Blockchain Innovation, LLC v. Franklin Resources, Inc.

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BLOCKCHAIN INNOVATION, LLC, Case No. 21-cv-08787-TSH 8 Plaintiff, ORDER GRANTING IN PART AND 9 v. DENYING IN PART MOTION FOR SUMMARY JUDGMENT; GRANTING 10 FRANKLIN RESOURCES, INC., et al., IN PART AND DENYING IN PART CROSS-MOTION FOR PARTIAL 11 Defendants. SUMMARY JUDGMENT (PUBLIC VERSION OF ECF NO. 391) 12 Re: Dkt. Nos. 275, 307 13 14 I. INTRODUCTION 15 Pending before the Court is a motion for summary judgment brought by Defendants 16 Franklin Resources, Inc. d/b/a Franklin Templeton (“FRI”), FT FinTech Holdings, LLC (“FT 17 FinTech”), Franklin Templeton Companies, LLC (“FT Companies”), Jennifer Johnson and Roger 18 Bayston. ECF Nos. 275; 276-2.1 Plaintiff Blockchain Innovation, LLC (“Plaintiff” or 19 “Blockchain”) filed an Opposition and Cross-Motion for Partial Summary Judgment (ECF Nos. 20 307; 311-9) (“Opp’n & Cross-Mot.”). Defendants filed a Reply In Support of Motion for 21 Summary Judgment and Opposition to Plaintiff’s Cross-Motion (ECF Nos. 334, 335-2) (“Defs.’ 22 Opp’n & Reply”) and Plaintiff filed a Reply in support of its cross-motion (ECF Nos. 352; 357-2) 23 (“Pl.’s Reply”). The Court held a hearing on November 4, 2024 and now issues this order. For 24 25 1 For precision’s sake, citations herein are to the unredacted versions of Defendants’ motion, Plaintiff’s opposition and cross-motion, Defendants’ opposition and reply, and Plaintiff’s reply 26 (ECF Nos. 276-2; 311-9; 335-2; and 357-2) and the parties’ declarations and exhibits in support of their respective motions, which were filed under seal. Most sections of these documents cited 27 within this order can be found in redacted versions the parties filed on the public docket. See ECF 1 the reasons stated below, the Court GRANTS IN PART AND DENIES IN PART Defendants’ 2 Motion and GRANTS IN PART AND DENIES IN PART Plaintiff’s Cross-Motion.2 3 II. BACKGROUND 4 Blockchain is a Delaware limited liability company. Third Amended Complaint (“TAC”) 5 ¶ 51, ECF No. 246. Defendant FRI is an asset management company incorporated in Delaware 6 and is the controlling shareholder of Defendant FT FinTech. TAC ¶ 52. Defendants FT FinTech 7 and FT Companies are Delaware limited liability companies. TAC ¶¶ 53, 54. Defendant Jennifer 8 Johnson is the President and Chief Executive Officer (CEO) of FRI. TAC ¶ 55. Defendant Roger 9 Bayston is a longstanding executive at FRI. TAC ¶ 56. 10 Onsa was a startup company that “developed . . . blockchain technology to tokenize 11 financial assets.” TAC ¶ 2. On October 28, 2019, Defendant FT FinTech invested in Onsa – then 12 called TokenVault, Inc. – through a stock purchase agreement (“SPA”). TAC ¶ 4; see Defs.’ Ex. 13 39 (SPA). Under the terms of the SPA, FT FinTech paid $5.5 million to Onsa and $1 million to its 14 founder, Austin Trombley, in exchange for 100% of Onsa’s voting shares and roughly a quarter of 15 Onsa’s non-voting shares. SPA §§ 1.1(b), 1.1(e)(i); TAC ¶ 96. The SPA provided that Onsa’s 16 board would be “initially comprised” of Bayston as Onsa’s sole board member. SPA § 9.5; see 17 TAC ¶ 4. Under the terms of the SPA, Bayston was appointed as interim president, interim 18 secretary, interim treasurer, and interim Chief Executive Officer. SPA § 9.6. The SPA established 19 certain milestones for Onsa to reach, upon which FT FinTech would make additional payments of 20 $1 million to Mr. Trombley and $2.5 million to Onsa and purchase additional shares of non-voting 21 Onsa stock (Schedule A milestones), plus additional payments if Onsa met the Schedule B 22 milestones. TAC ¶ 198; SPA §§ 1.1(e)(ii), 1.1(e)(iii), 1.1(f). 23 In July 2020, Bayston allegedly terminated Onsa’s then-CEO and “all other significant 24 employees” and ceased all Onsa business operations with Johnson’s knowledge and approval. 25 TAC ¶ 7. Plaintiff alleges that at the time, Onsa was on its way to reaching the first milestone, 26 which would trigger a $1 million payment to Mr. Trombley and a capital infusion of $2.5 million 27 1 by FT FinTech to Onsa. TAC ¶¶ 173, 198; SPA §§ 1.1(e)(ii), 1.1(f)(1). In November 2020, 2 Onsa’s board of directors, which consisted solely of Bayston, voted to approve an assignment for 3 the benefit of creditors (“ABC”), which transferred all of Onsa’s assets to a liquidator called 4 BLKCHN, LLC. Onsa’s assets included its intellectual property and legal claims. TAC ¶ 10. 5 In October 2020, Franklin Templeton “began a multi-phase development effort including 6 code development, internal product launch and review, scale testing and benchmarking, internal 7 usage testing, and expansion” to develop its own blockchain technology. Defs.’ Mot. at 11; see 8 generally Defs.’ Ex. No. 78 (October 2, 2020 email and attached presentation of development 9 plan). In April 2021, FT FinTech launched the “Benji” app and Franklin OnChain U.S. 10 Government Money Fund. Defs.’ Ex. 80. The Franklin OnChain U.S. Government Money Fund 11 was “the first U.S.-registered mutual fund to use a public blockchain to process transactions and 12 record share ownership.” Defs.’ Ex. 95. 13 In August 2021, Plaintiff Blockchain purchased all of Onsa’s assets, including any causes 14 of action Onsa had, from BLKCHN through an asset purchase agreement (“August 2021 APA”). 15 TAC ¶ 12; Defs.’ Ex. 40. 16 Blockchain filed this case in this Court on November 12, 2021, and filed the operative 17 TAC on July 22, 2024. ECF Nos. 1, 246. In its TAC, Plaintiff alleges claims against FT 18 Defendants for trade secret misappropriation under the federal Defend Trade Secrets Act 19 (“DTSA”), 18 U.S.C. § 1836(b), and for breach of contract; against Roger Bayston, FT FinTech, 20 and FRI for breach of fiduciary duty; and against Defendant Johnson for aiding and abetting the 21 other defendants’ alleged breaches of fiduciary duty. TAC ¶ 64. Defendants filed answers to the 22 TAC on August 5, 2024. ECF Nos. 250, 253. None of the Defendants have asserted any 23 counterclaims or crossclaims. See generally ECF Nos. 250, 253. Fact discovery closed on May 24 31, 2024, and expert discovery closed on August 2, 2024. ECF No. 210. 25 On August 19, 2024, Defendants brought the instant motion, seeking summary judgment 26 on all of Plaintiff’s claims. See Mot. at ii. On September 9, Plaintiff filed its Opposition and 27 Cross-Motion for Partial Summary Judgment. In its cross-motion, Plaintiff asks the Court to grant 1 not entitled to the presumption of the business judgment rule, (2) that Defendants do not own any 2 of the alleged trade secrets that are the subject of Plaintiff’s DTSA claim, and (3) that Defendants 3 are not entitled to several affirmative defenses provided in their answers to the TAC. Opp’n & 4 Cross-Mot. at ii. 5 III. LEGAL STANDARD 6 Summary judgment is proper where there is “no genuine dispute as to any material fact and 7 the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The party moving 8 for summary judgment bears the initial burden of identifying those portions of the pleadings, 9 discovery and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex 10 Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those that may affect the outcome 11 of the case, and a dispute as to a material fact is genuine if there is sufficient evidence for a 12 reasonable jury to return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 13 U.S. 242, 248 (1986). 