Upstrem, Inc. v. BHFO, Inc.

District Court, S.D. California·Decided June 14, 2022·No. 3:20-cv-02160·Unknown

Opinion

UPSTREM, INC., Case No.: 20-CV-2160 JLS (DEB) a California corporation, ORDER (1) GRANTING PARTIES’

MOTIONS TO FILE DOCUMENTS Plaintiff, UNDER SEAL; (2) DENYING AS v. MOOT DEFENDANT’S EVIDENTIARY OBJECTIONS; AND BHFO, INC., an Iowa corporation, (3) GRANTING PLAINTIFF’S

MOTION TO DISMISS WITHOUT Defendant. PREJUDICE

(ECF Nos. 49, 51, 53-3, 54) Presently before the Court is Plaintiff Upstrem, Inc.’s Motion to Dismiss Without Prejudice (“Mot.,” ECF No. 49). Defendant BHFO, Inc. filed a limited Opposition to the Motion (“Opp’n,” ECF No. 53) and Evidentiary Objections (“Evid. Objs,” ECF No. 53-3), Plaintiff filed a Reply in support of the Motion (“Reply,” ECF No. 56), and Defendant filed a Sur-Reply (“Sur-Reply,” ECF No. 66). Plaintiff and Defendant both filed Motions to Seal related to the Motion (“Pl.’s Mot. to Seal,” ECF No. 54; “Def.’s Mot. to Seal,” ECF No. 51). The Court took the matter under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). See ECF No. 57. Having carefully reviewed the Parties’ arguments, the Parties’ evidence, and the law, the Court GRANTS the Parties’ Motions to Seal, DENIES AS MOOT Defendant’s Evidentiary Objections, GRANTS Plaintiff’s Motion, and DISMISSES WITHOUT PREJUDICE this action. The Court thoroughly recounted the factual and procedural background of this matter in its Order (1) Granting in Part and Denying in Part Defendant’s Motion to Dismiss; (2) Overruling Defendant’s Objections to Magistrate Judge’s Order; and (3) Denying Motion for a Protective Order (ECF No. 39). The Court incorporates by reference the background as set forth therein and outlines below only those facts relevant to the instant Motion. In September 2019, the Parties were in negotiations for Plaintiff to purchase Defendant. ECF No. 1 (“Compl.”) ¶¶ 2, 43. Plaintiff’s Chief Revenue Officer Kevin Lamar was Plaintiff’s “point person” in the negotiations. Reply at 1. While negotiations between the Parties were still ongoing, Mr. Lamar’s employment with Plaintiff ended. See Compl. ¶ 42. Defendant hired Mr. Lamar, first as a consultant on Plaintiff’s potential acquisition of Defendant, then as an employee. See id. ¶ 44. In February 2020, the Parties entered into a Letter of Intent (“LOI”). Id. ¶ 52. Pursuant to the LOI, the Parties shared confidential and proprietary information in a shared Dropbox for both sides to conduct due diligence. Declaration of Stacie Sefton (“Sefton Decl.”) ¶ 23, ECF No. 53-2. As part of the LOI process, the Parties entered into a nondisclosure agreement. See Declaration of Joseph S. Leventhal (“Leventhal Decl.”) Ex. A, ECF No. 56-1 at 5–9. The Parties terminated the LOI on March 26, 2020. Sefton Decl. ¶ 26. Plaintiff alleges in its verified Complaint that Defendant induced Mr. Lamar to share Plaintiff’s confidential information and business practices. See Compl. ¶¶ 46, 50, 68. Through discovery in this matter, Plaintiff discovered that on April 21, 2020, after Mr. Lamar’s employment with Plaintiff had ended, Mr. Lamar emailed Plaintiff’s “confidential and sensitive financial model” to Defendant’s Chief Financial Officer and Chief Executive Officer. Reply at 2. The financial model, in the form of an excel spreadsheet, is titled “Upstrem 5 Year Financial Proforma 12-30-2019 (New Version).” Id. In the body of the email, Mr. Lamar advised the recipients to “please keep confidential” and “[p]lease delete after any review.” Id. After the Court partially denied Defendant’s motion to dismiss, Magistrate Judge Daniel E. Butcher held an early neutral evaluation conference, but the Parties were unable to reach a settlement. See ECF No. 46. Plaintiff took the limited deposition of Mr. Lamar, and Defendant took the deposition of Plaintiff’s current Chief Financial Officer Matthew Lovejoy and Plaintiff’s prior investor and employee David Kaelin. See Mot. at 2. The Parties have exchanged some written discovery. See Reply at 6; Opp’n at 7. The present Motion followed. “[T]he courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597 (1978). “Unless a particular court record is one ‘traditionally kept secret,’ a ‘strong presumption in favor of access’ is the starting point.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (citing Foltz v. State Farm Mut. Auto Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003)). “The presumption of access is ‘based on the need for federal courts, although independent—indeed, particularly because they are independent—to have a measure of accountability and for the public to have confidence in the administration of justice.’” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1096 (9th Cir. 2016) (quoting United States v. Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995)). A party seeking to seal a judicial record bears the burden of overcoming the strong presumption of access. Foltz, 331 F.3d at 1135. The showing required to meet this burden depends upon whether the documents to be sealed relate to a motion that is “more than tangentially related to the merits of the case.” Ctr. for Auto Safety, 809 F.3d at 1102. When the underlying motion is more than tangentially related to the merits, the “compelling reasons” standard applies. Id. at 1096–98. /// “In general, ‘compelling reasons’ sufficient to outweigh the public’s interest in disclosure and justify sealing court records exist[] when such ‘court files might have become a vehicle for improper purposes,’ such as the use of records to gratify private spite, promote public scandal, circulate libelous statements, or release trade secrets.” Kamakana, 447 F.3d at 1179 (quoting Nixon, 435 U.S. at 598). However, “[t]he mere fact that the production of records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will not, without more, compel the court to seal its records.” Id. (citing Foltz, 331 F.3d at 1136). Under the compelling reasons standard, “the party seeking protection bears the burden of showing specific prejudice or harm will result if no [protection] is granted.” Phillips v. Gen. Motors Corp., 307 F.3d 1206, 1210–11 (9th Cir. 2002). The decision to seal documents is “one best left to the sound discretion of the trial court” upon consideration of “the relevant facts and circumstances of the particular case.” Nixon, 435 U.S. at 599. Defendant seeks to seal the following documents in part or in whole: (1) Defendant’s limited opposition to the Motion; (2) Exhibits A–F to the Declaration of Stacie Sefton; and (3) Exhibits A, E, and F to the Declaration of Alissa R. Pleau-Fuller. Def.’s Mot. to Seal at 2–3. Defendant argues that these documents were designated as “Confidential” or “Confidential–Counsel” pursuant to the Protective Order in this case, and if the information is not sealed, the “Designating Parties allege that they face a significant threat of harm of their confidential and commercially sensitive materials being disseminated into the public domain.” Id. at 3. Defendant argues the proposed sealing is narrowly tailored, and there is no less restrictive means to protect the Parties’ confidential and commercially sensitive information. Id. Plaintiff seeks to seal portions of its Reply in support of the Motion, and Plaintiff’s Exhibits C–G, I, and K. Pl.’s Mot. to Seal at 2. Exhibits C, E, F, and K are documents that Defendant designated as “Confidential” under the Protective Order. Id. Exhibit I is one of Defendant’s financial documents that was provided in due diligence. Id. Exhibit D describes and includes an excerpt of P

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Upstrem, Inc. v. BHFO, Inc., (S.D. Cal. 2022).

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