Rekor Sys. v. Loughlin
| Decision Date | 29 July 2022 |
| Docket Number | 19-cv-7767 (LJL) |
| Parties | REKOR SYSTEMS, INC., Plaintiff, v. SUZANNE LOUGHLIN, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Rekor Systems, Inc. (“Plaintiff” or “Rekor”) moves, pursuant to Federal Rule of Civil Procedure 56, for an order: (1) granting summary judgment in its favor as to liability on its second, fourth, and fifth claims; and (2) dismissing the first, fourth, and sixth counterclaims of defendants Suzanne Loughlin (“Loughlin”), Harry Rhulen (“Rhulen”), and James Satterfield (“Satterfield”) (collectively “Defendants”).[1] Dkt. No. 243.
For the following reasons, the motion for partial summary judgment is granted in part and denied in part.
The following facts are undisputed for purposes of this motion except where otherwise indicated. The Court recounts only those facts relevant to the disposition of this motion.
Rekor together with its predecessors Keystone Solutions, Inc. (“Keystone”) and Novume Solutions, Inc. (“Novume”), is a company that owns several subsidiaries. Dkt. No. 247 ¶ 1; Dkt No. 295-8 ¶ 1. For ease of reference and in accordance with the parties' usage, the Court will refer to Rekor and its predecessors as “Rekor” throughout this Opinion and Order unless reference to a specific predecessor is relevant. On January 25, 2017, Rekor purchased Firestorm Solutions, LLC (“FSLLC”) and Firestorm Franchising, LLC (“FFLLC”) (collectively “Firestorm”). Dkt. No. 247 ¶ 2; Dkt. No 295-8 ¶ 2. That same day, Keystone entered into employment agreements with Rhulen and Loughlin, and Firestorm entered into an employment agreement with Satterfield. Dkt No. 247 ¶ 3; Dkt. No. 295-8 ¶ 3; see also Dkt. No. 245 (“Latifullah Decl.”), Exs. B, C, D.
Section 1(b) of Rhulen's employment agreement provided: Latifullah Decl., Ex. B § 1(b). The “Executive” was defined to be Rhulen, and the “Company” was defined to be Keystone. Section 3 of the agreement, titled “Duties,” provided in part: Id. § 3.
Rhulen's employment agreement had a five-year term unless otherwise terminated pursuant to Section 7 of the agreement. Id. § 20. Section 7 of the employment agreement provided in part that “[e]ither the Executive or the Company may terminate the employment relationship at any time.” Id. § 7. Rhulen's compensation under the employment agreement included a salary and options. Id. § 2. More specifically, “[f]or performance of all services rendered under this Agreement, the Company shall pay the Executive a base salary at an annualized rate of $275,000.” Id. § 2(a). And “[t]he Executive shall be granted an option to purchase 80,000 shares of the Company's common stock at an exercise price of $3.00 per share (the ‘Option'),” and “the Option shares shall vest in successive equal monthly installments starting on the one-year anniversary of the Effective Date and continuing over the 24-month period thereafter, provided that the Executive continues in Service with the Company through each vesting event.” Id. § 2(b).
After Rhulen had served as President of Keystone for over a year and three months, Rekor assigned Rhulen to help oversee Firestorm. Dkt. No. 247 ¶ 6; Dkt. No. 295-8 ¶ 6. Rhulen testified that Rekor's CEO “felt that things were not going as he would have hoped at Firestorm” and “asked me to get involved, to see if I could figure out what was going on and straighten it out.” Dkt. No. 247 ¶ 9; Dkt. No. 295-8 ¶ 9. A few months later, Rekor's governance committee changed Rhulen's title from President of Novume to Executive Vice President of Novume. Dkt. No. 247 ¶¶ 10-11; Dkt. No. 295-8 ¶¶ 10-11. On October 11, 2018, an email announced that Rhulen's title had been changed to “EVP” and stated that Rhulen was asked by the CEO “to focus his efforts on Firestorm” and that Rhulen's “responsibilities rest solely with helping Firestone's growth.” Dkt. No. 246 (“Newman Decl.”), Ex. D. The following day, Rhulen sent an email stating that he had changed his signature block to reflect his change in position. Id., Ex. E. Rhulen's signature block listed his title as “EVP - Firestorm” followed by “Novume Solutions, Inc.” in the line below. Id.