14 If the moving party meets its initial burden, the opposing party must then set forth specific 15 facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(c)(1); Anderson, 477 U.S. 16 at 250. All reasonable inferences must be drawn in the light most favorable to the nonmoving 17 party. Olsen v. Idaho State Bd. of Med., 363 F.3d 916, 922 (9th Cir. 2004). However, it is not the 18 task of the Court “‘to scour the record in search of a genuine issue of triable fact.” Keenan v. 19 Allan, 91 F.3d 1275, 1279 (9th Cir. 1996). The nonmoving party has the burden “to identify with 20 reasonable particularity the evidence that precludes summary judgment.” Id.; Cafasso, U.S. ex rel. 21 v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1061 (9th Cir. 2011) (The nonmoving party “must 22 set forth non-speculative evidence of specific facts, not sweeping conclusory allegations.”) 23 (citations omitted). Thus, “[t]he district court need not examine the entire file for evidence 24 establishing a genuine issue of fact, where the evidence is not set forth in the opposing papers with 25 adequate references so that it could conveniently be found.” Carmen v. S.F. Unified Sch. Dist., 26 237 F.3d 1026, 1031 (9th Cir. 2001); Christian Legal Soc. Chapter of Univ. of Cal. v. Wu, 626 27 F.3d 483, 488 (9th Cir. 2010) (“Judges are not like pigs, hunting for truffles buried in briefs.”) 1 “While the evidence presented at the summary judgment stage does not yet need to be in a 2 form that would be admissible at trial, the proponent must set out facts that it will be able to prove 3 through admissible evidence.” Norse v. City of Santa Cruz, 629 F.3d 966, 973 (9th Cir. 2010) 4 (citing Fed. R. Civ. P. 56(c)(4) (“An affidavit or declaration used to support or oppose a motion 5 must be made on personal knowledge, set out facts that would be admissible in evidence, and 6 show that the affiant or declarant is competent to testify on the matters stated.”)). If the 7 nonmoving party fails to identify such evidence, or if it offers evidence that is “merely colorable, 8 or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249– 9 50 (citations omitted). 10 IV. DISCUSSION 11 A. Defendants’ Motion for Summary Judgment 12 1. FT Defendants – Defend Trade Secrets Act Claims 13 FRI, FT FinTech, and FT Companies (the “FT Defendants”) seek summary judgment on 14 Plaintiff’s claim for violations of the Federal Defend Trade Secrets Act (“DTSA”). Mot. at 12–17. 15 a. Whether the ATS Qualify As Trade Secrets 16 The DTSA defines a trade secret as “all forms and types of financial, business, scientific, 17 technical, economic, or engineering information, including patterns, plans, compilations, program 18 devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or 19 codes . . . if—(A) the owner thereof has taken reasonable measures to keep such information 20 secret; and (B) the information derives independent economic value, actual or potential, from not 21 being generally known to, and not being readily ascertainable through proper means by, another 22 person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. 23 § 1839(3). “[A] plaintiff[] must identify the trade secrets and carry the burden of showing they 24 exist.” InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 658 (9th Cir. 2020) 25 (quotation omitted). “The plaintiff ‘should describe the subject matter of the trade secret with 26 sufficient particularity to separate it from matters of general knowledge in the trade or of special 27 knowledge of those persons . . . skilled in the trade.’” Id. (quoting Imax Corp. v. Cinema Techs., 1 Defendants maintain Plaintiff cannot demonstrate that the alleged trade secrets (“ATS”) 2 qualify as legally protectable trade secrets because Plaintiff has no evidence that the ATS were not 3 generally known or that the ATS derived value from not being generally known. Mot. at 12–15. 4 i. Declaration of Austin Trombley 5 Plaintiff submitted a declaration from Austin Trombley (ECF No. 312-2) in support of its 6 opposition to Defendants’ Motion. Plaintiff relies on Mr. Trombley’s declaration to support its 7 assertion that the ATS were not generally known and derived value from not being generally 8 known. Mr. Trombley’s declaration expands upon Plaintiff’s disclosures in discovery, describing 9 the work that went into creating the ATS. Trombley Decl. ¶¶ 25–56, ECF No. 312-2. The 10 Trombley declaration also includes a table that explains in broad strokes the function of each ATS 11 and sets forth how a person with knowledge of each ATS could use that knowledge. Trombley 12 Decl. ¶ 57. 13 Defendants object to Mr. Trombley’s declaration, arguing that it should be struck as an 14 untimely supplemental expert report. Defs.’ Reply at 2. In ECF No. 369, the Court found 15 Plaintiff had failed to establish Mr. Trombley’s qualifications to testify as an expert and excluded 16 Mr. Trombley from testifying as an expert. ECF No. 369 at 21. However, the Court finds Mr. 17 Trombley’s instant declaration is based on his personal knowledge and experience as a percipient 18 witness who helped to develop the ATS, rather than on any purported qualifications as an expert. 19 See, e.g., Trombley Decl. ¶¶ 19, 20, 33, 35, 37, 40. See Defs.’ Ex. 31 at 117–34. The Court thus 20 finds Mr. Trombley’s declaration offers fact, rather than expert, testimony. Therefore, his 21 declaration did not need to comply with the deadline for an expert report. Accordingly, the Court 22 OVERRULES Defendants’ objection to his testimony. 23 ii. Whether the ATS were “not generally known” 24 Plaintiff has produced evidence that the ATS were not generally known. Mr. Trombley’s 25 declaration establishes that at least some of the ATS were not generally known within the industry 26 or readily ascertainable. See, e.g., Trombley Decl. ¶¶ 28, 31, 33 (“I am not aware of any other 27 company in the industry at the time that had put together such a key configuration . . . [T]o this 1 configuration, apart from Franklin.”), 35 (“I am not aware of any other company in the industry at 2 the time that had put together such an approach for handling lost wallet keys”), 37. The Court 3 finds these elements of Mr. Trombley’s declaration go beyond mere “conclusory statements of 4 uniqueness.” See Defs.’ Reply at 4. Mr. Trombley’s declaration also discusses the efforts taken to 5 maintain secrecy of the ATS. See Trombley Decl. ¶¶ 38, 46, 51. 6 Defendants contend that expert testimony is required to establish that the ATS were not 7 generally known, and Plaintiff has not provided any expert testimony that speaks directly to that 8 issue. But while the burden is on the plaintiff to establish that an alleged trade secret is in fact a 9 trade secret, expert testimony is not necessarily required to create a triable issue. See InteliClear, 10 978 F.3d at 658-60 (relying on declaration from company officer and software system architect 11 submitted in opposition to motion for summary judgment “expand[ing] upon the initial definition 12 [of its ATS] and describ[ing] specific features of the InteliClear System as trade secrets.”). 13 Viewing the facts in the light most favorable to Plaintiff, the Court finds a reasonable jury 14 could find that [the ATS] are not “generally known” or “readily ascertainable” to others. 18 15 U.S.C. § 1839(3). 16 iii. Whether the ATS Derive Economic Value from their Secrecy 17 “To have independent economic value, a trade secret must be sufficiently valuable and 18 secret to afford an actual or potential economic advantage over others.” Cisco Sys., Inc. v. Chung, 19 462 F. Supp. 3d 1024, 1052 (N.D. Cal. 2020) (quoting Calendar Research LLC v. StubHub, Inc., 20 2017 WL 10378336, at *3 (C.D. Cal. Aug. 16, 2017)). “A plaintiff may show independent 21 economic value ‘by circumstantial evidence of the resources invested in producing the 22 information, the precautions taken to protect its secrecy, and the willingness of others to pay for its 23 access.’” Cisco Sys., Inc., 462 F. Supp. 3d at 1052 (quoting Calendar Rsch. LLC, 2017 WL 24 10378336, at *3). “The standard to show that trade secrets derive [independent] economic value is 25 not a high standard.” Id. (quoting Calendar Rsch. LLC, 2017 WL 10378336, at *4). 