Ann Lai complaint against Binary Capital and Justin Caldbeck

CHRIS BAKER, State Bar No. 181557 cbakergél‘bakerlpcom DEBORAH SCHWARTZ, State Bar No. 208934 dschwartzEDbakerlpcom

L EOn!LMTV I F SAN MATEO:

BAKER CURTIS 8L SCHWARTZ, P.C. 44 Montgomery Street, Suite 3520 San Francisco, CA 94104

Telephone: (415) 433-1064 Fax: (415) 366-2525.366.

JUN 2 8 2017

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Attorneys for Plaintiff

ANN LAI

figfillllllllllllllllllllllllllll l SUPERIOR COURT OF CALIFORNIA

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COUNTY OF SAN MATEO

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ANN LAI, on behalf of the State of California

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8 8

2?;

COMPLAINT PURSUANT TO THE PRIVATE ATTORNEYS GENERAL ACT AND AS AN INDIVIDUAL

individual,

14

Plaintiff, 15

17

V 9

and aggrieved employees as to PAGA, and as an

16

l

Case No.

vs.

CAUSES OF ACTION

BINARY CAPITAL MANAGEMENT, LLC, JUSTIN CALDBECK, and DOES 1 through 10,

18

Defendants. 19

20

PAGA 2. LABOR CODE § 232.5 3. LABOR CODE § 1050 4. DEFAMATION 5. IN TENTIONAL INTERFERENCE WITH ECONOMIC ADVANTAGE 6. EMOTIONAL DISTRESS 1.

DEMAND FOR JURY TRIAL

21

BY FAX

22 23

INTRODUCTION 24

Silicon Valley companies and their powerful investors in the venture capital world rely 25

on overbroad and illegal confidentiality and non-disparagement agreements to suppress and 26

restrict the rights of current and former employees under California law. 27

As

a

result, the following is what can, and does, happen.

28

LAI COMPLAINT

PARTIES

Plaintiff Ann Lai is a former employee of Binary Capital Management LLC.

1.

She

resides in San Francisco, California. She holds aBachelor’s degree in chemistry and physics, a .bUJN

Master’s degree in applied mathematics, and a Ph.D. in engineering sciences, all fiom Harvard

University. \IQUI

2.

Justin Caldbeck is a venture capitalist.

3.

Binary Capital Management LLC (“Binary LLC’.’ or “Binary”) is

a management

company headquartered in Hillsborough, CA. At all times relevant here, Binary LLC was owned and controlled by Jonathan Teo, another venture capitalist, and Caldbeck. 10

In typical venture-capital byzantine fashion, Binary LLC purports to manage

4.

LP. (“Binary LP”), which in turn acts

as the general

partner of other

11

Binary Capital MTGP

12

limited partnerships bearing the Binary name. Binary LP may or may not be managed by

13

another Binary entity called Binary TTGP. Binary Capital — under whatever form — invests in

14

early stage, consumer-focused companies, i.e., portfolio companies. As investors, Binary Capital

15

exercises considerable influence over them.

16

Does

5.

1

1,

through 10 are currently unknown. They may include other entities or

17

individuals liable in some way for the claims alleged in this case including, potentially, Binary

18

LP, Binary TTGP, Binary Fund I,

LP, and Teo.

19

FACTS

20

The Confidentiality, Non-Disclosure, and Non-Disparagement Provisions

21

22 23

of January 5,

6.

On November 21, 2014, Binary offered Lai a job with a start date

7.

As a condition of employment, Binary required Lai to sign an employment

2014.

24

agreement with Binary LLC (the “Employment Agreement”). This agreement was not subject to

25

negotiation.

26

27

8.

The Employment Agreement contains “a confidentiality and non—disclosure”

provision. This provision stated in pertinent part:

28

-2LAI COMPLAINT

Employee acknowledges and agrees that a_ll information obtained by Employee in connection with Employee's employment by the Company concerning the business or assets of the Company, any client of the Company (a "Client" |i.e., Binary LP]), any investment fund in respect of which a Client serves as " general partner" or "managing member" or in respect of which the Company provides services for or on behalf of a Client (each being a "Fund"), or any actual or prospective portfolio company of any Client or Fund shall be deemed strict_ly confidential and shall not, without the prior written consent of the Company or for a Company purpose, be: (x) used by Employee; or (y) disclosed to any Person. The Company hereby consents to disclosure by Employee of Company information, solely for the purpose of enforcing Employee's rights under this Agreement or of complying with applicable law, to Employee's accountants, attorneys and similar advisors bound by a duty of confidentiality. . . . Employee expressly acknowledges and agrees that the Company derives material economic value from the protection of confidential information as set forth in the foregoing provisions of this Section . . . . and that such confidential information includes trade secrets and similar types of information the disclosure of which likely would cause substantial and irreparable harm to the Company.

