It took a year, but Wences Casares, CEO of bitcoin wallet provider Xapo, is fighting back in court against a claim LifeLock brought against him in August 2014.
LifeLock is a $1.5 billion, publicly-traded online-identity protection company that acquired Casares’s digital wallet company Lemon in 2013 for $42.6 million. Casares eventually left LifeLock and founded Xapo, a digital wallet company focused on bitcoin (Lemon was not). LifeLock’s lawsuit, which went unreported until Fortune wrote about it earlier this summer, claimed that Xapo was developed “by Lemon employees, in Lemon’s facilities, on Lemon’s computers, and on Lemon’s dime.”
LifeLock has asked the California Superior Court in Santa Clara, Calif. to force Casares and his co-defendants (former Lemon employees) to “disgorge the value of the Xapo product attributable to Defendants’ misrepresentations, omissions, breaches of duty, and other wrongful conduct.”
Now Casares has fired back. Initially, he had filed a “demurrer,” which amounts to a motion to dismiss, but California Superior Court Judge Peter Kirwan rejected it and gave Casares until July 24 to formally reply to LifeLock’s complaint.
Casares’s cross-complaint, filed on July 24, accuses LifeLock of: breach of contract; breach of implied covenant of good faith and fair dealing; conversion (an act by one party that violates ownership rights of another party); unjust enrichment; and declaratory relief.
In layperson’s terms, Casares is claiming that LifeLock initially blessed the idea of a new product, to be called LifeLock Wallet, that Casares was working on. At some point, though, the company’s “dysfunctional management” left him and his Lemon team “hamstrung,” forcing him to leave the company. From the cross-complaint, emphasis ours:
In addition, in a February 2014 letter posted in June by Bitcoin Magazine, LifeLock president Hilary Schneider told Casares the company was aware he was working on bitcoin pursuits and was okay with it: “LifeLock acknowledges and agrees that your past and continuing work on the Bitcoin business and development of Bitcoin IP is unrelated to LifeLock’s business and is not covered by and does not violate the terms of the Proprietary Rights and Restrictive Covenants Agreement between you and Lemon, Inc.”
Casares is now seeking a jury trial, and his cross-complaint, which is against both LifeLock and Lemon, asks for “a monetary award” as well as “punitive damages” from Lemon and LifeLock “in an amount to be determined at trial.” In other words, unless there is a surprise settlement, this fight is just beginning, and is only going to get more vicious.
(Separately, LifeLock is dealing with another P.R. nightmare: the FTC, for the second time, is taking action against the company for allegedly lying about its identity protection services and failing to protect customer data.)
As Fortune wrote in June, a LifeLock win in this suit could embolden the company to go after Xapo directly. In addition, a LifeLock win would mean that Casares, CEO of a financial services company, would be convicted of fraud. That result could be ruinous to the success of Xapo, which has raised $40 million in funding and is arguably one of the hottest bitcoin startups.