ACRISON, INC. v. RAINONE

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

ACRISON, INC.,

Plaintiff,

v.

ANTHONY M. RAINONE, BRACH Civ. No. 22-1176 (KM) (ESK)

EICHLER LLC, XCELLENCE, INC.

directly and as successor-in-interest OPINION

to RVM ENTERPRISES, INC. doing

business as XACT DATA

DISCOVERY, JOHN P. MARTIN,

JOHN DOES 1-10, ABC COMPANIES

1-10,

Defendants.

KEVIN MCNULTY, U.S.D.J.:

Plaintiff Acrison, Inc. (“Acrison”), a New Jersey corporation, brought this

action on March 3, 2022 against (1) Defendant Anthony M. Rainone, an

attorney, and Defendant John P. Martin, a paralegal, both of whom work for

Defendant Brach Eichler, LLC, a law firm (collectively, “Brach Eichler”); and

(2) Defendant Xcellence Inc., d/b/a Xact Data Discovery (“XDD”), which

acquired RVM Enterprises, Inc. on or about July 8, 2020. (DE 1, ¶¶ 1–5.)1

Brach Eichler and XDD now move to dismiss Acrison’s complaint.2 For the

following reasons, the motion to dismiss is GRANTED to the extent it seeks

1 Certain citations to the record are abbreviated as follows:

DE = docket entry

Compl. = Complaint (DE 1)

Mot. = Brach Eichler’s Brief in Support of the Motion to Dismiss (DE 9)

Opp. = Acrison’s Brief in Opposition to the Motion to Dismiss (DE 13)

2 XDD joins in and fully incorporates the factual recitations and legal arguments

advanced by Brach Eichler and did not file a separate brief. (DE 11, 21.)

dismissal of the federal claims. Because the basis for diversity or supplemental

jurisdiction is lacking, I dismiss the remaining state-law claims as well.

I. BACKGROUND

Acrison was formerly owned by two brothers, Ronald Ricciardi (“Ron”)

and Ralph Ricciardi (“Ralph”). (Compl. ¶¶ 18–20.) Ron, who was the founder,

President, and a director of Acrison, along with his spouse, owned 100% of

Acrison’s Class A, voting shares and 50% of Acrison’s Class B, non-voting

shares. (Id. at 19.) Ralph, who was the Vice President, Treasurer, and also a

director of Acrison, owned 45% of Acrison’s Class B, non-voting shares. (Id. at

20.) Ralph’s spouse owned the remaining 5% of Acrison’s Class B, non-voting

shares. (Id.) On December 20, 2021, Ralph and his spouse transferred all of

their non-voting shares to Acrison. (Id.)

The brothers and their spouses are not parties to this action. To

understand the allegations, however, it is necessary to review a prior legal

dispute in New Jersey state court between Ron and Ralph regarding Acrison.

A. The State Court Action

On September 5, 2019, Ralph and his spouse, Patricia Ricciardi,

represented by Brach Eichler, commenced a shareholder oppression action

against Ron, Geraldine Ricciardi (Ron’s spouse), Thomas Ricciardi (Ron’s son),

and Joseph Casini (Acrison’s former CFO) in the Bergen County Superior

Court, Chancery Division, New Jersey (Docket No. BER-C-238-19) (the “state

court action”). (Compl. ¶ 21.) Acrison was also named as a nominal defendant.

(Compl. ¶ 23.)

Ralph and Patricia brought the state court action as minority and

oppressed shareholders of Acrison, alleging “years of fraud, waste, misuse, and

misappropriation of corporate assets and opportunities” by the defendants.

(Compl. Docket No. BER-C-238-19, ¶ 1.)3 According to the state court

3 I consider the complaint and other filings in the state court action not for the

truth of the facts asserted therein, but to determine the nature and scope of the

proceeding, and the ruling of the state court in the underlying action. See Southern

Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Group, Ltd., 181 F.3d 410, 426

complaint, Rocco Ricciardi, who is Ron and Ralph’s late father, founded

Acrison in 1963. (Id. ¶¶ 19–22.) When Rocco died in 1997, his shares in

Acrison should have been distributed equally to Ralph and Ron pursuant to his

will; however, that did not happen. (Id. ¶ 67.) Additionally, Ron and his

attorney allegedly “attempted to unilaterally change shareholder percentages

and voting structure of the shares of Acrison to make Ron the majority

shareholder with 51% of the shares and with voting control.” (Id. ¶ 90.)

Ralph and Patricia also alleged misconduct, oppression, and

mismanagement of Acrison by the defendants. Ron allegedly maintained an

unauthorized “cash slush fund” (id. ¶¶ 98–99), switched banks and refused to

allow audits of Acrison’s inventory or records (id. ¶¶ 100–07), misappropriated

corporate money for his benefit, manipulated corporate books and records to

“hide his scheme” (id. ¶¶ 108–18), and usurped corporate opportunities for his

own financial benefit (id. ¶¶ 119–46). In early 2019, Ralph and Patricia

confronted Ron about his actions. (Id. ¶ 147.) Ron denied the allegations and

enlisted his son, Thomas, to fabricate a record to rebut the allegations. (Id.

¶¶ 148–52.) In response, Ralph and Patricia demanded an inspection of

Acrison’s books and records, which Ron refused. (Id. ¶¶ 154–55.) Ron also

attempted to intimidate a witness. (Id. ¶¶ 160–65.)

Based on the above allegations, Ralph and Patricia asserted claims of

breach of duty of loyalty, breach of fiduciary duty, conspiracy to commit breach

of fiduciary duty and duty of loyalty, aiding and abetting breach of fiduciary

duty of care and loyalty, and oppressed shareholder claims.

B. Acrison’s Counterclaim

On October 21, 2019, Acrison filed its answer to the state court

complaint and asserted its counterclaims. (Answer & Counterclaim, Docket No.

