UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

COSTAR GROUP, INC., and COSTAR REALTY INFORMATION, INC.,

Plaintiffs,

v. Case No. 21-cv-2227 (CRC)

LEON CAPITAL GROUP, LLC,

Defendant.

MEMORANDUM OPINION & ORDER

Plaintiffs CoStar Group, Inc. and CoStar Realty Information, Inc. (collectively, “CoStar”)

are suing Leon Capital Group, LLC (“Leon Capital”) for its alleged unauthorized use of CoStar’s

commercial real estate database in breach of various agreements. Previously, the Court mostly

denied Leon Capital’s initial motion to dismiss but dismissed as moot CoStar’s claim for breach

of the licensing agreement between the parties because Leon Capital had paid the full amount

due under the agreement after CoStar filed suit. See Mem. Op. & Order, ECF No. 19 (June 7,

2022). CoStar amended its complaint to seek injunctive relief and damages for that alleged

breach, which rehabilitated the claim. Presently before the Court is Leon Capital’s renewed

motion to dismiss some of the claims in CoStar’s amended complaint. Specifically, the motion

argues that: (1) CoStar cannot establish a breach of the relevant contractual provisions because

Leon Capital is not a competitor of CoStar, (2) CoStar cannot seek injunctive relief for the

alleged breach of the licensing agreement because it has been terminated, and (3) CoStar has not

alleged the type of loss that is required to support a civil action under the Computer Fraud and

Abuse Act (“CFAA”). Finding that only the third jab lands, the Court will grant the motion in

part and deny it in part. I. Background

The Court has already detailed the factual background of this case in its prior opinion and

need only provide a few highlights here. Mem. Op. at 1–4. CoStar operates “the nation’s most

comprehensive commercial real estate information database,” which it licenses to users for a

monthly fee. Am. Compl. ¶¶ 1, 20. Defendant Leon Capital, a Texas-based real estate

investment and development firm, held a license to use the database until CoStar terminated it

because, in CoStar’s view, Leon Capital was acting as a competitor in violation of the agreement.

Id. ¶¶ 3, 11, 54; see Am. Compl., Ex. A at 3 (“License Agreement”) (“Licensee shall

not . . . access or use the Licensed Product if Licensee is a direct or indirect competitor of

CoStar[.]”). CoStar alleges that Leon Capital continued its transgressions after the agreement

was terminated by accessing CoStar’s database without proper authorization in violation of the

database’s Terms of Use. Am. Compl. ¶¶ 99–103. Specifically, CoStar alleges that Leon

Capital employees used log-in credentials from previous employers to access CoStar’s products

after Leon Capital’s contract was terminated, even though the Terms of Use requires that users

are employed by a licensee and prohibits competitors from accessing the database. Id. ¶¶ 55–63,

67–74; see Am. Compl., Ex. B at 3, 6 (“Terms of Use”). CoStar insists that Leon Capital has

continued its unauthorized access of CoStar data even after this case was filed. Am. Compl.

¶¶ 4–5, 72–74.

CoStar’s original complaint sought payment of the amount due under the termination

clause of the license agreement, as well as damages and injunctive relief for the alleged breach of

the Terms of Use for CoStar’s database. Compl. ¶¶ 78–98. In the alternative, CoStar pled fraud

and unjust enrichment claims for Leon Capital’s purported continued misuse of the data. Id.

2 ¶¶ 107–123. Finally, CoStar alleged that Leon Capital’s unauthorized use of its data violated the

Computer Fraud and Abuse Act (“CFAA”),

. Compl. ¶¶ 99–106.

Leon Capital moved to dismiss the complaint in October 2021. Mot. Dismiss, ECF No.

12. The Court denied most of Leon Capital’s motion but dismissed CoStar’s claim for breach of

the licensing agreement as moot because Leon Capital had subsequently paid the contract fee,

which was the only relief sought. Mem. Op. at 5–7. Following the Court’s ruling that the

license agreement claim was moot, CoStar moved to amend the complaint to seek damages and

injunctive relief for that claim. Am. Compl. ¶¶ 91–95. The Court granted the motion. Min.

Order (Oct. 26, 2022). Leon Capital now moves for partial dismissal of the amended complaint

under Federal Rule of Civil Procedure 12(b)(6). Renewed Mot. Dismiss, ECF No. 29.

II. Legal Standards

Rule 12(b)(6) requires dismissal of a complaint that fails “to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). When evaluating a Rule 12(b)(6) motion, the

court must determine whether the complaint “contain[s] sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

(2009) (quoting Bell Atl. Corp. v. Twombly,

(2007)). A claim is plausible

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

that the defendant is liable for the misconduct alleged.”

