East West Bank v. Shanker

Background

East West Bank employed Sukeert Shanker from December 22, 2017, through April 30, 2019, as Chief Operating Officer—Digital Banking. During that employment, Shanker worked on Velo, a digital banking service that assists, among other people, non-U.S. residents with opening bank accounts in the United States. Shanker signed a confidentiality agreement and later entered into a settlement agreement with East West Bank concerning a dispute about his compensation package. The settlement agreement required him to turn over East West Bank property and release claims against the bank.

After leaving East West Bank, Shanker incorporated Aeldra, a mobile banking platform. East West Bank alleged that Aeldra offered a service directly competing with Velo and that Shanker misappropriated East West Bank’s trade secrets to create it. The original complaint asserted five claims against Shanker: federal trade-secret misappropriation under 18 U.S.C. § 1836; breach of contract; breach of the implied covenant of good faith and fair dealing; breach of fiduciary duty; and violation of California Business and Professions Code § 7200.

East West Bank moved for leave to file a First Amended Complaint adding Aeldra and Does 1–10 as defendants. The proposed amended complaint kept the five claims against Shanker and asserted the first and fifth claims against Aeldra and the Doe defendants. East West Bank also filed two motions to seal: one concerning financial information in the settlement agreement and another concerning a Velo product roadmap.

Motion for Leave to Amend

Federal Rule of Civil Procedure 15(a) generally allows amendment with the opposing party’s consent or the court’s permission after the deadline for amendment as of right. Courts consider bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the pleading was previously amended. Prejudice to the opposing party is the most important factor.

Shanker argued that the stricter “good cause” standard under Federal Rule of Civil Procedure 16 should apply because East West Bank missed the scheduling order’s April 14, 2021 deadline to amend or add parties. The court rejected that argument, reasoning that East West Bank timely filed its motion for leave to amend on April 2, 2021, and therefore had complied with the scheduling order.

The court found no substantial prejudice to Shanker or Aeldra. Discovery was still in its early stages: the parties had served only their first sets of discovery requests, no depositions had occurred, and more than four months remained before the close of fact discovery. The court also noted that the original complaint referred to Aeldra and that East West Bank had issued a subpoena to it.

The court rejected Shanker’s futility arguments. Shanker contended that several claims were preempted by the California Uniform Trade Secrets Act and that the implied-covenant claim was unnecessary because East West Bank also alleged breach of contract. The court said those legal-sufficiency challenges were more appropriately raised in a motion to dismiss and found that the proposed amendment was not plainly frivolous.

The court also rejected Shanker’s arguments that East West Bank acted in bad faith or delayed improperly. The court accepted East West Bank’s explanation that it obtained evidence of Aeldra’s alleged use of the bank’s proprietary materials only after Aeldra’s public launch and during discovery. The court further found that the motion was timely under the scheduling order and that delay alone did not justify denying amendment.

The court permitted the Doe defendants because discovery might reveal the identities of additional people who allegedly acted with Shanker to use East West Bank’s trade secrets. It cautioned East West Bank to determine promptly whether it would add other defendants because doing so could affect the schedule and raise prejudice concerns.

Motions to Seal

The court applied the “compelling reasons” standard to the sealing requests because the motion to amend was more than tangentially related to the underlying claims. It granted East West Bank’s first motion to seal specific financial information in the settlement agreement because the same information had been sealed previously.

The court also granted East West Bank’s second motion to seal the document titled “20180611_VeloProduct Roadmap_V6.xlsx.” The court found that the roadmap contained commercially sensitive information about the Velo platform, including its strategies, priorities, direction, features, components, third-party integrations, vendors, research and development, competitive information, and corporate strategies.

Disposition

The court granted East West Bank’s motion for leave to file the First Amended Complaint and directed the bank to file it by May 12, 2021. The court also granted both motions to seal. The order did not decide whether East West Bank would ultimately prevail on its trade-secret, contract, fiduciary-duty, or California statutory claims.