Kumaran v. Northland Energy Trading, LLC

Background

Plaintiffs Samantha Siva Kumaran and The A Star Group, Inc., doing business as Timetrics, alleged that they developed software and trading strategies for commodities traders. Beginning in 2011, plaintiffs entered into agreements with Northland Energy Trading, LLC and Hedge Solutions, Inc. concerning licensing, consulting, and confidentiality. Plaintiffs alleged that defendants used their software and strategies to create a copycat product called the “OBT Book” in 2014 and 2015, concealed that conduct, and deprived plaintiffs of fees, royalties, and profit shares.

In 2016, Kumaran, Timetrics, Northland, and Hedge entered into a settlement agreement. Northland and Hedge agreed to pay Timetrics $90,000 in five installments. The agreement broadly released known and unknown claims through the date of the agreement, terminated most prior agreements, and included promises concerning the use of Timetrics software and strategies. Plaintiffs alleged that they later learned defendants were using the OBT Book. They also alleged that Kumaran and Richard M. Larkin reached an unwritten “Agreement in Principle” under which Larkin would help fund a hedge fund and defendants would make payments in exchange for additional information, services, and intellectual property. Plaintiffs alleged that they provided services and information but did not receive the promised payments or capital.

Plaintiffs asserted sixteen claims, including breach of the settlement agreement, fraudulent inducement, common-law fraud, federal and New York trade-secret misappropriation, breach of the Timetrics nondisclosure agreement, unjust enrichment, promissory estoppel, breach of the Agreement in Principle, breach of fiduciary duty, and aiding and abetting fraud. Defendants moved to dismiss under Rule 12(b)(6), which tests whether a complaint adequately states a claim for relief. Plaintiffs also sought a preliminary injunction barring defendants from using alleged trade secrets.

Rulings on the claims

Settlement-agreement breach. The court dismissed plaintiffs’ claim that Larkin, Northland, and Hedge breached the settlement agreement by using the OBT Book. The court held that plaintiffs waived the claim as a matter of law because they alleged that they learned of the alleged breach on September 8, 2016, continued accepting settlement payments for nine months, and did not allege that they notified defendants of the breach. The court rejected plaintiffs’ argument that their opposition briefs supplied an allegation missing from the First Amended Complaint.

Agreement in Principle. The court dismissed the claim for breach of the alleged Agreement in Principle. New York’s Statute of Frauds requires a signed writing for an agreement that cannot be fully performed within one year. The court concluded that the alleged promise by Larkin to provide capital for two years could not be performed within one year, and that the complaint alleged no signed writing containing the agreement’s material terms. The court rejected plaintiffs’ argument that Delaware law exempted the agreement from the Statute of Frauds, explaining that the cited Delaware statute concerned the operating agreement of a Delaware limited liability company and did not exempt this broader alleged agreement.

Fraudulent inducement and rescission. The court dismissed the fraudulent-inducement claims concerning both the settlement agreement and the Agreement in Principle. The settlement-related allegations concerned representations and warranties that were part of the settlement agreement rather than separate, collateral facts. The allegations concerning the Agreement in Principle were based on alleged promises to perform, and New York law does not treat an alleged intent not to perform a contract as an independent fraud claim in these circumstances. The court also dismissed the claim seeking rescission of the settlement release because rescission is a remedy, not a standalone claim, and the underlying fraud claims failed.

Common-law fraud and aiding and abetting fraud. The court held that claims based on conduct before the 2016 settlement were released by the settlement agreement’s broad release. The court also dismissed claims based on later conduct involving the Agreement in Principle. The allegations described Larkin’s involvement but did not adequately connect Northland, Hedge, Lothrop, or Bramante to post-settlement fraud with the particularity required for fraud claims.

Nondisclosure agreement. The court dismissed the claim that defendants breached the Timetrics nondisclosure agreement. The alleged 2014 and 2015 conduct was covered by the settlement release. Although plaintiffs alleged that defendants continued to retain and use their intellectual property, the court found no specific allegations showing post-settlement use of the original information governed by the nondisclosure agreement. It declined to rely on plaintiffs’ conclusory assertion that the agreement governed newly disclosed information.

Trade-secret claims. The court dismissed plaintiffs’ claims under the federal Defend Trade Secrets Act and New York law. A complaint must identify alleged trade secrets with enough detail about the information and its value to make the claim plausible, without necessarily disclosing the secrets themselves. The court found that plaintiffs’ descriptions—such as risk-management tools, hedging strategies, designs, models, processes, techniques, algorithms, methodologies, interfaces, and confidential information—were lists of broad categories rather than sufficiently specific trade secrets.

Fiduciary-duty claim. The court dismissed Kumaran’s fiduciary-duty claim against Larkin because the alleged duty arose from the Agreement in Principle, which the court had found unenforceable under the Statute of Frauds.

Other claims. The court dismissed claims for misappropriation of confidential information, unjust enrichment, and breach of the implied covenant of good faith and fair dealing because they duplicated contract claims. It also dismissed the promissory-estoppel claim and the claim concerning misappropriation of Kumaran’s skills and labor because they duplicated the alleged Agreement in Principle and could not be used to avoid the Statute of Frauds.

Disposition

Judge Mary Kay Vyskocil granted defendants’ motion to dismiss. The court denied plaintiffs’ motion for a preliminary injunction and all other requests for relief as moot, and requested that the Clerk of Court close the case. The opinion does not state that the dismissal was with or without prejudice.