IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. E AUTOXCHANGE, LLC, a Wyoming Limited Liability Company, Plaintiff, ACADEMY, LLC, dlblaphil LONG FORD OF CHAPEL HILLS, a Colorado Limited Liability Company, Defendant. COMPLAINT AND JURY DEMAND Plaintiff, e autoxchange,llc ("EAX"), through its counsel, Lindquist & Vennum LLP, submits the following Complaint: I. THE PARTIES 1. Plaintiff EAX is a Wyoming limited liability company, registered to do business in Colorado, with a principal place of business at 1875 Montura View, #102, Colorado Springs, Colorado 80919. 2. Defendant Academy, LLC, dlbla Phil Long Ford of Chapel Hills, ("Phil Long Ford") is a Colorado limited liability company, with a principal place of business at l2l2 Motor City Drive, Colorado Springs, Colorado 80905. 3. For ease of reference, Plaintiff and Defendant will be referred to herein as the "Parties."
II. JURISDICTION AND VENUE 4. Plaintiff incorporates all prior allegations by this reference. 5. Jurisdiction is proper pursuant to 28 U.S.C. $ 1331 because this action arises under the laws of the United States, including but not limited to 17 U.S.C. $ 106, and pursuant to 28 U.S.C. $ 1367 because all claims herein form part of the same case or controversy under Article III of the United States Constitution as the claims brought under the United States Code. 6. Venue is proper pursuant to 28 U.S.C. $ 1391 because a substantial part of the events or omissions giving rise to the claims occurred in this district. Venue is also proper pursuant to 28 U.S.C. $ 1400. III. FACTUAL BACKGROUND 7. Plaintiff incorporates all prior allegations by this reference. 8. In late 2008, EAX was formed by Brad A. Hadley and Mark R. Freeman to develop the concept of a "Viftual Showroom" whereby customers could view multiple used automobiles for sale at various auctions nationwide. In 2009, EAX began successfully selling automobiles to individual customers using the "Virtual Showroom." 9. Brad Hadley and Mark Freeman each executed the EAX Operating Agreement effective October 1, 2008 ("Operating Agreement"). 10. The Operating Agreement prohibits EAX's members from competing with EAX while they are officers or employees of EAX. 1 1. The Operating Agreement prohibits members of EAX from disclosing or using confidential information related to EAX, either during, or after, their association or employment with EAX. 2
12. In early 2070, EAX began development of a software program, eautox, that would automate the Virtual Showroom process and allow searches of multiple, dealer-only auctions and websites across the country. 13. EAX hired non-party Alex Turner to create this computer software. As developed, eautox is a private members-only online automobile shopping program. The program allows customers access to dealer-only automobile wholesale auctions, allows searching by criteria for automobiles nationwide, and allows customers to maintain personal shopper profiles. 14. Mr. Turner's development of eautox constituted "work for hire" for EAX, and Mr. Turner claims no interest in EAX. 15. EAX owns the copyright for eautox, and has owned such copyright since eautox's creation in early 2010. 16. EAX registered its copyright in eautox with the United States Copyright Office on June 78, 2072 (Registration No. TX0007552693), as evidenced by the registration notice attached hereto as Exhibit A. 17. In the fall of 2010, Brad Hadley met with Phil Long Ford representative Gary Fentiman, and discussed the Virtual Showroom concept and business model and the eautox software program. Following the meeting, Gary Fentiman requested that Mark Freeman and Brad Hadley meet with another Phil Long Ford representative, Gary Linam. Mark Freeman and Brad Hadley met with Gary Linam several times, during which meetings they discussed the Virtual Showroom concept and business model, and the eautox software program. They specifically discussed locating any new business venture in a vacant facility formerly used by a Satum dealership. a J
18. In December 2010, Mark Freeman left employment with EAX and joined his brother's company, Five Ladders Enterprises, Inc. ("FLE"). Mark Freeman retained his 49Yo membership interest in EAX, until it was sold to an unrelated third party on January 5, 2012 in connection with Mark Freeman's bankruptcy. 19. Prior to leaving EAX, Mark Freeman secretly downloaded and copied eautox and its source code. 20. Using the existing corporate entity FLE, Mark Freeman and his brother, Ronald Freeman, devised a plan to compete against EAX using the identical Virtual Showroom concept and business model, and using software copied from the eautox source code. 21. Neither EAX nor Brad Hadley authorized Mark Freeman to download, transmit, or reproduce eautox or its source code, or to share eautox or its source code with Ronald Freeman or FLE, or to use eautox or its source code as part of any business endeavor. 