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Wal-Mart Stores, Inc. v. Cuker Interactive, LLC

United States District Court, W.D. Arkansas, Fayetteville Division

March 31, 2018

WAL-MART STORES, INC. PLAINTIFF/ COUNTER-DEFENDANT
v.
CUKER INTERACTIVE, LLC DEFENDANT/ COUNTER-CLAIMANT

          MEMORANDUM OPINION AND ORDER

          TIMOTHY L. BROOKS, UNITED STATES DISTRICT JUDGE.

         Currently before the Court are:

• Defendant/Counter-Claimant Cuker Interactive, LLC's (“Cuker”) Motion for Sanctions against Walmart and its Counsel (Doc. 464) and Brief in Support (Doc. 465); Plaintiff/Counter-Defendant Wal-Mart Stores, Inc.'s (“Walmart”) Response in Opposition (Doc. 479); and Cuker's Reply (Doc. 481);
• Cuker's Motion for Attorneys' Fees and Costs (Doc. 473) and Brief in Support (Doc. 474); Walmart's Response in Opposition (Doc. 480); and Cuker's Reply (Doc. 481);
• Cuker's Bill of Taxable Costs pursuant to 28 U.S.C. § 1920 (Doc. 475); and Walmart's Objection (Doc. 476);
• Walmart's Motion for Judgment as a Matter of Law under Rule 50(b) (Doc. 490) and Brief in Support (Doc. 501); Cuker's Response in Opposition (Doc. 512); and Walmart's Reply (Doc. 519);
• Walmart's Motion for New Trial or Remittitur under Rule 59 (Doc. 493) and Brief in Support (Doc. 499); Cuker's Response in Opposition (Doc. 511); and Walmart's Reply (Doc. 515);
• A Motion to Withdraw (Doc. 520) and Brief in Support (Doc. 521) filed by Cuker's Arkansas attorneys in this case; and
• A Motion to Withdraw (Doc. 522) and Brief in Support (Doc. 523) filed by Cuker's California attorneys in this case.

         For the reasons given below, Cuker's Motions for Sanctions and for Attorneys' Fees and Costs and Walmart's Motion for Judgment as a Matter of Law are GRANTED IN PART AND DENIED IN PART, Walmart's Motion for New Trial or Remittitur is DENIED, and Cuker's Motions to Withdraw are GRANTED.

         I. BACKGROUND

         As this Court explained more than a year ago:

On January 30, 2014, Walmart and Cuker signed a contract under which Walmart agreed to pay Cuker a fixed fee of $577, 719, in exchange for Cuker's provision of certain services to help make the website for Walmart's “ASDA Groceries business” responsive, irrespective of the device on which it is being viewed, such as a desktop or a mobile phone [(“the Contract”)]. See Doc. 124-7, pp. 8, 17. Walmart was facing very tight internal deadlines for this project, and the contract-negotiation process was a very speedy one, taking merely a few weeks rather than the months that were more typical. See Doc. 121-1, p. 3. The project launched almost immediately in early February, and by the end of that month the parties were already experiencing fundamental disagreements on matters such as whether various milestones for performance were strict deadlines or mere aspirations, when interim fee payments were due, how many rounds of revisions Walmart could require Cuker to make to its deliverables, and whether particular demands by Walmart were outside of the scope of work that Cuker had contracted to deliver.

(Doc. 197, pp. 1-2). Eventually, in July 2014, Walmart won a race to the courthouse, and the following month this lawsuit was removed from the Circuit Court of Benton County to this Court. The parties asserted various cross-claims against each other, and extremely heated and tortured litigation followed over the next several years.

         On April 10, 2017, the case finally went to trial, which lasted two weeks. The jury returned a verdict against Walmart on its claim against Cuker for breach of contract, and in favor of Cuker on its claims against Walmart for breach of contract, unjust enrichment, and misappropriation of trade secrets. The jury awarded Cuker a total of $12, 438, 665 in damages. The Court subsequently reduced this amount to $10, 197, 065, and on July 28, 2017, entered Judgment in favor of Cuker, including injunctive relief. See Doc. 484. After the entry of Judgment, post-verdict motion practice ensued. The Court stayed execution on the money judgment, see Doc. 488, and stayed the injunction, see Doc. 503, pending resolution of the various post-trial motions.

         This Opinion and Order resolves all pending motions in this case. The above-mentioned motions are all ripe for decision, and can be divided into three categories. First, Walmart has filed two motions concerning the evidence that came in at trial. Second, Cuker has filed two motions concerning attorney fees, costs, and sanctions that it seeks to recover from Walmart. And third, Cuker's attorneys have filed two motions seeking to withdraw from this case. Below, the Court will address those motions in the sequence just listed.

