United States District Court, S.D. New York
May 25, 2004.
NEXANS WIRES S.A. and LACROIX & KRESS GmbH, Plaintiffs, -against- SARK-USA, INC. and SARKUYSAN ELEKTROLITIK BAKIR SANAYII VE TICARET A.S., Defendants
The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge
Defendants Sark-USA, Inc. ("Sark-USA") and Sarkuysan Elektrolitik
Bakir Sanayii Ve Ticaret A.S. ("Sarkuysan") have moved to dismiss this action under Fed.R.Civ.P. 12(b)(6) and 12(b) (1).
Specifically, defendants contend that plaintiffs Nexans Wires S.A.
("Nexans") and Lacroix & Kress GmbH ("L&K") lack standing to sue under
the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030. By order of
October 16, 2003, defendants' motion to dismiss was converted into a
motion for summary judgment. Plaintiffs were directed to submit the facts
upon which they rely for standing under the CFAA, 18 U.S.C. § 1030(g), and
defendants were directed to submit a response. For the reasons that
follow, defendants' motion for summary judgment dismissing the federal
claims is granted.
Plaintiffs filed this action against their wire and cable industry
competitors Sark-USA and Sarkuysan for unfair competition. Plaintiff
L&K, a German corporation, is wholly owned by plaintiff Nexans, a French
corporation. Defendant Sark-USA is a Delaware corporation with its
principal place of business in North Carolina and is the wholly owned
subsidiary of defendant Sarkuysan, a Turkish corporation. The
complaint*fn1 asserts claims of misappropriation of trade secrets under
New York and North Carolina law, unfair competition under New York, North Carolina and South Carolina law, tortious interference with
prospective economic advantage and conversion under New York law, and
five claims under the CFAA. Federal jurisdiction is based on the CFAA
All of plaintiffs' claims arise out of the subject of a related
action, A.E.B. International. Inc. and Atlantic Specialty Wire, Inc. v.
Myron Daniel Schatzberg, Sark-USA, Inc., Brigit Skeet Finley, and
Sarkuysan Elektrolitik Bakir Sanayii Ve Ticaret A.So, 02 Civ. 6312
(MGC). In that action, the plaintiffs, A.E.B. International, Inc. ("AEB")
and its sister company, Atlantic Specialty Wire, Inc. ("ASW"), sue
defendants Sarkuysan and Sark-USA and two former employees, Myron Daniel
Schatzberg ("Schatzberg") and Brigit Skeet Finley ("Finley") for
misappropriation of trade secrets, tortious interference with prospective
economic advantage, unfair competition and violations of the CFAA.
According to the complaint in this action, plaintiffs Nexans and
L&K manufacture and supply "advanced copper and optical fiber wire
and cable solutions to the infrastructure, industry and building
markets." Compl. ¶ 13. Plaintiffs are a major supplier of AEB and
produce products which AEB then distributes throughout the United States.
Plaintiffs assert that in order to maintain this relationship with AEB,
it was necessary for plaintiffs to store much of their "confidential
proprietary information" on the computers of AEB and ASW. This information consisted of plaintiffs'
pricing schedules as well as manufacturing information. The information
was stored in AEB's secure centralized computer system in New York and in
ASW's computer system in South Carolina. Plaintiffs' information was
segregated from other files and password protected to insure
Sarkuysan manufactures wire and cable products to be sold in the United
States in direct competition with plaintiffs and AEB. Plaintiffs allege
that at sometime prior to the departure of Schatzberg and Finley from AEB
and ASW, Schatzberg, Finley and Sarkuysan, agreed to establish a new
company, Sark-USA. The organization of Sark-USA enabled Sarkuysan to
operate directly in the United States and to serve as the "repository" of
plaintiffs' "stolen and misappropriated confidential, proprietary
information." Compl. ¶ 28.
The essence of plaintiffs' complaint is that defendants induced Finley
and Schatzberg to steal plaintiffs' proprietary information from AEB and
ASW. Specifically, the complaint alleges that Finley had full access to
AEB's computer system, including the information plaintiffs provided to
AEB. Plaintiffs allege that beginning in March 2002, under instructions
from defendants, Finley used her personal Yahoo e-mail account to
download plaintiffs' proprietary information, without AEB's approval, and then sent the information to defendants. The complaint
alleges that on April 15, 2002, Schatzberg, acting at the request of
defendants, unlawfully obtained access to ASW's computer systems, created
a "back-up" tape of the files and deleted confidential business
information, including certain of plaintiffs' proprietary information.
