Judge rejects Franklin Templeton’s bid to revive defenses in blockchain case

A federal judge has denied Franklin Templeton’s attempt to reopen key defenses in a long-running lawsuit over blockchain technology, clearing the way for trade secrets and breach of contract claims to proceed to trial.

In an order issued this month, Magistrate Judge Thomas S. Hixson rejected a motion for reconsideration filed by Franklin Templeton and its affiliates, who sought to challenge prior rulings admitting testimony from the founder of a blockchain startup they acquired and striking portions of their own expert reports.

The dispute stems from Franklin Templeton’s 2019 acquisition of Onsa, a fintech firm developing blockchain-based financial products. The case, brought by Blockchain Innovation LLC, centers on allegations that Franklin Templeton misappropriated Onsa’s proprietary technology and breached contractual obligations following the acquisition.

The litigation has attracted attention not only for its focus on blockchain in the financial sector, but also for the contentious circumstances surrounding Onsa’s demise and the subsequent rollout of Franklin Templeton’s own blockchain products.

In October 2019, Franklin Templeton’s affiliate, FT FinTech Holdings, agreed to invest $6.5 million in Onsa, formerly known as TokenVault, through a Stock Purchase Agreement. Under the deal, Franklin Templeton obtained complete control of Onsa’s voting shares and roughly one-quarter of its non-voting shares. Key terms of the agreement installed Franklin executive Roger Bayston as Onsa’s sole board member and interim chief executive.

The agreement also provided for additional payments to Onsa and its founder, Austin Trombley, if the company met certain development milestones tied to its blockchain platform.

By July 2020, however, Onsa’s leadership was terminated, operations were shut down, and all assets—including its intellectual property—were transferred to a liquidator. Franklin Templeton soon launched its own blockchain initiatives, including the Benji investment app and a blockchain-enabled U.S. government money market fund.

Blockchain Innovation, which purchased Onsa’s remaining assets from the liquidator in 2021, filed suit alleging trade secret misappropriation, breach of contract, breach of fiduciary duty, and related claims. The company contends that Franklin Templeton halted Onsa’s progress to avoid paying promised milestone compensation while leveraging the acquired technology for its own products.

The startup’s shareholders said they were seeking damages “likely in the billions of dollars.” Franklin Templeton, however, said at the time that the lawsuit was “misguided,” and suggested that Blockchain Innovation LLC was created “solely to manufacture litigation against Franklin Templeton.”

Franklin Templeton’s latest motion sought to revisit two pivotal pretrial rulings: the court’s decision to allow testimony from Trombley, Onsa’s founder, and the decision to strike certain rebuttal opinions by Franklin Templeton’s expert witnesses.

In November 2024, Judge Hixson had permitted Trombley’s declaration, which described his knowledge of Onsa’s technology and asserted its uniqueness in the financial industry. Franklin Templeton argued that this amounted to expert testimony improperly introduced without disclosure.

The court also previously barred portions of expert reports from Dr. Seoyoung Kim and Dr. Stephen Melvin, ruling they improperly introduced new expert opinions under the guise of rebuttal.

Franklin Templeton contended that admitting Trombley’s testimony while striking its own expert reports created an unfair imbalance and warranted reconsideration.

In denying the motion, Judge Hixson emphasized that Franklin Templeton had failed to raise its latest arguments at the appropriate time. Specifically, the court rejected Franklin Templeton’s claim that Trombley’s testimony should have been treated as expert opinion, noting that during summary judgment proceedings, the company had argued the opposite—that Trombley’s statements were based solely on personal knowledge and insufficient to establish the proprietary nature of Onsa’s technology.

“Courts do not allow parties to fully litigate a motion, receive an adverse ruling, and then shift arguments in a motion for reconsideration,” the judge wrote.

Judge Hixson concluded that Trombley may testify as a lay witness regarding his personal knowledge of Onsa’s business and technology, but may not offer broader opinions about the uniqueness of the technology across the industry.

The court also upheld its prior decision to exclude the expert opinions of Dr. Kim and Dr. Melvin, ruling that their reports, which involved technical and specialized analysis, did not properly rebut Trombley’s factual testimony. The judge declined Franklin Templeton’s proposal to allow additional expert discovery, citing the late stage of the case and the impending trial schedule.

With the latest ruling, Blockchain Innovation’s claims of trade secret misappropriation and breach of contract will proceed to trial, free of certain defense expert testimony that Franklin Templeton had hoped to introduce.

Franklin Templeton declined to comment on the ruling. Attorneys for Blockchain Innovation said they look forward to presenting their case at trial.