When an executive search firm bought the goodwill and other assets of a similar firm and learned that the individual sellers took client lists and diverted business in violation of their non-compete agreements, it terminated the sellers’ employment and sued them and other third-party defendants for violating the Computer Fraud and Abuse Act (“CFAA”) as well as for fraud, breach of contract, tortious interference with contract, tortious interference with business relations, and an accounting. A New York federal court’s decision to dismiss the former employer’s CFAA claim in JCBHoldings NY, LLC v. Pakter, Civil Action No. 12 Civ. 7555 (S.D.N.Y. Mar. 20, 2013) continues a trend of district courts in the Second Circuit adopting a narrow reading of this statute.
In reviewing the former employee’s complaint, the court found that absent allegations that the individual sellers lacked access to the computers that were used to take client lists or lacked authority to access electronic information that was used to set up a competing business, the former employer had no CFAA claim against the individual sellers. The court also partially dismissed the former employer’s Lanham Act and tortious interference with business relations claims and dismissed fraud and tortious interference with contract claims. Although pared down, the lawsuit will proceed against most of the defendants under various theories, including breach of contract.
The decision serves as a cautionary reminder that CFAA claims against employees who misuse employer information have been met with mixed success in federal courts.