N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
KR OHNE FUND, LP,

Pla i ntiff-Appe lla

nt,
v. STUAR T M . SIM ONSEN; KAPIDYIA C APITAL PAR TNER S, LLC ,

De fe nda n ts-Appe lle e s. No. 14-35668 D.C . No. 1:12-c v-00004-SEH
M EM O R ANDUM *

KR OHNE FUND, LP,

Pla i ntiff-Appe lle e , v. STUAR T M . SIM ONSEN; KAPIDYIA C APITAL PAR TNER S, LLC ,

De fe nda n ts-Appe lla

nts. No. 14-35713

D.C . No. 1:12-c v-00004-SEH

Appe a l from

the Unite d

Stat e s Distric t C ourt for the Distric t of M o nta

na Sam E. Ha ddon, Distric t

Judge , Pre siding 

# FIL ED MAR 09 2017 M O LLYC. DW Y ER, CLERK U. S. CO URT O F APPEALS

* This disposition is not a ppropria te for public at ion a

nd is not pre c e de nt e xc e pt a s provide d

by Ninth C irc uit R

ule 36-3.Argue d a nd Subm itte d Fe brua

ry 7, 2017 Se attle , W a s hington B e fore : FISHER , PAEZ, a n d C ALLAHAN, C irc uit Judge s. Krohne Fund, LP, is a

sm a ll he dge fund ope ra te d out of C a lifornia . Stua rt Sim onse n de ve lope d a

n a lgorithmic c om

pute riz e d sy ste m for tra ding c om m odity
se c uritie s. The sy ste m is m arke te d unde r the nam e “ Xyna Qua nt.” Sim o nse n a lso de ve lope d a

portfolio known a s “ Optim us” or “ Optim

us SLR .” Ka

pidy ia C a pita l Partne rs, LLC (“ Ka

pidy ia ” ) 1 m arke te d Xy

na Qua nt. Krohne Fund brought c la im s a ga inst De fe nda nts unde r M onta

na la w for bre a c h of c ontra c t, prom issory e stoppe l, fra

ud, ne glige n t m isre p re se ntat ion, a nd
c onstruc tive fraud. Afte r a be nc h tria l, the Distric t C ourt e nte re d judgm e nt in De fe nda nts’ favor, a

nd Krohne Fund a

ppe a le d. De fe nda

n ts c ross-a

ppe a le d,
c onte sting theDistric t C ourt’ s de nia l of the ir re que st to m odify the sc he duling orde r for De fe n da

nts to filethird-pa

rty c la i m s a nd c ounte rc la im s. W e have jurisdic tion ove r both a ppe a l s pursua

nt to 28 U.S.C . § 1291. W e a ffirm in pa rt, va c ate in pa

rt, a nd re m a nd. 1. W e re vie w “ de novo thedistric t c o urt’ s c onc lusions of la

w following
a be n c h tria l,” U.S. Se c . & Ex c h. C omm’n v . J

e nse n , 835 F.3d 1100, 1114 (9th C ir.

1 Toge the r, Sim onse n a

nd Ka pidy ia are re fe rre d to a s “ De fe nda nts.” 22016) (c iting Le ntini v
. C al. C tr. for the Arts, Esc ondido , 370 F.3d 837, 843 (9th C ir. 2004)), a

nd re vie w the findings of fa c t for c le ar e rror, Bhd. of Maint. of W ay Emps. Div ./IBT v . BN

SF Ry ., Inc
. , 834 F.3d 1071, 1076 (9th C i r. 2016) (c iting One Be ac on Ins. C

o. v . Haas Indus., Inc
. , 634 F.3d 1092, 1096 (9th C ir. 2011)). 2. Unde r M onta

na la w, “ [t] he inte rpre tation of a c ontra c t is a

que s tion of la w.” Ande rson v . Stok

e s , 163 P.3d 1273, 1283 (M ont. 2007) (c iting Ophus v
. Fritz , 11 P.3d 1192, 1195 (M ont. 2000); Van Hook v . J e nnings , 983 P.2d 995, 997 (M o nt. 1999)). “A c o ntra c t m ust be so inte rpre te d a s to give e ffe c t to them utua l inte ntion of thepa

