Citations
- 298 F. Supp. 3d 727
Full opinion text
JED S. RAKOFF, U.S.D.J.
Although this case involves nearly a dozen parties in the fashion technology business and conduct that occurred on at least three continents, the underlying battle is basically between two men: Jerome Marechaux, a French citizen residing in Paris, France, and Bradley Zetler, a dual U.S. and South African citizen residing in Cape Town, South Africa. The various other parties are either individuals employed by Marechaux or entities controlled by Marechaux or Zetler. But while their controversies reflect the international reach of modern business, they also reflects such human emotions as greed and anger that are as old as the hills.
Now locked in bitter disputes, Marechaux and Zetler were once business associates who shared funds and resources. Marechaux allowed Zetler to use his brand and cultivate his customer-base; Zetler lent Marechaux his technological know-how and business acumen. Of particular significance to the instant dispute Marechaux, in 2005, made Zetler the president of a Delaware company called C.D.S. Inc. (the "Company" or "plaintiff") that Marechaux had founded a decade earlier and that was engaged in helping fashion agencies connect with their customers electronically. Subsequently, Marechaux and Zetler developed a product called "Agencypad," a software system that combined various functions and features of Marechaux's and Zetler's existing products. Thereafter, Marechaux and Zetler sold Agencypad to modeling agencies around the world, with Marechaux taking the lead in Europe, Zetler in Africa, and both overseeing aspects of the North American operations.
But as the business grew, so did the differences between the partners. Zetler, in particular, became increasingly dissatisfied with Marechaux, and demanded more money and more control over the global business. In 2015, Zetler threatened to break things off with Marechaux if Marechaux did not accede to his demands.
In early 2016, an uneasy stalemate collapsed. To retain the Company's head of sales, Diane Treat, Marechaux made her president of the Company, terminating Zetler from the role. In response, Zetler cut off the Company's access to various accounts and services, refused to turn over critical information belonging to the Company, and filed a series of copyright and trademark registrations in and to Agencypad-the Company's flagship product-claiming that Agencypad belonged to his South African company, Rapid Systems CC ("Rapid Systems"), pursuant to a 2001 contract. See Exclusive Distributorship Agreement ("EDA"), Pl. Ex. 1.
On April 29, 2016, the Company, seeking to recover its assets and preserve its business, brought the instant action against Zetler, as well as against Rapid Systems and CDS LLC ("the LLC"), entities wholly-owned by Zetler (collectively "defendants"). See Complaint ("Compl."), Dkt. 1. The Company argued, inter alia, that Rapid Systems' copyright and trademark registrations in and to Agencypad were void, and that the Company was the rightful owner of Agencypad. Id. The Company also sought monetary damages and injunctive relief in connection with actions Zetler took to undermine the Company during his final years as its president and in the months following his termination. Id.
On June 6, 2016, the Honorable Victor Marrero, to whom this case was assigned prior to trial, issued a preliminary injunction granting the Company co-equal access to the accounts and tools necessary for the Company to maintain and operate its business during the pendency of this litigation. See Decision and Order, Dkt. 39.
On November 8, 2016, defendants filed a second amended answer, including six affirmative counterclaims against the Company and naming six third-party defendants: Marechaux, Treat, three members of the Company's Board of Directors (Jerome Viollon, Christelle Riot, and Christophe Racle), and C.D.S. SARL ("SARL"), a French company majority-owned by Marechaux. See Defendants' Second Amended Answer, Counterclaims, and Jury Demand ("SAAC"), Dkt. 139. Zetler also brought eight derivative counterclaims against the third-party defendants on behalf of the Company. Id.
Following full and extensive discovery before Judge Marrero and Magistrate Judge James Cott, this action was reassigned to the undersigned on December 26, 2017 for trial. Prior to transfer, Judge Marrero, on December 21, 2017, issued a Decision and Order resolving a series of disputes between the parties regarding the effect of a parallel lawsuit in France on the scope of triable issues in this case. See Dkt. 392. On January 5, 2018, defendants moved, pursuant to Local Civil Rule 6.3, for reconsideration of the Decision and Order "insofar as it granted plaintiff's motion for collateral estoppel" and "ruled on a conflict of laws issue that had not been presented in the papers before the Court." See Dkt. 397. The Company and third-party defendants (the "Marechaux Parties") opposed. See The cDs Parties' Memorandum of Law in Opposition to Rapid Systems' Motion for Reconsideration ("Opp. Br."), Dkt. 405. On January 22, 2018, the Court denied defendants' motion from the bench. See Trial Transcript ("Tr.") 4.
Thereafter, the Court held a three-week trial, during which time the Court heard testimony from approximately a dozen witnesses. On February 8, 2018, following the close of the evidence, the parties elected to dismiss the jury and submit their claims to the Court for decision. See Tr. 2128. The Court set a schedule for post-trial briefing, and the parties timely submitted their papers. See The cDs Parties' Post-Trial Brief, Dkt. 450 ("Pl. Mem."); Rapid Systems' Post-Trial Memorandum of Law ("Def. Mem."), Dkt. 451-52.
The Court now renders its findings of fact and conclusions of law, and enters final judgment. Although some material facts are undisputed, the Court's determination of many material facts turns on the Court's assessment of the witnesses' credibility, including their demeanor, as well as the entirety of the trial evidence and the parties' written and oral submissions.
I. BACKGROUND FACTS
Jerome Marechaux is a French citizen living in Paris. Marechaux became a professional model when he was six years old. Tr. 663:11 (Marechaux). When he was 24, Marechaux quit modeling to start a company called Force. See Tr. 664-67 (Marechaux). With Elite, his former firm, as his first client, Marechaux launched a software application called Force Booking, which offered modelling agencies a way to centrally manage bookings for their models as well as other aspects of their day-to-day business operations. See Tr. 665-67 (Marechaux).
In 1994, Marechaux changed the company's name from Force to Creation and Development of Software or C.D.S. SARL ("SARL"), Tr. 667 (Marechaux), and incorporated an entity in the U.S. called C.D.S. Inc. ("the Company"), Tr. 668 (Marechaux). Although Marechaux did not formally link SARL to the Company, informally he ran the two entities as a unified global business (the "cDs Group"). SARL sold Force Booking software and its many later iterations (hereinafter the "cDs booking software") in Europe; the Company (C.D.S. Inc.) sold the software in North America.
