Lothamer Tax Resolution, Inc. et al v. Kimmel

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
LOTHAMER TAX RESOLUTION, INC.,
et al.,
Plaintiffs,
v.
PAUL KIMMEL,
Defendant.
___________________________________/
Case No. 1:25-cv-579
Hon. Hala Y. Jarbou
OPINION
This case is a trade secrets and contract dispute arising out of the breakdown of the
employment relationship between Plaintiffs Lothamer Tax Resolution, Inc., Lothamer Consulting
Services, LLC, and Lothamer Franchise Corporation (collectively “Lothamer”) and Defendant
Paul Kimmel. Lothamer brings claims for violation of (1) the Stored Communications Act (SCA),
18 U.S.C. § 2707(a), (2) the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030(a), (3) the
Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1839, and (4) the Michigan Uniform Trade Secrets
Act (MUTSA), Mich. Comp. Laws § 445.1901 et seq., and for (5) breach of contract, (6) fraud in
the inducement, (7) common-law conversion, and (8) statutory conversion under Mich. Comp.
Laws § 600.2919a. (Compl., ECF No. 1.) Kimmel brings counterclaims for (1) wrongful
termination, (2) retaliation in violation of the Michigan Whistleblowers’ Protection Act (WPA),
Mich. Comp. Laws § 15.361 et seq., (3) fraudulent inducement, (4) constructive fraud,
(5) promissory estoppel, (6) statutory conversion, (7) abuse of process, (8) retaliation in violation
of the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., (9) defamation, (10) false light invasion
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of privacy, and (11) intentional infliction of emotional distress (IIED). (2d Am. Answer, ECF
No. 125.)
Kimmel has moved to dismiss all of Lothamer’s claims (see ECF Nos. 44, 118); Lothamer
has moved to dismiss all of Kimmel’s counterclaims except those for fraudulent inducement and
conversion (see ECF No. 131). Before the Court is Magistrate Judge Sally J. Berens’s report and
recommendation (R&R) that the Court grant in part and deny in part Kimmel’s motion to dismiss
and grant Lothamer’s motion to dismiss. The magistrate judge recommended that the Court
dismiss Lothamer’s CFAA, DTSA, MUTSA, fraud, and conversion claims, as well as part of its
breach of contract claim (Counts II–IV, part of Count V, and Counts VI–VIII). The magistrate
judge also recommended that the Court dismiss Kimmel’s wrongful termination, WPA,
constructive fraud, promissory estoppel, abuse of process, FCA, defamation, invasion of privacy,
and IIED claims (Counts I, II, IV, V, and VII–XI). Lothamer objects to all of the recommended
dismissals of its claims except the CFAA claim. (See Pls.’ Objs., ECF No. 174.) Kimmel objects
only to the recommended dismissals of his wrongful termination, WPA, constructive fraud, FCA,
and defamation claims. (See Def.’s Objs., ECF No. 173.)
For the reasons explained below, the Court will adopt in part and reject in part the R&R,
and grant in part and deny in part both motions to dismiss. The Court will also hold in abeyance
a portion of Kimmel’s motion to dismiss so the parties can submit additional briefing on the issue
of federal preemption.
I. LEGAL STANDARD
Under Rule 72 of the Federal Rules of Civil Procedure,
the district judge must determine de novo any part of the magistrate judge’s
disposition that has been properly objected to. The district judge may accept, reject,
or modify the recommended disposition; receive further evidence; or return the
matter to the magistrate judge with instructions.
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Fed. R. Civ. P. 72(b)(3).
II. ANALYSIS
A. Lothamer’s Claims
1. DTSA and MUTSA
Lothamer’s DTSA and MUTSA claims are based on Kimmel’s alleged misappropriation
of its Scheduled Deposits Program, its client Portal, and its valuation. The magistrate judge
recommended that the Court dismiss Lothamer’s DTSA and MUTSA claims because (1) Kimmel
legitimately acquired the Scheduled Deposits Program and the Portal in the course of his
employment, and (2) Lothamer’s valuation is not a trade secret. Lothamer objects to both
conclusions.
