Battelle Energy Alliance, LLC v. Southfork Security, Inc. et al

Filing 56

MEMORANDUM DECISION AND ORDER Battelle's Motion for Summary Judgment and for Permanent Injunction (Dkt. [41)] is DENIED. Defendants' Motion for Leave to File a Supplemental Memorandum (Dkt. 53 ) is DENIED. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

BATTELLE ENERGY ALLIANCE, LLC,
a Delaware limited liability company,
Case No. 4:13-cv-00442-BLW
Plaintiffs,

MEMORANDUM DECISION AND
ORDER

v.
SOUTHFORK SECURITY, INC., an
Idaho corporation, COREY THUEN, an
individual, and DOES 1 through 10,
inclusive,
Defendants.

INTRODUCTION
In October 2013, this Court denied plaintiff Battelle Energy Alliance, LLC’s
request for a preliminary injunction. See Dkt. 31. The Court found that although Battelle
had shown it was likely to succeed on the merits of its contract claims, it had failed to
demonstrate a likelihood of immediate, irreparable injury. Battelle now moves for
summary judgment on its contract claims, and it asks for a permanent injunction as well.
See Dkt. 41.
MEMORANDUM DECISION AND ORDER - 1

The Court scheduled oral argument for February 21, 2014, but defense counsel
failed to appear. The Court allowed plaintiff to submit a supplemental brief, outlining the
points it had intended to raise during oral argument. 1 Briefing is complete, and the Court
will issue its decision. For the reasons explained below, the Court will deny Battelle’s
motion for summary judgment.
FACTS
The Idaho National Laboratory is a federal government facility owned by the
United States Department of Energy. Plaintiff Battelle is the lab’s management and
operating contractor. Battelle’s work at the lab includes performing federally funded
research projects.
In 2009, the Department of Energy commissioned Battelle to research and develop
a computer program aimed at protecting the United States’ critical energy infrastructure
(oil, gas, chemical and electrical companies) from cyber attacks. Defendant Corey Thuen
is a former Battelle employee who helped develop this program, which eventually
became known as Sophia.
In 2013, almost four years after he began working for Battelle, Thuen took an
1

After the Court had already prepared a draft decision, defendants asked for an opportunity to submit a
supplemental brief. See Mar. 6, 2014 Motion for Leave to File Response, Dkt. 53. The Court will deny
this motion. Therefore, in deciding the pending motion for summary judgment, the Court will not
consider the supplemental brief defendants submitted. Among other things, defendants did not submit
this memorandum until nearly two weeks after their counsel failed to appear at the scheduled February
21, 2014 hearing on Battelle’s motion for summary judgment. By that time, the Court had already
prepared a draft decision denying the motion. Additionally, defendants should not be allowed to have the
last word on the motion for summary judgment after having failed to appear at the hearing. The Court
will not impose sanctions for defendants’ belated effort to file a supplemental brief. The Court will not,
however, preclude Battelle from seeking sanctions related to defense counsel’s failure to appear at the
February 21, 2014 hearing.

MEMORANDUM DECISION AND ORDER - 2

unpaid leave of absence from Battelle. Initially, Thuen was interested in taking a leave
so he could form a spin-out company, which would license Sophia to third parties.
Battelle supported this idea because the company does not have the capability to
commercialize its research product and inventions; rather, the lab licenses its
technologies to third parties who market and sell them. During his leave, Thuen’s plans
changed. He initially pursued the Sophia license but then withdrew his bid for the license
and began marketing Visdom, which is a software product intended to compete with
Sophia. Thuen says he created Visdom while on leave. Battelle says it owns Visdom by
virtue of Thuen’s written employment agreement.
1.

Thuen’s Employment Agreement
Thuen signed his employment agreement in May 2009. It obligates him to

“promptly and fully” disclose “all Innovations and/or Work for Hire” including computer
programs that he authored alone or jointly with others “during the period of . . . [his]
employment.” May 28, 2009 Employment Agmt., Dkt. 2-3, ¶ 7. Thuen further agreed
that any such Innovations and Works for Hire were Battelle’s “sole and exclusive
property” and he “assign[ed] to BEA all of [his] right, title, and interest therein.” Id. The
agreement says that “‘Employment’ includes employment for hourly wages or salary.”
Id. ¶ 2.
2.