(3d Cir. 1999) (“To resolve a 12(b)(6) motion, a court may properly look at public

records, including judicial proceedings, in addition to the allegations in the complaint.

. . . [O]n a motion to dismiss, we may take judicial notice of another court’s opinion—

not for the truth of the facts recited therein, but for the existence of the opinion, which

is not subject to reasonable dispute over its authenticity.”).

BER-C-238-19.) Acrison alleged that Ralph was exclusively in control of

Acrison’s inventory and that, while in that role, Ralph and his direct reports

ordered materials that were used for personal reasons and not for Acrison.

(Countercl. Docket No. BER-C-238-19, ¶ 21.) Ralph also paid a vendor to

complete certain projects that could have been handled in-house at Acrison.

(Id. ¶ 28.) Additionally, Ralph provided employees with loans without

authorization. (Id. ¶ 29.) Finally, Ralph’s children received health insurance

and other benefits through Acrison when they did not qualify for those benefits.

(Id. ¶¶ 36–42.) Based on the foregoing, Acrison alleged counterclaims against

Ralph and Patricia for breach of fiduciary duties, breach of duty of loyalty,

tortious interference with contractual relations and prospective economic

advantage, conversion of corporate assets, and joint and several liability/alter

ego/corporate veil.

C. Events Giving Rise to the Present Action

Two weeks after filing the underlying shareholder oppression action,

Brach Eichler, along with an Acrison employee, issued a “Change Order” to

XDD for services described as follows: “[XDD] will image a workstation after 7

PM in Moonachie, NJ.” (Compl. ¶ 29.) Specifically, Brach Eichler requested that

XDD image the hard drive of the work computer located at Acrison’s office and

used by Casini. (Id. ¶¶ 22, 24, 105.) Casini did not authorize anyone to access

this computer. (Id. ¶ 25.) Only Brach Eichler, the Acrison employee, and XDD

knew of this extraction. (Id. ¶ 29.)

The state court action proceeded in the normal course, and the parties

exchanged demands for the production of documents. (Id. ¶ 34.) On or about

March 17, 2020, Brach Eichler provided Acrison two sharefile links to

documents, one of which Acrison could not access. (Id. ¶¶ 39–40.) Acrison

advised Brach Eichler multiple times that it could not access the documents

and asked that the documents be provided on a thumb drive; Brach Eichler

declined Acrison’s requests. (Id. ¶¶ 41–45.)

Then, in May 2020, Brach Eichler acknowledged during a meet-and-

confer that a “pre-litigation” investigation occurred, but declined to provide

additional details. (Id. ¶ 46.) The issue arose again in October 2020 when

Brach Eichler attempted to use a document at a deposition that existed only on

Ron’s computer. At that point, “Brach Eichler disclosed that thousands of

pages of ESI were gathered as part of a ‘pre-litigation’ investigation and that the

ESI had been produced in discovery.” (Id. ¶ 47.) By November 2020, “Acrison

finally secured access to some of the ESI produced by Brach Eichler, but not

all.” Brach Eichler did not, however, produce the original document metadata.

(Id. ¶¶ 49–50.) Acrison made additional requests for the documents and

metadata, which Brach Eichler refused to honor. (Id. ¶¶ 49–52.)

In November 2020, Acrison raised the discovery issue with the state

court and sought an order requiring Brach Eichler to, inter alia, “disclose how

it obtained what appeared to be stolen information.” (Id. ¶ 57.) Ralph

responded with a certification stating that he obtained the documents “in a

pre-litigation investigation by accessing Acrison’s computers.” (Id. ¶ 59.) In

December 2020, Brach Eichler advised that XDD performed a data extraction

pre-litigation, between May 22 and 30, 2018. (Id. ¶¶ 62–63.) However, Acrison

retained an expert who concluded that some of the documents had “created

dates” after May 30, 2018, and not all documents and metadata had been

produced. (Id. ¶¶ 69–73.)

Acrison sought to depose a representative of XDD and requested the

production of certain documents. In response, in January 2021, XDD produced

an agreement with Brach Eichler authorizing XDD to “create a full forensic

issue of a company computer belonging to Domain Admin,” to “bring the

forensic image back to [XDD’s] lab to recover passwords and log-in

information,” and to “Remote VPN access [into] Acrison, Inc. then map and

image the paths and execute email export commands [and] perform the

collection after hours.” (Id. ¶¶ 79–80.) Brach Eichler and XDD arranged to meet

at Acrison on May 17, 2018 between 9:00 PM and 10:30 PM. (Id. ¶ 83.) XDD

also produced a copy of the “change order” instructing XDD to image Acrison’s

hard drive in September 2019. (Compl. ¶¶ 29, 86–87.)

Acrison conducted the deposition of XDD’s representative on January 29,

2021. (Id. ¶¶ 91–92.) The representative testified that he met with Brach

Eichler and another individual on May 17, 2018 at 9:00 PM at Acrison’s office.

(Id. ¶ 93.) The XDD representative extracted the hard drive of the computer

belonging to Acrison’s IT Director and “made an exact image of all the data on

the computer’s hard drive.” (Id. ¶ 95.) He also recorded network information so

that he could remotely access the computer, which he did at a later time. (Id.

¶¶ 96–97.) On February 17, 2021, Brach Eichler produced a drive that

purportedly contained a copy of the original forensic data. (Id. ¶ 108.)

D. Conclusion of the State Court Action

On February 4, 2021, all parties moved for summary judgment in the

state court action. Among other things, Acrison argued that all of Ralph and

Patricia’s claims should be dismissed with prejudice as a sanction for the

above-described discovery misconduct. (DE 9-5). Acrison asserted that Ralph

and Patricia had violated the New Jersey Computer Related Offense Act

(“CROA”) and the Computer Fraud and Abuse Act (“CFAA”). Acrison, however,

did not seek leave to amend its answer to assert such violations as

counterclaims. (Id. p. 22.) Acrison also relied on the alleged discovery-related

misconduct to further support its counterclaims for breach of fiduciary duty

and breach of duty of loyalty. (Acrison Opp. Br. Summ. J., 2/16/21, Docket

No. BER-C-238-19, pp. 16–19.)

