HP Tuners, LLC v. Cannata

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF NEVADA 8 * * * 9 HP TUNERS, LLC, Case No. 3:18-cv-00527-LRH-CSD 10 Plaintiff, ORDER 11 v. 12 KENNETH CANNATA, 13 Defendant. 14 15 Before the Court is Plaintiff HP Tuners, LLC’s (“HPT”) sur-reply in opposition to 16 Defendant Kenneth Cananta’s (“Cannata”) motion for summary judgment as to the first cause of 17 action for breach of fiduciary duty (ECF No. 162). Cannata filed a motion to strike aspects of the 18 sur-reply (ECF No. 163), to which HPT responded (ECF No. 164) and Cannata replied (ECF No. 19 165). 20 For the reasons articulated in this Order, the Court grants Cannata’s motion to strike and 21 finds that genuine issues of material fact exist as to HPT’s first cause of action and denies summary 22 judgment for both parties as to that claim. 23 I. BACKGROUND 24 In brief and relevant part, HPT is a Nevada limited liability company founded by Keith 25 Prociuk (“Prociuk”), Chris Piastri (“Piastri”), and Cannata on December 31, 2003, with its 26 principal place of business in Buffalo Grove, Illinois. ECF No. 1 at 4. HPT designs and 27 manufactures computer hardware and software for tuning and calibrating engines and 1 Id. This action concerns HPT’s several, varying claims that Cannata misappropriated its trade 2 secrets when he left the company and provided Syked ECU Tuning, LLC (“Syked”) protected 3 software and information.1 4 Following the Court’s recent Order on summary judgment, the Court reserved judgment as 5 to HPT’s first cause of action for breach of fiduciary duty and allowed HPT the opportunity “to 6 submit a sur-reply on the discrete issue of whether the software and information Cannata shared 7 with Sykes-Bonnett constituted derivative versions of HPT’s IP identified in the Operating 8 Agreement.” ECF No. 157 at 24. The Court provided HPT this opportunity as it was unable to 9 respond to Cannata’s argument that HPT could not show that the software and information shared 10 with Sykes-Bonnett qualified as HPT’s protectable IP under the Operating Agreement’s definition 11 of “Technology.” ECF No. 150 at 12–13. Rather, Cannata argued, the software was an updated, 12 non-derivative version of HPT’s software and information. Id. After HPT filed its sur-reply, 13 Cannata moved the Court to strike aspects of the sur-reply comparing code originally defined 14 under “Technology” of the Operarting Agreement with the code that Cannata allegedly shared in 15 2016. ECF No. 163. Both the sur-reply (i.e., the question of summary judgment on HPT’s first 16 cause of action for breach of fiduciary duty) and the motion to strike are now ripe for decision. 17 II. LEGAL STANDARD 18 Summary judgment is appropriate only when the pleadings, depositions, answers to 19 interrogatories, affidavits or declarations, stipulations, admissions, and other materials in the 20 record show that “there is no genuine dispute as to any material fact and the movant is entitled to 21 judgment as a matter of law.” FED. R. CIV. P. 56(a). In assessing a motion for summary judgment, 22 the evidence, together with all inferences that can reasonably be drawn therefrom, must be read in 23 the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith 24 Radio Corp., 475 U.S. 574, 587 (1986); County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 25 1148, 1154 (9th Cir. 2001). 26 27 1 The moving party bears the initial burden of informing the court of the basis for its motion, 2 along with evidence showing the absence of any genuine issue of material fact. Celotex Corp. v. 3 Catrett, 477 U.S. 317, 323 (1986). On those issues for which it bears the burden of proof, the 4 moving party must make a showing that is “sufficient for the court to hold that no reasonable trier 5 of fact could find other than for the moving party.” Calderone v. United States, 799 F.2d 254, 259 6 (6th Cir. 1986) (quoting W. Schwarzer, Summary Judgment Under the Federal Rules: Defining 7 Genuine Issues of Material Fact, 99 F.R.D. 465, 487-88 (1984)); see also Idema v. Dreamworks, 8 Inc., 162 F.Supp.2d 1129, 1141 (C.D. Cal. 2001). 