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Hedgeye Risk Management, LLC v. Heldman

United States District Court, District of Columbia

September 29, 2019

PAUL HELDMAN, Defendant.



         This is the third round of dispositive motions practice in a contentious dispute between an investment research firm, Hedgeye Risk Management, LLC (“Hedgeye”), and one of its former employees, Paul Heldman. After Hedgeye purchased the assets of Heldman’s former employer, Potomac Research Group (“PRG”), Hedgeye and Heldman were unable to come to terms on an employment agreement. Heldman and Hedgeye thus parted ways, and Heldman started his own firm, along with two colleagues who also left Hedgeye. In round one, the Court denied Hedgeye’s motion for a preliminary injunction, granted summary judgment in Heldman’s favor on Hedgeye’s claim for breach of contract, and dismissed without prejudice Hedgeye’s breach of fiduciary duty claim on the ground that the complaint did not allege that Heldman engaged in any wrongful conduct while employed by Hedgeye. Dkt. 26. In round two, Hedgeye filed an amended complaint renewing and supplementing its claims for breach of fiduciary duty, interference with advantageous business relations, and constructive trust. Dkt. 28. Once again, Heldman (and his company, Heldman Simpson Partners) moved to dismiss or, in the alternative for summary judgment. Dkt. 29. Hedgeye, in turn, opposed that motion, Dkt. 33, and moved for leave to file a second amended complaint, Dkt. 37. The Court denied Hedgeye’s motion for leave to amend as futile, denied Heldman’s motion to dismiss Hedgeye’s claim for breach of fiduciary duty, granted Heldman’s motion to dismiss Hedgeye’s tortious interference claim as conceded, granted Heldman’s motion to dismiss Hedgeye’s constructive trust claim, and denied Heldman’s motion for summary judgment on the fiduciary duty claim on the ground that Hedgeye was entitled to take discovery on that claim before responding to Heldman’s motion. Dkt. 41.

         Round three now presents the question that the Court postponed deciding in round two pending completion of discovery-that is, is Heldman entitled to summary judgment on Hedgeye’s claim for breach of fiduciary duty? Dkt. 90. In that sole remaining claim, Hedgeye alleges that Heldman “breached his fiduciary obligation to [Hedgeye] by actively soliciting [Hedgeye’s] clients and employees while [he was] employed [by] Hedgeye, by using and appropriating confidential and sensitive Hedgeye information, and by using Hedgeye instrumentalities to do so.” Dkt. 50 at 4–5 (2d Am. Compl. ¶ 29). In Heldman’s view, these allegations are not supported by a scintilla of evidence. He, accordingly, not only seeks summary judgment, Dkt. 90, but also moves for sanctions pursuant to Federal Rule of Civil Procedure 11, Dkt. 115.

         As explained below, the Court agrees with Heldman that there is no evidence that he solicited Hedgeye clients while employed by Hedgeye. There is some evidence-albeit slim- however, that would permit a reasonable jury (1) to find that Heldman solicited two Hedgeye employees-Sasha Simpson and Raca Banerjee-to leave Hedgeye and to join him in a competing business while he was still employed by Hedgeye, and (2) to find that at least some of the business cards that Heldman took with him when he left Hedgeye were Hedgeye’s property. This is not by any measure an overwhelming case for Hedgeye. But it is enough to avoid summary judgment and the award of sanctions to Heldman. The Court, accordingly, will grant Heldman’s motion for summary judgment in part and will deny it in part and will deny his motion for sanctions.

         I. BACKGROUND

         The Court has previously described the relevant background, see Hedgeye Risk Mgmt., LLC v. Heldman, 196 F.Supp.3d 40, 42–45 (D.D.C. 2016) (“Hedgeye I”); Hedgeye Risk Mgmt., LLC v. Heldman, 271 F.Supp.3d 181, 185–86 (D.D.C. 2017) (“Hedgeye II”), and will repeat that background only as relevant here.

