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Ferraro v. Convercent, Inc.

United States District Court, D. Colorado

October 19, 2017

EUGENE F. FERRARO, an individual, Plaintiff,
v.
CONVERCENT, INC., a Delaware corporation, O'NEAL PATRICK QUINLAN, III, an individual, STEVE FOSTER, an individual, and NEBBIOLO VENTURES, LLC, a Colorado limited liability company, Defendants.

          ORDER ON PARTIAL MOTIONS TO DISMISS

          R. Brooke Jackson, United States District Judge.

         This matter is before the Court on two motions: (1) defendants Convercent, Quinlan, and Foster's partial motion to dismiss plaintiff's complaint, ECF No. 15; and (2) defendant Nebbiolo Ventures's partial motion to dismiss the complaint, ECF No. 19. For the reasons stated below, Convercent, et al.'s motion is GRANTED in part and DENIED in part, and Nebbiolo's motion is GRANTED.

         I. FACTS

         Mr. Ferraro founded a company in 1994 that eventually became known as Convercent, Inc. (referred to as “Convercent” or “the Company”). ECF No. 1 at 4. The Company offered phone and web hotline services for anonymous whistleblowers, along with investigative, consulting, and training services. Id. In 2012, as part of an effort to find outside investors, one of Mr. Ferraro's employees, Mr. Foster, introduced Mr. Ferraro to a consulting firm called Nebbiolo, led by Mr. Quinlan. Id. Mr. Quinlan promised Mr. Ferraro that Nebbiolo would quickly increase the Company's value. Id. at 5-6. Mr. Foster represented to Mr. Ferraro that he had performed the requisite due diligence on Nebbiolo and its members, and he told Mr. Ferraro that the firm was reputable and accredited despite his knowledge that the contrary was true. Id. at 6. In fact, according to Mr. Ferraro, Nebbiolo was not an accredited investor and had only existed for four months, while Mr. Quinlan and a previous firm had been the focus of a lawsuit that included allegations of fraud against Mr. Quinlan personally. Id. at 6. Furthermore, Mr. Foster did not disclose that he had recently made more than a $60, 000 investment in (or loan to) Nebbiolo. Id. at 7.

         In reliance on Mr. Foster's and Mr. Quinlan's representations, Mr. Ferraro entered into a Professional Services Agreement (“PSA”) with Nebbiolo in 2012. Id. at 8. Under the PSA, Nebbiolo would provide financial and management consulting services in exchange for a fee and equity in the Company; Mr. Quinlan would replace Mr. Ferraro as the Company's CEO; and Mr. Foster would be the “one authorized representative” of the Company to whom Nebbiolo would report. Id. Mr. Quinlan “repeatedly assured” Mr. Ferraro that his “continued employment was guaranteed.” Id. Thereafter, Mr. Quinlan replaced Mr. Ferraro as CEO and the Company paid Nebbiolo its consulting fee and sold Nebbiolo stock for an equity position in the Company. Id. at 8-9. However, because Nebbiolo claimed it lacked the funds to purchase the Company's stock outright at the time the PSA was signed, Mr. Ferraro accepted a four-year note for $1.95 million from Nebbiolo for the stock purchase. Id. at 9.

         After Mr. Quinlan began spending “significant amounts of company funds, ” Mr. Ferraro discussed with Mr. Foster whether he should terminate the PSA for non-performance. Id. Mr. Foster urged him “to give Nebbiolo time to perform.” Id. At the same time, unbeknownst to Mr. Ferraro, Mr. Quinlan and Mr. Foster created and back-dated a stock purchase agreement, giving Nebbiolo additional time to achieve its objectives, changing the terms of a previously-existing promissory note, and reducing Nebbiolo's purchase price of company shares. Id. at 10. Mr. Ferraro claims he accepted this agreement only under duress. Id.

         In 2013 Mr. Ferraro entered an employment agreement to serve as Convercent's Chief Ethics Officer for three years. Id. at 11. The agreement contained no renewal provision, but Mr. Quinlan assured Mr. Ferraro that it would be renewed if the Company were not sold by the end of the agreement's three-year term. Id. The agreement also required the Company to pay Mr. Ferraro $5, 000 per month for each month he remained a guarantor on certain corporate loans if the loans were not satisfied by July 2013. Id. at 12. When Mr. Ferraro sought to renew this agreement in 2015 he was assured that his position was secure, and that the agreement would be renewed. Id. at 14. In March 2015 Mr. Ferraro learned that Mr. Quinlan had taken $65, 000 of company funds for personal use without the Board of Directors' knowledge. Id. at 14. As Chief Ethics Officer, Mr. Ferraro sought to investigate the matter, but he was prevented from doing so. Id.

         In January 2016 Mr. Ferraro was informed that the Company would not be renewing his employment agreement. Id. at 15. Mr. Ferraro was told that the Company could hire and employ four people for what he was being paid, and that he no longer provided value or services the Company needed. Id. at 15-16. His last day of employment was January 3, 2016. Id. at 18. He did not receive any customary outplacement services, such as severance pay or a letter of reference. Id. at 15. Mr. Ferraro requested that the Board of Directors investigate his termination and Mr. Quinlan's use of company funds. Id. at 16. The Company denied wrongdoing related to Mr. Ferraro's termination and characterized Mr. Quinlan's use of funds as a loan, but it did not verify that it had conducted an investigation into either. Id. at 17-19.

         Mr. Ferraro filed suit in March 2017, asserting a total of twelve claims. ECF No. 1. Convercent, Mr. Quinlan, and Mr. Foster move to dismiss plaintiff's claim of wrongful discharge in violation of public policy against Mr. Quinlan, his breach of contract claim against Convercent, and his civil conspiracy claim against Mr. Quinlan and Mr. Foster. ECF No. 15. Nebbiolo moves to dismiss plaintiff's claim against it for violation of the Colorado Organized Crime Control Act (COCCA). ECF No. 19. The motions have been fully briefed. See ECF Nos. 15, 18, 19, 23, 24, 30.

         II. STANDARD OF REVIEW

         To survive a 12(b)(6) motion to dismiss, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plausible claim is a claim that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court must accept the well-pleaded allegations of the complaint as true and construe them in the light most favorable to the plaintiff, Robbins v. Wilkie, 300 F.3d 1208, 1210 (10th Cir. 2002), purely conclusory allegations are not entitled to be presumed true, Iqbal, 556 U.S. at 681. However, so long as the plaintiff offers sufficient factual allegations such that the right to relief is raised above the speculative level, he has met the threshold pleading standard. See, e.g., Twombly, 550 U.S. at 556; Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).

         III. ANALYSIS

         A. Wrongful Discharge Claim Against Mr. Quinlan.

         Mr. Ferraro asserts that he was fired for trying to exercise his right to investigate Mr. Quinlan's unauthorized use of Convercent funds and another Convercent employee's facilitation of that use. ECF No. 1 at 24. This, he claims, was a violation of public policy, therefore constituting the tort of wrongful discharge. Convercent, Mr. Quinlan, and Mr. Foster move to dismiss this claim as against Mr. Quinlan, contending that ...


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