East West Bank v. Shanker, No. 3:2020cv07364 - Document 43 (N.D. Cal. 2021)
Court Description: ORDER GRANTING 38 MOTION FOR LEAVE TO FILE AMENDED COMPLAINT by Judge William H. Orrick. First Amended Complaint to be filed by May 12, 2021. (jmdS, COURT STAFF) (Filed on 5/11/2021)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 EAST WEST BANK, 7 Plaintiff, 8 ORDER GRANTING MOTION FOR LEAVE TO FILE AMENDED COMPLAINT v. 9 SUKEERT SHANKER, 10 Re: Dkt. Nos. 33, 34, 38 Defendant. 11 United States District Court Northern District of California Case No. 20-cv-07364-WHO 12 Plaintiff East West Bank (“EWB”) moves for leave to amend its Complaint and add Aeldra 13 14 Financial, Inc. (“Aeldra”) and Does 1–10 as defendants. The named defendant, Sukeert Shanker 15 (“Shanker”), is the founder and Chief Executive Officer of Aeldra. His opposition to the motion is 16 meritless. Pursuant to Civil Local Rule 7-1(b), this matter appropriate for resolution without oral 17 argument. I VACATE the hearing scheduled for May 12, 2021. There is no prejudice, futility of 18 amendment, bad faith, undue delay, or even prior amendment. EWB’s motion is GRANTED. BACKGROUND 19 20 21 I. FACTUAL HISTORY From December 22, 2017 through April 30, 2019, Shanker was employed by EWB as a 22 “Chief Operating Officer—Digital Banking.” Dkt. No. 19-3 (“Compl.”) ¶ 25. At EWB, Shanker 23 was part of the development for the Velo software application (“Velo”), a global digital banking 24 service that, among other things, assists non-U.S. residents with opening bank accounts in the 25 United States. Compl. ¶¶ 12, 27. His employment with EWB terminated on April 30, 2019. 26 Compl. ¶ 25; Dkt. No. 37-2 (“Shanker Decl.”) ¶ 2. 27 28 As part of his employment, Shanker signed a confidentiality agreement. As part of his resignation, he signed a second confidentiality agreement, agreeing not to use any of EWB’s 1 confidential information for any purpose other than for EWB’s benefit. Compl. ¶¶ 26, 29. And 2 around the time of Shanker’s departure, EWB and Shanker entered into a settlement agreement 3 due to a dispute about Shanker’s compensation package (“Settlement Agreement”). Compl. ¶ 30. 4 As part of the Settlement Agreement, Shanker agreed to turn over all property belonging to EWB 5 and release all claims that he may have against EWB. Compl. ¶¶ 31–32. A few months after his departure, Shanker incorporated Aeldra, a mobile banking United States District Court Northern District of California 6 7 platform. Shanker Decl. ¶ 3. EWB alleges that Aeldra purports to allow non-U.S. citizens to open 8 a bank account with a cell phone application, a similar service in direct competition to Velo. 9 Compl. ¶ 40. In July 2020, EWB sent Shanker a letter accusing him of misappropriating its trade 10 secrets. Shanker Decl. ¶ 4. On October 18, 2020, Shanker announced on LinkedIn that he had 11 started a new fintech business called Aeldra. Shanker Decl. ¶ 5. Two days later, EWB filed this 12 lawsuit against Shanker, alleging that Shanker had, among other things, misappropriated EWB’s 13 trade secrets to create Aeldra, a direct competitor to EWB’s mobile banking platform, Velo. 14 Compl. ¶¶ 40–43; Shanker Decl. ¶ 5. On December 10, 2020, Aeldra publicly launched. Dkt. No. 15 34-4 (“Aeldra Press Release”). 16 II. PROCEDURAL HISTORY 17 The October 2020 Complaint asserted five causes of action against Shanker: (i) 18 misappropriation of trade secrets in violation of 18 U.S.C. § 1836; (ii) breach of contract; (iii) 19 breach of the implied covenant of good faith and fair dealing; (iv) breach of fiduciary duty; and (v) 20 violation of California Business & Professions Code § 7200. Although EWB had not named 21 Aeldra as a defendant in the original Complaint, it identified Aeldra as Shanker’s company and 22 claimed that he had misappropriated EWB’s trade secrets to create Aeldra, which allegedly offered 23 a service in direct competition to Velo. See Compl. ¶¶ 40–43. The proposed First Amended 24 Complaint (“FAC”) accompanying this motion asserts the same five causes of action against 25 Shanker but also asserts the first and fifth causes of action against Aeldra and Does 1–10. See 26 Dkt. No. 34-2 (“Proposed FAC”) ¶¶ 46–55; 76–80. 