United States District Court, N.D. California, Oakland Division
ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY
JUDGMENT AND SUA SPONTE ENTERING SUMMARY JUDGMENT FOR
DEFENDANTS MARK ROBINSON AND DAVID LEE DKT. 99, 100
SAUNDRA BROWN ARMSTRONG SENIOR UNITED STATES DISTRICT JUDGE
instant action arises from a contract dispute principally
between Plaintiffs Jonathan Cummings and Hilary Hegener
(collectively “Plaintiffs”) and Defendant
Worktap, Inc. (“Worktap”). The Second Amended
Complaint (“SAC”), the operative pleading,
alleges that Worktap failed to repay two convertible
promissory notes from 2015 and 2016 (collectively
“Notes”) in the amounts of $150, 000 and $50,
000, respectively, plus interest. The first and second causes
of action are for breach of contract against Worktap. The
third and fourth causes of action allege that Defendants Mark
Robinson (“Robinson”) and David Lee
(“Lee”) (together “Individual
Defendants”) are personally liable on the Notes as
alter egos of Worktap. As relief, Plaintiffs seek repayment
of the Notes, plus interest and attorney's fees. The
Court has entered Worktap's default, leaving only the
Individual Defendants as active party-defendants in the
parties are now before the Court on Plaintiffs' Motion
for Summary Judgment Against Defendants Mark Robinson and
David Lee. Having read and considered the papers submitted
and being fully informed, the Court DENIES Plaintiffs'
motion and sua sponte GRANTS summary judgment for the
Individual Defendants. The Court, in its discretion, finds
this matter suitable for resolution without oral argument.
See Fed.R.Civ.P. 78(b); N.D. Cal. Civ. L.R. 7-1(b).
Formation of Worktap
Robinson founded Worktap in 2012 while working out of his
home. Robinson Decl. ¶ 4, Dkt. 107-2. Robinson
incorporated Worktap on January 9, 2012. Id. &
Exs. A-E. To incorporate Worktap, Robinson used LegalZoom, a
legal form site, to draft and file the requisite documents
with the California Secretary of State. Id. Robinson
also completed other tasks and paperwork, such as the
corporation's by-laws, required to form and maintain a
corporation. Id. In accordance with Worktap's
by-laws, Robinson appointed himself as the sole Board of
Director. Id. ¶¶ 4-5. A few days after
incorporating Worktap, Robinson executed a stock purchase
agreement in which he invested $10, 000 in exchange for 10
million shares of Worktap common stock. Id. ¶ 6
& Ex. D. Over the course of the next two years, Robinson
used his $10, 000 investment and “sweat equity”
to grow Worktap into a viable business. Id. ¶
8. Robinson eventually completed development of an
“onboarding platform that became the basis of
Worktap's consumer product.” Id.
January 15, 2014, Worktap enacted a resolution to appoint
Defendant Lee as a board member. Id. ¶ 9. A few
months later, when Worktap's product was ready for
customer presentations, Lee began working at Worktap as its
Senior Vice President of Sales. Lee Decl. ¶ 3, Dkt.
107-1. Although his annual salary was $160, 000, he typically
received only double the minimum wage due to Worktap's
cash flow issues. Id. ¶ 6. In February 2015,
Lee received 16 million shares of Worktap, with 25% vesting
immediately and the remainder vesting over time. Id.
meantime, in or about August 2014, Worktap released its
product and began to make customer sales. Robinson Decl.
¶ 14. Around the same time-period, Worktap began renting
an office in San Rafael, California, and opened a bank
account at the Bank of Marin. Id. ¶¶ 11,
12. Worktap had not opened a bank account before then because
the company was not previously transacting business.
Id. ¶ 11. Over the next year, Worktap hired
four additional employees, including Christopher Cummings
(“Chris”), the brother of Plaintiff Jonathan
Cummings. Id. ¶¶ 14-16.
relationship with Chris came about because Lee and Chris'
children attended the same school in Marin County. Lee Decl.
