BURDEN OF PROOF AND PRODUCTION
CLEAR AND CONVINCING EVIDENCE STANDARD
[Last Updated Jan. 8, 2014]
FEDERAL COURT DECISIONS
CLEAR AND CONVINCING EVIDENCE THAT DEFENDANT BELIEVED THAT THE PLAINTIFF HAD BEEN INSUBORDINATE; SUMMARY JUDGMENT WHERE PLAINTIFF PROFFERED NO EVIDENCE TO CREATE A DISPUTE OF FACT ON THE ISSUE
In Kim v. Boeing Co. , No. 11-35879, 2012 WL 5351230 (9th Cir. Oct. 25, 2012) (case below ALJ No. 2010-SOX-22), the Ninth Circuit affirmed the district court's grant of summary judgment in favor of the Defendant where the Defendant presented clear and convincing evidence of its belief that the Plaintiff had been insubordinate and was subject to discharge on that basis, and where, although the Plaintiff denied that he was insubordinate, he presented no evidence giving a materially different account of his conduct. The court wrote: "SOX whistleblower claims are governed by a burden-shifting procedure under which a plaintiff is first required to make out a prima facie case of retaliatory discrimination. Then, 'if the plaintiff meets this burden, the employer assumes the burden of demonstrating by clear and convincing evidence that it would have taken the same adverse employment action in the absence of the plaintiff's protected activity.' Van Asdale v. Int'l Game Tech. , 577 F.3d 989, 996 (9th Cir. 2009)." Kim , supra , slip op. at 2.
SOX CLAIM; PROTECTED ACTIVITY NOT A FACTOR IN EMPLOYEE'S TERMINATION; CLEAR AND CONVINCING EVIDENCE THAT THE EMPLOYEE WOULD HAVE BEEN TERMINATED REGARDLESS OF HIS PROTECTED ACTIVITY
In Hemphill v. Celanese Corp. , 430 Fed.Appx. 341, No 10-10746 (5th Cir. June 23, 2011), the plaintiff, a former internal audit manager, filed suit against his former employer, a public corporation that manufactured and distributed industrial chemicals, alleging that he had been terminated in violation of the whistleblower protection provisions of the Sarbanes-Oxley Act. The District Court granted the defendant's summary judgment motion, holding that the plaintiff's protected activity was not a contributing factor in his termination, and moreover, that the employer demonstrated by clear and convincing evidence that it would have terminated the plaintiff regardless of his protected activity. The plaintiff appealed, and the Court of Appeals for the Fifth Circuit held that: (1) the plaintiff's protected activity of reporting irregularities in internal audit or public corporation's construction project in Mexico was not a contributing factor in his termination, but (2) even if protected activity was a factor, the employer would have taken the same personnel action against him in the absence of protected behavior.
In 2007, the plaintiff began work on an internal audit of the defendant's construction project in Mexico. The team of auditors managed by the plaintiff identified several potential violations of law and company policy regarding this project and reported these results in an audit report. The plaintiff also reported these results to his supervisor and a compliance officer. The plaintiff participated in further investigations of the accounting problem. The defendant's auditors eventually determined that several of the defendant's employees had violated company policy, but not any laws, and one employee was removed from the project. The plaintiff never reported these accounting problems to a governmental authority while working for the defendant. The court noted that the record indicated that no legal enforcement action was ever initiated against the defendant on the basis of these accounting irregularities. Around this time the plaintiff also worked on projects reviewing the travel and entertainment records for several of the defendant's employees. He and his staff discovered certain violation of the company's policies. The plaintiff testified at deposition that in his view, these violations created risk of "books and records violation" of the Securities and Exchange Commission rules. The plaintiff advised his supervisor of the violations and asked to raise the issues with the defendant's audit committee. His supervisor rebuffed this request.
In August 2007, the plaintiff was observed yelling at his secretary in an abusive manner regarding her handling of arrangements to rent a boat for a corporate outing. Two employees, both of whom worked in a different department of the company, witnessed the event and reported his actions to the human resources director. After investigating the plaintiff's verbal abuse of his secretary, the human resources department recommended that the plaintiff be terminated for "lying during a formal investigation, harassment of an employee, and creating a negative work environment for the team and those around him." The plaintiff was then terminated by his supervisor.
Assuming that the plaintiff raised genuine issues of fact regarding the first three elements of his prima facie claim, the court focused on the fourth and final element: whether his protected activity was a "contributing factor" in the defendant's decision to terminate him. The court found that the defendant's human resources department conducted a thorough investigation of the verbal abuse incident. The primary human resources employee conducting the investigation had no prior knowledge of the plaintiff's audit activities. The employees who witnessed the incident and reported the plaintiff's behavior were interviewed. These employees worked in a different department of the company than the plaintiff and had no material interest in the plaintiff's auditing activity. It was also found that the plaintiff lied about his behavior during the formal investigation. The court found no evidence that the two executives contributing to the decision to fire the plaintiff (the human resources director and the vice president for human resources) had any particular knowledge of or interest in the plaintiff's audit work. The only executive participating in the termination decision who knew of his discovery of accounting irregularities was his supervisor. The undisputed evidence indicated that she simply accepted the unanimous termination recommendation provided to her. The court concluded that the evidence clearly and convincingly proved that the defendant terminated the plaintiff because the defendant concluded that he mistreated his secretary. The court also found that the plaintiff failed to produce any evidence casting doubt on the integrity of the investigation that lead to his termination.
