Case 1:16-cv-00083-SS Document 65 Filed 05/19/16 Page 1 of 13

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
Firefly Systems, Inc.,
Plaintiff,
v.
Thomas E. Markusic and Virgin Galactic,
LLC.

Case No. 1:16-cv-00083-SS

Defendants.

DEFENDANT VIRGIN GALACTIC, LLCS OPPOSED MOTION FOR ATTORNEYS FEES

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Pursuant to Federal Rule of Civil Procedure 54(d)(2), Local Rule CV-7(i), and Texas
Uniform Trade Secret Act (TUTSA) 134A.005(1), Virgin Galactic, LLC (Galactic) hereby
asks the Court to award attorneys fees against Firefly Systems, Inc. for forcing Galactic to
defend against its sham litigation. Galactic conferred with Firefly, which opposes the motion.
Introduction
If there were ever a case asserting trade-secret misappropriation in bad faith, this has to be
it. The facts are simple: Galactic obtained an order for Markusic to produce his companys
(Fireflys) documents in an arbitration. The order is lawful, and there is a protective order to
govern party and third-party production. Markusic does not want to produce his companys
documents. So he caused his company to file this lawsuit against him (the co-founder, majority
shareholder, board member, and CEO) and Galactic, alleging Galactics attempt to obtain lawful
discovery in the arbitration is either actual or threatened trade-secret misappropriation. As the
Court has already observed, Fireflys position is absurd, a ruse easily, and an absolutely
ridiculous idea. (22.)1 Galactic should be awarded its fees under the TUTSA.
Background
The Arbitration. Markusic started Firefly while he was still at Galactic, using Galactic
information and Galactic instrumentalities. He co-founded Firefly with former Galactic
customers, P.J. King and Michael Blum. Once Markusic had created a financial and technological
foundation for Firefly, relying on wholesale appropriation of Galactics technology and resources,
Respondent quit his job at Galactic. Shortly thereafter, Galactic realized that Markusic was using
(and intended all along to use) Firefly as a vehicle with which to directly compete with Galactic
using Galactics own proprietary information and corporate opportunities. Galactic initiated
1

Unless otherwise indicated, citations are to the Declaration of Evette D. Pennypacker, submitted herewith.

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arbitration against Markusic pursuant to the terms of the contracts governing his employment by
Galactic. The Honorable Louise LaMothe presides over the arbitration. (3.)
Arbitration Discovery. The arbitration agreement between Markusic and Galactic
provides for the full scope of discovery allowed under state and federal law. (4.) After the
Arbitrator issued a protective order, party discovery commenced in August 2015, and the
Arbitrator issued subpoenas to Firefly, Blum, and King in September 2015. (5, 7.) But
Markusicworking in close concert with Firefly, Blum, and Kingrefused to produce Firefly
documents and information. (8.) The Arbitrator rejected his evasive tactics and ordered
Markusic to produce the documents. (Id.)
Firefly/Markusic Order Avoidance: Step One. Markusic did not like that ruling, so he
directed his Board to pass a resolution purporting to strip him of authority over company documents
solely for purposes of the Arbitration. (9, Ex. B.) The Arbitrator ruled the resolution was a
sham . . . effort to hide behind the corporate entity and did nothing to alter Markusics discovery
obligations. (10, Ex. C.) Markusic still did not produce Firefly documents. (10.)
Firefly/Markusic Order Avoidance: Step Two. In November, the Arbitrator stated her
intent to adopt a negative inference for the documents Markusic refused to produce. (10, Ex.
D.) Markusic still did not produce Firefly documents. (10.) Instead, he directed his company
and co-founders/fellow board members to fight compliance with any discovery through extensive
motion practice in additional suits filed in Los Angeles and Nevada. (11, 15.) Importantly, in
these actions, the third parties argued that Fireflys technology was based on public information
in order to try and convince the courts there that Galactics claims lacked merit. (24, 25.) In
fact, on March 2, 2016, King lodged an expert declaration with Judge Fruin declaring as much.

