Ferraro v. Convercent, Inc. et al
ORDER granting in part and denying in part 15 Motion to Dismiss; granting 19 Motion to Dismiss by Judge R. Brooke Jackson on 10/19/17. (jdyne, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 17-cv-00781-RBJ
EUGENE F. FERRARO, an individual,
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,
ORDER ON PARTIAL MOTIONS TO DISMISS
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
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.
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).
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 Colorado courts do not recognize
individual liability for public policy wrongful discharge claims. ECF No. 15. I agree.
Courts in this district have held that “there is no individual liability for a public policy
wrongful discharge claim under Colorado law.” Jeffers v. Denver Public Schools, No. 16-CV02243-CMA-MJW, 2017 WL 2001632, at *7 (D. Colo. May 11, 2017) (citing Ayon v. Kent
Denver School, No. 12-CV-02546-WJM-CBS, 2013 WL 1786978, at *6 (D. Colo. Apr. 26,
2013)). Indeed, a claim for public policy wrongful discharge asserted against a supervisor
individually rather than against the employer itself must be dismissed because “‘a claim for
wrongful discharge is predicated on the existence of an employment relationship.’” Spaziani v.
Jeppesen Sanderson, Inc., No. 14-CV-REB-KMT, 2015 WL 5307971, at *3 (D. Colo. Sept. 11,
2015) (quoting Ayon, 2013 WL 1786978).
Plaintiff urges the Court to depart from this precedent. Specifically, he criticizes the
court’s reasoning in Ayon. There, the court noted a dearth of case law about the individual
liability of agents of a defendant employer for wrongful discharge claims, but it ultimately
adopted the principle that “an agent is not personally responsible for a breach of an employment
relationship, unless the agent created the relationship without first disclosing the responsible
principal corporation to which he answered as an agent.” 2013 WL 1786978, at *7–*8 (citing
Leonard v. McMorris, 63 P.3d 323 (Colo. 2003)) (emphasis in the original). Plaintiff implies
that the Ayon court improperly relied on Leonard because the latter was based on “agency
principles and corporate law governing liability of an officer for breach of a corporate contract or
for a corporate debt.” ECF No. 18 at 4. Instead, plaintiff argues for the application of tort
principles, under which he argues that “an officer of a corporation is personally liable for his or
her participation in the tort, even though committed on behalf of a corporation.” Id.
However, plaintiff derives support from tort cases that are unrelated to wrongful
discharge. See id. (citing Vaske v. DuCharme, McMillen & Assoc., Inc., 757 F. Supp. 1158,
1166 (D. Colo. 1990) (after granting summary judgment in defendants’ favor on a wrongful
discharge claim, the Court found that individual defendants could be personally liable for the
remaining tort claims that survived summary judgment); Hoang v. Arbess, 80 P.3d 863, 867–68
(Colo. App. 2016) (finding a defendant could be individually liable for negligence, negligent
misrepresentation, and negligent nondisclosure); Galie v. RAM Assocs. Mgmt. Servs., Inc., 757
P.2d 176, 177 (Colo. App. 1988) (finding defendants could be individually liable for negligence
and negligent misrepresentation)). Additionally, plaintiff skips the fact that the Ayon court
expressly noted the context out of which Leonard emerged but nonetheless decided to apply its
principles to the wrongful discharge claim context. See Ayon, 2013 WL 1786978, at *7–8
(noting that Leonard was a Wage Claim case rather than “a wrongful discharge claim per se,”
but deciding to adopt its principle in the wrongful discharge context).
Because plaintiff has not pled that Mr. Quinlan was his employer or that Mr. Quinlan
created an employment relationship between Mr. Ferraro and Convercent without disclosing Mr.
Quinlan’s employment relationship with Convercent, individual liability does not attach. As
such, defendants’ motion to dismiss plaintiff’s claim for wrongful discharge against Mr. Quinlan
B. Breach of Contract Claim Against Convercent.
Plaintiff claims that Convercent breached its employment agreement in which it promised
to either remove Mr. Ferraro from all guarantees by July 1, 2013 or pay him $5,000 per month
thereafter until the guarantees were terminated. ECF No. 1 at 24. Defendants move to dismiss
this claim on the grounds that it is barred by the statute of limitations. ECF No. 15 at 6.
