S&G Labs Hawaii, LLC vs. Graves

Filing 121

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT re 95 - Signed by JUDGE LESLIE E. KOBAYASHI on 2/17/2021. For the foregoing reasons, Graves's Motion for Summary Judgment, filed November 4, 2020, is HEREBY GRANTED, insofar as summary judgment is granted in favor of Graves as to all of the claims in S&G's First Amended Complaint, filed March 1, 2020. The only claims remaining at issue in this case are Graves's claims in his Second Amended Counterclaim and his First Amended Third-Party Complaint, both filed on May 6, 2020. (emt, )

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UNITED STATES DISTRICT COURT
DISTRICT OF HAWAII

S&G LABS HAWAII, LLC, A HAWAII
LIMITED LIABILITY COMPANY,

CIV. NO. 19-00310 LEK-WRP

Plaintiff,
vs.
DARREN GRAVES,
Defendant.
ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Before the Court is Defendant/Counter Claimant/ThirdParty Plaintiff Darren Graves’s (“Graves”) Motion for Summary
Judgment (“Motion”), filed on November 4, 2020.

[Dkt. no. 5.]

Plaintiff/Counterclaim Defendant S&G Labs Hawaii, LLC (“S&G”)
filed its memorandum in opposition on December 28, 2020, and
Graves filed his reply on December 31, 2020.
103.]

[Dkt. nos. 102,

This matter came on for hearing on January 15, 2021.

Graves’s Motion is hereby granted for the reasons set forth
below.

Although some of Graves’s arguments were either rejected

or were not considered by this Court, the Motion is granted in
its entirety because Graves is entitled to summary judgment as
to all of S&G’s claims against him.

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BACKGROUND
I.

Factual Background
S&G operates in Kona, Hawai`i.

Third-Party Defendant

Lynn Puana, M.D. (“Dr. Puana”), is S&G’s chief executive
officer.

[Graves’s concise statement of facts in supp. of

Motion (“CSOF”), filed 1/4/20 (dkt. no. 96), at ¶¶ 1, 6; Mem. in
Opp. at 2 (admitting CSOF ¶¶ 1-4, 6, 7, 9-14, 16-18, 31-34, 3740, 42, and 44-45).]

Dr. Puana is also the sole owner of S&G.

[Mem. in Opp., Decl. of Lynn Puana, M.D. (“Puana Decl.”) at
¶ 2.]

S&G is a medical laboratory testing facility.

Relevant

to this case, S&G performs urinalysis screening for legal
substances, as well as for controlled substances for physicians,
substance abuse treatment centers, and other types of
organizations.

[Id. at ¶ 4.]

The parties agree that “[t]he

urine drug testing industry is highly standardized and requires
compliance with generally accepted industry practices and
procedures to maintain required certifications.”
Mem. in Opp. at 2.]

[CSOF at ¶ 2;

According to Dr. Puana:

5.
S&G Labs is compensated for the testing
services on a “per test” basis by third party
insurers, government agencies under the Medicare
and Medicaid programs, and direct “self-pay” by
some individuals. Payments are received on
behalf of the individuals tested, not the
“clients” who direct the individuals to S&G Labs
for testing services.
6.
S&G Labs has no “contractual”
relationships with the persons and entities that
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are referred to as “Clients” - the physicians,
substance abuse counseling centers, or other
organizations in need of having persons tested.
S&G Labs receives no compensation from
physicians, substance abuse treatment centers, or
other similar types of organizations who refer
individuals for testing. Those “clients” are
free to cease using the services of S&G Labs and
direct their patients to other medical lab
testing companies at any time.
7.
The biggest factor in maintaining the
relationship with these “clients” is their
satisfaction with testing services provided, as
competitors in the industry do not compete on the
basis of “price.” The third-party insurers and
government agencies unilaterally set
reimbursement rates for lab testing under the
plan participation agreements under which the
persons being tested are covered.
[Puana Decl. at pgs. 2-3.]
A.

Graves’s Employment Agreement
Graves was employed by S&G as a manager overseeing

client accounts.1

His employment began on March 6, 2017, and his

contract was valid until March 6, 2023.

[CSOF at ¶¶ 3-4; Mem.

in Opp. at 2; CSOF, Decl. of Darren Graves (“Graves Decl.”),
Exh. A (Employment Agreement).]

Graves’s compensation consisted

of: a base annual salary of $50,000; thirty-five percent of the
monthly net profits generated by his client accounts; and a
portion of the thirty-five percent monthly net profits generated

1

Graves’s position at S&G was the Business Development
Manager, and he supervised the S&G sales team, [Puana Decl. at
¶ 2,] which consisted of Graves, Third-Party Defendant Stefanie
Bade-Castro (“Bade-Castro”), and Justin Gay (“Gay”), [Mem. in
Opp. at 3].
3

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by the accounts handled by the S&G employees who Graves managed.
[Graves Decl., Exh. A at 1 (stating the compensation was
determined pursuant to Schedule A to the Compensation
Agreement); - - - at 7 (Schedule A).]
id.

Graves’s Employment

Agreement also stated:
7. Restrictive Covenants
(a) During the Employee’s employment with
the Company, the Employee will not, directly or
indirectly, individually or as a consultant to,
or an employee, officer, director, manager,
stockholder, partner, member or other owner or
participant in any business entity, other than
the Company, engage in or assist any other person
or entity to engage in any business which
competes with the Company’s Business, regardless
of where that business is located, unless
mutually agreed upon and documented.. [sic]
(b) Employee shall have no obligations
under Section 7(a) beyond the period of his
employment by the Company.
(c) During the Employee’s employment with
the Company, whether or not under this Agreement,
and at all times thereafter, the Employee will
not, directly or indirectly, make any disparaging
statement, written or oral, about the Company or
any of its practices, affiliates, directors,
officers, employees, stockholders, managers,
members, partners, agents, attorneys or
representatives. This Section shall not,
however, prohibit Employee from testifying
truthfully as a witness in any court proceeding
or governmental investigation or from exercising
in good faith such party’s rights under this
Agreement, any other Agreement or applicable law.
(d) Employee shall not, either during the
term of this Agreement or within 2 years after
termination, solicit any Company employees to

4

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leave the Company’s employment, other than [six
individuals who are not relevant to this case].
(e) Employee agrees that during the term of
this employment and for 2 years thereafter, he
will not solicit the following existing or
prospective clients: Puana Pain Clinic, BISAC
(all locations), Lokahi (West, Waikoloa, and
North locations), and Dr. McKenna’s clinics on
all islands. Furthermore, during that same time
frame Employee will not accept any of the
aforementioned clients as clients of his own or
clients of any company for which he works. The
Company agrees that except for these clients,
employee may solicit the remaining, existing or
perspective clients.
8.
Remedies. Without limiting the
remedies available to the Company, the Employee
acknowledges that a breach of any of the
covenants contained in Sections 6 or 7 herein
could result in irreparable injury to the Company
for which there might be no adequate remedy at
law, and that, in the event of such a breach or
threat thereof, the Company shall be entitled to
obtain a temporary restraining order and/or a
preliminary injunction and a permanent injunction
restraining the Employee from engaging in any
activities prohibited by Sections 6 or 7 herein
or such other equitable relief as may be required
to enforce specifically any of the covenants of
Sections 6 or 7 herein. Employee agrees that if
any of the restrictive covenants contained in the
noncompete section of this Agreement are
determined by a court of law to be overly broad,
that their desire is for the court to reform the
restrictive covenants and enforce them to the
extent allowed by law.
[Graves Decl., Exh. A at 2-3 (emphases in original).]