A court “must treat the complaint’s factual allegations as true and must grant plaintiff the

benefit of all inferences that can be derived from the facts alleged.” Sparrow v. United Air

Lines, Inc.,

(D.C. Cir. 2000) (internal citation and quotation omitted).

Although a complaint need not provide “detailed factual allegations” to withstand a 12(b)(6)

motion, it must offer “more than labels and conclusions.” Twombly,

. “In

3 determining whether a complaint states a claim, the court may consider the facts alleged in the

complaint, documents attached thereto or incorporated therein, and matters of which it may take

judicial notice.” Stewart v. Nat’l Educ. Ass’n,

(D.C. Cir. 2006).

III. Analysis

Leon Capital raises three challenges to the amended complaint, two of which retread

ground already walked in the Court’s prior opinion. First, Leon Capital insists that it cannot

have breached the license agreement because, contrary to the Court’s earlier ruling, it is not a

competitor of CoStar, as evidenced by the fact that CoStar did not cite Leon Capital as a

competitor in its Form 10-K filing with the SEC. Second, Leon Capital maintains that CoStar

cannot seek injunctive relief for breach of the license agreement because that agreement has

already been terminated. Lastly, Leon Capital asserts that CoStar has failed to plead a

cognizable loss under the CFAA. As explained below, the Court will grant Leon Capital’s

renewed motion to dismiss as to the CFAA claim only.

A. Leon Capital as a Competitor

According to CoStar, Leon Capital breached the licensing agreement by accessing

CoStar’s database as a competitor. In its prior opinion, the Court found that “CoStar has at least

plausibly alleged some sort of indirect competitor relationship” with Leon Capital based on its

alleged direct investment and operational relationship with the commercial real estate exchange

CREXi, which is a direct competitor of CoStar. Mem. Op. at 10–12. Leon Capital attempts to

rebut that conclusion by asking the Court to take judicial notice of the fact that CoStar does not

4 list Leon Capital as a competitor in its Form 10-K filing with the SEC. The Court is not

convinced. 1

To start, it is not clear the Court can take judicial notice of CoStar’s 10-K to resolve a

disputed fact. See Atchley v. AstraZeneca UK Ltd.,

(D.C. Cir. 2022)

(declining to take judicial notice of “documents reciting complex facts that appear subject to

dispute”); Genasys Inc. v. Vector Acoustics, LLC, No. 22-CV-152 TWR,

, at

*6 (S.D. Cal. Nov. 1, 2022) (“The truth of the [Form 10-K’s] content, and the inferences

properly drawn from them, however, is not a proper subject of judicial notice under Rule 201.”).

Regardless, the Court finds Leon Capital’s theory unpersuasive. It is true that CoStar does not

list Leon Capital nor “private investment firms” as competitors in its 10-K. Renewed Mot.

Dismiss, Ex. 1 at 25–27 (“CoStar Form 10-K”). But CoStar does expressly list CREXi as a

competitor twice,

and the Court has already found a sufficiently alleged relationship exists

there to plausibly support a finding that Leon Capital was an indirect competitor of CoStar,

Mem. Op. at 10–12. At most, the 10-K might raise a potential factual dispute not fit for

resolution at this stage of the litigation. The Court declines Leon Capital’s invitation to

extrapolate further.

B. Injunctive Relief for Alleged Breach of the Licensing Agreement

In the alternative, Leon Capital urges the Court to reject CoStar’s request for injunctive

relief for the alleged breach of the license agreement because “no imminent and irreparable harm

1 As the Court noted in its prior opinion, CoStar’s licensing agreement and the terms of use for its database have similar, but distinct, prohibitions against use by competitors. Mem. Op. at 10 n.2 (“The Court sees only one difference: evaluating any alleged violation of the Terms and Conditions’ termination clause would require deciding whether CoStar believed in good faith that Leon Capital was a competitor—not whether it in fact competed.”). Leon Capital’s argument here is unpersuasive against either standard.

