Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Maxtena, Inc v. Marks

United States District Court, D. Maryland

September 2, 2014



DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for resolution are objections filed by both parties to the discovery rulings issued by Magistrate Judge William Connelly. Defendant Jeremy Marks has objected to seven rulings: (1) the October 31, 2013 order granting Plaintiff Maxtena, Inc.'s motion for a protective order in regards to Defendant's subpoena of Cooley, LLP; (2) the November 6, 2013 order directing Defendant to pay for the costs and notify Plaintiff of the topics that Dale Douglas will testify to at a second deposition; (3) the November 12, 2013 order vacating the order regarding the deposition of Michael R. Lincoln; (4) the December 20, 2013 order to Defendant to pay additional costs of the Neutral Examiner; (5) the January 28, 2014 order denying Defendant's request that Plaintiff respond to an interrogatory question and provide the email addresses of all individuals identified on Plaintiff's privilege log; (6) the May 8, 2014 order that certain communications were protected from disclosure by the common interest doctrine; and (7) the June 17, 2014 order denying Marks's request that Maxtena supplement its responses to its discovery requests. (ECF Nos. 301, 317, 321, 358, 400, 454, and 466). Plaintiff Maxtena, Inc. has objected to the February 7, 2014 order requiring Maxtena to produce unredacted emails between Maxtena, its legal counsel, and Dr. Elisabeth Chaves, the wife of Maxtena's CEO. (ECF No. 413). Also pending is a motion filed by Defendant for certification of immediate appeal pursuant to 28 U.S.C. § 1292(b) of the undersigned's November 7, 2013 Order and Memorandum Opinion denying Defendant's motion for partial judgment on the pleadings. (ECF No. 318). Finally, Defendant has filed a motion for leave to file an amended answer to Plaintiff's second amended complaint. (ECF No. 439). The issues have been fully briefed, and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, motion for certification will be denied, the motion for leave to file an amended answer will be granted, Defendant's objections will be overruled, and Plaintiff's objections will be sustained in part.

I. Background

In light of the many Memorandum Opinions that have been issued previously ( e.g., ECF Nos. 32, 136, 162, and 286), some familiarity with the tangled procedural history of this case will be presumed. Maxtena, Inc. ("Maxtena") filed suit against Marks on April 13, 2011. Following Marks's unsuccessful motion to dismiss for lack of personal jurisdiction, the parties agreed to engage in an initial period of "financial and valuation" discovery, ostensibly "[i]n an effort to facilitate settlement discussions." (ECF No. 40, at 1). Ultimately, however, this initial period of valuation discovery accomplished little in the way of conciliation. If anything, the dozens of disputes that arose during valuation discovery served to heighten the animosity and mistrust between the parties and their counsel.

Following an unsuccessful mediation before Magistrate Judge Jillyn K. Schulze, the parties began merits-based discovery, which has led to a fresh round of disputes over both the proper scope of discovery and the legal bona fides of each party's claims. On August 20, 2013, this case was referred to Magistrate Judge Connelly for resolution of all discovery disputes. (ECF No. 226). To resolve the current set of disputes, a brief review of the allegations and claims asserted in the operative pleadings is warranted.

A. Maxtena's Second Amended Complaint

Maxtena alleges the following facts in its second amended complaint. (ECF No. 199). Maxtena is an antenna company specializing in "phased array technology" that was incorporated in 2007 under Virginia law. On May 18, 2007, Maxtena and its three founders - including Defendant Marks - entered into a "Shareholders Agreement." (ECF No. 192-6). Relevant for these purposes, the Shareholders Agreement contained a clause that stated that "[i]n the event of a termination of a Shareholder's employment by the Corporation for Cause, the Purchase Price shall be equal to One Hundred Dollars ($100)." (ECF No. 192-6 § 6(c)) ("$100-Buyback Provision").

