Elizabeth Berg v. CI Investments, Inc

Filing 76

MEMORANDUM Opinion: This matter comes before the Court on the motion of Defendant and Third Party Plaintiff, CI Investments Inc. ("CI") for leave to file a crossclaim against Defendants and Third Party Defendants, Charles Gilbert (&qu ot;Gilbert"), Nexus Risk Management Inc., and Nexus Risk Management LP (collectively, "Nexus Defendants"). Dkt. 58. For the following reasons, the motion is granted. Status hearing set for 10/6/2016 at 9:30 AM. Signed by the Honorable Charles P. Kocoras on 9/23/2016. Mailed notice(vcf, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

ELIZABETH BERG, as trustee for the
)
bankruptcy estate of John Wiesner,
)
)
Plaintiff,
)
)
v.
)
)
NEXUS RISK MANAGEMENT INC.,
)
NEXUS RISK MANAGEMENT LP.,
)
CI INVESTMENTS INC., and
)
CHARLES GILBERT,
)
15 C 11534
)
Defendants.
)
_________________________________
)
)
CI INVESTMENTS, INC.,
)
)
Third Party Plaintiff,
)
)
v.
)
)
CHARLES GILBERT,
)
NEXUS RISK MANAGEMENT INC., and )
NEXUS RISK MANAGEMENT LP.,
)
)
Third Party Defendants. )
)
MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
This matter comes before the Court on the motion of Defendant and Third
Party Plaintiff, CI Investments Inc. (“CI”) for leave to file a crossclaim against
Defendants and Third Party Defendants, Charles Gilbert (“Gilbert”), Nexus Risk

Management Inc., and Nexus Risk Management LP (collectively, “Nexus
Defendants”). Dkt. 58. For the following reasons, the motion is granted.
BACKGROUND
On July 28, 2014, John Wiesner (“Wiesner”) filed a “voluntary petition for
relief under chapter 7 of the Bankruptcy Code.” Dkt. 75-1, Ex. 2, ¶ 1. Plaintiff,
Elizabeth Berg (“Berg”) “was appointed as successor chapter 7 trustee of the Estate of
John Wiesner on November 7, 2014.” Id., ¶ 8. Subsequently, Berg “not personally
but solely as the chapter 7 trustee” of Wiesner’s estate (“Estate”) filed a Second
Amended Complaint against the Nexus Defendants and CI. Dkt. 69, p. 1. CI attached
the Second Amended Complaint1 to its Reply In Support Of Its Motion To File A
Cross Claim. Dkt. 75-1, Ex. 2. Berg alleges in the Second Amended Complaint that
“[f]rom 2010 until 2013, [Wiesner] was a contractor working as a Risk Management
Strategist for the Chicago Board Options Exchange (‘CBOE’).” Dkt. 75-1, Ex. 2,
¶ 31. While employed by the CBOE, Wiesner supposedly developed intellectual
property including “software, code, formula, and other elements utilized in trading
strategies.” Id., ¶ 32. Specifically, Berg claims that Wiesner “developed Realized
Historical VIX, Static Volatility Surfaces, Static Delta Gamma, Weez-a-tron and
skewed volatility parameters in a modified Black-Scholes formula; a formula he had

1

Berg and the Nexus Defendants’ Response references the “First Amended Complaint,” but CI’s
Motion For Leave To File Cross-Claim and its Reply In Support Of Its Motion To File A Cross
Claim reference a “Second Amended Complaint.” According to the docket, an Answer was filed
in response to the Second Amended Complaint. Moreover, Exhibit 2 of CI’s Reply in Support
Of Its Motion To File A Cross Claim appears to be the Second Amended Complaint. Thus, the
Court assumes the operative complaint is the Second Amended Complaint.
2 

