Lynwood Investments CY Limited v. Konovalov

Background

Lynwood Investments CY Limited, which the opinion identifies as a Cyprus limited company with its principal place of business in Limassol, Cyprus, sued Maxim Konovalov, Igor Sysoev, Andrey Alexeev, Maxim Dounin, Gleb Smirnoff, Angus Robertson, and several corporate entities connected with NGINX and its investors. Lynwood alleged that Sysoev developed NGINX software while employed by Rambler Internet Holding LLC in Russia and that the defendants misappropriated the NGINX enterprise, concealed what happened from Rambler, and later commercialized it. Lynwood alleged that Rambler assigned related rights to Lynwood in a 2015 agreement.

The complaint asserted 26 claims. The court had ordered Lynwood to select 10 claims to litigate through trial. The two motions addressed in this order challenged seven of those selected claims: civil conspiracy; aiding and abetting the Team’s fraud and the employees’ breaches of duties of honesty and loyalty; tortious interference with contract; tortious interference with prospective business advantage; fraud; and direct copyright infringement. The individual defendants had filed a separate motion to dismiss, which the court stated it would address in a separate order.

Court’s analysis

The court applied Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not contain enough facts to state a legally plausible claim. It also applied Rule 9(b), which requires allegations of fraud to identify the basic details of the alleged misconduct, including who made statements, what was said, when and where it was said, and how the conduct occurred.

The court first held that the seven challenged claims were barred by statutes of limitations. The alleged theft occurred in 2011, while Lynwood filed the complaint on June 8, 2020. The court rejected Lynwood’s arguments that the limitations periods began with the 2019 merger between F5 and NGINX, that the defendants committed continuing wrongs, or that fraudulent concealment or delayed discovery paused the limitations periods. The court concluded that the complaint itself showed that Rambler and Lynwood had notice, or should have had notice, of the relevant facts much earlier.

The court separately held that the allegations underlying the challenged claims did not satisfy Rule 9(b). Lynwood did not identify the time, place, speaker, and specific content of the alleged false statements. It also did not identify who deleted or destroyed particular evidence, what was done, or when and how it occurred. As to the Outside Investors, Lynwood did not explain how or when they became involved in the alleged conspiracy.

The court also addressed whether the individual claims stated legal claims:

- Claims 8 and 9: The court dismissed the aiding-and-abetting claims against F5, E. Ventures, and Runa Capital because Lynwood’s allegations did not plausibly show that those defendants had actual knowledge of the alleged fraud or breaches of duty. The dismissal was with leave to amend. - Claim 10: The court granted the motion to dismiss this contract-interference claim as to the F5 Entities because Lynwood did not plausibly allege that those entities knew about the contracts between the employees and Rambler. The dismissal was with leave to amend. - Claim 13: The court dismissed the prospective-business-advantage claim because Lynwood alleged only a possible sale to a hypothetical buyer, not an existing economic relationship with an identifiable buyer. The dismissal was with leave to amend. - Claim 14: The court dismissed the fraud claim because Lynwood did not allege that NGINX Software, Inc., NGINX BVI, or BV NGINX owed Rambler a duty to disclose. The dismissal was with leave to amend. - Claim 15: The court dismissed the direct-copyright-infringement claim because Lynwood did not identify which defendant allegedly copied which copyrighted work. The dismissal was with leave to amend. - Claim 1: The court dismissed the civil-conspiracy claim because Lynwood had not adequately pleaded an underlying tort or a common plan involving all alleged conspirators. The dismissal was with leave to amend.

Disposition

Judge Lucy Koh granted the F5 Entities’ and Outside Investors’ motions to dismiss with leave to amend. Lynwood was required to file any amended complaint within 30 days of the court’s forthcoming order on the individual defendants’ motion to dismiss. The court stated that failure to amend, or failure to cure the identified deficiencies, would result in dismissal of the deficient claims with prejudice. Lynwood could not add new causes of action or parties without a stipulation or the court’s permission, and it had to attach a redlined comparison with any amended complaint. The court also granted the F5 Entities’ request for judicial notice of an interview transcript and treated the open-source license as incorporated by reference into the complaint.