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Configair LLC v. Kurz

United States District Court, D. Connecticut

July 31, 2019

CONFIGAIR LLC, Plaintiff,
v.
HENRY KURZ, Defendant. HENRY KURZ, Third-Party Plaintiff,
v.
DANIEL NAUS, NIZWER HUSAIN, and DUNG NGUYEN, Third-Party Defendants.

          RULING ON MOTIONS TO DISMISS AND FOR JUDGMENT ON THE PLEADINGS

          Janet Bond Arterton, U.S.D.J.

         This case involves a dispute between Henry Kurz ("Kurz"), a former member, officer, and director of ConfigAir, LLC ("ConfigAir"), and the three remaining principals of ConfigAir, who retain control over the company. At issue are the company's alleged past and ongoing use of intellectual property created by Kurz, the company's removal of Kurz, the misconduct that Kurz claims the other principals engaged in (including, he alleges, stealing from the company), and the statements that both Kurz and the company have made to each others' customers. Pending before the Court are two motions to dismiss and one motion for judgment on the pleadings.

         I. Background

         There are three separate operative complaints and one set of counterclaims in this case. First, Plaintiff ConfigAir brings federal copyright and related state law claims against Defendant Kurz, a former member, officer, and director of ConfigAir, seeking damages, declaratory relief, and injunctive relief.

         Second, Kurz brings counterclaims against ConfigAir claiming fraudulent inducement and tortious interference and seeking judicial dissolution of the company, injunctive and declaratory relief, the appointment of a receiver, and the appointment of a constructive trust.

         Third, acting as a Third-Party Plaintiff, Kurz, individually and derivatively on behalf of ConfigAir, brings three state law claims for breach of fiduciary duties and one state law claim for tortious interference against Third-Party Defendants Daniel Naus ("Naus"), Nizwer Husain ("Husain"), and Dung Nguyen ("Nguyen"), who are the remaining members, officers, and directors of ConfigAir.

         Fourth, in a subsequently filed action that was consolidated with this case, Plaintiff Henry Kurz Consulting GmbH ("HKC") brings claims for copyright infringement, slander of title/commercial disparagement, fraudulent misrepresentation, and unfair and deceptive trade practices in violation of the Connecticut Unfair Trade Practices Act against Defendants ConfigAir, Naus, Husain, Nguyen, and McLaren Automotive, Tnc.

         ConfigAir, Naus, Husain, and Nguyen move to dismiss Counts III (slander of title/commercial disparagement) and V (fraudulent misrepresentation) of HKC's Complaint. ([Doc. # 60].) Naus, Husain, and Nguyen separately move to dismiss Kurz's Amended Third Party Complaint, ([Doc. # 45]), in its entirety. ([Doc. # 47].) Finally, ConfigAir moves for judgment on the pleadings on Counts I and II of its Second Amended Complaint, ([Doc. # 43]), and on Counts I through X of Kurz's Counterclaim, ([Doc. # 46], subsequently amended by [Doc. #91]). ([Doc. # 49].)

         II. Motions to Dismiss

         A. Legal Standard

         "To survive a motion to dismiss, 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, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Although detailed allegations are not required, a claim will be found facially plausible only if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Conclusory allegations are not sufficient. Id. at 678-79; see also Fed. R. Civ. P. 12(b)(6).

         B. Partial Motion to Dismiss HKC's Complaint

         a. HKC's Complaint and Relevant Allegations

         As relevant here, HKC alleges that Henry Kurz was the sole creator and author of configurator and visualization software, comprised of four component computer programs, which are original works of authorship and copyrightable subject matter. (HKC Compl. [18-cv-1377 Doc. # 1] ¶¶ 14, 18-19.) Kurz "was the exclusive owner of all right, title and interest" in the software. (Id. ¶ 19.) On December 1, 2010, Kurz organized and registered HKC in Germany and has been the sole owner and manager of the company since that time. (Id. ¶ 20.) The following day, "Kurz transferred exclusive rights in the copyright in the Software to HKC by executing a Software Transfer Agreement written in German." (Id. ¶ 21.) "Thereafter, HKC registered each of the four component computer programs comprising the Software with the United States Copyright Office." (Id. ¶ 22.)

