United States: Trade Secret Plaintiff Goes Three Rounds, Takes a Beating

Last Updated: October 8 2014
Article by Mark Mermelstein and Jason K. Yu

Last week, New York attorney Douglas R. Dollinger asked the Honorable Vince Chhabria of the Northern District of California to reconsider an order sanctioning Dollinger and his client to the tune of $93,365.92 in monetary sanctions and dismissing all of the client's claims with prejudice as terminating sanctions. The Court's sanctions, and Dollinger's request for reconsideration, are the result of a series of attempts by Plaintiff to manufacture standing for a company that didn't exist. Plaintiff tried on numerous occasions to identify a company with standing, but was repeatedly countered by Defendants and eventually pounded with both monetary and terminating sanctions.

Round 1: Plaintiffs filed the complaint in September 2013, alleging that Todd Rooke and Joseph Rogness stole intellectual property valued at $1.3 billion from Plaintiffs Indiezone, Inc. (a Delaware corporation) and eoBuy, Limited (a purported Irish company). According to the complaint, the intellectual property at issue involved Indiezone's "copyrighted and trade-secreted Ad-Engine and next generation e-commerce platform." Indiezone allegedly licensed this intellectual property from eoBuy as part of a joint venture to develop an online music store. Defendants Rooke and Rogness were employees of Indiezone at the time, but allegedly left the company to start their own competing venture, Jingit LLC (also a defendant).

In January of this year, Defendants moved the Court to dismiss eoBuy Limited as a plaintiff and to compel arbitration between Defendants and Indiezone. Defendants pointed out, and Plaintiffs later agreed, that eoBuy limited was a defunct company that had dissolved in 2008. Defendants then argued that Defendants' had employment agreements with Indiezone (the only remaining plaintiff), and those agreements included arbitration clauses. The only legitimate plaintiff in the case, therefore, was bound to arbitration.

Round 2: Instead of opposing Defendants' motion, Plaintiffs moved to amend the complaint to substitute eoBuy Ventures Limited as the true plaintiff. A supporting declaration stated that eoBuy Ltd. in 2008 (before it became defunct) assigned its intellectual property rights to eoBuy Ventures, Ltd. According to Plaintiffs, therefore, eoBuy Ventures actually owned the intellectual property at issue and had proper standing to sue.

Defendants quickly shot this theory down by pointing out that there has never been a company called eoBuy Ventures, Ltd. organized in Ireland. Accordingly, the new proposed plaintiff, which didn't exist, also didn't have standing to sue.

Round 3: Undeterred, Plaintiffs filed a second motion to correct the complaint seeking to substitute eoBuy Licensing Limited as plaintiff. This motion was supported by a declaration from the CEO of Indiezone and eoBuy, Conor Fennelly. Fennelly started by agreeing with Defendants' analysis that neither eoBuy Limited or eoBuy Ventures currently existed. He explained, however, that this was all a misunderstanding. Fennelly had intended to change the name of a certain company to eoBuy Ventures in 2008, but the Corporate Office of Registry of Ireland rejected that name. According to Fennelly, on July 15, 2008, he therefore changed the name of the company to eoBuy Licensing Limited instead of eoBuy Ventures. Fennelly further stated that eoBuy Licensing had been operating under the eoBuy name since 2008, and that it was the true owner of the intellectual property at issue – which gave it standing to sue.

Defendants fired back again, this time accusing plaintiff of making fraudulent misrepresentations to the Court. Contrary to Fennelly's statements, Defendants argued, eoBuy Licensing was not renamed in 2008, and may not have even been owned by Fennelly in 2008. Rather, from 2008 to 2014, eoBuy licensing was a completely unrelated taxi company named Laraghcon Chauffer Drive Limited. According to Defendants, Fennelly renamed the company after Defendants filed their motion to dismiss eoBuy Ltd. Specifically, Fennelly filed papers to change the name of the company on February 6, 2014, but backdated the documents to July 15, 2008—the date Laraghcon Chauffer Drive was incorporated. Because the company was an unrelated taxi company, Defendants argued, it never received any intellectual property rights. The Court agreed and ultimately dismissed eoBuy as a plaintiff and compelled Indiezone to  arbitration.

Kicking 'Em While They're Down: Shortly after exposing Plaintiffs' alleged deception, Defendants moved for sanctions and the Court scheduled an evidentiary hearing. Dollinger didn't present a single witness or exhibit in Plaintiffs' defense at the hearing. In a subsequent  order, the Court found that the "only plausible explanation of the evidence is that Fennelly was attempting to create a sham plaintiff for the purpose of evading an arbitration provision by which the other plaintiff, Indiezone, is bound." "In creating this sham plaintiff, Fennelly submitted false declarations and fraudulent documents to the Court, on behalf of plaintiffs, and these misrepresentation were then adopted by counsel in counsel's own declarations, motions, and oral argument." The Court also pointed out a number of other inconsistencies in Plaintiffs' declarations and arguments. In doling out its punishment, the Court noted that it had "considered less severe sanctions but finds dismissal against all defendants appropriate due to the egregious and fundamental nature of the fraud."

Ultimately, the Court withdrew its order compelling arbitration and dismissed all of Indiezone's claims with prejudice. The Court also found Plaintiffs and Dollinger jointly and severally liable for attorneys' fees in the amount of $93,365.92.

Rematch?: Last week, Plaintiffs moved the Court to reconsider its sanctions. Through a declaration submitted by Dollinger, Plaintiffs argue that Fennelly and Dollinger believed the statements they made were true at the time, and that they didn't make the statements with the intent to deceive the Court. Specifically, Dollinger argued that Fennelly transferred the intellectual property rights of "eoBuy Ltd" to "eoBuy Ventures" in 2008, and that Fennelly believed that Laraghcon Chauffer Drive had been renamed to eoBuy Ventures at the time. The backdated 2014 documents that Fennelly filed were merely a correction of the earlier, accidental omission.

The Court has not yet taken any action on the motion for reconsideration.

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