BFV Perspectives, Noncompete & Trade Secrets, | Nov 06, 2013

Two Georgia Unfair Competition Cases Demonstrate the Federal Courts’ Restraint on their Jurisdiction

Many unfair competition cases in the digital era involve allegations of computer misconduct.  Several federal statutes may provide former employers a cause of action for such misconduct, including the Computer Fraud and Abuse Act and the Stored Communication Act.  The rise in the use of these claims has brought an increase in the number of unfair competition cases filed in federal courts.  Federal courts though are, of course, of limited subject matter jurisdiction.  Two recent decisions from Georgia federal courts are a reminder that federal judges will often exercise restraint in monitoring their courts’ jurisdictional boundaries.

The plaintiff’s primary claim in Advanced Technology Services, Inc. v. KM Docs LLC, 2013 WL 1501476 (N.D. Ga. April 9, 2013) was for copyright infringement in violation of the federal Copyright Act.  The case was filed in the Superior Court of Fulton County on September 2011.  In addition to the Copyright Act claim, the plaintiff asserted claims for misappropriation of trade secrets, conversion, tortious interference, breach of contract, fraud, violations of the Georgia RICO Act, breach of fiduciary duty and other state law tort claims.  The case was removed to federal court and was litigated there for almost eighteen months.

The defendants filed a motion for summary judgment as to all of the plaintiff’s claims.  Judge Thrash first found that summary judgment was appropriate as to the plaintiff’s Copyright Act claim.  He then noted that the Court had exercised supplemental jurisdiction over the remaining state law claims pursuant to 28 U.S.C. § 1367(c).  The Court declined to maintain supplemental jurisdiction over the state law claims, noting in particular that “[t]he interpretation of the Georgia Trade Secrets Act . . . definition of ‘trade secret’ contained therein, is a matter of state law clearly within the competence of the state courts.”  He therefore remanded the case and denied the defendants’ motion for summary judgment as to the state law claims without prejudice so that the defendants could renew their motion in state court.

Visalus, Inc. v. Then, 2013 WL 427077 (S.D. Ga. Feb. 1, 2013), is another case where a federal judge showed restraint in exercising jurisdiction in an unfair competition case.  The plaintiff was a marketing company that sells weight management, nutritional and energy products.  The individual defendant, Amber Then, was a former distributor for the plaintiff.  She had agreed to a non-compete which specifically prohibited her from working for Ocean Avenue, LLC, for one year following her employment with Visalus.  However, when she resigned, she immediately began to work for Ocean Avenue.

Visalus filed a lawsuit against her and Ocean Avenue in federal court alleging that Then’s actions violated the non-compete.  Visalus sought a temporary restraining order.  Faced with Visalus’ emergency motion, Judge Moore first examined whether there was subject matter jurisdiction.

Visalus had alleged that the Court had diversity jurisdiction.  Judge Moore noted that for purposes of diversity jurisdiction a limited liability company is a citizen of any state in which any of its members is a citizen.  Examining the plaintiff’s complaint, Judge Moore found that the plaintiff had failed to allege the names of the members of Ocean Avenue, LLC.  Judge Moore thus found that Visalus’ general allegations were insufficient to carry its burden of establishing that complete diversity existed between the parties.  He ordered Visalus to file an Amended Complaint that includes the citizenship of each party to the case, namely the names and citizenship of each member of Ocean Avenue, LLC.  Judge Moore deferred ruling on Visalus’ emergency motion for a restraining order until he was satisfied that he had jurisdiction to hear this dispute.

These two cases illustrate that federal courts are mindful of the boundaries of their jurisdiction and will frequently guard those boundaries stringently.  Practitioners who handle unfair competition cases should take these issues into consideration when deciding which court system in which to pursue relief.  Indeed, Visalus illustrates that a defect in jurisdiction can block a former employer from promptly obtaining emergency relief.  Proper planning and careful pleading can minimize the likelihood that a jurisdictional flaw will impact a plaintiff’s (or a defendant’s) litigation strategy.

BFV Perspectives, Noncompete & Trade Secrets, | Nov 06, 2013
Neal F. Weinrich
Neal F. Weinrich

Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.