This post examines an opinion the Arkansas Court of Appeals
recently issued in a civil case: Infinity Headwear & Apparel, LLC v.
Coughlin, 2014 Ark. App. 609 (2014).
The judge who wrote the opinion began by outlining how the case arose
and what it involved:
Infinity markets sportswear, apparel,
and other products. In May 2008, Coughlin was hired as Infinity's sales
manager. Coughlin signed an acknowledgment of company policies informing him
that all work product was the sole property of Infinity and was nontransferable.
Coughlin did not sign a nondisclosure provision or a non-compete agreement.
In August 2012, Coughlin began working
for Outdoor Cap Co., Inc., a larger competitor of Infinity. Before leaving
Infinity, Coughlin emailed files from Infinity's database to his personal email
account. This database contained, among other things, Infinity's sales plans,
margins, marketing and operating costs, customer and supplier lists, royalty
negotiations, and future project ideas. Only employees could access the database.
In September 2012,
Infinity sued Coughlin
for breach of contract, violating the Theft of Trade Secrets Act, breaching a
duty of loyalty, and conversion. Infinity also sought temporary injunctive
relief against Coughlin. Coughlin responded to Infinity's motion for a
temporary restraining order.
Following an evidentiary hearing, the
circuit court denied Infinity's motion for a temporary restraining order
because Infinity had not adequately protected its information as the
trade-secrets law requires. . . .
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The first amended complaint dropped the
trade-secrets claim but raised six claims: that Coughlin (1) breached a contract, (2) violated the federal Computer Fraud and Abuse Act (CFAA), (3)
committed unlawful acts under an Arkansas statute dealing with computer-related
activity (Arkansas Code § 5–41–202), (4) breached a duty of loyalty, (5)
converted tangible and intangible property, and (6) was liable for replevin.
Infinity sought, among other things, damages, injunctive relief, and an order
directing that Coughlin to return all of Infinity's property. Coughlin answered
the complaint.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
At some point after Coughlin filed his answer to Infinity’s
amended complaint, he filed a motion for summary judgment. Infinity
Headwear & Apparel, LLC v. Coughlin, supra. As Wikipedia
explains, in U.S. civil litigation, a court can award summary judgment, which
often means there will be no trial. And
as Wikipedia also explains, a court can only grant summary judgment if the
judge finds that “1. there are no disputes of `material fact
requiring a trial to resolve, and 2. in applying the law to
the undisputed facts, one party is clearly entitled to judgment.” Infinity
Headwear & Apparel, LLC v. Coughlin, supra.
The trial judge held a hearing on Coughlin’s motion, and
eventually granted it. Infinity Headwear & Apparel, LLC v.
Coughlin, supra. The judge held that
any contract between the parties was
oral and that, in any event, there was no triable issue on whether a breach had
occurred. On the breach-of-loyalty claim, the court ruled there was no such
claim because no fiduciary relationship existed between the parties; nor was
one ever alleged. The court also found that Coughlin was permitted to copy data
to a personal computer so that he could work remotely.
The court also ruled that there was no
genuine issue of material fact in dispute on the point that Coughlin
deliberately destroyed or misused data and thus rejected the federal CFAA
claim. Regarding the state-law computer claim, the court entered judgment
for Coughlin because the statute unambiguously stated that there was no civil
remedy available for alleged unlawful acts regarding a computer. The court
entered summary judgment on the conversion claim because, according to it, our
supreme court has not recognized a cause of action for conversion of intangible
things like Infinity's data and, in any event, Coughlin did not deprive
Infinity of the data or its use.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
Infinity appealed the decision, but abandoned some its
claims on appeal. Infinity Headwear & Apparel, LLC v. Coughlin, supra.
On appeal, it argued that the trial judge erred when he “(1) granted
Coughlin's motion on the conversion claim, (2) held that no claim exists for
breach of the duty of loyalty, and (3) found that, to assert a claim under CFAA, a misuse or destruction of data is required.” Infinity Headwear & Apparel, LLC v. Coughlin, supra.