On March 22, 2021, the state court issued an oral decision on the

parties’ summary judgment motions. (DE 9-6.) When discussing the discovery

dispute, the court noted that none of the defendants asserted in their answers

or counterclaims any violation of the CROA or CFAA. (DE 9-6, p. 26.) The court

also recognized that those claims require that the person or entity be damaged

and that the actions be unauthorized. (Id.) The court found that the defendants

did not show “any damage or specific prejudice” arising from Ralph’s actions,

and that a substantial question existed as to whether Ralph’s actions were

authorized. (Id.) The court ultimately denied Acrison’s motion for summary

judgment, finding genuine issues of material fact as to whether Ralph

misappropriated Acrison’s assets. (Id. p. 40.)

On March 25, 2021, just a few days after the court’s summary judgment

decision, the parties signed a term sheet agreement to settle the dispute.

(Compl. ¶ 110; Docket No. BER-C-238-19.) The parties then executed a

settlement agreement in December 2021. Per the settlement agreement, Brach

Eichler was to deliver to Acrison “all documents, records, recordings, and

electronically stored information (“ESI”) copied and extracted by [XDD] or

anyone else in connection with the pre-litigation and litigation activities in the

[state court action]. . . . No documents involving Brach Eichler and [XDD]

regarding Acrison’s ESI should be destroyed, altered or modified.” (Compl.

¶ 113.) Brach Eichler notified Acrison that it had instead instructed “Citrin” to

“destroy and purge” all documents, ESI, or copies in its possession that were

related to the state court action. (Id. ¶ 121.) Additionally, XDD deleted Acrison’s

ESI from its network. (Id. ¶ 122.)

On February 4, 2022, the parties filed a stipulation dismissing the state

court action with prejudice. (DE 9-7.)

E. This Action

On March 3, 2022, Acrison filed its complaint in this action, alleging that

Brach Eichler and XDD violated the CFAA (Count I), engaged in a conspiracy to

violate the CFAA (Count II), violated the CROA (Count III), and committed

trespass to personal property (Count IV) and conversion (Count V). Acrison

bases its claims on the facts underlying the discovery dispute that occurred in

the now-settled state court action. See Section I.C., supra.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a

complaint, in whole or in part, if it fails to state a claim upon which relief can

be granted. The defendant, as the moving party, bears the burden of showing

that no claim has been stated. Animal Science Prods., Inc. v. China Minmetals

Corp., 654 F.3d 462, 469 n. 9 (3d Cir. 2011). For the purposes of a motion to

dismiss, the facts alleged in the complaint are accepted as true and all

reasonable inferences are drawn in favor of the plaintiff. N.J. Carpenters & Trs.

Thereof v. Tishman Const. Corp. of N.J., 760 F.3d 297, 302 (3d Cir. 2014).

Federal Rule of Procedure 8(a) does not require that a complaint contain

detailed factual allegations. Nevertheless, “a plaintiff’s obligation to provide the

‘grounds’ of his ‘entitlement to relief’ requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will

not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the

complaint’s factual allegations must be sufficient to raise a plaintiff’s right to

relief above a speculative level, so that a claim is “plausible on its face.” Id. at

570; see also West Run Student Housing Assocs., LLC v. Huntington Nat. Bank,

712 F.3d 165, 169 (3d Cir. 2013). That facial-plausibility standard is met

“when the plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).

While “[t]he plausibility standard is not akin to a ‘probability requirement’ . . .

it asks for more than a sheer possibility.” Iqbal, 556 U.S. at 678.

III. DISCUSSION

A. Entire Controversy Doctrine

I will first address defendants’ argument that New Jersey’s entire

controversy doctrine required Acrison to raise its current claims as

counterclaims in the state court action and, because it did not do so, those

claims are precluded.

Res judicata, though an affirmative defense, may be considered on a Rule

12(b)(6) motion where, as here, the necessary facts are apparent on the face of

the complaint and other documents properly considered on a motion to

dismiss. Whether a state court judgment should have a preclusive effect in a

subsequent federal action depends on the law of the state that adjudicated the

original action. See Greenleaf v. Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999)

(“To determine the preclusive effect of [the plaintiff’s] prior state action we must

look to the law of the adjudicating state.”). See also Allen v. McCurry, 449 U.S.

90, 96 (1980) (“Congress has specifically required all federal courts to give

preclusive effect to state-court judgments whenever the courts of the State from

which the judgments emerged would do so.”). Here, that state is New Jersey.

Claim preclusion in the traditional sense tends to be subsumed by New

Jersey’s “entire controversy” doctrine. The entire controversy doctrine is

currently codified in Rule 4:30A of the New Jersey Rules of Court, which

provides that “[n]on-joinder of claims required to be joined by the entire

controversy doctrine shall result in the preclusion of the omitted claims to the

extent required by the entire controversy doctrine.” N.J. Ct. R. 4:30A.

The entire controversy doctrine has been described as “New Jersey’s

specific, and idiosyncratic, application of traditional res judicata principles.”

Rycoline Prods., Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997). The

doctrine precludes, not just claims actually decided by a prior judgment, but

all claims that a party could and should have joined in a prior case based on

the same transaction or occurrence. The doctrine “seeks to assure that all

aspects of a legal dispute occur in a single lawsuit.” Olds v. Donnelly, 636 A.2d

633, 637 (N.J. 1997). Its purposes are “(1) to encourage the comprehensive and

conclusive determination of a legal controversy; (2) to achieve party fairness,

including both parties before the court as well as prospective parties; and (3) to

promote judicial economy and efficiency by avoiding fragmented, multiple and

duplicative litigation.” Mystic Isle Dev. Corp. v. Perskie & Nehmad, 662 A.2d

523, 529 (N.J. 1995).