         On "December 21, 2010, Kurz, Naus, Husain and Nguyen formed ConfigAir with the intention of creating and developing configuration software for mobile devices-software that was separate and distinct from HKC's Software." (Id. ¶ 29.) But in 2013, "[w]ith HKC's permission and Kurz's oversight, ConfigAir began licensing and distributing [HKC's] Software to third parties[.]" (Id. ¶ 36.)

         On "October 18, 2017, Naus, Husain and Nguyen voted in favor of removing Kurz as Vice President and CTO of ConfigAir." (Id. ¶ 48.) Three days later, "Naus, Husain and Nguyen voted in favor of removing Kurz as a member of the Board of Directors of ConfigAir." (Id. ¶ 49.) On "October 31, 2017, Kurz, on behalf of HKC, notified ConfigAir that, as a result of Kurz's removal from the Board of Directors and as Vice President and CTO of ConfigAir, ConfigAir was no longer authorized to exploit the Software." (Id. ¶ 50.) HKC further alleges that since that time, "Naus, Husain and Nguyen have actively and knowingly caused ConfigAir to copy, publicly display, distribute, license and sell the Software, or substantially similar versions thereof, to third parties, including but not limited to McLaren, Maax, and the Doe Defendants, for their own commercial gain without HKC's authorization." (Id. ¶ 51.)

         On "December 19, 2017, HKC sent letters to several third-party users of the Software notifying them that ConfigAir is no longer authorized to license the Software to them and that, in the event ConfigAir creates software derived from the Software without HKC's authorization, their use of such unauthorized derivative software constitutes infringement of HKC's copyright in the Software." (Id. ¶ 60.) Attached to HKC's Complaint and incorporated by reference are "copies of [these] letters from HKC to McLaren and Maax, ConfigAir customers and licensees of the Software[.]" (Id.)

         On "December 29, 2017, Naus, Husain and Nguyen actively and knowingly caused ConfigAir's counsel to send letters to several third-party users of the Software falsely stating that the code underlying the Software is ConfigAir's 'property.'" (Id. 5 61.) Attached to HKC's Complaint and incorporated by reference is a copy of a letter from ConfigAir's counsel to "It-motive AG, a ConfigAir customer and licensee of the Software [.]" (Id.)

         HKC alleges that "[t]his statement was false, and ConfigAir, Naus, Husain and Nguyen knew that this statement was false, when it was made" and that these parties "intended for the third-party users to rely on the false statements and continue to pay ConfigAir for their use of the Software, or software derived from the Software, without HKC's authorization and without compensating HKC." (Id. ¶¶ 62-63.) Finally, "despite receiving actual notice of HKC's ownership of copyright in the Software, and in reliance on ConfigAir's false statements, McLaren, Maax, and Does 1-10 have continued to reproduce, distribute, publicly display, and license copies of the Software, or software derived from the Software, and have continued to pay ConfigAir for such use, without HKC's authorization and without compensating HKC." (Id. ¶ 64.)

         HKC brings claims for copyright infringement against all defendants (Count I), vicarious/contributory copyright infringement against all defendants (Count II), slander of title/commercial disparagement against ConfigAir, Naus, Husain, and Nguyen (Count III), fraudulent misrepresentation against Naus (Count IV), fraudulent misrepresentation against ConfigAir, Naus, Husain, and Nguyen (Count V), tortious interference with business expectancy against ConfigAir, Naus, Husain, and Nguyen (Count VI), and for violation of CUTA against ConfigAir, Naus, Husain, and Nguyen (Count VII).

         In further support of Count III, HKC alleges that "ConfigAir's statements [to its customers] were false and constitute false statements derogatory to HKC's title in and to the Software." (Id. ¶ 87.)

         b. Partial Motion to Dismiss Counts III and V

         Counterclaim Defendants ConfigAir, Naus, Husain, and Nguyen move to partially dismiss HKC's complaint as to Counts III (slander of title/commercial disparagement) and V (fraudulent misrepresentation) only.