From April 2002 through May 21, 2002, Schatzberg, without the
authorization of his employer, allegedly photocopied or downloaded
plaintiffs' information from AEB's computer system, for the benefit of
In addition to the alleged misappropriation of plaintiffs' information
from the computers of AEB and ASW, plaintiffs assert that Schatzberg
misappropriated information gleaned from a visit to L&K's factory. In
March 2002, Schatzberg traveled to L&K's factory in Germany with the
Chairman of AEB, A. Erkan Buyuksoy ("Buyuksoy") where the two toured the
L&K factories and learned detailed information about the manufacturing
process, which each agreed to keep confidential. However, Schatzberg
allegedly violated this agreement and divulged all that he had learned
from the trip to defendants.
I. Basis for Jurisdiction
Defendants moved under both Fed.R.Civ.P. 12(b)(1) and Fed.R.Civ.P.
12(b)(6) to dismiss the complaint. "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1)
when the court lacks the statutory or constitutional power to adjudicate
the case. In contrast, a dismissal under Rule 12(b)(6) is a dismissal on
the merits of the action-a determination that the facts alleged in the
complaint fail to state a claim upon which relief can be granted." Nowak
v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir.
1996)(noting the difficulties of distinguishing between the two).
Therefore, the court must first have assumed jurisdiction over the matter
before a 12(b)(6) motion can be decided. Id. (citing Bell v. Hood.
327 U.S. 678, 682-83 (1946)). As the Second Circuit has noted, "Bell v.
Hood, instructs us that, when the contested basis of federal jurisdiction
is also an element of plaintiff's asserted federal claim, the claim
should not be dismissed for want of jurisdiction except when it `appears
to be immaterial and made solely for the purpose of obtaining
jurisdiction or where such a claim is wholly insubstantial and
frivolous.'" AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d 148
(2d Cir. 1984)(internal citations omitted). Plaintiffs' assertion of
jurisdiction under the CFAA is not wholly insubstantial and frivolous.
Therefore, this court has jurisdiction, and an examination under
12(b)(6), rather than under 12(b)(1) is appropriate.*fn2 II. Conversion of Defendants' Motion to Dismiss into a Motion for
"If, on a motion . . . to dismiss for failure of the pleading to state
a claim upon which relief can be granted, matters outside the pleading
are presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as provided in Rule
56, and all parties shall be given reasonable opportunity to present all
material made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12
(b). As noted above, defendants' motion to dismiss was converted into a
motion for summary judgment by order of October 16, 2003. It became clear
at oral argument that the real issue is whether plaintiffs can present
sufficient evidence of "loss" to have standing to sue under the CFAA's
civil provision, 18 U.S.C. § 1030(g). In order to have standing,
plaintiffs must have suffered a "loss" of at least $5,000.
18 U.S.C. § 1030(g), (a)(5)(B)(i). The parties were given a full
opportunity to present all relevant materials.*fn3 III. Standard for Summary Judgment
Where there are no material facts in dispute, a motion for summary
judgment should be granted. Fed.R.Civ.P. 56(c). "Rule 56(c) mandates the
entry of summary judgment . . . against a party who fails to make a
showing sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof
at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "In such a
situation, there can be `no genuine issue as to any material fact,' since
a complete failure of proof concerning an essential element of the
nonmoving party's case necessarily renders all other facts immaterial."
Id. at 322-23. In deciding whether a genuine issue exists, a court must
"examine the evidence in the light most favorable to the party opposing
the motion, and resolve ambiguities and draw reasonable inferences
against the moving party." In re Chateaugay Corp., 10 F.3d 944, 957 (2d
The issue in dispute is whether plaintiffs can prove an essential
element of their CFAA claims, i.e. a "loss . . . aggregating at least
$5,000 in value." 18 U.S.C. § 1030(g), (a)(5)(B)(i).
IV. The Computer Fraud and Abuse Act Claims
Plaintiffs allege that defendants Sark-USA and Sarkuysan violated the CFAA by inducing Schatzberg and Finley to copy and delete
the computer files of AEB and ASW, files which contained plaintiffs'
"confidential proprietary information."
