Arya Risk Mgmt. Sys. v. Dufossat Capital P.R., LLC

Decision Date30 December 2021
Docket NumberCivil Action H-16-3595
CourtU.S. District Court — Southern District of Texas
PartiesARYA RISK MANAGEMENT SYSTEMS, PVT. LTD., and WINCAB RISK SOLUTION, LLC, Plaintiffs, v. DUFOSSAT CAPITAL PUERTO RICO, LLC, DUFOSSAT CAPITAL, LP, DUFOSSAT CAPITAL I, LLC, DUFOSSAT CAPITAL GP, LLC, and ASHTON SONIAT, Defendants.
MEMORANDUM OPINION AND ORDER
SIM LAKE SENIOR UNITED STATES DISTRICT JUDGE

Pending before the court are Plaintiffs' and Counter-Defendants' Motion for Summary Judgment on Defendants' Counterclaims and Brief in Support ("Plaintiffs' MSJ") (Docket Entry No. 351), The Dufossat Defendants' Response to Plaintiffs' and Counter-Defendants' Motion for Summary Judgment on Defendants' Counterclaims and Brief in Support ("Defendants' Response") (Docket Entry No 353), in which "the Dufossat Defendants ask the Court to permit them to file a parallel motion for summary judgment related to Arya's claims related to the services provided by Arya to the Dufossat Defendants," and "also ask that they be granted leave to file a motion for summary judgment related to Manoj [Ghayalod]'s stipulation at the Pre-trial Hearing that he was fired for cause as that term is defined in the Operating Agreement, "[1] and the Dufossat Defendants' Motion to Strike and in the Alternative Their Surreply to Plaintiffs'/Counter-Defendants' Response Seeking to Support Motion for Summary Judgment ("Defendants' Motion to Strike and Surreply") (Docket Entry N, o. 3640 . Also pending before the court are the Appendix of Exhibits to Plaintiffs' and Counter-Defendants' Motion for Summary Judgment on Dufossat's Counterclaims and Brief in Support ("Plaintiffs' Exhibits") (Docket Entry No 352), the Appendix of Exhibits to the Dufossat Defendants' Response to Plaintiffs' and Counter-Defendants' Motion for Summary Judgment on Defendants' Counterclaims and Brief in Support ("Defendants' Exhibits")(Docket Entry No. 354) Plaintiffs' and Counter-Defendants' Reply in Support of Their Motion for Summary Judgment on Defendants' Counterclaims ("Plaintiffs' Reply")(Docket Entry No. 355), Appendix of Exhibits to Plaintiffs' and Counter-Defendants' Reply in Support of Their Motion for Summary Judgment on Dufossat's Counterclaims ("Plaintiffs' Reply Exhibits") (Docket Entry No. 356), Plaintiffs' and Counter-Defendants' Response to Defendants' Sur-Reply in Opposition to Plaintiffs' Motion for Summary Judgment on Defendants' Counterclaims ("Plaintiffs' Response to Defendants' Surreply") (Docket Entry No. 365), - and briefs which the parties have submitted in response to the court's Order for Additional Briefing (Docket Entry No. 369): Plaintiffs' and Counter-Defendants' Brief Regarding Exercise of Supplemental Jurisdiction (Docket Entry No. 370), and Defendants' Memorandum of Law (Docket Entry No. 371).

For the reasons stated below, Plaintiffs' MSJ will be granted in part arid denied in part, Defendants' requests to file motions for summary judgment will be denied, Defendants' Motion to Strike will be denied, and the court will continue to exercise supplemental jurisdiction over the remaining state law claims.

I. Factual and Procedural Background

A. Factual Background[2]

In 2009 Defendant Ashton Soniat (``Soniat") formed an energy and commodities trading company with Mark Schwausch ("Schwausch") named West Oaks Energy, L.P., ("West Oaks").[3] Employees of West Oaks developed a computer program named "Victor," used between 2009 and 2012 to analyze market data and submit energy trades.[4] In January of 2011 West Oaks hired Manoj Ghayalod (``Manoj") as Managing Director of Quantitative Research and Analytics. Initially, Manoj's primary duty was to manage West Oaks' programming department, but he later began serving as the company's "de-facto Chief Risk Officer."[5] Soon after he was hired Manoj suggested hiring computer programmers in India as a cost-effective method to optimize West Oaks' computer software. In order to facilitate this suggestion, Manoj recommended that his wife, Pallavi Ghayalod ("Pallavi"), be hired to identify and recruit computer programmers in India.[6] With West Oaks' agreement, Pallavi established Plaintiff Arya Risk Management Systems, Pvt. Ltd., ("Arya") in August 2011 to recruit computer programmers.[7] Manoj and/or Soniat "routinely reviewed the Indian Programmers' resumes and work histories before any hires took place, "[8] and Manoj "took the lead training the Indian Programmers."[9]

