Nanologix, Inc. v. Novak
| Decision Date | 25 March 2016 |
| Docket Number | CASE NO. 4:13-cv-1000 |
| Parties | NANOLOGIX, INC., PLAINTIFF, v. CHRISTOPHER NOVAK, DEFENDANT. |
| Court | U.S. District Court — Northern District of Ohio |
MEMORANDUM OPINION AND ORDER
This matter is before the Court on two motions. The first is the motion of plaintiff NanoLogix, Inc. ("plaintiff" or "NanoLogix") to dismiss or strike the counterclaim of defendant Christopher Novak ("defendant" or "Novak") (Doc. No. 81 ["Pl. Mot."]), which defendant has opposed (Doc. No. 82 ["Opp'n to Pl. Mot."]). The second is Novak's motion for summary judgment on his counterclaim, plaintiff's affirmative defenses to the counterclaim, and on plaintiff's third amended complaint. (Doc. No. 84 ["MSJ"].) Plaintiff opposed the summary judgment motion (Doc. No. 89 ["Opp'n to MSJ"]), and defendant replied (Doc. No. 91 ["MSJ Reply"]).
For the reasons that follow, plaintiff's motion to dismiss/strike defendant's counterclaim is denied, and defendant's motion for summary judgment is granted in part and denied in part.
The factual and procedural history of this case has been previously detailed in a December 9, 2013 Opinion and Order (Doc. No. 29 ["OO"]), and in a March 26, 2015 Memorandum Opinion and Order (Doc. No. 77 ["MOO"]). Familiarity with these decisions is assumed, but certain aspects of the factual and procedural history of this case are relevant to the pending motions. Therefore, the Court will briefly revisit certain matters.
Early in 2008, plaintiff entered into a legal services contract with defendant to provide intellectual property services. (Doc. No. 31-1 ["Engagement Ltr."].) Dana Allen ("Allen"), who was a director of NanoLogix, helped recruit Novak to perform this work. When Novak began working for NanoLogix, NanoLogix claims that it did not know that Novak and Allen knew each other, or that Novak may have represented Allen as a client and helped Allen found a company called Sequoian Technologies ("Sequoian").
Shortly after Novak was retained by NanoLogix, Allen's relationship with NanoLogix soured and Allen attempted to oust the Chairman and CEO of NanoLogix—Bret Barnhizer. That effort was unsuccessful, and Allen resigned as a director on March 22, 2008. NanoLogix discussed with Novak certain issues regarding Allen's relationship with NanoLogix and his departure as a director. During this time, NanoLogix maintains that it was not aware that Novak had a relationship with Allen and Sequoian, or the nature of that relationship.
On November 19, 2009, Bret Barnhizer learned that Novak was listed on Sequoian's website as Sequoian's Vice-President, Inventor and Patent Attorney, and it appeared to NanoLogix that Novak had a lawyer-client relationship with Sequoian and possibly, with Allen. From this Bret Barnhizer concluded that Novak had a conflict of interest, and terminated Novak that same day. (Doc. No. 89-5 (Termination Letter ["Term. Ltr."]).) According to Bret Barnhizer, Novak was terminated because Novak neglected to inform NanoLogix of his association with Allen, which NanoLogix viewed as a conflict of interest. (Doc. No. 89-1 (Deposition of BretBarnhizer ["Barnhizer Dep."]) at 1004-05.1)
After he was discharged, Novak demanded payment from NanoLogix for legal services rendered.2 In its second amended complaint, NanoLogix asserted claims against Novak for breach of contract, unjust enrichment, rescission, fraud, and a declaration of non-liability for fees for legal services rendered by Novak. (Doc. No. 52 (Second Amended Complaint ["SAC"]).) Novak answered the second amended complaint, and incorporated by reference the counterclaim for breach of contract to recover unpaid legal fees that he had asserted in response to the first amended complaint ("FAC"). (Doc. Nos. 59 at 519 (Ans. to SAC and Counterclaim), and 31 (Ans. to FAC and Counterclaim).) Plaintiff answered, incorporating by reference the answer and affirmative defenses that plaintiff had asserted in response to Novak's counterclaim to the first amended complaint "in view of the fact that Novak has added no new or revised matter to the counterclaim" that was pleaded at docket entry number 31. (Doc. Nos. 61, and 51 ["Ans. to Counterclaim"].) One of the affirmative defenses asserted by plaintiff is that the counterclaim is barred by the doctrine of recoupment. (Ans. to Counterclaim at 455.)
Defendant moved to dismiss plaintiff's second amended complaint for the reason that all of plaintiff's claims were really malpractice claims and therefore time-barred. (See MOO at 601-04.) The Court agreed that plaintiff's claims for breach of contract, unjust enrichment, rescission, and declaratory judgment, all sounded in malpractice and were time-barred by Ohio's one year statute of limitations. (Id. at 608-09.)
