SHEILA J. KALKUNTE
DVI FINANCIAL SERVICES, INC.
AP SERVICES, LLC
Issue Date: 18 July 2005
RECOMMENDED DECISION AND ORDER
Complainant Sheila J. Kalkunte filed a claim under the Corporate and Criminal Fraud Accountability Act, Section 806 of the Sarbanes-Oxley Act (SOX or the Act), 18 U.S.C. § 1514A, implementing regulations found at 29 CFR Part 1980, and the Rules of Practice and Procedure for Administrative Hearings before the Office of Administrative Law Judges found at 29 CFR Part 18A. This statutory provision prohibits any company with a class of securities registered under section 12 of the Securities Exchange Act of 1934, or required to file reports under section 15(d) of the same Act, or any officer, employee or agent of such company, from discharging, harassing, or in any other manner discriminating against an employee in the terms and conditions of employment because the employee provided to the employer or Federal Government information relating to alleged violations of 18 U.S.C. § 1341 (mail fraud and swindle), § 1343 (fraud by wire, radio, or television), § 1344 (bank fraud), or § 1348 (security fraud), or any rule or regulation of the Securities and Exchange Commission (SEC), or any provision of Federal law relating to fraud against shareholders.
In this case, the Complainant alleges that Respondents DVI Financial Services, Inc. (DVI) and its contractor AP Services, LLC (AP) retaliated against her after she reported financial improprieties at DVI to its Board of Directors, and after she made affirmative efforts to verify that an investigation into the allegations was progressing. After the record was closed, the Complainant made the additional assertion that Mark Toney, Chief Executive Officer of DVI and a Principal of AP, should be an added Respondent.
The Complainant is represented by R.
Scott Oswald, Esquire, Nicholas Woodfield,
Esquire, and Courtney R. Abbott, Esquire, The Employment
Law Group, Washington, D.C.
DVI is represented by James K. Webber, Esquire, Drinker,
Biddle and Reath, Florham Park,
New Jersey. AP is represented by L.A. Hynds, Esquire and
Jeanne M. Scherlinck, Esquire,
Honigman, Miller, Schwartz and Cohn, Detroit, Michigan, and Sheldon Toll, Esquire, Southfield, Michigan.
A hearing was held in Washington, D.C., from December 13
through 15, 2004. The Complainant submitted exhibits
marked CX 1 through CX 51, which were admitted into
evidence. Transcript (Tr.) at 110-111, 231, 456. DVI
submitted exhibits marked EX 1
through EX 75, and admitted into evidence. Tr. at 233,
511. AP submitted exhibits marked
RX 1 through RX 6, and admitted into evidence. Tr. at
232. All parties were afforded a full
opportunity to adduce testimony, offer documentary exhibits, submit oral argument, and file post-hearing briefs.
The Sarbanes-Oxley Act states in pertinent part:
No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934, or any officer, employee, contractor, subcontractor, or agent of such 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 any lawful act done by the employee - -
(1) to provide information, cause information to be
provided, or otherwise
assist in an investigation regarding any conduct which the employee
reasonably believes constitutes a violation of sections 1341, 1343, 1344,
or 1348, 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
such other person working for the employer who has the
authority to investigate, discover, or terminate misconduct).
18 U.S.C. § 1514A (a)(1); see also 29 C.F.R. § 1980.102(a), (b)(1).
Title 18 U.S.C. § 1514A(b)(2) provides that an action under Section 806 of the Act is governed by 49 U.S.C. § 42121(b), which is part of Section 519 of the Wendell Ford Aviation Investment and Reform Act for the 21st Century (AIR 21 Act). Because of its recent enactment, the Sarbanes-Oxley Act lacks a developed body of case law. Procedures for the process are found at 29 CFR Part 1980, (69 Fed. Reg. 52103, Aug. 24, 2004).
As the whistleblower provisions of Sarbanes-Oxley are similar to the whistleblower provisions found in many federal statutes, it is appropriate to refer to case authority interpreting these whistleblower statutes.1
1. Whether the Complainant qualifies as an employee of the Respondents under the terms of the Sarbanes-Oxley Act.
2. Whether Respondent AP is an appropriate party for subject matter jurisdiction where AP is not a publicly traded company.
3. Whether Mark Toney should be added as a Respondent in this case.
Complainant is Covered under the Sarbanes-Oxley Act; AP
AP is a firm that provides crisis management and restructuring services to companies in financial distress. DVIs Board of Directors contracted with AP in August, 2003, to provide leased employees to manage DVI through bankruptcy and dissolution. CX 19. AP argues that it has never been a publicly traded company and never employed Complainant. AP filed a Motion for Dismissal on the ground that the Department of Labor lacks
subject matter jurisdiction over AP. Prior to hearing, AP filed a Brief in Support of its Motion, asserting that subject matter jurisdiction is to be applied narrowly, and that there is no individual liability under the Act. It asserts that the plain language of the Act shows that Congress extended jurisdiction only to companies that either: (1) have a class of securities registered under section 12 of the Securities and Exchange Act of 1934 (SEA), or (2) are required to file reports under section 15(d) of the SEA. 18 U.S.C. 1514A(a).2 I denied the Motion.
AP alleges that by the summer of 2003, DVI was
experiencing severe financial
difficulties, the causes of which are apparently the
subject of an impending federal investigation.
There is no dispute that DVI is an appropriate party.
Because of its financial distress, DVI
entered into a contract (the Agreement)(CX 19) with AP
in August, 2003, to provide DVI with
employees who could manage DVI through bankruptcy and
dissolution. For reasons set forth
below, based on the affidavits and the attachments of
proposed exhibits, and CX 19, I find that
AP is both a subcontractor and agent of DVI and/or DVIs trustee in bankruptcy.
The evidence shows that Mark Toney has been employed as
a Principal of AP since
1999. Tr. at 239. Mr. Toney became DVIs President and
CEO effective August 25, 2003, by
appointment of DVIs Board of Directors. Tr. at 517-518,
520; CX 19. AP notes: In his
temporary employment as President and CEO of DVI, Mr.
Toney has at all times reported
directly to an independent committee of the Board,
consisting of Board Members Nathan Shapiro
and William S. Goldberg (Special Committee). AP argues
that the only relationship between
the Complainant and AP was the appointment of Toney as
DVIs CEO by virtue of the contract
between AP and DVI. See APs Brief in Support of Motion
for Summary Decision. At hearing,
Mr. Toney testified that both DVI and AP had appointed
him as a corporate representative in this
matter. Tr. 240.
The standard for granting summary decision is set forth
at 29 C.F.R. § 18.40(d), which
The administrative law judge may enter summary decision for either party if the pleadings, affidavits, materials obtained by discovery or otherwise, or matters officially noticed show that there is no genuine issue as to any material fact and that a party is entitled to summary decision.
29 CFR § 18.40(d). Stauffer v. Wal Mart Stores, Inc., ARB No. 99-107, ALJ No. 1999-STA-21 (ARB Nov. 30, 1999)(under the Act and pursuant to 29 CFR § 18 and Federal Rule of Civil Procedure 56, in ruling on a motion for summary decision, the judge does not weigh the evidence or determine the truth of the matter asserted, but only determines whether there is a genuine issue for trial); Webb v. Carolina Power & Light Co., Case No. 1993-ERA-42, at 4-6 (Sec’y July 17, 1995). This section, which is derived from Fed. R. Civ. P. 56, permits me to grant summary decision for either party where "there is no genuine issue as to any material fact." 29 C.F.R. § 18.40(d). Thus, in order for Respondent’s motion to be granted, there must be no disputed material facts upon a review of the evidence in a light most favorable to the non-moving party (i.e., Prosecuting Party), and Respondent must be entitled to prevail as a matter of law. Gillilan v. Tennessee Valley Authority, Case Nos. 1991-ERA-31 and 1991-ERA-34, at 3 (Sec’y August 28, 1995); Stauffer, supra.
I decided prior to hearing to hold the issue of summary judgment in abeyance pending further development of the record at hearing. See Transcript of December 10, 2004 Telephonic Hearing.
AP is a firm that provides crisis management and restructuring services to companies in financial distress. DVIs Board of Directors contracted with AP in August, 2003, to provide leased employees to manage DVI through bankruptcy and dissolution. AP argues that it has never been a publicly traded company, and therefore, the statute does not apply to it. Mr. Toney testified that during the week of August 25, 2003, which was the week prior to DVIs bankruptcy filing, AP was retained as restructuring consultants and advisors. Tr. at 243. In support of its Motion, AP submitted affidavits and attachments of proposed exhibits.
Attachment D is an Engagement Letter between Respondent DVI and AP, dated August 25, 2003. At hearing, this document was admitted into evidence as CX 19. It shows that DVI contracted with AP to provide experienced management during the course of bankruptcy.
Included in that document at Section 7 of the general
terms and conditions is an indemnification
clause. CX 19:14.
Attachment F contains Minutes of a Special Meeting of DVIs Board of Directors held on August 23, 2003, which states in part:
Mr. Toney then described the AP Services Letter
Agreement) to the members of the Board, and highlighted its differences
between this Letter Agreement and the Interim AP Services Letter Agreement approved by the Board by resolution dated August 21, 2003. In particular, Mr. Toney noted that he would become Chief Executive Officer upon the Company filing for protection under Chapter 11 of the U.S. Bankruptcy Code, and the addition of resources described in the Letter Agreement.
Pursuant to a motion duly made and seconded by members of the Board, the following resolution was unanimously adopted by the Board:
RESOLVED, that the appropriate officers of the Company
and directed to take such actions necessary to engage AP Services
pursuant to the Letter Agreement; and it is further
RESOLVED, that Mark Toney is hereby appointed President
Executive Officer of the Company effective upon the Company filing for
protection under Chapter 11 of the U.S. Bankruptcy Code.
Mr. Toney, an officer appointed by DVI through the contract with AP, is clearly the protagonist alleged by the complaint. See Affidavit.
I accept that AP is not a publicly traded company, but
according to the documents
provided as attachments and the affidavit of Mr. Toney,
it is clear that he is an officer
identified by the statute. He also remains a Principal
of AP. I am advised that AP is a
Michigan Limited Liability Company, validly formed and
validly in existence to date. I am also
asked to find that from August 25, 2003, through
Complainants termination on September 18,
2003 and beyond, Toney worked full-time in his position
as DVIs President and CEO and
performed no other work for AP. See Proposed Findings.
However, I reject that finding, and
instead conclude that Mr. Toney remained a Principal of
AP and continued to simultaneously
perform work for AP, through his assignment under a contract between AP and DVI.
Mr. Toney testified that when AP assigned him to the DVI
project it was AP who paid his
salary. Tr. at 240. In addition, AP paid the salaries of
all of the AP team members working at
DVI.3 Id. at 240-241. During the period that he was
assigned to the DVI project, beginning on
August 25, 2003 until the date of hearing, Mr. Toneys
health insurance was part of a plan
provided by AP. Id. Also during that period when Mr. Toney would incur expenses on behalf of DVI, he would turn in those expenses to AP. Id. at 241. Specifically, once the expenses were turned in to AP, a bill would be provided to Mr. Toney and he would, in turn, give the bill to DVI for reimbursement. Id. Also during his time at DVI, he would communicate via email using the AP network server. Id.
Ms. Kalkunte testified that to her knowledge Mr. Toney was an employee of AlixPartners or AP Services who was taking over the role of CEO of DVI, Inc. Tr. at 285-286. Christine Clay was also a Principal at AP Services and was brought in by Mr. Toney to work on HR issues. Id. at 286.
Mr. Toney testified that during the first nine to twelve
months of his engagement with
DVI, he worked pretty much exclusively on DVI. Tr. at
241. However, during the prior
summer, he had worked on two other engagements. Id. He
specified that these were not
management engagements but consulting assignments. Id.
He clarified that between August 25,
2003 and the present, other than DVI, he had worked on a
couple of assignments part-time
over the last couple of months. Id. at 242. Thus, while
during the first part of the DVI
assignment, he was full-time on DVI, during the months
of June 2004 through August 2004, he
worked on two other assignments. Id. I assume that these part time assignments were for AP and not for DVI.
Mr. Toney testified that once AP assigned him to the DVI matter, the authority given to him by the Board of Directors was that of CEO of the company for DVI. Tr. at 242. This meant that as a CEO of DVI, he had the authority to hire and fire employees of DVI. Id. I find that these facts show that Mr. Toney remained a Principal engaged on behalf of AP while assigned under contract to DVI.
Moreover, the contract in Attachment D/CX 19 independently shows that AP is also a subcontractor, contractor and/or agent of Respondent DVI. 18 USC § 1514A. Therefore, AP is subject to the statute.
In Morefield v. Exelon Serevices, Inc. and Exelon Corporation, 2004-SOX-00002 (ALJ Order Jan 28, 2004), the Administrative Law Judge (ALJ) framed the issue to be whether the whistleblower provisions of the Act are available to a complainant who was not an employee of a publicly traded company, but rather worked for a subsidiary of a public traded company. The ALJ determined that Congress must have intended the employees of non-publicly traded subsidiaries to be protected by the Act’s whistleblower provisions.
In Klopenstein v. PCC Flow Technologies Holdings, Inc.
and Allen Parrott, 2004-
SOX-11 (ALJ July 6, 2004), the ALJ dismissed the
complaint for reason that Complainant’s
employer, a non-publicly traded subsidiary of a publicly
traded company, was not a publicly
traded company. The ALJ agreed with the reasoning in
Morefield, that employees of non-public
subsidiaries of publicly traded companies can be covered by the whistleblower provisions of the Act, but held that in the case before him the complainant had not filed his complaint against the parent company. The ALJ articulated: "I find the commonality of management and purpose
between the two companies sufficient to most likely bestow whistleblower protection upon Complainant had he sued the parent company. He did not however." Klopenstein, supra, at 8.
A Decision and Order of another ALJ is not precedent but may be used to aid me or persuade me. I find that Morefield is persuasive.
AP also argues (probably alternatively) that Congress
included the terms officer,
employee, contractor, subcontractor, or agent to
establish respondeat superior liability, i.e. that
publicly traded companies are vicariously liable if
their officers, employees, contractors,
subcontractors or agents violate the Act. It argues that
establishing respondeat superior liability
of publicly traded companies, rather than extending the
Acts jurisdiction to non-publicly traded
companies and individuals, is consistent with
well-established law interpreting other federal
employment discrimination statutes. It asserts that to
extend liability to AP would not further
the stated goal of Congress in enacting the entire
Sarbanes-Oxley statutory scheme, which was to
protect innocent shareholders of publicly traded
companies. It alleges that DVI, not AP, has
I reject that interpretation, as the clear intent of the statute is, in this context, to protect whistleblowers. 29 CFR § 1080.100 states, in pertinent part, that the statute:
... provides for
employee protection from discrimination
by companies and
representatives of companies because the employee has engaged in protected activity pertaining to a violation or alleged violation of 18 U.S.C. 1341, 1343, 1344, or 1348, or any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against
(emphasis added). 29 CFR Part 1980, Procedures for the Handling of Discrimination Complaints Under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act of 2002, 69 Fed. Reg. 52103 (Aug. 24, 2004). Moreover, the contract between AP and DVI identifies AP as the subcontractor who supplies Mr. Toney and relates reciprocal, mutual indemnification, in case of liability. Attachment D: ¶ 7; CX 19:14.
After reviewing the contract language and evaluation of
the actual relationships involved
factually, I find, alternatively,4 that under the
contract, AP assumed respondeat superior liability
to the Complainant.
The Restatement of Agency defines an agency relationship as "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency S 1(1) (1958). In Petition of United States, the Third Circuit defined an "agent" as one who is "employed as a fiduciary, acting for a principal with the principal’s consent and subject to the principal’s overall control and direction in accomplishing some matter undertaken on the principal’s behalf." 367 F.2d at 509 (citing Restatement (Second) of Agency S
The Board has defined a joint employer as a company that
is unrelated to the
employer-in-fact but which exercises sufficient
day-to-day control over a [complainants] work
to be treated as a co-employer of the [complainant].
Williams v. Lockheed Martin Energy
Sys., Inc., No. 98-059 (ARB January 31, 2001). By nature
of its responsibilities to DVI, AP
significantly affected Ms. Kalkuntes access to employment opportunities. AP consultants controlled the flow of work to DVI employees, (CX 26:116), made the decisions as to which DVI employees would be included in the reduction in force, and made decisions about how to pay the remaining DVI employees. CX 19:2-3.
When Mr. Toney and Ms. Clay made these decisions in
their capacity as DVI officers,
they were paid by AP to act in this capacity. Tr. at
240-41; CX 26:87, 107, 112; CX 28:272-75.
Likewise, Mr. Toney and Ms. Clay submitted to AP their
expenses for reimbursement, received
medical benefits through APs corporate plan, and were
protected under an insurance policy
secured by AP. Tr. 241. I find this conduct a
manifestation of consent to act Mr. Toney and Ms.
Clay on APs behalf and subject to its control, and
consent by to act accordingly. Moreover, I
note that Mr. Toney was the official designated
representative of both DVI and AP. I find that
this, standing alone, is a clear expression of agency.
For these reasons, AP is an agent under the statute.
Here, Complainant alleges that she suffered retaliation for engaging in activity protected by the Act, and that the retaliatory conduct was the responsibility of her employer, a publicly traded subsidiary, as well as AP, a non-publicly traded company, which furnished the actor accused of discriminatory activity. The non-publicly traded entity is a subcontractor and/or contractor and agent of the publicly traded company. Complainant has set forth a cause of action under the Act sufficient to withstand a motion for summary decision. Consequently, summary decision on this ground must be denied.
AP argues that the Department of Labor has analyzed this
language on several occasions.
Powers v. Pinnacle Airlines, Inc., 2003-AIR-00012 (March
5, 2003) (dismissing the complaint
because the complainants employer, while an indirect
subsidiary of a publicly traded company,
did not itself meet the definition required by the Act). See also Flake v New World Pasta Co., 2003 SOX 00018 (July 7, 2003) (holding there is no jurisdiction under the Act when the respondent does not satisfy either of the alternate definitions of a company). Clearly, individuals do not fit either prong of the statutory definition. It further asserts that most individuals are not themselves the complainants employer...as required by the Act. Powers, at 4. See Brief.5
AP also argues that the language or any officer, employee, contractor, subcontractor, or agent of such company does not extend subject matter jurisdiction to officers, employees, contractors, subcontractors, or agents of publicly-traded companies. 18 U.S.C. 1514A (emphasis added). Toney was, in fact, an employee of DVI, a publicly-traded company, when he decided to terminate Complainants employment with DVI. Tr. 242 at 16-22. However, the quoted statutory language does not mean that Toney may himself be sued for damages under the Act by virtue of that employment relationship. Congress included this language, not to establish individual liability, but to establish respondeat superior liability, i.e. that publicly traded companies are vicariously liable if their officers, employees, contractors, subcontractors or agents violate the Act. See Brief.
