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Ferraro v. Convercent, Inc.

United States District Court, D. Colorado

December 12, 2018

EUGENE F. FERRARO, an individual, Plaintiff,
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.


          R. Brooke Jackson, United States District Judge

         This matter is before the Court on four motions: (1) defendant Nebbiolo's motion for summary judgment, ECF No. 56; (2) defendants Convercent, Quinlan, and Foster's motion for summary judgment, ECF No. 57; (3) plaintiff's motion to strike section one of Nebbiolo's reply brief, ECF No. 65; and (4) defendants' joint motion to strike plaintiff's expert designation of Michael Orlando, ECF No. 68. For the reasons stated below, Nebbiolo's summary judgment motion is DENIED, defendants Convercent, Quinlan, and Foster's summary judgment motion is GRANTED in part and DENIED in part, plaintiff's motion to strike is DENIED as moot, and defendants' joint motion to strike plaintiff's expert designation is DENIED.

         I. FACTS

         Eugene Ferraro is an experienced corporate investigator specializing in complex workplace investigations. Complaint, ECF No. 1, at 3. In 1994 he formed a company called Group Dynamics, LLC, which offered clients a service for employees to report ethical, safety, and regulatory infractions anonymously without fear of retaliation. Id. at 4. Group Dynamics later became Business Controls, Inc. and eventually Convercent, Inc. (referred to as “Convercent” or “the Company”). Id. In 2000 the Company began offering so-called professional services such as investigative, consulting, and training services to complement its traditional web-based whistleblower service. Id. In 2012 after Mr. Ferraro recognized the need for additional capital to continue the Company's growth, the Company's then-president, Steve Foster, introduced Mr. Ferraro to a consulting firm called Nebbiolo, led by O'Neal Patrick Quinlan, III. Id. at 5. Mr. Quinlan assured Mr. Ferraro that Nebbiolo could quickly increase the value of the Company, from $6-8 million in 2012 to $30-40 million by 2014. Id. at 5-6.

         Mr. Ferraro tasked Mr. Foster with performing due diligence on Nebbiolo, and at the completion of the due diligence, Mr. Foster assured Mr. Ferraro that Nebbiolo was a reputable and accredited investor. Id. at 6. But Mr. Foster failed to disclose that Nebbiolo did not have any accomplishments or accreditation as a company, likely because it was formed just four months prior. Id. Perhaps even more telling is that, according to the Complaint, Mr. Foster failed to disclose that he personally invested (or loaned) approximately $68, 000 to Nebbiolo in early 2012. Id. at 7.

         Acting on Mr. Foster's representations, Mr. Ferraro entered into a professional services agreement (“PSA”) with Nebbiolo in March 2012. Id. at 8. The PSA required Nebbiolo to provide financial and management consulting services in exchange for a fee and equity in the Company. Id. Nonetheless, Nebbiolo lacked the funds to purchase the stock outright at the time of signing, so Mr. Ferraro accepted a four-year note for $1.95 million from Nebbiolo for the stock purchase. Id. at 9. A further condition of the PSA required Mr. Ferraro to resign as CEO so Mr. Quinlan could fill that role. Id. at 8. Mr. Quinlan verbally assured Mr. Ferraro that he could remain employed with the Company for as long as he wished, or until the Company was sold. Id.

         Having relinquished his role as CEO, Mr. Ferraro requested an official job title to memorialize his position within the Company. Id. at 11. In January 2013 he signed a three-year employment agreement to serve as the Company's chief ethics officer. Id. The agreement provided that Mr. Ferraro would maintain his current salary (the same salary he received as CEO). Id. It also contained a provision that required the Company to pay him $5, 000 per month for each month Mr. Ferraro remained a guarantor on the corporate loans, if the loans were not satisfied by July 2013. Id. at 12. Although the agreement did not contain a renewal provision, Mr. Ferraro claims that Mr. Quinlan promised at the time of signing-and repeatedly during the employment term-that he would renew Mr. Ferraro's agreement if the Company had not been sold by the end of the three-year term. Id. Despite Mr. Quinlan's assurances, the Company decided not to renew his employment agreement when his term expired. Id. at 15. The Company did not offer him another position. Mr. Ferraro's last day of employment was January 3, 2016. Id. at 18. He was 62 years old. Id. at 16. Mr. Ferraro filed this lawsuit on March 28, 2017. He originally asserted twelve claims, but after settlement discussions, ten claims remain.


         A. Standards Governing Summary Judgment.

         The Court may grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the nonmoving party. Concrete Works of Colorado, Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         B. Standards Governing Expert Testimony.

         Under Rule 702 of the Federal Rules of Evidence, a qualified expert may provide opinion testimony if his specialized knowledge would assist the jury in doing its job (factfinding), and the opinions are based on sufficient facts and reliable methods properly applied to the facts. Put another way, the evidence must be both relevant and reliable. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589 (1993). Expert opinions are relevant if they would “help the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702; see also Daubert, 509 U.S. at 591. They are reliable if, in addition to the expert being qualified, his opinions are “scientifically valid” and based on “reasoning or methodology [that] properly can be applied to the facts in issue.” Daubert, 509 U.S. at 593.

         The proponent of expert testimony has the burden to show that the testimony is admissible. Nacchio, 555 F.3d at 1241. The trial court plays a “gatekeeping” role that involves an assessment of the “reasoning and methodology underlying the expert's opinion” and a determination of “whether it is scientifically valid and applicable to a particular set of facts.” Goebel v. Denver and Rio Grande Western R.R. Co., 215 F.3d 1083, 1087 (10th Cir. 2000). However, the trial court has discretion as to how to perform this gatekeeping function. Id. It is not a role that emphasizes exclusion of expert testimony. Judge Kane aptly summarized the thrust of Daubert in interpreting and applying Rule 702:

A key but sometimes forgotten principle of Rule 702 and Daubert is that Rule 702, both before and after Daubert, was intended to relax traditional barriers to admission of expert opinion testimony. Accordingly, courts are in agreement that Rule 702 mandates a liberal standard for the admissibility of expert testimony. As the Advisory Committee to the 2000 amendments to Rule 702 noted with apparent approval, “[a] review of the ...

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