¶ 7. In March 2015, Worktap initially offered Chris an
“advisory” role, as it would have been too costly
to hire him as a full-time employee. Id. However,
Chris told the Individual Defendants that he would use his
Ivy League connections to foster significant investments in
Worktap. Id. ¶ 8. Chris further represented
that if he were hired, his sibling-Plaintiff Jonathan
Cummings-would make an early investment in the sum of $150,
000. Id. Persuaded Chris would add value as an
employee, Worktap hired him in April 2015 to act as the
company's Senior Vice-President of Corporate Development
and Finance. Robinson Decl. ¶ 19. In that capacity,
Chris had two primary responsibilities: (1) fundraising
(i.e., securing outside investments in Worktap); and (2)
finance and accounting. Lee Decl. ¶ 8. As compensation,
Chris was to be paid a salary $170, 000 per year and receive
a 3% equity stake in Worktap. Id. In Worktap's
view, Chris' successful fundraising was essential to the
continued operation of the company. Robinson Decl. ¶ 11.
to Chris' hiring, Lee began to solicit investors in or
about August 2014. Id. ¶ 13. Between October 1,
2014, and March 22, 2015, Worktap raised $319, 000 from
different investors. Id.
noted, Chris was hired by Worktap in April 2015. In July
2015, he secured $350, 000 in capital from various investors,
including $150, 000 from Plaintiffs. 4/19/18 Order at 2, Dkt.
75. The terms of Plaintiffs' investment were memorialized
in a Note Purchase Agreement, which included a Convertible
Promissory Note (collectively “2015 Note”), dated
April 13, 2015. Id. In October 2015, another
investor invested $50, 000.
Decl. ¶ 24. Nevertheless, Chris' financing efforts
were not resulting in the level of investment the company had
expected. Id. ¶ 24. As such, in November 2015,
Robinson informed Chris that if he were unable to raise
additional monies, the company would be unable to make
payroll and would have to lay off employees, including Chris.
December 2015 or January 2016, Chris informed Robinson that
he might be motivated to work harder if Worktap increased his
equity stake in the company. Id. ¶ 25. Shortly
thereafter, on January 27, 2016, Plaintiffs invested an
additional $50, 000 in Worktap. 4/19/18 Order at 2. The
investment was memorialized in a Note Purchase Agreement and
Convertible Promissory Note (collectively “2016
2016, Worktap continued to struggle financially and
experienced cash flow issues due to the lack of funding.
Id. ¶ 26. Robinson again informed Chris that
since he was Worktap's highest paid employee, the company
would be unable to maintain his employment unless he secured
additional investments. Id. Beginning in December
2015 and throughout 2016, Chris loaned monies to Worktap that
were used, in part, to ensure that Worktap could make
payroll. Id. ¶ 28; C. Cummings Decl.
¶¶ 44-46, Dkt. 101. Worktap repaid those loans,
often within days. Robinson Decl. ¶ 28.
September 2016, Chris secured his final investment in the sum
of $25, 000. Id. ¶ 29. In December 2016, Chris
told Robinson that if he did not receive additional equity,
he would leave. Id. ¶ 30. Robinson responded
that he was prepared to accept Chris' resignation, but
Chris said he was not serious. Id. However, Chris
thereafter ceased communicating with Robinson and Lee,
abandoned his payroll duties and “left Worktap locked
out of its payroll provider account with Tri-Net.”
Id. Worktap eventually terminated Chris in January
2017 for insubordination and abandonment of duties.
Id. ¶ 31. Following Chris' termination,
Robinson learned that Chris allegedly had engaged in a host
of misconduct, including, inter alia: completely mismanaging
his accounting and financial duties; misrepresenting the
company's financial status; and writing company checks to
himself. Id. ¶¶ 31-33. Chris also failed
to provide the Individual Defendants documents pertaining to
the promissory notes executed during the 2015-2016
filed their initial Complaint on October 27, 2017, and a
First Amended Complaint on December 18, 2017. Dkt. 1, 18.