22. Neither Brad Hadley nor EAX had any knowledge at that time that Mark Freeman had provided Ronald Freeman and FLE access to the eautox software and source code. 23. FLE and the Freeman brothers made minor cosmetic changes to eautox and began marketing the software under the name TurboMotiv. 24. TurboMotiv is substantially and functionally similar to eautox. 25. TurboMotiv is a derivative work that derives its source code from eautox's source code. 26. TurboMotiv directly infringes on EAX's exclusive rights as the holder of the copyright to the eautox software program and source code. 27. In aboutnovember 2017, Phil Long Ford announced that its was forming anew division, the Phil Long Auction Access VIP Club, that would allow its customers access to 4
purchase used vehicles directly from dealer-only auction sites. Phil Long Ford touted in a press release that this new division would be "run by Mark Freeman, whose creative marketing concept, in conjunction with the Phil Long brand, came to be known as Auction Access VIP Club," and that "it's powered by one of the most complex and complete software platforms to hit the automotive industry in years." Exhibit B. 28. The Phil Long Auction Access VIP Club employed several salespersons, and occupied a building that had previously been used as a Saturn dealership. 29. The Auction Access VIP Club was substantially identical to the Virtual Showroom concept and business model that EAX had discussed with Phil Long Ford representatives a year earlier. 30. In connection with the Auction Access VIP Club, Phil Long Ford entered into an agreement with FLE to license the use of the TurboMotiv software. From at least November 2011 through December 2012, Phil Long Ford paid a monthly license and maintenance fee to FLE. 31. Also in connection with the Auction Access VIP Club, Phil Long Ford hired Mark Freeman as a direct employee. From November 2011 through December 2012, Mark Freeman was in charge of operating and managing the Auction Access VIP Club. 32. From January I to December 31, 2072, Phil Long Ford paid Mark Freeman wages of $31,879.73, and commissions and bonuses of $2,700.00. 33. Phil Long Ford and its employees, in fact, used the TurboMotiv software in its Auction Access VIP Club division. 34. Phil Long Ford sold numerous automobiles through the Auction Access VIP Club and/or using the TurboMotiv software. Phil Long Ford earned a profit on each such sale. 5
35. Phil Long Ford did not pay EAX or any of its members for its use of TurboMotiv. 36. On April 20,2012, James Nelson of Lindquist & Vennum LLP, who represents the Plaintiff in this matter, sent a letter to Phil Long Ford. The letter stated that: (1) the TurboMotiv software was copied from eautox; (2) EAX owns eautox; (3) Phil Long Ford's use of the TurboMotiv software constitutes copyright infringement. 37. On May 4,2012, Attorney Joseph G. Bruce sent a letter on behalf of Phil Long Ford to James Nelson which stated in part: As part of its effort to market and sell cars through its Value Club operation, fphil Long Ford] has contracted with this third party to use its program for the purpose of guiding customers to inventory and creating a personal shopper file. 38. Phil Long Ford's use of TurboMotiv continued through at least December 2012. IV. FIRST CLAIM FOR RELIEF (Contributory Copyright Infringement) 39. Plaintiff incorporates all prior allegations by this reference. 40. Phil Long Ford knew or reasonably should have known that the TurboMotiv software it licensed from FLE was copied from and infringed on EAX's exclusive rights as holder of the copyright to the eautox source code and software pursuant to 17 U.S.C. $106. 41. Phil Long Ford's licensing and use of TurboMotiv in connection with the Auction Access VIP Club contributed to and induced Mark Freeman's, Ronald Freeman's, and FLE's infringement of EAX's copyright in and to the eautox software. 42. EAX suffered damages and will continue to suffer damages as a direct and proximate result of Phil Long Ford's conduct. V. SECOND CLAIM FOR RELIEF (Vicarious Copyright Infrin gement) 43 Plaintiff incorporates all prior allegations by this reference 6
