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.

• Breach of Contract
• Civil Litigation
• Confidentiality
• Motions to Dismiss
• The Basics
• Trade Secrets

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:

• Bloomberg Law reported on a recent ruling by the Delaware Chancery Court that a company officer and trustee could not invoke the attorney-client privilege for communications with their personal attorneys and advisors sent from their work e-mail accounts.  The court wrote that the company could access the e-mails because it had reserved the right to do so in its employee manual, and therefore the officer and trustee did not have a reasonable expectation of privacy in the e-mails.

• Pete Brush of Law360 (subscription required) covered the hearing in the New York Court of Appeals, the state’s highest court, on claims by a former Intesa SanPaolo executive, Giuseppe Romanella.  Romanella alleges that the company illegally fired him after he complained of depression.  The company argues that it was allowed to fire him because he refused to provide any reasonable time frame for his return from leave.

• A federal judge tossed a number of claims against Bloomberg LP in an EEOC case alleging that the company discriminated against employees who returned from maternity leave, reported Jonathan Stempel and Jennifer Saba of Reuters.  The court found that the EEOC could not pursue a class action because it failed to show that discrimination was Bloomberg’s standard operating practice.  Further, the judge said that the EEOC had failed to investigate its individual plaintiffs’ claims and unfairly rebuffed Bloomberg’s attempts to settle.  The Wall Street Journal characterized this as a “sue first, investigate later” approach.

• Confidentiality
• Discrimination

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.

• Breach of Contract
• Civil Litigation
• Confidentiality
• Summary Judgment
• Trade Secrets

You’re gonna be interested in this week’s Suits by Suits news – I guarantee it:

• Wednesday’s controversial dismissal of George Zimmer, Men’s Wearhouse pitchman and founder, sent reporters into a tizzy as they competed to come up with the best lead.  Tiffany Hsu of the LA Times is the early leader in the clubhouse, starting her article with “The one thing George Zimmer couldn't guarantee was his job at Men's Wearhouse.”  Other candidates: Gary Strauss of USA Today (“Men's Wearhouse no longer likes the way George Zimmer looks.”) and  Michael Smith of the Deseret News (“He's not going to like the way this looks. I guarantee it.”).
• The Harvard Law School Forum on Corporate Governance and Financial Regulation offered this interesting take on whether attorneys can be Dodd-Frank whistleblowers, from Lawrence West of Latham & Watkins.  The main point: the SEC accepts that attorneys can blow the whistle and disclose client confidences in some limited circumstances, although state ethics rules about maintaining those confidences also will come into play.
• Joe Davidson of the Washington Post covered the whistleblower implications of Edward Snowden’s disclosures about NSA surveillance programs.  Davidson explained that national security contractors are missing the protections and normal reporting channels that are present for most federal employees who want to blow the whistle on waste, fraud, and abuse.  Of course, even those channels don’t permit a whistleblower to take classified info to the press, wrote Pete Williams of NBC News.

• Confidentiality
• Executive Compensation
• Whistleblowers

May flowers are blooming, and so is the Suits by Suits news:

• CEO dismissals hit a 10-year high in 2012, according to The Corporate Board’s study of CEO succession practices.  Matteo Tonello of the Corporate Board published this summary of the study on the Harvard Law School Forum on Corporate Governance and Financial Regulation.
• The Anderson County Council is talking settlement in its long-running dispute with former county administrator Joey Preston, reports Bill Poovey of GSA Business.   The South Carolina legislators have spent $3 million in legal fees in their unsuccessful effort to recover Preston’s $1 million severance package.  That money would have bought a lot of Skins’ hot dogs.
• We previously brought you the story of David Nosal, a former Korn/Ferry executive who was facing trial on charges of gaining unauthorized access to Korn/Ferry’s system and stealing trade secrets.  Joanne Lublin of the Wall Street Journal reports that the trial did not turn out well for Nosal: he was convicted on all counts.  Nosal told Lublin that he is confident that the verdict will be reversed.
• New Mexico legislators criticized the large buyout offered to the new head coach at the state university, reported Alex Goldsmith at kqre.com.  Craig Neal will get $1 million plus up to $300,000 if the school decides to fire him in the next four years.  In his defense, Neal could have pointed to Mike Krzyzewski, who received $9.7 million from Duke in 2011 (when, incidentally, the Blue Devils lost to 15-seed Lehigh in the NCAA tournament).
• More sports news: Sean Newell of Deadspin reports that warm and fuzzy coach Bill Belichick and the New England Patriots may have cut a player, Kyle Love, because he was diagnosed with diabetes.  Newell’s post discusses the Americans with Disabilities Act, which could have protected Love from termination based on his condition, and the at-will employment doctrine.

• Breach of Contract
• Confidentiality
• Discrimination

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. 

• Confidentiality

Since you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?

• Bloomberg says that Hercules Offshore has defeated a “say on pay” lawsuit brought by a shareholder who claimed that the Hercules board should not have ignored an investor vote that the company’s executive compensation was too high.  Was defeating this lawsuit one of the fabled “Twelve Labours”?

• Bankruptcy
• Breach of Contract
• Confidentiality
• Executive Compensation
• Social Media
• The Inbox

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). 

• Confidentiality
• Social Media

We’re not sequestering this week’s Suits by Suits news:

• Novartis announced that it would rescind its agreement to pay its former chairman, Daniel Vasella, $78 million to keep him from working for competitors and sharing his experience with them.  According to the New York Times, the proposed payment sparked outrage in Novartis’s home country, Switzerland.  Vasella released a statement that was significantly more even-keeled than anything I would have written after losing $78 million.
• In other departure news, American Airlines CEO Tom Horton will get a $20 million severance payment when his company’s merger with US Airways is finalized, reported the Dallas Morning News.  Plus he gets lifetime flight benefits, although the agreement doesn’t appear to prohibit the company from putting him in a middle seat in the back of the plane.

• Confidentiality
• The Inbox
• Whistleblowers

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?

• Breach of Contract
• Confidentiality