Thuen’s Leave of Absence
As noted, by the time Thuen marketed Visdom, he was not an active Battelle

employee. He was on unpaid leave and was not receiving any wages or salary. But

MEMORANDUM DECISION AND ORDER - 3

Thuen had not terminated his employment with Battelle either. Battelle gives employees
who intend to pursue spin-off activities a choice – they can either terminate their
employment or take a leave of absence. See Acknowledgement and Understanding [of]
Provisions of Professional Leave of Absence Policy, Dkt. 28-4. Employees who choose
leave can retain some company benefits and, further – unlike employees who choose
termination – their professional leave time “is counted in the computation of recognized
service credit and the calculation of Retirement Plan benefits (if applicable).” Id.
Thuen chose to go on leave. Battelle approved this request, and planned for Thuen
to take a one-year leave, beginning in February 2013. See Dkt 28-3. While he was on
leave, Battelle paid for 80% of Thuen’s medical insurance, which is the same rate
Battelle pays for active employees. Thuen also retained his employee, spouse, and
dependant life insurance benefits.
As discussed below, a key dispute presented in this motion is whether Thuen
remained employed by Battelle – within the meaning of his employment agreement –
when he created Visdom. In addition to arguing that the contractual language supports
their position, the parties point to extrinsic evidence, including the following series of
events connected with Thuen’s leave:
3.

Events Occurring Before Thuen’s Leave
In January 2012, roughly one year before he began his leave, Thuen filled out two

forms: (1) a Disclosure of Potential Conflict of Interest, Dkt. 28-2, and (2) a Request for
Approval of Outside Activities, Dkt. 28-1. In the Disclosure, Thuen elaborated on his

MEMORANDUM DECISION AND ORDER - 4

plans to compete for the Sophia license:
As one of the inventors of the Sophia Software product, I am partnering
with the other Sophia Inventors and forming a spin-out company that
will potentially bid on the commercialization of the Sophia product.
This company will ha[ve] the single purpose of pursuing the
commercialization license of Sophia. Formation and running of this
company will not require any INL resources. Our spin-out company
will not pursue revenue sources or other business opportunities until a
decision has been made on the commercialization license of Sophia.
Dkt. 28-2, at 1.
Thuen described his plans similarly in his Request for Approval of Outside
Activities. Dkt. 28-1 at 1. Within that form, he also answered “Yes” to each of these
questions:
• Does the proposed activity have the potential to conflict with any
other INL mission or activities?
• Does the proposed activity have the potential to compete with
any other INL business interests?
• Does the proposed outside activity entail the use of any
confidential, privileged, or unpublished information gained in the
course of your INL employment?
Id. ¶ B.
A few months later, in April 2012, Thuen signed a Conflict of Interest Plan to
facilitate his ability to bid on the Sophia license through his new company, defendant
Southfork Security, Inc. See Ex. E to Colson Aff., Dkt. 2-3 at 22-24; see also Addendum
to COI Plan, Ex. F. to Colson Aff., Dkt. 2-3, at 25-27.
In December 2013, several months after these forms were in place, Thuen had a
telephone conversation about his impending leave of absence with Battelle employees

MEMORANDUM DECISION AND ORDER - 5

Stephanie Cook and Tom Moriarty. Moriarty was Thuen’s contact in BEA’s Conflict of
Interest Office, and Cook was Battelle’s Director of Technology-Based Economic
Development. Fourth Thuen Dec., Dkt. 43-2, ¶ 4. Thuen says the December 2013 call
related to his efforts “to gain clarification on a potential issue of conflict” – specifically,
his “ability to conduct security assessment business, an activity that is in direct
competition with BEA.” Id. During this conversation, Moriarty reportedly told Thuen
“that once on professional leave, it would not be a problem as conflict of interest no
longer applied because [Thuen] . . . . was fully dedicated to a different organization.” Id.
4.

Events Occurring After Thuen Began His Leave
Thuen began his leave in February 2013, roughly two months after he had this

telephone conversation with Moriarty and Cook. Within a matter of days, Southfork
submitted a licensing proposal for Sophia. In mid-April, 2013, however, Thuen sent an
email to Cook, saying that there was “a high likelihood” he would withdraw his bid for
the Sophia license. He offered to have a “lessons learned” meeting to discuss the issue.
April 15, 2013 email, Ex. C to Fourth Thuen Dec., Dkt. 43-5. That meeting took place on
April 17, 2013 and included Thuen, Cook, and Battelle’s Deputy Director of Technology
Deployment, Jason Stolworthy. They “discussed problems with the spinoff process, why
Southfork was withdrawing its bid, and the future plans of Southfork, including turning . .
. [Thuen’s] efforts into a product that competes with BEA’s Sophie product.” Fourth
Thuen Dec., Dkt. 43-2, ¶ 6.
The day after the lessons-learned meeting, Southfork withdrew from the