         Hedgeye “provides financial and economic research and analysis to institutional investors and newsletter products to mass market customers.” Dkt. 50 at 2 (2d Am. Compl. ¶ 6). In December 2015, Hedgeye purchased the assets of PRG, Heldman’s former employer. Id. (2d Am. Compl. ¶ 9). Heldman worked for Hedgeye for approximately five weeks following the sale, during which time the parties engaged in negotiations regarding the terms of Heldman’s continued employment. Dkt. 90-3 at 1 (Def.’s SUMF ¶ 3); Dkt. 124 at 2–3 (Pl.’s SUMF ¶¶ 7, 19). At the time, Heldman managed a team that oversaw the firm’s health policy research. Id. at 1 (Pl.’s SUMF ¶ 4). That team allegedly generated over 70% of the PRG’s annual revenue. Id. at 1 (Pl.’s SUMF ¶ 3); Dkt. 127 at 34 (Heldman Dep. 34:3–10). On January 4, 2016, Hedgeye hired Raca Banerjee who, along with Sasha Simpson, completed Heldman’s three-person health policy research team. Dkt. 129 at 10–11 (Banerjee Dep. 10:2–5, 11:2–14). Around the same time, Heldman, Simpson, and Banerjee were all negotiating with Hedgeye over their employment contracts. Among other things, Heldman was concerned about a proposed contractual term that would have limited his ability to compete against Hedgeye if he left the firm, and, when Simpson and Banerjee asked him “whether they should sign” similar covenants in their contracts, he told them that it was “up to” them but that he “would not sign it” and, indeed, was “not signing” his. Dkt. 127 at 267–68 (Heldman Dep. 267:16–268:13). Heldman further testified that he told Banerjee “to hold off” signing an employment contract with Hedgeye. Id. at 102–03 (Heldman Dep. 102:5–103:22)

         On Hedgeye’s view of the facts, soon after it purchased PRG, Heldman began planning his departure. See Dkt. 125 at 5. Hedgeye further contends that, around late December and continuing through January, Heldman began collecting data from Hedgeye’s files that would be useful in his new venture. Id. at 5–7. It asserts, in particular, that Heldman sought and was given (by a Hedgeye employee) certain “scorecards” that indicated how much Hedgeye clients valued the work of individual analysts, id. at 5; began reviewing employee salary data, id. at 7; accessed a marketing presentation, id.; and engaged in an “increased pattern” of using Hedgeye’s Salesforce database, which contained information regarding the firm’s clients, id. at 18. Hedgeye also contends that Heldman began engaging in “closed-door meetings” with Simpson and Banerjee. Id. at 6. Heldman, in response, asserts that, to the extent those meetings happened, they were work-related, see Dkt. 127 at 268–69 (Heldman Dep. 268:20–269:25), although he does not deny having “at least half a dozen” conversations outside of work with Simpson about the possibility of forming a new company, see Id . at 93–94, 96–97 (Heldman Dep. 93:14–94:25, 96:22–97:17), including the specific possibility of Simpson and him forming a venture together, id. at 100–01 (Heldman Dep. 100:22–101:8); see also Dkt. 128 at 163–64 (Simpson Dep. 163:20–164:7)

         On January 21, 2016, Heldman departed Hedgeye under circumstances that are in dispute; he claims he was terminated, Dkt. 127 at 109–110 (Heldman Dep. 109:19–110:12), while the firm asserts that he resigned, Dkt. 125 at 5. It is undisputed, however, that within about an hour of Heldman’s departure, Simpson and Banerjee resigned from the firm. See Dkt. 127 at 112 (Heldman Dep. 112:10–19). Simpson and Banerjee each claim that they chose to resign independent of Heldman’s departure and independent of one another. See Dkt. 128 at 168 (Simpson Dep. 168:1–20); Dkt. 129 at 87–91 (Banerjee Dep. 87:20–90:13, 91:2–11). There is no dispute, however, that their resignations happened so close in time that Simpson and Banerjee departed Hedgeye on the same elevator, see Dkt. 128 at 180–81 (Simpson Dep. 180:14–181:4), and that Heldman, who was fired or quit about an hour earlier, was still outside the building, see Dkt. 127 at 112 (Heldman Dep. 112:12–19). In addition, all three-Heldman, Simpson, and Banerjee-acknowledge that, after their departures, they met in the firm’s parking lot and, together, all three rode in Heldman’s car to Simpson’s apartment. Id. at 112–15 (Heldman Dep. 112:7–115:19); Dkt. 128 at 186–89 (Simpson Dep. 186:15–189:19).[1]

