1:20-cv-05649
S.D.N.Y.Apr 18, 2025Background
- PRCM Advisers LLC (managed by Pine River entities) ran Two Harbors (a publicly traded REIT) under a Management Agreement (MA) from 2009 until Two Harbors terminated it effective August 14, 2020. PRCM alleges termination was without "cause" under MA §15(a) and that Two Harbors keeps and uses PRCM intellectual property (IP) in violation of MA §27(a).
- In 2014 the parties executed a Second Amendment adding MA §27(a): "All Intellectual Property created or developed by the Manager in connection with the Manager's performance of this Agreement or otherwise... shall be the sole and exclusive property of the Manager," while granting Two Harbors a non-exclusive license for business use.
- Pine River personnel (some employed by PR Capital or PR Domestic) staffed Two Harbors under a Shared Services Agreement and signed confidentiality/invention agreements (CNIA) that variously assign inventions to their employer and define "Pine River" broadly.
- Two Harbors alleges 11 bases for terminating without paying the §13 termination fee (including compensation practices, non-competes, reputational incidents, a June 18, 2020 letter from Pine River leadership, and the Second Amendment itself) and asserts related counterclaims (fiduciary breach, faithless servant, fraud, etc.).
- Magistrate Judge Moses recommends granting summary judgment to Pine River in part: PRCM wins on liability for improper termination under MA §15(a) and Many of Two Harbors’ termination-related counterclaims are dismissed; but genuine disputes of fact about who actually created/developed the contested IP preclude summary judgment on IP ownership and related claims (DTSA and conversion). Two Harbors’ summary judgment motion is denied.
Issues
| Issue | Plaintiff (Pine River) Argument | Defendant (Two Harbors) Argument | Held |
|---|---|---|---|
| Whether Two Harbors validly terminated MA without paying §13 fee (i.e., whether termination was "for cause" under §15(a)) | Termination was improper because none of the 11 grounds amounted to material breach, fraud, or gross negligence under §15(a). | Termination was justified by at least one enumerated ground (e.g., compensation conflicts, non‑disclosed non‑competes, reputational/business disruptions). | Pine River entitled to summary judgment on liability: Two Harbors failed to show any of the grounds satisfied §15(a) (no material breach, fraud, or gross negligence). |
| Faithless servant / fiduciary breach / related counterclaims | Pine River contends compensation allocations, partnership non‑competes, Taylor incidents, and communications did not constitute disloyalty or actionable fiduciary breaches; many matters were within contract scope. | Two Harbors contends Pine River created undisclosed conflicts and acted disloyally (warranting disgorgement and other relief). | Most termination‑related counterclaims (fiduciary breach, faithless servant, gross negligence, fraud, negligent misrepresentation, aiding/abetting, contract claims, and certain unjust enrichment) fail as a matter of law or on damages; summary judgment for Pine River on those claims in large part. |
| Ownership of IP under MA §27(a) (whether contested IP was "created or developed by the Manager") | MA §27(a) unambiguously vests in the Manager IP "created or developed by the Manager"; if the developers were acting for PRCM, PRCM owns the IP and prevails on breach/conversion claims. | Two Harbors argues personnel who developed the IP were employed/controlled by PR Domestic/Two Harbors, so PRCM cannot be the creator and does not own the IP; also challenges the Second Amendment's adoption/interpretation. | Mixed evidence on agency/control; genuine disputes whether creators acted as PRCM agents or for Two Harbors. Neither side entitled to summary judgment on IP ownership or DTSA/misappropriation claims. |
| Validity/inducement and fairness of the Second Amendment (MA §27) | PRCM argues §27 plainly grants Manager ownership of "all" Manager‑created IP; amendment was disclosed, approved by independent directors, and not fraudulently induced. | Two Harbors contends the amendment was presented in a CRE context and directors were misled as to its breadth; also argues substantive unfairness in a fiduciary setting. | Court rejects fraudulent inducement and "unfairness" arguments as inconsistent with the unambiguous text and the sophistication/representation of Two Harbors' directors; amendment adoption does not supply cause to terminate. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard and burdens of proof)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (evidentiary standard for genuine dispute at summary judgment)
- Holtz v. Rockefeller & Co., Inc., 258 F.3d 62 (2d Cir.) (purpose of Local Rule 56.1 and summary judgment practice)
- Beacon Hill CBO II, Ltd. v. Beacon Hill Asset Mgmt. LLC, 249 F. Supp. 2d 268 (S.D.N.Y. 2003) (limits on implying fiduciary duties when parties contract at arm's length)
- Phansalkar v. Andersen Weinroth & Co., 344 F.3d 184 (2d Cir. 2003) (faithless servant doctrine requires disloyalty and substantial permeation of service)
- Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928 (N.Y. 1977) (faithless servant principle and remedy)
- In re Parmalat Sec. Litig., 375 F. Supp. 2d 278 (S.D.N.Y. 2005) (agency and control as mixed questions of law and fact)
- Rahbari v. Oros, 732 F. Supp. 2d 367 (S.D.N.Y. 2010) (distinguishing bad faith from gross negligence in fiduciary contexts)