                                                                            FILED
                           NOT FOR PUBLICATION
                                                                             MAR 09 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS


                            FOR THE NINTH CIRCUIT


KROHNE FUND, LP,                                 No.   14-35668

              Plaintiff-Appellant,               D.C. No. 1:12-cv-00004-SEH

 v.
                                                 MEMORANDUM*
STUART M. SIMONSEN; KAPIDYIA
CAPITAL PARTNERS, LLC,

              Defendants-Appellees.



KROHNE FUND, LP,                                 No.   14-35713

              Plaintiff-Appellee,                D.C. No. 1:12-cv-00004-SEH

 v.

STUART M. SIMONSEN; KAPIDYIA
CAPITAL PARTNERS, LLC,

              Defendants-Appellants.


                    Appeal from the United States District Court
                            for the District of Montana
                     Sam E. Haddon, District Judge, Presiding


      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                       Argued and Submitted February 7, 2017
                                Seattle, Washington

Before: FISHER, PAEZ, and CALLAHAN, Circuit Judges.

      Krohne Fund, LP, is a small hedge fund operated out of California. Stuart

Simonsen developed an algorithmic computerized system for trading commodity

securities. The system is marketed under the name “XynaQuant.” Simonsen also

developed a portfolio known as “Optimus” or “Optimus SLR.” Kapidyia Capital

Partners, LLC (“Kapidyia”)1 marketed XynaQuant.

      Krohne Fund brought claims against Defendants under Montana law for

breach of contract, promissory estoppel, fraud, negligent misrepresentation, and

constructive fraud. After a bench trial, the District Court entered judgment in

Defendants’ favor, and Krohne Fund appealed. Defendants cross-appealed,

contesting the District Court’s denial of their request to modify the scheduling

order for Defendants to file third-party claims and counterclaims.

      We have jurisdiction over both appeals pursuant to 28 U.S.C. § 1291. We

affirm in part, vacate in part, and remand.

      1.      We review “de novo the district court’s conclusions of law following

a bench trial,” U.S. Sec. & Exch. Comm’n v. Jensen, 835 F.3d 1100, 1114 (9th Cir.



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          Together, Simonsen and Kapidyia are referred to as “Defendants.”
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2016) (citing Lentini v. Cal. Ctr. for the Arts, Escondido, 370 F.3d 837, 843 (9th

Cir. 2004)), and review the findings of fact for clear error, Bhd. of Maint. of Way

Emps. Div./IBT v. BNSF Ry., Inc., 834 F.3d 1071, 1076 (9th Cir. 2016) (citing

OneBeacon Ins. Co. v. Haas Indus., Inc., 634 F.3d 1092, 1096 (9th Cir. 2011)).

      2.     Under Montana law, “[t]he interpretation of a contract is a question of

law.” Anderson v. Stokes, 163 P.3d 1273, 1283 (Mont. 2007) (citing Ophus v.

Fritz, 11 P.3d 1192, 1195 (Mont. 2000); Van Hook v. Jennings, 983 P.2d 995, 997

(Mont. 1999)). “A contract must be so interpreted as to give effect to the mutual

intention of the parties as it existed at the time of contracting, so far as the same is

ascertainable and lawful.” Id. (quoting Mont. Code Ann. § 28–3–301). “When a

contract is reduced to writing, the intention of the parties is to be ascertained from

the writing alone if possible . . . .” Id. (alteration in original) (quoting Mont. Code

Ann. § 28–3–303). “If the language of the contract is unambiguous—i.e.,

reasonably susceptible to only one construction—the duty of the court is to apply

the language as written. However, if the language of a contract is ambiguous, a

factual determination must be made as to the parties’ intent in entering into the

contract.” Mary J. Baker Revocable Tr. v. Cenex Harvest States, Coops., Inc., 164

P.3d 851, 857 (Mont. 2007) (internal citations omitted). “We generally interpret

the words of a contract in their ordinary and popular sense unless the parties use


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the words in a technical sense or unless the parties give a special meaning to them

by usage.” Dollar Plus Stores, Inc. v. R-Montana Assocs., L.P., 209 P.3d 216, 219

(Mont. 2009) (citing Mont. Code Ann. § 28–3–501).