Dr. Puana

admits the Employment Agreement did not have a traditional noncompete provision, and therefore Graves could immediately go to

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work for an S&G competitor if he left S&G.

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[Puana Decl. at

¶ 21.]
B.

Attempted Negotiation of a New Agreement
In early 2019, S&G General Counsel David Vaughn

(“Vaughn”) told Dr. Puana about the Substance Use - Disorder
Prevention that Promotes Opioid Recovery and Treatment for
Patients and Communities Act of 2018, which took effect on
November 1, 2018.

Vaughn told her that one of the components of

that legislation - the Eliminating Kickbacks in Recovery Act
(“EKRA”) - sought to prevent the medical testing industry from
using incentive-based compensation agreements, i.e., agreements
where a laboratory employee’s pay is related to the number of
tests that the laboratory performs.2

Vaughn advised Dr. Puana

that, under EKRA, she could face criminal penalties, including
up to ten years of imprisonment, if she continued to follow the
S&G sales team’s existing employment agreements, which based the
sales employees’ compensation on the number tests that S&G
performed.3

[Puana Decl. at ¶¶ 14-15.]

The parties agree that:

2

The EKRA is Subtitle J of the larger act.
271, 132 Stat. 3894, 3900 (2018).
3

Pub. L. 115-

S&G represents that the maximum penalty per violation of
EKRA is ten years of imprisonment and a $200,000 fine. [Mem. in
Opp. at 4 (some citations omitted) (citing 18 U.S.C. § 220(a)).]
6

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-in March or April 2019, Dr. Puana informed the S&G account
executives that she intended to revise their employment
agreements, as required by EKRA;4
-in April 2019, Vaughn spoke with Graves, Bade-Castro, and Gay
about the new law and the intended new compensation
structure;5
-on April 23, 2019, Dr. Puana sent Graves a draft of the
proposed employment agreement, which provided for a flat,
one-million-dollar salary (“4/23/19 Draft”);6 and
-on April 29, 2019, Dr. Puana sent him another draft of the
agreement, which included a non-compete provision, and a
non-solicitation provision (“4/29/19 Draft”).7
4

Dr. Puana states that, based on Vaughn’s advice, she
determined that she could not continue to pay Graves under his
existing Employment Agreement, or she would expose herself, S&G,
and its employees to criminal liability, and she informed Graves
of her determination. [Puana Decl. at ¶ 17; id., Exh. B (email
dated April 3, 2019 from Dr. Puana to Graves and others
regarding upcoming conference call with Vaughn to discuss
EKRA).]
5

According to the Graves, during this conference call,
there was no mention of material changes to other terms of the
Employment Agreement, such as the non-compete provisions.
[Graves Decl. at ¶¶ 8-9.]
6

The 4/23/19 Draft provided that, in addition to the
salary, Graves would be eligible for discretionary, quarterly
bonuses. If S&G elected to pay a bonus, in determining the
amount of the bonus, it would consider the factors listed in the
employment agreement, which included: visits and contacts with
existing accounts; the opening of new accounts; the loss of
existing accounts; and various intra-office actions, like
punctuality and attendance. [Graves Decl., Exh. B (email from
Dr. Puana to Graves transmitting the 4/23/19 Draft) at 7.]
Dr. Puana told Graves she was going to start paying him under
the new compensation structure, even though the revised
employment agreement had yet to be finalized. [CSOF at ¶ 14;
Mem. in Opp. at 2.]
7

The 4/29/19 Draft provided that, during Graves’s
employment and for one year thereafter, he would neither solicit
(. . . continued)
7

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[CSOF at ¶¶ 6-7, 9-10; Mem. in Opp. at 2.]

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The parties also

agree that Graves was dissatisfied with the non-compete
provision, and he and Dr. Puana engaged in good-faith contract
negotiations through May 2019.

On May 15, 2019, Graves spoke

with Dr. Puana about removing the non-compete provision from the
draft, but she refused.

[CSOF at ¶¶ 11-12; Mem. in Opp. at 2.]

Graves was unhappy with the new compensation
structure, and he argued EKRA did not apply to contracts such as
his.

Dr. Puana believed Graves might decide to leave S&G rather

than accept the new compensation structure.

Further, Graves had

previously expressed a desire to acquire an ownership interest
in S&G, but Dr. Puana had told him that was not possible because
he was not a physician.

He also told her that, in the future,

he wanted open his own laboratory business.

Dr. Puana therefore

recognized that Graves could decide to leave S&G if they did not
agree on a new contract, and she was prepared to offer him more
money to convince him to stay.

However, under the

circumstances, she wanted to add a non-compete clause to
Graves’s contract, and she did so for the entire sales team as
well.

[Puana Decl. at ¶¶ 20-22.]

any of S&G’s clients nor accept any of those clients as his own
clients or as the clients of any company that he worked for or
otherwise provided services for. [Graves Decl., Exh. C (email
from Dr. Puana to Graves transmitting the 4/29/19 Draft) at 4.]
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Although she was unaware of it at the time, Dr. Puana
later learned that Graves had urged Bade-Castro and Gay to join
him in resisting the new employment agreements being proposed by
S&G, and he told them that the three of them could move as a
group to another medical laboratory.

[Id. at ¶ 28.]

After

Bade-Castro signed her new employment agreement with S&G, she
told Dr. Puana about the discussions she had with Graves about
resisting the proposed contracts.

[Id. at ¶ 30.]

According to Graves, Dr. Puana unilaterally imposed
the new compensation structure and decreased Graves’s pay,
effective May 20, 2019.

Graves Decl. at ¶¶ 16-17; see also id.,

Exh. E (emails dated May 15, 2019 between Dr. Puana and Graves)
at 1 (12:27 p.m. email, in which Dr. Puana stated, “since I’m
waiting on your signed contract I used a base figure for this
pay period as the pay day on the 20th is for May 1-15 pay
period.”).
On May 21, 2019, Dr. Puana gave Graves a May 24, 2019
deadline to execute the proposed employment agreement, and she
said she would “‘uphold pay’” if he did not do so.
¶ 16; Mem. in Opp. at 2.]

[CSOF at

Graves informed Dr. Puana of his

concerns about the proposed employment agreement and the
negotiation process itself.

On May 22, 2019, Dr. Puana told

Graves: further discussions between them would be a waste of
time; Graves’s attorney should discuss the contract with Vaughn;
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and Graves should thereafter make a quick decision on the
proposed agreement.

[CSOF at ¶¶ 17-18; Mem. in Opp. at 2.]

Graves made multiple requests to meet with Dr. Puana
in person to discuss the proposed employment agreement, but she
refused.

On June 6, 2019, Dr. Puana, Vaughn, Graves, and his

attorney participated in a conference call to discuss Graves’s
proposed agreement.

Dr. Puana insisted on a one-year non-

compete provision, and she said Graves would be terminated if he
did not agree to her terms.

[CSOF at ¶¶ 31-33; Mem. in Opp. at

2.]
C.

Graves’s Communications with an S&G Competitor
In mid-May 2019, Graves contacted George Powell

(“Powell”), who was a member of WHIC LLC, doing business as
Aloha Toxicology (“Aloha Toxicology”),8 and told Powell that he
may not be working at S&G much longer.

Powell said that, if

Graves left S&G, Aloha Toxicology might be open to hiring him as
a sales representative.

Powell also said Daniel Hlavachek

(“Hlavachek”), one of Aloha Toxicology’s owners and members,
would want to talk to Graves about it.