To oversee operations in New York, Marechaux recruited a woman named Susanne Funk, and appointed her vice president of the Company. See Tr. 668 (Marechaux). Thereafter, Marechaux elevated her to president, see Tr. 669 (Marechaux), and made her the Company's majority shareholder, see id.; Pl. Ex. 32 (describing Funk as the 60% owner of the Company's stock). During her tenure with the Company, Funk hired several software developers to update and further enhance the cDs booking software including, in 1998, a Ukrainian engineer named Alex Gugnishev. Tr. 56 (Gugnishev). To assist with sales, accounting, and development, Marechaux hired, inter alia, Christelle Riot, Christophe Racle, and Jerome Viollon in France. See Tr. 673-74 (Marechaux). By the end of the decade, the cDs Group had secured most of the top modelling agencies in New York and Paris as clients. See Tr. 1552 (Zetler) (testifying that, by 2001, cDs had "quite a big market share").
In 2001, at the tail end of the dot-com boom, Marechaux received a call from Bradley Zetler, a technology entrepreneur residing in Cape Town, South Africa. See Tr. 1553 (Zetler). Zetler, working with a software developer named Robert Nagel, see Tr. 1545:6 (Zetler), had created a product called "Portfoliopad," which allowed modelling agencies to upload images of their models online and transfer them to their customers over the internet using a website called portfoliopad.com. Portfoliopad offered agencies a way to avoid hand delivering expensive hard copies of model portfolios and emailing large files. See Tr. 1537-48 (Zetler).
Zetler needed a distributor for Portfoliopad with relationships in Paris and New York to sell his service to the major agencies. See Tr. 1552-53 (Zetler). Conversely, the cDs booking product did not yet have a digital imaging functionality, and while the Group's coders were working on one, see Tr. 685 (Marechaux), the Group's booking product, like most software at this time, stored client's data locally. Portfoliopad stood out because it stored client's data on the cloud, allowing anyone with the right credentials to access it using the internet.
Seeing an opportunity to enhance the Group's offerings to its clients, Marechaux agreed to become Portfoliopad's exclusive distributor in Europe and North America. Marechaux and Zetler memorialized their agreement in a written instrument known as the EDA, formally a contract between SARL, the Company (C.D.S. Inc.), and Rapid Systems. Under the terms of the agreement, Rapid Systems retained the right to sell Portfoliopad in South Africa and the Group agreed to pay Rapid Systems a 30% commission on sales of Portfoliopad in the rest of the world. See EDA § 14.2. (As the terms of the EDA make clear, client relationships, not software code, are the most valuable asset in the fashion technology business.)
Following the success of the EDA, Marechaux and Zetler deepened their business ties, executing an agreement on April 1, 2003 called the Franchise Contract. See Pl. Ex. 3 ("FC"). Under the Franchise Contract, SARL granted Rapid Systems the right to use the cDs brand in South Africa, see FC § 3, and Rapid Systems began doing business as "cDs Cape Town." Additionally, Rapid Systems gained the right to sell, in exchange for a 30% commission, the Group's branded booking software in South Africa, then referred to as "M5," later referred to as "CDS6." See FC § 7. Zetler also set up an LLC in Delaware, which he called CDS LLC ("the LLC"), to capture in the United States commissions due to Rapid Systems under the EDA. See Tr. 1600 (Zetler); Tr. 1828 (Zetler).
In 2005, Funk retired, see Tr. 1028 (Funk), and Zetler, seeing an opportunity to strengthen his relationships with the Group's elite clients, boost sales of Portfoliopad in North America, and expand his role in what the parties were calling "cDs Global," offered to step in as president of the Company. As part of the deal, Zetler wanted 50% of the Company's equity. See Tr. 1644:7-8 (Zetler). Ultimately, he settled for 45%. See Tr. 1644:15-16 (Zetler) ("eventually we settled on 45/55"). Zetler's goal, which he first pitched to Marechaux around this time, see Tr. 1754:15 (Zetler), was to get Marechaux to agree to put all three companies under one roof, sell the entire business, and split the proceeds 50/50. See Tr. 1644-45 (Zetler). Marechaux never agreed to this, and his reluctance to cede additional ownership and control over the cDs business, or to sell it, eventually doomed cDs Global and his partnership with Zetler.
Thereafter, in September 2010, Marechaux and Riot, now the Chief Operating Officer of the "cDs Group," began to work with Zetler to develop a new version of the Group's booking software, the "CDS Online Platform." The then-current version, CDS6, was still a local application, meaning clients could only access their data on their own computers. Riot envisioned a program that would run on the cloud like Portfoliopad. See Email from Riot to Zetler and Marechaux dated September 13, 2010, Pl. Ex. 112 (attaching functional specifications for the "CDS Online Platform"); Tr. 751-52 (Marechaux).
Alex Gugnishev, the Company's primary software developer, spent the next two years writing the code for the new online upgrade, including nearly all of the so-called front-end and back-end code (the "application code," accounting for between 90% and 97% of the total code in the final product). See Tr. 168 (Gugnishev); Pl. Ex. 335. There was one part of the product (accounting for the remaining three to ten percent of the total code), see Tr. 168-69 (Gugnishev); 410-13 (Horowitz) ), however, with which Gugnishev had meaningful help. This portion was known as the "database code" or the "data schema." Gugnishev and Zetler decided that the Company could save time and money by storing the data uploaded by the booking software's clients in the same database as the data uploaded by Portfoliopad's clients. See Email from Gugnishev to Zetler dated September 23, 2010, Pl. Ex. 116 (suggesting that the two applications use the same tables and fields for information used by both applications). Additionally, by using the same database for both applications, cDs Cape Town and the cDs Group could integrate their flagship products, so that clients buying both would only have to enter their information once (e.g., if a client hired a new model and entered that model's name and information in Portfoliopad, then the client could access that information while using the booking software).
Zetler directed his programmers in South Africa to work with Gugnishev to link the new booking software to the database used by Portfoliopad. That database, like a big excel spreadsheet, stored, in several dozen tables, information clients entered while using the application. For example, when creating an account, a client would enter information about their agency (such as their address and name) and information about their models (e.g. their gender, age, and hair color). See Tr. 74:4-13 (Gugnishev); Tr. 93 (Gugnishev). This database was saved online, on server space rented from third-parties (in the case of Agencypad, from Amazon Web Services, see Def. Ex. 267), so clients could access their information again from any computer with an internet connection.
Thus, information common to both applications was stored in the same tables (in "fields" like agency name, agency address, model name, model age). There were 30 of these so-called shared tables. Tr. 1929:14 (Nagel). These tables were written by Nagel for Portfoliopad. Additionally, as the booking software performed many functions that did not overlap with Portfoliopad, Gugnishev coded at least 42 new tables to save booking-related information, and Nagel coded another 21 or so. Tr. 1930 (Nagel).
