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Moon Express, Inc. v. Intuitive Machines, LLC

United States District Court, D. Delaware

September 22, 2017

MOON EXPRESS, INC., Plaintiff,
v.
INTUITIVE MACHINES, LLC, Defendant.

          REPORT AND RECOMMENDATION

          CHRISTOPHER J. BURKE UNITED STATES MAGISTRATE JUDGE

         Plaintiff, Moon Express, Inc. ("Plaintiff or "Moon Express") filed suit in May 2016 against Defendant Intuitive Machines, LLC ("Defendant" or "EVI"), seeking various forms of relief arising out of a series of contract disputes. (D.I. 2) In its now-operative First Amended Complaint ("FAC"), plaintiff alleges breach of contract (Count I), breach of the covenant of good faith and fair dealing (Count II), unjust enrichment (Count HI), misappropriation of trade secrets under the federal Defend Trade Secrets Act, 18 U.S.C. § 1831 et seq. (Count IV), misappropriation of trade secrets under the Delaware Uniform Trade Secrets Act ("DUTSA"), 6 Del. Code § 2001 et seq. (Count V), and conversion (Count VI), and it seeks injunctive relief (Count VII) and a declaratory judgment (Count VIII). (D.I. 19) Before the Court is Defendant's motion to dismiss Counts II, HI, IV, V, VI and VII-that is, every count except for the breach of contract claim in Count I and the request for a declaratory judgment in Count VIII-filed pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"). (D.I. 21).

         For the reasons that follow, the Court recommends that Defendant's motion be GRANTED-IN-PART and DENIED-IN-PART.[1]

         I. BACKGROUND [2]

         A. The Parties

         Plaintiff is incorporated in Delaware, and has its principal place of business in Cape Canaveral, Florida. (D.I. 19 at ¶ 11) Plaintiff is "in the business of designing and manufacturing spacecraft, and seeks to become the first private company to land an unmanned probe on the Moon, with a continuing commercial robotic lunar transportation business including the return of materials to Earth." (Id. at ¶ 15) In July 2016, "Plaintiff received regulatory approval from the Federal Aviation Administration to become the first commercial entity in U.S. history to send a robotic [lunar] lander to the moon." (Id. at ¶ 16)

         Defendant is a limited liability company organized under the laws of Texas and with a principal place of business in Houston, Texas. (Id. at ¶ 12) "Defendant is in the business of designing, testing and manufacturing spacecraft components and developing software for controlling the flight of spacecraft." (Id. at ¶17)

         B. The Contracts and Alleged Violations of the Contracts

         Plaintiff's claims arise from two contracts between Plaintiff and Defendant. (Id. at ¶ 2) First, on or about April 1, 2015, according to Plaintiff, the parties entered into an agreement (the "Flight Software Contract" or "FSC"), in which Defendant would develop and deliver flight software for Plaintiffs spacecraft and lunar lander systems. (Id. at ¶¶ 18-19) Second, beginning in or around January 2015, "the parties entered into negotiations and preliminary documents for the sale of Defendant's core space-related business (as well as the transfer of key personnel) to Plaintiff, including but not limited to its [terrestrial return vehicle (or "TRV")] business." (Id. at ¶ 30) These negotiations culminated in the execution of a "Master Purchase, Development, and Manufacturing Agreement" (the "TRV Contract"), which the parties signed on October 6, 2015. (Id. (internal quotation marks omitted))

         1. Flight Software Contract

         The FSC is not a single, unitary written contract. Instead, according to Plaintiff, it is "reflected in a series of documents and communications in which the parties agreed (1) that Defendant would develop and deliver certain flight software for Moon Express spacecraft and [lunar] lander systems, and (2) that Plaintiff would make a series of payments to Defendant in accordance with a specified schedule, against achievement by Defendant of certain specified performance milestones." (Id. at ¶ 19) The FSC contemplated "three 'phases' of software development and delivery, i.e., Phase A, Phase B and Phase C."[3] (Id. at ¶ 20) For example, "the completion of Phase A was to be 'Test FSW Flying Tethered on [Beaglebone Black] Processor, ' i.e., the successful testing of the subject Flight Software on Plaintiffs prototype lunar lander, using the software in the hardware of Plaintiff s [Beaglebone Black]-based avionics system on board its prototype lander, while the lander was flying tethered on Earth." (Id. at ¶¶ 21-23 & n.2)

         According to the FAC, "Defendant has not delivered software capable of performing the testing required to complete Phase A." (Id. at ¶ 24) Meanwhile, "[i]n accordance with the terms of the Flight Software Contract, Plaintiff paid Defendant $1, 125, 000 in cash at the beginning of Phase A, on or about May 20, 2015, and undertook an obligation to make a series of payments to Defendant, against achievement by Defendant of certain specified performance milestones." (Id. at ¶ 25) Plaintiff contends that it "is in compliance" with its obligations under the FSC and "has not been obligated to make additional payments to Defendant because Defendant has not delivered the required software" or completed Phase A of the contract. (Id. at ¶ 26) Moreover, Defendant did not "transfer possession to Plaintiff of... [various] Phase A 'deliverables' and related integration support[, ]" which it was obligated to do under the FSC. (Id. at ¶¶ 27-28)

