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Nxivm Corporation v. Estate of Morris Sutton

United States District Court, Third Circuit

December 18, 2013



DENNIS M. CAVANAUGH, District Judge.

This matter comes before the Court upon the Motion of the Estate of Morris Sutton and Rochelle Sutton (collectively the "Sutton Defendants") for Summary Judgment and the Motion of Stephanie Franco ("Franco") for Summary Judgment. Pursuant to FED. R. CIV. P 78, no oral argument was heard. Based on the following and for the reasons expressed herein, Franco's Motion for Summary Judgment is denied and the Sutton Defendants' Motion for Summary Judgment is granted in part and denied in part.


A. Factual Background

1) The Parties

Plaintiff NXIVM Corporation ("NXIVM") was formerly known as Executive Success Programs, Inc. NXIVM's primary business involves conducting Executive Success training programs designed primarily for managers, chief executives, and other business professionals. Plaintiff First Principles, Inc. ("First Principles") has developed many of the proprietary materials that are used by NXIVM in its business. NXIVM has a license agreement with First Principles for the trade secret and patent pending technology underlying the work. Both NXIVM and First Principles are corporations formed and existing under the laws of the State of Delaware and are authorized to do business in the State of New York, with their principal places of business located at the same address in Albany, New York. Plaintiffs' programs provide training in areas such as logical analysis and problem-solving skills, and are based primarily on the Rational Inquiry™ system developed by Keith Raniere. The Rational Inquiry™ theory and practice allegedly involves analyzing and optimizing how the mind handles data.

The Sutton Defendants are individuals residing in the state of New Jersey. Franco, daughter of Morris Sutton, is also an individual residing in the state of New Jersey.

2) Michael Sutton and NXIVM

Michael Sutton is the son of the Sutton Defendants and the half-brother of Franco. Michael Sutton enrolled in one of Plaintiffs' courses in the fall of 2000 and eventually became one of Plaintiffs' coaches. Plaintiffs allege that Michael Sutton turned to NXIVM in order to help him deal with the stress of living a "double life, " as he was concealing that fact that he had a non-Sephardic girlfriend and had fathered a child with her.

3) Franco and NXIVM

Franco is a former participant of Plaintiffs' training programs. Like Michael Sutton, Franco was accepted into several increasing levels of Plaintiffs' coaching program to learn the Rational Inquiry™ method. From this additional training, Franco acquired portions of Plaintiffs' protected materials that are available only through the coaching program to clients who represent their intent to become trainers exclusively for Plaintiffs. Before attending the classes, Franco signed a short document that stated that she would return all course materials and would not copy, duplicate, transmit, teach, or otherwise use the methods learned in NXIVM's classes (the "Short-Form Agreement"). Plaintiffs also require students to sign a seven-page confidentiality agreement before taking classes (the "Long-Form Agreement"). Franco claims that she never signed the Long-Form Agreement.

4) The Sutton Defendants' Intervention with Michael Sutton

Rick Ross is the founder and Executive Director of The Ross Institute. Ross holds himself out as "an internationally known expert on cults and other radical, extreme and often unsafe groups." Ross earns revenue primarily from conducting "cult deprogrammings" of individuals and through the sales of related products such as audio and video tapes. Ross was hired by the Sutton Defendants to conduct an intervention with Michael Sutton concerning his association with NXIVM.

Beginning in November 2002, Ross conducted several interventions with Michael Sutton. The first intervention took place over the course of five days, during a family vacation in Florida. The second intervention took place at the Sutton Defendants' home in New Jersey. Franco was present during the New Jersey intervention. During the interventions, Ross allegedly asked Michael Sutton to provide him with Plaintiffs' protected materials. Michael Sutton refused, informing Ross that the materials were confidential. At some point, Ross obtained from Franco a copy of all of Plaintiffs' protected materials in her possession, allegedly in violation of Franco's confidentiality agreement with Plaintiffs. However, it is ...

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