Kidwell v. Sybaritic, Inc., No. A07-0584.

• Decision Date: 03 June 2008
• Docket Number: No. A07-0584.,No. A07-0788.
• Citation: 749 N.W.2d 855
• Parties: Brian F. KIDWELL, Respondent, v. SYBARITIC, INC., Appellant.
• Court: Minnesota Court of Appeals

749 N.W.2d 855

Brian F. KIDWELL, Respondent, v. SYBARITIC, INC., Appellant.

No. A07-0584.

No. A07-0788.

Court of Appeals of Minnesota.

June 3, 2008.

James H. Kaster, Sofia B. Andersson, Nichols, Kaster & Anderson, P.L.L.P., Minneapolis, MN, for respondent.

Katherine A. McBride, James R. Roegge, Bradley J. Lindeman, Erica G. Strohl, Meagher & Geer, P.L.L.P., Minneapolis, MN, for appellant.

Considered and decided by JOHNSON, Presiding Judge; LANSING, Judge; and COLLINS, Judge.^*

OPINION

JOHNSON, Judge.

Brian F. Kidwell was the general counsel of Sybaritic, Inc., for approximately ten months. The company terminated his employment three weeks after he sent an e-mail message to Sybaritic's top management expressing his concerns about certain activities of the company that he asserted were unlawful. After his termination, Kidwell sued Sybaritic under the Minnesota Whistleblower Act. A Hennepin County jury found in his favor and awarded him damages. Following the verdict, Sybaritic moved for judgment as a matter of law, and the district court denied the motion.

Sybaritic's appeal presents questions concerning whether and under what circumstances an attorney who was discharged from employment as an in-house attorney may pursue a claim against his former employer under the Minnesota Whistleblower Act. Sybaritic first urges us to hold that an in-house attorney never may sue his or her former employer under the whistleblower act. We reject that argument and conclude that there is no per se bar to a lawsuit under the whistleblower act by an in-house attorney. Sybaritic also argues that Kidwell's communications with Sybaritic's management were not the type of communication that can be the basis of an action under the whistleblower act. We find merit in Sybaritic's second argument and conclude that Kidwell did not make a good-faith report of a violation of law because the alleged report concerned subject matters that were squarely within his duties as general counsel. Thus, we reverse the district court's denial of Sybaritic's post-trial motion for judgment as a matter of law.

FACTS

A. Background

Brian F. Kidwell is an attorney who was admitted to the Minnesota Bar in 1983. He has work experience in private practice at three Minnesota law firms and had a brief tenure at an insurance company. Sybaritic, Inc., is a Minnesota company that manufactures and sells products associated with the spa business, such as dermabrasion systems and skin-care treatments. In July 2004, Sybaritic hired Kidwell to be its general counsel.

During his tenure as general counsel of Sybaritic, Kidwell served as legal advisor to the company with respect to, among other issues, four business practices that he believed raised legal issues and required corrective action. First, soon after Kidwell started at Sybaritic, the owner of the company, Steve Daffer, asked Kidwell to investigate whether some members of the company's sales force were receiving kickbacks from a company that did business with Sybaritic. Kidwell investigated and found that three sales people were, in fact, receiving kickbacks. In late 2004 or early 2005, Kidwell informed Daffer of the results of the investigation. Daffer placed the employees on probation and required them to return the money they had received.

Second, in late 2004, Kidwell became concerned that Sybaritic's medical director was engaging in the unauthorized practice of medicine. The medical director was licensed to practice medicine in a foreign country but not in Minnesota or any other state. Yet Sybaritic's website referred to the medical director as a physician, and the medical director was engaged in tests on human subjects using machines sold by Sybaritic. The medical director also wrote weekly articles that, in Kidwell's opinion, could be construed as medical advice. In October 2004 and January 2005, Kidwell expressed his concerns in memoranda addressed to Sybaritic's management, and he later met with Sybaritic's chief operating officer to discuss the issue. The company agreed to implement Kidwell's recommendations. The weekly articles stopped immediately, although Kidwell did not inquire further as to whether Sybaritic followed all his recommendations.

Third, Kidwell learned that Sybaritic may have been required to pay California sales tax on items sold and shipped from its Minnesota office because it maintained a California branch office. Kidwell was asked to prepare documents to make the California branch office a limited liability company called Sybaritic West LLC, which would be a subsidiary of Sybaritic. In early 2005, Kidwell noticed that Sybaritic's website continued to list Sybaritic West as a "branch office." Kidwell raised the issue again and was told that the website would be changed. Kidwell did not investigate further to determine whether the change was made.

