Peak v. Tigergraph, Inc. et al, No. 4:2021cv02603 - Document 46 (N.D. Cal. 2021)

Court Description: Order GRANTING 42 motion to dismiss with leave to amend. Signed by Judge Phyllis J. Hamilton on September 7, 2021. (pjhlc1S, COURT STAFF) (Filed on 9/7/2021)
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Peak v. Tigergraph, Inc. et al Doc. 46 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 1 of 16 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 BRENDON PEAK, v. 9 10 ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS TIGERGRAPH, INC., et al., Re: Dkt. No. 42 Defendants. 11 United States District Court Northern District of California Case No. 21-cv-02603-PJH Plaintiff, 8 12 13 Before the court is defendants’ motion to dismiss plaintiff’s complaint. The matter 14 15 is fully briefed and suitable for decision without oral argument. Having read the parties’ 16 papers and carefully considered their arguments and the relevant legal authority, and 17 good cause appearing, the court hereby rules as follows. 18 I. BACKGROUND 19 Plaintiff Brendon Peak is a sales professional who resides in Hingham, 20 Massachusetts. Compl. ¶ 6. Defendants TigerGraph, Inc., and GraphSQL, Inc., both 21 d/b/a TigerGraph (hereinafter referred to together as “TigerGraph”), are foreign 22 corporations, with their principal place of business in Redwood City, California. Compl. 23 ¶ 7. TigerGraph is an Information Technology company which customized its novel 24 graphing and reporting technology and applications for its clients. Compl. ¶ 11. 25 Defendant Dr. Yu Xu is TigerGraph’s Chief Executive Officer, and Defendant Todd 26 Blaschka is TigerGraph’s Chief Operating Officer. Compl. ¶¶ 87, 91. 27 In December 2017, TigerGraph recruited Peak to work as a sales manager for the 28 company, offering a base salary plus commission compensation plan. Compl. ¶¶ 10, 12. Dockets.Justia.com United States District Court Northern District of California Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 2 of 16 1 In January 2018, TigerGraph and Peak entered into a written agreement (the 2 “employment agreement”) consistent with the parties’ verbal agreements made during the 3 recruiting process. Compl. ¶ 18. Relevant terms of the employment agreement include: 4 (1) Peak was hired, full-time, as a Regional Sales Director; (2) his compensation 5 consisted of a base-salary plus “variable compensation” in the form of a commission 6 based upon “attainment of annual sales targets”; (3) his employment was “at will” and 7 could be terminated at any time for any reason, with or without cause; (4) disputes 8 regarding Peak’s employment would be governed by California law and California courts 9 have exclusive personal jurisdiction in connection with such disputes. Blaschka Dec. 10 (Dkt. 42-1), ¶ 4, Ex. 1 at pp. 6-8; Compl. ¶¶ 15, 16, 18. The paragraph of the 11 employment agreement regarding disputes reads in significant part: 12 The terms of this letter agreement and the resolution of any disputes as to the meaning, effect, performance or validity of this letter agreement or arising out of, related to, or in any way connected with, this letter agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will be governed by California law, excluding laws relating to conflicts or choice of law. You and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in San Francisco County in connection with any Dispute or any claim related to any Dispute. 13 14 15 16 17 18 Dkt. 42-1 at 8. The parties additionally executed a Sales Compensation Plan 19 (“compensation plan”). Blaschka Dec. (Dkt. 42-1), Exs. 2, 3, 4.1 When Peak started at 20 TigerGraph, his commissions were determined by the 2017-18 Sales Compensation 21 Plan. Dkt. 42-1 at 6-8. In August 2018, Peak began to build a relationship with a potentially lucrative new 22 23 client. Compl. ¶ 23. Peak shared this information with Blaschka in December 2018. 24 Compl. ¶ 40. Blaschka and Xu then announced a compensation plan for 2019 that 25 dramatically reduced Peak’s commissions. Compl. ¶¶ 42-45. In 2019 and 2020, Peak 26 27 28 1 The first compensation plan, dated 2017-18 and attached to the Blaschka Declaration at exhibit 2, appears to serve only as a reference document because it is unsigned. The latter two compensation plans, for the years 2019 and 2020 and at exhibits 3 and 4, respectively, are both electronically signed by Peak. 2 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 3 of 16 1 and TigerGraph executed new compensation plans, which superseded the prior ones. 2 Dkt. 42-1 at 15, 21. According to the plans, “Commissions are considered ‘Earned’ when 3 the Company receives payment in full from the customer.” Blaschka Dec., Ex. 2, p. 2 4 “Commissions”; Ex. 3, p. 2-3, “Commissions”; Ex. 4, p. 3 “Commissions” (Dkt. 42-1 at 12- 5 13, 18-19, 25). 