Defendants, however, assert that, after Rhulen's title was changed to Executive Vice President of Novume, Rhulen's title was changed once again. Dkt. No. 295-9 ¶ 12. According to Defendants, on October 12, 2018, Rekor, a publicly traded corporation, filed a Form 8-K with the Securities and Exchange Commission (“SEC”) in which Rekor announced that, on October 11, 2018, Rhulen changed positions from President of Novume to Executive Vice President of Firestorm-not Novume. Id.; see also Dkt. No. 293 (“Rhulen Decl.”), Ex. 13 at 2. Defendants state that Rhulen did not consent to this change and that he was unaware of the change until he learned of the Form 8-K. Dkt. No. 295-9 ¶ 12. Thereafter, Rhulen's email signature block listed his title as “EVP & Founder” above the Firestorm logo and no longer referenced Novume. Id. ¶ 14.
Defendants also assert that Rhulen suffered damage as a result of “being wrongfully terminated as President of Rekor.” Rhulen Decl. ¶ 29. Rhulen declares that, after he was demoted, he was “an outcast” at Rekor, and when, in December 2018, the CEO of Rekor suggested that Rhulen resign if he wanted, Rhulen resigned his position as EVP of Firestorm. Id. Rhulen declares that he suffered two types of damage. Id. First, according to Rhulen, his options were affected. Over the course of twenty-four months starting in January 2018, id. ¶ 2, Rhulen was to receive certain options vesting in equal monthly installments, and, “absent [his] termination or death, [he] had 10 years to exercise the options,” id. ¶ 30. “Although [Rhulen] received 9 months of vested options, from January 2018-September 2018, [he] did not receive [his] 10 years to exercise those options.” Id. Furthermore, he did not receive his last fifteen months of options, starting in October 2018. Id. ¶ 31. Second, Rhulen also declared that he was damaged “by the loss of 37 months of salary.” Id.
Section 9 of Rhulen's employment agreements provides:
Documents, Records, etc. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information (as defined in the Proprietary Rights Agreement), which are furnished to the Executive by the Company or are produced by the Executive in connection with the Executive's employment will be and remain the sole property of the Employer. The Executive will return to the Company all such materials and property as and when requested by the Employer. In any event, the Executive will return all such materials and property immediately upon termination of the Executive's employment for any reason.
Latifullah Decl., Ex. B § 9; Dkt. No. 247 ¶ 15; Dkt. No. 295-8 ¶ 15. The “Company” is defined as Keystone. Dkt. No. 247 ¶ 18; Dkt. No. 295-8 ¶ 18. The same language is contained in Section 9 of Loughlin's employment agreement with Keystone. Latifullah Decl., Ex. C § 9; Dkt. No. 247 ¶ 16; Dkt. No. 295-8 ¶ 16. A similar clause can be found in Section 9 of Satterfield's employment agreement with Firestorm. Latifullah Decl., Ex. D § 9; Dkt. No. 247 ¶ 17; Dkt. No. 295-8 ¶ 17.
The Proprietary Rights Agreement (“PRA”), signed by each of Defendants on January 25, 2017, provides in Section 2:
Protected Information. . . . Upon the termination of your affiliation with the Company Group for any reason or for no reason, or if the Company Group otherwise requests, (i) you will return to the Company Group all tangible Confidential Information and copies thereof (regardless of how such Confidential Information or copies are maintained) and (ii) you will deliver to the Company Group any property of the Company Group which may be in your possession, including products, materials, memoranda, notes, records, reports, or other documents, photocopies or electronic versions of the same. The terms of this Section 2 are in addition to, and not in lieu of, any statutory or other contractual or legal obligation that you may have relating to the protection of the Company Group's Confidential Information. The terms of this Section 2 will survive indefinitely any termination of your affiliation with the Company Group for any reason or for no reason.
Latifullah Decl., Exs. E-G § 2; Dkt. No. 247 ¶ 20; Dkt. No. 295-8 ¶¶ 20, 67. The PRA defines the “Company Group” as “KeyStone Solutions, Inc....or any present or future parent, subsidiary, or affiliate thereof that was part of the Company Group during your employ.” Dkt. No. 247 ¶ 21; Dkt. No. 295-8 ¶ 21.
According to Plaintiff, Plaintiff provided Defendants laptops, which they used for company business. Dkt. No. 247 ¶ 22. Defendants, however, dispute who provided the laptops and assert that Keystone provided laptops to Loughlin and Rhulen for company business while Firestorm provided Satterfield a laptop, which he used for Firestorm's business. Dkt. No. 295-8 ¶ 22.
On December 28, 2018, Defendants resigned their positions. According to Defendants, in December 2018, Defendants and Firestorm...
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