As the project neared completion in June 2012, Marechaux decided to call the new software Agencypad. See Email from Marechaux to Zetler dated June 6, 2012, Def. Ex. 142. He and Zetler further agreed to market Agencypad jointly with Portfoliopad. See Email from Marechaux to Zetler and Viollon dated June 19, 2012, Def. Ex. 148. Thereafter, the Company, SARL, and Rapid Systems (doing business as cDs Cape Town) sold Agencypad bundled with Portfoliopad to their clients around the world. While take-up in the European market lagged, potentially because of privacy concerns, the bundle quickly became the Company's best-selling product overall. See CDS Inc. Sales by Product/Service Summary, January-December 2013, Pl. Ex. 38 (showing sales of $269,521 for Agencypad and $467,946 for the older generation CDS6 software); CDS Inc. Sales by Product/Service Summary, January-December 2015, Pl. Ex. 40 (showing sales of $728,405 for Agencypad and $380,294 for the CDS6 software).
Zetler, however, was displeased with his share of the spoils. Increasingly, he argued to his colleagues that he was the driving force behind the Group's success, and that they needed to either step up their efforts or fork over more money to him and to Rapid Systems. Although Marechaux had long ago agreed that Zetler would not have to pay commissions on his sales of the Group's products in South Africa, see Email from Marechaux to Zetler dated November 10, 2005, Pl. Ex. 109, Zetler now objected to Marechaux earning as much money as him from the cDs Global business, see Email from Zetler to Marechaux dated October 23, 2013, Pl. Ex. 133 ("In Cape Town we spoke about correcting the past on a 60/40 split, I have heard nothing from you about this again... I propose taking $150k from cDs NY to start to reduce the $380k and the rest we must discuss").
As Zetler supplied critical technological expertise and was an integral part of the Company, Marechaux increased Zetler's compensation in 2013 and 2014, approving one-off payouts to Rapid Systems. See Part II(C)(3), infra. Nonetheless, in 2015, Zetler began to siphon off business for himself and his companies, transfer the Company's property to his LLC, and plan for the possible termination of the Franchise Contract. See Part II(B)-(C), infra. Zetler also continued to complain about his compensation. See Email from Zetler to Marechaux dated March 2, 2015, Def. Ex. 197 (accusing Marechaux of taking advantage of him, of not working enough, and of doing a poor job running SARL); id. ("I want to be compensated financially for extra time I know I put in compared to you last year"); id. ("Maybe we stop the commission and you just run Paris and I take the rest").
By year-end 2015, it became clear to Marechaux and his colleagues that Zetler had diverted even more funds from the Company than they had previously known. See Tr. 1001-02 (Viollon). When Treat sought greater responsibility within the Company and Marechaux suggested to Zetler that Treat, who worked full time in New York, should be elevated to president, Zetler objected. See Email from Zetler to Marechaux dated January 21, 2016, Pl. Ex. 140. Zetler began demanding even higher commissions on sales of Rapid Systems products and claimed for the first time that Agencypad was just an outgrowth of Portfoliopad and that Rapid Systems, therefore, owned Agencypad under the terms of the EDA. See Email from Zetler to Viollon dated January 29, 2016, Def. Ex. 223 (stating that from "February 1, 2016 we [the Company] must start paying what we should for AP commission which is same as PP 30%").
Left with little choice, Marechaux hired an attorney, appointed Racle, Viollon, and Riot as directors of the Company and, with their consent, on March 4, 2016, had the Board terminate Zetler as president of the Company. See Tr. 819-21 (Marechaux). Thereafter, the Board appointed Treat as president and informed Zetler of the change in leadership. Id. When Treat reached out to Zetler to chart a path forward, Zetler was not cooperative. See Tr. 1389 (Treat). He refused to grant the Company administrative access to the accounts where Agencypad's source code and database were housed. He also refused to turn over information that he held in his capacity as president of the Company, including the Company's tax information and employee records. See Tr. 1391-94 (Treat).
Thereafter, on April 12, 13, and 15, Zetler registered six copyrights in Agencypad: two for the front-end code; two for the back-end code; one for the database schema; and one for the database (i.e. the collection of information stored on the Amazon server). See Pl. Exs. 53-58. Unable to access its accounts or conduct its business, and facing increasing confusion in the marketplace regarding its ownership of Agencypad, on April 29, 2016, the Company brought the instant action. See Dkt. 1.
II. PLAINTIFF'S CLAIMS
Plaintiff's eleven count complaint raises five core issues: copyright and trademark ownership (Counts I and II), conversion (Count IX), theft of trade secrets (Count VIII), computer fraud (Count V), and breach of fiduciary duty (Counts VI and VII). Plaintiff also asserts an unjust enrichment claim (Count X) and a faithless servant claim (Count XI) and seeks declaratory relief regarding online accounts at Amazon Web Services and Rackspace (Counts III and IV).
The Court assesses each claim in turn:
A. Counts I and II: Ownership of Agencypad
Plaintiff seeks a declaratory judgment that the Company is the sole owner of Agencypad and that, accordingly, six copyright registrations in and to Agencypad filed by Zetler on behalf of Rapid Systems are invalid. See Compl. ¶¶ 63-72. According to plaintiff, the Company owns Agencypad because Agencypad is a work-for-hire written primarily by Alex Gugnishev, and Alex Gugnishev made his contributions to Agencypad in the course of his employment with the Company. See Pl. Mem. at 1.
As mentioned earlier, defendants initially argued that Rapid Systems owned Agencypad because Agencypad was an extension of Portfoliopad, and, under the EDA, Rapid Systems owned the rights to all "new inventions, designs or processes which evolve in the Portfoliopad Software and/or the Source Code and/or the Portfoliopad System." EDA § 15.1; Tr. 1802 (Zetler). But the French courts, which have exclusive jurisdiction over disputes arising under the EDA, found that Agencypad was not an evolution of Portfoliopad, and that, therefore, the EDA does not govern the ownership of Agencypad. See Judgment Delivered on 12/7/2016 at 8, Commercial Court of Paris, Dkt. 386, Ex. A (finding that the "Agencypad software is not a 'Contractual Product' under the [EDA]"); Judgment of July 5, 2017, Paris Court of Appeal, Dkt. 386, Ex. C (affirming the Commercial Court's decision).
Defendants now argue that Rapid Systems owns Agencypad because Alex Gugnishev worked for Rapid Systems when he made his contributions to Agencypad. See Def. Mem. at 8. Alternatively, defendants argue that Agencypad is a "joint work," and, therefore, Rapid Systems owns an undivided interest in Agencypad; that Agencypad is a "collective work" and, therefore, Rapid Systems owns the parts of Agencypad written by Robert Nagel and a Rapid Systems software developer named Tiaan van Zyl; and/or that plaintiff should be equitably estopped from claiming ownership of Agencypad because plaintiff allowed Rapid Systems to sell Agencypad in certain countries without paying commissions. See Def. Mem. at 17-20.
