Jottings By An Employer's Lawyer

Monday, November 27, 2006

Dueling Dictionaries, Defamation and a Do-Over in the 5th Circuit

That sums up some, but not all of last week's decision by the 5th Circuit in Fiber Systems International, Inc. v. Roehrs (5th Cir. 11/22/06)[pdf]. Based on this decision, my guess is that there was not a harmonious gathering of the Roehrs family clan over Thanksgiving.

Instead, brothers Michael and Daniel who ended up on opposite sides of a corporate breakup and subsequent lawsuit were probably trying to sort out the various meanings of the court's 40 page decision. Basically, the short hand version seems to be that there was a dispute over ownership of a company (Fiber Systems)which was resolved by an agreement where one of the brothers and a number of other former owners left the employ of the company. But as with many employee partings, all was not over.

Instead, Fiber Systems accused the departing employees of violating the Computer Fraud and Abuse Act (which according to the 5th Circuit's decision they did) and accused them of being thieves which according to the 5th Circuit's decision was defamatory.

The defamation aspect of the case involved a "battle of dictionary definitions" as those accused of calling the others thieves relied on the definitions of that term in the Oxford Dictionary as a “kind of wild bee said to rob hives” and an “excrescence in the snuff of a candle” to show that the words were not per se defamatory. Unfortunately, those "arcane, nondefamatory definitions," were not what the words meant taken in the context that they were said, so the Court upheld the jury verdict that the departing individuals had been defamed.

It also upheld the jury's finding that the same employees had violated the CFAA. The underlying allegation was that they had:
“knowingly and intentionally accessed, deleted, downloaded, copied, took, and stole FSI’s confidential business and proprietary information and trade secrets, without authorization, from FSI’s computers,” misappropriated and stole FSI’s computer equipment, and used and disseminated the wrongfully obtained information through the new companies that they formed."
FSI sued for the cost of data recovery and for the use of their trade secrets. The jury awarded $36,000, finding a violation of § 1030(4) — "knowingly and with intent to defraud, access[ing] a protected computer without authorization, or exceed[ing] authorized access, and by means of such conduct further[ing] the intended fraud and obtain[ing] anything of value." However, the district court refused to enter judgment, finding that there was not a private cause of action under § 1030(4), only of § 1030(5). The 5th Circuit, joining every other circuit to consider the question, disagreed, not only finding a cause of action but that the jury instruction though perhaps flawed did not constitute fundamental error.

The do-over was a reversal of the lower court's dismissal of defamation claims against the corporate entitites, based on statements that the Court found were "almost identical to the defamatory statements that the district court ultimately submitted to the jury [on the individuals' defamation claims]." Those claims:

Exhibit 61, sent by FSI’s attorneys to the DSCC, stated that AOS “misappropriated and stole FSI’s trade secrets,” and that FSI’s trade secrets were “unlawfully distributed” .... Further, Exhibit 74, an e-mail from Michael Roehrs to the DSCC, accused AOS and OCS of “provid[ing] stolen proprietary information” to the DSCC, and stated that these acts were done to “launder [FSI’s] proprietary information and trade secrets.” Texas law criminalizes the knowing and unconsented “communication] or transmi[ssion of] a trade secret,” TEX. PEN. CODE ANN. § 31.05(b), and despite the district court’s belief that the e-mail was merely intended to update the DSCC as to the litigation at issue here, the statements alleging transmission of stolen trade secrets went beyond such a purpose.

were enough to justify a trial, although the 5th Circuit did note that the trial court had raised the possibility that the statements were privileged, an issue on which it expresses no opinion.

It is not all that unusual in a competitive environment for departing and then competing employees to result in hard feelings. It is also not unusual for litigation to follow. It is much less frequent to have that litigation played out in full, through a jury trial and the ensuing appellate process. That makes the Fiber Systems opinion somewhat rare, but also a good lesson on how actions taken and words spoken in the heat of battle can have real world and long term consequences.


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