HP Tuners, LLC v. Cannata

District Court, D. Nevada·Decided February 24, 2022·No. 3:18-cv-00527·Unknown

Opinion

DISTRICT OF NEVADA

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

Plaintiff, ORDER

v.

Defendant.

Before the Court are competing motions for partial summary judgment. The first was filed by Plaintiff HP Tuners, LLC (“HPT”) on June 30, 2021. ECF No. 119. The second was filed by Defendant Kenneth Cannata (“Cannata”) also on June 30, 2021. ECF No. 124 (128-s).1 The parties responded and replied to each motion. In addition, HPT filed a motion to strike (ECF No. 142) aspects of Cannata’s motion for partial summary judgment. Cannata filed a response (ECF No. 147), to which HPT replied (ECF No. 148). For the reasons articulated in this Order, the Court now grants in part and denies in part the parties’ motions. HPT is a Nevada limited liability company founded by Keith Prociuk (“Prociuk”), Chris Piastri (“Piastri”), and Cannata on December 31, 2003, with its principal place of business in 1 Cannata filed portions of his briefing and attached exhibits under seal. Due to the nature of the sealed material, the Court grants the parties’ requests to seal much of the information contained within the briefing (ECF Nos. 111, 127, 145, 152). While the Court would prefer to keep all the sealed information confidential, some of it is necessary to resolve the pending motions. The Court will therefore include some information unredacted in this Order where appropriate. The Court recognizes that the parties have privacy interests in the confidential information, but the public Buffalo Grove, Illinois. ECF No. 1 at 4. On or about March 25, 2004, HPT adopted a written operating agreement (the “Operating Agreement”), which was signed by all three founding members. Based on the Operating Agreement, each member had one-third ownership interest in HPT signed on March 25, 2004. Id. The Operating Agreement further stated that it is governed by Nevada law. ECF No. 1-1 at 2. Additionally, in March 2008, Cannata, Prociuk, and Piastri entered into a Buy Sell Agreement (the “Buy Sell Agreement”) that provided, among other things, ways to calculate the purchase price of a member’s interest in HPT as well as actions that required unanimous member approval. ECF No. 1-2. As far as its business, HPT describes itself as a “niche” company that provides “cost effective automotive tuning and data acquisition solutions” for both private car enthusiasts and professional shops. Id. HPT designs and manufactures computer hardware and software for tuning and calibrating engines and transmissions in automobiles, trucks, ATVs, snowmobiles, and other vehicles. Id. A “core function” of the business is to sell interfaces, such as the Multi Point Vehicle Inspection (“MPVI”)2, which connect to the onboard computer of a vehicle and allow for individuals to use the HPT software and tune their vehicle. Id. HPT also sells “credits,” which HPT describes as the license mechanism that customers use to tune their vehicles. Id. The sale and distribution of credits via “application keys,” is a fundamental component of HPT’s business. Id. at 9. The application keys are generated by the “key generator,” which HPT describes as, “the single most valuable piece of intellectual property that [it] possesses.” Id. HPT safeguards its confidential and proprietary information through the usage of computer passwords, hard drive encryption, firewalls, and rules preventing company employees from copying or transferring any of the information. Id. at 6. In 2014, Cannata became aware of an individual named Kevin Sykes-Bonnett (“Sykes- Bonnett”), who is a principal of Syked ECU Tuning, LLC (“Syked”)—a competitor of HPT. ECF No. 128-s at 6. Sykes-Bonnett had information, including software and code relating to Chrysler, Jeep, and Dodge vehicles that were not supported by HPT’s software at the time. Id. In early 2015, Cannata reached out to Sykes-Bonnett to discuss purchasing this information from Sykes-Bonnett to be used by HPT in expanding its supported vehicle lineup. Id. Cannata delivered a $5,000 check to Sykes-Bonnett in March 2015 and received a copy of the technical information that HPT sought. Id. at 7. By 2015, disagreements had arisen between Cannata and the other members of HPT. During a July 2015 management meeting, Prociuk and Piastri requested that Cannata agree to amend the Buy Sell Agreement to increase the threshold for transactions requiring unanimous member approval from $100,000 to $200,000 and to exempt transactions relating to hiring and compensating employees from such threshold. ECF No. 128-s at 7–8. Around July 20, 2015, each member signed an amendment to the Buy Sell Agreement to that effect. Id. In Cannata’s mind, this was part of a unilateral plot to terminate him without cause. Id. In January 2016, Prociuk and Piastri adopted a written consent as members of HPT through which Cannata’s role in the management and control of HPT significantly decreased. Id. Afterwards, in or around February 2016, Prociuk and Piastri initiated discussions with Cannata about buying him out of his membership interest in HPT. ECF No. 112 at 25, 31, 108. After months of negotiations, Prociuk and Piastri agreed to purchase Cannata’s stake in the company on October 20, 2016. ECF No. 1-2; ECF No. 112 at 191–205, 213–219. Pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”), HPT paid Cannata $6.8 million for his stake in the company, and in return, Cannata agreed to several restrictive covenants. ECF No. 1-2. These covenants included returning all of HPT’s proprietary and confidential information to HPT and destroying any related information he had in his possession, a prohibition on disclosing any confidential information to any third parties, and a non-compete clause. Id. at 11–13. While negotiating his exit from HPT, on March 11, 2016, Cannata entered into a non- disclosure agreement (the “NDA”) with Syked. ECF No. 1 at 7; ECF No. 125 at 9. After entering into the NDA, Cannata emailed Syked certain source code files related to HPT’s VCM Suite, including, among other things, an administrative version of VCM Suite 2.23, and a USB thumb Cannata’s interest in HPT, Cannata’s wife obtained an ownership interest in Syked in January 2017. ECF No. 112 at 237, 241-42, 266, 284, 317-19, 334-36, 381-82. HPT first learned of Cannata’s alleged misconduct in August 2018 and filed this lawsuit thereafter, alleging several causes of actions: (1) breach of fiduciary duty; (2) fraud; (3) violation of the Computer Fraud and Abuse Act (18 U.S.C. §1030); (4) violation of the Defend Trade Secrets Act (“DTSA”) (18 U.S.C. §1836); (5) violation of the Copyright Act (17 U.S.C. §1201(A)(1)(A)); (6) a violation of the Nevada Uniform Trade Secrets Act; (7) a violation of the Illinois Trade Secrets Act; (8) unfair competition under the Nevada Deceptive Trade Practices Act; (9) unfair competition under the Illinois Consumer Fraud and Deceptive Business Practices Act; (10) common law breach of contract; (11) tortious interference with prospective contractual or economic relations, and (12) conversion. According to HPT, if it had learned or been advised that Cannata had shared HPT’s confidential and proprietary information, Cannata would have been terminated for cause pursuant to the Buy Sell Agreement and not have paid Cannata more than his one-third interest in the book value of HPT. ECF No. 120 at 5. HPT, relying on the report of its expert, John R. Bone (“Bone”), presents to the Court its calculations for damages for Cannata’s alleged misconduct. ECF No. 130-s at 80–167. Summary judgment is appropriate only when the pleadings, depositions, answers to interrogatories, affidavits or declarations, sti