         Counterclaim Defendants argue that Counts III and V of HKC's Complaint are based on the same allegation: that ConfigAir told third parties that ConfigAir's former Vice President and Chief Technology Officer, Henry Kurz, was subject to non-competition, non-solicitation, and nondisclosure agreements with ConfigAir and was believed to be in possession of ConfigAir's trade secrets and property. (Partial Mot. to Dismiss at 7-8.) According to Counterclaim Defendants, the fraudulent misrepresentation claim fails as a matter of law because "HKC cannot maintain a claim for fraudulent misrepresentation based on its own explicit allegation that the statements at issue were made to and relied upon by third-parties" while the slander of title/commercial disparagement claim fails as a matter of law because "the statements [at issue] were not made about HKC" (Id. at 8.)

         With respect to Count III (slander of title/commercial disparagement), Counterclaim Defendants contend that because any defamatory statement was only made about Henry Kurz himself and not the company-HKC-that bore his name, HKC does not state a claim.

         Commercial disparagement is "a species of defamation" that "like defamation, require [s] that the alleged damaging statement be made concerning the plaintiff." QSP, Inc. v. Aetna Cas. & Sur. Co., 256 Conn. 343, 358-59 (2001) (citations omitted). "Although a defamatory statement may be 'of and concerning the plaintiff even though on its face it refers to another person, more is required than a mere pleading of defamation by association; rather, a reasonable recipient must understand that the defamatory statement is 'in substance, actually about' the third party." Learning Care Grp., Inc. v. Armetta, No. 3:13-CV-01540 (VLB), 2014 WL 12651264, at *14 (D. Conn. Sept. 30, 2014) (quoting Kirch v. Liberty Media Corp., 449 F.3d 388, 399 (2d. Cir. 2006)). See also QSP, Inc., 256 Conn, at 456 (citing 3 Restatement (Second), Torts § 564 and comment (a) (1976) for the proposition that "[a] defamatory communication is made concerning the person to whom its recipient correctly, or mistakenly but reasonably, understands that it was intended to refer").

         HKC argues that "[c]ontrary to ConfigAir's contention, [HKC] has sufficiently alleged- and the documentary evidence attached and incorporated by reference into the Complaint proves-that ConfigAir's false statement regarding ownership of the Software was intended to refer to [HKC]." (PL's Mem. Law Opp'n to Partial Mot. Dismiss at 6.) According to HKC, ConfigAir's "statement was made in direct response to [HKC]'s own statement that it owns copyright in the Software, and thus ConfigAir does not." (Id. at 6-7.) Moreover, "ConfigAir's letter containing the statement was sent 10 days after Henry Kurz Consulting's letter and refers to 'recent[] contact[] by Henry Kurz,' the eponymous and sole member of Henry Kurz Consulting and author of the letter sent by Henry Kurz Consulting." (Id. at 7.) Finally, "the recipients understood that ConfigAir's statement was intended to refer to Henry Kurz Consulting." (Id.)

         In reply, Counterclaim Defendants argue that HKC is trying to rescue this claim by relying on unpleaded facts: "Nowhere in the Complaint does HKC allege that ConfigAir knew about the letters HKC sent to third-parties, that ConfigAir's counsel sent letters regarding Kurz to the same third-parties, or that the recipients understood ConfigAir's statements to be about HKC (even though they make no reference to HKC)." (Reply Mem. Supp. Partial Mot. Dismiss at 2.)

         Exhibit F to HKC's Complaint contains two December 19, 2017 letters from Kurz, on HKC letterhead, and signed by Kurz in his capacity as CEO of HKC, to individuals associated with McLaren and MAAX Bath Inc. In those letters, Kurz informs the companies that he was until recently the Vice President and CTO of ConfigAir, that he had created and developed certain software currently used by those companies, that in 2011, HKC had granted a revocable permission to ConfigAir to sublicense the software in service agreements to customers, and that after ConfigAir "discontinued" its work with Kurz in October 2017, HKC had revoked the permission. (See, e.g. [18-cv-1377 Doc. # 1-6] at 6.) According to Kurz, ConfigAir thus "illegally continues to use and sublicense the software and even incorrectly claims that it has the right to do so." (Id.)