10

ll 12 13

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9.

The Employment Agreement also contains a “non-disparagement” provision. This

provision states: To the maximum extent permitted by applicable law, Employee shall not disparage the Company . . . . For purposes of the preceding sentence: (i) "disparage" shall mean any negative comments regarding a Person's business model, business practices, investment-related decisions, affiliates, eguityholders, personnel, agents, integrity, fairness, satisfaction of obligations, or overall performance . . .

16 17 18

19

.

20 10. 21

The Employment Agreement further provides that “the rights

of Employee shall be

narrowly construed. It is the intention of the Parties that Employee, shall not solely in

22 consequence

of the execution of this Agreement, have any rights in respect to the Company, or

23

any affiliate thereof, except as specifically provided in this Agreement.”

24 11.

The Employment Agreement as

it relates to confidentiality

25 has no geographic or temporal scope. In other words,

26 12.

and non-disparagemet

it lasts forever.

Binary requires all employees to sign its Employment Agreement. It also requires

27

certain employees to sign its Partnership Agreement. 28 _

3

_

LAI COMPLAINT

The California Labor Code

It is against California law to require employees,

13.

as a

condition of employment, to

sign an overbroad confidentiality agreement or a non-disparagement provision. More specifically LII-#0310

(but not exclusively): a.

California Labor Code

§

232.5 prohibits an employer from requiring an

employee to refrain from disclosing information about the employer’s working conditions, either

through a writing or otherwise. \OOO\IO\

b.

California Labor Code

§

432.5 prohibits an employer from requiring an

employee to agree, in writing, to any term or condition

of employment which is known by the

10

employer to be prohibited by law. This includes confidentiality agreements that effectively

11

constitute

12

Cartwright Act, or Business & Professions Code

a

restraint on trade in violation of Business & Professions Code

13

§

16600, the

17200.

§

Lai’s Job at Binary

14

14.

Lai performed her job well at Binary. She was primarily responsible for

15

establishing Binary’s data-driven sourcing strategy, conducting the diligence regarding Binary’s

16

potential investments, and supporting Binary’s Portfolio companies on analytics/ growth

17

strategies. In October 2015, she was given the title “Principal.”

18

15.

Binary’s workplace was not gender—neutral and evidenced

a sexist and sexual

19

environment prohibited by the anti-discrimination laws. This conduct included, but was not

20

limited to: (a) statements that Binary needed an attractive receptionist; (b) statements concerning

21

sexual relationships; (0) inappropriate conduct with female staff at company outings and

22

otherwise;

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other women, including female founders. Lai complained about this misconduct, but nothing was

24

done.

25

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16.

((1) a

female-specific dress code; and (e) statements about the attractiveness

of Lai and

Accordingly, in November 2015, Lai informed Binary of her intent to resign.

Caldbeck convinced her to stay, explaining that the firm was “committed to change.”

27

17.

In January 2016, Lai received

28

18.

In March or April of 2016, Lai learned that Caldbeck was involved in

a

positive performance review

_

4

_

LAI COMPLAINT

as

well

as a raise. a

relationship with another employee who had been championed by the firm. This employee N

Ac;

showed Lai certain text messages and sought advice on how to end the relationship. After

learning of, and being disturbed by, Caldbeck’s conduct'with respect to this employee, Lai reached out to potential employers about potentially changing jobs. Through this process, Lai

learned additional and disturbing information about Caldbeck’s treatment 19. \DOONO‘kI

Lai took vacation in late April and the first part of May. During this time frame,

she concluded that, under the circumstances, she had to transition out

20.

of women.

of Binary LLC.

On May 10, 2016, Lai informed Caldbeck that, given the circumstances, she

needed to resign. She explained that she was unhappy and uncomfortable with the work 10

environment and that it had not changed. She explained she had tried to resign once before.

11

Caldbeck responded: “Is that your narrative?

12

make sure you have no narrative. He also told her that if she left Binary, “she would never

13

work again.”

14

21.

If you want to leave Binary, I’ll make it happen and

Lai -- frightened by Caldbeck’s reaction — said she would not meet only with

15

Caldbeck. She proposed that she meet with Caldbeck,'Teo, and another Binary partner after she

16

returned from a previously scheduled visit to a portfolio company. This follow-up meeting was

17

scheduled for May 17.

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22.

The next day, while Lai was at the portfolio company, Caldbeck began sending Lai

19

messages and emails

20

hold. He demanded immediate action. His purpose was to create a paper trail to justify her

21

termination.

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23.