First, Lothamer argues that even if Kimmel gained access to the Scheduled Deposits
Program and the Portal as part of his employment, he transferred them to a personal computer
without authorization, which constitutes improper acquisition under the DTSA and MUTSA. But
Lothamer’s complaint does not contain the allegation that Kimmel transferred the Scheduled
Deposits Program and the Portal to his own computer without authorization. And though
Lothamer’s subsequent filings suggest that Kimmel was not authorized to download its software
to his computer, Kimmel argues that he initially downloaded the software so he could work from
home. If he was allowed to do so, then his acquisition of the software was not unauthorized.
Kimmel’s argument is not contradicted by any allegation in the complaint; thus, the Court will
grant the motion to dismiss Lothamer’s DTSA and MUTSA claims regarding the Scheduled
Deposits Program and the Portal.
Second, Lothamer disagrees with the magistrate judge’s conclusion that its valuation is not
a trade secret because it lacks independent economic value. Lothamer argues that the valuation it
refers to in its complaint is not just a single figure representing the company’s value; rather, it is
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“a comprehensive analysis of why a company is valuable, what makes a company valuable, and
the monetary value of a company.” (Pls.’ Objs. 4.) However, the complaint says nothing about
this additional information; it alleges merely that Kimmel found out the overall figure at which the
company was valued. Furthermore, without more detail about the information allegedly included
in the valuation, it is impossible to determine whether Lothamer derived economic value from that
information. Thus, the Court will dismiss Lothamer’s DTSA and MUTSA claims regarding its
valuation.
2. Breach of Contract
(a) Non-Disparagement Provision
Lothamer alleges that Kimmel breached the non-disparagement provision of his
employment contract (the “Employment Agreement”) by making two negative posts about the
company on LinkedIn. The non-disparagement provision bars Lothamer from “mak[ing] negative
comments about [Lothamer] or its officers, directors, current and former employees, or other
agents.” (Employment Agreement ¶ 13(e), ECF No. 1-3.) The magistrate judge concluded that
Lothamer has not sufficiently alleged a breach of this provision because Kimmel’s LinkedIn posts
did not specifically refer to Lothamer, and cannot be reasonably interpreted as criticisms of the
company. Lothamer objects that because the posts referenced Kimmel’s employer, and his
LinkedIn page indicated Lothamer was his employer, readers would interpret the posts as being
about Lothamer.
In Kimmel’s April 21, 2025, LinkedIn post, he stated that notions of positive workplace
culture “won’t keep you from getting laid off or abused by a boss that thinks at-will means you’re
his personal servant.” (4/21/2025 LinkedIn Post, ECF No. 1-10, PageID.103.) It is true that
Kimmel’s post does not refer to Lothamer by name, or state outright that he is talking about his
own experiences. But a reasonable reader can infer that his words are meant as an oblique
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reference to his former employer (Lothamer) and former boss (Jesse Lothamer). Thus, the Court
will sustain the objection and decline to dismiss the breach of contract claim regarding the April
21 post. However, as to the April 29, 2025, LinkedIn post, the Court agrees with the magistrate
judge that the general references to “abuses of employment” and “at-will employment” do not
allow readers to infer any specific criticism of Lothamer. (See 4/29/2025 LinkedIn Post, ECF
No. 1-10, PageID.101.) Thus, the Court will dismiss the breach of contract claim regarding the
April 29 post.
Lothamer also alleges that Kimmel violated the non-disparagement provision by sending a
letter to several Lothamer employees in which he criticized the company. The magistrate judge
reasoned that Lothamer cannot state a breach of contract claim as to the letter because it has not
alleged damages stemming from the breach. See Van Buren Charter Township v. Visteon Corp.,
904 N.W.2d 192, 200 (Mich. Ct. App. 2017) (“Damages are an element of a breach-of-contract
claim.”). The Employment Agreement does contain a liquidated damages provision entitling
Lothamer to $1,000 of damages “per day for every day that [Kimmel’s] negative remark remains
posted” (Employment Agreement ¶ 14), but the magistrate judge concluded that this provision
does not apply because a letter does not “remain[] posted” after it is mailed.
