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CFGenome, LLC v. Streck, Inc.

United States District Court, D. Nebraska

August 22, 2019

CFGENOME, LLC, a Delaware limited liability company; and DR. M. ROHAN FERNANDO, an individual; Plaintiffs/Counter Defendants,
v.
STRECK, INC., Defendant/Counter Plaintiff
v.
GARY KRZYZANOWSKI, Third-Party Defendant.

          MEMORANDUM AND ORDER

          Cheryl R. Zwart United States Magistrate Judge

         Pending before me is the motion to quash filed by Plaintiffs/Counter-Defendants CFGenome, LLC, Dr. M. Rohan Fernando, and Third-Party Defendant, Gary Krzyzanowski. (Filing No. 178). For the reasons explained below, the court will grant the motion for protective order/to quash subparagraphs (d), (e), (f), and (i) of topics 17 through 24 of the proposed subpoena to be served on Patricia Alvarado, (Filing No. 180-4), and the court will grant the motion for protective order/to quash paragraphs 4 through 9, 14, 15, 17, and 20; subparagraph (f) of topics 10, 11, 12, and 13; and subparagraphs (d), (e), and (h) of topics 24 through 29 of the proposed subpoena to be served on UNMC. (Filing No. 180-3). The court will not quash paragraph 22 of the proposed subpoena to be served on UNMC.

         STANDARD OF REVIEW

         A party may move for an order protecting it from disclosure of discovery. See Fed.R.Civ.P. 26(c). The party moving for the protective order has the burden to demonstrate good cause for issuance of the order. See Miscellaneous Docket Matter No. 1 v. Miscellaneous Docket Matter No. 2, 197 F.3d 922, 926 (8th Cir. 1999). Upon a showing of good cause, the court may forbid the discovery or modify the disclosure by specifying the terms or method of discovery. See Fed.R.Civ.P. 26(c)(1)(A).

         Where the discovery is requested in a third-party subpoena, the federal and local rules limit a party's capacity to object. See Fed.R.Civ.P. 45; NECivR 45.1. “[An] adverse party has standing to object to a third-party subpoena on grounds of relevance or to protect a personal right or privilege in the information requested.” Jenkins v. Pech, No. 8:14CV41, 2015 WL 728305, at *3 (D. Neb. Feb. 19, 2015) (citing Streck, Inc. v. Research & Diagnostic Sys., Inc., No. 8:06CV458, 2009 WL 1562851, at *3 (D. Neb. June 1, 2009).

         The scope of permissible discovery is broad. The Federal Rules of Civil Procedure allow for discovery of “any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Fed.R.Civ.P. 26(b)(1). Relevancy for the purposes of discovery, includes “any matter that bears on, or that reasonably could lead to other matters that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978). When the discovery sought appears relevant on its face, the party resisting discovery has the burden to establish that the discovery is not relevant, or is “of such marginal relevance that the potential harm occasioned by the discovery would outweigh the ordinary presumption in favor of broad disclosure.” Streck, Inc. v. Research & Diagnostic Sys., Inc, 8:06CV458, 2009 WL 1562851, at *3 (D. Neb. June 1, 2009) (quoting Moses v. Halstead, 236 F.R.D. at 671.) However, when the relevancy of the discovery request is not readily apparent, the court need not consider proportionality unless the moving party first shows how the requested information is relevant. Id.

         Although the scope of discovery under a subpoena is the same as the scope of discovery under Rules 26(b) and 34 and is subject to the rules that apply to other methods of discovery, (McGehee v. Nebraska Dept. of Corr. Servs. No. 4:18-cv-3092, 2019 WL 266423 (D. Neb., Jan. 17, 2019), the standard for nonparty discovery may require a stronger showing of relevance than for party discovery. Cor Clearing, LLC v. Calissio Res. Grp. Inc., 8:15-cv-317 (D. Neb. 2016).

         STATEMENT OF FACTS

         A. The Claims and Defenses Raised

         The court's relevance determination rests on the claims and defenses raised in the operative pleadings: The Amended Complaint filed by CFGenome and Fernando, (Filing No. 58), as narrowed by the parties' joint stipulation for dismissal, (Filing No. 154); Defendant Streck Inc.'s Answer and Affirmative Defenses to Plaintiffs' Amended Complaint, (Filing No. 69); Defendant Streck's Amended Counterclaim and Third Party Complaint, (Filing No. 59);[1] the Answer to First Amended Counterclaims filed by CFGenome and Fernando, (Filing No. 70); and Third-Party Defendant Krzyzanowski's Amended Answer and Affirmative Defenses to the Third-Party Complaint, (Filing No. 144).