In the summer of 2009, Maxtena began work on a marine-based phased array antenna system for a client located in Germantown, Maryland. (ECF No. 199 ¶ 16). Marks, who at the time served as the Chief Technology Officer of the company, acted as the lead engineer for this time-sensitive project. Maxtena alleges that Marks became increasingly absent and unresponsive during late 2009 and into early 2010 because he was instead devoting his time and energy to other commercial opportunities. ( Id. ¶¶ 27-28). Marks allegedly shared highly confidential and proprietary information belonging to Maxtena with a third party, including certain schematic drawings associated with the marine-based antenna system. Marks also purportedly incorporated an entity known as "Elevation Semiconductor" in January 2010, which he intended to function as a direct competitor to Maxtena. ( Id. ¶ 31).

On January 29, 2010, Maxtena held a board of directors meeting to discuss the possibility of reorganizing from a Virginia corporation to a Delaware corporation. ( Id. ¶ 32). Marks attended the meeting but allegedly did not disclose either the incorporation of Elevation Semiconductor or his sharing of confidential information with a third party. Near the end of the January 29 meeting, Marks made a motion to reincorporate Maxtena in Delaware. ( Id. ¶¶ 32-33).

Throughout the spring of 2010, Marks and his associates allegedly began to develop business for Elevation Semiconductor. Maxtena, meanwhile, continued work on the marine-based antenna project for its Germantown-based client and also prepared to reorganize under Delaware law. On May 5, 2010, the Virginia corporation known as Maxtena ("Maxtena-Virginia") merged with its parent corporation, the Delaware corporation known as Maxtena ("Maxtena-Delaware"). ( Id. ¶ 39). Marks approved the merger in his capacity as both a director of Maxtena-Virginia and Maxtena-Delaware.

Maxtena alleges that it discovered Marks's "disloyalty" and work on behalf of Elevation Semiconductor on July 7, 2010, at which time Marks admitted to sharing proprietary data belonging to Maxtena with third parties involved in Elevation Semiconductor. (ECF No. 199 ¶ 40). Marks purportedly explained his actions by stating that he needed a "backup plan" if things did not work out with Maxtena. ( Id. ). On July 26, 2010, Maxtena sent Marks a letter notifying him that he was being terminated and stating that Maxtena was repurchasing his shares in the company for $100, pursuant to the $100-Buyback Provision in the Shareholders Agreement. Marks refused to accept the letter. ( Id. ¶¶ 50-51).

Based on these facts, the second amended complaint asserts six counts against Marks. Count I seeks a declaratory judgment that Maxtena is the rightful owner of Marks's shares in the corporation by virtue of the $100-Buyback Provision because (1) Marks was terminated for "cause, " and (2) the Shareholders Agreement survived the merger of Maxtena-Virginia into Maxtena-Delaware "by design." (ECF No. 199 ¶¶ 54-59).

Count II asserts an alternative theory of relief with respect to Marks's shares in the event that the Shareholders Agreement did not survive the merger. ( Id. ¶¶ 60-68). Specifically, Count II seeks a declaration that the 875, 000 shares of Maxtena-Delaware issued to Marks should be rescinded or cancelled because, at the time of the merger in May 2010, Marks had already committed gross breaches of the fiduciary and legal duties he owed to Maxtena-Virginia. Count II alleges that if the Maxtena entities had been aware of Marks's misconduct in May 2010, Maxtena-Virginia would have exercised the $100-Buyback Provision in the Shareholders Agreement prior to converting Marks's shares in Maxtena-Virginia to Maxtena-Delaware stock. In the alternative to rescission or cancellation of Marks's shares in Maxtena-Delaware, Count II requests the court to "fashion another remedy such as a constructive trust sufficient to make Maxtena whole." ( Id. ¶ 68).

The remaining counts in the second amended complaint assert claims against Marks for breach of fiduciary duty (Count III); violation of the Virginia Trade Secret Act (Count IV); violation of the Virginia Business Conspiracy Statute (Count V); and breach of a proprietary information agreement Marks entered into with Maxtena (Count VI).

