Michael Kantor et al v. BigTip, Inc. et al

MOTION for Summary Judgment

W.D. Wash.December 18, 2017

DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 1 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 The Honorable Marsha J. Pechman UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON SEATTLE DIVISION MICHAEL KANTOR, an individual; SLM HOLDINGS LIMITED, LLC, a Nevada Limited Liability Company; 3 WISE VENTURES, INC., a Delaware corporation; CABBAGE TREE INVESTMENTS, LLC, Plaintiffs, vs. BIGTIP, INC., a Washington corporation; WHOTOO INC., a Washington corporation; DEMANDBASE, INC., a California corporation; GEORGE BREMER, an individual; MATT ROWLEN, an individual; and DOES 1 TO 20, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 2:15-cv-01871-MJP DEFENDANTS WHOTOO INC. AND MATT ROWLEN’S JOINT MOTIONS FOR SUMMARY JUDGMENT NOTE ON MOTION CALENDAR: January 12, 2018 “ORAL ARGUMENT REQUESTED” I. INTRODUCTION AND RELIEF REQUESTED This case about disgruntled investors in a technology start-up, BigTip, Inc. (“BigTip”) has no basis in fact or law. Plaintiffs invested between $50,000 and $300,000 in BigTip in early 2011. Unfortunately—and notwithstanding its founders Matt Rowlen (“Rowlen”) and George Bremer’s valiant attempts to generate profits and fund the company for over a year (a year in which Rowlen also gave up his BigTip compensation as CEO)—the investments failed for all. BigTip simply ran Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 1 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 2 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 out of cash and, by mid-2012, was forced to release all of its employees. Although Rowlen tried for over a year to complete a transaction that might have allowed everyone to recoup their investment, ultimately, he was not successful. Rowlen then went on to found WhoToo, Inc. (“WhoToo”). WhoToo was also a technology start up, but its focus and technology was entirely different from BigTip. In August 2015, WhoToo was acquired by Demandbase, Inc. (“Demandbase”). Plaintiffs did not invest in, and were never involved as creditors of, WhoToo or Demandbase. In September 2015, Plaintiffs—who are convertible note holders in BigTip and nothing more—drummed up a lawsuit alleging a hodgepodge of contentions and ten causes of action, including fraud and securities-based claims against all defendants, including WhoToo who was not even in existence at the time of Plaintiffs’ original investment. Plaintiffs offer barren theories that are in search of a viable cause of action. As accredited investors, Plaintiffs each understood the risk that BigTip could fail. Now, perhaps wishing in hindsight that they had not taken this risk, Plaintiffs claim they are entitled to $10 million in damages and ask this Court to disgorge all of Defendants’ profits and re-convey assets of BigTip that were supposedly taken from BigTip. Having now litigated their claims for more than two years, Plaintiffs have had ample time to either pursue their case and produce evidence supporting their claims, or to formally acknowledge that the scope of any legally tenable dispute is non-existent or, at a minimum, substantially narrower than it may have first appeared. Plaintiffs have failed to do so. To narrow the scope of trial (if any) to only issues and causes upon which there may be a genuine issue of fact, Rowlen and WhoToo move this Court for an order granting summary judgment as follows: /// /// /// Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 2 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 3 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1. All of the Plaintiffs’ claims based on alleged misrepresentations1 about the email database (either size or ownership) should be dismissed. 2. All of Plaintiffs’ claims based on the value of BigTip’s source code and platform2 should be dismissed. 3. All of Plaintiffs’ claims based on the use of BigTip’s database by WhoToo should be dismissed. 4. All of Plaintiffs’ claims based on the transfer of any other BigTip assets to WhoToo should be dismissed.3 5. All of Plaintiffs’ claims against Rowlen for breach of their Convertible Promissory Note executed with BigTip should be dismissed. Rowlen is not a party to the Convertible Promissory Notes executed by BigTip. Nor are there grounds to pierce BigTip’s corporate veil (on this or any of Plaintiffs’ claims). 6. Under no circumstances may Plaintiffs recover damages greater than their individual investments in BigTip (plus statutory interest). Plaintiffs have articulated no cognizable legal theory that would allow them to collect damages beyond this. To be clear, Rowlen and WhoToo present this FRCP 56 motion for summary judgment in the alternative to their contemporaneously filed and now-pending FRCP 12(c) motion for judgment on the pleadings. As addressed in the parallel FRCP 12(c) motion, Plaintiffs do not have 1 This includes Plaintiffs’ claims for: • Violation of §10(b) of the 1934 Act and SEC Rule 10-b (First Cause of Action); • Violation of § 20(a) of the 1934 Act (Second Cause of Action); • Fraud (Third Cause of Action); • Violation of the Washington State Securities Act (Ninth Cause of Action). 2 This includes Plaintiffs’ claims for: • Conversion (Fifth Cause of Action); • Breach of Fiduciary Duty (Sixth Cause of Action); • Unjust Enrichment (Seventh Cause of Action); • Fraudulent Conveyance (Eighth Cause of Action); • Declaratory Judgment (Tenth Cause of Action). 3 This includes Plaintiffs’ claims for: • Conversion (Fifth Cause of Action); • Breach of Fiduciary Duty (Sixth Cause of Action); • Unjust Enrichment (Seventh Cause of Action); • Fraudulent Conveyance (Eighth Cause of Action); • Declaratory Judgment (Tenth Cause of Action). Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 3 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 4 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 standing to assert various claims and have failed to sufficiently plead other claims. However, even if Plaintiffs had standing and the claims had been sufficiently plead, Plaintiffs have offered barren theories that lack any admissible evidence to create a genuine issue of material fact in support of their claims. Defendants Rowlen and WhoToo respectfully request that the Court grant summary judgment and dismiss with prejudices all claims asserted them. II. RELEVANT PROCEDURAL BACKGROUND Since the lawsuit commenced in September 2015, the parties have engaged in extensive discovery, including written interrogatories, document production, depositions, and third-party discovery. Plaintiffs have propounded 35 requests for production on all Defendants, 26 Interrogatories on WhoToo, and 27 Interrogatories on Rowlen. Defendants have produced more than 16,000 pages of documents in response to Plaintiffs’ multiple requests, exclusive of documents subpoenaed and produced from third-parties. Declaration of Anne Cohen (“Cohen Decl.”), ¶ 26. As explained further in Defendants’ Opposition to Plaintiffs’ Motion to Amend the Case Schedule (Dkt. # 130), this case is now in its 27th month, and the schedule has been extended three times. Plaintiffs have had ample time to conduct discovery, and based on discovery actually conducted, Plaintiffs still do not have any admissible facts to support their claims against WhoToo and Rowlen. In September 2017, Plaintiffs agreed that all of the claims against Defendant George Bremer should be dismissed with prejudice. Dkt. # 115, 117 (September 6, 2017, Order). III. UNDISPUTED FACTS A. BigTip BigTip was a company created to connect retailers to consumers to sell coupons, similar to the platform of Groupon (Dkt. # 59; Cohen Decl., Ex. 50, pp. 4, 18), but focusing on the suburban market. Rowlen was the Chief Executive Officer of BigTip. See Second Amended Complaint, Dkt. # 104, ¶ 15. He recruited Chris Matty, who ultimately became the Vice President of Business Development. Declaration of Rowlen (“Rowlen Decl.”), ¶ 7; Cohen Decl., ¶ 24 Ex. 63, p. 3. Chris Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 4 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 5 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Matty recruited Kevin Marcus who became its Chief Technology Officer. Cohen Decl., ¶¶ 12, Ex. 50, p. 3; Rowlen Decl. ¶ 7. Rowlen also recruited George Bremer who became its Chief Financial Officer. Dkt. # 59. Chris Matty, Kevin Marcus, George Bremer and Rowlen became the first shareholders in Frugulio, Inc., or “Fruggie.” Cohen Decl., ¶ 13 Ex. 51, p. 4; Rowlen Decl., ¶ 3; Ex. 1. However, the name was formally changed to BigTip, Inc. Rowlen Decl., ¶¶ 4,5 Exs. 2, 3 and 4; Ex. 51, p. 4. 1. The BigTip email database At the time Kevin Marcus joined BigTip, he also ran a separate company called Starnium, LLC (“Starnium”). Cohen Decl., ¶¶ 12, Ex. 50, p. 9. Starnium owned several large databases, including a large database of consumer emails. Id., p. 21. Through Kevin Marcus, Starnium provided BigTip with its email database. Rowlen Decl., ¶ 9. The database represented Kevin Marcus’ initial contribution to BigTip. Id., pp. 18-19, 25. Due to its large size, the database required engineering skills and expertise to open and use. Rowlen Decl., ¶ 10. Kevin Marcus did this work. Id., ¶ 11. Moreover, it was Kevin Marcus’ job as CTO to get the database into useable shape for BigTip – to de-duplicate data, determine the number of useable emails in database, and maintain the database. Rowlen Decl., ¶ 11, Ex. 50, pp. 4, 18, 21. Rowlen, who is not a software engineer, never opened the email database provided by Kevin Marcus, nor did he ever make his own determination as to the size of the database. Rowlen Decl., ¶¶ 10-12. All of Rowlen’s information about the database came from Kevin Marcus. Id., Cohen Decl., ¶ 12, Ex. 50, p. 15. Marcus attended the meetings with Michael Kantor and the other investors for the purpose of answering technical questions, including questions relating to the database. Rowlen Decl., ¶ 16, Cohen Decl., ¶ 12, Ex. 50, pp. 16 – 19. Moreover, there was no limitation as to how BigTip could use the database that Starnium had provided. Cohen Decl., ¶ 12, Ex. 50, pp. 24-25. In addition to the original database that Kevin Marcus provided, BigTip also acquired data through licensing deals with partners. Rowlen Decl., ¶ 13. These licensing deals continued Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 5 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 6 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 throughout BigTip’s operation. In this way, BigTip added to its email database over time. Id. 2. Plaintiffs’ investment in BigTip Michael Kantor is a full-time professional investor who manages his personal investment fund and his families’ investment fund. Cohen Decl., ¶ 17, Ex. 55, pp. 5-8. At the time of his investment in BigTip, he was (and remains) an accredited investor. Cohen Decl., ¶ 17, Ex. 55, p. 17. Chris Matty knew Michael Kantor and reached out to him about the opportunity to invest in BigTip. Id., pp. 9-10. Michael Kantor also knew Kevin Marcus because they had worked together at InfoSpace, where Kevin Marcus also built databases. Id., pp. 11-12. Michael Kantor, Chris Matty and Kevin Marcus had conversations about BigTip before Michael Kantor ever met Rowlen. Specifically, Michael Kantor knew that Kevin Marcus owned Starnium, which had provided BigTip with its initial database. Id., pp 11- 12. In turn, before connecting with Rowlen, Michael Kantor reached out to Joseph Yemini who runs 3 Wise Ventures, LLC. Id., pp. 11-12. Like Michael Kantor, Joseph Yemini is a full-time professional and accredited investor. Cohen Decl., ¶ 16, Ex. 54, pp. 3, 5. Kantor also reached out to Elisha Gilboa, who runs SLM Holdings, LLC along with over 100 other companies. Cohen Decl., ¶ 17, Ex. 55, pp. 11-12; Chris Matty and Garth MacLeod (Cabbage Tree Holdings, LLC) were old friends from graduate school, and Matty introduced MacLeod to BigTip. Cohen Decl., ¶ 15, Ex. 53, p. 6. MacLeod had just returned from New Zealand where spent his time managing real estate investments. Id. p. 5. MacLeod is also an accredited investor. Id., p. 6. Matty, Marcus, and Rowlen met with Gilboa, Yemini and Kantor to discuss BigTip as a potential for investment and to answer questions. Cohen Decl., ¶ 24; Ex. 63, pp. 11-14. Chris Matty prepared an investor deck that was presented at the meeting. Id., pp. 18-19. Questions about the database were referred to Kevin Marcus, since the data originated with him. Cohen Decl., ¶ 12, Ex. 50, pp. 16-19; Rowlen Dec., ¶ 16. In February 2011, each Plaintiff signed a Convertible Purchase Note Agreement and a Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 6 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 7 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Convertible Promissory Note Agreement.4 Rowlen Decl., ¶¶ 17; Exs. 6, 7, 8, 9. By February 25, 2011, BigTip’s coupon offering was in the alpha stage and early consumer rollout. Id., ¶ 21, Ex. 11. By April 2011, BigTip began to do transactions and business. Id., ¶ 22; Ex. 12. 