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(24.) In the Los Angeles case, Judge Fruin declined to order an independent protective order to
govern the productions and ordered Firefly and King to produce documents. (19.)
In each case initiated by Firefly and its principals, the Arbitrators authority to issue the
subpoenas was confirmed, those parties were ordered to produce documents, and the courts
confirmed Markusic was colluding with the third parties to avoid the Arbitrators orders. (16,
18-19.) The Los Angeles court even warned Firefly that its refusal to comply with the subpoenas
left a cloud over its businessand that Firefly would be better served by simply producing the
documents. (17, Ex. F.) Markusic and Firefly still refused to produce Firefly documents. (20.)
Firefly/Markusic Order Avoidance: Step Three. Instead, Markusic directed Firefly to sue
him and Galactic in Texas state court, seeking injunctive relief on the grounds that Galactics
pursuit of discovery in the arbitration constituted actual or threatened trade-secret
misappropriation. (Dkt. 17, 17-18; Pet. 12-13.) Firefly failed to disclose that Markusic was
withholding Firefly material from discovery and, instead, focused exclusively on Markusics
oblique statement that he recognizes his obligation to comply with the Arbitrators orders, has
done so, and will continue to do so until such time as any order of the Arbitrator is overturned,
amended, or rescinded. (14.) Firefly ignored the fact that, in the same submission it relied on,
Markusic also stipulated to Kings request to quash the Arbitration subpoena and for an order
overturning the Arbitrators decision [give] Virgin Galactic . . . access to Firefly Systems Inc.s
(Firefly) computers and confidential information. (12.) There was never any threat that
Markusic was going to produce Firefly documents. Never.
Without notice to Galactic, Firefly obtained a TRO purporting to prevent Markusic from
producing the Firefly documents. (21.) On January 29, Markusic presented this TRO to the

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Arbitrator, but she (again) ruled that his evasive tactics did not excuse Markusic from producing
responsive documents in his possession, custody, or control (including Firefly documents). (27,
Ex. L.) Despite the Arbitrators express rejection of Markusics reliance on the stipulated TRO
to avoid discovery, on February 1, Markusic stipulated to extend the TRO. (29.) The Arbitrator
again ruled that was not the problem of this arbitration, especially because Respondent
[Markusic] did not oppose the Texas state court order. (Dkt. 40, Ex. B.) A month later, while
this case was pending, Markusic told the Arbitrator that he still had no intention of producing
Firefly materials. (Dkt. 40, Ex. M.) Neither Markusic nor Firefly so informed the Texas court.
Firefly/Markusic Order Avoidance: Step Four. Firefly continued to prosecute this case
even after Markusic told the Arbitrator he had no intention of producing documents (and
therefore no misappropriation could possibly occur). (Dkt. 48.) On March 28, the Court heard
argument on Galactics motion to dismiss and Fireflys motion to remand. During that hearing,
Firefly insisted its lawsuit was necessary to protect Firefly trade secrets from disclosure in the
arbitration. Firefly did not mention that it had represented to the Los Angeles Superior Court just
18 days earlier that all of its technology was based on public information. (Ex. K at 13:10-11,
26:19-23.) Firefly also claimed that the arbitrations protective order was not sufficient to protect
its trade secrets. (Id. at. 17:13-18:4.) The Court rejected all these arguments, expressing its view
that Fireflys motion to remand was no good and that Fireflys lawsuit was absurd, a
ruse, and an absolutely ridiculous idea. (Id. at 2:19, 18:8-16, 19:19.)
Firefly/Markusics Sudden Reversal. Mere hours after the March 28 hearing, Markusic
told Galactic he had received notification from counsel for Firefly that Firefly is authorizing Dr.
Markusic to release Firefly information through the arbitration, specifically as to the outstanding

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Request for Production and Request to Inspect. (30.)2 No explanation was provided for this
sudden authorization. Shortly thereafter, Firefly orally and in writing committed to producing all
of the documents required by Judge Fruins order. (Id.) Despite these representations, neither
Markusic nor Firefly has made any meaningful productions of Firefly documents. And Firefly did
not immediately dismiss this suit. It was only after Galactic observed the inconsistency between
Fireflys representing that it would produce documents and maintaining this lawsuit during the
parties April 27 arbitration hearing, and indicated it may seek redress for the duplicitous
positions, that Firefly dismissed this action with prejudice. (Dkt. Nos. 62-64.) Firefly only
dismissed its Complaint to avoid a further adverse ruling from this Court.
Argument
I.

