Schnabel v. Ramsey Quantitative Systems, Inc., 03 CIV. 8771(AJP).

• Decision Date: 25 June 2004
• Docket Number: No. 03 CIV. 8771(AJP).,03 CIV. 8771(AJP).
• Citation: 322 F.Supp.2d 505
• Parties: Gadi SCHNABEL, Plaintiff, v. RAMSEY QUANTITATIVE SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

322 F.Supp.2d 505

Gadi SCHNABEL, Plaintiff, v.RAMSEY QUANTITATIVE SYSTEMS, INC., Defendant.

No. 03 CIV. 8771(AJP).

United States District Court, S.D. New York.

June 25, 2004.

COPYRIGHT MATERIAL OMITTED

J. Rodman Steele, Diane Churchill, Akerman Senterfitt, West Palm Beach, FL, Joseph T. Murray, Hart, Baxley, Daniels & Holton, New York City, for Plaintiff.

William B. Flynn, McCabe & Flynn, L.L.P., New York City, for Defendant.

OPINION & ORDER

PECK, Chief United States Magistrate Judge.

PlaintiffGadi Schnabel brought this action for a declaratory judgment to "quiet title" to his "Selector" computer program and for breach of his employment contract with defendantRamsey Quantitative Systems, Inc.(See generallyDkt. No. 1: Compl.)After the filing of this action but before Ramsey was served with it, Ramsey filed suit against Schnabel in the United States District Court for the Western District of Kentucky.(Dkt. No. 2: Ramsey Motion to Dismiss or Transfer(hereafter, "Ramsey Motion"), Ex. 6: W.D. Ky. Compl.)

Presently before this Court is Ramsey's motion to dismiss this action in favor of the Kentucky action under an exception to the "first filed rule," or in the alternative to transfer this action to the Western District of Kentucky, where Ramsey's action against Schnabel is pending.

The parties have consented to determination of this action by a Magistrate Judge pursuant to 28 U.S.C. § 636(c).(Dkt. No. 21: 5/11/04 Consent to Jurisdiction.)

For the reasons discussed below, Ramsey has not met its heavy burden of showing "special circumstances" to justify dismissing this first filed action, nor has Ramsey met the heavy burden of showing that an exception to the first filed rule or transfer to Kentucky under 28 U.S.C. § 1404(a) is appropriate "for the convenience of the parties and witnesses, in the interest of justice," and therefore Ramsey's motion to dismiss or transfer is DENIED.

FACTS

PlaintiffGadi Schnabel, a resident of New York who works in the equity trading industry, developed a software program for an equity trading strategy model.(Dkt. No. 12: SchnabelAff. ¶¶ 2-4.)Defendant Ramsey is an asset management firm specializing in systematic programs with its principal place of business in Louisville, Kentucky.(Dkt. No. 1: Compl. ¶ 3;Dkt. No. 27: Answer¶ 3;Dkt. No. 2: Ramsey MotionEx. 1: Neil RamseyAff. ¶ 2;Dkt. No. 2: Ramsey MotionEx. 6: W.D. Ky. Compl. ¶ 2.)Ramsey employed Schnabel "to assist the company in developing an equity trading strategy model, later named G-Pairs."(RamseyAff. ¶ 4.)

Schnabel began developing his equity trading computer software program named "Selector" in 2000.(SchnabelAff. ¶¶ 3-4.)In October 2002, while working for Credit Suisse as a hedge fund analyst, Schnabel was sent to Louisville to conduct business with Ramsey.(SchnabelAff. ¶ 5.)During his visit, Schnabel met with Ramsey's President Neil Ramsey and discussed Schnabel's fund tracking software program and the fund tracking system Schnabel had implemented for Credit Suisse.(SchnabelAff. ¶ 5.)They began preliminary discussions concerning a possible future business relationship.(SchnabelAff. ¶ 5.)Schnabel continued to correspond with Ramsey concerning possible employment, and on January 21, 2003, Schnabel met with Neil Ramsey in New York to discuss specific terms of employment.(SchnabelAff. ¶ 7;RamseyAff. ¶ 3.)After email drafts of an employment agreement, in February 2003 Schnabel accepted via email an offer of employment based on the terms initially discussed in New York as further developed via the emails.(SchnabelAff. ¶¶ 8-9.)¹Schnabel met with Neil Ramsey two more times in New York before Schnabel and his wife moved to Louisville, Kentucky on May 4, 2003 and commenced employment with Ramsey on May 5, 2003.(SchnabelAff. ¶¶ 10-11.)During his employment with Ramsey in Kentucky, Schnabel maintained his New York apartment.(SchnabelAff. ¶ 2.)