         II. WALMART'S MOTIONS ABOUT THE TRIAL

         In this Section, the Court will first take up Walmart's Motion for Judgment as a Matter of Law under Rule 50(b). Then, the Court will turn to Walmart's Motion for New Trial or Remittitur under Rule 59.

         A. Walmart's Motion for Judgment as a Matter of Law under Rule 50(b) (Doc. 490)

         “If a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may: (A) resolve the issue against the party; and (B) grant a motion for judgment as a matter of law against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue.” Fed.R.Civ.P. 50(a). “If the court does not grant a motion for judgment as a matter of law made under Rule 50(a), ” then upon a timely renewal of that motion after the entry of judgment, the Court may allow judgment on the verdict, order a new trial under Rule 59, or direct the entry of judgment as a matter of law. See Fed. R. Civ. P. 50(b). “The law places a high standard on overturning a jury verdict because of the danger that the jury's rightful province will be invaded when judgment as a matter of law is misused.” Bavlsik v. Gen. Motors, LLC, 870 F.3d 800, 805 (8th Cir. 2017) (quoting Hunt v. Neb. Pub. Power Dist., 282 F.3d 1021, 1029 (8th Cir. 2002)) (internal alterations omitted). Accordingly, when considering a renewed motion for judgment as a matter of law, the Court must:

(1) consider the evidence in the light most favorable to the prevailing party,
(2) assume that all conflicts in the evidence were resolved in favor of the prevailing party, (3) assume as proved all facts that the prevailing party's evidence tended to prove, and (4) give the prevailing party the benefit of all favorable inferences that may reasonably be drawn from the facts proved. That done, the court must then deny the motion if reasonable persons could differ as to the conclusions to be drawn from the evidence.

Id. (quoting Ryther v. KARE 11, 108 F.3d 832, 844 (8th Cir. 1997) (en banc)).

         Walmart has marshaled an enormous number of arguments in support of its Rule 50(b) Motion. As a consequence of some of the rulings herein, many of Walmart's arguments will not need to be reached. But the arguments that will be reached are organized below as follows. First, the Court will address arguments concerning Cuker's claim for breach of contract. Second, the Court will turn to Cuker's claim for unjust enrichment. Third, the Court will take up Cuker's trade secret claims. Fourth, the Court will deal with Walmart's argument about Copyright Act preemption. And fifth, the Court will rule on Walmart's argument about capping Cuker's damages pursuant to a limitation-of-liability clause in the Contract.

         1. Cuker's Claim for Breach of Contract

         The jury found for Cuker on its claim against Walmart for breach of contract. See Doc. 444, p. 5. Walmart argues that this verdict should be reversed because “Cuker failed to perform the contract according to its terms, ” and “introduced insufficient evidence of any facts that would excuse its non-performance of the contract.” See Doc. 501, p. 82. Walmart's briefing on this issue focuses exclusively on alleged failures of performance by Cuker in the months of May and June of 2014. Specifically, Walmart argues that Cuker breached the contract by withholding the May 23 and June 25 code drops until July 17 despite having completed its work on them by June 2. See Id. at 82-86. Walmart also points to Cuker's failure to deliver testing reports/issue resolution summaries by May 14 and June 13, and to Cuker's failure to provide 30 days of post-launch support for the website, as breaches excusing Walmart's performance under the contract. See Id. at 86.

         The Court instructed the jury that “a ‘material breach' is a failure to perform an essential term or condition that substantially defeats the purpose of the contract for the other party, ” and that “[a] material breach by one party excuses the performance of the other party.” See Doc. 434, p. 18. The Court also instructed the jury that “the law implies a promise between the parties that they will not do anything to prevent, hinder, or delay the performance of the contract, ” and that the jury could “consider the alleged acts, hindrances, and delays of Walmart . . . as evidence of a breach of the contract.” See Id. at 17.

