Trahan v. Lazar
| Decision Date | 29 April 2020 |
| Docket Number | 1:19-cv-01131-GHW |
| Citation | 457 F.Supp.3d 323 |
| Parties | Francois TRAHAN, Plaintiff, v. Nancy LAZAR, Andrew Laperriere, Roberto Perli, Michael Kantrowitz, George Zachar, Cornerstone Macro Holdings LLC, and Cornerstone Macro Research LP, f/k/a Cornerstone Macro LP, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Andrew L. Fish, Duane Morris LLP, Ashley Fernandez, Robert Scott Roe, Reed Michael Brodsky, Akiva Shapiro, Gibson, Dunn & Crutcher, LLP, New York, NY, for Plaintiff.
Anthony L. Paccione, Mark Thomas Ciani, Rebecca Kinburn, Katten Muchin Rosenman, LLP, New York, NY, Yonaton M. Rosenzweig, Katten Muchin Rosenman LLP, Los Angeles, CA, for Defendants.
Plaintiff Francois Trahan ("Trahan" or "Plaintiff") is an extraordinarily successful portfolio strategist. In 2016, he joined forces with three partners—Nancy Lazar, Andrew Laperriere and Robert Perli—to create a new firm, Cornerstone Macro. In 2018, Defendants allegedly engaged in a sweeping scheme to oust Plaintiff and steal his valuable intellectual property, which included both intellectual property Trahan brought with him to Cornerstone Macro and intellectual property he developed while he was at Cornerstone Macro. Plaintiff now asserts sixteen claims against Defendants covering a wide swath of subject matter. His claims range from breaches of Cornerstone Macro's formative contracts to misappropriation of trade secrets under federal and state law, from breaches of fiduciary duties to fraud, and a host of other miscellaneous claims.
Defendants have moved to dismiss all but the breach of contract claim. Plaintiff's claim for misappropriation of trade secrets under the Defend Trade Secrets Act survives in part, but fails with respect to the intellectual property developed while at Cornerstone Macro because the intellectual property at issue was properly within the possession of Cornerstone Macro. Plaintiff adequately states a claim for breach of fiduciary duties against Lazar, Laperriere, and Perli as a result of fiduciary duties arising out of their partnership relationship, but fails to state a fiduciary duty claim against Michael Kantrowitz, a Cornerstone Macro employee and Trahan's successor. For these reasons and those that follow, Defendants’ motion to dismiss is GRANTED in part and DENIED in part.
Plaintiff is a renowned financial portfolio strategist and quantitative analyst with "unparalleled" credentials. AC ¶ 18. Institutional Investor named him the number one portfolio strategist at least ten times and he is the only portfolio strategist to have been inducted into the "All-America Research Team Hall of Fame." Id. ¶ 22. "Trahan has developed a unique and recognizable approach to both portfolio market strategy and quantitative analysis," analyzing the stages of the business cycle and how that translates to the stock market. Id. ¶ 21. Over the course of 12 years, Trahan, "has developed models that rank stocks and provide recommendations on which to buy, and when, while incorporating the business cycle." Id. This unconventional approach has been "extraordinarily successful"—these models are "worth many millions of dollars" because of their "ability to translate complex macroeconomic concepts into distillable and unique charts and graphs that are quickly digestible." Id. ¶¶ 21, 23.
In February 2007, Defendant Nancy Lazar ("Lazar") asked Trahan to join her at International Strategy & Investment Group ("ISI"), where she was a partner. Id. ¶ 19. Trahan joined ISI, heading the firm's investment committee as the company's Executive Director and Chief Investment Strategist. Id. While at ISI, Trahan hired Defendant Michael Kantrowitz ("Kantrowitz") as the most junior member of his team and taught him "his trade secrets and proprietary methods, which Kantrowitz understood to be highly confidential." Id. ¶ 42. Trahan left ISI after about three years to join another firm—to be renamed Wolfe Trahan & Co. ("Wolfe")—where he continued to utilize and develop his intellectual property. Id. ¶ 20. Shortly thereafter, Kantrowitz left ISI to join Trahan at Wolfe. Id. ¶ 42. "It was understood and agreed that Trahan would retain ownership of trade secrets and other intellectual property he and his team developed" while at both ISI and Wolfe. Id. ¶¶ 19–20.
