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Huawei Technologies Co. Ltd. v. Huang

United States District Court, E.D. Texas, Sherman Division

May 2, 2019

HUAWEI TECHNOLOGIES CO., LTD., and FUTUREWEI TECHNOLOGIES, INC.
v.
YIREN RONNIE HUANG, and CNEX LABS, INC.

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court are: (1) Plaintiffs' Motion for Partial Summary Judgment on their Breach of Contract Claim for Failure to Disclose Patent Applications (Count II) (Dkt. #158); (2) Defendants' First Motion for Summary Judgment and/or Summary Adjudication on Plaintiffs' Breach of Contract Claims (Dkt. #159); (3) Defendants' Second Motion for Summary Judgment on Counts 13, 14, 15, 16, 17 and 21 of the Second Amended Complaint (Dkt. #161); (4) Plaintiffs' Motion for Summary Judgment of no Evidence on Defendants' Counterclaims (Dkt. #160); and (5) Plaintiffs' Motion for Summary Judgment on Defendants' Amended Counterclaims (Dkt. #162). The aforementioned motions and cross-motions are all propositioned on challenges to the same contract provisions and conduct arising thereout; therefore, the Court will analyze these motions contemporaneously. The Court, having considered the motions, pleadings, and relevant evidence, finds that Defendants' First Motion for Summary Judgment and/or Summary Adjudication on Plaintiffs' Breach of Contract Claims (Dkt. #159) should be granted in part; Defendants' Second Motion for Summary Judgment on Counts 13, 14, 15, 16, 17 and 21 of the Second Amended Complaint (Dkt. #161) should be granted in part; Plaintiffs' Motion for Partial Summary Judgment on their Breach of Contract Claim for Failure to Disclose Patent Applications (Count II) (Dkt. #158) should be denied; Plaintiffs' Motion for Summary Judgment on Defendants' Amended Counterclaims (Dkt. #162) should be granted in part; and Plaintiffs' Motion for Summary Judgment of no Evidence on Defendants' Counterclaims (Dkt. #160) should be denied.

         BACKGROUND

         Plaintiff Huawei Technologies Co., Ltd. (“Huawei”) is a multinational networking and telecommunications equipment and services company headquartered in China. Plaintiff Futurewei Technologies, Inc. (“Futurewei”) is a subsidiary of Huawei with several offices throughout the United States, including Plano, Texas. In December 2010, Futurewei offered Defendant Yiren “Ronnie” Huang (“Huang”) employment as a Principal Engineer for its solid-state drive (“SSD”) storage group, to assist in development and implementation of Advance Computing Network (“ACN”), non-volatile memory express (“NVMe”), and SSD technology. Huang accepted the offer in January 2011. The Employment Agreement contained provisions relating to non-disclosure, assignment, and non-solicitation.

         Based on Huang's job responsibilities, Plaintiffs contend that Huang had access to confidential, proprietary, and trade secret information. On May 31, 2013, Huang ended his employment with Futurewei. On June 3, 2013, Huang, along with others, incorporated CNEX Labs, Inc. (“CNEX”), a Delaware Corporation with its principal place of business in California. Plaintiffs allege, among other things, that Huang incorporated CNEX to compete directly with Plaintiffs; Huang is using Plaintiffs' confidential, proprietary, and trade secret information to develop and improve SSD technology and NVMe related technology for CNEX; and further that Huang and CNEX are improperly soliciting employees away from Plaintiffs. Additionally, Plaintiffs allege that Huang started to engage in this behavior informally prior to leaving Futurewei. Plaintiffs further contend that Huang and CNEX began filing patent applications in June 2013, using the information that Huang obtained through his employment with Futurewei.

         On December 28, 2017, Plaintiffs filed suit against Defendants in the Eastern District of Texas seeking declaratory judgment and alleging a variety of causes of action including: breach of contract; disclosure and misappropriation of confidential information and trade secrets; tortious interference with contract and prospective contracts; conspiracy claims; Racketeer Influence and Corrupt Organizations Act of 1970 (“RICO”) claims; breach of fiduciary duty; and unfair competition under Lanham Act and Texas common and statuary law (Dkt. #1). On November 21, 2018, Defendants filed their first amended counterclaims and answer (Dkt. #132) also alleging various causes of action.