The CFAA is a criminal statute, but it also provides for a civil right
of action. 18 U.S.C. § 1030(g). Plaintiffs have alleged that the acts of
defendants violated § 1030(a)(2)(C), (a)(4), (a)(5)(i), (a) (5) (ii), and
(a)(5) (iii).*fn4 Under § 1030(a)(2)(C), "[w]hoever . . . intentionally
accesses a computer without authorization or exceeds authorized access,
and thereby obtains . . . information from any protected computer if the
conduct involved an interstate or foreign communication" may be
punished. Section 1030(a)(4) prohibits accessing a protected computer
without authorization "knowingly and with intent to defraud" and thereby
"obtain[ing] anything of value." Section 1030(5)(A)(i) prohibits
knowingly transmitting "a program, information, code, or command" and
intentionally causing unauthorized damage, to a protected computer. Under
§ 1030(5)(A)(ii) and (iii), respectively, it is a violation to
"recklessly cause  damage" or to simply "cause  damage" through the
unauthorized access of a protected computer.
Section 1030(g) provides that a civil action may only be brought if
the conduct involves one of the factors set forth in clause (i), (ii), (iii), (iv) or (v) of subsection (a)(5)(B).
18 U.S.C. § 1030(g). Here, the only applicable section of (a)(5)(B) is
(a)(5)(B)(i): "loss to 1 or more persons during any 1-year period . . .
aggregating at least $5,000 in value." Section 1030(e)(ll) defines "loss"
any reasonable cost to any victim, including the cost
of responding to an offense, conducting a damage
assessment, and restoring the data, program, system,
or information to its condition prior to the offense,
and any revenue lost, cost incurred, or other
consequential damages incurred because of interruption
Plaintiffs must meet this jurisdictional threshold in order to sue on any
of the five CFAA claims they assert. Theofel v. Farey-Jones, 341 F.3d 978
986 n. 5 (9th Cir. 2003) amended by 2004 WL 292101 (9th Cir. Feb. 17,
2004). "Damage" is defined as "any impairment to the integrity or
availability of data, a program, a system, or information." §
It is clear from the complaint that AEB and ASW, not plaintiffs, own
the computers which were allegedly unlawfully accessed. This raises the
question of whether a third-party who does not own or control the
unlawfully accessed computer has standing to bring suit under the Act. At
least one court has specifically held that there is no ownership or
control requirement in the CFAA. Theofel, 341 F.3d at 986 ("Individuals
other than the computer's owner may be proximately harmed by unauthorized access, particularly if they have rights to data stored on
it."), Because plaintiffs store their information on AEB and ASW
computers they may suffer the type of harm contemplated by the statute if
those computers are damaged.
Notably, the Theofal court found it premature to consider whether the
damages or losses suffered by the non-owner plaintiff fell within the
ambit of the Act because the plaintiff had not yet alleged its "loss."
Theofal, 341 F.3d at 986. Therefore, it is unclear from Theofal what
"loss" the non-owner must incur to have standing under § 1030(g).
The case defendants cite to support their argument that a corporation
cannot be found liable under the CFAA for the actions of its employees is
inapposite. In Doe v. Dartmouth-Hitchcock Medical Center, No. Civ.
00-100-M, 2001 WL 873063 (D. N.H. July 19, 2001), the court declined to
find a hospital liable for the unlawful acts of one of its doctors
because the doctor's violation of the CFAA was contrary to hospital
policy and actually harmed the hospital. Here, Schatzberg and Finley are
alleged to have acted at the direction of Sark-USA and Sarkuysan.
A. Plaintiffs' Alleged "Loss"
1. Travel Expenses
Plaintiffs' allegation of "loss" in their complaint simply tracks the
language of the statute, and states that they have suffered a "loss" of at least $5,000 in value. In response to the
order directing plaintiffs to submit the facts upon which the alleged
loss is based, plaintiffs submitted two affidavits of Wolfgang Placke,
the General Manager of L&K. The "loss" asserted in the affidavits is
the cost of two business trips that Placke and L&K's Sales Director,
Gerhard Maerker, took from their L&K offices in Germany to AEB's New
York offices. Placke states that they flew to New York in June of 2002
for the sole purpose of responding to the news that Schatzberg had
abruptly resigned. Buyuksoy had apparently informed Placke that in an
investigation after Schatzberg's abrupt departure, AEB had discovered
that the system had been unlawfully accessed and certain files deleted.