6 7 worth multiple millions of dollars per year. Compl. ¶ 61. By spring of 2020, Peak had set 8 up more than 20 anticipated projects with the client, which would have earned him 9 substantial commissions in 2020. Compl. ¶ 79. 10 United States District Court Northern District of California Throughout 2019, TigerGraph and the client made plans for a range of projects On May 13, 2020, Mr. Peak received from the client approval for the first of 20 11 anticipated project Statements of Work (“SOWs”) and forwarded the signed SOW to 12 Blaschka for execution. Compl. ¶ 85. On May 14, 2020, TigerGraph informed Peak that 13 he was being laid off due to the financial impact of the Covid-19 pandemic. Compl. ¶ 87. 14 Peak was the only TigerGraph sales representative who was laid off. Compl. ¶ 88. Peak 15 did not receive any commissions for his work with the client. Compl. ¶ 92. 16 On July 6, 2020, after Peak threatened litigation, TigerGraph filed a declaratory 17 judgment action in the Superior Court of California, County of San Francisco, seeking a 18 determination that no future commissions were owed to Peak. Case no. 4:20-cv-5489- 19 PJH Dkt. 1-1. Peak removed that case to this court on August 6, 2020, and then filed a 20 motion to dismiss the complaint for lack of personal jurisdiction, improper venue, and 21 forum non conveniens, or, in the alternative, to transfer the case to the district court for 22 the District of Massachusetts. Case no. 4:20-cv-5489-PJH, Dkt. 9. The court denied that 23 motion on October 21, 2020. Case no. 4:20-cv-5489-PJH, Dkt. 16. 24 On August 8, 2020, Peak filed this separate action in the U.S. District Court for the 25 District of Massachusetts. Compl. ¶ 1. Defendants then filed a motion to transfer venue, 26 which sought to bring the case to this court based on the forum-selection clause in 27 Peak’s employment agreement. Dkt. 14. The District Court for the District of 28 Massachusetts, Judge I. Talwani presiding, granted defendants’ motion on April 9, 2021. 3 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 4 of 16 1 Dkt. 28. Following transfer and a case management conference in 4:20-cv-5489-PJH, 2 the court related the two cases on June 28, 2021. Dkt. 41. The instant motion was filed 3 July 22, 2021, and thereafter fully briefed. Dkt. 42, 43, 45. 4 II. 5 DISCUSSION Peak’s complaint against TigerGraph alleges the following claims: • 6 (Peak vs. TigerGraph); 7 • 8 Count II – Intentional Interference with Contractual Relations (Peak vs. Blaschka); 9 • 10 Count III – Intentional Interference with Contractual Relations (Peak v. Yu Xu); 11 United States District Court Northern District of California Count I – Breach of Contract/Covenant of Good Faith and Fair Dealing 12 • Count IV – Civil Conspiracy (Peak v. all defendants); 13 • Count V – Violation of the Massachusetts Wage Act in violation of M.G.L. Chapter 149, §§ 148, 150 (Peak v. TigerGraph); 14 • 15 Chapter 149, §§ 148, 150 (Peak v. Todd Blaschka); and 16 • 17 Count VII – Violation of the Massachusetts Wage Act in violation of M.G.L. Chapter 149, §§ 148, 150 (Peak v. Yu Xu). 18 19 Count VI – Violation of the Massachusetts Wage Act in violation of M.G.L. Defendants now move to dismiss the entirety of Peak’s complaint. Dkt. 42. 20 A. Legal Standard 21 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the 22 legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 23 1199-1200 (9th Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that 24 a complaint include a “short and plain statement of the claim showing that the pleader is 25 entitled to relief,” Fed. R. Civ. P. 8(a)(2), a complaint may be dismissed under Rule 26 12(b)(6) if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient 27 facts to support a cognizable legal theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th 28 Cir. 2013). 4 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 5 of 16 While the court is to accept as true all the factual allegations in the complaint, 1 2 legally conclusory statements, not supported by actual factual allegations, need not be 3 accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). The complaint must proffer 4 sufficient facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. 