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Comsys Inc. v. City of Kenosha Wisconsin

United States District Court, E.D. Wisconsin

November 29, 2016

COMSYS, INC. and KATHRYNE L. MCAULIFFE, Plaintiffs,
v.
THE CITY OF KENOSHA WISCONSIN, THE CITY OF KENOSHA WATER UTILITY, FRANK PACETTI, EDWARD ST. PETER, MERRIL A. KERKMAN, JR., KEITH G. BOSMAN, ERIC J. HAUGAARD, RHONDA JENKINS, JAN MICHALSKI, ROCCO L. LaMACCHIA, SR., DAVE PAFF, KURT WICKLUND, KEITH W. ROSENBERG, ANTHONY KENNEDY, SCOTT N. GORDON, CURT WILSON, DANIEL L. PROZANSKI, JR., JACK ROSE and ROBERT C. JOHNSON, Defendants.

          ORDER

          J.P. STADTMUELLER U.S. DISTRICT JUDGE.

         On June 3, 2016, Comsys, Inc. and Kathryne McAuliffe (collectively, “the plaintiffs”) filed this lawsuit against The City of Kenosha, The City of Kenosha Water Utility, and seventeen (17) government officials (collectively, “the defendants”) under 42 U.S.C. §§ 1983, 1985, 1986 and 1988 seeking damages to remedy various First, Fourth, and Fifth Amendment violations. (See generally Docket #1; see also Docket #31 at ¶¶ 1, 122-269 (amended complaint)). Pursuant to this Court's supplemental jurisdiction, the plaintiffs also seek damages for violations of Wisconsin law. (See Docket #31 at ¶¶ 4, 270 -326). The allegations underlying both the federal and state law claims concern certain information technology (“IT”) service contracts that The City of Kenosha (“the City”) and The City of Kenosha Water Utility (“the Water Utility”) entered into with Comsys, Inc. from approximately 1987 until 2015. (Docket #31 at ¶¶ 32-42). According to the amended complaint, the events that led up to-and ultimately culminated in-the termination of these IT service contracts involved a complex conspiracy among the various government officials that are named in this lawsuit, including the mayor, the city administrator, the general manger of the Water Utility, the City's director of IT, and thirteen (13) Alderpersons. (Docket #31 at ¶¶ 32-121).

         Pursuant to Federal Rule of Civil Procedure 12(b)(6), the defendants filed a motion to dismiss the amended complaint in its entirety. (Docket #37). That motion is now fully briefed and ripe for adjudication. (Docket #38, #39, #40). For the reasons stated herein, and as more fully described below, the Court will grant the defendants' motion in part, and deny it in part.

         1.BACKGROUND

         Before delving into the legal issues underlying the defendants' motion, the Court will first provide an overview of: (1) the parties to this litigation; and (2) the factual background of the case.[1]

         1.1The Parties

         Comsys, Inc. (“Comsys”) is a private, for-profit Wisconsin corporation based in Racine. (Docket #31 at ¶ 6). Comsys is engaged in computer facilities management throughout the southeastern section of the State. (Docket #31 at ¶ 6). Kathryne McAuliffe (“McAuliffe”)-an adult female citizen who also resides in Racine-is Comsys' sole shareholder. (Docket #31 at ¶¶ 6-7).

         In this case, the plaintiffs are suing two municipal entities: the City and the Water Utility. (Docket #31 at ¶¶ 8-9). The City is a municipal, political subdivision of the State of Wisconsin, duly organized and operating under the laws of the State. (Docket #31 at ¶ 8). The Water Utility is likewise a municipal, political subdivision of the State of Wisconsin, duly organized and operating pursuant to Wis.Stat. § 66.068. (Docket #31 at ¶ 9).

         The plaintiffs have also named as defendants:

1. Keith G. Bosman (“Mayor Bosman”)-an adult citizen and resident of the City and County of Kenosha-who at all times relevant, was elected and employed as the mayor of the City;
2. Frank Pacetti (“Pacetti”)-an adult citizen and resident of the City and County of Kenosha-who at all times relevant was employed as the city administrator for the City;
3. Edward St. Peter (“General Manager St. Peter”)-an adult citizen and resident of the City and County of Kenosha-who at all times relevant was employed as the general manager for the Water Utility;
4. Merril A. Kerkman, Jr. (“Kerkman”)-an adult citizen and resident of the County of Kenosha-who, prior to May 1, 2014, was an employee of Comsys, and, from May 1, 2014, to the present, has been employed as the City's director of IT.

(Docket #31 at ¶¶ 10-13).

