Jass v. Cherryroad Techs., Inc., Case No. 19-cv-00609-DKW-RT

• Court: United States District Courts. 9th Circuit. United States District Court (Hawaii)
• Writing for the Court: Derrick K. Watson, United States District Judge
• Citation: 449 F.Supp.3d 923
• Parties: Haralds JASS, Plaintiff, v. CHERRYROAD TECHNOLOGIES, INC., et al., Defendants.
• Docket Number: Case No. 19-cv-00609-DKW-RT
• Decision Date: 27 March 2020

449 F.Supp.3d 923

Haralds JASS, Plaintiff,
v.
CHERRYROAD TECHNOLOGIES, INC., et al., Defendants.

Case No. 19-cv-00609-DKW-RT

United States District Court, D. Hawai‘i.

Signed March 27, 2020

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Roman F. Amaguin, Law Office of Roman Amaguin, Honolulu, HI, for Plaintiff.

Richard P. Sybert, Gordon and Rees LLP, San Diego, CA, Mia Dianne Obciana, Law Office of Mia D. Obciana, LLLC, Honolulu, HI, for Defendants.

ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS; AND (2) GRANTING PLAINTIFF LEAVE TO AMEND THE COMPLAINT

Derrick K. Watson, United States District Judge

This is an employment dispute involving a high-ranking, corporate whistleblower. Plaintiff Haralds Jass alleges that shortly after he began complaining about several potentially illegal business practices by CherryRoad Technologies, Inc., he was terminated from his position as President of Superb Management Corporation, a company allegedly "controlled" by CherryRoad. But Jass has not sued Superb. Instead, he names as Defendants CherryRoad, its Chief Executive Officer (Jeremy

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Gulban), and its Chief Financial Officer (Nicholas Visco), asserting three claims: breach of contract; violation of the Hawaii Whistleblower Protection Act (HWPA), Haw. Rev. Stat. § 378-61 et seq. ; and civil conspiracy. Defendants have now moved to dismiss all claims on several grounds, Dkt. No. 5, arguing primarily that Jass failed to exhaust his administrative remedies, that CherryRoad was not a party to Jass’ employment contract or Jass’ employer, and that Jass cannot assert a freestanding civil conspiracy claim against Defendants Gulban and Visco.

The Court first concludes that Jass has not exhausted administrative remedies for his retaliation claim and may not avoid that obligation by attempting to recharacterize it. Second, Jass has stated a cognizable HWPA claim against CherryRoad under a "joint employer" theory, but has failed to sufficiently plead a breach of contract claim against CherryRoad under the applicable "alter ego" doctrine. Lastly, because Jass has not asserted an independent tort claim against Defendants Gulban and Visco, Jass cannot sustain a civil conspiracy claim against these Defendants. Accordingly, Defendants’ motion to dismiss is GRANTED IN PART AND DENIED IN PART, and Jass is granted leave to amend the complaint.¹

FACTUAL & PROCEDURAL BACKGROUND

A. Relevant Factual Allegations

Jass was previously the principal of Superb Internet Corporation until May 1, 2019 when Jass sold the company's assets to Defendant CherryRoad Technologies, Inc. (CherryRoad). At the same time, Jass became President of Superb Management Corporation (SMC), an entity allegedly "controlled by [CherryRoad]." Dkt. No. 4-4, ¶¶ 13–15.

1. Terms of the Employment Agreement

On May 1, 2019, Jass and SMC entered into an employment agreement (Agreement), Dkt. No. 5-2, with a three-year Term. Dkt. No. 4-4, ¶ 16.² The Agreement provides that for the first year, Jass would be paid a base salary of $15,000 per month and be eligible for a bonus. Dkt. No. 5-2, ¶ 4(a). During the second and third years of the Agreement, Jass would be paid a salary of $7,500 per month and would no longer be eligible to participate in any bonus plans. Id. at ¶ 4(b).

Under the Agreement, Jass’ employment could "only be terminated by a majority vote of the [SMC] directors." Id. at ¶ 10. He could be terminated "without Cause at any time upon written notice." Id. at ¶ 10(a). If that occurred, Jass was entitled

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to (i) his base salary remaining for the Term of the Agreement, calculated using the salary rate in effect at the time of termination; plus (ii) the monthly payment SMC made toward medical insurance on Jass’ behalf multiplied by the number of months remaining in the Term (collectively the "Separation Amount"). See id. Jass could also be terminated with cause. Id. at ¶ 10(b). If that occurred, Jass was only entitled to receive his base salary earned through the effective date of termination. Id.