5 Twombly, 550 U.S. 544, 555, 558-59 (2007) (citations and quotations omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows United States District Court Northern District of California 6 7 the court to draw the reasonable inference that the defendant is liable for the misconduct 8 alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well-pleaded facts do not 9 permit the court to infer more than the mere possibility of misconduct, the complaint has 10 alleged—but it has not ‘show[n]’—that the pleader is entitled to relief.” Id. at 679. Where 11 dismissal is warranted, it is generally without prejudice, unless it is clear the complaint 12 cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 13 2005). 14 “Although generally the scope of review on a motion to dismiss for failure to state a 15 claim is limited to the Complaint, a court may consider evidence on which the complaint 16 necessarily relies if: (1) the complaint refers to the document; (2) the document is central 17 to the plaintiffs’ claim; and (3) no party questions the authenticity of the copy attached to 18 the 12(b)(6) motion.” Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010) 19 (internal quotation marks and citations omitted); see also Knievel v. ESPN, 393 F.3d 20 1068, 1076 (9th Cir. 2005). The court may “treat such a document as ‘part of the 21 complaint, and thus may assume that its contents are true for purposes of a motion to 22 dismiss under Rule 12(b)(6).’” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) 23 (quoting United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003)). Moreover, the court 24 “need not accept as true allegations contradicting documents that are referenced in the 25 complaint.” Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). 26 27 28 B. Analysis 1. Incorporation by Reference “Courts regularly decline to consider declarations and exhibits submitted in support 5 United States District Court Northern District of California Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 6 of 16 1 of or opposition to a motion to dismiss . . . if they constitute evidence not referenced in 2 the complaint or not a proper subject of judicial notice.” Gerritsen v. Warner Bros. Entm’t 3 Inc., 112 F. Supp. 3d 1011, 1021 (C.D. Cal. 2015) (citing City of Royal Oak Retirement 4 Sys. v. Juniper Networks, Inc., 880 F. Supp. 2d 1045, 1060 (N.D. Cal. 2012)); see also 5 Schneider v. Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (“In determining 6 the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to a 7 plaintiff’s moving papers, such as a memorandum in opposition to a defendant’s motion 8 to dismiss.”). “The court must, however, consider each exhibit to the declaration in turn 9 to determine whether it is a proper subject of judicial notice or can be taken into account 10 under the incorporation by reference doctrine in deciding [defendant’s] motion to 11 dismiss.” Gerritsen, 112 F. Supp. 3d at 1021-22. 12 The incorporation by reference doctrine is judicially created and is normally 13 applicable when a defendant seeks to incorporate a document into the complaint “if the 14 plaintiff refers extensively to the document or the document forms the basis of the 15 plaintiff's claim.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 16 2018), cert. denied sub nom. Hagan v. Khoja, 139 S. Ct. 2615 (2019) (quoting United 17 States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003)). “We have extended the doctrine of 18 incorporation by reference to consider documents in situations where the complaint 19 necessarily relies upon a document or the contents of the document are alleged in a 20 complaint, the document’s authenticity is not in question and there are no disputed issues 21 as to the document's relevance.” Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 22 (9th Cir. 2010). 23 Here, the incorporation by reference doctrine applies to all of the documents 24 appended to the Blaschka Declaration. The complaint refers to each the (1) the January 25 9, 2018, letter employment agreement between TigerGraph and Brendon Peak; 26 (2) TigerGraph 2017-2018 Sales Compensation Plan between TigerGraph and Brendon 27 Peak; (3) TigerGraph 2019 Sales Compensation Plan between TigerGraph and Brendon 28 Peak; and (4) TigerGraph 2020 Sales Compensation Plan between TigerGraph and 6 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 7 of 16 1 Brendon Peak. Dkt. 42-1. Even though plaintiff does not include these documents along 2 with his complaint, they are properly considered by the court because they serve as the 3 basis for his claims. The gravamen of the lawsuit is that TigerGraph failed to 4 compensate Peak under the terms of their agreements, so it is appropriate for the court 5 to consider the agreements. Therefore, the documents appended to the Blaschka 6 Declaration are incorporated by reference. 