Blockchain Innovation, LLC v. Franklin Resources, Inc.

Background

Blockchain Innovation, LLC alleged that it acquired rights to claims arising from Onsa and related transactions involving blockchain technology. The First Amended Complaint asserted claims for breach of fiduciary duty against Franklin Resources, Inc. (doing business as Franklin Templeton), FT FinTech, and Roger Bayston; trade-secret misappropriation, breach of contract, and copyright infringement against the corporate defendants; and aiding and abetting breaches of fiduciary duty against Jennifer Johnson.

The complaint alleged that what began as an investment in Onsa became a purported acquisition and that the defendants were launching technology developed by Onsa. The defendants moved to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12. Rule 12(b)(6) allows dismissal when a complaint does not state a legally sufficient claim, while Rule 12(b)(1) concerns the court’s subject-matter jurisdiction.

Standing and Ownership

The corporate defendants made a factual challenge to Blockchain Innovation’s standing to bring its trade-secret, copyright, and contract claims. They argued that Blockchain Innovation did not own the asserted intellectual property and that no contract existed between the plaintiff and the corporate defendants.

The court held that these arguments were closely tied to the ultimate merits of the claims because they challenged foundational facts—ownership of the intellectual property and the existence of contractual rights. Applying the standard used for summary judgment rather than resolving the factual disputes on a motion to dismiss, the court found that Blockchain Innovation had sufficiently established standing at this stage.

The court specifically found that the plaintiff plausibly supported its alleged ownership of the TokenVault intellectual property through a series of transfers and assignments. It also found that the plaintiff plausibly showed its rights in the non-disclosure agreement. The court deferred disputed questions about the validity and effectiveness of those transfers for a later stage.

Preemption and Supersession Arguments

The corporate defendants argued that the breach-of-fiduciary-duty and injunctive-relief claims were superseded by the California Uniform Trade Secrets Act. The court did not decide whether California or Delaware law governed the issue because it found that the result was the same under either state’s law. The court concluded that the fiduciary-duty allegations included conduct that could support that claim independently of the trade-secret allegations, including alleged secret actions involving Onsa’s management and shareholders and the alleged winding down and liquidation of Onsa.

The court also rejected the argument that the breach-of-fiduciary-duty claim was displaced under the Delaware Uniform Trade Secrets Act. It found that the same facts were not required to establish every element of both claims.

The corporate defendants separately argued that the contract claim was preempted by federal copyright law. The court rejected that argument because the alleged contractual obligations included deleting material and providing verification, and because some of the material allegedly retained might not be covered by copyright law.

Adequacy of the Pleading

The court rejected the argument that the complaint improperly grouped the defendants together. It found that, although some allegations referred generally to “Defendants,” the complaint otherwise described alleged wrongdoing by specific defendants.

The court held that the fiduciary-duty allegations against the corporate defendants were sufficient at the pleading stage. The complaint alleged that the defendants controlled Onsa, made representations about compensating Onsa and funding it, secretly planned and carried out its liquidation, fired its staff, prevented new hiring, and acted to benefit themselves at Onsa’s expense. The court also found that the business-judgment rule did not require dismissal because the complaint adequately alleged bad faith and disloyal conduct. For the same reason, the court concluded that an exculpation provision in the certificate of incorporation did not defeat the fiduciary-duty claim as a matter of law at this stage.

The court found the trade-secret claim sufficient because the plaintiff alleged ownership of a trade secret, misappropriation, and resulting harm, including alleged copying and use of Onsa-developed materials. It also found the copyright claim adequately pleaded because the plaintiff alleged valid copyrights, access, and similarities between the protected works and the technology the defendants allegedly planned to launch. The court found the contract claim adequately pleaded because the non-disclosure agreement included Franklin Resources and FT and the complaint plausibly alleged multiple breaches.

Johnson

Johnson argued that the aiding-and-abetting claim was preempted and that the plaintiff had not adequately alleged an underlying breach or Johnson’s knowing participation. The court rejected those arguments. It found that the complaint adequately alleged Johnson’s knowing participation in the alleged plan to harm Onsa, including allegations that she approved the liquidation and participated in the relevant decision-making.

Bayston and the Forum-Selection Clause

Bayston argued that the fiduciary-duty claim against him had to be brought in the Delaware Court of Chancery under a forum-selection clause in Onsa’s certificate of incorporation. The court rejected that argument. It concluded that Blockchain Innovation was not shown to be an Onsa stockholder or beneficial owner, which were conditions triggering the clause. The court therefore denied the motion to dismiss to the extent it relied on the forum-selection clause and a forum non conveniens argument.

The court separately found that the complaint adequately alleged a fiduciary-duty claim against Bayston. It held that the complaint sufficiently alleged his role in the alleged scheme, lack of independence, and breach of loyalty and good faith by allegedly acting for the interests of his longtime employer at Onsa’s expense.

Requests for Judicial Notice

The court granted the defendants’ request as to Exhibits A, B, and C to the Bayston Declaration and Exhibit G to the Supplemental Bayston Declaration because Blockchain Innovation did not oppose treating those documents as incorporated into the complaint. It denied the request as to Exhibit F because the plaintiff did not rely on or mention that document in the complaint, and the court did not consider it. The court granted the request as to the exhibits to the Woo Declaration because the plaintiff did not oppose it.

The court denied as moot Blockchain Innovation’s motion for leave to file a request for judicial notice because the court was not considering Exhibit F at that time.

Disposition

The court denied the defendants’ motions to dismiss the First Amended Complaint, identified as Docket Nos. 56, 57, and 58. It denied as moot the plaintiff’s motion for leave to file a request for judicial notice at Docket No. 78. The court also set a telephonic case-management conference and directed the parties to meet and confer and submit a joint case-management statement.