         Also named in this action are thirteen (13) individuals who, at all times relevant, were elected and employed as Alderpersons for the City: (1) Eric J. Hauggard; (2) Rhonda Jenkins; (3) Jan Michalski; (4) Scott N. Gordon; (5) Rocco J. LaMacchia, Sr.; (6) Dave Paff; (7) Kurt Wicklund; (8) Keith W. Rosenberg; (9) Anthony Kennedy; (10); Curt Wilson; (11) Daniel J. Prozanski, Jr.; (12) Jack Rose; and (13) Robert C. Johnson. (Docket #31 at ¶¶ 14-26).[2] In addition to their roles as Alderpersons, Eric J. Hauggard, Rhonda Jenkins, Jan Michalski, and Scott N. Gordon also served, in various capacities, on the Board of Water Commissioners for the Water Utility. (Docket #31 at ¶¶ 14-16, 22). For the sake of clarity, the thirteen (13) Alderpersons named in this suit will be collectively referenced hereinafter as the “Alderperson defendants, ” and the four (4) Alderpersons who also served on the Board of Water Commissioners will be collectively referenced hereinafter as the “Commissioner defendants.”

         1.2Factual Background

         Though the amended complaint spans over eighty (80) pages and asserts nineteen (19) federal and state law counts against the defendants, the Court will attempt to overview only those pertinent facts to the defendants' motion. (Docket #31). Beginning in 1987, Comsys began performing IT services for the City and the Water Utility as an independent computer facilities management provider. (Docket #31 at ¶¶ 32-33). In that role, Comsys performed various functions such as furnishing professional/technical assistance in connection with IT management, information system administration, and programming support services. (Docket #31 at ¶¶ 32-33). During this working relationship, Comsys entered into various IT service contracts with both the City and the Water Utility. (Docket #31 at ¶¶ at 37-43).

         On or about March 8, 1988, Comsys hired Kerkman as an employee, and from January 1, 2013, until March 31, 2014, Kerkman served as the company's Chief Information Officer. (Docket #31 at ¶ 34). As an employee of Comsys, Kerkman signed a contract which governed various areas, including, but not limited to, confidentiality, trade secrets, non-disclosure, non-competition, and “corporate opportunities.” (Docket #31 at ¶¶ 45-51).

         At the core of this law suit, the amended complaint alleges that Kerkman and Pacetti conspired to misappropriate Comsys' goodwill, confidential information, trade secrets, and employees. (Docket #31 at ¶ 60). More specifically, the plaintiffs allege that sometime in or around July of 2013, Kerkman began soliciting Pacetti to: (1) create a director of IT position for the City; and (2) hire Kerkman to fill that role. (Docket #31 at ¶¶ 58, 60). To that end, Kerkman allegedly obtained unlawful access to Comsys' and McAuliffe's confidential and proprietary business data, personal information, and trade secrets either by unlawfully access Comsys' and McAuliffe's email accounts/archives or by modifying certain server settings to covertly route Comsys' emails to Pacetti and/or Kerkman. (See Docket #31 at ¶¶ 61-62).

         Though the City did not formally create the director of IT position until late November or early December 2013, on September 24, 2013, Pacetti allegedly informed McAuliffe that he planned to create and offer the position to Kerkman, and that Kerkman would accept the City's offer. (Docket #31 at ¶¶ at 66, 69). Unbeknownst to the plaintiffs, during the process of creating this new, in-house IT department, Pacetti allegedly relied on information that Kerkman unlawfully obtained from the plaintiffs' confidential business and personal data and emails. (Docket #31 at ¶ 69).

         In light of the City's purported creation of an in-house IT department, Pacetti informed McAuliffe that the City wanted to reduce Comsys' service fees. (Docket #31 at ¶ 66). Ultimately, however, the parties could not agree on a modified contract price. (Docket #31 at ¶¶ 66-67).

         In the spring of 2014, while the City's Deputy Police Chief, Daniel Miskinis (“Miskinis”), conducted “an administrative spot check for purposes of ensuring compliance” with Police Department e-mail “archiving” protocols, “it was discovered that archives containing e-mails of both Deputy Chief Miskinis and Chief Morrissey were being maintained on [the City's email server], contrary to protocol.” (Docket #31 at ¶¶ 77, 79). As part of this investigation, the police interviewed McAuliffe on numerous occasions. (Docket #31 at ¶¶ 79, 82). Ultimately, the investigation led Miskinis to conclude that, on various occasions in 2013-2014, Kerkman had wrongfully accessed Comsys' employee emails, tax documents, and salary information. (Docket #31 at ¶¶ 80-82, 89).

         When Pacetti learned of the Miskinis investigation, Pacetti asked to meet with McAuliffe, wherein he expressed disappointment with her having “initiated” the investigation. (Docket #31 at ¶ 85). Pacetti then allegedly threatened McAuliffe by telling her “it would not be good” for the plaintiffs if the Kenosha Police Department pursued the allegations of criminal conduct against Kerkman. (Docket #31 at ¶ 85). At a second meeting, the plaintiffs allege that Pacetti threatened he would terminate Comsys' IT service contracts if McAuliffe continued engaging with law enforcement on the basis of Kerkman's allegedly criminal activities. (Docket #31 at ¶ 90).