27 28 The parties proposed this case’s pretrial schedule, which I approved. The deadline “to amend/add parties” was April 14, 2021 and fact discovery closes on August 27, 2021. Dkt. No. 26 2 1 (“Pretrial Scheduling Order”). To date, both parties have served their first sets of discovery 2 requests, but no depositions have been taken. Dkt. No. 34-1 (“Kang Decl. ISO Mot.”) ¶¶ 6–7; 3 Dkt. No. 37-1 (“Lawson Decl.”) ¶ 7. In January 2021, EWB propounded its first set of requests 4 for production, interrogatories, and requests for admissions to Shanker, all of which mentioned 5 Aeldra multiple times. See Lawson Decl. ¶¶ 3–5; Dkt. No. 34-5 (“Interrogatories to Shanker”). 6 EWB also issued a third-party subpoena seeking documents from Aeldra and a deposition of an 7 Aeldra corporate representative. Lawson Decl. ¶ 6. Except for one email, EWB asserts that 8 Aeldra has not produced any documents in response to EWB’s subpoena and that Shanker has not 9 produced any Aeldra documents. Dkt. No. 39 (“Reply”) at 5; Dkt. No. 39-1 (“Kang Decl. ISO 10 United States District Court Northern District of California 11 Reply”) ¶¶ 4–5. On March 5, 2021, I granted the withdrawal of EWB’s former counsel and the substitution 12 of EWB’s current counsel. See Dkt. No. 31. On March 25, 2021, EWB and Shanker began to 13 meet and confer about EWB filing this motion for leave to amend. Kang Decl. ISO Mot. ¶¶ 7; 14 Lawson Decl. ¶¶ 8. EWB requested a stipulation to add Aeldra and Does 1–10 as defendants, 15 which Shanker declined unless EWB agreed to voluntarily dismiss the second, third, and fifth 16 causes of action. Kang Decl. ISO Mot. ¶¶ 7–11; Lawson Decl. ¶¶ 8–13. EWB refused and filed 17 this present motion for leave to amend and file the Proposed FAC on April 2, 2021. Three days 18 later, on April 5, 2021, Shanker produced an email, dated May 7, 2020, from Shanker’s Aeldra 19 email account to Aeldra’s Chief Operating Officer (“COO”), Venkat Gopalakrishnan’s email 20 account, concerning the Velo Product Roadmap (“May 7, 2020 Email”). Reply at 1. EWB alleges 21 that the Velo Product Roadmap is EWB’s trade secret and is highly proprietary and confidential 22 information. Id. 23 24 LEGAL STANDARD Federal Rule of Civil Procedure 15(a) allows a party to amend its pleading once within: (1) 25 21 days after serving the pleading or (2) 21 days after the earlier of service of a responsive 26 pleading or service of a Rule 12(b) motion. Fed. R. Civ. P. 15(a). Outside of this timeframe, “a 27 party may amend its pleading only with the opposing party’s written consent or the court’s leave.” 28 Id. A court “should freely give leave when justice so requires.” Id. “Although the rule should be 3 1 interpreted with ‘extreme liberality,’ leave to amend is not to be granted automatically.” Jackson 2 v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990) (citation omitted). A court considers five factors in determining whether to grant leave to amend: “(1) bad 3 4 faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment; and (5) 5 whether plaintiff has previously amended his complaint.” In re Western States Wholesale Nat. 6 Gas Antitrust Litig., 715 F.3d 716, 738 (9th Cir. 2013) (quoting Allen v. City of Beverly Hills, 911 7 F.2d 367, 373 (9th Cir. 1990)). “Prejudice to the opposing party is the most important factor.” 8 Jackson, 902 F.2d at 1387. DISCUSSION 9 10 I. As a preliminary matter, Shanker asserts that I must apply the “good cause” standard of 11 United States District Court Northern District of California MOTION FOR LEAVE TO AMEND 12 Federal Rule of Civil Procedure 16 before the Rule 15(a) analysis because EWB failed to meet the 13 April 14, 2021, deadline to “amend/add parties” and therefore seeks to modify the Pretrial 14 Scheduling Order. Dkt. No. 37 (“Opp.”) at 5; see Fed. R. Civ. P. 16 (“A schedule may be 15 modified only for good cause and with the judge's consent.”). He is wrong. By timely filing a 16 motion for leave to amend on April 2, 2021, EWB has complied with the Pretrial Scheduling 17 Order. Rule 16 does not apply, and I will examine whether EWB’s motion is proper under Rule 18 15(a). 19 EWB and Shanker dispute four out of the five factors—Shanker concedes that this is 20 EWB’s first amendment, which weighs in favor of granting EWB’s motion for leave to amend. 21 See Opp. at 7, 14. I will address the others, none of which favors Shanker. 