26 Plaintiff has shown that the ATS derived value from not being generally known. Plaintiff 27 has produced evidence of the time and resources invested in creating the ATS and of the steps 1 testimony estimating expenditures on research and development related to the ATS); 183 ¶¶ 452– 2 61 (expert declaration describing timeline of ATS creation and noting maintenance of ATS on Git 3 repositories that were managed on private account); Trombley Decl. ¶¶ 38, 46, 51 (describing 4 steps to maintain confidentiality of the ATS), ¶ 57 (describing how a person with knowledge of 5 each ATS could use that knowledge). Defendants maintain that Plaintiff’s description of these 6 efforts fails to create a triable issue because the ATS were generally known to begin with. Reply 7 at 5. As discussed above, the Court finds Plaintiff has satisfied its burden of demonstrating that 8 the ATS were not generally known. Viewing the facts in the light most favorable to Plaintiff, a 9 reasonable jury could thus find that [the ATS] derive value from “not being generally known” or 10 “readily ascertainable[.]” 18 U.S.C. § 1839(3).3 Accordingly, the Court finds Plaintiff has 11 satisfied its burden at the summary judgment stage to show that the ATS are protectable trade 12 secrets. 13 b. Ownership of the ATS 14 Defendants contend that Plaintiff cannot prove it owns any ATS and that Franklin owns all 15 ATS through Austin Trombley. Defs.’ Mot. at 15–17. Plaintiff cross-moves that Defendants do 16 not own any of the ATS. Opp’n & Cross-Mot. at 35. 17 Plaintiff asserts that all ATS were conceived between March 2018 and April 2020. Defs.’ 18 Ex. 31 at 117–34. Plaintiff attributes the conception of each of these ATS at least in part to Austin 19 Trombley. Id. Defendants argue that during that period in which the ATS were created, Mr. 20 Trombley was employed exclusively by Franklin. Defendants contend Franklin therefore owns all 21 ATS because Mr. Trombley entered into an intellectual property agreement with Franklin in 22 March 2018, which Defendants contend automatically assigned Franklin all IP Mr. Trombley 23 created. Defendants further contend Franklin owns all the ATS because Atul Patil, who Plaintiff 24 identifies as having helped to create the ATS, did not have any ownership rights in the ATS and 25 26 3 Defendants also argue that Plaintiff has not produced any evidence contradicting Defendants’ expert opinions that the ATS did not derive value from being secret. However, the Court granted 27 Plaintiff’s motion to exclude these expert opinions. ECF Nos. 364, 369 (excluding testimony of 1 did not transfer any ownership rights that may have existed to Plaintiff. Defs.’ Mot. at 16–17. 2 i. Waiver of Ownership Argument 3 Plaintiff argues that FT Defendants waived the argument that Franklin owns the ATS by 4 failing to timely disclose this theory during discovery. The Court agrees. Federal Rule of Civil 5 Procedure 26(e) requires a party to supplement or correct its response to an interrogatory or 6 disclosure under Rule 26(a) “in a timely manner if the party learns that in some material respect 7 the disclosure or response is incomplete or incorrect, and if the additional or corrective 8 information has not otherwise been made known to the other parties during the discovery process 9 or in writing[.]” Fed. R. Civ. P. 26(e)(1)(A). 10 Plaintiff served its first set of interrogatories on FT Defendants on May 5, 2023. Pl.’s Ex. 11 175. There, Plaintiff asked FT Defendants to “Describe in detail Your contention that Onsa did 12 not own Onsa’s Technology (including . . . Onsa’s Trade Secrets . . .), including in Your 13 description an explanation of who You contend owns Onsa’s Technology and why” and to 14 “Describe in detail Your contention, if any, that Franklin has any rights with respect to . . . Onsa’s 15 Trade Secrets . . .” Pl.’s Ex. 175, Rogs 7 and 8. FT Defendants did not claim ownership of the 16 ATS in their responses to these interrogatories. See Pl.’s Ex. 177 at 19–22. 17 Plaintiff served its second set of interrogatories on FT Defendants on March 19, 2024. 18 Pl.’s Ex. 176. There, Plaintiff asked: 19 For each trade secret Plaintiff identified in response to the FT Defendants’ Interrogatory No. 1 (i.e., on a trade-secret-by-trade- 20 secret basis), describe Your contention, if any, that Plaintiff does not own or have the right to assert misappropriation of such trade secret, 21 including in Your response an Identification of any Documents supporting Your responses. 22 23 Pl.’s Ex. 176 at 5, Interrogatory 19. On May 31, 2024, in their first set of supplemental responses 24 to this interrogatory, FT Defendants responded: “Because Plaintiff has failed to sufficiently 25 identify or explain its ownership of the alleged trade secrets, the FT Defendants cannot respond to 26 this interrogatory.” Pl.’s Ex. 178 at 16–17. On July 1, 2024, FT Defendants provided their second 27 supplemental response to this interrogatory, asserting for the first time that all the trade secrets 1 conceived the ATS. Pl.’s Ex. 179 at 16–22. 2 Fact discovery closed on May 31, 2024, and expert discovery closed on August 2. ECF 3 No. 210. The deadline for initial expert disclosures and reports was June 14, 2024, and the 4 deadline for rebuttal expert disclosures and reports was July 12, 2024. Id. Trombley was deposed 5 as a corporate representative of Blockchain on May 9, 2024, and Patil was deposed on May 23, 6 2024. See Defs.’ Exs. 1 at 1; 16 at 1. FT Defendants contend that they timely raised their 7 ownership theory in response to new information gleaned from the Trombley and Patil 8 depositions. However, Defendants did not raise the argument that FT asserted ownership over the 9 ATS in their May 31 response to Interrogatory No. 19 and instead disclosed the theory on July 1, 10 2024. Defs.’ Reply at 5–6; see Pl.’s Ex. 179 at 17–18 (Defs.’ Second Supp. Responses to 11 Plaintiff’s Second Set of Interrogatories). Nor do Defendants show that the contention that FT 12 owned the ATS was “otherwise . . . made known to the other parties during the discovery process 13 or in writing[.]” Fed. R. Civ. P. 26(e)(1)(A). 14 The Court thus finds Defendants’ disclosure of its theory that FT owned the ATS is 15 untimely. This belated supplementation was neither substantially justified nor harmless. See Fed. 16 R. Civ. Proc. 37(c)(1). Defendants offer no legitimate reason for this belated supplementation. 17 Further, it was harmful, as it prevented Plaintiff from being able to pursue the issue in discovery. 18 In their reply, FT Defendants assert that they first argued that Plaintiff does not own the ATS in 19 2022 in their motion to dismiss. Reply at 5. But the fact that Defendants previously raised a 20 different challenge to Plaintiff’s ownership of the ATS does not save their new theory. FT 21 Defendants did not assert ownership over the ATS in their motion to dismiss; rather, they argued 22 that Plaintiff lacked standing to bring “trade secrets . . . claims premised on the work of Tokentech 23 India[.]” Defs.’ Mot. to Dismiss at 6, ECF No. 57 (unredacted version at ECF 60-3). Defendants’ 24 previous ownership argument was one of standing. In contrast, the theory they now advance – 25 that any work created by Austin Trombley for Onsa automatically belongs to FT Defendants – 26 would absolve Defendants of any misappropriation claims regardless of whether Franklin used the 27 ATS in creating its “Benji” application. 1 had closed is thus highly prejudicial to Plaintiff. Accordingly, the Court finds that Rule 37(c)(1) 2 bars FT Defendants from asserting ownership over the ATS. 3 ii. Genuine Dispute as to Material Facts Regarding Ownership 4 Even if Defendants’ ownership argument were not waived, there is genuine dispute as to 5 multiple facts that underpin FT Defendants’ ownership argument. First, Defendants conclude that 6 all ATS were exclusively created by Mr. Trombley and that Plaintiff does not own any ATS 7 through Atul Patil, whom Plaintiff credits as a co-creator of the ATS and who transferred certain 8 software “artifacts” to Barefoot Capital, LLC, pursuant to a September 2020 software transfer 9 agreement (“STA”).4 Defs.’ Exs. 31 at 117–34 (trade secret disclosures); 41 (STA). In support of 10 this argument, Defendants point to Patil’s deposition testimony that he never claimed ownership 11 of the ATS and argue that in any event, the artifacts transferred pursuant to the September 2020 12 STA and subsequently assigned to Plaintiff would not have included any ATS. Mot. at 16-17. 13 The Court declines to find as a matter of law that the STA did not transfer ownership of the ATS 14 or that that Patil’s deposition extinguishes any interest Patil may have had in the ATS. 15 Second, there is a genuine dispute as to whether Mr. Trombley was both an Onsa and 16 Franklin employee during the period the ATS were created. FT Defendants offer evidence to 17 support their contention that Mr. Trombley was a full-time Franklin employee and was not 18 employed by Onsa. See Defs.’ Exs. 1 at 34:24–35:10 (confirming Mr. Trombley did not receive a 19 salary at Onsa, left both Franklin and Onsa at the same time, and did not have a separate 20 separation agreement for Onsa), 72:8-14 (confirming Mr. Trombley started working at Franklin in 21 March 2018 and held a title), 74:6-8 (confirming Mr. Trombley “was a W-2 employee” at 22 Franklin). Plaintiff offers evidence in return to support its assertions that Mr. Trombley was 23 employed by Onsa when the ATS were created and that the IP agreement did not apply to Mr. 24 Trombley’s work for Onsa. See Pl.’s Exs. 62 (FT Outside Business Form dated 9/30/2019 25 reporting Mr. Trombley worked 15-20 hours/day for Onsa and received stock compensation for 26 4 Barefoot Capital, LLC (later renamed Maven Venture Capital, LLC) granted any rights in IP it 27 had obtained from Patil to Plaintiff via quitclaim assignment. See Defs.’ Ex. 31 at 137–40 (Pl.’s 1 that work); 137 at 81:5-14 (deposition testimony that Mr. Trombley was working 70-80 hours a 2 week for Onsa in 2019); 142 at 136:23–137:5 (deposition testimony from Mr. Bayston in his 3 capacity as Franklin Templeton’s corporate designee that he never told Mr. Trombley “that any 4 work that he did on Onsa’s intellectual property would be owned by Franklin Templeton[.]”). 5 Accordingly, Defendants’ motion for summary judgment as to Plaintiff’s DTSA claim is 6 DENIED. 7 2. FT Defendants – Breach of Contract 8 The FT Defendants move for summary judgment on Plaintiff’s claim for breach of 9 contract. In Count V of Plaintiff’s TAC, Plaintiff alleges Defendants FRI, FT FinTech, and FT 10 Companies breached a nondisclosure agreement (“NDA”), which Franklin Companies, LLC and 11 Token Vault Limited entered into on September 11, 2019. TAC ¶¶ 239–51; see Pl.’s Ex. 5 12 (NDA). Defendants assert Plaintiff lacks standing to bring a claim for breach of the NDA. Mot. 13 at 17–18. 14 TokenVault Limited was a Singapore business entity led by Austin Trombley that 15 transferred substantially all its assets to TokenVault, Inc. (a Delaware corporation) via an Asset 16 Purchase Agreement (“APA”) on October 28, 2019. Pl.’s Ex. 6 (October 2019 APA). The 17 October 2019 APA includes in the list of transferred assets “all . . . Contracts to which Seller or 18 any of the Seller Subsidiaries is a party or by which Seller or any of the Seller Subsidiaries is 19 bound that are used or held for use primarily in the operation or conduct of the Business as 20 currently conducted[.]” October 2019 APA § 2.2(a). The NDA states that Franklin Templeton 21 Companies, LLC “enter[s] into this Agreement for the benefit of that group of affiliated businesses 22 consisting of Franklin Resources, Inc. (‘FRI’) and FRI’s subsidiaries, partnerships, joint ventures 23 and related and affiliated business entities (collectively, ‘Franklin’).” Franklin and Company are 24 sometimes referred to therein as a “party” and collectively as the “parties.” NDA at 25 BLOCKCHAIN-00000233. The NDA provides: “[The NDA] may not be assigned by either party 26 . . . without the prior written consent of the other party. All of the terms and provisions contained 27 herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective 1 the terms of the NDA. Id. 2 Defendants do not dispute that any rights TokenVault, Inc. – which was later renamed 3 Onsa – might have had under the NDA would have been transferred to BLKCHN via the ABC 4 (ABC §§ 1.1, 3.1, Defs.’ Ex. 100 & Pl.’s Ex. 44), and subsequently from BLKCHN to Plaintiff. 5 Instead, Defendants contend that TokenVault Limited’s rights under the NDA could not have been 6 assigned to TokenVault, Inc. because FT Defendants did not consent to its assignment. Plaintiff 7 maintains it has standing to bring a claim for breach of the NDA because TokenVault, Inc. was an 8 assignee and successor of TokenVault Limited. 9 The Court finds Plaintiff has demonstrated that TokenVault Inc. was a successor entity to 10 TokenVault Limited. California courts impose successor liability where “the purchasing 11 corporation is a mere continuation of the seller.” Cleveland v. Johnson, 209 Cal. App. 4th 1315, 12 1327 (2012). “[A] corporation acquiring the assets of another corporation is the latter’s mere 13 continuation . . . upon a showing of one or both of the following factual elements: (1) no adequate 14 consideration was given for the predecessor corporation’s assets and made available for meeting 15 the claims of its unsecured creditors; (2) one or more persons were officers, directors, or 16 stockholders of both corporations.” Id. (emphasis in original, citation omitted). “[A] mere change 17 of name or a shift of assets” cannot defeat successor liability “when and where it is shown that the 18 new corporation is, in reality, but a continuation of the old.” Id. (quoting Blank v. Olcovich Shoe 19 Corp., 20 Cal. App. 2d 456, 461 (1937)). Such is the case here. Following the October 28, 2019 20 APA, TokenVault, Inc.’s officers, directors, and stockholders were comprised of TokenVault 21 Limited’s former leadership. The October 2019 APA, which transferred TokenVault Limited’s 22 assets to TokenVault, Inc., names Austin Trombley as the seller of TokenVault Limited, and 23 Aaron Travis as Token Vault Limited’s Chief Operating Officer. October 2019 APA at 24 BLOCKCHAIN-00000319, 00000323. The October 2019 SPA between TokenVault, Inc. and FT 25 FinTech, which was executed that same day, indicates that Austin Trombley held 100% of 26 TokenVault, Inc.’s voting stock prior to the SPA’s execution, names Aaron Travis and Austin 27 Trombley as representatives of TokenVault, Inc., and lists Aaron Travis as Token Vault, Inc.’s 1 right to repurchase stock); Defs.’ Ex. 39 at BLOCKCHAIN_000004000 (SPA signature page). 2 And although the October 2019 Asset Purchase Agreement purports to be made “in consideration 3 of . . . good and valuable consideration,” the APA does not indicate that TokenVault, Inc. paid any 4 money for the assets of TokenVault, Limited. Pl.’s Ex. 6 at 1. See also Pl.’s Ex. 132 ¶ 5 (June 28, 5 2024 declaration of Austin Travis stating that FT indicated that to invest in Onsa, “TV Singapore 6 would need to convert from a Singapore entity to a United States entity.”). Accordingly, the Court 7 finds that TokenVault, Inc. was a successor of TokenVault Limited. Plaintiff has thus satisfied its 8 burden of demonstrating standing to bring its claim for breach of contract at this juncture. 9 Because the Court finds a successor relationship exists between TokenVault, Inc. and 10 TokenVault Limited, the Court need not consider whether the NDA was validly assigned. 