In his answer to the second amended complaint, Marks asserts twenty-five affirmative defenses. (ECF No. 191). Marks also brought a five-count counterclaim. In Count I, Marks seeks a declaratory judgment that he is the sole, rightful owner of 835, 700 shares of Maxtena stock. ( Id. ¶¶ 53-63). Marks supports this count with a number of alternative arguments. First, Marks alleges that the Shareholders Agreement applied only to Marks's shares in Maxtena-Virginia and did not survive the May 2010 merger, meaning that the contract has no applicability to Marks's termination, which occurred in July 2010. Marks alternatively argues that he was not validly terminated for "cause" and that his termination was not effected in compliance with either the Maxtena-Virginia Shareholders' Agreement or the Maxtena-Delaware Bylaws. Finally, Marks argues that enforcing the clause from the Shareholders Agreement would amount to an unconscionable contractual penalty, as it would require Marks to forfeit shares worth "nearly $6, 000, 000" in exchange for $100.00.

In Count II, Marks seeks a declaratory judgment that his work with Elevation Semiconductor was not in breach of the proprietary information agreement he signed with Maxtena and that Maxtena does not own the work he produced during his time with Elevation Semiconductor. ( Id. ¶¶ 64-73). In Count III, Marks seeks a declaratory judgment that either (1) establishes "the fair value that Marks is entitled to receive as consideration for the sale of his shares to Maxtena, " or (2) orders that the fair value of his shares be determined by means of an appraisal. ( Id. ¶¶ 74-80). To support this count, Marks alleges that, if the Shareholders Agreement is still applicable and if Marks was indeed validly terminated, he is entitled to receive fair value in exchange for his shares, which Maxtena has not offered. In Count IV, Marks alleges a breach by Maxtena of the Shareholders Agreement by allegedly failing to pay him any distributions, but at the same time, paying distributions to or for the benefit of other shareholders. In Count V, Marks alleges another breach of contract count, arguing that Maxtena was obligated to pay him an annual salary until he was validly terminated from his positions with the company.

II. Motion for Certification of an Interlocutory Appeal

On July 3, 2013, Marks filed a motion for partial judgment on the pleadings. (ECF No. 192). He argued that he was entitled to judgment on Count I of the second amended complaint as a matter of both contract interpretation and corporate law. Marks argued that the Shareholders Agreement - including the $100-Buyback Provision - did not survive the merger of Maxtena-Virginia into Maxtena-Delaware as the merger plan made no reference to the Shareholders Agreement and the Shareholders Agreement is directly contrary to the provisions in the Bylaws governing Maxtena-Delaware, a document that is specifically mentioned in the merger plan.

On November 7, 2013, the undersigned issued a Memorandum Opinion and Order rejecting Marks's arguments and holding that the plain language of the Shareholders Agreement makes clear that it applies to the shares issued by Maxtena-Delaware, a successor entity to Maxtena-Virginia. (ECF Nos. 286 and 287). The opinion acknowledged that under Delaware case law, the general rule is that a corporate entity, along with its shares, ceases to exist upon its merger into a different corporate entity. But this presumptive rule can be overcome if the parties specifically agree that the surviving entity would be governed by the disappearing entity's shareholders agreement, so long as the agreement is express. This express agreement could be made in a merger plan or even a shareholders agreement itself. The opinion then engaged in contract interpretation of the Shareholders Agreement, and concluded that the terms of the contract were clear and unambiguous that the Shareholders Agreement survived the merger and applied to shares issued by Maxtena-Delaware and presently held by Marks.

On November 25, 2013, Marks filed a motion for certification of this opinion and order pursuant to 28 U.S.C. § 1292(b) (ECF No. 318), to which Maxtena opposed (ECF No. 344), and Marks replied (ECF No. 357).

"[Section] 1292(b) provides a mechanism by which litigants can bring an immediate appeal of a non-final order upon the consent of both the district court and the court of appeals." In re Cement Antitrust Litig., 673 F.2d 1020, 1026 (9th Cir. 1982). Section 1292(b) states in pertinent part:

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.