CLEAR AND CONVINCING EVIDENCE OF NON-DISCRIMINATORY RATIONALE; AFFIRMING SUMMARY JUDGMENT FOR THE EMPLOYER WHERE IT PRODUCED CLEAR AND CONVINCING EVIDENCE THAT IT TERMINATED THE PLAINTIFF FOR FAILURE TO IMPROVE HER POOR JOB PERFORMANCE AFTER RECEIVING SEVERAL WARNINGS
In Johnson v. Stein Mart, Inc. , No. 10-13434, 440 Fed.Appx. 795 (11th Cir. 2011) (case below ALJ No. 2006-SOX-52), the plaintiff, a buyer at a publicly traded retail sales company, made internal complaints about the defendant's allegedly inappropriate business practices, including improper collection of markdown allowances from vendors, changing season codes on older inventory, and inaccurate accounting of the value of inventory. Subsequently, the plaintiff was transferred to another position as a "planner", which she viewed as a demotion, even though the transfer did not affect her compensation and benefits. The plaintiff's work performance struggled in this new position, and she received written performance counseling and a negative performance evaluation after she made purchasing decisions that strayed from the defendant's purchase plan for its fragrance inventory. She renewed her complaints about the defendant's business practices to the company's Chief Financial Officer, and also complained that she was suffering retaliation for voicing her concerns, but the company's investigation into her allegations revealed no evidence of wrongdoing. Ultimately, three months after she received a "final warning" for her inadequate work performance, the plaintiff was terminated.
The United States District Court of the Middle District of Florida previously granted summary judgment for the employer on the plaintiff's SOX claim, Johnson v. Stein Mart, Inc. , No. 3:06-cv-341-J-33TEM, 2007 WL 1796265, (M.D.Fla. June 20, 2007) (not reported), but the Court of Appeals vacated and remanded that decision because the district court failed to address the status of certain sealed discovery documents, and failed to discuss the plaintiff's outstanding motion under FRCP 56(f). Johnson v. Stein Mart, Inc. , No. 07-13338, 276 Fed.Appx. 931 (11th Cir. 2008) (not reported). After the district court reinstated its prior opinion on remand, the plaintiff appealed.
The Court of Appeals found that the district court did not err when it granted summary judgment for the defendant on the plaintiff's SOX claim because the defendant produced clear and convincing evidence that it would have discharged the plaintiff for substandard performance reasons even absent her SOX-protected complaints. Other than her own personal suspicions, the plaintiff failed to adduce any evidence suggesting the defendant incorrectly assessed her performance as a planner as unsatisfactory, while the defendant produced ample evidence that the plaintiff mishandled the company's fragrance purchases in 2004, and that her performance failed to improve prior to her discharge.
CLEAR AND CONVINCING EVIDENCE THAT THE EMPLOYER DISCHARGED THE PLAINTIFF FOR INSUBORDINATION - SPECIFICALLY, REFUSAL TO ACCEPT A CHANGE IN JOB DUTIES
In Kim v. Boeing Co. , No. C10-1850RSM, 2011 WL 4437086 (W.D.Wash. Sept. 23, 2011) (case below ALJ No. 2010-SOX-22), aff'd Kim v. The Boeing Co. , No. 11-35879 (9th Cir. Oct. 25, 2012), the plaintiff, a business analyst for cost management in Boeing's supplier management and procurement division, reported what he believed to be cost accounting irregularities and violations of the Sarbanes-Oxley Act to the company's Ethics Office, and also repeatedly reported financial irregularities to his managers. In at least one of his reports to his managers, he specifically suggested that the irregularities he perceived be communicated to the company's SOX Audit Committee, but after each report, his managers assured him that no further action was warranted. The plaintiff alleged that his "working environment became incrementally more hostile and appeared plainly designed to discourage him from pursuing his concerns about SOX noncompliance," and eventually, the plaintiff's manager advised him to transfer to another position. Initially, the plaintiff believed that the transfer was voluntary, and he therefore declined, but several months later, the human resources office informed him that the transfer was mandatory. When the plaintiff still refused to accept the position change, he was suspended for insubordination. The plaintiff thereafter went on medical leave, and was eventually laid-off as part of a reduction-in-force.
Although the defendant also challenged whether the plaintiff had produced sufficient evidence of protected activity to avoid summary judgment, the district court did not make a finding on its argument, and instead granted summary judgment for the employer because it adduced clear and convincing evidence that it would have suspended and terminated the plaintiff even absent any protected activity. The district court explained that the employer had produced evidence that the plaintiff's coworkers had complained about his attitude at work, that the plaintiff had problems with attendance, and that these issues had negatively impacted his performance reviews. The defendant explained that although the job transfer was first offered as an option for improving the plaintiff's job satisfaction, the plaintiff's immediate manager and the defendant's human resources office later agreed that the plaintiff should be transferred regardless of his preferences. In the face of his manager's order to swap job responsibilities with a coworker, the plaintiff became increasingly insubordinate, and at a meeting with human resources to discuss the transfer, the plaintiff's refusal to perform work left human resources "no choice but to discharge plaintiff for insubordination." The plaintiff did not sufficiently dispute these facts, and therefore, the court granted the employer's motion for summary judgment.