I find that this argument is inconsistent with the plain
text of SOX, the legislative intent
behind the statute, the regulations, and case law.
Powers, supra, did not concern itself with a
contractor, subcontractor, or agent. Flake is not
precedent and is merely instructive and does not
address this fact pattern where the same person, Mr. Toney, is an admitted principal/agent of AP and DVI as well. Tr. at 43, 49 (Both DVI and AP acknowledge him as their representative).6
Again, SOX reads: No company with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l), or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 780(d)), or any officer, employee, contractor, subcontractor, or agent of such 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 any lawful act done by the employee.
18 U.S.C. § 1514A(a) (emphasis added).
The Complainant argues that contrary to APs contention, the clear and unambiguous text Id. at 8.
of the statute clearly prescribes that SOX7 obligations extend beyond just those companies with registered securities. I agree.
Regulations Do Not Require AP to be an Employer to be Liable
I also note that contrary to APs position, the statute does not require that a respondent be an employer to be liable for a violation.
In promulgating the regulations under SOX, the Department of Labor defined an employee as an individual presently or formerly working for a company or company representative, an individual applying to work for a company or company representative, or an individual whose employment could be affected by a company or company representative.
C.F.R. § 1801.101 (2004) (emphasis added).
Under those same definitions, a company representative is defined under SOX as any officer, employee, contractor, subcontractor, or agent of a company. Id. (emphasis added). The regulations further state that [n]o company or company representative may discharge ... or in any other manner discriminate against any employee? Id. at § 1801.102.
AP argues that the definition of named person in the Regulations is impermissibly broad. It argues that agencies may not draft regulations that contravene the will of Congress as expressed in any statute.8 It reminds that the purpose of these regulations is to provide procedural rules for the handling of whistleblower complaints and not to interpret the statute.
69 Fed. Reg. 52106 (August 24, 2004).
It asserts that
the clear language of the Act establishes
that Congress did not intend individuals (nor officers, employees, contractors, subcontractors or other agents) of publicly traded companies to be liable under the Act, but instead intended for the publicly traded companies to be held accountable for discriminatory actions taken by such
However, AP falls under the statutory definition of a company representative, described in the statute as any officer, employee, contractor, subcontractor, or agent of such company, and therefore, the Complainant falls under the both the statutory and regulatory definitions of employee. Contrary to the position espoused by AP, the regulations do not require that AP actually employ the Complainant to be responsible.
DVI contracted to AP the power to determine how best to
manage the corporation and its
assets in light of the pending bankruptcy. CX 19.
Included in those powers was the power to
evaluate DVIs employees value to the company and to
terminate those who were no longer
needed. CX 19:2-3. Mr. Toney, as CEO, had the authority
to terminate anyone at DVI, and Ms.
Clay testified that she performed the duties of Chief
Administrative Officer as part of her duties
at DVI. Thus AP, through Mr. Toney and Ms. Clay, had the
power to affect Ms. Kalkuntes
employment. Tr. 286; CX 28:103-04.
Moreover, Complainant can also be viewed as a third
party beneficiary to the agreement
between the Respondents in the event that liability is
assessed. A "creditor beneficiary" has been
accorded full rights to sue under the original contract.
See 4 Arthur Linton Corbin, Corbin on
Contracts § 787 (1951); 3 E. Allan Farnsworth, Farnsworth on Contracts § 10.2 (1990); 2 Samuel Williston, A Treatise on the Law of Contracts §§ 361-64, 381 (Walter H.E. Jaeger ed., 3d ed.1959); Restatement of Contracts § 133(1)(b) (1932); See also Restatement (Second) of
Contracts § 302 (1981) (extending third party beneficiary status to the broader category of "intended" beneficiaries). Consistent with this analysis, court decisions involving joint payment agreements have characterized them as making the joint payee a third party beneficiary of the contract with the right to sue the promisor for breach. See, e.g., United States ex rel. Youngstown Welding & Eng’g Co. v. Travelers Indem. Co., 802 F.2d 1164, 1167-68 (9th Cir.1986); Merco Mfg., Inc. v. J.P. McMichael Constr. Co., 372 F.Supp. 967, 971-72 (W.D.La.1974); cf. Maccaferri Gabions, Inc. v. Dynateria Inc., 91 F.3d 1431, 1441 (11th
Cir.1996) (assuming arguendo that joint payment provision in contract created a third party beneficiary arrangement under Florida law).
Mark Toney as Named Party
On December 15, 2003, the Complainant filed a complaint
with the Secretary of Labor-
OSHA alleging that Respondent discriminated against her.
The charges were investigated by
OSHA, and on or about April 7, 2004, the Regional
Administrator of OSHA sent its Preliminary
Order to the Respondents. On April 29, 2004, Richard
Seguin, Regional Supervisory
Investigator, filed his report. The investigation determination has no force or effect, and is not legally prejudicial. Hobby v. Georgia Power Co., 90-ERA-30 (Sec’y Aug. 4, 1995).
However, the Preliminary Order included that:
1. [Complainant] Waive[d] the reinstatement requirement
of the Act since
Complainant has moved to another state, searching for comparable
employment, and is not interested in returning to work for Respondent
based on their impending closure and bankruptcy.
2. Respondent shall pay Complainant back wages, retention bonus, medical benefits and compensatory damages in the amount of $100,000.00, plus interest, which reflects the amount the Complainant would have earned from September 18, 2003, until the bankruptcy concludes, less any interim earnings. Respondent shall pay Complainant interest in accordance with 26 U.S.C. 6621, which sets forth the interest rate for underpayment of federal taxes.
3. Respondent shall expunge any adverse references from
personnel records relating to the discharge and not make any negative
references relating to the discharge in any future requests for employment references.
The parties in this document are noted as DVI and AP.
Notification made under section
42121(b)(1) of title 49, United States Code, shall be
made to the person named in the complaint
and to the employer, and notification was made to DVI.
18 USC § 1514B2(B). Mr. Toney was
On or about June 2, 2004, this Office docketed the case; objections were filed by DVI, on June 8, 2004, AP filed objections, and on June 9, 2004, after the case was assigned to me, I set the case for hearing on July 17, 2004. However, after Jack Meyerson, Esquire, entered his appearance for the Complainant, I was asked to reset the case to a later date. After hearing a series of motions, I reset the case for August 13, 2004. After hearing another series of motions and counter motions, I reset the case for November 16, 2004. After Mr. Meyerson moved to withdraw as Complainants counsel, I entered an order relieving him on September 10, 2004.
Mr. Oswald entered his appearance as Complainants counsel on October 5, 2004. Again, I was asked to continue the case, and I reset it for December 13, 2004.
Whistleblower claims are heard de novo. De novo means a trial which starts over, which wipes the slate clean and begins all over again, as if any previous proceeding has not occurred. I am bound by the record before me and only that record.
The applicable regulations provide that [w]hen there is a hearing, the record shall be closed at the conclusion of the hearing unless the administrative law judge directs otherwise.
29 C.F.R. § 18.54(a).
The regulation further provides:
Once the record is closed, no additional evidence shall be accepted into the record except upon a showing that new and material evidence has become available which was not readily available prior to the closing of the record. However, the administrative law judge shall make part of the record, any motions for attorney fees authorized by statutes, and any supporting documentation, any determinations thereon, and any approved corrections to the transcript.
29 C.F.R. § 18.54(c).
I closed the record at the conclusion of the hearing in this matter at 6:50 p.m. on December 15, 2004. Tr. 762. I directed that the record would remain open in two respects:
First, matters pertaining to documents listed on a privilege log.
Second, the parties were directed to submit simultaneous post-hearing briefs thirty days after receipt of the transcripts and I left the record open fifteen additional days for responses to each others briefs. Tr. 755-757.
The issue of individual liability of Mr. Toney was never raised at any point from the time I was assigned the case through the close of the hearing, even after I offered the parties an opportunity to raise any remaining concerns. (Anything anybody wants to bring up? This is your last chance. Tr. 757.)
Nothing is to be made part of the record once the record has been closed except:
(1) issues about which the ALJ has directed the record remain open;
(2) new and material evidence [that] has become available which was not readily available prior to the closing of the record (29 C.F.R. 18.54(c));
(3) motions for attorney fees and supporting documentation and determinations on such motions; and
(4) any approved corrections to the transcript.
The Complainants brief was filed on February 25, 2005. Prior to that the Complainant had requested a correction to the record, but that request did not include a request to amend the named parties.
On or about March 2, 2005, I received a letter from Complainants counsel advising me that after an inquiry concerning insurance coverage, Mr. Toney should be listed as a named party in this case.
On March 14, 2005, I held a telephone hearing. Mr. Toney appeared and was advised that he had a right to be represented in this matter.
On March 16, 2005, the Complainant filed a Motion to Supplement the Evidentiary Record and to Recognize Mark E. Toney as a Respondent in this Matter. Attached are proposed exhibits, marked as CX 56 (Complainants OSHA Complaint filed on December 15, 2003) and CX 57 (the April 7, 2004 Findings and Preliminary Order). The attached documents show that the Complainant initially requested that in addition to AP and DVI, she had asked OSHA to name Bettina Whyte, Mark Toney, Christine Clay, Richard Miller, DVI Financial Services, Inc., William Goldberg and Nathan Shapiro.
I am advised that under 29 C.F.R. § 1980.101 (2004), named person means the employer and/or the company or company representative named in the complaint who is alleged to have violated the Act. I am advised by counsel that the Department of Labor provided Respondents AP and DVI with all details of the OSHA Complaint prior to discovery and the hearing on the record in this matter. 29 C.F.R. § 1980.104(a) (2004) requires the Assistant Secretary to inform the named persons of the filing of the complaint, of the allegations contained in the complaint, and of the substance of the evidence supporting the complaint.
I am further advised by Complainants counsel that counsel for AP and DVI received copies of the materials contained in CX 56 (Complainants OSHA Complaint filed on December 15, 2003) and CX 57 (the April 7, 2004, Findings and Preliminary Order) well before discovery and the hearing on the record in this matter.
The Complainant argues that because of these very
documents the hearing on the
record took place. Therefore, Respondents cannot claim
unfair prejudice or surprise as the result
of the introduction of these exhibits into evidence.
Moreover, these exhibits are relevant to the
matter before the Court, as they demonstrate that Mark Toneys circumstances as a Named Person in this litigation are indistinguishable from those of Respondent AP Services, LLC.
Therefore, these documents serve as the foundation for the Courts recognition of Named Person Mark Toney as a Respondent in this matter. See Brief. AP filed a response asserting that there is absolutely no legal basis on which to do so because finding individual liability against Mr. Toney in this matter would violate his Constitutional right to due process. Complainant apparently has concluded (possibly erroneously) that DVI purchased Directors and Officers insurance pursuant to contract that would cover a judgment against Toney as an individual because he was an officer of DVI.
However, it would be clear error for this agency to make a finding of liability against Toney as an individual under the circumstances of this case. I am also reminded that the Complainant failed to cross-appeal OSHAs finding that, of all the many individuals and companies she listed as Named Persons in her complaint, only DVI and AP were liable. If Complainant had cross-appealed, objecting to OSHAs finding that Toney and the other named individuals were not liable, Toney would have had an opportunity to obtain counsel and defend himself, as APS did when OSHA (albeit erroneously) found it liable. See Memorandum dated March 23, 2005.
Mr. Toney did not file a response. DVI filed a brief response, which can be viewed ambiguously.
AP asserts that before OSHA, DVI submitted a position
statement in response to the
Complaint. At that time, DVI argued that all parties
except DVI had been improperly named and
should be dismissed. After OSHA conducted its
investigation in this matter, the Secretary issued
a finding that DVI and AP were liable to Complainant in the amount of $100,000. I am advised that in response to OSHAs finding that it was a party in this matter, AP retained its own counsel.
AP reminds me that the Complainant addressed numerous
discovery requests to DVI and
AP, but none were addressed to Mr. Toney. On all
discovery briefs and pre-hearing
submissions, all three parties listed on their captions
only the Complainant, DVI, and APS. On
December 2, 2004, counsel for the Complainant sent an
e-mail to counsel for DVI asking if
counsel would accept service of a subpoena for Mark Toney. Complainant was well aware that Toney was unrepresented. See Memorandum dated March 23, 2005.
When Complainants counsel asked Mr. Toney in his deposition, How many of the gentlemen sitting to your right represent you in your personal capacity?, Toney responded, None. (Ex. H, p 8, line 20, p. 9, line 3.) At hearing, when counsel for AP stated his appearance for the record, he stated that Honigman Miller (and Sheldon Toll, of counsel) represented AP and that Mr. Toney was present as a corporate representative. Tr. 7, lines 14-15.
In his opening statement at that hearing, counsel for
Complainant stated that he would
ask for relief against DVI and AP after the evidence was
presented and did not then or ever
mention relief as to Mr. Toney. Tr. at 33. Counsel for
Complainant requested that Mr. Toney
should be sequestered as a witness. I did not sequester
Mr. Toney because, as both DVI and AP
posited, he was present as a corporate representative
for both Respondents. Id. at 34-35. As part
of her case in chief, the Complainant called Mr. Toney
as if on cross examination. Id. at 238-260.
He testified that both DVI and AP had appointed him as corporate representative. Id. at 240.
At all pertinent times, Mr. Toney was not included on
the caption of the case, on
documents that I prepared, or on documents prepared by
the parties and filed in this record.
After a review of the evidence on this matter, I find
that the Complainant has not
established that issues about which I directed the
record remain open are involved in naming Mr.
Toney as a party. I further find that I have not received any new and material evidence [that] has become available which was not readily available prior to the closing of the record (29 C.F.R. 18.54(c)). Therefore, Mr. Toney will not be an added Respondent in this case.
I recognize that current counsel for the Complainant was not representing the Complainant at the OSHA stage, nor at the point in time when the initial round of motions was filed. However, the record shows that the Complainant is a licensed attorney and that she knew or should have known that she needed to address the issue to protect it. There is no allegation that either Mr. Meyerson or current counsel failed to protect the record.
I do not have plenary powers, but on occasion can consider such matters as equitable tolling and amendment of the pleadings to conform to the evidence. However, if I am to administer equity, I would do it on the record unless the interests of justice require otherwise. I find that the record has closed and there is no basis to reopen it.
Although I note that there may be an insurance interest in this matter, whether there is indemnification at this point through Mr. Toney is not relevant to my determination that the Complainant failed to timely move to join him when the record in this matter remained open.
Although Mr. Toney did not respond to the Motion to add
him as a party, I accept APs argument
that he was considered by all parties to be a witness
rather than a party, and that his right to
participate as a party must be considered. I rely on APs
assertion that it is a limited corporation
rather than a partnership. There is no evidence in the record to controvert the assertion. I also find that, standing alone, it would be impracticable to add Mr. Toney as an additional respondent in this case, and that his due process rights could be adversely affected if I were to do so.
PRELIMINARY CONCLUSIONS OF LAW
1. The Complainant qualifies as an employee of the Respondents under the terms of the Sarbanes-Oxley Act.
2. AP is an appropriate party for subject matter jurisdiction.
3. Mark Toney is not an added Respondent in this case.
1. Whether the Complainant engaged in activities that are protected by the Sarbanes- Oxley Act.
2. Whether the Respondents, actually or constructively, knew of, or suspected, such activity.
3. Whether the Complainant suffered an adverse personnel action.
4. Whether the Complainant’s activity was a contributing factor in the adverse personnel action taken against her.
5. If so, whether the Respondents proffered a legitimate, non-discriminatory reason for taking adverse action against the Complainant.
6. If so, whether the Complainant has shown that Respondents proffered reason is pretextual.
7. If not, whether the Respondents demonstrated that they would have taken the same adverse personnel action regardless of whether the Complainant had engaged in protected activity.
1. Complainant engaged in protected activity in August, 2003, when she reported allegations of fraud and accounting improprieties to the Board of Directors of named party DVI. See DVI Proposed Findings I(1); Tr. at 49-50, 208-209, 738- 739.
2. The decision-maker at issue, Mark Toney, knew of that protected activity. See DVI Proposed Findings I(1); Tr. at 49-50, 208-209, 738-739.
3. The Complainant suffered an adverse employment action when she was terminated on September 18, 2003. See DVI Proposed Findings I(1); AP Brief.
I have carefully considered and evaluated the
rationality and internal consistency of the
testimony of all witnesses, including the manner in
which the testimony supports or detracts
from the other record evidence. I have taken into
account all relevant, probative, and available
evidence, while analyzing and assessing its cumulative impact on the record. See, e.g., Frady v.Tennessee Valley Authority, 92-ERA-19 at 4 (Secy Oct. 23,1995)(citing Dobrowolsky v. Califano, 606 F.2d 403, 409-10 (3d Cir. 1979)); Indiana Metal Products v. National Labor Relations Board, 442 F.2d 46, 52 (7th Cir. 1971). I am not bound to believe or disbelieve the entirety of a witnesss testimony, but may choose to believe only certain portions of the testimony. See Altemose Constr. Co. v. National Labor Relations Board, 514 F.2d 8, 15 n. 5 (3rd Cir. 1975).
I have based my credibility findings on a review of the entire testimonial record and associated exhibits with regard for the reasonableness of the testimony in light of all record evidence and the demeanor of the witnesses. Probative weight has been given to the testimony of all witnesses found to be credible. The transcript of the hearing contains the testimony of three fact witnesses. I find the testimony of the Complainant, Shelia Kalkunte, to be credible.
lthough she appeared to be distraught about her case, I
found her testimony at hearing to be
genuine. She held strong convictions concerning the
circumstances surrounding her termination
and expressed her opinions cogently. Differences of
opinion may exist as to the interpretation of
events, but for the most part, I did not find that Ms.
Kalkunte embellished the facts as they pertained to the events leading up to and surrounding
her termination. I find the testimony of
Mark Toney, the ultimate decision-maker regarding the
Complainants termination, to be less
credible than that of Ms. Kalkunte. At times throughout
the hearing, he provided non-responsive
answers to the questions at hand. He also provided
testimony by way of deposition, and in at
least one instance, as will be discussed below, his
deposition testimony conflicted with his
hearing testimony. I find that the testimony of
Christine Clay, who aided Mr. Toney in his
decision to terminate Ms. Kalkunte, also lacked
credibility. On multiple occasions, her version
of the facts conflicted with the testimony of Ms.
Kalkunte as well as other witnesses who
testified by way of deposition.
As noted above, an ALJ is not bound to believe or disbelieve the entirety of a witnesss testimony, but may choose to believe only certain portions of the testimony. Accordingly, I will not entirely discredit the testimony of Mr. Toney and Ms. Clay, notwithstanding my finding that they both lacked credibility to some degree. However, as will be discussed below, facts where the testimony of these witnesses directly conflicts with the testimony of Ms. Kalkunte will be found in favor of the Complainant as I find her to be a more credible witness.
