Cella v. MobiChord, Inc.

TRAVIS CELLA, an individual, Plaintiff, v. MOBICHORD, INC., a Delaware corporation; HERBERT UHL,an individual; and OLESKII KLYMENKO, an individual, Defendants.

Case No. 2:17-cv-527-TC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION

January 27, 2020

ORDER AND MEMORANDUM DECISION

Defendants move the court to dismiss the nine claims asserted by Plaintiff Travis Cella, the former Vice President of Sales for America at Defendant MobiChord, Inc. Mr. Cella, who contends he was wrongfully terminated from his job in December 2016, alleges whistleblower retaliation, breach of contract, fraud, and other tort- and equity-based claims of recovery. For the reasons set forth below, Defendants' Motion to Dismiss (ECF No. 16) is GRANTED IN PART AND DENIED IN PART.

FACTUAL ALLEGATIONS¹

MobiChord

MobiChord, Inc., a "telecom service management company," (Second Am. Compl. ¶ 15 (hereinafter "Complaint" or "Compl."), ECF No. 15), was founded by Defendants Herbert Uhl and Oleskii Klymenko. MobiChord offers subscription-based services to private businesses and government agencies through use of a "data aggregation tool" to analyze the client's mobile device usage and develop a plan for the client to "better manage its mobile device expenses." (Id.) "For example, MobiChord collects detailed information about phone calls, text messaging, email usage, GPS and location-based data, and web browsing of each individual user within an organization and applies its data analysis tool to determine the most optimized mobile device plan for each user." (Id. ¶ 16.) Through this service, "MobiChord's clients are able to save thousands of dollars per month in unnecessary expenses and coverage charges." (Id. ¶ 17.)

Mr. Uhl is MobiChord's Chief Executive Officer and a member of the company's board of directors. Mr. Klymenko is the Chief Technology Officer (CTO) for MobiChord and is also a board member.

Mr. Cella's Employment Contract and Compensation

Mr. Cella worked for many years for government contractors and, as a result, developed extensive expertise in the government contract procurement process. In 2016, Mr. Uhl recruited Mr. Cella to work for MobiChord. Mr. Uhl approached Mr. Cella and promised that if Mr. Cella left his job to work for MobiChord, he would be paid an ongoing commission for sales contractshe procured, would have a great deal of independence in how he operated the sales team and procured sales contracts for MobiChord. Mr. Cella, relying on Mr. Uhl's representations, accepted the position with MobiChord on January 16, 2016, and signed an agreement (hereinafter "the Agreement," attached as Ex. A to the Complaint).

The Agreement guaranteed a base salary and commissions that ranged from three to seven percent on sales in America up to $2,000,000, and an additional two percent commission on sales in America above $2,000,000. (See id. ¶¶ 29-31.) The Agreement reads as follows:

You will be paid a guaranteed base salary of $120,000 per year paid in twenty-four bi-weekly rates of $5,000, payable on the Company's regular payroll.

Your commission is $120,000 per year, if you reach the yearly target. Your on target earning (OTE) is $240,000 (base salary plus commission). ...

The calculation of your commission in 2016 is based on the subscription invoices of MobiChord in America. Your 2016 target for subscription invoice is $2,000,000 ($1,630,000 direct and 370,000 indirect). For eligible invoices you will receive a commission of 7% of your direct new customer and 3% of your indirect (managed by your sales team or from existing customer). For invoices after you reached your target of $2,000,000 you receive an additional commission of 2%. The compensation will be paid in the month following the payment of the customer.

(Agreement at 1, ¶ 2.)

Mr. Cella also participated in MobiChord's stock option program ("Option Program"), which awarded him one percent of MobiChord's shares, vesting over four years. (Compl. ¶¶ 32-33.) Twenty-five percent of Mr. Cella's option was to vest on February 1, 2017, the first anniversary of his employment. (See Agreement at 1, ¶ 2 ("25% of the option will vest after the first year").) The remaining seventy-five percent was to vest at the rate of 1/48 of the option per month. (Id.) Mr. Cella believes that his option was valued at more than $750,000.

The Agreement also stated that Mr. Cella's employment with MobiChord was "for no specific period of time" and that it was "at will," which means that "either [Mr. Cella] or theCompany may terminate [his] employment at any time and for any reason, with or without cause." (Id. at 2, para. 4.) The nature of the employment relationship could only be changed "in an express written agreement signed by [Mr. Cella] and the Company's CEO." (Id.)