11 Accordingly, the Court DENIES Defendants’ motion for summary judgment as to 12 Plaintiff’s breach of contract claim. 13 3. Defendants FT FinTech, FRI and Bayston – Breach of Fiduciary Duty 14 Defendants FT FinTech, FRI, and Roger Bayston seek summary judgment on Plaintiff’s 15 claim for breach of fiduciary duty. In its cross-motion, Plaintiff asks this Court to grant partial 16 summary judgment in favor of Blockchain that Defendant Roger Bayston is not entitled to the 17 presumption of the business judgment rule. 18 a. Roger Bayston 19 Under Delaware law, “[c]orporate directors and officers owe fiduciary duties of care and 20 loyalty to the corporation and its stockholders.” In re Columbia Pipeline Grp., Inc. Merger Litig., 21 299 A.3d 393, 453–54 (Del. Ch. 2023). The duty of loyalty requires a director or officer to act in 22 good faith. Id. (citing Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)). 23 “Delaware has three tiers of review for evaluating director decision-making: the business 24 judgment rule, enhanced scrutiny, and entire fairness.” Reis v. Hazelett Strip-Casting Corp., 28 25 A.3d 442, 457 (Del. Ch. 2011). The applicable standard of review “depends initially on whether 26 the board members”: 27 (i) were disinterested and independent (the business judgment rule), (enhanced scrutiny), or (iii) confronted actual conflicts of interest 1 such that the directors making the decision did not comprise a disinterested and independent board majority (entire fairness). The 2 standard of review may change further depending on whether the directors took steps to address the potential or actual conflict, such as 3 by creating an independent committee, conditioning the transaction on approval by disinterested stockholders, or both. 4 5 Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1045–46 (Del. Ch. 2020) (quoting In 6 re Trados Inc. S’holder Litig., 73 A.3d 17, 36 (Del. Ch. 2013)). 7 i. Claims Based on Bayston’s Authorization of the ABC 8 Defendant Bayston was Onsa’s sole director from FT FinTech’s October 2019 APA until 9 November 2020, when Onsa’s board of directors – consisting solely of Bayston – voted to approve 10 an ABC liquidating Onsa and transferring its assets to BLKCHN, LLC. SPA §§ 9.5, 9.6; Defs.’ 11 Ex. 51. Defendants argue that Bayston did not breach his fiduciary duties in authorizing the 12 November 2020 ABC because Bayston’s decision to implement the ABC falls within the 13 protections of the business judgment rule and because Bayston relied on the advice of counsel in 14 authorizing the ABC. Mot. at 19–21. 15 Delaware Courts apply the business judgment rule when a director is disinterested and 16 independent. See Stream TV Networks, Inc., 250 A.3d at 1045–46. In contrast, Delaware courts 17 “appl[y] enhanced scrutiny when directors face subtle conflicts and situational pressures that could 18 undermine the integrity of their decisions, and when they take action that invades space 19 traditionally reserved for the stockholders.” In re Sears Hometown & Outlet Stores, Inc. 20 Shareholder Litig., 309 A.3d 474, 484 (Del. Ch.), modified on reargument, (Del. Ch. 2024). The 21 Court finds there are genuine disputes as to whether Bayston was disinterested and independent 22 such that the business judgment rule should apply. It is undisputed that Bayston was a longtime 23 executive at Franklin Templeton and remained in that role throughout his time as Onsa’s sole 24 director. Bayston did not receive any compensation for his role as Onsa’s sole director, was not an 25 Onsa shareholder, and received his salary and bonuses from Franklin Templeton. See Pl.’s Ex. 26 141 at 149:21-24, 150:11-14, 151:11-23; Defs.’ Exs. 45, 46 (Onsa capitalization tables including 27 list of Onsa shareholders). Plaintiff also offers evidence that Bayston’s employment with Franklin 1 188:3-19 (testimony of FRI executive Joe Boerio that Bayston “would be representing both” 2 Franklin Templeton and Onsa in discussions involving Onsa’s milestones). This evidence creates 3 a triable issue of fact as to whether Bayston was disinterested and independent. Accordingly, the 4 Court declines to apply the business judgment rule to Bayston’s actions on summary judgment. 5 More fundamentally, Plaintiff’s breach of fiduciary duty claim against Bayston is not 6 limited to his authorization of the ABC. Plaintiff alleges that Bayston breached his fiduciary 7 duties in part by deciding to wind down Onsa and cease all business operations in July 2020. See 8 TAC ¶¶ 47, 98, 187, 188, 195. Plaintiff alleges that at that time, Onsa had no significant creditors, 9 had valuable trade secrets and other IP, and was on track to achieve the first set of milestones that 10 would trigger further capital investment from FT FinTech. TAC ¶¶ 173, 198. These actions 11 together make up Plaintiff’s breach of fiduciary claim against Bayston. The Court declines to 12 carve out Bayston’s actions in authorizing the ABC months after work at Onsa had stopped from 13 Bayston’s decision to shutter business operations in the first instance. 14 Moreover, the evidence Defendants offer to demonstrate Bayston’s reliance on the advice 15 of counsel is from after Bayston initiated Onsa’s wind-down. See Defs.’ Exs. 52, 53, 84, 90. 16 Defendants offer no evidence to indicate that Bayston relied on counsel when he decided to wind 17 down Onsa in July 2020, and Plaintiff offers evidence to the contrary. See Pl.’s Ex. 84 (email 18 from Meredith Gibbons to Defendant Jennifer Johnson dated July 26, 2020, writing: “the Board of 19 Onsa has determined that it makes sense to begin the wind down of Onsa” and that “Onsa’s prior 20 legal counsel . . . informed the board Friday that they were declining legal representation so the 21 Onsa Board has been working to find new counsel over the weekend.”). 22 Accordingly, the Court DENIES Bayston summary judgment on Plaintiff’s claims for 23 breach of fiduciary duty based on Bayston’s authorization of the ABC. 24 ii. Breach of Duty of Loyalty 25 Defendants seek summary judgment for Bayston to the extent Plaintiff’s breach of 26 fiduciary duty claim is based on an alleged breach of the duty of loyalty. “Acting loyally requires 27 acting in good faith, and acting in good faith requires that the fiduciary subjectively believe that 1 Columbia Pipeline Grp., Inc. Merger Litig., 299 A.3d at 455. “[A] corporate fiduciary acts in bad 2 faith when the fiduciary ‘intentionally acts with a purpose other than that of advancing the best 3 interests of the corporation[,]’” regardless of the fiduciary’s reasons for intentionally failing to 4 advance the corporation’s best interests. Id. Defendants contend Plaintiff cannot offer any 5 evidence that Bayston breached the duty of loyalty and maintain that Bayston “prioritized his 6 duties to Onsa as sole director over any supposed allegiance to FT FinTech.” Mot. at 22. The 7 Court finds there are triable issues of fact as to whether Bayston breached the duty of loyalty. 