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Hendrick v. ITT Engineered Valves, LLC

United States District Court, N.D. Mississippi, Aberdeen Division

February 12, 2018




         This matter arises on Defendant's Motion for Summary Judgment, wherein it argues that Plaintiff's claims under the whistleblower protection provisions of the Sarbanes-Oxley Act (SOX) should be dismissed.

         Facts and Procedural History

         Phillip Hendrick began working for ITT around July 2013 as the Operational Excellence Manager in its Amory, Mississippi facility. Beginning in 2014, and as part of his job duties, Hendrick instituted employee surveys to measure employee morale in an attempt to improve productivity. Hendrick claims that after instituting the surveys, he began to feel ostracized by other Amory managers, namely Dennis Jackson, Mike Steele, and David Flippo.

         In September of 2015, ITT began to respond to a declining business by considering termination of certain employees. According to ITT, Hendrick was one such employee. On September 7, 2015, Hendrick sent Mike Sutter, then Vice President and General Manager of Industrial Products for ITT, an email recognizing that he may be included in a reduction in force. He sent a similar email Fred Vos, the General Manager and Executive Director. In both emails, he attempted to shield himself from termination. He offered to take Fridays off to reduce expense on the company.

         Later that month, Hendrick claims that he observed fraudulent inventory moves of raw plate steel, which he documented by taking photographs. Hendrick claims that he provided these photographs to a coworker, Steve Shirley. Shirley accessed the inventory tracking system and saw that the steel had been removed from the system, suggesting an intent to create absorption. Shirley then submitted the photos to ITT along with an anonymous ethics complaint describing the nature of the matter as “inventory manipulation to ‘cook the books.'” ITT began its investigation on October 14, and its reports noted that the reporter had been informed by a co-worker of the supposed violation, but the investigation was purportedly anonymous.

         On that same day, three hours after the report was filed, Vos informed Hendrick of a new restructuring plan that would remove Hendrick from the umbrella of corporate management and into local Amory management. Hendrick saw this as a demotion. Also on October 14, Hendrick emailed Sutter regarding the inventory moves. He said that he “was led to believe that the financials are smoke and mirrors.” He expressed dissatisfaction with what he perceived as the ethical violation of falsely expensing material as though it had been used and “fudging” the numbers. Sutter advised Hendrick to report the moves to Amory managers.

         Hendrick and Shirley were both terminated from ITT in January 2016. ITT cited reduction in force as its reason for the layoffs, but Hendrick believes that he was terminated because he reported fraudulent activity to Sutter and through Shirley's anonymous ethics complaint. Hendrick alleges that such retaliation constitutes a violation of the whistleblower protection provisions of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A(a)(1)(c).

         Summary Judgment Standard

         Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure when the evidence reveals no genuine dispute regarding any material fact and the moving party is entitled to judgment as a matter of law. The rule “mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

         The party moving for summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Id. at 323, 106 S.Ct. 2548. The nonmoving party must then “go beyond the pleadings” and “set forth ‘specific facts showing that there is a genuine issue for trial.'” Id. at 324, 106 S.Ct. 2548 (citation omitted). In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant, “but only when . . . both parties have submitted evidence of contradictory facts.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). Importantly, conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments have never constituted an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1997); Little, 37 F.3d at 1075.

         Analysis and Discussion

         Plaintiff's anti-retaliation claim arises under § 806 of the Sarbanes-Oxley Act, codified at 18 U.S.C. § 1514A, which “creates a private cause of action for employees of publicly-traded companies who are retaliated against for engaging in certain protected activity.” Allen v. Admin. Review Bd., 514 F.3d 468, 475-76 (5th Cir. 2008). The Fifth Circuit recognizes that “[n]o [public company] may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [certain protected whistleblowing activity]” under the Act. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 258-59 (5th Cir. 2014) (changes in original). To prevail on an anti-retaliation claim under this provision, the employee must prove, by a preponderance of the evidence, that (1) he engaged in protected whistleblowing activity, (2) the employer knew that he engaged in the protected activity, (3) he suffered an “adverse action, ” and (4) the protected activity was a “contributing factor” in the “adverse action.” Allen, 514 F.3d at 475-76.

         To qualify as a protected activity, an employee's complaint must definitively and specifically relate to an instance of what he reasonably believes to be mail fraud, wire fraud, bank fraud, securities fraud, a violation of any rule or regulation of the SEC, or a violation of any provision of federal law relating to fraud against shareholders. Id. at 476-77. Upon an employee's showing of the four required elements under ยง 1514A, an employer may still avoid liability by showing with clear and convincing evidence that it ...

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