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Freeman Investment Management Co., LLC v. Frank Russell Co.

United States District Court, S.D. California

July 18, 2016

FREEMAN INVESTMENT MANAGEMENT CO., LLC, a Delaware Corporation, Plaintiff,


          Hon. Janis L. Sammartino, United States District Judg.

         Presently before the Court are Defendant Frank Russell Company’s 12(b)(1) Motion to Dismiss for Lack of Jurisdiction (MTD, ECF No. 173[1]) and Motion for Leave to Amend Its Answer to Modify Its Affirmative Defenses (Mot. to Amend, ECF No. 86), as well as Plaintiff Freeman Investment Management Co., LLC’s Oppositions to (ECF Nos. 212 & 217, 97, respectively) and Defendant’s Replies in Support of (ECF Nos. 235, 156, respectively) Defendant’s motions. Also pending before the Court are Plaintiff’s Motion for Summary Judgment Dismissing Affirmative Defenses of Unclean Hands, Waiver, and Estoppel (Pl.’s MSJ, ECF No. 133); Defendant’s Motion for Summary Judgment (Def.’s MSJ, ECF No. 134[2]); Plaintiff’s Motion to Exclude Testimony of Sumanth Addanki and Jeffrey Wurgler (Pl.’s Daubert Mot., ECF No. 154); Defendant’s Daubert Motion to Preclude Opinions of Charles Porten and Certain Opinions of Jeffrey Kinrich (Def.’s Daubert Mot., ECF No. 159); and Defendant’s Objection and Motion to Set Aside Magistrate Judge’s Order Granting in Part and Denying in Part Defendant’s CivLR 16.1(f)(1)(B) Motion to Continue Final Pretrial Conference Currently Set for June 9, 2016 (ECF No. 253), all of which are fully briefed.

         The Court vacated the hearings on these matters, taking some of them under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). (ECF Nos. 122, 181, 226, 265.) Having considered the parties’ arguments and the law, the Court DENIES Defendant’s MTD (ECF No. 173), DENIES Defendant’s Motion to Amend (ECF No. 86), and SETS A HEARING on the parties’ MSJs (ECF Nos. 133, 134, 160) and Daubert Motions (ECF Nos. 154, 159) for August 18, 2016 at 1:30 p.m. in Courtroom 4A.


         I. Factual Background

         John Freeman, who has worked in the field of investment management and research for over twenty-five years, founded Plaintiff in 2008. (First Am. Compl. (FAC) ¶¶ 5-6, ECF No. 18.) When Mr. Freeman began his employment at Plaintiff, he received a copy of the Freeman Employee Handbook and agreed to its terms. (Decl. of John Freeman (Freeman Decl.) ¶ 19, ECF No. 212-2.) The 2009 Freeman Employee Handbook provided that “[a]ny and all inventions created, in whole or in part, during an employee’s work hours, or from the use of the company’s equipment or facilities, is a ‘work for hire’ and the property of the company.” (Freeman Decl. Ex. J at 68, ECF No. 212-4 at 26.[3]) Similarly, “any suggestions, innovations, inventions, or other matters created by an employee on work time or with company tools or property” were “property of the company.” (Freeman Decl. Ex. J at 67, ECF No. 212-4 at 25.)

         Prior to and after founding Plaintiff, Mr. Freeman did significant research in the area of investment strategies. (FAC ¶ 7, ECF No. 18.) This included “conduct[ing] extensive calculations, wr[iting] papers, and prepar[ing] charts and graphs that laid out the advantages of emphasizing volatility as a new investment style, and as a basis for calculating volatility-based indexes to provide a benchmark for tracking stock performance.” (Id. at ¶ 8.)

         In fall 2009 Mr. Freeman contacted Defendant, which also provides investment products and services, to discuss a potential business deal. (Id. at ¶¶ 9-10.) Because Defendant’s representatives assured Plaintiff that Defendant would respect Plaintiff’s intellectual property (id. at ¶ 11) and signed a non-disclosure agreement (id. at ¶ 14), Plaintiff shared the results of its research with Defendant (id.). This included a document titled “Divide and Conquer: A More Efficient Approach to Equity Style” (the White Paper). (Id. at ¶ 17.) The White Paper was written by Mr. Freeman as an employee of Plaintiff and using an office, computer, and research and data from subscriptions provided by Plaintiff. (Freeman Decl. ¶ 9, ECF No. 212-2.)

         After several months spent learning the details of Plaintiff’s research and strategies, Defendant informed Plaintiff that it would not proceed with the proposed business venture. (FAC ¶ 29, ECF No. 18.) In early 2011, however, Defendant publicly announced new indices emphasizing volatility (id. at ¶ 31), which adopt Plaintiff’s confidential and trade secret information (id. at ¶ 41).

         Prior to Defendant’s announcement of its own indices, Christopher Siriani, Plaintiff’s then-Director of Operations and Chief Compliance Officer (Decl. of Christopher Siriani (Siriani Decl.) ¶ 1, ECF No. 212-1), filed a Certificate of Cancellation with the Delaware Secretary of State in December 2010 to dissolve Plaintiff (Decl. of Eric B. Evans (Evans Decl.) Ex. 30, ECF No. 183-31). Pete Johnson filed a Certificate of Correction on November 26, 2013, which claimed that the Certificate of Cancellation filed by Mr. Siriani was null and void because it “was filed without consent or approval of the board of managers.” (Evans Decl. Ex. 34, ECF No. 183-35.)

         II. Procedural Background

         Plaintiff filed its initial complaint on December 6, 2013, alleging causes of action for trade secret misappropriation, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of confidence, fraud, and constructive fraud. (ECF No. 1.) On July 7, 2014, Plaintiff filed its FAC, dropping its cause of action for breach of confidence. (ECF No. 18.) Defendant answered the FAC on January 16, 2015, raising affirmative defenses of unclean hands, waiver, and estoppel. (Answer, ECF No. 31.)

         On January 7, 2016-just prior to the discovery cut-off (see ECF No. 75) and after the deadline to amend the pleadings (see ECF No. 41)-Defendant filed the instant Motion to Amend (ECF No. 86). The Court declined to expedite the hearing and shorten the briefing schedule as Defendant requested. (See ECF Nos. 87, 95.)

         On February 4, 2016, Defendant asked the Court to modify the scheduling order to extend, among other things, the discovery cut-off. (See ECF No. 125.) While that motion was pending, the parties filed their MSJs and Daubert Motions (see ECF Nos. 133, 134, 154, 159, 160) and Defendant filed the instant MTD (see ECF No. 173). On April 28, 2016, Magistrate Judge Ruben B. Brooks granted Defendant leave to take an additional fourteen hours of deposition testimony but otherwise declined to extend any of the remaining case deadlines. (See ECF No. 225.) After the Court vacated the final pretrial conference on May 16, 2016 (see ECF No. 245), Magistrate Judge ...

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