Frees, Inc. v. McMillian, No. 05-1979, 2007 WL 2264457 (W.D. La. August 6, 2007)
Plaintiff Frees, Inc. filed suit against two of its former employees, McMillan and Pierceall for, among other things, violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. 1030. Frees alleged that McMillian and Pierceall loaded Frees proprietary data onto their new employer’s computers, which they then used to develop and market products in competition with Frees. Frees also alleged that McMillian deleted data from the Frees computers before he left its employment. This alleged conduct resulted in Frees expending more than $16,000 to various consultants and forensics investigators. Frees did not suffer any interruption of service.
McMillan and Pierceall moved for partial summary judgment. They argued that Frees had not alleged “loss” as defined under the CFAA, and in the alternative, that Frees could not recover lost profits absent an interruption of service. The court denied the motion.
“Loss” under the CFAA
Frees had argued that the “loss” it suffered was the fees it paid the consultants and forensics investigators it had to hire because of the deletion of data from its computer systems. The defendants argued that these expenditures were not cognizable as “loss” under the statute. The court rejected that argument, citing to a number of cases from around the country holding that the costs associated with investigating possible damage to a computer system are considered “loss.” Citing to E.F. Cultural Travel BV v. Explorica, Inc., 274 F.3d 577, 585 (1st Cir.2001) the court observed that a finding of “loss” is not lessened simply because no damage occurred.
No interruption of service
The defendants contended that lost revenues were not compensable damages in the case because there was not an interruption of computer service. They argued that the phrase “any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service” was not only a jurisdictional threshold, but also a limitation on the types of recoverable damages. 18 U.S.C. § 1030(e)(11). Frees rejected that contention, arguing that a plaintiff is entitled to recover ordinary “compensatory damages” once the jurisdictional threshold has been met.
Recognizing that the federal circuits are split on this issue, the court sided with Frees. The court found that the terms “damage” and “loss,” appearing in the CFAA, are terms of art used to define a jurisdictional threshold. They do not control or limit what damages are available in a civil action if the substantive and threshold standards are not met. Rather, the court found, Congress used the terms “compensatory damages” and “economic damages” in the CFAA to define the scope of recovery.