Nazaryan v. FemtoMetrix, Inc., 2025 WL 1177060 (Cal. Ct. App. 2025)

Hovik Nazaryan sued his former employer and several of its officers and a member of the board of directors after the parties settled a prior dispute between them and the defendants agreed to classify the settlement proceeds as “Founder’s Stock” and not “compensation, salary or income for [Nazaryan’s] services to FemtoMetrix.” The defendants subsequently issued 1099-MISC forms characterizing the settlement proceeds as “non-employee compensation.” Nazaryan sued and claimed the company and its officers breached the settlement agreement and violated Internal Revenue Code § 7434 by filing “fraudulent 1099 forms.” The trial court entered judgment for Nazaryan, and the Court of Appeal affirmed, holding that the trial court did not err by finding the company’s president and its CFO liable under IRC § 7434.