A New Jersey family must face claims that they tried to "destroy" NXIVM by giving its confidential files to "counter-cult deprogrammer" Rick Ross, a federal judge ruled.
Pronounced "nexium," the Albany, N.Y.-based organization started by Keith Raniere purports to offer ethics training through Executive Success Programs and other materials developed by its partner, First Principles Inc.
The two corporations claim that Michael Sutton, of New Jersey, turned to NXIVM in fall 2000 to help deal with the stress of his "double life," as he was allegedly hiding the fact that he had fathered a child with a non-Sephardic Jewish woman.
NXIVM said Sutton and his half-sister, Stephanie Franco, excelled in its coaching program to learn its trademarked "Rational Inquiry" problem-solving system.
In 2003, NXIVM and First Principles sued Franco for copyright infringement and later added more defendants to the federal complaint: Franco's parents, Rochelle and the late Morris Sutton, and Rick Ross, a consultant and lecturer who specializes in exit counseling and deprogramming of cult members.
NXIVM and First Principles say that, after Michael refused to dissociate from it, his father said that he would do whatever was necessary to "destroy" the business.
The parents allegedly hired Ross to conduct multi-day interventions with their son in November 2002.
Though Michael refused to give Ross NXIVM's confidential materials, Franco - either directly or through another of her siblings - provided the files, the organization says.
Franco meanwhile denies NXIVM's claim that she signed forms stating that she would return all course materials without duplicating them.
NXIVM and First Principles also say that the Suttons had Ross "disparage and damage plaintiffs' business" by sharing protected materials with John Hochman M.D. and Paul Martin Ph.D.
Ross allegedly hired the two doctors, who are also named as defendants, to write articles that pegged the organization as a cult.
Those pieces then appeared on Ross' website, according to the complaint.
After the Northern District of New York refused to order the removal of the articles, the 2nd Circuit affirmed. The District Court also dismissed the organizations' claims against Franco under the Lanham and Copyright Act, and transferred the case.
A federal judge in New Jersey has since dismissed the claims for product disparagement, tortious interference with contract and prospective contractual relations against all defendants, and a copyright infringement claim against Franco's parents.
On Dec. 18, U.S. District Judge Dennis Cavanaugh refused to grant Franco summary judgment but partially the motion for her parents.
NXIVM and First Principles can rely on an expert who says that the articles included some information that was never made public, according to the ruling
In declining to dismiss the breach of contract claim against Franco, Cavanaugh found that several issues of fact exist as to whether the former student signed a contract with NXIVM.
But the organizations' claim for misappropriation of trade secrets failed.
"Franco and the Sutton defendants clearly are not competitors of NXIVM," Cavanaugh wrote. "As for Ross, plaintiffs have not set forth sufficient evidence that Ross is a competitor and the 2nd Circuit has already stated that Ross is 'not trying to get into the relevant market that is NXIVM's central business concern.'"
The claim for tortious interference against Franco's parents survived because Cavanaugh said "the parties dispute whether plaintiffs have the ability to show that they suffered any damages as a proximate result of the Sutton defendants' conduct."
NXIVM also faces claims related to this litigation from an investigator who says he was hired to investigate a student suicide that Ross blamed on the organization.
In March 2009, NXIVM sued Albany's Metroland Magazine for pegging it as a cult, and a Niagara Falls couple who hired Ross to deprogram their son.
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