1

—

copying others — concerning a project that had previously been placed on

On May 13, Lai learned that Binary had declined to auto-deposit her approved

expenses into her bank account.

24.

In light of these facts, Lai concluded that she could not wait until the May

17

25

meeting with Caldbeck, Teo, and the other Binary partner to officially resign. Instead, she

26

tendered her resignation on May 13 at 1:10

27

leave, the recent suspicious line

28

projects, and Binary’s unusual behavior concerning expense reports. She explained that these

pm, citing the threats to her reputation if she chose to

of questioning and inconsistent expectations regarding on-going

LAI COMPLAINT

facts, and other issues, had contributed to a “hostile work environment where

I do not feel

comfortable in continuing to work.” 25.

Shortly thereafter, Teo accepted her resignation on behalf of Binary.

Binary’s Post-Termination Conduct 26.

Immediately following Lai’s resignation, Binary — acting initially through

Caldbeck — took immediate steps to ensure Lai did not disclose any information about Binary’s OO\IO\

working conditions, including its inappropriate and illegal behavior. Binary used a carrot and stick approach. For example, on May 13, 2016, Caldbeck sent the following texts:

\D

(a)

10

At 2:40 pm, Caldbeck texted Lai:

[T]here should be no external messaging to entrepreneurs or LPs [Limited Partners] until the legal feedback is consolidated around this and we have clarity on what we can be supportive ofyou on as you pursue your future career.

11

12 13

(b) At 2:47 pm, Caldbeck texted Lai:

14

I’m assuming you don ’t want to meet on tues but we need to sit down at some point to close this out and check some boxe[s] before

15

expenses, etc., can be reimbursed. 16

(c) At 3:02 pm, Caldbeck texted Lai: 17

What are your intentions w [portfolio company]?

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At 3:03 pm, Caldbeck texted Lai:

19

((1)

20

When can you talk? We should end this

21

27.

right away.

The texts continued. On May 14, 2016, Caldbeck wrote:

22

Ann, can you please let me know when a good time to chat is? We need to wrap up a few things given your transition and ’d also like to advocate for a final compensation payment to you for next few weeks

I

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24 25

26

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28.

On May 15, Caldbeck proceeded to serial message Lai using the Confide

messenger application.1 1

“Confide” is a messenger application that allows individuals to send encrypted messages that “self-destruct.” Confide works like this. Initially, the text message is whited-out. As you run your finger along the whited—out text, the text appears and then disappears, making it impossible LAI COMPLAINT

(a) The first text, at 9:32, read:

Ann, just end this right away. Let ’s find a transition plan and do the right thing wrt the companies you support. It ’s fine it didn ’t work out. I’m hopeful you find something you like but let’s end the right way. Reading messages all day and not responding isn ’t the smart thing to do here.

(b) The second text, at 11:56, read:

[

Stay the fuck away from our team Ann. Jonathan Teo] is getting really really really pissed.

As am I. I’m not going to warn you again. . . . Please stop and don ’t add ill will. It didn ’t work out. have egg on my face for supporting you and I’m sure you are disappointed w your experience but don ’t put us in a situation where we need to be more aggressive

I

10 11

12

It’s a small world Ann. I’m meeting with [partner]

firm]

13

. . .

from [VC

next week. Stop.

14

(c) The third text, at 3:04, read:

15

What do you want to do next, Ann. know this sucks for you. know you in a tough place w . . . ., a move, a new job. ’m just really trying to keep this positive. You ’re a binary alum and I’m hoping for your success but can you please communicate so can help?

I

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I

I

I

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29.

On May 16, 2016, Lai returned all company property to Binary.

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30.

During the remainder of that week, Caldbeck and Teo repeatedly checked Lai’s

21

LinkedIn profile. Binary reached out to her contacts and potential employers. Caldbeck and/or

22

Teo falsely told them she had been fired or asked to leave Binary for poor performance.

23

31.

Nevertheless, during this time frame, Lai attempted to obtain work. She met with

24

two Binary portfolio companies who were interested in hiring her for consulting work. She also

25

met with the venture capital firm referenced in Caldbeck’s May 15 Confide message who had

26 27 28

to screen shot the message. Lai would eventually counter the problem of disappearing texts from Binary by videoing the Confide messages with a separate phone as she ran her finger along the text lines. -.7—

LAI COMPLAINT

expressed interest in working with her. 32.