5 can flow from an agreement which has been admittedly terminated[.]” Renewed Mot. Dismiss at

7. But the Court does not read CoStar’s request for injunctive relief as only seeking to prevent a

future breach of the terminated agreement. Rather, Costar also “is seeking an injunction to stop

Leon Capital from making use of the content, including data and copyrighted images, it

unlawfully obtained from CoStar’s database prior to May 2021 in violation of the terms of the

License Agreement.” Opp’n at 15. Admittedly, the amended complaint does not articulate the

desired relief as clearly. But the amended complaint does allege that Leon Capital accessed and

downloaded content in breach of the licensing agreement, that the agreement itself acknowledges

that breaches could result in “irreparable harm” necessitating injunctive relief, and that Leon

Capital continues “to engage in misconduct.” See Am. Compl. ¶¶ 92–94; License Agreement at

12. It is plausible, and Leon Capital does not dispute, that the continued use of data collected in

violation of the License Agreement could constitute irreparable harm. Accordingly, the Court

will not cabin the relief that CoStar seeks. 2

C. Computer Fraud and Abuse Act

Lastly, the Court turns to CoStar’s statutory claim under the CFAA. The CFAA

authorizes civil suits as follows:

Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief. A civil action for a violation of this section may be brought only if the conduct involves 1 of the factors set forth in subclauses (I), (II), (III), (IV), or (V) of subsection (c)(4)(A)(i).

(g). The five enumerated circumstances where a civil suit may be brought are:

2 Even if the Court agreed with Leon Capital that CoStar’s request for injunctive relief is improper, the Court would not dismiss CoStar’s claim for breach of the licensing agreement because the amended complaint also includes a request for damages beyond the accelerated licensing payments already received. Am. Compl. ¶¶ 91–95; Min. Order (Oct. 26, 2022).

6 (I) loss to 1 or more persons during any 1-year period (and, for purposes of an investigation, prosecution, or other proceeding brought by the United States only, loss resulting from a related course of conduct affecting 1 or more other protected computers) 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;

(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.

§ 1030(c)(4)(A)(i). Only the first circumstance concerning losses totaling $5,000 in a 1-year

period is relevant here. See Am. Compl. ¶ 114 (“CoStar has suffered over $5,000 worth of

damages and losses over a one-year period.”).

The CFAA defines “loss” as including “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.”

(e)(11). “Damage,” in turn, means “any impairment to the integrity or availability of data,

a program, a system, or information.”

§ 1030(e)(8). The Supreme Court has explained that,

at bottom, the CFAA is concerned with “technological harms—such as the corruption of files—

of the type unauthorized users cause to computer systems and data” and “preventing the typical

consequences of hacking.” Van Buren v. United States,

, 1659–60 (2021)

(internal quotation omitted).

In its earlier opinion, the Court upheld the CFAA claim against Leon Capital’s challenge

that CoStar’s database was not accessed “without authorization.” In addition, the Court

independently raised the statute’s loss requirement and noted that only technological harms, such

7 as damage to CoStar’s computer system or data, could satisfy the threshold. Mem. Op. at 18–19.

The Court concluded that CoStar had provided sufficient, albeit brief, allegations in the

complaint to allege a CFAA claim, specifically that Leon Capital’s unauthorized access

“impaired and corrupted CoStar’s efforts to measure and analyze legitimate subscriber traffic.”

(quoting Compl. ¶ 105); see also Am. Compl. ¶ 114.

Leon Capital now urges the Court to take a second bite at the loss apple, asserting that

CoStar has failed to allege a cognizable loss under the CFAA. After further reflection, and with

the benefit of additional briefing and caselaw cited by neither party, the Court belatedly agrees

that CoStar has not sufficiently alleged a loss under the CFAA.

As the Court reads the statute, CoStar can sustain its civil CFAA claim by alleging either

that an “interruption of service” led to losses or that it expended resources responding to

“technological harms” caused by Leon Capital’s unauthorized use. See

(e)(11);

Van Buren 141 S. Ct. at 1659–60 (internal quotation omitted); Psychas v. Dist. Dep’t of Transp.,

No. CV 18-0081 (ABJ),

, at *9–11 (D.D.C. Sept. 24, 2019) (“Many courts

agree that loss refers only to the costs associated with responding to a violation or restoring the

information that was damaged or any costs incurred because of an interruption of services. The

Court will apply the interpretation of loss set out in these cases[.]” (footnote omitted)). CoStar

alleges that “Leon Capital’s unauthorized access consumed time and money spent identifying,

investigating, and attempting to block and otherwise respond to Leon Capital’s unauthorized

access” and that “an investigation of the unauthorized actions taken by Leon Capital” was

required, “including a review of the resources utilized or diverted by Leon Capital, the data

downloaded by Leon Capital, and any other damage done to CoStar’s computer systems.” Am.

Compl. ¶ 114. CoStar also alleges that “Leon Capital’s unauthorized access has impaired and

8 corrupted CoStar’s efforts to measure and analyze legitimate subscriber traffic” which

“undermined the soundness and therefore the value of those data and analyses, which are used

for multiple business purposes.”

