|July 9, 2014|
Previously published on July 2, 2014
In Feldman v. Law Enforcement Associates Corporation, No. 13-1849, 2014 U.S. App. LEXIS 8833 (4th Cir. May 12, 2014), the United States Court of Appeals for the Fourth Circuit concluded that a whistleblower, Paul Feldman, failed to demonstrate that his disclosures of alleged company wrongdoing were a “contributing factor” to his eventual discharge. In January 2008, Feldman, President and CEO of Law Enforcement Associates (“LEA”), and a co-worker, Martin Perry, reported to the Department of Commerce that LEA had made potentially illegal exports. Later, in the summer of 2009, they reported to the Department of Commerce that they suspected LEA was engaged in insider trading. On August 27, 2009, the three outside directors of LEA’s five-member board terminated Feldman. One month later, the outside directors terminated Perry.
The anti-retaliation provision of the Sarbanes-Oxley Act (“SOX”) protects whistleblowers from retaliation because the employee “provide[d] information ... regarding any conduct which the employee reasonable believe[d]” was unlawful. 18 U.S.C. § 1514A(a). As the Fourth Circuit explained, an employee claiming a violation of SOX’s anti-retaliation provision must show, among other things, that “the protected activity was a contributing factor in the unfavorable action” against him or her. Although noting that the contributing factor standard is “meant to be quite broad and forgiving,” the court concluded that Feldman had “nonetheless failed to show ... that the [protected] activities tended to affect his termination in at least some way.” The court noted that Feldman’s relationship with LEA’s outside directors had worsened throughout 2008 and 2009. Among other things, Feldman had told shareholders threatening to sue LEA that the outside directors “could do more to help the company” and were not loyal to the company. Feldman conceded that, by making these statements, the outside directors “considered him to have thrown them under the bus.” Additionally, Feldman had relocated LEA’s headquarters without first seeking the board’s approval.
Given this factual backdrop, the Fourth Circuit concluded that the district court had properly granted summary judgment in LEA’s favor. First, almost two years separated Feldman’s first report to the Department of Commerce and his eventual termination, which weighed against the suggestion that his allegedly protected activity played a role in his termination. Second, Feldman’s statements to the litigious shareholders “constitute[d] a legitimate intervening event.” Coupled with his decision to move the company, Feldman’s apparent insubordination could explain his termination. Third, the court noted that the outside directors had urged Perry to remain at LEA and only terminated his employment because they thought that Perry had voluntarily quit. Because Perry and Feldman had reported to the Department of Commerce together, this suggested that the animus between Feldman and the directors—not the disclosures—had precipitated Feldman’s firing.
While the contributing factor standard is a low burden, Feldman shows that it is a burden that a whistleblower must shoulder. In Feldman, the Fourth Circuit took a hard look at the particular facts surrounding Feldman’s termination. Timing, intervening events, and factual context all played a significant role in the Fourth Circuit’s analysis. Given the “lengthy history of antagonism” between Feldman and the outside directors, the Fourth Circuit concluded that ruling for Feldman would render the contributing factor standard “simply ... toothless.”