Labor Logic

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John D. Finerty, Jr.

When Larry Sokolowski resigned his employment as a territory manager for Burbank Grease Services, he left and took with him customer data that would prove useful in starting a competing business. Sokolowski and a competitor named United Liquid Waste Recycling teamed up to start United Grease LLC and solicited Burbank Grease’s customers. Their plan was met with a lawsuit by Burbank Grease that sought civil tort remedies and other common law claims as well as statutory damages and penalties for misappropriation of confidential information.

The case provides an analysis of the legal remedies available to employers faced with the theft of confidential information such as customer lists and contact information. Importantly, the case also describes the specific policies Burbank Grease enacted and steps it took to protect its confidential information, thereby giving Wisconsin employers guidance on how to protect their corporate assets from competitors.

Background

Burbank Grease is in the business of collecting and processing used grease from retail, commercial and industrial customers. For example, the company collects used grease from fryers and grease traps at its restaurant customers, then processes and resells it. Burbank had approximately 11,250 customers in Wisconsin and 3,200 in surrounding states.

Larry Sokolowski was a territory manager who managed Burbank’s sales people and serviced customers. As a condition of his employment, Sokolowski received Burbank’s code of conduct and employee handbook. The code of conduct contained a confidential information clause that restricted the use of Burbank’s confidential information on a “need to know” basis that was “required in the normal course of business.” The employee handbook prohibited disclosure of trade secrets and confidential business information.

Sokolowski resigned his employment from Burbank but, before resigning, he signed an agreement with a competitor and collected customer information from Burbank’s computer system. He took the following information with him when he left:

1. The customer list for Burbank’s grease trap customers that contained contact information, volume and pricing data;

2. A spreadsheet of Burbank’s industrial clients with a proprietary pricing formula; and,

3. A spreadsheet showing revenue per customer per driver route.

Sokolowski loaded this information onto United Liquid’s computer system. Burbank sued Sokolowski, United Grease LLC and United Liquid.

Burbank’s Theories of Liability

Burbank asserted the following statutory and common law claims:

• Misappropriation of trade secrets in violation of Wis. Stats. § 134.90;
• Breach of Sokolowski’s duty of loyalty to Burbank;
• Intentional interference with Burbank’s business relationships; and,
• Computer crimes in violation of Wis. Stats. sec. 943.70(2).

The circuit court dismissed the complaint in its entirety because it believed Burbank’s customer information did not meet the definition of a “trade secret” under § 132.90 and because, by filing a claim under the statute, Burbank effectively precluded itself from asserting other common law claims. The circuit court also found there was no computer crime because Sokolowski was authorized to obtain the customer lists, data and pricing information on Burbank’s computer at the time he took it.

The Wisconsin Supreme Court held the circuit court was wrong to dismiss the complaint in its entirety, because common law claims for misappropriation of confidential information could be brought under the circumstances; that is, the trade secret statute is not the exclusive remedy for the theft of proprietary customer information. It also held, however, that there was no computer crime and affirmed the circuit court on that point.

Lessons for Employers

The Court recognized that employers possess protectable confidential information that may not rise to the level of a statutorily defined “trade secret.”

Employers looking to protect this information, however, must take care to properly identify and plead common law claims for misappropriation so as not to be barred from the statutory exclusivity of a misappropriation of trade secrets claim. Also important will be to clearly differentiate between a company’s trade secrets and other confidential information.

As for criminal sanctions for an employee’s misappropriation of computer data, the Wisconsin Supreme Court held that Wisconsin’s computer crimes statute that prohibits misappropriating computer stored information does not apply where the employee lawfully obtained the information. However, it does not appear that the Court attempted to draw any parallels to the federal law dealing with misappropriation of computer data, the Computer Fraud and Abuse Act (“CFAA”). 18 U.S.C § 1030.

Under the CFAA, courts have found violations of the law where the employee, while still employed with his or her current employer, begins acting as an agent for another, which is precisely what occurred between Sokolowski and United Liquid. See Shurgard Storage Centers Inc. v. Safeguard Self Storage Inc., 119 F. Supp. 2d 1121 (W.D. Wash. 2000)(employee who sent his current employer’s proprietary information to his new employer constituted intentional access to a computer without authorization and obtaining information from a computer exceeding authorized access under the CFAA); see also Inter
national Airport Centers v. Jacob Citrin, 2006 U.S. App. LEXIS 5772 (7th Cir. 2006)(Defendant’s authorization to access plaintiff’s computer system and information ended when defendant employee resolved to destroy computer files).

Even if there is no liability for misappropriation under Wisconsin’s computer crimes statute, therefore, there may still be a claim against a former employee under federal law.

For more information on this case, contact John D. Finerty, Jr. or Luis I. Arroyo at Michael Best & Friedrich at (414) 271-6560 or on the Internet at [email protected] or [email protected].