Thus, a defendant seeking an interlocutory appeal pursuant to section 1292(b) must "show (1) that a controlling question of law exists (2) about which there is a substantial basis for difference of opinion and (3) that an immediate appeal from the order may materially advance the ultimate termination of the litigation." Riley v. Dow Corning Corp., 876 F.Supp. 728, 731 (M.D. N.C. 1992). The decision to certify an interlocutory appeal is firmly in the district court's discretion. Id. Unless all of the statutory criteria are satisfied, "the district court may not and should not certify its order... for an immediate appeal under section 1292(b)." Ahrenholz v. Bd. of Trs. of the Univ. of Ill., 219 F.3d 674, 676 (7th Cir. 2000); see also Riley, 876 F.Supp. at 731 (stating that Section 1292(b) "requires strict adherence to all statutory requirements before certification will be allowed"). Moreover, the United States Court of Appeals for the Fourth Circuit has cautioned that "[section] 1292(b) should be used sparingly and... that its requirements must be strictly construed." Myles v. Laffitte, 881 F.2d 125, 127 (4th Cir. 1989); see also Riley, 876 F.Supp. at 731 ("The legislative history of [Section 1292(b)] suggests that there is a strong federal policy against piecemeal appeals."); Beck v. Commc'ns Workers of Am., 468 F.Supp. 93, 95-96 (D.Md. 1979) ("Section 1292(b), a narrow exception to the long-standing rule against piecemeal appeals, is limited to exceptional cases."). Certification under section 1292(b) is improper if it is simply "to provide early review of difficult rulings in hard cases." City of Charleston, S.C. v., LP, 586 F.Supp.2d 538, 548 (D.S.C. 2008).

The term "question of law, " for purposes of section 1292(b), refers to "a question of the meaning of a statutory or constitutional provision, regulation, or common law doctrine, " as opposed to "whether the party opposing summary judgment had raised a genuine issue of material fact." Lynn v. Monarch Recovery Mgmt., Inc., 953 F.Supp.2d 612, 623 (D.Md. 2013). "A controlling question of law [includes] every order [that], if erroneous, would be reversible error on final appeal." Id. ( quoting Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir. 1974)) (emphasis added).

Here, the issue raised in Marks's motion - whether the Shareholders Agreement survived the merger - is not a "question of law" under section 1292(b), but is more appropriately characterized as the application of a legal principle to a set of facts. The legal principle is that under Delaware corporate law, a shareholders agreement does not survive a statutory merger absent an express agreement to the contrary, either in the merger plan or the shareholders agreement. The court applied that legal principle to the facts, specifically the Shareholders Agreement and Merger Plan. Marks acknowledges the legal principle ( see ECF No. 357, at 3 ("A clear and express statement is required in order to overcome the general rule that a merger moots the governing agreement of the disappearing corporation.")); he objects to how that legal principle was applied to the facts of this case, namely whether the Shareholders Agreement and Merger Plan expressly state that the Shareholders Agreement survived the merger. There is no doubt that the question of whether the Shareholders Agreement survived is vitally important to both parties' positions. But on the spectrum of "controlling questions of law, " running from whether summary judgment was properly granted to whether state or federal law should be applied, a question of contract interpretation falls closer to the summary judgment end of the spectrum, and is inappropriate to invoke the extraordinary remedy of early appellate review. See Ahrenholz, 219 F.3d at 676 ("that the question of the meaning of a contract, though technically a question of law when there is no other evidence but the written contract itself, is not what the framers of section 1292(b) had in mind."); Great Lakes Gas Transmission Ltd. P'Ship v. Essar Steel Minn., LLC, Civ. No. 09-CV-3037 (SRN/LIB), 2013 WL 4028144, at *5 (D.Minn. Aug. 7, 2013) (concluding that interpretation of an insurance policy, although a question of law, is not a controlling question of law as contemplated by section 1292(b)); Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Americas, 426 F.Supp.2d 125, 128 (S.D.N.Y. 2005) (same); Sigma Fin. Corp. v. Am. Int'l Specialty Lines Ins. Co., 200 F.Supp.2d 710, 723-24 (E.D.Mich. 2002) (same).

Even if the issue could be considered a controlling question of law, it would not meet the requirement that immediate appeal would materially advance the litigation. Generally this requirement is met when resolution of a controlling legal question would serve to avoid a trial or otherwise substantially shorten the litigation. See generally 16 Charles Alan Wright, et al., Federal Practice and Procedure § 3930, at 505-10 (3d ed. 2012); see also Orson, Inc. v. Miramax Film Corp., 867 F.Supp. 319, 322 (E.D.Pa. 1994) ("In determining whether certification will materially advance the ultimate termination of the litigation, a district court is to examine whether an immediate appeal would (1) eliminate the need for trial, (2) eliminate complex issues so as to simplify the trial, or (3) eliminate issues to make discovery easier and less costly.").