Eleven individuals provided testimony by way of
deposition: Nancy Cascioli, William
Goldberg, Nathan Shapiro, Richard Meller, David Heller,
Zachary Judd, Josef Athanas, Rebecca
Kolbe, and Jeffrey Bromme; Mr. Toney and Ms. Clay
provided deposition testimony in addition
to their testimony at hearing. Although I did not have
the opportunity to observe the demeanor
of the witnesses who testified by way of deposition
only, it seems that each deponent was
cooperative in deposition, was truthful and thoughtful
in his/her responses, and provided
internally consistent remarks. Therefore, I find that
the testimony of each deponent will be
afforded equal weight.
CHRONOLOGY IN BRIEF
June, 2001: DVI hired Ms. Kalkunte on a contract basis to serve as an attorney in its legal department.
October, 2002: DVI offered Ms. Kalkunte a full-time, in-house position, and Ms. Kalkunte accepted the position.
December, 2002: Ms. Kalkunte began her tenure as a full-time DVI employee. Her new title wasAssociate General Counsel.
May, 2003: Ms. Kalkuntes title changed to Assistant General Counsel; however, her salary remained unchanged.
June, 2003: Deloitte & Touche resigned as DVIs
Summer, 2003: Ms. Kalkunte learned of instances of financial impropriety at DVI from coworkers at the company.
August 11 or 12, 2003: Ms. Kalkunte sought independent legal advice regarding her ethical obligations as an attorney under the Sarbanes-Oxley Act. Legal counsel advised that she had an obligation to report the improprieties to the company.
August 18, 2003: Ms. Kalkunte drafted and transmitted a memorandum to DVIs Board of Directors detailing the financial improprieties.
August 21, 2003: Ms. Kalkunte telephoned two members of
DVIs Board of Directors to inform
them of the contents of her memorandum and to reiterate
her concerns about the
financial improprieties. The Board members told Ms.
Kalkunte that they would
hire independent counsel immediately. Thereafter, the
law firm of Arnold &
Porter was hired to investigate the allegations. Mr.
Toney was advised that
Arnold & Porter would be investigating the improprieties
morning, and that he should facilitate a meeting between Arnold & Porter and Ms. Kalkunte.
August 22, 2003: Arnold & Porter arrived at DVI and met with Ms. Kalkunte.
August 25, 2003: DVI filed for bankruptcy. Upon filing for bankruptcy, Mr. Toney became the new CEO of DVI.
August 27, 2003: In a significant reduction in force, DVI notified over ninety employees that their positions were being eliminated. Ms. Kalkunte, however, was not discharged at this time.
September 10, 2003: Ms. Kalkunte raised the issue of the Arnold & Porter investigation in an email.
September 12, 2003: Ms. Kalkunte attended a meeting with Mr. Toney and Ms. Clay, at Mr. Toneys direction. During the meeting, the status of the Arnold & Porter investigation was discussed.
September 18, 2003: Ms. Kalkunte was terminated.
January, 2004: Robert DeCandia, an attorney in DVIs executive department, was transferred to the legal department, Ms. Kalkuntes former department.
FINDINGS OF FACT
June 2001: DVI Hires Ms. Kalkunte on a Contract Basis
In June, 2001, Ms. Kalkunte was hired on a contract
basis to serve as an attorney at DVI.
Tr. at 264-265. Her duties included supporting DVIs
General Counsel, Melvin Breaux, on a
variety of legal matters, including drafting
documentation and negotiating provisions of loan
agreements, lease agreements, guarantees and security
agreements. Id. at 265. She also reported
to Jennifer Santangelo of DVIs documentation department,
which generated the loans and
lease documents for DVI. Id. When she first started
working at DVI, Ms. Kalkunte performed
ninety percent of her work for Ms. Santangelo, whose job
it was to negotiate provisions to the
loan agreements, lease agreements, guarantees, and security agreements. Id. Ms. Kalkunte pretty much enjoyed everything about DVI and testified that working in-house at a finance company was pretty much the pinnacle of what [she] wanted to accomplish in [the] legal field. Tr. at 265-266; CX 2.
October/December 2002: Ms. Kalkunte Becomes a Full-Time Employee of DVI In October, 2002, after nineteen months of working for DVI on a contract basis, senior management offered Ms. Kalkunte a full-time, in-house position. Tr. at 266-267. She negotiated her salary with Richard Miller, the president of DVI, to whom she would be reporting. CX 4, 5.
Thereafter, on or about December 13, 2002, Ms. Kalkunte became a permanent employee at DVI. Tr. at 267; CX 3. Her new title was Associate Counsel, which was the title of all the other in-house counsel. Notwithstanding her change in title, she continued to perform the same duties as before. Tr. at 267-268. She testified that, although her official duties did not change, Mr. Breaux, DVIs former General Counsel, had left the company, which left a wide gap, and senior management decided to ignore the issue and/or not replace their general counsel. Tr. at 268.
Accordingly, Ms. Kalkunte testified that her workload increased. Tr. at 268; CX 16:1. In addition to performing domestic work, she started working with DVIs international branches on a number of their legal and business issues. Tr. at 268; CX 16:1. Toward the middle of 2003, she was asked by senior management to draft opinion letters on behalf of the corporation for the securitization of finances, which had been one of Mr. Breauxs duties. Tr. at 268.
May 2003: Ms. Kalkuntes Title Changes
In May, 2003, senior management changed Ms. Kalkuntes title to Assistant General Counsel. Tr. at 269. Ms. Kalkunte believed that the primary reason for the change was that she had been drafting opinion letters on behalf of the corporation, and it was believed that the lenders would be more comfortable if the person drafting those letters had the title of Assistant General Counsel rather than Associate. Id.
Summer 2003: Ms. Kalkunte Learns of Alleged Financial Improprieties at DVI
During the summer of 2003, Ms. Kalkunte learned of
alleged financial improprieties
at DVI. In her testimony, she indicated that at least
some, if not all, of these financial
improprieties were connected to the fact that in early
June, 2003, Deloitte & Touche, DVIs
independent auditors for many years, abruptly resigned.
Tr. at 269-270. According to Ms.
Kalkunte, DVIs stock began dropping dramatically when
this news hit the market. Id.
at 270. The SEC, which had already started questioning DVI about its prior disclosure statements to the public, began to inquire about the significance of the Deloitte & Touche resignation. Id. Moreover, as a result of the Deloitte & Touche resignation, DVIs institutional lenders declared an event of default, and by late August, 2003, DVI lost all of its liquidity sources. Id. With no cash available, DVI could no longer conduct business as usual. Id.
Specifically, Ms. Kalkunte learned of one allegation of financial impropriety from Pam Turner, a Senior Vice President of DVI Business Credit (DVIBC), a subsidiary of DVI. Tr. at 270-271. According to Ms. Kalkunte, Ms. Turner advised that after the default, DVIBC sort of panicked and began improperly commingling funds.9
Id. at 270. In
addition, Ms. Turner showed Ms. Kalkunte paperwork that
suggested the allegation was true.
Id. at 271. Ms. Kalkunte learned of a second allegation
of financial impropriety from Ray
Fier and Joe Mallott, members of the Credit Committee
that established the delinquency
level every quarter. Id. at 273-274. According to Ms . Kalkunte, Mr. Fier and Mr. Malott advised her that senior management had changed the delinquency numbers and incorporated those changes into the disclosure statements filed to the public. Tr. at 273-274; CX 16:2. Ms. Kalkunte testified that Mr. Fier and Mr. Mallott further told her they had actual documentary evidence that they took home and put in their vault to protect them[selves] in case the issue ever came up. Tr. at 274; CX 16:2. Ms. Kalkunte learned of additional allegations of financial impropriety from DVIs Chief Financial Officer, Steve Garfinkel, who advised Ms. Kalkunte of further instances of improper conduct on the part of various individuals in senior management. Tr. at 271-272.
AP Hired by DVI
Meanwhile, in early August 2003, DVIs Board of Directors
hired outside professionals
to assist with the financial distress being experienced
by DVI. Goldberg Deposition at 15. After
interviewing two or three firms, the Board selected AP
to serve as bankruptcy specialists and
turn around consultants. Goldberg Deposition at 18-20,
69; CX 11:¶ 4. Specifically, Mr.
Toney of AP was to serve as a restructuring advisor in which capacity he would assist DVI in preparing for bankruptcy. Tr. at 520. Then, effective August 25, 2003, Mr. Toney would actually become DVIs CEO, at which time Michael OHanlon, who had been serving as DVIs CEO, would resign. CX 11:¶ 4; Goldberg Deposition at 20; Tr. at 517-518, 520; CX 19.
As CEO of DVI, Mr. Toney was to report to DVIs
Bankruptcy Committee of the Board
of Directors, DVIs Creditors Committee, and the
Bankruptcy Court. Tr. at 592; Goldberg
Deposition at 74. Overall, Mr. Toney brought a team of
about eight other AP principals and
associates to assist him at DVI. CX 47:¶ 8. In
particular, Ms. Clay another Principal of AP,
became the Chief Administrative Officer of DVI and
performed human resources and
administrative functions at DVI at the direction of Mr. Toney. Tr. at 243; CX 47:¶ 8; 48: ¶ 1.
As CEO of DVI, Mr. Toney had the authority to hire and
fire employees of DVI. Id. at 242.
In addition to retaining AP, DVI also retained outside
legal assistance just prior to
and during the bankruptcy. Specifically, Mr. David
Heller of Latham & Watkins was to
serve as lead bankruptcy counsel, and his partner, Mr.
Josef Athanas, was to oversee the day-to-day aspects of the bankruptcy. Tr. at 530-531; Heller
Deposition at 6:13-14. Mr. Richard
Meller of Latham & Watkins was to serve as the General Counsel of DVI, though he would not be working in DVIs Jamison office; rather, his associate, Zachary Judd, would be working as an attorney on the ground at DVI and would report to Mr. Meller. Id. at 530- 531, 601-602. The law firm of Adelman & Lavine also provided counsel. Tr. at 530-531.
Mr. Goldberg testified that AP and outside legal counsel carried out their activities against the broad construct of board resolutions and that there were frequent board meetings to monitor the activities and progress of the bankruptcy specialists. Goldberg Deposition at 69, 73.
Early-Mid August, 2003: Ms. Kalkunte Contacts Thatcher, Proffitt & Wood
In the meanwhile, Ms. Kalkunte was very confused as to what she should do regarding the allegations of financial impropriety that she had learned. Tr. at 274. She did not know much about the Sarbanes-Oxley Act other than the fact that attorneys, whether they are in-house or outside counsel, have a very specific responsibility when they learn of improprieties that may implicate SEC laws or fraud on shareholders. Id.
Therefore, on August 11 or 12, 2003, she telephoned a friend and mentor, Steven Whelen, a partner at the law firm of Thatcher, Proffitt & Wood (Thatcher, Proffitt), to obtain some information about her obligations under the Sarbanes-Oxley Act. Id. at 274-275. Ms. Kalkunte explained her situation to Mr. Whelen, who consulted with other partners from his firm, and advised Ms. Kalkunte that the matter was serious and that she had an obligation to report the improprieties to the president of the company and the Audit Committee members.10 Id. at 275. On August 13, 2003, Thatcher, Proffitt sent Ms. Kalkunte a letter in which they made clear that she had a duty to report the improprieties up the chain. Tr. at 276; CX 50.
August 18, 2003: Ms. Kalkunte Drafts Memorandum to Audit Committee Members
On August 18, 2003, Ms. Kalkunte drafted and transmitted
a memorandum to the
Audit Committee members setting forth the same
improprieties that she had discussed with
Thatcher, Proffitt, and some other improprieties that
had come to her attention. CX 7; Tr. at
August 21, 2003: Ms. Kalkunte Telephones Mr. Shapiro and Mr. Goldberg
On August 21, 2003,11 Ms. Kalkunte telephoned Mr.
Shapiro and Mr. Goldberg to
discuss with them the improprieties described in her
memorandum. Tr. at 280-281; Goldberg
Deposition at 36-37. According to Ms. Kalkunte, Mr.
Shapiro and Mr. Goldberg were very
upset and expressed a deep concern about these
particular improprieties. Tr. at 281. They
advised Ms. Kalkunte that Susan Gibson, DVIs Director of
Operations, had drafted a similar
type of memorandum alleging some financial impropriety
at DVI. Tr. at 281; EX 2. They
requested that Ms. Kalkunte get a copy of Ms. Gibsons
memo and review it so that she could
get involved in that aspect as well. Tr. at 281. Finally, they advised Ms. Kalkunte that they wanted to hire someone to investigate these matters right away, even before the bankruptcy commenced. Id. Similarly, Ms. Kalkutne emphasized the need for an investigation to commence immediately in light of her obligations under the Sarbanes-Oxley Act. Id.
She was concerned that the matter be disclosed to the public immediately so that it did not appear as though DVI was attempting to go through the bankruptcy without the public being aware of this information. Id. at 282. Later that evening, Mr. Goldberg called Ms. Kalkunte back, and advised her that Arnold & Porter had been retained to start investigating at DVI the next morning, August 22, 2003. Id.
Mr. Goldberg also provided testimony on his multiple
telephone calls with Ms. Kalkunte
that day. During the first call, Ms. Kalkunte stated
that the reason for her call was to seek
clarification from the Audit Committee regarding how the
investigation of alleged collateral
reporting improprieties was being carried out. Goldberg
Deposition at 41. During the second
call, Ms. Kalkunte reported that she had reason to
believe there had been improper or incorrect
collateral reports prepared by management and furnished
by management to the companys
lender. Id. at 43. She further stated that two mid-level
executives involved in credit and
collections activities, Ray Fier and Joe Mallott, had
removed from DVI for safekeeping
documents that they had prepared, which proved that
senior executives of DVI had subsequently
altered those documents. Id. at 43-45. Ms. Kalkunte
believed that these documents had been
provided to the Board in their altered state, and then
incorporated into the companys SEC
filings.12 Id. at 45. Finally, Ms. Kalkunte reported
that she had seen garbage bags at the company, which could have contained shredded paper. Id.
at 46. According to Mr. Goldberg, he
and Mr. Shapiro thanked Ms. Kalkunte for coming forward
and doing the right thing. Id. at
47. They advised her that they would take the allegations seriously and act upon them immediately by hiring independent counsel. Id. at 47-48. In addition, they asked Ms. Kalkunte to memorialize her report in writing. Id. at 47.
August 21, 2003: Arnold & Porter Investigation Planned
After speaking with Ms. Kalkunte, Mr. Goldberg and Mr.
Shapiro contacted Mr. Meller
to determine which firm to retain for the independent
investigation and how to safeguard the
companys books and records. Goldberg Deposition at
49-50. Later that evening, the Board
met and formed the Special Committee comprised of Mr. Goldberg, Mr. Shapiro, and Mr. McHugh, for purposes of investigating allegations of certain financial and/or accounting and/or other irregularities, including possible misrepresentations as to the amount and nature of collateral pledged to lenders. CX 11:¶ 1; Goldberg Deposition at 48-49. In addition, an engagement letter with the law firm of Arnold & Porter was executed to conduct the investigation. Goldberg Deposition at 57; CX 8; CX 11:¶ 2.
Later that evening, Mr. Meller telephoned Mr. Toney to
advise him that Arnold &
Porter had been retained to perform an investigation of
allegations of accounting
improprieties at DVI. Tr. at 244, 560. Mr. Meller
further informed Mr. Toney that Ms.
Kalkunte had called the Board and alerted them to
shredding going on at the company. Id. at
243-244, 560. Finally, Mr. Meller requested that Mr.
Toney make available all records and
personnel necessary to aid the investigation and facilitate a meeting the next morning between the Arnold & Porter investigators and Ms. Kalkunte. Tr. at 244-245; Meller Deposition at 55-56. Immediately thereafter, at approximately 10:00 or 11:00 at night, Mr. Toney called all AP managers and told them to go all the way through the building . . . find every
shredder, shut it down and lock it down . . . Tr. at 561.
August 22, 2003: Arnold & Porter Investigators Arrive at DVI
The following morning, August 22, 2003, Arnold & Porter investigators, Jeffrey Bromme, a partner with the firm, and Charles Malloy, his associate, arrived at DVI. Tr. at 282; Bromme Deposition at 18. At that time, Mr. Toney discussed with them, as a preliminary matter, what needed to be done to secure everything. Tr. at 561; Bromme Deposition at 18. Mr. Toney then set about facilitating a meeting between the Arnold & Porter investigators and Ms. Kalkunte.13 Tr. at 245, 561. He led the investigators to Ms. Kalkuntes office, introduced everyone, and explained to Ms. Kalkunte that the investigators had come to speak with her about the allegations she had made to the Board. Id. at 561-562.
Mr. Toney then walked everyone over to a conference room and told Ms. Kalkunte to be forthright and to tell them everything that she wanted to share with them and to take as much time as they needed. Id. Mr. Toney testified that subsequent to that initial introduction, he did nothing at all to interfere with Ms. Kalkuntes ability to communicate booklets, these reports were then going to the public. That is indeed an inaccuracy that is being presented to the public marketplace. Id. at 13. with the investigators. Id. at 562. He viewed the Arnold & Porter investigation as independent and understood his role to be one of providing assistance rather than leading or conducting the investigation. Id. at 566. He stated that the investigators were an independent party and he did not get into who they talked to, who they wanted to talk to. Id.
Ms. Kalkunte provided testimony on the substance of her
meeting with the Arnold &
Porter investigators. During the meeting, which lasted
five or six hours, she discussed the
improprieties set forth in her August 18, 2003 memo, and
reiterated the points that she had
discussed with Mr. Shapiro and Mr. Goldberg. Tr. at 283.
She mentioned the names of the
individuals whom she knew had copies of the delinquency reports (i.e. Mr. Fier and Mr. Mallott). Id. Ms. Kalkunte testified that, generally, she had been extremely blunt about what was happening at DVI. Id. Mr. Bromme also provided testimony as to the substance of the meeting, which according to him, lasted approximately three hours. Bromme Deposition at
21. He testified that Ms. Kalkunte did the best she could to provide information and was helpful in increasing their knowledge of the situation. Id. at 30. She covered a number of allegations of
impropriety at DVI, described how the company was organized, and provided a sense of some of the personalities that had been at the company. Id. at 30-31. She also identified some individuals at DVI from whom the investigators might be able to gain more complete information.14 Id. at 31.
Mr. Bromme provided a detailed description of the issues
raised by Ms. Kalkunte during
the interview. The first issue raised by Ms. Kalkunte
was improper document destruction at
DVI. Bromme Deposition at 35. Although she had not
witnessed this, Ms. Kalkunte had learned
from her secretary that there seemed to have been
excessive shredding at the company. Id. at 35.
Ms. Kalkunte had also seen some bags of shredded
materials in the hallway. Id. The second
issue raised by Ms. Kalkunte dealt with
accounting/record keeping problems; she identified
people at DVI who would know more about these problems.