In January 2013, Trahan met with Lazar, Defendant Andrew Laperriere ("Laperriere"), and Defendant Roberto Perli ("Perli") (the "Limited Partner Defendants" and, collectively with Kantrowitz, the "Individual Defendants") to discuss the formation of a new firm. Id. ¶ 24. Trahan, Lazar, Laperriere, and Perli (the "Partners") agreed to form a partnership and created Defendant Cornerstone Macro Research LP ("Cornerstone Macro LP" or the "Partnership") by executing two governing agreements, the LLC Agreement and the Limited Partnership Agreement (the "LPA" and, collectively with the LLC Agreement, the "Agreements"). Id. ¶ 26. The LLC Agreement, entered into between Trahan and the Limited Partner Defendants, created Defendant Cornerstone Macro Holdings, LLC ("Cornerstone Macro Holdings" and, together with the Partnership, "Cornerstone Macro"). LLC Agreement, Dkt. No. 88-2. The LPA, entered into between the Partners and Cornerstone Macro Holdings, created the Partnership. LPA, Dkt. No. 88-1. The Partnership had one General Partner, Defendant Cornerstone Macro Holdings, and four Limited Partners—Trahan, Lazar, Perli, and Laperriere. AC ¶ 26. Trahan and Lazar each owned 33.33 percent of the Partnership, while Perli and Laperriere each owned 16.67 percent of the Partnership. Id. The Partners eventually amended the LPA to create a Managing Partner position, appointing Trahan as Cornerstone Macro's first Managing Partner. Id. ¶ 31. And as Managing Partner, Trahan spent approximately half of his time managing Cornerstone Macro's day-to-day operations and the responsibilities of its CFO, which he assumed after Cornerstone Macro's previous CFO passed away. Id. ¶ 39.
The Partnership was organized into three distinct divisions which were run separately by at least one of the Partners. Id. ¶¶ 27–28. Trahan ran the Market Strategies Advisory Business ("MSAB"), Lazar ran the Economic Advisory Business, while Perli and Laperriere jointly ran the Policy Advisory Business. Id. ¶ 27. Under this organizational structure, "[e]ach Partner had complete control over his or her own division, including hiring and firing employees, setting compensation, and determining the extent of their own expenditures." Id. ¶ 28. Further, Partnership profits were distributed to each Partner in relation to the net cash flow associated with their respective divisions. Id. ¶ 29. Cornerstone Macro employees would, independent of the Partners, calculate the percentage of revenue attributable to each division, which would determine the respective Partner's compensation. Id. ¶ 30. Should a Partner disagree with the attribution, he or she could question the results. Id.
In drafting the LPA, the Partners sought to ensure that any Partner could take his or her business with them should they leave the Partnership. Id. ¶ 32. Thus, the LPA provided that "the Leaving Partner was entitled to have assigned him or her upon his or her departure any intellectual property belonging to the Partnership and used solely by his or her division." Id. Section 3.7(f)(i) of the LPA specifically provides that:
The Partnership shall grant to a Leaver all rights in, title to, and ownership of all Intellectual Property owned by the Partnership which is utilized solely by the Business managed by such Leaver and the Partnership shall take all reasonable steps necessary to assign to such Leaver all rights in, title to, and ownership of any such Intellectual Property within a reasonable period of time following the Leaver's withdrawal from the Partnership.
LPA § 3.7(f)(i). "Intellectual Property" is defined as:
patents, patent applications, inventions and discoveries (whether or not patentable), registered and unregistered copyrights in both published works and unpublished works, copyrightable works, copyright registrations, moral rights, computer software and systems, source code, object, executable or binary code, objects, screens, user interfaces, report formats, files, data, manuals, design notes, user documentation, know-how, trade secrets, confidential or proprietary information, client lists, databases, database rights, business and marketing plans and analyses, utility models, technical information, operating procedures, process technology, formulas, rights in internet web sites and internet domain names and other commercial intellectual property rights whether registered or capable of registration and all applications for registration or protection of any of the foregoing.
Id. at 11. The intellectual property at issue here broadly falls into two categories: the IP Trahan created and owned prior to the founding of Cornerstone Macro (the "Pre-Cornerstone IP") and the IP that was created at Cornerstone Macro (the "Cornerstone IP"). "Almost all" of the intellectual property at issue is Pre-Cornerstone IP. AC ¶ 186. Trahan never transferred or assigned the Pre-Cornerstone IP to Cornerstone Macro, but he did allow it to be used by MSAB while he was at Cornerstone Macro. Id. ¶ 37. The Cornerstone IP is intellectual property that Trahan or his employees developed for use by MSAB and that was allegedly required to be assigned to Trahan upon his departure. Id.
Kantrowitz followed Trahan from Wolfe to Cornerstone Macro. Id. ¶ 42. In February 2018, Trahan discovered that Kantrowitz had been publishing, in Kantrowitz's name, reports generated using Trahan's trade secrets. Id. ¶ 47. Specifically, some of these reports incorporated the MSAB's proprietary Macro Accommodation Barometer model, which Trahan had directed Kantrowitz not to...
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