9 To successfully rebut a motion for summary judgment, the nonmoving party must point to 10 facts supported by the record which demonstrate a genuine issue of material fact. Reese v. Jefferson 11 Sch. Dist. No. 14J, 208 F.3d 736, 738 (9th Cir. 2000). A “material fact” is a fact “that might affect 12 the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 13 248 (1986). Where reasonable minds could differ on the material facts at issue, summary judgment 14 is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A dispute regarding a material 15 fact is considered genuine “if the evidence is such that a reasonable jury could return a verdict for 16 the nonmoving party.” Liberty Lobby, 477 U.S. at 248. “The mere existence of a scintilla of 17 evidence in support of the [party’s] position [is] insufficient” to establish a genuine dispute; “there 18 must be evidence on which the jury could reasonably find for the [party].” Id. at 252. 19 III. DISCUSSION 20 Because the pending motions are inter-related and rely on similar facts, the Court addresses 21 them in one order. The Court will first address the motion to strike the sur-reply as the 22 determination on that motion necessarily affects the motion for summary judgment. 23 A. Motion to Strike 24 As a preliminary matter, the Court must resolve a dispute about what content in HPT’s sur- 25 reply the Court may consider in its determination on the motion for summary judgment. HPT’s 26 sur-reply presents new evidence of old code that was considered “Technology” under the 27 Operating Agreement and comparing that code to what Cannata allegedly shared in 2016. ECF 1 Cannata allegedly shared constituted improvements, enhancements and derivative works to the 2 information and software owned by the company under the Operating Agreement. ECF No. 162- 3 1. Cannata seeks to strike any mention of the old code in both the sur-reply and declaration as HPT 4 did not disclose it before the close of discovery. 5 Federal Rule of Civil Procedure 26(a)(1)(A) requires parties to disclose a copy or 6 description of all documents and tangible things that the party has in its possession, custody or 7 control and may use to support its claims or defenses. The rules further provide those initial 8 disclosures must be made within 14 days of the parties’ discovery conference or timely 9 supplemented. See FED. R. CIV. P. 26(a)(1)(C); FED. R. CIV. P. 26(e). 10 There is largely no dispute that HPT neither produced the contested evidence in its initial 11 disclosures or timely supplements. Rather, HPT included the contested evidence in its sur-reply to 12 support its response to Cannata’s legal arguments that he made for the first time in his reply brief. 13 While the Court recognizes HPT acted in good faith in response to the Court’s request for 14 supplemental briefing, to permit consideration of the contested evidence at this stage in summary 15 judgment would unfairly prejudice Cannata given the completion of briefing. The Court should 16 have been clearer as to what specific, previously disclosed evidence and legal argumentation it 17 was searching for in the sur-reply. Nevertheless, the contested evidence cannot be substantially 18 justified or considered harmless with respect to the pending summary judgment motions on the 19 first cause of action for breach of fiduciary duty. See Karpenski v. Am. Gen. Life Cos., LLC, 999 20 F. Supp. 2d 1235, 1240–41 (W.D. Wash. 2014) (striking late-disclosed evidence included in 21 supplemental briefing). Accordingly, lines 1–4, 9–14, and 20–23 of page 6 of the sur-reply as well 22 as paragraphs 7, 9 and 11 of the supporting declaration of Prociuk are stricken and will not be 23 considered by the Court in ruling on the pending motions for summary judgment as to the first 24 cause of action.2 25 /// 26 /// 27 2 The Court does not find convincing Cannata’s other argument in his motion to strike that by disclosing lines of code 1 B. Motion for Summary Judgment 2 Under Nevada law, a member or manager of an LLC will be liable for breach of a fiduciary 3 duty when: (1) a fiduciary duty exists; (2) the duty is breached, and (3) the breach proximately 4 caused the damages alleged. Klein v. Freedom Strategic Partners, LLC, 595 F.Supp.2d 1152, 1162 5 (D. Nev. 2009). The Court reserved reaching a decision as to breach in its previous order on the 6 motions for summary judgment because Cannata raised new arguments in a reply brief as to the 7 second prong of the analysis: whether or not a breach had occurred. 