HP Tuners, LLC v. Cannata

• Court: District Court, D. Nevada
• Decided: August 15, 2019
• Docket: 3:18-cv-00527
• Status: Unknown

Opinion

1 2 3 4 5 6 UNITED STATES DISTRICT COURT

7 DISTRICT OF NEVADA

8 * * * 9 HP TUNERS, LLC, Case No. 3:18-cv-00527-LRH-WGC

10 Plaintiff, ORDER

11 v.

12 KENNETH CANNATA,

13 Defendant.

14 15 16 Defendant Kenneth Cannata has filed a motion to dismiss all but one of the causes of action 17 of plaintiff HP Tuners, LLC (“HPT”). (ECF No. 10). HPT responded (ECF No. 14), and Cannata 18 timely replied (ECF No. 15). Following the close of briefing, HPT filed a motion requesting 19 permission to file a supplemental brief in opposition to Cannata’s motion to dismiss. (ECF No. 20 31). For the reasons stated below, the Court grants HPT’s motion to file a supplemental brief and 21 denies Cannata’s motion to dismiss. 22 I. Factual Background and Procedural History 23 The following facts are adduced from HPT’s complaint and are presumed to be true for the 24 purpose of this order. HPT was founded by Keith Prociuk, Chris Piastri, and Cannata on December 25 31, 2003, with its principal place of business in Buffalo Grove, Illinois. (ECF No. 1 at 4). Each 26 man had a one-third ownership interest in HPT pursuant to the operating agreement signed on 27 March 25, 2004. (Id.) HPT describes itself as a “niche” business that provides “cost-effective 1 shops. (Id.) HPT designs and manufactures computer hardware and software for tuning and 2 calibrating engines and transmissions in automobiles, trucks, ATVs, snowmobiles, and other 3 vehicles. (Id.) A “core function” of the business is selling interfaces, such as the MPVI, which 4 connect to the onboard computer of a vehicle and allow for individuals to use the HPT software 5 and tune their vehicle. (Id.) Another “core function” of HPT is the selling of “credits,” which HPT 6 describes as the license mechanism that customers use to tune their vehicles. (Id.) HPT safeguards 7 its confidential and proprietary information through the usage of computer passwords, hard drive 8 encryption, firewalls, and rules preventing company employees from copying or transferring any 9 of the information. (Id. at 6). 10 In January 2016, Prociuk and Piastri began to explore ways to remove Cannata from HPT 11 after having become dissatisfied with his conduct and job performance. (ECF No. 1 at 7). They 12 began to negotiate Cannata’s exit from the company with him with the idea that they would buy 13 out his share of the company. (Id.) After months of negotiations, Prociuk and Piastri agreed to 14 purchase Cannata’s stake in the company on October 20, 2016. (Id. at 10). Pursuant to the purchase 15 agreement, HPT paid Cannata $6.8 million for his stake in the company, and in return, Cannata 16 agreed to several restrictive covenants. (Id.) These covenants included returning all of HPT’s 17 proprietary and confidential information to HPT and destroying any related information he had in 18 his possession, a prohibition on disclosing any confidential information to any third parties, and a 19 non-compete clause. (Id. at 10– 12). 