22 A. 23 Shanker asserts that amendment would be prejudicial because it will deprive Aeldra of a Prejudice to Shanker 24 meaningful opportunity for discovery unless the parties modify the Pretrial Scheduling Order, 25 which will cause additional delay. Opp. at 11–12. “In order to overcome Rule 15(a)'s liberal 26 policy with respect to the amendment of pleadings, the party objecting to leave to amend must 27 establish substantial prejudice. Neither delay resulting from the proposed amendment nor the 28 prospect of additional discovery needed by the non-moving party in itself constitutes a sufficient 4 1 showing of prejudice.” Adams v. Kraft, No. 10-CV-00602-LHK, 2010 WL 4939440, at *4 (N.D. 2 Cal. Nov. 30, 2010) (citation omitted). Shanker’s assertion that Aeldra will have no meaningful opportunity to obtain discovery of United States District Court Northern District of California 3 4 its own from EWB is unpersuasive. See Opp. at 12. Discovery is in the early stages; there are 5 approximately four and a half months until the close of fact discovery on August 27, 2021. Dkt. 6 No. 34 (“Mot.”) at 7. Both parties have only served their first sets of discovery requests and no 7 depositions have been taken. Kang Decl. ISO Mot. ¶¶ 6–7; Lawson Decl. ¶ 7.1 EWB points out 8 that Shanker and Aeldra had notice of potential claims because the Complaint had referred to 9 Aeldra and EWB had issued a subpoena to Aeldra. Mot. at 7–8. Shanker responds that Aeldra is 10 a “separate entity with separate interests” and “has had no opportunity yet to obtain discovery of 11 its own” from EWB. Opp. at 12. That said, if Aeldra seeks further discovery from EWB then it 12 can do so with more than four months until the close of fact discovery. The interests of Shanker and Aeldra obviously overlap. As Shanker concedes, the only 13 14 material change in the amendment is the addition of the new defendants. Opp. at 11. This is not a 15 case where there would be “substantial prejudice” because the “amendment would create a need to 16 reopen discovery” or “would greatly alter the nature of the litigation at a late hour in the case.” 17 Adams, 2010 WL 4939440, at *4. There is no prejudice to Shanker from EWB’s amendment. 18 B. 19 Next, Shanker contends that EWB’s amendment is futile because (i) EWB’s third, fourth, Futility 20 and fifth causes of actions are allegedly preempted by the California Uniform Trade Secrets Act 21 (“CUTSA”); and (ii) EWB’s third cause of action for the breach of the implied covenant of good 22 faith and fair dealing is superfluous in light of the second cause of action for breach of contract. 23 Opp. at 12–14. This is EWB’s first amendment, there has been no prior motion to dismiss, and the 24 claims are not frivolous on their face. 25 Shanker’s challenges to the legal sufficiency of EWB’s Proposed FAC should be brought 26 27 28 1 Moreover, the parties asked for an unusually long time between the close of fact discovery and the trial (May 2, 2022). The case schedule could be easily adjusted if necessary without delaying the trial. 5 United States District Court Northern District of California 1 in a motion to dismiss. Courts in this district have held that “such issues are often more 2 appropriately raised in a motion to dismiss rather than in an opposition to a motion for leave to 3 amend.” Adams, 2010 WL 4939440, at *4 (citation omitted); see also dpiX LLC v. Yieldboost 4 Tech, Inc., No. 14-CV-05382-JST, 2015 WL 5158534, at *3–*4 (N.D. Cal. Sept. 2, 2015) (noting 5 that the “general rule” is that the “merits or facts of a controversy are not properly decided in a 6 motion for leave to amend and should instead be attacked by a motion to dismiss for failure to 7 state a claim or for summary judgment.”). EWB’s amendment is not futile. 8 C. 9 Shanker argues that EWB filed the motion for leave to amend in bad faith because (i) EWB Bad Faith 10 is seeking leave after claiming that it did not intend to amend its pleadings in January 2021; (ii) it 11 seeks to file a Complaint that it knows is legally infirm; and (iii) it inexplicably waited six months 12 since filing the original Complaint to add Aeldra as a defendant. Opp. at 7–9. 13 The delay between filing the Complaint and filing this present motion does not constitute 14 bad faith. EWB concedes that it knew Shanker had created Aeldra when it filed the original 15 Complaint but contends that it could not add Aeldra as a defendant at the time because “there was 16 no actual Aeldra product in existence or on the market.” Reply at 7; see Mot. at 3. EWB contends 17 that it received notice that Aeldra had publicly launched in December 2020 through a press release 18 and therefore, there was only a four-month delay. Reply at 7–8. 