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Case 1:16-cv-08476 Document 1 Filed 10/31/16 Page 1 of 36

SACK & SACK, LLP


Attorneys for Plaintiff
70 East 55th Street, 10th Floor
New York, New York 10022
Tel.: (212) 702-9000
Fax: (212) 702-9702
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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EUGENE KAKAULIN,
:
16-CV-____ (__) (__)
Plaintiff,
:
:
against
:
COMPLAINT
:
BLINK HEALTH, LTD, GEOFFREY CHAIKEN and :
MATTHEW CHAIKEN,
: JURY TRIAL REQUESTED
:
Defendants.
:
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Plaintiff Eugene Kakaulin (Kakaulin or Plaintiff), by his attorneys, Sack & Sack,
LLP, as and for his Complaint against Blink Health, Ltd. (Blink), Geoffrey Chaiken, and
Matthew Chaiken (the foregoing, Defendants), alleges as follows:
NATURE OF THE ACTION
1.

Plaintiff brings this action against Blink for violation of Section 806 of the

Sarbanes-Oxley Act of 2002 (SOX) and the protective whistleblower provisions of the DoddFrank Wall Street Reform and Consumer Protection Act (15 U.S.C. 78u-6, Section 922(h)
(Dodd Frank).
2.

Specifically, Plaintiff was retaliated against for his complaints concerning

unethical and unlawful actions undertaken by Defendants, which were not only ignored, but

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scoffed at. Ultimately, Plaintiffs employment was terminated for his engagement in protected
activity.
3.

Blink intentionally and deliberately discriminated and retaliated against Plaintiff

in violation of Dodd Frank anti-whistleblower provisions as a consequence of his protected


activity, which were his objections and reasonable belief that the actions described herein,
undertaken by Geoffrey Chaiken and Matthew Chaiken on behalf of Blink, violate securities
laws and regulations.
4.

Plaintiff further seeks damages in breach of contract stemming from certain Tag

Along rights belonging to Plaintiff that Defendants refused to honor and from Defendants use
of unlawful means of extortion and intimidation in their refusal to perform the obligations they
themselves bargained for pursuant to Plaintiffs employment agreement with Blink.
5.

Furthermore, Plaintiff, who was both an employee and shareholder of Blink,

alleges he was damaged by Geoffrey Chaiken and Matthew Chaiken (together, the Founders)
through their respective breaches of fiduciary duty of care and loyalty to Plaintiff by placing
their personal greed and self-interest for additional financial incentives and more power to
control, ahead of the Company and its shareholders, investors, and employees, whose behalf they
purportedly represented.
6.

Ultimately, Plaintiff seeks compensatory, liquidated, and punitive damages,

specific performance, injunctive and declaratory relief, and appropriate legal and equitable relief,
including liquidated damages and attorneys fees.
JURISDICTION AND VENUE
7.

This Court has federal question jurisdiction over Plaintiffs Dodd-Frank claims

pursuant to 28 U.S.C. 1331 and 15 U.S.C. 78u- 6(h)(l )(B)(i).

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8.

To the extent Plaintiff asserts claims under state law, this court has jurisdiction of

Plaintiffs state law claims pursuant to 28 U.S.C. 1367(a), because the state law claims are so
related to Plaintiffs federal claims that they form a part of the same case or controversy between
the parties.
9.

Venue is proper in the Southern District of New York under 28 U.S.C.

1391(b)(2) because a substantial part of the events or omissions giving rise to Plaintiffs claims
occurred within the Southern District of New York.
PARTIES
10.

Plaintiff, Eugene Kakaulin, currently resides at 2000 Broadway, New York, New

11.

Blink Health, Ltd. is an exempted company with limited liability organized under

York.

the laws of Bermuda with its principal place of business at 110 Greene Street Suite 9B, New
York, New York.
12.

Defendant Geoffrey Chaiken, Founder, Chairman and CEO, is and has been, at all

relevant times, an officer of Blink. He is a resident of the State of New York. In his capacity as
an officer, Defendant Geoffrey Chaiken has exercised sufficient control of Blink and its
employees, and specifically decisions related to personnel, such that he has been at all relevant
times Plaintiffs employer under all applicable laws.
13.

Defendant Matthew Chaiken, Founder, President and COO, is and has been, at all

relevant times, an officer of Blink. He is a resident of the State of New York. In his capacity as
an officer, Defendant Matthew Chaiken has exercised sufficient control of Blink and its
employees, and specifically decisions related to personnel, such that he has been at all relevant
times Plaintiffs employer under all applicable laws.

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FACTS COMMON TO ALL COUNTS1


The claims set forth herein arise from the following set of facts:
KAKAULINS EDUCATIONAL AND PROFESSIONAL BACKGROUND

14.

Since graduating from The Wharton School at the University of Pennsylvania in

2002, Kakaulin has held various finance and operating roles in the Financial Services and
Technology industries.
15.

From 2002 to 2005, Kakaulin worked as an investment banking analyst at RSM

and Credit Suisse.


16.

In 2005, Kakaulin joined Industrial Growth Partners (IGP), a growth-focused

private equity fund with $2.2 billion in assets under management. At IGP, Kakaulin was
responsible for evaluating new investment opportunities, facilitating investments in several
rapidly growing companies, and working closely with management teams of these companies on
growth, financing and reporting initiatives.
17.

In 2007, Kakaulin sought to expand his capabilities and expertise by enrolling in

Harvard Business School to pursue an MBA. At Harvard, which he attended from 2007 to 2009,
Kakaulin met the founders of Hudson Clean Energy Partners, an active investor in energy
technology start-ups.
18.

In 2008, while at Harvard, Kakaulin began working at Hudson and, upon

graduation, he joined full-time.

All directly quoted statements, unless otherwise specified, are the sum and substance of such statements as recalled
by Plaintiff.

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19.

As Vice President at Hudson, Kakaulin was responsible for evaluating new

investment opportunities and working with management teams on new growth initiatives, as well
as improving the companys finance and analytics functions.
20.

During his tenure at Hudson, Kakaulin assisted Hudson in facilitating over $1.2

billion in investments.
21.