rtie s a s it e xiste d at the tim e of c ontra c ting, so fa r a s the sa m e is
a sc e rta i na ble and la wful.” Id. (quoting M ont. C ode Ann. § 28–3–301). “ Whe n a c ontra c t is re duc e d to writing, the inte ntion of thepa

rtie s is to bea sc e rta ine d from the w riting a lone if possible . . . .” Id. (a lte ration in origina l ) (quoting M ont. C ode Ann. § 28–3–303). “ If the la ngua ge of the c o ntra c t is una m b iguous—i.e ., re a s ona bly susc e ptible to only

one c onstruc tion—

the duty of the c ourt is to a

pply the l angua ge a s writte n. Howe v e r, if the la ngua ge of a

c ontra c t is a

m biguous, a fa c t ua l de te rm ination m

u st be m a de a s to thepa

rtie s’ inte nt in e nte ring into the
c ontra c t.” Mary

J . Bak e r Re v oc ableTr. v . C

e ne x Harv e st State s, C o ops., Inc
. , 164 P.3d 851, 857 (M ont. 2007) (interna l c ita tions omitte d). “ W e ge ne ra lly inte rpre t the w ords of a

c ontra c t in the ir ordina

ry and popula

r se nse unle ss the pa

rtie s use
3the w ords in a te c hnic a l se nse or unle ss the pa rtie s give a

spe c ia l m e aning to the m by usa g e . ” Dollar Plus Store s, Inc . v . R-Montana Assoc s., L.P. , 209 P.3d 216, 219 (M o nt. 2009) (c iting M ont. C o de Ann. § 28–3–501). The M ana ge d Ac c ount Agre e m e nt (“ M AA” ) provide s tha t Krohne Fund’ s a c c ount is “to be m ana ge d by the Inve stm e nt M a

n a ge r [Ka p idy ia ] on a disc re tiona

ry ba sis in a c c orda

nc e with Se c tion 2.” Se c tion 2 sta te s tha t “ [t] he Inve stm e nt M ana ge r, with re spe c t to theAc c ount a nd in a c c o rda

nc e with the inve stm e nt guide line s atta c he d he re to a s Appe ndix A, sha ll ha v e full a uthority in its disc re t ion to purc ha se , se ll, se ll short, tende r or e xc ha nge and othe rwise a c quire or disposeof a

nd tra de and de a l in or with future s c ontra c ts.” Fina lly , Appe ndix A provide s tha

t “ Krohne C a

pita l w ill be tra ding a

n $8 m illion ($8,000,000) notiona l Optim us SLR a c c ount with a

30% risk budge t of $2,400,000.”

“ Optim us SLR a c c ount” is a

te c hnic a l te rm

m e aning a

n a c c ount tha

t m ake s tra de s pursua

nt to theXy

na Qua nt softwa re using theOptim

us SLR protoc ol. Ac c ordingly , the M AA re q uire s tha t the tra de s m a de by

the Inve stm e nt M ana ge r be m a de e xc lusive ly

through theXy

na Qua nt softwa re using the Optim

us SLR protoc ol unle ss Krohne Fund a gre e d othe rwise . The Distric t C ourt’ s c o nc lusion that “ [t] he M AA c onta ins no la ngua ge re quiring Ka

pidy ia to m ake tra de s ba se d only on the Optim

us SLR protoc ol or using e xc lusive ly the Xy na Qua nt softwa re ”
4wa s the re fore e rror. W e va c ate its de c ision on this point, a nd re m and for the Distric t C ourt to a sse ss Krohne Fund’ s bre a c h of c o ntra c t c la im in light of this
c ontra c tua l inte rpre tation, inc luding whe the r Krohne Fund a uthoriz e d the m anua l tra de s tha t oc c urre d on its a c c ount. 3. Krohne Fund c onte nds tha t the M AA c onstitute d a

c le ar and
una m biguous prom

i se for purpose s of its promi ssory e stoppe l c la im . B ut be c a use Krohne Fund did not re ly upon theM AA to support this c la im be fore the Distric t C ourt, it ha s wa ive d this a rgum e nt. Se e In reMe rc u ry Inte rac tiv e C orp. Se c . Litig. , 618 F.3d 988, 992 (9th C ir. 2010). W e thus a ffirm the Distric t C ourt’ s judgm e nt in De fe nda nts’ favor on this c la im
. 4. Krohne Fund a lso a rgue s tha t the Distric t C ourt e rre d in e nte ring judgm e nt for De fe nda