West Oaks later became Cobalt Capital Management Partners, L.P., but continued to employ the programmers from India through Plaintiff Arya, who paid the programmers' salaries and provided them tools and training necessary for their work. The programmers rewrote the Victor program and developed a new trading program, called "Trading Program" or "Trader App," which was released for use in mid-2012.[10]

In October of 2013 Soniat and Schwausch agreed to cease doing business as West Oaks and/or Cobalt, part ways, and form their own energy trading companies.[11] Pursuant to a settlement agreement entered by Soniat and Schwausch, Manoj was to help Schwausch obtain a copy of the West Oaks/Cobalt computer software and data for his new company, Inertia Power LP ("Inertia").[12] Soniat formed Defendant Dufossat Capital Puerto Rico, LLC, ("Dufossat"), in which Manoj received a one percent membership interest. Pallavi signed a spousal assent.[13] About this time Arya assumed administrative control over Dufossat's e-mail system without Soniat's knowledge.[14]

In February of 2014 Arya registered the Trading Program with the United States Copyright Office by identifying itself as the author. Arya never informed Soniat of the copyright registration.[15]

In June of 2014 Arya offered to provide Dufossat with quantitative trading analysts ("Quants") who were trained to use the Trading Program and to recommend trades based on the program's analysis of market information. The parties entered an agreement whereby the Arya Quants provided trade recommendations in exchange for Dufossat's payment of thirty percent of all profits made on those trades. Defendants recorded these trades separately from other accounts, but, without Arya's knowledge, Defendants duplicated the trades in larger quantities on an account in Soniat's name. Defendants did not pay Arya thirty percent of the profits from these "shadow trades" made in Soniat's name.[16]

In December of 2015 Dufossat proposed a written agreement "to memorialize its business relationship with Arya" that described the development of the Trading Program as a work made for hire.[17] Arya refused to sign the agreement and, instead, proposed a services agreement that identified the Trading Program as belonging to Arya. The parties were unable to reach an agreement.[18]

By late January of 2016 Defendants allege that they determined that Manoj was not performing his duties as an employee, a minority owner, or a risk officer and, thereby, had cost Dufossat millions of dollars.[19] Dufossat claims to have halted the services of the Quants at that time. In early February of 2016 Soniat, without warning to Arya, prevented the programmers' access to Dufossat's computer software' and data.[20] Shortly thereafter, Manoj and Pallavi removed laptop and desktop computers from Dufossat's offices. Dufossat responded by changing the office locks. Manoj and Pallavi then locked Dufossat out of its email system.[21]

On February 10, 2016, seeking to regain control of its email system, Dufossat filed an application for a temporary restraining order against Manoj in state district court in Montgomery County.[22]

On February 24, 2016, Dufossat terminated Manoj's employment, but Manoj remained a minority interest owner of the company.[23]

After Manoj's termination and discontinuance of the its relationship with Arya, Defendants continued using the Trading Program and hired former Arya Quants to provide the services they had been providing through Arya.[24]

Later in 2016 Arya formed companies with the primary purpose of marketing the Trading Program on the internet.[25] B. Procedural Background

This case is a combination of three actions described in the August 22, 2019, Memorandum and Recommendation (Docket Entry No. 237), in which Magistrate Judge Johnson recommended the imposition of sanctions on Plaintiffs for spoliation of evidence.[26]Plaintiffs's live complaint asserts 18 causes of action against all defendants unless otherwise stated for (1) copyright infringement, (2) contributory copyright infringement, (3) misappropriation of trade secrets through continued use of the Trading Program, (4) theft of trade secrets through continued use of the Trading Program, (5) misappropriation of trade secrets through hiring of Arya Quants, (6) theft of trade secrets through hiring of Arya Quants, (7) tortious interference with contract, (8) knowing participation in breach of fiduciary duty through hiring of Arya Quants, (9) breach of contract for IT services against Dufossat, (10) breach of contract for Quant services against Dufossat, (11) promissory estoppel against Dufossat, (12) quantum meruit, (13) unjust enrichment, (14) misappropriation of trade secrets through shadow trades, (15) theft of trade secrets through shadow trades, (16) fraud, (17) negligent misrepresentation, and (18) tortious interference with Dufossat-Arya Contract against Soniat .[27].

The counterclaims for which Plaintiffs seek summary judgment are asserted in two live pleadings: (1) Dufossat's First Amended Counterclaim, which asserts claims against Arya and Wincab Risk Solution, LLC ("Wincab"), Arya's United States agent, for Declaratory Judgment misappropriation of trade secrets, knowing participation in breach of fiduciary duty, and conversion, and...

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