There are three requirements for the application of the entire controversy

doctrine:

(1) the judgment in the prior action must be valid, final, and on the

merits; (2) the parties in the later action must be identical to or in

privity with those in the prior action; and (3) the claim in the later

action must grow out of the same transaction or occurrence as the

claim in the earlier one.

McNeil v. Legislative Apportionment Comm’n of State, 828 A.2d 840, 859 (N.J.

2003) (citation omitted).

Final Judgement on the Merits

The first factor requires a final judgment on the merits, which I find is

satisfied. A dismissal with prejudice constitutes an adjudication on the merits

“as fully and completely as if the order had been entered after trial.” Petrossian

v. Cole, 613 F. App’x 109, 111–12 (3d Cir. 2015) (quoting Gambocz v.

Yelencsics, 468 F.2d 837, 840 (3d Cir. 1972)); see also Jackson v. Dow Chem.

Co., 518 F. App’x 99, 102 (3d Cir. 2013) (“[Plaintiff’s] voluntary dismissal with

prejudice of his remaining ADA claims also operated as a final judgment on the

merits for purposes of claim preclusion.”). Here, all parties voluntarily

stipulated to dismissal of the state court action, and expressly provided that

the dismissal was with prejudice. (DE 9-7.) Accordingly, I find that the

stipulation of dismissal in the state court action was a final judgment on the

merits and that this element of the entire controversy doctrine is satisfied.

Privity of the Parties

Neither Brach Eichler nor XDD was a party to the state court action.

Therefore, for the entire controversy doctrine to apply, they must be in privity

with a party to the state court action. I find that they are.

In comparison to federal preclusion principles, New Jersey has adopted a

broader definition of “privity.” See Opdycke v. Stout, 233 F. App’x 125, 129 n. 6

(3d Cir. 2007). “In New Jersey, privity is merely a word used to say that the

relationship between the one who is a party on the record and another is close

enough to include that other within the res judicata.” Hamburg Music Corp. v.

Winter, No. 04-2738, 2005 WL 2170010, at *3 (3d Cir. Sept. 8, 2005) (citation

and quotation omitted). Less circularly, a relationship is defined as being “close

enough” to satisfy privity “when the party is a virtual representative of the non-

party, or when the non-party actually controls the litigation.” Collins v. E.I.

DuPont de Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994). Thus, “one person

is in privity with another and is bound by and entitled to the benefits of a

judgment as though he was a party when there is such an identification of

interest between the two as to represent the same legal right.” Zirger v. Gen.

Accident Ins. Co., 676 A.2d 1065, 1071 (N.J. 1996) (citation omitted).

Brach Eichler represented Ralph in the state court action, creating a

legal relationship, and XDD was hired to conduct the alleged hacking at the

direction of Brach Eichler and Ralph. (DE 9-4; Compl. ¶ 29). In both instances,

the privity was formal and contractual, as well as practical. Acrison alleges that

the wrongfulness of the actions of Brach Eichler and XDD arose from Ralph’s

lack of rightful access to the computers. Acrison alleges that “Ralph and

defendants here lacked authorized access to Acrison’s computers and servers”

and, because “Ralph . . . had no authorized access to the subject servers and

computers and/or exceeded his authorized access to those serves and

computers,” Brach Eichler and XDD “cannot find safe harbor from liability.”

(Id. ¶¶ 31, 150.)

Moreover, “co-conspirators are by definition in privity.” Goel v. Heller,

667 F. Supp. 144, 152 (D.N.J. 1987) (citing Gambocz, 468 F.2d at 842). Acrison

alleges a direct violation of the CFAA, along with a conspiracy between Ralph,

XDD, and Brach Eichler to engage in a violation of the CFAA. (Compl. ¶¶ 161–

65.) There is room for doubt, particularly as to whether XDD and Brach Eichler

truly partook of Ralph’s legal interest in the underlying litigation, but that

argument is better addressed under the third factor, infra. Acrison’s own theory

of the case, particularly at the pleading stage, is sufficient to set forth a claim

of privity.

Transactionally Related

The real problem arises with respect to the third factor: whether the

claims in the present action arose from the same transaction or occurrence as

the state court action. I conclude that they do not. The independent claims

against Brach Eichler and XXD are ancillary to the actual merits of the state

court action, which relate to corporate control and malfeasance in corporate

governance.

This third factor requires that the facts of the later action are sufficiently

related to the facts giving rise to the underlying action, such that the two

actions “arise from related facts or the same transaction or series of

transactions.” Fields v. Thompson Printing Co., 363 F.3d 259, 265 (3d Cir.

2004) (citation omitted). “It is the core set of facts that provides the link

between distinct claims against the same or different parties and triggers the

requirement that they be determined in one proceeding.” DiTrolio v. Antiles, 662

A.2d 494, 502 (N.J. 1995). The court must consider the factual context “giving

rise to the controversy itself, rather than a commonality of claims, issues or

parties.” Mystic Isle Dev. Corp., 662 A.2d at 529. “In the absence of such a

factual nexus, a party is not required to join all of its claims against another

party in a single action.” McNally v. Providence Washington Ins. Co., 698 A.2d

543, 548 (N.J. Super. App. Div. 1997).

For example, in Fields v. Thompson Printing Co., Fields’s employer,

Thompson Printing Co., terminated him following allegations by three

employees that Fields sexually harassed them and created a hostile work

environment. 363 F.3d at 263. The three employees filed a lawsuit in New

Jersey state court against Fields and Thompson Printing Co. based on those

allegations, which ultimately settled. Id. During the pendency of the state court

action, Fields filed a federal action against Thompson Printing Co. alleging that

his employer breached his employment contract and violated ERISA by failing

to pay his benefits following his termination. Id. at 263–64. In response,

Thompson Printing Co. asserted that Fields’s claims were barred by the entire

controversy doctrine and should have been raised in state court because he

would not have been fired but for his actions underlying the state court matter.