In Colorado, breach of contract actions must be commenced within three years of the
accrual of the cause of action. Colo. Rev. Stat. § 13-80-101(1)(a). An action for breach of
contract accrues when the breach “is discovered or should have been discovered by the exercise
of reasonable diligence.” Id. § 13-80-108(6); see also Nelson v. State Farm Mut. Auto. Ins. Co.,
419 F.3d 1117, 1121 (10th Cir. 2005). According to defendants, since plaintiff claims that he
should have been removed from all guarantees by July 1, 2013, he “could have exercised
reasonable diligence on that date to determine if, in fact, he had been removed.” ECF No. 15 at
6. As such, defendants argue that plaintiff’s cause of action accrued in July 2013 and was
therefore time barred when it was filed more than three years later in March 2017. Id.
The statute of limitations is an affirmative defense that is generally decided either on a
motion for summary judgment or at trial. Gainzero v. Wal-Mart Stores, Inc., No. 09-CV-00656REB-BNB, 2011 WL 1085647, at *3 (D. Colo. Mar. 24, 2011). It can be decided against a
plaintiff on a motion to dismiss under Rule 12(b)(6) only “when the application of the limitations
period is apparent on the face of the complaint.” Id. (citing Dummar v. Lummis, 543 F.3d 614,
619 (10th Cir. 2008). This is not such a case.
It is not evident from plaintiff’s complaint at what point he knew or should have known
that he had not been removed from the guarantees or that he was not being paid $5,000 per
month thereafter. Plaintiff does not bear the burden to provide this information at this stage;
instead “defendants bear the burden of submitting evidence to establish this affirmative defense.”
Gainzero, 2011 WL 1085647, at *3. Defendants’ contention that he “could have exercised
reasonable diligence” on July 1, 2013 to determine whether he had been removed from the
guarantee does not answer whether, in the exercise of reasonable diligence, he should have
discovered that he had not been removed by that date (or by any other date before March 28,
2014, three years before this case was filed).
In his response, plaintiff argues that he exercised reasonable diligence to determine if he
had been removed from the guarantees. ECF No. 18 at 5. He refers—by way of exhibits—to
inquiries he made to defendants prior to July 1, 2016 about whether he had been removed from
the guarantees. Id. at 6. However, unless I convert plaintiff’s motion to dismiss into a motion
for summary judgment, I am limited to determining the sufficiency of the complaint based on the
complaint’s contents alone. See Fed. Rule of Civ. Pro. 12(d); see also Gee v. Pacheco, 627 F.3d
1178, 1186 (10th Cir. 2010). As a result, I will not rely on plaintiff’s exhibits.
However, I do not agree, as defendants contend, that plaintiff’s reliance on such exhibits
belies the fact that his complaint is insufficiently pled. ECF No. 24 at 5. Instead, I find that
while plaintiff’s complaint does not provide details about the due diligence he did or did not
perform after July 1, 2013, it provides no reason to conclude that he must or should have known
immediately on that date or thereafter that the guarantees had not been terminated or that his
name had not been removed. As such, it is not clear from the face of the complaint that his cause
of action must have accrued immediately on July 1, 2013 or on any given date thereafter such
that his claim is barred by the statute of limitations. Defendants’ motion to dismiss this claim is
C. Civil Conspiracy Claim Against Mr. Quinlan and Mr. Foster.
Plaintiff alleges that Mr. Quinlan and Mr. Foster agreed through words or conduct “to
obtain control over the Company and wrongfully terminate Mr. Ferraro through unlawful
means.” ECF No. 1 at 29. Defendants argue that plaintiff’s “bare assertions” of a conspiracy fail
to sustain his burden at the motion to dismiss stage. ECF No. 15 at 7.
