Sherman v. Fivesky, LLC

Background

Defendants Fivesky, LLC, Fivesky Technology Services, LLC, and Reza Pourkhomami moved under Federal Rules of Civil Procedure 13 and 15 to amend their answer to add counterclaims. A counterclaim is a claim brought by a defendant against the opposing party in the same case. The proposed counterclaims alleged breach of contract, breach of the implied promise of good faith and fair dealing, misappropriation of trade secrets under federal and New York law, and unfair competition under federal and New York law.

Defendants alleged that Sherman violated three post-employment agreements by joining Contemporary Computer Services, Inc. (CCS), described as a direct competitor, and by using or disclosing Fivesky’s trade secrets and confidential information. Defendants said they learned of Sherman’s employment with CCS from his initial disclosures on approximately June 25, 2020. They investigated the potential claims and filed their amendment motion on July 23, 2020, after the July 6 amendment deadline.

Sherman opposed Defendants’ motion and cross-moved to amend his complaint. He sought to add a retaliation claim based on Defendants’ attempt to add counterclaims and their subpoena to CCS, as well as a wrongful-termination claim. Sherman also separately moved to quash the subpoena served on CCS.

Defendants’ Motion to Add Counterclaims

The court explained that when a party seeks to amend after a scheduling-order deadline, Federal Rule of Civil Procedure 16 requires a showing of “good cause.” The relevant question was whether the party acted diligently and, despite its efforts, could not reasonably have met the deadline.

The court found good cause. It credited Defendants’ evidence that their counsel had been told Sherman was not working, had repeatedly checked Sherman’s public LinkedIn profile without finding another job, and had used an investigative firm that did not find evidence of employment. The court also found that Defendants acted reasonably by investigating the potential claims after learning of Sherman’s employment with CCS and filed the motion shortly after the deadline.

The court rejected Sherman’s arguments that Defendants should have developed the counterclaims earlier and that the amendment would cause undue delay or prejudice. Discovery had only recently begun, and the court concluded that the additional discovery identified by Sherman would not significantly delay the case. The court also noted that Sherman did not argue that the proposed counterclaims were futile or failed to state a claim. The motion to amend the answer was therefore GRANTED.

Proposed Retaliation Claim

Sherman’s proposed retaliation claim concerned Defendants’ subpoena to CCS and their effort to add counterclaims. The subpoena sought information about Sherman’s employment, compensation, communications with CCS, CCS’s business and clients, and any clients Sherman allegedly solicited or brought to CCS.

The court applied Title VII’s retaliation standard, under which a plaintiff must allege a materially adverse action and must show that protected activity was the but-for cause of the alleged action. The court also considered that litigation tactics may be protected by the right to petition the courts, but that objectively baseless litigation is not protected.

The court held that Sherman’s allegations did not state a retaliation claim. It concluded that the subpoena and counterclaims were not objectively baseless because they sought information relevant to Defendants’ defenses and proposed claims concerning Sherman’s departure, employment with a competitor, and alleged use of confidential information. The court also concluded that the alleged conduct did not show the required retaliatory intent or causation. Because the proposed claim could not survive a motion to dismiss, the court found the amendment futile and DENIED Sherman’s request to add the retaliation claim.

The court also rejected a further retaliation theory raised in Sherman’s reply concerning Defendants’ use of a private investigator. The court stated that raising new relief in reply was improper and gave additional reasons for rejecting that proposed amendment.

Proposed Wrongful-Termination Claim

Sherman also sought to add a wrongful-termination claim based on events in March and April 2019. His proposed allegations stated that he sent Defendants a draft complaint and claim letter alleging discrimination and a hostile work environment while he was on medical leave. He alleged that Fivesky locked him out of its systems after receiving the letter and that Defendants later treated his conduct as a termination or resignation. Sherman alleged that Defendants, rather than he, terminated the employment relationship.

The court held that Sherman failed to establish good cause for adding this claim after the amendment deadline. Based on his own proposed allegations, he had the information necessary to assert the claim in April 2019, but waited until August 2020. The court therefore DENIED the request to add the wrongful-termination claim.

Subpoena and Disposition

The court rejected Sherman’s challenge to the subpoena. It concluded that the subpoena sought information relevant to Defendants’ defense and counterclaims and that serving it was part of the litigation process. The court held that the subpoena was not, under the circumstances, a baseless act of retaliation. Sherman’s motion to quash the subpoena was DENIED.

Judge Lewis J. Liman’s final order GRANTED Defendants’ motion to amend, DENIED Sherman’s motion to amend, and DENIED the motion to quash the subpoena. The clerk was directed to close the three motion entries.