Marks argues that the status of the Shareholders Agreement is vital to Maxtena's case and is the core issue in dispute. Finality on the status of the Shareholders Agreement would narrow the issues for resolution, significantly advancing the termination of the litigation. Marks argues that permitting the Court of Appeals to decide the issue now will avoid the possibility of having to redo discovery and trial on a central issue.

The survival of the Shareholders Agreement is a critical issue, but only to some of the parties' claims. As explained above, there are six claims and five counterclaims, many of which do not turn on the Shareholders Agreement, including Maxtena's claims of breach of fiduciary duty, violations of the Virginia Trade Secret Act and Virginia Business Conspiracy Statute, and breach of the parties' proprietary information agreement. A ruling by the Fourth Circuit on whether the Shareholders Agreement survived would not affect these claims in any way. See, LP, 586 F.Supp.2d at 548 ("Since this litigation would continue before the court regardless of what the appellate court decided, the court cannot see how certifying this question for interlocutory appeal would materially advance this litigation towards a more efficient and expedient conclusion."). Furthermore, a holding by the Fourth Circuit that the Shareholders Agreement did not survive the merger would not end the matter, as the court would then have to consider Maxtena's alternative arguments that were not reached in the November 7, 2013 opinion. See Difelice v. U.S. Airways, Inc., 404 F.Supp.2d 907, 909 (E.D.Va. 2005) (finding it far from certain that the termination of litigation would be expedited by an immediate appeal given that a reversal by the court of appeals would still require the district court to consider the defendant's alternative arguments, which were strongly disputed). "The mere fact that [the issue's] resolution at this time may save pre-trial and trial effort and expense is not determinative; that of course can be said of any interlocutory appeal." Fannin v. CSX Transp., Inc., 873 F.2d 1438, 1989 WL 42583, at *5 (4th Cir. 1989) (unpublished table decision) (emphasis in original).[1] Consequently, Marks's motion for certification will be denied.[2]

III. Motion to Amend Defendant's Answer

Marks has filed a motion to amend his answer to Plaintiff's second amended complaint to add the business judgment rule as an affirmative defense. Marks contends that the need to assert this defense only arose after Plaintiff's recently filed opposition to Marks's motion to strike Plaintiff's supplemental and rebuttal expert witness disclosure. Marks contends that Maxtena - for the first time - seeks to redefine its damages claims against Marks in a manner that challenges Marks' business judgment in making a specific antenna product design decision, and for the first time disclaims any intention to measure that design decision against technical or engineering standards. Defendant filed a motion to amend his answer on April 11, 2014. (ECF No. 439), to which Plaintiff opposed (ECF No. 448), and Defendant replied (ECF No. 453).

It is undisputed that the deadline for moving for amendment under the scheduling order was May 16, 2013. Plaintiff moved to file a second amended complaint on that day, which was granted. In his answer to this new complaint, Defendant asserted two new defenses, neither of which was the business judgment rule. To file an amended pleading after the scheduling order's deadline, the moving party must satisfy first Rule 16(b)'s "good cause" standard pertaining to modification of the schedule, and then satisfy Rule 15(a)'s requirements pertaining to amending pleadings. Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298 (4th Cir. 2008).

Rule 16(b)'s "good cause" standard focuses on the timeliness of the amendment and the reasons for the tardy filing. Because a court's scheduling order "is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril, " Ground Zero Museum Workshop v. Wilson, 813 F.Supp.2d 678, 707 (D.Md. 2011) (quotation marks and internal citations omitted), a movant must demonstrate that the reasons for the tardiness of its motion justify a departure from the rules set by the court in its scheduling order. Thus, the primary consideration of the court in addressing whether "good cause" has been shown under Rule 16(b) relates to the movant's diligence. Montgomery v. Anne Arundel Cnty., Md., 182 F.Appx. 156, 162 (4th Cir. 2006) (per curiam). Lack of diligence and carelessness are the "hallmarks of failure to meet the good cause standard." W.Va. Housing Dev. Fund v. Ocwen Tech. Xchange, Inc., 200 F.R.D. 564, 567 (S.D.W.Va. 2001). "[T]he focus of the inquiry is upon the moving party's reasons for seeking modification. If that party was not diligent, the inquiry should end." Marcum v. Zimmer, 163 F.R.D. 250, 254 (S.D.W.Va. 1995).

