Fiber Systems International, Inc. v. Roehrs
| Decision Date | 22 November 2006 |
| Docket Number | No. 05-41213.,05-41213. |
| Citation | 470 F.3d 1150 |
| Parties | FIBER SYSTEMS INTERNATIONAL, INC., Plaintiff-Counter Defendant-Appellant-Cross-Appellee, v. Daniel ROEHRS; Michael Flower; Thomas Hazelton; Rick Hobbs; Kieran McGrath; Applied Optical Systems, Inc., Opteconn G.P., Inc., and Opteconn, L.P., d/b/a Optical Cabling Systems, Defendants-Counter Claimants-Appellees-Cross-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Hugh E. Hackney, Christopher M. LaVigne, Brian A. Colao, Greenberg Traurig, Dallas, TX, Elliot H. Scherker (argued), Greenberg Traurig, Miami, FL, for Fiber Systems Intern., Inc.
Craig A. Haynes (argued), Scott Patrick Stolley, William Mayer Katz, Thompson & Knight, Dallas, TX, Jennifer Parker Ainsworth, Wilson, Sheehy, Knowles, Robertson & Cornelius, Tyler, TX, for Defendants-Counter Claimants-Appellees-Cross-Appellants.
Appeals from the United States District Court for the Eastern District of Texas.
Before KING, GARWOOD and JOLLY, Circuit Judges.
Fiber Systems International, Inc. appeals (1) the district court's entry of a take-nothing judgment on the company's claim for damages under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, (2) the district court's grant of partial summary judgment dismissing the company's claim for injunctive relief under the Act, and (3) the district court's denial of judgment as a matter of law and a new trial on the defamation counterclaim raised by Daniel Roehrs, Michael Flower, Thomas Hazelton, Rick Hobbs, and Kieran McGrath (collectively, the "individual defendants"). Defendants conditionally cross-appeal (1) the district court's grant of partial summary judgment dismissing defendants' counterclaim for defamation of Applied Optical Systems, Inc., Opteconn G.P., Inc., and Opteconn, L.P., d/b/a Optical Cabling Systems (collectively, the "corporate defendants") and (2) the district court's judgment as a matter of law denying defendants' claim that Fiber Systems International defamed the individual defendants through statements in e-mails and letters. For the reasons that follow, we AFFIRM in part, REVERSE in part, VACATE in part, and REMAND for further proceedings.
The claims at issue in this appeal arose from the final days of the struggle for control over Fiber Systems International, Inc. ("FSI"), a company that manufactures harsh-environment fiber-optic connectors for military use. The principal opponents in this conflict are brothers—Michael Roehrs, who was at that time part of the group that had a majority ownership of FSI, and defendant Daniel Roehrs, who was part of the minority group of shareholders. Daniel Roehrs and the other individual defendants, all of whom served as officers and directors of FSI, initiated litigation in 2001 to determine ownership of the company. The lawsuit settled in August 2003 with an agreement allowing Michael Roehrs to buy out the minority owners' stake in the company. When the transaction closed on December 8-9, 2003, the individual defendants' employment was terminated and Michael Roehrs took control as Executive Chairman.
In the 2004 suit on appeal here, FSI alleged that defendants violated the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, as they left the company. Specifically, FSI asserted that during their departure the defendants "knowingly and intentionally accessed, deleted, downloaded, copied, took, and stole FSI's confidential business and proprietary information and trade secrets, without authorization, from FSI's computers," misappropriated and stole FSI's computer equipment, and used and disseminated the wrongfully obtained information through the new companies that they formed: Daniel Roehrs, Thomas Hazelton, and Michael Flower through Applied Optical Systems, Inc. ("AOS") and Rick Hobbs and Kieran McGrath through Opteconn G.P., Inc. ("Opteconn") and Opteconn, L.P., d/b/a Optical Cabling Systems ("OCS"). FSI sought damages and injunctive relief under § 1030(a)(4), (a)(5), and (g) of the CFAA to compensate for the cost of data recovery and to prevent the defendants from continuing to use and disseminate FSI's trade secrets.
Defendants filed a defamation counterclaim alleging that FSI falsely accused them of being thieves. They relied on several documents in which FSI allegedly accused the defendants of, inter alia, stealing its intellectual property, as well as deposition testimony showing that FSI accused the individual defendants of being thieves or stealing FSI's intellectual property.