Plaintiffs were told that some of their information might have been
taken. Tracking the statutory definition of "loss," Placke states that he
and Maerker "met with representatives of AEB to discuss the theft of
[their] proprietary information" and that the trip was to "respond  to
the AEB computer offense" and to "conduct  an assessment of the damage
caused by the impact of the computer theft on the integrity of the
proprietary information, that [p]laintiffs had stored on AEB's computer
system." Aff. Oct. 29, 2003, ¶ 7.
Placke asserts that the second trip, made by Maerker in February 2003,
was prompted by the resignation of Finley. The affidavit does not state
when Placke received this information. But, according to the complaint, Finley resigned in June 2002, seven
months before the February trip. The total cost of these two trips was
$8,007.14, which plaintiffs argue meets the jurisdictional threshold of a
"loss" of at least $5,000.
Defendants make several arguments as to why the cost of these business
trips does not constitute "loss" within the meaning of the CFAA.*fn5 The
most compelling argument is that neither trip's cost constitutes "loss"
because the cost was unrelated to investigating or remedying damage to a
computer. Placke's affidavit does not assert that he or Maerker or even
Buyuksoy ever examined a computer or made a computer assessment.
Moreover, Placke clarifies in his second affidavit that when he stated in
his first affidavit that Buyuksoy checked the AEB computer system after
Schatzberg's departure, he is not actually sure who checked the computer
nor is he sure whether it was an AEB or ASW computer. In sum, defendants
argue that plaintiffs' executives did not engage in any activity on their
trips that could not have just as easily taken place over the telephone.
In response, plaintiffs assert that they have established a prima facie
case of standing by alleging that they incurred $8,007.14 in costs in
responding to CFAA violations. Placke's affidavits describe the meetings which took place, including one at
Le Cirque restaurant, as well as a confidential meeting between Placke,
Maerker, and Buyuksoy where they "discussed what proprietary and
confidential information was believed to have been stolen, how that
proprietary and confidential information had been stolen, and what steps
we could take in the future to prevent  such computer-based theft."
Aff. Dec. 8, 2003, ¶ 9.
Placke also states that his belief in having meetings such as this
conducted in person, made it impossible for these conversations to have
taken place over the telephone. In sum, plaintiffs state that the
expenses incurred by their senior executives in traveling to a meeting to
discuss confidential information stolen by a customer's faithless
employees constitutes "loss" within the meaning of the CFAA.
a. Definition of "Loss"
Prior to the clarifying amendment of 2001, "loss" was not defined.
"Damage" was defined as "any impairment to the integrity or availability
of data, a program, a system, or information that (A) causes loss
aggregating at least $5,000 in value during any 1-year period to one or
more individuals . . ." Since the first sentence of § 1030(g) provides a
right of action for anyone who suffers "damage or loss," Judge Buchwald
considered whether "loss," as well as "damage," was subject to the $5,000 statutory minimum. See In re Doubleclick Inc. Privacy
Litigation, 154 F. Supp.2d 497 (S.D.N.Y. 2001)(concluding-that "loss" as
well as "damage" was subject to the $5,000 threshold).
The In re Doubleclick court examined the legislative history of the
statute in order to understand the meaning of the then undefined term
The 1994 amendment [to § 1030(g)] required both
"damage" and "loss," but it is not always clear what
constitutes "damage." For example, intruders often
alter existing log-on programs so that user passwords
are copied to a file which the hackers can retrieve
later. After retrieving the newly created password
file, the intruder restores the altered log-on file to
its original condition. Arguably, in such a
situation, neither the computer nor its information is
damaged. Nonetheless, this conduct allows the intruder
to accumulate valid user passwords to the system,
requires all system users to change their passwords,
and requires the system administrator to devote
resources to resecuring the system. Thus, although
there is arguably no "damage," the victim does suffer
"loss." In re Doubleclick 154 F. Supp.2d at 521
(quoting S. Rep. No. 104-357, at 11 (1996) (emphasis
From this, the court concluded that: "Congress intended the term
`loss' to target remedial expenses borne by victims that could not
properly be considered direct damage caused by a computer hacker."
Id. at 521.
