Ionlake, LLC v. Girard

Background

Ionlake, LLC sued Wade A. Girard for a declaration concerning ownership of the copyright in MyRepChat, a software application for secure text messaging between financial advisors and their clients. Ionlake and Derrick Girard asserted that Ionlake owned or co-owned the copyright; Wade asserted that he was the software’s exclusive owner.

Wade asserted third-party claims against Derrick, and Derrick asserted counterclaims against Wade, including common-law fraud, fraudulent inducement, breach of fiduciary duty, and Minnesota statutory claims. Derrick sought permission to amend his counterclaim to add a request for punitive damages based on the alleged fraud and breach-of-fiduciary-duty claims.

Derrick alleged that Wade induced him to join Ionlake, invest $100,000, and spend about three years helping develop and sell the software by representing that it would be Ionlake’s product. Derrick further alleged that, after a dispute over Wade’s distributions from Ionlake, Wade applied for a copyright in his own name, claimed exclusive ownership, threatened to suspend Ionlake’s access to the software, withheld source-code access and other credentials, contacted Ionlake’s largest customer, and formed a separate company to sell licenses involving the software.

Legal Standard

Federal Rule of Civil Procedure 15 generally provides that courts should freely allow amendments to pleadings when justice requires. Leave to amend may be denied for reasons such as undue delay, bad faith, prejudice, or futility. An amendment is futile if the proposed allegations would not survive a motion to dismiss for failure to state a legally sufficient claim.

The court applied Rule 15 rather than Minnesota Statute § 549.191 to decide the amendment procedure. It noted, however, that Derrick also met the evidentiary burden under that Minnesota statute. Minnesota Statute § 549.20 provides that punitive damages require clear and convincing evidence that the defendant acted with deliberate disregard for the rights or safety of others. At the pleading stage, the court considered whether Derrick alleged enough facts to plausibly support that standard, not whether he had already proved it.

Analysis

The court accepted Derrick’s factual allegations as true and viewed reasonable inferences in his favor. It concluded that the allegations plausibly supported an inference that Wade knew Ionlake owned the software, knew Derrick had invested substantially in the company, and nevertheless represented to the copyright office and customers that Wade alone owned the software.

The court did not resolve Wade’s factual disputes or decide whether Derrick’s underlying fraud and fiduciary-duty claims would ultimately succeed. It stated that those issues could be raised later, including through a motion for summary judgment after development of the factual record. Because the proposed punitive-damages claim was not futile at the pleading stage, the court granted Derrick’s motion.

Order

The court ordered that Derrick Girard’s Motion to Amend Counterclaim to Plead Punitive Damages Against Wade Girard was GRANTED. It also ordered Derrick to file an amended counterclaim in substantially similar form to his proposed amended counterclaim on or before February 24, 2021. The order was signed by Becky R. Thorson, United States Magistrate Judge.