A New York federal court has tossed out a loungewear brand’s trade secret lawsuit against a former freelance designer for allegedly stealing confidential information from the company to launch her own brand. In a decision this month, the U.S. District Court for the Eastern District of New York sided with Melissa McNamara, a former freelance contractor for undergarment and loungewear brand Negative, Inc., granting her motion to dismiss a high-profile lawsuit centered on allegations of trade secrets theft and fraud. The court found that Negative failed to adequately plead its federal claims, including for trade secret misappropriation, and declined to exercise jurisdiction over the company’s remaining state law claims.
The Background in Brief: Negative filed its trade secret-centric lawsuit against McNamara in November 2023, alleging that she unlawfully accessed and downloaded confidential business information in the days leading up to her resignation. The complaint maintains that McNamara took with her a broad range of files from Negative’s Google Drive and Shopify accounts, including customer lists, pricing strategies, supplier details, product designs, and marketing plans, which she subsequently used to launch a competing venture.
Against this background, Negative accused McNamara of violating the CFAA and DTSA, and also lodged claims under New York law for misappropriation of trade secrets, conversion, unfair competition, and unjust enrichment. In response, McNamara filed a motion to dismiss, asserting that she was authorized to access the files at issue and that Negative failed to take adequate steps to treat the information as trade secrets.
No “Unauthorized Access,” Trade Secret Protections
In her March 13 memo and order, Judge Nina R. Morrison court ruled in McNamara’s favor, rejecting Negative’s Computer Fraud and Abuse Act (“CFAA”) claim on the basis of the Supreme Court’s Van Buren v. U.S. precedent, which narrowed the statute’s reach to prohibit only access to computer systems or files that a user is explicitly forbidden from accessing. Since Negative conceded that McNamara was granted access to the company’s systems, including the files in question, her use of that access – even if allegedly improper – does not amount to a CFAA violation, the court held.
Turning to Negative’s Defend Trade Secrets Act (“DTSA”) claim, the court concluded that Negative failed to show that it had taken “reasonable measures” to keep the allegedly stolen information secret. Judge Morrison emphasized the absence of a non-disclosure agreement or any specific allegation that McNamara was informed that the materials were confidential. While Negative pointed to technical security measures like two-factor authentication and limited file-sharing permissions, the court found these to be insufficient, stating that “basic procedures” used in everyday digital file management do not automatically elevate data to trade secret status.
Negative’s argument that McNamara’s conduct, including making duplicate files and changing access settings to conceal her downloads, amounts to unauthorized use also fell flat. The court held that such conduct, while possibly deceptive, did not affect the fundamental analysis under the CFAA or DTSA.
With the foregoing in mind, the court dismissed Negative’s the federal claims with prejudice. Since Negative made no request to amend its pleadings, Judge Morrison declined to retain jurisdiction over the remaining state law claims (trade secret misappropriation, conversion, unfair competition, and unjust enrichment), and dismissed them without prejudice, allowing Negative to potentially refile in state court.
The court also terminated the preliminary injunction previously entered by consent, which had barred McNamara from using or disclosing Negative’s data.
While the ruling marks a definitive win for McNamara in federal court, the case may not be over. Negative could pursue its claims in state court, but the decision underscores the importance of clearly documented confidentiality practices – especially in the fashion industry, where reliance on freelancers and digital collaboration is common. The case also serves as a cautionary tale for brands navigating the increasingly blurred lines between authorized access and alleged misuse of information in the digital workspace.
The case is Negative, Inc. v. Melissa McNamara, 1:23-cv-08503 (EDNY).
Source: Court Nixes Negative’s Trade Secret Lawsuit Against Freelancer