MEMORANDUM DECISION AND ORDER - 6

competitive process to license Sophia. Afterward, on April 24, 2013, Thuen sought
Cook’s input on an executive summary of Southfork’s business. One purpose of this
summary was to attract investors. See id. ¶ 7; Ex. E to Thuen Dec., Dkt. 43-7. The
summary is a one-page document, which describes Southfork’s business as “a ‘hackers
for hire’ company made up of cybersecurity researches that use the knowledge gained
breaking things [sic] to make defensive tools.” Dkt. 43-7. The summary also indicates
that Visdom is a “defensive tool” that was “created as a successor to the Sophia project at
INL. This project involved three years of development time and lessons learned. We
received valuable feedback from customers and used that knowledge to create the ‘next
generation’ to better sold their problems and protect our nation[’]s critical infrastructure.”
Id. The summary further reports that “Visdom will be available as an open source tool in
order to reach more potential customers.” Id.
Cook responded to Thuen’s email on May 1, 2013, indicating that the team had
feedback. See May 1, 2013 email, Ex. F to Fourth Thuen Dec., Dkt. 43-8 (“Have
feedback on your executive summary & will get that to you week of may 13th”). At
around that same time, Southfork began promoting Visdom on its website. See Kaczor
Dec. ¶ 26, Dkt. 2-4.
5.

Thuen’s Termination & The Lawsuit
Meanwhile, back at the lab, Battelle decided to have its investigator, Michael

Colson, monitor Southfork’s website. See Colson Dec. ¶ 27, Dkt. 2-3. Colson says that
on May 20, 2013, he noticed a new section of the website promoting Visdom.

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Shortly thereafter, on June 28, 2013, Battelle fired Thuen for violating company
policies and procedures, including “violation of written conflicts of interest policy,
standards of conduct and business ethics, cyber security procedure, controlled
unclassified information program, and the policy on use of laboratory assets . . . .” Id.
¶ 32.
On July 18, 2013 – a few weeks after he was fired – Thuen placed Visdom’s
source code on github.com. Thuen says github.com is well known among computer
programmers and is among the most popular internet repositories for open-source
software. Id.
In October 2013, Battelle sued Thuen and Southfork, alleging eight claims: (1)
copyright infringement; (2) trade secret misappropriation; (3) breach of contract; (4)
tortious interference with prospective economic advantage; (5) unfair competition; (6)
conversion; (7) breach of the implied covenant of good faith and fair dealing; and (8)
unjust enrichment. Battelle seeks summary judgment on its third claim for breach of
contract and its seventh claim for breach of the implied covenant of good faith and fair
dealing.
LEGAL STANDARD
Summary judgment is appropriate where a party can show that, as to any claim or
defense, “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). One of the principal purposes of the
summary judgment “is to isolate and dispose of factually unsupported claims . . . .”

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Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). It is “not a disfavored procedural
shortcut,” but is instead the “principal tool[ ] by which factually insufficient claims or
defenses [can] be isolated and prevented from going to trial with the attendant
unwarranted consumption of public and private resources.” Id. at 327. “[T]he mere
existence of some alleged factual dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247-48 (1986). There must be a genuine dispute as to any material fact – a fact
“that may affect the outcome of the case.” Id. at 248.
The evidence must be viewed in the light most favorable to the non-moving party,
and the Court must not make credibility findings. Id. at 255. Direct testimony of the
non-movant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d
1152, 1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt
unreasonable inferences from circumstantial evidence. McLaughlin v. Liu, 849 F.2d
1205, 1208 (9th Cir. 1988).
The Court must be “guided by the substantive evidentiary standards that apply to
the case.” Liberty Lobby, 477 U.S. at 255. If a claim requires clear and convincing
evidence, the question on summary judgment is whether a reasonable jury could conclude
that clear and convincing evidence supports the claim. Id.
The moving party bears the initial burden of demonstrating the absence of a
genuine dispute as to material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.
2001) (en banc). To carry this burden, if the nonmoving party bears the burden of