3. BigTip’s initial operations were favorable; SLM commits to increasing its investment Rowlen and Bremer made every effort to make the most of the money they had raised. Rowlen Decl., ¶ 8; Ex. 51, p. 16. Most of the data and web services were stored on “the cloud,” and the software engineers at BigTip worked the data on their computers. Id. BigTip’s early prospects were favorable, and BigTip started to generate revenue, but needed more money to operate, drive consumer traffic and to grow. Rowlen Decl., ¶ 23, Ex. 13. In July 2011, the existing investors were asked whether they wanted to invest additional money on the same terms as their initial investment. Cohen Dec., ¶ 9, Ex. 60. On behalf of SLM, Gilboa signed an additional Convertible Note Purchase Agreement and Convertible Promissory Note, promising an additional $500,000 investment in BigTip. Cohen Decl., ¶¶ 20, 13, Ex. 59; Ex. 51, p. 12; Rowlen Decl. ¶ 14. 4. SLM breaches its Second Purchase Agreement, and advances conflicting reasons for the breach Shortly after he promised additional funds on SLM’s behalf, Gilboa said that SLM could not provide the funds it had committed. Gilboa gave different people different reasons. He told Matt Rowlen that “he was broke,” while he told George Bremer that he was the subject of an SEC investigation and his funds were frozen. Rowlen Decl., ¶ 24; Cohen Dec., ¶ 13, Ex. 51, pp. 9, 12. Neither of these statements were true. Cohen Decl., ¶ 22, Ex. 61. In August of 2011, SLM had over a million dollars in its account with Morgan Stanley. Id. Ultimately, SLM did provide 4 Other investors had signed the same form of Convertible Promissory Note and Convertible Note Purchase Agreement. Rowlen Decl., ¶ 14, Ex. 5. Those investors apparently declined to join Plaintiffs in their suit. Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 7 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 8 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 some more money, but it was only $150,000 of the additional $500,000 it agreed to provide. Cohen Decl., ¶ 23, Ex. 62, p. 1. 5. SLM’s breach starts BigTip’s downward spiral Gilboa’s refusal to provide the funds he had committed triggered a downward spiral from which BigTip ultimately could not recover. In 2011, BigTip negotiated a bridge loan from (non- Plaintiff) investor Anil Singh that kept BigTip afloat. Rowlen Decl., ¶ 25, Ex. 31. However, the loss of more than $350,000 in SLM’s committed funds meant that BigTip both had less cash and a more difficult time raising capital. Id., ¶¶ 25, 27. By late 2011/early 2012, BigTip had begun to run out of operating funds, and Rowlen stopped taking a salary. Cohen Decl., ¶ 11, Ex. 49, pp. 11, 13 and 14; Rowlen Decl., ¶¶ 27, 28, Ex. 16. Rowlen also told the employees that BigTip was not going to be able to pay their salaries much longer. Cohen Decl., ¶ 24, Ex. 63, p 6. By the second quarter of 2012, BigTip had only four employees left on payroll. Cohen Decl., ¶ 12, Ex. 50, pp. 11-12; Ex. 49, p. 19; Ex. 48, p. 6. 6. BigTip loses its relationship with InfoGroup to Versium In February 2012, Kevin Marcus and Chris Matty left BigTip to form Versium—a new data analytics company. Cohen Decl., ¶¶ 12, 24, Ex. 50, pp. 3-4; Ex. 63, p 7. Through Marcus, Starnium provided Versium with the same email database that it had provided BigTip. Cohen Decl., ¶ 12, Ex. 50, p. 30. By early 2012, Plaintiff Kantor was an advisor to, and investor in, Versium. Cohen Decl., ¶¶ 18, 19, Ex. 56, Ex. 55, p. 21. Shortly after it was formed, Versium had already begun doing business with one of BigTip’s few paying data partners, InfoGroup. Cohen Decl., ¶ 19, Ex. 57, 58. BigTip’s loss of the InfoGroup income compounded BigTip’s financial problems. Cohen Decl., ¶ 19, Ex. 57, pp. 8-9. 7. By July 2012, BigTip is out of cash and has no more employees. By March of 2012, Rowlen informed the investors that BigTip “only had enough cash to make it through summer,” and this was predicated on the ongoing reality that Rowlen would Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 8 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 9 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 continue not paying himself a salary and not receiving compensation from BigTip. Cohen Decl., ¶ 13, Ex. 51, p. 13, 20; Rowlen Decl., ¶ 28. Rowlen held a phone call with the investors to explain the situation and BigTip’s options. Rowlen Decl., ¶ 30, Exs. 17, 18. It was clear that partnering up with another company or a sale of the company would be “critical to [BigTip’s] success.” Rowlen Decl., ¶¶ 23,40, Exs. 13, 25. Of the $30,450 deposited to the BigTip accounts in June 2012, (primarily to cover payroll), $22,500 came from Rowlen's personal funds. Cohen Decl., ¶ 10, Ex. 48, p. 1. (citing to internal Exhibits A and C). By July 1, 2012, BigTip had no more employees. Cohen Decl., ¶¶ 11, 13, Ex. 49, pp. 15 – 19; Ex. 51 pp. 14-15. Rowlen signed a formal separation document with BigTip ending his employment on July 1, 2012. Cohen Decl., ¶ 13, Ex. 51, pp. 14, 20. George Bremer closed out payroll, and at the time, BigTip had less than $1,000 in the bank. Id., p. 14. Rowlen paid out of his personal pocket to continue to keep the web server alive at Amazon Web Services,5 but with very few transactions and little income. In other words, the website was up, but it was not posting any deals; it also had no employees and no operating cash. Id., Ex. 51. 8. Rowlen works without consulting income or other compensation until February 2013 to try and resuscitate BigTip. For over a year, Rowlen continued his efforts to partner up with another company or sell BigTip’s software, keeping the Plaintiffs apprised every step of the way. Rowlen Decl., ¶¶ 33-39; Exs. 19-25; Cohen Decl., ¶ 13, Ex. 51, pp. 13, 15. Rowlen did this in an effort to recoup the investments of the shareholders (including himself) and Promissory Note holders (including Plaintiffs). Id. By the end of 2012, Rowlen was unable to finalize a deal to save the company and could 5 See Cohen Decl., ¶ 10, Ex. 48, p. 2 ($9,500 of deposits into BigTip during July 2012 to February 2103 were sourced from Rowlen’s personal funds to cover miscellaneous expenses of the company as it wound down). Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 9 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 10 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 no longer fund the running of BigTip.com with his own personal funds. Id. Shortly thereafter, Plaintiffs were informed that BigTip “had gone dark” and was no longer in business. Rowlen Decl., ¶¶ 41 42; Ex. 26. BigTip’s records and technology were also stored on the “cloud.” BigTip had no money to continue to pay storage fees. Cohen Decl., ¶¶ 10, 13, Ex. 48, p. 6 Ex. 51, pp. 14, 16. Rowlen paid for them personally for a time, but eventually stopped doing so. Cohen Decl., ¶ 10, Ex. 48, p. 2. Rowlen Decl., ¶¶ 36, 41. BigTip was administratively dissolved as of February 1, 2013. Rowlen Decl., ¶ 50, Ex. 33. Washington State Department of Revenue issued a Clearance Certificate to BigTip dated March 22, 2013. When all was said and done, BigTip owed Rowlen personally more than $200,000. This included pay that he had forgone, payroll costs, and storage fees. Cohen Decl., ¶¶ 10, 13, Ex. 48, pp. 2, 5, Ex. 51, pp. 20- 21; Rowlen Decl., ¶¶ 36, 41, Ex. 27. In partial exchange for the unpaid salary in the first half of 2012 alone, BigTip transferred three limited assets to Rowlen personally. These were: (i) the email data; (ii) the relationship with InfoGroup, and (iii) BigTip’s domains. Rowlen Decl., ¶ 36; Ex. 32, p. 2. However, this did not come close to covering the unpaid wages that BigTip owed Rowlen. The total unpaid salary and costs fronted by Rowlen in trying to save BigTip was over $200,000. Rowlen Decl., ¶ 41; Cohen Decl., ¶ 13, Ex. 51, pp. 20-21. B. WhoToo With BigTip on its proverbial death bed, and with Rowlen not getting paid by BigTip, in August 2012, Rowlen registered a separate company called WhoToo with the Washington Secretary of State. Rowlen Decl., ¶ 46. WhoToo was started as a business to business data intelligence company, providing analytic tools for publishers and marketers. Id.; Declaration of Derek Hansen (“Hansen Decl.”), ¶ 3. Rowlen funded WhoToo entirely. At its inception, an engineer named Michael Shannon served as WhoToo’s CTO; Shannon had been an employee at BigTip before it went out of Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 10 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 11 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 business. Rowlen Decl., ¶ 48; Cohen Decl., ¶ 10, Ex. 48, p. 6. Mr. Shannon has publicly asserted that he co-founded WhoToo and has sworn under oath that he was personally responsible for developing core technologies used by WhoToo. Cohen Decl., ¶ 25; Ex. 64. WhoToo hired two other former BigTip employees: Derek Hanson and Johannes Wong. Rowlen Decl., ¶ 48. WhoToo first paid Hanson and Wong on payroll in August 2012. Cohen Decl., Ex. 48, p. 6. In November 2012, Rowlen personally purchased an IP block and licensed it to WhoToo. Rowlen Decl., ¶ 52; Ex. 35, p. 4. WhoToo licensed data (including email data) from several partners; it also purchased data from various sources, including about 390 million unique email addresses with corresponding co- reg compliant information for $4,500. Rowlen Decl., ¶ 46; Declaration of Mike Hilts ¶ 5, Ex. B. In approximately 2015, at least one of the Plaintiffs contended that it should be given an ownership interest in WhoToo in light of their losses in BigTip. Rowlen Decl., ¶ 52; Ex. 35, p. 3. Rowlen disclosed this issue to Demandbase, prior to its acquisition of WhoToo. Id. C. Demandbase Demandbase acquired WhoToo as its wholly owned subsidiary in or about August 2015. Dkt. 104, ¶ 32. On September 3, 2015, Plaintiffs filed their claims. Id. The acquisition transaction between WhoToo and Demandbase was publicly announced on September 10, 2015. Freeburg Decl., Dkt. 131-11, p. 2; Rowlen Decl., ¶ 53. IV. ISSUES PRESENTED 1. Whether Plaintiffs’ claims based on alleged misrepresentations about the email database (either size or ownership) should be dismissed. 2. Whether Plaintiffs’ claims based on the value of BigTip’s source code and platform should be dismissed. 3. Whether Plaintiffs’ claims based on the use of BigTip’s database by WhoToo Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 11 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 12 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 should be dismissed. 4. Whether Plaintiffs’ claims based on the transfer of any other BigTip assets to WhoToo should be dismissed. 5. Whether Plaintiffs’ claims against Rowlen for breach of their Convertible Promissory Note executed with BigTip should be dismissed. 6. Whether Plaintiffs’ damages are limited to their individual investments in BigTip (plus statutory interest). V. EVIDENCE RELIED UPON Defendants Rowlen and WhoToo rely upon the Declaration of Matt Rowlen, along with exhibits attached thereto; the Declaration of Anne Cohen, along with exhibits attached thereto; the Declaration of Derek Hansen, along with exhibits attached thereto; the Declaration of Andrew Kellberg, along with exhibits attached thereto; the Declaration of Derek Hansen, along with exhibits attached thereto, as well as the pleadings and records on file herein. VI. ARGUMENT A. Standard of Review “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. Proc. 56(a). In reaching its decision “[t]he court need consider only the cited materials, but may consider other materials in the record.” Fed. R. Civ. Proc. 56(c)(3). “After giving notice and a reasonable time to respond, the court may: (i) grant summary judgment for a nonmovant; (ii) grant the motion on grounds not raised by a party; or (iii) consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute. Fed. R. Civ. P 56(f). The purpose of summary judgment is to eliminate unnecessary trials when no question of material fact exists and when the moving party is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 12 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 13 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 An issue of fact is genuine “if the evidence is such that a reasonably jury could return a verdict for the nonmoving party.” Rivera v. Phillip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citing Anderson, 477 U.S. at 248). A fact is "material" if it could affect the outcome of the case. Id. The court reviews evidence and draws inferences in the light most favorable to the nonmoving party. Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006) (quoting Hunt v. Comartie, 526 U.S. 541, 552 (1999)). A defendant may move for summary judgment where the plaintiff lacks sufficient admissible evidence to support a prima facie case. Celotex Corp. v. Catrett, 477 U.S. 317, 322– 23 (1986) (citing Anderson, 477 U.S. at 250); see also Farrakhan v. Gregoire, 590 F.3d 989, 1003 (9th Cir. 2010) (where the nonmoving party has the burden of proof at trial, the party moving for summary judgment need only point out that there is an absence of evidence to support the nonmoving party’s case). In other words, “summary judgment should be granted where the non- moving party fails to offer evidence from which a reasonable jury could return a verdict in its favor.” Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). In response to a motion for summary judgment, the nonmoving party must go beyond the pleadings and show there is a genuine issue of material fact for trial. Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). A mere disagreement about a material issue of fact does not preclude summary judgment. Jackson v. Bank of Haw., 902 F.2d 1385, 1389 (9th Cir. 1990). When the opposing party’s claims are factually implausible, that party must “come forward with more persuasive evidence than otherwise would be necessary.” California Architectural Bldg. Prod., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)). B. Plaintiffs Cannot Sustain Any Action Concerning Any Misrepresentation(s) About the Email Database (Either Size or Ownership) Plaintiffs have no admissible evidence to substantiate any aspect of their claims relating to the email database. Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 13 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 14 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 1. Plaintiffs Cannot Establish Falsity or the Requisite Scienter As alleged: “Rowlen’s main selling point was that BigTip had sole ownership of at least 100 million email addresses in their database. Through ownership of these email addresses, BigTip would be able to build a platform connecting retailers to consumers where businesses would be able to sell their coupons directly to the consumers in a similar platform as Groupon.” Dkt. 104, ¶ 17. This is the sole representation that Plaintiffs allege in their operative complaint is fraudulent. Id., ¶¶ 43, 44. To be fraudulent, a statement has to be both materially inaccurate and a defendant must have reason to know that the information was materially inaccurate at the time the statement was made. Wenger v. Lumisys, Inc., 2 F. Supp. 2d 1231, 1250 (N.D. Cal. 1998) (emphasis added) (dismissing complaint where plaintiff failed to allege that true facts existed prior to misrepresentation). Thus, to satisfy this standard, Plaintiffs must come forward with admissible evidence concerning not only the purported ownership (or lack thereof) of the database, but that “true facts” were available to Rowlen (and WhoToo) prior to Rowlen’s alleged misstatement. Without references to specific facts demonstrating that the statements at issue were false or misleading when made, allegations regarding adverse information supposedly known to Rowlen (and WhoToo) are merely “speculation and conclusions drawn from hindsight.” Id. (citing Zeid v. Kimberly, 973 F. Supp. 910, 920-21 (N.D. Cal. 1997). Here, Plaintiffs have no evidence demonstrating that any alleged statement made by Rowlen relating to the email database was not accurate, let alone fraudulent. Plaintiffs’ complaint purports to attribute to Bremer a statement that the original database was leased. Dkt. 104, ¶ 26. (“In February 2015, Bremer and the investors had a phone call. … During the call (and contrary to the earlier representations made to Plaintiffs) Bremer stated for the first time that BigTip did not own the 100 million emails, and that they were simply leased.”). Notably, Plaintiffs failed to elicit any testimony from Mr. Bremer during his deposition consistent with such allegations. Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 14 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 15 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 The only evidence in the record demonstrates unambiguously that Kevin Marcus provided BigTip with a sizeable email database, and that Kevin Marcus was the source of information about the database. Cohen Decl., ¶ 12, Ex. 50, p. 17. Moreover, engineer Kevin Marcus was made available to the investors to answer questions about the database, and several of the Plaintiffs spoke directly with him before making their investment. Rowlen Decl., ¶ 16; Cohen Decl., ¶ 12, 24, Ex. 50, pp. 15-19, Ex. 63, pp. 11-14. In addition, Chris Matty (not Rowlen) prepared the presentation for the Plaintiffs prior to their investment. Cohen Decl., ¶ 24; Ex. 63; id., pp. 18-19. Moreover, all of the people involved— Chris Matty, Kevin Marcus and George Bremer—testified at their respective depositions that the information provided to the Plaintiffs about the database was accurate. Cohen Decl., ¶ 24, Ex. 63, p. 19. Therefore, dismissal of these claims is appropriate. See WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1055 (9th Cir. 2011) (affirming dismissal of claim where the “strong inference” standard was not met; while one “plausible” explanation for defendant’s statement was an intent to defraud, another plausible explanation was confusion). 2. Plaintiffs Cannot Establish That Any Alleged Misrepresentation Was Material The federal analog to Washington’s securities fraud statute makes it unlawful to make an untrue material statement or omission. 17 C.F.R. § 240.10b-5. “Conclusory allegations of law and unwarranted inferences are insufficient” to defeat a dispositive motion with respect to materiality. In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010) (citation omitted). To plead materiality, a plaintiff must “(1) specify each allegedly misleading statement or omission, (2) explain why the statement is misleading, and (3) if the allegation ‘regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.’” Id. at 1109 (quoting 15 U.S.C. § 78u-4(b)(1)(B)). Plaintiffs have failed to plead why the sole alleged representation that they believe is false is actually false. Moreover, Plaintiffs cannot present any admissible evidence demonstrating the materiality of the alleged misrepresentation. Defendants posed an interrogatory to each Plaintiff: Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 15 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 16 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 “What harm did the alleged lease (as opposed to ownership) of the 100 million email database cause BigTip?” Cohen Decl., ¶¶ 2, 4, 6, 8, Ex. 40, p. 6; Ex. 42, p. 6; Ex. 44, p. 6; Ex. 46, p. 6. (Interrogatory No. 4). In response, each Plaintiff recited only the allegation that Plaintiffs would not have invested in BigTip had they known. Id. This is insufficient. Indeed, Plaintiffs’ claim—that there is a material difference in value in an email database as a result of whether it is leased versus owned—invites expert opinion pursuant to FRE 702. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 591, 113 S. Ct. 2786, 2795, 125 L. Ed. 2d 469 (1993). Yet, more than two years into this case, Plaintiffs have disclosed no qualified expert who can testify to the size or value of the email database to demonstrate the significance of why it would have mattered to Plaintiffs if the database was leased, owned, licensed, or other.6 To be clear, lay ‘opinions’ as to these topics are not admissible. Ollier v. Sweetwater Union High School Dist., 768 F.3d 843, 860 (9th Cir. 2014). “[P]ersonal opinion testimony is inadmissible as a matter of law under Rule 702, and speculative testimony is inherently unreliable.” Id. at 860-61 (internal citations omitted). To be sure, “[a] plaintiff may not simply contrast a defendant’s past optimism with less favorable actual results, and then ‘contend[] that the difference must be attributable to fraud.’” Miss. Pub. Employees’ Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75, 90 (1st Cir. 2008) (alteration in original) (internal citation omitted). 