It is often said that appellate lawyers enter a case “after the cake is baked,” meaning after the factual record is developed, and the relevant legal arguments are staked out, at the trial level. But Harris Beach partner Brian D. Ginsberg was recently brought into a case in the U.S. Court of Appeals for the Second Circuit “after the icing was already applied” — and brief had been completed by counsel from other law firms — for the specific purpose of taking over the case for oral argument. Brian’s success in the case, which marked his 22nd oral argument in the Second Circuit, was highlighted in the Inner City Press.
On December 13, 2023, less than a week after Brian, co-chair of the firm’s Appellate Practice Group, presented oral argument, the court issued a decision unanimously reversing the lower-court order adverse to our client A-Star Group, a business that provides risk management consulting services and proprietary software products to Fortune 500 companies.
A-Star, doing business as Timetrics, develops computer software used by commodities traders to increase profits and reduce hedging risks. The owner and co-plaintiff, Samantha Kumaran, has more than 20 years’ experience creating risk management software and services tailored to the financial services and energy industries.
Defendant Northland Energy Trading, LLC, an over-the-counter options trading company, and defendant Hedge Solutions, Inc., a software company that also licenses risk management software products and prices options for hedging price risk to customers, entered a business relationship with Timetrics in 2011, in order to license the company’s proprietary hedging strategies, software, and related algorithms, subject to strict terms and conditions. Use of Timetrics’ products would enable Northland and Hedge to price more competitively, generate more profits, and provide other similar competitive advantages.
Shadow System of Risk-Management Tools
Plaintiffs allege that, as of 2014, defendants began using proprietary information obtained from plaintiffs — principally code, algorithms, and software — for the illicit purpose of creating defendants’ own “shadow system” of risk-management tools behind closed doors. In 2016, after defendants had failed to properly pay plaintiffs’ invoices for certain work done, plaintiffs commenced a lawsuit against defendants for the unpaid bills, which the parties ultimately settled via a settlement agreement in which plaintiffs agreed to abandon any legal claims they might have against defendants stemming from past conduct, and defendants agreed to use plaintiffs’ propriety information appropriately and consistently with the terms of relevant licenses.
A key part of the settlement agreement was defendants’ representation, recited in the settlement agreement itself, that at that time they were not using plaintiffs’ propriety information inappropriately, such as by creating their own shadow system for hedging and risk management.
Timetrics and Kumaran later determined defendants were not using the proprietary information properly and commenced a case in the U.S. District Court for the Southern District of New York pro se. Plaintiffs advanced a variety of claims, including a claim under New York state law that the settlement agreement had been fraudulently induced by the misrepresentations by defendants, at the time of the settlement, that they were not using plaintiffs’ propriety information inappropriately.
Court Reverses on Fraudulent Inducement Claim
The trial court dismissed plaintiffs’ complaint, including the fraudulent inducement claim, for failure to state a cause of action. The court found the claim was duplicative of plaintiffs’ separate claim for breach of the settlement agreement, on the ground that the misrepresentations that caused plaintiffs to enter into the settlement agreement were too closely related to the contractual promises which formed the settlement agreement itself.
Plaintiffs appealed. After the appeal was briefed by other law firms, Brian was engaged to present oral argument, during which he focused the court’s attention specifically on the fraudulent inducement claim, viewing it as a key claim in this case and one whose disposition by the district court was especially vulnerable based upon governing New York state law. The Second Circuit agreed with Brian and reversed as to that all-important fraudulent inducement claim, and the other claims that in turn depend upon it, repeating almost verbatim the rationale Brian explained during oral argument — right down to a key case citation.
“We are thrilled to have achieved this great result for our client The A Star Group,” Brian said. “We are gratified that the Second Circuit took a hard look at the complaint, viewed it properly in the light most favorable to our client, and correctly determined that key claims against the defendants should be reinstated and the case allowed to proceed in the trial court.”