MEMORANDUM DECISION AND ORDER - 9

persuasion at trial, the moving party need not introduce any affirmative evidence (such as
affidavits or deposition excerpts) but may simply point out the absence of evidence to
support the nonmoving party’s case. Fairbank v. Wunderman Cato Johnson, 212 F.3d
528, 532 (9th Cir. 2000).
This shifts the burden to the non-moving party to produce evidence sufficient to
support a jury verdict in her favor. Deveraux, 263 F.3d at 1076. The non-moving party
must go beyond the pleadings and show “by her [ ] affidavits, or by the depositions,
answers to interrogatories, or admissions on file” that a genuine dispute of material fact
exists. Celotex, 477 U.S. at 324.
However, the Court is “not required to comb through the record to find some
reason to deny a motion for summary judgment.” Carmen v. San Francisco Unified Sch.
Dist., 237 F.3d 1026, 1029 (9th Cir. 2001) (quotation omitted). Instead, the “party
opposing summary judgment must direct [the Court’s] attention to specific triable facts.”
S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 889 (9th Cir. 2003).
ANALYSIS
1.

Battelle’s Third Claim for Relief – Breach of Contract
Battelle says it is entitled to judgment as a matter of law on its breach-of-contract

claim because Thuen created Visdom while he was a Battelle employee. As noted above,
Thuen’s employment agreement obligates him to assign “innovations” and “works for
hire” to Battelle during the period of his employment.
The question is whether Thuen remained bound by the terms of his employment

MEMORANDUM DECISION AND ORDER - 10

agreement while he was on leave. The contract itself does not speak directly to this issue;
it does not mention leaves of absence. Rather, regarding innovations and works for hire,
it says only that such works created during Thuen’s “period of employment” belong to
Battelle. See Emplmt. Agmt., Dkt. 2-3, § 7.
In opposing Battelle’s motion, defendants say they are entitled to summary
judgment on this claim. Defendants point to two undisputed facts: First, the employment
agreement provides that employment “includes employment for hourly wages or for
salary.” Emplmt. Agmt., Dkt. 2-3, § 2. Second, Thuen did not receive hourly wages or
salary during his leave of absence. Thus, defendants conclude that the time Thuen spent
on leave cannot be included within his “period of employment” at Battelle.
The problem with Thuen’s argument is that the plain, ordinary meaning of the
word “includes” is not necessarily restrictive or limiting. In other words, just because the
parties agreed that the phrase “employment” includes “employment for hourly wages or
salary,” this does not also show that they meant to exclude other categories of individuals
– such as those serving out a planned, one-year leave of absence. Black’s Law
Dictionary explains that the term “include” means “[t]o contain as part of something,”
Black’s Law Dictionary (9th ed. 2009). This logically means that “employment” could
include something in addition to “employment for hourly wages or salary.” Dkt. 2-3; see
generally 11 Williston on Contracts § 30:10 (4th ed.) (appropriate to look to dictionary
definition when determining the ordinary meaning of a word or phrase).
This conclusion is bolstered by the fact that the “Definitions” sections of Thuen’s

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employment agreement uses the word “means” to define other terms, but the less
restrictive term “includes” for the term “employment.” In full, the “Definitions” section
of the agreement mentions just three terms. It reads as follows:
“BEA” means Battelle Energy Alliance, LLC. “Client” means any
person or entity, including the United States Government, for whom or
for which BEA or Employee obtains information. “Employment”
includes employment for hourly wages or salary.
Dkt. 2-3, at 1 (emphasis added).
Based on this language, Thuen is not entitled to judgment as a matter of law on the
contract claim. Cf. Lewin v. Mut. of Enumclaw Inc. Co., 87 Wash. App. 1023, 1997 WL
473233, at *2 (1997) (insurance contract using the work “includes” rather than “means”
to define the term accident meant that the term “encompasse[d] the common law and
common sense definitions of the term”).
By the same token, however, the contract does not unambiguously say that
employees taking professional leaves of absence remain bound by the terms of their
employment agreement. As a result, it is proper to consult extrinsic evidence to
determine the parties’ intent. As the Idaho Supreme Court has explained, “Unless it is
clear from a contract that the document contains every least infinite particular that was
intended by the parties to be included, parol evidence must be available as a tool for the
court to use in determining the actual intent of the parties.” White v. Rehn, 644 P.2d 323,
327 (Idaho 1982).
Battelle points to the circumstances surrounding Thuen’s leave of absence to
demonstrate that the parties intended for employees on leave of absence to remain bound