         Ten days later, current counsel for ConfigAir emailed an individual associated with it-motive AG, with the subject line "Henry Kurz[, ]" noting that counsel was "writing because we have reason to believe that you may have recently been contacted by Henry Kurz, one of ConfigAir's former officers and one of its existing shareholders who is currently involved in a legal dispute with [ConfigAir]." (Ex. G to HKC Compl. [18-cv-1377 Doc. # 1-6] at 2.) The email continues:

If Mr. Kurz has contacted you or your company or contacts you or your company in the future, please be aware that he is subject to binding and enforceable noncompetition, non-solicitation, and non-disclosure agreements that he previously entered into with ConfigAir. Moreover, Mr. Kurz is believed to be in the possession of a number of ConfigAir's trade secrets and property, including, but not limited to, the code underlying ConfigAir's software, ConfigAir's customer information, and other confidential information.
To the extent that you or your company are working with Mr. Kurz in a manner that competes with ConfigAir or that he discloses to you or your company any of ConfigAir's trade secret[s] and confidential information, ConfigAir will take legal action against you and your company for, among other things, interfering with ConfigAir's contracts and misappropriating trade secrets. To the extent you have not had any contact with Mr. Kurz, please disregard this letter.

(Id.)

         The Counterclaim Defendants are correct that HKC's Complaint does not expressly allege "that ConfigAir knew about the letters HKC sent to third-parties, that ConfigAir's counsel sent letters regarding Kurz to the same third-parties, or that the recipients understood ConfigAir's statements to be about HKC[.]" (Mem. Supp. Partial Mot. to Dismiss [Doc. # 60-2] at 2 (emphasis omitted).) But HKC does allege that it sent letters to "several third-party users of the Software" on December 19, 2017, attaching and incorporating by reference two illustrative letters, while also alleging that ConfigAir's counsel sent "letters to several third-party users of the Software" regarding near-identical subject matter, attaching and incorporating by reference one such illustrative letter.

         First, with respect to the Counterclaim Defendants' argument that HKC's Complaint does not allege "that ConfigAir knew about the letters HKC sent to third-parties," the Counterclaim Defendants ignore the fact that the Complaint incorporates by reference a December 29, 2017 letter sent by ConfigAir that states "we have reason to believe that you may have recently been contacted by Henry Kurz[, ]" in addition to letters by Kurz sent ten days previously and apparently concerning identical subject matter.

         Second, with respect to the Counterclaim Defendants' argument that HKC does not allege that ConfigAir sent letters regarding Kurz to the "same third-parties" to whom HKC had previously written, it is accurate that the third-party user that received the letter sent by ConfigAir's counsel is not one of the third-party users for which HKC provides a letter that it sent. ConfigAir's implication that it and HKC wrote to different third parties about the software may thus be vindicated in discovery if HKC and ConfigAir's communications related to the software in December 2017 were all sent to different third-party users of the software. But HKC cannot be faulted at the motion to dismiss stage for being able to provide only one illustrative letter sent by opposing counsel to third parties. HKC alleges that it sent copies of this letter to "several" third-party users, while similarly alleging that ConfigAir also sent letters to multiple "users[.]" Moreover, the letter from ConfigAir that HKC incorporates into its Complaint appears to be a form letter, insofar as it references no facts or information that is on its face unique to the recipient, it-motive AG. Finally, the letter from ConfigAir is dated merely 10 days after the two incorporated letters from HKC.

         These allegations and incorporated documents together suffice to permit the reasonable inference that ConfigAir sent letters to its customers regarding Henry Kurz's ownership of the software in response to letters that Kurz had just sent, in his capacity as HKC CEO, to the third parties whom he believed to be ConfigAir's customers using the software. Further, the Complaint's allegations make clear that Kurz is the sole member and namesake of HKC and that ownership of the software at issue was transferred from Kurz to HKC.