8 Plaintiff offers evidence that Bayston intentionally failed to act in the best interest of Onsa 9 and its shareholders. For example, Plaintiff offers a July 7 email chain from Bayston to FRI 10 employee Hilary Coral asking for confirmation that Franklin would have to make forward 11 payments to Austin Trombley and Onsa “as long a[s] the Onsa entity exists” and stating that “it’s 12 not really a question of if [Onsa] hit[s] the milestones, but when.” Pl.’s Ex. 173 at 1. The next 13 day, Bayston messaged FT Director Monica Fonseca that he “never liked the idea [O]nsa would 14 own the customer and FT wouldn’t be a majority owner of the economics.” Pl.’s Ex. 125 15 (BAYSTON 000886). Three weeks later, Bayston fired Bashir and ceased Onsa’s business 16 operations. By July 28, “any work . . . to complete the milestones had stopped.” Pl.’s Ex. 148 at 17 111:21-25. Plaintiff also provides evidence to support its assertions that Onsa was not in dire 18 straits when Bayston decided to wind down the company, and that Bayston did not act in the best 19 interest of non-FT FinTech Onsa shareholders in the months between the wind-down and the 20 ABC. See, e.g., Pl.’s Exs. 26 (July 2020 Onsa Inc. balance sheet); 82 (June 17, 2020 email from 21 Bayston to FT FinTech officer Joe Boerio stating: “you will see from [then-Onsa CEO] Tauseef 22 [Bashir]’s deck that the new operating team has pushed the platform quite quickly toward the first 23 set of milestones.”); 147 at 71:16–72:20; 209:25–210:14 (deposition testimony of Gregg 24 Yorkison, liquidator leading up to the ABC, discussing Bayston’s strong negative reaction to his 25 proposal to explore whether Onsa could use director’s and officers insurance deductible to settle 26 Onsa shareholder claims). 27 Viewing the facts in the light most favorable to Plaintiff, the Court finds a reasonable jury 1 Defendants’ motion for summary judgment is DENIED as to Plaintiff’s breach of fiduciary duty 2 claim against Roger Bayston. 3 iii. Breach of Duty of Care 4 TokenVault’s Amended and Restated Certificate of Incorporation provides: “To the fullest 5 extent permitted by law, a director of the Corporation shall not be personally liable to the 6 Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.” 7 Defs.’ Ex. 70, ¶ 9. Under Delaware law, exculpatory provisions are enforceable as to duty of care 8 claims only when there is no other outstanding claim for breach of fiduciary duty. See, e.g., In re 9 Evergreen Energy, Inc., 546 B.R. 549, 561 (Bankr. D. Del. 2016). Because the Court finds there 10 are triable issues of fact as to whether Bayston breached the duty of loyalty, summary judgment is 11 DENIED as to Defendants’ exculpation argument. 12 b. FT FinTech 13 “Under Delaware law a shareholder owes a fiduciary duty only if it owns a majority 14 interest in or exercises control over the business affairs of the corporation.” Ivanhoe Partners v. 15 Newmont Min. Corp., 535 A.2d 1334, 1344 (Del. 1987). Unlike a corporation’s directors, a 16 controlling shareholder typically has no affirmative obligation to promote the best interests of the 17 corporation. Sears Hometown & Outlet Stores, 309 A.3d at 483–84. “[W]hen exercising 18 stockholder-level voting power, a controller owes a duty of good faith that demands the controller 19 not harm the corporation or its minority stockholders intentionally.” Id. at 483. However, a 20 controller owes the same fiduciary duties as a director “when the controller exercises general or 21 transaction-specific control over the board, takes over the corporate machinery, and effectively 22 substitutes its wishes for those of the directors.” Firefighters’ Pension Sys. of City of Kansas City 23 v. Found. Bldg. Materials, Inc., 318 A.3d 1105, 1138 (Del. Ch. 2024). 24 Following the October 2019 SPA, FT FinTech owned 100% of Onsa’s voting shares and 25 roughly a quarter of Onsa’s non-voting shares. SPA § 1.1(b). Accordingly, FT FinTech was a 26 controlling shareholder. 27 1 i. “Pre-SPA Conduct” 2 Defendants ask the Court to grant FT FinTech summary judgment on Plaintiff’s breach of 3 fiduciary duty claim to the extent Plaintiff’s claim is based on conduct that predates FT FinTech’s 4 investment in Onsa. 5 Defendants claim that Plaintiff alleges that FT FinTech violated its fiduciary duties “in 6 part, by: (i) failing to follow through on promises to create a three-person 7 board of directors; (ii) precluding Onsa from raising other money; (iii) precluding Onsa from seeking other customers; (iv) failing to follow 8 through on promises to create an MSA; (v) failing to transfer a broker- dealer to Onsa; (vi) failing to allow Onsa to use Franklin’s transfer 9 agent; and (vii) failing to follow through on promises to assist Onsa with finding a transfer agent. 10 11 Defendants assert this alleged conduct was based on conversations that purportedly took place 12 prior to the SPA. Plaintiff does not dispute that these alleged promises were made prior to the 13 SPA, but maintains it does not assert pre-SPA conduct as a basis for its breach of fiduciary duty 14 claims. Opp’n & Cross-Mot. at 18 n.10. 15 FT FinTech did not owe Onsa and its shareholders any fiduciary duties prior to the October 16 28, 2019 SPA, pursuant to which FT FinTech invested in Onsa. See In re Walt Disney Co., No. 17 CIV.A. 15452, 2004 WL 2050138, at *4 (Del. Ch. Sept. 10, 2004). Count I of Plaintiff’s TAC, 18 which makes up Plaintiff’s breach of fiduciary duty claim, only mentions one alleged pre-SPA 19 promise—that FT told Onsa’s founders it “would provide all the funding that was needed.” TAC 20 ¶ 192; see TAC ¶¶ 180–201. Plaintiff does not allege, however, that FT FinTech breached its 21 fiduciary duties by breaking that promise, nor does it allege that FT FinTech breached its fiduciary 22 duties by failing to follow through on any other alleged pre-SPA promises. See TAC ¶¶ 180–201. 23 As Plaintiff’s breach of fiduciary duty claim is not based on conduct that predates FT 24 FinTech’s investment in Onsa, the Court declines to grant summary judgment to FT FinTech on 25 that basis. 26 ii. Responsibility for Bayston 27 Defendants assert FT FinTech cannot be held liable for Bayston’s alleged breaches of 1 alleged actions. Mot. at 30. The Court finds Plaintiff has, however, presented evidence to create a 2 genuine issue of triable fact regarding whether and to what extent FT FinTech exercised control 3 over Bayston. See, e.g., Pl.’s Exs. 153 at 181:13-21, 182:1-13, 183:6-23 (deposition testimony of 4 Les Kratter, one of two FT FinTech officers who approved the November 2020 ABC (see Pl.’s Ex. 5 145 at 182:9-19), that he understood Bayston to be representing Franklin and not Onsa when 6 dealing with Bayston on Onsa-related matters); 138 at 203 (deposition testimony of FRI CEO 7 Jennifer Johnson stating that “FT FinTech had great influence” over Onsa); 171 at 3 (August 2020 8 email from outside counsel advising that FT FinTech may be required “to advance costs and 9 indemnification . . . to Roger [Bayston] as FT FinTech’s agent.”). The Court thus declines to 10 conclude as a matter of law that FT FinTech cannot be held liable for Bayston’s alleged breach of 11 fiduciary duty. 12 iii. Breach for Wind-Down and Duties Owed Outside of Voting 13 FT FinTech asserts that it breached no duties during the wind down because it did not 14 exercise its voting power and did not assume special fiduciary duties by exercising control over 15 Onsa. Mot. at 26, 28–29. As discussed above, a reasonable jury could find that Bayston breached 16 his fiduciary duty as Onsa’s sole board member in deciding to wind down Onsa. As discussed 17 above, the Court also finds there are triable issues of fact as to whether FT FinTech exercised 18 control over Onsa’s board such that FT FinTech would assume the fiduciary duties of a director. 19 Accordingly, the Court declines to conclude on summary judgment that FT FinTech owed no 20 duties outside of voting or that FT FinTech breached no duty for wind-down related decisions. 21 iv. Voting to Approve ABC 22 Defendants argue that FT FinTech did not breach its fiduciary duties in voting to approve 23 the November 2020 ABC. Defendants contend that FT FinTech’s vote was a reasonable exercise 24 of its voting power and consistent with its limited duties as a shareholder. A controlling 25 shareholder “can refuse to vote in favor of, or affirmatively vote against, a transaction that would 26 alter the status quo, even if a board of directors might conclude that the transaction was in the best 27 interests of all stockholders.” Sears Hometown & Outlet Stores, 309 A.3d at 511–12. A 1 corporation or its minority stockholders, plus a fiduciary duty of care . . . not [to] harm the 2 corporation or its minority stockholders through grossly negligent action.” Id. at 512. However, 3 as discussed above, a controlling shareholder owes the same fiduciary duties as a director when 4 the shareholder exercises control over the board. See Firefighters’ Pension Sys. of City of Kansas 5 City, 318 A.3d at 1138. 