United States District Court, S.D. California
FREEMAN INVESTMENT MANAGEMENT CO., LLC, a Delaware Corporation, Plaintiff,
v.
FRANK RUSSELL COMPANY, a Washington Company, d/b/a RUSSELL INVESTMENT GROUP, Defendant.
ORDER: (1) DENYING DEFENDANT’S MOTION TO
DISMISS, (2) DENYING DEFENDANT’S MOTION TO AMEND, AND
(3) SETTING HEARING (ECF NOS. 86, 133, 134, 154, 159, 160,
173, 188)
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.
BACKGROUND
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 ...