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by the terms of their employment agreement. See generally Permann v. Nationwide Ins.
Co., 697 P.2d 1206, 1210 (Idaho Ct. App. 1985) (“subsequent conduct or communication
may be considered in resolving an ambiguity if, but only if, it reflects an understanding
shared by the parties.”). In particular, Battelle focuses on the fact that Thuen maintained
health and life insurance benefits when he was on leave. But that isn’t conclusive
because if Thuen had chosen to terminate his employment, rather than take a leave, he
still could have potentially retained coverage under Battelle’s medical plan for up to one
year. The leave policy states:
Employees who wish to pursue entrepreneurial spin-off activities and
choose to terminate their employment instead of taking Professional
Leave may be provided coverage under the INL medical plan at active
employee rates for up to one year following termination.
Leave Policy, Dkt. 28-4, at 2.
Still, though, employees taking leaves of absence received benefits terminated
employees did not. As stated above, the time spent on leave counted as service with
Battelle for purposes of calculating retirement benefits, vacation and sick time and
severance pay in the event of a layoff. Id. ¶ 10. Additionally, Battelle says that when
employees on leave return to active employment, they do not need a new employment
agreement. See Pickett Dec., Dkt. 28, ¶ 11.
Battelle also points to the April 2012 Conflict of Interest Plan. Within that plan,
Thuen acknowledged that he had responsibilities both under the Conflict-of-Interest Plan
and his employment agreement. See Dkt. 2-3, at 2. The relevant language reads:
Without limitation on his responsibilities set forth above [in the

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Conflict-of-Interest Plan] or those owed under his at will contract with
BEA, the developer shall not: (1) at any time during the period of his
employment at BEA act in a manner or place himself in a circumstance
that may impair his ability to impartially act in the best interest of BEA;
…
Dkt. 2-3, at 23, 27 (emphasis added). Battelle argues that this language conclusively
establishes that Thuen remained bound by his employment agreement after he began his
leave. See Supp. Br., Dkt. 49, at 2.
But the quoted language does not plainly say that. It just acknowledges that
Thuen had obligations under his employment agreement. And that’s not saying much,
given that Thuen signed the plan while he was an active Battelle employee.
Granted, at that time, the parties anticipated that Thuen would be taking a leave of
absence. But acknowledging that Thuen would continue to have obligations under his
employment agreement while on leave was a relatively benign thing to do; the
employment agreement expressly states that some obligations continue after employment.
For example, section 6 of the employment agreement obligates Thuen to refrain
from disclosing proprietary information “at any time during or after . . . [his]
employment . . . .” Emplmt. Agmt., Dkt. 2-3, ¶ 6. Likewise, section 8 obligates Thuen to
sign papers and “otherwise assist” Battelle to obtain and sustain patents and copyrights
“during or after . . . [his] employment.” Id. ¶ 8.
By contrast, the innovations clause – the one that obligates Thuen to assign
innovations to Battelle – applies only “during the period of” Thuen’s employment with
the company. Id. ¶ 8. So, rather than clarifying things, this part of the plan just lead us

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back to the original question: Are employees taking unpaid leaves of absence completing
a “period of their employment” with Battelle?
Battelle also argues that Thuen’s June 2013 termination establishes that he was
“employed” with Battelle up until that point in time. As Battelle puts it, “BEA could not
have ‘terminated’ Thuen’s employment in June 2013 if he was not an employee.” Mot.
Mem., Dkt. 41-2, at 6. And Thuen submitted a declaration earlier in these proceedings
stating, “Although I had been scheduled to return to work at Battelle on or about
February 25, 2014, Battelle terminated the employment relationship on or about June 27,
2013.” Thuen Dec., Dkt. 16-1, ¶ 13.
But when viewed in context, the fact of Thuen’s June 2013 termination does not
conclusively establish that the parties intended for employees taking an unpaid leave of
absence to remain bound by the innovations clause in the employment agreement. Based
on other facts, a reasonable juror could conclude that the parties did not intend for Thuen
to remain bound by the innovations clause once he began his leave.
For example, when Battelle approved Thuen’s leave, it did so based on Thuen’s
representation that he would be “fully dedicated” to Southfork, and Battelle prohibited
Thuen from holding himself out as a Battelle employee during his leave. See Leave
Agmt, Dkt. 2-3, at 32 (“Your request is APPROVED with the following conditions: . . .
[¶¶ ] 2. In conducting this outside activity, you may not hold yourself out as an
employee or agent of BEA or the Idaho National Laboratory (INL) and you may not
imply BEA, U.S. Government, or INL endorsement of your work at Southfork Security,

