Wisconsin-easternOn 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.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.