20 Unbeknownst to Prociuk and Piastri, Cannata began to work with a rival of HPT while he 21 was negotiating his exit from the company. On March 11, 2016, Cannata entered into an NDA 22 with Syked ECU Tuning, Inc. (“Syked”), a direct competitor to HPT. (ECF No. 1 at 7). Also in 23 early 2016, Cannata provided Kevin Sykes-Bonnett, one of the owners of Syked, with a flash drive 24 containing HPT’s confidential and proprietary information. (Id. at 7). Data on that flash drive 25 included firmware source code for the MPVI interface and VCM Suite software, both of which 26 HPT considers to be confidential information. (Id. at 8–9). Cannata also provided Sykes-Bonnett 27 with HPT’s key generator program, which allowed Sykes-Bonnett to generate application keys 1 (Id. at 9). Essentially, Cannata gave Sykes-Bonnett the technology to sell keys to individuals to 2 enable them to use HPT’s products, whereas ordinarily those individuals could only purchase them 3 directly from HPT. HPT has also alleged that less than three months after executing the purchase 4 agreement, Cannata’s wife obtained an ownership interest in Syked in January 2017. (Id. at 13). 5 HPT first learned of Cannata’s actions in August 2018 and filed this lawsuit thereafter, 6 alleging several causes of actions: (1) breach of a fiduciary duty; (2) fraud; (3) violation of the 7 Computer Fraud and Abuse Act (18 U.S.C. §1030); (4) violation of the Defendant Trade Secrets 8 Act (18 U.S.C. §1836); (5) violation of the Copyright Act (17 U.S.C. §1201(A)(1)(A)); (6) a 9 violation of the Nevada Uniform Trade Secrets Act; (7) a violation of the Illinois Trade Secrets 10 Act; (8) unfair competition under the Nevada Deceptive Trade Practices Act; (9) unfair 11 competition under the Illinois Consumer Fraud and Deceptive Business Practices Act; (10) 12 common law breach of contract; (11) tortious interference with prospective contractual or 13 economic relations, and (12) conversion. Before the Court is Cannata’s motion to dismiss all of 14 HPT’s claims except its claim for breach of contract (ECF No. 10) and HPT’s motion to file a 15 supplemental brief (ECF No. 31). 16 II. Legal Standard 17 Cannata seeks dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to 18 state a claim upon which relief can be granted. To survive a motion to dismiss for failure to state 19 a claim, a complaint must satisfy Federal Rule of Civil Procedure 8(a)(2)’s notice pleading 20 standard. See Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir. 2008). That 21 is, a complaint must contain “a short and plain statement of the claim showing that the pleader is 22 entitled to relief.” Fed. R. Civ. P. 8(a)(2). The Rule 8(a)(2) pleading standard does not require 23 detailed factual allegations; a pleading, however, that offers “ ‘labels and conclusions’ or ‘a 24 formulaic recitation of the elements of a cause of action’ ” will not suffice. Ashcroft v. Iqbal, 556 25 U.S. 662, 677 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 26 Furthermore, Rule 8(a)(2) requires a complaint to “contain sufficient factual matter, 27 accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 667 1 content allows the court to draw the reasonable inference, based on the court’s judicial experience 2 and common sense, that the defendant is liable for the misconduct alleged. Id. “The plausibility 3 standard is not akin to a probability requirement, but it asks for more than a sheer possibility that 4 a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with 5 a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement 6 to relief. Id. 7 In reviewing a motion to dismiss, the court accepts the facts alleged in the complaint as 8 true. Iqbal, 556 U.S. at 667. Even so, “bare assertions. . .amount[ing] to nothing more than a 9 formulaic recitation of the elements of a. . .claim. . .are not entitled to an assumption of truth.” 