S&G Labs Hawaii, LLC v. Graves

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 11, 2025
• Docket: 24-823
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 11 2025 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

S&G LABS HAWAII, LLC, a Hawaii No. 24-823 Limited Liability Company, D.C. No. 1:19-cv-00310-LEK-WRP Plaintiff-ctr-defendant - Appellant, MEMORANDUM* v.

DARREN GRAVES,

Defendant-ctr-claimant - Appellee,

v.

LYNN PUANA, M.D.,

Third-pty-defendant - Appellant.

Appeal from the United States District Court for the District of Hawaii Leslie E. Kobayashi, District Judge, Presiding

Argued and Submitted February 11, 2025 Honolulu, Hawaii

Before: S.R. THOMAS, BRESS, and DE ALBA, Circuit Judges.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. S&G Labs Hawaii, LLC (“S&G”) and Dr. Lynn Puana appeal following a

jury’s award of more than $8 million to Darren Graves on his counterclaims for

breach of contract, wrongful termination, and defamation. Unless otherwise noted,

we refer to appellants collectively as “S&G.” We review legal issues de novo, see

Kaiser v. Cascade Cap., LLC, 989 F.3d 1127, 1131 (9th Cir. 2021), and the jury’s

verdict for substantial evidence, see Image Tech. Servs., Inc. v. Eastman Kodak Co.,

125 F.3d 1195, 1206 (9th Cir. 1997). We have jurisdiction under 28 U.S.C. § 1291,

and we affirm.

1. S&G argues that Graves’s claim for breach of contract failed because

his employment agreement was unlawful under the Eliminating Kickbacks in

Recovery Act (“EKRA”), 18 U.S.C. § 220(a)(2)(A), and thus unenforceable under

state law. See Beneficial Hawaii, Inc. v. Kida, 30 P.3d 895, 912–18 (Haw. 2001).

In United States v. Schena, No. 23-2989, --- F.4th --- (9th Cir. July 11, 2025)1, we

rejected the district court’s determination in this case that EKRA applies only to

payments made to persons who are “working with” individual patients. Schena Slip

Op. at 9–11. Nevertheless, we may affirm on any ground apparent from the record.

Vestar Dev. II, LLC v. Gen. Dynamics Corp., 249 F.3d 958, 960 (9th Cir. 2001). In

Schena, we further held that although payments to marketers can run afoul of EKRA,

1 The Schena appeal was also assigned to this panel and was argued before us in coordination with this case.

2 24-823 “a percentage-based compensation structure for marketing agents, without more,

does not violate EKRA.” Schena Slip Op. at 13. Because that is all that S&G came

forward with here, it has not shown that Graves’s employment arrangement was

illegal under EKRA and thus unenforceable under Hawaii law.

2. S&G’s only challenge to the award of $352,333.33 in back pay for

wages after Graves’s salary reduction but before termination is that EKRA

invalidated his employment contract. Because we conclude that the contract was not

invalid under EKRA, we affirm the jury’s back pay award.

3. We affirm the related $438,964.48 civil penalty imposed by the district

court. Under Hawaii law, an employer who withholds wages “without equitable

justification” is subject to a penalty equal to 100% of the wages withheld plus

interest. Haw. Rev. Stat. § 388-10(a). An employer acts “without equitable

justification” when it lacks “a good faith non-arbitrary defense.” Arimizu v. Fin.

Sec. Ins. Co., 679 P.2d 627, 631 n.4 (Haw. Ct. App. 1984) (quoting Carriere v. Pee

Wee’s Equip. Co., 364 So.2d 555, 557 (La. 1978)).

The evidence supports the district court’s finding that S&G lacked a good-

faith non-arbitrary defense, nor did the district court commit any legal error. The

record supports the district court’s determination that S&G began to withhold wages

when Graves refused to agree to a non-compete clause, not when S&G became

worried about the potential impact of EKRA. The evidence further supports the

3 24-823 district court’s determination that Dr. Puana “tried to capitalize on the passage of

EKRA to obtain Graves’s agreement to a non-compete clause” and withheld

Graves’s wages as punishment for his refusal to agree to the non-compete

restrictions. Accordingly, the district court did not err in concluding that S&G

withheld Graves’s wages without equitable justification. Haw. Rev. Stat. § 388-

10(a).

4. We affirm the jury’s $3.5 million award for breach of contract based on

Graves’s anticipated pay for the remaining time on his contract after S&G terminated

him. Under Hawaii law, “[t]he measure of recovery by a wrongfully discharged

employee is the amount of compensation agreed upon for the remaining period of

service, less the amount which the employer affirmatively proves the employee has

earned or with reasonable effort might have earned from other employment.” Vieira

v. Robert’s Haw. Tours, Inc., 630 P.2d 120, 122 (Haw. Ct. App. 1981). As S&G

does not cite any evidence as to what Graves made or could have reasonably made

during the relevant period, we consider only the compensation due under the

contract.

The parties agree that the jury computed the $3.5 million award by using the

$1 million commission-free salary that Dr. Puana proposed as an alternative

compensation arrangement, multiplied by the three and a half remaining years on

the contract. Dr. Puana testified at trial that she calculated the $1 million per-year

4 24-823 proposed salary based on what she thought was fair given the amount of business

Graves was bringing in at the time. That testimony was uncontroverted. Although

the alternate arrangement was never agreed to by Graves, Dr. Puana’s estimation of

a fair fixed salary provided a reasonable basis for the jury to determine what Graves

would have received had he remained at S&G.

