Nasty Flood of Phone Calls and E-Mails Gives Rise to Computer Fraud Damage Claim – 6th Cir.

In Pulte Homes International Union of North America, 648 F.3d 295 (6th Cir. 2011), the Sixth Circuit addressed the Computer Fraud and Abuse Act (CFAA) in a case where a national labor union launched a barrage of  harassing telephone calls and e-mails against a Michigan home builder that fired a union member.

The plaintiff home sued the union under the CFAA after orchestrated a nation-wide torrent of phone calls and e-mails to plaintiff and its key executives.  The volume of calls – many coming via an auto-dialer – and e-mails basically overburdened and shut down plaintiff’s phone system and computer server.

The 6th Circuit reversed the District Court’s 12(b)(6) dismissal of plaintiff’s CFAA “transmission” claim and reinstated it.  

The “Transmission” Claims 

A CFAA transmission claim requires a plaintiff to show a defendant’s knowing and unauthorized transmission of a program, code, or command that intentionally causes damage to a protected computer.  18 U.S.C. § 1030(a).  

An example of a transmission claim is a hacker or rogue employee who infects a computer system with a virus.  The Pulte Court held that plaintiff’s phone and email systems were “protected computers” under the CFAA and the defendants’ thousands of e-mail and phone blasts constituted “transmissions.”

Under the CFAA, any device that’s not a typewriter or calculator will qualify for protected computer status.

CFAA damage denotes “any impairment to the integrity or availability of data, a program, a system or information.”  18 U.S.C. §1030(e)(8).  The Court noted that the Oxford English Dictionary defined “impairment” as a “deterioration” or “injurious lessening or weakening.” 

The Court held that the Union’s alleged conduct fit squarely into this damage definition.  The Court noted that the volume of calls and e-mails sent by the union prevented plaintiff’s customers from contacting it and so overwhelmed plaintiff’s computer system that it severely stunted plaintiff’s normal business operations. 

On the CFAA intent element, the Court cited plaintiff’s wide-ranging allegations that the union’s conscious objective was to overwhelm and damage plaintiff’s business systems.  The cumulative effect of the allegations against the Union signalled the Union’s intentional conduct.  Since the plaintiff’s allegations demonstrated damage to its computer systems and the Union’s intent, the Court held that the plaintiff successfully pled a CFAA transmission claim.  Id.

The “Access” Claim

A CFAA access claim requires a plaintiff to allege a defendant “intentionally accessed a protected computer without authorization”. 18 U.S.C. § 1030(a)(5)(B), (C).  

Here, the plaintiff failed to demonstrate the Union accessed plaintiff’s phone and computer systems without authorization  under the CFAA since plaintiff allowed all members of the public to call its offices, visit its company web page, and send e-mails to it. 

Take-aways: Pulte provides a good summary of CFAA transmission and access claims and gives content to the CFAA’s damage requirement.  The case also shows how difficult it can be for an employer who has a freely available website, e-mail and phone system (basically, every single company in the U.S.), to meet the without authorization prong of a CFAA access claim. 

Illinois Trade Secrets and Customer Lists

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Garon Foods v. Montieth, 2013 WL 3338292 (S.D.Ill. 2013), analyzes the Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (ITSA) and the governing preliminary injunctive relief standards in a diversity dispute over the distribution of pepper jack cheese products.

The plaintiff peppers distributor sued a former employee after she resigned and went to work for one of plaintiff’s suppliers.  The distributor sued for breach of contract and violation of the ITSA and claimed the defendant was violating a confidentiality agreement by soliciting business from plaintiff’s customers. After filing its complaint, plaintiff requested a preliminary injunction barring defendant from using plaintiff’s confidential information or trade secrets in connection with soliciting business from various cheese manufacturers.

Held: Preliminary injunction granted in part.

Rules/Reasoning:

A preliminary injunction claimant must show: (1) a likelihood of success on the merits; (2) no adequate remedy at law; and (3) irreparable harm if injunction is not granted.  Once plaintiff establishes elements (1)-(3), the court balances the harms to both parties.  If the court finds that plaintiff has a greater chance of winning on the merits, the less the balance of harms must weigh in his favor.  *1

– Illinois courts will enforce a confidentiality agreement where the information is truly confidential and the subject of reasonable efforts to keep the information secret;

– Customer lists are treated as confidential only where the list’s contents are developed by an employer at great time and expense and kept under tight security;

– Where the customer list is generally accessible by third parties or can be easily reconstructed or duplicated, it’s not confidential. 

Here, since the defendant offered evidence that the manufacturers she contacted in her new position were through her internet research efforts and memory (and not by resorting to plaintiff’s physical customer list), the court found that it wasn’t likely that the plaintiff could show that its customer list was sufficiently confidential.  *4-5. 