         It is also undisputed that Heldman and Simpson announced the founding of their own firm, Heldman Simpson Partners (“HSP”), the day after their departure from Hedgeye, Dkt. 127 at 144 (Heldman Dep. 144:5–10); that Banerjee was hired as one of HSP’s employees, see Id . at 146 (Heldman Dep. 146:16–20); Dkt. 129 at 102 (Banerjee Dep. 102:3–12); that HSP used business cards that Heldman had acquired over the years, including during his tenure at PRG/Hedgeye, to create HSP’s initial client contact list, see Dkt. 127 at 204 (Heldman Dep. 204:3–16); and that HSP began operating (and competing with Hedgeye) within days of its formation, see Id . at 371 (Heldman Dep. 371:18–25). In short, there is no dispute that, days after their departure from Hedgeye, Heldman’s health policy research team began operating a new firm that “directly competes with Hedgeye.” Dkt. 50 at 3 (2d Am. Compl. ¶ 21).

         In light of these events, Hedgeye contends that Heldman breached his fiduciary obligations to the firm in three respects: First, Hedgeye alleges that, prior to his departure, Heldman recruited Simpson and Banerjee to join him in founding and operating the new business, thereby causing a “mass resignation” of Hedgeye’s health policy research team. Dkt. 125 at 1. Second, it contends that Heldman solicited Hedgeye’s clients before leaving the firm. Dkt. 50 at 4–5 (Second Am. Compl. ¶ 29). Third, it alleges that Heldman used and appropriated “confidential and sensitive Hedgeye information” to compete with the firm. Id. As explained below, there is no evidence to support the contention that Heldman solicited Hedgeye clients during his time at that firm. There are genuine disputes of material fact, however, with respect to at least portions of Hedgeye’s remaining contentions. The Court, accordingly, will grant in part and deny in part Heldman’s motion for summary judgment, Dkt. 90, and will also deny Heldman’s motion for sanctions, Dkt. 115, which is, in the main, duplicative of his motion for summary judgment.


         This matter is before the Court on Defendant’s motion for summary judgment. Dkt. 90. A court should grant summary judgment if, and only if, “the movant shows that there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986); Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006). A fact is “material” if it is capable of affecting the outcome of the litigation. Liberty Lobby, 477 U.S. at 248. A dispute is “genuine” if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380 (2007). “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record . . . .” Fed.R.Civ.P. 56(c)(1)(A).

         A party seeking summary judgment “bears the heavy burden of establishing that the merits of his case are so clear that expedited action is justified.” See Taxpayers Watchdog, Inc. v. Stanley, 819 F.2d 294, 297 (D.C. Cir. 1987). “When faced with a motion for summary judgment, the district court may not make credibility determinations or weigh the evidence; instead, the evidence must be analyzed in the light most favorable to the non-movant, with all justifiable inferences drawn in its favor.” Sloan v. Urban Title Servs., 770 F.Supp.2d 227, 233 (D.D.C. 2011) (citing Liberty Lobby, 477 U.S. at 255). The non-movant’s opposition, however, must consist of more than mere denials and must be supported by affidavits, declarations, or other competent evidence, setting forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(c). That is, the non-movant must provide evidence that would permit a reasonable jury to find in its favor. See Laningham v. U.S. Navy, 813 F.2d 1236, 1241 (D.C. Cir. 1987). If the non-movant’s evidence is “merely colorable” and “not significantly probative, ” summary judgment may be granted. Liberty Lobby, 477 U.S. at 249–50 (internal citations omitted).

