By Robert Milligan and Jessica Mendelson
We have previously blogged on the colorful sports agent case of Mintz v. Mark Bartelstein & Associates d/b/a Priority Sports & Entertainment et al., Case No. 12-02554 SVW (SSX), (C.D. Cal.), where Aaron Mintz, a National Basketball Players Association (NBPA) certified player-agent, and his former employer, Priority Sports & Entertainment (“Priority Sports”), clashed in California federal court regarding his departure from Priority Sports to Creative Artists Agency (“CAA”).
The case recently concluded after a two-day jury trial in downtown Los Angeles, California resulting in a verdict awarding Mintz $85,000 on his invasion of privacy claim for Priority Sports’ access of Mintz’s personal email account after he left the company.
As discussed below, the case, apart from its colorful facts, has several key takeaways for employers.
General Background and Claims
By way of brief background, Mintz left Priority Sports in March 2012, accepted a position with competitor CAA, and immediately sought declaratory relief to invalidate his non-compete agreement with Priority Sports. As the case progressed, Mintz added additional claims against Priority Sports for violations of the Computer Fraud and Abuse Act (“CFAA”), the Electronic Communications and Privacy Act (“ECPA”), and California Penal Code section 502, as well as claims for defamation, invasion of privacy, intentional inference with contractual relations, and violation of Business and Professions Code section 17200. Mintz asserted some of the claims against Priority Sports principle Mark Bartelstein.
Mintz alleged that he worked for Priority Sports for eleven years and then decided to pursue a better opportunity with CAA. Apart from the two year non-compete, which he claimed violated Business and Professions Code section 16600, Mintz claimed the fourteen-day notice of termination provision in his employment agreement violated section 16600 as well. Mintz claimed that the notice provision restricted his ability to terminate his employment, and thereby prevented him from competing with Priority Sports for two weeks after termination in violation of California law. Mintz’s employment contract prohibited Mintz from soliciting company clients or business on behalf of a competitor or performing any activities for a competitor during his employment with Priority Sports. It further provided that, for two years after his termination, Mintz was prohibited from soliciting company clients or providing services that are similar to the services provided by Priority to company clients.
Mintz also claimed that after he resigned Priority Sports hacked his personal email account, reviewed his contract with CAA, and disclosed its terms to third parties. He also claimed that defamatory statements were made to basketball executives, players, and family members of players to persuade players not to follow Mintz to CAA.
Priority Sports counterclaimed against Mintz asserting claims for breach of contract, breach of covenant of good faith and fair dealing, breach of duty of loyalty, misappropriation of trade secrets, intentional interference with contractual relations, intentional interference with prospective economic advantage, conversion, violation of California Penal Code section 502, defamation, trade libel, conspiracy, and unfair competition. Priority Sports also asserted some of the claims against CAA.
Shortly before the trial, the Court ruled on both parties’ motions for summary judgment. As described in more detail below, the Court granted Mintz’s motion for summary judgment with respect to his claims for violations of California Penal Code section 502 and invasion of privacy, but denied the motion for summary judgment with respect to his claim under California’s unfair competition statute. The Court also granted summary judgment in favor of Mintz and CAA on each of Priority Sports’ counterclaims, and denied Priority Sports’ motion for partial summary judgment on its claims for breach of contract and breach of the duty of loyalty against Mintz. The Court also granted summary judgment in favor of the defendants on Mintz’s claims for declaratory relief, violation of the CFAA, and violation of the ECPA.
Mintz’s Motion for Summary Judgment on His Claims
The Court’s ruling on the parties’ summary judgment motion resolved a number of significant issues in the case. Mintz’s employment contract with Priority Sports included both a two-year non-compete agreement and a requirement that he provide fourteen days written notice prior to leaving the company. Rather than provide notice, Mintz resigned to Bartelstein by telephone. Upon hearing of Mintz’s resignation, Bartelstein allegedly responded, “Wait until I tell the world about this. You made your bed, you better be ready to lie in it.”
Additionally, after Mintz resignation, Priority Sports’ counsel allegedly instructed another employee to access Mintz’s personal email account without Mintz’s permission. The employee obtained a temporary password without Mintz’s consent and accessed Mintz’s gmail account for at least twenty minutes. It was undisputed that the employee viewed a copy of Mintz’s employment agreement with CAA. The next day, Mintz’s colleague emailed Mintz the following message: “I’m in shock! Rumor on the street is that CAA is paying you less money over 4 years then [sic] you would have made here. I don’t get it[.] You had a 50-year guaranteed deal here.” Mintz also contended that defendants leaked his employment terms with CAA to a third party.