The Court of Appeals began its analysis of the arguments on
appeal by explaining that
summary judgment is proper only when
there are no genuine issues of material fact to be litigated, and the party is
entitled to judgment as a matter of law. Locke v. Cont'l Cas. Co., 2013
Ark. App. 690 (Arkansas Court of Appeals 2013). Once the moving party has
established a prima facie entitlement to summary judgment, the opposing
party must meet proof with proof and show the existence of a material issue of
fact. Locke v. Cont'l Cas. Co., supra. We determine if summary
judgment was appropriate based on whether the evidentiary items presented by
the moving party leave a material fact unanswered, focusing our review not only
on the pleadings, but also on the affidavits and documents filed. Locke
v. Cont'l Cas. Co., supra. We view the evidence in the light most favorable
to the party against whom the motion was filed, and resolve all doubts and
inferences against the moving party. Locke v. Cont'l Cas. Co., supra.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
Since Infinity did not appeal the trial judge’s granting
summary judgment for Coughlin on the breach of contract, replevin and Arkansas
Code § 5–41–202 claims, the Court of Appeals did not address them. Infinity
Headwear & Apparel, LLC v. Coughlin, supra. It only addressed the
three issues on which the trial judge granted summary judgment, beginning with
the breach of loyalty claim:
Infinity argues that the circuit court
erred in ruling that Arkansas does not recognize a claim for breaching the duty
of loyalty. Infinity correctly observes that no Arkansas appellate court has
addressed whether a company like it may pursue an independent, freestanding
breach-of-loyalty claim in the circumstances this case presents. We hold that
the circuit court was correct: Arkansas law does not recognize an independent
breach-of-loyalty claim on this case's facts, and we decline to recognize one
at this time.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The Court of Appeals then took up the trial judge’s granting
Coughlin summary judgment on the federal Computer Fraud and Abuse Act claim,
which arose under 18 U.S. Code § 1030. Infinity Headwear & Apparel, LLC v.
Coughlin, supra. It found that the
summary judgment against Infinity's
claim that Coughlin violated the Computer Fraud and Abuse Act . . . was also
justifiable. The circuit court ruled there was no evidence that Coughlin had
deliberately destroyed or misused Infinity's data. Our analysis differs somewhat
from the circuit court's -- it arguably took a failure-of-proof approach while
we take more of a statutory-interpretation approach -- but the end result is
the same.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The Court of Appeals went on to explain that “some” federal
courts have said that
The CFAA's general purpose was to
protect the public against computer hackers (so-called electronic
trespassers). Dresser–Rand Co. v. Jones, 957 F.Supp.2d 610 (U.S. District Court for the Eastern District of Pennsylvania 2013); accord Shamrock Foods Co. v. Gast, 535 F.Supp.2d 962 (U.S.District Court for the District of Arizona 2008); U.S. Bioservices
Corp. v. Lugo, 595 F.Supp.2d 1189 (U.S. District Court for the District of Kansas 2009).
Generally speaking, the legislation
permits a person who `suffers damage or loss’ because of a violation of the
CFAA to `maintain a civil action against the violator’ for damages and
injunctive relief. 18 U.S. Code § 1030(g). The act defines `damage’ as `any
impairment to the integrity or availability of data, a system, or information.’ 18
U.S. Code § 1030(e)(8). `Loss’ under the CFAA is defined broadly as `any
reasonable cost to any victim, including the cost of responding to an offense,
conducting a damage assessment, and restoring the data, program, system, or
information to its condition prior to the offense, and any revenue lost, cost
incurred, or other consequential damages incurred because of interruption of
service.’ 18 U.S. Code § 1030(e)(11). The loss suffered from a violation
must exceed $5,000 before a civil suit may be filed. 18 U.S. Code §
1030(c)(4)(A)(i)(I).
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The court then outlined Infinity’s argument and the general
CFAA standards relating to the “authorized” use of a computer:
Infinity argues that triable issues of
fact exist regarding Coughlin's authorization to access its computers.
Specifically, it says that `the parties dispute material facts as to whether
Coughlin was authorized to use the computers of Infinity to send files to his
personal email account in preparation to join a competitor,’ and `[t]hey
further dispute whether he was authorized to keep these files after leaving
Infinity's employ.’ We disagree that genuine issues of disputed material fact
exist to prevent summary judgment on this record and CFAA's provisions.