In 2013, Kakaulin departed Hudson to pursue an entrepreneurial opportunity by

founding an e-commerce company. As a co-founder, Kakaulin played the roles of CEO and
CFO and was responsible for finance, analytics and marketing activities.
BLINK AGGRESIVELY RECRUITS KAKAULIN

22.

Beginning in 2013, around the time Kakaulin went out on his own, Geoffrey

Chaiken (Chaiken), a friend whom Kakaulin met at Harvard, reached out to Kakaulin to
discuss an entrepreneurial venture he was starting.
23.

Specifically, on August 13, 2013, at Chaikens insistence, Chaiken and Kakaulin

had dinner, at which time Chaiken shared his desire to start a company in the healthcare
technology space. Chaiken indicated that he would be interested in getting Kakaulin involved in
a capacity whereby Kakaulins investment and operational acumen and experience could be
leveraged.
24.

On September 15, 2013, April 21, 2014 and September 13, 2014, Chaiken and

Kakaulin had follow up meetings where they discussed Chaikens new ventures business plan
that would eventually become Blink Health. Blink Health is a technology company with a free
app and website that promises savings of up to 90 percent on generic drugs.

Chaiken

continuously reaffirmed his desire to recruit Kakaulin and involve him in implementing and

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running the new venture. Because Kakaulin had another full-time business commitment at the
time, he recommended three other candidates to Chaiken.
25.

In August 2015, a relentless Chaiken again approached Kakaulin, this time with a

firm offer to consult for Blink on a specific financing transaction to raise capital from outside
investors through Series A financing.
26.

On August 8, 2015, Kakaulin agreed to serve as Blinks consultant on the Series

A financing. In this capacity, Kakaulin significantly contributed to facilitating a $35 million


Series A financing that closed on September 14, 2015.
27.

The Series A financing involved Defendant Blinks issuance of equity instruments

and securities, which are subject to and governed by the securities laws of the United States.
Furthermore, all subsequent capital raises and investments in Defendant Blink caused the
Defendant Blink to issue equity instruments and securities, which are subject to and governed by
the securities laws of the United States.
28.

While Kakaulin was working on the Series A financing transaction, he and

Chaiken began discussing terms for Kakaulin to join Blink as a full-time employee.
29.

Given that Kakaulin would be taking a chance by joining an unproven start-up

enterprise, he sought to be incentivized and compensated with an equity stake in the Company.
30.

Chaiken assured Kakaulin that the shares would be highly liquid given the

investor demand and even a small ownership percentage could be highly valuable when the
business is worth billions. Chaiken assured Kakaulin, Just by copying Script Reliefs

cash card business, well be worth a billion dollars. Your shares will be worth
tens of millions.

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31.

During contract negotiations over Kakaulins Employment Agreement, Chaiken

explained to Kakaulin that during the Series A financing, both he and his brother and cofounder, Matthew, were able to sell $4.5 million worth of their common shares of Blink to third
party investors by issuing a certain amount of Series A preferred shares to investors in
exchange for capital to the Company, which is then used to purchase the same amount of
common shares from Geoff and Matthew.
32.

Though the mechanism for selling common shares to third parties seemed to be

somewhat over-complicated, Kakaulin was more surprised that the co-Founders would sell
equity during the nascent stage of a start-up, which action could spark investor skepticism.
Indeed, Kakaulin asked Chaiken for a reason why, if he was so bullish on the companys
prospects for future success, he would be selling an ownership stake. Chaiken responded, I

need to buy a house in the Hamptons. Banks want to see cash, not stock.
33.

Kakaulin, insisting that he be treated as a partner with the co-Founders in respect

to the ability to sell shares, insisted that his contract include Tag Along rights that would give
Kakaulin the option to join the Founders in share sales similar to the one Chaiken described took
place during the Series A financing.
BLINK ENTERS INTO A WRITTEN EMPLOYMENT AGREEMENT WITH KAKAULIN

34.

On or around September 28, 2015, following nearly a month-long negotiation,

Chaiken presented Kakaulin with a written employment agreement memorializing the terms,
conditions, and privileges of Kakaulins employment with Blink (the Employment Agreement,
Exhibit A).
35.

The Employment Agreement provided that Kakaulin would serve as Blinks Chief

Financial Officer and Vice President.

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36.

As compensation, Blink agreed to (i) pay Kakaulin a base salary ($225,000 in

2015 and $250,000 in 2016); plus (ii) grant Kakaulin an equity stake in the company by issuing
to Kakaulin 231,482 shares on September 28, 2015 (and an additional 57,712 shares on
December 1, 2015) (the Incentive Shares).
37.

Importantly, the Employment Agreement provided that Kakaulins Incentive

Shares would vest monthly in equal installments over a thirty-six month period.
38.

In addition to the compensation terms set forth in the Employment Agreement,

Kakaulin received a contractual commitment from Chaiken that he would be treated fairly and on
the same terms as the Founders when it came to the sale of shares, such as the sale consummated
by the Founders during the Series A financing; especially since Chaiken constantly dangled
Blinks potential equity value in front of Kakaulin as the driving force to incentivize Kakaulin to
join Blink.
39.

Thus, as part of the Employment Agreement, and a material inducement for

Kakaulin to enter into the Employment Agreement, Chaiken, together with his brother, Matthew,
agreed to treat Kakaulin as their partner when selling shares of the company by providing
Kakaulin with tag along rights.
40.

Specifically, the Employment Agreement states:

Tag-Along Right. In the event Geoffrey Chaiken, Matthew Chaiken or their


respective Affiliates (the Founders) determine to sell any of their Common
Shares of the Company to a third party, excluding transfers for estate planning
purposes, the Company shall notify you of such sale and describe the terms and
conditions thereof including the price per share (the Share Price) at which the
Founders intend to sell Common Shares. You shall have the right to include a
portion of your vested Incentive Shares (the Vested Shares) in such sale on the
terms and conditions set forth herein. The number of Vested Shares that you may
include in the sale shall equal up to the number Common Shares that the Founders
intend to sell. You shall notify the Company and the Founders in writing of the
number of Vested Shares that you elect to include in the sale (such shares, the
Tag-Along Shares). At such time as the Founders sell Common Shares to the

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Purchaser, (i) the Company shall purchase the Tag-Along Shares from you at a
price per share equal to the Share Price less $1.20 (representing the amount set
forth in the first sentence of Section 3 of your Incentive Share Agreement(s))
(such aggregate amount, the Tag-Along Share Amount) and, at the same time,
(ii) the Company shall issue and sell to the third party (at a price per share equal
to the Share Price) a number of Common Shares equal to the Tag-Along Share
Amount divided by the Share Price.
41.