10 Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 556 U.S. at 681) 11 (brackets in original) (internal quotation marks omitted). The court discounts these allegations 12 because “they do nothing more than state a legal conclusion—even if that conclusion is cast in the 13 form of a factual allegation.” Id. (citing Iqbal, 556 U.S. at 681.) “In sum, for a complaint to survive 14 a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that 15 content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Id. 16 III. Discussion 17 A. HPT’s Motion to File Supplemental Brief 18 Following the close of briefing, HPT submitted a motion requesting permission to file a 19 supplemental brief in opposition to Cannata’s motion to dismiss. (ECF No. 31). The substance of 20 the brief is essentially that discovery in this case has revealed that Cannata used a secret email 21 address during his negotiations with Prociuk and Piastri to communicate confidential HPT 22 information to Sykes-Bonnett. (Id. at 2). Cannata did not file a response to HPT’s motion. Pursuant 23 to Local Rule 7.2(d), the failure of a party to file points and authorities in response to any motion, 24 except for a motion for summary judgment or attorney’s fees, constitutes consent to the granting 25 of the motion. Accordingly, the Court will grant HPT’s motion to supplement. HPT has also filed 26 a motion to seal an attachment to its motion to supplement. (ECF No. 33). Cannata did not file a 27 1 response to that motion either, so pursuant to Local Rule 7.2(d), the Court will grant that motion 2 as well.1 3 B. Choice of Law 4 In its response to Cannata’s motion to dismiss, HPT raises the issue of what law should 5 govern each claim within its complaint. HPT argues that for its first two fiduciary duty-related 6 claims (breach of a fiduciary duty and fraud), Nevada law should apply. (ECF No. 14 at 13–15). 7 As for the remainder of its claims premised on validity of a release clause contained within the 8 purchase agreement, HPT argues that Illinois law should govern with respect to the state law causes 9 of action and “federal common law” should govern with respect to the federal causes of action. 10 (Id. at 15). Cannata agrees that HPT’s first two fiduciary-related claims should be governed under 11 Nevada law (ECF No. 10 at 2), but it also asserts that Nevada law should also apply to the rest of 12 HPT’s causes of action (Id. at 19). 13 As to HPT’s first claim for breach of a fiduciary duty, the Court will apply Nevada law. In 14 a federal question action where the federal court is exercising supplemental jurisdiction over state 15 law claims (such as the fiduciary claims here), the federal court applies the choice of law rules of 16 the forum state. Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996). 17 Nevada generally follows the Restatement (Second) of Conflict of Laws to resolve choice of law 18 questions involving contracts. Progressive Gulf Ins. Co. v. Faehnrich, 327 P.3d 1061, 1063 (Nev. 19 2014). §309 of the Restatement states that the “local law of the state of incorporation will be 20 applied to determine the existence and extent of a director’s or officer’s liability to the 21 corporation…except where, with respect to the particular issue, some other state has a more 22 significant relationship…to the parties and the transaction, in which event the local law of the other 23 state will be applied.” RESTATEMENT (SECOND) OF CONFLICTS OF LAW §309. Nevada also 24 recognizes the “internal affairs doctrine,” which provides that the law of the state of incorporation 25 governs liabilities of officers or directors to the corporation and its shareholders. In re Sagent