8 In his reply brief, Cannata argues that HPT has not shown that the software and information 9 he shared with Sykes-Bonnett qualifies as HPT’s protectable property under the Operating 10 Agreement, and therefore a breach has not occurred. Specifically, that § 4.2 of the Operating 11 Agreement gives HPT only rights to “derivative works,” and HPT has failed to show that any 12 versions of the software/hardware/firmware Cannata shared are derivative works. ECF No. 150 at 13 12. In response, in its sur-reply, HPT argues that the protectable “Technology” in the Operating 14 Agreement is not solely limited to derivative works, and includes “improvements, enhancements, 15 [and] derivative works to the Technology.” See ECF No. 162 at 3 (citing §§ 4.1 and 4.2 of the 16 Operating Agreement).3 17 The question of whether the software and information Cannata shared with Sykes-Bonnett 18 constituted improvements, enhancements, and derivative works to the “Technology” is a question 19 of material fact. Although HPT has not produced definitive evidence establishing that the 20 information and software were improvements, enhancements, and derivative works of the original 21 “Technology” under the Operating Agreement, HPT has produced evidence to raise a substantial 22 question about Cannata’s argument that they were not improvements, enhancements, and 23 24 3 The Court finds that a “derivative work,” is a work “based upon one or more preexisting works that recasts, transforms, or adapts a preexisting work and consists of editorial revisions, annotations, elaborations, or other 25 modifications which, as a whole, represent an original work of authorship.” ABS Entertainment, Inc. v. CBS Corp., 908 F.3d 405, 414 (9th Cir. 2018) (internal quotation marks and alterations omitted). To qualify as a derivative work, 26 a work must “exist in a ‘concrete or permanent form’” and must “substantially incorporate protected material from the preexisting work.” Micro Star v. FormGen Inc., 154 F.3d 1107, 1110 (9th Cir. 1998) (quoting Lewis Galoob Toys, 27 Inc. v. Nintendo of America, Inc., 964 F.2d 965, 967 (9th Cir. 1992) and citing Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir. 1984)). Additionally, “a work will be considered a derivative work only” if it took material from a 1 || derivative works. Specifically, HPT points out that the “Technology” originally contributed in 2 || connection with the Operating Agreement included the “VCM Suite Software,” hardware device 3 || and firmware with various features, as well as certain algorithms, routines and verifications 4 || methods. See ECF No. 1-1, at Attachment A. Viewing all facts and drawing all inferences in the 5 || light most favorable to HPT (as the party opposing Cannata’s motion for summary judgment), a 6 || reasonable fact-finder could find that the information Cannata shared with Sykes-Bonnett—source 7 || code files related to HPT’s VCM Suite and a copy of HPT’s key generator—constituted 8 || improvements, enhancements, and derivative works of the original “Technology” under the 9 || Operating Agreement. Consequently, summary judgment is improper, and the motions for 10 || summary judgment as to the first cause of action for breach of fiduciary duty are denied. 11 || IV. CONCLUSION 12 IT IS THEREFORE ORDERED that Cannata’s motion to strike (ECF No. 163) 1 13 |} GRANTED. Lines 1-4, 9-14, and 20-23 on page 6 of HPT’s sur-reply as well as paragraphs 7, 9 14 |} and 11 of the supporting declaration of Prociuk are ordered stricken. 15 IT IS FURTHER ORDERED that Cannata’s and HPT’s motions for partial summary 16 || judgments (ECF Nos. 119, 124 (128-s)) on the first cause of action for breach of fiduciary duty 17 || are DENIED. 18 IT IS SO ORDERED. 19 DATED this 26" day of July, 2022. 20 1 / 21 L YR. HICKS UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28