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Inc. or otherwise without prior approval of duly authorized BEA management.”).
Additionally, the conversations Thuen had with Battelle employees just before he
went on leave favor defendants. As noted above, Thuen says that in December 2012, he
had a telephone conversation with two Battelle employees – including Tom Moriarty,
who was his contact in Battelle’s conflict of interest office – in an attempt to “gain
clarification on a potential issue of conflict.” Thuen Dec., Dkt. 43-2, ¶ 4. Thuen claims
Moriarty told him that once he was on leave, he was no longer beholden to Battelle. Id.
Additionally, even after Thuen decided to withdraw his Sophia offer, Battelle employees
were made aware of Thuen’s plans to market Visdom and they made no objection.
On this factual record, the Court cannot grant summary judgment in either party’s
favor. The employment agreement is ambiguous as to the disputed language and the
parol evidence yields conflicting inferences as to the parties’ intentions. As a result, a
jury will need to determine whether the contracting parties intended for Thuen to remain
bound by the terms of his employment contract – including the innovations clause –
while on unpaid leave of absence. See generally Miller v. Glen Miller Prods., Inc., 454
F.3d 975, 987 (9th Cir. 2006) (“where divergent ultimate inferences may reasonably be
drawn from the undisputed facts, summary judgment is improper”).
Given this ruling, the Court need not address defendants’ alternative argument
that, even assuming Thuen remained an employee during his leave, Battelle is not entitled
to Visdom code that was (1) written after Battelle terminated Thuen in late June 2013 or
(2) written by Visdom co-developer Kristopher Watts. See Resp., Dkt. 43, at 12. The

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Court will, however, address quasi-estoppel and laches.
A.

Quasi-Estoppel

Defendants claim they are entitled to a trial on the contract claim because of their
quasi-estoppel defense. Quasi-estoppel “stands for the proposition that “‘one cannot
blow both hot and cold.’” KTVB, Inc. v. Boise City, 486 P.2d 992, 994 (Idaho 1971)
(quoting Godoy v. Hawaii, 354 P.2d 78 (Haw. 1960). The elements of the defense are
that “(1) the offending party took a different position than his or her original position, and
(2) either (a) the offending party gained an advantage or caused a disadvantage to the
other party; (b) the other party was induced to change positions; or (c) it would be
unconscionable to permit the offending party to maintain an inconsistent position from
one he or she has already derived a benefit or acquiesced in.” Vawter v. United Parcel
Serv., Inc., ___ P.3d ___, 2014 WL 497437, at *7 (Idaho Feb. 7, 2014) (citation omitted).
As a general rule, unless the facts are undisputed or only one reasonable inference can be
drawn from them, the trier of fact must decide whether estoppel has been established.
See generally 28 Am. Jur. 2d Estoppel and Waiver § 173.
Here, defendants point to Thuen’s mid-April 2013 interactions with Battelle
employees Jason Stolworthy and Stephanie Cook. At around this time – and before he
spent substantial time continuing to develop Visdom – Thuen told Cook and Stolworthy
that he was not going to attempt to license Sophia. He also told them that he was going
to develop his own competing product – Visdom. Thuen says he received nothing but
encouragement from these Battelle employees. And, in fact, Cook had her executive

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team review Southfork’s pitch documents, which showed that Thuen was planning
promote a product that would compete with Sophia.
Based on the new evidence related to the mid-April interactions (which was not
presented at the preliminary injunction hearing), the Court concludes that a trier of fact
must decide if the quasi-estoppel doctrine bars Battelle from pursuing its breach-ofcontract claim against defendants.
Lastly, the Court is not persuaded by Battelle’s argument that the quasi-estoppel
defense necessarily fails because Thuen’s written employment agreement could not be
modified without a written agreement signed by Battelle’s president. See Reply, Dkt. 48,
at 11. As Battelle puts it, “at the time he e-mailed Cook and purportedly received input
from Stolworthy, Thuen had already assigned Visdom to BEA by contract.” Id. at 9.
There are two problems with this argument. First, it presumes that the innovations
clause of the employment contract continued to bind Thuen after he began his leave. For
the reasons discussed above, that factual issue cannot be decided on summary judgment.
Second, Battelle does not cite any authority establishing that a contracting party is
barred from asserting an equitable defense to enforcement of a contractual provision. Put
differently, even if the agreement unambiguously said Thuen would be bound by the
innovations clause during his leave of absence, and it further said that the contract could
not be modified absent a written agreement, Battelle has not established that defendants
would be barred, as a matter of law, from asserting equitable defenses such as quasiestoppel. See generally Rule Sales & Serv., Inc. v. U.S. Bank Nat’l Ass’n, 991 P.2d 857,

MEMORANDUM DECISION AND ORDER - 18

863 (Idaho Ct. App. 1999) (“It is the general common law rule in this country that an oral
modification of a written contract may be enforceable, notwithstanding a clause
prohibiting unwritten modifications, at least in circumstances where one party has relied
upon the modification.”); Cf. Idaho Migrant Council, Inc. v. N.W. Mut. Life Ins. Co., 718
P.2d 1242, 1244 (Idaho Ct. App. 1986) (“We have found no reason why a clause
requiring contract modifications be in writing . . . may not be waived.”)
B.

