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

Minnesota Federal Court Dismisses Computer Fraud and Abuse Act Claim Based on Departing Employee’s Downloading of Customer List

Posted in Computer Fraud and Abuse Act, Data Theft

By Erik von Zeipel

On June 3, 2013, the U.S. District Court for the District of Minnesota granted in part and denied in part a motion for summary judgment filed by defendant former employees in a dispute arising out of the sale of a business to the plaintiff former employer, and the seller’s subsequent starting of a competing business which the defendants joined.  Of particular interest here, the Court granted summary judgment against the Computer Fraud and Abuse Act (“CFAA”) claim related to the taking of the former employer’s customer list and pricing index, holding that the CFAA requires more than just a misappropriation of information, it requires that access to the information was forbidden.

In June 2005, Lee Randt sold Randt Oil  Company and related assets (including customer lists) to the principal of plaintiff Lubrication Technologies, Inc.  (“Lube-Tech”).  Shortly thereafter, Lube-Tech hired defendant Darren Randt, Lee Randt’s son, as Operations Manager and his wife, defendant Jessica Randt, to perform day-to-day operations. 

In the spring of 2011, Lee Randt formed a new company called Lee’s Oil Service, LLC (“Lee’s Oil”) with his wife as the sole owner.  Lee’s Oil was a direct competitor to Lube-Tech.  In May 2011, defendant Darren Randt resigned from Lube-Tech and went to work for Lee’s Oil.  Defendant Jessica Randt followed in July 2011.  Before leaving Lube-Tech, Ms. Randt downloaded Lube-Tech’s customer list and pricing index.  Around the same time as Ms. Randt’s departure, defendant Ronald Kern also left Lube-Tech and joined Lee’s Oil.  After joining Lee’s Oil, Mr. Kern continued to serve many of the customers he had served at Lube-Tech.  Some of those customers claimed that Mr. Kern made statements to the effect that Lube-Tech was no longer in business and would not be able to serve them.

On August 30, 2011, Lube-Tech filed an amended complaint alleging violations of the CFAA, the Lanham Act, the Uniform Deceptive Trade Practices Act, the Uniform Trade Secrets Act, common law fraud, trade secret misappropriation, breach of contract, tortious interference with business relationships and contract, civil theft, breach of fiduciary duty and usurpation of corporate business opportunities.  Defendants answered and alleged counterclaims based on state law for unpaid wages, fraud and intentional interference with prospective economic advantage.  On September 8, 2011, the Court issued a preliminary injunction enjoining defendants from, among other things, disclosing Lube-Tech’s proprietary information, doing business with certain suppliers and making false statements about Lube-Tech.

The Court first addressed plaintiff’s claim that defendant Jessica Randt violated the CFAA by downloading Lube-Tech’s customer list and pricing index before leaving Lube-Tech, allegedly to benefit Lee’s Oil.  Under the CFAA, a person who “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains … information from any protected computer” is subject to imprisonment and a fine.  18 U.S.C. § 1030(a)(2)(C), (c).  Citing Walsh Bishop Assocs., Inc. v. O’Brien, No. 11-2673, 2012 WL 669069, at *2 (D. Minn. Feb. 28, 2012), the Court stated that “The Eight Circuit has not determined whether the CFAA imposes civil liability on employees who access information with permission but with an improper purpose.”   Further citing Walsh Bishop, the Court stated that “a violation of the CFAA requires more than misappropriation of information” and the relevant inquiry was “whether defendants accessed information that they were forbidden to access.”  Here, one of Ms. Randt’s primary responsibilities at Lube-Tech included implementing software to catalog Lube-Tech’s customers.  Lube-Tech also had not alleged it had security measures or a computer-use policy.   Because there was no evidence any defendant had obtained information they were forbidden to access, the Court granted summary judgment on the CFAA claim.

Having dismissed the CFAA claim, the Court granted summary judgment on plaintiff’s Lanham Act claims based on Lee Oil’s alleged copying of Lube-Tech’s logo and manifest.  Having dismissed the only claims the Court had original jurisdiction over, the Court declined to exercise supplemental jurisdiction over the remaining state law claims and dismissed the same without prejudice.