Id. at 264. The Third Circuit found that the causal relationship between the

two sets of claims was insufficient to satisfy the entire controversy doctrine. Id.

at 265–66. The separate actions lacked a “commonality of facts”—the state

court action concerned the employees’ complaints of hostile working

conditions, whereas the federal action considered the language of Fields’s

employment contract and Thompson Printing Co.’s obligations pursuant to

ERISA. Id. at 266. Because “two different sets of facts” were relevant to the “two

different types of claims,” the Third Circuit found “no reason to believe that the

New Jersey courts would bar” Fields’s federal court action. Id.

Similarly, here, the facts of the state court action are distinct from the

facts necessary for Acrison to prove its claims in the present action. The state

court action concerned whether Ralph, Ron, and other persons who worked at

Acrison breached their duties to the company and committed fraud, waste,

misuse, and/or misappropriation of corporate assets and opportunities over

many years. See Section I.A., supra. In contrast, the present action turns on

whether Brach Eichler and XDD accessed Acrison’s computers in violation of

state or federal law. As in Fields, the cases raise two different types of claims

and rely on two different sets of facts.

Therefore, because the third factor of the entire controversy doctrine is

not satisfied, I conclude that it does not preclude Acrison’s claims.

B. Computer Fraud and Abuse Act

Statute of Limitations

Finding that the entire controversy doctrine does not apply, I will now

address whether Acrison has stated a claim for violation of the federal CFAA.

Acrison alleges Brach Eichler and XDD violated 18 U.S.C. § 1030(a)(2)(c),

a criminal provision which applies to whoever “intentionally accesses a

computer without authorization or exceeds authorized access, and thereby

obtains . . . information from any protected computer.” A violation of

§ 1030(a)(2) also gives rise to civil liability; a person suffering “damage” or “loss”

from such a violation is granted a cause of action to sue for money damages or

equitable relief. 18 U.S.C. § 1030(g); Van Buren v. United States, 141 S. Ct.

1648, 1652 (2021). A civil action for violation of the CFAA may be brought only

if one of the factors in § 1030(c)(4)(A)(i)(I) to (V) is satisfied.4 Here, Acrison

4 The factors are:

alleges “loss to 1 or more persons during any 1-year period . . . aggregating at

least $5,000 in value” under § 1030 (c)(4)(A)(i)(I), arising from: “investigation

expenses, expert costs, discovery master fees and legal fees in uncovering the

misconduct.” (Compl. ¶ 149.)

Defendants respond that Acrison cannot recover for such loss because

its claim is barred by the relevant two-year statute of limitations. The CFAA

requires that a civil action be brought “within 2 years of the date of the act

complained of or the date of the discovery of the damage.” 18 U.S.C. § 1030(g).

Thus, if a plaintiff does not allege later-discovered “damage,” as defined by

§ 1030(e)(8), then by default the plaintiff is limited to bringing the action within

two years of the violation itself. Radcliff v. Radcliff, No. 20-cv-3669, 2020 WL

7090687, at *5 (D.N.J. Dec. 4, 2020); Gap Properties, LLC v. Cairo, No. 19-cv-

20117, 2021 WL 5757410, at *4 n.5 (D.N.J. Dec. 3, 2021); Sewell v. Bernardin,

795 F.3d 337, 340 (2d Cir. 2015).

Defendants assert that Acrison has not alleged any “damage” (whether

contemporaneous or later-discovered) as that term is defined in the CFAA. The

CFAA defines “damage” as “any impairment to the integrity or availability of

data, a program, a system, or information.” 18 U.S.C. § 1030(e)(8). The term

“loss” likewise “relates to costs caused by harm to computer data, programs,

(I) loss to 1 or more persons during any 1-year period . . . aggregating at

least $5,000 in value;

(II) the modification or impairment, or potential modification or

impairment, of the medical examination, diagnosis, treatment, or care of

1 or more individuals;

(III) physical injury to any person;

(IV) a threat to public health or safety; [or]

(V) damage affecting a computer used by or for an entity of the United

States Government in furtherance of the administration of justice,

national defense, or national security.

18 U.S.C. § 1030(c)(4)(A)(i)(I) to (V).

systems, or information services.”5 Van Buren, 141 S. Ct. at 1659–60.

Moreover, the terms “damage” and “loss” “focus on technological harms—such

as the corruption of files—of the type unauthorized users cause to computer

systems and data.” Id. at 1660.

Acrison argues in its brief that it has suffered the following damage:

Brach Eichler and XDD accessed Acrison’s computers, imaged the computers’

hard drives, and captured passwords. (Opp. p. 13 (citing Compl. ¶¶ 14, 65, 79,

81, 101, 153).) Additionally, the data that defendants copied from Acrison’s

computers was deleted from the networks of XDD and a third party. (Compl.

¶¶ 114–26.) Acrison’s complaint, however, alleges that it only suffered “loss” as

defined by 18 U.S.C. § 1030(e)(11); it does not allege that Acrison also suffered

“damage” as defined by 18 U.S.C. § 1030(e)(8). (See Compl. ¶ 160.)

At any rate, even if damage had been alleged as a legal theory, the

allegations of the complaint would not support it. Courts have found damage

where a defendant has inflicted some type of impairment to the computer at

issue, such as corrupted files, see Van Buren, 141 S. Ct. at 1660; deleted data,

see Volpe v. Abacus Software Sys. Corp., No. 20-cv-10108, 2021 WL 2451968,

at *7 (D.N.J. June 16, 2021); prevented access, see United States v. Soybel, 13

F.4th 584, 595 (7th Cir. 2021); or installed software, see Radcliff, 2020 WL

7090687, at *6. Brach Eichler and XDD are alleged only to have accessed,

copied, or downloaded information from Acrison’s computers. That, without

more, is insufficient to show “damage” under the CFAA. See Fidlar Techs. v.