originally written in 2002.” Id., ¶ 32. Berg also alleges that “[t]he Static Volatility
Surfaces and skewed volatility parameters in a modified Black-Scholes formula are
trade secrets” that belong to Wiesner “and have only ever been used with the
understanding that they would stay a secret and not be made available to the public.”
Id., ¶ 34.
Between 2010 and 2013, Wiesner also allegedly produced a trading strategy
using the intellectual property that he had already created. Id., ¶ 35. Subsequently,
Wiesner “created software to implement [that] trading strategy.” Id., ¶ 36. This
required Wiesner to code his trading strategy into an Excel Spreadsheet, known as
“The Giant Spreadsheet.” Id., ¶ 37. Wiesner later used The Giant Spreadsheet, and
other intellectual property he had previously created, to make the Validation Tool and
the Live Trading Sheet. Id., ¶ 40. According to the Second Amended Complaint,
Berg has had “copyrights granted for The Giant Spread Sheet [ ], Static Delta Gamma
[ ], Weez-a-tron [ ], and Realized Historical VIX [ ], and [she] owns the rights and
title to the copyright in the software code, spreadsheets, and other intellectual
property.” Id., ¶ 41. The Estate purportedly owns Wiesner’s intellectual property and
Berg “is the real party in interest to pursue claims and causes of action” that relate to
Wiesner’s intellectual property. Id., ¶ 19.
Nexus Risk Management Inc. is a Canadian corporation “engaged in
developing software for companies to use for hedging variable annuities.”
¶¶ 21, 22.

Nexus Risk Management Inc. is the parent company of Nexus Risk
3 

Id.,

Management LP, an Illinois limited partnership with its principal place of business in
Chicago. Id., ¶¶ 23–24. Gilbert is a Canadian citizen, and he is the president and
majority owner of Nexus Risk Management Inc.

Id., ¶ 29.

CI is a Canadian

corporation that operates as a mutual fund company. Id., ¶¶ 26–27.
In 2009, “CI contracted with Nexus Risk Management Inc. to develop a new
trading strategy for its new G5|20 mutual fund.” Id., ¶ 42. However, according to the
Second Amended Complaint, Gilbert and Nexus Risk Management Inc. were unable
to provide CI with “a satisfactory and effective trading strategy” between 2009 and
2010. Id., ¶ 46. Consequently in 2010, Gilbert contacted Wiesner to create a trading
strategy for CI. Id., ¶ 47. Wiesner allegedly created “a trading strategy for CI,”
which incorporated intellectual property that he had previously developed. Id., ¶ 48.
“For the creation of a trading strategy and the continued use of his intellectual
property,” Berg claims that Wiesner “was promised twenty percent [ ] ownership of
the Nexus parent company, Nexus Risk Management Inc., and a base salary when the
fund started generating revenue.” Id., ¶ 49.
Over time, Wiesner’s involvement with the Nexus Defendants and CI
supposedly changed from merely creating the trading strategy to also implementing
the strategy into usable software. Id., ¶ 52. According to Berg, this required Wiesner
to use The Giant Spreadsheet, which was copyrighted and contained his trading
strategy. Id., ¶¶ 41, 53. During the time that Wiesner was working as a contractor for
CI, he also maintained his contract position with the CBOE. Id., ¶¶ 51, 58. However,
4 

in June of 2013, “CI required [Wiesner] to quit as a contractor with the CBOE” and
work full time for the Nexus Defendants because once the fund went live, Wiesner
“would be directing trades to the CBOE floor,” which could have caused a potential
conflict of interest. Id., ¶ 58.
On October 1, 2013, CI’s G5|20  fund went live. Id., ¶ 61. During the three
years prior to launching CI’s G5|20  fund, Wiesner’s strategy was apparently
“developed, improved upon, and modified.” Id., ¶ 60. Wiesner was terminated on
November 12, 2013 and never received the twenty percent ownership in Nexus Risk
Management Inc. that he was allegedly promised. Id., ¶¶ 62–63.
After CI’s G5|20 fund went live, on January 27, 2014, CI and Nexus Risk
Management, Inc. “entered into an amended and restated software license agreement,
under which CI made a $1,750,000.00 equity investment in Nexus Risk Management
Inc. and $500,000.00 loan to the Nexus entities in exchange for a Canadian exclusive
license to use,” what Berg claims is Weisner’s intellectual property.