7 United States District Court Northern District of California 8 2. Choice of Law “A federal court sitting in diversity must look to the forum state’s choice of law rules 9 to determine the controlling substantive law.” Mazza v. Am. Honda Motor Co., 666 F.3d 10 581, 589 (9th Cir. 2012) (quoting Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 11 1187 (9th Cir. 2001)). When an agreement includes a choice of law clause, California 12 courts apply the following two-pronged test to determine its enforceability: “(1) whether 13 the chosen state has a substantial relationship to the parties or their transaction, or 14 (2) whether there is any other reasonable basis for the parties’ choice of law.” Williams v. 15 Facebook, Inc., 384 F. Supp. 3d 1043, 1056 (N.D. Cal. 2018) (quoting Washington Mut. 16 Bank, FA v. Superior Court, 24 Cal.4th 906, 916 (2001)). If either prong is met, the 17 choice of law clause will be enforced unless “contrary to a fundamental policy” of the 18 alternative state and if the state “has a materially greater interest in the determination of 19 the particular issue.” Washington Mut. Bank, 24 Cal.4th at 917. 20 Here, the employment agreement includes a choice of law provision. Dkt 42-1 at 8 21 (“your employment with the Company or any other relationship between you and the 22 Company . . . will be governed by California law”). And further, both prongs of 23 California’s choice of law test are met. California has an obvious substantial relationship 24 to the parties and a reasonable basis to enforce this choice of law given TigerGraph’s 25 Redwood City headquarters. Peak identifies no Massachusetts policy that would be 26 violated by applying California law to this labor contract dispute. Contrary to Peak’s 27 argument in the opposition brief, Judge Talwani’s transfer order did not determine that 28 Massachusetts law would apply to the entirety of the dispute. 7 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 8 of 16 1 2 3 4 5 6 case has been no secret. In the related case, this court previously noted, The letter agreement between the parties includes a provision that any ‘Dispute[ ]’ ‘will be governed by California law, excluding laws relating to conflicts or choice of law.’ Compl., Ex. A. at 11. Because the court has determined that the forumselection clause applies and this action is a ‘Dispute’ as used in the letter agreement, it appears that at least some part of this action will involve application of California law.” 7 Related Case (4:20-cv-05489-PJH) Dkt. 16 at 17 (denying Peak’s motion to transfer to 8 D.Mass). Therefore, the choice of law provision within the employment agreement, 9 selecting California law, controls for those claims that do not specifically arise from 10 11 United States District Court Northern District of California And the applicability of California law to at least part of the claims at issue in this 12 13 Massachusetts statutes. 3. Breach of Contract/Breach of Implied Covenant of Good Faith and Fair Dealing The elements of a cause of action for breach of contract are (1) the existence of 14 the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s 15 breach, and (4) the resulting damages to plaintiff. E.D.C. Technologies, Inc. v. Seidel, 16 216 F.Supp.3d 1012, 1015 (N.D. Cal. 2016). Every contract contains an implied 17 covenant of good faith and fair dealing which guarantees that “neither party will take any 18 action extraneous to the defined relationship between them that would frustrate the other 19 from enjoying benefits under the agreement to which the other is entitled.” Kuhn v. Dept. 20 of Gen. Servs., 22 Cal.App.4th 1627, 1638 (1994). 21 The scope of conduct prohibited by the implied covenant depends on the purposes 22 and express terms of the contract. Carma Developers, Inc. v. Marathon Development 23 California, Inc., 2 Cal.4th 342, 373 (1992). “[A]s a general matter, implied terms should 24 never be read to vary express terms” of a contract. Id. at 374. “Although breach of the 25 implied covenant often is pleaded as a separate count, a breach of the implied covenant 26 is necessarily a breach of contract.” Digerati Holdings, LLC v. Young Money Entm’t, LLC, 27 194 Cal.App.4th 873, 885 (2011). 