         1. The Amended Complaint filed by CFGenome and Fernando.

         Plaintiffs' Amended Complaint alleges as follows:

         Fernando worked for Streck from 2007 until September of 2014. In late 2013, Fernando signed an Employee Confidential Information, Inventions, and Non-Solicitation Agreement regarding his work at Streck (the “Agreement”). Fernando left his employment at Streck when Dr. Wayne Ryan (“Dr. Ryan”), the founder and former CEO of Streck, was pushed out of the company by Streck's new CEO, Connie Ryan (Dr. Ryan's daughter). After leaving Streck, Fernando began various research projects and worked as a consultant for CFGenome. Fernando's work was funded by CFGenome, and in a written agreement, Fernando agreed to assign any new inventions to CFGenome. (Filing No. 58, at CM/ECF p. 5, ¶ 24).

         Fernando began working on an idea for a chemical composition to be used in a blood collection tube that would stabilize extracellular vesicles in a blood sample. This research began more than a year after he left his Streck employment, ultimately resulting in the invention of a new type of blood collection tube, the Exo DNA ProTeck Blood Collection Tube®, (“ProTeck BCT”). The ProTeck BCT directly competes with a Streck product, the Cell-Free DNA BCT® (“Cell-Free BCT”).

         In July of 2016, Streck accused Plaintiffs of misappropriating Streck's trade secrets and confidential information, and it accused Fernando of violating the Agreement by disclosing Streck's confidential and trade secret information, (Agreement, ¶ 2, the “confidentiality” provision); using information from his Streck employment to invent new products within one year of his Streck employment, and not assigning the rights to those products/advancements to Streck, (Agreement, ¶ 4, the “holdover” provision); and soliciting business away from Streck in favor of CFGenome, (Agreement, ¶ 5, the “non-solicitation” provision). Plaintiffs responded to these accusations by filing a lawsuit seeking declaratory relief; specifically, an order finding Plaintiffs did not misappropriate trade secrets in violation of Federal Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, that Fernando did not violate his Agreement with Streck, and that the holdover provision of the Agreement is void as against public policy.

         Streck denies Plaintiffs are entitled to the relief requested, and it alleges Plaintiffs' claims are barred by the doctrines of estoppel, waiver, laches, unclean hands, and the applicable statute of limitations. (Filing No. 69, at CM/ECF p. 11).

         2. Streck's Amended Counterclaims.

         Streck asserts counterclaims against CFGenome and Fernando. (Filing No. 59, at CM/ECF pp. 7-46), which allege, in essence, [2] as follows:

         While working for Streck, Fernando was integrally involved in Streck's business, including the research, design, product development, and marketing of the Streck Cell-Free BCT. Within that capacity, Fernando gained access to Streck's confidential information and trade secrets, including the documented formulas, compilations, processes, procedures, and techniques developed by Streck for its Cell-Free BCT.

         Dr. Ryan, founder of Streck, and Fernando are members of CFGenome. CFGenome was formed in June of 2014. Dr. Ryan had established a laboratory at UNMC, and on August 10, 2014, Fernando represented to UNMC personnel that he hoped “to develop noninvasive prenatal diagnostic tests”-the precise field he worked in for Streck as a researcher and developer of the Cell-Free BCT-in a paid position at Dr. Ryan's UNMC laboratory. When Fernando left his Streck employment in September of 2014, he denied any intent to work for Dr. Ryan. Contrary to this representation, Fernando began working with Dr. Ryan, and ultimately the ProTeck BCT was created. CFGenome and Fernando could not have developed a blood collection product without using information Fernando obtained while working for Streck. As such, the ownership of the ProTeck BCT must be assigned to Streck.

         In July 2016, Fernando, on behalf of CFGenome, personally approached at least one Streck customer and informed that customer that CFGenome will be able to provide alternative blood collection tubes at a price much lower than Streck's current pricing. In addition, CFGenome has misrepresented the performance and cost advantages of using the ProTeck BCT compared to the Cell-Free BCT. CFGenome's webpage lists its members and their former employment for Streck, without disclaiming a continued affiliation between CFGenome and Streck. By doing so, CFGenome is using Streck's reputation to promote and market CFGenome's products, leaving the impression that Streck is endorsing CFGenome, and confusing customers and vendors as to the source of products on the market. And CFGenome's marketing materials and instructions, including verbiage and diagrams, were copied and/or derived from Streck's Cell-Free BCT materials and copyrighted artwork.

         Fernando's conduct on behalf of CFGenome violated the confidentiality, holdover, and non-solicitation terms of his Agreement with Streck.

         Streck alleges the following 14 Counterclaims against CFGenome and Fernando:

I. misappropriation of trade secrets in violation of the DTSA;
II. breach of contract;
III. tortious interference with contract;
IV. tortious interference with prospective advantage;
V. declaratory judgment as to intellectual property rights;
VI. Lanham Act violation as to tube stability;
VII. Lanham Act violation for attempting to capitalize on Streck's reputation and good will in the industry by falsely implying CFGenome and its members remain affiliated with Streck;
VIII. Nebraska Deceptive Trade Practice Act violation as to tube stability;
IX. Nebraska Deceptive Trade Practice Act violation for attempting to capitalize on Streck's reputation and goodwill in the industry by falsely implying CFGenome and its members remain affiliated with Streck;
X. trademark infringement;
XI. copyright infringement;
XII. unjust enrichment;
XIII. unfair competition based on confusion between product source; and
XIV. breach of fiduciary duty.