Id. at 36. The third issue raised by
Ms. Kalkunte dealt with pools of assets that had been
improperly described by people at DVI to
make it appear as though creditors had more collateral
than they actually had.15 The fourth issue
raised by Ms. Kalkunte dealt with an allegation she had learned from Mr. Boyle regarding records being shaped by management. Id. at 40-41. The fifth issue raised by Ms. Kalkunte dealt with her dissatisfaction at how her prior boss, Mr. Breaux, had been treated. Id. at 37. She believed that Mr. OHanlon, as CEO, had marginalized the legal department and that her boss, Mr. Breaux, been pushed out of the company. Id. at 38. Further, Ms. Kalkunte did not understand why Mr. Breaux had not yet been replaced and why he had not been replaced by her. Id.
August 25, 2003: DVI Files for Bankruptcy
On August 25, 2003, DVI filed for relief under Chapter
11 of the United States
Bankruptcy Code. CX 11:¶ 3; Tr. at 284-286. According to
Mr. Toney, DVI had been
moving towards a very rapid meltdown and the idea was to
at least stabilize it and do it as
a wind down in an orderly manner. Tr. at 527. Mr. Toney
testified as to the reasons that it
made sense for DVI to file for bankruptcy. He stated
that, while DVI had been operating in
the hope of remaining an ongoing entity, it became clear that the company was not writing new loans, not generating new business, and not marketing its services. Id. DVI was out of cash and did not know how it was going to pay its payroll. Id. at 521. Creditors were tightening down completely to the point that they wouldn’t fund the organization. Id. In
other words, as cash receipts came in, creditors were not allowing the company to use that cash. Id. Moreover, the allegations of impropriety were another reason for DVI to file for bankruptcy. Id. Mr. Toney testified that, since DVI was a publicly traded company, much of the information sought by the creditors could not be obtained without sharing it with the
general public. Id. However, the bankruptcy process would allow it to be more like a microscope ... a fishbowl where information [could be] more freely shared and open to other constituents or parties of interest in the case. Id.
Mr. Toney testified that once he assumed the role of CEO at DVI, he immediately held a meeting with all DVI employees to introduce himself as the new CEO, explain that the company had filed for Chapter 11 protection under the Bankruptcy Code, and that it was in the process of securing financing to ensure that employees would continue to be paid postpetition. Tr. at 527-528. He also explained the policy regarding retention of records (i.e. that no records were to leave the organization and that there was to be no destruction of any electronic or corporate files). Id. In addition, he explained that an investigation had been launched by the Board into some allegations about the company and that all employees were asked to cooperate fully. Id. Finally, he alerted the employees that due to the financial crisis at the organization, a reduction in force (RIF) would be necessary and that it would be taking place within the next few days. Id. at 531-532.
August 27, 2003: Reduction in Force at DVI
On August 27, 2003, there was a significant reduction in
force (RIF) at DVI. Tr. at
531. Mr. Toney testified that a RIF had been necessary
in order to stabilize the company and
wind down in an orderly manner. Id. at 527. Once he
assumed the role of CEO, Mr. Toney
testified that he was the ultimate decision maker at all
times regarding the RIF. Id. at 537. To
assist him in these decisions, he assigned Ms. Clay to work on human resources (HR) issues related to the RIF. Id. at 532-533. Ms. Clay was to work in conjunction with Nancy Cascioli, a human resources manager at DVI, who did not have experience in RIFs during a bankruptcy.16
Tr. at 532-533; Cascioli Deposition at 93-97.
Mr. Toney testified that the August 27, 2003 RIF had
been contemplated even before
DVI filed for bankruptcy as DVIs creditors had advised
that the company would not be
getting funding for all of its employees. Tr. at
532-533. Thus, Mr. Toney testified that,
before he assumed the role of CEO at DVI, the initial
phase of the RIF had been originated
by several of DVIs senior managers. Id. at 532. Ms.
Cascioli similarly testified that upper
level management at DVI had been making its own first attempt at a RIF list in anticipation of the fact that RIFs were inevitable given the circumstances of the company. Cascioli Deposition at 103-104.
Ms. Clay also testified as to the planning stages of the August 27, 2003 RIF. She stated that her first and immediate task at DVI had been to work with the then-senior managers at DVI to identify staff whose jobs could be eliminated. CX 48: ¶ 4. She was to organize a layoff of those employees in order to decrease expenses while assisting in maximizing the value of the companys assets. Id. Over the weekend of August 23-24, 2003, Ms. Clay met with Mr. Boyle, Mr. Miller, Mr. Turek, and Mr. Cady to discuss which DVI positions could be immediately eliminated based on the current business condition. Id. at ¶ 5. Ms. Clay accepted the recommendations of these managers as to whom to include in the RIF.17 Id. at ¶ 6. On Monday, August 25, 2003, Mr. Toney announced at an all-staff meeting that DVI would be laying off a sizable portion of its workforce that week. CX 48: ¶ 7. On Monday and Tuesday, August 25
and 26, 2003, Ms. Clay shared the list of employees selected for termination with Mr. Toney for his approval, and on Wednesday, August 27, 2003, DVI informed ninety-three employees throughout all U.S. operations that their positions were eliminated, effective immediately. Id. at ¶ 8.
Ms. Kalkunte testified that prior to the bankruptcy
filing, several individuals in senior
management had warned her there would be a significant
layoff once DVI filed for
bankruptcy. Tr. at 286. Although she had not known in
advance who was on the RIF list,
Ms. Kalkunte had not been concerned about her own job
security because she had been
assured by Mr. Miller that she would not be laid-off. Id. at 293-294. According to Ms. Kalkunte, Mr. Miller had actually advised her and the other in-house counsel that they need not worry about being laid off, because now more than ever [DVI] would need attorneys to help them in Chapter 11 . . . Id. at 294. In addition, Mr. Turek had also advised Ms.
Kalkunte that she would not be laid-off, since she had worked on a deal just prior to the bankruptcy, and the money brought in as a result was earmarked to go toward the bonus of all the attorneys, including Ms. Kalkunte. Id. at 293-294. Ms. Cascioli had also indicated that no one in the legal department, including attorneys and secretaries, would be laid-off.
Id. at 294-295.
Plans for an Ongoing RIF at DVI
Mr. Toney testified that the August 27, 2003 RIF was but one of a series of RIFs that would need to take place at DVI. As to his ongoing plan for the RIF, Mr. Toney testified that every dollar allotted by the Bankruptcy Court had to be accounted for in terms of benefit to the creditors. Tr. at 533-534. He further indicated that the creditors scrutinize very closely where every dollars going and that, in this case, they frequently came in and looked at the personnel list as to what everyone was doing. Id.
Mr. Toney testified that the main factor to be
considered in terms of whom to include in a
RIF was whether the employee could contribute to the
immediate needs of the situation at
17 Ms. Cascioli testified that, while Ms. Clay used this
initial list as a starting off point, it ultimately did
enough employees. Cascioli Deposition at 108.
Thereafter, a growing list of employees to be included
in a RIF was
formed. Id. at 110.
DVI. Tr. at 532-533. Mr. Toney stated: This was not a training ground. This was not going to be a long run. It was basically what could they bring in the short run and can these people be adaptive to the environment. Id. Moreover, he indicated that the RIF was to be complete across the board. Id. at 533. He further stated: It wasn’t to be the clerks and the
receptionists because that wasn’t going to be the significant savings. It had to be senior management all the way down to the mailroom and the cleaning staff basically. Id. Mr. Toney testified that every role had to be justified. Id. at 534-535. He used the analogy of being in a boat that was filling up with water, and to keep the boat afloat in the pond, people needed to be bailing water out of it. Id. Mr. Toney stated: [I]f people weren’t keeping it afloat or bringing value to the estate or providing assistance to keeping it afloat, then we couldnt justify it to the creditors. Id.
Ms. Clay similarly testified that after the first round of layoffs on August 27, 2003, all DVI employees were evaluated on a daily or near daily basis regarding the value they brought to DVI. Tr. at 651; CX 48: ¶ 9. Ms. Clay specified: We looked at all the levels, from the executives to admin secretaries to the utilities people, everyone was getting a look.
Tr. at 651. In addition, she and Mr. Toney discussed not only whether certain inside counsel working at DVI were necessary to the organization but also challeng[ed] outside counsel as to whether they needed as many paralegals and staffing in general. Id. at 654.
Ms. Kalkuntes Responsibilities at DVI Post-Bankruptcy
Ms. Kalkunte testified that, to her surprise, she was
never asked to meet with Ms.
Clay post-bankruptcy to discuss her duties at DVI or the
value she brought to the company.
Tr. at 286. However, at hearing, Ms. Kalkunte provided
testimony on these responsibilities.
As DVI was no longer getting any financing after the
bankruptcy, Ms. Kalkunte no longer
had the task of drafting opinion letters. Id. at 289-290, 352. Nevertheless, her duties and work hours increased. Id. at 289-292, 352. First, she began working with the treasury department to put together schedules regarding the location of DVIs assets globally as well as domestically.18 Id. at 286-287. Second, Ms. Kalkunte began working on buying the
problem loans, which the SEC had been eyeing, out of the securitization pool to reduce risk exposure to shareholders. Id. at 287-288. Third, she began drafting and changing resolutions for the company because DVI was undergoing many personnel changes at the time. Id. at 288-289. Fourth, Ms. Kalkunte began fielding telephone calls from many of
DVIs international offices inquiring as to the impact of the bankruptcy. Id. at 289-290.
Fifth, Ms. Kalkunte was in charge of the litigation
schedule and reviewing various matters
for which the company was being sued.19 Id. at 291. She
was also called upon to review
various bankruptcy documents and schedules. Id. at 291,
352. According to Ms. Kalkunte,
she was frequently called upon by Mr. DeCandia to answer
various questions as he wasnt
familiar with other goings on in the company other than the matters he worked on with Rich Miller, the president of the company. Id. at 291.
According to Mr. Toney, however, when DVI brought in the law firm of Latham & Watkins to be its lead bankruptcy and corporate counsel, the firm undertook an audit of DVIs corporate books and took over many of Ms. Kalkuntes duties. CX 47:¶ 10. Ms. Clay similarly testified that Ms. Kalkuntes role in the company following the bankruptcy was never welldefined.CX 48:¶ 14. According to Ms. Clay, Ms. Kalkuntes main task was to handle corporate bookkeeping to keep track of stock certificates, corporate minutes, and corporate resolutions for DVI and all of its many subsidiaries. Id.
Mr. Meller also provided testimony on Ms. Kalkuntes role at the company. Mr. Meller admitted that he never actually met Ms. Kalkunte in person, though he spoke with her on the telephone several times. Meller Deposition at 7. He also admitted that he never had any conversations with Ms. Kalkunte post-bankruptcy regarding her role at DVI, since Mr. Toney had indicated that he would discuss that matter with her. Id. at 9. Nevertheless, Mr. Meller provided testimony on what his expectations of Ms. Kalkunte post-bankruptcy. Primarily, he expected her to know where corporate and legal records were kept and where contracts and minute books were kept.20 Id. at 9-10. Mr. Meller also pointed out that, since DVI was not involved in any new contracts with customers, that aspect of Ms. Kalkuntes job was no longer relevant after the bankruptcy. Id. at 9. He testified: What was relevant though was what she might know about the contracts as well as what she knew about the corporate history, corporate structure subsidiaries ... Id. In addition, Mr. Meller expected that Ms. Kalkunte would understand the corporate structure and be able to describe it in terms of who owned stock of what company and where those certificates were kept. Id. at 9-10.
Ms. Kalkunte Follows-Up on the Status of the Arnold & Porter Investigation
Ms. Kalkunte made several inquiries as to the status of the Arnold & Porter investigation post-bankruptcy; however, she experienced difficulty obtaining information in this regard. She testified: I mustve read that attorney section a hundred times and Im still not exactly sure what I was responsible for. But I was required to follow up on that investigation and look into the improprieties. Tr. at 295-296. On a regular basis, Ms. Kalkunte asked other DVI employees about the investigation and whether they had been interviewed by Arnold & Porter. Id. at 296. She also spoke to the Board members about it and followed up with Mr. Heller, Mr. Toney, and Ms. Clay. Id.
September 10, 2003 Email
On September 10, 2003, Ms. Kalkunte made one such attempt to follow-up on the status of the Arnold & Porter investigation. Specifically, on the morning of September 10, 2003, she sent an email to Mr. Toney and Mr. Heller stating, among other things, that she needed to discuss the status of the Arnold & Porter investigation with Mr. Goldberg, who was copied on the email. CX 10:2-3. Four hours later, Mr. Heller sent an email to Mr. Toney stating:
Suggestion: have her get you a job description for the
next two weeks and have her update it
weekly -- where she thinks she can add value. You can
then yes/no it and tell her you will task
her with anything beyond that. Might work. CX 24:1. At
his deposition, Mr. Heller testified
there were two reasons for his having sent Mr. Toney
this email. First, Mr. Toney was
concerned that managing [Ms. Kalkunte] was becoming from
[Mr. Toneys] perspective
almost a job in itself. Heller Deposition at 16-17.
Second, Mr. Heller testified that he
needed to assist Mr. Toney, who needed to make
reductions in force, and Mr. Toney had felt
[the attorneys from Latham & Watkins] would be in a good
position to comment on what
[Ms. Kalkunte] might or might not add. Id. Accordingly,
Mr. Heller had the following
[F]or two weeks Ms. Kalkunte could let us know everything she thought she could do and give it to [Mr. Toney] and [he] made an analysis of what she should or shouldnt be doing to both, A, understanding Shelias view of how she could add to the process, and, B, having [Mr. Toney] be in a position to communicate to her succinctly here is what I wanted you to do and heres what I dont want you doing. Because there had been some confusion about what she might and might not be doing, what she should and should not be doing and whether or not there was anything for her to do at all under the circumstances. Id.
Mr. Heller further testified that there become a time when Ms. Kalkunte was not a distraction but someone that was taking attention from solving the problems we thought needed to be solved as opposed to helping us solve them ... I can say that at some point Ms. Kalkunte was not someone we felt would facilitate what we needed to get done on a very expedited basis. Id. at 24-25.
Complications with Arnold & Porters Retention
Arnold & Porter continued to investigate the
improprieties at DVI even after the
company filed for bankruptcy; however, there were
complications obtaining Court approval of
Arnold & Porters retention. Mr. Bromme testified that
Arnold & Porter had been aware from
the beginning that its retention would not be approved
at the outset just as all the other major
professionals would not receive immediate approval. Bromme Deposition at 81. In addition, Arnold & Porter had been aware that because Deloitte & Touche was one of its important clients, and because Deloitte & Touche had served as DVIs accountant, there could be a problem obtaining Court approval. Id. at 84. Mr. Bromme testified that this relationship had been
disclosed to the Special Committee from the beginning, and that while arguments had been developed to defend the retention of Arnold & Porter notwithstanding its relationship with Deloitte, everybody in the case recognized during September that those arguments might not
succeed. Id. at 85.
Mr. Bromme testified as to what degree having not
received Court approval affected
Arnold & Porters investigation. As the retention
application was to be brought for hearing in
early October 2003, Mr. Bromme testified that the aim
was to responsibly discharge their
investigatory task during September , obtain court approval in early October , and then go to the second phase. Bromme Deposition at 78. Mr. Bromme testified that the investigators wanted to do as much legwork as [they] could without being on the scene so that
when the investigators returned at the end of September  for a three-day series of interviews, those could be done efficiently. Id. at 77-78. Mr. Bromme further stated that Arnold & Porter was conscious of the fact that [DVI] was downsizing dramatically during that time period and wanted to ensure that the witnesses preliminarily determined to be important to the fact-gathering process would remain available. Id. at 78.
September 12, 2003 Meeting
On September 12, 2003, Ms. Kalkunte met with Mr. Toney and Ms. Clay (the September 12th meeting), at Mr. Toneys direction. Tr. at 297. According to Ms. Kalkunte, at the meeting, Mr. Toney stated: You work for me and Im the CEO of the company. 21
Id. at 298. He also reprimanded her about the tone of
her e-mails. Id. Mr. Toney advised
Ms. Kalkunte that they needed to work together and that
her role was now to work for
Latham & Watkins, that they were the attorneys at DVI
and ... [her] job was to assist Latham
& Watkins only. Id. In addition, Ms. Kalkuntes $10,000
bonus was discussed. Id. at 299-
300. Ms. Kalkunte had been inquiring about the $10,000 bonus that had been guaranteed as part of her salary, and Mr. Toney indicated that they still hadnt decided what to do on that issue. Id. at 300.
Significantly, the status of the Arnold & Porter
investigation was also discussed at the
September 12th meeting. Id. at 298. According to Ms.
Kalkunte, Mr. Toney indicated that
the investigation had ceased because Arnold & Porter was
not getting paid. Id. According to
the Ms. Kalkunte, this information conflicted with her
presumption that the investigation had
been moving forward.22 Id. at 299. Although she had presumed Arnold & Porters retention had gone through weeks beforehand, Mr. Toney advised her that this was not the case and that he had removed them from that list ... Id. According to Ms. Kalkunte, Mr. Toney then proceeded to state that there was no way in hell that the estate would pay for Arnold &
Porters investigation. Id. He also stated: dont worry, because at some point she would get [her] justice, and that it would be brought up probably by the Unsecured Creditors Committee or the U.S. Attorneys Office, [which would] look into these improprieties. Id. Moreover, Mr. Toney stated that there was no benefit to the estate to have these improprieties looked into. Id. Ms. Kalkunte testified that Mr. Toney was
clearly angry at her, and from that point forward, it was very clear that Mr. Toney was telling her the investigation was none of her business. Id. at 299, 300-301.
Mr. Toney also provided testimony on his version of the September 12th meeting. According to Mr. Toney, he began the meeting by explaining to Ms. Kalkunte that he was the CEO and that all the employees of the company reported to [him], and that she worked for him. Tr. at 245-246, 551. He admitted to having been direct, if not angry, with Ms. Kalkunte during the meeting. Id. at 551. He nevertheless maintained: I candidly can tell you that I did not stand up and point my finger as has been dramatized in this courtroom and say, You work for me. I basically said, as an employee of this company, and I am the CEO of the company, you do work for me. Id. Another topic of discussion was Ms. Kalkuntes $10,000 bonus, which had been a recurring question. Id. at 541-542. Mr. Toney told Ms. Kalkunte that there had been no resolution of how or if the bonus could be paid. Id. at 542.
Another topic of discussion was the need for Ms. Kalkunte, as a manager and attorney in the organization, to be very sensitive regarding her conversations with individuals outside the organization. Id. at 550. Earlier in the week Mr. Toney had learned that Ms. Kalkunte called Andy Rahl, counsel for the Creditors Committee, and represented to him that she, as well as other employees at DVI, was concerned about receiving pay. Id. Mr. Rahl had not yet received Court approval at that time, and therefore Ms. Kalkuntes representations to him concerned Mr. Toney. Id. Mr. Toney felt compelled to remind Ms. Kalkunte that she was an employee of the company, and as an attorney and manager, she needed to be a leader and support the bankruptcy process and try to keep the process moving in a positive direction for the creditors. Id. at 551.