         The Court disagrees with Walmart, and believes that Cuker did introduce sufficient evidence of facts from which a jury could reasonably find that Cuker's performance under the contract was excused. Aaron Cuker testified that on February 12, 2014, Walmart asked Cuker to design 80 wireframes-a number far in excess of the 13 templates required by the Contract-and then threatened to withhold approvals (and, consequently, payments) for within-scope work unless Cuker complied with this request. See Doc. 407, pp. 198-206, 295; Defendant's Exhibits 36, 39. And Nikolaj Baer testified that Walmart never provided a workable development environment as required by the Contract, thus requiring Cuker to create a development environment itself in order to perform its own obligations under the Contract. See Doc. 411, pp. 48-49, 76-82; Plaintiff's Exhibit 126, p. 15, row 5. The jury could credit this testimony, and could conclude that these demands, threats, and failures of performance by Walmart in February 2014 substantially defeated the purpose of the Contract for Cuker, and prevented, hindered, and delayed Cuker's performance under the Contract, by forcing Cuker to choose between two unacceptable options: (1) either perform an enormous amount of additional work that Cuker never agreed to perform under the fixed-price Contract, and thereby become unable to meet the “milestone” dates set out in the Contract for the work that it was obligated to do, or else (2) refuse to do the additional work but at the explicit risk of not being paid even for the work it did perform under the Contract. The jury's verdict on Cuker's contract claim is supported by sufficient evidence.

         2. Cuker's Claim for Unjust Enrichment

         Cuker argued at trial that Walmart was unjustly enriched by Cuker's provision of additional templates to Walmart that were not required under the Contract. The jury found for Cuker on its claim of unjust enrichment. Walmart argues that this verdict should be reversed on the grounds that it was not supported by sufficient evidence at trial.

         The Court held very early in this case that although in general “a claim for unjust enrichment cannot stand where the parties have a contractual relationship on the same subject matter, ” there is an exception that permits claims for unjust enrichment where “disputed performance” under a contract “is compelled under protest.” See Doc. 23, p. 4 (quoting QHG of Springdale, Inc. v. Archer, 2009 Ark.App. 692, at *11). Walmart argues that there was insufficient evidence at trial that Cuker protested, see Doc. 501, pp. 75- 78, and insufficient evidence at trial that Cuker's performance was compelled, see Id. at 78-82. The Court disagrees with both of these contentions. As was already discussed in the preceding Section, Cuker introduced evidence that as early as February 2014, it was already objecting to requests from Walmart for a large number of wireframes on the grounds that they exceeded the scope of the Contract, but seeing these objections met with threats to withhold approvals (and therefore payments).[1] This evidence, in combination with testimony that was provided about Cuker's precarious financial position during the term of the Contract, see, e.g., Doc. 407, pp. 205-06, is sufficient to support a finding that Cuker protested “early and often, ” see QHG, 2009 Ark.App. 692, at *11, and that Walmart nevertheless exploited Cuker's financial vulnerability to compel Cuker to perform work outside the scope of the Contract.

         Walmart emphasizes that Cuker waited six weeks after it had completed the additional templates on June 2 before providing them to Walmart on July 17 on the advice of its lawyer, and argues that this shows Cuker was not operating under any compulsion to turn the templates over. See Doc. 501, pp. 80-81. Cuker introduced an email showing that as of June 1, it hoped to separate its in-scope work from its out-of-scope work before making its final delivery to Walmart. See Defendant's Exhibit 247. But Mr. Baer testified that after roughly a week of attempting to do this, he concluded that the in-scope and out-of-scope templates had become effectively inseparable. See Doc. 411, pp. 161-62. And Mr. Cuker testified that Walmart was refusing to pay any additional compensation for Cuker's out-of-scope work. See Doc. 407, p. 255. If the jury credited all of this testimony, then a natural inference from it would be that after June 2, Cuker had to choose between failing to deliver what it had contracted to deliver, or delivering far more than it had contracted to deliver at the risk of never being paid for the additional work it had already performed under Walmart's compulsion. A jury could easily conclude from these circumstances that Walmart's enormous leverage over Cuker, and Cuker's perception of it, was as stark on July 17 as it was on June 2, and that the delay before the final code drop simply proved that Cuker was facing a very difficult decision rather than that Cuker was not under compulsion.

         In addition to its arguments about protest and compulsion, Walmart contends that Cuker's theory of damages from unjust enrichment was “premised on speculative and unsupported expert opinions.” See Doc. 501, p. 109. The theory of unjust enrichment damages that Cuker's expert, Patrick Kennedy, presented to the jury, was premised on the notion that damages could be calculated on a per-template basis. See Doc. 416, pp. 251-53. Walmart previously filed a Daubert motion seeking exclusion of Dr. Kennedy's opinions on unjust enrichment damages, similarly arguing that they were speculative and unsupported; the Court rejected Walmart's arguments then, and ruled that Dr. Kennedy would be permitted to present this theory to the jury, because Walmart's criticisms of his per-template calculations went to weight rather than admissibility. See Doc. 173. Walmart's Rule 50(b) motion essentially reformulates those arguments which the Court previously rejected, arguing that Dr. Kennedy lacked a foundation for treating the Contract price as a function of the number of templates in its scope of work, and that he “cherry-picked” a comparator contract against which to test the reasonableness of his per-template price estimate. The Court rejects these arguments now for the same reasons it did before. See id.