         The matter is also before the Court on Heldman’s motion for Rule 11 sanctions. Dkt. 115. Federal Rule of Civil Procedure 11 “imposes a duty on the signer of a pleading, motion, or paper to conduct a pre-filing inquiry of the relevant facts and law.” Brannock Assocs. v. Capitol 801 Corp., 807 F.Supp. 127, 135 (D.D.C. 1992). Under Rule 11, a court may impose sanctions if “a pleading, written motion, or other paper” is (1) “presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation, ” Fed. R. Civ. P 11(b), (2) “the claims, defenses, and other legal contentions [therein] are [un]warranted by existing law, ” id., (3) “the factual contentions have [no] evidentiary support or . . . will likely [not] have evidentiary support after a reasonable opportunity for further investigation or discovery, ” id., or if (4) “the denials of factual contentions are [un]warranted on the evidence, ” id.

         In deciding whether to impose Rule 11 sanctions, courts apply “an objective standard of reasonable inquiry on represented parties who sign papers or pleadings.” Naegele v. Albers, 355 F.Supp.2d 129, 143–44 (D.D.C. 2005) (quoting Bus. Guides, Inc. v. Chromatic Commc’ns Enters., Inc., 498 U.S. 533, 554 (1991)). The “imposition of Rule 11 sanctions is not something the court takes lightly, ” rather the court considers it “an extreme punishment for filing pleadings that frustrate judicial proceedings.” Id. at 144.

         III. ANALYSIS

         A. Hedgeye’s Fiduciary Duty Claim

         Over the course of the litigation, Plaintiff’s claims for relief have been narrowed to a single remaining claim: that Heldman breached the fiduciary obligations he owed Hedgeye during the brief period that passed between Hedgeye’s acquisition of PRG’s assets to Heldman’s departure from Hedgeye. To plead a claim for breach of fiduciary duty under D.C. law, [2] a plaintiff must allege facts sufficient to show that (1) the defendant owed the plaintiff a fiduciary duty; (2) the defendant breached that duty; and (3) the breach proximately caused an injury. See Dorsey v. Am. Express Co., 680 F.Supp.2d 250, 254 (D.D.C. 2010). Here, all agree that Heldman owed Hedgeye a fiduciary duty during the five weeks that he worked for the firm. The parties disagree, however, about whether Heldman breached that duty and, if he did, whether that breached caused Hedgeye any injury.

         In support of their contention that Heldman breached his duty, Hedgeye offers three arguments. First, it asserts that Heldman actively solicited Hedgeye’s clients while he was still employed by Hedgeye. Dkt. 125 at 11. Second, it claims that Heldman recruited Simpson and Banerjee to join a competing company that he planned to form and that, as a result of his efforts while still employed by Hedgeye, Hedgeye’s entire health policy research team left Hedgeye en masse. Id. at 1. Third, it contends that Heldman “used Hedgeye’s proprietary information to compete with Hedgeye.” Id. Heldman, in turn, disputes each of these contentions and maintains that, after having had ample opportunity to take discovery, Hedgeye has failed to identify any evidence that would permit a reasonable jury to find that he violated his fiduciary duty to Hedgeye. See Dkt. 90-1 at 2.

         The guiding principle for present purposes is that employees, as agents of their employers, “‘owe [their employers] an undivided and unselfish loyalty.’” Phillips v. Mabus, 894 F.Supp.2d 71, 92 (D.D.C. 2012) (quoting Mercer Mgmt. Consulting, Inc. v. Wilde, 920 F.Supp. 219, 233 (D.D.C. 1996)). That duty requires employees to avoid conflicts between their own self-interest and the employer’s interest “during the term of their employment.” Id. In evaluating that duty, the Court must also consider the “off-setting policy . . . of safeguarding society’s interest in fostering free and vigorous competition in the economics sphere.” PM Servs. Co. v. Odoi Assocs., No. 03-1810, 2006 WL 20382, at *28 (D.D.C. Jan. 4, 2006) (internal citations and quotations omitted). This means that, in the “absence of an agreement to the contrary, ” the common law of agency allows an employee to “compete with his former principal.” Phillips, 894 F.Supp.2d at 93 (quoting U.S. Travel Agency Inc. v. World-Wide Travel Serv. Corp., 235 A.2d 788, 789 (D.C. 1967). Courts, moreover, have recognized that, even ...

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