26 1 Also pending before the Court is HPT’s motion to seal its motion for a temporary restraining order and 27 preliminary injunction. (ECF No. 23). The Court granted HPT’s request for a temporary restraining order on April 24, 2019, and the parties subsequently entered a stipulation for a preliminary injunction the 1 Technology, Inc., Derivative Litigation, 278 F.Supp.2d 1079, 1086 (N.D. Cal. 2003) (citing Shaffer 2 v. Heitner, 433 U.S. 186, 215 (1977)); NEV. REV. STAT. §78.012. HPT is a limited liability 3 company incorporated in Nevada with a principal place of business in Illinois, so therefore, based 4 on §309 and the internal affairs doctrine, Nevada law governs the fiduciary claim. 5 As to the second claim for fraud, the Court finds that Illinois law governs. The “Fraud and 6 Misrepresentation” section of the Second Restatement of Conflicts of Law states that “when the 7 plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false 8 representations and when the plaintiff’s action in reliance took place in the state where the false 9 representations were made and received, the local law of this state determines the rights and 10 liabilities of the parties,” unless another state has more significant relationship to the action and 11 parties. RESTATEMENT (SECOND) OF CONFLICTS OF LAW §148. As HPT states within its response 12 to Cannata’s motion, not only does HPT have its principal place of business in Illinois, but it is the 13 state where Cannata allegedly committed the fraud, where HPT suffered its injury, and where it 14 continues to suffer from the injury. (ECF No. 14 at 14). The fact that the material 15 misrepresentations were allegedly made solely in Illinois points to that state having a much 16 stronger connection to this claim than Nevada. As such, Illinois law will apply to HPT’s second 17 cause of action for fraud. 18 Turning to the claims premised on the release within the purchase agreement (all claims 19 other than 1, 2, and 10), the Court finds that Illinois law governs the non-federal claims. Within 20 the purchase agreement, the parties included a choice of law provision providing that Illinois law 21 would govern the contract. (ECF No. 1-2 at 29). So long as the parties “acted in good faith and not 22 to evade the law of the real situs of the contract,” Nevada allows parties “within broad limits to 23 choose the law that will determine the validity and effect of their contract.” Id. at 1064 (quoting 24 Ferdie Sievers & Lake Tahoe Land Co. v. Diversified Mortgage Investors, 603 P.2d 270, 273 (Nev. 25 1979)). Considering that the purchase agreement was signed in Illinois involving an Illinois 26 company and the fact that Cannata has not put forward any argument demonstrating that the 27 provision is somehow invalid, the Court sees no reason not to honor the choice of law provision 1 governs, especially when there is a question of whether a plaintiff has voluntarily waived those 2 claims. U.S. v. Northrop Corp., 59 F.3d 953, 960 (9th Cir. 1995). 3 C. Cannata’s Motion to Dismiss 4 1. Fiduciary Claim (Claim 1) 5 Cannata requests dismissal of HPT’s first claim for breach of a fiduciary duty because 6 under Nevada law, there is no fiduciary duty imposed by statute or common law on members of 7 LLCs. (ECF No. 10 at 6). And because no language within HPT’s operating agreement imposed 8 any fiduciary duties on its members, Cannata cannot be held liable for any alleged breach of said 9 duties. (Id. at 7–8). On the other hand, HPT argues that language in the operating agreement 10 instructing the members and managers to act “for [HPT’s] benefit” and “assist [HPT] in every 11 way” imposed fiduciary duties on Cannata and the other members of the company. (ECF No. 14 12 at 3; ECF No. 1-1 at 5).2 13 Under Nevada law, a member or manager of an LLC will be liable for breach of a fiduciary 14 duty when: (1) a fiduciary duty exists; (2) the duty is breached, and (3) the breach proximately 15 caused the damages alleged. Klein v. Freedom Strategic Partners, LLC, 595 F.Supp.2d 1152, 1162 16 (D. Nev. 2009). Unlike many states, Nevada does not impose any statutory fiduciary duties on 17 members of LLCs. In re Plyam, 530 B.R. 456, 472 (9th Cir. B.A.P. 2015) (“Unlike California, 18 Nevada does not have a statute equating the fiduciary duties of a manager in a limited liability 19 company context to those of a partner in a partnership.”). Instead, Nevada allows the members of 20 LLCs to decide whether to impose fiduciary duties on themselves through their operating 21 agreement. JPMorgan Chase Bank, N.A. v. KB Home, 632 F.Supp.2d 1013, 1025–26 (D. Nev. 22 2009); NEV. REV. STAT. §86.286. This could be by express language in the operating agreement or 23 through language that has a similar effect. In Nevada, a “fiduciary relationship is deemed to exist 24 when one party is bound to act for the benefit of the other party. Such a relationship imposes a