CLEAR AND CONVINCING EVIDENCE; PLAINTIFF'S POOR PERFORMANCE; PLAINTIFF'S OWN ASSESSMENT OF HER PERFORMANCE IS INSUFFICIENT TO WITHSTAND SUMMARY JUDGEMENT BECAUSE IT IS THE EMPLOYER'S ASSESSMENT THAT CONTROLS
In Pardy v. Gray , 1:07-cv-06324-LAP (S.D.N.Y. July 15, 2008), the court found that the Defendants had established by clear and convincing evidence that the Plaintiff's termination was based on performance related issues unrelated to her protected activity, and therefore granted summary judgment in favor of the Defendants. The Defendants had supported their motion with evidence that the Plaintiff had been placed on probation in 2003, and though not terminated at that time, had been placed back on probation in 2005 when three different account groups within the employer's organization filed complaints indicating that they did not want to work with the Plaintiff again. The Plaintiff made an untimely response to the probation warning, and then did not argue that the criticisms attributed to her co-workers were fabricated but merely disagreed with their assessment of her performance. Although the Plaintiff pointed to e-mails from an earlier time period in which confidence in the Plaintiff had been expressed, the court found that isolated e-mails from that earlier period were insufficient to counter the 2005 complaints. Moreover, the court stated that "[a]s a legal matter, Plaintiff's own assessment of her performance is not cognizable on summary judgment; it is her employer's assessment that controls. See Ricks v. Conde Nast Publications Inc. , 6 Fed. Appx. 74, 78 (2d Cir.2001) (In a Title VII case, "an employee's disagreement with her employer's evaluation of her performance is insufficient to establish discriminatory intent."). Slip op. at 17. The court found that it was undisputed that the employer received complaints from co-workers about the Plaintiff's poor performance and relied upon those complaints in terminating her employment. The court found that the Plaintiff had presented no cognizable evidence that this reason was pretextual.
PLAINTIFF'S OWN CONCLUSIONS AND INTERPRETATION OF THE FACTS ARE INSUFFICIENT TO WITHSTAND A MOTION FOR SUMMARY DECISION WHERE THE DEFENDANT'S REASONS FOR TERMINATING THE PLAINTIFF'S EMPLOYMENT WERE CONVINCING AND WELL DOCUMENTED
Where the reasons advanced by the Defendant for terminating the Plaintiff's employment were convincingly unrelated to the Complainant's protected activity, where the Plaintiff's failure to perform up to the Defendant's standards was well documented, and where the Plaintiff failed to create a disputed issue of fact as to whether she would have been terminated regardless of her protected activity, the court in Johnson v. Stein Mart, Inc. , No. 3:06-cv-00341 (M.D.Fla. June 20, 2007) (case below 2006-SOX-52), granted summary judgment in favor of the Defendant. The court found that the Plaintiff had only offered her own conclusions and interpretations of the facts of the case, which were insufficient to question the Defendant's personnel decision.
CLEAR AND CONVINCING EVIDENCE THAT RESPONDENT WOULD HAVE TAKEN UNFAVORABLE PERSONNEL ACTION IN ABSENCE OF PROTECTED ACTIVITY; LACK OF RELEVANCE OF GENERAL EMPLOYMENT DISCRIMINATION LAW CONCEPTS OF "NONDISCRIMINATORY REASONS" AND "PRETEXT"
In Collins v. Beazer Homes USA, Inc. , __ F.Supp.2d __, 2004 WL 2023716 (N.D.Ga. Sept. 2, 2004), the Defendants had filed a motion for summary judgment. The court found that the Plaintiff's case was sufficient to withstand a summary judgment motion on the issues of protected activity, the Defendant's knowledge of the protected activity, whether the Plaintiff suffered an unfavorable personnel action and whether the circumstances suggested that the protected activity was a contributing facto to the unfavorable action. Thus, the court observed that the Defendants would only be entitled to summary judgment if they had established by clear and convincing evidence that they would have fired the Plaintiff absent her participation in protected activity under the SOX whistleblower provision. The court noted that the parties had framed their arguments in the language of general employment discrimination law discussing "non-discriminatory reasons" and "pretext." The court, however, emphasized that it would analyze the Defendants' argument under the clear and convincing evidence standard stated in 49 U.S.C. § 42121.
ADMINISTRATIVE REVIEW BOARD DECISIONS
CLEAR AND CONVINCING EVIDENCE; SUBSTANTIAL EVIDENCE FOUND TO SUPPORT ALJ'S FINDING THAT COMPLAINANT'S PERFORMANCE PROBLEMS AND INSUBORDINATION WERE SOLE CAUSE OF COMPLAINANT'S DISCHARGE
In Zinn v. American Commercial Lines Inc. , ARB No. 13-021, ALJ No. 2009-SOX-25 (ARB Dec. 17, 2013), the ARB affirmed the ALJ's finding that the Respondent established by clear and convincing evidence that it would have discharged the Complainant even absent any protected activity. The Complainant was an attorney for a publicly traded company whose business included contracting with customers to transport industrial products by barges on waterways. The Complainant asserted protected activity when she raised an issue about whether the Respondent's statement on a SEC Form 10-K that it was upholding safety might be a misrepresentation because of a failure to adequately vet or audit a tugboat vendor, and when she raised an issue about whether the appointment of a new general counsel and senior vice-president needed to be reported in an SEC Form 8-K. For purposes of deciding the appeal, the ARB assumed that the Complainant proved that she engaged in protected activity that contributed to adverse action by the Respondent.
