On August 25, 2016, the Eastern District of Wisconsin granted the Defendant's Motion for Summary Judgment on its former CEO's SOX whistleblower claim. The court ruled that Plaintiff's complaint to the Board of Directors did not implicate any securities violations or fraud, and was not a protected disclosure where it was the Board itself Plaintiff was complaining about. The court also ruled that Plaintiff's own actions suggested he condoned the conduct on which he purported to blow the whistle. Verfuerth v. Orion Energy Systems, Inc., No. 14-cv-352.
Background. According to Plaintiff, there were numerous ways in which Company was being mismanaged. For instance, he alleged that the Company's outside counsel had submitted inflated bills for much of its work. Additionally, Plaintiff accused the Board of committing ethical violations. Plaintiff also allegedly had concerns regarding an old lawsuit between the Company and a former employee that had been concluded. Also, Plaintiff announced that he would refuse to sign a soon-to-be-due Form 10-Q—even though he had signed all previous ones—because he believed outside counsel's alleged overbilling, the concluded lawsuit, and other issues had been improperly withheld from the SEC. Allegedly disappointed with Plaintiff's performance and the Company's financial achievements during his tenure, the Board sought to remove Plaintiff as CEO. Also, during negotiations with Plaintiff regarding his severance package, it came to the Board's attention that Plaintiff had kept money the Board had advanced him to pay his divorce attorney. Following the revelation, the Board quickly moved to terminate Plaintiff's employment. But on the morning of the day it planned on to do so, Plaintiff sent an e-mail to the Board alleging corporate waste, code of conduct violations, fraud, tampering with corporate documents, and "stock manipulation." Still, the Board decided to terminate Plaintiff's employment for cause shortly thereafter.
The Court's Grant Of Summary Judgment. Plaintiff proceeded to file suit in the Eastern District of Wisconsin, alleging he was terminated in violation of the SOX whistleblower provision. Granting the Company's motion for summary judgment, the court held that the "fraud" Plaintiff alleged was merely a reference to everyday corporate issues. In particular, it ruled that the issues regarding outside counsel and the lawsuit were not occurrences the Board materially misrepresented to anyone and that they did not implicate securities violations. The court further ruled that the "stock manipulation" Plaintiff referenced was known to the Board for years and already investigated. The Court also ruled that, since it was the Board that Plaintiff was complaining about, his e-mail to the Board itself was not a protected whistleblower complaint in the absence of another complaint to anyone else. Finally, the court noted that plaintiff had approved SEC filings over the years that should have contained disclosures about all of these issues to the extent they actually should have been revealed. Plaintiff's failure to do so suggested his belated complaint was not made in earnest.
Implications. This case is valuable to employers faced with the SOX whistleblower claims that are based on immaterial events with which corporate boards are routinely confronted and serves to limit claims raises the bar for plaintiffs with tenuous claims of protected activity.
E.D. Wisconsin: SOX Does Not Protect Whistleblower Complaints Based On Immaterial, Routine Events
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