3. Plaintiffs Cannot Establish Justifiable Reliance To establish liability for securities fraud, including under the Washington State Securities Act, the purchaser of a security must prove that the seller and/or others made material misrepresentations or omissions about the security and the purchaser relied on those 6 In fact, the only evidence in the record that might allow the Court to assign a dollar value to the database demonstrates that the dollar value was negligible. See Rowlen Decl., ¶ 9, Ex. 30 (evidencing the purchase of 270,000,000 emails by BigTip in June of 2011 for $1,5000). Also see, Hilts Decl., ¶ 5, Ex. B (evidencing the purchase of 390,000,000 unique email addresses for $4500 in November 2014). Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 16 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 17 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 misrepresentations or omissions. Stewart v. Estate of Steiner, 122 Wn. App. 258, 264, 93 P.3d 919 (2004). The purchaser must establish justifiable reliance by clear, cogent and convincing evidence. Sung v. Mission Valley Renewable Energy, LLC, No. 11-5163, 2013 WL 4523561, at *5 (E.D. Wash. Aug. 27, 2013). Reliance must be reasonable under surrounding circumstances. FutureSelect Portfolio Mngt., Inc. v. Tremont Group Holdings, Inc., 175 Wn. App. 840, 868-69, 309 P.3d 555 (2013). Washington courts have identified certain relevant factors for analyzing justifiable reliance. These include: (i) the sophistication and expertise of the plaintiff in financial and securities matters; (ii) the existence of long-standing business or personal relationships; (iii) access to the relevant information; (iv) the existence of a fiduciary relationship; (v) concealment of the fraud; (vi) the opportunity to detect the fraud; (vii) whether the plaintiff initiated the stock transaction or sought to expedite the transaction; and (viii) the generality or specificity of the misrepresentations. See Stewart, 122 Wn. App. at 274; cf. Moore v. Thornwater Co., No. C01-1944C, 2006 WL 1423535, at *6 (W.D. Wash. May 23, 2006) (noting that the factors may be decided on summary judgment). Here, Plaintiffs cannot meet their burden to establish justifiable reliance, and virtually all of the above-listed factors cut against Plaintiffs. Plaintiffs cannot credibly dispute, individually or collectively, that they are sophisticated investors where they represented they were all accredited under Regulation D.7 Plaintiffs also had direct access—and took advantage of that access—to 7 An accredited investor is defined in Rule 501 of Regulation D (17 U.S. § 230.500) of the U.S. Securities and Exchange Commission (SEC) as: 1. a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, or has assets under management of $1 million or above, excluding the value of the individual's primary residence; 2. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; 3. a business in which all the equity owners are accredited investors; 4. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 17 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 18 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 several of the individuals, including software engineers, actually skilled to work and understand the database. For example, as noted above, Kevin Marcus, who provided the database to BigTip, was made available to the investors to answer questions about the database, and several of the Plaintiffs spoke directly with him before making their investment. Rowlen Decl., ¶ 16; Cohen Decl., ¶ 12, 24, Ex. 50, pp. 15-19, Ex. 63, pp. 11-14. Chris Matty, who also was well-acquainted with several of the plaintiffs, prepared the presentation for the pitch to the Plaintiffs. Cohen Decl., ¶ 24; Ex. 63; id., pp. 18-19. There is no evidence that Rowlen (or any of the defendants) sought to conceal the alleged fraud from Plaintiffs. Moreover, Plaintiffs were owed no fiduciary duty in their capacity as creditors. 4. Plaintiffs Cannot Establish Causation. Plaintiffs must also allege “in the most general sense, that there is a ‘causal connection between the deceptive acts that form the basis for the claim of securities fraud and the injury suffered.” Brown v. Ambow Educ. Holding Ltd., 2014 U.S. Dist. LEXIS 18809, at *13 (C.D. Cal. Feb. 4, 2014) (quoting In re Daou Sys., Inc., 411 F.3d 1006, 1025 (9th Cir. 2005)); see also Dura Pharmaceuticals, Inc. v. Broudo, 544 US 336, 344-45 (2005)(“[A] plaintiff [must] prove the defendant’s misrepresentation or other fraudulent conduct proximately caused the plaintiffs’ economic loss); Binder v. Gillespie, 184 F.3d 1059, 1066 (9th Cir. 1999) (loss causation is “equivalent to proximate causation in tort”). /// purchases a sophisticated person makes. As used in Regulation D (§ 230.500 et seq. of this chapter), the following terms shall have the meaning indicated: (a) Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person: 17 C.F.R. § 230.501 Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 18 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 19 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 As Justice Breyer explained: The securities statutes seek to maintain public confidence in the marketplace. They do so by deterring fraud, in part, through the availability of private securities fraud actions. But the statutes make these latter actions available, not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause [A]llowing recovery in the face of affirmative evidence of nonreliance—would effectively convert Rule 10b– 5 into a scheme of investor's insurance. There is no support in the Securities Exchange Act, the Rule, or our cases for such a result. Dura Pharm., 544 U.S. at 345 (citations omitted) (internal quotation marks omitted). Plaintiffs here have failed to show a causal connection between the representation they allege was false and their purported loss. That is because there is no nexus between any representation made by Rowlen and the loss of their investment. As noted, BigTip was not able to repay any of its outstanding debts, including other Convertible Promissory Notes because it ran out of cash. Rowlen Decl., ¶ 41; Cohen Decl., ¶ 13, Ex. 51, p. 14, 15. That had nothing to do with the size of its database or whether the emails were leased or owned. Moreover, there is no evidence that any of the deals that Matt Rowlen and George Bremer sought to complete somehow hinged on either the size of the database or whether the emails were owned or leased. Rowlen Decl., ¶¶ 34-42, Ex. 20-26. The record is completely devoid of any admissible evidence that the loss of Plaintiffs’ investments was in any way caused by (or related to) the email database or the supposed misrepresentations that were made by Rowlen (or anyone) relating to the database. This, alone, is sufficient reason to dismiss Plaintiffs’ misrepresentation claims. C. Plaintiffs Cannot Sustain Any Conversion-Related Action Arising From WhoToo’s Alleged Use of BigTip’s Source Code or Platform. 