On May 21, 2016, Lai posted the following to her Facebook page:

AWN_

of restarts & resets — some might call it a “midlife crisis,” I call it realizing what’s really important to me: not 2016 has been a year

money, not fame. Rather, it’s about always trying to make a difference, having no regrets from compromising on the ethics that are important to me, & sticking to my guns despite short-term costs . . . so that I’ll never look back one day & hate the person I’ve become. As some of you know, it’s been a long struggle over the last 5 months (thank you to everyone who has been there for me), finally pulling the trigger last Friday. It’s weird being unemployed, but I feel that the me that got lost along the way coming back with every minute of freedom. #newbeginnings #2016.

K11

\OOO\IO\

10

33.

Caldbeck was the first to comment on this post. He posted a response that said:

11

“’Pulled the trigger’ hmm. Good luck Ann.” 12

34.

He also sent her three text messages on May 21 in quick succession:

13

(a)

At 10:56 a.m., Caldbeck texted Lai:

14

You do understand the implications ofyou implying that you quit unprovoked in a public setting, right?

15

16

(b)

At 10:59 am, Caldbeck texted Lai:

17

Implying that you quit because binary capital forced you to compromise your ethics is a clear violation ofyour employment agreement and has implications for carry. I suggest you delete that part ofyour post Ann. 've heard from 2 mutual friends on fb about

18

I

19

20

it in

21

(0)

22

Please please stop making this so diflicult for you.

23

35.

the last 10 mins

At 11:00 am, Caldbeck texted Lai:

In the early morning of May 23, Lai received an email from an executive at one of

24

the portfolio companies concerning her performing consulting work. Clearly, this portfolio

25

company had heard from Binary, Caldbeck, and/or Teo. The email stated in part: “Lastly, I have

26

to be honest with you. Given the series

27

forward with this. I am pushing it, taking a “risk” and trust we will have a successful and

28

awesome deliverable. I want you to know that I am trusting you and —8-

of events, there is some hesitation to have you move

LAI COMPLAINT

if for any reason you feel

like you might not be able to deliver a high quality output — let’s talk about it now.” On May 23, at 12:34

36.

pm, Caldbeck texted Lai again.

He falsely accused her

of

making disparaging comments about a Binary portfolio company. The text continued: These are violations ofyour contract and have material damages attached to them. We will be summarizing all of these and following up shortly but again, asking you to stop causing yourself damage.

OO\IO\UI-I>UJN

37.

Caldbeck sent a second text three minutes later.

It stated:

This is the last time you will hear from me of binary partners (other than counsel) without a response and/or immediate halting ofyour

\D

tone. 10 11

12 13

14 15

16 17 18

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20 21

22 23

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26

27

38.

Lai did not respond. As a result of Binary’s false statements about her, the

portfolio company declined to provide Lai with consulting work,

as

did the venture capital firm

with Whom she had met. 39.

Lai, frightened and distraught, left the country. She also retained counsel.

40.

On June 3, 2016, Lai’s counsel sent a cease and desist letter to Binary. It

demanded that Caldbeck, Teo, and Binary cease and desist from, among other things, contacting

her prospective employers to prevent her from gaining employment, threatening Lai, and

attempting to communicate with Lai in any way other than through counsel. 41.

On June 10, 2016, Binary responded through its counsel. The letter stated that Lai

had breached her non—disparagement obligations toward Binary.

inform her that

It fiarther asked Lai’s counsel to

“if she disparages Binary Capital in any way, (i) she will trigger loss of vesting

under the applicable agreements and (ii) Binary will immediately pursue all available legal remedies against her.” 42.

On July 31, 2016, Lai returned to the Bay Area. She met with a number of venture

capital firms. None was willing to hire her. One stated that, given the Binary situation, get complicated.”

A number of individuals

“it might

and prospective employers asked why she had left

Binary. Lai was afraid to tell them the truth, so responded by saying nothing or explaining that she wanted to return to a more operational role.

28

_9_ LAI COMPLAINT

43.

In October 2016, out of money and unemployed, Lai found a job in New York

with a portfolio company on which Binary did not have a board

seat. This

portfolio company

agreed to not tell Binary that Lai was working for it. Lai moved to New York and took the job. 44. \IO‘\'~II-I>

In December 2016, Lai became suspicious that Binary was aware that she was

working for the portfolio company. She also resolved that she was not going to allow Binary to chase her from the Bay Area, and she started considering offers from Bay Area firms. She

received two. One from Facebook and another from OO

a

smaller company. She took the job with

Facebook because she hoped Facebook was too big to be afraid

of Binary or Caldbeck.

She

hoped Facebook could protect her. 10

45.

Nevertheless, fearful

of Binary and Caldbeck,

she attempted to keep her

ll

employment at Facebook secret. Among other things, she did not update her LinkedIn profile to

12

say she worked there. (Caldbeck continued to check Lai’s LinkedIn profile regularly.) Lai did

13

not tell many people she was working for Facebook. Those friends she did tell she asked that

14

they keep it secret.

