Feldman v. Law Enforcement Associates Corp..

• Decision Date: 10 March 2011
• Docket Number: No. 5:10–CV–08–BR.,5:10–CV–08–BR.
• Citation: 24 A.D. Cases 749,18 Wage & Hour Cas.2d (BNA) 1100,779 F.Supp.2d 472,42 NDLR P 248
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Paul H. FELDMAN, and Martin L. Perry, Plaintiffs,v.LAW ENFORCEMENT ASSOCIATES CORPORATION, et al., Defendants.

779 F.Supp.2d 472

18 Wage & Hour Cas.2d (BNA) 1100

24 A.D. Cases 749

42 NDLR P 248

Paul H. FELDMAN, and Martin L. Perry, Plaintiffs,

v.LAW ENFORCEMENT ASSOCIATES CORPORATION, et al., Defendants.

No. 5:10–CV–08–BR.

United States District Court, E.D. North Carolina,Western Division.

March 10, 2011.

R. Scott Oswald, John T. Harrington, The Employment Law Group, Washington, DC, Michael C. Byrne, Raleigh, NC, for Plaintiffs.Amy Jenkins, McAngus Goudelock & Courie, LLC, Charleston, SC, Tracey R. Downs, McAngus Goudelock & Courie, PLLC, Charlotte, NC, Kathleen P. Tanner Kennedy, Melissa H. Hill, Wade M. Smith, Tharrington Smith, LLP, Raleigh, NC, for Defendants.

ORDER

W. EARL BRITT, Senior District Judge.

This matter is before the court on the 21 June 2010 motion to dismiss filed by defendants Law Enforcement Associates Corporation (“LEA”), Anthony Rand (“Rand”), James J. Lindsay (“Lindsay”), Joseph A. Jordan (“Jordan”) and Paul Briggs (“Briggs”), and on the 21 June 2010 motion to dismiss filed by defendant John H. Carrington (“Carrington”). Both motions have been fully briefed and are ripe for disposition.

I. FACTUAL AND PROCEDURAL HISTORY

LEA, a Nevada corporation authorized to do business in North Carolina, is a manufacturer of security and surveillance equipment used by local, state, federal and international law enforcement agencies and by public and private companies. (Am. Compl., DE # 34, ¶¶ 4, 22.) LEA's principal place of business is in Wake County, North Carolina. ( Id. ¶ 22.) Plaintiffs Paul H. Feldman (“Feldman”) and Martin L. Perry (“Perry”) ¹ were employees of LEA. Feldman was LEA's President for almost twenty years. ( Id. ¶ 4.) Perry was employed by LEA for nine years and was LEA's Director of Sales for three years. ( Id.) From approximately 2003 until 3 December 2009, Feldman and Perry were also directors of the corporation. ( Id. ¶ 41.) The other three members of LEA's Board of Directors (“Board”) during the time period relevant to this case were defendants Rand, Lindsay and Jordan. ( Id. ¶ 42.)

Carrington is LEA's founder and former majority shareholder. ( Id. ¶¶ 5, 51.) In 2005, Carrington was convicted of felonies relating to the illegal export of evidence collection products to China. ( Id. ¶¶ 5, 48.) The federal government fined Carrington, placed him on probation for one year, and prohibited him from making exports for five years. ( Id. ¶¶ 5, 49.) Another company that Carrington owned, Sirchie Fingerprints Labs, Inc. (“Sirchie”), was directly implicated in the same criminal activity and was also prohibited from making exports for five years. ( Id. ¶ 50.) After being charged with the export violations, Carrington resigned from LEA's Board and also ended his management and majority ownership role at LEA. ( Id. ¶ 52.)

After Carrington's departure, LEA entered into multiple contracts with a company called SAFE Source to export receivers and video equipment to police in the Dominican Republic. ( Id. ¶ 55.) In or around September 2007, Carrington's son, Scott Carrington, who was then president of Sirchie, revealed information to Feldman and Perry which indicated that Carrington had an ownership interest in SAFE Source. ( Id. ¶ 56.) In or around December 2007, plaintiffs confirmed that Carrington owned fifty percent of SAFE Source. ( Id. ¶ 58.)

Because Carrington had been banned from making exports for five years and because he had an ownership interest in SAFE Source, plaintiffs maintain that it was illegal for SAFE Source to engage in the export business. ( Id. ¶ 60.) Plaintiffs believed that LEA was also possibly violating the law and its contract certifications to various federal customers by conducting export business with SAFE Source. ( Id. ¶ 61.)

On 27 December 2007, Feldman notified LEA's Board that there were possible export violations relating to Carrington and SAFE Source and that these violations needed to be reported to the proper governmental agencies as soon as possible. ( Id. ¶ 62.) Plaintiffs allege that “[i]mmediately” following the Board meeting on 27 December 2007, Rand and his personal attorney, Mark Finkelstein (“Finkelstein”), visited Carrington. ( Id. ¶ 78.) The next day, Carrington met with his criminal defense attorney for several hours at Sirchie's headquarters. ( Id. ¶ 79.)

