W.D. Louisiana Notes Split Re Whether Lost Profits Constitute Recoverable Damages Under CFAA

Per Frees, Inc. v. McMillian, Slip Copy, 2007 WL 2264457 (W.D.La . Aug 06, 2007) (NO. CIV.A. 05-1979):

Defendants contend that lost revenues are not compensable damages in this case because there has not been an interruption of computer service. See Record Document 82-3 at 1. They argue the phrase "any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service " is not only a jurisdictional threshold, but also a limitation on the types of recoverable damages. 18 U.S.C. ยง 1030(e)(11). Frees rejects this contention, arguing that a plaintiff is entitled to recover ordinary "compensatory damages" once the jurisdictional threshold has been met.

The Fifth Circuit has not addressed this issue and the circuits addressing the issue are split. See Nexans Wires S.A. v. Sark-USA, Inc., 166 Fed. Appx. 559 (2nd Cir.2006); Creative Computing v. Getloaded.com LLC, 386 F.3d 930 (9th Cir.2004). The Ninth Circuit held that loss of business and business goodwill constitutes recoverable damages under the CFAA [Computer Fraud and Abuse Act], but the Court failed to provide any discussion or give any reason for its holding. See Creative Computing, 386 F.3d at 936. Conversely, the Second Circuit excluded lost profits from the recoverable damages, stating:

As the district court correctly recognized, the plain language of the statute treats lost revenue as a different concept from incurred costs, and permits recovery of the former only where connected to an "interruption of service." Nexans, 166 Fed. Appx. at 562.

However, the district court in Nexans simply found that the plaintiff did not allege "loss" sufficient to establish the jurisdictional threshold; the court did not discuss whether lost profits would be recoverable as damages, nor did the court address the issue.


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