IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

FUNDSXPRESS FINANCIAL
NETWORK, INC.,
Plaintiff,

v.

DIGITAL INSIGHT CORPORATION,
JOHN DORMAN, VINCENT
BRENNAN, RONALD GOFFMAN,
ERIC EDWARDS, STEPHEN CRAIN
AND DOES 1 THRU 10, INCLUSIVE
AND EACH OF THEM
Defendants.

MEMORANDUM IN SUPPORT OF DEFENDANTS' MOTION TO DISMISS FOR FAILURE TO
STATE A CLAIM FOR RELIEF PURSUANT TO RULE 12(b)(6)

Defendants Digital Insight Corporation, Ronald Goffman, John Dorman,
Eric Edwards, Stephen Crain and Vincent Brennan file their Memorandum
in Support of Defendants' Motion to Dismiss for Failure to State a
Claim for Relief Pursuant to Rule 12(b)(6).

I.

INTRODUCTION

Because this case involves a federal court sitting in Texas, the court
must apply Texas choice of law rules, which establish that Texas, not
California law, governs this action. Thus, plaintiff FundsXpress
Financial Network, Inc.'s ("FX") Counts Two and Three, which are
brought under California statutes, fail to state claims upon which
relief can be granted. In addition, Count Seven, which is the subject
of a companion motion under Rule 12(e) for more definite statement, is
alternatively dismissible under Rule 12(b)(6) for a failure to state a
claim. It fails to adequately distinguish among the three torts it
alleges (libel, slander, and business disparagement), and fails to
allege when any of the defamatory statements occurred or to whom they
were made. Finally, all nine Counts violate the requirements of notice
pleading because they fail to identify the separate defendants against
which they are alleged. Thus, defendants' motion to dismiss under
Federal Rules of Civil Procedure Rule 12(b)(6) should be granted as to
Counts One through Nine.

II.

FX'S SECOND COUNT FOR MISAPPROPRIATION OF TRADE SECRETS UNDER
CALIFORNIA CIVIL CODE SECTION 3426 FAILS TO STATE A CLAIM UPON WHICH
RELIEF CAN BE GRANTED

FX cannot state a claim for misappropriation of trade secrets under
California law because Texas, not California, law applies in this
action. Where there is a choice of law question as to a substantive
issue in a federal court case based on diversity jurisdiction, the
court applies the choice of law rules of the forum state to determine
which state's substantive law should apply. Jackson v. West
Telemarketing Corporation Outbound, 245 F.3d 518, 523 (5th Cir. 2001);
Alberti International Inc. v. Gulf Concrete Company, 1985
U.S. Dist. LEXIS 21981, *3 (S.D. Tex. 1985).

In 1979, Texas adopted the Restatement (Second) of Conflicts' "most
significant relationship" test to determine choice of law
questions. Alberti, id. at *3-*4. Under that test, the court examines:
(1) the place of injury; (2) the place where the conduct that caused
the injury occurred; (3) the parties' domicile, residence,
nationality, place of incorporation and place of business; and (4)
where the relationship between the parties is focused." Id. at *4
(determining Texas law applied where the allegedly converted crane
remained in Texas throughout the relevant time period, defendant sold
the crane in Texas, defendant was a Texas corporation, the original
transaction to transfer the crane was with plaintiff's general manager
in Texas, one of the parties was in Texas when the negotiations
between the parties for the original transfer of the crane occurred,
and defendant sent payment checks from Texas to plaintiff in
Illinois). See also Morris v. LTV Corporation, 725 F.2d 1024 (5th
Cir. 1984) ("The general conflict-of-laws rule in Texas is that
'questions of substantive law are controlled by the laws of the state
where the cause of action arose, but . . . matters of remedy and of
procedure are governed by the laws of the state where the action is
sought to be maintained.'")

Additionally, courts must also look to the relevant policies of the
forum and other interested states, and the relative interests of those
states to determine which state's rules of law apply. When both
states' rules advance the same policy, the rule of the forum generally
applies. Alberti, id. at *5-*6.