         Walmart also argues, as it previously did in its Daubert motion, that Cuker is not entitled to any damages for unjust enrichment because the Contract required “any fees exceeding $577, 719, not including travel and expense fees” to be “pre-approved in writing by Walmart in the form of a Project Change Request per the Agreement.” See Doc. 501, p. 111. But in the Court's view, this argument misses the point. Of course, as the Court has already observed several times throughout this case, the general rule is that “[w]here the parties have an enforceable contract that fully addresses a subject, they must proceed on that contract in resolving their differences, ” but again, we are dealing here with an exception to this rule that applies where “disputed performance is compelled under protest.” See QHG, 2009 Ark.App. 692, at *11. The jury found that this is exactly what happened here, and for the reasons given above, there was a sufficient evidentiary basis for this finding. The Court does not see what sense it would make to find that a contract precludes damages for unjust enrichment under the very circumstances where the law states a contract should be trumped by the concerns of “equity and good conscience.” See Id. at *13. The jury's verdict on Cuker's claim for unjust enrichment will stand.

         3. Cuker's Claim for Misappropriation of Trade Secrets

         Cuker brought claims against Walmart for misappropriation of trade secrets. The jury was presented with verdict forms regarding four separate alleged trade secrets: (1) a “Phased Release Support Technique”; (2) the “CMS Tweak Development Tool”; (3) “Adobe Illustrator Source Files for Wireframes and Adobe Photoshop Source Files for Designs” (collectively, “Adobe Source Files”); and (4) “Zoning Tools.” The jury found that Walmart misappropriated all four of these trade secrets, and that Walmart did so willfully and maliciously with respect to each of them except the CMS Tweak Development Tool. The jury awarded Cuker a total of $12, 008, 036 in damages on its trade secret claims, see Doc. 444, pp. 9-12, but the Court subsequently reduced that award to $9, 766, 436, pursuant to the Contract's limitation-of-liability clause, see Doc. 483, p. 9.

         Walmart now advances a large variety of theories under which it contends the jury's trade secrets verdict should be reversed. However, the vast majority of these arguments need not be reached in this Opinion and Order, because one of them is dispositive with respect to three of Cuker's alleged trade secrets. Specifically, the Court agrees with Walmart that there is insufficient evidence to support the jury's finding that Cuker's Phased Release Support Technique, CMS Tweak Development Tool, and Zoning Tools meet the statutory definition of “trade secret” under Arkansas law. In the first subsection below, the Court will discuss those three alleged trade secrets. Then in the second subsection below, the Court will turn to Cuker's Adobe Source Files, which present rather more complicated issues.

         a. Phased Release, CMS Tweak, and Zoning Tools

         The Arkansas Trade Secrets Act (“ATSA”), which prohibits misappropriation of trade secrets, defines “trade secret” as meaning:

[I]nformation, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(A) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

         Ark. Code Ann. § 4-75-601(4). For each of three alleged trade secrets, there is insufficient evidence that it was the subject of reasonable efforts to maintain its secrecy.

         With respect to the Phased Release Support Technique and Zoning Tools, there was unrebutted evidence at trial that as early as February 14, 2014, Cuker was telling Walmart that Cuker would provide Walmart with “phased release support” and “zoning” as “key component[s]” of its technical approach. See Plaintiff's Exhibit 200, pp. 1, 7-8. There was also unrebutted evidence that Walmart and Cuker both understood that the code Cuker would provide to Walmart would be for the front end of the ASDA website. See Doc. 411, pp. 46-47. And there is no evidence in the record that Cuker ever “clearly identif[ied]” its Phased Release Support Technique and Zoning Tools as “information it considered to be a trade secret” at any time before this information was disclosed to Walmart. Tyson Foods, Inc. v. ConAgra, Inc., 349 Ark. 469, 483 (2002). The closest Cuker ever came to providing any such evidence was through testimony from Mr. Baer that when Hemanth Narayanan from Walmart “insist[ed]” to him in early February 2014 that the project would need phased release and zoning support from Cuker, Mr. Baer “was stunned” and “felt railroaded, ” see Doc. 411, pp. 60, 65, 179-80. 228-29; similarly, Mr. Cuker testified that zoning tools were provided to Walmart “under protest, ” see Doc. 407, pp. 47. But while this is evidence that Cuker believed these items were outside the contractual scope of work, it is not evidence that Cuker told Walmart that it considered this information to be secret, or that Walmart had any reason to believe it was secret. Thus, there is insufficient evidence to support a finding that Cuker's Phased Release Support Technique and Zoning Tools “reasonably should [have been] considered confidential” by Walmart “under the circumstances, ” see Plaintiff's Exhibit 126, p. 2, § 4(b), since all indications to Walmart from Cuker as of February 14 were that the code for these things would soon be located on the front end of the ASDA website for all the world to see. See, e.g., Doc. 411, pp. 70-73, 76, 105-06, 186-87 (testimony from Mr. Baer about his ability to find and read Cuker-authored code today on the ASDA website by simply visiting it with an internet browser).