Lothamer objects that “‘posted’ reasonably encompasses any form of public dissemination,
including the continued circulation or availability of the letter at issue,” so the liquidated damages
clause applies for every day that Kimmel does not, for example, send a retraction letter. (Pls.’
Objs. 6.) However, the language of the Employment Agreement forecloses this reading. The
phrase “remains posted” naturally applies to messages that a person has put up for public display
and can remove at any time, like a post on LinkedIn or a flyer on a bulletin board. Lothamer’s
reading—that a letter “remains posted” until the sender formally retracts it—distorts the plain
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meaning of the contract. Thus, the Court will dismiss the breach of contract claim regarding the
letter.
(b) Non-Disclosure Provision
Lothamer also alleges that Kimmel violated their non-disclosure agreement (NDA) by
disclosing Lothamer’s valuation in his demand letter. The magistrate judge concluded that
Lothamer fails to state a breach of contract claim because the NDA only bars an employee from
“us[ing] the Confidential Information disclosed to [the employee] by Lothamer for use outside the
above stated purpose” or “disclosing such Confidential Information to anyone.” (NDA 1, ECF
No. 1-4 (emphasis added)). Thus, since Kimmel allegedly gained the valuation through
unauthorized access to Jesse Lothamer’s email account rather than through Lothamer’s disclosure,
any use or disclosure of the valuation does not violate the NDA. Lothamer objects to this
interpretation of the NDA’s scope, pointing to another provision of the NDA that states the
employee “shall have no right to use Confidential Information except as provided herein.” (Id.)
This provision is not explicitly limited to confidential information disclosed by Lothamer, and the
Court agrees that the provision clarifies that Kimmel’s non-disclosure obligations extend to
information that Lothamer did not intentionally disclose to him.
However, Lothamer has not alleged that it suffered any damages from Kimmel’s breach.
Indeed, it is hard to see how informing fellow employees of the company’s value would cause any
harm. And unlike the Employment Agreement, the NDA lacks a liquidated damages clause. Thus,
the Court will overrule Lothamer’s objection and grant Kimmel’s motion to dismiss this claim.
3. Fraud in the Inducement
Lothamer alleges that Kimmel committed fraud in the inducement when he made false
statements to persuade Lothamer to hire him. The magistrate judge recommended dismissing this
claim because, among other things, Kimmel’s statements that he “could ‘program anything’” and
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“could ‘learn’ PHP” (Compl. ¶¶ 56, 77) were mere “puffing” rather than factual representations.
In its objections, Lothamer does not dispute that it has failed to state a claim as to these two
statements. Rather, it argues that Kimmel also said “he would learn PHP” (Compl. ¶ 72 (emphasis
added)), which is a specific commitment rather than “puffing.” However, this allegation does not
meet the requirements for pleading fraud under Rule 9(b) because the complaint does not indicate
when and where Kimmel made that representation. See Fed R. Civ. P. 9(b); Republic Bank & Tr.
Co. v. Bear Stearns & Co., 683 F.3d 239, 247 (6th Cir. 2012) (Rule 9(b) “requires a plaintiff: (1) to
specify the allegedly fraudulent statements; (2) to identify the speaker; (3) to plead when and where
the statements were made; and (4) to explain what made the statements fraudulent.”). Thus, the
Court will overrule Lothamer’s objection and dismiss its fraud in the inducement claim.
4. Conversion
Lothamer alleges that Kimmel committed conversion by keeping its valuation, Portal, and
Scheduled Deposits Program. As noted above, Lothamer’s complaint suggests that the valuation
is merely a number, which cannot be converted. Thus, the Court will dismiss the conversion claim
regarding the valuation. The magistrate judge also concluded that the Portal and Scheduled
Deposits Program are intangible property that cannot be converted. Lothamer objects to this
conclusion.
Conversion is a “distinct act of domain wrongfully exerted over another’s personal
property in denial of or inconsistent with the rights therein.” Foremost Ins. Co. v. Allstate Ins.