19 20 21 Shanker argues that EWB cannot use “Aeldra’s existence at the time Plaintiff filed its Complaint as a sword against Aeldra, to argue that it is not prejudiced by Plaintiff’s untimely request to amend its complaint, but also as a shield, to argue that Aeldra could not have been 22 added earlier because it had not yet been ‘launched.’” Opp. at 9. I disagree. These are not 23 mutually exclusive arguments. The Complaint’s reference to Aeldra does not mean that EWB 24 knew that Aeldra was using EWB’s proprietary material at the time. See Mot. at 3; Part I.A. 25 EWB asserts that it “could not reasonably assess whether Aeldra used EWB’s trade secrets and 26 27 proprietary information at the time the original Complaint was filed” because the actual product did not exist. Reply at 5–6. It argues that it “only recently obtained evidence, through discovery, 28 6 1 proving that both Shanker and Aeldra used EWB’s proprietary materials” because Shanker had 2 repeatedly represented that neither he nor Aeldra had used any of EWB’s proprietary materials. 3 Reply at 6 (referring to the May 7, 2020 Email, which Shanker produced on April 5, 2021. 4 EWB has “offered a satisfactory explanation for its delay” in naming Aeldra as a 5 defendant: it had “waited until [it] had sufficient evidence of conduct upon which [it] could base 6 claims of wrongful conduct.” See DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 7 1987).2 Its amendment is not made in bad faith. 8 D. United States District Court Northern District of California 9 Undue Delay Finally, Shanker asserts that EWB has unduly delayed moving for leave to amend because 10 EWB’s motion is untimely under the Pretrial Scheduling Order and EWB knew or should have 11 known to add Aeldra in the original Complaint. Opp. at 9–12. Under Ninth Circuit precedent, “in 12 evaluating undue delay” courts inquire “whether the moving party knew or should have known the 13 facts and theories raised by the amendment in the original pleading.” AmerisouceBergen Corp. v. 14 15 16 Dialysist, Inc., 465 F.3d 946, 953 (9th Cir. 2006) (finding that a delay of fifteen months constituted undue delay and noting that the Ninth Circuit had previously held that an eight-month delay was unreasonable). 17 18 19 20 In the present case, EWB’s motion was timely under the Pretrial Scheduling Order; EWB only waited four months to move for leave to amend, not eight months as Shanker asserts. See Part I.A; Opp. at 9–10. Shanker does not provide any authority that concludes that a four-month delay is unreasonable. EWB also has a sufficient and plausible explanation for the delay—it was 21 only after Aeldra’s public launch and discovery began when EWB had the requisite evidence to 22 prove that Aeldra also misappropriated EWB’s trade secrets. See Part I.C. 23 The Ninth Circuit has held that “delay alone is not sufficient to justify the denial of a 24 motion requesting leave to amend.” DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 25 26 27 28 2 EWB decided to amend its Complaint approximately three weeks after substituting its counsel, which also weighs against finding bad faith. See Dkt. No. 31; see also Naranjo v. Bank of Am. Nat'l Ass'n, No. 14-CV-02748-LHK, 2015 WL 913031, at *6 (N.D. Cal. Feb. 27, 2015) (holding that substitution of counsel was a plausible explanation for the delay and refuted, among other things, a finding of bad faith). 7 United States District Court Northern District of California 1 1987). As discussed above, Shanker has “not established that allowing leave to amend at this 2 point amounts to substantial prejudice. The case is still at an early stage . . . and discovery has not 3 yet closed. Moreover, this is Plaintiff's first attempt at amending his complaint.” Adams, 2010 4 WL 4939440, at *4. “[N]o other factor has been met, therefore even if undue delay was shown, it 5 would not justify denying leave to amend.” Kendrick v. Cty. of San Diego, 2017 WL 2692903, at 6 *6 (S.D. Cal. June 22, 2017). Accordingly, all five factors weigh in favor of granting EWB’s 7 motion for leave to amend. 