Scienton Techs., Inc. v. Computer Assocs. Int'l, Inc. , 703 F. App'x 6 ( 2017 )

16-1995-cv
Scienton Techs., Inc. v. Computer Assocs. Int’l, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
7th day of July, two thousand seventeen.
Present:
JOHN M. WALKER, JR.,
DEBRA ANN LIVINGSTON,
GERARD E. LYNCH,
Circuit Judges,
_____________________________________
SCIENTON TECHNOLOGIES, INC.,
Plaintiff-Appellant,
v. 16-1995-cv
COMPUTER ASSOCIATES INTERNATIONAL, INC.,
Defendant-Appellee.*
_____________________________________
For Plaintiff-Appellant: ROBERT D. MACGILL (Jessica M. Lindemann,
Alexander P. Orlowski, on the brief), Barnes &
Thornburg LLP, Indianapolis, Indiana
For Defendant-Appellee: MICHAEL D. SCHISSEL, Arnold & Porter Kaye Scholer
LLP, New York, New York
*
The Clerk of Court is respectfully instructed to amend the caption to conform to the above.
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Kevin P. Mulry, Farrell Fritz, P.C., Uniondale, New
York
Appeal from a judgment of the United States District Court for the Eastern District of
New York (Seybert, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is REVERSED in part, and AFFIRMED in
part, and the case is REMANDED for further proceedings.
Plaintiff-Appellant Scienton Technologies, Inc. (“Scienton”) appeals from the May 26,
2016 judgment of the United States District Court for the Eastern District of New York (Seybert,
J.), entered after a jury trial. On appeal, Scienton challenges the district court’s dismissal for
lack of subject matter jurisdiction, as well as other rulings incorporated in the judgment. We
reverse as to subject matter jurisdiction, but otherwise affirm the district court. Assuming the
parties’ familiarity with the facts, the procedural history, and the issues on appeal, we elaborate
only as necessary to explain our decision.
I. Background1
The Plaintiffs below—Scienton, NI Group, Inc. (“NI Group”), and Secure-IT, Inc.
(“Secure-IT”)—are three related technology companies. In June 2000, Secure-IT merged into
NI Group. According to principals of both NI Group and Scienton, in late November 2000, NI
Group transferred at least some components of its business to Scienton through an oral
agreement that the parties memorialized in a written contract nearly four years later.
The instant litigation arose out of events beginning in August 2000, when Predrag
Zivic—a co-founder of Secure-IT and an officer of NI Group—entered discussions with
Defendant-Appellee Computer Associates International, Inc. (“CA”), a software company, about
1
Unless otherwise indicated, the facts below are gleaned from undisputed evidence presented at trial.
2
partnering to develop a software security solution involving CA’s products. Zivic’s proposal,
originally referred to as the Information Security Model, and later as the Enterprise Security
Solution (“ESS”), was a new security program that would collect, analyze, manage, and depict
physical and digital security data in real time. Shortly after Zivic’s initial communications with
CA, on September 20, 2000, NI Group and CA entered into a Mutual Nondisclosure Agreement
(“MNDA”), under which CA would furnish NI Group with some of CA’s existing software to
facilitate the development of the proposed security solution.
Although the MNDA was between CA and NI Group, testimony at trial established that
NI Group’s (at least partial) successor, Scienton, contributed to the development of the security
solution. According to Zivic’s trial testimony, Scienton worked with CA on the solution from
October 2000 until June 2001. Zivic testified that during this period, Scienton updated CA on
the progress of development through monthly calls and documents shared through a secure
website. In the summer of 2001, however, CA terminated the relationship and asked NI Group
to return its software. After seeking advice from legal counsel, Zivic returned CA’s software
and destroyed work product related to the solution.
In 2002, CA announced the upcoming release of a product with similar properties to the
ESS. The two CA products at issue in this litigation, eTrust Security Command Center
(“SCC”) and eTrust 20/20 (“20/20”), became commercially available in 2003. SCC is security
information management software that collects and displays data from other software; 20/20 also
gathers information from various sources, but uses CA’s three-dimensional visualization
software to display it.
In June 2004, Secure-IT, NI Group, and Scienton filed this lawsuit against CA asserting
various claims based principally on the theory that CA had used their idea without paying for it.
3
After nearly a decade, the case proceeded to trial. Before and during trial, the parties disagreed
about which of the Plaintiffs could pursue tort claims based on the alleged theft, and the
Plaintiffs argued in favor of Scienton. The district court did not rule on the issue but, accepting
what it considered to be the Plaintiffs’ choice, dismissed Secure-IT and NI Group from the case.
The jury returned a verdict finding CA liable, under New York law, for the torts of
misappropriation of an idea and unfair competition, and awarding damages of $956,000 in total.
After trial, the district court granted CA’s renewed motion for judgment as a matter of law,
holding that Scienton had failed to meet its burden to establish its standing to pursue the tort
claims. Dismissing for lack of subject matter jurisdiction, the district court also dismissed as
moot Scienton’s pending motion for a new trial on damages. Scienton timely appealed the
district court’s judgment and various orders incorporated therein.