The ARB found that the ALJ's clear and convincing evidence finding was based on substantial evidence. The Complainant, who had a history of depression, started experiencing performance problems after her mother's accidental death. The Complainant began taking a prescription drug to prevent and control seizures and to treat panic attacks. This drug had a number of side effects, including slurred speech. The ALJ found that the Complainant's work on projects had been reduced because she requested he reduction and that the Complainant acknowledged that she had not been able to complete projects in a timely fashion. The ALJ found that the Complainant was administered a drug test because she showed signs of being under the influence as defined by the company's drug policy. The ALJ found the Complainant admitted that her reaction to the prescription drug caused people to think she was on drugs or alcohol, and that a company should be concerned when an in-house attorney appears to be confused and has slurred speech. The Complainant's supervisor had not been informed about the prescribed medication. The ALJ found that after a negative drug test, the Complainant's supervisor monitored the Complainant's performance because she had been falling behind, and some of her workload had to be re-assigned. And finally, the ALJ found that the Complainant's termination was due to insubordination directed at the general counsel and failure to complete assigned work for a legal department meeting; the sequence of events relating to this finding was documented through a series of emails.
ADVERSE INFERENCE BASED ON PARTY'S FAILURE TO CALL CRITICAL WITNESS WITHIN THE PARTY'S CONTROL
In Barrett v. e-Smart Technologies, Inc. , ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013), the Respondent argued on appeal that the ALJ improperly drew an adverse inference, when determining whether the Respondent established the clear-and-convincing-evidence affirmative defense, from the Respondent's failure to offer evidence from the persons most knowledgeable about the Complainant's circumstances. The ARB held:
The ALJ did not err in drawing a negative inference from Respondent's failure to call critical witnesses within its control. See Underwriters Labs., Inc. v. NLRB , 147 F.3d 1048, 1054 (9th Cir. 1998) ("[W]hen a party fails to call a witness who may reasonably be assumed to be favorably disposed to the party, an adverse inference may be drawn regarding any factual question on which the witness is likely to have knowledge.").
USDOL/OALJ Reporter at 8. The ARB also noted that the ALJ had found, independently of any adverse inferences, that the Respondent's evidence fell short of meeting the clear-and-convincing-evidence burden of proof.
CAUSATION; BREACH OF ASSURANCE OF CONFIDENTIALITY IS ALMOST CERTAINLY CAUSALLY LINKED TO WHISTLEBLOWING ACTIVITY
AFFIRMATIVE DEFENSE; CLEAR AND CONVINCING EVIDENCE TO SHOW THAT BREACH OF ASSURANCE OF CONFIDENTIALITY WOULD HAVE OCCURRED IN ABSENCE OF PROTECTED ACTIVITY IS A DIFFICULT BUT NOT IMPOSSIBLE BURDEN
In Menendez v. Halliburton, Inc. , ARB No. 12-026 ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013) (reissued with corrected caption Mar. 20, 2013), the Complainant alleged that the Respondent retaliated against him in violation of SOX's employee protection provision after he had alerted the SEC and the Respondent's Audit Committee to concerns about GAAP principles with respect to revenue recognition and joint venture accounting practices. Following a hearing, the ALJ had dismissed the complaint finding that the Complainant failed to prove retaliatory adverse action. On appeal, the ARB reversed, and held that the Respondent's breach of the Complainant's confidentiality was adverse action. The ARB remanded for the ALJ to determine whether the protected activity was a contributing factor to this adverse action, and if so, whether the Respondent demonstrated by clear and convincing evidence that it would have acted adversely in the absence of the Complainant's whistleblowing.
The Complainant had emailed the Respondent's Audit Committee with his concerns after ascertaining his right to whistleblowing confidentiality. The Respondent's Assistant General Counsel forwarded the Complainant's email to the Audit Committee and to the Respondent's General Counsel and the Respondent's CFO. The CFO in turn forwarded the complaint to other persons. Later, the Respondent's General Counsel emailed a "document retention" email, identifying in the email the Complainant's identity. This email was forwarded by the CFO to 15 members of the Respondent's Finance and Accounting (F&A) group, including the Complainant. The Complainant's work was in support of the F&A group.
On remand, the ALJ found that the Respondent proved by clear and convincing evidence legitimate business reasons for its disclosure of the Complainant's identity, and again dismissed the complaint. The ALJ, however, recognized that the ARB may not agree that motive or legitimate business reasons are relevant, and therefore made alternative findings that (1) the causation element needed no discussion because it was proven by operation of law, and (2) it would be "metaphysically impossible" for the Respondent to demonstrate its affirmative defense.