15

46.

On February 25, 2017, Lai had a housewarming party. She also declared the party

16

a

17

party, Lai’s depression and anxiety got the best of her. She told her friends that she had quit

18

Binary because of her working conditions, including Caldbeck’s behavior. She told them his

19

response when she stated she wanted to quit. She told them

20

and her inability to find a job.

21

“secret” because she did not want Binary or Caldbeck to know she had returned. During the

47.

of Binary’s post—termination threats

The next day, on February 26, 2017, and despite Lai’s request that Binary and

22

Caldbeck not contact her directly, Caldbeck did so. He repeated the carrot-and-stick approach,

23

alternatively threatening to destroy Lai and offering his support. The series of texts read:

24 25

26

27 28

I

I

Ann, know its been a long time. know there have been lots of emotions and bad feelings. also know that you ’re back in sf and my wife and have heard what you ’ve been saying to others. want to try one more time to talk to you about this civilly and come to a good place. It doesn ’t need to be negative and we don ’t need to sue you for what you ’re saying. really really really just want to talk this out and be supportive ofyour next move. We have not yet

I

I

I

I

-10_ LAI COMPLAINT

I

stripped vou of the final piece of vour carrv. have been really hopeful we can just stop this and support one another. Can you please make 10 minutes to talk to me so this doesn ’t get worse. really don ’t want it to, genuinely. am in a position to make things a lot better in supporting you but iust want to talk it through. Can you please chat for 10 minutes?

I

I

I have no ill will. Ijust want to talk please. Can I call you? This will be so much better if we talk it through Ann.

I tried you.

I want to

I’d really like to put this behind both of us.

clarifiz that we are not currently suing you. We are not taking any legal action at all. just want to talk with you about your goals, what you ’d like and how we can move past this. Can you let me know when to call you. Side conversations without chatting will be the worse on all sides and I’m not sure what options we[‘]re left with you can ’t talk to us but are continuing to disparage us in the market. I’m asking you to please work through this with me so we can all move forward. Is there a good time to reach you?

I

10

if

11

12 13

Can you just provide a response even you won ’t talk with me? I’m happy to talk w you and your lawyer you want? ’djust appreciate even a short response you are willing to talk please.

if

14

[i]f

if

I

15

22

Is there someone else you ’d like to speak with instead like Teo? Talking about us in the market with serious accusations to people we know well isn ’t going to help bring this to a close and you ’re reading but not responding to my request to talk it out an[d] move on in a positive way. I’m really not sure what else to do but would really like to talk this through before it gets worse. Can We iust talk it through so vou don ’t feel like we’re out to ruin your career and we don ’t feel like vou are pushing us to sue vou? We just want to be positive and move on and I know we can make a lot of progress with a short call to understand what we can do to alleviate your concerns that we want to take you down in some way. Again, can we please talk and work through this?

23

Mailbox is full so cannot leave a vm

24

Btw congrats on the Facebook iob.

16 17 18

19

20 21

25

26

I

48.

The next day, Monday, February 27, 2016, a mutual acquaintance

of Lai

Caldbeck relayed a message to Lai with more carrots and sticks. This message read:

27 28

Ann, you should really just call Justin back. He is the one that decides what path they are pursuing with vou legallv and he wants

-11LAI COMPLAINT

and

to talk through this with you so that it ends in a good place. He has no interest in disparaging vou (he knows [vou ’re] at Facebook and hasn ’t made anv calls there). He wants to keep it positive but its putting him in a bad spot when you are spreading rumors about him and his firm in this small of an ecosystem. Just call him back and it will be much much better. LII-RMN

49.

Caldbeck then sent Lai a text, during work hours, stating: “I’m going to try you in

I

30 minutes and really hope we can talk.” 50. \OOOQON

Because the texts were not ending (despite the fact that Lai never responded to

them), because Caldbeck was communicating with Lai through third parties and while she was at

work, because Caldbeck was threatening to ruin her career at Facebook, and because she was afraid

of what Binary and Caldbeck would do to her, Lai

agreed to speak with Caldbeck.

10

51.

They spoke on February 27. The conversation was brief. He told her that he

11

hoped she would be “smart.” He told her that she still had her carry. He told her that he would 12

not disparage her. 13

52.

On information and belief, during this time frame The Information — a technology

14

news website — was researching a story on Binary and Caldbeck. Binary, Caldbeck, and Teo 15

were aware that the Information was asking questions. 16

53.

On April 20, 2017, Caldbeck texted Lai again. This text stated:

17

Ann,

18

19

I do not think talking to the information is a good idea.

54.

Caldbeck followed this text with another that included only a period:

55.