A final topic of discussion at the September 12th
meeting was the status of the Arnold
& Porter investigation. Tr. at 249, 547. Mr. Toney
testified that he had advised Ms.
Kalkunte that the Bankruptcy Court had not yet approved
the retention of Arnold & Porter.
Id. at 249. He explained that just as the retention of
Latham & Watkins, Adelman & Lavine,
and AP had required Court approval so too did the retention of Arnold & Porter. Id. at 250.
Mr. Toney further explained that Arnold & Porter was
concerned about investing a
significant amount of time in the investigation and then
not receiving Court approval. Id.
Thus, Arnold & Porter was walking a balance of trying to
keep the investigation moving
forward but also protecting itself in case it ultimately
did not receive Court approval. Id. at
547-548. Mr. Toney advised Ms. Kalkunte that he was not
pleased with the pace of the
investigation either but assured her that it was moving
forward. Id. In contrast to Ms.
Kalkuntes testimony, Mr. Toney denied ever discussing
the cost of the investigation to the
estate. Tr. at 548. Moreover, he denied ever using the
words: Theres no way in hell Im
going to allow the estate to pay for this investigation.
Id. at 549. In that regard, he
testified: Im a professional. I treat employees,
especially in these situations, in a
professional manner, and I wouldn’t have used, while I wont deny that there are times when I will swear, it’s not something that I would use in a discussion with an employee in a meeting like this. Id. He added that he had been involved in the bankruptcy process for a long time and realized that DVI would be responsible for paying for an investigation regardless of which entity was ultimately chosen or approved to conduct it. Id.
Finally, Ms. Clay provided testimony on her version of
the September 12th meeting. Ms.
Clay denied that Mr. Toney stated: There was no way in
hell the estate would pay for the
Arnold & Porter investigation. Tr. at 645-646. However,
she admitted that Mr. Toney told
Ms. Kalkunte that she worked for him. Id. at 646. Ms.
Clay testified that she believed Mr.
Toney stated as such because there seemed to be some
ambiguity in Ms. Kalkuntes
reporting relationship as there was no general counsel at the company, and Mr. Toney wanted to clarify that reporting relationship. Id. Ms. Clay testified that during the meeting, Mr. Toneys demeanor was one of professionalism, firmness, in a conversational tone. Id.
She stated that, while the issue of Ms. Kalkuntes desire to obtain her $10,000 bonus was raised, there wasnt time to address it. Id. at 647. However, Mr. Toney did instruct her to follow up with Ms. Kalkunte on that issue. Id.
Ms. Kalkuntes Actions After the September 12th Meeting
After the September 12th meeting, Ms. Kalkunte spoke to various colleagues about the September 12th meeting. Tr. at 300. She also called her mentor, Mr. Whelan, and advised him exactly again the conversation that [she] had with Mark Toney. Tr. at 301-302. Ms. Kalkunte testified:
[Mr. Whelan] was stunned, also, that somebody would say something like that so brazenly, and when I say, say something like that, I don’t just mean that I work for him, but say that there was [no] way in hell that the estate would pay for the Arnold & Porter investigation. So he said, let me think about it and call you back. He called back and told me again, the only thing he can see as my obligation is to report it up the chain again, and if reporting to the CEO would be futile, then report it to the audit committee. Id.
Since reporting to the CEO would have meant reporting to
Mr. Toney, Ms. Kalkunte
instead contacted Mr. Goldberg and Mr. Shapiro again.
Tr. at 302; CX 16:3. She told them
about the September 12th meeting and specifically
expressed [a] concern that refraining
from retaining the special counsel until after the
expedited sale of substantially all of DVIs
assets in Chapter 11 would look improper. CX 16:3.
According to Ms. Kalkunte, Mr.
Goldberg and Mr. Shapiro told her that they would look into it right away and get back to her, just as they had said on August 21, 2003, when she originally told them about the improprieties. Tr. at 302.
Mr. Goldberg also provided testimony on his version of the communications with Ms. Kalkunte at this time. Goldberg Deposition at 87. His testimony suggests that the topic discussed was Ms. Kalkuntes sign-on bonus that had not been paid. Id. at 87.
There is an issue regarding when Mr. Toney learned of
the above discussion between
Ms. Kalkunte and the Special Committee Members. During
his deposition, Mr. Toney
testified that he learned of the above discussion during
a Board meeting that took place
sometime after September 15, 2003, the filing date of
the motion for Arnold & Porters
retention, but before September 18, 2003, the date of Ms. Kalkunte was termination. Toney Deposition at 272-273. However, at hearing, Mr. Toney testified that he did not learn of the above discussion until September 22, 2003, after Ms. Kalkunte had been terminated. Tr. at 575-576.
Mr. Toney admitted that, in this regard, his hearing
testimony conflicted with his
deposition testimony. Tr. at 575-576. He realized his
error when he read the transcript from
his deposition, reviewed the Board meeting minutes from
that day, and learned the date of
that meeting. Tr. at 576, 585-587; EX 75. Mr. Toney
testified that at the September 22,
2003 Board meeting, he, among other things, advised the
Board of recent resignations and
terminations. He advised that Ms. Kalkunte had resigned
on September 10, 2003, and had
been terminated on September 18, 2003. Tr. at 587-588.
In addition, the issue of Arnold &
Porters retention was raised. Tr. at 588. Specifically,
when Mr. Toney advised that the
motion had been filed on September 15, 2003, and would be heard on October 3, 2003, the Board was surprised because Ms. Kalkunte had alleged that Mr. Toney pulled the retention papers. Tr. at 588.
September 15, 2003: Retention Application Filed
On September 15, 2003, two attorneys from Adelman & Lavine filed Arnold & Porters retention application. Tr. at 572; CX 11.
September 18, 2003: Ms. Kalkunte is Terminated
On September 18, 2003, Ms. Kalkunte was called in to
meet with Ms. Clay and Ms.
Cascioli. Tr. at 304. According to Ms. Kalkunte, Ms.
Clay proceeded to say: [T]his is the
hardest thing Ive ever had to do, but were terminating
your position and letting you go.
Id. The purported reason for terminating her was that
her position was no longer necessary;
allegedly it had nothing to do with performance but was
part of the continuing risk that
ensued from the bankruptcy.23 Tr. at 304; CX 48: ¶ 22;
Cascioli Deposition at 144. Ms.
Kalkunte testified that she was very surprised by the
news of her termination. Tr. at 305. No
severance package was offered and she received nothing.
Id. According to Ms. Cascioli, Ms.
Kalkunte reacted negatively to the news of her
termination and asked whether other employees
with JDs were being retained. Cascioli Deposition at
146. Ms. Clay responded that the RIF
was according to job duty, not by other criteria. Id.
After the meeting, Ms. Kalkunte testified that she was
escorted to her office by Ms.
Cascioli where they spent about five minutes reviewing
exit papers. Tr. at 305. At this time,
Ms. Kalkunte again inquired as to the status of her
pre-petition guaranteed bonus, indicating that
it was her understanding that the Court had approved
payment of it. Tr. at 305; Cascioli
Deposition at 183. Ms. Kalkunte also inquired as to
whether she could take her private file of the
opinion letters she had drafted as that liability would
follow her. Tr. at 305. At that point, Ms.
Cascioli asked Ms. Clay to rejoin them in Ms. Kalkuntes
office, since Ms. Cascioli did not know
how to respond to Ms. Kalkuntes questions. Tr. at 305; Cascioli Deposition at 184. Thereafter, Ms. Clay advised Ms. Kalkunte that there was no decision yet regarding the guaranteed bonus. Tr. at 656; Cascioli Deposition at 184. She also advised that Ms. Kalkunte would not be
permitted to take her opinion letters as all employees who left the company were not permitted to take any corporate papers with them. Tr. at 656.
Finally, Ms. Cascioli escorted Ms. Kalkunte out of the
building as she had been directed
to do by Ms. Clay.24 Tr. at 306; Cascioli Deposition at
148-149. While she did not know why
Ms. Clay had given this instruction, it did not strike
Ms. Cascioli as unusual, since employees
who are involuntarily terminated with little notice are
often escorted. Cascioli Deposition at 150.
Ms. Kalkunte testified that she was livid and extremely embarrassed because she was being escorted out of the building like a criminal. Tr. at 306. Ms. Cascioli testified that during the elevator ride, Ms. Kalkunte stated that [her termination] would give her more time to do what
she needed to do and that she would place a call to the SEC and have DVI crawling. Cascioli Deposition at 148.
Ms. Kalkuntes Actions Post-Termination
After being escorted from the building, Ms. Kalkunte
emailed her former colleagues
to alert them that she had been laid off. CX 13. She
advised them that she believed her
termination was due to the fact that she had informed
the board of directors on Monday that
Mark Toney had haulted the independent investigation by
Arnold & Porter into allegations of
improprieties. Id. Ms. Kalkunte further wrote: After my discussion with the board, they insisted that AlixPartners move to retain [Arnold & Porter] in an emergency motion on Tuesday evening that was heard Wed (among other things). I dont think Mark Toney likes anyone to disagree with him. I also think they considered me a rabble rouser with respect
to employee issues. Id.
In addition to emailing her former colleagues, Ms.
Kalkunte called Mr. Goldberg and
Mr. Shapiro and left messages for them asking whether
they had had anything to do with her
termination. Tr. at 308. She never heard back from them.
Id. at 307-308. Mr. Goldberg
similarly testified that he received a message from Ms.
Kalkunte asking whether he was aware
that she had been terminated. Goldberg Deposition at 85-86. Until he received her message, Mr. Goldberg had not known of her termination. Id. at 86. Rather than call Ms. Kalkunte back, Mr. Goldberg asked the attorney representing the outside directors, Robert Romano, to contact her.25
Investigation Into Ms. Kalkuntes Termination
After learning of Ms. Kalkuntes termination, Mr.
Goldberg directed Mr. Meller to
perform an investigation into it. Goldberg Deposition at
96-97. Accordingly, Mr. Meller
requested Ms. Kalkuntes complete personnel file from Ms.
Clay. CX 52; Tr. at 446.
Subsequently, Mr. Meller reported to Mr. Goldberg that
the work performed by Ms. Kalkunte
could be performed with adequate or better quality at a
lower cost by assigning it to outside
counsel, and that some of the work she was involved in was beyond her personal experience base. Cascioli Deposition at 97-98.
Reasons Provided for Ms. Kalkuntes Termination
Mr. Toney was the ultimate decision maker on Ms. Kalkuntes termination. Tr. at 552, 594. He denied that her communication with the Arnold & Porter investigators or her concerns about the retention application had any impact on his decision to terminate her.26
Tr. at 588-589. Rather, by the third week of September 2003, Mr. Toney determined that Ms. Kalkunte was not providing significant enough value at DVI to keep her on. Id. at 552. Mr. Toney stated that he had wanted to give the benefit of the doubt to Ms. Kalkunte
On September 22, 2003, Mr. Romano sent correspondence to
Ms. Kalkunte stating that neither Mr. Goldberg
nor Mr. Shapiro had been aware of her termination until
learning of it from her, and that they did not make the
decision to terminate her, nor did they authorize anyone
at DVI to make that decision. CX 51. Also on
September 22, 2003, Ms. Kalkunte drafted a memorandum to
Mr. Goldberg and Mr. Shapiro formalizing her
previous discussions with them. CX 16. and therefore characterized her termination as a RIF for her benefit so that she could draw unemployment and have an easier time finding a new job. Id. at 628. He testified that, just like all DVI employees after the bankruptcy filing, Ms. Kalkuntes role was continuously under evaluation. Id. at 537. When questioned specifically as to whether Ms. Kalkuntes work performance affected his decision to terminate her, Mr. Toney stated that as with all employees, he assessed the value that she brought to the estate in terms of her day-to-day workload and concluded that she was not bringing value. Id. at 627-628. When questioned as to how Ms. Kalkuntes salary factored into his decision to terminate her, Mr. Toney testified that Ms. Kalkuntes rate of compensation was one factor in assessing how much value she brought to the estate. Mr. Toney added that Ms. Kalkuntes role was as in-house
counsel and, in that capacity, she needed to be able to adapt and be moved and be flexible in her tasks.27 Id. at 537. In that regard, Mr. Toney admitted having told Ms. Kalkunte that the only employees needed at DVI were those willing to have a bucket in their hand and throw the water out.28 Id. at 255. Mr. Toney stated that Ms. Kalkunte was not adapting to
the crisis situation but was instead fighting with outside counsel, which was not beneficial to the estate. Id. at 635-636.
Mr. Toney and Ms. Clay evaluated the usefulness of having Ms. Kalkunte perform basic corporate duties and concluded that unlike the other attorneys working for DVI, Ms. Kalkunte was adding no value to the company, and her role was largely redundant. CX 47: ¶ 11. To that end, Mr. Toney stated that once Latham & Watkins became DVIs lead bankruptcy and corporate counsel it undertook an audit of DVIs corporate books and took over many of Ms. Kalkuntes duties. Id. at ¶ 10.
Specifically, Mr. Toneys understanding was that Latham & Watkins had needed an individual on the ground to help locate records, and that Mr. Meller had assigned an attorney from Latham & Watkins to perform that function. Tr. at 553. Accordingly, Mr. Toney concluded that whatever needs of DVI Ms. Kalkunte had been fulfilling could be covered by another resource within the company or one of the outside attorneys. Id.
In addition, Mr. Toney based his decision to terminate
Ms. Kalkunte on comments he
received from other managers and attorneys. Tr. at 552,
594. Specifically, he discussed Ms.
Kalkuntes role and work performance with Mr. Heller, Mr.
Athanas, Mr. Meller, and Mr.
Schildhorn.29 Id. at 538. Mr. Toney testified that Mr.
Hellers assessment was that he
really wasnt utilizing [Ms. Kalkunte] that much. Id. at
539. Mr. Toney testified that Mr.
Athanass remarks regarding Ms. Kalkunte were a little different in that he had worked with her on a specific situation [that had been] a little disappointing ... Tr.. at 540; Athanas Deposition at 7-8, 11. According to Mr. Toney, Mr. Schildhorns remarks were that he basically ... was not using her. He said that she had been cooperating in helping with
getting the motions. Tr. at 540. Mr. Toney also instructed Ms. Clay to obtain a list of Ms. Kalkuntes day-to-day job responsibilities and to report back to him. Tr. at 252-253, 541.
However, he never received such a list from Ms. Clay.30
Id. at 254, 541.
A Certification signed by Mr. Toney addresses certain problems caused by Ms. Kalkunte while at DVI; however, these problems, purportedly, were not the reasons for her termination. CX 47:¶ 35. For example, after DVI filed for bankruptcy, Ms. Kalkunte repeatedly inquired about the pay and benefits of terminated employees, as well as her own fiscal year 2003 bonus. Id. at ¶ 20. She even went so far as to contact the attorneys for the unsecured creditors committee to say that she was representing DVI employees who are unsecured creditors with claims against the company. Id. at ¶ 21. Handling and advancing such inquiries were not Ms. Kalkuntes responsibility and contacting the unsecured creditors committee while serving as an attorney for DVI posed a major conflict of interest and
caused considerable confusion between and among the unsecured creditors committee and DVIs outside counsel. Id. at ¶ 22. Another example of Ms. Kalkunte causing problems at DVI involved a very sensitive negotiation over debtor-in-possession financing. Id. at ¶ 23-27. According to the Certification, Ms. Kalkunte was made aware of certain aspects of the negotiation through the inadvertence of outside counsel, and then demanded information regarding it in a confrontational manner. Id. at ¶ 28.
The Certification also states that on September 12,
2003, Mr. Toney was prompted to
meet with Ms. Kalkunte regarding her actions. CX 47:¶
29. During that meeting, he
reminded her that she worked for him, criticized her for
the tone with which she addressed
her colleagues and superiors both inside and outside
DVI, and made clear that certain
confidential matters did not concern her. Id. at 31-32.
In addition, the issue of Ms.
Kalkuntes bonus was addressed, and Mr. Toney explained the statutory limitation under the bankruptcy code on paying out compensation earned pre-petition. Id. at ¶ 33. Finally, in response to Ms. Kalkuntes questions about the status of the investigation, Mr. Toney explained the circumstances surrounding the retention of Arnold & Porter and DVIs
impending application for Court approval to pay Arnold & Porter. Id. at ¶ 34. According to Mr. Toney, although Ms. Kalkuntes demeanor and judgment were addressed during the September 12, 2003 meeting, they were not the reasons for her termination. Id. at ¶ 35. In that regard, Mr. Toney stated: If the September 12th meeting had anything to do with Ms.
Kalkuntes termination, it helped focus Ms. Clay and me on the lack of a role for Ms. Kalkunte in the organization, hastening our inevitable decision to terminate her. Id. at ¶ 36.
Ms. Clay also testified about the decision to terminate
Ms. Kalkunte. She admitted
that during the month of September, 2003, Ms. Kalkunte
was the only employee terminated by
30 Mr. Toney also admitted that he never asked of Ms.
Clay, nor did she ever provide him with, a list of the
responsibilities of the other in-house counsel, Robert DeCandia, Ed Bell, Jennifer Santangelo, and Robert Blau. Tr. at 254. He testified that the reason he never asked this of Ms. Clay was that those people reported
primarily to other individuals and [he] was talking to those managers to find out what they were working on. Id.
DVI at her initiative and the initiative of Mr. Toney.
Tr. at 444. Ms. Clay stated that during the
first half of September 2003, as a part of a constant
reevaluation of positions required given
the change in circumstances at DVI, she reviewed Ms.
Kalkuntes role in the company. CX
48:¶ 16. In September 2003, DVIs legal department consisted of only Ms. Kalkunte and her secretary. Id. at ¶ 17. Together with Mr. Toney, Ms. Clay evaluated the necessity of having Ms. Kalkunte perform basic corporate duties. Id. at ¶ 18. They concluded that unlike the other attorneys working for DVI, Ms. Kalkuntes position was no longer required in light of
all the outside counsel performing essentially the same functions as she. Id. at ¶ 19.
In evaluating Ms. Kalkuntes value to DVI
post-bankruptcy, Ms. Clay spoke with
persons who would be knowledgeable on Ms. Kalkuntes
duties, which included Mr. Judd,
Mr. Schildhorn, and Mr. Meller. Tr. at 647. In general,
they all told her that Ms. Kalkunte
was performing more of a record keeping type function
rather than day-to-day transactional
business functions, and that [her] role in their opinion was more administrative. Id. In addition to speaking with counsel, Ms. Clay testified that Mr. Toney had also asked her to meet with Ms. Kalkunte to discuss her job functions. Id. at 648-649. Ms. Clay claimed that, while she made a point of asking Ms. Kalkunte to provide a list of her job duties at the
September 12th meeting, Ms. Kalkunte never provided such a list. Id.