Under CFAA, `an employee is authorized
to access a computer when his employer approves or sanctions his admission to
that computer,’ an employee is `without authorization’ when `he gains admission
to a computer without approval,’ and an employee an `exceeds authorized access’
`when he has approval to access a computer, but uses his access to obtain or
alter information that falls outside the bounds of his approved access.’ WEC
Carolina Energy Solutions LLC v. Miller, 687 F.3d 199, 204 (U.S. Court of Appeals for the 4th Circuit 2012).
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The Court of Appeals then found that there was no “genuine
dispute”
of material fact on whether Coughlin
accessed a computer without authorization or exceeded his authorized access so as to trigger CFAA's provisions. Infinity allowed
its employees, like Coughlin, to use computers to access company information of
the sort at issue in this case. Infinity's CFO testified that fourteen people
had access to the same information, termed `shared resources,’ that Coughlin
did when he left Infinity.
Using a unique password, each Infinity
employee could access all of Infinity's shared data. The CFO further
stated that `[i]t is possible that any or all employees have the very same
documents on their personal computers as
Michael Coughlin did.’ Simply put, because Infinity allowed or permitted
Coughlin to access and download Infinity's shared data, he cannot be liable
under the CFAA. See WEC
Carolina Energy Solutions, LLC v. Miller, 687 F.3d 199 (U.S. Court of
Appeals for the 4th Circuit 2012). . . .
That he emailed this information to a
personal email account is not a material legal point. `Whatever happens to the
data subsequent to being taken from the computers . . . is not encompassed in the purview of the
CFAA.’ Dresser–Rand Co. v. Jones, supra. Another court has put the
matter this way in a similar factual context: `Because [the employee] was
authorized to use [the company's] computers while
he was employed at [the company], he did not access a computer ‘without authorization’
in violation of § [18 U.S. Code] 1030(a)(2) or § 1030(a)(4) when
he emailed documents to himself and to his wife prior to leaving [the company].
Nor did emailing the documents `exceed authorized access,’ because [the
employee] was entitled to obtain the documents.’ LVRC Holdings LLC v. Brekka, 581
F.3d 1127 (U.S. Court of Appeals for the 9th Circuit 2009).
Given this case's facts, we hold that
the circuit court did not err in granting summary judgment against Infinity's
CFAA claim.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
Finally, the Court of Appeals took up the trial judge’s
granting summary judgment for Coughlin on the conversion claim, noting that the
Arkansas Supreme Court has held
that the Theft of Trade Secrets Act
preempts tort claims for conversion of trade secrets. R.K. Enter., LLC
v. Pro–Comp Mgmt., Inc., 356 Ark. 565, 158 S.W.3d 685 (2004). The
court made clear that the Trade Secrets Act is the exclusive remedy for the
alleged misappropriation of trade secrets. In our view, this fact answers
Infinity's electronic-data conversion claim. To the extent it asks us to create
a new cause of action for the conversion of electronic data, we decline to do
so. The circuit court's decision to reject Infinity's conversion claim as it
relates to electronic data is affirmed.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
It went on to explain that this case was
mostly about intangible information or
business data that Infinity said Coughlin took and used to unfairly
disadvantage Infinity in the marketplace. But there is a `tangible property’
argument too.
On the collateral argument that some
tangible property was unlawfully taken from Infinity, the circuit court's order
more or less granted it the relief it sought: the court found Coughlin did not
possess `the information and property . . . described in [Infinity's] First
Amended Complaint. Any such information and property that is currently in
the possession of [Coughlin's] counsel shall be returned to [Infinity's]
counsel subsequent to the entry of this Order.’ That order resolved any
tangible-property dispute given the case's history.
For example, during the temporary
hearing in October 2012 that addressed the then-pending trade-secrets claim, it
appears that the tangible-property angle, to the extent one existed, was `worked
out between the lawyers.’ And during the hearing on the motion for summary
judgment in July 2013, Infinity's lawyer stated that `[t]he claim for replevin
need not go forward assuming the Taylor Law Firm is keeping the information
appropriately.’ Finally, Infinity's brief points us to Doug Keller's affidavit
as it argues its conversion claim on appeal, but that affidavit does not
clearly delineate what property was wrongfully taken and needed to be returned.
The bottom line is that no triable issue exists on the conversion claim.
Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
The Court of Appeals therefore affirmed the trial judge’s grant
of summary judgment. Infinity Headwear
& Apparel, LLC v. Coughlin, supra.
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