44. Phil Long Ford knew or reasonably should have known that the TurboMotiv software it licensed from FLE was copied from and infringed on EAX's exclusive rights pursuant to 17 U.S.C. $106 as holder of the copyright to the eautox source code and software. 45. As a direct employee and manager of its Auction Access VIP Club, Phil Long Ford had the ability to supervise and stop the infringing activity of Mark Freeman. 46. By virtue of profits from auto sales and increased exposure to potential buyers, Phil Long Ford obtained a direct financial benefit from the use of the TurboMotiv software and from the infringing activities of Mark Freeman. 47. EAX suffered, and will continue to suffer damages as a direct and proximate result of Phil Long Ford's conduct. VI. THIRD CLAIM FOR RELIEF (Inducement to Commit Copyright Infringement) 48. Plaintiff incorporates all prior allegations by this reference. 49. By hiring Mark Freeman to manage its Auction Access VIP Club and by licensing the TurboMotiv software, Phil Long Ford encouraged and induced Mark Freeman, Ronald Freeman, and FLE to infringe upon EAX's copyright to the eautox source code and software. 50. EAX has suffered, and will continue to suffer damages as a direct and proximate result of Phil Long Ford's conduct. VII. FOURTH CLAIM FOR RELIEF (Aiding and Abetting Breach of Fiduciary Dufy) 51. Plaintiff incorporates all prior allegations by this reference. 52. As a member, employee, and ofhcer of EAX, and by virtue of the terms of the Operating Agreement, Mark Freeman owed fiduciary duties to EAX, including a duty of loyalty and a duty to refrain from appropriating EAX's business opportunities. 7
53. Mark Freeman breached his fiduciary duties by, among other things, rebranding the eautox software and entering into a business relationship with Phil Long Ford related to the software's use, impermissibly establishing a competing business, and failing to act for the benefit of EAX. 54. By virtue of its prior communications with Mark Freeman and Brad Hadley in 2010, Phil Long Ford knew or should have known that Mark Freeman owed these fiduciary duties to EAX. 55. Phil Long Ford aided and abetted Mark Freeman's breach by hiring Mark Freeman to manage its Auction Access VIP Club and by licensing the use of TurboMotiv. 56. EAX was damaged, and continues to suffer damage, as a result of Phil Long Ford's wrongful acts. V[I. FIFTH CLAIM FOR RELIEF (Tortious Interference with Contract) 57. Plaintiff incorporates all prior allegations by this reference. 58. The Operating Agreement, executed by Mark Freeman and Brad Hadley, contains a provision that prohibits members from disclosing or using confidential information, that reads in part: No Member shall disclose or use at any time, either during his or its association or employment with the Company or its Subsidiaries or thereafter, any Conf,rdential Information of which the Member is or becomes aware. Each Member in possession of Confidential Information shall take all appropriate steps to safeguard such information and to protect it against disclosure, misuse, espionage, loss and theft. 59. Mark Freeman held membership interests in EAX into January 2012 60. By virtue of its prior communications with Brad Hadley and Mark Freeman in 2010, Phil Long Ford knew or should have known that Mark Freeman had an agreement with 8
EAX and/or its members that prohibited him from disclosing or using confidential information that belonged to EAX. 61. By hiring Mark Freeman to manage the Auction Access VIP Club, and using the TurboMotiv software and source code in its business, Phil Long Ford knew or should have known that it was causing Mark Freeman to breach a conltdentiality agreement with EAX and/or its members. 62. EAX was damaged, and continues to suffer damage as a direct and proximate result of Phil Long Ford's actions. IX. CONCLUSION WHEREFORE, e autoxchange, LLC respectfully requests that the Court take the following actions: 1. Enter judgment in favor of EAX; 2. Order Phil Long Ford to return to EAX all copies of the subject software; 3. Permanently enjoin Phil Long Ford pursuant to 17 U.S.C. $ 502 from using the subject software, or any other software substantially similar thereto, or derived therefrom; 4. Order Phil Long Ford to provide a full accounting of all of its use of eautox, TurboMotiv, and any other software substantially similar thereto, or derived therefrom, all profits or revenue generated therefrom, and any logs or measurements of the usage; 5. Award all damages as allowed by law, including without limitation consequential damages, incidental damages, in the altemative, statutory damages pursuant To 77 U.S.C. $ 504(c), costs, pre- and post-judgment interest, and attorneys' fees and costs as allowed by law; and 6. Grant such further relief that the Court deems just and proper. Plaintiff respectfully requests a jury for trial in this matter. 9
Dated May 6, 2014. LINDQUIST & VENNUM John A. Chanin John S. Cutler 600 l Tth Street, Suite 1800-3 Denver, Colorado 80202 Phone: (303) 573-5900 Fax: (303) 573-1956 j chanin@lindqui st. com ulst.com ATTORNEYS FOR PLAINTIFF eautoxchange. LLC's Business Address: 1875 Montura View, #104 Colorado Springs, CO 80919 10