These allegations fail to satisfy either avenue for a civil suit

under the CFAA.

To start, CoStar does not allege that it suffered an “interruption of service.” Nor could it,

as CoStar’s database remained available to other subscribers regardless of whether Leon Capital

accessed materials through deceptive means. Further, CoStar stops short of alleging that Leon

Capital’s unauthorized use resulted in technological harm to CoStar’s system or its real estate

data. Although Leon Capital may (or may not) have used unauthorized means to access CoStar’s

data, Leon Capital is accused of using the database in its intended fashion. Absent from the

complaint are any allegations that Leon Capital altered the data, corrupted any files, diminished

the database’s performance, or restricted access to the platform for other users. Accordingly,

CoStar cannot claim a loss based on the need to conduct a damage assessment or data restoration

efforts in response to Leon Capital’s customary, but perhaps unauthorized, use of the database.

For an analogy, imagine a moviegoer sneaking into a film screening without a ticket.

While the viewer’s access to the movie is certainly unauthorized, it can hardly be described as

causing technological harm to the film or the theater. Had he snuck into the projection booth

instead, a damage assessment and restoration efforts may be warranted. Here, Leon Capital is

alleged only to have entered the proverbial theater without a ticket, so CoStar’s claimed need to

review “any other damage done to CoStar’s computer systems” is tangential to a CFAA claim.

In an apparent effort to shoehorn its claim into the CFAA’s loss definition, CoStar asserts

that Leon Capital’s unauthorized access has impaired the integrity of its subscriber traffic data.

See Opp’n at 13. In other words, CoStar suggests that Leon Capitol’s incursions have made it

9 more difficult to accurately track licensed use of the database, which it does for a range of

“business purposes.” Am. Compl. ¶ 114. But CoStar offers no support for the notion that the

alleged injury to its “business purposes” caused by the inadvertent creation of misleading

subscriber traffic data constitutes a technological harm covered by the statute.

Such second-

order effects that do not harm CoStar’s computer system or the underlying data being accessed

are not the “typical consequences of hacking.” Cf. Van Buren, 141 S. Ct. at 1659–60 (internal

quotation omitted).

And even if such a loss were cognizable under the CFAA, CoStar has not plausibly

alleged it. CoStar’s barebone assertions fail to explain how a single company’s unauthorized use

could have a meaningful influence on the subscriber traffic data of “the most comprehensive

database of commercial real estate information in the world,” which includes “millions of data

changes to [its] database each day.” Am. Compl. ¶¶ 14–15. Further, CoStar provides no detail

as to what specific “business purposes” are thwarted by the misleading subscriber data nor does

it plead that the corrupted subscriber traffic data resulted in a $5,000 loss, as required by the

statute. For all those reasons, and despite the Court’s prior conclusion to the contrary, CoStar

has failed to allege a cognizable loss under the CFAA.

D. Diversity Jurisdiction

As a final point, the Court has “an independent obligation to determine whether subject-

matter jurisdiction exists[.]” Arbaugh v. Y & H Corp.,

(2006). Because the

Court did dismiss CoStar’s CFAA claim, it no longer has federal question jurisdiction over the

case. The Court may still have diversity jurisdiction, but it must ensure that there is “complete

diversity” between the parties, meaning that “each defendant is a citizen of a different State from

each plaintiff.” Owen Equip. & Erection Co. v. Kroger,

(1978) (emphasis

10 omitted). On initial review, the complete diversity requirement appears satisfied: CoStar is

incorporated in Delaware with its nerve center in the District of Columbia and Leon Capital is

allegedly incorporated and operating in Texas. Am. Compl. ¶¶ 9–11. The wrinkle here is that

Leon Capital is a limited liability corporation and the citizenship of each of its constituent

individual members is relevant to the analysis. See Laroach v. BridgePoint Healthcare, LLC,

No. 18-cv-1096 (CRC),

(D.D.C. Dec. 7, 2018). On the current record, the

Court cannot determine the citizenship of Leon Capital’s members. Accordingly, the Court

directs Leon Capital to file a notice indicating the citizenship of its members by August 17, 2023.

IV. Conclusion

For the foregoing reasons, it is hereby

ORDERED that Leon Capital’s [29] Renewed Motion to Dismiss is GRANTED in part

and DENIED in part. CoStar’s CFAA claim is hereby dismissed, while the remainder of the

amended complaint may proceed. It is further

ORDERED that Leon Capital file a notice of the citizenship of its constituent members

by August 17, 2023.

SO ORDERED.

CHRISTOPHER R. COOPER United States District Judge

Date: August 10, 2023

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