Fitistics, LLC v. Cherdak

• Decision Date: 23 August 2018
• Docket Number: C/w 1:17-cv-500,Case No. 1:16-cv-112-LO-JFA
• Court: U.S. District Court — Eastern District of Virginia
• Parties: FITISTICS, LLC, Plaintiff, v. ERIK B. CHERDAK, Defendant.

FITISTICS, LLC, Plaintiff, v. ERIK B. CHERDAK, Defendant.

Case No. 1:16-cv-112-LO-JFA

C/w 1:17-cv-500

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division

August 23, 2018

MEMORANDUM OPINION

This matter comes before the Court after a three-day bench trial from April 30, 2018 to May 2, 2018.¹ The parties have submitted post-trial briefs and oppositions thereto and the claims and counterclaims in this case are now ripe for disposition.

For the reasons that follow and for good cause shown at trial, the Court finds in favor of Fitistics, LLC and Sean McKirdy and against Erik Cherdak on all claims and counterclaims in this case. Fitistics will be awarded relief as described below and in the accompanying Order.

I. Preliminary Matters

Several preliminary matters must be addressed.

First, Erik Cherdak has asked the Court to take judicial notice of Exhibit B to Docket Entry 111-5. His request is unopposed and the Court, finding good cause, so notices and makes Docket Entry 111-5, Exhibit B a part of the trial record. Fitistics has similarly asked for judicial notice of Plaintiff's Exhibit 8. Again, the Court finding good cause, so notices and makes Plaintiff's Exhibit 8 a part of the record.

Next, the Court has reviewed Erik Cherdak's post-trial briefs appearing at Docket Entries 347 and 348 and finds that neither conforms to Local Rule 7, employing extensive single spacing, reduced margin sizes, and reduced font sizes. The Court struck Erik Cherdak's first post-trial brief for these same reasons and cautioned Cherdak at the time that "if either his re-filed post-trial brief or his response brief . . . do not conform with the Local Rules and this Court's May 22, 2018 Order, they will be stricken and the Court will unlikely grant leave to re-file." Dkt. 346. Fitistics, in its opposition to Cherdak's post-trial brief, brings to the Court's attention a prior instance when Cherdak was cautioned by the District Court for the District of Massachusetts for similar violations in 2015. Given this Court's earlier explicit warning, the Court ORDERS Cherdak's briefs appearing at Docket Entries 347 and 348 STRICKEN.²

Finally, the Court must address Cherdak's pro se status. Cherdak has been represented in this case by eight prior attorneys, all of whom have withdrawn. The Court approved the withdrawal of Cherdak's most recent counsel over Cherdak's objections, after a sealed hearing on the matter on January 26, 2018. Cherdak had ample time to secure counsel between January 26 and trial, but he instead chose to represent himself pro se. Cherdak is a trained attorney who has litigated cases before this very Court in the past. He stated on the record that he has an inactive bar admission in Pennsylvania, and was recently employed by a top international law firm. Accordingly, the Court finds that Cherdak is not entitled to the consideration normally afforded to pro se parties who lack familiarity with the law, the court system, and its policies and procedures. See Tatten v. City and Cnty. of Denver, 730 F. App'x. 620, 625 (10th Cir. 2018) (collecting cases declining to extend special consideration to attorneys proceeding pro se).

II. Introduction and Procedural History

Fitistics LLC ("Fitistics"), a Connecticut company, commenced this litigation on February 4, 2016, alleging breach of contract, breach of fiduciary duty, conversion, and fraud against Erik Cherdak ("Cherdak"). Cherdak counter-claimed for breach of contract, fraud, intentional interference with contractual relations and prospective economic advantage, copyright infringement, negligent misrepresentation, and constructive fraud. Judge Gerald Bruce Lee granted summary judgment in Cherdak's favor on Fitistics's breach of fiduciary duty claim and set a trial date of December 6, 2015. Dkt. 82. On December 5, 2015, Cherdak filed a Suggestion of Bankruptcy in the case file. Dkt. 155. Cherdak's attorney of the moment filed a motion to withdraw the same day. Dkt. 156. The next day, Judge Lee stayed this matter pending disposition of Cherdak's bankruptcy proceeding. Dkt. 159.

Notwithstanding the stay and his bankruptcy, on April 28, 2017, Cherdak filed suit against Fitistic's Chief Executive Officer, Sean McKirdy ("McKirdy"), and Fitistics related to the same issues in Cherdak's counterclaim, adding a new defamation claim against McKirdy. See 1:17-cv-500. Cherdak's use of the bankruptcy proceeding as a shield against liability while continuing to prosecute his own claims resulted in Fitistics obtaining relief from the stay in the bankruptcy court and, ultimately, in Judge T.S. Ellis's³ consolidation of the two cases on September 25, 2017. Dkt. 194. Judge Ellis then set the case for trial on December 18, 2017. This date was subsequently changed to January 30, 2018. On January 12, 2018, Judge Ellis recused himself and the undersigned assumed responsibility over the case, setting the trial for April 30, 2018.