Virgin Galactic Is Entitled To Attorneys Fees.

TUTSA 134A.005 provides that the court may award reasonable attorneys fees to the

prevailing party where a claim of misappropriation is made in bad faith. To demonstrate bad
faith, the movant must show that plaintiffs claim was both frivolous (i.e., objective bad faith) and
brought for an improper purpose (i.e., subjective bad faith). Sasco v. Rosendin Electric, Inc., 207
Cal. App. 4th 837, 844-845 (2012).3 When these conditions are met, an award of fees is
appropriate to deter specious claims of misappropriation. UTSA 4 Cmt.

Markusics counsel later attempted to retract this commitment, telling Galactic that the earlier comment was the
result of a misunderstanding/miscommunication. (30.) But Markusics counsel did not appear to withdraw the
authorization and did not state that Firefly was prohibiting Markusic from producing Firefly documents. To the
contrary, emails obtained by Galactic showed that Firefly cooperated in offering Markusics Firefly laptop for
inspection and had searched Firefly servers for responsive documents. ( 30, Exs. P-Q.)
3
Texas adopted the Act less than three years ago. As a result, it has been applied in only a limited number of cases
with none defining bad faith. But the majority of courts interpreting the bad faith requirement demand a
showing that the plaintiffs claims were objectively specious, along with some evidence of subjective misconduct.
See, e.g., Computer Econ ., Inc. v. Gartner Group, Inc., 1999 WL 33178020, at *5 (S.D. Cal. Dec.14, 1999); Contract
Materials Processing, Inc. v. Kataleuna GMBH Catalysts, 222 F.Supp.2d 733, 744 (D. Md. 2002); Russo v. Baxter
Healthcare Corp., 51 F.Supp.2d 70, 7677 (D.R.I. 1999).

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A.

Virgin Galactic Is the Prevailing Party.

A defendant who obtains a dismissal with prejudice is a prevailing party. Epps v.

Fowler, 351 S.W. 3d 862, 868-69 (Tex. 2011). Galactic is therefore the prevailing party here.4
B.

Firefly Brought This Action in Bad Faith.

Fireflys case is a paradigmatic example of bad faith. Fireflys claimsleveled against the
very individual who controls the companyare baseless and were brought exclusively for the
obstructionist purpose of facilitating Markusics evasion of discovery and impeding Galactics
contractual and legal right to seek redress for Markusics misconduct.
1.

Fireflys Claim Is Objectively Specious.Firefly can offer no evidentiary or

legal support for its misappropriation claim, making it objectively unreasonable. Loparex, LLC v.
MPI Release, LLC, 2012 WL 3065428 at *5-6 (S.D. Ind. July 27, 2012). Fireflys trade-secret
claims are directed exclusively at litigation activity, specifically, the exchange of documents as
part of fact discovery during the arbitration. But both California and Texas recognize a litigation
privilege that prohibits a plaintiff from characterizing the good-faith participation in civil
discovery as misappropriation. CAL. CODE CIV. PROC. 1283.05(c); In re Simons Broad, LP, No.
Civ. W-11-CA-172, 2013 WL 9542015 (W.D. Tex. Nov. 19, 2013). Where, as here, a claimants
legal theories are foreclosed by prevailing law, courts routinely find bad faith and hold claimants
liable for the fees and costs incurred by its opponent in defending baseless litigation. See, e.g.,
FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1281 (2009); Degussa Admixtures, Inc. v.
Burnett, 471 F. Supp. 2d 848, 857-58 (W.D. Mich. 2007).