Kakaulin was not, pursuant to the terms of the Employment Agreement, under

any obligation or requirement to provide a reason for executing these rights.


42.

The Employment Agreement was executed by Geoffrey Chaiken as Chairman and

CEO of Blink.
KAKAULIN IS IN A POSITION TO IDENTIFY POSSIBLE SECURITIES LAWS VIOLATION BY BLINK

43.

Immediately upon commencement of his employment with Blink, and throughout

his tenure, Kakaulin added significant and real value to Blinks personnel, customers, revenues
and capital. Among some of his contributions, Kakaulin:
(i)

Prepared monthly financial reports and was preparing the company for 2016 audit;

(ii)
Managed pricing and analytics department and conducted in-depth analyses for
marketing and reporting purposes;
(iii)

Ran company-wide marketing meetings and coordinated marketing activities;

(iv)

Ran physician channel distribution;

(v)

Advised the product team on key product features and functionality;

(vi)
Prepared materials and participated in Quarterly Board of Directors meetings and
Advisory Board meetings;
(vii) Facilitated documentation and due diligence of fundraising processes, which resulted in
over $75 million of funds raised; and
Managed a staff of, at varying times, ten (10); recruited, hired, fired and reviewed
direct and indirect reports.

(viii)

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44.

Blink publicly launched its product in February 2016. During that time, Kakaulin

supervised marketing agencies and over time helped recruit a number of marketing professionals
into the organization to in-source key marketing functions. Kakaulin led weekly marketing
meetings and had a number of agencies and employees reporting to him on their initiatives.
45.

In addition, Kakaulin developed financial reports, hired auditors, tax advisors,

controllers, and bookkeepers, put in place financial controls, and began preparing for the
eventual audit.
46.

Kakaulin was also in charge of the companys analytics that involved a multi-

disciplinary team of technology, product, marketing, and analytics professionals.


47.

Furthermore, in May 2016, Kakaulin was put in charge of the struggling doctors

office distribution channel, in which Blink would provide doctors offices with marketing
materials, a venture that was expected to lead to new customers.
48.

Separately, Kakaulin was responsible for investor communications, Board of

Director meetings, and preparing all related materials.


49.

Kakaulin also assisted in coordinating three milestone fundraising transactions

that resulted in raising in excess of $75 million:


(i)

Series A Financing, which closed in September 2015, raised approximately $35


million;

(ii)

Series A-1 Financing, which closed in May 2016, raised approximately $13 million
from strategic partner and investor, MedImpact; and

(iii)

Series A-2 Financing, which closed in July 2016, raised approximately $30 million.

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BLINK AND ITS FOUNDERS UNLAWFULLY RETALIATE AGAINST KAKAULIN

50.

During the months of May and June 2016, Chaiken led efforts to obtain additional

capital by offering its Series A-2 preferred shares to outside investors (the Series A-2
Financing).
51.

By the last two weeks of June 2016, the Founders determined that in this round of

financing, Blink would raise approximately $30 million in capital from investors such as 8VC,
Burch Creative Capital, Stillwater, management of Royalty Pharma and Bill Doyle, amongst
others2.
52.

During these first weeks of Series A-2 financing transaction, Kakaulins role was

limited to a supporting role with responsibility for due diligence and the offering documentation.
53.

Once there was sufficient investor interest in the Series A-2 financing, Chaiken

determined that part of the proceeds, up to $6 million, would be used to facilitate the repurchase
of a portion of the Founders common shares of the Company in the same manner as was done in
the Series A financing; through the issuance of preferred shares to third party investors and then
repurchasing commons shares from selling shareholders. This would be the second event in a
12-month period that Geoffrey Chaiken and Matthew Chaiken determined to sell any of their
common shares of the company to a third party. Chaikens stated reason for his desire to sell his
shares was, I lost half of my money on Valeant stock.
54.

Since the Chaiken brothers had just sold $4.5 million of their shares less than nine

months prior, this second sale was a very sensitive issue and there was concern that such sale
may raise eyebrows amongst Blinks investors and employees.
2

Bill Doyle, a healthcare industry veteran, joined Blink as an advisor in May 2016 and, upon the Series A-2 closing,
joined Blinks Board of Directors.

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55.

Knowing he was contractually obligated to include Kakaulin in the repurchase

transaction, Chaiken made deliberate efforts to keep Kakaulin (and other shareholders with tag
along rights) from learning that he once again sought to sell common shares in the company
together with his brother, Matthew.
56.

Indeed, Chaiken entered into negotiations with new investors to facilitate the

repurchase of his common shares.


57.

Despite the clear and unequivocal contractual obligations by the Chaikens to

include Kakaulin in the selling of common shares, they failed to notify Kakaulin of the
opportunity to tag along, as was required pursuant to the Employment Agreement.
58.

Chaikens negotiations with investors to sell the Founders common shares

without providing proper notice confirms their deliberate desire to exclude Kakaulin in breach of
his Employment Agreement.
59.

By July 1, 2016, the Founders determined to sell a portion of their common shares

of the Company to a third party, just as they had done during the Series A financing. Indeed,
some investors began wiring their money to Blink to acquire preferred shares, with proceeds to
be used for buying common shares from Founders among other activities. Kakaulin feared that
the Founders were going forward with the repurchase without notifying him of any sale, or the
terms and conditions of such sale as it was required to do pursuant to the Employment
Agreement.
60.

By securing these transactions without providing Kakaulin with a participation

notice, the Founders were putting their personal interests ahead of the contractual rights they
negotiated with Kakaulin.

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KAKAULIN ENGAGES IN ACTIVITY PROTECTED BY DODD-FRANK WHISTLOWER ANTIRETALIATION STATUTES

61.

On July 1, 2016, Kakaulin met with the Chaikens, at which time he notified

Chaiken that he too would like to participate in the repurchase by exercising his contractual tag
along rights.
62.

Specifically, Kakaulin communicated to Chaiken that he would like to sell $1

million of his vested common shares.


63.