         On December 19, 2018, Plaintiffs' filed a Motion for Partial Summary Judgment on their Breach of Contract Claim for Failure to Disclose Patent Applications (Count II) (Dkt. #158). On January 10, 2019, Defendants filed a response (Dkt. #183). On January 18, 2019, Plaintiffs filed a reply (Dkt. #196). On January 25, 2019, Defendants filed a sur-reply (Dkt. #211).

         On December 19, 2018, Defendants filed their First Motion for Summary Judgment and/or Summary Adjudication on Plaintiffs' Breach of Contract Claims (Dkt. #159). On January 10, 2019, Plaintiffs filed a response (Dkt. #180). On January 17, 2019, Defendants filed a reply (Dkt. #195). On January 25, 2019, Plaintiffs filed a sur-reply (Dkt. #205).

         On December 19, 2018, Defendants filed their Second Motion for Summary Judgment on Counts 13, 14, 15, 16, 17 and 21 of the Second Amended Complaint (Dkt. #161). On January 10, 2019, Plaintiffs filed a response (Dkt. #181). On January 18, 2019, Defendants filed a reply (Dkt. #197). On January 25, 2019, Plaintiffs filed a sur-reply (Dkt. #207).

         On December 19, 2018, Plaintiffs filed a Motion for Summary Judgment of no Evidence on Defendants' Counterclaims (Dkt. #160). On January 10, 2019, Defendants filed a response (Dkt. #184). On January 18, 2019, Plaintiffs filed a reply (Dkt. #198). On January 25, 2019, Defendants filed a sur-reply (Dkt. #212).

         On December 19, 2018, Plaintiffs filed a Motion for Summary Judgment on Defendants' Amended Counterclaims (Dkt. #162). On January 1, 2019, Defendants filed a response (Dkt. #182). On January 18, 2019, Plaintiffs filed a reply (Dkt. #199). On January 25, 2019, Defendants filed a sur-reply (Dkt. #210).

         LEGAL STANDARD

         The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Summary judgment is proper under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute about a material fact is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court “must resolve all reasonable doubts in favor of the party opposing the motion for summary judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).

         The party seeking summary judgment bears the initial burden of informing the court of its motion and identifying “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden of proof on a claim or defense for which it is moving for summary judgment, it must come forward with evidence that establishes “beyond peradventure all of the essential elements of the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant bears the burden of proof, the movant may discharge the burden by showing that there is an absence of evidence to support the nonmovant's case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the nonmovant must “respond to the motion for summary judgment by setting forth particular facts indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at 248-49). A nonmovant must present affirmative evidence to defeat a properly supported motion for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir. 1982) (quoting Ferguson v. Nat'l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The Court must consider all of the evidence but “refrain from making any credibility determinations or weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).

         ANALYSIS

         Plaintiffs' move for summary judgment (Dkt. #158) on their breach of contract claim, which is set out as Count 2 of their Second Amended Complaint (Dkt. #61). Plaintiffs also move for summary judgment (Dkt. #160 and 162) on all Defendants' claims, which are set out as Counts 1-18 in Defendants' First Amended Counterclaims and Answer (Dkt. #132).

         Defendants move for summary judgment (Dkt. #159 and 161) on numerous Plaintiffs claims, which are set out as Counts 1, 2, 4, 13-17, and 21 of Plaintiffs' Second Amended Complaint (Dkt. #61). Defendants also move for summary judgment (Dkt. #159) on their requests for certain declaratory judgments, which are set out as Counts 15 and 16 of Defendants' First Amended Counterclaims and Answer (Dkt. #132).

         The Parties' numerous, competing motions for summary judgment can be placed into two broad, all-encompassing categories: (I) motions for summary judgment on claims premised on or arising directly out of alleged breaches of the Employment Agreement and (II) motions for summary on non-breach of contract causes of actions. The Court discusses each in turn.

         I. BREACH OF CONTRACT CLAIMS

         Defendants move for summary judgment on Count 1 of Plaintiffs' Second Amended Complaint, in which Plaintiffs seek a declaration from the court that: (1) the Patent Applications are a Subject Idea or Invention under the terms of the Agreement; (2) the assignments by Huang of the Patent Applications to CNEX are void; and (3) all intellectual property derived from or related to the Patent Applications is the property of Plaintiff Futurewei. Defendants further move for summary judgment on Count 4 of Plaintiffs' Second Amended Complaint, which alleges that Defendant Huang breached the non-solicitation provision of the Employment Agreement by encouraging Futurewei employees to terminate their employment relationship or consulting relationship with Futurewei within one year of Huang's termination with Futurewei.