Mr. Meller also provided testimony on the decision to terminate Ms. Kalkunte.
He stated that around September 5 or 6, 2003, he spoke with Mr. Toney regarding the value that Mr. Turek, Ms. Kalkunte, and one other employee brought to DVI. Meller Deposition at 10-11.
Mr. Meller stated he had no opinion on Mr. Tureks value to DVI; however, he did not find Ms. Kalkunte necessary to the operation. Id. at 10. Specifically, he advised Mr. Toney that Ms. Kalkunte did not seem to have the command of the facts we need and we have to build this from scratch so it is easier to go do it ourselves. Id. Mr. Meller also stated that in his attempt to obtain information regarding who owned what stock and which stock certificates were getting pledged, Ms. Kalkunte had provided charts that were just plain wrong. Id. at 11-12.
Accordingly, he determined that Latham & Watkins attorneys would need to perform the functions that he had hoped Ms. Kalkunte would be able to perform.31 Id. at 12.
Mr. Heller also provided testimony on Ms. Kalkuntes
He testified that [t]here became a time that it became clear ... that [Ms. Kalkunte] was not in a position to get us all the information we needed and all the data we needed and there was a lot of things that she should have known them, but clearly she was not a wealth of information and, yes, viewing Shelia as the source of information that changed. Heller
Deposition at 10-11. Mr. Heller stated that viewing Ms. Kalkunte as a conduit to information changed when it became clear that for whatever reason she could not immediately access what was needed, and with respect to the general operations of the company, there were things she indicated that she just didnt know. Id. However, Mr. Heller further stated:
... I dont mean to suggest for one
moment that she should have
known. I dont know what her job responsibilities were before we got to the scene. But it was clear to me that we were unable to get from [Ms. Kalkunte] what one would be hoping to be able to get from internal counsel. Id.
31 Mr. Meller admitted, however, that he never spent any time at DVIs headquarters in Jamison, never witnessed Ms. Kalkunte at work, and had no idea how busy she was. Meller Deposition at 61-62. In addition to the work she performed for him, Mr. Meller was aware that Ms. Kalkunte performed contract review, helped on the DIP facility, and handled some of the day-to-day legal matters, and some litigation. Id. at 62.
Ms. Cascioli also provided testimony on the decision to terminate Ms. Kalkunte. Her understanding of the reason for Ms. Kalkuntes termination was that it involved legal expenses and outside counsel versus the need for inside counsel. Cascioli Deposition at 140, 145. Ms. Cascioli testified that between December 2002 and September 2003, she got the general sense that Ms. Kalkunte would rub people the wrong way . . . Cascioli Deposition at 130.
Specifically, she recalled an email situation between Ms. Kalkunte and her paralegal, Jackie Green. Id. at 131. Other than that, Ms. Cascioli could not recall any conversations with DVI employees regarding Ms. Kalkuntes performance. Id. Ms. Cascioli testified that once she was advised of Ms. Kalkuntes termination, she prepared the necessary paperwork and handled it as all other RIFs were handled. Cascioli Deposition at 139, 141-142; CX 12. However, she did not prepare the letter that was typically prepared for DVI employees notifying them of a RIF.
Cascioli Deposition at 142. As to why she failed to
prepare this letter, Ms. Cascioli stated: I
dont believe that ... letters were prepared either for
the person that left on September 15th or ... Shelia on
the 18th. It became more routine, if I am not mistaken,
with the November ...
reductions and beyond and more recent. Id.
Evaluating the Value of Other Employees
Mr. Toney testified that an ongoing process of
evaluation was applied to all DVI
employees, including managers and executives, assessing
the value that each employee
brought to the estate. Tr. at 556-557. Specifically, a
cost-benefit analysis was performed in
terms of whether the employees work was important to the
creditors, the estate, and the
bankruptcy process. Id. Mr. Toney testified that this evaluative process began before the bankruptcy filing and continued all the way through the end of it. Id.
Mr. Toney, Ms. Clay, and Ms. Cascioli all provided
testimony on how the costbenefit
analysis was applied to specific employees, and, in
particular, attorneys at the
company. Regarding Mr. DeCandia, an attorney at DVI, Ms.
Clay testified that he had been
working closely with the Adelman group on a lot of
transactional work. Tr. at 650. Ms.
Clay consulted with Mr. Schildhorn, outside counsel from
Adelman & Lavine, about Mr.
DeCandias value to the company, since Mr. Schildhorn was most familiar with his work. Id.
Ms. Clay further stated: [A]s I did with Ms. Kalkunte, I had a conversation with Mr. DeCandia about the work that he was doing at the time.32 Id. at 650-651. Mr. Toney testified that he relied on managers working with Mr. DeCandia, as well as Ms. Clay, to observe Mr. DeCandias work and value to the estate. Id. at 558. Ms. Casciolis understanding of Mr. DeCandias job duties was that he worked on specific major accounts specific to DVI Financial Services. Cascioli Deposition at 153.
In January, 2004, Ms. Cascioli processed the transfer of Mr. DeCandia from the executive department to the legal department to assume the position of associate counsel.
Cascioli Deposition at 158-159; CX 18. However, she could not recall Mr. Toney having provided a reason for the transfer. Cascioli Deposition at Depo. at 159. Ms. Cascioli testified:
Its not a big deal. It probably was just to more
accurately reflect the type of work that he was
doing at that point in time. He was no longer working on
large accounts like he had been hired
for workout situations. Id. Mr. Toney admitted that
after he terminated Ms. Kalkunte, he
spoke with Mr. DeCandia and explained to him that, since
Ms. Kalkunte had left DVI, if
there were things that might fall through the crack [sic], he would have to pick up those items.33 Tr. at 256-257. In her Certification, Ms. Clay stated that since outside counsel had been able to handle all of DVIs general legal needs, the company had not filled Ms. Kalkuntes position with anyone else since her termination. CX 48: ¶ 20. Mr. DeCandias last day of employment at DVI was in May, 2004, when he was included in a RIF. Cascioli Deposition at 190-191.
Regarding Ms. Santangelo, an attorney who headed the
Ms. Clay testified: The sense that I had when I heard
about Ms. Santangelo, unsolicited,
was that she was really seen as one of the stars in the
company and we were hoping that she
would stay with the company. Tr. at 649. Mr. Toney
similarly testified that Ms.
Santangelo, who had been earning a higher salary than
Ms. Kalkunte, was not terminated
because she had been working in documentation, and a large task had been to secure all the files at DVI. Tr. at 614-615, 634-635; EX 63:16. Mr. Toney testified that all managers had agreed that Ms. Santangelo was doing an extremely good job and providing significant assistance to all outside parties, creditors, and banks. Tr. at 634-635.
Regarding Mr. Bell, another attorney at DVI, Ms. Clay testified: Mr. Bell was recouping monies for the corporation, which had been an important task given the condition of the company at that time. Tr. at 650. Ms. Clay consulted with one of her AP colleagues about Mr. Bells value to DVI. Id. at 649-650. According to Ms. Clay, Mr. Bells performance was described in terms similar to that of Ms. Santangelo. Id. at 650. Ms. Casciolis understanding of Mr. Bells duties was that he worked on loan workout, which is major accounts in distress who are behind in payments and coming up with a way for them to get back on track with payments. Cascioli Deposition at 152-153. Ms. Cascioli testified that Mr. Bells last day of employment was in April or May, 2004. Id. at 191.
Regarding Mr. Blau, another attorney at DVI, Ms. Clay
testified that his services were
necessary to the company at that time. Tr. at 650. Ms.
Clay consulted with one of her AP
colleagues about Mr. Blaus value to DVI. Id. Ms.
Casciolis understanding of Mr. Blaus job
duties was that prior to August, 2003, he had similar
duties to Mr. Bell, and then in August,
2003, he began workout type work similar to what he had done for financial services for the business credit division. Cascioli Deposition at 153-154. Ms. Cascioli also testified that Mr. Blau was part of a RIF on October 1, 2004. Id. at 191.
Ms. Cascioli testified that, after the bankruptcy filing on August 25, 2003, it was believed that everyone at DVI would be unemployed by September 30, 2003. Cascioli Deposition at 178. According to Ms. Clay, six employees were laid off in November, 2003, ten in January, 2004, and fifteen in February, 2004. CX 48: ¶ 11. At the time of her deposition, Ms. Cascioli testified that there were twelve remaining domestic employees in DVIs Florida office. Cascioli Deposition at 71. There were also three or four part-time employees. Id. at 71-72. There were no longer any attorneys on DVIs payroll. Id. at 72.
Comparitor Situation: Rebecca Kolbe
Rebecca Kolbe, a DVI employee who worked as an executive
assistant, also left the
company in September, 2003. Toward the end of her
employment at DVI, Ms. Kolbe had served
as an executive assistant to Mr. Garfinkel. Kolbe
Deposition at 7, 21. However, when Mr.
Garfinkel left DVI in August, 2003, Ms. Kolbe began
unofficially reporting to Mr. Turek. Id. at
7-9. While reporting to Mr. Turek, Ms. Kolbes tasks involved helping with whatever [AP] or Toney needed help with. Id. at 23. She further stated: I kind of helped a lot of different departments, treasury and anybody else who needed help, I kind of was a wanderer when there was nothing to do. So my duties were to help whoever needed help. Id. With regard to
whether she had had a lot of work at this time, Ms. Kolbe testified: No. I made myself a lot of work. I wasnt Toney didnt have a lot of work for me, and [AP] had a couple of things, but, you know, they it was a little stressful but not bad, as far as what was going on. Id. Ms. Kolbe was not included in the initial RIF that took place on August 27, 2003. Kolbe
Deposition at 9. That notwithstanding, Ms. Kolbe testified that after the initial RIF, we all knew, nobody told us, but everybody knew we were all going to go eventually. Id. at 10-11.
She anticipated that she would be let go soon as she worked for Mr. Garfinkel; however, no one at either DVI or AP ever told her that her position had been identified for elimination or that her termination was inevitable. Id. at 10-11, 14-15. Since she assumed that her termination was inevitable, and since she had personal items to take care of at home, at the end of August/beginning of September, 2003, Ms. Kolbe told Mr. Turek that she wished to be let go for personal reasons. Id. at 10-12. While initially Mr. Turek expressed an interest in keeping Ms. Kolbe employed by the company, he ultimately complied with her request. Id. at 17-18.
According to Ms. Kolbe, Mr. Turek consulted with Ms.
Clay, who determined that Ms.
Kolbe should take her two-week vacation immediately and
would then be let go at some point
when she returned.34 Kolbe Deposition at 10-13. The day
after her conversation with Mr. Turek
and Ms. Clay, Ms. Kolbe took her two-week vacation. Id.
at 13-14. Although she was supposed
to be terminated on September 11, 2003 (a Thursday), she
had acquired another vacation day,
and therefore was terminated the following Monday,
September 15, 2003. Id. at 14. In
completing the forms at the time of her termination, Ms.
Kolbe was instructed by Ms. Cascioli to
check the box marked terminated without cause. Id. at 16-17, 25. Ms. Kolbe testified that she was not escorted to the door when her employment ended. Id. at 18.
Ms. Clay provided a different version of events with regard to Ms. Kolbes termination. She testified that after the initial RIF, Mr. Turek initiated a conversation with her about whether Ms. Kolbes services were still needed in light of the fact that Mr. Turek had begun performing less work at the company. Tr. at 438-439, 441. Ms. Clay testified that ultimately Ms. Kolbe was terminated because it was determined that her function was no longer needed.35 Id. at 651.
Ms. Clay further indicated that neither Ms. Kolbe nor
Mr. Turek had been upset with the
termination. Id. at 652. Ms. Clay testified that the
process used to evaluate Ms. Kolbe did
not differ from the process she used in evaluating all
DVI employees: she spoke with the
person most familiar with her work at the time, Mr.
Turek, before the determination was
made to terminate her. Id. at 652-653.
CONCLUSIONS OF LAW
The evidentiary framework for whistleblower claims under
the Sarbanes-Oxley Act is
specifically set forth in the statute. 18 U.S.C. §
1514A(b)(2)(C). An action brought under the
Sarbanes-Oxley Act shall be governed by the legal
burdens of proof set forth in section
42121(b) of title 49, United States Code. Id. Under the
statutory framework, a complainant
must show by a preponderance of the evidence that the
protected activity in which she engaged
was a contributing factor in the unfavorable personnel
action taken against her. 49 U.S.C. §
42121(b)(2)(B)(iii). The respondent may avoid liability
if it can demonstrate by clear and
convincing evidence that it would have taken the same
unfavorable personnel action in the
absence of [protected] behavior. 49 U.S.C. § 42121(b)(2)(B)(iv); 29 C.F.R. § 1980.109.
Whistleblower cases are analyzed under the framework of
precedent developed in retaliation
cases under Title VII of the Civil Rights Act of 1964,
42 U.S.C. § 2000e, et seq and other antidiscrimination
statutes. See Overall v. Tennessee Valley Authority,
(HTML), ARB Nos.1998-111, 128, ALJ No. 1997-ERA-53, at 12-13 (ARB Apr. 30, 2001), citing, inter alia, McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973); Texas Dep’t of Community Affairs v. Burdine, 450 U.S. 248 (1981); St. Mary’s Honor Center v. Hicks, 450 U.S. 502 (1993); and Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133 (2000).
A complainant may meet her evidentiary burden through
direct or circumstantial
evidence. Direct evidence is evidence from which a
reasonable trier of fact could find, more
probably than not, a causal link between an adverse
employment action and a protected
[activity]. Wright v. Southland Corp., 187 F.3d 1293,
1297 (11th Cir. 1999). In other words,
direct evidence is smoking gun evidence that the respondent acted with discriminatory (retaliatory) motivation. See Gavalik v. Continental Can Co., 812 F.2d 834, 852-53 (3d Cir.), cert. denied, 484 U.S. 979 (1987). However, since direct evidence of discriminatory (retaliatory) intent may not be available, a complainant may also satisfy her evidentiary burden through the introduction of circumstantial evidence. See id. When relying on circumstantial evidence, the complainant must show that: (1) she engaged in protected activity; (2) the employer knew of the protected activity; (3) she suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action. 29
C.F.R. §§ 1980.104(b), 1980.109(a); See Bartlik v. U.S. Dept. of Labor, 73 F.3d 100, 102, 103 n. 6 (6th Cir. 1996); Carroll v. U.S. Dept. of Labor, 78 F.3d 352, 356 (8th Cir. 1995); Cohen v. Fred Meyer, Inc., 686 F. 2d 793, 796 (9th Cir. 1982).
The burden then shifts to the respondent to produce
evidence that it took adverse action
for a legitimate, nondiscriminatory reason. Under the
traditional Title VII analysis, the burden of
persuasion remains at all times with the complainant,
who must prove by a preponderance of the
evidence that the respondent’s proffered reasons were
not the true reasons and constitute a pretext
for discrimination. Burdine, 450 U.S. at 253. However,
under the Sarbanes-Oxley Act, which
contains an affirmative defense which most of the other
whistleblower statutes do not, once a
complainant has made a showing that protected activity
was a contributing factor in the
adverse action, the burden of persuasion shifts to the
respondent to demonstrate by clear and
convincing evidence, that it would have taken the same
unfavorable personnel action in the
absence of such behavior. 49 U.S.C. § 42121(b)(2)(B)(iv); 29 C.F.R. § 1980.109. This defense appears to be a statutory adoption of the dual or mixed motive analysis in Mt. Healthy City School Dist. Bd. of Education v. Doyle, 429 U.S. 274, 287 (1977) (First Amendment case).36
Significantly, in cases where a complainant is able to produce direct evidence of discrimination (retaliation), the burden-shifting framework described above does not apply. See Swierkiewicz v. Soreman, 534 US 506 (2002); Trans World Airlines, Inc. v. Thurston, 469 U. S. 111, 121 (1988); Lockhart v. Westinghouse Credit Corp., 879 F.2d 43, 48 (3rd Cir. 1989).
See also Goodman v. Lukens Steel Co., 777 F.2d 113, 130
(3d Cir.1985) (The presumptions
and shifting burdens are merely an aid--not ends in
themselves. When direct evidence is
available, problems of proof are no different than in
other civil cases.) (citing Trans World
Airlines, supra; United States Postal Serv. Bd. of
Governors v. Aikens, 460 U.S. 711 (1983);
Furnco Constr. Corp. v. Waters, 438 U.S. 567, 577
(1978)), cert. granted, 479 U.S. 982 (1986);
Dillon, 746 F.2d 998, 1005 (1984)(Once the plaintiff
establishes liability the sine qua non for
the [McDonnell Douglas] formula no longer exists.); Bell
v. Birmingham Linen Serv., 715
F.2d 1552, 1556 (11th Cir.1983), cert. denied, 467 U.S.
1204 (1984) (McDonnell Douglas ...
pertains primarily ... to situations where direct evidence of discrimination is lacking).
As stated above, direct evidence is smoking gun evidence
or evidence from which a
reasonable trier of fact could find, more probably than
not, a causal link between an adverse
employment action and a protected [activity]. Generally
speaking, comments made by a
manager or those closely involved in employment
decisions may constitute direct evidence of
discrimination. See Randle v. LaSalle Telecommunications, Inc., 876 F.2d 563, 569 (7th Cir. 1989); see also Beshears v. Asbill, 930 F.2d 1348, 1354 (8th Cir. 1991). For example, in Blake v. Hatfield Electric Co., 87-ERA-4 (Sec’y Jan. 22, 1992), the Deputy Secretary of Labor held that a supervisor’s disapproval of an employee’s complaining to a government agency indicated discriminatory intent. Id. at 5. Specifically, it was held that a supervisor’s comment on a performance evaluation that the complainant use[d] N.R.C. (Nuclear Regulatory Commission) as a threat virtually amounted to direct evidence of discrimination. It was further held that this remark could not be considered a mere stray remark, Price Waterhouse v. Hopkins, 490 U.S. 228, 277 (1989) (O,Connor, J., concurring), but rather, spoke directly to the issue of discriminatory intent and related to the specific employment decision in the case.
Here, Ms. Kalkunte alleges that there is direct evidence
in the form of emails and
statements made by Mr. Toney and Mr. Heller. In that
regard, she first refers to an email that she
sent to Mr. Toney (among others) on the morning of
September 10, 2003, stating, among other
things, that she needed to discuss the status of the
Arnold & Porter investigation with Mr.
Goldberg, who was copied on the email. CX 10:2-3; Complainants Summary Trial Brief at 36.
Within four hours of Ms. Kalkuntes email, Mr. Heller sent an email to Mr. Toney stating: Suggestion: have her get you a job description for the next two weeks and have her update it weekly -- where she thinks she can add value. You can then yes/no it and tell her you will task her with anything beyond that. Might work. Id. Although the Complainant asserts that this email constitutes direct evidence of retaliation, she does not specifically articulate how this is so.