Though Kakaulin was not required to provide (or even have) a reason for

exercising his tag along rights under the Employment Agreement, there were several factors
motivating Kakaulins desire to participate in the sale of his common shares with the Founders.
64.

For one, Kakaulin had a reasonable belief that the Founders inappropriate,

unlawful, and unethical behavior on behalf of the Company amounted to securities laws
violations.
65.

In addition, Chaikens actions over the course of Kakaulins tenure with Blink

thus far were becoming less predictable and more vicious with no business motivation, but
merely sown out of greed and a thirst for control and in violation of securities laws.
66.

Kakaulin feared that Chaiken may retaliate against him for his outspoken

objections to Chaikens practices by making up a cause event as a pretext to obliterate


Kakaulins incentive shares.
67.

Most recently, in the days before Kakaulin met with Chaiken, the Founders

schemed to unilaterally reduce the value of Company shares held by multiple current and former
employees.

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68.

In addition, the Founders directed Blink to commission a legal and accounting

review to restructure incentive shares in such a way as to require each terminated employee to
purchase his or her shares immediately after leaving the Company, thereby incurring a large cash
outflow and tax bill. Prior to this change, an employee who left Blink would still get the upside
of Blink stock price appreciation without incurring a significant expense upon termination.
69.

In addition, Chaiken frequently discussed repurchasing former employees

incentive shares for fair market value. If implemented, such a repurchase would effectively
strip former employees, upon termination, of most of the value of their equity, since the
Chaikens take the position that the fair market value of incentive shares, due to their lack of
voting and liquidation rights, is only a third of the share price in the last prior financing.
70.

All employees upon joining Blink, including Kakaulin, are led to believe that their

incentive share value is the same as the last share price, and not one-third of that price.
71.

Kakaulin objected and complained to the Founders that these after-the-fact bait-

and-switch tactics were inappropriate and potentially fraudulent, given that most employees
joined Blink in part because they were induced to believe that their share value would increase
dramatically.
72.

For example, one recent hire was told by the Founders that he was receiving

$150,000 worth of shares, which could be calculated by taking the number of his incentive
shares and multiplying by Preferred Share price. This happened on numerous occasions.
73.

Chaiken rebuffed Kakaulins reasonable concerns, saying to Kakaulin,

Engineers are idiots. They dont understand business. And they dont care
about equity. All they care about is cash comp.

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74.

Chaikens securities violations continued when, on June 22, 2016, he persuaded

Samarjit Marwaha, the former CEO of Blink, to sell 192,901 incentive shares for $3.80 per
share, failing to disclose that the Company had negotiated Series A-2 financing that valued the
shares at $16.25 per share.
75.

In a meeting on June 15, 2016, Kakaulin objected and expressed concerns that,

considering Marwaha was a former partner, it was inappropriate and likely a violation of
securities laws to hide such important and material information from him while repurchasing
Marwahas shares for a fraction of their then-value.
76.

Upon information and belief, Chaiken caused the re-purchase of Marwahas

shares for his own benefit, as the largest shareholder of Blink in breach of his fiduciary duties.
77.

Chaiken countered and informed Kakaulin that incentive shares were not as

valuable as Series A-2 preferred shares because they did not have as many rights. He also
quoted an independent firms analysis of fair market value, performed in December 2015, two
financings ago, which assigned $2.38 per share value to common and incentive shares.
78.

Chaiken smirked and stated to Kakaulin, Sams loss is our gain.

79.

Tellingly, in an email to investors on June 22, 2016, after Marwaha agreed to a

repurchase, Geoff Chaiken said the following: Essentially, purchasing these unites [sic] now,
allows us to increase the size of the ISU pool by 100bp for $500,000. If we did not do this,
and needed to increase the size of the option pool by 100bp after the Series A-2, it would
cost the existing shareholders ~$3.3MM in economic value. Since the Founders owned the
majority of Blinks shares, they would be the biggest beneficiaries of repurchasing Marwahas
shares for below fair market value.

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80.

These were only the most recent examples of such underhanded tactics and

securities laws violation that Kakaulin witnessed firsthand and complained about.
81.

One employee, for example, was terminated weeks before his one-year

anniversary, at which point his incentive shares would have vested for the first year. When
Kakaulin suggested that the employees shares should vest for 11 months, Geoffrey Chaiken
refused, saying the employee was not that good and was not worth his shares.
82.

In another example, in May 2016, Chaiken stripped a member of the founding

team early investor and Blinks General Counsel, Charles Jacoby, who was also Chaikens
best friend of most of his equity in the Company.
83.

Kakaulin expressed concern to Chaiken that Chaiken would renege on a deal with

a senior employee at the company, who continued to play a vital role in the company focused on
legal, regulatory, compliance, administrative and HR tasks.
84.

Chaikens justification to Kakaulin was: He has too much equity. We can

get someone more experienced for a lot less equity now.


KAKAULIN SUFERS UNLAFULL RETALATION BEGINNING WITH BREACH OF HIS EMPLOYMENT
AGREEMENT AND ULTIMATELY RESULTING IN TERMINATION OF HIS EMPLOYMENT

85.

Having witnessed those and other instances in which the Chaiken brothers, on

behalf of Defendant Blink, and without Board approval, reduced or threatened to reduce the
number of shares held by investors and employees or strip them of their shares altogether,
Kakaulin, in the face of the Chaikens threats of termination, ultimately had no confidence that
he would be able to save his job and preserve the value of his shares. Thus, Kakaulin expressed
his contractual right to sell only a portion of his shares (just under 25%), and a majority of his
vested shares, as Tag Along in the Series A-2 financing.

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86.

Even after the Tag Along sale, Kakaulin would still remain the largest employee

shareholder of the Company. Kakaulin never expressed any desire or intention of leaving the
Company as he believed that the company would be a unicorn3, a huge success at some point.
87.

It is important to note that, unlike Series A and Series A-2 investors shares,

Kakaulins Incentive Shares had no voting rights, no liquidation preference and no transfer rights
aside from the Tag-Along Right. As a result, his failure to tag along in the Chaikens sale of
their common shares would likely have erased most of his share value. Moreover, the chance
that he would be able to exercise his Tag-Along Right in the future would be much smaller
because the Chaikens would have already sold $10.5 million of their shares in connection with
the Series A and Series A-2 financings, and their desire and ability to orchestrate future
repurchases would likely have been limited for the next several years.
88.

