SmartStream Techs. v. Chambadal

SMARTSTREAM TECHNOLOGIES, INC., Plaintiff, v. PHILIPPE CHAMBADAL, Defendant.

17-CV-2459 (VSB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 30, 2019

REDACTED

OPINION & ORDER

Appearances:

Jill S. Kirila

Kristine Woliver

Meghan E. Hill

Squire Patron Boggs (US) LLP

Columbus, OH

Counsel for Plaintiff

Eric R. Stern

Jonathan S. Sack

Sack and Sack, LLP

New York, NY

Counsel for Defendant

VERNON S. BRODERICK, United States District Judge:

SmartStream SmartStream Technologies, Inc. ("SmartStream") brings this action against Defendant Philippe Chambadal ("Chambadal"), alleging breach of contract, New York trade secret misappropriation, and violation of the Defend Trade Secrets Act of 2016, ("DTSA"), 18 U.S.C. § 1831, et seq. Before me is SmartStream's motion for summary judgment on all three of its claims and its request for attorneys' fees, and its motion to strike Documents 78-1 and 82 from the record. For the reasons stated herein, SmartStream's motion to strike is GRANTED IN PART AND DENIED IN PART, and SmartStream's motion for summary judgment is GRANTED IN PART AND DENIED IN PART.

I. Background¹

Smartstream is a financial technology company that provides data and software solutions to banks and other similar customers. (Def.'s Resp. 56.1 ¶ 1.)² Chambadal became a member of SmartStream's Board of Directors in 2007. (Id. ¶¶ 2, 3.) He subsequently became the Chief Executive Officer ("CEO") of SmartStream in 2011 and continued to serve on the Board of Directors. (Id. ¶ 4.) The terms and conditions of Chambadal's employment as CEO were outlined in an Offer Letter dated June 22, 2011. (Id. ¶ 7.)

Several years later, on July 21, 2015, the parties entered into the Employee Agreement Regarding Confidential and Non-Competition and Proprietary Rights (the "Employee Agreement"). (Id. ¶ 9.) Under the Employee Agreement, SmartStream agreed to employ Chambadal on an at-will basis and provide him with access to proprietary and confidential information and other SmartStream property. (Id.; Emp. Agmt. 1.)³ In turn, Chambadal assumed certain obligations with respect to that information and property, including (1) to keepinformation defined as "Proprietary Information" in "trust and confidence," (Emp. Agm. ¶¶ 1(a), 2); (2) to return SmartStream's property to SmartStream "as and when requested" or "immediately upon termination" and to "keep no copies," (id. ¶ 3); and (3) to indemnify SmartStream for costs and expenses relating to his violation or non-performance of the Agreement, (id. ¶ 9).

As CEO, Chambadal had wide-ranging duties that included explaining SmartStream's services to customers, pitching SmartStream's services to potential clients, preparing business strategies on behalf of SmartStream and communicating them to the management team, discussing competitive positioning and presenting about that to the Board of Directors, and preparing sales plans, addressing which segments of the market SmartStream would target and how. (Def.'s Resp. 56.1 ¶ 20.) To facilitate Chambadal's ability to carry out his duties, SmartStream issued him a MacBook laptop computer and a Blackberry. Chambadal traveled frequently and used these devices to work remotely. (Id. ¶¶ 21-23.) He saved SmartStream documents locally to the MacBook, and used an external storage hard drive to back these files up approximately once a month. (Id. ¶ 24.) Chambadal also used his family's personal desktop computer, an iMac, to access and send SmartStream documents, including, for example, by scanning a signed contract to the computer and then e-mailing it from his personal Gmail account to his SmartStream email account. (Id. ¶ 25.)

Chambadal served as SmartStream's CEO until around spring 2016, when he transitioned within the company into a non-executive business development role. (Id..) However, on January 5, 2017, SmartStream informed Chambadal orally and by written notice that his employment was being terminated, effective April 4, 2017, the "separation date." (Id. ¶ 42; Term. Not. 1.)⁴

Until that final separation date, Chambadal was placed on a "garden leave," during which he continued to receive his salary and health insurance coverage, but was prohibited from performing any employment duties, from engaging in any dealings or contact with SmartStream's clients or customers, and from working in any capacity for any other person, company, or entity. (Def.'s Resp. 56.1 ¶¶ 42-44; Term. Not. 1-2.) The notice instructed Chambadal that he was "required to return any and all Company property at home or elsewhere within one week of the date of this letter . . . January 12, 2017." (Def.'s Resp. 56.1 ¶ 44; Term. Not. 2.)