To establish a civil conspiracy claim under Colorado law, Plaintiff must demonstrate:
(1) an object to be accomplished; (2) an agreement by two or more persons on a
course of action to accomplish that object; (3) in furtherance of that course of
action, one or more unlawful acts which were performed to accomplish a lawful
or unlawful goal, or one or more lawful acts which were performed to accomplish
an unlawful goal; and (4) damages to the plaintiff as a proximate result.
Mecca v. United States, 389 F. App'x 775, 779–80 (10th Cir. 2010) (emphasis added). Here,
defendants argue that plaintiff has failed to provide factual allegations supporting his “bare
assertion” of an agreement between the parties. ECF No. 15 at 7.
“[T]o survive a Motion to Dismiss, a complaint must present ‘enough factual matter
(taken as true) to suggest that an agreement was made… [and] to raise a reasonable expectation
that discovery will reveal evidence of illegal agreement.’” Beltran v. InterExchange, Inc., 176 F.
Supp. 3d 1066, 1072 (D. Colo. 2016) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)). An agreement may be established by either direct or circumstantial evidence. Id.
Courts may not infer an agreement necessary to form a conspiracy, but instead plaintiffs must
present evidence of such an agreement. Medved v. DeAtley, No. 12-CV-03034-PAB-MEH, 2013
WL 4873054, at*10 (D. Colo. Sept. 11, 2013). Plaintiff “must at the very least allege ‘a course
of conduct and other circumstantial evidence . . . providing some indicia of agreement in an
unlawful means or end.’” Scott v. Hern, 216 F.3d 897, 918 (10th Cir. 2000) (quoting Schneider
v. Midtown Motor Co., 854 P.2d 1322, 1327 (Colo. App. 1992).
Pleadings are insufficient where they merely “generally aver that defendants ‘agreed, by
words or conduct, to accomplish an unlawful goal or accomplish a goal through unlawful
means.’” Mecca, 389 F. App’x at 780. The court in Mecca noted that it could not “infer from
defendants’ independent acts an agreement to realize” a potentially unlawful goal. Id.
Defendants urge this Court to similarly find that there are no factual allegations supporting the
assertion of an agreement in this case. ECF No. 15 at 7. I am not convinced.
Contrary to defendants’ contention, plaintiff has provided “some setting suggesting the
agreement necessary” to make a claim of civil conspiracy. Twombly, 550 U.S. at 557. Plaintiff
alleges that Mr. Foster, then President of the Company and an employee of Mr. Ferraro’s for
over ten years, willfully concealed information about Nebbiolo’s abilities and reputation and did
not reveal his own association with the firm when he introduced Mr. Ferraro to Nebbiolo in
2012. ECF No. 1 at 5–8. Mr. Foster and Mr. Quinlan later allegedly worked together to create a
more favorable stock purchase agreement without informing Mr. Ferraro. Id. at 9–10. Finally,
Mr. Foster urged Mr. Ferraro not to terminate the PSA with the Company despite Mr. Ferraro’s
concerns about Mr. Quinlan’s and Nebbiolo’s activities. Id. at 9. I find that, if true, these factual
allegations are suggestive of an illegal agreement. It is difficult to imagine Mr. Foster’s
engaging in this course of action against Mr. Ferraro’s interest without agreeing with Mr.
Quinlan about how to proceed. Thus, these factual allegations exceed mere “parallel conduct”
and suffice to suggest an agreement. Shimomura v. Carlson, 17 F. Supp.3d 1120, 1130 (D. Colo,
Because plaintiff has provided “enough fact to raise a reasonable expectation that
discovery will reveal evidence of illegal agreement,” Twombly, 550 U.S. at 556, defendants’
motion to dismiss this claim is DENIED.
D. Colorado Organized Crime Control Act Claim Against Nebbiolo.
Plaintiff alleges that Nebbiolo, Mr. Quinlan, and Mr. Foster violated the Colorado
Organized Crime Control Act (“COCCA”), Colo. Rev. Stat. §§ 18-17-101, et seq. ECF No. 1 at
30. In particular, plaintiff argues that “Nebbiolo and its members, along with Mr. Foster, are ‘an
enterprise’” that “engaged in a scheme to take control of the Company illicitly and through a
pattern of racketeering.” Id. Nebbiolo raises only one argument in seeking dismissal of the
COCCA claim, i.e., that Plaintiff failed to plead his COCCA claim with particularity. ECF No.
