LQD Bus. Fin. v. Rose
| Decision Date | 08 September 2022 |
| Docket Number | 19 C 4416 |
| Parties | LQD BUSINESS FINANCE, LLC, Plaintiff, v. AZIZUDDIN ROSE, FUNDKITE LLC, AKF, INC. d/b/a FUNDKITE, WORLD GLOBAL CAPITAL, LLC, and YELLOWSTONE CAPITAL, LLC, Defendants. AZIZUDDIN ROSE, Counterclaimant, v. LQD BUSINESS FINANCE, LLC, LQD FINANCIAL CORP., and GEORGE SOURI, Counterclaim defendants. |
| Court | U.S. District Court — Northern District of Illinois |
LQD Business Finance LLC, AKF Inc., Fundkite LLC, World Global Capital LLC, and Yellowstone Capital LLC all fund commercial businesses in need of alternative financing through what are called merchant cash advances. Like many peers in the industry, these companies find some of their deals through applications from independent sales organizations (ISOs)-entities or individuals who submit applications to the funder in exchange for a commission if the submission leads to a successful deal. These applications usually detail the potential borrower's needs and financial information.
Azizuddin Rose worked for LQD from 2015 to 2019, and during that time he had access to LQD files containing proprietary information about potential borrowers. While working for LQD, Rose submitted sixty-three applications as an ISO to AKF and the Yellowstone entities.[1] Whether Rose had the authority to do so is the subject of dispute.
After learning that Rose had submitted these applications, LQD sued Rose, AKF, and Fundkite LLC, alleging that they had misappropriated LQD's trade secrets. Rose counterclaimed against LQD and its Chief Executive Officer, George Souri alleging that they failed to pay him and prevented him from receiving a commission for securing a deal for AKF. LQD later added World Global Capital and Yellowstone Capital as defendants, and Rose added LQD Financial as a counterclaim defendant.
The corporate defendants have moved for summary judgment on LQD's claims against them. For the reasons set forth below, the Court grants the corporate defendants' motion in part. LQD has also filed a cross-motion for summary judgment on its claims against Rose and the corporate defendants. The Court denies this motion. Additionally, the counterclaim defendants have moved for summary judgment on Rose's counterclaims. The Court grants this motion in part. Finally, both LQD and the corporate defendants have moved to exclude their opponents' expert witnesses. The Court denies these motions as explained below.
The following facts are undisputed except where otherwise noted. LQD provides merchant cash advances to commercial businesses in need of alternative financing. LQD develops and maintains files for its current and prospective clients, which contain information such as a borrower's cash flow, balance sheets, and income statements. LQD uses several measures to protect its client files, including file encryption and password-protected access.
In the merchant cash advance industry, funders primarily acquire customer intelligence in two ways. The first method, which is not relevant to this lawsuit, is through internal sales channels, such as the purchase of lead lists and internet scraping. The second way, which is central to this lawsuit, is through ISOs. An ISO, which may be an individual or an entity, cultivates relationships with potential borrowers for the purpose of brokering financing for those borrowers. Funders like LQD and the corporate defendants then contract with ISOs to ultimately provide loans to these borrowers. Funders also hire ISO representatives to manage the ISO relationship. When a funder executes a loan that an ISO submitted, both the ISO and the ISO representative are paid commissions for the business.
Rose worked for LQD from September 2015 to June 2019. At some point in early 2017, he transitioned into an ISO representative capacity in which he had access to LQD's client files and data. The parties dispute whether Rose had authority to submit applications to external funders, such as AKF and the Yellowstone entities. The parties also dispute whether Rose agreed to certain privacy policies as set forth in LQD's employee handbook and Proprietary Information and Inventions Agreement. LQD paid Rose tens of thousands of dollars each year as compensation.
In June 2018, Rose and AKF entered into a contract under which Rose would serve as an ISO for AKF, and AKF would pay him commission in exchange for completed deals. This contract identified Rose as a sole proprietor. Throughout his business relationship with the corporate defendants, Rose used multiple e-mail addresses, including his LQD address and various personal addresses.
