Arya Risk Mgmt. Sys., Pvt. Ltd. v. Dufossat Capital P.R., LLC
| Docket Number | Civil Action H-16-3595 |
| Decision Date | 24 May 2022 |
| Parties | ARYA 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. |
| Court | U.S. District Court — Southern District of Texas |
Pending before the court are Defendants' Motion for Summary Judgment, (“Defendants' MSJ”) (Docket Entry No. 384), Defendants' Motion to Strike Response of Manoj Ghayalod and, in the Alternative, Motion for Leave to Exceed the 25-Page Briefing Limit (“Defendants' Motion to Strike”) (Docket Entry No. 390), Plaintiffs' Arya and Wincab's Motion for Leave to File Sur-Reply Relating to Defendants' Motion for Summary Judgment and Brief in
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”).[2] Employees of West Oaks developed a computer program named “Victor, ” used between 2009 and 2012 to analyze market data and submit energy trades.[3]
In January of 2011 West Oaks hired Manoj Ghayalod (“Manoj”) as Managing Director of Quantitative Research and Analytics. Manoj and a team of up to seven programmers/traders, located in Houston, Texas, were responsible for continuing the development and optimization of “Victor.”[4] Soon after he was hired, Manoj suggested that West Oaks rewrite Victor's source code in a different programming language.[5] Manoj also suggested hiring computer programmers in India as a cost-effective method of optimizing 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] In August of 2011 Pallavi formed two companies, Wincab, a United States entity to bill West Oaks, and Arya Risk Management Systems, Pvt. Ltd., (“Arya”), an Indian company to recruit, hire, and employ programmers who would provide services to West Oaks.[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, which 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 August of 2013 Soniat formed Defendant Dufossat Capital Puerto Rico, LLC, (“Dufossat”).[11]
In October of 2013 Soniat and Schwausch agreed to cease doing business as West Oaks and/or Cobalt, part ways, and manage their own companies.[12] 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”).[13] That same month Manoj received a 1% Class A Interest in Dufossat, [14] and Pallavi signed a spousal assent.[15]
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.[16] In May of 2014 Manoj received an additional 2.5% Class A Interest in Dufossat.[17] In addition, Soniat agreed to convert Manoj's $200, 000 salary to an annual guaranteed payment of $250, 000 for a minimum of five years, provided that Manoj was not otherwise in violation of the Dufossat Operating Agreement and remained working full time for Dufossat.[18] The parties refer to this agreement variously as the Unanimous Consent Resolution and the Guaranteed Payment Agreement.
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 Arya Quants provided trade recommendations in exchange for payment from Dufossat. Plaintiffs allege that Dufossat agreed to pay Arya thirty percent of all profits made on the recommended trades, but Dufossat disputes that allegation. Defendants recorded trades recommended by Arya Quants separately from other accounts, but, without Arya's knowledge and without paying Arya, Defendants duplicated the trades in larger quantities in what is referred to variously as the “Shadow Book” and the “Follow Book.”[19] In December of 2015 Dufossat proposed a written agreement “to memorialize its business relationship with Arya” that described the Trading Program as a work made for hire.[20] 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.[21]
Defendants allege that by late January of 2016 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.[22] 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.[23] 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.[24] On February 24, 2016, Dufossat terminated Manoj's employment with cause, but Manoj remained a minority interest owner of the company.[25] Later in 2016 Arya formed companies for marketing the Trading Program on the internet.[26]
After Manoj's termination and discontinuance of Defendants' relationship with Arya, Defendants continued using the Trading Program and hired former Arya Quants to provide the services they had been providing through Arya.[27]
This case is a consolidation of two separate lawsuits 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.[28] On September 26, 2019, the court entered an Order Adopting Magistrate Judge Johnson's Memorandum and Recommendation (“Spoilation Order”) (Docket Entry No. 247). In brief, the Arya Plaintiffs filed this action against all the Defendants on December 7, 2016 (Docket Entry No. 1). The Arya Plaintiff's live pleading is Plaintiffs' Second Amended Complaint (Docket Entry No. 26). The live pleading for the counterclaims that the Defendants have asserted against the Arya Plaintiffs is Dufossat's First Amended Counterclaim, (Docket Entry No. 28). Manoj filed suit against Dufossat and Soniat in the 284th Judicial District of Montgomery County, Texas, Cause No. 16-03-03657. Dufossat and Soniat sought and received leave to add Pallavi as a party, and Pallavi removed the state court action to this court as Case No. 4:17-cv-3553, which was subsequently consolidated with this action (Docket Entry No. 77). Manoj's live pleading is Plaintiff's First Amended Petition from the state court action, [29]and Defendants' live pleading therefrom is Dufossat Capital Puerto Rico, LLC's Original Petition Against Pallavi Ghayalod.[30]
At Docket Call on July 9, 2021, the court allowed Plaintiffs to file a motion for summary judgment on any dispositive issues.[31]
On December 30, 2021, the court entered a Memorandum Opinion and Order (Docket Entry No. 372) that resolved the Plaintiffs' motions for summary judgment, as modified on reconsideration by the February 7, 2022, Memorandum Opinion and Order (Docket Entry No. 383, p. 7). Upon reconsideration the court allowed Defendants to file the pending motion for summary judgment.[32]
Asserting that the court's order allowing them to file the pending MSJ contemplated one motion that would be subject to a single response from Plaintiffs and a single reply, and that all the motions would be subject to the court's 25-page limit, but that Plaintiffs filed two responses that, together, exceed the 25-page limit by seven pages, Defendants move the court to strike the response filed by Manoj, and to grant their MSJ on Manoj's claims for failure to respond.[33] Alternatively, Defendants move the court for leave to exceed the 25-page briefing limit by filing Defendants' Reply to Manoj's Response to Defendants' Motion for Summary Judgment attached as Exhibit A to Defendants' Motion to Strike (Docket Entry No. 390-2).[34]
District courts may, in the exercise of sound discretion, grant motions to strike pleadings. See Gezu v. Charter Communications, 17 F.4th 547, 555 (5th Cir. 2021)(citing Cambridge Toxicology Group, Inc. v. Exnicios, 495 F.3d 169, 178 (5th Cir. 2007) ()). Although Defendants are correct that the court intended for them to file one MSJ, and for Plaintiffs to jointly file one response, to which Defendants would file one reply, Defendants have failed to show prejudice from Plaintiffs' filing two responses, one for the Arya Plaintiffs and one for Manoj, and acknowledge that the court could ameliorate any prejudice by allowing them to file two replies.[35] Because contrary to Defendants' argument, failure to respond is not alone cause to grant a motion for summary...
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