It is also clear that the remedial costs contemplated by "loss" are not
limited to the cost of actual repairs themselves, but incurred "because
of interruption of service." Id. at 522, n. 29 (citing 132 Cong. Rec. S14453 (daily ed. Oct. 1, 1986)(statement of
co-sponsor Sen. Trible): "[i]n addition; the concept of `loss' embodied
in this paragraph will not be limited solely to the cost of actual
repairs. The Justice Department has suggested that other costs, including
the cost of lost computer time necessitated while repairs are being
made, be permitted to count toward the [then] $1,000 valuation. I and the
other sponsors of this bill agree."). Therefore, it seems that "loss"
means any remedial costs of investigating the computer for damage,
remedying the damage and any costs incurred because the computer cannot
function while or until repairs are made. However, there is nothing to
suggest that the "loss" or costs alleged can be unrelated to the
Although the court was examining a slightly different issue, the In re
Doubleclick court's analysis is especially helpful because it examined a
proposed definition of "loss" which is virtually identical to the current
definition. Id. at 522, n. 29.*fn6 The court noted that this amendment
"expressly seeks to clarify (1) what constitutes "loss," and (2) that
"loss" is subject to the $5,000 monetary threshold." Id. The court was not
persuaded that plaintiffs had alleged facts to support a finding of "loss"
or "damage" of at least $5,000 from any single act. Id. at 525 (rejecting
the argument that there were any remedial costs and expressing doubt that
the economic value of the demographic information on plaintiffs' website
or the value of the plaintiffs' attention span could help satisfy the
jurisdictional threshold). In doing so, the court explained that some
damage is too far outside the scope of what the statute is to protect
against, "namely, damage to computer systems and electronic information
by hackers." 154 F. Supp.2d at 525, n.34 (criticizing America Online,
Inc. v. LCGM, 46 F. Supp.2d 444, 451 (E.D. Va. 1998) ("AOL") which held
that damage to "reputation or goodwill" could count toward the [then]
The court dismissed the CFAA claim citing the plaintiffs' inability to
meet the jurisdictional threshold of at least $5,000 of "loss" or, then,
"damage." Id. at 526. In 2001, 1030(g) and the definition of "damage"
were amended, and a definition of "loss" was added. Nothing in the
legislative history of the 2001 amendment suggests that the costs
incurred in "responding to an offense" or in "conducting a damage
assessment" can be unrelated to a computer. See Cong. Rec. S 10913, 106th
Cong (Oct. 24, 2000)(noting the inclusion of the definition of "loss" and
the intent to incorporate the $5,000 jurisdictional threshold into a
description of the offense). Therefore, the meaning of "loss," both before and after the term was
defined by statute, has consistently meant a cost of investigating or
remedying damage to a computer, or a cost incurred because the computer's
service was interrupted.
Another decision sheds additional light on the types of harm the
statute contemplates. In Tyco. Int'l Inc. v. John Does, No. 01 Civ.
3856, 2003 WL 21638205 (S.D.N.Y. July 11, 2003), Magistrate Judge Freeman
considered whether the cost of investigating the identity of a computer
hacker could constitute compensatory damages under the CFAA. Although the
court was clearly calculating damages, rather than determining "loss" for
purposes of standing, the court makes clear that the types of costs which
the CFAA allows recovery for are related to fixing a computer. The court
[w]hile it is true, . . . that the CFAA allows
recovery for losses beyond mere physical damage to
property, the additional types of damages awarded by
courts under the Act have generally been limited to
those costs necessary to assess the damage caused to
the plaintiff's computer system or to resecure the
system in the wake of a hacking attack. See EF
Cultural Travel BV v. Explorica, Inc., 274 F.3d 577,
584-85 (1st Cir. 2001)(awarding costs of assessing
damage); United States v. Middleton, 231 F.3d 1207,
1213-14 (9th Cir. 2000)(awarding costs of
"investigating and repairing the damage" FN3); In re
Doubleclick Inc. Privacy Litigation, 154 F. Supp.2d 497,
524-25 (S.D.N.Y. 2001) (recognizing only costs in
remedying damage as recoverable under CFAA).
FN3. Although the court in Middleton uses the word
"investigating," it is clear from both the court's language
("investigating . . . the damage") and the facts of
the case that this investigation involved only
assessing the damage to the system not locating
and collecting information about the hacker.