(Filing No. 59, at CM/ECF pp. 29-44, ¶¶ 97-203). Streck seeks injunctive relief and damages, including but not limited to recovery of Streck's lost profits, disgorgement of wrongfully gained profits, general damages and consequential damages, and where applicable, statutory and/or punitive damages.

         CFGenome and Fernando raise a plethora of defenses. In addition to challenging whether evidence will support the elements of Streck's claims, they allege Streck's claims are barred, in whole or in part, by the statute of limitations, estoppel, laches, waiver, and/or unclean hands, and the Digital Millennium Copyright Act, 17 U.S.C. § 512. CFGenome and Fernando allege Streck's claims to enforce the Agreement must be denied as unconscionable and in violation of public policy, and Streck's claims based on the speech or communicative conduct of CFGenome and Fernando violate the First Amendment. CFGenome and Fernando allege Streck's copyright claims are barred by the doctrines of fair use, misuse of copyright, and implied license, and the Lanham Act claims are barred by the doctrine of fair use. CFGenome and Fernando allege Streck has failed to mitigate its damages, and any statutory damages sought are unconstitutionally excessive and disproportionate to any actual damages that may have been sustained in violation of the Due Process clause.

         3. Streck's Third Party Claims.

         Streck filed a third party claim against Gary Krzyzanowski, a former Streck employee. (Filing No. 59, at CM/ECF pp. 47-54, ¶¶ 1-39). Streck's third party claim alleges as follows:

         Krzyzanowski was responsible for manufacturing the Cell-Free BCT while at Streck, and he was familiar with the technical challenges Streck faced when attempting to manufacture that product on a commercial scale. Krzyzanowski knew the confidential and trade secret solutions employed by Streck to overcome those manufacturing challenges. His duties included injecting the formula used into the Cell-Free BCT.

         Krzyzanowski's employment at Streck was terminated on August 5, 2014. Shortly thereafter, Krzyzanowski was offered and accepted employment for CFGenome. He then attempted to recruit a key employee away from Streck in September of 2016. He is now a member of CFGenome, performing the same responsibilities at CFGenome that he did for Streck, and using his Streck knowledge and experience to do so.

         Prior to his departure from Streck, Krzyzanowski entered into an Employee Confidential Information, Inventions, and Non-Solicitation Agreement mirroring the Agreement signed by Fernando. Along with Fernando, Krzyzanowski published an abstract which included confidential and trade secret information obtained while working for Streck. And like Fernando, in website marketing for CFGenome, Krzyzanowski recites his professional experience at Streck while failing to explain that neither he nor CFGenome are currently affiliated with, or sponsored or approved by, Streck. Krzyzanowski copied Streck's instructional materials, diagrams and artwork to promote CFGenome's competing ProTeck BCT.

         Streck alleges claims against Krzyzanowski for:

I. breach of the confidentiality and holdover provisions of his Agreement with Streck; II. misappropriation of trade secrets in violation of the DTSA; and III. a declaratory judgment as to intellectual property rights.

(Filing No. 59, at CM/ECF pp. 47-54, ¶¶ 1-39).

         Streck seeks injunctive relief and damages, including but not limited to recovery of Streck's lost profits, disgorgement of wrongfully gained profits, general and consequential damages, and where applicable, statutory and/or punitive damages.

         Krzyzanowski alleges most, if not all, the same defenses alleged by CFGenome and Fernando in response to Streck's counterclaims. (Filing No. 144).

         B. The Discovery in Dispute.

         The parties agreed that subpoenas could be served on the University of Nebraska Medical Center (“UNMC”) and a former Streck employee, Patricia Alvarado (“Alvarado”). On August 29, 2018, Streck served its notice of intent (Filing No. 180-2) to serve these subpoenas. (Filing No. 180-3 and Filing No. 180-4.) CFGenome, Fernando, and Krzyzanowski (collectively “CFG”) objected to portions of the proposed subpoenas.

         The parties have engaged in several meet and confer sessions beginning in October 2018 to discuss the discovery disputes over the third party subpoenas, issues related to CFG's Motion for Protective Order (Filing No. 118), Streck's Motion to Amend (Filing No. 140), and the resulting Order of this court (Filing No. 157). CFG objected to the subpoenas and suggested ways to narrow them. (Filing No. 180-5).

         During a call with the undersigned magistrate judge on March 12, 2019, the parties mentioned there were ongoing disagreements regarding the third-party subpoenas. (Filing No. 160). Following the call, Streck revised the subpoenas. CFG objected and reasserted the same positions it had taken during previous meet and confer sessions.

         On May 1, 2019, the parties participated in another telephone conference with the undersigned magistrate judge. (Filing No. 172). Following the call, the parties met and conferred as ordered by this court, but they did not resolve the relevance and privilege issues asserted by CFG. As to the motions now pending before me, CFG suggests that as to some of the revised subpoena requests, the subpoenas can be issued as written, but some ...


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