Blockchain Innovation, LLC v. Franklin Resources, Inc.

Background

On October 28, 2019, FT FinTech Holdings, LLC invested in Onsa, then called TokenVault, Inc., through a stock purchase agreement. The agreement provided for payments and additional shares if Onsa reached specified milestones. The opinion states that Roger Bayston became Onsa’s sole board member and interim president, secretary, treasurer, and chief executive officer. In July 2020, Bayston allegedly terminated Onsa’s chief executive officer and other significant employees and stopped Onsa’s business operations with Roger Johnson’s knowledge and approval. In November 2020, Onsa’s board approved an assignment for the benefit of creditors that transferred Onsa’s assets, including intellectual property and legal claims, to BLKCHN, LLC. In August 2021, Blockchain Innovation, LLC purchased those assets and causes of action from BLKCHN.

Blockchain’s operative complaint asserted a federal Defend Trade Secrets Act claim and a breach-of-contract claim against the FT Defendants. It also asserted breach-of-fiduciary-duty claims against Roger Bayston, FT FinTech, and Franklin Resources, Inc., and an aiding-and-abetting claim against Johnson.

Earlier Orders and Motion

On November 27, 2024, the court granted in part and denied in part Defendants’ motion for summary judgment and granted in part and denied in part Blockchain’s cross-motion for partial summary judgment. In that order, the court overruled Defendants’ objections to the declaration of Austin Trombley, Onsa’s founder. Trombley’s declaration addressed whether the asserted trade secrets were generally known and derived value from not being generally known.

On October 3, 2024, the court granted Blockchain’s motion to strike the report of Dr. Seoyoung Kim and portions of the report of Dr. Stephen Melvin. Those reports addressed whether the asserted trade secrets qualified as trade secrets. The court concluded that Kim’s report was an affirmative expert report improperly designated as rebuttal and that the challenged portions of Melvin’s report were not proper rebuttal opinions.

The Defendants sought reconsideration under Northern District of California Civil Local Rule 7-9. They argued that the court had manifestly failed to consider a material fact or dispositive legal argument when it overruled their objections to the Trombley Declaration. Alternatively, they argued that allowing the declaration created a material difference in fact or law that justified reinstating the Kim and Melvin opinions.

Trombley Declaration

The court treated Defendants’ motion as challenging the Trombley Declaration in its entirety because their earlier summary-judgment reply had objected to the declaration as a whole.

The court denied reconsideration of the ruling admitting the declaration. In their earlier briefing, Defendants had argued that the declaration was based on personal knowledge and was insufficient to establish that the asserted trade secrets were not generally known. On reconsideration, they instead argued that the declaration was based on scientific, technical, or other specialized knowledge covered by Federal Rule of Evidence 702. The court found that this was a new argument and that it contradicted Defendants’ earlier position. Because reconsideration cannot be used to raise arguments that could reasonably have been made earlier, the court declined to reconsider the summary-judgment ruling.

The court nevertheless clarified the limits of Trombley’s testimony at trial. It found that much of his declaration was factual and based on his work for Onsa and the development of the asserted trade secrets. Trombley may testify about what he knew, what he had not seen, and how he gained that knowledge. He may also give admissible lay-opinion testimony under Rule 701, which permits a nonexpert witness to give opinions rationally based on personal perception, helpful to understanding testimony or deciding a fact, and not based on specialized knowledge covered by Rule 702.

The court ruled that Trombley may not testify that the asserted trade secrets were unique in the industry or that no other companies had developed them. The court found that those opinions were not rationally based on his perception. It did not find that the opinions were based on specialized knowledge under Rule 702.

Kim and Melvin Reports

The court also denied reconsideration of the portions of its October 3 order striking the Kim Report and portions of the Melvin Report. The court found that the Trombley Declaration was not expert testimony and therefore did not create a material difference in fact or law justifying reconsideration. Because Trombley was not disclosed as an expert on whether the asserted trade secrets were generally known, he could not provide expert testimony on that issue.

The court further found that Kim and Melvin had offered expert opinions based on scientific, technical, or specialized knowledge, while Trombley’s permissible testimony was based on his work at Onsa. In the absence of an affirmative expert opinion from Blockchain on whether the asserted trade secrets were generally known, the court concluded that the Kim and Melvin opinions were not proper rebuttal opinions. Reinstating them would prejudice Blockchain by introducing expert testimony to rebut a small number of lay opinions.

Defendants also argued that they were substantially justified in serving the reports as rebuttal reports and offered to stipulate to a new Blockchain rebuttal report. The court found those arguments waived because Defendants had not raised them in their opposition to the original motion to strike. It also rejected the proposed stipulation because it would conflict with the case schedule, require additional expert and pretrial work, and delay trial for several months.

Disposition

Judge Thomas S. Hixson denied Defendants’ motion for reconsideration of the portion of the summary-judgment order overruling their objections to the Trombley Declaration. He also denied Defendants’ motion for reconsideration of the portions of the October 3, 2024 order striking the Kim Report and portions of the Melvin Report. The conclusion states that the court denied Defendants’ motion for reconsideration.