28 In Foley, the California Supreme Court determined that only contract remedies, not 8 United States District Court Northern District of California Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 9 of 16 1 tort remedies, are available for claims of breach of the implied covenant in the 2 employment context. Foley v. Interactive Data Corp., 47 Cal.3d 654, 699 (1988). 3 Building on the logic of Foley, breach of the implied covenant in the employment context 4 was further developed in Guz v. Bechtel Nat’l, Inc., 24 Cal.4th 317, 318 (2000). In that 5 case, the plaintiff was laid off when his work unit was eliminated. The plaintiff sued his 6 former employer for, among other claims, breach of an implied-in-fact contract to be 7 terminated only for good cause and breach of the implied covenant. The plaintiff claimed 8 that the implied covenant precluded the defendants from “terminating him arbitrarily, as 9 by failing to follow its own policies, or in bad faith.” Id. at 326-27. The California 10 Supreme Court found that the trial court properly dismissed the plaintiff’s claim for breach 11 of the implied covenant. The state’s high court first noted that an implied covenant could 12 not impose substantive duties on contracting parties beyond those incorporated into the 13 specific terms of their agreement. “If an employment is at will, and thus allows either 14 party to terminate for any or no reason, the implied covenant cannot decree otherwise.” 15 Id. at 327 (emphasis in original). Thus, the court concluded that “if the employer’s 16 termination decisions, however arbitrary, do not breach such a substantive contract 17 provision, they are not precluded by the covenant. . . . [A] breach of the implied covenant 18 cannot logically be based on a claim that the discharge of an at-will employee was made 19 without good cause.” Id. (citation and brackets omitted). In dicta, the court described 20 one scenario that could give rise to a claim for breach of the implied covenant: 21 22 23 24 [T]he covenant prevents a party from acting in bad faith to frustrate the contract’s actual benefits. Thus, for example, the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned. Id. at 353, n.18. 25 In Pashman v. Aetna Ins. Co., No. C-13-02835 DMR, 2014 WL 3571689 (N.D. 26 27 Cal. July 18, 2014), Judge Ryu considered Guz in addressing an employee’s suit for breach of the implied covenant, with facts similar to those at issue here. During the time 28 9 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 10 of 16 1 of his at-will employment with defendant Medicity, the plaintiff worked pursuant to a 2 commission payment contract that specified that a commission was not earned until the 3 company received payment for the deal. Plaintiff delivered a signed contract from a 4 client, but plaintiff was terminated before the client fulfilled payment, a year later. After 5 first determining that there was no breach of contract, the court explained, 6 Under the terms of the [commission plans], Plaintiff was not entitled to a commission on a deal that had not resulted in a payment to Medicity while Plaintiff was employed. Thus, Defendants cannot be held liable for breach of the implied covenant of good faith and fair dealing for doing what Defendants were expressly permitted to do by the terms of the [commission plans]: refuse to pay Plaintiff a commission for which Medicity did not receive payment until a year after Plaintiff left Medicity’s employment. 7 8 9 10 United States District Court Northern District of California 11 12 Id. at *13. More recently, the California Court of Appeal considered breach of the implied 13 covenant in the employment context in the case of King v. U.S. Bank, NA, 53 Cal.App.5th 14 675, 706-08 (2020), as modified on denial of reh’g (Aug. 24, 2020), review denied (Nov. 15 10, 2020). There, the plaintiff and U.S. Bank agreed to a performance-based bonus plan, 16 and after plaintiff earned the bonus in accordance with the bonus plan, U.S. Bank 17 terminated him before paying the bonus. U.S. Bank, focusing on the at-will nature of 18 plaintiff’s employment, emphasized that he was no longer eligible to receive the bonus 19 following his termination. King prevailed at trial on claims alleging (1) slander, (2) libel, 20 (3) wrongful termination in violation of public policy (a tort), and (4) breach of the implied 21 covenant of good faith and fair dealing. The appellate panel devoted significant 22 discussion to the tortious wrongful termination claim, focusing on the pretextual nature of 23 King’s termination. The Court of Appeal affirmed the jury’s verdict that U.S. Bank 24 breached the implied covenant, finding that “but for U.S. Bank’s bad faith act of 25 terminating King to avoid paying him the bonus, King would have received it.” Id. at 706 26 (emphasis original). The court distinguished the facts in Guz, noting that the at-will 27 nature of King’s employment was not controlling because the challenged breach was not 28 the wrongful termination of an at-will employee. Id. at 707. Rather, the challenged 10 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 11 of 16 1 breach was the pretextual termination to avoid payment of an earned bonus, a factual 2 situation that exactly fit the Guz court’s dicta describing a breach of the implied covenant. 3 “[T]he [implied] covenant prevents a party from acting in bad faith to frustrate the 4 contract’s actual benefits. Thus, for example, the covenant might be violated if 5 termination of an at-will employee was a mere pretext to cheat the worker out of another 6 contract benefit to which the employee was clearly entitled, such as compensation 7 already earned.” King, 53 Cal.App.5th at 707-08 (quoting Guz, 24 Cal.4th at 353 n.18). 8 United States District Court Northern District of California 9 Here, Peak does not establish that any commission was earned at the time he was terminated, so TigerGraph’s refusal to pay him does not constitute a breach. This 10 echoes the situation in Pashman, where the failure to establish that a commission was 11 first earned rendered subsequent nonpayment irrelevant. This point is distinguishable 12 from King, where the plaintiff had earned the bonus payment at issue and defendant 13 subsequently deprived him of the contract’s actual benefits. The commission here was 14 not earned and there is no breach of contract. 15 The primary basis for Peak’s implied covenant claim is that the implied covenant 16 prohibits TigerGraph from terminating his employment in order to avoid paying him the 17 commissions he was owed. However, TigerGraph could terminate Peak’s employment at 18 any time for any reason or no reason at all given the “at-will” nature of his employment 19 expressly identified in the employment agreement. Dkt. 42-1 at 7, ¶ 6. The annual 20 commission plans each include the following clause: “As a reminder, employment is on 21 an at-will basis (except as otherwise provided by law) and may be terminated with or 22 without cause, and with or without notice, at any time.” Dkt. 42-1 at 14, 20, 27, “Changes 23 to the Plan.” The covenant of good faith may not “be read to prohibit a party from doing 24 that which is expressly permitted by an agreement.” Carma Developers, Inc., 2 Cal.4th at 25 374. Said another way, “a breach of the implied covenant cannot logically be based on a 26 claim that the discharge of an at-will employee was made without good cause.” Guz, 24 27 Cal.4th at 327. Thus, TigerGraph cannot be held liable for breach of contract or breach 28 of the implied covenant for doing what they were expressly permitted to do by the terms 11 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 12 of 16 1 United States District Court Northern District of California 2 of the employment agreement: terminate Peak for any reason. Plaintiff offers a second theory for this claim—the implied covenant prohibits 3 employers from terminating employees to avoid paying commissions the employee was 4 “on the brink” of earning. But this argument misses the mark. Peak had not yet earned 5 commissions under the commission plans at the time of his termination. The complaint 6 suggests that only one SOW was submitted for signature before his termination, but it 7 was not yet paid. Compl. ¶ 85. The compensation plans signed by the parties state, 8 “Commissions are considered ‘Earned’ when the Company receives payment in full from 9 the customer.” See, e.g., “FY 2020 Sales Compensation Plan,” Dkt. 42-1 at 25. Peak 10 does not advance an argument that the client paid TigerGraph based on the signed 11 SOW. Under the terms of the commission plans, Peak was not entitled to a commission 12 on a deal that had not yet resulted in a payment to TigerGraph while Peak was 13 employed. Despite the similarities to the situation described in King, Peak