Defendants later moved for partial summary judgment on FSI's claim for injunctive relief, arguing that FSI failed to establish the prerequisites for such relief because there was no evidence that any of the defendants were currently accessing FSI's computers or threatening access in the future.1 FSI moved for partial summary judgment on the corporate defendants' counterclaim, arguing that the evidence was insufficient to show that the corporate defendants were defamed. The district court granted both motions.
In March 2005, the case proceeded to a jury trial on the remaining claims. At the conclusion of the evidence, the district court submitted FSI's claims under § 1030(a)(4) and (a)(5) of the CFAA to the jury, but submitted only three statements to the jury on defendants' defamation counterclaim: a police report filed by FSI alleging that defendants had committed theft and statements made by FSI to two companies accusing defendants of being thieves.
With regard to FSI's claims, the jury found that none of the individual defendants violated § 1030(a)(5) but that three defendants—Daniel Roehrs, Thomas Hazelton, and Rick Hobbs—violated § 1030(a)(4), entitling FSI to $36,000 in total damages. However, the district court entered a take-nothing judgment, holding that § 1030 does not create a civil cause of action for violations of subsection (a)(4).
As to defendants' counterclaims, the jury found that FSI maliciously accused all five individual defendants of being thieves in its statements to the two companies but that the police report was not filed with actual malice. Based on the two defamatory statements, the jury awarded the individual defendants $100,000 each in compensatory damages and $1,000,000 each in punitive damages. Because Texas law places a cap on punitive damage awards, the district court reduced the punitive damages to $200,000 for each defendant.
After the jury verdict, FSI filed a renewed motion for judgment as a matter of law and, in the alternative, for a new trial. The district court denied this motion, and FSI timely filed a notice of appeal.
In this appeal, FSI challenges the district court's holding that § 1030 of the CFAA does not create a civil cause of action for subsection (a)(4), as well as the court's grant of summary judgment dismissing FSI's CFAA claims for injunctive relief. FSI also contends that the district court erred in denying judgment as a matter of law because the jury's defamation verdict was based on evidence that was never admitted for substantive use and the statements allegedly made by FSI were nondefamatory. Finally, FSI argues that the district court erred in denying a new trial because the jury verdict contained inconsistencies and the district court improperly admitted evidence of nondefamatory statements, which prejudiced the jury's defamation findings.
Defendants conditionally cross-appeal the district court's grant of summary judgment dismissing the defamation claims that were based on statements against the corporate defendants, arguing that the statements should have been submitted to the jury as substantive evidence of defamation. Defendants also conditionally cross-appeal the district court's decision not to submit those statements to the jury as additional instances in which FSI defamed the individual defendants.2
In the analysis that follows, questions of law are reviewed de novo. See Af-Cap, Inc. v. Republic of Congo, 462 F.3d 417, 423 (5th Cir.2006).
Despite the jury's finding that Daniel Roehrs, Thomas Hazelton, and Rick Hobbs violated § 1030(a)(4) of the CFAA, entitling FSI to damages totaling $36,000, the district court held that the CFAA does not create a civil cause of action for violations of § 1030(a)(4), and it entered a take-nothing judgment on the claim. FSI appeals, alleging that civil claims for violations of § 1030(a)(4) can be brought under § 1030(g) and that the jury found the elements necessary for entry of judgment on FSI's behalf. We agree.
The CFAA criminalizes various fraudulent or damaging activities related to the use of computers. Two of its provisions were before the jury in this case. Section 1030(a)(4) prohibits the "knowing[ ] . . . access[ of] a protected computer without authorization," with intent to defraud, if "such conduct furthers the intended fraud and [the violator] obtains anything of value." 18 U.S.C. § 1030(a)(4). Section 1030(a)(5) punishes those who cause damage to a protected computer, either through the knowing transmission of a program, information, code, or command, or through intentional, unauthorized computer access.
Civil actions are authorized for some, but not all, violations of § 1030's substantive provisions. Section 1030(g) provides:
Any person who suffers damage or loss by reason of a violation of this section may maintain a civil action against the violator to obtain compensatory damages and injunctive relief or other equitable relief. A civil action for a violation of this section may be brought only if the conduct involves 1 of the factors set forth in clause (i), (ii), (iii), (iv), or (v) of subsection (a)(5)(B) . . . .
Based on its reading of § 1030(g), the district court held that the section does not create a civil action for violations of § 1030(a)(4). Simil...
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