In response to Kakaulin asserting his contractual rights and desire to Tag Along

with the Founders in the sale of common shares, Chaiken replied, Yes, you have the right,

but I didnt realize you wanted to sell. We would have to tell the investors
about it. Let me talk to Matt.
89.

Kakaulin was concerned by Chaikens response, as it seemed that Chaiken was

considering excluding Kakaulin from the Tag Along, despite the terms of the Employment
Agreement.
90.

After talking to his brother, Chaiken informed Kakaulin that despite the terms of

the written contract entered into less than nine months earlier, Kakaulin was prohibited from
tagging along because the Founders unilaterally decided that investors would become frightened

In financial lexicon, a unicorn refers to a private company valued at more than $1 billion.

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that the CFO was selling and, consequently, would never give money to the company again. In
actuality, the company and investors would be indifferent if some of the proceeds would be
shared with Kakaulin and other selling shareholders. The true motivation behind the Founders
desire to prevent Kakaulin from exercising his contractual right to Tag Along was their
unwillingness to share with anyone the $6 million of proceeds from the third party sale of their
common shares.
91.

The exercise of Kakaulins Tag Along Rights on July 1st or after would not

jeopardize or otherwise negatively affect the Series A-2 financing. Whether investors would
have been concerned about Kakaulins exercise of his Tag-Along Right is pure speculation.
92.

Rather than abide by the clear, plain, unequivocal material terms negotiated in the

Employment Agreement, the Chaikens threatened retaliation against Kakaulin by explicitly and
repeatedly telling him, If you exercise your contract right to sell, well fire you for

cause.
93.

Kakaulin was now in the difficult position of having to choose between declining

to sell his vested shares so as not to be fired (as he was being threatened), or sacrificing the
majority of the compensation which was earned and to which he was contractually entitled.
94.

From July 1, 2016 through July 29, 2016, the Company never discussed the

situation with Kakaulin to determine how to assuage any conceivable concern that investors
might have.
95.

On July 29, 2016, Kakaulins employment was terminated.

96.

Based upon the terms of the Employment Agreement, Kakaulins employment

was terminated without cause, as that term is defined in the Employment Agreement.

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DEFENDANTS MANUFACTURED CAUSE TERMINATION ESTABLISHES NOTHING OTHER


THAN PRETEXT FOR THEIR UNLAWFUL ACTIONS

97.

Notwithstanding the foregoing, in bad faith, for the sole purpose of stripping

Kakaulin of all of his vested and unvested shares, worth approximately $4.7 million, Defendants
manufactured reasons for deeming Kakaulins termination to be for cause without any goodfaith basis.
98.

Indeed, the termination of Kakaulins employment for cause was in retaliation

for: (i) Kakaulins protected whistleblowing activities under Dodd-Frank of reporting his
reasonable belief that the Founders and Blink were engaging in securities laws violations; as well
as (ii) Kakaulins legitimate desire to exercise a contractual Tag Along right and have the
company repurchase his vested Incentive Shares, a right negotiated by Chaiken himself.
99.

Specifically, during the last week of June 2016, Kakaulin complained to the

Founders that they may be violating securities laws by misrepresenting financial statements,
omitting information in a securities transaction, fabricating vital transaction statistics, and
misappropriating key data from industry players. Kakaulin sought to speak with Tom Tryforos,
the companys board member whom Chaiken frequently described as his mentor, about these
concerns. Chaiken forbade him to do so.
100.

Chaiken responded, You dont understand this business. Only

Matthew [Chaiken] sees eye to eye with me. A lot of people didnt like Steve
Jobs. He was an asshole. Look at what he built. I am going to be Steve Jobs. I
am building the biggest company in the world. Some people will decide that
they want to be successful here and others will leave Blink. Dont be a fool,
for your own sake.
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101.

Shortly thereafter, in further retaliation for his lawful whistleblowing actions, the

Chaikens effectively stopped all communication with Kakaulin. They stripped Kakaulin of all of
his responsibilities other than certain finance and accounting functions and all of his reports,
other than the Controller, Kurt Ferber (Ferber).
102.

Chaiken forbade Kakaulin to speak with anyone in the office except for Ferber.

The Chaiken brothers told all other employees to stop talking to Kakaulin. They did not invite
Kakaulin to the July board of directors meeting.
103.

Within days of Kakaulins termination, Series A-2 financing closed, and the

Chaikens sold $6 million of their shares at $16.25 per share. Kakaulin was not given a notice nor
offered an opportunity to participate in express violation of his Employment Agreement.
104.

On August 4, 2016, Blink sent Kakaulin a letter explaining his termination. The

letter contained fabricated reasons for deeming Kakaulins termination to be for cause.
Mainly, Blink said that Kakaulins decision to exercise his Tag-Along Right on July 1, 2016 was
willful misconduct in the performance of [his] duties to the Company and represented
material dishonesty with respect to the Company.

Such lies are pretext to Blinks

retaliation against Kakaulin in violation of Dodd-Frank.


105.

In the same letter, several paragraphs after stating that Kakaulin was terminated

because he expressed his desire to exercise the Tag-Along Right set forth in his Employment
Agreement, Blink preposterously claims that Kakaulin did not have Tag-Along Rights because in
the Series A-2 financing, the Founders did not sell their shares directly to third party investors
but indirectly through the Company, which they baselessly claim is not a third-party. In
actuality, the repurchase of the Chaikens shares in Series A-2 financing was absolutely a third
party sale that was affected by third-party investors, as contemplated by the Tag Along provision

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in the Employment Agreement. For one, the Chaikens knew they could not possibly raise capital
from outside investors in the early stages of the company by issuing mere common shares in
exchange for their investment, thus in a form of share laundering - the company would
repurchase the exact requisite number of common shares from the Founders (and Tag Along
Right Holders) and then issue to the third party the same exact number of preferred Series A-2
Shares. This is the process by which the Founders sold their common shares to third parties in
the Series A financing, and thus, this is the process contemplated by the Tag Along Rights when
included in the Employment Agreement. Further confirmation that the Series A-2 share issuance
was a third party sale of common shares by the Founders is the fact that had their been no
issuance of preferred shares in the Series A-2 financing, the company would never have
repurchased the prcised number of common shares from the Founders. The only transfer of
shares that is not considered a transfer of common shares to a third party is when shares are
transferred automatically through an estate (i.e. by death of a shareholder). This exception is
specifically noted in the language of the contractual Tag Along Rights provision set forth in the
Employment Agreement.4.