In or around January 2008, LEA's counsel, James Jorgensen (“Jorgensen”), and plaintiffs met with federal authorities at the Bureau of Industry and Security, a division of the Department of Commerce (“DOC”), to report Carrington's illegal and undisclosed ownership of SAFE Source and the illegal export business that SAFE Source conducted with LEA. ( Id. ¶ 75.) Approximately one week after plaintiffs reported these activities to the DOC, federal agents raided the headquarters of SAFE Source and Sirchie and began a criminal investigation. ( Id. ¶¶ 76–77.)

At the next LEA Board meeting, Rand, Lindsay and Jordan demanded that Feldman tell them what he had reported to the federal government. ( Id. ¶ 80.) Because Feldman believed that Rand, and perhaps Lindsay and Jordan, had already leaked information to Carrington regarding his report, he refused to provide the requested information. ( Id. ¶ 81.)

In or around March 2008, the Board voted three to two (with Rand, Lindsay and Jordan forming the majority) to fire Jorgensen as LEA's lawyer and replace him with Finkelstein, Rand's personal attorney. ( Id. ¶ 82.) Feldman and Perry told Rand, Lindsay and Jordan that the appointment of Finkelstein represented an improper conflict of interest. ( Id. ¶ 83.) After Rand, Lindsay and Jordan installed Finkelstein, they told Feldman to “run all matters through Finkelstein.” ( Id. ¶ 84.) Feldman refused because of the prior and ongoing leaks to Carrington by Rand and Finkelstein. ( Id. ¶ 85.) After the March 2008 Board meeting, Feldman and Perry told the federal investigators that they believed members of the Board were leaking information to Carrington, including information regarding plaintiffs' disclosures to and contacts with federal authorities. ( Id. ¶ 86.)

Because of plaintiffs' concern that the members of the Board and Finkelstein had leaked information to Carrington, Eric Littman, LEA's counsel for matters relating to the United States Securities and Exchange Commission (“SEC”), requested that Finkelstein, Jorgensen and all of LEA's directors sign a statement affirming that they had not shared any confidential information with Carrington. ( Id. ¶ 89.) Feldman, Perry and Jorgensen signed the affirmation; however, Rand, Lindsay, Jordan and Finkelstein refused. ( Id. ¶ 90.)

Rand, Lindsay and Jordan reacted with hostility to the reports that Feldman and Perry made to the federal government and to plaintiffs' refusal to divulge information concerning the content of their reports. ( Id. ¶ 92.) Rand, Lindsay, Jordan and Finkelstein told Feldman that he had defied them and that he would be personally responsible for any criminal or civil liability incurred by LEA resulting from his disclosures to federal authorities. ( Id. ¶¶ 93–94.) Plaintiffs allege that Finkelstein subsequently falsified the minutes from the 27 December 2007 Board meeting to omit Feldman's disclosure of LEA's potential liability for the export violations and to omit Feldman's statement that LEA's potential violations, through its relationship with SAFE Source, needed to be reported to the proper authorities. ( Id. ¶¶ 95–98.)

In August 2009, Briggs, who was then LEA's Chief Financial Officer, showed plaintiffs a document that plaintiffs believed indicated the possibility of insider trading of LEA stock. ( Id. ¶¶ 101–05.) Plaintiffs told Briggs that they intended to report the information to federal investigators. ( Id. ¶ 106.) Briggs then allegedly told Rand, Lindsay, Jordan or Finkelstein of plaintiffs' intention to report the evidence of insider trading to federal investigators. ( Id. ¶ 108.) Plaintiffs subsequently provided the evidence of insider trading to the government, and they have been interviewed on the subject of insider trading at length by federal investigators. ( Id. ¶ 109.)

Feldman alleges that in the weeks prior to 27 August 2009, both he and his attorney, Jorgensen, were pressured on several occasions by Carrington's lawyers to reveal the information that plaintiffs had disclosed to federal authorities. ( Id. ¶¶ 114, 117, 119, 121, 123–25, 127.) Feldman and Jorgensen refused to share such information with Carrington's attorneys. ( Id. ¶¶ 115, 120, 122, 128.)

In or around late August 2009, both Feldman and Perry suffered from separate medical conditions that required brief hospitalizations and forced them out of work for a period of time. ( Id. ¶¶ 130–32, 143, 147.) Plaintiffs allege that their medical conditions substantially limited their ability to work, and, as a result, they both sought reasonable accommodations for their disabilities. ( Id. ¶¶ 133–35, 144, 149, 159–60, 163.) Plaintiffs further allege that their requests were disregarded and that they were discharged from their employment. ( Id. ¶¶ 137–38, 161–62.) Feldman's employment was terminated on 27 August 2009, and Perry's employment was allegedly terminated on 23 September 2009. ( Id. ¶¶ 138, 166.)

Subsequent to his discharge from employment, on 29 September 2009, Feldman emailed Briggs and asked that his email be distributed to all of LEA's directors. ( Id. ¶ 169.) In the email, Feldman requested financial statements, Board minutes and other documents that he was entitled to view as a LEA director. ( Id. ¶¶ 170–71.) LEA refused to provide the requested documents. ( Id. ¶ 172.) Feldman's 29 September 2009 email to Briggs also stated that LEA had filed a “false” 8K form with the SEC because the 8K indicated that Perry had voluntarily resigned from LEA. ( Id. ¶ 182.)

On 30 September 2009, plaintiffs sent an email and a letter to the SEC to report their concerns about the false 8K filing. ( Id. ¶ 184.) On 2 October 2009, plaintiffs emailed LEA's...