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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

North Carolina Federal Court Uses Computer Fraud and Abuse Act Claim to Exercise Supplemental Jurisdiction Over State Law Claims Against Former Employee and her New Employer

Posted in Computer Fraud and Abuse Act

A North Carolina federal court judge exercised his discretion recently to deny a Federal Rule 12(b)(1) motion to dismiss, for lack of subject-matter jurisdiction (complete diversity was absent), multiple state law claims filed by NouvEON against its ex-employee and her new employer. One of the eight counts in the complaint alleged a federal cause of action, violation of the federal Computer Fraud and Abuse Act by the ex-employee. Because the CFAA allegations were incorporated by reference in the other seven counts, and also because the new employer was accused of common law vicarious liability for the CFAA violations, the court was persuaded that the entire case should be tried in a single federal court proceeding. NouvEON Technology Partners, Inc. v. McClure, Case No. 3:12-CV-633-FDW-DCK (W.D.N.C., Mar. 5, 2013).

McClure was an employee of NouvEON until she resigned and allegedly almost immediately went to work for one of its competitors. She had allegedly signed a covenant not to compete with NouvEON and a promise not to disclose its confidential information. NouvEON sued her and her new employer for “computer trespass” in violation of a North Carolina statute, unfair and deceptive trade practices violative of another North Carolina statute, civil conspiracy, and unjust enrichment. McClure alone was charged with violation of the CFAA and conversion. Her new employer was accused of tortious interference with contract and vicarious liability for her alleged CFAA wrongdoing. Each count of the complaint was incorporated by reference in all of the other counts.

Federal courts have original jurisdiction over CFAA complaints. NouvEON’s CFAA count was the only one for which there was original federal jurisdiction, but the new employer was not named in that count. Moreover, in terms of the number of counts, the state law claims obviously predominated. Nevertheless, in deciding to exercise supplemental jurisdiction over the state law claims, the court reasoned that the existence of a “common nucleus of operative facts,” and the principle of “judicial economy, convenience, and fairness,” were dispositive. Although the countervailing doctrine of “avoiding federal interference with state enforcement schemes” might have weighed in favor of declining to exercise supplemental jurisdiction over the state law claims if that doctrine was implicated, apparently it was not.

The NouvEON decision suggests an approach a former employer might use if, notwithstanding the absence of diversity jurisdiction, the plaintiff prefers to litigate state law claims — such as trade secret misappropriation, violation of non-compete, non-solicitation and confidentiality covenants, etc. — in federal court against an ex-employee (together, perhaps, with related causes of action against the new employer). By adding allegations of misconduct as to which a federal court has original jurisdiction, such as a CFAA violation, and then incorporating those allegations by reference in all counts, a plaintiff may reduce the risk that the federal court will dismiss the state law causes of action. The chances that the federal court will decline supplemental jurisdiction increases, however, if adjudication of purely state law claims will constitute “interference with state enforcement schemes,” and so that potential concern should be addressed in the complaint.