Finally, until Kakaulins termination, the Founders had never

claimed that they would be selling shares to anyone other than a third party.
106.

That the Company even takes this position underscores how its termination of

Kakaulin had nothing to do with any supposed misconduct on his part but is merely unlawful
retaliation for Kakaulins prior complaints of wrongdoing by the Blink CEO and COO. The
Series A-2 Repurchase was structured in exactly the same way as the prior $4.5 million Series A

The concept of third party comes from Employment Agreement where it was introduced to ensure that TagAlong Right is not triggered by transfers for estate planning purposes. Thus, the provision states, In the event
Geoffrey Chaiken, Matthew Chaiken or their respective Affiliates (the Founders) determine to sell any of their
Common Shares of the Company to a third party, excluding transfers for estate planning purposes, the Company
shall notify you of such sale and describe the terms and conditions thereof including the price per share

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Repurchase. Kakaulins contract and Tag Along was negotiated with that repurchase in mind
and the repurchase of the Founders common shares by way of the Series A-2 financing is a
transfer that Kakaulin was contractually entitled to participate in by way of his Tag Along
Rights.
107.

While the actions of the Founders themselves exemplify unlawful retaliation and

breach of contract, their bad faith actions was obvious to Blinks employees, officers and
investors.
108.

In one amazing admission, on August 5, 2016, Alice Lloyd George, Geoff

Chaikens girlfriend who is a venture capitalist, and also a Blink investor, texted Kakaulin:
You worked so hard
so early for this company
You were critical and then they backstabbed you
I hated watching

I hope you win


Geoff was a horrible person
.
He said many awful things including every woman at this company
wants to fuck me
Insane
You dont even know the half of it

Its just frustrating to see people get away with bad behavior

109.

Even the Chaikens own parents are witness and victim to the bad-faith actions of

the Founders.
110.

In late August 2015, a greedy Chaiken shockingly even re-traded his own father,

an accomplished physician in New York City. On August 23-24, 2015, Chaiken and his father,
Dr. Barry G. Chaiken, M.D. had the following exchange:

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111.

In the prior exchange, the following references were made:

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Spencer is a reference to Spencer Falk was a senior employee of Blink

with a significant ownership stake who was terminated in summer 2015. On August 5, 2015,
Falk signed a separation agreement forgoing his significant stake in the company in exchange for
a $150,000 cash payment. At the time, Blink purposely failed to disclose to Falk that the
company had already negotiated term sheet for the Series A financing that valued the company
and his equity at a multiple of the amount that Falk unwittingly accepted to receive.

Marinus is a reference to Marinus Pharmaceuticals, Inc., which is a

biopharmaceutical company that engages in the development of neuropsychiatric therapeutics.


KAKAULINS COMPLAINTS, FOR WHICH HE WAS UNLAFULLY RETALAITED AGAINST, IS
PROTECTED ACTIVITY UNDER DODD-FRANK

112.

The retaliatory treatment suffered by Kakaulin at the hands of the Founders and

Blink is in direct retaliation of Kakaulins statutorily protected activity of complaining of


securities violations through a pattern of misconduct characterized by dishonesty, bullying and a
disdain for anyone who in good faith disagrees with the Chaikens.
113.

Well-documented examples of such misconduct by the Company abound:

Example 1
114.

Chaiken was set on showing as high a revenue number as possible. He thus chose

to use a very aggressive revenue recognition technique, recognizing the gross value of each
purchase, including the portion of the purchase that Blink would have to pay to MedImpact and
the pharmacy.
115.

This methodology significantly inflated the revenues. While the method could be

used, Deloitte, expected auditor of Blink, had concerns about using such an unorthodox
accounting methodology.

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116.

Kakaulin shared those concerns with Chaiken. Chaiken insisted on using the

inflated numbers while failing to warn prospective investors that, in the future, the revenue
recognition methodology might have to be changed.
Example 2
117.

For the past two years, Geoffrey Chaiken has retained a senior member of

MedImpact, Blink Healths key vendor and strategic partner, purportedly to provide strategic
consulting services. But the actual purpose of the relationship is for Blink to receive
intelligence about the vendors inner workings, including highly confidential information with
respect to the negotiations of the parties key contracts as well as disputes over contract terms.
118.

On multiple occasions, Kakaulin complained that it was inappropriate, but

Chaiken insisted that the consultant told Blink that his boss at MedImpact knew about the
arrangement and had no problems with it (i.e., paying an insider at a strategic partner and asking
him to share highly sensitive information during negotiations).
119.

MedImpact has a long-term exclusive contract with Blink and became a large

investor in Blink in May 2016; subsequently, MedImpacts founder, Fred Howe, joined Blinks
board of directors.
120.

Shortly after MedImpacts investment, Chaiken began pursuing several

discussions with other potential PBM partners, so as to end the exclusive nature of MedImpacts
relationship.
121.

While contractually this may be accomplished in certain circumstances, the

premise under which MedImpact entered into the relationship and consummated its investment
implied exclusivity.

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122.

Kakaulin shared concerns that this is not how one deals with partners, and was

spurned.
Example 3
123.

While attempting to negotiate alternative contracts with other PBMs, Chaiken

wanted to receive favorable pricing. To accomplish that, Chaiken insisted on fabricating and
misrepresenting the Companys transaction data and asked Kakaulin to assist.
124.

Kakaulin protested several times, but was told by Chaiken that Blink has no

fiduciary duty to potential vendors.


Example 4
125.

Chaiken manipulated the companys balance sheet with the dual purpose of

creating the appearance of a stronger cash balance and gaining an important personal tax benefit.
Chaiken did that by providing the company, unbeknownst to Kakaulin and without Kakaulins
involvement, with a $4.8 million loan to the company in December 2015.
126.

The cash loan Chaiken provided inflated the companys cash balance and allowed

the Chaiken brothers to take advantage of losses generated by the company and to offset their
personal income in 2015, which was primarily from the sale of Equity in Blink!
127.

