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SCHNABEL v. RAMSEY QUANTITATIVE SYSTEMS

June 25, 2004.

GADI SCHNABEL, Plaintiff,
v.
RAMSEY QUANTITATIVE SYSTEMS, INC., Defendant.



The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge

OPINION & ORDER

Plaintiff Gadi Schnabel brought this action for a declaratory judgment to "quiet title" to his "Selector" computer program and for breach of his employment contract with defendant Ramsey Quantitative Systems, Inc. (See generally Dkt. No. 1: Compl.) After the filing of this action but before Ramsey was served with it, Ramsey filed suit against Schnabel in the United States District Court for the Western District of Kentucky. (Dkt. No. 2: Ramsey Motion to Dismiss or Transfer (hereafter, "Ramsey Motion"), Ex. 6: W.D. Ky. Compl.)

Presently before this Court is Ramsey's motion to dismiss this action in favor of the Kentucky action under an exception to the "first filed rule," or in the alternative to transfer this action to the Western District of Kentucky, where Ramsey's action against Schnabel is pending.

  The parties have consented to determination of this action by a Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Dkt. No. 21: 5/11/04 Consent to Jurisdiction.) For the reasons discussed below, Ramsey has not met its heavy burden of showing "special circumstances" to justify dismissing this first filed action, nor has Ramsey met the heavy burden of showing that an exception to the first filed rule or transfer to Kentucky under 28 U.S.C. § 1404(a) is appropriate "for the convenience of the parties and witnesses, in the interest of justice," and therefore Ramsey's motion to dismiss or transfer is DENIED.

  FACTS

  Plaintiff Gadi Schnabel, a resident of New York who works in the equity trading industry, developed a software program for an equity trading strategy model. (Dkt. No. 12: Schnabel Aff. ¶¶ 2-4.) Defendant Ramsey is an asset management firm specializing in systematic programs with its principal place of business in Louisville, Kentucky. (Dkt. No. 1: Compl. ¶ 3; Dkt. No. 27: Answer ¶ 3; Dkt. No. 2: Ramsey Motion Ex. 1: Neil Ramsey Aff. ¶ 2; Dkt. No. 2: Ramsey Motion Ex. 6: W.D. Ky. Compl. ¶ 2.) Ramsey employed Schnabel "to assist the company in developing an equity trading strategy model, later named G-Pairs." (Ramsey Aff. ¶ 4.)

  Schnabel began developing his equity trading computer software program named "Selector" in 2000. (Schnabel Aff. ¶¶ 3-4.) In October 2002, while working for Credit Suisse as a hedge fund analyst, Schnabel was sent to Louisville to conduct business with Ramsey. (Schnabel Aff. ¶ 5.) During his visit, Schnabel met with Ramsey's President Neil Ramsey and discussed Schnabel's fund tracking software program and the fund tracking system Schnabel had implemented for Credit Suisse. (Schnabel Aff ¶ 5.) They began preliminary discussions concerning a possible future business relationship. (Schnabel Aff. ¶ 5.) Schnabel continued to correspond with Ramsey concerning possible employment, and on January 21, 2003, Schnabel met with Neil Ramsey in New York to discuss specific terms of employment. (Schnabel Aff. ¶ 7; Ramsey Aff. ¶ 3.) After email drafts of an employment agreement, in February 2003 Schnabel accepted via email an offer of employment based on the terms initially discussed in New York as further developed via the emails. (Schnabel Aff. ¶¶ 8-9.)*fn1 Schnabel met with Neil Ramsey two more times in New York before Schnabel and his wife moved to Louisville, Kentucky on May 4, 2003 and commenced employment with Ramsey on May 5, 2003. (Schnabel Aff. ¶¶ 10-11.) During his employment with Ramsey in Kentucky, Schnabel maintained his New York apartment. (Schnabel Aff. ¶ 2.)

  Ramsey hired Schnabel "to assist the company in developing an equity trading strategy model, later named G-Pairs." (Ramsey Aff. ¶ 4.) Schnabel claims, however, that he completed development of his workable and tradable computer program before beginning employment with Ramsey, and that Schnabel and his father, Israel Schnabel, were already trading with the program in 2002. (Schnabel Aff. ¶ 4; Dkt. No. 6: Israel Schnabel Aff. ¶¶ 3-4.) Schnabel claims that he continued development of his Selector computer program independently at Ramsey, and that other Ramsey employees made small contributions by helping him integrate the program with Ramsey's execution platform and resolve compatibility problems between disparate file formats. (Schnabel Aff. ¶ 12.) In contrast, Ramsey claims that Schnabel's program was not functional prior to Schnabel's employment with Ramsey. (Dkt. No. 2: Ramsey Motion Ex. 3: Satterfield Aff. ¶¶ 4-5.) Neil Ramsey claims that the program was still being developed at Ramsey and that he personally "integrated into [the program] trade secrets and other confidential proprietary information," and made "alterations to portfolio logic, changes to selection and sizing routines, and creation of the process for sending executable orders to the equity markets." (Ramsey Aff. ¶ 6; Satterfield Aff. ¶ 5.) Schnabel, however, claims Neil Ramsey's contributions to Selector were "insignificant and only served to make the program compatible with [Ramsey's] existing systems." (Schnabel Aff. ¶ 13.) Ramsey eventually used the G-Pairs program to invest $20 million in capital. (Ramsey Aff. ¶¶ 7-8; Satterfield Aff. ¶ 6.)