Co., 486 N.W.2d. 600, 606 (Mich. 1992). Intangible property can be converted if “the plaintiff’s
ownership interest in intangible property was represented by or connected with something
tangible.” Sarver v. Detroit Edison Co., 571 N.W.2d 759, 762 (Mich. Ct. App. 1997). The
magistrate judge reasoned that Lothamer had not alleged such a connection to tangible property;
Lothamer objects that software programs are necessarily connected to the tangible property on
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which they are stored. And although there is no allegation that Kimmel took that tangible property,
Lothamer argues that it is possible to convert intangible property without converting the associated
tangible property. See Am. Furukawa, Inc. v. Hossain, 103 F. Supp. 3d 864, 886 (E.D. Mich.
2015) (plaintiff stated conversion claim under Michigan law where defendant allegedly took
emails off plaintiff’s server).
The Court agrees with Lothamer that under Michigan law, a conversion claim may lie for
the copying of software in some circumstances. The Michigan Supreme Court has suggested that
an “idea could be subject to conversion if [the plaintiff] could establish an exclusive right of
ownership in the idea.” Sarver, 571 N.W.2d at 762. However, “[t]o protect an idea under a
property theory requires that the idea possess property-like traits.” Id. (quoting Reeves v. Alyeska
Pipeline Serv. Co., 926 P.2d 1130, 1143 (Alaska 1996)). Thus, “ideas are not the property of
anyone unless expressed in a legally protected manner,” such as in a copyrighted or patented work.
Id. at 763 (citing Joyce v. Gen. Motors Corp., 551 N.E.2d 172, 175 (Ohio 1990)); see also Soulliere
v. Berger, No. 349428, 2020 WL 6373048, at *5 (Mich. Ct. App. Oct. 29, 2020) (“[T]he websites
set up and operated by plaintiffs for years could be the subject of an action for conversion because
they were ideas reduced to a legally recognized tangible form.”); Jason J. Armstrong, D.D.S., P.C.
v. O’Hare, No. 308635, 2014 WL 1614474, at *6 (Mich. Ct. App. Apr. 22, 2014) (“The intangible
assets that have been found to be subject to conversion are not subject to personal whims and
preferences but instead have a solid, identifiable, intellectual base and are capable of being
exclusively owned and possessed.”).
The above-cited Michigan case law suggests that Kimmel can only be liable for converting
Lothamer’s software insofar as that software was in a legally recognized form; i.e., if it was
copyrightable. However, to the extent that Lothamer’s conversion claim is premised on Kimmel’s
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duplication of a copyrighted work, it may be preempted by the federal Copyright Act, 17 U.S.C.
§ 1 et seq. See Murray Hill Publ’ns, Inc. v. ABC Commc’ns, Inc., 264 F.3d 622, 636 (6th Cir.
2001) (conversion claim that contains the same elements as a copyright claim is preempted by the
Copyright Act), abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154
(2010). Under the doctrine of “complete preemption,” any state law claim that falls within the
ambit of the federal Copyright Act is recharacterized as a federal claim. Ritchie v. Williams, 395
F.3d 283, 286–87 (6th Cir. 2005). Because the parties have not briefed the issue of preemption or
addressed whether Lothamer has stated a Copyright Act claim, the Court will decline to address
dismissal of the conversion claims here and instead allow Kimmel additional time to file a separate
motion to dismiss those claims that addresses preemption. Furthermore, although Kimmel’s
counterclaim for conversion is not at issue here because Lothamer did not move to dismiss it, the
same preemption issue may apply to that claim as well, so the Court will allow Lothamer to file a
motion to dismiss that claim.
B. Kimmel’s Counterclaims
1. Wrongful Termination
Kimmel alleges that Lothamer wrongfully terminated him due to his refusal to participate
in its allegedly illegal activities, including Lothamer’s failure to report a security breach,
“unauthorized alteration of customer electronic signatures, improper billing and addendum
inflation practices, and misrepresentations regarding attorney oversight.” (2d Am. Countercls.,
ECF No. 125, PageID.1683.) Kimmel learned about the signature issue from another employee,
Ben Kerns, and Kimmel told Kerns to stop altering signatures. (Kerns Aff. ¶ 7, ECF No. 125-8.)
