Telephia, Inc. v. Cuppy
| Decision Date | 01 February 2006 |
| Docket Number | No. C 04-03508 SI.,C 04-03508 SI. |
| Citation | 411 F.Supp.2d 1178 |
| Parties | TELEPHIA, INC., Plaintiff, v. Steven CUPPY, et al., Defendants. Steven Cuppy, et al., Counterclaimants, v. Telephia, Inc., et al., Counterdefendants. |
| Court | U.S. District Court — Northern District of California |
LLP, San Francisco, CA, for Plaintiff and Counter-Defendants.
Neil R. Bardack, Arman Javid, Esq., Christopher B. Whitman, Jonathan T. Rubens, Robert Louis Zaletel, McQuaid Bedford & Van Zandt, LLP, San Francisco, CA, for Defendants and Counter-Claimants.
ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT
On January 27, 2006, the Court heard argument on the parties' cross-motions for partial summary judgment. Having carefully considered the arguments of counsel and the papers submitted, and for good cause appearing, the Court GRANTS IN PART plaintiff's motion and DENIES defendants' motion.
Plaintiff in this matter, Telephia, Inc., is a company in the "wireless market intelligence business," an industry that "provides market intelligence information to wireless service (cell phone) providers." Second Am. Compl., ¶¶ 4, 13; Def. Answer, ¶ 13. Telephia's services include "collect[ing] and analyz[ing] data on cell phone usage for wireless service providers to help them track the performance of their programs, drive adoption and usage of their programs, and make investment decisions." Second Am. Compl., ¶ 4. In 1999, defendant Steven Cuppy formed Criterion Wireless Corp. ("Criterion"), a competitor of Telephia. Def. Counterclaims, ¶ 7. Defendants Scott McCulley and David Simon joined Criterion shortly thereafter as shareholders. Id. Collectively, Cuppy, McCulley, and Simon were the sole owners of Criterion. Id.
During 1999 and 2000, Telephia's primary method of obtaining market share information was through "over the air" ("OTA") technology. Second Am. Compl., ¶ 14; Def. Answer, ¶ 14; Decl. of Aaron M. Rofkahr in Support of Pl. Mot. ("Rofkahr Decl."), Exh. 1, at 1. In 2001, however, two developments threatened to make OTA technology obsolete. First, OTA technology would be "fundamentally useless" with GSM wireless networks, a relatively new wireless standard that was being implemented by many wireless carriers. Rofkahr Decl., Exh. 1, at 1. Second, OTA technology was not compatible with local number portability ("LNP"), a function required by FCC regulations that allowed cell phone users to keep their telephone numbers when they switched wireless carriers. See id., Exh. 3, at TELE00074 ().
In 2001, Criterion began developing a new technology to measure market share that would not be as limited as OTA, which it called "Veritas" technology. Second Am. Compl., ¶ 19; Def. Answer, ¶ 19. Veritas relied on three measurement tools, referred to as "Path A," "Path B," and "Path C," to measure market share. Second Am. Compl., ¶ 19; Def. Answer, ¶ 19. Path A, which is not implicated by the current motion, involved querying wireless providers' networks to determine whether a mobile number was assigned or unassigned. Path B used a computer controlled modem to dial mobile telephone numbers to determine if a number was assigned or unassigned. Rofkahr Decl., Exh. 3, at TELE00069. Path C was designed to address the problems presented by LNP. Id., Exh. 6. It involved directly querying the LNP database to determine whether a phone number had been transferred between wireless providers.1 Id., Exh. 3, at TELE00074. Path C was intended to ultimately supplant Paths A and B, but it could not be fully implemented until LNP went into effect in November 2003. Id., Exh. 6.
On August 27, 2002, Telephia filed a lawsuit against Criterion, alleging that it had misappropriated Telephia's intellectual property. Id., Exh. 9. As part of a settlement agreement stemming from that lawsuit, Telephia agreed to purchase Criterion from its owners, the defendants in this case. Second Am. Compl., ¶¶ 22, 30; Def. Counterclaims, ¶ 18. On October 31, 2002, Telephia and defendants executed a Securities Purchase Agreement ("SPA") setting forth the governing terms of the purchase. Second Am. Compl., ¶ 30; Def. Answer, ¶ 30.
