Second Measure, Inc. v. Kim

• Decision Date: 10 November 2015
• Docket Number: Case No. 15-cv-03395-JCS
• Citation: 143 F.Supp.3d 961
• Court: U.S. District Court — Northern District of California
• Parties: Second Measure, Inc., Plaintiff, v. Steven Kim, Defendant.

143 F.Supp.3d 961

Second Measure, Inc., Plaintiff,

v.Steven Kim, Defendant.

Case No. 15-cv-03395-JCS

United States District Court, N.D. California.

Signed November 10, 2015

Nitoj P. Singh, Harmeet K. Dhillon, Dhillon Law Group Inc., San Francisco, CA, for Plaintiff.

Sam N. Dawood, Law Offices of Sam N. Dawood, Thomas V. Christopher, The Law Offices of Thomas V. Christopher, San Francisco, CA, for Defendant.

ORDER DENYING COUNTERCLAIM DEFENDANT SECOND MEASURE, INC.'S MOTION TO DISMISS PURSUANT TO FRCP 12(b)(6)

, AND, IN THE ALTERNATIVE, MOTION FOR MORE DEFINITE STATEMENT PURSUANT TO FRCP 12(e)

JOSEPH C. SPERO

, Chief Magistrate Judge

I. INTRODUCTION

Plaintiff Second Measure, Inc. ("Second Measure") brought this action against Defendant Steven Kim in San Mateo County Superior Court, seeking a declaration that Kim does not have an equity interest in Second Measure, along with other relief. Compl. (dkt. 1, Ex. A) at 5–6. On July 23, 2015, Kim removed the case to this Court on the basis of diversity jurisdiction under 28 U.S.C. § 1332

. Def's Notice of Removal (dkt. 1) at 2. On August 3, 2015, Kim filed an Answer and Counterclaims, asserting counterclaims against Second Measure and its official corporate founders, Michael Babineau and Lillian Chou (collectively, the "Counterclaim Defendants"). Dkt. 7 at 16–21, ¶¶ 25–69. The counterclaims are based on allegations that Second Measure was created as a result of a partnership or joint venture between Kim and Babineau and that Babineau wrongfully shut Kim out of the partnership or joint venture. Id. at 11–15, ¶¶ 10–24.

On August 28, 2015, Second Measure filed a Motion to Dismiss Pursuant to Rule 12(b)(6)

and Alternative Motion for a More Definite Statement (the "Motion," dkt. 11), and Babineau and Chou filed a Notice of Joinder in the Motion. Dkt. 19. The Court held a hearing on the Motion on Friday, November 6, 2015, at 9:30 a.m. For the reasons stated below, the Motion is DENIED.¹

II. BACKGROUND

A. Factual Background

The parties present conflicting factual histories about Kim's role in the founding of Second Measure, but the parties appear to agree on the following general timeline. In September of 2013, Kim and Babineau discussed a business plan related to analyzing datasets on credit card spending to generate profits for investors. Answer to Complaint and Counterclaims ("Answer and Counterclaims," dkt. 7) at 11, ¶ 12; Compl. ¶¶ 7–8. By late September of 2014, any role that Kim had in founding a company with Babineau based on this plan had ended. Answer & Countercl. at 15, ¶ 23; Compl. ¶¶ 13–16. At some point after September of 2014, Babineau and Chou incorporated Second Measure to "build tools and services designed to leverage consumer spending data for the ultimate benefit of hedge funds and other investors." Compl. ¶ 4; Answer & Countercl. at 15, ¶ 24. Beyond this general timeline, the parties offer conflicting characterizations of Kim's relationship with Babineau and Second Measure.

According to Kim, around September of 2013, he and Babineau entered into an oral agreement to develop a business as a joint venture or partnership based on the plan they had discussed. Answer & Countercl. at 12–13, ¶ 14. Under this agreement, Kim and Babineau were to have equal ownership, equal profit interests, and equal control in the management of the business. Id. Kim—who has worked as an investor—was to lead the business side of the enterprise, and Babineau—who is a computer engineer —was to lead the technical side. Id. at 11–13 ¶¶ 11, 13, 14. They initially planned to call their business "Recon" but later agreed change the business's name to "Second Measure." Id. at 12–13, ¶ 14.

The Answer and Counterclaims describes how Kim and Babineau worked to develop the business together over the next year. Id. at 13–15, ¶¶ 15–20. They worked long hours together, organizing the datasets on which their business was based. Id. at 13–14, ¶¶ 16–17. They split costs for business expenses, and Babineau sought Kim's approval for computer server-related expenses. Id. at 14, ¶ 18. And they signed tandem non-disclosure agreements with a data provider to acquire consumer spending datasets. Id. at 13, ¶ 15.