On February 14, 2025, Kimmel “raised these concerns internally to [Lothamer]’s Chief Operating
Officer, Brian Lorencen.” (2d Am. Countercls., PageID.1685.) Three days later, Lothamer
“terminated [Kimmel] and the entire IT department without explanation.” (Id., PageID.1686.)
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Later that day, “following a two-hour meeting with [Kimmel] and the IT department, [Lothamer]
reinstated [Kimmel] and his team.” (Id.) About three weeks later—on March 7—Kimmel told
owner Jesse Lothamer that, in relation to the compliance and security issues, “if we all work
together, we could address these issues.” (Id.) “Immediately after [Kimmel]’s statement,
Lothamer terminated [Kimmel] and the entire IT department” once again. (Id.) On March 26,
Jesse Lothamer sent an email to Bradley Mruzek, one of the terminated employees, stating that he
was “sorry it had to end this way” and indicating he would “consider” rehiring Mruzek if he had
not yet found another job. (Mruzek Decl., ECF No. 125-9, PageID.1758.)
Under Michigan law, an employee can bring a wrongful discharge claim against an
employer who terminates them because they “act in accordance with a statutory right or duty” or
“fail[] or refus[e] to violate a law in the course of employment.” Suchodolski v. Mich. Consol.
Gas Co., 316 N.W.2d 710, 711 (Mich. 1982). The magistrate judge recommended that the Court
dismiss Kimmel’s wrongful discharge claim because he has not shown a causal connection
between his alleged refusal to violate the law and his termination. Specifically, the magistrate
judge reasoned that Kimmel has only shown a close temporal proximity between his protected
activity and his termination, which is not enough to establish causation.
However, the Court disagrees with the magistrate judge’s conclusion. As Kimmel points
out, mere temporal proximity can establish causation in a retaliation case when “an adverse
employment action occurs very close in time after an employer learns of a protected activity.”
Mickey v. Zeidler Tool & Die Co., 516 F.3d 516, 524 (6th Cir. 2008) (retaliation under Elliott-
Larsen Civil Rights Act (ELCRA) and Age Discrimination in Employment Act); see also Gorbe
v. City of Lathrup Village, No. 356801, 2023 WL 326103, at *9 (Mich. Ct. App. Jan. 19, 2023),
(retaliation under ELCRA) (plaintiff can “[p]rov[e] retaliation on the basis of temporal proximity
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alone [with] evidence that the employer retaliated against the employee very close in time upon
learning of the employee's protected activity”). Here, the initial termination occurred three days
after Kimmel discussed the legal issues with Lorencen, and the second termination occurred
moments after Kimmel raised the issue with Jesse Lothamer. Furthermore, Kimmel does not rely
on temporal proximity alone: the strange behavior of firing, then re-hiring, then re-firing an entire
department also support the inference that Lothamer had a retaliatory motive. Thus, the Court will
sustain Kimmel’s objection and allow the wrongful termination claim to go forward.
2. WPA
Kimmel also alleges that his termination violated the WPA, which bars retaliation against
an employee who “reports or is about to report” a violation of the law. Mich. Comp. Laws
§ 15.362; see Chandler v. Dowell Schlumberger Inc., 572 N.W.2d 210, 211 (Mich. 1998). The
magistrate judge recommended that the Court dismiss this claim because Kimmel does not allege
facts suggesting Lothamer knew of his intention to report its alleged violations of law. Kimmel
objects that an employee need not say specific “magic words” to put their employer on notice of
their intent to report. Shallal v. Cath. Soc. Servs. of Wayne Cnty., 566 N.W.2d 571, 577 (Mich.
1997). Be that as it may, Kimmel’s allegation that he “raised [his] concerns” with Lorencen is
simply not specific enough to indicate whether their conversation put Lothamer on notice of
Kimmel’s intent to report. Kimmel also argues that his conversation with Tammy Consavage, in
which she informed him about Lothamer’s potential violations of the FCA, provided notice that
he was going to report the company. (2d Am. Countercls., PageID.1707). However, Kimmel does
not allege that he said anything in that conversation indicating his intent to report. Thus, the Court
will adopt the magistrate judge’s recommendation and dismiss Kimmel’s WPA claim.