Free access — add to your briefcase to read the full text and ask questions with AI

HP Tuners, LLC v. Cannata, (D. Nev. 2022).

HP Tuners, LLC v. Cannata (HP Tuners, LLC v. Cannata) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Anderson v. Liberty Lobby, Inc.
477 U.S. 242 (Supreme Court, 1986)
Family Winemakers of California v. Jenkins
592 F.3d 1 (First Circuit, 2010)
McGLINCHY v. SHELL CHEMICAL CO.
845 F.2d 802 (Ninth Circuit, 1988)
United States v. Nosal
676 F.3d 854 (Ninth Circuit, 2012)
United States v. Kapp
564 F.3d 1103 (Ninth Circuit, 2009)
Giles v. General Motors Acceptance Corp.
494 F.3d 865 (Ninth Circuit, 2007)
Lindquist Ford, Inc. v. Middleton Motors, Inc.
557 F.3d 469 (Seventh Circuit, 2009)
Klein v. Freedom Strategic Partners, LLC
595 F. Supp. 2d 1152 (D. Nevada, 2009)
In Re McCoy
260 B.R. 863 (N.D. Illinois, 2001)
Talbert v. Home Sav. of America, FA
638 N.E.2d 354 (Appellate Court of Illinois, 1994)
South Beloit Electric Co. v. Lar Gar Enterprises, Inc.
224 N.E.2d 306 (Appellate Court of Illinois, 1967)
Ajaxo Inc. v. E Trade Group, Inc.
37 Cal. Rptr. 3d 221 (California Court of Appeal, 2005)
Riggs Marketing Inc. v. Mitchell
993 F. Supp. 1301 (D. Nevada, 1997)
Idema v. Dreamworks, Inc.
162 F. Supp. 2d 1129 (C.D. California, 2001)