Laches

Defendants next contend that their laches defense prevents the Court from entering
summary judgment in Battelle’s favor. They point out that Battelle learned Southfork
was promoting Visdom on its website in May 2013, but did nothing until October 2013.
“Laches is an equitable defense that prevents a plaintiff, who ‘with full knowledge
of the facts, acquiesces in a transaction and sleeps upon his rights.’” S. Pac. Co. v.
Bogert, 250 U.S. 483, 500 (1919) (McReynolds, J., dissenting) (citation omitted).
Whether a party is guilty of laches is a question of fact. Huppert v. Wolford, 420 P.2d 11,
18 (Idaho 1966). The decision to apply laches is committed to the sound discretion of the
trial court. Quintana v. Quintana, 802 P.2d 488, 491 (Idaho Ct. App. 1990). The
elements of laches are: “(1) defendant’s invasion of plaintiff’s rights; (2) delay in
asserting plaintiff’s rights, the plaintiff having had notice and an opportunity to institute a
suit; (3) lack of knowledge by the defendant that plaintiff would assert his rights; and (4)
injury or prejudice to the defendant in the event relief is accorded to plaintiff or the suit is
not held to be barred.” Henderson v. Smith, 915 P.2d 6, 11 (Idaho 1996) (citation

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omitted). Because the doctrine of laches is founded in equity, in determining whether the
doctrine applies, consideration must be given to all surrounding circumstances and acts of
the parties. Id. The lapse of time alone is not controlling on whether laches applies. Id.
Rather, “‘[t]he defense of laches is more of a question of prejudice caused by delay than a
question of length of delay.’” Quintana, 802 P.2d at 491 (quoting the trial court).
Battelle’s lead argument is that the alleged delay in this case – around five or six
months – is miniscule in comparison with the applicable limitations periods of five years
for the contract claims and three years for the copyright claims. 2 In ruling on Battelle’s
motion for preliminary injunction, the Court was persuaded by this argument, concluding,
that, on the record then before it, the doctrine of laches would not bar Battelle’s contract
claims. Oct. 29, 2013 Decision, Dkt. 31, at 12.
But the record is different now. Defendants have come forth with evidence
indicating that the circumstances surrounding Battelle’s delay may have prejudiced them.
That evidence, which has already been discussed above, is that in mid-April 2013,
Battelle employees learned that Thuen planned to promote Visdom. They gave no
indication that Thuen was prevented from doing this; to the contrary, they offered to give
feedback on how he might improve his chances of getting third parties to invest in
Southfork and Visdom. See Fourth Thuen Dec. ¶¶ 6-9; Dkt. 43-2; Exs. C-F thereto.
On this expanded factual record, the reasonableness of Battelle’s delay in asserting
its claims, and any resulting prejudice, is a more difficult question. Battelle says that
2

The Court assumes, without deciding, that these are the correct limitations periods. Battelle cited these
periods in its reply brief. See Reply, Dkt. 48, at 6.

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during the five or six months at issue, it was gathering facts and preparing a complex
lawsuit and a motion for preliminary injunction. Battelle also points out that Thuen had
agreed to submit a formal request for approval of outside activities if he decided to do
anything other than attempt to get the Sophia license. Under these circumstances,
Battelle says it acted with all reasonable speed.
But there are no fixed temporal boundaries on what is a “reasonable” or
“unreasonable” delay. As one court has explained, “The period of time that constitutes
an ‘unreasonable delay’ can range from one month to many years. The length of the delay
is less important than the reasons for it.” IAC/Interactivecorp v. O’Brien, 26 A.3d 174,
177 (Del. 2011). And in unusual cases, laches may apply even when claims are brought
within the statutory limitations period. See, e.g., Danjaq LLC v. Sony Corp., 263 F.3d
942, 954 (9th Cir. 2001) (“we reject McClory’s argument that laches may never bar a
claim for infringement brought within the statute of limitations”). So the focus, really, is
not on the sheer amount of time, but on the reasons why Battelle waited roughly five
months to assert its claims and the prejudice that delay may have caused. After all,
“‘laches is not like limitation, a mere matter of time; but principally a question of the
inequity of permitting the claim to be enforced – an inequity founded upon some change
in the condition or relations of the property or parties.’” Id. at 955 (quoting Holmberg v.
Armbrecht, 327 U.S. 392, 396 (1946)).
Battelle also argues that laches cannot apply because Thuen engaged in willful
copyright infringement. See Reply, Dkt. 41, at 8 (citing Evergreen Safety Council v. RSA