1. Whether Gugnishev Was an Employee of Rapid Systems; Whether the Company Was Agencypad's Dominant Author
The evidence adduced at trial clearly establishes that Gugnishev was the primary author of Agencypad. Gugnishev spent by far the most amount of time and effort (two to three years) of the various individuals who contributed to Agencypad. See, e.g., Tr. 1952:2-3 (Nagel) (testifying that he is not very familiar with Agencypad). Gugnishev also wrote the vast majority of the code, see Tr. 167 (Gugnishev), and oversaw the integration of the code written by Nagel, van Zyl, and Taylor Carr, an independent contractor paid by the Company, see Tr. 163 (Gugnishev); Tr. 1951:5-7 (Nagel) (testifying that Gugnishev was the person tasked with creating Agencypad).
If, as defendants contend, Gugnishev were a Rapid Systems employee when he did this work, then Rapid Systems would be the dominant author and sole owner of Agencypad. But there is little evidence in the record to support defendants' argument. At all times relevant, the Company, not Rapid Systems, paid Gugnishev's salary and benefits and provided Gugnishev with the instrumentalities of his work. See Tr. 57-58 (Gugnishev). Indeed, Gugnishev had never heard of Rapid Systems until 2016 when this lawsuit was filed. See Tr. 58:2-3 (Gugnishev).
Nonetheless, defendants argue that Gugnishev was a "loaned servant," nominally employed by C.D.S. Inc., but actually working for Rapid Systems pursuant to an unwritten agreement between Zetler and Marechaux. See Def. Mem. at 8; Shenker v. Baltimore & Ohio R. Co., 374 U.S. 1, 5-6, 83 S.Ct. 1667, 10 L.Ed.2d 709 (1963) (discussing the "loaned servant" doctrine). According to defendants, the relevant question is who had "immediate control and supervision" of Gugnishev, and they argue that Zetler did, see Tr. 260:8-261:13 (Gugnishev); and that Zetler exercised this control, not as president of the Company, but as managing member of Rapid Systems, see Def. Mem. at 9. In support of their argument, defendants point to Gugnishev's testimony that he thought he was working for the same organization as Nagel, see Tr. 209:15-20 (Gugnishev), and that he was unaware that Rapid Systems was a distinct legal entity from C.D.S. Inc., see Tr. 205:21-206:1 (Gugnishev). Defendants also cite Zetler's testimony that he believed Gugnishev was a common cDs resource whose services were regularly farmed out to other offices. See Tr. 1900:6-20 (Zetler).
Defendants' carefully crafted narrative is, however, incomplete, at times fanciful, and highly misleading. It is true that Zetler directed many of Gugnishev's efforts on Agencypad, but the Court finds that he did so in his capacity as president of C.D.S. Inc. not as managing member of Rapid Systems. Although Zetler claims that his role as president was pro forma, see Tr. 1646:1-2 (Zetler) ("[s]omeone had to sign the documents as president, and that ended up being me"), this testimony is inconsistent with the record, see Tr. 1749 (Zetler) (testifying that he had management responsibilities, hired and fired employees, and signed contracts on behalf of the Company). Zetler himself argues that the Company compensated him for his contributions to the Company by, inter alia, defraying Rapid Systems' business expenses with the Company's funds. Indicating just how important a position he actually considered president to be, Zetler refused to agree when Marechaux suggested elevating Treat to president. See Tr. 1802 (Zetler).
Additionally, the Court finds nothing in Gugnishev's highly credible testimony to support defendants' version of events. Although Gugnishev testified that he thought that he worked for the same organization as Nagel, this is likely because Gugnishev thought, incorrectly, that Nagel, who was an independent contractor, worked for the Company, C.D.S. Inc. (not because he, Gugnishev, thought that he worked for Rapid Systems). After all, Zetler was the president of the Company, and, as mentioned earlier, Gugnishev had never heard of Rapid Systems.
Moreover, the facts adduced at trial clearly establish that Gugnishev was not a loaned servant. See generally, Langfitt v. Fed. Marine Terminals, Inc., 647 F.3d 1116, 1123 (11th Cir. 2011) (setting forth four considerations relevant to determining whether a person is a loaned servant). Among other things, the Company never expressly transferred control over Gugnishev to Rapid Systems. Rapid Systems was in no way responsible for paying Gugnishev and never compensated the Company for his services. See Tr. 1754:19-21 (Zetler). (During the relevant time period, in fact, large sums of money flowed from the Company to Rapid Systems.) Rapid Systems did not furnish Gugnishev with the equipment necessary for his work, and Rapid Systems did not have the right to terminate his employment on the project.
Thus, the Court finds that Gugnishev was an employee of the Company when he made his contributions to Agencypad, and that, accordingly, the Company is the dominant author of Agencypad. See 16 Casa Duse, LLC v. Merkin, 791 F.3d 247, 260 (2d Cir. 2015) (holding that where multiple individuals lay claim to a work, "the dispositive inquiry is which of the putative authors is the 'dominant author' ").
2. Whether Agencypad Is Jointly Owned
Defendants argue in the alternative that Agencypad is a "joint work." See Def. Mem. at 19. The Copyright Act defines a "joint work" as "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." 17 U.S.C. § 101. In the Second Circuit, "[i]t is only where the dominant author intends to be sharing authorship that joint authorship will result." Childress v. Taylor, 945 F.2d 500, 508 (2d Cir. 1991) (internal quotation omitted). A "co-authorship claimant bears the burden of establishing that each of the putative co-authors (1) made independently copyrightable contributions to the work; and (2) fully intended to be co-authors." Thomson v. Larson, 147 F.3d 195, 200 (2d Cir. 1998) (citation omitted).
Defendants here point to no evidence that the relevant authors in this case, the Company and Rapid Systems, intended to co-author Agencypad. Even Zetler, who now advances the joint ownership argument, testified at trial that it was his understanding that Rapid Systems was the sole owner of Agencypad. See Tr. 1802 (Zetler) ("I believe that was our understanding").
Moreover, the underlying economics strongly suggest that at the time Agencypad was developed, all of the relevant individuals intended the Company to be the sole author of the product. Indeed, the Company paid for almost all of the incremental costs of developing Agencypad and bore almost all of the costs of maintaining Agencypad. While Zetler directed Rapid Systems to contribute to Agencypad's code, primarily by allowing the Company to adapt certain database tables and stored procedures originally developed for Portfoliopad, Rapid Systems received enormous benefits in exchange for these minimal, practically costless contributions. For example, by fusing Agencypad's database with Portfoliopad's, Rapid Systems was able to offload the entire cost of maintaining the Portfoliopad database onto the Company. See Part II(C)(1), infra. Moreover, Rapid Systems was able to increase the likelihood that the Company's booking software customers would also buy Portfoliopad.
