A few years ago, I wrote a post discussing whether violations of North Carolina’s computer trespass statute or the federal Computer Fraud and Abuse Act (CFAA) could be violations of section 75-1.1 that would result in treble damages and a potential award of attorneys’ fees. At that time, I had not found any reported opinions discussing this issue, though I had found a judgment (not an opinion) from a federal court imposing section 75-1.1 liability based on a jury’s findings that a party committed computer trespass.
The song remains the same for the CFAA; I’m still not aware of any judicial decision addressing whether a violation of that statute would also be a violation of section 75-1.1. If you know of one, though, please send it my way.
It’s a different story for the computer trespass statute. In the recent CRH Eastern, LLC v. Berastain decision, Judge Earp, who sits on the North Carolina Business Court, concluded “that computer trespass in violation of state law constitutes conduct which a court of equity would consider unfair.” As Judge Earp put it, “violating the law by engaging in computer trespass is not a legitimate competitive business activity.” Berastain holds that a violation of the computer trespass statute is conduct that is per se unfair under section 75-1.1.
Sparks Fly After Employees Join a Competitor
Berastain is a dispute between CTS Metrolina, a company that provides emergency restoration and repair services, and several of its former employees. Two of those former employees, Berastain and Moreau, previously sold their business to CTS. The asset-purchase agreement through which they sold that business contained restrictive covenants.
After Berastain and Moreau left CTS, they allegedly started a competing company in violation of those covenants. They almost immediately hired another CTS employee, Cherry, to join them. Before she resigned, Cherry allegedly deleted customer jobs from CTS’s project management system.
Despite demands from CTS, Cherry did not return her company-issued laptop until over four months after she resigned. When she finally sent it back, CTS discovered that it had undergone a factory reset that erased all information on the laptop.
Shortly after Berastain and Moreau left, CTS discovered that another one of its employees, Pena, had also deleted numerous customer jobs on the project management system. CTS summoned Pena, telling him that it wanted to know why he deleted the jobs and asking him to bring his laptop. When he showed up, the computer was soaked with cleaning fluid and “was shooting out sparks and no longer worked.” Unsurprisingly, CTS fired Pena, who then started working with Berastain and Moreau.
CTS sued its former employees and several entities created by Berastain and Moreau for a host of claims, including computer trespass and unfair or deceptive trade practices in violation of section 75-1.1.
Not All Sparks Light a Fire
The defendants sought dismissal of CTS’s section 75-1.1 claim. As noted above, Judge Earp concluded that a violation of the computer trespass statute was unfair conduct that would also support a section 75-1.1 claim. In order to be actionable under section 75-1.1, conduct must be “in or affecting commerce.” Courts have concluded that employment disputes and disputes involving the internal affairs of a business are not “in or affecting commerce” and therefore cannot support a section 75-1.1 claim. In my prior post, I noted that these common-law exemptions could block section 75-1.1 claims based on violations of the CFAA or computer trespass statute, which often pop up in departing-employee cases.
Judge Earp foreshadowed this issue in Berastain. Cherry allegedly wiped her company-issued laptop after leaving CTS to join a competing enterprise, so that was an act involving different market participants and therefore fell within section 75-1.1’s ambit. Pena’s alleged sabotage of CTS by deleting jobs from its system and turning his company laptop into a sparkler happened while he was still employed. Though that conduct violated the computer-trespass statute, it could not support a section 75-1.1 claim.
A Hot New App
Berastain opens up a new theory for section 75-1.1 liability for fact scenarios that arise frequently in departing-employee litigation. The timing of when the computer trespass occurred will be key in determining whether the employment-disputes or internal-business-disputes exemptions bar a section 75-1.1 claim, though.