6 It is undisputed that Bayston was Onsa’s sole board member from the 2019 SPA until 7 Onsa’s liquidation via the November 2020 ABC. Because the Court finds there is a genuine 8 dispute as to FT FinTech’s exercise of control over Onsa’s sole board member, the Court declines 9 to separate FT FinTech’s actions in voting to approve the November 2020 ABC from its other 10 actions. Accordingly, the Court declines to grant FT FinTech summary judgment for its decision 11 to approve the November 2020 ABC. 12 v. Duty of Loyalty 13 Defendants argue that none of FT FinTech’s alleged conduct supports a claim for the 14 breach of duty of loyalty. As discussed above, the Court finds there is a genuine dispute of 15 material facts as to whether Bayston’s actions constituted a breach of the duty of loyalty, and a 16 genuine dispute about whether and the extent to which FT FinTech exercised control over Onsa 17 through its sole board member. The Court therefore declines to grant FT FinTech summary 18 judgment for breach of duty of loyalty. Accordingly, the Court DENIES Defendant FT FinTech 19 summary judgment on Plaintiff’s breach of fiduciary duty claim. 20 c. FRI 21 Plaintiff contends that FRI executives exercised control over Onsa and that Delaware case 22 law regarding “controller” actions gives rise to a fiduciary duty. Opp’n & Cross-Mot. at 21. The 23 authorities Plaintiff cites in support of this argument concern duties owed by shareholders that 24 exercise control over a business. Although Plaintiff describes FRI as a controlling shareholder in 25 the operative complaint (TAC ¶¶ 126, 181), Plaintiff has introduced no evidence that FRI itself 26 was a shareholder in Onsa. See ECF No. 275-1 (Decl. of Darin Snyder in support of Defs.’ Mot.) 27 ¶¶ 51–52 & Defs.’ Exs. 45; 46 (Onsa capitalization tables dated October 28, 2019 and June 30, 1 extending fiduciary duties to the parent company of a controlling shareholder and offers no other 2 theory to support the imposition of a fiduciary duty on FRI. Viewing the facts in the light most 3 favorable to Plaintiff, a reasonable jury could not find that FRI owed a fiduciary duty to Onsa or 4 its shareholders. 5 Accordingly, the Court GRANTS Defendant FRI summary judgment on Plaintiff’s breach 6 of fiduciary duty claim. 7 d. Damages from Alleged Breach of Fiduciary Duty 8 To obtain a “meaningful remedy” for a breach of fiduciary duty, a plaintiff must 9 demonstrate both harm to the beneficiary and “that a sufficiently convincing causal linkage exists 10 between the breach of duty and the remedy sought that makes the remedy an apt means of 11 addressing the breach.” Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, No. 12 11802-cv-VCL, 2018 WL 3326693, at *24 (Del. Ch. July 6, 2018), aff’d sub nom. Davenport v. 13 Basho Techs. Holdco B, LLC, 221 A.3d 100 (Del. 2019). “Delaware law does not demand 14 certainty in awarding damages so long as the plaintiff has proven the defendant committed a 15 wrong and demonstrated that an injury occurred. With that said, ‘a plaintiff must demonstrate that 16 the defendant caused the injury and present a reasonable and factually supported basis for 17 determining damages.’” Macrophage Therapeutics, Inc. v. Goldberg, No. 2019-cv-0137-JRS, 18 2021 WL 2582967, at *17 (Del. Ch. June 23, 2021) (quoting Medek v. Medek, 2009 WL 2005365, 19 at *12 (Del. Ch. July 1, 2009)); Frontier Oil v. Holly Corp., 2005 WL 1039027, at *39 (Del. Ch. 20 Apr. 29, 2005 (“A prevailing party must prove its damages by preponderance of the evidence; 21 absolute precision is not required but the proof may not be speculative either.”). 22 Defendants seek summary judgment as to Plaintiff’s prayer for compensatory damages 23 (TAC Prayer for Relief, ¶¶ A-B) because Plaintiff cannot prove that an alleged breach caused 24 damages. Defs.’ Mot. at 31–32. Defendants contend Plaintiff has “no evidence that Onsa’s fate 25 would have changed” if Defendants had acted differently. Defs.’ Mot. at 32. But Plaintiff alleges 26 Defendants breached their fiduciary duties not simply by approving the November 2020 ABC, but 27 by deciding to wind down the company and cease all business operations in order to liquidate the 1 in Onsa’s liquidation via ABC and in “Onsa’s shareholders being wiped out.” Opp’n & Cross- 2 Mot. at 22. Viewing the facts in the light most favorable to Plaintiff, the Court finds a reasonable 3 jury could find that the alleged breaches of fiduciary duty triggered Onsa’s decline in value. The 4 Court finds genuine issues of material fact therefore exist as to whether Defendants’ alleged 5 breaches of duty caused damage to Plaintiff. 6 Accordingly, the Court DENIES summary judgment as to Plaintiff’s prayer for 7 compensatory damages. 8 4. Defendant Johnson – Aiding and Abetting Breaches of Fiduciary Duty 9 “A third party may be liable for aiding and abetting a breach of a corporate fiduciary’s 10 duty to the stockholders if the third party ‘knowingly participates’ in the breach.” Malpiede v. 11 Townson, 780 A.2d 1075, 1096 (Del. 2001). “Knowing participation in a board’s fiduciary breach 12 requires that the third party act with the knowledge that the conduct advocated or assisted 13 constitutes such a breach.” Id. at 1097. To satisfy the element of knowing participation, the third 14 party must “have provided substantial assistance to the primary violator.” Buttonwood Tree Value 15 Partners, L.P. v. R. L. Polk & Co., No. 9250-VCG, 2017 WL 3172722, at *9 (Del. Ch. July 24, 16 2017) (quotation omitted). 17 Defendants seek summary judgment on Plaintiff’s claim against Jennifer Johnson for 18 aiding and abetting breaches of fiduciary duty. Defendants assert that summary judgment is 19 required because Plaintiff cannot prove that Johnson knowingly participated in the alleged 20 breaches of fiduciary duty and because there is no evidence that Johnson’s “knowing 21 participation” proximately caused the alleged breaches of fiduciary duty. 22 The Court finds there are genuine issues of material fact as to Johnson’s knowing 23 participation in the alleged breaches of fiduciary duty. As discussed above, the Court finds there 24 are triable issues of fact as to whether Bayston and FT FinTech breached their fiduciary duties to 25 Onsa. As to Johnson, Plaintiff offers evidence that Johnson at least tacitly approved the Onsa 26 board’s plans to wind down Onsa before they went into effect (Pl.’s Exs. 114; 154 at 262:25- 27 264:3) and that Bayston sought Johnson’s “general blessing of [his] plan.” Pl.’s Ex. 89 1 wind-down of Onsa’s operations, Johnson emailed Bayston and other Franklin Templeton 2 executives, along with her brother Chuck and Onsa’s then-CEO Tauseef Bashir, to schedule a call 3 “to discuss issues around Token Vault5 and coordinating our next steps.” Pl.’s Ex. 112 4 (FRANKLIN_00325410) (sent at 1:16 PM). Johnson then excused Bashir from the call. Id. This 5 email came less than an hour after Bayston expressed to FT Director Monica Fonseca that he 6 “never liked the idea [O]nsa would own the customer and FT wouldn’t be a majority owner of the 7 economics,” (Pl.’s Ex. 125 (BAYSTON 000886) and one day after Bayston inquired about FT 8 FinTech’s obligation to make payments to Onsa and Austin Trombley if Onsa met certain 9 milestones. Pl.’s Ex. 173 at 1. The Court finds this evidence is sufficient to create a triable issue 10 of fact as to whether Johnson provided substantial assistance to Bayston and FT FinTech in their 11 alleged breaches. 