         2.TRV Contract [4]

         In the TRV Contract, "the parties agreed (1) that Defendant would design, develop, test and manufacture a demonstrator TRV vehicle, including a successful flight to and from the International Space Station ..., (2) that Defendant would transfer and convey, unencumbered, specified intellectual property to Plaintiff, and (3) that Plaintiff would make a series of payments to Defendant, against achievement by Defendant of certain specified performance milestones." (Id. at ¶ 31) The TRV Contract identified three types of intellectual property. First, Defendant granted Plaintiff a license related to "Background IP Assets [in existence at the time of the contract and] embodied in the TRV, as an integrated vehicle and including a separate use of subsystems and components in the field of space exploration" (the "Background IP" or "Background IP Assets"). (D.I. 22, ex. A at § 3.1) Second, Plaintiff granted Defendant a forward license to "the IP Assets [to be developed by Defendant under the TRV Contract] embodied in the TRV for use with subsystems and components" (the "IP Assets"). (Id.) And third, the parties amended the TRV Contract in January 2016 to clarify Defendant's license to Plaintiff of what the parties called "Special intellectual Property" (the "Special IP"), which they defined as "the software development environment required to simulate the TRV vehicle in its environment and perform the [International Space Station] payload return mission. This includes test cases and test data for comparison, build and configuration files, and [Defendant-]developed TRV simulation source code and documentation[.]" (Id., amend. 1 at 1)

         Under the TRV Contract, "Plaintiff [] made a series of payments to Defendant in the total amount of $2, 092, 598" and asserts that it "complied with all of its contractual obligations." (D.I. 19 at ¶ 33) However, Plaintiff identifies a number of ways in which Defendant "has breached its contractual obligations under the TRV Contract[, ]" (id. at ¶ 34), as set out further below.

         a. Background IP Assets and IP Assets

         According to Plaintiff, "Defendant was required to convey to Plaintiff all Background IP Assets and IP Assets ... within 7 days of signing the TRV Contract, i.e., by October 13, 2015." (Id. at (a)) As of the date of filing the FAC, however, Plaintiff had "received only a small portion of the Background IP Assets and IP Assets ... [and] some of [the intellectual property] ha[s] not been 'unencumbered' as required." (Id.)

         b. Developed IP Assets

         Under the TRV Contract, Defendant is "required to deliver to Plaintiff all IP Assets as soon as they were developed by Defendant, including all manufacturing, assembly and test documentation generated in the course of the 'Development Services' specified in Schedule 1 to the TRV Contract." (Id. at (b)) "The 'Developed IP Assets' include, but are not limited to, all of the documentation listed in Schedule 2 to the TRV Contract." (Id.) Plaintiff asserted that as of the date of the FAC, "Defendant has failed to deliver any useful hardware or software of the Developed IP Assets to Plaintiff, and has failed to meet contractual IP transfers as they became due." (Id.) "On December 8, 2015, Plaintiff delivered to Defendant a Notice of Non-Compliance listing the contractual failures and IP outstanding, and requesting remedy." (Id.)

         c. Transfer of CASIS Agreement

         The Center for Advancement of Science in Space (or "CASIS") is a third-party provider of payload transportation to the International Space Station (hereinafter, "ISS"). (Id. at (c)) Defendant had a TRV Flight Agreement (the "TRV Flight Agreement") with CASIS that, under the TRV Contract, Defendant was to "transfer and assign to Plaintiff[.]" (Id.) The TRV Contract obligated Defendant to "take 'all reasonable actions to ensure that CASIS agrees to said transfer.'" (Id.)

         Instead, at some time around June 2016, it is alleged that "Defendant cancelled its 'TRV Flight Agreement' with CASIS" and told CASIS representatives "that the TRV development ha[d] ceased and the [TRV] w[ould] not be ready for the scheduled flight[.]" (Id.) Moreover, Plaintiff alleges that Defendant "discourag[ed] CASIS from agreeing to the transfer of the TRV Flight Agreement to Plaintiff." (Id.) As a result, CASIS "cancelled] all flight plans for the TRV[.]" (Id.)

         d. Monthly Program Review Meetings and Delivery of IP

         Plaintiff alleges that under the TRV Contract, Defendant was obligated to provide Plaintiff with "project status updates at monthly program review meetings, " and to provide "technical and schedule data, " "TRV documentation, " and "all designs, software, test results and other relevant materials as requested by Plaintiff." (Id. at (d)) According to Plaintiff, Defendant has failed to provide such information and intellectual property as required, in that Defendant "has failed to transfer the majority of the current and substantive TRV development information and intellectual property to Plaintiff that Plaintiff paid to receive." (Id.)