Id., ¶ 66.

However, shortly thereafter, “[o]n November 14, 2014, CI terminated its relationship
with the Nexus” Defendants. Id., ¶ 68. The Asset Purchase Agreement, attached as
Exhibit A to Berg’s and the Nexus Defendants’ Response And Objection To Motion
For Leave, contains the terms of the termination. See Dkt. 73, Ex. A. Pursuant to the
Asset Purchase Agreement, Nexus Risk Management Inc. agreed to transfer
ownership of the Nexus Risk Platform to CI. Id., p. 2. The Nexus Risk Platform
includes “all right, title and interest in and to . . . [Nexus Risk Management Inc.’s]
5 

software platform . . . which comprises an integrated suite of modules and utilities that
enable companies to execute asset liability management and dynamic hedging
strategies.” Id., p. 3. According to Berg’s allegations, it appears that the Nexus Risk
Platform uses the software programs that Wiesner developed and implemented, or
some type of derivative work of Wiesner’s intellectual property. See Dkt. 75-1, Ex. 2,
¶ 69 (“As part of the termination of the relationship with CI, the Nexus companies and
Charles Gilbert transferred [Wiesner’s] intellectual property, including the Validation
Tool, the Live Trading Sheet, and The Giant Spreadsheet, to CI”); see also id., ¶¶ 72–
73 (“CI continues to offer the G5|20 fund for sale in Canada,” which relies on
Wiesner’s intellectual property or a derivative work of Wiesner’s intellectual
property); and ¶ 71 (“As part of the termination . . . CI licensed to the Nexus
companies the right to market and use [Wiesner’s] intellectual property and trading
strategy anywhere outside of Canada in perpetuity for $1.”). Berg claims that the
Nexus Defendants and CI do not own Wiesner’s intellectual property, and that once
he “was terminated, they no longer continue[d] to have a license to use [his]
intellectual property.”

Id., ¶ 65.

The Second Amended Complaint contains six

counts, all of which include allegations regarding Wiesner’s intellectual property and
the Nexus Defendants’ and CI’s use, or alleged misuse, of that property. See 75-1,
Ex. 2.
Count I of CI’s proposed crossclaim alleges that if CI is found liable on Berg’s
claims due to a finding “that Nexus did not own material portions of the Nexus Risk
6 

Management Platform,” then the Nexus Defendants breached Article IV sections
4.3(a) and 4.4 of the Asset Purchase Agreement.2 Dkt. 58, Ex. 1, p. 3–4. In the
alternative, Count II of CI’s proposed crossclaim seeks contribution pursuant to the
Illinois Joint Tortfeasor Contribution Act, 740 ILCS 100/1, from the Nexus
Defendants should CI be found liable on Berg’s Illinois common law unjust
enrichment count, “based on trade secret claims and not based on any copyright
claims.” Id., p. 4–5. Now before the Court is CI’s Motion For Leave To File CrossClaim. Dkt. 58.
LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 13(g) (“Rule 13(g)”), “[a] pleading
may state as a crossclaim any claim by one party against a coparty if the claim arises
out of the transaction or occurrence that is the subject matter of the original action or
of a counterclaim, or if the claim relates to any property that is the subject matter of
the original action.” Cutler v. Quality Terminal Servs., LLC, No. 08-cv-6630, 2011
WL 98927, at *1 (N.D. Ill. Jan. 12, 2011) (quoting Fed. R. Civ. P. 13(g)). “Rule 13(g)
does not impose any time limitations on the filing of cross claims.” Id. Accordingly,
after “the parties have filed their initial pleadings, any motion to amend those