1. Plaintiffs Cannot Establish That the Source Code or Platform for WhoToo is the Same as BigTip’s, as Alleged Conversion is “‘the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived of the possession of it.’” Brown ex rel. Richards Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 19 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 20 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 v. Brown, 157 Wn. App. 803, 817–18, 239 P.3d 602 (2010). “Money may become the subject of conversion, but only if the party charged with conversion wrongfully received the money, or if that party had an obligation to return the money to the party claiming it.” Consulting Overseas Mgmt., Ltd. v. Shtikel, 105 Wn. App. 80, 83, 18 P.3d 1144 (2001). Plaintiffs cannot present any admissible evidence to support any aspect of their claim relating to the alleged sameness of the source code and/or platform of WhoToo and BigTip. Dkt. 104, ¶ 33. Plaintiffs have not even identified what source code and platform they are referring to with respect to BigTip, let alone what source code or platform they claim was used by WhoToo. Plaintiffs have no evidence that WhoToo (or anyone else for that matter) used the source code and/or platform from BigTip in any way, shape or form. Indeed, for Plaintiffs to substantiate a claim that WhoToo somehow took or used BigTip’s source code or platform would require, again, a qualified expert to obtain the two, compare them, and issue an opinion. FRE 702; see Daubert, 509 U.S. at 591. No such expert exists. Again, the unrebutted evidence in the record on this issue favors WhoToo. Derek Hanson—the engineer that worked for BigTip, WhoToo, and later Demandbase, and who also wrote a substantial amount of the source code for BigTip and, later, for WhoToo—has explained that BigTip and WhoToo had fundamentally different models which meant that there was nothing material from BigTip’s source code or platform that would have been useful for WhoToo. Hansen Decl., ¶ 3. They were written in different web-development languages. Id. Other engineers at WhoToo have examined WhoToo’s oldest data and concluded that the data does not match the description of the data provided to BigTip by Starnium. Kellberg Decl., ¶ 6. Plaintiffs’ claims related to the “source code” and “platform” fail. 2. Plaintiffs Cannot Establish Causation Plaintiffs also have no admissible evidence to show that the supposed equipment, inventory or assets that they claim WhoToo misappropriated from BigTip would have been sufficient to repay any of their Convertible Notes. It is unrebutted that BigTip did not have sufficient cash to Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 20 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 21 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 pay its employees and, by mid-2012, BigTip had essentially ceased operations. Although Rowlen and Bremer tried for over a year to sell either the company or the technology, they could not. Rowlen Decl., ¶¶ 34-42, Exs. 20-26. BigTip simply did not have enough assets to pay its liabilities. Cohen Decl., ¶ 1, Ex. 51, pp. 14, 15. In sum, there is no basis by which a reasonable fact-finder could conclude that “but for” some kind of [purported] transfer or conversion BigTip could have remained in business.8 D. Plaintiffs Cannot Sustain Any Conversion-Related Action Against Rowlen or WhoToo Arising from WhoToo’s Alleged Use of BigTip’s Database. As with the source code and/or platform, Plaintiffs simply have no admissible evidence that BigTip’s database was ever transferred to WhoToo. See Hansen Decl., Dkt. # 141, Kellberg Decl., Dkt. # 139, Rowlen Decl., ¶ 47. Nor is there any evidence that but-for any purported transfer, BigTip would have been able to remain operational and repay Plaintiffs’ Convertible Notes. Therefore, these claims should be dismissed. E. Plaintiffs Cannot Sustain Any Conversion-Related Action Against Rowlen or WhoToo Arising From the Purported Transfer of Any Other BigTip Asset, Specified or Unspecified. Likewise, Plaintiffs cannot come forward with any testimony or evidence to substantiate any claim arising from the purported use of any other BigTip assets. Similarly, Plaintiffs cannot present any testimony or evidence to substantiate a claim for the use of any of BigTip’s employees or assets by anyone other than BigTip, or that this caused (or could have caused) BigTip’s failure to repay Plaintiffs’ Convertible Notes. See Cohen Decl., ¶¶ 5, 9, Ex. 43, p. 14; Ex. 47, p. 11-12 Notably, Defendants asked in Interrogatory No. 16: a) “Describe any material interactions with anyone associated with WhoToo that caused you to believe that BigTip and WhoToo had any 8 Moreover, as described in the pending FRCP 12(c) motion for judgment for the pleadings, the appropriate mechanism to assert any conversion-related claims is a derivative action, and Plaintiffs have no standing to assert these claims directly against the named defendants. Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 21 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 22 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 assets in common.” B) “Who did you interact with and what information did they provide?”). Plaintiffs provided no substantive response. Id. The only evidence in the record demonstrates that Rowlen spent his own funds to try and keep BigTip alive long after he had an obligation to do so. Rowlen Decl., ¶¶ 36, 41; Cohen ¶ 10, Ex. 48, p. 2. He also spent a considerable amount of unpaid time to try to recoup value for the investors. Rowlen Decl., ¶ 34 - 42, Ex. 20-26. Therefore, Plaintiffs’ claims based on any purported transfer of assets from BigTip to Rowlen or WhoToo should be dismissed. F. Plaintiffs Cannot Sustain Their Breach of Promissory Note Claim Against Rowlen Because There is No Plausible Basis for Piercing the Corporate Veil Plaintiffs have named Rowlen as a defendant in their breach of promissory note claim. But Rowlen is not a party to the promissory notes at issue (only BigTip is.) See Rowlen Decl., ¶ 17, Ex. 6-9. Thus, to pierce the corporate veil and obtain relief against Rowlen personally, Plaintiffs must demonstrate that Rowlen abused the corporate form. See Rogerson Hiller Corp. v. Port of Port