Additionally, "[t]hough 'billing' or 'credit' is not decisive in all cases and joint authorship can exist without any explicit discussion of this topic by the parties, consideration of the topic helpfully serves to focus the fact-finder's attention on how the parties implicitly regarded their undertaking." Childress, 945 F.2d at 508. In this case, the Company never paid commissions to Rapid Systems on the Agencypad portion of its sales of the Agencypad/Portfoliopad bundle. See Email from Marechaux to Zetler dated February 1, 2016, Def. Ex. 223 ("[i]t is not and it has never been our agreement"). And the parties' communications reveal their implicit understanding that the Company, not Rapid Systems, was the sole author of Agencypad. Therefore, the Court finds that Agencypad is not a joint work.
3. Whether Agencypad Is a Collective Work
Defendants argue in the alternative that, even if Rapid Systems is not the sole owner of Agencypad, it does not follow that the sole owner of Agencypad is C.D.S. Inc. See Def. Mem. at 17. According to defendants, that is because, Agencypad is a "collective work" or a "compilation," see 17 § 101 (defining terms), for which a "dominant author" analysis does not apply. Specifically, defendants argue, the "Agencypad source code that is stacked on top of the database subdivides into parts," including the "front-end" or "client-side" source code and the "back-end" or "server-side" source code. See Def. Mem. at 18. Additionally, defendants argue, the back-end source code "subdivides into twelve modules," and two of these modules, "Statements" and "Talent," are fully functioning stand-alone works authored by Rob Nagel in South Africa. Id.
The Copyright Act defines a collective work as "a work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole." 17 U.S.C. § 101 (emphasis added). The fact that defendants registered five different copyrights in Agencypad's code has little or no bearing on whether Agencypad is a collective work, absent evidence that one or more of these five portions is separate and independent from the whole. See 16 Casa Duse, 791 F.3d at 259 (holding that "a director's contribution to an integrated 'work of authorship' such as a film is not itself a 'work of authorship' subject to its own copyright protection").
Here, defendants point to no evidence that the front-end code and the back-end code are separate and independent, or that the back-end code and the database code are separate and independent. Indeed, the testimony of defendants' expert establishes precisely the opposite. See Tr. 604 (Lobel) (testifying that Agencypad is a stacked application). Plainly, the front-end code and back-end code are not freestanding works.
Nor is the Talent Module a separate and independent work. Although Gugnishev testified that the module was "[f]ully functioning to itself" (see Tr. 225:1 (Gugnishev) ), defendants take this statement out of context. The Talent module was never a freestanding application, nor could it function without the other parts of Agencypad. See Tr. 224 (Gugnishev) (testifying that the Talent Module "was pieces of code that could run standalone ... but I cannot define it as a functioning application ... that module is useless without other parts of Agencypad").
As regards the Statements module, although defendants point to evidence that it was a separate and independent work before being incorporated into Agencypad, the issue is moot as the Court finds that the Company, not Nagel or Rapid Systems, is the module's dominant author. See Tr. 183:16-17 (Gugnishev).
Therefore, the Court finds that Agencypad (as defined in footnote 8, supra ) is an integrated work of authorship subject to a dominance analysis: its authors envisioned it as a single work, sold it as a single product, and its various components function as an interconnected whole.
4. Equitable Estoppel
Finally, defendants argue that the Court should estop the Company from claiming ownership of Agencypad in this suit because the Company "never claimed to own Agencypad even while Rapid Systems sold Agencypad ... and made no payment" to the Company for those sales. See Def. Mem. at 20. But Rapid Systems' failure to make payments to the Company for sales of Agencypad in South Africa does not establish that the Company acquiesced in Rapid Systems' claims of ownership in Agencypad. To the contrary, the Company fired Zetler as soon as Zetler started advancing those claims in early 2016.
The Company did not seek to collect commissions on Agencypad sales in South Africa for the same reason the Company did not seek to collect commissions on CDS5 and CDS6 sales in South Africa: as a concession to Zetler who was constantly seeking to increase his share of the pie. This concession dates back to 2005, when Zetler and Marechaux explicitly agreed that Zetler could sell the Group's products in South Africa without paying a commission (Rapid Systems was contractually obligated under the FC to pay a commission on SARL's products). In a writing entitled "cDs Inc-cDs Paris-cDs Cape Town financial relationship," Marechaux memorialized this agreement with Zetler. See Email from Marechaux to Zetler dated October 6, 2005, Pl. Ex. 108 (stating that "cDs Paris is not going to charge cDs 5 commission to cDs Cape Town anymore"); Tr. 1636:9-10 (Zetler) (conceding that Rapid Systems owed commissions on sales of CDS5 to SARL under the Franchise Contract); Tr. 1650 (Zetler) (testifying that Marechaux agreed to "stop charging Rapid Systems" a commission on sales of CDS5).
Unsurprisingly, this understanding regarding cDs5 extended to the next two iterations: CDS6 and Agencypad ("CDS7"). See Tr. 1699 (Zetler) (testifying that "we broke each office up into being responsible for certain geographical regions"); Tr. 1660 (Zetler) (explaining that "CDS7" was an early name for the online booking software). Moreover, Marechaux's failure to charge Rapid Systems for the Group's property was consistent with Marechaux's efforts to appease Zetler until the very end. See Email from Marechaux to Zetler dated February 2, 2016, Def. Ex. 271 (responding to Zetler's increasing demands that "[w]e have always found a balance and agreed things together," offering to "review everything [again] at some point").
Thus, Zetler's defense of equitable estoppel to plaintiff's ownership claim fails because Zetler was not infringing on the Company's copyright in Agencypad when he sold it in South Africa; he was selling it with permission. The Court also notes that it was plainly Rapid Systems' practice to charge the Group commissions on Rapid Systems products; the fact that Rapid Systems did not do so in the case of Agencypad suggests that Zetler was not "ignorant of the true facts," see Def. Mem. at 20, but aware that the Company owned Agencypad. Indeed, despite repeatedly seeking additional compensation from the Company and Marechaux between 2013 and 2015, Zetler never claimed during these years that the Company, SARL, or Marechaux owed Rapid Systems a commission on sales of Agencypad.
After receiving a sweetheart deal from Marechaux regarding Rapid Systems' sales of Agencypad and CDS6 in South Africa, Zetler cannot now assert an equitable defense of estoppel. Nor can Zetler complain that the Company terminated this oral agreement after Zetler registered copyrights in Agencypad in the name of his own company as part of a war he launched against Marechaux to the detriment of clients and employees around the world.