Ramsey hired Schnabel "to assist the company in developing an equity trading strategy model, later named G-Pairs."(RamseyAff. ¶ 4.)Schnabel claims, however, that he completed development of his workable and tradable computer program before beginning employment with Ramsey, and that Schnabel and his father, Israel Schnabel, were already trading with the program in 2002.(SchnabelAff. ¶ 4;Dkt. No. 6: Israel SchnabelAff. ¶¶ 3-4.)Schnabel claims that he continued development of his Selector computer program independently at Ramsey, and that other Ramsey employees made small contributions by helping him integrate the program with Ramsey's execution platform and resolve compatibility problems between disparate file formats.(SchnabelAff. ¶ 12.)In contrast, Ramsey claims that Schnabel's program was not functional prior to Schnabel's employment with Ramsey.(Dkt. No. 2: Ramsey MotionEx. 3: SatterfieldAff. ¶¶ 4-5.)Neil Ramsey claims that the program was still being developed at Ramsey and that he personally "integrated into [the program] trade secrets and other confidential proprietary information," and made "alterations to portfolio logic, changes to selection and sizing routines, and creation of the process for sending executable orders to the equity markets."(RamseyAff. ¶ 6;SatterfieldAff. ¶ 5.)Schnabel, however, claims Neil Ramsey's contributions to Selector were "insignificant and only served to make the program compatible with [Ramsey's] existing systems."(SchnabelAff. ¶ 13.)Ramsey eventually used the G-Pairs program to invest $20 million in capital.(RamseyAff. ¶¶ 7-8;SatterfieldAff. ¶ 6.)

After five months, Schnabel became discouraged with his opportunities to contribute to and benefit from his employment with Ramsey.(SchnabelAff. ¶ 14.)Although Schnabel was hired as Director of Fundamental Factor Research, he claims he was excluded from almost all research meetings, prevented from participating in important decision making, and refused information concerning Ramsey's trading system that would allow him to improve the system he implemented.(SchnabelAff. ¶¶ 14-15.)Schnabel asserts that he was "treated like a programmer" and was only employed so that Ramsey could gain control over his Selector program.(SchnabelAff. ¶ 14.)Schnabel resigned from Ramsey on October 16, 2003 and returned to New York on October 27, 2003.(SchnabelAff. ¶ 17.)Upon leaving, Schnabel deleted from Ramsey's computer the company's only copy of the G-Pairs program.(RamseyAff. ¶ 9.)As a result, Ramsey claims that it was forced to liquidate its positions associated with the model and sustained economic harm due to loss of the G-Pairs program.(RamseyAff. ¶¶ 10-11.)

Schnabel claims that he never transferred his "intellectual property rights in [his] Selector trading program" to Ramsey, nor did he agree that Ramsey could use the program beyond his employment.(SchnabelAff. ¶ 26.)Schnabel contends that he never signed the Employee Non-Disclosure Agreement, and that it never existed in his personnel file.(SchnabelAff. ¶ 22.)In contrast, Neil Ramsey claims that Schnabel executed an Employee Non-Disclosure agreement when he was in Louisville but that Schnabel confiscated it when he resigned.(RamseyAff. ¶ 5; Dkt. No. 3: Ramsey Br.at 3.)

On October 29, 2003, Ramsey sent an email to Schnabel threatening that Ramsey would "take `all necessary action to protect [its] interests.'"(Dkt. No. 13: Schnabel Br.at 10.)On November 3, 2003, Neil Ramsey emailed a letter to Schnabel in an attempt to resolve issues arising out of Schnabel's resignation.(RamseyAff. ¶ 12 & Att. 11/3/03 Letter.)In the letter, Ramsey demanded Schnabel return the proprietary information and Non-Disclosure Agreement and explain why Schnabel believes he has rights to the computer program.(Ramsey Aff. Att.: 11/3/03 Letter.)The letter referred to attempting to "sort this out and come to an understanding" and to try to keep it between Schnabel and Neil Ramsey.(Id.)

Schnabel's Suit Against Ramsey in This Court

Two days after that letter, on November 5, 2003, Schnabel filed a Complaint in this Court asserting claims for breach of contract and seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201, that he was the owner of all intellectual property rights associated with Selector.(Dkt. No. 1: Compl. ¶¶ 1, 14-25.)On December 17, 2003, before being served with Schnabel's S.D.N.Y. Complaint,² Ramsey filed its Complaint in the United States District Court for the Western District of Kentucky.(Dkt. No. 3: Ramsey Br.at 4;Dkt. No. 2: Ramsey MotionEx. 6: W.D. Ky. Complaint.)Ramsey's W.D. Ky. complaint alleges that Schnabel: (1) violated the Computer Fraud and Abuse Act;(2) breached his contract and Employee Non-Disclosure Agreement; and (3) misappropriated confidential information in violation of the Kentucky Uniform Trade Secrets Act.(Ramsey Br.at 4; W.D. Ky. Complaint.)Schnabel signed a waiver of service for the Kentucky complaint on January 29, 2004.(Dkt. No. 13: Schnabel Br.at 8;seeRamsey Br.at 4.)

On June 4, 2004, Ramsey filed its answer in this Court and asserted as counterclaims the same three claims as in its W.D. Ky. complaint (Dkt. No. 27: Ramsey Ans.: Counterclaim¶¶ 1-44), essentially making the S.D.N.Y. action identical to the Kentucky action.

Presently before this Court is Ramsey's motion to dismiss Schnabel's action or, in the alternative, to transfer this suit to the Western District of Kentucky.(Dkt. No. 2: Ramsey Motion.)

ANALYSIS

I.THE FIRST FILED RULE: LEGAL PRINCIPLES

"Courts in this Circuit adhere to the first filed rule: `Where two courts have concurrent jurisdiction over an action involving the same parties and issues, courts will follow a "first filed" rule whereby the court which first has possession of the action decides it.'"Clarendon Nat'l Ins. Co. v. Pascual, 99 Civ. 10840, 2000 WL 270862 at *7(S.D.N.Y.Mar. 13, 2000)(Peck, M.J.)(quoting 800-Flowers, Inc. v. Intercontinental Florist, Inc.,860 F.Supp. 128, 131...