Therefore, Tyco is instructive in that the costs the court found to be
recoverable were the costs of remedying damage to the computer. General
non-computer costs incurred in investigating the violation were deemed
too far outside the scope of the Act.
Even cases which have taken an expansive view of the CFAA
jurisdictional threshold have not suggested that "loss" can include a
cost unrelated to the computer. In Pacific Aerospace & Electronics,
Inc. v. Taylor, No. CS-02-0412-AAM, 2003 WL 23100804 (E.D. Wash. June
20, 2003), the court denied a motion to dismiss an employer's CFAA suit
against a faithless employee. Id. (citing EF Cultural Travel BV v.
Explorica, Inc., 274 F.3d 577 (1st Cir. 2001) for the proposition that
the $5,000 threshold can be easily satisfied). However, in Explorica the
First Circuit did not endorse the district court's reasoning that "loss"
encompasses a loss of business or goodwill. Id. at 584. The Court of
Appeals found that the $20,944.92 plaintiff paid "to assess whether their
website had been compromised" was the only necessary consideration, as it
was clear that this cost satisfied the statutory threshold. Id. Thus, the "loss" in Explorica was the cost
of hiring a consultant to assess the computer damage, not a general
b. Plaintiffs' Travel Expenses Do Not Constitute "Loss"
Quoting the language of the statute, Placke's affidavits assert that
the two trips were for the purpose of "conducting a damage assessment"
and "responding to the offense." 18 U.S.C. § 1030(e)(11). However, the
affidavits do not allege any facts showing that this assessment or
response was in any way related to a computer. It was undoubtedly
necessary for plaintiffs to speak with AEB and ASW about the business
repercussions of the alleged actions of Schatzberg and Finley. Plaintiffs
have a close working relationship with AEB and ASW and the activities of
faithless employees would be cause for alarm and discussion. These
employees had substantial non-computer information, which had been
gleaned from Schatzberg's trip to L&K and his photocopying of AEB and
ASW files. However, nothing in the two affidavits indicates that during
these meetings computers were being investigated or repaired. In fact,
one of the meetings took place at an expensive restaurant and another was
strictly between Maerker, Placke and Buyuksoy, which eliminates the
possibility that they were working with a computer technician or
consultant. It is clear that these meetings were held to discuss the
problem of the information of AEB and ASW getting into the hands of competitors. However, nothing suggests that the trips were taken
to engage in any type of computer investigation or repair. Furthermore,
no facts are alleged showing that preventive measures were added to the
computers or that the system was augmented to tighten security after
all, these were discussions between senior executives not computer
experts. Placke states that the meeting was held at AEB's offices because
of his belief in having meetings conducted in person. He does not suggest
that the meetings were held at AEB so that he and Maerker could inspect
or repair the computers.
In the related action, AEB has asserted that it incurred costs in
investigating the unauthorized access and in making repairs, and has also
asserted claims under the CFAA. However, Nexans & L&K do not allege
that they were required to contribute to any such costs incurred by AEB,
nor do they state that they paid technicians to conduct a computer
investigation or make repairs to AEB's computers.
Plaintiffs do not cite any case which holds that the travel expenses of
these senior executives constitutes "loss," and although there are very
few opinions on the meaning of "loss" as used in § 1030(g), no case
relies on costs so unrelated to the computer itself. Nothing in either
case law or legislative history suggests that something as far removed
from a computer as the travel expenses of senior executives constitutes
"loss." Therefore, the international travel expenses that plaintiffs' senior executives incurred to attend a meeting with their customer's
senior executive, in which no computers are said to have been examined,
and no computer consultant said to have been present cannot satisfy the
$5,000 "loss" requirement of the statute.
2. Lost Revenue
Finally, at oral argument, plaintiffs contended that the revenue they
lost as a result of defendants' use of their information to unfairly
compete for business constitutes "loss" within the meaning of § 1030(e)
(11) and gives them standing under § 1030(g). Placke asserts that at
trial, plaintiffs will be able to prove the loss of two specific business
However, plaintiffs state in a later submission, that they are not
arguing that the revenue they lost as a result of the alleged unfair
competition alone satisfies the CFAA's "loss" requirement. It is not
clear whether plaintiffs continue to press their argument that revenue
lost as a result of lost business opportunities may be counted toward the
$5,000 threshold. Nevertheless, their argument is unpersuasive.