During his time at MobiChord, Mr. Cella was very successful, bringing in the most contracts for large clients in the whole company. In October 2016, Mr. Cella received a performance bonus, which Mr. Uhl expressly stated was in recognition of Mr. Cella's exemplary work.

MobiChord's Negotiation with the U.S. State Department for a Government Contract

In August 2016, MobiChord began negotiating with the U.S. State Department to provide MobiChord's data analysis tools to help the State Department more efficiently manage its mobile device usage. Mr. Cella was in charge of the negotiations and worked closely with State Department officials. The proposed contract was, according to Mr. Cella, worth approximately $3.9 million over three years and would have been MobiChord's largest contract at that time, constituting approximately thirty-five percent of MobiChord's annual revenue.

If MobiChord obtained the contract, it would be granted access to all State Department mobile device data, including call logs, text messages, instant messenger logs, GPS and other location-based data, email and other messaging services, and the web browsing history of all State Department employees. Those employees include diplomats and their staff living abroad, as well as employees located in the United States. According to Mr. Cella's allegations, much of that data would be classified information.

A government contractor working with classified information must comply with the National Industrial Security Program (NISP). The NISP requires, among other things, that a government contractor must ensure that non-U.S. citizens are not employed in duties that requireaccess to classified material. (Compl. ¶ 41.e (citing the National Industrial Security Program Operating Manual (NISPOM) 2-209).) The NISPOM also mandates that a contractor may not, under any circumstances, allow a non-U.S. citizen employee located outside the United States to have access to classified information. (Id. ¶ 41.i (citing NISPOM 10-601(a)-(b)).) And storage of classified information by contractor employees at any location outside the United States is strictly prohibited, unless the non-U.S. location is controlled by the U.S. government. (Id. ¶ 41.j (citing NISPOM 10-602(a)).)

The program also requires the contractor handling classified material to obtain a facility clearance. (Id. ¶ 41.a (citing NISPOM 2-100).) No facility clearance will be granted if the company is under foreign ownership, control or influence (FOCI) and security measures have not been put in place to mitigate that FOCI. (Id. ¶ 41.l. (citing NISPOM 2-102(d); 32 C.F.R. § 117.56); id. ¶ 41.n).) A U.S. company is considered to be under FOCI

whenever a foreign interest has the power, direct or indirect, whether or not exercised, and whether or not exercisable through ownership of the U.S. company's securities, by contractual arrangements or other means, to direct or decide matters affecting the management or operations of that company in a manner which may result in unauthorized access to classified information or may adversely affect the performance of classified contracts.

(Id. ¶ 41.m (quoting NISPOM 2-300(a); 32 C.F.R. § 117.56(b)(1)).) According to Mr. Cella, MobiChord is "under FOCI" because Mr. Uhl is a German national and Mr. Klymenko is a Russian national.

Moreover, a company applying for a facility clearance must complete a "Certificate Pertaining to Foreign Interests." (Id. ¶ 42.) That requires disclosing to the U.S. Government facts concerning foreign ownership or control of the company. This information includes situations where a foreign national holds a beneficial ownership in the company of more thanfive percent and when a non-U.S. citizen serves on the company's board of directors or holds a senior management position with the company.

In July or August of 2016, the State Department wanted to test MobiChord's technology before granting the contract. To that end, it provided MobiChord with an "anonymized" set of data² on which MobiChord could run its analytics and demonstrate the potential cost savings of its system. Even though the data was anonymized, the State Department directed that the data was not to leave the State Department's facility under any circumstances. But Mr. Klymenko and Mr. Uhl, without telling Mr. Cella or the State Department, set up a "mirror" in which the State Department's data set was copied and transmitted to analysists in Kiev, Ukraine, with the apparent purpose of using lower-paid, non-U.S. citizen analysts in the Ukraine.

Mr. Cella's Warnings About Violation of Government Contract Requirements

When Mr. Cella learned of use of the mirror, he protested to Mr. Uhl and expressed concern about Mr. Uhl's transmission of data outside the State Department's network and, more specifically, to a foreign country. He also told Mr. Uhl that MobiChord had to disclose its foreign ownership and control. But Mr. Uhl rejected Mr. Cella's concerns and suggested that such disclosures were not Mr. Cella's responsibility. Still, throughout the fall of 2016, Mr. Cella repeatedly raised his concerns about the lack of disclosure. His warnings went unheeded and, according to Mr. Cella, MobiChord...