Graves asserts he did

not disclose any confidential information to Powell, nor did he

8

Aloha Toxicology “provid[es] laboratory services to
various treatment and healthcare facilities in the state of
Hawaii.” [CSOF, Decl. of Leighton M. Hara, Esq. (“Hara Decl.”),
Exh. K (Decl. of Dan Hlavachek, dated 8/6/19 (“Hlavachek
Decl.”)) at 3.]
10

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make negative or derogatory statements about Dr. Puana, S&G or
other S&G employees.

[Graves Decl. at ¶ 19.]

In early June 2019, Graves spoke to Hlavachek on the
telephone.

Graves said he was in negotiations with S&G

regarding a non-compete clause, but he did not disclose S&G’s
compensation structure, nor did he relay S&G’s
confidential/operational information.

Graves and Hlavachek

discussed Graves’s possible employment opportunities at Aloha
Toxicology, including compensation, possible commission rates,
future ownership options, and Aloha Toxicology’s operations.
[Id. at ¶ 20.]

Hlavachek and Graves discussed Aloha

Toxicology’s equipment, its certifications, and its lab manager.
Hlavachek asked Graves how many specimens he could bring with
him if he went to work for Aloha Toxicology, and Graves stated
he could bring more than one thousand specimens per month.
Hlavachek assured Graves that Aloha Toxicology could handle up
to two thousand additional specimens per month.

Hlavachek did

not make Graves an offer of employment during this call.
Decl., Exh. K (Hlavachek Decl.) at ¶¶ 9-11.]

[Hara

Graves ultimately

did not obtain employment with Aloha Toxicology.

See Graves

Decl. at ¶ 31 (“Since November 21, 2019, I have been contracted
with Pacific Toxicology Laboratories as an independent
contractor.”).

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Hlavachek confirms Graves’s statement that Graves did
not disclose confidential information about S&G or its clients.
See Hara Decl., Exh. K (Hlavachek Decl.) at ¶ 12.

---

Graves

states:
21. Other than what I described above, I
have never discussed with a competitor of S&G,
S&G’s compensation or commission structure,
equipment, internal systems or processes,
business volume, or other information regarding
S&G’s internal operations. Nor have I ever
discussed any confidential information regarding
S&G’s clients with any potential competitor of
S&G.
22. At no time did I make any negative or
derogatory comments about [Dr. Puana], S&G, or
any S&G employee to any individual or entity
outside of S&G.
[Graves Decl. at pg. 6.]
Bade-Castro moved to S&G with Graves from Precision
Diagnostics in March 2017.

She states Graves told her about his

on-going discussions with Aloha Toxicology, and he said he
wanted her and Gay to stick with him and take all of their
business to a new laboratory.

On more than one occasion, Graves

invited her to participate in his telephone calls with someone
from Aloha Toxicology, but she declined every time.

However,

Graves would update her about the substance of those telephone
calls afterward.

[Mem. in Opp., Decl. of Stefanie Bade-Castro

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in lieu of Testimony under Direct Examination (“Bade-Castro
Decl.”) at ¶¶ 2-4.9]

Bade-Castro states:

6.
Graves had described to me his earlier
conversations with “George,” and those included
discussions of the relative technical
capabilities of the two labs. Graves told me he
discussed with Aloha that they had more and
better testing equipment than S&G Labs. Graves
told me that Aloha would be able to handle the
larger number of samples for testing that would
be necessary if we were to move and bring our
accounts to Aloha for testing.
7.
Graves told me explicitly that he had
discussed with “George” the “turn-around” time
for S&G’s test results, and the number and
capacity of the “Liquid Chromatography Mass
Spectrometer” machines used by S&G Labs to test
the samples and the monthly volume.
8.
Graves told me that he discussed with
George S&G’s “in-network” contracts with
insurance companies for testing services.
9.
Graves told me that Aloha Technology
had agreed to match the 15% commission share in
my S&G employment contract - the provision that
was being eliminated by S&G Labs because of EKRA
-- expressly stating that he told Aloha
Technology that was my commission at S&G and that
it would be necessary for them to match that
figure. He told me they agreed, subject to the
“money” guy’s approval.
[Id. at pgs. 3-4.]

Bade-Castro was concerned because: the

“specimen technicians” who worked at S&G had non-compete clauses
in their contracts and could not leave with the sales executives

9

Although the title of the declaration suggests that it is
the same one which S&G submitted in support of its motion for a
preliminary injunction, it is dated December 28, 2020. See
Bade-Castro Decl. at pg. 4.
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if they went to Aloha Toxicology; and some specimen technicians
could be left without jobs if the sales executives took so much
business with them to Aloha Toxicology that S&G had to fire
technicians.

[Id. at ¶ 10.]

Graves told Bade-Castro that it

was his intent to take so much business from S&G that S&G would
have to fire laboratory employees.

That conversation “was the

last straw” for Bade-Castro and, on June 6, 2019, she told
Dr. Puana about Graves’s attempts to take S&G clients with him
to Aloha Toxicology.
D.

[Id.]

Graves’s Suspension and Termination
On June 14, 2019, Dr. Puana suspended Graves with pay

and instructed him not to contact S&G clients.
Mem. in Opp. at 2.]

[CSOF at ¶ 34;

Dr. Puana suspended him because of his

continuing refusal to sign the proposed employment agreement and
because she was uncertain about the status of Graves’s
discussions with Aloha Toxicology.

[Puana Decl. at ¶ 34.]

As of July 5, 2019, “S&G unilaterally reduced Graves’
salary by nearly 95% to $2,083 per pay period.”
Mem. in Opp. at 2.]

[CSOF at ¶ 37;

On August 2, 2019, Graves sent an email to

Dr. Puana, arguing that suspending him and reducing his
compensation was unjustified and was a hardship on his family.
[CSOF at ¶ 38; Mem. in Opp. at 2.]
According to Graves, around the time of his
suspension, Dr. Puana and Bade-Castro began to arrange meetings
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with his clients.

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Some of Graves’s clients told him that,

during these meetings, they were informed that Graves would no
longer be servicing their accounts and/or that S&G had let
Graves go.

Some of Graves’s clients were confused and contacted

him to ask whether he was still with S&G.
¶ 26.]

[Graves Decl. at

Dr. Puana and Bade-Castro admit having these general

conversations with all S&G clients, beginning on June 16, 2019,
but both of them do not recall specific conversations.

The

subject of this pending action would come up during these
conversations, but Dr. Puana and Bade-Castro would not discuss
the details of the action with the S&G clients.

[Hara Decl.,

Exh. O (Dr. Puana’s answers to interrogs., dated 8/10/20) at
pg. 6; - - - Exh. P (Bade-Castro’s answers to interrogs., dated
id.,
3/6/20) at pg. 5.]
On August 5, 2019, S&G’s counsel informed Graves’s
counsel that there was no basis for S&G to either continue to
pay Graves or return him to the position he held before the
suspension.

On September 9, 2019, S&G’s counsel sent Graves’s

counsel an email transmitting a letter terminating Graves’s
employment for cause, effectively immediately (“Termination
Letter”).

[CSOF at ¶¶ 39-40; Mem. in Opp. at 2.]

The

Termination Letter stated: “The ‘for cause’ justification is
based on several separate and disparate factual events which
constitute material breaches of specific provisions of the
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employment agreement, each constituting ‘cause’ for termination.
Among the factual bases for your termination are the following:”
soliciting S&G employees to leave their employment, in violation
of paragraph 7(d) of the Employment Agreement; disclosing
confidential information, in violation of paragraph 6(d);
engaging in other activity that could be expected to interfere
with his duties at S&G, in violation of paragraph 3; engaging in
conduct that exposed S&G to public disrespect, contempt, or
ridicule, in violation of paragraph 10(b)(4); making disparaging
statements about S&G and its leadership, in violation of
paragraph 7(c); engaging in conduct that, if proven in court,
would expose S&G to civil liability, in violation of
paragraph 10(b); and engaging in conduct constituting moral
turpitude, in violation of paragraph 10(b).