Another factor that can come into play in deciding which law to apply
is the parties' contractual choice of law. A valid choice of law
clause in a contract between the parties that chooses the law of the
forum state will supersede the application of another state's law. In
Interfirst Bank Clifton v. Fernandez, 853 F.2d 292 (5th Cir. 1988),
the district court determined, based on the choice-of-law clause
contained in a loan agreement, that Texas law governed that deficiency
action, despite the fact that there was no such clause in the
Louisiana security agreement. One of the grounds upon which defendant
attacked this decision was that the Louisiana Deficiency Judgment Act
invalidates the Texas choice-of-law clause. The court rejected this
contention:

   We find, however, that the Louisiana Deficiency Judgment Act does
   not come into play. A diversity court generally applies the choice
   of law rules of the state in which it sits. Texas choice-of-law
   rules recognize valid choice-of-law clauses. Fernandez agreed to be
   bound by the law of Texas, which bears a reasonable relationship to
   the parties and to the transaction. Moreover, there is no evidence
   that the agreement resulted from sham, subterfuge, or coercion. The
   choice-of-law clause thus satisfies the requirements for validity
   under Texas law. We see no obstacle to its enforcement presented by
   the Louisiana Deficiency Judgment Act. Louisiana law simply does
   not apply to this foreclosure sale insofar as state choice of law
   rules determine the applicable law.

Id. at 294.

Based on all of the foregoing standards, it is clear that Texas law
should apply in this action. The place of injury is Texas, where FX is
located. (Second Am. Compl., para. 1.) FX provides its various
products and services to financial institutions from its headquarters
in Austin, Texas. (Second Am. Compl., para. 17 ("FundsXpress has
developed a proprietary, integrated system of computers, computer
programs, security systems, databases and communication network
interconnections through which it provides various products and
services to financial institutions from its headquarters in Austin,
Texas.")) The place where FX established its "rigorous safeguards to
protect its confidential information and trade secrets" is also in
Texas, e.g. "The FundsXpress premises are secure." (Second Am. Compl.,
para. 26.)

Texas law was also selected by FX and some of the individual
defendants. The Employee Intellectual Property Assignment and
Nondisclosure Agreement ("NDA") that FX requires each employee
(including defendants Goffman and Crain) to sign (Second Am. Compl.,
paras. 27, 34, 37) has a choice of law provision that states "THIS
AGREEMENT SHALL BE SUBJECT TO AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO THE PLACE OF EXECUTION OR THE PLACE
OF PERFORMANCE THEREOF." (Declaration of John W. Cotton
Ex. A). Section 4(d) of the NDA specifically covers the type of claim
FX made here, the recovery of damages for a breach of trade secret
confidentiality. Having selected the law of Texas to govern its claims
against Crain and Goffman, FX cannot now try to use California law
against them.

Further, both Texas and California trade secret law advance the same
policy: to protect businesses from another's use of their confidential
work product. In Metallurgical Industries Inc. v. Fourtek, Inc., 790
F.2d 1195, 1201 (5th Cir. 1986), the Fifth Circuit stated the policy
in Texas:

   That the cost of devising the secret and the value the secret
   provides are criteria in the legal formulation of a trade secret
   shows the equitable underpinnings of this area of the law. It seems
   only fair that one should be able to keep and enjoy the fruits of
   his labor. If a businessman has worked hard, has used his
   imagination, and has taken bold steps to gain an advantage over his
   competitors, he should be able to profit from his efforts. Because
   a commercial advantage can vanish once the competition learns of
   it, the law should protect the businessman's efforts to keep his
   achievements secret.

In California, the court in Morlife, Inc. v. Perry, 56 Cal. App. 4th
1514, 1520 (1997) stated that California has determined that the right
of free competition does not include the right to use confidential
work product of others. There is no doubt, therefore, that the law of
Texas and California equally protect the same fundamental policy and
are equal in their scope of protection. In such a situation, Texas law
applies as it amply protects FX.

On the other hand, the places where the conduct that caused the injury
occurred are scattered among four different states where the
defendants are located, including California, Minnesota, Wisconsin,
and South Carolina. (Second Am. Compl., paras. 2-7.) Due to the
dispersal of the damage-causing conduct among so many states, no one
of them should be paramount over the place of injury, which is Texas.