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3. Constructive Fraud
Kimmel brings both fraud in the inducement and constructive fraud counterclaims against
Lothamer. The fraud in the inducement claim is based on Lothamer’s representations before
Kimmel signed his employment contract; the constructive fraud claim is based on Lothamer’s
representations after Kimmel began employment. Lothamer moves to dismiss only the
constructive fraud claim.
“[T]he distinction between ‘actual fraud’ and ‘constructive fraud’ is that actual fraud is an
intentional misrepresentation which a party makes to induce detrimental reliance, while
‘constructive fraud’ is a misrepresentation which causes the same effect, but without ‘a purposeful
design to defraud.’” Pigee v. DiPonio, No. 249235, 2004 WL 2102013, at *3 (Mich. Ct. App. Sep.
21, 2004) (citing Gen. Elec. Credit Corp. v Wolverine Ins. Co., 362 N.W.2d 595 (Mich. 1984)).
However, Kimmel’s constructive fraud claim is more accurately described as an additional fraud
in the inducement claim because it is primarily based on Lothamer’s allegedly false promises about
future action—i.e., that Lothamer would give Kimmel an equity interest in the company. See
Samuel D. Begola Servs., Inc. v. Wild Bros., 534 N.W.2d 217, 219 (Mich. Ct. App. 1995) (false
statements about future conduct are actionable as fraud in the inducement). Furthermore, unlike a
constructive fraud claim, here Kimmel does allege that Lothamer had fraudulent intent. (See, e.g.,
2d Am. Countercls., PageID.1695.) Thus, the Court will analyze the claim as one for fraud in the
inducement.
Kimmel alleges that Lothamer falsely claimed that it had seven out-of-state offices, that it
was using a franchise model, and that Kimmel would get equity in the company. (2d Am.
Countercls., PageID.1687–1691.) However, he does not describe any particular representations
about the out-of-state offices or company structure that occurred after his employment, and the
representations made before his employment more properly fit under his pre-hiring fraud claim
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(that Lothamer has not moved to dismiss). Therefore, for the purposes of the post-hiring fraud
claim, the Court will focus on the representation that Kimmel would receive an equity interest in
the company. The magistrate judge recommended the Court dismiss the claim because (1) Kimmel
did not sufficiently allege injury from the misrepresentations, (2) Kimmel could have determined
whether the representations were truthful via investigation, and (3) it was unreasonable for Kimmel
to rely on Lothamer’s uncertain promises. Kimmel objects to all three of these conclusions.
First, as to injury, Kimmel alleges that Lothamer’s misrepresentations during his
employment caused him to work extra uncompensated hours with the expectation that he would
get an equity interest in the company. (Def.’s Objs. 19–20.) Although Lothamer contends that
this allegation did not appear in Kimmel’s counterclaims, he did allege that he worked “significant
unpaid overtime.” (2d Am. Countercls., PageID.1701.) Regardless, it is plausible that the promise
of equity caused Kimmel to remain at the company rather than seek other work. (See id.,
PageID.1695.) Thus, Kimmel has sufficiently alleged injury.
Second, the magistrate judge’s conclusion that Kimmel could determine the truth of
Lothamer’s statements via investigation applies only to the representations about the company’s
offices and structure, not to the promises of an equity interest. The company data to which Kimmel
had access would not reveal Jesse Lothamer’s intentions.
Finally, as to reliance, the magistrate judge focused on Jesse Lothamer’s alleged statement
to Kimmel in October of 2024 that “[w]e’ll get you an equity agreement in January if we still like
each other.” (Id., PageID.1690.) The Court agrees that this statement is too equivocal to establish
reasonable reliance. However, Kimmel also alleges that months earlier—on July 19, 2024—Jesse
Lothamer
recommitted to the equity agreement but stated he was putting the franchise
expansion on hold in favor of a corporate-owned growth model. He indicated that
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[Kimmel]’s equity position would shift from Lothamer Franchise to Lothamer Tax
Resolution. [Jesse] Lothamer reiterated his belief in these agreements, claiming
that with [Kimmel] having “skin in the game,” he wouldn’t need to micromanage.
