Clinical Lab Sues Former Executives and Sales Representatives For Competing with Rival Business and Soliciting Clients and Employees
On January 14, 2010, Berkeley HeartLab, Inc. filed suit against Health Diagnostic Laboratory, Inc., and several former employees for trade secret violations and breach of contract. The suit was filed two weeks after a mass departure in which five sales representatives resigned from Berkeley.
Berkeley claims that in October 2008 a former Senior Vice President founded Health Diagnostic in Richmond, Virginia with the alleged intent to compete with Berkeley by providing diagnostic clinical tests that target cardiovascular disease and disease management similar to Berkeley’s clinical programs. On January 1, 2010, five sales representatives resigned from Berkeley within thirty minutes of each other, and allegedly began working for Health Diagnostic soon thereafter. The complaint asserts that within the first two weeks of January, several health care providers, who had previously conducted business with Berkeley, had switched their business to Health Diagnostic, causing an approximate 35% decline in Berkeley’s sales volume from the previous year. The complaint further alleges that the former employees had signed a Proprietary Information and Invention Agreement intended to protect Berkeley’s confidential information and customer goodwill, and their pre-resignation conduct as well as subsequent employment at Health Diagnostic breached their agreements.
The lawsuit, filed in the Eastern District of Virginia (known as the “rocket docket” for its swift processing of cases), alleges state law claims of breach of contract, breach of fiduciary duty, tortious interference, conspiracy, unfair competition, as well as a federal law claim under the Computer Fraud and Abuse Act (CFAA). While unclear from the court papers, it appears that Berkeley’s support for its CFAA claim is its allegation that two individual defendants accessed their Berkeley work computers without authorization, or in excess of their authorization, while still employed by Berkeley, to remove data to benefit Health Diagnostic.
This case could be of interest to employers and attorneys alike who are following the split in the courts across the country as to whether computer access while an employee meets the statutory test for “without authorization” under CFAA. As we reported on this blog on September 17, 2009, the U.S. Court of Appeals for the Ninth Circuit recently split with the U.S. Court of Appeals for the Seventh Circuit over the meaning of “authorization” under CFAA. The Ninth Circuit adopted the narrow view that CFAA only reaches conduct by individuals who do not have any permission to access the computer system (e.g., a hacker or terminated employee). The Seventh Circuit has adopted the more expansive view that a statutory claim could be made whenever an employee accesses a computer with an adverse interest in breach of his duty of loyalty without the employer’s knowledge. The U.S. Court of Appeals for the Fourth Circuit has not weighed in on this legal split under CFAA yet, and the issue will likely have to be resolved by the U.S. Supreme Court.
Berkeley is seeking preliminary and permanent injunctive relief, including an order restricting the defendants from using or disclosing confidential or proprietary information, misrepresenting Berkeley’s ability to perform clinical tests, soliciting healthcare providers, and soliciting Berkeley employees. Berkeley is also seeking an order to prevent the individual defendants from working at Health Diagnostic, and $350,000 in punitive damages from each defendant.