Causation (Contributing Factor) - Exposure of Complainant's Identity is Almost Certainly a Contributing Factor in Adverse Action of Breach of Confidentiality
On the appeal of the remand decision, the ARB affirmed the ALJ's alternative findings. In regard to causation, the ARB noted that proof of causation or "contributing factor" in a SOX whistleblower case is not a demanding standard. The complainant need only establish by a preponderance of the evidence that his or her protected activity, alone or in combination with other factors, tended to affect in any way the outcome of the adverse personnel decision. The ARB reiterated that "motive or animus is not a requisite element of causation as long as protected activity contributed in any way - even as a necessary link in a chain of events leading to adverse activity." USDOL/OALJ Reporter at 15 (footnote omitted). The ARB noted that it had observed in its earlier decision that "it is difficult to conceive of any case in which a whistleblower's anonymous and confidential submission of concerns regarding questionable accounting or auditing matters to his employer would not be a 'contributing factor' to any subsequent disclosure of his identity." Id. at 14-15. The ARB wrote:
As the ALJ observed in his most recent opinion, in a strictly literal sense, the exposure of a whistleblower's identity is always "caused" by his whistleblowing. But this seemingly circular logic is supported by sound policy reasons. The availability of confidential avenues for reporting fraud is required under SOX and crucial to encouraging employees to expose violations of law. Effective enforcement of SOX requires a prophylactic rule prohibiting the disclosure of a whistleblower's identity where anonymity is reasonably to be expected as Section 301 provides. Given the Board's previous ruling that the right to confidentiality afforded by Section 301 constitutes a "term and condition" of Menendez's employment, the breach of which constitutes an adverse action in violation of SOX Section 806, the conclusion is inescapable under the facts of this case that Menendez's protected activity was a contributing factor in the disclosure of Menendez's identity.
Id . at 15 (footnote omitted).
Respondent's Affirmative Defense (Clear and Convincing Evidence Standard) - Showing that Breach of Confidentiality Would Have Occurred in Absence of Protected Activity Difficult but Not Impossible
In regard to the Respondent's affirmative defense, the ARB found that the ALJ's construction of the standard as proof by clear and convincing evidence of legitimate business reasons for the disclosure did not comport with the statutory standard of proof, which is that the Respondent would have taken the adverse action even in the absence of protected activity. The ARB noted that Congress had purposely set a high burden of proof for the affirmance defense. The ARB acknowledged that this was a difficult case, writing that
the ALJ's confusion regarding the application of the SOX affirmative defense in this case is understandable given the difficulty of applying the classic whistleblower law formula to the particular facts of this case. The ALJ observed: "It is metaphysically impossible for Respondent to show that if Complainant had never filed his complaints (the protected activity), it still would have disclosed him as the one who made them (the adverse action)." Certainly Halliburton's burden of proof is a high one and, as explained above, purposely so. But it is not impossible. For example, a court order would provide a ground for disclosure extrinsic to the whistleblowing activity itself.
Id . at 16 (footnote omitted). The ALJ had, in holding that the Respondent met its burden on the affirmative defense, found that the Complainant's colleagues were already aware that the Complainant had raised accounting concerns internally; but the ARB found that this was irrelevant to the question of whether the Respondent would have disclosed his identity for reasons outside the whistleblowing activity. The ARB stated that "[c]laiming that the disclosure was harmless does nothing to show that the disclosure advanced a legitimate business reason that would have occurred for reasons extrinsic to the activity itself." Id . at 17 (footnote omitted). The ARB found that the Respondent's supervisor's claim that his intent was to show that the company was addressing the Complainant's concerns did not require the disclosure of the Complainant's identity. The ARB found as a matter of law that the evidence of record was insufficient to support a finding by clear and convincing evidence that the Respondent would have disclosed the Complainant's identity absent his protected activity.
CLEAR AND CONVINCING EVIDENCE; COMPLAINANT'S LACK OF PROFESSIONAL CONDUCT; TAPE RECORDINGS AND DATA DOWNLOADS IN VIOLATION OF COMPANY POLICY
In Galinsky v. Bank of America, Corp. , ARB No. 11-057, ALJ No. 2011-SOX-10 (ARB Oct. 31, 2012), the ALJ found that the Complainant's protected activity contributed to a series of adverse actions, but that the Respondent demonstrated by clear and convincing evidence that it would have taken the same adverse action absent the protected activity. On appeal, the ARB focused on the narrow issue of whether the Respondent met its "clear and convincing evidence" burden, finding that substantial evidence supported the ALJ's finding that it had. The ALJ found that the Respondent demonstrated that the Complainant suffered from poor communication skills, rude behavior, and poor judgment (such as recording co-workers without their knowledge and downloading sensitive corporate information for his personal use in violation of corporate policy), all despite efforts by managers to assist the Complainant in improving his performance. The ARB also found that substantial evidence supported the ALJ's finding that the Complainant's job code and banding were reviewed as part of a division-wide effort not targeted at the Complainant. In regard to the Complainant's tape-recording and data download, the ARB distinguished its remand order in Vannoy v. Celanese Corp. , ARB No. 09-118, ALJ No. 2008-SOX-64 (ARB Sept. 28, 2011), in which the complainant appeared to have procured company data to facilitate his IRS whistleblower complaint, and the ALJ was directed on remand to consider whether such was protected activity under SOX. In the instant case, there was no evidence that the recordings or data download were done to facilitate a complain under the IRS or SEC Bounty program; rather most of the recordings involved the Complainant's discussions with colleagues concerning his employment status. Moreover, the Complainant had not expressly contended to the ALJ that the recordings were protected activity; and the Complainant admitted that his conduct of tape-recording co-workers and supervisors without their knowledge violated company policy.