However, because the equity would actually be in Lothamer Tax Resolution, he
once again stated that he needed to wait on his lawyer to finalize the agreement.
(Id.) These statements are concrete representations from the owner of the company about
Kimmel’s future compensation. Moreover, Kimmel was a high-ranking executive, so an
expectation of an equity interest is not necessarily unreasonable. Under the circumstances,
Kimmel’s reliance is not so unjustifiable that no jury could consider it reasonable. See Waun v.
Universal Coin Laundry Mach., LLC, No. 267954, 2006 WL 2742007, at *6 (Mich. Ct. App. Sep.
26, 2006) (reasonableness of reliance is jury question).
In sum, the Court is persuaded that Kimmel has stated a fraud claim against Lothamer.
4. FCA
Kimmel alleges that Lothamer violated the False Claims Act (FCA) by retaliating against
him for trying to stop the company’s FCA violations. See 31 U.S.C. § 3730(h) (providing cause
of action for employees discharged due to “efforts to stop 1 or more violations of [the FCA]”).
Specifically, Kimmel alleges that he became aware that Lothamer had “misused federal funds or
submitted false certifications to the U.S. Small Business Administration or affiliated lending
institutions” in relation to a PPP loan. (2d Am. Countercls., PageID.1706.) Kimmel then
“independently investigated the matter,” and “[h]e confirmed that [Lothamer] had received a PPP
loan” and “may have violated the terms of the federal loan certification.” (Id.)
The magistrate judge recommended the Court dismiss Kimmel’s FCA claim because he
did not allege that decisionmakers at Lothamer were aware that he investigated the PPP loan. In
his objections, Kimmel argues that he “alleged internal disclosure of PPP-loan noncompliance”
(Def.’s Objs. 23), but he does not cite his pleadings in support of this argument, and it does not
appear he alleges any such disclosure. Kimmel does allege that Consavage told him about the PPP
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loan issues, but the fact that Lothamer knew Kimmel was aware of potential FCA violations does
not entail that Lothamer knew Kimmel was trying to stop those violations. Thus, there is no reason
to infer Lothamer terminated Kimmel because of his investigation of the PPP loan. Kimmel also
points to the timing of his discussion with Lorencen and his termination, but he does not allege
that he spoke with Lorencen about the PPP issues or any concern that would fall under the FCA.
Thus, Kimmel has failed to state an FCA retaliation claim.
5. Defamation
Kimmel also brings defamation claims against Lothamer based on allegations that (1) Jesse
Lothamer told third parties, including Kimmel’s co-workers, that Kimmel “lacked proficiency in
PHP and failed to produce any meaningful work product in that language during his employment”
(2d Am. Countercls., PageID.1708); (2) Lothamer’s brief in support of its motion for a temporary
restraining order (TRO) states that “Kimmel just couldn’t let sleeping dogs lie” (Pls.’ Br. in Supp.
3, ECF No. 2-1); and (3) Lothamer’s reply brief in support of its motion for a TRO describes
Kimmel as “a cyber terrorist out for revenge because [his] scheme to extort $2.2 million from
Lothamer failed.” (Pl.’s Reply Br. 1, ECF No. 90.) The magistrate judge recommended that the
Court dismiss Kimmel’s defamation claims because (1) Jesse Lothamer’s statements were not
made in the course of his employment; (2) Jesse Lothamer’s statements were subjective
expressions of opinion; (3) the statement that Kimmel “couldn’t let sleeping dogs lie” is not
defamatory, and (4) statements made in Lothamer’s briefs are protected by Michigan’s judicial
proceedings privilege.
In his objections, Kimmel does not address the magistrate judge’s conclusion that he has
failed to state a defamation claim as to Jesse’s statements or the “sleeping dogs” remark, and the
Court will adopt those conclusions. Kimmel’s objection is instead focused on the application of
the judicial proceedings privilege. Under Michigan law, statements made in legal briefs cannot be
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the basis of defamation liability as long as they “are relevant, material, or pertinent to the [legal]
issue.” Hartung v. Shaw, 89 N.W. 701, 701 (Mich. 1902). “What a litigant considers to be
pertinent or relevant is given much freedom, and the privilege is liberally construed as a matter of
public policy ‘so that participants in judicial proceedings may have relative freedom to express
themselves without fear of retaliation.’” Lawrence v. Burdi, 886 N.W.2d 748, 757 (Mich. Ct. App.
