Pierce v. Better Holdco, Inc.

Background

Sarah J. Pierce sued Better Holdco, Inc. (“Better”), Vishal Garg, and Nicholas Calamari. The opinion describes Pierce as a former Better employee who had become the functional equivalent of the company’s chief operating officer and reported directly to Garg. Pierce alleged that she raised concerns about a planned mass layoff, alleged misrepresentations about Better’s business and finances, and information in a filing with the Securities and Exchange Commission. She claimed that, after raising those concerns, Better placed her on administrative leave and fired her, and that Garg and Better later made statements accusing her of financial misconduct.

Pierce asserted retaliation claims under New York Labor Law § 740, the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. She also asserted defamation, intentional infliction of emotional distress, tortious interference with contract, breach of contract, and a shareholder derivative claim for breach of fiduciary duty. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. At this stage, the court treated well-pleaded factual allegations as true and drew reasonable inferences for Pierce.

New York Labor Law § 740 retaliation

The court denied Better’s motion to dismiss Pierce’s claim under New York Labor Law § 740. The court held that Pierce plausibly alleged that her employment ended on February 4, 2022, after the amended version of the statute took effect, rather than on January 15, 2022, when Better told her it would process her resignation. The court also held that Garg’s alleged statements that Pierce was “cooking the books” and “fudging the numbers” could qualify as post-termination retaliation because they could adversely affect her future employment prospects. The court did not treat Better’s private effort to collect on Pierce’s loans or the related lawsuit as actionable retaliation under the allegations presented.

The court found that Pierce plausibly alleged protected activity concerning the alleged violations of the California and federal Worker Adjustment and Retraining Notification Acts, the alleged misstatements in Better’s Securities and Exchange Commission filing, and the alleged false profitability projection. The court concluded that Pierce did not plausibly allege that her objections to the company’s platform statements or the “black box” statement reflected a reasonable belief that those matters violated the law. The court nevertheless found sufficient allegations of a causal connection between Pierce’s protected activity and her termination and Garg’s statements about her alleged misconduct.

Sarbanes-Oxley and Dodd-Frank retaliation

The court granted Better’s motion to dismiss Pierce’s Sarbanes-Oxley retaliation claim. Pierce alleged that Better had begun a special-purpose acquisition-company transaction and filed a Form S-4 with the Securities and Exchange Commission, but she did not allege that Better was subject to the employee-protection provision of Sarbanes-Oxley through the statutory conditions identified by the court.

The court also granted Better’s motion to dismiss Pierce’s Dodd-Frank retaliation claim. Although Pierce alleged that she filed a whistleblower form with the Securities and Exchange Commission, she did not allege that Better knew she had provided information to the agency.

Derivative breach of fiduciary duty claim

The court granted Garg and Calamari’s motion to dismiss Pierce’s derivative breach of fiduciary duty claim. Pierce conceded that she had not made the required demand on Better’s board of directors before filing the claim, but argued that demand should be excused as futile. The court held that she had not pleaded, director by director, facts showing that at least half of the board members received a personal benefit, faced a substantial likelihood of liability, or lacked independence. The court also noted that Pierce alleged that board members had responded to her concerns about Garg.

Defamation

The court denied Garg’s motion to dismiss Pierce’s defamation claim. Of the statements attributed to Garg, the court held that the alleged statements that Pierce was the leader of a “coup,” had “resigned,” “abandoned,” or sought to “extort” Better, and should have been “Cheerleader in Chief,” were not actionable because Pierce had not pleaded special damages and the statements did not qualify as defamation per se. The court also held that statements about hiring “experienced and seasoned executives” and the company’s metrics being a “black box” did not adequately identify or concern Pierce.

The court held, however, that Garg’s alleged statements that Pierce had been “cooking the books” and “fudging the numbers” were actionable. The court treated those statements as factual accusations of professional misconduct, held that they could qualify as defamation per se, and found that Pierce plausibly alleged publication to Better’s board and knowledge of falsity. Garg’s motion to dismiss Pierce’s defamation claim was therefore denied.

As to Better, the court denied the motion to dismiss the defamation claim based on respondeat superior, meaning an employer’s potential responsibility for an employee’s conduct within the scope of employment. The court held that Pierce plausibly alleged that Garg made the actionable statements as Better’s chief executive officer. The court granted Better’s motion to dismiss the defamation claim based on Better’s press statement about the loan litigation because Pierce had not pleaded special damages and the statement was not defamation per se.

Other claims

The court granted Garg and Calamari’s motion to dismiss Pierce’s intentional-infliction-of-emotional-distress claim. The alleged firing, reputational attacks, retaliation, and harassment did not meet New York’s very high standard for conduct that is extreme and intolerable.

The court granted Garg and Calamari’s motion to dismiss Pierce’s tortious-interference-with-contract claim. Pierce conceded that she was an at-will employee. The court held that Garg and Calamari were not third parties to her employment relationship because Pierce did not adequately allege that they acted outside their authority or committed an independent tort before her employment ended.

The court granted Better’s motion to dismiss Pierce’s breach-of-contract claim. The court did not decide whether Better’s premature statement that a loan had come due was a breach because Pierce had not alleged damages; Better did not bring the loan-enforcement lawsuit until after the actual due date. The court also held that Pierce had not adequately alleged an agreement based on Better’s proposal to repurchase her shares because she did not describe the offer’s terms or the details of her alleged acceptance.

Disposition

The court stated that Better’s motion to dismiss was granted in part and denied in part, and that Garg and Calamari’s motion to dismiss was granted in part and denied in part. The order did not state that any dismissal was with or without prejudice.