Fourth, and most significant for purposes of Kidwell's claim, Sybaritic filed a lawsuit in federal court against an Estonian company named NeoQi, alleging breach of contract and theft of trade secrets. Kidwell's responsibilities included oversight of this litigation. In addition, to minimize attorney fees, Daffer asked Kidwell, in lieu of Sybaritic's outside litigation counsel, to take depositions in Estonia in April 2005. As he was preparing for the depositions, Kidwell became aware of e-mails that, in his opinion, substantially weakened the merits of Sybaritic's claims against NeoQi. Sybaritic had not produced the e-mails to NeoQi, which had not yet requested them, but discovery deadlines were looming. Before leaving for Estonia, Kidwell talked to Daffer about the content of the e-mails. Daffer asked Kidwell why Sybaritic should be concerned in light of the fact that the e-mails had not been requested by or produced to NeoQi and, thus, were unlikely to be admitted into evidence. Kidwell, however, advised Daffer to take the e-mails into account and to consider settling the case.

Kidwell testified that, before leaving for Estonia, he asked Sybaritic's information-technology manager, Brandon Carlson, to put copies of the e-mails on a disk for Thomas C. Atmore, Sybaritic's outside litigation counsel. Carlson, however, testified that it was Daffer who made the request. Regardless, Carlson gave a disk containing the e-mails to Atmore. While Kidwell was in Estonia, Daffer perceived a problem with his computer and became concerned that there was a virus in Sybaritic's computer system. He also was concerned that the virus might have infected the disk that had been given to Atmore. Daffer instructed Carlson to retrieve the disk from Atmore and to give Atmore another disk that would be free of viruses. Atmore told Carlson that the exchange was unnecessary because his firm had anti-virus software, but Carlson insisted on Atmore's return of the disk. The company ultimately determined that there was no computer virus, and Atmore testified that, as far as he could determine, no e-mails were missing from the second disk.

After Atmore returned the first disk, and while Kidwell was in Estonia, the two men spoke by telephone, and Atmore expressed concern about the request that he return the disk. Atmore reminded Kidwell of Sybaritic's duty to preserve the e-mails. Atmore suggested that he write a letter to Daffer to warn him about the duty to preserve evidence. Kidwell asked Atmore to send the letter to him instead, which Atmore did. Additionally, Kidwell spoke with Jeff Nelson, Daffer's administrative assistant, about his and Atmore's concerns that Daffer might be altering, destroying, or concealing evidence. Nelson conveyed Kidwell's concerns to Carlson, and Carlson spoke to Daffer, who assured Carlson that no one was tampering with evidence.

B. Kidwell's Termination

Kidwell returned from Estonia on Friday, April 22, 2005. That Sunday, Kidwell went to his office but discovered that the door was locked. He did not have a key. That evening, while at home, Kidwell composed and sent a long e-mail message to four members of Sybaritic's senior management. The subject line reads, "A Difficult Duty." The first three paragraphs of the e-mail are as follows:

Gentlemen I write to you all with deep regret, but I cannot fail to write this e-mail without also failing to do my duty to the company and to my profession as an attorney. That I will not do.

I have for many months seen evidence that Sybaritic is infected with a pervasive culture of dishonesty. In this culture lies by our salesforce are rewarded with bonuses and promotions while accusations by customers of dishonesty by salespeople known to be liars are ignored. In this culture a man who is without any known qualifications is allowed to mascquerade [sic] as a medical doctor and efforts to confirm his credentials and curb his unauthorized practice of medicine are ignored. In this culture we deny any obligation to collect or pay California sales tax based on a claim that we do not do business in California and then advertise the opening of a San Francisco "branch office" on our website. In this "sales-driven" company, the ends justify the means.

As distasteful as this culture of dishonesty is to me, to my shame I have until now convinced myself that I did not need to object because the dishonesty was outside of my area of responsibility or control. That has now changed, and I must inform you of this fact and of my intended course of action.

Kidwell then detailed his concerns regarding the NeoQi e-mails, explaining that Sybaritic could be held liable for sanctions under rules 11 and 37(b) of the Federal Rules of Civil Procedure and held criminally liable under sections 401, 1509, and 1512 of title 18 of the United States Code. Kidwell concluded the e-mail with his intended course of action:

It is my firm conviction that Sybaritic intends to continue to engage in tax evasion, the unauthorized practice of medicine and obstruction of justice. Accordingly, it is my intention to advise the...