LPS Real Est. Data Sols., Inc., 810 F.3d 1075, 1084 (7th Cir. 2016) (holding that

downloading data without altering data or disrupting service is insufficient to

constitute “damage”); Rodgers Grp., LLC v. Lewis, No. 22-cv-482, 2022 WL

4095785, at *7 (D.N.J. Sept. 7, 2022). To the extent Brach Eichler and XDD are

5 The term “loss” is defined as “any reasonable cost to any victim, including the

cost of responding to an offense, conducting a damage assessment, and restoring the

data, program, system, or information to its condition prior to the offense, and any

revenue lost, cost incurred, or other consequential damages incurred because of

interruption of service.” 18 U.S.C. § 1030(e)(11).

alleged to have deleted or destroyed data, they did so only on their own

computers or the computer of a third party. Damage to those computers is not

at issue; the data stored on Acrison’s computers is not alleged to have been

deleted, corrupted, or compromised in any manner.6 (See Compl. ¶¶ 114–126;

Opp. p. 13.)

Because Acrison fails to allege ongoing or later-discovered “damage,” it

was required to bring its claim within two years of the date of the act

complained of. 18 U.S.C. § 1030(g). The conduct of Brach Eichler and XDD

occurred in May 2018 and September 2019, meaning the limitation periods

expired in May 2020 and September 2021. (Compl. ¶¶ 63, 69, 93, 105.) Acrison

did not file its complaint until March 3, 2022, which is well outside the two-

year limitation periods.

Equitable Tolling

Acrison attempts to excuse its untimely filing by invoking the doctrine of

equitable tolling by reason of fraudulent concealment. In the Third Circuit, a

party seeking equitable tolling under the doctrine of fraudulent concealment

bears the burden of showing three elements: “(1) that the defendant actively

6 The Senate Report on the 1996 amendments to the CFAA further illustrates

how defendants’ access, alone, may constitute “loss” but not “damage”:

[I]t is not always clear what constitutes “damage.” For example, intruders

often alter existing log-on programs so that user passwords are copied to

a file which the hackers can retrieve later. After retrieving the newly

created password file, the intruder restores the altered log-on file to its

original condition. Arguably, in such a situation, neither the computer nor

its information is damaged. Nonetheless, this conduct allows the intruder

to accumulate valid user passwords to the system, requires all system

users to change their passwords, and requires the system administrator

to devote resources to resecuring the system. Thus, although there is

arguably no “damage,” the victim does suffer “loss.” If the loss to the victim

meets the required monetary threshold, the conduct should be criminal,

and the victim should be entitled to relief.

S. Rep. No. 104-357, at 11 (1996). See also P.C. of Yonkers, Inc. v. Celebrations! Party

& Seasonal Superstore, L.L.C., No. 04-cv-4554, 2007 WL 708978, at *5 (D.N.J. Mar. 5,

2007).

misled the plaintiff; (2) which prevented the plaintiff from recognizing the

validity of her claim within the limitations period; and (3) where the plaintiff’s

ignorance is not attributable to her lack of reasonable due diligence in

attempting to uncover the relevant facts.” Cetel v. Kirwan Fin. Grp., Inc., 460

F.3d 494, 509 (3d Cir. 2006); Winder v. Postmaster Gen. of U.S., 528 F. App’x

253, 256 (3d Cir. 2013). District courts “should be sparing in their use of this

doctrine” and limit its application only to the “rare situation where [it] is

demanded by sound legal principles as well as the interests of justice.” LaCava

v. Kyler, 398 F.3d 271, 275 (3d Cir. 2005) (internal citations omitted). “[F]or a

petitioner to obtain relief there must be a causal connection, or nexus, between

the extraordinary circumstances [the petitioner] faced and the petitioner’s

failure to file a timely federal petition.” Ross v. Varano, 712 F.3d 784, 803 (3d

Cir. 2013). And even where the circumstances are extraordinary, “[i]f the

person seeking equitable tolling has not exercised reasonable diligence in

attempting to file after the extraordinary circumstances began, the link of

causation between the extraordinary circumstances and the failure to file is

broken, and the extraordinary circumstances therefore did not prevent timely

filing.” Brown v. Shannon, 322 F.3d 768, 773 (3d Cir.2003) (citation omitted).

I find that the equitable tolling doctrine is inapplicable to this matter.

I first address the claims based on defendants’ accessing of the Acrison

computers in May 2018. Acrison, by its own admission, knew about these acts

by November or December 2020 at the latest. In November 2020, for example,

Acrison sought an order requiring Brach Eichler to, inter alia, “disclose how it

obtained what appeared to be stolen information.” (Id. ¶ 57.) Ralph then

provided a certification which clearly, if grudgingly, acknowledged the having

accessed the computers: “As a part of a pre-suit investigation, I obtained copies

of electronically stored information (“ESI”) from Acrison’s servers and

computers located on the property of Acrison.” (Compl. ¶ 59; DE 9-4.) In

December 2020, Brach Eichler advised that XDD performed a data extraction

pre-litigation, between May 22 and 30, 2018. (Id. ¶¶ 62–63.)

So assume Acrison has adequately alleged an explanation for its failure

to learn of defendants’ May 2018 activities prior to November or December

2020 (which was already beyond the limitations period of May 2020). And

accept arguendo that these constituted extraordinary circumstances. Still,

Acrison provides no explanation as to why it did not file its complaint until

March 2022, over one year after it became aware of the acts giving rise to its

claim. I find that Acrison did not exercise “reasonable diligence in attempting to

file after the extraordinary circumstances began” with respect to the claims

arising from the unauthorized access to its computers in May 2018. See

Brown, 322 F.3d at 773.