SmartStream followed up on this request on January 9, 2017 by e-mailing Chambadal informing him that it would have his "mobile phone number transferred" once he returned his "IT equipment, passwords and building passes." (Def.'s Resp. 56.1 ¶ 45; Def.'s Dep. 121:6-21; Dep. Ex. 12).⁵ Chambadal e-mailed back that day indicating that he would drop "the equipment" off the next day. (Def.'s Resp. 56.1 ¶ 46; Def.'s Dep., 121:6-21; Dep. Ex. 12). The next day, however, Chambadal e-mailed SmartStream indicating he would not be able to drop the equipment off that day because he had to "leave town." (Def.'s Resp. 56.1 ¶ 46; Def.'s Dep., 122:13-25, 123:1-9; Dep. Ex. 13.) On January 17, 2017, SmartStream again requested that Chambadal return the company's property. (Def.'s Resp. 56.1 ¶ 50.)

Chambadal did not return the property. However, he contends that by January 27, 2019, he had "commenced efforts [through his counsel] to secure the return of SmartStream'sproperty," and by February 7, 2017, he had given the MacBook and BlackBerry to his counsel. (Id. ¶ 46.)

In any event, during the first few days of February 2017, SmartStream's attorneys and Chambadal's attorney, Jonathan Sack, corresponded by e-mail, with SmartStream's counsel requesting that Chambadal return the "company property" and Sack asserting that he would take custody of the property and would arrange to have a "mirror image" made of any "storage devices." (Id. ¶¶ 46-47, 55-56, 58-59; Compl. Exs. C, D.)⁶ SmartStream's counsel responded that Chambadal was "required to return any and all property and documents, and not retain any copies," and that SmartStream did not consent to Sack's retention of the MacBook and the Blackberry or the making of any mirror images. (Def.'s Resp. 56.1 ¶ 58; Compl. Ex. D, at 12.) SmartStream's counsel also informed Sack that SmartStream had retained a third-party vendor, the Consumer Forensics Practice, LLC ("CFP"), to retrieve the MacBook, Blackberry, and any other company property by February 7, 2017 at 9:30 a.m., or at an alternative time to be arranged by Sack and CFP. (Def.'s Resp. 56.1 ¶ 59; Compl. Ex. D, at 12.)

When Lacey Walker of CFP appeared at Sack's offices at the appointed time on February 7, he was informed that Sack would not release the devices. (Def.'s Resp. 56.1 ¶ 64.) SmartStream's counsel e-mailed Sack again on February 8, 2017, demanding that Chambadal return the laptop and Blackberry without taking any images of them by the following morning. (Id. ¶ 65; Compl. Ex. D, at 9.)

Chambadal apparently did not do so. On February 10, 2017, a "mirror image" of the MacBook—a copy of its entire contents—was made. (Def.'s Resp. 56.1 ¶ 66.) Chambadalasserts that a third-party company created this mirror image and saved it to an external hard drive ("Mirror Image"), which Sack avers he immediately placed in a locked cabinet in his office. (Sack Affirm. Opp. PI ¶ 21.)⁷

On February 13, 2017, SmartStream filed a replevin action in the Supreme Court of the State of New York to obtain return of the devices. (Def.'s Resp. 56.1 ¶ 68.) On February 16, 2017, Sack turned over the MacBook and the Blackberry to CFP. (Id. ¶ 69.)⁸

Between January 5, 2017 and February 13, 2017, Chambadal used the MacBook, copied, and transmitted SmartStream documents on several occasions, including the following:

• On January 27, 2017, Chambadal sent an e-mail from a personal e-mail account to an outside individual not employed by or affiliated with SmartStream. (Id. ¶ 42.) This e-mail contained an attachment titled "STL Corporate Q4 2016.pptx," which was a PowerPoint slide presentation whose title slide and slide headers read "SmartStream." (Id.)

• On February 4, 2017, an external storage device was plugged into the MacBook and certain data was backed up. (Id. ¶ 60.) Chambadal admits that he plugged in an external storage device but states his intent was only to extract personal photographs. (See id.; Def.'s Aff. ¶ 9; Def.'s Dep. 127:15-128:8.)⁹

SmartStream then filed this action along with a proposed Order to Show Cause for a temporary restraining order and preliminary injunction, which I issued on April 13, 2017. (SeeTRO.)¹⁰ The TRO, inter alia, restrained Chambadal from accessing or using any SmartStream confidential information and from "transferring, copying, altering, deleting, or otherwise disturbing the status of any such data or documents . . . from any computers, hard drives, email, cloud accounts or other storage locations or media." (TRO at 2, ¶ 2.) He was also ordered to turn over all SmartStream property to his legal counsel. (Id. at 2.)

On May 10, 2017, Chambadal submitted his papers in opposition to SmartStream's motion for a preliminary injunction, which included an affidavit in which he swore that he did "not possess any additional copies of SmartStream's confidential information, trade secrets, and/or proprietary information on any of my personal computers, cell phones, or any other electronic devices." (Def.'s Aff. Opp. PI ¶ 7).¹¹ On May 17, 2019, I held a hearing on the motion for preliminary injunction and directed the parties to propose a consent order for an injunction and to ensure the Mirror Image was sealed and placed with CFP.¹²

On May 19, 2017, Chambadal emailed a document entitled "SmartStream corporate overview.pdf" to a person named Alex Tsigutkin, an employee of a...