New Jersey Court Finds Violation of Computer Related Offenses Act and Other Unlawful Conduct, Ordering Disgorgement of Profits, Attorneys’ Fees and Punitive Damages

In B&H Securities, Inc. v. Duane Pinkey et al., the New Jersey Superior Court found that former employees taking computer files from – and using the files to unfairly compete with – their employer violated the Computer Related Offenses Act, N.J.S.A. 2A:38A-1 et seq. (“CROA”), and breached other common law and contractual obligations. The Court awarded actual damages, based on plaintiff B&H’s lost profits of $737,087.00, as well as punitive damages of $100,000 and attorneys’ fees under the CROA.

The CROA prohibits, among other things, the unauthorized taking, destruction and accessing of computer files. The CROA is New Jersey’s equivalent to the Federal Computer Fraud and Abuse Act, 18 USC § 1030, a statute used more and more to challenge misappropriation of electronic data. The CROA provides for punitive damages and attorneys’ fees, which may not be otherwise recoverable under common law tort and breach of contract claims.

Facts

Here, former employees, Pinkney, Poisler and Palladino worked for B&H, which developed, installed and maintained security and safety systems for businesses to protect their properties and business records. Pinkney was a salesperson, Palladino provided customer support to B&H’s clients, and Poisler worked as an information technology manager. All three signed non-compete agreements, which included non-disclosure obligations, and acknowledgments of other confidentiality obligations.

While employed by B&H, Pinkney, Poisler and Palladino formed a competing business, Advanced Integration Security (“AIG”). Also while employed by B&H, Pinkney solicited a B&H client to do business with the new company and made an arrangement with another B&H client to allow it to cancel its five year contract with B&H. Pinkney copied almost all of B&H’s confidential database and saved it on a personal hard drive. Poisler took customized code written by B&H for its client. Poisler later used a software application to delete files from his computer to cover his tracks. Eventually, four B&H clients left B&H to do business with AIG. B&H lost sales of almost $1.4 million.

The Court’s Conclusion

The Court concluded that Pinkney and Poisler violated their duty of loyalty to B&H and tortiously interfered with B&H’s contractual relations and prospective economic advantage by setting up a competing company and soliciting B&H clients for its competitor. They also misappropriated confidential information and, in so doing, violated the CROA. The Court did not make findings regarding Palladino’s conduct because he settled B&H’s claims prior to trial.

It is noteworthy that Poisler was found to violate – not only an implied covenant of good faith and fair dealing to B&H – but also the CROA by knowingly taking confidential data without authorization and by assisting Pinkney to obtain the computer files for AIS. It is not clear how Poisler assisted Pinkney because he utilized “data-wiping” software to cover his tracks. However, the Court inferred that Pinkney was not sufficiently adept to steal certain data without Poisler’s assistance. This fact – together with Poisler’s unconvincing denials – helped to sustain claims against Poisler. In other words, the Court drew inferences based on the testimony and evidence and appears to have found CROA violations against Poisler separately for assisting Pinkney to misappropriate data.

Attorneys in the Gibbons Employment & Labor Law Department regularly handle non-competition, trade secrets and related matters and litigation and further counsel employers regarding the protection of their confidential business information.