Plaintiffs filed their SAC on January 5, 2018. Dkt. 21. The
first and second causes of action are for breach of contract
based on the 2015 Note and 2016 Note, respectively. The third
and fourth causes of action allege alter ego liability as to
Robinson and Lee. Defendants answered the SAC and filed a
counterclaim against Cummings. Dkt. 26, 28. As to the 2016
Note, the Counterclaim alleges, inter alia, that Cummings and
his brother Christopher altered the parties' agreement to
give Plaintiffs more favorable discount rates and valuation
and conversion terms. Counterclaim ¶ 18, Dkt. 28.
October 10, 2018, the Court granted defense counsel's
motion to withdraw as counsel of record. Dkt. 88. The Court
stayed the action for thirty days to allow Worktap- a
corporation which can only appear in federal court through an
attorney-the opportunity to retain new counsel. Id.
Worktap failed to retain new counsel within the specified
time-frame, which resulted in its default being entered by
the Clerk on November 20, 2018. Dkt. 94. The Individual
Defendants have since retained new counsel. Dkt. 105.
November 11, 2018, Plaintiffs submitted a proposed order for
the entry of default judgment against Worktap. Dkt. 92.
Because the proposed order was not accompanied by a motion or
application, the Court struck it from the record. Dkt. 93.
thereafter, Plaintiffs filed a motion seeking leave to file a
motion for reconsideration and to modify the Court's
pretrial schedule. Dkt. 95. They claimed, among other things,
that a scheduling modification was necessary so that they
could file out-of-time motions for default judgment as to
Worktap and for summary judgment as to the Individual
Defendants. Id. The Court denied all requests for lack
of good cause. Dkt. 96 at 3-6. However, in the interests of
judicial efficiency, the Court directed Plaintiffs to file a
motion for summary judgment as to the alter ego issue by no
later than January 4, 2019. Id. at 6. The Court
further indicated that upon resolution of Plaintiffs'
summary judgment motion, the Court would set a briefing
schedule on Plaintiffs' motion for default judgment as to
December 24, 2018, Plaintiffs filed an administrative motion
for leave to submit a 35-page motion for summary judgment.
Dkt. 97; see Civ. L.R. 7-2 (limiting motions to 25
pages). The Court denied the request but sua sponte extended
the filing deadline to January 11, 2019 “[t]o
facilitate Plaintiffs' efforts to file a concise
motion.” Dkt. 98 at 2. Notwithstanding the week-long
extension provided, Plaintiffs, without seeking or obtaining
prior leave of court, filed their untimely motion for summary
judgment on January 12, 2019. Dkt. 100. Accompanying the
motion is an administrative motion to seal certain of the
exhibits presented in support of the motion. Dkt. 99.
Plaintiffs did not serve unredacted copies of the subject
exhibits until January 21, 2019. Gibson Decl. ¶ 5, Dkt.
summary judgment motion seeks a determination, as a matter of
law, that the Individual Defendants are alter egos of Worktap
and therefore are personally liable to Plaintiffs for
repayment of the Notes, plus interest and attorney's
fees. Aside from a declaration from their counsel, the
substance of Plaintiffs' motion is based entirely on the
accompanying declaration of Chris. The Individual Defendants
oppose Plaintiffs' motion on the merits and as untimely.
In addition, they object to various statements and exhibits
contained in Chris' declaration. The motion is fully
briefed and is ripe for adjudication.
judgment is appropriate where there ‘is no genuine
issue as to any material fact” and the moving party is
“entitled to a judgment as a matter of law.'”
Alabama v. North Carolina, 560 U.S. 330, 344 (2010)
(quoting Fed. Rule Civ. Proc. 56(c)) (citing cases).
“The burden of establishing the nonexistence of a
‘genuine issue' is on the party moving for summary
judgment.” Celotex Corp. v. Catrett, 477 U.S.
317, 330 (1986). “[A] party seeking summary judgment
always bears the initial responsibility of informing the
district court of the basis for its motion, and identifying
those portions of ‘the pleadings, depositions, answers