CLEAR AND CONVINCING EVIDENCE; COMPLAINANT NEED NOT PROVE THAT REASONS GIVEN FOR DISCHARGE WERE FALSE
In Kalkunte v. DVI Financial Services, Inc. , ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009), the Complainant, a contract attorney, had reported allegations of financial improprieties to the board of directors, the audit committee and other officials, and later made inquiries about the status of the investigation by an outside law firm. After being discharged, the Complainant filed a SOX whistleblower complaint. The ARB affirmed the ALJ's finding that this protected activity was a contributing factor in the Complainant's discharge. Thus, the Respondents could only avoid liability case by proving by "clear and convincing evidence" that they would have discharged the Complainant when they did, even if she had not engaged in protected activity. The ARB noted that much the same evidence reviewed in regard to the contributing factor element was relevant to the clear and convincing evidence element of the SOX whistleblower analysis.
The Complainant's employer was in financial trouble when it hired outside turnaround and restructuring specialists. Although the employer eliminated more than ninety employee positions on August 2003, the Complainant and four other in-house lawyers were not among them. After a bankruptcy filing, the Complainant had added responsibilities. Only one other employee besides the Complainant was discharged in September 2003, and that employee had requested to be laid off. None of the other in-house lawyers lost their jobs during the same time frame, and it was only after the Complainant started pressing the turnaround specialist/acting CEO for answers about the progress of the outside investigation into her report of financial irregularities that he began to question the Complainant's value to the organization. The ARB, however, stated that "what to [the CEO] was an irritant the law regards as protected activity." The ARB observed that all of the other in-house lawyers remained at least through April 2004, with the last leaving that October, and that the Complainant was alone among all of the employees subjected to a reduction in force to be unceremoniously escorted out of the building immediately after her discharge.
The ARB stated that the Complainant did not need to show that the reasons the CEO gave for the discharge were false, and observed that there may have been some truth to the need to downsize in view of the pending dissolution of the company, and that the Complainant may not have been a strong performer on the legal team. The ARB found that the record did not contain evidence of performance-related issues until the Complainant began her whistle blowing activity. In sum, the Respondents failed to prove by clear and convincing evidence that they would have discharged the Complainant when they did had she not engaged in protected activity.
One member of the ARB dissented, finding that the majority had applied too narrow a canvassing of the record, and that examination of the whole record revealed overwhelming evidence that supported findings contrary to the ALJ's.
CLEAR AND CONVINCING EVIDENCE THAT COMPLAINANT WOULD HAVE BEEN DISCHARGED IN THE ABSENCE OF PROTECTED ACTIVITY; COMPLAINANT'S DETERIORATING PERFORMANCE, INSUBORDINATION AND POOR TEAMWORK
In Giurovici v. Equinix, Inc. , ARB No. 07-027, ALJ No. 2006-SOX-107 (ARB Sept. 30, 2008), the ARB found that even if the Complainant had met his burden of proof to establish that he had engaged in protected activity under SOX prior to his discharge (which he had not), the Respondent adduced clear and convincing evidence that it would have fired the Complainant because of his deteriorating performance, demonstrated insubordination, and refusal to participate in teamwork.
CLEAR AND CONVINCING EVIDENCE THAT THE COMPLAINANT WAS TERMINATED FOR POOR WORK PERFORMANCE AND BEHAVIOR IN RELATION TO HER SUPERVISOR AND CO-WORKERS
In Taylor v. Wells Fargo Bank, NA , ARB No. 05-062, ALJ No. 2004-SOX-43 (ARB June 28, 2007), the ARB affirmed the ALJ's finding that the Complainant had failed to demonstrate that her protected activity (complaining about the backdating of letters of credit) was a contributing factor in her firing. The ARB also affirmed the ALJ's finding that, even assuming the Complainant's complaints contributed to the adverse action taken against her, the Respondent had produced clear and convincing evidence that the Complainant was terminated because of her work performance and deteriorating relationships with her supervisor and other employees, and for a series of unprofessional and contentions actions, culminating in an argument with her supervisor.
CLEAR AND CONVINCING EVIDENCE; RESPONDENT PROVED THAT THE COMPLAINANT FAILED TO INTEGRATE INTO THE WORKFORCE AND TO PERFORM UP TO EXPECTATIONS
In Halloum v. Intel Corp. , ARB No. 04-068, 2003-SOX-7 (ARB Jan. 31, 2006), the ARB concurred with the ALJ's determination that the Respondent's decision to modify a Corrective Action Plan (CAP) pertaining to the Complainant was motivated in part by the Complainant's protected activity. The ARB also concurred, however, with the ALJ's determination that the Respondent had proved, by clear and convincing evidence, that it would have taken the same unfavorable personnel action against the Complainant even in the absence of his protected activity. The Respondent established that the Complainant had failed to integrate himself into the Respondent's workforce and failed to perform up to expectations. The ARB pointed to evidence in the record of the Complainant's missing of meetings, absences from work, failure to understand the Respondent's business operations, failing to meet job expectations for his grade, and failure to comprehend the Respondent's accounting system. The ARB also pointed out the decision to shift the Complainant's work to other group leaders, and concluded that these were sufficient, non-discriminatory reasons to seek the Complainant's termination as an employee.
