Lumentum Operations LLC v. nLight, Inc.

1

LUMENTUM OPERATIONS LLC, Plaintiff, v. NLIGHT, INC.; DAHV KLINER; and ROGER L. FARROW, Defendant.

No. C22-5186 BHS

United States District Court, W.D. Washington, Tacoma

September 6, 2024

ORDER

BENJAMIN H. SETTLE UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendants nLIGHT, Dahv Kliner and Roger Farrow's motion to exclude the testimony of Plaintiff Lumentum Operations LLC's damages expert witness, Donald Gorowsky. Dkt. 107. Because Lumentum is not legally entitled to recover the types of damages to which Gorowsky would testify, the motion is granted.

I. BACKGROUND

Kliner and Farrow are former employees of Lumentum's predecessor-in-interest, JDS Uniphase. Dkt. 32, ¶ 1. At JDS Uniphase, Kliner and Farrow each signed an agreement entitled, “Employee Proprietary Information and Inventions Agreement.”

Dkts. 32-1, 32-2. In section 3 of this Agreement, Kliner and Farrow agreed to not disclose JDS Uniphase's proprietary information to “anyone outside” the company:

During and after my employment with Company Group, I will not disclose any Proprietary Information to anyone outside Company Group, and I will use and disclose Proprietary Information to those inside Company Group only as may be necessary in the ordinary course of performing my duties as an employee of Company.

Dkt. 32-1 at 2.

Kliner and Farrow left JDS Uniphase in 2012 and 2013, respectively, to work for nLIGHT. Dkt. 32, ¶¶ 88-90, 92-94. Lumentum alleges that, after joining nLIGHT, Kliner and Farrow used JDS Uniphase's propriety information to assist nLIGHT in obtaining two categories of patents, the “adjustable beam patents” and the “triple-clad fiber patents.” Id. ¶¶ 52-87; 96-565. Lumentum also alleges that nLIGHT used these patents to develop certain fiber laser products, the “Corona” and “AFX” fiber laser products. Id. ¶ 97.

In 2022, Lumentum sued, asserting breach-of-contract claims against Kliner and Farrow and correction-of-inventorship and declaration-of-patent-ownership claims against all Defendants. Dkt. 1, ¶¶ 652-729. Following the Court's prior order granting in part and denying in part Defendants' motion to dismiss, the sole remaining breach-of-contract claims against Kliner and Farrow concern whether they breached section 3 of their Agreements by disclosing JDS Uniphase's proprietary information to nLIGHT. Dkt. 40 at 22-23. The correction-of-inventorship and declaration-of-patent-ownership claims also remain. Id.

In support of its breach-of-contract claims, Lumentum seeks to present at trial testimony from its damages expert witness, Gorowsky, on three subjects: (1) the total compensation that Kliner and Farrow received when they were employed by JDS Uniphase; (2) the total compensation that Kliner and Farrow received when they were employed at nLIGHT; and (3) the total revenues and gross profits that nLIGHT has received from its Corona fiber laser products.^[1]Dkt. 108 at 16.

Defendants move to exclude Gorowsky's testimony, making numerous arguments about why his testimony is unnecessary and unreliable. Dkt. 107 at 9-17. More persuasively, however, Defendants suggest that Gorowsky's opinions are irrelevant because Lumentum is not legally entitled to recover the types of damages to which he would testify.^[2]See Dkt. 107 at 17. Defendants also assert that, because “there is no claim for money damages against nLIGHT,” “Gorowsky's presentation of opinions about ‘nLIGHT's Revenues and Gross Profits' could be interpreted as evidence of damages asserted against nLIGHT, rather than the two individuals against whom the breach of contract has been asserted.” Id. at 18.

Lumentum argues that Gorowsky's testimony is admissible to establish damages for unjust enrichment. Dkt. 143 at 20. Lumentum asserts that “it is entitled to all or a portion of Kliner's and Farrow's JDSU compensation because their employment at JDSU was expressly conditioned on their agreement to abide by their [Employee Proprietary Information and Inventions Agreements], which prohibited the disclosure of JDSU Proprietary Information.” Dkt. 141 at 11. It contends that “it is entitled to all or a portion of Kliner's and Farrow's nLIGHT compensation because their compensation was based at least in part on the value they brought to nLIGHT, which value was attributable to and the result of their disclosure of JDSU Proprietary Information.” Id. at 12. Lumentum argues that, “[i]n connection with these arguments, Gorowsky's opinions regarding how to determine Kliner's and Farrow's compensation and nLIGHT's Corona Revenue with a reasonable degree of accounting certainty will be helpful to the jury.” Id.