Plaintiff contends that the second amended complaint accused Marks of trying to launch Elevation Semiconductor using the marine antenna data he developed for Maxtena. Maxtena made its original Rule 26(a)(2) expert disclosure on June 17, 2013. Maxtena solely addressed the cost, value, and utility of the marine antenna data and stated that Dr. Carlo DiNallo, Maxtena's Chief Technology Officer, would testify regarding the technology itself, the efforts expended to develop the technology, and the advantage a competitor would gain if it obtained access to this technology. These disclosures did not discuss supposed lost sales of the marine antenna or how Marks was personally liable for causing Maxtena's purported lost sales. Marks's own disclosure also hewed closely to the antenna's technical aspects. On January 13, 2014, Maxtena served what it deemed Rule 26(a)(2) supplemental and rebuttal expert witness disclosures. According to Marks, for the first time this new disclosure presented a theory wherein Marks allegedly made poor design choices with respect to the marine antenna that related to work done at Elevation Semiconductor. Consequently, Marks argues that these new disclosures presented a new theory: the marine antenna was not a product of real value, instead its design decisions by Marks were deserving of criticism. Marks moved to strike these disclosures as it presented a drastically different theory of liability. In its opposition to this motion, Marks contends that Maxtena presents yet another theory of liability. It quotes its second amended complaint as laying out the different ways Marks breached his fiduciary duty: secretly incorporating Elevation Semiconductor; fraudulently misappropriating the marine antenna data; failing to give his full time and attention to Maxtena; and embarking on a path that was contrary to Maxtena's best interests. By contrast, in its opposition, Maxtena presented Marks' breach as causing error and problems that led to a failure to deliver timely the marine antenna, and making self-interested, conflicted design choices that led to a litany of development issues that would not have occurred had the old architecture been adhered to. It also characterized Dr. DiNallo's criticism of Marks as having nothing to do with any claims of engineering malpractice, but rather focusing on Marks's mistakes that stemmed from his decision to abandon Maxtena's proven architecture in favor of an experimental new architecture, which by its nature meant that there would likely be production issues. According to Marks, Maxtena's abandonment of criticizing Marks's technical skill means it must be second-guessing his business judgment. Therefore, justice requires that Marks be permitted to assert a business judgment rule defense.

Not surprisingly, Maxtena sees things differently. According to it, Marks was well on notice that issues with Marks's business decisions were a part of this case. The original complaint stated that Marks breached his duty of loyalty by embarking on a path that was contrary to Maxtena's best interests. In his counterclaim, Marks goes to some length expressly to allege that his ouster from Maxtena, and its claims against him, have their origin in business disagreements between Marks and Maxtena's CEO, Dr. Licul. Specifically, Marks's counterclaim outlined the "significant differences of opinion regarding the strategic direction of Maxtena." (ECF No. 34 ¶ 24). While waiting to find out whether a contract with a buyer would move forward, Dr. Licul wanted to suspend Maxtena's operations and fire everyone but a few officers. Marks, by contrast, wanted to continue to move forward on other projects as a hedge in case the contract did not come through. Marks won that dispute. The counterclaim goes on to document a disagreement between Marks and Licul regarding efforts to reduce the costs of producing a component for a project. Marks argued for cost savings, Licul thought otherwise, contending that any extra costs could be extracted from the buyer. Licul won that round, but Marks states that he pursued the development of the component at a lower cost on his time and expense. In furtherance of these efforts, he incorporated Elevation Semiconductor. The counterclaim also recounts the two men's disputes concerning whether Maxtena should be split into two. Eventually, according to Marks, Dr. Licul attempted to marginalize Marks and obtain Marks's share of the company. Therefore, according to Maxtena, it is hard to credit Marks as being diligent in raising the need for the business judgment defense given that he was characterizing the disputes between him and the company as difference of opinion at the board level. In regard to Dr. DiNallo's opinions and Maxtena's subsequent characterizations of them, Maxtena argues that Dr. DiNallo's supplemental and rebuttal disclosures simply connected Maxtena's two theories of Marks's breach of the duty of loyalty it outlined in its second amended complaint: (1) Marks was in charge of developing the marine antenna, but essentially sacrificed his work for Maxtena on that project and became absent due to conflict with his competing activities with Elevation; and (2) Marks usurped a corporate opportunity by attempting to have Elevation develop technologies that Maxtena attempted to pursue. Specifically, Dr. DiNallo stated that Marks decided to pursue new architecture instead of using its tried-and-true old architecture because Marks was developing that new architecture at Elevation Semiconductor. Pursuing this new architecture caused a delay in production and resulted in loss of sales. Thus, the allegation concerning Marks's design decision was not based on the view that his technical design was poor, but that the decision was made to advance his own selfinterested and competing work at Elevation. According to Maxtena, Dr. DiNallo's disclosures do not amend Maxtena's claims, but rather expand on the complaint's allegations. Maxtena also argues that Marks was not diligent as he sat on this supposed defense for too long, even if one views the revelation of the need for this defense as the date of the supplemental disclosures, which occurred in January 2014, more than two months before this motion was filed.