         It was not until March 31, 2014, following the Miskinis investigation, that Comsys formally terminated Kerkman due to his allegedly unlawful access to McAuliffe's and other employees' email archives. (Docket #31 at ¶ 91). A few weeks later, the City formally hired Kerkman as the director of IT. (Docket #31 at ¶ 92).

         On May 1, 2014, the plaintiffs filed a criminal complaint against Kerkman. (Docket #31 at ¶ 93).[3] In connection with that complaint, the Racine County Sheriff's Department executed a search warrant on the City's computer servers on May 27, 2014; this search, according to the plaintiffs, set off a chain of retaliatory acts directed towards McAuliffe and Comsys. (Docket #31 at ¶ 97). First, McAuliffe allegedly received an email from Pacetti and General Manager St. Peter stating that “[e]ffective immediately… all…Comsys system access privileges to all City of Kenosha and Kenosha Water Utility computer systems [were] temporarily disabled.” (Docket #31 at ¶ 98). In addition, both Mayor Bosman and General Manager St. Peter called special meetings of the Common Council and the Board of Water Commissioners “[t]o consider the service and lease agreements between the City and COMSYS, Inc.” (Docket #31 at ¶¶ 99-100). The plaintiffs further claim that Mayor Bosman and Pacetti personally contacted some of the Alderperson defendants to advocate for the termination of Comsys' contracts. (Docket #31 at ¶ 101).

         On June 2, 2014-the day that the City Council and the Board of Water Commissioners were set to conduct special meetings to discuss Comsys' situation-Comsys' legal counsel emailed a letter and supporting documents to the City Attorney outlining Kerkman's and Pacetti's allegedly unlawful conspiracy to misappropriate Comsys' goodwill, confidential information, trade secrets, and employees. (Docket #31 at ¶ 104). Nonetheless, after deliberating in closed sessions, both the City and the Water Utility voted to terminate Comsys' IT service contracts. (Docket #31 at ¶¶ 104-108).

         Prior to the contracts' termination, the plaintiffs allege that Comsys had never been notified of any compliance issues; in fact, the plaintiffs allege that Comsys had even received a letter from the City Attorney praising its excellent working relationship with the City. (Docket #31 at ¶ 102). Further, the amended complaint alleges that at no time in the three years prior to the contracts' termination did the Common Council discuss, budget for, commission studies for, or otherwise formally contemplate the creation of an in-house IT Department. (Docket #31 at ¶ 103). David Bogdala-an Alderman who participated in the City's June 2, 2014, special meeting-allegedly informed the press that the call to terminate Comsys' contracts “had everything to do with [the plaintiffs' criminal] investigation.” (Docket #31 at ¶ 109).

         Thereafter, the plaintiffs allege that the Water Utility: (1) began to “unilaterally and improperly” shift Comsys' billed hours between itself and the City; and (2) hired two Comsys employees, in violation of their employee contracts. (Docket #31 at ¶¶ 110-117). None of the defendants have allegedly investigated Comsys' claims or, at any time, attempted to stop the termination of Comsys' contracts or disciplined Kerkman or Pacetti. (Docket #31 at ¶¶ 110-117).

         As a result of the aforementioned conduct, Comsys claims to have sustained injury and damages including, but not limited to: (1) a loss of substantial business revenue and profit; (2) a loss of valuable confidential and proprietary business information and trade secrets; and (3) a material loss of business reputation and goodwill value. (Docket #31 at ¶ 119). In addition, McAuliffe claims to have been harmed by: (1) a loss of stock value in Comsys; (2) a material loss of professional reputation; and (3) severe emotional distress. (Docket #31 at ¶ 120). Further, the plaintiffs claim that the City and the Water Utility have terminated their relationships with a woman-owned business enterprise in favor creating an all-male in-house IT department. (Docket #31 at ¶ 121). Collectively, these harms form the basis of the plaintiffs' nineteen (19) count complaint. (See generally Docket #31).

         2. LEGAL STANDARD

         “A motion to dismiss pursuant to [Rule] 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). “To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must state enough facts that, when accepted as true, ‘state a claim for relief that is plausible on its face.'” Spierer v. Rossman, 798 F.3d 502, 510 (7th Cir. 2015) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” McCauley v. City of Chicago, 671 F.3d 611, 615 (7th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009)). The Court must “tak[e] all factual allegations as true and draw[] all reasonable inferences in favor of the plaintiffs.” Pugh v. Tribune Co., 521 F.3d 686, 692 (7th Cir. 2008).

         3. ANALYSIS

         The defendants argue that dismissal of the amended complaint is proper under Rule 12(b)(6) for six reasons. They argue that:

1. The official capacity claims against individually named defendants are redundant;
2. The doctrine of absolute legislative immunity bars all claims against the Alderperson and Water ...

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