25 2 As a general rule, a district court cannot consider any material beyond the pleadings in ruling on a 12(b)(6) motion to dismiss. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). The Court may, however, 26 consider material “properly submitted as part of the complaint” on a motion to dismiss without converting 27 it into a motion for summary judgment. Id. Here, HPT attached both the operating agreement and purchase agreement to the complaint against Cannata. (ECF Nos. 1-1, 1-2, 1-3). The Court can therefore consider 1 duty of utmost good faith.” Giles v. General Motors Acceptance Corp., 494 F.3d 865, 880–81 (9th 2 Cir. 2007) (quoting Hoopes v. Hammargren, 725 P.2d 238, 242 (Nev. 1986)). Thus, if Cannata 3 owed any fiduciary duty to HPT, such a duty must be stated within the operating agreement. 4 After reviewing the operating agreement and relevant caselaw, the Court finds that the 5 operating agreement imposed a fiduciary duty upon its members. The operating agreement states, 6 in relevant part, as follows: Each member hereby agrees to assist [HPT] in any reasonable manner to obtain for 7 [HPT’s] benefit legal protection for the [intellectual property] and will execute, when requested, any lawful documents deemed necessary by [HPT] to carry out the 8 purposes of the [intellectual property] assignment. Each member will further assist 9 [HPT] in every way to enforce its rights in the [intellectual property], testifying in any suit or proceeding involving any of the [intellectual property] or by executing 10 any documents deemed necessary by [HPT] 11 (ECF No. 1-1 at 5). The operating agreement mandated that each member was required to assist 12 the company “in every way” in protecting its intellectual property rights, which is the most 13 important commodity HPT has. (ECF no. 1 at 5–6). The Court interprets this language as imposing 14 the fiduciary duty of good faith on the members of HPT because they are tasked with doing 15 whatever is necessary to protect HPT’s intellectual property rights. A member bound by the duty 16 of good faith would violate that duty if he, for instance, gave important property belonging to the 17 LLC to another entity without the LLC’s knowledge or consent. Here, HPT has alleged that 18 Cannata transferred HPT’s intellectual property to Syked and Sykes-Bonnett without HPT’s 19 permission which, if true, would be a violation of the duty of good faith he owed to HPT. (ECF 20 No 1 at 7–8). Therefore, the Court will not dismiss this claim. 21 2. Fraud Claim (Claim 2) 22 Relatedly, Cannata also requests dismissal of HPT’s second claim for common law fraud. 23 Based on the parties’ briefing and the allegations contained under HPT’s claim for fraud, the Court 24 will construe HPT’s second claim as one for fraudulent concealment. To be successful under 25 Illinois law for a claim of fraudulent concealment, a plaintiff must demonstrate: (1) the defendant 26 concealed a material fact under circumstances that created a duty to disclose; (2) the defendant 27 intended to induce a false belief; (3) the plaintiff could not have discovered the truth through 1 and justifiably relied upon the defendant’s silence as a representation that the fact did not exist; (4) 2 the concealed information was such that the plaintiff would have acted differently had he or she 3 been aware of it, and (5) the plaintiff’s reliance resulted in damages. Abazari v. Rosalind Franklin 4 University of Medicine and Science, 40 N.E.3d 264, 274 (Ill. App. 2015).3 The information at issue 5 must relate to an existing or past state of affairs – “projections of future events” generally cannot 6 support a claim of fraud. Id. A party has a duty to disclose material facts to another when a fiduciary 7 relationship exists between them. Linkepic Inc. v. Vyasil, LLC, 370 F.Supp.3d 906, 917 (N.D. Ill. 8 2019). 9 Here, HPT has alleged that while Cannata was negotiating his buyout from the company, 10 he was secretly providing third parties with HPT’s confidential and proprietary intellectual 11 property along with helping those third parties develop similar technology. (ECF No. 1 at 16). If 12 true, this would certainly constitute a fact material to the buyout negotiations. Cannata was under 13 a duty to disclose any material facts to HPT because, as the Court found in the previous section, 14 he owed HPT a fiduciary duty to act in good faith by way of the operating agreement. The facts 15 alleged also sufficiently demonstrate that Cannata intentionally withheld this information from 16 HPT to negotiate a better purchase price; had he not concealed these facts, HPT asserts, it would 17 not have paid him the amount it did for his share in the company. (Id. at 16–17). Finally, HPT has 18 alleged that it had no reason to believe Cannata was double-dealing, and based on the facts within 19 the complaint, there was no way for it to know of his connection to Syked or Sykes-Bonnett. (Id. 20 at 17). The allegations within the complaint are sufficient to meet the pleading standards and put 21 Cannata on notice of the claim against him, and the Court will accordingly deny his motion to 22 dismiss on this ground. 23 /// 24 3 The parties briefed this issue under the assumption that Nevada law would govern. This is a non-issue 25 here because the elements for fraudulent concealment under Nevada law are essentially identical to the requirements in Illinois: (1) the defendant concealed or suppressed a material fact; (2) the defendant was 26 under a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed or suppressed the 27 fact with the intent to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would have acted differently if she had known of the concealed or suppressed fact; and (5) the plaintiff sustained damages as 1 3. Waiver in the Purchase Agreement 2 Cannata finally requests dismissal of nearly all of HPT’s remaining claims,4 arguing that 3 as a condition of the purchase agreement, HPT waived any potential legal claims that it may have 4 had against him. Specifically, Cannata relies on §7.1(b) of the purchase agreement, which 5 provides:

6 Company Release. From and after the Closing, [HPT] shall release and forever discharge, and shall cause each of its Affiliates, successors, and assigns 7 (collectively with [HPT], the “Company Releasors”) to release and forever discharge [Cannata] and its Affiliates, agents, representatives, successors, and 8 assigns from any and all claims, obligations, liabilities, and cause of action of any kind (whether at law or in equity and including claims in tort or for breach of 9 contract or breach of warranty), known or unknown fixed or contingent, that any of the Company Releasors previously had or may have had, now has or may have, or 10 may in the future have that in any way arises out of or relates to (i) the formation documents, operating agreement, limited liability company agreement or similar 11 agreement or other governance documents of [HPT] applicable to [Cannata] or (ii) the Purchased Interest (collectively, the “Company Released Claims”) provided, 12 however the Company Released Claims shall exclude claims arising out of fraud or willful misrepresentation, or claims arising as a result or any breach of this 13 Agreement. [HPT] herby represents and warrants to [Cannata] that none of the Company Released Claims have been assigned or otherwise transferred to any third 14 party. 15 (ECF No. 1-2 at 17–18) (emphasis in original). Cannata argues that this broad waiver precludes 16 most of HPT’s claims because “none of the remaining claims [are] based on fraud, intentional 17 misrepresentation, and or breach of the Purchase Agreement.” (ECF No. 10 at 19). In response, 18 HPT accuses Cannata of fraudulent conduct, arguing that such conduct is expressly excluded from 19 the general release contained within the purchase agreement. HPT emphasizes the following 20 language from §7.1(b) of the purchase agreement: “[t]he Company Released Claims shall exclude 21 claims arising out of fraud or willful misrepresentation, or claims arising as a result of any breach 22 of this agreement.” (ECF No. 1-2 at 18; ECF No. 14 at 5). HPT further argues that because Cannata 23 breached his contractual duties under the purchase agreement,5 all claims arising from breaches of 24 that agreement are related to Cannata’s fraud and that the exception in the release makes the release 25