Thus, Texas has the most significant relationship to FX's claim for
misappropriation of trade secrets, not California. The only contact
that California has with this claim is that it is one of four states
in which two of the six defendants are located and one of four states
in which the alleged wrongful conduct occurred. The same reasons that
would underlie a decision to apply California law, that a defendant
and some of the conduct occurred there, would also support a decision
to apply Minnesota, Wisconsin, or South Carolina law. There is no
reason why the laws of any state other than Texas should apply to this
action.

Texas is the state in which FX is located, where it developed its
trade secrets, and where it protects its trade secrets. Texas law is
what FX chose to apply regarding its confidentiality agreements with
its current and former employees. Texas' policy underlying its
protection of a business' trade secrets is the same as California's
policy. Finally, Texas is the forum where the plaintiff FX chose to
file. It probably did so because the law of Texas is the law more
likely to be applied in any event. Therefore, Texas law should apply
in this action.

Since Texas, not California, law applies, FX cannot state a claim for
trade secret misappropriation under California law. Accordingly,
defendants' motion to dismiss FX's second count for misappropriation
of trade secrets under California Civil Code section 3426 should be
granted.

III.

FX'S THIRD COUNT FOR RECEIPT, CONCEALMENT AND USE OF STOLEN PROPERTY
(CALIFORNIA PENAL CODE SECTION 496(c)) FAILS TO STATE A CLAIM UPON
WHICH RELIEF CAN BE GRANTED

This count presents a slightly different situation than the second
count for trade secret misappropriation under California statutory law
because there is no parallel count under Texas law.[1] It appears that
as to the third count, FX is attempting to apply the seldom seen
doctrine of "depecage," which in very limited situations allows a
court to parcel out issues of damages, liability, and statutes of
limitations and to decide these issues under the laws of different
states. Galapacos Corporacion Turistica "Galatours". S.A. v. The
Panama Canal Commission, 190 F. Supp. 2d 900, 907
(E.D. La. 2002). However, depecage is not used with any significant
frequency in federal courts. Id. at 907 n.6. Where applied at all, it
typically appears in products liability and mass tort matters. Id. at
907. It is inappropriate when used to legitimatize a smorgasbord
approach to making statutory claims which inures only to the benefit
of the party picking and choosing them. Johnson v. Continental
Airlines Corp., 964 F.2d 1059, 1062 n.4 (lOth Cir. 1992) ("Likewise,
we reject Plaintiffs' attempt to pick and choose prejudgment interest
law in the present case. Plaintiffs agreed Idaho law would govern
compensatory damages issues. Nonetheless, given the post-trial
opportunity to specifically address prejudgment interest, Plaintiffs
advocated the application of Colorado law. Their motivation is
apparent: Colorado law supports a prejudgment interest award, while
Idaho law does not.")

This action is not an appropriate case for any application of
depecage. It is not the typical type of case in which depecage is used
since it is not a products liability or mass tort action. More
importantly, it is improperly being used to legitimatize a smorgasbord
approach which would inure only to FX's benefit. It is clear from the
fact that FX has filed claims for trade secret misappropriation under
both Texas and California law that FX's strategy is to pick as many
favorable laws as it can. Apparently, Texas law on the receipt of
stolen property is not as favorable to FX on its possible damage claim
as California Penal Code section 496(c), or FX would have alleged a
count under Texas law as well, just as it did with the parallel counts
One and Two, which are brought under the laws of both states.

However, just because California law appears more favorable to FX does
not mean that FX can rely upon it. Based on the conflict of law
analysis discussed in Section II, it is clear that Texas, not
California law, applies in this action. Thus, FX cannot state a claim
under a California statute such as California Penal Code section
496(c).

IV.

FX's FAILURE TO COMPLY W[TH THE REQUIREMENT OF NOTICE OF PLEADING AS
TO ALL NINE COUNTS

The defendants have concurrently filed a separate motion under
F.R.C.P. 12(e) for a more definite statement regarding Count Seven,
which claims defendant Digital Insight defamed FX through certain
statements made by two out of the six defendants. (Digital Insight
incorporates the relevant aspects of that motion as if fully set forth
herein.) As Digital Insight pointed out in its memorandum of law in
support of its 12(e) motion, this count is deficient in its failure to
adequately distinguish among the three torts in the count or to
identify the separate defendants against which it is alleged and,
therefore, violates the requirements of notice pleading. It is also
fundamentally flawed because it fails to allege when any of the
defamatory statements occurred or to whom such defamatory statements
were made. These failures to allege these important specifics is both
a substantial failure of notice pleading, as well as strong evidence
of the weakness of the claim. In addition, all of the other eight
Counts (Counts One through Six and Counts Seven through Nine) of the
Second Amended Complaint suffer from the same defect as Count Seven in
that they also fail to identify the separate defendants against which
they are alleged.

