In a decision last week, Judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas addressed the question of whether an employer had successfully alleged a claim under the Computer Fraud and Abuse Act (“CFAA”), such that the employer could properly bring its numerous claims against former employees and their companies in federal court. He ruled that the employer had properly pleaded the CFAA claim, and that as a result, the court had subject matter jurisdiction over the case. Beta Technology, Inc. v. Meyers, Civ. No. H-13-1282, 2013 WL 5602930 (S.D. Tex. Oct. 10, 2013).
Before we get into the substance of the decision, some background is in order. Subject matter jurisdiction is an important issue for federal judges. If there’s no basis for subject matter jurisdiction, a case doesn’t belong in federal court. First-year civil procedure students learn this rule from the venerable decision in Capron v. Van Noorden, in which the Supreme Court allowed a plaintiff to obtain reversal of a final judgment because he hadn’t properly alleged that the court below had subject matter jurisdiction over his claim.
The two main categories for federal jurisdiction in non-criminal cases are diversity jurisdiction and federal question jurisdiction. Diversity jurisdiction, as defined in 28 U.S.C. § 1332, permits the federal courts to hear disputes between citizens of different states – i.e., “diverse” citizens – so long as more than $75,000 is at stake. Federal question jurisdiction, which is defined in 28 U.S.C. § 1331, allows the federal courts to address “all civil actions arising under the Constitution, laws, or treaties of the United States.” And under 28 U.S.C. § 1367, once the court has jurisdiction to hear one claim, it can hear any other claims that form “part of the same case or controversy,” even when those claims drag additional parties into the mix.
We thought about getting a Putin op-ed to cap off this week at Suits by Suits. But instead, we decided to stick with our tried-and-true formula of canvassing the week’s headlines in employer-executive disputes:
When Yu-Hsing Tu worked at pharmaceutical company UCB Manufacturing, he signed a strict confidentiality agreement. In the agreement, Tu promised that he would never disclose any of UCB's “secret or confidential information,” including a laundry list of items such as “designs, formulas, processes, . . . techniques, know how, improvements, [and] inventions.” Tu's work was important to UCB: he helped formulate its cough syrup products, including Delsym, and had significant knowledge of its “Pennkinetic system” for controlled release of cough medication in liquid form.
In 2001, Tu left UCB and started working for his friend Ketan Mehta at Tris Pharma. Soon after, Tu and Tris Pharma began formulating generic versions of UCB’s cough syrups. Six years later, Tris's competitive products were on the market, and UCB lost a lot of market share.
UCB immediately went to court and sued Tu and Tris for misappropriation of trade secrets, breach of contract, and unfair competition. It asked for a preliminary injunction -- a court order early in the lawsuit that would require Tris to stop using its trade secrets until the merits were finally decided. After a five-day hearing focused on the misappropriation claim, the trial judge denied the injunction, maintaining the status quo for Tris.
Shortly after that win, Tu and Tris took the offensive in the litigation, moving for summary judgment. At that point, UCB made a decision that would end up costing it later on: it voluntarily gave up its claim for misappropriation of trade secrets. The trial court then granted Tu and Tris’s motion for summary judgment on the other claims, relying on its finding during the preliminary injunction phase that Tu and Mehta were credible when they testified that they didn’t misuse UCB’s confidential info. UCB appealed.
You’re gonna be interested in this week’s Suits by Suits news – I guarantee it:
May flowers are blooming, and so is the Suits by Suits news:
When an executive competes with a former employer by using its confidential information, the executive takes a substantial risk. We’ve previously covered how one Hallmark executive lost hundreds of thousands of dollars by using and then deleting confidential info.
David Nosal, the former head of executive search firm Korn/Ferry’s CEO recruiting practice in Silicon Valley, is about to find out whether he is going to suffer an even more severe punishment: time in federal prison.
Since you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?
Employees use their work e-mails for all kinds of communications, from the business-related to the personal and private. When a dispute arises, however, it’s getting more difficult to keep those private e-mails from seeing the light of day.
For example, last week’s Inbox highlighted one recent decision in which a New York federal court ruled that an executive had “no reasonable expectation of confidentiality or privacy” in his work e-mail. United States v. Finazzo, No. 10-CR-457 (E.D.N.Y. Feb. 19, 2013).
We’re not sequestering this week’s Suits by Suits news:
Many people love the ABC medical drama Grey’s Anatomy. I’m not one of them. Maybe it’s because I generally dislike any show in which a character is assaulted by an icicle.
Recently, however, the show featured an issue that is near and dear to the hearts of those of us who focus on executive-employer disputes: non-compete agreements. The episode in question involved a plotline in which the lead characters were planning to buy their own hospital. They concluded that they couldn’t tell one of their colleagues about the plan, because he had a non-compete/non-disclosure agreement with a competing buyer, and he could end up in jail if he breached that agreement. Did the show get this right?
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
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