  After five months, Schnabel became discouraged with his opportunities to contribute to and benefit from his employment with Ramsey. (Schnabel Aff. ¶ 14.) Although Schnabel was hired as Director of Fundamental Factor Research, he claims he was excluded from almost all research meetings, prevented from participating in important decision making, and refused information concerning Ramsey's trading system that would allow him to improve the system he implemented. (Schnabel Aff. ¶¶ 14-15.) Schnabel asserts that he was "treated like a programmer" and was only employed so that Ramsey could gain control over his Selector program. (Schnabel Aff. ¶ 14.) Schnabel resigned from Ramsey on October 16, 2003 and returned to New York on October 27, 2003. (Schnabel Aff. ¶ 17.) Upon leaving, Schnabel deleted from Ramsey's computer the company's only copy of the G-Pairs program. (Ramsey Aff. ¶ 9.) As a result, Ramsey claims that it was forced to liquidate its positions associated with the model and sustained economic harm due to loss of the G-Pairs program. (Ramsey Aff. ¶¶ 10-11.) Schnabel claims that he never transferred his "intellectual property rights in [his] Selector trading program" to Ramsey, nor did he agree that Ramsey could use the program beyond his employment. (Schnabel Aff. ¶ 26.) Schnabel contends that he never signed the Employee Non-Disclosure Agreement, and that it never existed in his personnel file. (Schnabel Aff. ¶ 22.) In contrast, Neil Ramsey claims that Schnabel executed an Employee Non-Disclosure agreement when he was in Louisville but that Schnabel confiscated it when he resigned. (Ramsey Aff. ¶ 5; Dkt No. 3: Ramsey Br. at 3.)

  On October 29, 2003, Ramsey sent an email to Schnabel threatening that Ramsey would "take `all necessary action to protect [its] interests.'" (Dkt. No. 13: Schnabel Br. at 10.) On November 3, 2003, Neil Ramsey emailed a letter to Schnabel in an attempt to resolve issues arising out of Schnabel's resignation. (Ramsey Aff. ¶ 12 & Att. 11/3/03 Letter.) In the letter, Ramsey demanded Schnabel return the proprietary information and Non-Disclosure Agreement and explain why Schnabel believes he has rights to the computer program. (Ramsey Aff. Att.: 11/3/03 Letter.) The letter referred to attempting to "sort this out and come to an understanding" and to try to keep it between Schnabel and Neil Ramsey. (Id.)

  Schnabel's Suit Against Ramsey in This Court

  Two days after that letter, on November 5, 2003, Schnabel filed a Complaint in this Court asserting claims for breach of contract and seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201, that he was the owner of all intellectual property rights associated with Selector. (Dkt. No. 1: Compl. ¶¶ 1, 14-25.) On December 17, 2003, before being served with Schnabel's S.D.N.Y. Complaint,*fn2 Ramsey filed its Complaint in the United States District Court for the Western District of Kentucky. (Dkt. No. 3: Ramsey Br. at 4; Dkt No. 2: Ramsey Motion Ex. 6: W.D. Ky. Complaint.) Ramsey's W.D. Ky. complaint alleges that Schnabel: (1) violated the Computer Fraud and Abuse Act; (2) breached his contract and Employee Non-Disclosure Agreement; and (3) misappropriated confidential information in violation of the Kentucky Uniform Trade Secrets Act. (Ramsey Br. at 4; W.D. Ky. Complaint.) Schnabel signed a waiver of service for the Kentucky complaint on January 29, 2004. (Dkt. No. 13: Schnabel Br. at 8; see Ramsey Br. at 4.)

  On June 4, 2004, Ramsey filed its answer in this Court and asserted as counterclaims the same three claims as in its W.D. Ky. complaint (Dkt No. 27: Ramsey Ans.: Counterclaim ¶¶ 1-44), essentially making the S.D.N.Y. action identical to the Kentucky action.

  Presently before this Court is Ramsey's motion to dismiss Schnabel's action or, in the alternative, to transfer this suit to the Western District ...


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