         e. Marketing and Vehicle Markings

         "Under the TRV Contract, any TRVs and related packaging or marketing materials are required to be marked exclusively with Plaintiffs trademarks and logos." (Id. at (e)) Plaintiff alleges that, after signing the TRV Contract, Defendant marketed the TRV on its website as its "own product, " published a "branded video" of TRV drop tests on its website, sponsored "a TRV software design contest with a local university, " and "display[ed] Defendant's logos on test vehicles during drop tests being filmed by The Discovery Channel." (Id.)

         f. Withholding of Payments and Work Stoppage

         Plaintiffs FAC goes on to further identify numerous failures by Defendant to deliver certain documentation and intellectual property assets under the TRV Contract. (Id. at ¶¶ 34-43) Plaintiff describes how, due to certain of these failures, it withheld "payments for Defendant's November 2015 invoice of $241, 000 and subsequent invoices." (Id. at¶35) "In January, 2016, Plaintiff made a good faith payment of Defendant's November [2015] invoice[, ]" (id.), and "[o]n January 8, 2016 Plaintiff released a payment to Defendant in good faith for the period ... ending on Dec[ember] 19, 2015, following Defendant's written acknowledgment that certain critical Background IP Assets due from Defendant under the TRV Contract w[ere] indeed still owed to Plaintiff.... [and] in anticipation of a TRV Contract amendment [for Special IP] that was executed on January 18, 2016[.]" (Id. at ¶ 36, 44)

         Nevertheless, Plaintiff contends, on "February 6, 2016, ... Defendant notified Plaintiff that Defendant had decided to stop work on the TRV Contract and Phase A of the Flight Software Contract[]" for lack of payment for the two periods from December 20, 2015 through February 19, 2015. (Id. at ¶ 45) Moreover, Plaintiff alleges, "[c]ertain "Special [] IP" delivered by Defendant to Plaintiff on or about January 20, 2016, contained unworkable instructions with errors that Defendant has acknowledged[, ]" and "Plaintiff... invest[ed] its own time and resources ... correcting the errors." (Id. at ¶ 47)

         g. Disparagement

         Plaintiff also alleges that Defendant has breached the TRV Contract by making certain disparaging statements about Plaintiff to the National Aeronautics and Space Administration ("NASA") and to CASIS, including: (1) "inform[ing] NASA personnel of its stop work decision with respect to the TRV Contract[, ]" (2) discussing the present dispute with NASA personnel, specifically "that each side has 'lawyered up[, ]'" and (3) informing NASA and CASIS employees "that it disputes Plaintiffs rights to the TRV." (Id. at ¶ 49) Plaintiff also avers that Defendant's cancelling of its "TRV Flight Agreement' with CASIS" is disparaging to Plaintiff, because "CASIS was and is aware that Plaintiff was going to be the end-user of the 'TRV Flight Agreement.'" (Id.) Plaintiff also contends that "Defendant has continued to represent the TRV and return vehicle business as its own in sales solicitations to customers, proposals to NASA, and on its website[.]" (Id. at ¶¶ 79, 90)

         C. Confidential Information

         As it relates to both contracts, Plaintiff alleges that Defendant has disclosed and misappropriated confidential information in several ways.

         First, "Defendant has integrated elements of the IP Assets, developmental Flight Software and associated products and services owned by Plaintiff into its products and business operations.... [and] has treated such improvements as its own and used them to enrich other business areas that Defendant is pursuing." (Id. at ¶ 79)

         Second, in addition to incorporating Plaintiff s intellectual property into its current product development, Plaintiff contends that Defendant "has embedded Plaintiffs IP into ... proposals to third parties in competition with Plaintiff." (Id.) This includes disclosures to Axiom Space LLC ("Axiom Space"), which is "a division of Defendant's parent company." (Id.; see also Id. at ¶ 49(e)) For example, according to Plaintiff, its "IP [was disclosed to Axiom Space and incorporated] ... into business plans for commercial orbital services offered by Axiom Space[.]" (Id. at ¶ 79)

         Third, Plaintiff contends that "Defendant disclosed critical portions of the IP Assets and TRV software and operational designs to Rice University students who were competing in a challenge sponsored by Defendant to develop a mobile app that would allow people to track [the] TRV" while in flight. (Id. at ¶ 80 (internal quotation marks omitted))

         D. Procedural Background Relevant to the Motion

         As noted above, with its Motion, Defendant seeks dismissal of Counts II through VII pursuant to Rule 12(b)(6). The Court herein will address that Motion as to all relevant Counts but Counts IV and V (regarding trade secret misappropriation). Defendant filed the Motion on August 31, 2016, (D.I. 21), and it was fully briefed as of October 10, 2016, when Plaintiff ...


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