Defendants reply that Gorowsky's testimony “is irrelevant and untethered to the claims at issue because it is unsupported in both law and fact.” Dkt. 145 at 4. They contend that California law^[3]“does not support that an employee who provided value to his employer, but allegedly and while employed by a subsequent employer breached a specific term of his [prior employment] agreement, must forfeit every penny of compensation earned during both tenures as damages.” Id. Defendants also assert that California law does not “support the idea that a plaintiff can force a defendant to disgorge profits that it did not earn.” Id. They explain that “nLIGHT's profits did not flow to Kliner and Farrow” and “[t]here is no evidence that Kliner and Farrow received even a percentage of the nLIGHT profit Lumentum now seeks to disgorge from them.” Id. at 6. In sum, they argue, “[b]ecause Gorowsky opines on damages that Lumentum cannot legally recover, exclusion is appropriate.” Id. at 4.

The issues are addressed in turn.

II. DISCUSSION

Lumentum asks the Court to set a dangerous precedent. It seeks to disgorge two former employees of the salaries and benefits that it paid to them over a decade ago, merely upon proof that these former employees breached a single provision of their employment agreements after their employment had ended and while they otherwise performed satisfactory work. See Dkt. 143 at 20. Under the circumstances of this case, such relief is plainly prohibited by both the California Labor Code and basic contract principles.

California's Labor Code expressly provides that “[i]t shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” Cal. Lab. Code, § 221. “Labor Code section 221's rights are nonnegotiable and cannot be waived by the parties.” Sciborski v. Pac. Bell Directory, 205 Cal.App.4th 1152, 1166 (2012).

The statute defines “[w]ages” broadly to “include[] all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Cal. Lab. Code, § 200(a) (emphasis added). “Wages” also “‘include[s] not only the periodic monetary earnings of the employee but also the other benefits to which he is entitled as part of his compensation.'” Schachter v. Citigroup, Inc., 47 Cal.4th 610, 618 (2009) (emphasis added) (quoting Wise v. Southern Pac. Co., 1 Cal.3d 600, 607 (1970)). This “‘includ[es] money, room, board, clothing, vacation pay, and sick pay.'” Schachter, 47 Cal.4th at 618 (quoting Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4^th 1094, 1103 (2007)). “Incentive compensation, such as bonuses and profit-sharing plans, also constitute wages.” Schachter, 47 Cal.4th at 618. The Labor Code also defines “[l]abor” broadly to “include[] labor, work, or service whether rendered or performed under contract, subcontract, partnership, station plan, or other agreement if the labor to be paid for is performed personally by the person demanding payment.” Cal. Lab. Code, § 200(b).

Section 221 prevents Lumentum from recovering through its breach-of-contract claims the salaries and benefits that JDS Uniphase paid Kliner and Farrow. The Northern District of California's decision in DHR Int'l Inc. v. Charlson, No. C 14-1899 PJH, 2014 WL 4808752 (N.D. Cal. Sept. 26, 2014), is instructive. In that case, an employee's employment agreement provided that he would receive a one-time bonus of $250,000 if he satisfied a certain performance goal during his first six months of employment, and another $250,000 if he satisfied the same goal during his second six months. Charlson, 2014 WL 4808752, at *1. The employment agreement also provided that “the two $250,000 bonuses were ‘subject to a claw back of $105,000 each should [the employee] depart [the company] within one year of payment.'” Id.

The employee satisfied both goals and earned the two bonuses. Charlson, 2014 WL 4808752, at *1. However, ten months later, the company discharged him and demanded repayment pursuant to the clawback provision. Id. The company “claim[ed] that [the employee] had disclosed confidential company information and had attempted to solicit or induce other . . . personnel to terminate their relationships with [the company].” Id. The employee refused to make repayment, and the company sued for breach of contract, asserting that the employee “failed to comply with the clawback provision in the Employment Agreement.” Id. at *2. Despite this express contract provision purporting to authorize such a chargeback, the court dismissed the breach of contract claim, reasoning that Cal. Lab. Code § 221 “prevents an employer from taking back wages earned and paid, and a commission chargeback is unlawful where the commission was fully earned at the time of a sale.” Charlson, 2014 WL 4808752, at *7.

Because Kliner and Farrow long-ago earned the salaries and benefits that JDS Uniphase paid to them, section 221 prevents Lumentum from recovering these salaries and benefits as contract damages.

Allowing for such...