2016) (quoting Sanders v. Leeson Air Conditioning Corp., 108 N.W.2d 761, 762 (Mich. 1961)).
Kimmel argues that Lothamer’s “cyberterrorist” statement was not relevant to this case. But the
statement was a hyperbolic reference to the security breaches that Kimmel allegedly caused, which
were the basis for Lothamer’s TRO request. The statement was plainly relevant to this litigation,
so it is privileged.1
As an additional reason for dismissal, the Court lacks subject matter jurisdiction over
Kimmel’s defamation claims related to filings in this case. The Court can only take supplemental
jurisdiction over state law claims that are “part of the same case or controversy” as the federal
claims in this case, 28 U.S.C. § 1367, meaning that the claims “derive from a common nucleus of
operative facts.” Blakely v. United States, 276 F.3d 853, 861 (6th Cir. 2002) (internal quotation
marks omitted). The only federal claims here are Lothamer’s claims under the SCA, CFAA, and
DTSA (and potentially the Copyright Act), none of which share a common nucleus of operative
fact with a defamation claim based on court filings.
In sum, the Court will overrule Kimmel’s objection and dismiss his defamation claims.
1 Kimmel also argues that dismissal of his defamation claim is inappropriate because the magistrate judge granted him
leave to amend that claim, which he did in his second amended answer. However, there is no basis for Kimmel’s
contention that dismissing the amended claim would “nullify” the order granting leave to amend. (Def.’s Objs. 26.)
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6. Request to Amend
In his objections, Kimmel asks the Court to grant him leave to amend his counterclaims
“should the Court deem amendment necessary.” (Def.’s Obj. 31.) However, “[a] request for leave
to amend almost as an aside, to the district court in a memorandum,” does not qualify as a motion
to amend. Kuyat v. BioMimetic Therapeutics, Inc., 747 F.3d 435, 444 (6th Cir. 2014) (internal
quotation marks omitted). The Court’s local rules also require Kimmel to file a proposed amended
pleading, see W.D. Mich. LCivR 5.7(f), which he has not done. If Kimmel wishes to amend his
counterclaims, he can file a proper motion to do so.
III. CONCLUSION
For the reasons discussed above, the Court will dismiss Lothamer’s claims for (1) violation
of the CFAA, (2) violation of the DTSA, (3) violation of the MUTSA, (4) breach of the
Employment Agreement’s non-disclosure provision, (5) breach of the Employment Agreement’s
non-disparagement provision as to the April 29, 2025, LinkedIn post and the letter, and (6) fraud.
The Court will order additional briefing as to preemption of Lothamer’s conversion claims, and
thus hold in abeyance the motion to dismiss those claims. The other claims that survive are those
for (1) violation of the SCA, (2) breach of the Employment Agreement’s non-retention provision,
and (3) breach of the Employment Agreement’s non-disparagement provision as to the April 21,
2025, LinkedIn post. Because the Court will dismiss Lothamer’s DTSA claim, it will also deny
as moot Kimmel’s separate motion to dismiss that claim (ECF No. 118).
The Court will also dismiss Kimmel’s counterclaims for (1) violation of the WPA, (2)
promissory estoppel, (3) conversion, (4) abuse of process, (5) violation of the FCA, (6) defamation,
(7) false light invasion of privacy, and (8) IIED. Kimmel’s surviving claims are those for
(1) termination in violation of public policy, (2) fraudulent inducement related to pre-hiring
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representations, and (3) fraudulent inducement related to post-hiring representations (pled as
constructive fraud).
An order will issue in accordance with this Opinion.
Dated: November 26, 2025 /s/ Hala Y. Jarbou
HALA Y. JARBOU
CHIEF UNITED STATES DISTRICT JUDGE
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