Feldman v. Law Enforcement Assocs. Corp.

• Decision Date: 12 May 2014
• Docket Number: No. 13–1849.,13–1849.
• Citation: 752 F.3d 339
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: Paul H. FELDMAN, Plaintiff–Appellant, and Martin L. Perry, Plaintiff, v. LAW ENFORCEMENT ASSOCIATES CORPORATION; Anthony Rand; James J. Lindsay; Joseph A. Jordan; Paul Briggs, Defendants–Appellees, and John H. Carrington, Defendant.

752 F.3d 339

Paul H. FELDMAN, Plaintiff–Appellant,

and

Martin L. Perry, Plaintiff,

v.LAW ENFORCEMENT ASSOCIATES CORPORATION; Anthony Rand; James J. Lindsay; Joseph A. Jordan; Paul Briggs, Defendants–Appellees,andJohn H. Carrington, Defendant.

No. 13–1849.

United States Court of Appeals,Fourth Circuit.

Argued: March 18, 2014.

Decided: May 12, 2014.

ARGUED:Adam Augustine Carter, Employment Law Group, PC, Washington, D.C., for Appellant. Amy Yager Jenkins, McAngus, Goudelock & Courie, LLC, Mount Pleasant, South Carolina, for Appellees. ON BRIEF:R. Scott Oswald, John T. Harrington, Jr., Employment Law Group, PC, Washington, D.C.; Michael C. Byrne, Law Offices of Michael C. Byrne, PC, Raleigh, North Carolina, for Appellant. Helen F. Hiser, Mount Pleasant, South Carolina, for Appellees.

Before GREGORY, WYNN, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge GREGORY wrote the opinion, in which Judge WYNN and Judge THACKER joined.

GREGORY, Circuit Judge:

Plaintiff Paul Feldman, who asserts that he was unlawfully terminated from his employment in retaliation for protected activity under the Sarbanes–Oxley Act of 2002 (“SOX”), 18 U.S.C. § 1514A, appeals the district court's grant of summary judgment to Defendants Anthony Rand, James Lindsay, Joseph Jordan, Paul Briggs, and Law Enforcement Associates Corporation (“LEA”). Because we find that Feldman failed to sufficiently establish that his alleged protected activities were a contributing factor to his termination, we affirm.

I.

Sometime prior to 2001, Feldman became President of LEA, a company that manufactures security and surveillance equipment.¹ He remained President and CEO until his termination on August 27, 2009. In 2005, LEA's founder, John Carrington, pled guilty to criminal export violations involving another company he owned, and was ordered to refrain from certain export activities for five years. Though Carrington remained a major stockholder, he resigned from LEA's Board of Directors (“Board”) and has not been an officer or employee of LEA since. During the relevant time period, the Board consisted of two “Inside Directors”—Feldman and Martin Perry—and three “Outside Directors”—Rand, Lindsay, and Jordan.

Since at least November 1, 2007, an “extraordinarily palpable” split existed between the Inside Directors and the Outside Directors, J.A. 4282, due in some part to the fact that Carrington planned to sell LEA without first giving Feldman an opportunity to buy it, as well as the Board's decision not to approve a written employment contract that would have increased Feldman's salary. The tension deepened after Feldman confirmed in December 2007 that Carrington owned fifty percent of a company called SAFE Source, to which LEA had shipped some of its products in 2005 or 2006. SAFE Source exported these products overseas, but because Carrington was still banned from making exports, Feldman became concerned that the exports were illegal.

The issue of LEA's business with SAFE Source arose in a December 27, 2007 Board meeting, but the parties dispute exactly what was said and by whom. There are competing versions of the meeting minutes, but a majority of the Board—the Outside Directors—adopted the version produced by Mark Finkelstein, a lawyer Rand hired for the company, over the version produced by Eric Littman, another LEA attorney. Feldman asserts that he objected that Finkelstein's minutes were falsified. Feldman further contends that he saw Rand and Finkelstein meet with Carrington immediately after the meeting, and suspects that they informed Carrington of his intention to report the issue to the government. On January 14, 2008, Feldman and Perry wrote the United States Department of Commerce about the potentially illegal exports, resulting in a federal investigation and a raid of SAFE Source's headquarters shortly thereafter.