12 Plaintiff also offers evidence that Johnson received oral updates regarding Onsa’s 13 milestones, including in June and July 2020. Pl.’s Ex. 145 at 173:25-175:4, 176:14-24. The Court 14 finds this is sufficient to create a genuine dispute as to whether Johnson acted with the knowledge 15 that the conduct assisted would constitute a breach of fiduciary duty. As discussed above, a 16 reasonable jury could also find that the alleged breaches of fiduciary duty triggered Onsa’s decline 17 in value. The Court thus finds there is a genuine factual dispute as to whether the alleged breaches 18 of fiduciary duty would have occurred but for Johnson’s alleged participation. 19 Accordingly, the Court DENIES Johnson’s motion for summary judgment on Plaintiff’s 20 claim for aiding and abetting breaches of fiduciary duty. 21 B. Plaintiff’s Cross-Motion for Partial Summary Judgment 22 1. Defendant Bayston – Business Judgment Rule 23 Plaintiff asks this Court to grant partial summary judgment in favor of Blockchain that 24 Defendant Roger Bayston is not entitled to the presumption of the business judgment rule. As 25 discussed above, the Court finds there is a genuine factual dispute as to whether Bayston is 26 entitled to the business judgment rule. Accordingly, the Court DENIES Plaintiff’s motion for 27 1 partial summary judgment that Defendant Bayston is not entitled to the presumption of the 2 business judgment rule. 3 2. Defendants’ Ownership of Alleged Trade Secrets 4 Plaintiff asks this Court to grant partial summary judgment in favor of Blockchain that 5 Defendants do not own any of the ATS. Plaintiff asserts that Defendants waived this argument by 6 failing to timely disclose this theory during discovery and asserts that there is no genuine issue of 7 material fact that the ATS are not owned by Defendants. As discussed above, the Court finds FT 8 Defendants have waived the argument that they own the ATS and this contention is barred by 9 Rule 37(c)(1). Accordingly, the Court GRANTS Plaintiff’s motion for partial summary judgment 10 that Defendants do not own any of the ATS. 11 3. Affirmative Defenses 12 Plaintiff seeks partial summary judgment in favor of Blockchain on several of the 13 affirmative defenses Defendants assert in their answers to the operative complaint. “[A]n 14 affirmative defense, under the meaning of Federal Rule of Civil Procedure 8(c), is a defense that 15 does not negate the elements of the plaintiff’s claim, but instead precludes liability even if all of 16 the elements of the plaintiff’s claim are proven.” Barnes v. AT & T Pension Ben. Plan- 17 Nonbargained Program, 718 F. Supp. 2d 1167, 1173–74 (N.D. Cal. 2010) (quoting Roberge v. 18 Hannah Marine Corp., No. 96–1691, 1997 WL 468330, at *3 (6th Cir. 1997)). The defendant has 19 the burden of proof as to an affirmative defense. See, e.g., Kanne v. Connecticut General Life Ins. 20 Co., 867 F.2d 489, 492 n.4 (9th Cir. 1988). “A defense which demonstrates that plaintiff has not 21 met its burden of proof is not an affirmative defense.” Zivkovic v. S. California Edison Co., 302 22 F.3d 1080, 1088 (9th Cir. 2002). Plaintiff seeks partial summary judgment in favor of Blockchain 23 on the basis that several of the affirmative defenses Defendants have pled are not actual 24 affirmative defenses. 25 In Defendant Roger Bayston’s answer to Plaintiff’s TAC, Bayston lists among his 26 affirmative defenses: (1) failure to state a claim, (7) good faith, (8) lack of fiduciary duty, (9) lack 27 of standing, (10) legitimate business purposes, (11) absence of causation, (12) lack of actual 1 speculative, (15) failure to allege facts to support attorneys’ fees. ECF No. 250 at 18–19. FT 2 Defendants and Jennifer Johnson include among their affirmative defenses (1) failure to state a 3 claim, (2) lack of fiduciary duty, (4) lack of standing, (5) legitimate business purposes, (8) unjust 4 enrichment, (10) no attorneys’ fees, (11) lack of intent, (13) lack of causation, (14) lack of actual 5 damages, (15) bad faith, (17) lack of facts to support punitive damages, and (19) speculative 6 damages. ECF No. 253 at 37–41. Plaintiff contends these “affirmative defenses” are not 7 affirmative defenses at all, but merely attack the sufficiency of Plaintiff’s case. Defendants assert 8 that Plaintiff’s cross-motion is conclusory and should be denied on that basis but provide no 9 response on the merits. Defendants do not contend that any of these affirmative defenses are 10 actually affirmative defenses. Defs.’ Reply and Opp’n & Cross Mot. at 20. While Defendants are 11 correct that “denials that are improperly pled as defenses should not be stricken on that basis 12 alone,” Weddle v. Bayer AG Corp., 2012 WL 10197824, *4 (S.D. Cal. March 26, 2012), Plaintiff 13 did not file a motion to strike. Plaintiff has moved for summary judgment, and the purpose of a 14 summary judgment motion is to determine which claims and defenses will go to trial. In the 15 context of summary judgment, it is entirely appropriate to move on the ground that purported 16 affirmative defenses are not actually affirmative defenses at all. This aids the Court and efficient 17 case administration by helping to determine which defenses will go to trial. On the merits, the 18 Court finds these purported affirmative defenses attack Plaintiff’s prima facie case and are not 19 properly asserted as affirmative defenses. 20 Plaintiff likewise contends that several of Defendants’ affirmative defenses are not 21 supported by any evidence. Bayston lists among his affirmative defenses: (2) laches, waiver, and 22 equitable estoppel, (4) unclean hands, (5) claim preclusion, (6) release of breach of duty. ECF No. 23 250 at 18. FT Defendants and Defendant Johnson list among their affirmative defenses: (3) 24 release, (6) unclean hands, (7) waiver, (9) license/consent/acquiescence, (12) superseding cause, 25 (15) bad faith, (16) Plaintiff’s breach of contract, (18) set-off. ECF No. 253 at 38–40. 26 Defendants contend Plaintiff’s cross-motion on these affirmative defenses should be denied 27 because Plaintiff fails to provide supporting evidence. However, “[w]hen the nonmoving party 1 evidence to support the nonmoving party’s case.” Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th 2 || Cir. 2001) (quotations omitted). “Once the moving party carries its initial burden, the adverse 3 || party may not rest upon the mere allegations of denials of the adverse party’s pleading, but must 4 || provide affidavits or other sources of evidence that set forth specific facts showing that there is a 5 genuine issue for trial.” /d. (cleaned up). Here, Plaintiff carried its initial burden by pointing out 6 || that there is an absence of evidence to support these affirmative defenses. In response, Defendants 7 do not argue that there is any such evidence and do not cite to any evidence. The Court therefore 8 finds no evidence to support these affirmative defenses, and thus summary judgment is proper. 9 Accordingly, the Court GRANTS summary judgment in favor of Plaintiff on Defendant 10 Roger Bayston’s first, second, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, 11 thirteenth, fourteenth, and fifteenth affirmative defenses, and on FT Defendants’ and Jennifer 12 Johnson’s first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, 5 13 thirteenth, fourteenth, fifteenth, sixteenth, seventeenth, eighteenth and nineteenth affirmative 14 || defenses. V. CONCLUSION 16 Based on the analysis above, the Court hereby GRANTS IN PART and DENIES IN 3 17 || PART Defendants’ Motion for Summary Judgment and GRANTS IN PART and DENIES IN 18 PART Plaintiff's Cross-Motion for Partial Summary Judgment. 19 IT IS SO ORDERED. 20 21 Dated: November 27, 2024 22 LU \ - jy □ 73 THOMAS S. HIXSON United States Magistrate Judge 24 25 26 27 28