Marks has demonstrated sufficient diligence. The fact that Marks recounted differences in opinion about the direction of Maxtena in his counterclaim is of little relevance in determining what defenses are needed. How the defendant sees his case does not mean that he necessarily has to rely on that view in defending his case if the plaintiff does not share that view in its complaint. Maxtena has recently raised the business decisions of Marks and whatever delay Marks suffered is not significant given the parties' propensity to extend this case at every juncture.

Marks must also satisfy Rule 15, which provides that courts should "freely give leave [to amend a pleading] when justice so requires." Fed.R.Civ.P. 15(a). Therefore, the court should deny leave to amend only when "the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999) (citation and internal quotation marks omitted). "An amendment is futile when the proposed amendment is clearly insufficient on its face, or if the amendment claim would still fail to survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6)." El-Amin v. Blom, No. CCB-11-3424, 2012 WL 2604213, at *11 (D.Md. July 5, 2012).

Maxtena contends that Marks should not be permitted to add the business judgment rule defense because it is futile. Virginia has codified the business judgment rule at Va. Code Ann. § 13.1-690, which generally provides that a director is not liable for action taken or not taken as a director if he acts in accordance with his good faith business judgment of the best interests of the corporation.[3] The Supreme Court of Virginia has held that a director's act of secretly organizing a competitor was not a corporate act of the corporation, and, thus, the business judgment rule did not protect the director from a claim for breach of fiduciary duty to the corporation. Simmons v. Miller, 261 Va. 561, 577 (2001). Maxtena argues that these principles makes Marks's proposed defense futile because he breached his duty of loyalty to Maxtena by secretly forming and operating a competing business (Elevation Semiconductor), attempting to usurp corporate opportunities through Elevation, failing to give his full time and attention to Maxtena, and embarking on a path contrary to Maxtena's best interests. As such, according to Maxtena, the business judgment rule would have no application in this case.

Maxtena's arguments will be rejected as they are based on the view that the allegations in its complaint have been proven. That position is premature and, depending on the course of this litigation, could ultimately be unfounded. The business judgment rule is not futile and Marks's motion to amend his answer will be granted.

IV. Objections to Magistrate Judge Rulings

Marks objects to six rulings of Magistrate Judge Connelly, all concerning non-dispositive discovery matters. Maxtena objects to one of Judge Connelly's rulings, also concerning a non-dispositive discovery matter. Under 28 U.S.C. § 636(b)(1), non-dispositive pretrial matters may be referred to a magistrate judge for hearing and determination. A district judge may modify or set aside any portion of a magistrate judge's nondispositive ruling "where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law." Id .; see also Fed.R.Civ.P. 72(a); Local Rule 301.5.a. "The [district] judge may also receive further evidence or recommit the matter to the magistrate judge with instructions." 28 U.S.C. § 636(b)(1)(C). ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.