misses the 14 essential element of “earned compensation” that brought the facts of that case within the 15 bounds of the Guz dicta. Guz, 24 Cal.4th at 353, n.18 (“Thus, for example, the covenant 16 might be violated if termination of an at-will employee was a mere pretext to cheat the 17 worker out of another contract benefit to which the employee was clearly entitled, such as 18 compensation already earned.” (emphasis added)). Guz does not suggest that the 19 implied covenant theory can be stretched to cover situations where an employee is 20 terminated and is denied commissions that are prospective and not yet earned. Accord 21 Remus v. Fios, Inc., No. C 11–01264 CRB, 2012 WL 707477 at *9 (N.D. Cal. Mar. 5, 22 2012) (granting summary judgment against plaintiff on implied covenant claim, where 23 plaintiff salesman argued that defendant’s decision to change commission rate for a 24 commission that had not yet been earned frustrated plaintiff’s expectation for amount of 25 the prospective commission, because “[t]o read the Compensation Plan as implying that 26 the covenant of good faith and fair dealing prevented Defendant from taking away 27 prospective commissions is in direct conflict with the stated language of the 28 Compensation Plan” (quotation omitted)). Thus, defendants cannot be held liable for 12 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 13 of 16 1 breach of the implied covenant of good faith and fair dealing for doing what defendants 2 were expressly permitted to do by the terms of the commission plans: refuse to pay Peak 3 a commission for which TigerGraph did not receive payment. 4 5 breached by unilaterally changing the terms of the compensation plans after Peak 6 showed the potential to bring in significant deals for the company. However, this 7 argument fails quickly in light of the express terms of the employment agreement and the 8 subsequent commission plans: they show mutual assent with Peak’s signature endorsing 9 three out of the four agreements, including the operative most recent. Dkt. 42-1 at pp. 9, 10 11 United States District Court Northern District of California Peak’s third rationale for breach of the implied covenant is that Tigergraph 12 13 14 21, 27. Therefore, for all these reasons, Peak’s first claim for “breach of contract/covenant of good faith and fair dealing” is dismissed. 4. Interference with contract and civil conspiracy Under California law, “it is settled that corporate agents and employees acting for 15 and on behalf of a corporation cannot be held liable for inducing a breach of the 16 corporation’s contract.” Mintz v. Blue Cross of Calif., 172 Cal.App.4th 1594, 1604 (2009). 17 Similarly, a corporation cannot conspire with its own employees to create a conspiracy: 18 “[a]gents and employees of a corporation cannot conspire with their corporate principal or 19 employer where they act in their official capacities on behalf of the corporation and not as 20 individuals for their individual advantage.” Wise v. Southern Pacific Co., 223 Cal.App.2d 21 50, 72 (1963). There exists no claim for civil conspiracy under California law. See 22 Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510-511 (1994) 23 (explaining that there is no independent claim for civil conspiracy, such a claim must rely 24 on an underlying tort). The California Supreme Court concluded that imposing tort 25 liability on a contracting party would “[1] illogically expand[ ] the doctrine of civil 26 conspiracy by imposing tort liability for an alleged wrong—interference with a contract— 27 that the purported tortfeasor is legally incapable of committing; and (2) . . . obliterate[ ] 28 vital and established distinctions between contract and tort theories of liability by 13 United States District Court Northern District of California Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 14 of 16 1 effectively allowing the recovery of tort damages for an ordinary breach of contract.” Id. 2 at 510. The court noted that “California recognizes a cause of action against 3 noncontracting parties who interfere with the performance of a contract.” Id. at 513 4 (emphasis original). 5 Here, following the earlier conclusion that California law applies to claims not 6 specifically arising from Massachusetts labor law, Peak fails to make out a claim for 7 either interference with contract or civil conspiracy. Defendants Xu and Blaschka 8 operated within their roles as officers of TigerGraph throughout the events described in 9 the complaint. Because they were not strangers to the employment agreement or any of 10 the compensation plans, the two individual defendants cannot be liable for interfering with 11 the contracts. Therefore, Peak’s second, third, and fourth claims are dismissed. 