Mintz requested a declaratory judgment that the non-compete was void but the Court found that he failed to meet his burden of demonstrating an actual controversy. At the hearing, defendants responded that their refusal to stipulate that Priority would not enforce the non-compete was not based on any desire to enforce the non-compete provision, but rather their concerns with the overbreadth of the proposed stipulation provided by Mintz’s counsel. The Court concluded that there was no evidence that defendants had attempted, in this or any other litigation, to enforce the non-compete clause. The Court, therefore, concluded that Mintz had not met his burden of demonstrating an actual controversy with “sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”
With respect to the notice of termination provision, the Court found that Mintz did not take issue with the notice requirement itself, but argued that the clause was unenforceable because it prevented him from competing for clients after leaving Priority Sports. In short, according to the Court, Mintz only contended that the two-weeks’ notice provision is unenforceable “to the extent Priority Sports asserts it prevented Mintz from competing for clients, including his own clients, after his resignation.” The Court stated that Mintz misconstrued defendants’ position regarding the provision. According to the Court, in their opposition, defendants conceded that the notice provision “did not prevent Mintz from terminating his employment or from joining CAA; nor did it prevent Mintz from competing fairly with Priority Sports after his termination date.” (Opp. at 9). Instead, defendants only argued that Mintz breached the notice provision by failing to give fourteen days’ notice of his resignation. According to the Court, Mintz cannot conjure an actual controversy by distorting defendants’ position on the notice provision. Given the foregoing, the Court concluded that because Mintz and defendants’ positions were not in fact opposed, there was no actual controversy over the effect of the notice provision. Therefore, the Court granted summary judgment for defendants with respect to Mintz’s claims for declaratory relief.
The Court then granted summary judgment for Priority Sports on Mintz’s CFAA claim concerning the access to his personal email account. Under the CFAA, to bring a civil action, damages or loss to the victim must fall under five specific circumstances. Mintz alleged in this case that there was “loss to 1 or more persons during any 1–year period . . . aggregating at least $5,000 in value.” 18 U.S.C.§ 1030(c)(4)(A)(i)(I). Under the CFAA, “loss” is defined as “any reasonable cost to any victim.” 18 U.S.C. § 1030(e)(11).
Here, the Court found that the evidence Mintz presented failed to satisfy the threshold, because Mintz’s legal fees here were paid by CAA, and not Mintz, the victim in the offense. As a result, this expense could not be considered a cost to him. Additionally, the Court held that the expense of the litigation did not count as a loss under the CFAA because it was not “essential to readying the harm of the unauthorized access.” The Court reasoned that Mintz knew right after his departure from Priority Sports that it was responsible for the offense, and that it had accessed Mintz’s employment contract with CAA. According to the Court, all Mintz needed to do to secure his gmail account – indeed, all he could do – was to change the password and the back-up email address used to retrieve the password. The Court concluded that it defies common sense to believe that Mintz’s subsequent legal efforts to confirm Priority Sports’ involvement were “essential to remedying the harm” of the unauthorized access. Accordingly, the Court concluded as a matter of law that the litigation costs in the case do not count as a “loss” under the CFAA.
With respect to the ECPA claim, the Court granted summary judgment in favor of Priority Sports. Mintz alleged Priority Sports had intentionally intercepted his electronic communication. However, the Court found no interception, since the emails were not accessed during transmission, but after receipt.