The cash provided by the loans could not be used for operating purposes and

required quarterly interest expense payments to the Chaikens, even though Defendant Blink did
not need the loan at that time.
128.

When Kakaulin raised concerns in January 2016 about this shady arrangement,

Chaiken said that the Board approved this and was comfortable with the set-up.

Geoffrey

Chaiken said, Tom [Tryforos] [Blink Health Board member whom Chaiken

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described as his mentor] had concerns, but I got him comfortable and hes
completely fine with this.
129.

Kakaulin advised Chaiken that this financing needed to be disclosed to all

investors. Chaiken became visibly angry and dismissed Kakaulin, stating, They got the

upside and now, they dont need to know about my tax planning.
Example 5
130.

In 2015, the Company hired three individuals from a competitor, including

Kimmy Scotti from Script Relief, knowingly causing them to violate their non-compete
agreements with their former employer.
131.

Blink, at Chaikens direction, also caused them to violate their non-disclosure

agreements with the former employer by having them share a large amount of proprietary and
highly confidential data from the competitor.
132.

Blinks strategy and marketing plans were developed on the template from this

competitor.
133.

To avoid detection, Chaiken insisted on forming another wholly-owned subsidiary

called American Association for Prescription Savings in order to conduct cash card business,
directly competitive with Script Relief.
134.

Chaiken also directed former employees from Script Relief not to update their

LinkedIn profiles and, in two cases, use aliases in email correspondence.


135.

Chaiken also engaged in a multi-month effort to contract with Script Reliefs

vendors in order to copy as much of their business model as possible.

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136.

Kakaulin expressed numerous concerns starting in September 2015 about such

inappropriate behavior and on numerous occasions suggested that Blink should not engage in
that business.
137.

Chaiken rebuffed the concerns, saying, Its a great business. Nobody

will find out!


138.

Michael Tanenbaum, a senior Blink employee responsible for the cash card

business, expressed concerns about using stolen data from Script Relief. In response, Chaiken
said, Thats the dumbest fucking thing youve said to me. You are an idiot.
139.

Shortly thereafter, Tanenbaum was terminated from the company.

Example 6
140.

In 2015, Blink chose to re-incorporate itself in Bermuda.

141.

This decision was motivated by one driving objective: to avoid paying most of its

future U.S. taxes.


142.

Although Blink is technically creating a paper trail to foster the appearance of

being a Bermuda-based entity, Blink had previously conducted, and presently conducts, its
business, negotiates all of its key contracts, and makes all of its key decisions in the U.S.,
thereby violating the spirit of U.S. tax laws.
143.

On multiple occasions, immediately before contract signing, Chaiken or the

companys general counsel would fly outside of the U.S. to sign a key contract.
144.

When Kakaulin protested that such behavior was a sham and inappropriate,

Chaiken countered, The statute of limitation for tax is only 3 years. In 3 years

will be up and running in Bermuda.


145.
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Example 7
146.

Between February and June 2016, Chaiken insisted on revising the budget

frequently and upwards, especially during fundraising efforts.


147.

While budgets always include a fair amount of optimism, Chaikens approach was

especially aggressive.
148.

Specifically, instead of evaluating what was realistic, Chaiken insisted the

company revise projections to justify a particular valuation or what the investor was hoping to
see.
149.

This resulted in unrealistically high revenues in the budget, including revenue

lines from opportunities that could not be reasonably expected to be launched in the near future.
Kakaulin felt very uncomfortable with such projections because, as Blinks Chief Financial
Officer, he would eventually be the one to have to explain why the budgeted numbers were not
met and could not be met at the time they were set.
150.

In February 2016 and on many occasions subsequently, Kakaulin shared the

concern with Chaiken, but was told that something in the budget may work better than expected
and thus compensate for the overly aggressive numbers elsewhere.
Example 8
151.

Geoffrey Chaiken recently terminated multiple vendors, including Sann

Communications and DVM Communications, and chose not to pay their bills for months of
performed work.
152.

When they inquired why, he responded that he wasnt satisfied with their work,

and that the vendors had failed to meet their contractual obligations.

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153.

Kakaulin protested, telling Chaiken that such unwarranted hold-backs would taint

the reputation of Blink and would hurt the companys future relationships in procuring vendors.
Chaiken responded by arrogantly stating, They will need us more than we need

them.
Example 9
154.

Before the Series A financing on July 10, 2014, the Company raised a bridge

round one in convertible note securities, aggregating $1.5 million. Investors in that round had the
right to convert to Series A shares at a price of up to $2.11 per share.
155.

Due to a dispute with one investor in the round (Michael Karsch), the Company

redeemed bridge round one notes on May 20, 2015 once it had become clear that the company
would shortly raise capital at a higher valuation. Karsch is a highly successful money manager
and owner of various businesses, including Juice Press.
156.

Karsch demanded more transparency and reporting from the Founders, which

Chaiken refused to provide. Karsch also requested more equity for his introductions to investors.
157.

In response, Chaiken said, I dont value introductions.

158.

This surprised Kakaulin because it is a standard market practice to reward people

who introduce investors.


159.

Instead of rewarding Karsch, Chaiken retaliated against him by repaying the

bridge round 1 notes. Then Chaiken hand-picked certain investors in those notes and made them
whole by issuing them incentive shares to compensate them for the lost opportunity (instead of
making them whole, as promised).
160.

Chaiken expressed to Kakaulin that he did not want to include Karsch in any

further investments and did not offer to make him whole for the lost opportunity in the

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demonstrated and future growth prospects. Chaiken said, Karsch is a bad guy. I dont

want him to make any money on our success.


Example 10
161.

Chaikens unlawful activities reached into their violation of HIPAA privacy laws

using Blinks fiduciary relationships with its customers to illegally spy on Blink employees and
investors. On multiple occasions, Matthew Chaiken tapped into Blinks customer relationship
management dashboard to analyze drug purchasing history of certain customers, including
current employees, prospective employees and individuals whom he knows socially. Matthew
Chaiken used such inappropriately acquired information to make management decisions.
Among Matthew Chaikens use of illegally obtained HIPAA information:

Matthew Chaiken once commented that a certain employee cannot be

trusted because that employees prescription for Adderall was significantly more potent than a
typical dose.

