A recent case out of the United States District Court for the Middle District of Florida raises several important considerations related to computer fraud and trade secret claims. Let’s take a look.
In 2009, Robin Youmans and Allied Recycling formed a company called Allied Portables, LLC. Allied Portables provided portable restrooms, toilers, hand-washing stations and showers for commercial use. Allied Recycling owned 51% of the company and Youmans owned the other 49%. Youmans was the company’s managing member. Eventually, a woman named Connie Adamson acquired Allied Recycling’s 51% interest. Youmans managed the compay’s day-to-day operations including overseeing sales and managing customer relationships. She also set up the company’s computer system and had full access to all of the company’s confidential business and trade secret information. For a short while, Allied Portables was a fairly successful, profitable company. But then things went south.
Youmans accused Adamson’s husband of hacking into company bank accounts and misappropriating company funds. In light of this, Youmans changed all of the corporate passwords and changed the company’s mailing address. Subsequently, Youmans offered to buy out Adamson’s 51% interest in the company. In response to this offer, Adamson sent Youmans a text message agreeing to the sale. On August 29, 2014, Youmans was scheduled to meet with Adamson to finalize the sale. But when Youmans walked into the room, instead of meeting Adamson, she was met by two of Adamson’s attorneys. Because Adamson had 51% of the company, she had all the power. Adamson’s attorneys terminated Youmans role as managing members. Shortly thereafter, Allied Portables and Adamson sued Youmans alleging that, as things were falling apart, Youmans hatched a plan to steal corporate trade secrets, interfere with corporate customers, divert corporate payments, hack corporate computers and more. Youmans did, in fact, launch a competing venture called Garden St. Portabls. As expected, Allied Portables’ complaint contained claims for breaches of the Computer Fraud and Abuse Act along with claims for misappropriation of trade secrets, tortious interference and breach of fiduciary duty.
Computer Fraud and Abuse &
Federal Stored Communications Act Claims
The court noted the purpose of the Computer Fraud and Abuse Act was to prevent hackers and criminals from stealing computer information and controlling vital technology. The court noted a similar purpose for the Federal Stored Communications Act in preventing those who were not necessarily hackers or criminals from accessing electronic information without authorization. But, in denying the preliminary injunction for both counts, the court raised the fact that Youmans still had authorization at the time she accessed the information. At the time she obtained and transferred information such as client lists and event schedules, she was still under employment. Thus, her access and transfer of the information wasn’t unauthorized. Additionally, Allied Portables’ computer forensics expert testified there was no breach in the company’s firewalls or other security measures. As a result, the court determined there was no substantial likelihood of success for Allied Portables on these claims – a necessary factor in successfully seeking a preliminary injunction. In addition, because the alleged breaches occurred roughly a year before, there was no imminent and actual threat — another necessary criterion to successfully seek a preliminary injunction.
Misappropriation of Trade Secrets &
Tortious Interference with a Business Relationship Claims
The court found more merit to these claims but still denied the motion for preliminary injunction. On the misappropriation of trade secrets count, it found the defendants did take confidential business information such as client contacts and business practices. But in denying the motion, the court found there was no imminent and actual threat of harm because the information that was taken was over a year-old and such information was constantly changing. On the tortious interference claim, the court denied the motion because Allied Portables was unable to show it lost any of its clients as a result of the alleged misconduct.
Breach of Fiduciary Duty Claim
Here, the court held Youmans did breach her fiduciary duties of loyalty and care required for managers of limited liability companies under Fla. Stat. § 608.4225(1). And, unlike the previous counts, the court found there was an actual threat of imminent harm because Youmans continued to compete with Allied Portables even though she still owned a 49% share in the company. But, in denying the motion, the court considered the third factor of a preliminary injunction analysis and found the injury to Youmans and the other defendants outweighed the injury to Allied Portables. Allied Portables claimed its injury in allowing Youmans and Garden St. Portables to continue their business would be a 40% drop in sales. But the court found this argument to be unpersuasive because Allied Portables could not show how they came about this number or, even if true, that it was specifically due to unfair competition from Garden St. Portables’. On the other hand, granting the injunction would adversely affect the defendants who relied on Garden St. Portables’ business as a primary source of income.
- Preliminary Injunctions: In federal court, preliminary injunctions are no slam dunk. The court will consider several factors that include whether the moving party is likely to succeed on the merits of the case, the threat of injury to the requesting party if an injunction is not granted, whether the benefits of granting the injunction outweighs whatever damage may cause to the other party, and whether the injunction would be contrary to public interest.
- Computer Fraud and Abuse and Stored Communications Act: Especially in an age where a computer is a mandatory tool in the running of business and ubiquitous, there may be an inclination to claim violations of these two federal laws by employees who leave their jobs and take company information. While both federal laws allow for private causes of action, one important point to consider is making sure the allegedly guilty employee had no authorization to access the information or was acting beyond the scope of his or her access.
- Misappropriation of Trade Secrets: A key consideration in bringing this type of claim (and a valid defense) is whether the information that is the subject of the lawsuit was one that was readily ascertainable or known by others.
- Tortious Interference with a Business Relationship: The key to this claim is whether there was a specific and identifiable business relationship that was damaged as a result of the defendant’s intrusion or whether there was a generalized damage to the plaintiff’s business. If the plaintiff can identify a specific business relationship that was damaged, the case may have some merit. But if the plaintiff is generally accusing the defendant of hurting its business, then the claim probably won’t stick.
The case is Allied Portables, LLC v. Youmans et. al.; No. 2:26-cv-294-FtM-38CM, 2015 WL 6813669 (M.D. Fla., Nov. 6, 2015).
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.