According to Kim's allegations, Babineau and Kim were still working together to develop the business in September of 2014. Id. at 14–15, ¶ 20. As specific examples of their continued coordination in the fall of 2014, Kim quotes two emails he received from Babineau. In an email dated September 11, 2014, Babineau allegedly wrote to Kim, "Right now it doesn't feel we are maximizing our chances for success. How can we be better as a team?" Id. In an email sent the following day, Babineau allegedly wrote, "I want us to be back on the same page! Let's get this shit figured out and get rich together." Id.

At some point in 2014, Chou, who was Babineau's girlfriend, became involved with the business. Id. at 14, ¶ 19. While she was initially included to help Babineau with the technical side of the business, Kim alleges that she and Babineau "formed an undisclosed intent to eventually wrongfully exclude [Kim] from the joint venture/partnership." Id. at 14–15, ¶¶ 21, 19. In late September of 2014, Babineau and Chou shut Kim out of the business by blocking his access to their servers, applications, and Kim's prior work product. Id. at 15, ¶ 23. Kim alleges that the Counterclaim Defendants later offered to hire him as a consultant with a small equity share in the business to settle the dispute, but Kim rejected the offer. Id. Finally, Kim alleges that Babineau and Chou incorporated Second Measure as their own business and that the company has received seed investments in exchange for equity shares. Id. at 15, ¶ 24.

Second Measure offers a different story.² According to Second Measure, Kim and Babineau began discussing the possibility of a business venture after Kim introduced Babineau to Zafar Jafri, a financial research analyst, in July of 2013. Compl. ¶¶ 7–8. Jafri had access to large consumer spending datasets and wanted to trade based on trends in those datasets. Id. ¶ 7. After the introduction, Babineau and Jafri discussed potential solutions to some technical issues involving the datasets. Id.

In September of 2013, Babineau and Kim discussed the possibility of forming a business using Jafri's ideas, but Second Measure claims that there was no agreement to form a business, to split equity in a business, or to assign intellectual property to a business. Id. ¶¶ 8, 10, 11. Instead, the Complaint alleges that Babineau and Kim were merely "evaluat[ing] the possibility of forming a business." See id. ¶¶ 10, 12, 13.

Second Measure alleges that Chou became involved with the business in October of 2013. Second Measure further alleges that by March of 2014, Kim had "terminated his involvement with the business evaluation" because the three were unable to secure a continued agreement with their data provider and because Kim moved from California to Texas. Id. ¶ 12. From that point on, Kim "showed no interest in continuing to evaluate the business... [or] work[ing] with Babineau and Chou to form a definite business built on the concept they were evaluating." Id. ¶ 13.

Second Measure claims that the only agreement to form a business occurred between Babineau and Chou in August of 2014 and that Kim declined to participate. Id. After making this decision, Babineau and Chou "start[ed] anew" by discarding all code developed prior to September of 2014, and they began work on their new business, "wiped clean of any input from Kim." Id. ¶¶ 14–15. It was this new business that Babineau and Chou incorporated as "Second Measure, Inc." in January of 2015. Id. ¶¶ 15, 4.

Around January of 2015, Second Measure claims it offered Kim a consulting position in exchange for an 8% equity interest in Second Measure to vest over four years. Id. ¶ 16. In the role, Kim was supposed to advise the company based on his financial expertise and introduce the company to potential clients and investors. Id . Second Measure claims that Babineau and Kim entered into an oral agreement on these terms. Id. However, Second Measure alleges that Kim never performed the consulting services on which he and Babineau had agreed. Id. ¶ 17.

B. Procedural History

On March 11, 2015, attorney Don Buder sent a letter to Babineau stating that Buder had been retained by Kim to represent Kim in connection with his equity interest in Second Measure. Compl., Ex. 1. The letter states that Kim has a "substantial equity interest" in the company. Id. The letter further advises Babineau that he has a fiduciary duty to Kim and should be aware of Kim's equity interest when making representations about Second Measure's capital stock. Id. In response to the letter, Second Measure filed a complaint in the San Mateo County Superior Court on June 4, 2015, seeking judicial declarations that Kim has no equity interest in Second Measure and that Second Measure's directors and officers have no fiduciary duty to Kim. Compl. at 6. The Complaint also seeks monetary damages for Kim's breach of the oral consulting agreement he allegedly entered into with Babineau. Id.

Kim removed the case to this Court on the basis of diversity jurisdiction under 28 U.S.C. § 1332

on July 23, 2015. Notice of Removal at 1. The Notice of Removal states that complete diversity exists because Kim is a citizen of Texas and Second Measure is a Delaware corporation with its principal place of business in California. Id. ¶¶ 7–8. Kim argues that the amount-in-controversy requirement is satisfied because his 50% equity interest in Second Measure is worth more than $75,000. Id. ¶ 10. Kim has included a declaration in support of removal in which he states "on information and belief that the current valuation of Second Measure exceeds $160,000." Id. , Kim Decl. ¶ 2.

On August 3, 2015, Kim filed an Answer to Complaint and Counterclaims. Dkt. 7. The Answer and Counterclaims denies Second Measure's characterization of the facts and right to relief...