19 at 2. Nebbiolo argues that plaintiff’s complaint “asserts in conclusory fashion that at least
two acts of fraud occurred but does not state which acts constitute that fraud, how many
instances of fraud there were, or whether each instance allegedly constituted mail fraud versus
wire or securities fraud.” ECF No. 19 at 4. I agree.
COCCA makes it illegal for “any person, through a pattern of racketeering activity . . . to
knowingly acquire or maintain, directly or indirectly, any interest in or control of any
enterprise.” C.R.S. § 18-17-104(2). Additionally, it is unlawful for any person employed by or
associated with an enterprise “to knowingly conduct or participate, directly or indirectly, in such
enterprise through a pattern of racketeering activity.” Id. § 18-17-104(3). A pattern of
racketeering activity is defined as “engaging in at least two acts of racketeering activity which
are related to the conduct of the enterprise. Id. § 18-17-103(3). Plaintiff contends that an
enterprise comprised of Nebbiolo, its members, and Mr. Foster violated COCCA by engaging in
a pattern of fraud with the purpose of acquiring an interest in or control of Convercent. ECF No.
1 at 30–31. The pattern of racketeering activity plaintiff alleges defendants engaged in includes
two or more acts of wire, mail, and securities fraud. Id. at 30.
“It is well-established that if the predicate acts underlying a COCCA claim are
fraudulent acts, the circumstances must be pled with the particularity required by Rule 9(b) of the
Federal Rules of Civil Procedure and the Colorado Rules of Civil Procedure.” Henson v. Bank of
Am., 935 F. Supp.2d 1128, 1137 (D. Colo. 2013). Rule 9(b) requires that a party claiming fraud
or mistake must state “with particularity the circumstances constituting fraud or mistake.” ECF
No. 19 at 2–3. “So for example, where mail or wire fraud is alleged as a predicate act, ‘the
plaintiff must specify the time, place, and content of the alleged false representation and describe
with particularity any allegedly fraudulent transaction, and how the particular mailing or
transactions furthered the fraudulent scheme.’” Henson, 935 F. Supp. 2d at 1137–38 (quoting
Weiszmann v. Kirkland & Ellis, 732 F. Supp. 1540, 1546 (D.Colo.1990)).
In this case, although plaintiff provides facts about communications and representations
made by Nebbiolo, Mr. Quinlan, and Mr. Foster (ECF No. 1 at ¶¶ 21–80), he has not explained
which of these representations constituted fraud, whether the alleged fraud was mail, wire, or
securities fraud, and whether the particular instances of alleged fraud should be attributed to one
or more of the defendants in particular. Moreover, plaintiff does not explain how each of the
particular communications or transactions “furthered the fraudulent scheme.” Henson, 935 F.
Supp.2d at 1137–38. Because I cannot determine which predicate acts support plaintiff’s
COCCA claim against Nebbiolo, the motion to dismiss with respect to this claim is GRANTED,
but the dismissal in this instance must be without prejudice. 1
For the reasons stated above, defendants Convercent’s, Mr. Quinlan’s, and Mr. Foster’s
partial motion to dismiss [ECF No. 15] is GRANTED in part and DENIED in part. Plaintiff’s
wrongful discharge claim against Mr. Quinlan is dismissed with prejudice, but the motion is
otherwise denied. Defendant Nebbiolo’s partial motion to dismiss [ECF No. 19] is GRANTED.
The COCCA claim against Nebbiolo is dismissed without prejudice.
DATED this 19th day of October, 2017.
Although plaintiff may move to amend his complaint, I will not grant a motion to amend based solely on
his response to the defendant’s motion to dismiss. See ECF No. 23 at 4; D.C.COLO.LCivR 7.1(d) (“A
motion shall not be included in a response or reply to the original motion”).
BY THE COURT:
R. Brooke Jackson
United States District Judge
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