In Gen-Probe Inc. v. Amoco Corporation, Inc., 926 F. Supp. 948, 962
(S.D. CA 1996), the court considered a motion to dismiss under
12(b)(6) where the plaintiff had pled several causes of action in one
count. In granting the motion, the court found:

   If the plaintiff desires to replead some or all of its claims, the
   plaintiff's amended complaint should be revised as follows to
   conform with the requirements of notice pleading. 1. Each count of
   the complaint should be limited to one cause of action. Direct
   infringement, contributory infringement, and inducement of
   infringement are three different causes of action.

As to the failure to identify the defendants against which the count
was alleged, the court stated:

   The Federal Rules . . . require that the defendant be given "fair
   notice of [1] what the plaintiff's claims is and [2] the grounds
   upon which it rests." . . . The plaintiff's shotgun approach is
   clearly deficient to serve either of these purposes. The complaint
   fails to provide fair notice of what the plaintiff's claims
   are. Each of the five defendants is accused of each of the three
   different types of infringement: What is labeled as "Count 1" of
   the complaint actually consists of Counts 1 through 3. It is
   unclear which of the five is accused of which type of
   infringement.... Even were there no other deficiencies, this
   confusion of which claims apply to which defendants would require
   that the complaint be dismissed with leave to file an amended
   complaint. See Gauvin v. Trombatore, 682 F. Supp. 1067, 1071
   (N.D. Cal. 1988)(lumping together of multiple defendants in one
   broad allegation fails to satisfy notice requirement of Rule
   8(a)(2)); Van Dyke ford, Inc. v. Ford Motor Co., 399 F. Supp. 277,
   284 (E.D. Wis. 1975)("Specific identification of the parties to the
   activities alleged by the plaintiffs is require in this action to
   enable the defendant to plead intelligently.").

Id. at 960-61.

V.

CONCLUSION

Plaintiff FX has adequate and equal protection under the laws of the
state in which it chose to file this lawsuit. There is no good and
fair reason to borrow the statutory law of any other state to
prosecute this claim. Moreover, rather than being allowed to use the
smorgasbord approach to pleading a broad array of claims, FX should be
ordered instead to fairly inform each defendant of precisely what he,
or it, did to be charged under each of the nine separate counts of the
Second Amended Complaint. Defendants respectfully request that their
motion to dismiss all nine Counts of the Second Amended Complaint be
granted.

[1] Count one alleges trade secret misappropriation under Texas common law.

Respectfully submitted,
CLARK, THOMAS & WINTERS,
A Professional Corporation
By: Barry K. Bishop
State Bar No. 02346000
300 W. Sixth Street, 15th Floor
P.O. Box ll48
Austin, Texas 78767-1148
(512) 472-8800
(512) 474-1129 fax

John W. Cotton
Aaron C. Gundzik
COTTON & GUNDZIK LLP
725 South Figueroa Street, 34th Floor
(213) 312-1330
(213) 623-6699 fax

ATTORNEYS FOR DEFENDANTS DIGITAL INSIGHT CORPORATION, ERIC
EDWARDS,RONALD GOFFMAN, JOHN DORMAN, VINCENT BRENNAN AND STEPHEN CRAIN


CERTIFICATE OF SERVICE

I certify by my signature below that a true and correct copy of the
foregoing document has been forwarded to the below-listed persons via
facsimile ( ), hand-delivery (*), or certified mail, return receipt
requested ( ), on the 31 day of July, 2002.

R. James George
Nanneska N. Hazel
George & Donaldson, L.L.P.
114 West 7th Street, Suite 1100
Austin, Texas 78701
(512) 499-0094
Barry K. Bishop