I next address the allegations of unauthorized access in September 2019.

Acrison learned of defendants’ September 2019 actions by, at the latest,

January 2021, when XDD produced documents in response to Acrison’s

subpoena. (Compl. 75.) As part of that document production, Acrison received

a copy of the “change order” instructing XDD to image Acrison’s hard drive in

September 2019. (Compl. ¶¶ 29, 86–87.) That order was not merely suggestive,

but the proverbial smoking gun. The statute of limitations had not expired at

the time Acrison received a copy of the “change order.” Indeed, the limitation

period did not expire until September 2021, about eight months after Acrison

learned of the acts giving rise to its claim. Acrison provides no explanation for

its failure to file its CFAA claims within that eight-month period. See Brown,

322 F.3d at 773 (finding equitable tolling not justified where petitioner had one

month left in limitations period in which he could have filed at least a basic pro

se habeas petition).

Acrison did not learn everything about defendants’ actions, but it learned

enough to permit the filing of a complaint that would, at a minimum, have

permitted further exploration in discovery. I find that Acrison did not exercise

reasonable diligence, and I therefore conclude that equitable tolling under the

doctrine of fraudulent concealment does not apply.

Discovery rule

Acrison also invokes the “discovery rule,” a doctrine under which a

claim’s accrual date, and therefore the running of the statute of limitations,

may be delayed. See Hedges v. United States, 404 F.3d 744, 750–51 (3d Cir.

2005) (distinguishing between equitable tolling and the discovery rule).

Generally speaking, the discovery rule “tolls the limitations period until the

plaintiff learns of his cause of action or with reasonable diligence could have

done so,” and “is an exception to the usual principle that the statute of

limitations begins to run immediately upon accrual regardless of whether or

not the injured party has any idea what has happened to him.” Stephens v.

Clash, 796 F. 3d 281, 284 (3d Cir. 2015). Simply stated, “the discovery rule

means that the statute of limitations period begins to run as of the date of the

discovery of the cause of action.” Am. Bd. of Internal Med. v. Rushford, 841 F.

App’x 440, 443 (3d Cir. 2020).

However, where Congress has “expressly incorporated a limited discovery

rule” of its own, the more general judge-made “discovery rule” does not apply.

Stephens, 796 F.3d at 287. Here, Congress has done just that by requiring that

a CFAA action be brought “within 2 years of the date of the act complained of

or the date of the discovery of the damage.” 18 U.S.C. § 1030(g) (emphasis

added); see Tactical Pers. Leasing, Inc. v. Hajduk, No. 18-cv-203, 2018 WL

4740195, at *4 (W.D. Pa. Oct. 2, 2018) (rejecting application of the general

“discovery rule” to claims arising under the CFAA because “the language of 18

U.S.C. § 1030 favors a strict reading of the injury-discovery limitation that

applies only to discovery of damage.”); Kluber Skahan & Assocs., Inc. v.

Cordogen, Clark & Assoc., No. 08-cv-1529, 2009 WL 466812, at *7 (N.D. Ill.

Feb. 25, 2009) (same).

Under the specific, statutory discovery rule of the CFAA, Acrison must

sufficiently plead later-discovered “damage” in order to delay the onset of the

limitations period. As discussed in Section III.B.1., supra, Acrison fails to plead

“damage” as defined by 18 U.S.C. § 1030(e)(8) at all. Therefore, Acrison cannot

rely on the CFAA’s discovery rule.

Acrison’s CFAA claim is therefore barred by the statute of limitations and

Count I of the complaint is dismissed.

C. Conspiracy to Violate the Computer Fraud and Abuse Act

Acrison also alleges that defendants engaged in a conspiracy to violate

the CFAA. The parties dispute whether Acrison’s claim is one for general civil

conspiracy or conspiracy under 18 U.S.C. § 1030(b) (via the civil remedy of

§ 1030(g)). Because I find that Acrison fails to satisfy the requirements under

either theory, its claim for conspiracy to violate the CFAA is dismissed.

Some courts have entertained civil claims for conspiracy to violate the

CFAA on the theory that Section 1030(g)’s grant of a civil remedy for criminal

CFAA violations extends to the CFAA’s criminal conspiracy provision, 18 U.S.C.

§ 1030(b). See, e.g., Advanced Fluid Sys., Inc. v. Huber, 28 F. Supp. 3d 306,

328 (M.D. Pa. 2014), aff’d, 958 F.3d 168 (3d Cir. 2020); Ryanair DAC v.

Booking Holdings Inc., 20-cv-1191, 2022 WL 13946243, at *12 (D. Del. Oct. 24,

2022). Acrison must take the bitter with the sweet, however. The very section

that would grant such a civil cause of action also contains the two-year statute

of limitations. Because Acrison bases its conspiracy claim on the same conduct

underlying the substantive § 1030(a) violation, see Section I.C., supra, the

conspiracy claim is likewise time-barred, see Section III.B., supra.

Acrison argues in the alternative that there is or should be a generalized

tort of civil conspiracy that may have a CFAA violation as its object. Even

assuming arguendo that the common law concept of civil conspiracy applies

here, civil conspiracy is not really an independent tort, but rather a means of

imposing joint or vicarious liability upon all participants in an underlying tort.

The established rule is that a cause of action for civil conspiracy

requires a separate underlying tort as a predicate for liability.

Thus, one cannot sue a group of defendants for conspiring to

engage in conduct that would not be actionable against an

individual defendant. Instead, “actionable civil conspiracy must be

based on an existing independent wrong or tort that would

constitute a valid cause of action if committed by one actor.”

In re Orthopedic Bone Screw Prods. Liab. Litig., 193 F.3d 781, 789 (3d Cir.

