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Battelle Energy Alliance, LLC v. Southfork Sec., Inc.

United States District Court, D. Idaho

March 12, 2014

BATTELLE ENERGY ALLIANCE, LLC, a Delaware limited liability company, Plaintiffs,
SOUTHFORK SECURITY, INC., an Idaho corporation, COREY THUEN, an individual, and DOES 1 through 10, inclusive, Defendants

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For Battelle Energy Alliance, LLC, a Delaware limited liability company, Plaintiff: A. Dean Bennett, Scott E. Randolph, LEAD ATTORNEYS, HOLLAND AND HART LLP, Boise, ID; Ginger Utley, Mark A Miller, PRO HAC VICE, Holland & Hart LLP, Salt Lake City, UT.

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B. Lynn Winmill, Chief United States District Judge.


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.

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.


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

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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 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 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 plans to compete for the Sophia license:

As one of the inventors of the Sophia Software product, I am partnering with

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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:

o Does the proposed activity have the potential to conflict with any other INL mission or activities?
o Does the proposed activity have the potential to compete with any other INL business interests?
o 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 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 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

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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 ...

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