Courts have awarded attorneys fees where a plaintiff brings a bad-faith lawsuit under the Uniform Trade Secrets
Act and then voluntarily dismisses the lawsuit before the court can do so. See, e.g. Degussa Admixtures, 471
F.Supp.2d at 857-58; Sasco, 207 Cal. App. 4th at 844-845 (affirming $485,000 attorneys fees award issued under the
California Uniform Trade Secrets Act after voluntary dismissal of trade-secret claims).

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The factual underpinnings of Fireflys claims are equally frivolous. At the same time
Firefly was prosecuting this action, its attorneys filed a report in Los Angeles Superior Court
arguing that all of Fireflys technology was based on public informationnot trade secrets.
(24.) Fireflys claim of misappropriation was thus directly contrary to its own
representations to the Los Angeles Superior Court. The court in Sasco v. Rosendin Electric, Inc.,
dealt with a similar situation, upholding a fee-shifting award based a clear admission by the
plaintiffs executive that he had no evidence of misappropriation. 207 Cal. App. 837, 844-845
(2012). When, as here, the claimant is unable to provide any factual support for his claims, they
are objectively unreasonable and in bad faith. Id.
Moreover, Firefly brought its claim in Texas state court in direct derogation of the law on
venue and personal jurisdiction. (Dkt. 12, 49.) As set forth more fully in Virgin Galactics Motion
to Dismiss, any redress Firefly sought against Galactics duly-issued discovery in the arbitration
had to have been soughtif at allin California.5 See Dkt. 12 at 8-13, 16; Dkt. 49 at 2-5, 10.
Instead, Firefly initiated duplicative litigation against Virgin Galactica company with no
significant ties to this statebased on the perjurious premise that Firefly needed an emergency
order against its own principal to prevent the misuse of trade secrets (that Firefly had previously
attested it did not have in the first place). Id.; see also Walden v. Fiore, 134 S.Ct. 1115, 1124-1125
(2014) (holding that the effects of litigation activity cannot provide the basis for personal
jurisdiction); see also Gannon v. Payne, 706 S.W.2d 304, 305-306 (Tex. 1986) (prohibiting
5

Given Markusics role as founder, major shareholder, and CEO of Firefly, and his direct access to Firefly
documents, he was obligated to produce Firefly responsive material in the arbitration. Exs. A, C, D (Arbitrator
Orders); see also Exs. I-J (Los Angeles Superior Court Orders). If he (or Firefly) had any real concerns regarding
third-party confidentiality, Firefly could have sought leave to intervene for the limited purpose of seeking
appropriate protection for its documents. Instead, based on Markusics refusal to produce the responsive material
within his possession, custody, and control, Galactic was forced to seek and serve third-party subpoenas and then
engage in baseless, serial litigation with Markusics various cohorts (Firefly, Blum, King) to enforce the subpoenas.
This shell game is objectively baseless and smacks of subjective bad faith.

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duplicative litigation). But Fireflys position was a transparent sham; it was, and always has been,
obvious that the real target was Virgin Galactic and that the real purpose was to stymie the
effective adjudication of the arbitration.
2.