A number of other conflicts subsequently arose between Feldman and Appellees. In February or March 2008, Feldman relocated LEA's headquarters from Youngsville, North Carolina to Raleigh, North Carolina, claiming that it benefitted the company in various ways. The Outside Directors viewed this act as insubordinate since Feldman entered the new lease on office space without their prior approval. At some point in 2008, the Outside Directors also took issue with the financial information and meeting agendas they received from Feldman, asserting that the requested information was either not provided or was insufficient. At a March 13, 2008 Board meeting, Finkelstein became LEA's primary counsel, while Littman remained on as LEA's securities counsel. Finkelstein submitted various bills for his legal services on May 1, 2008, but Feldman considered them fraudulent because they were for services rendered prior to March 13, 2008, and he refused to pay.

In April 2009, Feldman and other LEA representatives met with Joseph and Barbara Wortley, LEA shareholders who were threatening to sue LEA over a contractual dispute. When Joseph Wortley expressed dissatisfaction with the Board, Feldman replied that the Board “could do more to help the company,” and that “he too wished they would do more.” J.A. 4285. At a July 27, 2009 meeting with Joseph Wortley and Wortley's son, Feldman further stated that the Outside Directors were loyal to Carrington rather than to the company. Shortly after this meeting, Feldman wrote a letter to the Outside Directors urging them to resign from the Board. Lastly, in July or August 2009, Feldman and Perry reported to the Department of Commerce their suspicion that LEA was involved in insider trading becauseseveral prominent North Carolina politicians were shareholders.

On August 26, 2009, Rand told Perry that the Outside Directors planned to terminate Feldman at the Board meeting scheduled for the next day because they had lost confidence in him and because of the Wortley situation. However, Rand told Perry that the Outside Directors wanted Perry to stay on at LEA. Perry advised Feldman of the conversation, and neither he nor Feldman attended the August 27, 2009 Board meeting. Feldman's employment was terminated at that meeting, and Perry's employment was terminated on September 23, 2009.²

Feldman asserts that in the months just prior to his termination, he successfully led negotiations to secure a $225 million contract with the Department of Homeland Security (“DHS”), and that, only ten days before firing him, LEA reported record income and a 260% increase in sales. Appellees counter that the substantive work on the DHS contract was done by another employee, and that LEA had record income in 2009 only because they unexpectedly received an unsolicited job from the Census Bureau worth roughly $7.3 million. Aside from this particular contract, Appellees claim LEA was a break-even business that was not doing well during the last years of Feldman's leadership.

Feldman filed suit against LEA, Rand, Lindsay, Jordan, and Carrington on January 8, 2010, asserting a claim under the Americans with Disabilities Act (“ADA”) as well as state claims for civil conspiracy and wrongful termination. Perry had sued separately, and they consolidated their complaints on April 16, 2010. On June 7, 2010, Feldman and Perry amended the complaint,³ adding their respective SOX claims that had since become ripe. The court granted in part and denied in part a motion to dismiss, and all that remained at issue was their ADA and SOX claims, Perry's state law claims, and a counterclaim by LEA.

Feldman argues that he was unlawfully fired in retaliation for engaging in activities protected under SOX between late December 2007 and early May 2008. These activities include: (1) reporting to the Board and the federal government about the potentially illegal exports with SAFE Source; (2) objecting to falsified Board meeting minutes; (3) objecting to leaks of information by the Outside Directors to Carrington; (4) objecting to and refusing to pay Finkelstein's legal bills; and (5) notifying the government of suspected insider trading.

The district court granted summary judgment to Appellees and held that plaintiffs failed to make a prima facie showing of their SOX claims because they did not sufficiently prove that the alleged protected activities ⁴ were a contributing factor to their respective terminations. The court therefore found that it need not decide whether LEA could show that it would have terminated Feldman and Perry otherwise, but noted that LEA had a legitimate business reason for its actions. Feldman timely appealed, arguing that the court erred by holding that the activities were not contributing factors to his termination and by failing to decide whether Appellees had sufficiently shown that he would have been fired regardless. This Court has jurisdiction pursuant to 28 U.S.C. § 1291.

II.

The Sarbanes–Oxley Act protects whistleblowers of publicly-traded companies by prohibiting employers from retaliating against employees who have provided information about potentially illegal conduct. Welch v. Chao, 536 F.3d 269, 275 (4th Cir.2008). SOX specifically provides that:

no [publicly traded] company, or any officer [or] employee ... of such company ... may discharge ... an employee ... because of any lawful act done by the employee ... to provide information ... or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by (A) a Federal regulatory or law enforcement agency; (B) any Member of Congress or any committee of Congress; or (C) a person with supervisory authority over the employee (or such other person working for the employer who has the...