      The Managed Account Agreement (“MAA”) provides that Krohne Fund’s

account is “to be managed by the Investment Manager [Kapidyia] on a

discretionary basis in accordance with Section 2.” Section 2 states that “[t]he

Investment Manager, with respect to the Account and in accordance with the

investment guidelines attached hereto as Appendix A, shall have full authority in

its discretion to purchase, sell, sell short, tender or exchange and otherwise acquire

or dispose of and trade and deal in or with futures contracts.” Finally, Appendix A

provides that “Krohne Capital will be trading an $8 million ($8,000,000) notional

Optimus SLR account with a 30% risk budget of $2,400,000.”

      “Optimus SLR account” is a technical term meaning an account that makes

trades pursuant to the XynaQuant software using the Optimus SLR protocol.

Accordingly, the MAA requires that the trades made by the Investment Manager

be made exclusively through the XynaQuant software using the Optimus SLR

protocol unless Krohne Fund agreed otherwise. The District Court’s conclusion

that “[t]he MAA contains no language requiring Kapidyia to make trades based

only on the Optimus SLR protocol or using exclusively the XynaQuant software”


                                           4
was therefore error. We vacate its decision on this point, and remand for the

District Court to assess Krohne Fund’s breach of contract claim in light of this

contractual interpretation, including whether Krohne Fund authorized the manual

trades that occurred on its account.

      3.     Krohne Fund contends that the MAA constituted a clear and

unambiguous promise for purposes of its promissory estoppel claim. But because

Krohne Fund did not rely upon the MAA to support this claim before the District

Court, it has waived this argument. See In re Mercury Interactive Corp. Sec. Litig.,

618 F.3d 988, 992 (9th Cir. 2010). We thus affirm the District Court’s judgment in

Defendants’ favor on this claim.

      4.     Krohne Fund also argues that the District Court erred in entering

judgment for Defendants on its deceit claims. We need not resolve whether

Krohne Fund stated, preserved, or prevailed on claims for negligent

misrepresentation, fraud, or constructive fraud arising from Simonsen or

Kapidyia’s alleged material omissions. Rather, we vacate the District Court’s

judgment on these claims and remand for further proceedings in light of our

conclusion that the MAA requires the Investment Manager to make trades pursuant

to the XynaQuant software using the Optimus SLR protocol.




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      5.     Defendants argue that the District Court abused its discretion in

denying their request to modify the scheduling order, denying leave to amend their

answer to assert counterclaims against Krohne Fund, and denying leave to amend

to assert third-party claims. The District Court in fact granted Defendants leave to

assert counterclaims, but required that Defendants litigate any counterclaims in

accordance with the scheduling order already in place. We review the denial of a

motion to amend a scheduling order under Federal Rule of Civil Procedure 16 for

an abuse of discretion. Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 607

(9th Cir. 1992).

      “District courts have ‘broad discretion to manage discovery and to control

the course of litigation under Federal Rule of Civil Procedure 16.’” Hunt v. County

of Orange, 672 F.3d 606, 616 (9th Cir. 2012) (quoting Avila v. Willits Envtl.

Remediation Trust, 633 F.3d 828, 833 (9th Cir. 2011)). “The pretrial schedule may

be modified ‘if it cannot reasonably be met despite the diligence of the party

seeking the extension,’” but “[i]f the party seeking the modification ‘was not

diligent, the inquiry should end’ and the motion to modify should not be granted.”

Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002) (quoting

Johnson, 975 F.2d at 609).




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      Viewed over the entire course of discovery in this case, Defendants’ conduct

was far from diligent. The deadline for leave to amend the pleadings was

November 30, 2012, and discovery closed on June 28, 2013. Yet Defendants did

not serve discovery requests until “the last months of 2012,” and did not depose

Axel Krohne until the end of January 2013. Defendants likewise waited until the

spring of 2013 to seek discovery from Sean Wright and Anthony Birbilis, third-

party witnesses disclosed in Krohne Fund’s initial disclosures. Defendants’

conduct, taken as a whole, does not demonstrate diligence. Johnson, 975 F.2d at

609 (citations omitted) (“[C]arelessness is not compatible with a finding of

diligence and offers no reason for a grant of relief.”). The District Court therefore

did not abuse its discretion in denying Defendants’ request for leave to amend the

scheduling order to permit Defendants to bring counterclaims and third-party

claims.

      VACATED IN PART, AFFIRMED IN PART, and REMANDED.




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