[Hara Decl., Exh. I

(email transmitting the Termination Letter) at 2-4.]
Graves emphasizes that the reasons cited in the
Termination Letter were not investigated, nor were they
discussed with him.

Therefore, he had no opportunity to respond

to the allegations.

[CSOF at ¶ 41.]

S&G asserts Dr. Puana

investigated the conduct described in the Termination Letter,
and she discussed the information that she learned with Vaughn
and counsel who represents S&G in this case.

[Hara Decl.,

Exh. N (S&G’s answers to interrogs., dated 3/6/20) at pg. 19.]

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According to Dr. Puana, during Graves’s suspension, she learned
that Graves:
-made “derogatory and sexually demeaning comments” about her;
[Puana Decl. at ¶ 36;]
-engaged in inappropriate conversations with Bade-Castro and
about their respective sex lives with their spouses;10 [id.
at ¶ 37;]
-engaged in sexually explicit conversations with S.B.K., an
unmarried S&G employee, including offering to find her
sexual partners if she would do the same for him; [id. at
¶ 38;]
-initiated the explicit conversions, which were of a “longstanding and broad nature”; [id. at ¶ 39;] and
-held himself out to some of his clients as a partner in S&G,
[id. at ¶ 42].
Even prior to his suspension, Dr. Puana had to speak with Graves
about the “abrasive and condescending” manner in which he
interacted with laboratory staff, the majority of whom were
women.

[Id. at ¶ 36.]
Dr. Puana believed that, based on Bade-Castro’s and

S.B.K.’s statements, Graves could be found to have created a
hostile work environment for female S&G employees.
¶ 41.]

[Id. at

Dr. Puana admits that she did not review these

allegations with Graves during his suspension.

[Id. at ¶ 43.]

Dr. Puana ultimately issued the Termination Letter because,

10

The Bade-Castro Declaration does not address the
inappropriate conversations with Graves that Bade-Castro
reported to Dr. Puana.
17

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based on the totality of the circumstances and Graves’s refusal
to execute the proposed employment agreement, “it was clear to
[her] he could not return to his prior position with S&G Labs.”
[Id.]
The parties agree that: on August 30, 2019, S&G’s
counsel conceded that Graves had not caused S&G to suffer any
harm or damages; S&G provides information about its operations,
including the average time S&G takes to analyze samples, to its
customers and its prospective customers; and S&G’s website
includes pictures of, and information about, the testing
equipment that S&G uses.

[CSOF at ¶¶ 42, 44-45; Mem. in Opp. at

2.]
II.

Procedural Background
A.

The Pleadings
On June 13, 2019, prior to Graves’s termination, S&G

filed its Complaint in this case.

[Dkt. no. 1.]

On August 19,

2019, Graves filed his answer to the Complaint, which included a
counterclaim and a third-party complaint against Dr. Puana and
Bade-Castro.

[Dkt. no. 35.]

on October 7, 2019.

He filed an amended counterclaim

[Dkt. no. 58.]

On March 1, 2020, S&G filed

a First Amended Complaint and its answer to the amended
counterclaim.

[Dkt. nos. 63, 64.]

The First Amended Complaint alleges: a claim under the
Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §§ 1832, 1836(b)(1)
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(“Count I”); a claim under the Hawai`i Uniform Trade Secrets Act
(“HUTSA”), Haw. Rev. Stat. Chapter 482B (“Count II”); a breach
of contract claim based on competition against S&G
(“Count III”); a breach of contract claim based on solicitation
of subordinates to move to S&G’s competitor (“Count IV”); a
breach of contract claim based on Graves’s urging his
subordinates to refuse to execute their new contracts
(“Count V”); a breach of contract claim based on the creation of
a sexually hostile work environment, thereby exposing S&G to
civil liability (“Count VI”); a breach of contract claim based
on disparagement of S&G’s ownership and management in a vulgar
and profane manner (“Count VII”); a breach of contract claim
based on Graves’s misrepresentations that he was one of S&G’s
owners/partners (“Count VIII”); and a claim for declaratory
relief related to the alleged breaches of contract (“Count IX”).
On May 6, 2020, Graves filed his answer to the First
Amended Complaint, which included a Second Amended Counterclaim
and a First Amended Third-Party Complaint.
B.

[Dkt. no. 72.]

The Instant Motion
In the instant Motion, Graves seeks summary judgment

in his favor as to all of the claims in S&G’s First Amended
Complaint.

Graves’s claims in the Second Amended Counterclaim

and the First Amended Third-Party Complaint are not at issue in
the Motion.

Graves argues he is entitled to summary judgment as
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to Count I and Count II because S&G cannot establish that he
misappropriated information which constitutes a trade secret
under the DTSA and the HUTSA.

As to S&G’s breach of contract

claims,11 Graves argues S&G cannot recover on those claims
because S&G failed to perform its obligations under his March 6,
2017 Employment Agreement.

Graves also contends that, unless

the employment contract provides otherwise, an employer’s remedy
for an employee’s poor performance under an employment contract
is to discipline or terminate him.
In response to the Motion, S&G states that, because it
“lacks sufficient admissible and probative evidence that it has
suffered monetary damages as a result of Graves’s conduct,” it
intends to seek dismissal of Counts I and II prior to trial.
[Mem. in Opp. at 11.]

As to the breach of contract claims, S&G

argues the Puana Declaration and the Bade-Castro Declaration are
sufficient to raise genuine issues of material fact for trial.
S&G argues its reduction of Graves’s pay was warranted because:
1) EKRA rendered the salary provisions of his March 6, 2017
Employment Agreement ineffective and invalid; and 2) Graves’s
breaches of the agreement justified the reduction in his salary.
S&G argues this Court should reject Graves’s argument regarding
an employer’s inability to bring a breach of contract claim for

11

Graves analyzes Count IX as another breach of contract
claim. See, e.g., Mem. in Supp. of Motion at 20.
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poor performance because S&G’s claims are not based on poor
performance.
DISCUSSION
I.

Trade Secret Claims
S&G asks this Court to deny the portion of the Motion

seeking summary judgment as to Counts I and II because S&G
intends to dismiss those claims.

However, since filing its

memorandum in opposition on December 28, 2020, S&G has taken no
action to effectuate its stated intent to dismiss Counts I and
II.

This Court will therefore address the merits of the Motion

as to Counts I and II.
Under the DTSA: “An owner of a trade secret that is
misappropriated may bring a civil action under this subsection
if the trade secret is related to a product or service used in,
or intended for use in, interstate or foreign commerce.”

18

U.S.C. § 1836(b)(1).
[T]he term “trade secret” means all forms and
types of financial, business, scientific,
technical, economic, or engineering information,
including patterns, plans, compilations, program
devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or
codes, whether tangible or intangible, and
whether or how stored, compiled, or memorialized
physically, electronically, graphically,
photographically, or in writing if-(A) the owner thereof has taken reasonable
measures to keep such information secret;
and

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(B) the information derives independent
economic value, actual or potential, from
not being generally known to, and not being
readily ascertainable through proper means
by, another person who can obtain economic
value from the disclosure or use of the
information[.]
18 U.S.C. § 1839(3); see also 18 U.S.C. § 1839(4), (5)
(definitions of “owner,” and “misappropriation”).
definition of a “trade secret” is similar.

The HUTSA

See Haw. Rev. Stat.