2

Section 4.3(a) states, “[neither] the execution and delivery of this Agreement or any other
agreement or document to which the Vendor [Nexus Risk Management Inc.] is or will become a
party as contemplated by this Agreement, the consummation of the transactions contemplated
herein or therein nor compliance by the Vendor with any provisions hereof or thereof will . . .
(iv) result in the creation or imposition of any encumbrance upon the Nexus Risk Platform.”
Dkt. 58, Ex. 1, p. 3–4; see also Dkt. 73, Ex. A, p. 7 Section 4.4 explains, “[t]he Vendor [Nexus
Risk Management Inc.] has good, valid and marketable title to all the Nexus Risk Platform, with
good and valid title, free and clear of all encumbrances.” Id.
7 

pleadings and file a cross-claim must be made pursuant to Federal Rule of Civil
Procedure 15.” Tragarz v. Keene Corp., 980 F.2d 411, 431 (7th Cir. 1992).
Federal Rule of Civil Procedure 15(a) (“Rule 15(a)”) provides that leave to
amend shall be freely given when justice so requires, but courts should consider the
following factors when deciding whether or not to grant leave to amend: (i) undue
delay or bad faith by the moving party; (ii) dilatory motive on the part of the movant;
(iii) repeated failure by the movant to cure deficiencies by amendments previously
allowed; (iv) undue prejudice to the opposing party; and (v) futility of the amendment.
See Cutler, 2011 WL 98927, at *1 (citing Forman v. Davis, 371 U.S. 178, 182
(1962)). “[T]he trial court must determine if prejudice to the defendant outweighs the
underlying policy of Rule 15 that a case be tried on the merits.” Il. Power Co. v.
Figgie Int’l., Inc., “Automatic” Sprinkler Corp. of Am. Div., No. 89 C 4632, 1991 WL
3323, at *2 (N.D. Ill. Jan. 7, 1991). “The decision whether to allow an amendment to
the pleadings rests within the sound discretion of the trial court.” Shapo v. Engle, No.
98 C 7909, 2000 WL 198435, at *1 (N.D. Ill. Feb. 11, 2000).
DISCUSSION
Berg and the Nexus Defendants contend that “CI’s Motion for Leave to file its
proposed Cross-Claim should be denied as it does not address transactions,
occurrences, or factual or legal issues that are identical to the” Second Amended
Complaint. Dkt. 69, p. 2. They further assert that CI’s proposed crossclaim “seeks to
resolve disputes solely related to the relationship between CI and the Nexus
8 

Defendants” and that such resolution “will require an analysis of facts that are not
relevant to [Berg’s] claims.” Id., p. 3. Berg and the Nexus Defendants also argue that
the motion for leave to file the crossclaim should be denied: (i) because Count I of the
crossclaim involves a dispute between two Canadian entities, over a Canadian
contract, governed by Canadian law; and (ii) because CI cannot seek contribution
from the Nexus Defendants under the Illinois Contribution Among Joint Tortfeasors
Act. Dkt. 69, p. 3–6.
CI contends that Count I of the proposed crossclaim “arises out of the same
transaction that is the subject of the Second Amended Complaint” and “Count I also
relates to property that is the subject matter of the original action: the intellectual
property that” Berg alleges gives rise to the trade secret and copyright infringement
claims against CI and the Nexus Defendants. Dkt. 75, p. 4. CI also responds that
United States federal courts frequently apply Canadian law, and that “the burden for
U.S. courts in applying Canadian law is not noticeably different from the burden of
applying another state’s law.”

Id., p. 6, 8.

Moreover, CI argues, that because

“[u]njust enrichment claims are often founded in tort,” it has “a statutory right under
the plain wording of 740 ILCS 100/1 to pursue its contribution crossclaim (Count II)
against the Nexus Defendants.” Id., p. 8–9. Finally, CI asserts that granting the instant
motion “will not prejudice or interfere with these proceedings progressing efficiently”
because “[t]his case is in the early stages and discovery has just begun.” Dkt. 58,
¶¶ 1–2.
9 

The Court agrees with CI. According to the Asset Purchase Agreement, when
CI and the Nexus Defendants terminated their relationship, the Nexus Defendants
agreed to transfer the Nexus Risk Platform to CI. Dkt. 73, Ex. A, p. 2. The Second
Amended Complaint alleges that “[a]s part of the termination of the relationship with
CI, the Nexus companies and Charles Gilbert transferred [Wiesner’s] intellectual
property, including the Validation Tool, the Live Trading Sheet, and The Giant
Spreadsheet, to CI.” Dkt. 75-1, Ex. 2, ¶ 69. Berg also asserts that both CI and the
Nexus Defendants “have and continue to reproduce, distribute, use, disclose and offer
for sale” Wiesner’s “intellectual property, including but not limited to The Giant
Spread Sheet, the Live Trading Sheet, and the Validation Tool.” Id., ¶ 89; see also
¶ 73, 83, 93.