4 Specifically, these are HPT’s third, fourth, fifth, sixth, seventh, eighth, ninth, eleventh, and twelfth claims 26 for relief. 27 5 HPT alleges that Cannata breached §6.1(c) of the purchase agreement, which provided that Cannata would “permanently expunge” from his computer devices “all information containing or reflecting any Intellectual 1 inapplicable to all other claims in this case. (ECF No. 14 at 6). The Court will address the release 2 issue separately for both the federal and state law claims implicated. 3 i. Federal Claims 4 "The interpretation and validity of a [waiver] of [federal claims] is governed by federal 5 law." Stroman v. West Coast Grocery Co., 884 F.2d 458, 461 (9th Cir. 1989) (citations omitted). 6 The Ninth Circuit has determined that enforceable releases of legal claims must be the product of 7 a “voluntary, deliberate, and informed” waiver. Nilsson v. City of Mesa, 503 F.3d 947, 952 (9th 8 Cir. 2007) (quoting Stroman, 884 F.2d at 462). The determination of whether a waiver is 9 “voluntary, deliberate, and informed” is predicated upon an evaluation of the totality of the 10 circumstances surrounding the signing of the waiver. Id. Furthermore, it is a well-established 11 principal of contract law that courts will not enforce a contract, such as a release, that is the product 12 of a material mistake, fraud, or deceit. Morta v. Korea Ins. Corp., 840 F 2d 1452, 1456 (9th Cir. 13 1988). 14 HTP has alleged that Cannata wrongfully shared, provided, and disseminated its most 15 valuable intellection property to a direct competitor. (ECF No. 1 at 1). HPT further alleges that 16 while negotiating a purchase for his membership interest in HPT, Cannata actively concealed and 17 failed to disclose that he was sharing HPT’s intellectual property and exploring a business 18 opportunity with a competitor. (Id. at 7). HTP also alleges that “but for [Cannata’s] fraud and 19 concealment…HPT would not have agreed to purchase [Cannata’s] membership for more than the 20 book value of [his] one-third interest.” (Id. at 2). HTP correspondingly alleges that Cannata 21 materially breached the provisions of the purchase agreement by continuing to possess and 22 misappropriate HPT’s confidential and proprietary intellectual. (Id. at 3). Specifically, HPT 23 alleges, in detail, that Cannata breached various restrictive covenants contained in the purchase 24 agreement including his agreement to return or destroy all of HPT’s proprietary or confidential 25 information, the confidentiality agreement, the non-competition agreement, and the non- 26 solicitation agreement. (Id. at 10–14; ECF No. 1-2 at 15–17). These allegations plausibly suggest 27 that while Cannata was negotiating and executing an agreement promising to not engage in certain 1 alleged behavior falls squarely within federal law’s exception for the enforceability of waivers, as 2 it cannot be said that HPT’s waiver was voluntary when it was unaware of the full extent of 3 Cannata’s actions. The Court will deny the motion to dismiss as to the federal law claims. 4 ii. State Law Claims 5 As discussed in the Court’s choice of law analysis, the Court will apply Illinois law for the 6 non-federal claims. “Under Illinois law, a release will not be construed to defeat a valid claim that 7 was not contemplated by the parties at the time the agreement was executed, and general words of 8 release are inapplicable to claims that were unknown to the releasing party.” Constr. Sys., Inc. v. 9 FagelHaber, LLC, 35 N.E.3d 1224, 1252 (Ill. App. 2015) (citing Farm Bank of St. Louis v. 10 Whitlock, 581 N.E.2d 664 (Ill. 1991)). In fact, “no form of words, no matter how all-encompassing, 11 will foreclose a court's scrutiny of a release or prevent a reviewing court from inquiring into the 12 surrounding circumstances to ascertain whether it accurately reflected the parties' intention.” Id. 13 (quoting Carlile v. Snap–on Tools, 648 N.E.2d 317, 322 (Ill. App. 1995)). 14 Cannata’s argument that HPT’s complaint should be dismissed because HPT waived most 15 of its claims for relief also fails under Illinois law. Incorporating HPT’s factual allegations of 16 Cannata’s deliberate acts of concealment and wrongdoing as above, HPT alleges sufficient facts 17 indicating that it had not contemplated possible fraud claims at the time the purchase agreement 18 was executed and, if it had, it would not have waived them. HPT has sufficiently plead facts 19 indicating that it did not know of Cannata’s alleged behavior while it was negotiating his buyout, 20 and as such, it was not possible for it to have contemplated possible state law claims against 21 Cannata. The Court will deny Cannata’s motion to dismiss on this ground as well. 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 1 IV. Conclusion 2 IT IS THEREFORE ORDERED that plaintiff HP Tuners’s motion to file a supplemental 3 || brief (ECF No. 31) is GRANTED. 4 IT IS FURTHER ORDERED that HP Tuners’s motion to seal (ECF No. 33) is 5 || GRANTED. 6 IT IS FURTHER ORDERED that HP Tuners’s motion to seal (ECF No. 23) is 7 || GRANTED. 8 IT IS FURTHER ORDERED defendant Kenneth Cannata’s motion to dismiss (ECF No. 9 || 10) is DENIED. 10 IT IS SO ORDERED. 11 DATED this 15th day of August, 2019. □ ° —Ahihee_ 13 LAR . HICKS 4 UNITED STATES DISTRICT JUDGE

15 16 17 18 19 20 21 22 23 24 25 26 27 28