5. We affirm the $1 million in punitive damages that the jury awarded

Graves for wrongful termination and whistleblower retaliation.2 As an initial matter,

S&G waived this challenge. A failure to file a post-verdict motion under Federal

Rule of Civil Procedure Rule 50(b) is an absolute bar to seeking judgment as a matter

of law or a new trial on appeal. Unitherm Food Sys. Inc. v. Swift-Eckrich, Inc., 546

U.S. 394, 401–03 (2006). A post-verdict motion on one aspect of the case is

insufficient to preserve other issues for appeal. See id. at 398 n.2. While S&G filed

a Rule 50(b) motion, it did not address the wrongful termination claims. Those were

only addressed in the pre-verdict oral motion under Rule 50(a). The challenge was

therefore waived.

Regardless, substantial evidence supports the jury’s $1 million punitive

damages award. See In re Bard IVC Filters Prod. Liab. Litig., 969 F.3d 1067, 1077

(9th Cir. 2020) (standard of review). The district court in its pre-verdict Rule 50(a)

2 S&G does not challenge the $250,000 in general damages for these claims, so we do not address that part of the award.

5 24-823 order found that the stated reasons for termination appeared pretextual, and a

reasonable jury could find that Graves was fired in retaliation for his filing of the

counterclaims. Several of the alleged incidents referenced in the termination letter

happened months before Graves’s termination, and he was not disciplined for them.

Graves was also denied any opportunity to respond to the allegations. Even if Graves

may have admitted some of the conduct in the termination letter, the jury could have

reasonably found that any admissions did not give S&G cause to fire Graves.

6. We affirm the jury’s verdict on Graves’s defamation claim against Dr.

Puana, for which the jury awarded $500,000 in general damages and $2 million in

punitive damages. We review the denial of a motion for judgment as a matter of law

de novo, see Image Tech Servs. Inc., 125 F.3d at 1224, and the denial of a motion

for a new trial for abuse of discretion, see Johnson v. Paradise Valley Unified Sch.

Dist., 251 F.3d 1222, 1229 (9th Cir. 2001). Under Hawaii law, defamation requires

(a) a false and defamatory statement concerning another; (b) an unprivileged publication to a third party; (c) fault amounting at least to negligence on the part of the publisher [actual malice where the plaintiff is a public figure]; and (d) either actionability of the statement irrespective of special harm or the existence of special harm caused by the publication.

Nakamoto v. Kawauchi, 418 P.3d 600, 611 (Haw. 2018) (bracketed material in

original) (quoting Beamer v. Nishiki, 670 P.2d 1264, 1271 (Haw. 1983)). Dr. Puana

challenges whether a false statement was made, whether the communication was

privileged, and the award of punitive damages. We reject these arguments.

6 24-823 First, the record supports that Dr. Puana made false statements. Two

witnesses who were S&G clients credibly testified that Dr. Puana told them that

Graves was no longer with the company at a time when Graves was merely

suspended and was still being paid by S&G. Both witnesses recalled coming away

from the conversations with the impression that Graves had been fired. Even if

neither witness could recall Dr. Puana explicitly saying that Graves was fired, the

jury could find false the statement that Graves was no longer with the company.

There was thus a “legally sufficient basis to support” the jury’s finding of a false

statement. Experience Hendrix L.L.C. v. Hendrixlicensing.com Ltd, 762 F.3d 829,

842 (9th Cir. 2014).

Second, Dr. Puana was not shielded by a qualified privilege. Hawaii law

recognizes that a qualified privilege “arises when the author of the defamatory

statement reasonably acts in the discharge of some public or private duty, legal,

moral, or social, and where the publication concerns subject matter in which the

author has an interest and the recipients of the publication a corresponding interest

or duty.” Aku v. Lewis, 477 P.2d 162, 166 (Haw. 1970). For the privilege to apply,

the communications must be “of a type reasonably deemed to protect or further that

interest.” Vlasaty v. Pacific Club, 670 P.2d 827, 832 (Haw. App. 1983).

The jury could conclude that Dr. Puana knew that Graves was still with the

company at the time she had the conversations with the clients. As the district court

7 24-823 explained, because the jury concluded that Dr. Puana falsely told S&G clients that

Graves was no longer with the company, these were not the types of communications

“reasonably deemed to protect or further” a common interest between Dr. Puana and

S&G clients. Id. Thus, the district court did not err in finding the statements

unprotected by a privilege.

Third, substantial evidence supports the jury’s determination that punitive

damages were appropriate in this case. Under Hawaii law, punitive damages “may

be awarded in cases where the defendant has acted wantonly or oppressively with

such malice as implies a spirit of mischief or criminal indifference to civil

obligations; or where there has been some wil[l]ful misconduct or that entire want

of care which would raise the presumption of a conscious indifference to

consequences.” Best Place, Inc. v. Penn Am. Ins. Co., 920 P.2d 334, 347 (Haw.

1996) (quoting Masaki v. General Motors Corp., 780 P.2d 566, 572 (Haw. 1989)).

In the context of the broader body of evidence relating to Graves’s past work for

S&G, and S&G’s reducing Graves’s pay, firing him, and suing him for trade secret

misappropriation, the jury could have concluded that Dr. Puana’s statements to the

two witnesses were made wantonly or maliciously to damage Graves’s future

employment prospects and earning potential.

AFFIRMED.

8 24-823