Delaware Business Litigation Report

Delaware Superior Court Allows Statutory Tort Claims for Computer Crimes to Proceed Alongside Breach of Contract Claims

Work Capital, LLC v. AlphaOne Capital Partners, LLC, C.A. No. N19C-08-036 PRW CCLD (Del. Super. June 25, 2020)
Delaware law may provide statutory tort remedies in addition to contractual remedies for actions involving computer system misuse, as demonstrated by a recent Delaware Superior Court opinion. In Work Capital v. AlphaOne Capital Partners, plaintiff Work Capital brought an action in the Superior Court initially alleging only three counts for breach of contract. Plaintiff later amended the complaint, adding one count for violation of Delaware’s Computer Related Offenses Act, 11 Del. C. §§ 931-941 (the “Act”).

Plaintiff, a Delaware LLC providing asset management and related consulting services to investors, hired defendant AlphaOne Capital Partners to manage its back-office, finance, legal, compliance, sales, and marketing services. Pursuant to a Service Level Agreement executed in May 2017 (the “SLA”), defendant was obligated to protect plaintiff’s confidential information, adhere to a non-compete provision, and refrain from unilaterally terminating the agreement prior to May 2022. In 2019, however the parties’ relationship began to fray after defendant allegedly transferred plaintiff’s confidential business information to one of plaintiff’s former managers. According to plaintiff, defendant also began to provide services for the former manager in violation of the SLA’s non-compete provision. Plaintiff further alleged that defendant wished to work for the former manager and simply fabricated reasons to terminate the SLA for cause. Defendant, for example, allegedly claimed falsely that plaintiff had failed to remit certain payments dating back to 2017. After plaintiff refused to make those payments, defendant allegedly used its position and control over plaintiff’s computer systems to exclude plaintiff from accessing the systems and purportedly directed plaintiff’s customers to make payments directly to the defendant by using plaintiff’s own servers. After filing its initial complaint, plaintiff amended the complaint to add a statutory tort claim under Delaware’s Computer Related Offenses Act Sections 931-941, seeking statutorily-provided remedies such as a temporary injunction. 

Defendant moved to dismiss the statutory cause of action at the pleadings stage, arguing under Superior Court Rule 12(b)(6) that plaintiff failed to state a claim under Sections 932-935 of the Act because, inter alia, plaintiff did not allege adequate factual support of misconduct or defendant’s intent of the alleged misconduct. Defendant also argued that plaintiff’s belated addition of the statutory claim was simply “bootstrapped” to the contract claims at issue. The Court rejected defendant’s arguments, finding that the well-pled allegations supported reasonable inferences that, if true, would constitute violations of several sections of the Act. The Court also addressed defendant’s arguments that the statutory tort claims were duplicative of and bootstrapped to the breach of contract claims. The Court quickly concluded that the “statutory tort claims arise out of duties imposed by statute and are thus independent of [defendant’s] contractual duties.” Moreover, according to the Court, the requested statutory relief was not duplicative of the contract claims because the statute provided for injunctive relief, treble damages under a theory of restitution, as well as “statutorily mandated attorneys’ fees.” Accordingly, the Court denied defendant’s motion to dismiss. 

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