This time, Lai responded:

20 21

What are you talking about?

22 23

24 25

56.

Caldbeck did not respond.

57.

Five days later, on April 25, 2017, at 2:35

read simply: Stop.

26 27

pm, Caldbeck sent Lai another text that

58.

This was followed with another text at 6:49 pm. that again included only

28 _

12

_

LAI COMPLAINT

a

period.

59.

Lai was very very frightened. The Information Story and Its Aftermath

60.

On the morning

of June 22, 2017,

The Information published an article about

Binary and Caldbeck. Six women spoke about Caldbeck’s inappropriate conduct towards them. Three spoke on the record and three spoke

off the record. The Information quoted Binary and

OO\IO\£IIJ>

Caldbeck’s response to the story, stating: a statement that said the notion that Mr. Caldbeck “engaged had in improper behavior” with female entrepreneurs was “false.” Binary said that while the Information had “found a few examples which show that Justin has in the past occasionally dated or flirted with women he met in a professional capacity, let’s be clear: There is no evidence that Justin did anything illegal and there is no evidence that any of his investing decisions were affected by his social interests. . . .

Binary issued

KO

10 11

12

Caldbeck said, “I strongly deny The Information’s attacks on my character. The fact is, I have always enjoyed respectful relationships with female founders, business partners, and investors.

In 13

14 15

16

61.

a statement,

The industry reacted to the story. That afternoon, Caldbeck issued an additional

statement that read:

17

Obviously, I am deeply disturbed by these allegations. While significant context is missing from the incidents reported by The Information, I deeply regret ever causing anyone to feel uncomfortable. The fact is that I have been privileged to have worked with female entrepreneurs throughout my career and I sincerely apologize to anyone who I made uncomfortable by my actions. There is no denying this is an issue for the venture community, and I hate that my behavior has contributed to it.

18

19

20 21

22 62. 23

The story refused to die. The next day, Caldbeck issued yet another statement.

was breathtaking in its hypocrisy.

It read in part:

24 25

26

The past 24 hours have been the darkest of my life. I have made many mistakes over the course of my career, some of which were brought to light this week. To say I'm sorry about my behavior is a categorical understatement. Still, Ineed to say it: I am so, so sorry.

27 28

-13LAI COMPLAINT

It

I direct my apology first to those women who I've made feel uncomfortable in any way, _at any time - but also to the greater tech ecosystem, a community that I have utterly failed.

N

The power dynamic that exists in venture capital is despicably unfair. The gap of influence between male venture capitalists and female entrepreneurs is frightening and I hate that my behavior played a role in perpetrating a gender-hostile environment. It is outrageous and unethical for any person to leverage a position of power in exchange for sexual gain= it is clear to me now that that i_s exactly what I've done.

\ioxm-bw

I am deeply ashamed of my lack of self-awareness. I am grateful to Niniane, Susan, Leiti, and the other women who spoke up for providing me with a sobering look into my own character and behavior that I can no longer ignore. The dynamic of this industry makes it hard to speak up. but this is the type of action that leads to progress and change, starting with

10 11

me.

12

14

The Binary team will also be taking measures to ensure that the firm is a safe place for founders of all backgrounds to find the support and resources they need to change the world, without abuse of power or mistreatment of any person.

15

I owe a heartfelt apology to my family, my investors, my portfolio,

13

.

and the team at Binary, who have been completely blindsided and in no way deserve the pain I've caused. But most of all I apologize again to those who I've hurt during the course of my career and for the damage I've done to the industry I care so deeply about.

16

—

17 18

19

63.

This last statement was issued because Caldbeck’s and Binary’s conduct was

It is not only the “industry dynamic” that makes it hard to speak up, but also illegal

20

revealed.

21

confidentiality and non-disparagement provisions. Caldbeck’s and Binary’s “abuse of power”

22

started when they required employees to give up the non-waivable right to speak as a condition

23

working for them. Caldbeck is certainly not “grateful” to Lai for speaking up. He did everything

24

in his power to prevent it. He also does not lack “self—awareness.” As set forth above, Binary

25

and Caldbeck were, at all times,

26

64.

fully aware of what they were doing.

Lai brings the following claims.

27 28 _

14

_

LAI COMPLAINT

of

First Cause of Action PAGA (under 232.5 (b) and (c)) (Against Binary) .50)

65.

Binary requires all its employees to sign

a

standard employment agreement that

contains confidentiality and non-disparagement provision that prohibits them from ever

disclosing information about their working conditions. These illegal provisions 00\]O\

—

—

to put it mildly

it hard for employees to “speak up” about inappropriate or illegal conduct, both during

make

their employment and forever after. Employees are instead led to believe that it is illegal to do so, \O

10

and that disclosing information about their working conditions

will lead to ruinous litigation.