The Agreement defines "Cause" to include the following five categories of conduct:

(A) "knowingly violating any law or regulation applicable to the business ..., which violation is materially injurious to any Superb Group Party";

(B) "conviction of, or plea of guilty or nolo contendere to, a felony";

(C) "fraud, dishonesty or gross misconduct that is materially and demonstratively injurious to a Superb Group Party";

(D) "any material breach ... of any written agreement ... regarding the terms of [Jass]’s service as an employee ..., including the breach of the written non-competition, invention assignment, confidentiality or similar written restrictive covenants"; or

(E) any "intentional and sustained disregard of a policy of [SMC], or the lawful directions or instructions of [SMC]’s directors."

Id. at ¶ 10(e)(i). The Agreement further states that:

[F]or Cause to exist, [SMC] must give [Jass] written notice specifying in reasonable detail the act(s) or omission(s) that [SMC] believes constitute Cause and, in the case of [conduct within categories] (A), (D), and (E) ..., a reasonable opportunity for [Jass] to correct such act(s) or omission(s).

Id.

2. Alleged Whistleblower Conduct

When Jass assumed his position as President of SMC, Defendant Jeremy Gulban was the Chief Executive Officer of CherryRoad. Defendant Nicholas Visco served as CherryRoad's Chief Financial Officer. Dkt. No. 4-4, ¶¶ 4–5.

Beginning sometime in June 2019 through late July 2019, Jass alleges he engaged in protected activities as a whistleblower when he complained to Defendants about suspected or perceived violations of the law related to five topics: (1) discrimination against minority employees; (2) tax and accounting fraud; (3) consumer fraud; (4) interference with personal electronic communications; and (5) contracts between CherryRoad and the State of Hawaii. See id. at ¶¶ 29, 32–33, 40–41, 47, 49, 67, 77.

First, prior to the end of June 2019, Jass believed that minority employees at CherryRoad were being discriminated against. That prompted him to make several complaints to CherryRoad and, specifically, to Gulban. Id. at ¶ 29.

Second, on June 24, 2019, Jass asserted a complaint regarding accounting and tax fraud perpetrated by Visco. Id. at ¶ 47. Jass questioned Visco's accounting methods—namely, that Visco intentionally underreported company revenues by excluding income from company billing systems and accounting programs. Id. at ¶ 47. Visco allegedly responded by threatening that he and Gulban would make Jass’ life "miserable." Id. Visco further stated he would "misrepresent" Jass’ work. Id. at ¶ 47.

Third, in June 2019, Jass complained directly to CherryRoad and, specifically, to Gulban about CherryRoad's practice of

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charging customers unauthorized and higher than advertised fees. See id. at ¶¶ 32, 38. Specifically, Jass asserts that he repeatedly raised serious concerns about CherryRoad moving certain shared hosting platform clients to a less expensive service and then overriding the price, such that the clients were charged a higher than advertised price—without notice or forewarning. Id. at ¶ 32. Jass complained that this business practice could amount to consumer fraud in violation of Hawaii law. Id. at ¶ 33. Gulban admonished Jass to never place such concerns in writing and to "only" broach such discussions "verbally," but Jass responded that he had a "strong overriding sense of responsibility" in raising these issues. Id. at ¶ 33.

Within hours of expressing this concern, Defendants started "barraging" Jass with baseless accusations, personal attacks, insults, criticisms, and admonishments regarding his job. Id. at ¶ 33. Jass acknowledges, however, that Gulban also stated, "Let's discuss with the group and come up with a solution that is ethical and appropriate. You will be a contributor to the discussions." Id. at ¶ 35. Nonetheless, that discussion allegedly never occurred. Id. at ¶ 35.

Instead, on June 27, 2019, Gulban accused Jass of "building a file" against him and CherryRoad. Id. at ¶ 27. In turn, Gulban warned that he and Visco had started a "file" on Jass, which Jass understood as an admission that he was being retaliated against and that he would eventually be terminated by Gulban, Visco and CherryRoad. See id. at ¶¶ 28, 34. In fact, shortly after Jass began to voice his various concerns, including those relating to consumer fraud, Jass alleges that Gulban and Visco began to make false claims about the quality of his work. Id. at ¶ 56.

To make matters worse, on July 1, 2019, Defendants allegedly: (a) blocked Jass from accessing internal customer and operational systems; and (b) removed Jass from numerous internal mailing lists, such as the internal sales management email group. Id. at ¶¶ 33, 35, 47, 58. As a result, it was difficult, if not impossible, for Jass to fulfill his obligations under the Agreement, including "presid[ing] over quality control"...