Angeles, 96 Wn. App. 918, 924, 982 P.2d 131 (1999). They cannot do so. Typically, the corporation is considered an entity separate and distinct from its officers or stockholders (even where they are only one in number). Truckweld Equip. Co. v. Olson, 26 Wn. App. 638, 644, 618 P.2d 1017 (1980). Whether to pierce the corporate veil is a question of state law. See Dusharm v. Elegant Custom Homes, Inc., 302 Fed. Appx. 571, 572 (9th Cir. 2008). To show abuse of corporate form in Washington, a plaintiff must present evidence that (i) the corporate officer intentionally used the corporate form to violate or evade some duty and (ii) the officer’s disregard was necessary and required to prevent unjustified loss to the injured party. Id. Evidence establishing the first element typically involves “fraud, misrepresentation, or some form of manipulation of the corporation to the stockholder’s benefit and creditor’s detriment.” Miesel v. M&N Modern Hydraulic Press Co., 97 Wn.2d 403, 410, 645 P.2d 689 (1982) (citations omitted). Here, Plaintiffs do not assert a claim for piercing the corporate veil and this individual claim should be dismissed on that basis alone. Moreover, Plaintiffs have not ascribed, nor can Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 22 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 23 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 they demonstrate, any specific falsity or manipulation of the corporate form by Rowlen to render him personally liable for BigTip’s failing. Even if such evidence did exist, Plaintiffs cannot point to any admissible evidence to demonstrate that absent any alleged wrongdoing by Rowlen, BigTip would have stayed in business. See Truckweld Equip. Co., 26 Wn. App. at 644-45 (internal citation omitted) (recognizing that there is “no rule of law requiring a corporate stockholder to commit additional private funds to an already faltering corporation”). In fact, the record demonstrates not only that Rowlen expended personal funds to try to save the company but also declined to take a salary for months to keep it afloat. This is not the conduct of someone seeking to commit fraud. G. Plaintiffs Cannot Overcome the Business Judgment Rule Presumption to Sustain Claims Against Rowlen Separate and apart from their failure to pierce the corporate veil, Plaintiffs also cannot overcome the business judgment rule protections that attach to Rowlen. In the seminal case of Schwartzmann v. Ass’n of Apt. Owners, 33 Wn. App. 397, 655 P.2d 1177 (1982), the Washington Court of Appeals held that the law does not hold directors or officers liable for “mistakes of judgment, when they act without corrupt motive and in good faith.” Schwartzmann, 33 Wn. App. at 402. Even an error by an officer or director that is “so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs” is shielded by the business judgment rule. Id. As noted above, Plaintiffs cannot produce any evidence of gross mismanagement of BigTip, let alone bad faith, to overcome the business judgment presumption in favor of Rowlen. H. Plaintiffs Cannot Recover Damages Greater Than Their Individual Investments in BigTip (and Statutory Interest) In addition to the lack of evidence to support their claims, Plaintiffs come forward with no discovery, documents, or cognizable theory in support of their claim for $10 million in damages. See Cohen Decl., ¶¶ 3,7, Ex. 41, p. 8; Ex. 45, p. 7 (requesting documents used to calculate Plaintiffs’ claimed damages). The promissory notes set forth the terms of the Plaintiffs’ investment. Rowlen Decl., ¶¶ 17, Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 23 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 24 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Exs. 6-9. Therefore, even if Plaintiffs could proceed forward to trial on any of their claims—which they cannot—the terms of the Promissory Note provide the sole appropriate basis for calculating any possible damage to the Plaintiffs. VII. CONCLUSION For the foregoing reasons, Defendants Rowlen and WhoToo respectfully request that the Court dismiss all of Plaintiffs’ claims against them with prejudice. DATED this 18th day of December 2017. THENELL LAW GROUP, P.C. By: s/ Anne Cohen Anne Cohen, WSBA #41183 Email: annec@thenelllawgroup.com 12909 SW 68th Parkway, Suite 320 Portland, OR 97223 Telephone: 503-372-6450 Of Attorneys for Defendants WhoToo Inc. and Matthew Rowlen SPIRO HARRISON LAW FIRM Hozaifa Y. Cassubhai, WSBA #39512 Email: hcassubhai@spiroharrison.com 500 Union Street, Suite 800 Seattle, WA 98101 Telephone: (206) 899-1996 Of Attorneys for Defendants BigTip, Inc. and Matthew Rowlen Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 24 of 25 DEFENDANTS’ JOINT MOTIONS FOR SUMMARY JUDGMENT (Case No. 2:15-CV-01871-MJP) - Page 25 - THENELL LAW GROUP, P.C. 12909 SW 68th Parkway, Suite 320 Portland, Oregon 97223 Telephone: (503) 372-6450 Facsimile: (503) 372-6496 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 CERTIFICATE OF SERVICE I hereby certify that on December 18, 2017, I served DEFENDANTS BIG TIP, INC., WHOTOO INC., AND MATT ROWLEN’S JOINT MOTIONS FOR SUMMARY JUDGMENT Via CM/ECF Filing Paul William Chandler, CSB #137091 (Admitted pro hac vice) Chandler Law Firm 5150 E. Pacific Coast Highway, Suite 200 Long Beach, CA 90804 Email: chandlerlaw@aol.com Facsimile: 562-269-4901 Attorney for Plaintiffs Michael Kantor, SLM Holdings Limited LLC, 3 Wise Ventures, Inc., and Cabbage Tree Investments Via CM/ECF Filing Andrew R. Escobar WSBA #42793 David Freeburg WSBA #48935 DLA Piper LLP (US) 701 Fifth Avenue, Suite 7000 Seattle, WA 98104-7044 Email: andrew.escobar@dlapiper.com Email: david.freeburg@dlapiper.com Facsimile: 206-839-4801 Attorney for Plaintiffs Michael Kantor, SLM Holdings Limited LLC, 3 Wise Ventures, Inc., and Cabbage Tree Investments, and Interested Party Elisha Gilboa Via CM/ECF Hozaifa Y. Cassubhai, WSBA #39512 Spiro Harrison Law Firm 500 Union Street, Suite 800 Seattle, WA 98101 Facsimile: 973-232-0887 Email: hcassubhai@spiroharrison.com Attorneys for Defendants BigTip, Inc. and Matthew Rowlen Via CM/ECF Filing Nate Somers, WSBA #46554 Ben VandenBerghe, WSBA #35477 Montgomery Purdue Blankinship & Austin 701 Fifth Ave., Ste. 5500 Seattle, WA 98104 Facsimile: 206-625-9534 Email: nsomers@mpba.com Email: biv@mpba.com Attorneys for Defendant Demandbase, Inc. By the following indicated method or methods: XX by E-filing a full, true and correct copy thereof, to the attorney, as shown above, at the electronic mail address reflected on the court’s CM/EFC system, on the date set forth above. THENELL LAW GROUP, P.C. By: s/ Kimberly Harmon Kimberly Harmon Legal Assistant to Anne C Case 2:15-cv-01871-MJP Document 146 Filed 12/18/17 Page 25 of 25