Because of the clear and convincing evidence that the CAP would have been modified in the absence of the protected activity, the ARB declined to consider the Complainant's argument that he had been constructively discharged because the CAP established unobtainable goals.
ADMINISTRATIVE LAW JUDGE DECISIONS
DISCHARGE REGARDLESS OF PROTECTED ACTIVITY; SUMMARY DECISION WHERE COMPLAINANT ADMITTED INCIDENT LEADING TO DISCHARGE TOOK PLACE, AND DID NOT PRESENT ANY EVIDENCE TO RAISE DISPUTED MATERIAL FACTS ABOUT THE JOB ACTION
In Frederickson v. The Home Depot, U.S.A., Inc. , 2007-SOX-13 (ALJ July 10, 2007), the ALJ granted summary decision based on the Respondent's contention that the Complainant was discharged for an incident in which he struck a vendor's representative in the groin, and that the Complainant would have been discharged regardless of his alleged protected activity. The ALJ observed that the Complainant did not dispute that he was involved in the incident, although the circumstances and gravity of the conduct was disputed, and that the vendor's representative refused to speak with him after the incident. The Respondent presented evidence that other employees had been discharged for conduct reasons, and had a written policy. The Complainant presented no evidence to establish disputed material facts related to the job action or disparity in its application. Moreover, the Complainant presented no evidence to support a finding that the managers involved in the discharge had knowledge of the protected activity.
CLEAR AND CONVINCING EVIDENCE OF LEGITIMATE, NON-DISCRIMINATORY REASON FOR ADVERSE ACTION AND SHOWING THAT THERE WOULD HAVE TAKEN THE ACTION EVEN IN THE ABSENCE OF PROTECTED ACTIVITY; COMPANY'S TERMINATION OF SEVERAL HIGHLY PAID EMPLOYEES TO AMELIORATE DIRE FINANCIAL CIRCUMSTANCES
In Bechtel v. Competitive Technologies, Inc. , 2005-SOX-33 (ALJ Oct. 5, 2005), the Respondent, a company that specializes in marketing of technologies, contended that none of the Complainant's activities contributed in any way to his discharge. The ALJ, however, disagreed. Taking into consideration the CEO's expression of admiration for loyalty, his denial of conversations involving serious accusations concerning his character, and the fact that he brought people of his choice to the company after the Complainant was terminated, the ALJ found that the Complainant's vocal objections to the Respondent's asserted lack of authority to represent technology, and his continued concerns regarding disclosure of information, were sufficient to establish the inference of a causal nexus. The ALJ therefore concluded that the burden shifted to the Respondent to present clear and convincing evidence of a legitimate, non-discriminatory business reason for its decision, and to show that it would have taken the same unfavorable action in the absence of the Complainant's protected activity. The ALJ found that the Respondent carried that burden.
It was undisputed that Respondent's financial condition was poor and that the new CEO's focus was on bringing revenue to the company. The company employed about one dozen people and used consultants for specific projects that were designed to produce revenue. The Complainant's primary responsibility was to generate revenue, and had not been as successful with his projects as hoped; on one promising project the Respondent realized a only a small amount of retained earnings against substantial costs. The CEO had been critical of some of the Complainant's ideas and faulted the Complainant for failing to secure customers to license technologies for which he was responsible. The company faced imminent bankruptcy, and the Board of Directors approved the CEO's proposal for reducing costs to keep the company afloat through payroll savings and the elimination of cash bonuses, plus other cost savings. The CEO targeted the Complainant for discharge because he considered his contribution to the company limited. Two other employees were also terminated, and the company took other actions such as negotiating a reduction in its rent, reducing consulting costs, and -- in order to generate revenue -- selling the future value of expected litigation proceeds at a discount. The company relied upon consultants to produce revenue, which they successfully did. Ultimately the company survived.
The ALJ found that the Complainant failed to show that the Respondent's reasons were pretextual. The company's actions were designed to keep the company alive and out of bankruptcy until revenue could be realized. One of those actions included, inter alia , eliminating the salaries and personnel costs of three highly paid individuals. The fact that the company made a quick turn-around did not establish pretext. Moreover, it was known that the Complainant repeatedly raised issues regarding SEC disclosures, but prior to the termination the Respondent had continued to solicit his opinions, continued to give him work assignments and fostered his projects.
CLEAR AND CONVINCING EVIDENCE; SUMMARY DECISION APPROPRIATE WHERE UNDISPUTED PROOF ESTABLISHED THAT THE COMPLAINANT WAS FIRED FOR THE NON-INVIDIOUS REASON OF INSUBORDINATION
In Gallagher v. Granada Entertainment USA , 2004-SOX-74 (ALJ Apr. 1, 2005), the ALJ granted summary decision in favor of the Respondent where, inter alia, it was undisputed that the Complainant had refused to report to a new Senior Vice President following a reorganization resulting from a merger, which the ALJ concluded was "clear and convincing" evidence that the Complainant would have been fired for the non-invidious reason of insubordination. The ALJ wrote: "A trial would simply be fruitless; the only possible outcome on this record is the dismissal of [the Complainant's] claim for protection under the Act." Slip op. at 14.