5. Copyright and Trademark Ownership
For the reasons stated above, (1) because Gugnishev made his contributions to Agencypad in the course of his employment with the Company and the Company was the dominant author of Agencypad; (2) because defendants have failed to establish that the Company intended to co-author Agencypad with Rapid Systems; (3) because the Talent module is not a separate and independent work and the Company authored the Statements module; and (4) because defendants have failed to establish grounds for equitable estoppel, the Court finds that the Company is the sole owner of Agencypad as defined in footnote 8, supra. Accordingly, the Court finds in favor of plaintiff on Counts I and II and grants appropriate injunctive relief in Part IV, infra.
B. Count IX: Conversion
Plaintiff asserts ownership in pieces of property which it claims defendants wrongfully converted. These include: (1) Agencypad's source code and Agencypad's database hosted on Amazon servers; (2) cdsglobal.com email accounts hosted on Rackspace servers; (3) three domain names (cdsglobal.com, agencypad.com, and creativefile.com); (4) three social media accounts; (5) five software development tools; and (6) business records and accounts containing information about the Company's employees and clients. See Complaint ¶¶ 143-166; Pl. Mem. at 73-74.
Defendants argue that these claims are "duplicative" of plaintiff's fiduciary duty claims and fail for the same reasons. Def. Mem. at 36. Thus defendants make no mention in their briefs of the three social media accounts, the five software development tools, or the corporate records and accounts (none of which are part of plaintiff's fiduciary duty claims).
In New York, the tort of conversion is the unauthorized "exercise of dominion over or interference with" a specific identifiable piece of property in defiance of the owner's rights. Petty v. Barnes, 70 A.D.3d 661, 662, 894 N.Y.S.2d 85 (N.Y. App. Div. 2010). "A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession." Colavito v. New York Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50, 827 N.Y.S.2d 96, 860 N.E.2d 713 (2006) (internal citations omitted). The two "key elements of conversion are (1) plaintiff's possessory right or interest in the property and (2) defendant's dominion over the property or interference with it, in derogation of plaintiff's rights." Id. (internal citations omitted).
1. The Amazon Information
Plaintiff argues that Zetler and the LLC wrongfully converted information hosted on an Amazon Web Services account, to wit, Agencypad's software source code and databases containing Agencypad's client data. See Pl. Mem. at 73. As the sole and rightful owner of Agencypad, plaintiff has a possessory interest in this information. See Thyroff v. Nationwide Mut. Ins. Co., 8 N.Y.3d 283, 292-93, 832 N.Y.S.2d 873, 864 N.E.2d 1272 (2007) (finding that the tort of conversion applies to electronic data and information). Defendants interfered with plaintiff's dominion over this property when Zetler cut off the Company's access to the Amazon servers, preventing the Company from accessing the Agencypad database and source code. See Tr. 195:7 (Gugnishev) (testifying that he lost access to the Agencypad source code and database in April 2016); Tr. 518 (Lobel) (testifying that the Agencypad database is located on the Amazon server); Email from Treat to Zetler dated March 8, 2016, Pl. Ex. 148 (requesting "a log in and password for the [Amazon] account as an administrator"); Tr. 1391:1-8 (Treat) (testifying that Zetler did not give her administrator access to the Agencypad source code and database). Defendants do not address this claim in their briefs. As plaintiff has established conversion of this property by a preponderance of the evidence, the Court finds Zetler and the LLC liable on Count IX as regards this information.
2. The Rackspace Account
Plaintiff argues that Zetler and the LLC wrongfully converted information hosted on a Rackspace account, to wit, email accounts at the domain cdsglobal.com and "[o]ther electronically stored information" belonging to the Company. See Pl. Mem. at 73-74.
It is undisputed that Zetler registered cdsglobal.com in September 2004. See Tr. 1613:1-11 (Zetler); Email from Zetler to Billing Department dated September 16, 2004, Def. Ex 24. At that time, Zetler was not yet president of the Company and Zetler registered the domain in the name of "cDs" using a Cape Town address. See id.
It is also undisputed that, at that time, Marechaux owned the trademark for "cDs," see Pl. Ex. 4; Transcript dated June 2, 2016, Preliminary Injunction Hearing ("In. Tr.") at 25-29 (Marechaux), Dkt. 52, which trademark Zetler was permitted to use only pursuant to the Franchise Contract, see FC § 2.
In 2012, Zetler changed the registrant of cdsglobal.com from "cDs" to CDS Inc. See Domain Report-CdsGlobal.com dated June 22, 2017 at 76-77, Def. Ex. 541 (showing that CDSGLOBAL.COM was registered to "cDs" in Cape Town as of September 14, 2011 and that it was registered to "CDS INC" in New York as of August 29, 2012). Zetler claims that this change was a "mistake." See Tr. 1868:17 (Zetler). But it was a mistake that persisted until Zetler and Marechaux's business partnership ran aground, and, during that time, the Company, not Rapid Systems, paid the corresponding domain fees to Expert Host. Furthermore, the Company, not Rapid Systems, paid Rackspace for the server that hosted these emails accounts. See Tr. 1860: 10-14 (Zetler) (testifying that "there was a reseller e-mail account, which was in the name of CDS, Inc., which CDS, Inc. was paying for"); Def. Ex. 267. Although defendants may have owned this domain name in 2004, when Zetler transferred the registration to the Company in 2012, he transferred ownership of the domain and the corresponding information as well.
Therefore, when, in 2015, Zetler transferred the domain registration to his LLC, see Tr. 1003:6-7 (Viollon); Tr. 1868:12-17 (Zetler), and, subsequently, cut off the Company's access to the cdsglobal.com email accounts, see Tr. 1394:19 (Treat) (testifying that she received nothing from Zetler when she asked for, inter alia, passcodes to the email accounts), he converted the Company's property, see Tr. 1862 (Zetler) (testifying that he removed the cdsglobal.com email accounts and information from the Company's account). Accordingly, the Court finds Zetler and the LLC liable on Count IX for converting the Company's possessory interest in the cdsglobal.com email accounts and related information stored on the Rackspace server.
3. The Domain Names
Plaintiff contends that Zetler and the LLC wrongfully converted three domain names: creativefile.com, agencypad.com, and cdsglobal.com. See Pl. Mem. at 74; id. at 43-45. Defendants do not address this issue in their briefing.