         The Counterclaim Defendants base their partial motion to dismiss upon the idea that they cannot be liable for disparagement of HKC, where their statements Lo Lhird parlies only explicitly named Henry Kurz. But for the reasons described above, HKC does not "mere[ly] plead [] ... defamation by association" but instead plausibly alleges facts sufficient to allow the Court to draw the reasonable inference that at least some of the "reasonable recipients" would have "underst[oo]d that the defamatory statement" made about Kurz "[wa]s 'in substance, actually about'" HKC. Learning Care Grp., Inc., 2014 WL 12651264, at * 14 (citations omitted).

         Accordingly, the Counterclaim Defendants' motion to partially dismiss HKC's Complaint is denied as to Count III. HKC does not oppose dismissal of Count V, (PL's Mem. Law Opp'n to Partial Mot. Dismiss [Doc. #60-1] at 1), and it will be dismissed.

         C. Motion to Dismiss Kurz's Amended Third-Party Complaint

         a. Kurz's Amended Third-Party Complaint and Relevant Allegations

         Given the substantial overlap in allegations between Kurz's Amended Third-Party Complaint and HKC's Complaint, discussed supra, the Court only describes those allegations unique to Kurz's Amended Third-Party Complaint.

         Kurz is a German national who is a member of ConfigAir LLC ("the Company") and served as an officer and member of the board of directors of the Company, a manager-managed limited liability company organized under the laws of the State of Connecticut. (Am. Third-Party Compl. [Doc. # 45] ¶ 1.) Kurz owns 200, 000 shares, constituting a 33.3% interest, in the Company. (Id.)

         Naus is a member and served as an officer and member of the board of directors. (Id. ¶ 2.) Naus owns 200, 000 shares, constituting a 33.3% interest, in the Company. (Id.) Husain and Nguyen are also members, officers, and directors, each respectively owning 100, 000 shares, constituting a 16.65% interest, in the Company. (Id. ¶¶ 3-4.)

         Beginning in 2012, Kurz agreed to allow the Company to market HKC's Pre-LLC Software. (Id. ¶ 27.) In doing so, he relied on the members' representation that Kurz had, and would always have, full and sole authority for decision-making over the technical aspects of production and development of the Pre-LLC Software. (Id. f 28.) Neither Kurz nor HKC assigned or otherwise transferred copyright in the Pre-LLC Software to the Company. (Id. ¶ 29.)

         On April 20, 2014, Naus proposed organizing a Czech limited liability company (the "Czech Entity") for the purpose of engaging software developers in the Czech Republic. (Id. ¶ 33.) Per Naus's proposal, the Company would own 90% of the shares in the Czech Entity, and Naus's friend, Ales Rastak, would own 10% of the shares in the Czech Entity. (Id. ¶ 34.) The Company would contribute initial capital in the amount of $4, 500, and Rastak would contribute initial capital in the amount of $500. (Id.) All of the members of the Company agreed to this arrangement. (Id. ¶35.)

         In May 2014, Naus informed the members that the U.S. documents presented in connection with establishing the Company as an owner of the Czech Entity were unacceptable to the Czech authorities. (Id. ¶ 36.) Naus stated that he and Rastak had decided that the Company's intended 90% interest in the Czech Entity would instead be owned by Naus personally. (Id. ¶ 37.) They further decided that Naus's initial capital contribution would be $400, and Rastak's contribution would be $100. (Id.) Naus represented to the Company's members that, once the Czech Entity was organized, he would secure the necessary documents from the U.S. authorities, and then transfer his 90% personal interest in the Czech Entity to the Company the next time he was in the Czech Republic. (Id. ¶ 38.)