Fireflys Conduct Reveals its Subjective Bad Faith.Firefly did not bring this

litigation out of any genuine concern that its own principal would misappropriate Firefly trade
secrets. Instead, Fireflys conduct and statements in this and the parties related litigation
evidence its real motive: to delay and obstruct discovery in the ongoing arbitration between
Virgin Galactic and Markusic. The law does not tolerate serial litigation of baseless claims. In
Loparex, the court recognized the plaintiffs bad faith in bringing a second litigation based on
theories of trade-secret misappropriation that had already been rejected in a prior suit. Loparex,
2012 WL 3065428, at *1, 5. The facts are substantially more egregious in this case. Here, this
lawsuit is one of four litigations in three different states in which Firefly and its officers have
attempted to enjoin discovery in the Galactic arbitration. Firefly brought this case after it became
clear the Arbitrator would not entertain further motions for reconsideration, and Firefly
maintained the case after judges in California and Nevada rejected Fireflys discovery objections,
denied Fireflys requests for an independent protective order, and confirmed there was no
adversity between Firefly and Markusic. As the court held in Sasco, where plaintiffs brought
multiple meritless suits against the defendant, there is evidence here suggesting that Firefly
attempted to wear down [Galactic] with duplicative and costly satellite litigation in two separate
forums, bringing duplicative actions against both [opponents] in an apparent effort to pummel
them into submission by needlessly driving up their litigation costs. 207 Cal. App. 4th 837, 849,
n.4 (2012).

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II.

The Attorneys Fees Are Reasonable.

Having shown Fireflys objective and subjective bad faith in initiating and pursuing this

litigation, Galactic respectfully requests that it be reimbursed the reasonable fees and costs it
actually incurred in this litigationi.e., the lodestar amount. See Black v. SettlePou, P.C., 732 F.3d
492, 502 (5th Cir. 2013) (holding that while district courts have discretion to adjust the lodestar
value up or down, there is a strong presumption of the reasonableness of the lodestar amount).
A.

Counsels Rates Are Reasonable and Appropriate.

Galactics actual fees reflect market rates for counsel of the skill and experience necessary
to effectively litigate this case. In determining whether counsels rates are reasonable, courts
consider not only regional norms, but also the services performed and the skill, experience and
reputation of the attorneys. Blum v. Stenson, 465 U.S. 886, 895 n.11 (1984). Accordingly, the
Fifth Circuit has held that where the party engages experienced and specialized out-of-town
counsel to pursue complex claims, as is the case here, home rates should be considered as a
starting point for calculating the lodestar amount. Id. Quinn Emanuel represented Galactic at
hourly rates ranging from $490 to $1125 per hour, consistent with the rates of other California
firms that represent clients in nationwide complex litigation. See Ex. T (National Law Journals
Billing Survey, Vol. 36, No. 2 (January 13, 2014)); Ex. U (Sara Randazzo and Jacqueline Palank,
Legal Fees Cross New Mark: $1,500 an Hour, Wall Street Journal (February 9, 2016)). Quinn
Emanuels rates for representing Galactic in this case reflect its normal billing rate (with no
adjustment or inflation), and the Fifth Circuit has found such well-defined rates to be reasonable.
See Serna v. Law Office of Joseph Onwuteaka, P.C., 614 F.Appx 146, 158 (5th Cir. 2015).6
6

Quinn Emanuels reputation and experience further justify an award of the requested out-of-district hourly rates.
Quinn Emanuel is a national litigation firm with over 700 attorneys that specializes in intellectual-property cases and

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B.

Counsel Have Performed a Reasonable and Necessary Amount of Work.

The hours expended by Quinn Emanuel on this case are also reasonable. Quinn Emanuel
submits herewith a declaration, prepared by a person with knowledge, detailing the hours spent
by its attorneys on this matter. See 37-44; McClain v. Lufkin Indus., Inc., 649 F.3d 374, 381 (5th
Cir. 2011); Wegner v. Standard Ins. Co., 129 F.3d 814, 82223 (5th Cir. 1997).
C.

No Facts Justify a Reduction of Lodestar.

