Krohne Fund v. Stuart Simonsen
681 F. App'x 635
9th Cir.2017Background
- Krohne Fund, a California hedge fund, invested under a Managed Account Agreement (MAA) with Kapidyia as Investment Manager; Stuart Simonsen developed the XynaQuant software and the Optimus SLR trading protocol.
- The MAA authorized Kapidyia to manage Krohne’s account “on a discretionary basis in accordance with Section 2” and directed trading “in accordance with the investment guidelines attached hereto as Appendix A.”
- Appendix A specified an $8,000,000 notional Optimus SLR account with a 30% risk budget, and “Optimus SLR account” was a technical term referring to trades made via XynaQuant using the Optimus SLR protocol.
- Krohne Fund sued Simonsen and Kapidyia under Montana law for breach of contract, promissory estoppel, fraud, negligent misrepresentation, and constructive fraud; the district court entered judgment for Defendants after a bench trial.
- Krohne appealed the judgment; Defendants cross-appealed the denial of their requested schedule modification to add counterclaims/third-party claims.
- The Ninth Circuit reviewed contract interpretation de novo and factual findings for clear error, and considered whether the MAA required exclusive use of XynaQuant/Optimus SLR and whether defendants were denied leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the MAA required trades to be made exclusively via XynaQuant using the Optimus SLR protocol | MAA and Appendix A unambiguously required Optimus SLR trades via XynaQuant | MAA contains no exclusive-software/protocol requirement | Court: MAA does require trades pursuant to XynaQuant using Optimus SLR; district court erred and is vacated/remanded on breach claim |
| Whether Krohne preserved a promissory estoppel claim based on the MAA | Krohne argued MAA constituted a clear, unambiguous promise supporting promissory estoppel | Defendants opposed | Court: Krohne waived reliance on the MAA for promissory estoppel because it was not argued below; judgment for Defendants affirmed on that claim |
| Whether deceit (fraud/negligent misrepresentation/constructive fraud) claims survive given contractual interpretation | Krohne argued omissions/misrepresentations supported deceit claims | Defendants argued district court correctly entered judgment for them on deceit claims | Court: Vacated district court’s judgment on deceit claims and remanded for proceedings consistent with the corrected contract interpretation (did not decide preservation/merits) |
| Whether district court abused discretion denying defendants’ motion to modify scheduling order to add counterclaims/third-party claims | Defendants argued they should be allowed to amend and add claims/third parties | Plaintiffs argued defendants were not diligent and discovery deadlines passed | Court: No abuse of discretion; defendants were not diligent (late discovery), so denial of schedule modification affirmed |
Key Cases Cited
- U.S. Sec. & Exch. Comm’n v. Jensen, 835 F.3d 1100 (9th Cir.) (standard for de novo review of legal conclusions after bench trial)
- Anderson v. Stokes, 163 P.3d 1273 (Mont.) (contract interpretation under Montana law)
- Mary J. Baker Revocable Tr. v. Cenex Harvest States, Coops., Inc., 164 P.3d 851 (Mont.) (ambiguity and factual inquiry into parties’ intent)
- Dollar Plus Stores, Inc. v. R-Montana Assocs., L.P., 209 P.3d 216 (Mont.) (ordinary meaning of contract words vs. technical usage)
- Johnson v. Mammoth Recreations, Inc., 975 F.2d 604 (9th Cir.) (diligence required to modify scheduling order under Rule 16)
- Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080 (9th Cir.) (standard for denying modification when party not diligent)
- In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir.) (issue-preservation/waiver of arguments not presented below)