III. Findings of Fact

At trial, the parties established the following facts.

In the spring of 2012, Fitistics, LLC held a patent portfolio pertaining to the retention and transfer of fitness data from fitness machines. The portfolio included U.S. Patent Number 8,118,709 (the '709 patent), which claimed priority from provisional application number 60/872,203 (filed 12/1/2006) and issuing from application number 11/998,766 (filed 11/30/2007). The portfolio also included patent applications 13/305,788 and 13/350,790 (later developed into a patent), both filed 1/15/2012 and were originally being prosecuted by Fitistics's attorney Steve McHugh.

In April 2012, Fitistics engaged Ward & Ward PLLC for legal services pertaining to its patent portfolio. Eric Cherdak was also a client of Ward & Ward, was previously licensed to practice law, and was presently a registered patent practitioner at the United States Patent and Trademark Office (USPTO). On April 9, 2012, Ward & Ward and Fitistics entered into an engagement letter, which makes no mention of Cherdak. PTX 35. That engagement letter for patent prosecution and preparation services contemplated, as compensation for those services, assigning a 25% ownership interest in Fitistics's patents, not including the '709 patent, which had already been issued. This assignment would be made to "a corporate or other legal entity of Lawyers' choosing." No such assignment ever occurred. Subsequent to this engagement letter, Ward & Ward and Fitistics, by addendum, agreed that Cherdak would have no involvement, directly or indirectly, with Ward & Ward legal services to Fitistics. PTX 37.

Separately, Cherdak, through Ward & Ward, was asked to help prosecute Fitistics' patent portfolio, specifically U.S. Patent Application Numbers 13/507,877, 13/507,876, 13/507,875, and 13/506,781. The evidence demonstrated that Cherdak did not perform any work on the '788and '790 applications through Ward & Ward. The evidence also demonstrated that Cherdak routinely reassured Fitistics and Ward & Ward that he was handling patent prosecution for these applications, including paying required fees to the USPTO, yet all the applications ended up abandoned.

The engagement letter was novated in September 2012, backdated by agreement to March 3, 2012. PTX 36. On October 4, 2012, that novation was modified at the request of Ward & Ward to explicitly preclude Cherdak's involvement in Ward & Ward's work for Fitistics.

Fitistics independently entered into a Copyright Assignment Agreement (CAA) with Cherdak in December 2012, which Cherdak drafted and which provided for 65% of proceeds from those copyrights going to Fitistics and 35% going to Cherdak. PTX 45. This assignment enabled Cherdak to file a copyright infringement suit against Core Industries, Inc. in this Court in January 2013.

In his work leading up to the CAA, Cherdak used his expertise in computer science to parse the code written for Fitistics by ESI, a contracted vendor, and drafted copyright registration applications and assignments of rights in the code from ESI to Fitistics. See PTX Nos. 55, 81, 84; Tr. 4/30/18 at 49-50, 53-57, 65-67, 179, 183, 192-194, 202-203, 202-203, 217-218.

Cherdak successfully negotiated settlements with Core Industries and Koko Fitclub pursuant to his assignment under the CAA for a total of $130,000. Under the express terms of the CAA, Fitistics was entitled to $84,500 from these settlements. Cherdak sent a check to Fitistics for $42,000, but then placed a stop payment on that check and blamed the banks for the problems, alternatively inflating his litigation expenses in the Core Industries case and denying he owed any money under the Koko Fitclub settlement. PTX 27, 42, 83; Tr 4/30/18 at 118-121, 124-126, 153-155; Cherdak Dep. 7/25/16 at 387.

In July 2013, Cherdak entered into a patent license agreement with Garmin International, Inc. ("Garmin"), licensing, for $90,000, Fitistics's patent portfolio without Fitistics's knowledge and unrelated to the CAA. PTX 11-14. Cherdak had no legal right to Fitistics's patent portfolio at that time. See PTX 8, 9, 120. Yet Cherdak was plainly aware that the licensing agreement with Garmin covered Fitistics's portfolio. See PTX 11. Cherdak did not disclose to Fitistics the existence of this license and has never paid to Fitistics any part of the $90,000 he received from Garmin.

On August 12, 2013, Cherdak and Fitistics entered into a Patent Rights Assignment Agreement (PRAA), drafted by Cherdak. PTX 7. On August 11, 2013, apparently in an attempt to give legal enforceability to his still-concealed agreement with Garmin, Cherdak induced Fitistics to agree to backdate the PRAA to June 15, 2013, alleging, nonsensically, that backdating would bolster Cherdak's position in future lawsuits under the PRAA. See PTX 6, 7, 4/30/18 Trial Tr. at 101-102.

While the PRAA did not mention the Garmin license, due to Cherdak's continued concealment of that license from Fitistics, it plainly contemplated that other licenses had been entered...