The Court did find though that the defendant violated the confidentiality agreement by divulging the plaintiff’s key supplier’s identity (by providing unique product specs information in sales pitches) and by using plaintiff’s customers’ past purchasing history in soliciting business from those customers.  *5. 

On the ITSA claim, the court found that  plaintiff established two trade secrets: (1) the supplier’s identity (to third parties) and (2) its customers’ purchasing needs and sales histories.  

The Court also found that defendant misappropriated (used) plaintiff’s trade secrets by revealing plaintiff’s supplier’s identity and secret product data by sending plaintiff’s product specs to plaintiff’s customers in efforts to induce them to do business with the new employee. 

The Court crafted an 8 month preliminary injunction during which time the defendant was forbidden to contact certain customers of the plaintiff.  *7-8. 

Conclusion.  Garon provide a good synopsis of preliminary injunction standards and some Illinois trade secrets law basics. The case reaffirms how difficult it is for an employer to enforce a restrictive covenant in the context of an employee confidentiality agreement and to show that its customer list merits trade secret protection. 

The case also serves as a good example of a court balancing the harms and considering public interest factors in connection with drafting an injunction that gives equal voice to the countervailing interests of an employer (protecting its confidential business data), a former employee (the ability to make a living) and the general public (free and open business competition).

Oral Contracts in Illinois – Are they Enforceable?

shakehandsYes.  Oral contracts are enforceable.  The main exceptions are contracts governed by the Statute of Frauds (SOF), which requires certain contracts to be in writing.  See 740 ILCS 80/1, 2; 810 ILCS 5/2-201.  The Illinois Credit Agreements Act (ICA) also requires certain agreements to lend money in a commercial setting be in writing. 815 ILCS 160/1 et seq.

I still use the mnemonic device I learned in my bar review course – MYLEGS  – to determine whether a writing is required.

M = “marriage” (contracts in consideration of marriage – i.e., “if you paint my house the color pewter, I promise to marry you”); Y =  “year” (contract can’t be performed in the space of one year must be in writing), L = “land” (contracts for sale of interest in land); E = executor (contracts with executors of estates) G = “goods” (over $500) and S is for “suretyship” (if a third party guarantees a debt, it must be in writing).

The Featured Case:  Rosenthal v. Battery Partners VI, LP, 2011 WL 10068993 (1st Dist. 2011), a factually dense case involving a dispute over an investment scheme, provides a good summary of Illinois oral contract law.

The Facts: Plaintiff trader sued two partnerships for breach of a verbal contract to pay plaintiff about $5 million as a finders fee after plaintiff introduced defendants to one of plaintiff’s trading contacts.

Plaintiff’s oral contract claim was based on some telephone conference calls during which defendants’ agents supposedly promised to pay plaintiff millions after defendants sold their exchange shares.  But when plaintiff ran afoul of British trading rules, defendants cut plaintiff out of the deal and refused to pay anything despite earning over $12 million from the sale of their shares.

The trial court entered summary judgment for the defendants on the basis that the alleged oral contract was unenforceable because it wasn’t in writing and it lacked consideration. 2011 WL 10068993, *5.

The Holding: The First District affirmed summary judgment for the defendants and found that the oral contract was unenforceable.

Reasoning:

In finding for the defendants (and denying recovery to the plaintiff), Rosenthal posits some key oral contract basics:

– where parties have assented to all oral contract terms, the mere reference to a future written document will not negate the existence of a valid oral contract;

– if the parties’ clear intent is that neither will be legally bound until the execution of a formal written agreement, no contract comes into existence: even where all the material terms are (verbally) agreed on;

– the parties’ conduct and statements after an oral agreement “may be decisive of the question whether a contract had been made;”

– The factors a court considers when examining whether parties to an oral agreement intended to later  reduce it to writing are (1) whether the contract is usually put in writing; (2) how detailed or simple the contract is; (3) the amount of money involved; (4) whether the oral agreement requires a formal writing to fully express the parties’ promises; and (5) whether the parties’ negotiations signalled that a written document would be forthcoming.  *7.

Applying these rules, the First District found that the alleged oral agreement was one typically reduced to writing since the agreement was factually complex and involved arcane pricing formulas.  The court also noted that   any oral agreement based on a single phone call was too flimsy to enforce in light of the high dollar value involved. and the resulting written contract.  The fact that a detailed writing that governed the subject matter of the oral agreement later materialized bolstered this finding. *8-9.

Take-aways: Oral contracts are generally enforceable in Illinois.  If contracting parties’ intent is to later reduce an oral agreement to writing, the parties should clearly say so.

The more convoluted a deal and the more money involved, the more likely the court will find a writing was intended and invalidate an oral contract claim.