II. Discussion
On appeal, Scienton advances four main arguments. We agree with the first, that
Scienton had standing to pursue the tort claims, and so we reverse the judgment dismissing the
case for lack of subject matter jurisdiction. We are otherwise unpersuaded by Scienton’s
contentions, and therefore affirm both the dismissal of Scienton’s claim for breach of the MNDA
and the rulings excluding some of the evidence Scienton sought to present in support of its
damages case. Finally, we decline to rule, in the first instance, on Scienton’s new-trial motion.
A. Standing
Scienton challenges the district court’s post-trial determination that Scienton lacked
standing to bring the tort claims. On appeal from a dismissal due to lack of standing, we review
a district court’s legal conclusions de novo, and its factual findings for clear error. Anderson
Grp., LLC v. City of Saratoga Springs, 805 F.3d 34, 45 (2d Cir. 2015). A plaintiff has the
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burden of proving standing, and must show it has “(1) suffered an injury in fact, (2) that is fairly
traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a
favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).
Here, the district court held that Scienton had not established the first requirement, and
concluded, as an initial matter, that “NI Group—not Scienton—–suffered an injury in fact
because NI Group was the plaintiff that conveyed the Idea to CA.” Scienton Techs., Inc. v.
Computer Assocs. Int’l, Inc., No. 04-cv-2652-JS-ARL, 2016 WL 2888996, at *5 (E.D.N.Y. May
17, 2016). We disagree. The district court’s conclusion conflicts with the evidence presented
at trial and the jury’s verdict, which together establish that Scienton contributed to and conveyed
the misappropriated idea to CA, and therefore that Scienton suffered an injury in its own right.
At trial, Zivic, who was an officer of both NI Group and Scienton, testified about
Scienton’s work developing the ESS and Scienton’s communication about the in-progress
solution with CA. The document presented to the jury as summarizing the allegedly
misappropriated idea (the Plaintiffs’ Second Supplemental Trade Secret Disclosures) describes
the idea as created during the relationship between the Plaintiffs and CA and as developed and
conveyed to CA by Scienton. During his summation, arguing that the allegedly
misappropriated idea satisfied the concreteness element of a misappropriation claim, Plaintiffs’
counsel explained, as the evidence showed, that the idea was not complete and operational until
May or June 2001—long after Scienton became involved in the project. Ultimately, the verdict
form asked the jury to find CA liable for misappropriation of the idea described in the Plaintiffs’
Second Supplemental Trade Secret Disclosures. In light of the trial evidence and verdict in
Scienton’s favor, the district court clearly erred by concluding that “[a]s an initial point, NI
Group—not Scienton—–suffered an injury in fact because NI Group was the plaintiff that
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conveyed the Idea to CA,” Scienton Techs., Inc., 2016 WL 2888996 at *5. Essentially, the jury
found otherwise. Accordingly, we reverse the district court’s judgment dismissing the case for
lack of subject matter jurisdiction.2
B. Breach of contract
Scienton next challenges the district court’s grant, at the close of evidence, of judgment
as a matter of law to CA on the claim for breach of the MNDA due to Scienton’s failure to
adduce evidence of compensatory damages. In Scienton’s view, the jury should have been
permitted to consider awarding it CA’s ill-gotten profits from sales of SCC and 20/20 as
damages for breach of the MNDA.
We review de novo a district court’s grant or denial of a motion for judgment as a matter
of law. Warren v. Pataki, 823 F.3d 125, 137 (2d Cir. 2016). Under New York law, which the
parties appear to agree applies to the MNDA, “[i]t has long been recognized that the theory
underlying damages for breach of contract is to make good or replace the loss caused by the
breach.” Seidman v. Indus. Recycling Props., Inc., 967 N.Y.S.2d 77, 79 (2d Dep’t 2013).
This Court has observed that, “[w]hile on occasion the defendant’s profits are used as the
measure of damages” for breach of contract, “this generally occurs when those profits tend to
define the plaintiff’s loss.” U.S. Naval Inst. v. Charter Commc’ns, Inc., 936 F.2d 692, 696 (2d
Cir. 1991).
2
Because we conclude that the district court erred in concluding that Scienton suffered no injury in fact,
we need not reach Scienton’s other contentions on appeal, namely that (1) Scienton had assignee standing
because it acquired the tort claims under the Agreement of Sale between NI Group and Scienton, and (2)
in any event, and in light of the fact that both NI Group and Scienton were parties to the case from its
inception (indeed, until mid-trial), CA’s objection to Scienton’s standing was actually a
real-party-in-interest objection, governed by Federal Rule of Civil Procedure 17, which was waived and
which the district court, if it agreed with CA, should have permitted the Plaintiffs to correct.
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Here, Scienton argues not that CA’s ill-gotten profits amount to their losses for any
breach of the MNDA, but instead that ill-gotten profits are an appropriate alternative remedy.