§ 482B-2 (“‘Trade secret’ means information, including a
formula, pattern, compilation, program device, method,
technique, or process that: (1) Derives independent economic
value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other
persons who can obtain economic value from its disclosure or
use; and (2) Is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.”).
This district court has noted that, for
misappropriation of trade secrets claims, “the analysis is
essentially the same under either” the DTSA or the HUTSA.

WHIC

LLC v. NextGen Labs., Inc., 341 F. Supp. 3d 1147, 1161 (D.
Hawai`i 2018) (citing Veronica Foods Co. v. Ecklin, 2017 WL
2806706, at *13 (N.D. Cal. June 29, 2017)).

Further, “Hawaii

law defines ‘misappropriation’ nearly identically as does 18
U.S.C. § 1839(5).”

Id. (quoting Haw. Rev. Stat. § 482B-2).

Thus, “[t]o prevail on a HUTSA claim, a plaintiff must establish
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that there exists a trade secret and a misappropriation of that
trade secret,” and the same elements are required to prove a
DTSA claim.

Id. at 1162 & n.25.

This district court has also

stated:
“[A] plaintiff who seeks relief for
misappropriation of trade secrets must identify
the trade secrets and carry the burden of showing
that they exist.” MAI Sys. Corp. v. Peak
Computer, Inc., 991 F.2d 511, 522 (9th Cir.
1993).[12] The plaintiff “should describe the
subject matter of the trade secret with
sufficient particularity to separate it from
matters of general knowledge in the trade or of
special knowledge of those persons . . . skilled
in the trade.” Imax Corp. v. Cinema Techs.,
Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998)
(citing Univ. Analytics v. MacNeal-Schwendler
Corp., 707 F. Supp. 1170, 1177 (C.D. Cal. 1989)).
Admor HVAC Prods., Inc. v. Lessary, No. CV 19-00068 SOM-KJM,
2019 WL 2518105, at *9 (D. Hawai`i June 18, 2019) (some
alterations in Admor HVAC).
According to Graves, he did not disclose S&G’s
compensation structure, nor did he relay S&G’s
confidential/operational information during his discussions with
Aloha Toxicology about possible employment opportunities.
[Graves Decl. at ¶¶ 20-21.]

Graves also presents Hlavachek’s

testimony confirming that Graves did not disclose confidential
information about S&G or its clients.

12

See Hara Decl., Exh. K

MAI Systems was overruled on other grounds by eBay, Inc.
v. MercExchange, LLC, 547 U.S. 388 (2006).
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(Hlavachek Decl.) at ¶ 12.

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S&G also concedes that: as of

August 30, 2019, Graves had not caused S&G to suffer any harm or
damages; and some of the information it alleges Graves disclosed
to Aloha Toxicology is either disclosed to S&G’s customers or is
publicly available on S&G’s website; [CSOF at ¶¶ 42, 44-45; Mem.
in Opp. at 2.]

Graves has therefore carried his initial burden

of production on the Motion by “showing that [S&G] does not have
enough evidence of an essential element to carry its ultimate
burden of persuasion at trial.”

See Friedman v. Live Nation

Merch., Inc., 833 F.3d 1180, 1188 (9th Cir. 2016) (quotation
marks, citation, and some brackets omitted).
Because Graves has carried his burden of production,
S&G “must produce evidence to support its claim[s] . . . .”
id. (citation and quotation marks omitted).

See

S&G presents Bade-

Castro’s testimony that Graves told her he disclosed to Aloha
Toxicology: how fast S&G generated test results; S&G’s testing
equipment; S&G’s monthly testing volume; and the fact that S&G
was paying Bade-Castro fifteen percent commission.
Decl. at ¶¶ 7, 9.]

[Bade-Castro

Bade-Castro also stated Graves “discussed

with [someone from Aloha Toxicology] S&G’s ‘in-network’
contracts with insurance companies for testing services.”
at ¶ 8.]

[Id.

Bade-Castro’s testimony is the only evidence S&G has

presented to identify the trade secrets at issue in their DTSA
and HUTSA claims.

See MAI Sys., 991 F.2d at 522.
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In considering Graves’s Motion, the record must be
viewed in the light most favorable to S&G, the nonmoving party.
See Crowley v. Bannister, 734 F.3d 967, 976 (9th Cir. 2013).
Further, this Court cannot make credibility determinations on
summary judgment.

See Estate of Lopez ex rel. Lopez v. Gelhaus,

871 F.3d 998, 1009 n.10 (9th Cir. 2017) (“At the summary
judgment stage, ‘[c]redibility determinations, the weighing of
the evidence, and the drawing of legitimate inferences from the
facts are jury functions, not those of a judge.’” (alteration in
Lopez) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986))).

Therefore, for

purposes of the instant Motion, Bade-Castro’s testimony
regarding Graves’s reports of his discussions with Aloha
Toxicology will be accepted.
Neither the information that Graves presumably
disclosed to Aloha Toxicology about the speed at which S&G
returns test results nor the information that he presumably
disclosed about what testing equipment S&G uses constitutes a
“trade secret” because S&G did not take reasonable actions to
maintain the secrecy of the information.

S&G has admitted that:

it provides information about its operations, including the
average time S&G takes to analyze samples, to its customers and
its prospective customers; and S&G’s website includes pictures
of, and information about, the testing equipment that S&G uses.
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[CSOF at ¶¶ 44-45; Mem. in Opp. at 2.]

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It is not clear from the

current record whether S&G’s monthly testing volume is among the
operational information which S&G admits it provides to its
customers and prospective customers.

Thus, there is a genuine

issue of fact as to whether S&G took reasonable steps to
maintain the secrecy of its monthly testing volume.
According to Bade-Castro, Graves and Aloha Toxicology
“discussed” S&G’s contracts to provide testing services for
insurance companies.

[Bade-Castro Decl. at ¶ 8.]

Although it

is not clear what specifically was discussed about S&G’s
contracts with insurance companies, viewing the record in the
light most favorable to S&G, there is an issue of fact as to
whether the information that Graves presumably disclosed to
Aloha Toxicology was information which S&G took reasonable steps
to keep secret.

See Graves Decl., Exh. A (Employment Agreement)

at ¶ 6(a) (including “any customer lists and customers,
contracts with and information relating to customers, medical
insurers and claim administrators” within the definition of
“Confidential Information”).

Viewing the record in the light

most favorable to S&G, its commission compensation structure for
its sales team was information that S&G took reasonable steps to
keep secret.

See id. (including “financial statements and

--- ---

projections, . . . pricing policies, operational methods,
methods of doing business, . . . business plans and projects
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pertaining to the Company” within the definition of
“Confidential Information”).

Graves himself denies discussing

S&G’s compensation system with Aloha Toxicology, which indicates
that he was aware doing so was prohibited.

See Graves Decl. at

¶ 21 (“I have never discussed with a competitor of S&G, S&G’s
compensation or commission structure”).
However, S&G has presented no evidence which raises a
genuine issue of fact as to the question of whether either its
monthly testing volume, testing contracts with insurance
companies, or compensation structure is information that has
actual or potential economic value because it is not generally
known.

Further, in light of S&G’s representation that it lacks

sufficient admissible and probative evidence of damages
associated with its trade secrets claims, this Court finds that
there are no genuine issues of material fact as whether S&G’s
testing volume, insurance company contracts, and commission
structure was information that had economic value.

S&G cannot

carry its burden of proof at trial as to an essential element of
its DTSA claim and its HUTSA claim - that a trade secret exists.
Because there is no genuine issue of material fact for trial,
Graves is entitled to judgment as a matter of law as to Count I
and Count II.