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Network, Inc., 697 F.3d 1221, 1228 (9th Cir. 2012). But at this stage, there has been no
finding that defendants infringed Battelle’s copyright – much less that they did so
willfully. See Oct. 29, 2013 Decision, Dkt. 31, at 12 (“the Court finds the record
inconclusive as to the copyright infringement claim”).
Under these circumstances, the Court will deny Battelle’s motion for summary
judgment of the contract claims.
3.

Battelle’s Seventh Claim for Relief – Breach of the Implied Covenant of Good
Faith & Fair Dealing
The Court will also deny Battelle’s motion for summary judgment on its claim for

breach of the implied covenant of good faith and fair dealing.
In Idaho, the covenant of good faith and fair dealing is violated when “action by
either party ... violates, nullifies or significantly impairs any benefit of the . . .
contract . . . .” Metcalf v. Intermountain Gas Co., 778 P.2d 744, 749 (Idaho 1989),
modified by Sorensen v. Comm Tek, Inc., 799 P.2d 70 (Idaho 1990). The covenant
requires “that the parties perform in good faith the obligations imposed by their
agreement.” Idaho First Nat'l Bank v. Bliss Valley Foods, Inc., 824 P.2d 841, 863 (Idaho
1991). An objective standard of reasonableness is to be applied in judging whether a
party breached the implied covenant. Jenkins v. Boise Cascade Corp., 108 P.3d 380, 390
(Idaho 2005) (“[T]he covenant is an objective determination of whether the parties have
acted in good faith in terms of enforcing the contractual provisions.”).
On the current factual record, the Court cannot decide, as a matter of law, that
Thuen has nullified or significantly impaired Battelle’s rights in the employment contract.

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Summary judgment is thus inappropriate.
The Court is not, however, persuaded by defendants’ argument that this claim fails
as a matter of law because “[e]xpress terms of a contract may not be overridden by those
implied from the covenant of good faith and fair dealing.” Opp., 43, at 10 (quoting Huyett
v. Idaho State Univ., 104 P.3d 946, 952 (Idaho 2004)). This argument derives from
Thuen’s argument that the contractual definition of employment necessarily excludes
Thuen, given that he was not being paid wages or a salary during his leave. As noted
above, the Court concluded that a jury must determine the parties’ intent on this point.
4.

Copyright Law – The Work-For-Hire Doctrine
Battelle says that in addition to its contractual right to Visdom, the Copyright

Act’s “work made for hire” provision, 17 U.S.C. § 101, establishes ownership. See Mot.
Mem., Dkt. 41-2, at 11. As defendants have pointed out, however, Battelle has not
alleged a work-for-hire claim in its complaint. Additionally, Battelle did not address two
of the three prongs the Ninth Circuit examines when determining whether something is a
work for hire under the Copyright Act. See U.S. Auto Parts Network, Inc. v. Parts Geek,
LLC, 692 F.3d 1009, 1015 (9th Cir. 2012) (adopting three-prong test). Under this threeprong test, a work satisfies the definition if: (1) the works is of the kind the employee is
employed to perform; (2) the work occurs “substantially within the authorized time and
space limits; and (3) the work is actuated, at least in part, by a purpose to serve the
[employer].” Id.
Even assuming Thuen was a Battelle employee, he argues that the second and

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third prongs are not satisfied. Battelle had no reply to this. The Court thus concludes
that the work-for-hire argument has been abandoned for purposes of this motion.
5.

Permanent Injunction
The Court will deny Battelle’s request for a permanent injunction at this stage of

the proceedings. As Battelle recognizes, the Court cannot issue a permanent injunction
unless the moving party first demonstrates actual success on the merits, not just a
likelihood of success. See, e.g., Avery Dennison Corp. v. Sumpton, 189 F.3d 868, 881
(9th Cir. 1999).
ORDER
IT IS ORDERED THAT:
(1) Battelle’s Motion for Summary Judgment and for Permanent Injunction (Dkt.
41) is DENIED.
(2) Defendants’ Motion for Leave to File a Supplemental Memorandum (Dkt. 53)
is DENIED.
DATED: March 12, 2014

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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