nts on its de c e it c la im s. W e ne e d not re solve whe t he r Krohne Fund sta

te d, pre se rve d, or pre v a i le d on c la im s for ne glige nt
m isre pre se ntation, fra

ud, or c onstruc tive fra

u d a rising from

Sim onse n or Ka pidy ia ’ s a lle ge d m ate ria l om issions. R at he r, we va c at e the Distric t C ourt’ s judgm e nt on the s e c la im s a nd re m a nd for furthe r proc e e dings in light of our
c onc lusion tha

t the M AA re quire s the Inve s tm e nt M ana g e r to m a ke tra de s pursua

nt to the Xy na Qua n t softwa re using theOptim

us SLR protoc ol.

55. De fe nda nts a rgue tha t the Distric t

C ourt a buse d its disc re tion in de ny ing the ir re q

u e st to m odify

the sc he duling orde r, de ny ing le ave to a m e nd the ir
answe r to a sse rt c o unte rc la im s a ga i nst Krohne Fund, a nd de ny ing le ave to a

m e nd to a s se rt third-pa

rty c la im s. The Distric t C ourt in fa c t gra nte d De fe nda

nts le ave to
a sse rt c ounte rc l a im s , but re q uire d tha t De fe nda nts litiga te any c ounte rc la im s in
a c c orda nc e with thesc he duling orde r a lre a dy in pla c e . W e re vie w the de nia l of a
m otion to a

m e nd a sc he duling orde r unde r Fe de ra l R ule of C i vil Proc e dure 16 for
an a b use of disc re tion. J

ohnson v . Mammoth Re c re a tions, Inc
. , 975 F.2d 604, 607 (9th C ir. 1992).

“ Distric t c ourts ha

ve ‘ broa d disc re tion to m ana ge disc ove ry and to c ontrol the c ourse of litiga

tion unde r Fe de ra l R

ule of C ivil Proc e dure 16.’ ” H unt v . C ounty of Orange , 672 F.3d 606, 616 (9th C ir. 2012) (quoting A v ila v . W i llits Env tl. Re me d iation Trust , 633 F.3d 828, 833 (9th C ir. 2011)). “ The pre tria l sc he dule m ay be m odifie d ‘ if it c annot re a sona bly be m e t de s pite the dilige nc e of the pa rty
se e k ing the e x te n s ion,’ ” but “ [i] f the pa rty se e k ing the m odific ation ‘ wa s not dilige n t, the inquiry should e nd’ and the m otion to modify should not be grante d.” Zivk ov ic v . S. C

al. Edison C

o. , 302 F.3d 1080, 1087 (9th C i r. 2002) (quoting J ohnson , 975 F.2d a

t 609).

6Vie we d ove r the e ntire c ourse of disc ove ry in this c a se , De fe nda

nts’ c onduc t
wa s fa r from dilige n t. The de a dline for le a v e to a m e nd the ple a dings wa s Nove m be r 30, 2012, a

n d disc ove ry

c lose d on June28, 2013. Ye t De fe nda nts did not se rve disc ove ry

re que sts until “

the la s t m onths of 2012,”

and did not de

pose Axe l Krohne until the

e nd of Ja nua ry 2013. De fe nda

n ts like wise wa ite d until the spring of 2013 to se e k disc ove ry from Se an Wright a

n d Anthony

B irbilis, thirdpa rty witne sse s disc lose d in Krohne Fund’ s initia l disc l osure s. De fe nda nts’
c onduc t, ta

ke n a s a whole , doe s not de m onstra te dilige nc e . J

ohnson , 975 F.2d a

t 609 (c ita tions omi tte d) (“ [C ] are le ssne ss is not c om patible with a

finding of dilige n c e an d offe rs no re a son for a grant of re lie f.” ). The Distric t C ourt the re fore did not a buse its disc re tion in de ny ing De fe nda n ts’ re que st for le ave to a m e n d the
sc he duling orde r to pe rm it De fe nda nts to bring c ounte rc la im s and third-pa rty
c la im s. V ACAT E D IN PART , AFFIRM E D IN PART , and RE M ANDE D.

7