See Fed. R. Civ. P. 56(a) (“The court shall grant

summary judgment if the movant shows that there is no genuine

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dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”).
II.

Breach of Contract Claims
This Court has stated:
Under Hawai`i law, the elements of a breach of
contract claim are (1) the contract at issue;
(2) the parties to the contract; (3) whether
plaintiff performed under the contract; (4) the
particular provision of the contract allegedly
violated by defendants; and (5) when and how
defendants allegedly breached the contract.

RSMCFH, LLC v. FareHarbor Holdings, Inc., 361 F. Supp. 3d 981,
991 (D. Hawai`i 2019) (brackets, citations, and internal
quotation marks omitted).

The first two requirements are not in

dispute because it is clear that the contract at issue is the
March 6, 2017 Employment Agreement between S&G and Graves.
A.

Alleged Breaches by S&G
Graves argues all of S&G’s breach of contract claims

fail because S&G itself breached the Employment Agreement by
unilaterally changing his compensation while the negotiations
regarding the new contract were ongoing.

The Employment

Agreement states:
This Agreement shall be interpreted in such a
manner as to be effective and valid under
applicable law, but if any provision hereof shall
be prohibited or invalid under any such law, such
provision shall be inenect1ve to the extent of
such prohibition or invalidity, without
invalidating or nullifying the remainder of such
provision or any other provisions of this
Agreement. If any one or more of the provisions
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contained in this Agreement shall for any reason
be held to be excessively broad as to duration,
geographical scope, activity or subject, such
provisions shall be construed by limiting and
reducing it so as to be enforceable to the
maximum extent permitted by applicable law.
[Graves Decl., Exh. A (Employment Agreement) at ¶ 11.]

S&G’s

position is that EKRA rendered the compensation provisions of
Graves’s Employment Agreement unenforceable, and therefore S&G’s
unilateral departure from that compensation system was not a
breach of the Employment Agreement.
S&G presents Dr. Puana’s testimony that, based on
Vaughn’s advice regarding the effect of EKRA, she determined
that, if she continued to pay Graves under the provisions of the
Employment Agreement, she would expose herself, S&G, and its
employees to criminal liability.

[Puana Decl. at ¶ 17.]

According to Dr. Puana, Graves believed EKRA did not apply to
his contract.

[Id. at ¶ 20.]

Neither S&G nor Graves has

presented expert testimony regarding the scope and effect of
EKRA.

Therefore, viewing the record in the light most favorable

to S&G, there is a genuine issue of fact as to the issue of
whether S&G was justified in reducing Graves’s compensation.
Graves also alleges S&G breached the Employment
Agreement because: Dr. Puana informed him on June 6, 2019 that
his employment would be terminated if he did not sign a new
contract; see CSOF at ¶ 33; Mem. in Opp. at 2; S&G ultimately

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terminated his employment; see Hara Decl., Exh. I at 2-4
(Termination Letter); and S&G has failed to make the severance
payment required under the Employment Agreement, see Graves
Decl., Exh. A (Employment Agreement) at ¶ 10(c) (describing the
severance package that Graves would be entitled to if S&G
terminated his employment without cause).

At a minimum, there

is a genuine issue of fact as to the question of whether EKRA
invalidated the compensation provisions of Graves’s Employment
Agreement and required S&G and Graves to enter into a new
agreement.

There is also a genuine issue of fact as to whether

Graves’s refusal to enter into a new agreement constituted
grounds for S&G to terminate him for cause.

See Graves Decl.,

Exh. A at ¶ 10(b) (provision governing termination by S&G for
cause, which not contain a requirement to provide a severance
package).
For purposes of the instant Motion, Graves has failed
to carry his burden of production and persuasion as to his
argument that S&G breached his Employment Agreement.

Graves’s

Motion is therefore denied to the extent that he seeks summary
judgment in his favor as to all of S&G’s breach of contract
claims on the ground that S&G’s own breach of the contract
precludes S&G from recovering on the breach of contract claims

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in the First Amended Complaint.13

PageID #:

The Court now turns to the

merits of each of S&G’s breach of contract claims.
B.

Alleged Competition against S&G
Count III alleges Graves breached paragraphs 6(a) and

7(a) of the Employment Agreement by assisting a person or entity
who is in competition with S&G.
¶¶ 39-43.]

[First Amended Complaint at

Paragraph 6(a) of the Employment Agreement

prohibited Graves from disclosing “‘Confidential Information,’”
which included trade secrets.

[Graves Decl., Exh. A at ¶ 6(a).]

The portion of Count III based on Graves’s alleged breach of
paragraph 6(a) fails, as a matter of law, for the same reasons
that S&G’s Counts I and II fail.

Graves is entitled to summary

judgment as to that portion of Count III.
The Employment Agreement prohibited Graves from
assisting a person or entity who was a competitor of S&G.
at ¶ 7(a).]

[Id.

Aloha Toxicology is competitor of S&G, and

Hlavachek is a member and owner of Aloha Toxicology.
Decl., Exh. K (Hlavachek Decl.) at ¶¶ 2-3.

See Hara

Graves carried his

burden of proof by presenting evidence that he did not assist
Hlavachek and Aloha Toxicology in competition with S&G.

See,

e.g., id. at ¶ 12 (stating Graves did not disclose confidential

13

These rulings do not preclude Graves from presenting
additional evidence at the trial regarding the issue of whether
S&G breached the Employment Agreement, for purposes of his
counterclaims and third-party claims.
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information about S&G to him).

PageID #:

Even viewing the entire summary

judgment record, including Bade-Castro’s testimony, in the light
most favorable to S&G, there is no evidence suggesting that
anything which Graves presumably disclosed to S&G assisted
either Aloha Toxicology or any person associated with Aloha
Toxicology to compete against S&G.

See Bade-Castro Decl. at

¶¶ 6-9 (describing what Graves told her about his discussions
with Aloha Toxicology); see also CSOF at ¶ 42 (stating that, on
August 30, 2019, S&G’s counsel admitted that Graves had not
caused S&G to suffer any harm or damages); Mem. in Opp. at 2
(stating Graves’s paragraph 42 is not disputed).

There is no

genuine issue of material fact as to S&G’s allegation that
Graves violated paragraph 7(a) of his Employment Agreement, and
Graves is entitled to judgment as a matter of law as to that
portion of Count III.
Graves’s Motion is granted insofar as summary judgment
is granted in his favor as to Count III.
C.

Alleged Interference with Bade-Castro’s
and Gay’s Negotiations with S&G
Count IV alleges Graves breached paragraph 7(d) of the

Employment Agreement by soliciting his subordinates to leave S&G
and work for one of its competitors.
at ¶¶ 44-51.]

[First Amended Complaint

Count V alleges Graves breached paragraph 3 of

the Employment Agreement by urging his subordinates to refuse to

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execute their new contracts.

[Id. at ¶¶ 52-61.]

PageID #:

Viewing the

record in the light most favorable to S&G, this Court accepts:
Bade-Castro’s testimony that Graves solicited her and Gay to
consider leaving S&G to work for Aloha Toxicology; and her
testimony that he urged them not to sign the new contracts which
S&G offered them.

See, e.g., Bade-Castro Decl. at ¶ 2.

There

is no evidence in the record suggesting that Graves made similar
propositions to any other S&G employee.
Graves’s Employment Agreement states, in pertinent
part:
3.
Best Efforts. The Employee shall use
the Employee’s best efforts to promote the
interests of the Company in connection with the
Company’s Business, and Employee shall devote
appropriate business time and efforts to the
Company’s Business as necessary to perform
effectively the Employee’s duties, services and
responsibilities hereunder. The Employee shall
not engage in any other activity, which could
reasonably be expected to interfere with the
performance of the Employee’s duties, services
and responsibilities hereunder.
. . . .
7.

