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NYMBUS, Inc. v. Sharp

United States District Court, D. Connecticut

February 19, 2019

NYMBUS, INC., Plaintiff / Counter-defendant,
v.
SCOTT SHARP, Defendant/ Counter-plaintiff,
v.
HARRY FLOOD, SCOTT KILLOH, Third party defendants.

          RULING RE MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS AND MOTION FOR PARTIAL SUMMARY JUDGMENT

          JEFFREY ALKER MEYER, UNITED STATES DISTRICT JUDGE

         This is a case about a business employment dispute. Nymbus, Inc. is a software development company that hired Scott Sharp as its chief operating officer. Their relationship fell apart for hotly disputed reasons, and they have sued one another. Now before me are two motions by Sharp for partial judgment on the pleadings and partial summary judgment. I will deny the motion for partial judgment on the pleadings and grant the motion for partial summary judgment.

         Background

         The following facts are drawn from the complaint except as noted. Doc. #1; see also Nymbus, Inc. v. Sharp, 2018 WL 705003 (D. Conn. 2018). Nymbus, Inc. is a software company that is incorporated in Delaware and headquartered in Florida. Around January 2015, Nymbus began working on a new core processing platform for financial institutions such as community banks and credit unions. To aid the development of this new platform, Nymbus purchased in January 2016 another core processing platform known as Sharp BancSystems from a group of banks that was owned in part by Scott Sharp and his family.

         Along with this acquisition of Sharp BancSystems, Nymbus hired Sharp to serve as its chief operating officer. His agreed-upon annual salary started at $250, 000 and rose to $300, 000. According to Nymbus, it hired Sharp because of Sharp's representations that he had extensive experience in designing, developing, operating, and converting a core processing platform. The parties entered into an employment agreement that has been made an integral part of the record in this case. Doc. #2.

         Sharp's primary responsibilities as chief operating officer for Nymbus included: (i) advancing the design and development of Nymbus's state of the art core processing platform, including the feature and functionality of its products; (ii) designing and developing a conversion and implementation process for financial institutions that purchased the Nymbus core processing platform, and (iii) ensuring that the Sharp BancSystems business now owned by Nymbus was in full compliance with all applicable banking and data security regulations.

         According to the complaint, however, Sharp materially failed to carry out each of these responsibilities. He failed to advance the design and development of the features and functionality required for Nymbus's platform, while failing as well to advance the platform so that it met its federally mandated compliance obligations. In addition, he failed to design and develop a conversion and implementation process for financial institutions that purchased the Nymbus platform. He also failed to ensure that the Sharp BancSystems business met its federally mandated compliance obligations, and he failed to implement and maintain adequate and sufficient operational and data security measures at one or more of Sharp BancSystems's facilities.

         The complaint does not merely allege that Sharp failed to do his job but that he breached his fiduciary duty to Nymbus in two ways. First, he failed to disclose to Nymbus that the Sharp BancSystems business suffered from one or more material operating and compliance weaknesses. Second, he had an ongoing conflict of interest because of his continuing position with one or more of the Sharp family banks.

         On April 12, 2017, Nymbus placed Sharp on paid administrative leave. The undisputed record beyond the complaint includes two letters from Nymbus to Sharp in April 2017 advising him that he was being placed on paid administrative leave pending an investigation of his actions as a Nymbus employee and advising that while on leave he must refrain (1) from communicating with any Nymbus employees, customers, and potential customers of Nymbus; (2) from conducting any Nymbus business; and (3) from accessing any Nymbus systems and facilities. Doc. #57 at 37-38.

         A little more than two months later, Sharp notified Nymbus on June 16, 2017, that he was leaving his position, providing a “Notice of Termination of Employment with Good Reason.” He sought to avail himself of a provision of his employment agreement allowing him to terminate his employment for “good reason, ” which is defined in relevant part to include “the occurrence of . . . (iv) a material, adverse change in the Executive's authority, duties or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law).” Doc. #2 at 7 (§ 5.1(c)).

         Nymbus responded on July 5, 2017, by sending Sharp a “Notice of Termination of Employment for Cause, ” as well as by filing the complaint in this action. Doc. #1. The Nymbus complaint against Sharp alleges the following three claims: breach of fiduciary duty (Count 1), breach of contract (Count 2), and declaratory judgment (Count 3) regarding whether Nymbus had “good cause” to terminate Sharp or, alternatively, whether Sharp had “good reason” to terminate his employment (a distinction that matters to whether Sharp is entitled to certain additional payments from Nymbus).

         Sharp has answered the complaint to dispute Nymbus's claims of Sharp's wrongful conduct and in turn to allege 12 counterclaims against Nymbus as well as third-party claims against two Nymbus executives. Doc. #51. Insofar as is relevant to the motions now before me, four of Sharp's counterclaims (Counterclaims 1 through 4) are based on Nymbus's alleged failure to pay Sharp compensation for three months in 2016, and two of the counterclaims (Counterclaims 11 and 12) are based on allegations that Sharp resigned for “good reason, ” resulting in his entitlement to certain post-termination compensation.

         Now before me are two motions filed by Sharp. The first is a motion for partial judgment on the pleadings to dismiss Nymbus's claims for breach of contract and for breach of fiduciary duty. The second is a motion for partial summary judgment contending that the Court should grant judgment in his favor on two specific issues: (1) that his employment was not exempt from the Fair Labor Standards Act for at least the three months that Nymbus failed to pay his salary, and (2) that he had “good reason” as defined under the employment agreement to resign from his employment with Nymbus.

         Discussion

         I will address Sharp's motion for partial judgment on the pleadings before turning to his motion for partial summary judgment.

         A. Motion for ...


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