         Kurz agreed to this proposal. (Id. ¶ 39.) On July 9, 2014, Naus organized ConfigAir s.r.o., a Czech limited liability company. (Id. ¶ 40.) Naus owned a 90% interest in ConfigAir s.r.o., and Rastak owned a 10% interest in ConfigAir s.r.o. (Id. ¶ 41.) Contrary to his representations, Naus never transferred his 90% personal interest in the Czech Entity to the Company on his next trip to the Czech Republic or at any time thereafter. (Id. ¶ 42.)

         Although Naus has been to the Czech Republic multiple times since July 2014, Naus remains owner of a 90% interest in ConfigAir s.r.o., and the Company does not own any share in ConfigAir s.r.o. (Id. ¶ 43.) Naus knew, but failed to disclose the true owners of ConfigAir s.r.o., including the fact that Naus personally remained a majority owner of ConfigAir s.r.o., to the Company's other members or its board of directors. (Id. ¶ 44.)

         In July 2014, Naus provided a copy of the Pre-LLC Software to ConfigAir s.r.o. without HKC's permission and without controls in place to ensure that third-parties would not own copyright in software developed based on the Pre-LLC Software. (Id. ¶ 45.) In addition, starting in July 2014, Naus began transferring large sums of money from the Company to ConfigAir s.r.o. (Id. ¶ 46.) This money was used to pay rent for and refurbish offices in Olomouc, Czech Republic, to purchase electronics and furniture for the offices and the developers working there, and to pay salaries of those developers. (Id. ¶ 47.) The Company's board of directors did not authorize Naus to transfer funds from the Company to an entity in which it owned no interest. (Id. ¶ 48.)

         The board of directors permitted the transfer of the Company's assets to ConfigAir s.r.o. in reliance on Naus's misrepresentation that he would transfer his 90% interest in ConfigAir s.r.o. to the Company. (Id. ¶ 49.) Due to Naus's efforts to conceal his continued personal ownership of ConfigAir s.r.o., Kurz did not discover until in or about November 2017 that Naus had never transferred his 90% interest in ConfigAir s.r.o. to the Company. (Id. ¶ 51.) Husain and Nguyen did not know until 2017 at the earliest that Naus had never made the promised transfer to the Company. (Id. ¶ 52.)

         Since the founding of the Company, Kurz consistently devoted at least fifty percent (50%) of his business time to the business and affairs of the Company and carried out all of his duties as Vice President and CTO, including exercising his full and sole authority for decision-making over the technical aspects of production of the Company's software. (Id. ¶ 53.)

         Kurz primarily worked from his home in Germany but starting in 2013, he spent one week of each month working in ConfigAir s.r.o.'s offices in Olomouc, Czech Republic, where most of the software development team was based. (Id. ¶ 55.) Starting in 2016, Naus began calling Kurz in the middle of the night, local time at Kurz's home in Germany. (Id. ¶ 56.) If Kurz did not answer his phone, Naus complained regardless of the fact that Kurz returned Naus's phone calls during business hours in Kurz's time zone and within twelve hours of Naus's attempt to contact him. (Id. ¶ 57.) In addition to these harassing phone calls and baseless complaints, Naus began preventing Kurz from carrying out the responsibilities of his position. (Id. ¶ 58.) Naus began giving the developers instructions that were contrary to the instructions that Kurz had previously issued and unilaterally overruled Kurz on a number of decisions as to the technology to be implemented by the Company. (Id.)

         In the summer of 2016, Naus called a meeting of the members of the Company, at which Kurz discussed his concerns about Naus's interference with Kurz's supervision of the developers. (Id. ¶ 59.) At the same meeting, Naus complained of the previous instance when Kurz had not returned his call in the middle of the night. (Id. ¶ 60.) At the end of this meeting, Naus issued a threat to Kurz that if such a situation arose again, he would be expelled from the Company as CTO, Vice President, and as a member. (Id. ¶ 61.)

         In response, Kurz warned that, if he were no longer an officer of the Company, the Company would lose its ability to use, market and license versions of the Pre-LLC Software, copyright in which was owned by HKC. (Id. ¶ 62.) The Manager[1] did not amend the scope of Kurz's position as Vice President and CTO or his full and sole authority for ...


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