Sedosoft, Inc. v. Mark Burchett Ltd., CIVIL ACTION NO. 15–10244–RGS

• Decision Date: 09 December 2016
• Docket Number: CIVIL ACTION NO. 15–10244–RGS
• Citation: 221 F.Supp.3d 195
• Parties: SEDOSOFT, INC. v. MARK BURCHETT LTD. and NFSx9 LLC.
• Court: U.S. District Court — District of Massachusetts

221 F.Supp.3d 195

SEDOSOFT, INC.

v.MARK BURCHETT LTD. and NFSx9 LLC.

CIVIL ACTION NO. 15–10244–RGS

United States District Court, D. Massachusetts.

Filed December 9, 2016

Ashley B. Brandin, John T. McInnes, McInnes & McLane, LLP, Worcester, MA, for Sedosoft, Inc.

Arthur A. Gasey, Oliver D. Yang, Niro, Haller & Niro, Ltd., Chicago, IL, Kathleen B. Carr, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for Mark Burchett Ltd. and NFSx9 LLC.

MEMORANDUM AND ORDER ON CROSS MOTIONS FOR PARTIAL SUMMARY JUDGMENT

STEARNS, D.J.

This is a case of a curdled collaboration. In 2010, Mark Burchett Ltd.¹ hired Sedosoft, Inc., to write computer code for a trading platform. The erstwhile colleagues now dispute their respective obligations under the original code-writing agreement, including the rights to the custom trading code and Sedosoft's "Rocket Trade" support code library.

BACKGROUND

Mark Burchett is a career stock trader. Sean Donovan, the president of Sedosoft, is a computer programmer with some trading experience. In January of 2010, Burchett, as the principal of Burchett Ltd., sought out Donovan and Sedosoft² to write computer code for a proprietary platform, to be called M.B.hybrid Trader. Donovan signed a Confidentiality Agreement covering any of Burchett's confidential information to which he would have access. See Defs.' Ex. 6 (Dkt. # 100–1 at 7–9). Donovan offered to grant Burchett, in exchange for a payment of $2,500, a license to Sedosoft's "trading system support library." Defs.' Ex. 4 (Dkt. # 100–1 at 2).

This contains a number of C++ class modules and functions which create a general programming environment that is suitable for the development of electronic security trading system. These routines have been developed over the years, have been tested and are the base for other projects that [Donovan has] done or currently work on. The other alternative is that [Donovan] recreate what is required to support [Burchett's] project, this option will significantly impact time and cost of the project, however, you will own the full IP rights to the results.

Id. "For the work for hire portion of this project,"³ Donovan quoted an hourly rate of $95. Id. After learning more about Burchett's requirements, Donovan estimated that the project would take a minimum of 21 days to a maximum of 35 days of code time start to finish, and settled on a "firm estimate" of 25 days, at 8 hours per day. Defs.' Ex. 5 (Dkt. # 100–1 at 4). Burchett agreed to these terms, and paid Donovan $24,000 in two installments.

For the next several months, Donovan (and another programmer he hired) worked on M.B.hybrid. In April, he emailed Burchett to ask about the form of a copyright notice to be included in the M.B.hybrid code: "Hi Mark: I'd like to include a copyright notice in your hybrid software to establish your rights to it. In order to do that I'll need to know the name of the entity that will own it, be it your[self] personally or a company." Defs.' Ex. 9 (Dkt. # 100–1 at 30). Donovan eventually incorporated the notice, "Copyright (c)2010, Mark Burchett Ltd. All Rights Reserved," in the M.B.hybrid code. Defs.' Ex. 10 (Dkt. # 100–1 at 34–37).

Although Donovan designed M.B.hybrid around his existing trading system support library to expedite the project, the code-writing time for M.B.hybrid far exceeded his "firm estimate." By October of 2010, he had spent approximately 530 hours on the task, see Pl.'s Ex. Q (Dkt. # 82–16) at 3–4, and had stopped expending any significant effort on its completion. In an email dated January 4, 2011, Burchett noted the difference between the fees Donovan had received and the fees he would have received, if computed according to his hourly rate, as approximately $30,000. Id. Burchett indicated that "[he was] agreeable to paying [Donovan's] entire billed amount, but out of earnings. The rate [he was] suggesting is 50% of the profits until [Donovan is] whole." Id. at 4.

Donovan considered Burchett's offer over the next two months. In mid–February of 2011, he detailed the ongoing problem of underestimating the amount of time required to complete various aspects of M.B.hybrid.

Last year when we started speaking one of the first things you said to me was "I'll pay you for your time, no haircut." I've reviewed the emails from that period and, as you were quick to point out, I made, at your prompting, a firm time commitment.

Which I have subsequently honored, despite having put in twice the time on many things which were not covered in the original bid. Fine, I can live with such things. I made a mistake, but, I have fulfilled my commitment to you.