As regards the creativefile.com domain name, Zetler registered it to "cDs" at Marechaux's request in January 2008, listing an address in South Africa. See Domain Report-CreativeFile.com dated June 23, 2017 ("CF Report") at 51, Def. Ex. 539. On August 16, 2012, the registrant was changed to "cDs Inc." See id. at 41. The Court finds, for reasons elaborated elsewhere in this opinion, that, it is more likely than not, that the Company began to pay for the use of this domain name at that time. Thereafter, the domain was used to host a website for a joint venture between the Company and Michael Bunker. See Tr. 803-13 (Marechaux).
Zetler terminated this venture in March 2015, believing that the company should no longer do business with Bunker. Tr. 809:18-20 (Marechaux). Thereafter, sometime between April 14, 2015 and July 15, 2015, Zetler changed the registrant from "cDs Inc." to "CDS LLC." See CF Report at 21, 23. Between April and July, Zetler also reconstituted the venture with a new partner, Steve Ullman.
Zetler argues that the "cDs" in the original registration referred to Rapid Systems (d/b/a cDs Capetown), that it was a mistake that the domain was registered to the Company beginning in 2012, and that he was only correcting that mistake when he transferred the registration to the LLC in 2015. This argument is not credible. See Def. Mem. at 30-31.
The strongest supporting evidence for Zetler's contention is that the domains for various Rapid Systems products were also transferred to the Company at around the same time and that even, at one point, Lizzie Hayat, an employee of SARL, was listed as the registrant for certain Rapid Systems products like Castingpad.com. See Domain Report-CastingPad.com dated June 22, 2017 at 37, Def. Ex. 545. But it is more likely than not that these "mistakes" were the result of Zetler's efforts to offload onto the Company the costs of paying for Rapid Systems' domains. See Tr. 2072 (Lerner) (testifying that registrations change when there is a change in billing).
Regardless of who the registrant was prior to 2012, during the time that the domain was used for the joint venture it was registered to the Company and paid for by the Company. Therefore, the Company, which indisputably owned the Creative File business via a contract between the Company and Michael Bunker, owned the creativefile.com domain name. See Tr. 809:13-15 (Marechaux). When Zetler changed the registration of that domain to his LLC in 2015, he improperly interfered with plaintiff's property. Therefore, the Court finds Zetler and the LLC liable on Count IX for converting the domain name creativefile.com.
Turning to "agencypad.com," Zetler registered this domain on July 18, 2011. See Domain Report-AgencyPad.com dated June 22, 2017, Def. Ex. 547. Regardless of any belief Zetler may or may not have had that he was registering this domain in his capacity as managing member of Rapid Systems, he points to no supporting evidence. As the Company owned Agencypad, the Court finds that the Company had a possessory interest in this domain name, which Zetler should have registered in the Company's name in 2011.
As of September 23, 2012, the domain was registered in the name of the Company, see id. at 48. Thus, Zetler interfered with the Company's possessory interest in this domain when he transferred the registration to his LLC in 2015. See id. at 23. Accordingly, the Court finds Zetler and the LLC liable on Count IX for converting the domain name agencypad.com.
Turning, finally, to the cdsglobal.com domain, the Court, as mentioned earlier, finds that the Company is the rightful owner of this domain. Accordingly, when Zetler transferred the registration of the domain to his LLC in 2015 without telling anyone else at the Company, see Tr. 2064 (Lerner) (testifying that the domain was transferred to the LLC), he interfered with the Company's possessory interest in this property. The Court therefore finds Zetler and the LLC liable on Count IX for converting the cdsglobal.com domain name.
4. The Social Media Accounts
Plaintiff contends that Zetler converted passwords and access codes for the Company's social media accounts on Facebook, Twitter, and Instagram. See Pl. Mem. at 74. Zetler does not address these accounts in his post-trial briefing.
Here, the social media accounts were "cDs"-branded accounts. See Tr. 1378-9 (Treat). During his time as president of the Company, Zetler controlled access to these accounts. Id. As Zetler had no right to use the "cDs" brand in his personal capacity, his creation of these accounts and subsequent management of them must have been either a function of his role as managing member of Rapid Systems or his role as president of the Company. See In. Tr. 25-27 (Marechaux) (testifying that he owned the CDS Global trademark).
Rapid Systems was permitted to use the "cDs" brand pursuant to the terms of the Franchise Contract. This agreement clearly specifies that the brand belongs to CDS SARL, FC § 1, and it confers upon Rapid Systems the exclusive right to use the brand only in South Africa. See id. § 3, 6. Rapid Systems has no right to use the brand outside of South Africa. Additionally, the marketing efforts for Agencypad were run by the Company using the social media accounts. See In. Tr. 42:14-15 (Marechaux). Therefore, the Court finds that Zetler set up these accounts and controlled them in his capacity as president of the Company.
Accordingly, the Court finds that the Company had a possessory interest in these accounts, which interest Zetler interfered with when he failed to turn over passwords and administrator access codes after he was terminated as president of the Company. See Complaint ¶ 156; Email from Treat to Zetler dated March 8, 2016, Pl. Ex. 148 (requesting "all information regarding [ ] cDs Inc., which you as the previous president handled"); Tr. 1394:19 (Treat) (testifying that she received "nothing" from Zetler in response to her Email dated March 8, 2016). Thus, the Court finds Zetler and the LLC liable on Count IX for converting the three social media accounts.
5. The Development Tools
Plaintiff contends that Zetler converted passwords and access codes to five software development tools used by the Company. See Pl. Mem. at 74. These tools are a Bitbucket source code management tool and account, a Jira development tool, an FTP account, a Microsoft SQL server, and an AP2XLS tool. Id. Plaintiff provides little argument on this point in its brief and defendants do not mention the issue at all.
It is apparent from earlier proceedings in this case that Bitbucket is a service to store and manage source code. See, e.g., Proposed Recommendation of Special Master Daniel Garrie, Dkt. 59. Jira is a service to track "bugs" in software and to manage edits to the software. Microsoft SQL is a software license that one can buy and use to operate a database server. The Amazon account houses a Microsoft SQL database server, which is used by Agencypad. An FTP account allows one to transfer files back and forth from various computers. AP2XLS tools are used to convert data from the Agencypad database into excel spreadsheets, which can be sent to clients or other individuals.
As part of the preliminary injunction, these tools were duplicated so that the Company could continue to access and operate Agencypad. Id. Some of these tools house data regarding Agencypad, which information belongs to the Company either in its own right or on behalf of its clients. Accordingly, Zetler had no right to prevent the Company from using the Bitbucket account in so far as it included Agencypad source code and related information that he chose to house on that account during his time as president of the Company. Similarly, Zetler had no right to cut off the Company's access to Agencypad source code on the Jira development tool, the Microsoft SQL server running on the Amazon account, FTP accounts used to access Agencypad data on the Amazon account, or the AP2XLS tools used to download data from the Agencypad tables and fields. As Zetler cut off the Company's access to these tools, see Tr. 1398:13-16 (Treat), the Court finds Zetler and the LLC liable on Count IX for converting the Company's possessory interest in the use of these tools to access Agencypad, its source code, and its client information.