Rose ultimately submitted sixty-three potential borrowers to AKF. In its internal customer relationship management system, AKF "assigned" the proposed deals to LQD. An agent from LQD explained that the "assigned" designation is automated and refers to the entity that sent the deal. The applications that Rose submitted contained straightforward information about the potential borrower, such as the contact information and basic financial information. The parties dispute how many of these sixty-three applications were sent to the Yellowstone entities and whether Rose presented these deals to LQD as well. At least two of these applications-Life Enhancement Services (LES) and Today's Growth Consultant (TGC)-led to funded deals. AKF paid Rose a commission for the LES deal, but Rose has not been paid a commission for the TGC deal.
In June 2019, LQD terminated Rose. In July 2019, LQD sued Rose, AKF, and Fundkite LLC for misappropriating LQD's client files, which it alleges are protected as trade secrets. Rose counterclaimed, alleging that LQD failed to pay him and prevented him from receiving his commission on the TGC deal. The defendants and the counterdefendants both filed motions to dismiss, which the Court granted in part. See LQD Bus. Fin., LLC v. Fundkite, LLC, No. 19 C 4416, 2020 WL 635906 (N.D. Ill. Feb. 11, 2020).
In May 2020, LQD filed a third amended complaint and added World Global Capital and Yellowstone Capital as defendants. This is the operative version of LQD's complaint. It includes claims against all defendants for violation of the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836(b) (count 1); violation of the Illinois Trade Secrets Act (ITSA), 765 ILCS 1065/4 (count 2); and unjust enrichment (count 3). The complaint also includes claims against Rose for breach of fiduciary duty (count 5); violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (count 6); breach of contract (count 7); and breach of the covenant of good faith and fair dealing (count 8). Finally, the complaint includes a claim against the corporate defendants for tortious inducement of a breach of fiduciary duty (count 9) and a request for injunctive relief (count 4).
In October 2020, Rose filed a second amended counterclaim and added LQD Financial as a defendant. This operative counterclaim includes claims against the counterdefendants for violation of the Fair Labor Standards Act, 29 U.S.C. § 1215 (count 1); violations of the Illinois Minimum Wage Law, 820 ILCS 105/1 (counts 2 and 3); violations of the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (counts 4, 5, and 6); and tortious interference with contract (count 7).
The counterdefendants have now moved for summary judgment on all of Rose's counterclaims. The corporate defendants have filed for summary judgment on all of LQD's claims, and LQD has filed a cross-motion for summary judgment on these claims. LQD's cross-motion also seeks summary judgment on its claims against Rose. Lastly, both LQD and the corporate defendants have moved to exclude the opposing parties' expert witnesses. Rose also filed a motion for summary judgment, but he never filed anything in support of it aside from a bare-bones request to file materials under seal. The Court granted that request, but Rose never filed anything in support of his own summary judgment motion or in opposition to LQD's motion, despite being given extensions on each.
To obtain summary judgment, a party must demonstrate that "there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). There is a genuine issue of material fact if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Hanover Ins. Co. v. N. Bldg. Co., 751 F.3d 788, 791 (7th Cir. 2014) (citing Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986)). When parties file cross-motions for summary judgment, courts "construe all inferences in favor of the party against whom the motion under consideration is made." Cremation Soc'y of Ill., Inc. v. Int'l Bhd. of Teamsters Local 727, 869 F.3d 610, 616 (7th Cir. 2017) (quoting Rupcich v. UFCW Int'l Union, Local 881, 833 F.3d 847, 853 (7th Cir. 2016)). The non-moving party must identify "specific, admissible evidence showing that there is a genuine dispute of material fact for trial." Grant v. Trs. of Ind. Univ., 870 F.3d 562, 568 (7th Cir. 2017). "If the nonmoving party fails to establish the existence of an element essential to his case, one on which he would bear the burden of proof at trial, summary judgment must be granted to the moving party." Cervantes v. Ardagh Grp., 914 F.3d 560, 564 (7th Cir. 2019).
The corporate defendants have moved for summary judgment on LQD's trade secrets claims under the DTSA and the ITSA. Both of these statutes create civil liability for the "misappropriation" of trade secrets. See 18 U.S.C. § 1836(b); 765 ILCS 1065/4(a). The statutes are, in relevant part, virtually identical, so the...
To continue reading
Request your trial