Dividing the spoils: soured Afghan deal brings TM, CFAA claims

Global Fleet Sales, LLC v. Delunas, 2014 WL 634075, No. 12–15471 (E.D. Mich., Feb. 18, 2014)

“This dispute arises out of the pursuit of business opportunities in the Islamic Republic of Afghanistan in the wake of the NATO campaign against the Taliban and the subsequent souring of the business relationships established to execute those opportunities.”  Plaintiffs, collectively RMA, sued defendants Leonard Delunas and Mohammad Wahab for various business torts.

The plaintiffs provide products and services for infrastructure in conflict-plagued countries.  Delunas was allegedly hired to serve as a country manager for RMA in Afghanistan, charged with procuring registration of RMA Afghan entities and holding shares of those companies for the beneficial interst of RMA.  Wahab was a friend and associate of Delunas, and listed as a corporate officer and shareholder of record of the Afghan entities, but allegedly held the shares as a trustee.

In late 2001, which is to say after September 11, 2001, the RMA plaintiffs and Delunas, who worked in construction/engineering services/construction, started to discuss business opportunities that they expected to arise in post-conflict Afghanistan.  RMA hired Delunas, allegedly under an agreement that “Delunas was to manage the operations of the RMA Afghan Entities” and not engage in other business; he was thus to get 25% of the net profits, and would reimburse RMA for up to 25% of net losses.  RMA alleged that Delunas breached in various ways, such as advancing himself funds and pursuing corporate opportunities for his own personal benefit.  Despite RMA’s termination of their agreement, Delunas allegedly continued to hold himself out to current and prospective customers as RMA’s authorized representative.  He ran a website that directed actual or prospective customers or suppliers who wish to contact the RMA Group’s current Country Manager in Afghanistan to Delunas’s email address, not the actual current Country Manager. The website formed the basis of the Lanham Act and CFAA claims on which I will focus.

On the Lanham Act claims, the court began by distinguishing §43(a)(1)(A) false association claims from §43(a)(1)(B) false advertising claims.  The complaint alleged that Delunas’s website implied continued affiliation with RMA by listing his contact info for those seeking to do business with the RMA Afghan Entities and with RMA Group companies in other countries where Delunas was never employed nor affiliated with in any capacity.  (Lurking issue: is this extraterritorial application of the Lanham Act?  If the website solicits business in the US and other countries, how should we think about that?)

Defendants, amazingly, challenged standing, which in the Sixth Circuit is governed by the reasonable interest test.  Defendants argued that the plaintiffs lacked standing because the complaint alleged that the official RMA site was owned by the RMA Group, which isn’t an actual entity.  But the plaintiffs alleged that they were among those comprising the RMA Group, which gave them a reasonable interest.  There was also “a reasonable basis for believing that the interest is likely to be damaged” by the defendant’s alleged false association or false advertising, because of the allegedly attempted diversion.

Defendants argued that there was no false association, because he actually is affiliated with the entities listed on the offending website; the complaint alleged that he was a 25% shareholder in the Afghan entities. But the complaint pled that his ownership interest had terminated.  And the complaint sufficiently pled likely confusion:

The Complaint alleges that Delunas is operating a website that suggests to all who view it that he is the RMA Group’s Country Manager in Afghanistan and that directs inquiries to his email address instead of the email address of the current Country Manager. The website references contracts performed by the RMA Plaintiffs’ companies and displays icons of companies with which the RMA Plaintiffs conduct business. Such allegations do, in fact, permit the Court to infer that confusion is likely.

Anyway, confusion is a fact question, and dismissal on that ground should be rare.

For similar reasons, the false advertising claim survived.  “In this Court’s opinion, advertising the services, contracts, and customer relationships of another as one’s own to deceive customers into believing that ‘RM Asia’ performed work actually performed by the RMA Group Plaintiffs constitutes a false or misleading statement of fact concerning the services and commercial activities advertised on the internet.”

However, the CFAA claim failed.  It was based on Delunas’s continued use and operation of the website post-termination.  The complaint plainly alleged that the plaintiffs had no affiliation with or control of the website.  Although the plaintiffs vaguely implied that they once owned the site, the complaint didn’t allege that they did own or control it.  An entity lacking ownership and control “simply has no basis for granting or withholding authorization to the website.”  The CFAA doesn’t apply when the defendant accesses a computer not owned by the plaintiff.

Some contract-related and tortious interference claims survived.  However, allegations of “repeated abusive telephone calls” to the plaintiffs’ current Afghanistan country manager, allegedly threatening him with arrest and prosecution if he stayed in country, along with allegations of instigation of a meritless and spurious complaint against a non-party country at the Afghanistan Ministry of Justice, were insufficient to allege tortious interference with prospective economic advantage.  Unjust enrichment claims also survived, pled in the alternative to the contract-based claims.

The court then turned to plaintiffs’ motion for a preliminary injunction. They sought an order requiring defendants to discontinue operating the offending website, restore control of it and its server to plaintiffs, turn over emails and other communications that passed through it, and return various documents. 

Plaintiffs argued that they showed likely success on the merits because of actual customer confusion.  They pointed to emails Delunas forwarded to the current Country Manager during a brief thawing in tensions.  The emails sought services from the RMA plaintiffs, but were sent to Delunas (who uses the same email he used when the Country Manager of Afghanistan), not to the actual Country Manager. Though the complaint stated a cause of action, this wasn’t enough to show likely success because of “the number of important factual discrepancies between the parties’ positions regarding the ownership of the RMA Afghan Entities.”

Without that, the RMA plaintiffs didn’t show irreparable harm.  They alleged that they’d lose “good will, client trust, confidence and confidentiality and competitive advantage,” but didn’t show that such harm was actual and imminent.  Their delay until November 2013 in moving for a preliminary injunction, when Delunas allegedly ceased his affiliation with them in March 2011, was damaging.  That was a year after filing the complaint and six months after amending the complaint. Delay alone may preclude a finding of irreparable harm.

The RMA plaintiffs argued that courts can presume irreparable harm from likely success in showing confusion.  But it’s not clear that this rule survived eBay, and even if it did, “it would be inappropriate to apply the presumption in this case given the lingering factual questions surrounding ownership of and right of access to the website as well as the lengthy delay in seeking injunctive relief and the possibility that monetary damages would sufficiently rectify any harm the RMA Group Plaintiffs experience while the Court is able to adjudicate this dispute on the merits.”