These provisions allow employers to abuse their power and mistreat their workforce. They allow

ll

their employers to leverage their positions of power for sexual gain and for other inappropriate

12

reasons.

13

66.

On May 9, 2017, Lai sent the required PAGA notice to the Labor Workforce and

14

Development Agency. (Ex. A). The exhaustion period has expired with respect to Lai’s PAGA

15

claims as they relate to Labor Code

16

letter and Binary has made no effort to cure its illegal conduct.

17 18

19

20

67. and the State 68.

§

Lai seeks PAGA civil penalties on behalf of herself, other aggrieved employees,

of California as a result of this unlawful agreement. Lai will amend her complaint

claims upon the exhaustion

as a

matter of right to allege additional PAGA

of additional administrative periods.

***

21

22

232.5(b) and (c). The LWDA has not responded to Lai’s

69.

The remaining causes

of action only concern,

23

and Caldbeck’s post-termination conduct towards Lai

24

activity.

and are expressly limited to, Binary

with respect to her post-termination

25

26

27 28

-15LAI COMPLAINT

Second Cause

(Labor Code

of Action §

232.5)

(Against Binary) 4}.

70.

As detailed above, subsequent to Lai’s employment with Binary, Binary

discriminated against Lai because she disclosed, or because Binary believed she had disclosed, \IONUI

information about her working conditions after her employment with Binary had ended. This discrimination took the form of discouraging others from hiring her, threatening her With

litigation, threatening to ruin her career, and sending her harassing and threatening texts for the purpose

of discouraging her from engaging in conduct protected by law.

10

71.

Through this conduct, Binary violated Labor Code

11

72.

In its conduct, Binary acted with malice.

12

73.

As

a

Third Cause of Action

14

(Labor Code 1050 et seq)

15

(Against Binary and Caldbeck) 74.

232.5(c)

result, Binary caused Lai economic and emotional harm.

13

16

§

As detailed above, subsequent to Lai’s employment with Binary, Binary and

17

Caldbeck made misrepresentations to VC firms, portfolio companies, and, on information and

18

belief, numerous others about Lai. They did so in order to prevent or attempt to prevent Lai from

19

finding another job.

20

75.

Through this conduct, Binary and Caldbeck violated Labor Code

21

76.

Through this conduct, Binary and Caldbeck acted with malice.

22

77.

As a result, Binary and Caldbeck caused Lai economic and emotional harm.

23

Pursuant to Labor Code

§

1054, Lai is entitled to treble damages.

24 25

26 27 28

—16-

LAI COMPLAINT

§

1050

Fourth Cause of Action (Defamation)

(Against Binary and Caldbeck) LII-PWN

78.

As detailed above, subsequent to Lai’s employment with Binary, Binary and

Caldbeck made knowing and false statements of fact to VC firms, portfolio companies, and, on

information and belief, numerous others about Lai. 79.

Through this conduct, Binary and Caldbeck defamed Lai.

80.

Through this conduct, Binary and Caldbeck acted with malice.

81.

As

\OOOQQ

a result,

Binary and Caldbeck caused Lai economic and emotional harm.

10 11

Fifth Cause of Action

12

(Intentional Interference with Prospective Economic Advantage)

13

(Against Binary and Caldbeck)

14

82.

As detailed above, subsequent to Lai’s employment with Binary, Binary and

15

Caldbeck engaged in conduct with the intent and/or the substantial certainty that it would

16

interfere with her prospective economic relationships with the portfolio companies and VC firms

17

identified above. Binary and Caldbeck’s conduct, in fact, interfered with those relationships.

18

83.

Binary and Caldbeck’s conduct was wrongful. It violated both the

19

84.

Through this conduct, Binary and Caldbeck acted with malice.

20

85.

As

21

result, Binary and Caldbeck caused Lai economic and emotional harm.

Sixth Cause of Action

22'

(Intentional Infliction of Emotion Distress)

23

24

a

(Against Binary and Caldbeck) 86.

As detailed above, and subsequent to Lai’s employment with Binary, Caldbeck

25

and Binary engaged in outrageous conduct that was intended to cause, and did cause, Lai extreme

26

emotional distress. This conduct included, but is not limited to, defaming her, threatening her,

27

and by continuing to send her threatening communications, even after being instructed by Lai’s

28

-17LAI COMPLAINT

counsel to only contact Lai through her attomey. This conduct was in violation

under the California Labor Code and the California Constitution as

A

of Lai’s rights

it relates to liberty of speech.

87.

Through this conduct, Binary and Caldbeck acted with malice.

88.