In a bit of a surprise considering its ruling on the CFAA claim, the Court did, however, find that Priority Sports violated California Penal Code section 502 by “knowingly accessing” Mintz’s gmail account and wrongfully obtaining data without his permission. Section 502 sets no threshold level of damage or loss that must be reached to impart standing to bring suit. Under the plain language of the statute, any amount of damage or loss may be sufficient.” Facebook, Inc. v. Power Ventures, Inc., No. C 08–05780 JW, 2010 WL 3291750, at *4 (N.D. Cal. 2010) (holding that the fact that plaintiff “expended resources” to stop further violations of § 502 sufficed to establish damages, even if such resources only comprised a few “clicks of a mouse” and some “keystrokes”). Upon review, the Court found that the undisputed facts showed that Priority Sports knowingly and without permission used a computer to wrongfully obtain data, in violation of § 502(c)(1). Specifically, defendants did not dispute that at the direction of Priority Sports’ counsel, a Priority Sports employee accessed Mintz’s gmail account without permission, and viewed the contents of several emails, including Mintz’s employment agreement with CAA. (Opp. at 9). The Court further found that Mintz experienced sufficient damage to support a private right of action. The Court found that it was undisputed that after the hacking incident, Mintz spent some time restoring his gmail password and investigating who had hacked the gmail account. (Mintz Decl. ¶ 19). In light of the foregoing undisputed facts, the Court concluded that Defendants violated California Penal Code § 502. Accordingly, the Court granted Mintz summary judgment on the § 502 claim.
The Court also granted summary judgment for Mintz on the invasion of privacy claim. According to the Court, Mintz had a legally protected interest in his personal email account, along with a reasonable expectation of privacy. By accessing this account, Priority Sports committed a serious invasion of Mintz’s privacy interest without reasonable justification.
Finally, with respect to the unfair competition claim, the Court declined to grant summary judgment, finding Mintz had failed to show a loss of money or property resulting from unfair competition as required by Proposition 64.
Mintz and CAA’s Motions for Summary Judgment as to Priority Sports’ Counterclaims
The Court granted Mintz’s motion for summary judgment on Priority Sports’ breach of contract counterclaim because of Priority Sports’ failure to provide factual support for this claim. Priority Sports claimed, among other things, that Mintz breach his contract by working for CAA prior to his resignation, soliciting players on CAA’s behalf prior to his resignation, and failing to provide fourteen days written notice. While the parties’ disputed whether one NBA player was solicited by Mintz prior to his departure, there was no evidence that the player left Priority Sports to join Mintz at CAA. The Court found that Priority Sports did not demonstrate that it suffered any damages as a result of any conduct by Mintz. The Court also found that Priority Sports could not establish damage resulting from Mintz’s failure to give fourteen days’ notice. Priority Sports contended that the lack of notice “deprived Priority Sports of the opportunity to reach out to those of its clients who had worked with client-service teams that included Mintz and to secure its relationships with those clients before Mintz’s departure was a fait accompli.” (Opp. at 16). According to the Court, the sole support for this assertion was Bartelstein’s declaration, in which he claims that because of the lack of notice, he was unable to contact a client until five days after Mintz’s resignation. (Bartelstein Decl. ¶ 7). But Bartelstein also conceded that the client remained with Priority. Finally, the Court stated that Priority Sports failed to identify a single client that it lost as result of Mintz’s failure to give notice. Based on this deficient showing, the Court concluded that no rational fact-finder could conclude that Mintz’s failure to give notice damaged Priority Sports. The Court also dismissed Priority Sports’ breach of the implied covenant of good faith and fair dealing, finding it to be based on the same speculative assertions.
Priority Sports’ claim that Mintz breached his duty of loyalty was also rejected by the Court. According to the Court, under California law, an employee does not breach his duty of loyalty merely by preparing to compete with his employer. In addition, there was no showing that Mintz’s actions had actually harmed Priority Sports. According to the Court, there was no evidence that Mintz actually solicited Priority Sports’ clients nor did Priority Sports present facts that described how it was harmed by Mintz’s preparatory steps. Priority Sports also failed to direct the Court to any evidence, for example, that Mintz’s plan making resulted in the loss of a client. Based on this reasoning, the Court found there was no triable issue of breach or damages.
The Court also granted Mintz’s motion for summary judgment on the misappropriation of trade secrets counterclaim, finding that Priority Sports failed to offer specific evidence of misappropriation. According to the Court, “Priority Sports’ Opposition is utterly devoid of evidence that Mintz or CAA misappropriated any trade secrets belonging to Priority Sports.” Furthermore, the Court granted summary judgment for Mintz on the intentional interference with contractual relations claim, finding “Priority Sports has failed to present any evidence that CAA committed any independently wrongful act to induce Mintz to breach or disrupt its at-will employment contract with Priority Sports.” The Court also granted Mintz’s motion for summary judgment on the conversion claim, finding that the ownership of the blackberry that Mintz used while employed by Priority Sports was disputed, and therefore, there was insufficient evidence to assert a claim of conversion. Additionally, the Court granted Mintz’s motion for summary judgment on defamation and trade libel, finding that Priority Sports had failed to produce evidence of the specific libelous statements Mintz allegedly made. Finally, the Court found there was insufficient evidence of either conspiracy or unfair competition by CAA, and granted CAA’s motion for summary judgment on both counts.