         Defendants also seek summary judgment on Counts 15 and 16 of their First Amended Counterclaims and Answer (Dkt. #132). Count 15 seeks a judicial declaration that the assignment provision under Mr. Huang's Employment Agreement with Futurewei is unenforceable. Count 16 seeks a judicial declaration that Section 6(d) of the employment Agreement between Defendant Huang and Futurewei is void and unenforceable.

         Plaintiffs move for summary judgment on Count 1 of Defendants' First Amended Counterclaims and Answer, which alleges breach of contract against Defendants for attempting to steal Huang's intellectual property in violation Employment Agreement.

         Plaintiffs and Defendants each move for summary judgment on Count 2 of Plaintiffs' Second Amended Complaint, which Plaintiffs alleges that Defendant Huang breached the Employment Agreement by failing to disclose patent applications for one year after the termination of his employment with Plaintiffs, in violation of Section 4 of the Employment Agreement. Defendants

         Each of these claims and counterclaims center on and challenges the validity of four sections of the Employment Agreement: (1) Section 3. Assignment of Inventions (the “Assignment of Inventions” provision); (2) Section 4. Obligation to Keep Company Informed (the “Disclosure” provision); (3) Section. 5 Prior Inventions (the “Prior Inventions” provision); and (4) Section 6. Other Activities; Non-Competition; Non-Solicitation (the “Non-Solicitation” provision).

         The parties agree that contract interpretation is a matter of law; however, they disagree as to whether California or Texas law should govern the Court's inquiry. The Employment Agreement contains a choice-of-law provision which provides that “[t]his Agreement will be governed by and construed according to the laws of the State of Texas without regard to conflicts of law principles.” The agreement also contains a forum selection clause, by which the parties agree that the exclusive forum for any suit, action, or other proceeding arising out of or in any way related to this Agreement shall be in the state or federal courts in Texas, and I agree to the exclusive personal jurisdiction and venue of any court on Collin County Texas.” The Court necessarily turns first to this legal issue of whether Texas or California law governs the enforcement of the contract provisions.

         A. Governing Law

         A federal court is required to follow the choice of law rules of the state in which it sits. Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496 (1941). Thus, the Court must look to the forum state-Texas-for the law that govern its choice-of-law analysis. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Texas courts consistently recognize the “party autonomy rule” by which “parties can agree to be governed by the law of another state.” Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319, 324 (Tex. 2014). The Fifth Circuit, however, has “distinguished forum selection clauses, which dictate where a dispute will be heard, choice-of-law provisions dictate the law that will decide the dispute, and thus create more tension with a state's power to regulate conduct within its borders.” Cardoni v. Prosperity Bank, 805 F.3d 573, 581 (5th Cir. 2015) (citing DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990)). Therefore, “although Texas courts permit choice-of-law agreements and the default position is that they are enforceable, it is not uncommon for a party to overcome them.” Id. (citing DeSantis, 793 S.W.2d at 681 (holding parties' choice of Florida law unenforceable and applying Texas law to enforcement of noncompetition agreement); CMA-CGM (Am.), Inc. v. Empire Truck Lines, Inc., 416 S.W.3d 495, 516-17 (Tex. App.-Houston [1st Dist.] 2013, pet. denied) (holding parties' choice of Maryland law unenforceable and applying Texas law to resident motor carrier being required to indemnify for third-party's negligence); Panatrol Corp. v. Emerson Elec. Co., 163 S.W.3d 182, 186-89 (Tex. App.-San Antonio 2005, pet. denied) (holding parties' choice of Missouri law unenforceable and applying Texas law to manufacturer's indemnification of innocent seller); Ennis, Inc. v. Dunbrooke Apparel Corp., 427 S.W.3d 527, 534-36 (Tex.App.-Dallas 2014, no pet.) (reversing summary judgment on grounds that genuine issue of material fact remained on whether parties' contractual choice of Texas law or another state's law should apply to question of enforceability of noncompetition provision)).

         To show that the choice-of-law provision is unenforceable, Defendants must satisfy the standard set out in Section 187(2) of the ...


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