         Cuker's claim for its CMS Tweak Development Tool suffers from a similar deficiency. Cuker provided unrebutted testimony through Mr. Baer that this tool was “created . . . for this Wal-Mart project at the beginning of the project when we didn't have a development environment, ” and that in creating it, Cuker relied on its extensive experience and know-how acquired from creating development environments on prior projects for other clients. See Doc. 411, pp. 77-78, 81-82. Mr. Baer testified that prior to Cuker's April 8 code drop, in the middle of an ongoing dispute about the scope of work under the contract, Cuker was “getting a lot of pressure to give [Walmart] the code” and Walmart was telling Cuker that it did not trust that Cuker was making adequate progress. See Id. at 84. As Walmart did not have a working development environment when Cuker delivered its April 8 code drop, Cuker provided the CMS Tweak Development Tool because “the only way to get them to see that we were making progress at that time was to give them our development environment that we had created.” See Id. But there was no evidence at trial that Cuker ever told Walmart that it considered this tool to be confidential or proprietary, or that it did not want Walmart to use it or share it with others.

         Therefore, there was insufficient evidence to support the jury's finding that Cuker undertook reasonable efforts to maintain the secrecy of its Phased Release Support Technique, CMS Tweak Development Tool, and Zoning Tools as required by Ark. Code Ann. § 4-75-601(4)(B). The jury's verdict will be reversed as to those three alleged trade secrets. The Court will turn now to the last remaining alleged trade secret: Cuker's Adobe Source Files.

         b. Adobe Source Files

         Unlike the other three alleged trade secrets, there was sufficient evidence at trial to support the jury's finding that Cuker's Adobe Source Files met the statutory definition of “trade secret.” Mr. Cuker testified that the Adobe Source Files contained information that predated the Walmart Contract and that was developed internally over a period of years through trial-and-error, see Doc. 407, pp. 228-29, that this information included Cuker's internally-developed methods for optimizing layouts, constructing responsive web pages, and simultaneously pushing changes across multiple responsive files, see Id. at 246-47, that this information provided Cuker its “competitive advantage in the market, ” see id., and that Cuker never turns its Adobe Source Files over to clients, see Id. at 267. Mr. Cuker also testified that Walmart repeatedly asked him for them and that he repeatedly told Walmart “no, ” see Id. at 266-67, and this testimony was corroborated by Walmart's own witness, Alex Alexander, see Doc. 409, p. 132. Walmart's internal emails show that as early as March 6, before Walmart had even made its first request for Cuker's Adobe Source Files, Walmart intended to manufacture an excuse for requesting them in anticipation of the fact that Cuker would consider such a request “irregular.” See Defendant's Exhibit 485, p. 1 (“We always download a copy of all UX deliverables, so we have the wireframe review docs anyway. We don't however have source files so wouldn't be able to edit these easily. Are you expecting us to ask for these? It could seem a little irregular but I'm sure I could phrase it that the team here need to start working on pages and flows that Cuker will not be covering.” (emphasis added)). And subsequent internal emails show that Walmart had concerns about the appropriateness of requesting Cuker's Adobe Source Files. See, e.g., Defendants' Exhibit 85, p. 1 (“We [Walmart] don't have the source files for wireframes yet . . . due to the tensions [I] didn't feel it was an appropriate request by email.” (emphasis added)). Indeed, when asked if source files are “a typical request” by clients, Mr. Cuker replied “[a]bsolutely not, ” and testified that he could not recall any other customers of his having ever requested them. See Doc. 407, p. 233. And Cuker's damages expert, Chuck Easttom, testified that in his experience working with design firms, when clients request source files such requests are “normally pretty firmly rejected.” See Doc. 413, pp. 258-59. The jury could reasonably infer from all of this that Walmart reasonably believed Cuker's Adobe Source Files contained confidential materials and trade secrets.[2]

         There is also sufficient evidence in the record to support the jury's finding that Walmart misappropriated Cuker's Adobe Source Files. The ATSA ...


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