary judgment evidence for an abuse of discretion.22 This short motion
contended that Ellipse had raised “hyper technical” issues in its motion to strike,
and sought leave to “clear up any misunderstandings.” It did not offer an
explanation for its failure to comply, nor did it include any indication of what
new evidence would be added by amendment. The district court denied the
motion for leave, observing that the rules violated were not novel, that Snapt
had failed to explain how it would remedy these defects if leave was granted, and
that Snapt was on notice of these challenges, as Ellipse had raised them earlier
in the proceedings. Indeed, the court had previously chided Snapt for a lack of
diligence in presenting its pleadings. The district court did not abuse its
discretion in denying Snapt leave to amend.
Insofar as Snapt contends on appeal that the CDs provide evidence to
defeat summary judgment, that argument is unavailing. Even assuming,
arguendo, that these CDs contain evidence indicating computer malfeasance, the
CDs constitute inadmissible hearsay.23 Indeed, Ellipse objected on this ground
during the proceedings below. While a data compilation produced in the “course
of a regularly conducted business activity” can fall under an exception to the
hearsay rule, this requires testimony of a custodian or other qualified witness,
or certification.24 Here no supporting testimony was provided from Rackspace
21
Id.22
Farina v. Mission Inv. Trust, 615 F.2d 1068, 1076 (5th Cir. 1980).
23
FED . R. EVID . 801(c).
24
FED . R. EVID . 803(6).
10
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indicating the accuracy of the data.25 The CDs also fail to comply with the self-
authentication rule.26
The remaining evidence attached to Snapt’s brief in response to the
summary judgment motion is insufficient to defeat summary judgment. The
email from an Ellipse address expressing an interest in acquiring “WebRentPro”
does not, standing alone, indicate that Ellipse violated the Texas Harmful Access
by Computer Statute. The remaining email from a third party offering to allow
Ellipse to scrape the websites of seemingly unconnected companies similarly
does not indicate a violation of the instant statute. Thus, the motion for
summary judgment was properly granted.
* * *
We AFFIRM.
25
See Capital Marine Supply, Inc. v. M/V Roland Thomas, II, 719 F.2d 104, 105–06
(5th Cir. 1983).
26
FED . R. EVID . 902(11).
11