CLEAR AND CONVINCING EVIDENCE BURDEN ON RESPONDENT; REFUSAL OF COMPLAINT TO MEET WITH AUDIT COMMITTEE INVESTIGATORS WITHOUT HIS PERSONAL ATTORNEY
In Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Jan. 28, 2004), the Respondent argued that the Complainant (who was the Respondent's Chief Financial Officer) was fired because he refused to meet with Audit Committee investigators (including the Respondent's outside counsel) without his personal attorney present to discuss various concerns the Complainant had raised about the Respondent's accounting practices. The Respondent contended that the no-attorney requirement was justified because the presence of the attorney would destroy the confidentiality of the meeting and prevent attorney-client privilege from attaching to communications at the meeting. The Respondent also contended that the presence of the attorney would have changed the meeting from a fact-finding investigation into an adversarial process oriented toward the Complainant's desire for a severance package. The ALJ, however, found that the purpose of the meeting was not to conduct a legitimate inquiry into the Complainant's concerns, but to create a situation where the Complainant would not attend the meeting thereby creating a justification for terminating his employment. The ALJ also held that the Respondent, under the exigent circumstances, had no reasonable expectation that the information to be discussed was confidential, making the attorney-client privilege inapplicable. Moreover, the ALJ concluded that, as an officer, the Complainant could have waived the privilege. The ALJ wrote:
Welch, as Cardinal's CFO, was a corporate officer of Respondent. As such, he had a fiduciary duty to Cardinal and its shareholders to ensure, inter alia , that Respondent complied with all applicable laws and regulations governing the administration of financial institutions such as Cardinal, and to disclose any failure of Cardinal to do so. In furtherance of those duties, he raised a number of issues regarding various events which occurred at Cardinal during the Summer and early Fall of 2002, which events he reasonably believed constituted violations of Federal law. Each of the issues raised by Welch concerned matters under the direct auspices of the CFO and involved a variety of documents and information to which he had legitimate access.
Clearly, the disclosure of perceived financial improprieties is in the best interests of a corporation's shareholders so they may ensure that the corporation's officers and directors are complying with, inter alia , their duties of due care, good faith, and loyalty. Furthermore, Sarbanes-Oxley was expressly enacted by Congress to foster the disclosure of corporate wrongdoing and to protect from retaliation those employees, officers, and directors who make such disclosures. When ordered by Moore to meet with Densmore and Larrowe to discuss the issues he had raised, Welch was clearly acting in furtherance of his fiduciary duty to disclose possible wrongdoing. Allowing him to have his own counsel present during the meeting would not only promote Welch's fulfillment of that duty, it would further the purposes of Sarbanes-Oxley by protecting Welch from retaliation for disclosing improprieties governed by the Act. As an officer of Cardinal, it thus was within his power to waive the attorney-client privilege consistent with his fiduciary duty to act in the best interests of Respondent. Commodity Futures Trading Comm'n v. Weintraub , 471 U.S. at 348-49.
DUAL MOTIVE; CLEAR AND CONVINCING EVIDENCE BURDEN ON RESPONDENT; SECRET TAPING IN VIOLATION OF ESTABLISHED COMPANY POLICY
In Halloum v. Intel Corp. , 2003-SOX-7 (ALJ Mar. 4, 2004), the ALJ concluded that the Complainant had established that protected activity was a contributing factor in the Respondent's decision to modify a Corrective Action Plan (CAP) to impose unreasonable assignments on the Complainant. Turning to dual motive analysis, the ALJ noted that the Respondent's burden was to prove by clear and convincing evidence that the CAP modifications would have been the same even if the Complainant had not engaged in the protected activity.
The Respondent presented evidence that it believed that the Complainant recorded conversations at work in violation of explicit company policy of which the Complainant was aware. The Respondent presented evidence that tape recording was anathematic to its corporate culture, which sought not to chill employee self-expression. The ALJ found that the Respondent's evidence on this point was consistent, undisputed, and provided clear and convincing evidence -- that it was within the Respondent's prerogative to enforce this policy by modifying the CAP as it did, even if it was a rather ham-fisted way of doing so.
In addition, the ALJ found that the Respondent provided clear and convincing evidence that it had removed the Complainant's supervisory responsibilities in the modified CAP based on the Complainant's attempt to coerce his staff to give only positive evaluations of his performance rather than on the basis of any whistleblowing activity. Finally, the ALJ found that the Respondent established that the Complainant was on his way out anyway, and that the protected activity was not a factor that brought matters to a tipping point. The ALJ noted that it was an open question whether an employer's policy against secret tape recording might allow an employee to escape discipline if the tape gave direct evidence of invidious discrimination, but that where is does not, a violation of company policy in this regard serves as a legitimate, non-discriminatory basis for discharge. Deiters v. Home Depot USA, Inc ., 842 F.Supp. 1023 & n.2 (M.D. Tenn. 1993).