I find that this does not qualify as direct evidence as this does not amount to smoking gun evidence. The significance of Mr. Hellers email to Mr. Toney is not readily discernible; rather inferences must be drawn to view it as indicative of Respondents whistleblower animus. While it may qualify as circumstantial evidence of retaliation, as will be discussed herein, it does not constitute direct evidence of retaliation.
In alleging direct evidence of retaliation, the Complainant next refers to her September 12th meeting with Mr. Toney and Ms. Clay. Tr. at 298; Complainants Summary Trial Brief at 36. The Complainant argues that Mr. Toneys remarks during that meeting, wherein the status of the Arnold & Porter investigation was discussed, were directly indicative of his decision to terminate her for engaging in protected activity. Complainants Summary Trial Brief at 36-37.
Specifically, the Complainant asserts that Mr. Toney
stated that there was no way in hell the
estate would pay for [the investigation] but that she
should not worry -- at some point she
would get her justice as the improprieties would
probably be brought up by the Unsecured
Creditors Committee or the U.S. Attorneys Office. See
id. citing Tr. at 299-300. The
Complainant further asserts that, when reflecting back on this meeting,
Mr. Toney admitted that it helped to focus both he and Ms. Clay on the lack of a role for Ms. Kalkunte in [the] organization, hastening [the] inevitable decision to terminate her. See id. citing CX 47-57; Tr. at 618.
I find that Mr. Toneys remarks during the September 12th meeting do constitute direct evidence of retaliation. As noted previously, I credit Ms. Kalkuntes testimony over that of Mr. Toney and Ms. Clay, and therefore credit her version of what was said at the meeting.
Initially, when Ms. Kalkunte met with the Arnold &
Porter investigators on August 22, 2003,
Mr. Toney had told her to be forthright and tell them
everything. Tr. at 561-562.
Conversely, however, in the execution, when Ms. Kalkunte
was actively providing
information of wrongdoing, it is clear that she was
inhibited by Mr. Toney. And it is clear
that Ms. Kalkuntes inquiries and concerns and the Arnold
and Porter investigations were to
On September 10, 2003, the Complainant sent an email to Mr. Toney and Mr. Heller (among others) stating, among other things, that she needed to discuss the status of the Arnold & Porter whistleblower investigation with Mr. Goldberg, who was copied on the email. CX 10:2-3.
Two days later, she was called to a meeting. I accept that Mr. Toney stated there was no way in hell the estate would pay for the investigation and that Ms. Kalkunte would one day get her justice when the improprieties were investigated by other authorities.
I also accept Ms. Kalkuntes testimony that Mr. Toney was clearly angry at her during the September 12th meeting due to her whistleblowing activities, and essentially told her that the investigation was none of her business. Tr. at 299, 300-301. I infer that the source of this anger was the Complainants whistleblowing activities.
I also find that Mr. Toneys admission that the September 12th meeting hastened the inevitable decision to terminate Ms. Kalkunte.
Mr. Toneys admission, taken together with his remarks, tone and demeanor at the September 12th meeting, constitute direct evidence of retaliation.
Moreover, I accept that after the September 12th meeting, Ms. Kalkunte contacted her mentor, Mr. Whelan, and told him exactly again the conversation that [she] had with Mark Toney, including the fact that Mr. Toney had stated there was no way in hell that the estate would pay for the investigation. Tr. at 301-302. Mr. Whelan was stunned by this news and advised Ms. Kalkunte that she had a duty to report up the chain again, and that if reporting to the CEO would be futile, then she must report to the audit committee.37 Id. at 302.
Acting on Mr. Whelans advice, Ms. Kalkunte contacted Mr. Goldberg and Mr. Shapiro and advised them that Mr. Toney was trying to kill the internal investigation at the September 12th meeting. Tr. at 302; CX 16:3. It is uncontroverted that Goldberg and Shapiro were contacted. It is uncontroverted that the issue regarding the Arnold and Porter investigation was discussed.
Mr. Toney admitted that he was notified about Ms. Kalkuntes discussion with Mr. Goldberg and Mr. Shapiro, but provided conflicting testimony as to when he became apprised of it. At hearing, he testified that he learned of the discussion during an update call with the Special Committee on September 22, 2003, which would have been after Ms. Kalkuntes termination on September 18, 2003. Tr. at 575. At his deposition, Mr. Toney again testified that he learned of the discussion during an update call with the Special Committee, but testified that the update call took place after the filing of the motion for Arnold & Porters retention on September 15, 2003, but prior to Ms. Kalkuntes termination on September 18, 2003. Toney Deposition at 272-273. At hearing, Mr. Toney explained the discrepancy in his testimony by stating that once he reviewed the transcript from his deposition in conjunction with the minutes from the update call, he realized his error with regard to the date of the update call. Tr. at 575-576.38 I discount this testimony. There is no contemporaneous record.
substantiates this incident in part because it is clear
that she reported to her mentor and to the
Special Committee. This is an extremely crucial incident
and the date is important to
Respondents case. The recantation is made post litem
motem and does not have the ring of
Finally, in asserting direct evidence of retaliation, the Complainant refers to the following statement made by Mr. Toney: [W]e have a boat thats leaking water. Either people have a bucket in their hand and throw the water out or we dont need those people. Toney Deposition at190. The Complainant argues that this statement is direct evidence of Mr. Toneys
view that Ms. Kalkuntes inquiries into the status of Arnold & Porters investigation were meddlesome and distracting. Complainants Summary Trial Brief at 37. I find that this does not qualify as direct evidence of retaliation. I note that it is unclear from Mr. Toneys testimony when he made this statement, and it can only be inferred that it was made at some point during conversations he had with Ms. Clay regarding the value of various DVI employees, including Ms. Kalkunte. See Toney Deposition at 190-192. Again, in this instance, I must draw inferences to view this statement as indicative of Respondents whistleblower animus. While it may qualify as circumstantial evidence of retaliation, as will be discussed herein, it does not constitute direct evidence of retaliation.
In addition to finding that the Complainant has set forth some direct evidence of retaliation, I make an alternative finding that she has done so through circumstantial evidence.
As outlined above, relying on circumstantial evidence requires the Complainant to prove by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew of the protected activity; (3) she suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action.
Complainant Engaged in Protected Activity
To demonstrate that she engaged in protected activity,
Ms. Kalkunte must prove that she
engaged in a lawful act to provide information regarding
conduct that she reasonably believed
constituted a violation of any rule or regulation of the
Securities and Exchange Commission, or
any provision of Federal law relating to fraud against
shareholders. See 18 U.S.C. §
1514A(a)(1). Thus, Ms. Kalkunte is not required to show an actual violation of the law, only that she reasonably believed there to be a violation of one of the enumerated laws or regulations.39
The legislative history of the
Sarbanes-Oxley Act states that the reasonableness
test is intended to impose the normal reasonable person
standard used and interpreted in a wide
variety of legal contexts. Legislative History of Title
VIII of HR 2673: The Sarbanes- Oxley
Act of 2002, Cong. Rec. S7418, S7420 (daily ed. July 26,
2002), available at 2002 WL
32054527 (citing Passaic Valley, 992 F.2d 474 (3d Cir.
1993)). The threshold is intended to
include all good faith and reasonable reporting of
fraud, and there should be no presumption that
reporting is otherwise, absent specific evidence. Id.
The reasonableness standard is based on
the employees access to information, experience, and background. Collins v. Beazer Homes, 334 F.Supp.2d 1365 (N.D. Ga. 2004) (citing the legislative history, which intended the reasonable belief test to impose the normal reasonable person standard used and interpreted in a
wide variety of legal contexts). Cong. Rec. S7418, S7420 (Daily ed. July 26, 2002).
As applied to Ms. Kalkunte, the issue is whether an
attorney with her information,
experience, and background would reasonably believe that
the allegations she brought forward to
Respondents constituted a violation. I conclude that Ms.
Kalkunte more than meets the
reasonableness standard in this regard. Among the myriad
instances of financial impropriety
alleged by Ms. Kalkunte, she principally contended that:
(1) DVIs senior management had
altered delinquency reports and incorporated those
altered reports into disclosure statements
filed to the public; and (2) DVIBC improperly commingled
funds. Tr. at 270-271; CX 7.
These activities plainly violate SEC rules and regulations, and constitute fraud against shareholders. The first allegation, which involves filing altered delinquency reports disseminated to the general public, is a blatant fraud against shareholders. Mr. Shapiro testified as much when he stated: [I]f the reports that were being presented to us were being changed for the directors booklets, these reports were then going to the public. That is indeed an inaccuracy that is being presented to the public marketplace. Shapiro Deposition at 13. The second allegation, which involves commingling of funds, is an overt violation of SEC regulations. Any
attorney with Ms. Kalkuntes experience and background would easily discern these activities as potential violations of the Sarbanes-Oxley Act. Moreover, Ms. Kalkunte was not basing her allegations on mere conjecture; she had documentary evidence to support these allegations. Ms. Gibson, Mr. Fier, and Mr. Mallott, all of whom were her colleagues at DVI, provided documentary evidence to support these allegations.
Accordingly, I find that Ms. Kalkunte possessed a reasonable belief in the allegations she brought forward to Respondents. Now that Ms. Kalkunte has proven a reasonable belief in her allegations, she must prove that Respondents had knowledge of her protected activity. The Sarbanes-Oxley Act protects employees who provide information to any person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct). 18 U.S.C. § 1514A(a)(1)(C). I conclude that Ms. Kalkunte proves her allegations were communicated to, among others, Mr. Toney, DVIs CEO and selfproclaimed ultimate decision-maker regarding her termination.
Preliminarily, I note that DVI attempted to stipulate
that Ms. Kalkunte engaged in
protected activity in one instance but not in any other
instance. Specifically, DVI stipulated that
Complainant engaged in a protected activity in August,
2003, when she reported allegations of
fraud and accounting improprieties to the Board of
Directors of named party DVI. See DVI
Proposed Findings I (1); Tr. 49-50, 208-209, 738-739. In
addition, DVI stipulated that the
decision maker at issue, Mark Toney, knew of the August,
2003 protected activity. See DVI
Proposed Finding I (1); Tr. 49-50, 208-209, 738-739.
However, DVI did not stipulate that Ms.
Kalkunte engaged in protected activity when she reported to Board members Goldberg and Shapiro her belief that Mr. Toney was attempting to obstruct and/or slow down the Arnold & Porter investigation by obstructing and/or slowing down the process by which Arnold & Porter
would be compensated for its services by the estate. See DVI Proposed Finding II (1). DVI requested that I find, as a matter of law, that the Complainant did not engage in a second protected activity when she reported to DVI Board members Goldberg and Shapiro. Id. I am further requested to find that Mr. Toney had no knowledge of Complainants second alleged protected activity, and that there was no causal connection between Complainants second alleged protected activity and her adverse employment action.40 Id. at (2)(3).
DVIs partial stipulation suggests that it has
misconstrued the statutory elements of proof
in whistleblower cases by conflating two elements of
proof (whether the complainant engaged in
protected activity and whether there is a nexus between
that activity and the adverse employment
action) into one element of proof. As noted above, in
creating an inference of unlawful
discrimination, Ms. Kalkuntes first task is to show that
she engaged in protected activity. The
inquiry involves the question of whether she did or did
not engage in protected activity. Thus, it
makes no sense for DVI to stipulate as to one but not all instances of protected activity. Indeed, in admitting to even one instance of protected activity, DVI seemingly stipulates to the overall issue of whether or not Ms. Kalkunte engaged in protected activity. Accordingly, I will ignore
DVIs stipulation and analyze the evidence of record to determine whether or not Ms. Kalkunte engaged in protected activity.
I find that Ms. Kalkunte demonstrates that she engaged
in protected activity, and that
Respondents were put on notice of her protected
activity, several times. She first engaged in
protected activity on August 21, 2003, when she
communicated her concerns regarding financial
impropriety to DVI Board members Goldberg and Shapiro. That evening, a Special Committee was formed to address the allegations of financial impropriety, and Mr. Meller telephoned Mr. Toney to advise him that Arnold & Porter was being retained to investigate such matters. CX 8; CX 11: ¶ 2; Goldberg Deposition at 48-49. Mr. Meller further advised Mr. Toney that the Arnold & Porter investigators would be arriving at DVI the following morning, August 22, 2003, and that he should assist in facilitating a meeting between the Arnold & Porter investigators and Ms. Kalkunte. Tr. at 244-245, 560. Thus, while he may not have known the exact nature of Ms. Kalkuntes allegations, Mr. Toney was clearly put on notice that she had come forward with allegations of financial impropriety in some form.
Moreover, when the Arnold & Porter investigators arrived at DVI on August 22, 2003, Mr. Toney did as directed and facilitated a meeting between Ms. Kalkunte and the investigators.
Although he was not present during that meeting, Mr.
Toney told Ms. Kalkunte to be forthright
and to tell them everything that she wanted to share
with them and to take as much time as
they needed. Tr. at 561-562. By directing Ms. Kalkunte
to tell the investigators
everything, Mr. Toney demonstrated that he knew she had
come forward with allegations.
In the days that followed, DVI filed for bankruptcy
(August 25, 2003), and underwent a
significant reduction in force (August 27, 2003). CX 11;
¶ 3; Tr. at 284-286, 531. However, Ms.
Kalkunte was not included in the August 27, 2003 RIF,
nor were any of her attorney colleagues
at DVI. During this time, Arnold & Porters investigation continued, as Ms. Kalkunte, concerned about her own liability under SOX, made repeated attempts to learn about the progress of the investigation. Tr. at 295-296. According to Ms. Kalkunte, she regularly asked other DVI employees whether they had been interviewed by Arnold & Porter, and followed
up regarding the status of the investigation with DVI Board members Goldberg and Shapiro, Mr. Heller, Mr. Toney, and Ms. Clay. Tr. at 296. One such attempt was made by Ms. Kalkunte on September 10, 2003. That morning, she sent an email to Mr. Toney and Mr. Heller (among others) stating, among other things, that she needed to discuss the status of the
Arnold & Porter investigation with Mr. Goldberg, who was copied on the email. CX 10:2-3.
The fact that Ms. Kalkunte was concerned about the
status of the investigation was again brought
to Mr. Toneys attention.
On September 12, 2003, Ms. Kalkuntes concern about
financial impropriety was
once again brought to Mr. Toneys attention. That day,
Ms. Kalkunte attended a meeting
with Mr. Toney and Ms. Clay during which a variety of
issues were discussed, including the
Arnold & Porter investigation. Ms. Kalkunte, Mr. Toney,
and Ms. Clay all provided
testimony as to the topics discussed at the September
12th meeting, and there is no dispute
that the issue of the Arnold & Porter investigation was
raised. Tr. at 245-246, 249, 298-300,
542, 547, 550-551. That notwithstanding, the witnesses provide varying accounts of what exactly was said regarding the investigation. According to Ms. Kalkunte, Mr. Toney claimed that the investigation had ceased because Arnold & Porter was not getting paid. Tr. at 299.
She claimed that Mr. Toney stated there was no way in
hell the estate would pay for [the
investigation] but that she should not worry -- at some
point she would get her justice as
the improprieties would probably be brought up by the
Unsecured Creditors Committee or
the U.S. Attorneys Office. Tr. at 299. By contrast, Mr.
Toney testified that he advised Ms.
Kalkunte that, while the retention of Arnold & Porter had not yet been approved by the Bankruptcy Court, the investigation was nevertheless moving forward. Tr. at 249-250.
According to Ms. Clay, Mr. Toney never said there was no way in hell the estate would pay for [the investigation]. Tr. at 645-646. Ms. Clay did not provide further testimony on what Mr. Toney did say, if anything, regarding the investigation. Despite the conflicting testimony regarding the substance of Mr. Toneys remarks, there is no dispute that the investigation was, at the very least, discussed in some form. Accordingly, Mr. Toney was again put on notice of Ms. Kalkuntes concerns about financial impropriety at DVI.
According to Ms. Kalkuntes testimony, after the
September 12th meeting, she
contacted her mentor, Mr. Whelan, seeking advice on how
to proceed. Tr. at 301-302. Mr.
Whelan advised that she had a duty to report up the
chain again. Tr. at 302. However,
since reporting to the CEO would have meant reporting to
Mr. Toney, Ms. Kalkunte instead
contacted Mr. Goldberg and Mr. Shapiro and advised them
of what had unfolded at the
September 12th meeting. Tr. at 302; CX 16:3. Mr. Toney admitted that he learned of Ms. Kalkuntes discussion with Mr. Goldberg and Mr. Shapiro, but provided conflicting testimony as to when he became apprised of it. At hearing, he testified that he learned of the discussion during an update call with the Special Committee on September 22, 2003, which would have been after Ms. Kalkuntes termination on September 18, 2003. Tr. at 575.
At his deposition, Mr. Toney again testified that he learned of the discussion during an update call with the Special Committee, but testified that the update call took place after the filing of the motion for Arnold & Porters retention on September 15, 2003, but prior to Ms. Kalkuntes termination on September 18, 2003. Toney Deposition at 272-273. At hearing, Mr. Toney explained the discrepancy in his testimony by stating that once he reviewed the transcript from his deposition in conjunction with the minutes from the update call, he realized his error with regard to the date of the update call. Tr. at 575-576.
I find that whether Mr. Toney learned of this discussion
prior to or after Ms.
Kalkuntes termination is not crucial to the issue of
whether Ms. Kalkunte engaged in
protected activity. Even if Mr. Toney did not learn of
the discussion until after Ms.
Kalkuntes termination, she has already proven, through
other instances, that Mr. Toney was
put on notice of her protected activity. To summarize,
these instances include: August 21,
2003, when Mr. Toney received a call from Mr. Meller about the investigation; August 22, 2003, when Mr. Toney facilitated a meeting between the investigators and Ms. Kalkunte; September 10, 2003, when Ms. Kalkunte sent an email to Mr. Toney, among others, stating
that she needed to discuss the status of the investigation with Mr. Goldberg; and September 12, 2003, when Ms. Kalkunte met with Mr. Toney and Ms. Clay and discussed the status of the investigation. I conclude that Mr. Toneys conflicting testimony is more relevant with
respect to undermining his credibility than it is to the issue of whether Ms. Kalkunte engaged in protected activity.
Complainant Suffered an Adverse Employment Action
The evidence of record demonstrates, and DVI so stipulated, that Ms. Kalkunte suffered an adverse employment action when she was terminated by DVI on September 18, 2003. See DVI Proposed Findings I(1); AP Brief.