6. The Business Records
Finally, plaintiff contends that Zetler wrongfully converted the Company's business records and access codes for accounts containing certain information belonging to the Company and its clients. See Complaint ¶¶ 161-63; Pl. Mem. at 74. These records and codes include login details for the Company's tax accounts with the New York State Department of Finance, see Tr. 1392:2-4 (Treat); login details for the Company's tax account with the Internal Revenue Service, see Tr. 1392:5-14 (Treat); login details for the Company's tax account with the City of New York, see Tr. 1392:15-19 (Treat); information regarding the Company's account with Oxford Insurance, see Tr. 1393:1-3 (Treat); information regarding the Company's furniture supplier, see Tr. 1393:4-13 (Treat); information regarding who was representing the Company in a lawsuit that was pending in early 2016, see Tr. 1393:14-23 (Treat); a list of the vendors the Company paid directly from its Citibank account, see Tr. 1394:2-5 (Treat); a list of suppliers and their contact details who are paid on the Company's Chase Bank credit card, see Tr. 1394:7-11 (Treat); and any and all other information relating to the software product Agencypad stored on the Amazon or Rackspace accounts, any and all other information related to the Company's tax filings, including copies of its tax filings, and any and all other information related to the Company's bank statements, invoices, and other records relating primarily to the Company.
The evidence adduced at trial plainly establishes that the Company had a possessory interest in the above-mentioned information and that Zetler interfered with that interest by failing to provide the information to Treat after he was terminated as president. See Email from Treat to Zetler dated March 8, 2016, Pl. Ex 148; Tr. 1390-94 (Treat). Accordingly, the Court finds Zetler and the LLC liable on Count IX for converting the Company's business records and access codes to the above-listed information.
C. Counts VI and VII: Breach of Fiduciary Duty
Plaintiff seeks monetary damages and injunctive relief in connection with purported breaches by Zetler of his fiduciary duties while he was president of the Company. These breaches include: (1) Zetler's use of the Company's financial resources to host Rapid Systems' products and services on the Company's Amazon and Rackspace accounts; (2) Zetler's use of the Company's financial resources to pay invoices owed by Rapid Systems; (3) Zetler's transfer of the registrations for cdsglobal.com, agencypad.com, and creativefile.com from the Company to his LLC; (4) Zetler's use of the Company's resources to pay Rapid Systems $260,000 in "consulting" fees; (5) Zetler's usurpation of the Company's "comp card" business; and (6) Zetler's use of the Company's legal counsel to further his own private interests. See Pl. Mem. at 67-68.
Zetler argues that plaintiff fails to prove that these transactions were unfair to the Company or, in the alternative, that the Company is entitled to damages. Zetler also argues that he has established his affirmative defenses of acquiescence, ratification, and waiver. See Def. Mem. at 33.
As mentioned previously, C.D.S. Inc. is a Delaware corporation. Compl. ¶ 5. Under Delaware law, the president of a company has a fiduciary duty to the company and its shareholders to act in good faith and in the company's best interests. See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 780 (Del. Ch. 2016) ("Officers are corporate fiduciaries").
Where a fiduciary stands on both sides of a transaction, the fiduciary has the burden of establishing its entire fairness, including fair dealing and fair price. Carlson v. Hallinan, 925 A.2d 506, 529-31 (Del. Ch. 2006). To establish entire fairness, a fiduciary must prove that he or she not only actually disclosed to the company and its shareholders all material information necessary to acquaint the company and its shareholders with the nature of the transactions, but also that the transactions served a valid business purpose benefitting the company. See Technicorp Int'l II, Inc. v. Johnston, No. Civ. 15084, 2000 WL 713750, at *45 (Del. Ch. May 31, 2000) ("[i]f corporate fiduciaries divert corporate assets to themselves for non-corporate purposes, they are liable for the amounts wrongfully diverted").
The Court considers each alleged breach in turn:
1. Data Storage / Amazon and Rackspace Accounts
Plaintiff argues that Zetler breached his fiduciary duties to the Company by using the Company's resources to pay for costs and expenses relating to Rapid Systems' products and services. See Pl. Mem. at 67; Compl. ¶ 130. Specifically, plaintiff contends that Zetler, without authorization, hosted various Rapid Systems products and services on accounts with Amazon Web Services and Rackspace, which accounts belonged to, and were paid for by, the Company. Plaintiff seeks money damages (Count VII) as well as injunctive and declaratory relief regarding the Company's ownership of the Amazon and Rackspace accounts (Count VI). See id. ¶ 123; Joint Consent Pre-Trial Order at 4, Dkt. 404 (seeking injunctive relief requiring defendants surrender all of the Company's rightful property).
Zetler contends that his LLC is the rightful owner of the Amazon account, in which name the account is registered, and that Marechaux agreed that the Company would shoulder various Rapid Systems costs and expenses in lieu of paying Zetler a salary. Thus, although Zetler does not mention these data storage charges specifically in his post-trial briefing, according to Zetler all of the various charges challenged by plaintiff were part of "an ongoing agreement to share costs between the companies, which was never reduced to writing." Def. Mem. at 35.
In order to defeat liability on this claim, Zetler must show that his decision to host Rapid Systems' products and services on the Amazon and Rackspace accounts was entirely fair to the Company. In this regard, certain facts are uncontested and clearly established. For many years, Zetler housed a database called "Portfolio" on space leased from Rackspace and from a company called Expert Host, the leases of which his wholly-owned companies owned, controlled, and, it appears, paid for. See Def. Ex. 267. In or about 2013, when the parties began developing Agencypad, Zetler opened a new account at Amazon to house Agencypad. Id. At all times relevant (i.e. until after Zetler was terminated as president of the Company), plaintiff, not Rapid Systems or the LLC, paid for this Amazon server space. See Tr. 992:10-14 (Viollon) (testifying that "C.D.S. Inc. was paying for" the Amazon account); Tr. 1861:1-2 (Zetler) (testifying that he had CDS, Inc. paying for the Amazon server the whole time); Tr. 1861:23-5 (Zetler) (testifying that plaintiff was "paying for the entire account, which was being used by CDS SARL, CDS, Inc. and Rapid Systems").
Although Zetler claims that he opened the Amazon account on behalf of Rapid Systems, see Tr. 1860:20-22 (Zetler); Email from Zetler to Viollon dated April 5, 2016, Pl. Ex. 146 (stating his view that the Amazon account has "always been" a CDS LLC account