1999) (quoting Posner v. Essex Ins. Co., 178 F.3d 1209, 1218 (11th Cir. 1999)

(quoting Williams Elec. Co. v. Honeywell, Inc., 772 F. Supp. 1225, 1239 (N.D.

Fla. 1991)) (applying Florida law)).7 See also Boyanowski v. Cap. Area

Intermediate Unit, 215 F.3d 396, 405–06 (3d Cir. 2000) (“The rule that civil

conspiracy may not exist without an underlying tort is a common one.”);

Curbison v. New Jersey, 242 F. App’x 806, 810 (3d Cir. 2007) (Under

Pennsylvania law, “[a] civil conspiracy claim requires a separate underlying tort

as a prerequisite for liability.”). “Thus, one cannot sue a group of defendants for

conspiring to engage in conduct that would not be actionable against an

individual defendant.” Pardue v. Gray, 136 F. App’x 529, 533 (3d Cir. 2005) (42

U.S.C. § 1983 conspiracy to violate civil rights; quoting Orthopedic Bone Screw,

193 F.3d at 789)).

Here, Acrison alleges that Brach Eichler and XDD agreed to engage in

the conduct described in Section I.C., supra. (Compl. ¶¶ 163–65.) However,

Acrison cannot base its civil conspiracy claims on underlying claims that

“would not be actionable against an individual defendant.” Id. Because

Acrison’s CFAA claim is dismissed, I must dismiss any related civil conspiracy

claim predicated on an underlying substantive violation of the CFAA.

7 To further illustrate these background common law principles, In re Orthopedic

Bone Screw Prods. cited state court cases such as Applied Equip. Corp. v. Litton Saudi

Arabia Ltd., 869 P.2d 454, 457 (Cal. 1994) (“Standing alone, a conspiracy does no

harm and engenders no tort liability. It must be activated by the commission of an

actual tort.”); Stoldt v. City of Toronto, 678 P.2d 153, 161 (Kan. 1984) (“Conspiracy is

not actionable without commission of some wrong giving rise to a cause of action

independent of the conspiracy.”); Alleco, Inc. v. Harry & Jeanette Weinberg Found., Inc.,

665 A.2d 1038, 1045 (Md. 1995) (“No action in tort lies for conspiracy to do something

unless the acts actually done, if done by one person, would constitute a tort.”) (citation

omitted); Alexander & Alexander of N.Y., Inc. v. Fritzen, 503 N.E.2d 102, 102–03 (N.Y.

1986) (“[A] mere conspiracy to commit a tort is never of itself a cause of action.

Allegations of conspiracy are permitted only to connect the actions of separate

defendants with an otherwise actionable tort.”) (citations omitted).

Therefore, the motions to dismiss are granted as to Count II.

D. Supplemental Jurisdiction

Acrison’s claims under the CFAA, which are now dismissed, are the only

federal claims in the complaint. All of the remaining claims are state-law

claims: violation of the New Jersey Computer Related Offense Act (Count III),

trespass to personal property (Count IV), and conversion (Count V). It follows

that there is no longer a basis for federal-question jurisdiction, because there is

no federal claim. See 28 U.S.C. § 1331.

As diversity of citizenship has not been alleged,8 the only remaining

candidate for subject matter jurisdiction is supplemental jurisdiction. See 28

U.S.C. § 1367. For the following reasons, I will not exercise my discretion to

retain supplemental jurisdiction over the state law claims.

“The district courts may decline to exercise supplemental jurisdiction

over a claim under subsection (a) if . . . (3) the district court has dismissed all

claims over which it has original jurisdiction . . . .” 28 U.S.C. § 1367(c). “[A]

court does not err if it declines to exercise supplemental jurisdiction over state

claims after it dismisses a federal claim on which its jurisdiction is based in the

absence of extraordinary circumstances.” Robert W. Mauthe, M.D., P.C. v.

Optum Inc., 925 F.3d 129, 135 (3d Cir. 2019). Indeed, where the federal claims

that provided the basis for original jurisdiction are dismissed, the court should

ordinarily “decline to decide the pendent state claims unless considerations of

judicial economy, convenience, and fairness to the parties provide an

affirmative justification for doing so.” Hedges v. Musco, 204 F.3d 109, 123 (3d

Cir. 2000) (citation omitted); see Shaffer v. Bd. of Sch. Dirs. of Albert Gallatin

Area Sch. Dist., 730 F.2d 910, 912 (3d Cir. 1984) (holding that “pendent [i.e.,

8 Diversity jurisdiction under 28 U.S.C. § 1332(a) requires that “every plaintiff

must be of diverse state citizenship from every defendant.” In re Briscoe, 448 F.3d 201,

215 (3d Cir. 2006). Plaintiff Acrison and Defendants Brach Eichler and XDD all

allegedly have their principal places of business in New Jersey. (Compl. ¶¶ 1, 3–4, 8–

12.)

supplemental] jurisdiction should be declined where the federal claims are no

longer viable, absent ‘extraordinary circumstances’”).

No such extraordinary circumstances or considerations of efficiency and

fairness are present here. The case is at the pleading stage, with no answer yet

filed. The Magistrate Judge stayed discovery pending resolution of these

motions to dismiss, so no discovery efforts would be wasted (and probably

would not be wasted in any event, assuming the claims proceed in state court).

(See DE 20, 24–25.) The state courts are available as an alternative, indeed

preferred, forum for these state law claims, so there are no significant concerns

of fairness. Accordingly, I decline to exercise jurisdiction over these state-law

claims based on their being supplemental to a now-dismissed federal claim.

IV. CONCLUSION

For the reasons set forth above, the motion to dismiss is granted. A

separate order will issue.

Dated: November 3, 2022

/s/ Kevin McNulty

___________________________________

Hon. Kevin McNulty

United States District Judge