These allegations, among others, demonstrate that Count I of the

proposed crossclaim relates to the property that is the subject matter of the Second
Amended Complaint.

As to Count II, CI seeks contribution from the Nexus

Defendants in the event that CI is found liable on Berg’s unjust enrichment count—
Count V of the Second Amended Complaint. Accordingly, Count II arises out of the
transactions or occurrences that are the subject matter of the Second Amended
Complaint. Thus, the requirements of Rule 13(g) have been satisfied. However,
because Rule 13(g) does not impose time limitations on the filing of crossclaims, the
Court must determine whether to grant the motion to amend the pleadings under Rule
15(a).

10 

Neither Berg nor the Nexus Defendants assert that CI: (i) engaged in an
unreasonable delay or acted in bad faith; (ii) had a dilatory motive; or (iii) repeatedly
failed to cure deficiencies by amendments previously allowed. Nor does the Court
believe that any of these circumstances exist in the instant matter. As to undue
prejudice, Berg and the Nexus Defendants’ argue that the motion should be denied
because CI’s proposed crossclaim involves a dispute between CI and the Nexus
Defendants and resolution of that dispute “will require an analysis of facts that are not
relevant to [Berg’s] claims.” Dkt. 69, p. 2–3. While Count I of the crossclaim will
certainly require the Court to analyze additional facts that may or may not be relevant
to all of Berg’s claims, Count I is a breach of contract claim that involves intellectual
property that Berg alleges belongs to Wiesner. The question of ownership of the
intellectual property is thus relevant to both Berg’s claims and Count I of CI’s
proposed crossclaim. Accordingly, this argument is unpersuasive.
Berg and the Nexus Defendants arguments that CI’s motion should be denied
because it involves a “dispute over a Canadian contract entered into between entirely
Canadian parties” and because “CI is not entitled to contribution under the Illinois
Contribution Among Joint Tortfearors Act,” seem to suggest that leave should not be
granted because the amendment would be futile. Dkt. 69, p. 1. The first argument is
unconvincing because, as CI correctly argues, “federal courts are often compelled to
apply foreign law.” Canadian Pac. Express & Transp. Ltd. v. Baretz, No. 96 C 844,
1996 WL 515166, at *4 (N.D. Ill. Sept. 6, 1996) (“That we might be required to apply
11 

Canadian Law . . . does not counsel otherwise for the federal courts are often
compelled to apply foreign law.”) (citing Lehman v. Humphrey Cayman, Ltd., 713
F.2d 339, 345 (8th Cir. 1983); see generally, Denison Mines, Ltd. v. Mich. Chem.
Corp., 469 F.2d 1301 (7th Cir. 1972) (applying Ontario contract law). The second
argument is also unavailing because “[i]nfringement of intellectual property rights
sounds in tort,” see Habitat Wallpaper and Blinds, Inc., v. K.T. Scott Ltd. P’ship,
807 F. Supp. 470, 473 (N.D. Ill. 1992), and Berg’s unjust enrichment count—Count V
of the Second Amended Complaint—is based on the alleged misappropriation of
Wiesner’s intellectual property. Thus, because the standards set out by Rule 13(g)
and Rule 15(a) have been satisfied, CI’s Motion For Leave To File Cross-Claim, Dkt.
58, is granted.
CONCLUSION
For the aforementioned reasons, CI’s Motion For Leave To File Cross-Claim,
Dkt. 58, is granted.

Charles P. Kocoras
United States District Judge
Date: 9/23/2016

12