The strong presumption in this Circuit is that parties are entitled to recover their full
lodestar amount. See Black v. SettlePou, P.C., 732 F.3d 492, 502 (5th Cir. 2013). While there are a
number of factors that can be used to justify adjustment of the lodestar up or down, Galactic is
not seeking any upward adjustment. Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th
Cir. 1974) (noting that the type of case and nature of the attorney-client relationship can justify
adjustments, usually upward adjustments, to the lodestar). Nonetheless, it is notable that the
the most critical factor in determining an attorneys fee award is the degree of success
having vanquished Fireflys frivolous claim in every jurisdiction, without resorting to substantial
fact discovery, substantial motion practice, or other litigation that would unnecessarily tax the
Courts and parties resources, it makes sense to allow Galactic to recover the modest amount of
fees it incurred to get rid of this case. Compare Black, 732 F.3d at 503.
Conclusion
For these reasons, Virgin Galactic respectfully requests that the Court award it attorneys
fees in the amount of $339,657.50.
other complex civil litigation. See, e.g., www.quinnemanuel.com. Law360 has repeatedly named Quinn Emanuel as
one of the four firms in-house counsel fear the most, selected based on BTI Consulting Groups recent survey of
over 300 general counsel, chief legal officers, and other legal decisionmakers at major corporations. Id. Further, the
Quinn Emanuel attorneys who worked on this case were particularly experienced and well-reputed; in fact, lead
attorney Mr. Stern is the head of Quinn Emanuels Intellectual Property Practice Group (Decl. 47.)

10

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Respectfully submitted,
/s/ Claude Stern
Claude Stern
Evette Pennypacker
QUINN EMANUEL URQUHART & SULLIVAN, LLP
555 Twin Dolphin Drive
Redwood City, California 94065
650-801-5000
650-801-5100 fax
admitted pro hac vice
Christopher S. Johns
Texas Bar No. 24044849
cjohns@jmehlaw.com
JOHNS MARRS ELLIS & HODGE LLP
805 West 10th Street, Suite 400
Austin, Texas 78701
512-215-4078
512-628-7169 fax
Patrick Schmidt
Danielle Shrader-Frechette
QUINN EMANUEL URQUHART & SULLIVAN, LLP
865 South Figueroa Street, 10th Floor
Los Angeles, California 90017-2543
213-443-3000
213-443-3100 fax
admitted pro hac vice
Attorneys for Defendant Virgin Galactic, LLC

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CERTIFICATE OF SERVICE
I certify that a true and correct copy of the foregoing was delivered to the following via
CM/ECF and/or e-mail on May 19, 2016:
Russell Manning
COTTON SCHMIDT & ABBOTT, L.L.P.
711 North Carancahua, Suite 1800
Corpus Christi, Texas 78401
361-888-8041
361-888-8222 fax
rmanning@csa-lawfirm.com
Attorney for Plaintiff Firefly Systems, Inc.

Peter L. Haviland
Scott S. Humphreys
BALLARD SPAHR LLP
2029 Century Park East, Suite 800
Los Angeles, California 90067-2909
424-204-4400
424-204-4350 fax
havilandp@ballardspahr.com
humphreyss@ballardspahr.com
Attorneys for Plaintiff Firefly Systems, Inc.

Steven J. Gordon
Susan E. Baird
COTTON SCHMIDT & ABBOTT, L.L.P.
550 Bailey Avenue, Suite 600
Fort Worth, Texas 76107
817-338-4500
817-338-4599 fax
sgordon@csa-lawfirm.com
sbaird@csa-lawfirm.com
Attorneys for Plaintiff Firefly Systems, Inc.

William P. Johnson
DUGGINS WREN MANN & ROMERO, LLP
600 Congress, Suite 1900
Austin, Texas 78701
512-744-9300
512-744-9399 fax
bjohnson@dwmrlaw.com
Attorney for Defendant Thomas E. Markusic

Raipher Pellegrino
Richard Volpe
Matthew King
RAIPHER D. PELLEGRINO ASSOCIATES, P.C.
265 State Street
Springfield, Massachusetts 01103
413-746-4400
413-746-2816 fax
rdp@rdpalaw.com
rjv@rdpalaw.com
mjk@rdpalaw.com
Attorneys for Defendant Thomas E. Markusic

Ken Wilson
Coastside Legal
455 1st Ave
Half Moon Bay, California
ken@coastsidelegal.com
Attorney for Defendant Thomas E. Markusic

/s/ Christopher S. Johns

Christopher S. Johns

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