First, the "revenue lost" which constitutes "loss" under § 1030(e) (11)
appears from the plain language of the statute to be revenue lost "because
of [an] interruption of service." § 1030(e) (11). Therefore, if Nexans
and L&K had lost revenue because the computer systems of AEB and ASW
were down, that would seem to be the type of lost revenue contemplated by the statute.
However, plaintiffs are not claiming to have lost money because the
computers of AEB or ASW were inoperable, but rather because of the way
the information was later used by defendants.
Second, persuasive authority suggests that plaintiffs' lost revenue due
to lost business opportunity does not constitute "loss" under the
statute. In Register.com, Inc. v. Verio, Inc., 126 F. Supp.2d 238, 252
n. 12 (S.D.N.Y. 2000), aff'd 2004 WL 103400 (2d Cir. 2004) the court
examined a similar issue. The plaintiff claimed that the defendant's "end
use" of information retrieved from its website allowed it to compete
unfairly and that as a result plaintiffs lost business and goodwill. The
plaintiff argued that this lost revenue should count toward the $5,000
threshold (then "damages"). The court found that if:
lost good will [sic] or business could provide the
[$5,000 amount, however,] it could only do so if it
resulted from the impairment or unavailability of data
or systems. The good will losses cited by [the
plaintiff] are not the result of harm addressed by
1030(a)(5) [(iii)]. How [the defendant] uses the 
data, once extracted, has no bearing on whether
[defendant] has impaired the availability or integrity
of [plaintiff's] data or computer systems in
Thus, the court found that the loss of business due to defendants'
eventual use of the information, rather than a loss of business because
of computer impairment, was too far removed from computer damage to count
toward the jurisdictional threshold.
Lastly, the cases on which plaintiffs rely are not persuasive. In Four
Seasons Hotels and Resorts BV v. Consorcio Barr, S.A., 267 F. Supp.2d 1268
(S.D. Fla. 2003), the court made an explicit finding that the hotel:
"suffered `loss' under the statute of $28,000 in expenses incurred in
investigating and responding to these offenses, which occurred within a
one-year period." Id. at 1324. Shurgard Storage Centers, Inc. v.
Safeguard Self Storage, Inc., 119 F. Supp.2d 1121 (W.D. Wash. 2000),
stands only for the proposition that an employer can state a claim
against a faithless former employee even where the computer data was not
physically impaired. The Shurgard court was not considering whether the
$5,000 threshold had been met. Id. In sum, revenue lost because the
information was used by the defendant to unfairly compete after
extraction from a computer does not appear to be the type of "loss"
contemplated by the statute.
Plaintiffs do not cite any case which lends support to finding a "loss"
of $5,000 based on (1) travel costs of senior executives or (2) loss of
revenue unrelated to interruption of computer service. Therefore,
defendants' motion for summary judgment dismissing plaintiffs' five
claims under the CFAA is granted. V. Plaintiffs' State Law Claims
Plaintiffs also assert state law claims for misappropriation of trade
secrets under New York and North Carolina law, unfair competition under
New York, North Carolina and South Carolina law, and tortious
interference with prospective economic advantage and conversion under New
York law. Supplemental jurisdiction over these claims is appropriate
since they arise out of the same nucleus of operative facts as the
federal claims. United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966).
Now that the federal claims have been dismissed, the exercise of
supplemental jurisdiction over the state law claims is discretionary.
28 U.S.C. § 1367(c)(3); Gibbs, 383 U.S. at 726 (noting that judicial
economy, convenience, and fairness are the factors to be balanced in
deciding whether to exercise supplemental jurisdiction). Given the
substantial overlap of issues, claims, and parties in this action and the
closely related case, A.E.B. International, Inc. v. Schatzberg et al., 02
Civ. 6312 (MGC), it would be wasteful and inefficient to dismiss the
state law claims in this action. Therefore, I exercise my discretion to
retain jurisdiction over plaintiffs' state law claims. CONCLUSION
Plaintiffs have not raised any factual dispute and have not shown that
they can prove an essential element of their federal claims, namely,
that., plaintiffs suffered a "loss" of $5,000 within the meaning of the
CFAA, 18 U.S.C. § 1030. Accordingly, defendants' motion for summary
judgment dismissing the CFAA claims is granted. In the interest of
judicial economy, I retain jurisdiction over plaintiffs' state law