Blockchain Innovation, LLC v. Franklin Resources, Inc.

Background

Blockchain acquired Onsa’s assets and legal claims from BLKCHN, LLC. The case concerns Onsa’s blockchain technology and Franklin Templeton’s later development of the Benji application and Franklin OnChain U.S. Government Money Fund. Blockchain asserted claims under the federal Defend Trade Secrets Act, for breach of contract, for breach of fiduciary duty against Roger Bayston, FT FinTech, and Franklin Resources, Inc. (FRI), and for aiding and abetting fiduciary-duty breaches against Jennifer Johnson.

The defendants moved for summary judgment on all claims. Blockchain filed a cross-motion for partial summary judgment seeking rulings that Bayston was not entitled to the business-judgment rule’s presumption, that the defendants did not own the alleged trade secrets, and that several defenses were unavailable.

Defendants’ Motion

Trade-secret claim

The court denied the FT Defendants’ motion for summary judgment on Blockchain’s claim under the Defend Trade Secrets Act. The court held that Blockchain presented evidence from which a reasonable jury could find that at least some alleged trade secrets were not generally known or readily ascertainable and derived economic value from their secrecy. The court also held that expert testimony was not necessarily required to create a triable issue.

The court overruled the defendants’ objection to Austin Trombley’s declaration. Although the court had excluded Trombley from testifying as an expert in an earlier order, it found that this declaration was based on his personal knowledge and experience as someone who helped develop the alleged trade secrets, so it was factual rather than expert testimony.

The court also held that the FT Defendants had disclosed their theory that Franklin owned the alleged trade secrets too late. Because the late disclosure was neither substantially justified nor harmless, Federal Rule of Civil Procedure 37(c)(1) barred the FT Defendants from asserting that ownership theory. Separately, the court found genuine disputes about whether Atul Patil transferred rights in relevant software and whether Trombley was an employee of Onsa, Franklin, or both when the alleged trade secrets were created.

Breach-of-contract claim

The court denied the defendants’ motion for summary judgment on Blockchain’s breach-of-contract claim concerning a nondisclosure agreement. The court found that TokenVault, Inc., later renamed Onsa, was a successor to TokenVault Limited. As a result, Blockchain showed at this stage that it had standing to bring the claim after the relevant rights passed through later asset transfers. Because the court found a successor relationship, it did not decide whether the nondisclosure agreement had been validly assigned.

Fiduciary-duty claims

The court denied summary judgment on Blockchain’s fiduciary-duty claim against Roger Bayston. It found a genuine factual dispute about whether Bayston was disinterested and independent, so it declined to apply the business-judgment rule on summary judgment. The claim covered both Bayston’s decision to wind down Onsa’s operations in July 2020 and his later authorization of the assignment for the benefit of creditors. The court also found triable issues concerning whether Bayston breached his duty of loyalty and denied summary judgment on the defendants’ exculpation argument.

The court denied FT FinTech summary judgment on the fiduciary-duty claim. It declined to grant judgment based on alleged pre-investment conduct because Blockchain did not base its fiduciary-duty claim on that conduct. The court also found factual disputes about whether FT FinTech controlled Bayston or Onsa’s board, whether it owed duties beyond shareholder voting, whether its approval of the assignment for the benefit of creditors breached those duties, and whether it breached the duty of loyalty.

The court granted FRI summary judgment on Blockchain’s fiduciary-duty claim against FRI. Blockchain offered no evidence that FRI itself was an Onsa shareholder, and the court found that a reasonable jury could not find that FRI owed a fiduciary duty to Onsa or its shareholders based on the theory presented.

The court denied summary judgment on Blockchain’s request for compensatory damages from the alleged fiduciary-duty breaches. It found a genuine dispute about whether the alleged breaches caused Onsa’s decline in value and resulting harm.

The court denied Johnson’s motion for summary judgment on Blockchain’s claim that she aided and abetted fiduciary-duty breaches. The court found factual disputes about whether Johnson knowingly participated, provided substantial assistance, and proximately caused or contributed to the alleged breaches.

Blockchain’s Cross-Motion

The court denied Blockchain’s motion for partial summary judgment that Bayston was not entitled to the business-judgment rule’s presumption. The court found a factual dispute about whether that protection applied.

The court granted Blockchain’s motion for partial summary judgment that the defendants did not own any of the alleged trade secrets. This ruling followed the court’s determination that the FT Defendants had waived and were barred from asserting their late-disclosed ownership theory.

The court also granted summary judgment for Blockchain on the listed affirmative defenses asserted by Bayston and by the FT Defendants and Johnson. The court found that some purported defenses merely attacked the elements of Blockchain’s claims rather than operating as true affirmative defenses. It also found no evidence supporting the other listed defenses.

For Bayston, the court granted summary judgment on affirmative defenses 1, 2, and 4 through 15, as listed in the opinion. For the FT Defendants and Johnson, it granted summary judgment on affirmative defenses 1 through 19, as listed in the opinion.

Disposition

The court granted in part and denied in part the defendants’ motion for summary judgment and granted in part and denied in part Blockchain’s cross-motion for partial summary judgment. The opinion did not enter judgment on all of Blockchain’s claims; in particular, the court denied summary judgment on the trade-secret, contract, Bayston fiduciary-duty, FT FinTech fiduciary-duty, damages, and Johnson aiding-and-abetting claims, while granting FRI summary judgment on the fiduciary-duty claim against it.