Jury Verdict in Favor of Mintz
The trial, which concluded on November 14, 2012, was essentially limited to a determination of damages on Mintz’s claims for violation of Penal Code § 502 and for invasion of privacy. Mintz elected not to pursue his affirmative claims for defamation, interference with contractual relations, and violation of California’s unfair competition statute.
The jury awarded damages on Mintz invasion of privacy claim of $85,000 against Priority Sports, which was apportioned $80,000 for past noneconomic loss, including emotional pain/mental suffering, and $5,000 for future noneconomic loss, including emotional pain/mental suffering. The Court granted the Defendants’ motion for a directed verdict regarding punitive damages, finding Priority Sports’ conduct insufficiently malicious, oppressive or fraudulent to qualify for punitive damages. The Court reasoned that if the mere fact that Priority Sports had unlawfully and intentionally accessed Mintz’s gmail account rose to the level of malice, “every intentional tort would give rise to punitive damages.” The Court also found that Mintz was not entitled to emotional distress damages on his Penal Code § 502 claim because he did not disclose those damages in his complaint or discovery disclosures.
*Don’t access your employees’ personal email accounts. The Court’s handling of the CFAA and the Penal Code § 502 claims is interesting. While Mintz could not maintain a claim under the CFAA because to there was no “loss” and Mintz’s subsequent legal efforts to confirm Priority Sports’ involvement were not “essential to remedying the harm” of the unauthorized access, Mintz was able to maintain a California Penal Code section 502 claim, as well as an invasion of privacy claim, based upon the same conduct. Accordingly, employers should not access their employees’ personal email accounts, even if conducting a workplace investigation, unless they receive express written consent from the employees in question. Look for more Penal Code § 502 claims in light of this decision.
*Consider using notice provisions with employees in your trade secret protection agreements. The Court’s handling of the two-week notice prohibition serves as a reminder that California is very much a pro-employee state. Rather than address whether the two-week notice provision violates California’s prohibition on non-compete agreements, the Court found that there was no controversy, and no damages resulting from Mintz’s actions. According to the Court, Priority Sports failed to identify a single client it lost as a result of Mintz’s failure to give notice, and thus, there was no resulting harm. Notwithstanding, the Court did not indicate that the notice provision was unlawful. Accordingly, employers should consider utilizing reasonable notice provisions in their trade secret protection agreements. While you may not be able to recover damages, you may be able to use the breach of such provisions to leverage a threatened misappropriation of trade secrets claim and as evidence of an ill intent by the departing employee.
*Exit interviews are essential. A thorough exit interview with a departing employee is an essential part of an effective trade secret protection plan. An employee’s failure to cooperate or evasive activities can be used by the employer to support a claim of threatened misappropration of trade secrets against the employee and also give an employer the heads up to investigate the employee’s computer activities on its network as well as to secure company customer and employee relationships. Please see our recent webinar on Trade Secret Protection Best Practices: Hiring Competitors’ Employees and Protecting the Company When Competitors Hire Yours for more on effective exit interviews.
*Need creative approaches. Some cases, if important to the company, necessitate creative approaches. Here, Mintz had NBA player relationships throughout the United States, Priority Sports was based out of Illinois, Mintz had regular communications with its Illinois staff and traveled to Illinois for business meetings, and the non-compete was governed by Illinois law. With Priority Sports and Mintz’s connections with Illinois, an Illinois forum would likely have been much more favorable for Priority Sports. While Mintz still may have pursued his suit in California, Priority Sports could have had the possibility of an alternative forum. A mandatory forum selection provision, coupled with a consent to jurisdiction clause, as well as possibly an arbitration provision, may have provided Priority with additional options to pursue. Please see our previous blog on a California federal court’s recent dismissal of a declaratory suit , like Mintz’s claim, based upon a Pennsylvania forum selection provision.
*Need evidence of wrongful solicitation and use of trade secrets. Finally, this case shows that the evidence necessary to show damages and use of trade secrets can be difficult to prove without cooperating witnesses or evidence of data transmission and use, particularly where the main focus of the suit is on damages, rather than injunctive relief.