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Hedgeye Risk Management, LLC v. Heldman

United States District Court, District of Columbia

September 23, 2017

PAUL HELDMAN, et al., Defendants.



         This is round two in a dispute between an investment advisory company, Hedgeye Risk Management, and one of its former employees, Paul Heldman. Hedgeye purchased the assets of Heldman's former employer, Potomac Research Group ("PRG"), in December 2015. After the purchase, Hedgeye and Heldman were unable to come to terms on an employment agreement. Heldman, accordingly, left Hedgeye after just five weeks to start his own firm. In round one, Hedgeye brought suit against Heldman and his new company, Heldman Simpson Partners ("HSP"), seeking, among other things, a preliminary injunction to enforce non-compete and nonsolicitation clauses in Heldman's employment contract with PRG. Defendants, in turn, opposed Hedgeye's motion and moved to dismiss or, in the alternative, for summary judgment. The Court agreed with Defendants and, thus, denied Hedgeye's motion for a preliminary injunction, granted Defendants summary judgment on Hedgeye's claim for breach of the non-compete and non-solicitation provisions, and dismissed Hedgeye's remaining claims without prejudice. See Hedgeye Risk Mgmt, LLC v. Heldman, 196 F.Supp.3d 40 (D.D.C. 2016).

         In round two, Hedgeye has now filed an amended complaint renewing and supplementing its claims for breach of fiduciary duty, interference with advantageous business relations, and constructive trust. And, once again, Heldman and HSP have moved to dismiss or, in the alternative, for summary judgment. Hedgeye opposes that motion and also seeks leave to file a second amended complaint, which would add claims for violation of the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, and conversion.

         For the reasons that follow, the Court will DENY Defendants' motion for summary judgment without prejudice, will GRANT in part and DENY in part Defendants' motion to dismiss, and will DENY without prejudice Hedgeye's motion for leave to amend.

         I. BACKGROUND

         The Court recounted much of the relevant background in its prior opinion, see Hedgeye, 196 F.Supp.3d at 42-45, and will, accordingly, only briefly outline the facts and allegations relevant to the pending motions. In considering Heldman's motion to dismiss and Hedgeye's motion for leave to amend, moreover, the Court will accept Hedgeye's factual allegations as true. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Although that standard does not apply to Heldman's motion for summary judgment, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986), that distinction will have no bearing on the Court's decision for reasons explained below, see infra Part II. A.

         Hedgeye is an investment advisory firm that "provides financial and economic research and analysis to institutional investors and newsletter products to mass market customers." Dkt. 28 at 2 (Am. Compl. ¶ 5). On December 15, 2015, Hedgeye purchased the assets of Heldman's employer, PRG. Id. (Am. Compl. ¶ 8). Heldman worked for Hedgeye for approximately five weeks following the sale. Id. (Am. Compl. ¶ 9). He left on January 21, 2016 to found HSP, which "directly competes with Hedgeye." Id. at 2-3 (Am. Compl. ¶¶ 11, 20).

         While he was still employed by Hedgeye, Heldman allegedly recruited Hedgeye employees, solicited Hedgeye clients, and used Hedgeye resources to start his own firm. Hedgeye alleges, for example, that Heldman "recruited two other Hedgeye employees to join him in the new business." Id. at 3 (Am. Compl. ¶ 20). In addition, although the amended complaint does not identify any particular companies, Hedgeye alleges-on "information and belief-that Heldman solicited Hedgeye's clients before leaving the firm.[1] Id. at 4 (Am. Compl. ¶ 22). Finally, Hedgeye alleges that Heldman "used [Hedgeye's] instrumentalities to start his business while he was still employed with Hedgeye." Id. at 3 (Am. Compl. ¶ 19).

         After Heldman's exit, Hedgeye enlisted Setec Security Technologies, Inc. ("Setec") "to perform a forensic examination of the laptop computer used by Heldman." Id. at 2 (Am. Compl. ¶ 12). Setec's investigation revealed the following: First, "Heldman's computer was found to have logged several USB storage devices during his employment with Hedgeye, " which Hedgeye asserts "suggest[s] improper information downloads." Id. at 3 (Am. Compl. ¶ 14). Second, Heldman "open[ed] a large number of files and folders on the Hedgeye network shared drive, " including "[d]ozens of. . . files and folders [that were] highly sensitive and contain[ed] documents that Heldman would not have . . . access[ed] in his normal and ordinary course of business." Id. (Am. Compl. ¶¶ 15-16). Third, "many emails were sent [by Heldman] to individuals requesting in-person meetings." Id. (Am. Compl. ¶ 17). Fourth, "Heldman's web- browsing history revealed contact lookups, contact searches and dozens of individual contacts being referenced in late December 2015, through January 13, 2016." Id. (Am. Compl. ¶ 18).

         Against this backdrop, the amended complaint asserts three causes of action. First, Hedgeye alleges that Heldman breached his duty of loyalty to Hedgeye "by actively soliciting [Hedgeye's] clients and employees while employed [by] Hedgeye" and "by using and appropriating confidential and sensitive Hedgeye information" through the use of "Hedgeye instrumentalities." Id. at 4 (Am. Compl. ¶ 28). Second, it avers that Heldman tortiously interfered with Hedgeye's "business relationships." Id. at 5 (Am. Compl. ¶ 31). Third, it asserts a claim for "constructive trust" and requests that the Court declare that "Defendants are involuntary trustees holding . . . profits in constructive trust" for Hedgeye. Id. at 6 (Am. Compl. ¶36).