This argument is unavailing. Scienton fails to cite any New York case allowing a plaintiff to
recover a defendant’s ill-gotten profits as an alternative to traditional remedies for breach of a
contract. Even assuming such a remedy is available under New York law, Scienton fails to
establish that it would be appropriate here. Scienton relies on the Restatement (Third) of
Restitution and Unjust Enrichment, which allows for disgorgement of profits gained by
opportunistic breach where “the available damage remedy affords inadequate protection to the
promisee’s contractual entitlement.” Id. § 39(1) (2011). But Scienton’s only argument for the
inadequacy of traditional contract damages—that the MNDA does not address damages for
breach—was raised only in its reply brief, and is unpersuasive besides. We are skeptical of
Scienton’s assertion that “there are no traditional, expectation damages to award for CA’s
deliberate breach,” Reply Br. at 16, because Zivic testified at trial that what he anticipated from
the relationship was that “CA would use our product and sell it as [its] own product and pay [a]
percentage of revenue to Scienton,” Suppl. App’x 48. More fundamentally, how to calculate
traditional contract damages is a distinct question from whether traditional contract damages are
adequate redress.
Scienton’s reliance on Kansas v. Nebraska, 135 S. Ct. 1042 (2015), is similarly
misplaced. In that case, the Supreme Court required Nebraska, in addition to paying
compensatory damages, to disgorge some of its profits from drawing more than its allotment of
water under an interstate compact. Id. at 1051, 1057–58. The Court’s decision emphasized
the scarcity of the natural resource and the inadequacy of actual damages to deter breach. Id. at
1057 (noting that because the misappropriated water was so much more valuable on Nebraskan
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farmland, Nebraska could take more than its share, “pay Kansas actual damages, and still come
out ahead”). Kansas v. Nebraska suggests disgorgement of profits may, under some
circumstances, be part of an appropriate remedy for breach of contract. Scienton has not,
however, explained—and we do not see—why its ordinary breach of contract claim, involving a
standard nondisclosure agreement, presents such a circumstance. We therefore affirm the
district court’s judgment in this respect.3
C. Evidentiary rulings
Scienton next challenges the district court’s exclusion of evidence it sought to present in
support of its damages case. We review for abuse of discretion a district court’s admission or
exclusion of evidence (including expert testimony), leaving evidentiary rulings undisturbed
unless they are manifestly erroneous and justice requires reversal. Davis v. Velez, 797 F.3d
192, 201 (2d Cir. 2015); Amorgianos v. Nat’l R.R. Passenger Corp., 303 F.3d 256, 264–65 (2d
Cir. 2002); see also Fed. R. Civ. P. 61.
First, as to evidence related to a patent and patent application for 20/20, we find no abuse
of discretion in the district court’s refusal to allow this evidence, which, if admitted, may have
confused the jury—particularly because, due to the posture of the case and the district court’s
previous rulings, the evidence would have been presented without the benefit of expert
testimony. Second, as to certain expert testimony about the Plaintiffs’ entitlement to damages
for sales of separate CA products integrated into SCC and 20/20, the district court concluded
there was no evidence underlying the expert opinion other than a separate, previously excluded,
expert report. We cannot say the district court abused its discretion by excluding evidence it
3
Because we affirm the district court’s dismissal of Scienton’s claim for breach of the MNDA, we need
and do not reach Scienton’s (dubious) argument that if the dismissal was error, we should enter judgment
in Scienton’s favor on the breach of contract claim rather than remand for trial.
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deemed entirely unfounded. See Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir.
1996) (per curiam). We therefore affirm the district court’s rulings.
D. Motion for a new trial on damages
Finally, highlighting the district court’s failure to issue a conditional ruling on its motion
for a new trial on the issue of damages, as required by Federal Rule of Civil Procedure 50(c)(1),
Scienton asks this Court to decide the motion in the first instance. We refuse this invitation.
Scienton has preserved the claim that it is entitled to a new trial based on the theory that the
damages verdict here is against the weight of the evidence. Ordinarily, however, the denial of
such a motion is wholly within the district court’s discretion. See Dailey v. Societe Generale,
108 F.3d 451, 458 (2d Cir. 1997) (“[W]here a district court denies a motion for a new trial made
on the ground that the verdict was against the weight of the evidence, such a ruling is not
reviewable on appeal. This rule applies . . . to weight-of-the-evidence motions challenging the
size of a verdict . . . .” (citation omitted)). Discerning no reason to intrude where our review
might otherwise be foreclosed, we remand for the district court’s disposition, in the first instance,
of Scienton’s new-trial motion.
* * *
We have considered Scienton’s remaining arguments and find they do not alter our
conclusions. Accordingly, we REVERSE the district court’s judgment dismissing the case for
lack of subject matter jurisdiction, AFFIRM the district court’s judgment in the other respects
discussed, and REMAND for consideration of the motion for a new trial on damages.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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