As a result, Binary and Caldbeck caused Lai economic and emotional harm. '

PRAYER FOR RELIEF \IQLJI

WHEREFORE, Lai prays for judgment against Binary and Caldbeck 1.

as

follows:

Full and complete civil penalties for each violation of PAGA in accordance with

the Private Attorneys General Act-(as against Binary). 2.

Attorneys’ fees and costs.

10

3.

Economic damages.

11

4.

General damages.

12

5.

Interest.

13

6.

All other relief the Court deems proper and just.

14 15

Dated:

June 27, 2017

BAKER CURTIS

16

W

17

8L

612/ “3

SCHWARTZ, P.C.

4/f

18

Chris Bak‘e? V Attorneys for Plaintiff

19

ANN LAI

20 21

JURY TRIAL DEMANDED 22

Plaintiff hereby demand a trial by jury. 23

Dated: 24

June 27, 2017

BAKER CURTIS

&

SCHWARTZ, P.C.

///L/I

25 26

Chris Bake‘r/ Attorneys for Plaintiff

27

ANN LAI

28

-13LAI COMPLAINT

Exhibit A

'

BAKER CURTIS & SCHWARTZ PC Chris Baker 44 Montgomery Street, Suite 3520 San Francisco, CA 94104 tel. (415) 433-1064

cbakerfibbakerlpsom www. bakerlp.com

May 9, 2017

Via On-Line Labor & Workforce Development Agency Attention: PAGA Administrator '

Via Certified Mail Binary Capital Management, LLC 50 Verbalee Lane Hillsborough, CA 94010 Binary Capital MTGP 1., LP. 50 Verbalee Lane Hillsborough, CA 94010

RE:

Request For Relief Under the Private Attorneys General Act

Dear LWDA, Binary Capital Management, LLC, and Binary Capital MTGP I.,L.P.:

I represent Ann Lai. She is an “aggrieved employee” of Binary Capital Management, LLC (“Binary LLC”), and Binary Capital MTGP I.,L.P. (“Binary LP”) under California Labor Code sections 2699 et seq.

The purpose of this letter is to provide notice to the LWDA, Binary LLC and Binary LP (collectively Binary) pursuant to Labor Code § 2699 et seq. Binary LLC and Binary LP constitute either an integrated enterprise, a single employer, and/or a joint employer of Lai and all personnel who work for Binary LLC and are either “limited partners” or “venture partners” of Binary LP.

n

O

g

LWDA Binary LLC Binary LP May 9, 2017 Page 2

Specifically, Binary requires all their employees, including Ann Lai, to Sign employment agreements, partnership agreements, and related amendments to such agreements that violate the California Labor Code. For example: 1.

The agreements contain overbroad confidentiality provisions which define essentially everything as confidential and that contain no geographic or temporal limitation. The non-disparagement provisions have a similar effect in that they prevent former employees from effectively competing with Binary or finding alternative work. These provisions constitute an illegal restraint on trade in violation of Business and Professions Code § 16600, the Cartwright Act, and Business & Professions Code § 17200 et seq.

2.

The overbroad confidentiality and non-disparagement provisions also prohibit the disclosure of information, including negative information, that is not confidential as a matter of law. For example, the agreements prohibit the disclosure of information about working conditions, wages, and illegal conduct. See, Labor Code §§ 232, 232.5, 1197.5(k), and 1102.5. The provisions violate Labor Code §§ 96(k) and 98.6 insofar as they infringe on the constitutional right of liberty of speech and liberty to work during non-work hours and away from the employer’s premises, as well as the right to engage in conduct protected by the above-referenced provisions of the Labor Code. Moreover, the provisions also violate the Fair Employment and Housing Act and Title VII by prohibiting the disclosure of information about illegal sexual harassment and discrimination and retaliation.

'

3.

Binary knows these provisions are illegal. Their purpose is to aid Binary and its true owners in breaking or skirting the law by silencing any employees who might wish to engage in whistle blowing, assert claims, and to prevent former employees from effectively competing with Binary. Accordingly, the provisions also violate Labor Code § 432.5 .

Lai signed the agreements that contain the unlawful provisions as a condition of her employment. She purportedly remains bound by them. She ceased working for Binary in May 2016. {

The aggrieved employees are all current and former employees of Binary who have signed either an employment agreement or partnership agreement that contain the confidentiality and non-disparagement provisions referenced above.

LWDA Binary LLC Binary LP May 9, 2017 Page 3

Accordingly, Lai seeks civil penalties on behalf of herself and all other aggrieved employees, as well as the State of California, in accordance with Labor Code §§ 2699 et seq. with respect to these violations.

Thank you for your attention to this matter.

Very truly yours,

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