Restrictive Covenants

. . . .
(d) Employee shall not, either during the
term of this Agreement or within 2 years after
termination, solicit any Company employees to
leave the Company’s employment, other than [six
individuals who are not relevant to this case].

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[Graves Decl., Exh. A at pgs. 1-3 (emphases and annotation
omitted).]
Although Graves attempted to convince both Bade-Castro
and Gay to leave S&G with him, neither of them actually left
S&G.

See Puana Decl. at ¶ 29 (stating that, on June 6, 2019,

Bade-Castro agreed to the new contract S&G was offering her);
Hara Decl., Exh. M (excerpt of Decl. of Justin Gay, signed
August 15, 2019 (“Gay Decl.”)) at pg. 1 (stating Gay is an
Account Representative with S&G).14

There is no evidence in the

record suggesting that either Graves’s discussions with BadeCastro and Gay about potential employment with Aloha Toxicology
or Graves’s discussions with Aloha Toxicology impaired his work
performance.

It was S&G that instructed Graves to stop

contacting S&G clients.

See Graves Decl. at ¶ 25.

Further,

there is no evidence suggesting that Graves’s discussions with
Bade-Castro and Gay about other employment impaired BadeCastro’s and Gay’s work at S&G.

However, paragraph 3 prohibits

any conduct that “could reasonably be expected to interfere”
with the employee’s performance.

[Graves Decl., Exh. A

(Employment Agreement) at pg. 1 (emphasis added).]

Viewing the

record in the light most favorable to S&G, by attempting to
convince Bade-Castro and Gay not to sign the new contracts that

14

The complete version of the Gay Declaration was
originally filed on August 15, 2019 by S&G. [Dkt. no. 34-3.]
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S&G was proposing and to accept employment elsewhere, Graves
engaged in conduct that “could reasonably be expected to
interfere” with his work performance and theirs.
However, because it is undisputed that Graves’s
attempts to convince Bade-Castro and Gay to leave S&G were
unsuccessful, S&G did not suffer any damages as a result of the
attempted solicitation.

This district court has recognized

that, “[t]o prevail on a breach of contract claim, a plaintiff
must establish damages.”

Breast Care Ctr. of Hawai`i LLC v.

Fujifilm Med. Sys. U.S.A., Inc., CIVIL NO. 17-443 JAO-WRP, 2019
WL 2146244, at *7 (D. Hawai`i May 16, 2019) (citing Chuck Jones
and MacLaren v. Williams, 101 Haw. 486, 500 (Ct. App. 2003);
Choy v. Cont’l Cas. Co., No. CV 15-00281 SOM/KSC, 2015 WL
7588233, at *4 (D. Haw. Nov. 25, 2015)), reconsideration denied,
2019 WL 3231739 (July 18, 2019).

Because S&G cannot establish

that it suffered any damages as a result of Graves’s attempts to
solicit Bade-Castro and Gay to leave S&G, Count IV fails as a
matter of law.
Similarly, there is no evidence in the record
suggesting that there is a genuine issue of fact as to the
question of whether Graves’s, Bade-Castro’s, or Gay’s work
performance suffered as a result of Graves’s attempts to
convince them not to sign their new S&G contracts.

Because S&G

cannot establish any damages, Count V fails as a matter of law.
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Graves’s Motion is therefore granted as to Counts IV
and V.
D.

Alleged Violations of Paragraph 10(b)
Graves’s Employment Agreement states:
(b) Termination by Company with Cause. The
Company shall have the right to terminate
Employee’s employment with the Company under this
Agreement at any time For Cause, which
termination shall be effective immediately upon
written notice to Employee. Termination “For
Cause” shall allow termination for any of the
following reasons: 1) conviction of a felony
offense; 2) a reasonable determination by two
qualified medical professionals that Employee is
mentally unstable or otherwise unable to perform
the duties of this job; 3) a breach by Employee
of a material obligation under this Agreement;
4) or conduct that: (a) constitutes moral
turpitude, (b) brings public disrespect,
contempt, or ridicule upon the Company, or (c) if
proven in a court of law, would constitute
grounds for criminal conviction of Employee or
civil liability of the Company. . . .

[Graves Decl., Exh. A at ¶ 10(b) (emphasis omitted).]

Count VI

alleges Graves breached paragraph 10(b) by engaging in conduct
that, if proven, would constitute a sexually hostile work
environment, thereby exposing S&G to civil liability.
Amended Complaint at ¶¶ 62-73.]

[First

Count VIII alleges he breached

paragraph 10(b) by misrepresenting himself as one of S&G’s
owners/partners.

[Id. at ¶¶ 79-85.]

As to Count VI, S&G presents Dr. Puana’s testimony
that she “learned that [Graves] engaged in sexually
inappropriate conversations with at least two female employees 36

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SBK and Bade-Castro.”

PageID #:

Puana Decl. at ¶ 37; see also id. at

¶¶ 37-39 (describing the conversations).

As to Count VIII, S&G

presents Dr. Puana’s testimony that she
learned during [Graves’s] suspension that some
S&G Labs’ “clients” were of the mistaken belief
that Mr. Graves was the owner or co-owner of S&G
Labs. [She] learned from Bade-Castro that Graves
would sometimes describe himself to “clients” as
a “partner” in S&G Labs. In one instance, when
he was removed from his sales position, and
another account representative made contact in
his place, one “client” asked how could the owner
of a business be suspended from his sales
position?
[Puana Decl. at ¶ 42.]
Except for the one conversation with an unidentified
client who asked about Graves’s suspension, there is no
indication that Dr. Puana participated in or witnessed any of
these conversations.

S&G has not offered the testimony of any

of the participants to those conversations.

As to the one

conversation Dr. Puana was a participant in, S&G does not offer
the testimony of the client who asked the question.

Arguably,

Dr. Puana’s descriptions of these conversations should not be
considered because they are hearsay and S&G has not identified
any exception to the hearsay rule.

See Weil v. Citizens Telecom

Servs. Co., 922 F.3d 993, 998 (9th Cir. 2019) (noting “we may
only consider admissible evidence when reviewing a motion for
summary judgment” (citation omitted)); Gallagher v.
MaternityWise Int’l, LLC, CIV. NO. 18-00364 LEK-KJM, 2021 WL
37

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PageID #:

276975, at *13 (D. Hawai`i Jan. 27, 2021) (“Hearsay is an outof-court statement offered for the truth of the matter asserted.
Fed. R. Evid. 801(c). ‘In the absence of a procedural rule or
statute, hearsay is inadmissible unless it is defined as nonhearsay under Federal Rule of Evidence 801(d) or falls within a
hearsay exception under Rules 803, 804 or 807.’” (quoting Orr v.
Bank of Am., NT & SA, 285 F.3d 764, 778 (9th Cir. 2002))).15

It

is not necessary to engage in a detailed hearsay analysis in
ruling on Graves’s Motion because, even if all of Dr. Puana’s
statements are considered, they are not sufficient to create a
genuine issue of material fact as to either Count VI or
Count VIII.
First, paragraph 10(b) of the Employment Agreement
expressly stated that, if Graves engaged in any of the
identified conduct, S&G had the right to terminate his
employment for cause.

[Graves Decl., Exh. A at pg. 4.]