The SPA provided that Telephia would acquire all outstanding capital stock of Criterion from defendants in exchange for (a) $2 million in cash at closing; (b) promissory notes issued at closing for another $2 million; (c) up to $1.5 million in additional consideration, if certain revenue levels were achieved using Veritas; and (d) royalty payments equal to 7.5% of the revenues generated through Veritas, up to a royalty cap of $4 million. Second Am. Compl., ¶ 19; Def. Answer, ¶ 19. In addition, defendants made a number of warranties and representations in the SPA, generally providing that defendants had not made any misrepresentations about Veritas and that Veritas would perform as promised. See, e.g., Rofkahr Decl., Exh. 5, at § 2.10.
At the time the SPA was executed, defendants also signed employment agreements with Criterion. Def. Counterclaims, ¶ 31. The agreements provided that if defendants were released "without cause," and signed a release of their claims against Criterion, then Criterion would continue to pay defendants their base salary until the year anniversary of the date the employment agreement was signed. Rofkahr Decl., Exh. 43. In April 2004, Simon and McCulley executed amendments to their employment agreements. These amendments contained a similar clause, providing that if Simon and McCulley were terminated without cause, and if they executed a release of all claims against Criterion, Criterion would continue to pay them their salary for three-months after their termination. Id., Exh. 44.
On July 30, 2004, Telephia filed this lawsuit in California state court, claiming that defendants had failed to disclose numerous deficiencies in Veritas, and seeking damages for both breach of contract and fraudulent inducement. The core of plaintiff's complaint was that defendants had made a series of misrepresentations about the quality and feasibility of Veritas. On August 2, 2004, defendants were notified that their employment with Criterion had been terminated and that Telephia was withholding payment on the remainder of the amount due on the promissory notes it had issued in connection with the purchase of Criterion. Decl. of David Simon in Oppo. to Pl. Mot. ( ), Exhs. A, B, C; Decl. of Scott McCulley in Oppo. to Pl. Mot., Exh. A.
On August 23, 2004, defendants removed the action to this Court based upon diversity jurisdiction. They then filed counterclaims for damages and injunctive relief. Plaintiff now moves for partial summary judgment on its claim that defendants made numerous misrepresentations with regard to Path C, and against defendants' claims for breach of their employment agreements. Defendants also move for partial summary judgment, seeking to limit the damages that Telephia can recover for any alleged misrepresentations related to Paths B and C, and to establish the amount that remains owed on the promissory notes.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party, however, has no burden to negate or disprove matters on which the non-moving party will have the burden of proof at trial. The moving party need only point out to the Court that there is an absence of evidence to support the non-moving party's case. See id. at 325, 106 S.Ct. 2548.
The burden then shifts to the non-moving party to "designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 56(e)). To carry this burden, the non-moving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "The mere existence of a scintilla of evidence ... will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
In deciding a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party, and all justifiable inferences are to be drawn in its favor. Id. at 255, 106 S.Ct. 2505. "Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge [when she] is ruling on a motion for summary judgment." Id.
The parties' summary judgment motions involve three issues: plaintiff's claims for breach of warranty concerning Path B; plaintiff's claims for breach of warranty concerning Path C; and defendants' claims for damages based upon their employment agreement and promissory notes. The Court considers each in turn.
Defendants move for partial summary judgment on plaintiff's claims related to Path B. Their primary argument is that plaintiff cannot recover the expenses it incurred to make Path B "invisible" because plaintiff was aware that Path B was not, and was not intended to be, invisible. In addition, defendants challenge plaintiff's claims of fraud in...
To continue reading
Request your trial
-
Devils in the Details: an Essay Examining the Significance of Jurisdictional Default Rules in the Mergers and Acquisitions Context
...(Cal. Ct. App. 1969); see also Kazerouni v. De Satnick, 228 Cal.App.3d 871, 873-74 (Cal. Ct. App. 1991).31. Telephia, Inc. v. Cuppy, 411 F. Supp. 2d 1178, 1188 (N.D. Cal. 2006) (stating that "Telephia argues that it need not prove reliance because of the terms of the SPA. In § 6.1, the SPA ......