Matthew Chaiken once referred to a Blink investor as a drug addict

because of that persons purchasing history.

Matthew Chaiken once argued that a candidate for employment should not

receive a job offer because of the candidates anti-psychotic prescription.


162.

Kakaulin was stunned by this behavior and objected to the Founders calling it

absolutely unacceptable. Kakaulin said, We cant use that information! Matthew Chaiken
replied, We are a data-driven company and well use everything we have to

build a great business.

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CLAIMS AND DAMAGES


Based upon the above allegations, Plaintiff maintains the following legal claims against
Defendants:

COUNT ONE
(Violation of Whistleblower Protection Under Dodd-Frank)
163.

Plaintiff repeats, realleges, and incorporates by reference each and every

allegation previously made herein as if the same were more fully set forth at length herein.
164.

Plaintiff engaged in protected activity as a whistleblower within the meaning of

Dodd-Frank because he engaged in conduct protected by Dodd-Frank.


165.

Plaintiff made internal complaints of securities violations to supervisors at the

Company.
166.

Plaintiffs disclosure of Blinks unlawful conduct related to his reasonable belief

that Blink was engaging, participating, and condoning violations of securities laws.
167.

Plaintiff possessed a reasonable belief that violations of these laws, rules and

regulations were occurring, and in fact did occur, when he discovered and disclosed those
violations.
168.

Blink violated Dodd-Frank because it either directly or indirectly discharged,

demoted, suspended, threatened, harassed, or any other manner discriminated against Plaintiff in
the terms and conditions of his employment because of his whistleblower activities.
169.

As a result of Blinks conduct, Plaintiff has suffered substantial damages and is

entitled to relief in the form of two times the amount of back pay otherwise owed, reinstatement
or front pay in lieu or reinstatement, plus attorneys fees, interest and costs and any other
statutory relief available to him.

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COUNT TWO
(Breach of Express Written Contract Against All Defendants)
170.

Plaintiff repeats, realleges, and incorporates by reference each and every

allegation previously made herein as if the same were more fully set forth at length herein.
171.

Plaintiff and Defendant Blink had a valid and binding contract.

172.

Defendant Blink breached material terms of the contract for failing to permit

Plaintiff to participate in Tag Along rights.


173.

As a consequence of Blinks breach, Plaintiff suffered damages to be adduced at

trial.
COUNT THREE
(Breach of the Covenant of Good Faith and Fair Dealing Against All Defendants)
174.

Plaintiff repeats, realleges, and incorporates by reference each and every

allegation previously made herein as if the same were more fully set forth at length herein.
175.

Implicit in the dealings, agreements and understandings between Plaintiff and

Defendants is a covenant of good faith and fair dealing.


176.

The covenant of good faith and fair dealing requires that Defendants not take any

action which will have the effect of destroying Plaintiffs rights to receive fair compensation and
promised financial benefits for his work, labor and efforts on behalf of Defendants.
177.

By failing to properly and fairly compensate Plaintiff in respect of his work, labor

and efforts exerted on behalf of Defendant Blink and in respect of Defendant Blinks benefit of
such work, labor and efforts, Defendants have breached the implied covenant of good faith and
fair dealing.

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178.

Defendants deliberate actions against Plaintiff for the sole purpose of avoiding

the payment of his fully earned and contractually owed monies is a clear breach of the implied
covenant good faith and fair dealing.
COUNT FOUR
(Breach of Fiduciary Duty Against Each of the Individual Defendants)
179.

Plaintiff repeats, realleges, and incorporates by reference each and every

allegation previously made herein as if the same were more fully set forth at length herein.
180.

As alleged herein, the Individual Defendants, by reason of their positions as

officers and directors of Blink, and because of their ability to control the business and corporate
affairs of Blink, owed to Blink, its investors, employees and shareholders fiduciary obligations of
due care and loyalty, and were and are required to use their utmost ability to control and manage
Blink in a fair, just, honest, and equitable manner.
181.

The Individual Defendants breached their duty of loyalty by knowingly,

recklessly, or with gross negligence.


182.

As a direct and proximate result of the Individual Defendants breaches of their

fiduciary obligations, Plaintiff has sustained significant damages, as alleged herein.


183.

By virtue of the foregoing breaches of the fiduciary duty of loyalty, Plaintiff is

entitled to the fees and compensation paid to the Defendants by Plaintiff, and/or Plaintiffs lost
profits, that resulted in whole or in part from such breaches.
COUNT FIVE
(Specific Performance)
184.

Plaintiff repeats, realleges, and incorporates by reference each and every

allegation previously made herein as if the same were more fully set forth at length herein.

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185.

As a result of the foregoing breach of the agreement described herein by

Defendant, Plaintiff has suffered and will continue to suffer irreparable harm to its business
unless the Defendant is enjoined from breaching the applicable aforementioned provisions of
said agreement
REQUEST FOR RELIEF
WHEREFORE, Plaintiff requests that this Court order the following relief in favor of
Plaintiff:
I.

A Declaratory Judgment declaring that the acts complained of herein violate the
rights of Plaintiff as guaranteed under applicable Federal Law;

II.

A judgment granting equitable relief directing Defendants to cease and desist


from exposing Plaintiff to retaliation;

III.

A judgment directing Defendants to reimburse and make Plaintiff whole for any
and all earnings, including bonus payments, he would have received but for
Defendants discriminatory treatment and unlawful dismissal, including but not
limited to, back pay, double back pay, contractual damages and benefits;

IV.

A judgment awarding Plaintiff compensatory damages for mental anguish, loss of


dignity, humiliation, and injury to livelihood in an amount that is fair, just, and
reasonable, to be determined at trial, including reasonable attorneys fees, as
provided under applicable law.

V.

A judgment awarding Plaintiff double back pay damages for Defendants


intentional retaliation of Plaintiff;

VI.

A judgment awarding Plaintiff front pay;

VII.

A judgment awarding Plaintiff double back pay;

VIII. A judgment awarding Plaintiff contract damages;


IX.

A judgment directing specific performance of Plaintiffs employment agreement


with Blink;

X.

A judgment awarding Plaintiff punitive damages;

XI.

An award of prejudgment interest, costs and attorneys fees; and

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