S&G

fails to identify a breach of any other provision of the
Employment Agreement as a result of the conduct raised in
Counts VI and VIII.16

See RSMCFH, 361 F. Supp. 3d at 991

15

Orr was superseded on other grounds by the 2010
amendments to Fed. R. Civ. P. 56. See, e.g., Dinkins v.
Schinzel, 362 F. Supp. 3d 916, 922–23 (D. Nev. 2019).
16

Paragraph 10(b)(3) refers to the breach “of a material
obligation under this Agreement,” [Graves Decl., Exh. A at 4,]
which necessarily requires the breach of another provision of
(. . . continued)
38

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PageID #:

(stating the identification of the specific contractual
provision breached is an essential element of a breach of
contract claim).

Thus, S&G’s sole remedy for the conduct at

issue in Counts VI and VIII is the remedy provided in
paragraph 10(b), termination of his employment for cause.17
Even assuming that S&G can pursue breach of contract
claims for the conduct described in paragraph 10(b)(4) of the
Employment Agreement, Counts VI and VIII would fail because
Plaintiff has not suffered any damages as a result of the
conduct at issue in those claims.

As to Count VI, even assuming

that Graves made all of the inappropriate sexual comments which
Dr. Puana describes, Graves was suspended beginning June 14,

the Employment Agreement. However, it is paragraph 10(b)(4)(c)
that is at issue in Count VI and paragraph 10(b)(4)(b) that is
at issue in Count VIII.
17

In light of this ruling, and the other rulings on S&G’s
breach of contract claims, this Court declines to address
Graves’s argument that, “[a]s a general rule, employers ‘do not
have a cause of action for damages against an employee who
breaches his or her contractual obligation to provide competent,
satisfactory services.’” [Mem. in Supp. of Motion at 22-23
(some citations omitted) (quoting Restatement of Employment Law
§ 9.07 (comment b)).] The Court notes that Graves has not cited
any case law establishing that the Hawai`i Supreme Court has
adopted this particular section of the Restatement, nor has he
cited any other legal authority indicating that the supreme
court is likely to do so. See Trishan Air, Inc. v. Fed. Ins.
Co., 635 F.3d 422, 427 (9th Cir. 2011) (“In the absence of . . .
a decision [by the state’s highest court], a federal court must
predict how the highest state court would decide the issue using
intermediate appellate court decisions, decisions from other
jurisdictions, statutes, treatises, and restatements as
guidance.” (citation and quotation marks omitted)).
39

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2019, and Dr. Puana learned about the inappropriate
conversations during his suspension.
37.]

[Puana Decl. at ¶¶ 34,

Thus, the hostile work environment Graves presumably

created existed prior to June 14, 2019.

In spite of that fact,

S&G has not presented any evidence that either Bade-Castro,
S.B.K., or any other S&G employee made any type of
discrimination claim against S&G based upon Graves’s
inappropriate sexual comments.

Therefore, there are no genuine

issues of fact as to Count VI, and S&G has not actually been
exposed to civil liability because of Graves’s comments.
Because S&G has not suffered any damages as a result of the
inappropriate sexual comments that this Court presumes, for
purposes of this Motion, Graves made, Count VI fails as a matter
of law.
As to Count VIII, even accepting S&G’s evidence that
Graves misrepresented himself as an owner of, or partner in,
S&G, there is no evidence in the record which raises a genuine
issue of fact as to the question of whether those
representations brought “public disrespect, contempt, or
ridicule upon” S&G.

See Graves Decl., Exh. A (Employment

---

Agreement) at ¶ 10(b)(4)(b).

Because S&G has failed to identify

evidence which raises a genuine issue of material fact as to the
alleged effects of Graves’s misrepresentation, Graves is
entitled to judgment as a matter of law as to Count VIII.
40

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Graves’s Motion is therefore granted as to Counts VI
and VIII.
E.

Alleged Disparaging Statements About Dr. Puana
Count VII alleges Graves breached paragraph 7(c) of

his Employment Agreement by making statements that disparaged of
S&G’s ownership and management, i.e. Dr. Puana, in a vulgar and
profane manner.

[First Amended Complaint at ¶¶ 74-78.]

Graves

acknowledges there is evidence that he “sometimes made vulgar
and personally derogatory comments about” Dr. Puana.
Decl., Exh. M (excerpts of Gay Decl.) at pg. 11.

See Hara

Dr. Puana

states that, “[w]hile Graves was suspended, [she] began to learn
more about Graves’·actions and conversations with S&G
Labs’·employees, including derogatory and sexually demeaning
comments made by him about [her] personally.”
¶ 36.]

[Puana Decl. at

Graves denies “mak[ing] any negative or derogatory

comments about [Dr. Puana], S&G, or any S&G employee to any
individual or entity outside of S&G.”

[Graves Decl. at ¶ 22.]

In other words, Graves does not deny making negative or
derogatory comments within S&G.
Paragraph 7(c) of Graves’s Employment Agreement,
quoted supra, prohibited from making disparaging statements
about Dr. Puana.

[Graves Decl., Exh. A at pg. 3.]

Viewing the

record in the light most favorable to S&G, there is, at a
minimum, a genuine issue of fact as to the question of whether
41

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Graves breached paragraph 7(c).

PageID #:

However, S&G has conceded that,

as of August 30, 2019, Graves had not caused S&G to suffer any
harm or damages.

See CSOF at ¶ 42; Mem. in Opp. at 2.

S&G has

not presented any evidence which raises a genuine issue of fact
as to the question of whether Graves’s derogatory or negative
comments about Dr. Puana caused S&G to suffer harm or damages
after August 30, 2019.

Therefore, there are no genuine issues

of fact, and S&G cannot establish that it suffered damages
because of the breach of contract alleged in Count VII, and that
claim fails as a matter of law.
F.

Claim for Declaratory Relief
Finally, Count IX seeks a declaratory judgment that

Graves committed material breaches of his Employment Agreement,
and therefore S&G is not required perform its obligations under
that contract.

[First Amended Complaint at ¶¶ 86-88.]

Count IX

does not allege any breaches of contract other than what is
alleged in Counts III through VIII.

Instead, Count IX merely

seeks a remedy for those alleged breaches of contract claims,
and Count IX is not an independent cause of action.

See, e.g.,

Tran v. Dep’t of Planning for Cnty. of Maui, CIVIL NO. 19-00654
JAO-RT, 2020 WL 3146584, at *7 n.4 (D. Hawai`i June 12, 2020)
(noting a purported claim for declaratory relief, that was
brought pursuant to 28 U.S.C. § 2201, was “a remedy, not a
standalone cause of action” (citing County of Santa Clara v.
42

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Trump, 267 F. Supp. 3d 1201, 1215–16 (N.D. Cal. 2017))).
Because summary judgment has been granted in favor of Graves as
to Counts III through VIII, he is also entitled to summary
judgment as to Count XI.18
CONCLUSION
For the foregoing reasons, Graves’s Motion for Summary
Judgment, filed November 4, 2020, is HEREBY GRANTED, insofar as
summary judgment is granted in favor of Graves as to all of the
claims in S&G’s First Amended Complaint, filed March 1, 2020.
The only claims remaining at issue in this case are Graves’s
claims in his Second Amended Counterclaim and his First Amended
Third-Party Complaint, both filed on May 6, 2020.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, February 17, 2021.

I sl Leslie E. Koba ashi

Leslie E. Kobayashi
United States District Judge

S&G LABS HAWAII, LLC VS. DARREN GRAVES; CV 19-00310 LEK-WRP;
ORRDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
18

Although summary judgment has been granted in favor of
Graves as to all of S&G’s breach of contract claims, S&G is not
precluded from raising the facts at issue in those claims in
support of its defense against Graves’s counterclaims, nor are
Dr. Puana and Bade-Castro precluded from raising those facts in
support of their defenses against Graves’s third-party claims.
43