424 P.3d 571
Mont.2018Background
- Daniel Ruff (via Ruff Software, Inc.) developed TimeTracker (web-based payroll software) at his expense while employed by AMS; AMS's CEO Diane Ruff (his mother) authorized formation of Ruff Software and later signed a 2008 written perpetual licensing agreement granting AMS the right to use and sublicense TimeTracker while reserving other rights to Ruff and providing Ruff 90% of fees.
- AMS used TimeTracker (hosted on a Ruff-owned server located at AMS) for years and paid Ruff under the license; after management changes, AMS sought to acquire TimeTracker but negotiations in 2015 failed and AMS copied the installed TimeTracker program from the Ruff server to an AMS server and began developing competing SlatePay.
- Ruff sued and counterclaimed (breach, conversion, misappropriation, MUTSA, tortious interference, unjust enrichment); AMS sought declaratory relief claiming ownership of TimeTracker and alleged the 2008 license was invalid as an unauthorized corporate act.
- The District Court granted summary judgment that the 2008 license was valid (executed within Diane's actual/ostensible authority and ratified by AMS), dismissed AMS's ownership claims, and granted summary judgment to AMS on Ruff's counterclaims; the court denied Ruff's second motion to compel additional discovery and denied Ruff attorney fees.
- Key factual determinations: TimeTracker on the Ruff server included compiled functional machine code (Ruff retained its functional source code) and an uncompiled SQL-based database component (AMS could access the SQL components and customer data); AMS converted customer data for SlatePay's NoSQL database but experts found TimeTracker's SQL "stored procedures and triggers" were not novel and incompatible with SlatePay.
Issues
| Issue | Plaintiff's Argument (AMS) | Defendant's Argument (Ruff) | Held |
|---|---|---|---|
| 1. Validity/enforceability of 2008 license and AMS's ownership of TimeTracker | License invalid: Daniel created TimeTracker as an AMS employee so AMS owns it; Diane lacked board authorization, creating an unauthorized corporate act | License valid: Daniel developed TimeTracker pursuant to an oral agreement permitting him ownership; Diane had authority (actual/ostensible) and AMS later ratified by performance | Court: License valid and enforceable; Diane had authority and AMS ratified; AMS has no rights beyond license |
| 2. Summary judgment on Ruff's counterclaims (breach, conversion, IP misappropriation, MUTSA, interference, unjust enrichment) | AMS acted within its license rights; copying installed program and converting customer data was permitted; TimeTracker's components lacked trade-secret/novelty protections | AMS exceeded rights, improperly copied/used proprietary/timeTracker information and trade secrets to build SlatePay | Court: Granted summary judgment to AMS on all counterclaims — claims failed as a matter of law or lacked material facts (no breach; no proof of novel/proprietary secrets; AMS owned customer data) |
| 3. Denial of Ruff's second motion to compel discovery | AMS produced responsive materials per court order; additional SlatePay-focused discovery unnecessary or futile | Ruff needed additional internal emails, design docs, and discovery to let its expert show misuse of TimeTracker in SlatePay; AMS produced a partial, disorganized set and withheld some items | Court: No abuse of discretion. Additional discovery would have been futile given undisputed record facts (license scope, technical incompatibility, ownership of data) |
| 4. Denial of Ruff's motion for attorney fees | Fees not warranted because no adjudicated breach by AMS; AMS's claims were not frivolous | Ruff seeks contractual fees (prevailing party on license validity) or statutory declaratory-judgment fees under §27-8-313 | Court: Denied. Contractual fee clause requires an adjudicated breach; neither party was clearly prevailing on intertwined contract claims and equitable/statutory fee relief was not warranted |
Key Cases Cited
- Bitterrooters for Planning, Inc. v. Mont. Dep't of Envtl. Quality, 388 Mont. 453, 401 P.3d 712 (Mont. 2017) (summary-judgment standard and appellate review)
- Jacobsen v. Allstate Ins. Co., 351 Mont. 464, 215 P.3d 649 (Mont. 2009) (discovery rulings reviewed for abuse of discretion)
- Audit Servs., Inc. v. Elmo Rd. Corp., 175 Mont. 533, 575 P.2d 77 (Mont. 1978) (officer authority to bind corporation in ordinary course)
- Freeman v. Withers, 104 Mont. 166, 65 P.2d 601 (Mont. 1937) (ostensible authority and implied agency powers)
- Erler v. Creative Fin. & Inv., 349 Mont. 207, 203 P.3d 744 (Mont. 2009) (ratification principles for unauthorized acts)
- Apfel v. Prudential-Bache Secs. Inc., 81 N.Y.2d 470, 616 N.E.2d 1095, 600 N.Y.S.2d 433 (N.Y. 1993) (distinguishing contract-based and tort-based misappropriation of ideas)
- Nadel v. Play-by-Play Toys & Novelties, Inc., 208 F.3d 368 (2d Cir. 2000) (idea-value and novelty standards for misappropriation claims)
- Downey v. General Foods Corp., 31 N.Y.2d 56, 286 N.E.2d 257, 334 N.Y.S.2d 874 (N.Y. 1972) (novelty requirement for property-right based idea protection)
- Volk v. Goeser, 382 Mont. 382, 367 P.3d 378 (Mont. 2016) (unjust enrichment/constructive trust principles; equitable remedies)
- Northern Cheyenne Tribe v. Roman Catholic Church, 368 Mont. 330, 296 P.3d 450 (Mont. 2013) (modern unjust enrichment rules; no strict requirement of underlying wrongful act)