         Defendants move to dismiss and, in the alternative, move for summary judgment. Dkt. 30. Hedgeye opposes both motions, Dkt. 33, and also moves for leave to file a second amended complaint, Dkt. 38, which would add claims for violation of the CFAA and for common law conversion.

         II. ANALYSIS

         A. Defendants' Motion for Summary Judgment

         As an initial matter, the Court concludes that Defendants' motion for summary judgment is premature. That motion is supported by Heldman's own declaration, which denies the core allegations of the amended complaint. He attests, for example, that before his departure he "worked diligently with the best interests of Hedgeye in mind" and "sought to contact clients who had engaged PRG in order to facilitate a transition of their business to Hedgeye, " Dkt. 30-1 at 2 (Heldman Deck ¶ 6); that, while he worked at Hedgeye, he "did not access or review any files, folders, documents or information that [he] was not authorized to access, " id. (Heldman Decl. ¶ 8); that he has not "used any property or information belonging to Hedgeye" while at HSP, id. at 3 (Heldman Decl. ¶ 9); that "[a]t no time while [he] worked at Hedgeye did [he] suggest or request that a client move its business away from Hegdeye, " id. (Heldman Decl. ¶ 12); and that he "did not encourage" the two former Hedgeye employees who joined him at HSP "to terminate their employment with Hedgeye" but, rather, that "they approached [him], " id. at 4 (Heldman Decl. ¶ 15).

         Although Heldman's declaration provides important evidence, it is asking too much to require Hedgeye to controvert this evidence without first having any opportunity to engage in discovery. Federal Rule of Civil Procedure 56(d) speaks directly to this concern and provides that, "[i]f a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, " the Court may deny the motion and permit the nonmovant to take appropriate discovery. Fed.R.Civ.P. 56(d). Such an affidavit must satisfy three criteria. See Convertino v. U.S. Dep 't of Justice, 684 F.3d 93, 99-100 (D.C. Cir. 2012); see also U.S. ex rel. Folliard v. Gov't Acquisitions, Inc., 764 F.3d 19, 26 (D.C. Cir. 2014) ("[D]istrict courts must assess all the requirements discussed in Convertino.'"). First, it must "outline the particular facts [the party] intends to discover and describe why those facts are necessary to the litigation." Convertino, 684 F.3d at 99. Second, it must explain "why [the party] could not produce [the facts] in opposition to the motion [for summary judgment]." Id. at 99-100 (second and third alterations in original) (quoting Carpenter v. Fed. Nat'l Mortg. Ass'n, 174 F.3d 231, 237 (D.C. Cir. 1999)). Finally, the affidavit must demonstrate that "the information is in fact discoverable." Id. at 100.

         Consistent with Rule 56(d) and these requirements, Hedgeye has submitted an affidavit describing the specific discovery it needs to respond to Defendants' motion for summary judgment. As explained in that affidavit, Hedgeye seeks to discover two categories of information: (1) "the nature of [the] conversations . . . Heldman had with approximately eleven clients of [Hedgeye] who subsequently hired [HSP] . . . and [with] two employees who subsequently left Hedgeye for [HSP], " and (2) "facts surrounding how [Heldman] used [Hedgeye's] property and highly proprietary intellectual property to start [HSP] . . . includ[ing] whether [Hedgeye's] proprietary data can be found on [HSP's] systems and whether Defendants used such data in the production of their research reports." Dkt. 33-1 at 1 (Prisby Aff ¶¶ 1-2). The affidavit also explains that Hedgeye has been unable to obtain this information "despite diligent investigation" because it has not been able "to depose Heldman, the departed Hedgeye employees, or anyone at the Hedgeye client firms, " nor has it had the chance to inspect Heldman's Hedgeye-issued smartphone or HSP's "electronic storage systems." Id. at 2 (Prisby Aff. ¶¶ 3-4). Importantly, the affidavit further avers that several former Hedgeye clients have stated that they will not "provide testimony" without a subpoena. Id. (Prisby Aff. ¶ 3). Finally, the affidavit attests that Hedgeye would be able to obtain this information if permitted to depose witnesses and to inspect the electronic devices and systems in question. Id. (Prisby Aff. ¶ 5).

         The affidavit readily satisfies the requirements of Rule 56(d), as explicated by the D.C. Circuit. Because "summary judgment is [typically] premature unless all parties have 'had a full opportunity to conduct discovery, '" Convertino, 684 F.3d at 99 (quoting Liberty Lobby, 477 U.S. at 257), and because Hedgeye has made the required showing, the Court will deny Defendants' motion for summary judgment as premature. Heldman, of course, remains free to move for summary judgment after Hedgeye has had the opportunity to take appropriate discovery.[2]

         B. Defendants' Motion To Dismiss

         To survive a motion to dismiss, a complaint "must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly,550 U.S. 544, 570 (2007)). The "plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Id. To meet the threshold of plausibility, the plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Court, in assessing plausibility, must "assume [the] veracity" of "well-pleaded factual allegations, " id. at 679, and it must "grant [the] plaintiff the benefit of all inferences that can be derived from the facts alleged, " Sparrow v. United Air Lines, Inc.,216 F.3d 1111, 1113 (D.C. Cir. 2000) (internal quotation marks omitted). Unlike well-pleaded factual ...

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