8 E. 9 Shanker also argues that the addition of the Doe defendants is improper. Opp. at 11 n. 1. Doe Defendants 10 Generally, a “Doe pleading” is disfavored in federal court. However, “situations arise, such as the 11 present, where the identity of alleged defendants will not be known prior to the filing of a 12 complaint. In such circumstances, the plaintiff should be given an opportunity through discovery 13 to identify the unknown defendants, unless it is clear that discovery would not uncover the 14 identities, or that the complaint would be dismissed on other grounds.” Gillespie v. Civiletti, 629 15 F.2d 637, 642 (9th Cir. 1980). Shanker’s argument would be more persuasive if discovery was proceeding smoothly.3 It 16 17 is not. For example, EWB asserts that it only recently became aware that Shanker disclosed 18 EWB’s trade secrets to Aeldra’s COO, Venkat Gopalakrishnan, through discovery. Reply at 6, 11. 19 In addition, EWB has claimed that Aeldra has not produced any documents in response to EWB’s 20 subpoena and Shanker has not produced any Aeldra documents, except for the May 7, 2020 Email. 21 Reply at 5; Kang Decl. ISO Reply ¶¶ 4–5. EWB argues that it does not know the identity of all the defendants that acted in concert 22 23 with Shanker to unlawfully use EWB’s trade secrets, but that discovery will likely reveal the 24 identities, if any. Reply at 11. Because further discovery may reveal whether additional parties 25 have misappropriated EWB’s trade secrets, e.g., Aeldra’s employees, EWB’s motion to add Does 26 1–10 as defendants is proper. Accordingly, EWB’s motion for leave to amend is GRANTED. 27 28 3 Throughout the briefing, both parties refer to various discovery disputes. The parties are reminded of the procedure in my Standing Order for Civil Cases if they have reached an impasse. 8 1 That said, EWB should determine expeditiously whether to add any other defendant to the 2 litigation, because that may well affect the case schedule and implicate prejudice concerns. 3 II. United States District Court Northern District of California 4 MOTIONS TO SEAL Under Ninth Circuit law a party must demonstrate “compelling reasons” to seal any 5 motion-related filings where “the motion at issue is more than tangentially related to the 6 underlying cause of action.” Ctr. for Auto Safety v. Chrysler Grp., 809 F.3d 1092, 1096–99 (9th 7 Cir. 2016). Here, the relevant motion is a motion for leave to amend the Complaint, which is 8 “more than tangentially related to the underlying cause of action.” Id. Accordingly, the 9 “compelling reasons” standard applies. What constitutes a compelling reason is “left to the sound 10 discretion of the trial court.” Nixon v. Warner Commnc’ns, Inc., 435 U.S. 589, 599 (1978). 11 However, the Ninth Circuit has highlighted that examples include “the use of records to gratify 12 private spite, promote public scandal, circulate libelous statements, or release trade secrets.” 13 Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006). 14 EWB has filed two motions to seal. See Dkt. Nos. 33; 38. The first motion (Dkt. No. 33), 15 which concerns the sealing of specific financial information disclosed in the Settlement 16 Agreement, is GRANTED because I had sealed the same information in a prior order. See Dkt. 17 No. 20. The second motion (Dkt. No. 38), which concerns the sealing of the document titled, 18 “20180611_VeloProduct Roadmap_V6.xlsx” (“Velo Roadmap”) attached to Exhibit 1 to the 19 Reply Declaration of Grace W. Kang, is GRANTED. EWB has sufficiently shown that the 20 document at issue contains EWB’s commercially sensitive information. The Velo Roadmap 21 “provides a detailed master plan for the strategies, priorities, and direction of the Velo platform” 22 and “discloses the features, components, third party integrations, and third party vendors of the 23 Velo Platform.” Dkt. No. 38-1 (“Chatterjee Decl.”) ¶ 6. The Velo Roadmap “incorporates 24 revisions based on internal team and inter-departmental feedback and analysis, research and 25 development, additional details, changes in competitive landscape, and corporate strategies” and 26 EWB “has not publicly disclosed or published the Velo Roadmap because EWB considers this 27 document to be highly proprietary.” Id. ¶¶ 7, 9. Accordingly, both of EWB’s administrative 28 motions to file under seal are GRANTED. See Dkt. Nos. 33, 38. 9 CONCLUSION 1 2 3 For the reasons stated above, EWB’s motion for leave to amend the Complaint is GRANTED. It shall file the First Amended Complaint by May 12, 2021. 4 5 6 IT IS SO ORDERED. Dated: May 11, 2021 7 8 William H. Orrick United States District Judge 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10
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