The Court then analyzed plaintiff's fraud claim to determine if it, too, was barred by the statute of limitations for malpractice claims. Plaintiff alleged that Novak committed fraud by failing to disclose his alleged conflict of interest with respect to Allen and Sequoian for personal gain. (SAC ¶ 43.) Plaintiff advanced two theories regarding personal gain to Novak. The first was that Novak concealed his work for Sequoian from NanoLogix in order to retain the work from both companies. (Id.) The Court found that this theory of personal gain sounded in malpractice and, therefore, was time barred. (MOO at 610-11.)
Plaintiff's second theory was that Novak concealed his alleged conflict from NanoLogix in order to gain access to NanoLogix's sensitive and confidential information for improper purposes. (Id.) The Court found that this theory of personal gain was separate and apart from Novak's duties as an attorney, thus not time-barred. Therefore, plaintiff survived the motion to dismiss with respect to its fraud claim on this narrow theory. (Id. at 612.) The Court did not analyze the claim under Fed. R. Civ. P. 9(b), but permitted plaintiff to file a third amended complaint with respect to this single limited fraud claim; all other claims in the second amended complaint were dismissed. (Id. at 612, 616-17.)
With respect to plaintiff's affirmative defense of recoupment to Novak's counterclaim, the Court found that, even though plaintiff's affirmative claims sounding in malpractice were barred by the one year statute of limitations, plaintiff's affirmative defense of recoupment or set-off to defendant's counterclaim was not barred. (Id. at 612-14.)
Plaintiff filed its third amended complaint (Doc. No. 79 (Third Amended Complaint ["TAC"])), and defendant filed an answer (Doc. No. 80 (Answer to Third Amended Complaint ["Ans. to TAC"])). The content of those pleadings will be discussed in detail in the context of theCourt's analysis of plaintiff's motion to dismiss/strike defendant's counterclaim and defendant's motion for summary judgment.
Plaintiff moves to dismiss or strike defendant's counterclaim pursuant to Rules 12(b)(6) and 12(f) of the Federal Rules of Civil Procedure based on defendant's answer to the third amended complaint. In support of its motion, plaintiff argues that: (1) the title of the pleading does not reference a counterclaim; (2) no counterclaim is set forth in separately numbered paragraphs as required by Fed. R. Civ. P. 10(b); and (3) the former counterclaim is not incorporated by reference. For these reasons, plaintiff contends that the reference to the counterclaim in the answer's conclusion should be stricken pursuant to Rule 12(f), and if not stricken, the counterclaim should be dismissed pursuant to Rule 12(b)(6) because "Novak pleads nothing upon which relief can be granted." (Pl. Mot. at 645-46.) Plaintiff cites no legal authority in support of its motion. Defendant cites Fed. R. Civ. P. 13 in opposition, contending that the counterclaim was previously pleaded and pending, and need not be re-pleaded. (Opp'n to Pl. Mot. at 648.)
Courts have taken different approaches to determining the fate of counterclaims that are not re-pleaded in response to an amended complaint. See Ground Zero Museum Workshop v. Wilson, 813 F. Supp. 2d 678, 705-06 (D. Md. 2011) (discussing cases); Mathews v. Ohio Pub. Employees Ret. Sys., No. 2:12-CV-1033, 2014 WL 4748472, at *4-*6 (S.D. Ohio Sept. 23, 2014) (discussing cases). Courts in this jurisdiction consider the requirements of the Federal Rules of Civil Procedure in the context of the circumstances and equitable considerations presented by aparticular case in deciding whether to strike or dismiss a counterclaim that has not been reasserted in response to an amended complaint. Mathews, 2014 WL 4748472, at *4 (citing Hitachi Med. Sys. Am. Inc. v. Horizon Med. Grp., No. 5:07CV02035, 2008 WL 5723531 (N.D. Ohio Aug. 29, 2008)) (further citation omitted).
In Hitachi, this Court denied plaintiff's motion to strike defendant's counterclaim because it was not timely reasserted in response to the plaintiff's amended complaint. In that case, the defendant "sought and obtained leave to file an answer to the amended complaint, and, in doing so, incorporated its counterclaim by reference." Hitachi, 2008 WL 5723531, at *4. The Court observed that "the process by which Horizon asserted its counterclaim is no model of procedural practice," but Hitachi had been on notice of the content of the counterclaim since it was timely asserted in response to the original complaint, the substance of the counterclaim had not changed since the initial filing, the parties had an opportunity to conduct discovery, there was no prejudice to plaintiff by allowing the counterclaim to stand, the potential prejudice to defendant was considerable, and failure to re-plead the counterclaim was inadvertent. Id. at *4-*5. Based on these findings, and considering the interplay between Rules 1, 13 and 15, the Court found that equitable considerations favored allowing the defendant to maintain its counterclaim. Id. at *5 (citations omitted).
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