12 5. Massachusetts Wage Act 13 Massachusetts Wage Act section 148 expressly states that its protection is limited 14 to a commission that has “been definitely determined and has become due and payable.” 15 Pre-order efforts that may produce future orders do not support a claim for payment of 16 commission where payment of commission is specifically based on orders. Gerald 17 Rosen Co. Int’l Tel Telegraph, 16 Mass.App.Ct. 929 (Mass. App. Ct. 1983). In King v. 18 Mannesmann Tally Corp., 847 F.2d 907 (1st Cir. 1988), a plaintiff salesman sought 19 payment of a commission because he had established a vendor relationship with a 20 customer before he was terminated. The plaintiff’s commission was not earned until 21 orders were booked and shipped, and because no orders had been booked and shipped, 22 the court there determined that there was no commission due and payable upon which a 23 claim could stand. Id. at 908. 24 In several cases considering this provision of the Massachusetts Wage Act, 25 employers have been found to both violate the Act and breach the covenant of good faith 26 and fair dealing by terminating an employee for the purpose of avoiding payment of 27 commissions. Fortune v. Nat’l Cash Register Co., 373 Mass. 96, 101-105 (1977). 28 Expanding on the decision in Fortune, the Supreme Judicial Court of Massachusetts 14 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 15 of 16 1 determined that a discharged at-will employee can state a claim for breach of the 2 covenant of good faith and fair dealing by showing that the termination was made without 3 good cause, that it resulted in the deprivation of compensation to the employee for past 4 services, and that it resulted in a windfall for the employer. Gram v. Liberty Mut. Ins. Co., 5 384 Mass. 659, 671-72 (1981). A claim for such a breach exists even absent evidence of 6 an employer’s bad faith or intent to deprive an employee of benefits an employee had 7 earned. Id. Despite the similarities between the Massachusetts cases cited and the facts here, United States District Court Northern District of California 8 9 there is one distinguishing fact that defendants have rightly pointed out: Peak did not yet 10 earn the commissions he claims are owed. In Fortune and Gram, the courts determined 11 that the Massachusetts Wage Act had been violated in significant part because the 12 commissions plaintiffs sought had already been earned under the terms of the 13 commission structures in place before the salespeople were terminated. But here, the 14 plain language of the employment agreement provides that commissions are not yet 15 earned until payment, and Peak does not plead that TigerGraph was paid based on the 16 sales he completed. The controlling language from the plans provides that 17 “Commissions are considered ‘Earned’ when the Company receives payment in full from 18 the customer.” See Blaschka Dec., Ex. 4 (Dkt. 42-1 at 25). Peak describes at length his 19 pre-sale efforts to bring in a multi-million-dollar line of business for TigerGraph, but the 20 commissions on that line of business were not yet “earned” at the time he was 21 terminated. Therefore, Peak’s fifth, sixth, and seventh claims for violations of the 22 Massachusetts Wage Act are dismissed. 23 III. 24 CONCLUSION For the reasons stated above, the court GRANTS defendants’ motion to dismiss 25 plaintiff’s complaint. To be clear, the court has found that plaintiff’s claims under both 26 California and Massachusetts law require that the commissions at issue have been 27 earned, as that term is defined by the contracts. Given the clear language of the 28 contracts, the court’s choice of law determination, and the facts as currently pleaded, the 15 Case 4:21-cv-02603-PJH Document 46 Filed 09/07/21 Page 16 of 16 1 court is doubtful that a viable claim can be made. Nonetheless, the court grants leave to 2 amend no later than 28 days from the date of this order. No new claims or parties may 3 be added without leave of court or the agreement of all parties. 4 5 6 7 IT IS SO ORDERED. Dated: September 7, 2021 /s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON United States District Judge 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16