...

At the time of [Burchett's profit-sharing] proposal it looked to me that there was about 2 to 3 weeks of work to do. 1–2 weeks of working on the execution engine and a few days to integrate with the hybrid. Well, we've seen what happened with my estimate for the execution engine. We are at week 10 and all I have is a stripped down version of what I wanted to accomplish.

...

This weekend I was trying to figure out how best to integrate the hybrid with either the existing AXE using its implementation of Limit, Market and specialty order types or how I'd do it with the new AXE (AXE 2.0). And, it looks a good bit more complicated than I originally thought, some of the core order processing logic in the hybrid server needs to be rewritten. So, my conservative estimate is 2 to 3 weeks of additional time to complete the hybrid portion.

Defs.' Ex. 19 (Dkt. # 100–2 at 42–43). Given his other time commitments, Donovan doubted he could ever complete the M.B.hybrid code. Id. In March of 2011, Donovan rejected Burchett's "make whole" proposal. "All of your offers were based on the same premise of me providing services to be paid for out of your future profits, if there are any. I am not interested in a deal which is structured in that form. If you'd like me to perform additional work on your project the rate is $125/hr."⁴ Defs.' Ex. 14 (Dkt. # 100–2 at 10).

Following these exchanges, Donovan did no substantive work on M.B.hybrid for the remainder of 2011 and 2012. In September of 2012, he wrote to Burchett that "[a]fter sleeping on it, I'm out ... I'll get you a copy of the source and you two and do the best you can with it. I'm happy to answer clarifying questions and give the occasional point, provided it is on my time." Defs.' Ex. 11 (Dkt. # 100–1 at 39). Donovan sent Burchett a zip file identified MarkB.zip, containing the source code for M.B.hybrid and executable versions of pre-existing Sedosoft components called AXE and QUO.⁵ With respect to the latter, Donovan stated that "[he]'ll be keeping the source to AXE and QUO, you'll have to implement work around in the long term. Meantime you can use them with the current license files (I forget the term but I'll renew as long as you need it)." Id.

Vlad Didenko, with whom Burchett had founded NFSx9, took over the development of M.B.hybrid, consulting occasionally with Donovan. Donovan provided Burchett with the license files to access the AXE and QUO components through the end of 2014. In December of 2014, he informed Burchett and NFSx9 that Sedosoft would henceforth charge a $2,000–a-month license fee for the use of these components. Burchett and NFSx9 refused to pay, contending that the components were part of the support libraries for which they had acquired (for $2,500) a perpetual license. See Second Am. Compl. Ex. D. Donovan cut off NFSx9's access to the components.

On February 2, 2015, Donovan brought this lawsuit seeking declaratory judgment of the parties' rights to the M.B.hybrid code and Sedosoft components. On February 6, 2015, Donovan filed two registrations with the United States Copyright Office. Registration number Txu 1–947–242, entitled "Rocket Trade (TM) Algorithmic Trader Development Support Code," copyrighted the source code for certain Sedosoft components, including AXE and QUO. As allowed by the Copyright Office, Donovan submitted the first and last 25 pages of the Rocket Trade code. Registration number Txu 1–947–243, entitled "Hybrid Trader Software," copyrighted the M.B.hybrid code. Donovan submitted the entirety of the M.B.hybrid code to the Copyright Office.

In July of 2015, Donovan amended his Complaint to add claims for breach of contract and breach of the implied covenant of good faith and fair dealing against Burchett Ltd. (Counts II and III); breach of contract against NFSx9 (Count IV); and infringement of the two copyright registrations (Counts V and VI). Burchett Ltd. and NFSx9 answered and counterclaimed for breach of contract with respect to M.B.hybrid (CC Count I) and the Sedosoft library license (CC Count II); fraud (CC Count III) and misrepresentation (CC Count IV) (with respect to the ownership of the M.B.hybrid code); violation of the Massachusetts Unfair Trade Practices statute, Gen. Laws ch. 93A (CC Count V); fraud with respect to the Sedosoft library license (CC Count VI); declaration of non-infringement of the Sedosoft library (CC Count VII); unjust enrichment (CC Count VIII); estoppel (CC Count IX); declaration of implied license to the Sedosoft library (CC Count X); declaration of implied license to M.B.hybrid (CC Count XI); and breach of a confidentiality agreement (CC Count XII). Having completed fact and expert discovery, Sedosoft moves for partial summary judgment on Counterclaims Counts I–V, VIII–IX, and XII. Defendants cross move for a brevis judgment on Counts I–III, V–VI, Counterclaim Count XII, and a determination that Donovan entered into the January of 2010 code-writing agreement as an individual.⁶

DISCUSSION

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A ‘genuine’ issue is one that could be resolved in favor of either party, and a ‘material fact’ is one that has the potential of affecting the outcome of the case." Calero–Cerezo v. U.S....