Complainants Protected Activity as a Contributing Factor
in the Adverse Employment Action Ms. Kalkunte must now prove that her allegations of financial impropriety at DVI likely contributed to Mr. Toneys decision to terminate her. 29 C.F.R. §§ 1980.104(b), 1980.109(a); Matvia v. Bald Head Island Mgmt, Inc., 259 F.3d 261, 271 (4th Cir. 2001); Causey v. Balog, 162 F.3d 795, 803 (4th Cir. 1998); Macktal v. U.S. Dept. of Labor, 171 F.3d 323, 327 (5th Cir. 1999); Trimmer v. U.S. Dept. of Labor, 174 F.3d 1098, 1101-02 (10th Cir. 1999); Dysert v. Secy of Labor, 105 F.3d 607, 609-10 (11th Cir. 1997); Platone v. Atlantic Coast Airlines Holdings, Inc., Case No. 2003-SOX-00027 (DOL Apr. 30, 2004). A contributing factor includes "any factor which, alone or in connection with other factors,
tends to affect in any way the outcome of the decision." Marano v. Dep’t of Justice, 2 F.3d 1137, 1140 (Fed. Cir. 1993) (citations omitted) (defining "contributing factor" in the Whistleblower Protection Act for federal employees). A whistleblower need not prove his protected conduct was a "significant," "motivating," "substantial," or "predominant" factor in
an adverse personnel action.
Temporal proximity between the protected activities and
the adverse action may be
sufficient to establish the inference that the protected
activity was the likely motivation for
the adverse action. Overall v. Tennessee Valley
Authority, ARB No. 98-111, ALJ No. 1997-ERA-53 (ARB Apr. 30, 2001); Abu-Hjeli v. Potomac
ElecTric Power Co., 89-WPC-1 (Sec’y
Sept. 24, 1993); White v. The Osage Tribal Council, 95-SDW-1, slip op. at 4 (ARB Aug. 8, 1997); Collins at 1379. An unfavorable personnel action taken shortly after a protected disclosure may lead the fact finder to infer that the disclosure contributed to the employer’s action. 29 C.F.R. § 1980.104(b)(2).
In this case, the short span of time between Ms.
Kalkuntes protected activities in August
and September 2003, and her termination on September 18,
2003, is circumstantial proof of
nexus. It has already been established that Mr. Toney,
the decision-maker, was put on notice of
Complainants protected activity on August 21, 2003, when she reported allegations of financial impropriety to Mr. Goldberg and Mr. Shapiro. As noted earlier, that evening, Mr. Toney became aware that Ms. Kalkunte had come forward with allegations of financial impropriety in some
form. Tr. at 244-245, 560. Moreover, his knowledge that Ms. Kalkunte had engaged in protected activity was reinforced the following morning, August 22, 2003, when Mr. Toney carried out his duty to facilitate a meeting between Ms. Kalkunte and the Arnold & Porter investigators.41 Concerned about the improprieties as well as her own liability under SOX,
Ms. Kalkunte made several inquiries regarding the status of the investigation after she met with Arnold & Porter on August 22, 2003.42 Tr. at 295. According to Ms. Kalkunte, on a regular basis, she asked other DVI employees about the investigation and whether they had
been interviewed by Arnold & Porter, and she followed up with Mr. Heller, Mr. Toney, Ms. Clay, Mr. Goldberg, and Mr. Shapiro. Tr. at 295-296.
On September 10, 2003, approximately two weeks after she met with the Arnold & Porter investigators, Ms. Kalkunte made one such attempt to gain information about the progress of the investigation. She sent Mr. Toney and Mr. Heller an email, on which she copied Mr. Goldberg, stating that she needed to discuss the status of the Arnold & Porter investigation with Mr. Goldberg. CX 24:1-2; Complainants Summary Trial Brief at 36. A mere four hours later, Mr. Heller sent an email to Mr. Toney stating: Suggestion: have her get you a job description for the next two weeks and have her update it weekly -- where she thinks she can add value. You can then yes/no it and tell her you will task her with anything beyond that.
Might work. CX 24:1; Complainants Summary Trial Brief at 36. The plain text of Mr. Hellers email does not directly reveal whistleblower animus on the part of Respondents, and thereby disqualifies it as direct evidence; however, Mr. Hellers deposition testimony reveals the context of this email, and shows that it constitutes circumstantial proof of whistleblower animus.
According to Mr. Heller, he sent the email to Mr. Toney for two reasons. First, Mr. Toney was concerned that managing [Ms. Kalkunte] was becoming from [Mr. Toneys] perspective almost a job in itself. Heller Deposition at 16-17. Second, Mr. Heller needed to assist Mr. Toney in evaluating which employees were brining value to DVI, and Mr. Toney had felt [the attorneys from Latham & Watkins] would be in a good position to comment on what [Ms. Kalkunte] might or might not add. Id. Mr. Heller explained the suggestion that he made to Mr. Toney in the email as follows:
[F]or two weeks Ms. Kalkunte could let us know everything she thought she could do and give it to [Mr. Toney] and [he] made an analysis of what she should or shouldnt be doing to both, A, understanding [sic] Shelias view of how she could add to the process, and, B, having [Mr. Toney] be in a position to communicate to her succinctly here is what I wanted you to do and heres what I dont want you doing. Because there had been some confusion about what she might and might not be doing, what she should and should not be doing and whether or not there was anything for her to do at all under the circumstances. Id.
In sum, Mr. Heller testifies that he sent the email to Mr. Toney merely to assist him in making a determination about Ms. Kalkuntes role at DVI in the context of the ongoing RIF.
However, the text of the email does not comport with Mr.
Hellers explanation. Specifically, the
part of the email that reads: You can then yes/no it and
tell her you will task her with anything
beyond that. Might work does not leave the impression
that Mr. Heller was trying to assist Mr.
Toney in clarifying Ms. Kalkuntes role for her benefit or for the benefit of DVI. Rather, suggesting that Mr. Toney task Ms. Kalkunte with duties beyond the areas in which she believed she was already adding value leaves the impression that Mr. Heller and Mr. Toney were looking for a way to push Ms. Kalkunte out of DVI. I accept that the email itself does not constitute direct evidence of whistleblower animus because it does not fully spell out a discriminatory motive. However, in the context of the events that soon followed, I consider Mr. Hellers September 10, 2003 to be circumstantial proof of such animus.
Significantly, a mere two days after receiving Mr. Hellers September 10, 2003 email, Mr. Toney met with Ms. Kalkunte and demonstrated his disdain for Ms. Kalkuntes inquiries into the status of the investigation. Not even one week later, on September 18, 2003, Ms. Kalkunte was terminated. The temporal proximity between Ms. Kalkuntes protected activities and her termination is strong evidence of nexus. Not even one month had elapsed between the date that she initially engaged in protected activity, August 21, 2003, and the date that she was terminated, September 18, 2003. Moreover, not even one week had elapsed between the September 12th meeting and Ms. Kalkuntes termination on September 18, 2003. Accordingly, I find that the Complainant has demonstrated proof of nexus through circumstantial evidence.
Respondents Failure to Meet its Burden to Avoid Liability
Respondents may avoid liability if they can demonstrate by clear and convincing evidence that they would have taken the same unfavorable personnel action in the absence of [Ms. Kalkuntes protected] behavior. 49 U.S.C. § 42121(b)(2)(B)(iv); 29 C.F.R. § 1980.109.
Mr. Toney, the ultimate decision-maker on Ms. Kalkuntes termination, alleged that whistleblowing activity aside, Ms. Kalkunte was terminated as part of the ongoing RIF taking place at DVI after the bankruptcy filing. He claimed that, just like all DVI employees after the bankruptcy filing, Ms. Kalkuntes role was continuously under evaluation, and that by the third week of September, 2003, he realized she was no longer bringing value to the estate in terms of her day-to-day workload. Id. at 552. Specifically, unlike other in-house counsel working for DVI, Ms. Kalkuntes role had become largely redundant postbankruptcy as outside counsel from Latham & Watkins had taken over many of her duties.
CX 47: ¶ 11. Ms. Clay, who aided Mr. Toney in his
decision to terminate Ms. Kalkunte,
similarly stated that during the first half of
September, 2003, as part of a constant
reevaluation of positions required at DVI in light of
the bankruptcy, it was determined that
Ms. Kalkuntes position was no longer required as outside
counsel had begun performing
essentially the same functions as she. CX 48: ¶ 19.
Respondents also seem to allege that Ms.
Kalkuntes work performance was lacking, and therefore
another reason that she did not add
value to the estate. However, for reasons that will be
addressed herein, it is not entirely clear
whether Respondents intended to offer Ms. Kalkuntes work
performance as another reason for
The Complainant argues that Respondents proffered reason for terminating her was pretextual, and that their real reason for terminating [her] was in retaliation for her whistleblowing and incessant inquiries into the progress of the Arnold & Porter investigation when DVI, AP, and Mr. Toney had more important matters on which to focus their attention.
Complainants Summary Trial
Brief at 40-41.
First, she argues that she was the only employee terminated in September, 2003, and that a reduction in force of one is evidence of pretext. Id. at 41 citing Bhatia v. AT&T, Inc., 310 F. Supp.2d 29, 31-32 (D. D.C. 2004) (holding that Plaintiff could make a prima facie case by showing he was the target of a RIF of one) (citing Elliott v. British Tourist Auth., 172 F.Supp.2d 395, 401 (S. D.N.Y.2001)). In so arguing, the Complainant dismisses Respondents claim that Ms. Kolbe was also included in a September, 2003 RIF, asserting that the evidence shows that Ms. Kolbe voluntarily resigned. Id. Second, the Complainant argues that after terminating Ms. Kalkunte as part of a one-person RIF, Respondents then transferred her work to another in-house attorney, Mr. DeCandia. Id. at 41-42.
The Complainant contends that constructively replacing
Ms. Kalkunte with a worker outside of
the protected class in this scenario gives rise to an
inference of discrimination. Id. at 42 citing
Boulton v. Inst. of Intl Ed., 808 A.2d 499, 502 n.5
(D.C. 2002); Bellaver v. Quanex Corp., 200
F.3d 485, 495 (7th Cir. 2000). Third, the Complainant
argues that Respondents inconsistent
post-hoc explanations for their employment decisions are
probative of pretext. Id. at 43 citing
E.E.O.C. v.See EEOC v. Sears Roebuck, 243 F.3d 846,
852-53 (4th Cir. 2001). In that regard,
the Complainant contends that while the initial reason provided for her termination was that her position was no longer necessary, Respondents subsequently alleged performance-based reasons in addition. Id.
The Complainants arguments are persuasive. I find the Complainants assertion regarding the phoniness of the September, 2003 reduction in force of one particularly compelling in light of the fact that Ms. Kalkunte was specifically not included in the August 27, 2003 RIF. According to Ms. Kalkunte, she had been advised by senior management at DVI that she and the other in-house counsel need not worry about being laid off, because now more than ever [DVI] would need attorneys to help them in Chapter 11 . . . Tr. at 294.
While Respondents allege, and it is no doubt true, that DVI had plans to engage in additional RIFs after the initial August 27, 2003 RIF (Tr. at 533-534), it nevertheless strains credulity to believe that Ms. Kalkuntes termination was actually part of a RIF in September, 2003.
Significantly, Ms. Kalkunte was the only employee
terminated as part of a so-called RIF in
September, 2003,43 notwithstanding that subsequent bona
fide RIFs occurred in November
2003, when six employees were terminated, January 2004,
when ten employees were
terminated, and February 2004, when fifteen employees
were terminated. CX 48: ¶ 11. If
Respondents had truly intended to include Ms. Kalkunte in a RIF, she could have been included in one of any number of bona fide RIFs that took place in late 2003 and early 2004.
Moreover, none of the other in-house attorneys at DVI were terminated until April 2004, at the earliest, and one attorney, Mr. Blau, was laid-off as late as October 2004.44 In addition, Ms. Cascioli did not prepare for Ms. Kalkunte the letter she typically prepared for DVI employees notifying them of a RIF and her explanation as to why she failed to do so was unpersuasive: I dont believe that ... letters were prepared either for the person that left on September 15th [Ms. Kolbe] or ... [Ms. Kalkunte] on the 18th. It became more routine, if I am not mistaken, with the November ... reductions and beyond and more recent. Cascioli Deposition at 142. I find that the likely reason Ms. Cascioli did not prepare such a letter for Ms. Kolbe or Ms. Kalkunte is that they were not actually part of a RIF at all, but were terminated for other reasons. In sum, all of the foregoing facts tend to show that there was on RIF in September, 2003 RIF.
Next, I will address the Complainants contention that constructively replacing Ms. Kalkunte with a worker outside of the protected class gives rise to pretext. I note here that Respondents alleged legitimate, non-discriminatory reason for terminating Ms. Kalkunte was that her role had become largely redundant, and there was no longer any work for her to do at DVI post-bankruptcy. In that regard, Ms. Clay claimed that DVI did not fill Ms. Kalkuntes position with anyone else after she was terminated because outside counsel had been able to handle all of DVIs general legal needs. CX 48: ¶ 20. Similarly, Mr. Toney testified that, while Respondents had contemplated hiring a paralegal to gather records, which had presumably been one of Ms. Kalkuntes primary duties, no one was ever hired in such capacity, and Ms. Kalkuntes workload was fortunately absorbed and picked up as needed.
Tr. at 556. The evidence shows, however, that in
January, 2004, approximately four months
after Ms. Kalkunte was terminated, Mr. DeCandia, another
in-house attorney, was transferred
from the executive department to the legal department to
assume the position of associate
counsel. Cascioli Deposition at 158-159; CX 18. The fact that Mr. DeCandia was transferred to the legal department into what had ostensibly been Ms. Kalkuntes position shows that whoever initiated the transfer, namely Mr. Toney, felt there to be a compelling need for him to do so ( i.e.
there was work to be done in the legal department). Moreover, Mr. Toney admitted that he had advised Mr. DeCandia of his responsibility to address items that might fall through the cracks as a result of Ms. Kalkuntes termination. Tr. at 257. I also note Ms. Kalkuntes testimony that
prior to her termination, she was frequently called upon by Mr. DeCandia to answer various questions, since he wasnt familiar with other goings on in the company ... Id. at 291.
The fact that Respondents would transfer another attorney into Ms. Kalkuntes former department, a department in which there was allegedly no work to be done, and would transfer an attorney with potentially less know-how than Ms. Kalkunte, points to pretext.
Finally, I will address the Complainants assertion that
Respondents inconsistent posthoc
explanations for their employment decisions are evidence
of pretext. Throughout this case,
Respondents have reiterated several times that the
Complainant was terminated as part of a RIF
and that her performance played no role in Mr. Toneys decision to terminate her. Tr. at 304; CX 47: ¶35; CX 48: ¶ 22; Cascioli Deposition at 144. That notwithstanding, Respondents also provided a great deal of testimony on various performance problems and interpersonal issues
faced by Ms. Kalkunte. In his Certification, Mr. Toney stated that Ms. Kalkunte improperly contacted attorneys for the Unsecured Creditors Committee and demanded information regarding a sensitive issue to which she was not privy in a confrontational manner. CX 47: ¶21-28.
Although Mr. Toney stated that he addressed these issues with Ms. Kalkunte in the September 12th meeting, he also specifically alleged that these issues were not the reason for her termination. Id. at ¶35. Moreover, at hearing, Mr. Toney was questioned outright as to whether
performance played a role in his decision to terminate Ms. Kalkunte, and he responded by stating:
Her performance or lack thereof or the support of the
obviously comes into the decision making as it does with every employee. As I assessed every employee and asked them -- or assessed to see what they’re bringing to the estate as far as their day-to-day workload, that comes into influence, and their performance, if they’re making mistakes or if they’re doing a great job, that comes into should they be kept on or should they not.
I concluded that the proposition of the value and
efforts that were being
contributed were not bringing value. If you want to consider it as a
performance, the performance part of it may have come in to be a contribution.
What I would say from that standpoint is that I wanted
to give the benefit of
the doubt to Ms. Kalkunte, and instead of making it more
again this was a bankruptcy company, there were many
employees that were
actually impacted by it, and I wasn’t at a point that I
wanted to make it more
difficult on the employees. So we made it a RIF for her
benefit so that she
could draw Unemployment and, and not terminate her so
that she could go out
and find another job.
Tr. at 629-630. I find that Mr. Toneys testimony is not
directly responsive to the
question of whether Ms. Kalkuntes work performance played a role in his decision to terminate her. Although it is unclear, Mr. Toneys testimony seems to suggest that he based his decision to terminate Ms. Kalkunte on the fact that she was not adding value to the estate, and he determined
that she was not adding value to the estate based on her work performance, at least in part. The fact that work performance played a role is substantiated by Mr. Toneys testimony that he consulted with other managers and outside counsel regarding Ms. Kalkuntes work
performance before deciding to terminate her. According to Mr. Toney, these managers and attorneys indicated that they were either not using Ms. Kalkuntes services or were unimpressed with her performance. Tr. at 552, 594. Specifically, he discussed Ms. Kalkuntes role and work performance with Mr. Heller, Mr. Athanas, Mr. Meller, and Mr. Schildhorn. Id. at 538. Accordingly, I find that Respondents have also alleged, at least to some extent, that Ms. Kalkuntes work performance was an added reason for her termination.
I accept that Respondents testimony alluding to
performance-based reasons for Ms.
Kalkuntes termination is inconsistent with other
statements made by Respondents signifying
that work performance played no role in the decision to
terminate Ms. Kalkunte. See e.g. Tr.
at 304; CX 47: ¶35; CX 48: ¶ 22; Cascioli Deposition at 144. In that regard, I accept that these statements may be viewed as inconsistent post-hoc explanations indicative of pretext.
Although the fact that Respondents offer differing
explanations may point to pretext, I
must nevertheless analyze those differing explanations
to assess the validity of either/both of
them. First, I will address the proffered reason that
Ms. Kalkuntes role became largely
redundant post-bankruptcy. This proffered reason is
articulated by Mr. Toney in his
Certification, wherein he states that, post-bankruptcy, outside counsel from Latham & Watkins took over many of Ms. Kalkuntes responsibilities, in particular basic corporate duties. CX 47:
¶10. Mr. Toneys statement presupposes that many of Ms.
Kalkuntes duties had indeed been to
administer basic corporate duties. Ms. Clay believed
this to be the case, stating that while Ms.
Kalkuntes role at DVI following the bankruptcy was never
well-defined, her main task was
to handle corporate bookkeeping and to keep track of stock certificates, corporate minutes, and corporate resolutions for DVI and all of its many subsidiaries. CX 48:¶ 14. Mr. Meller also understood Ms. Kalkuntes main tasks to include locating corporate and legal records as well as contracts and minute books, though Mr. Meller admitted that he never engaged in a discussion with Ms. Kalkunte post-bankruptcy about her role at DVI. Meller Deposition at 9-10.
Importantly, however, at hearing Ms. Kalkunte gave no
indication that administering
basic corporate duties constituted her main task at DVI
post-bankruptcy. In fact, at one point
she specifically testified that at no time while
employed by DVI was she ever responsible for
maintaining the companys corporate books and records;
rather, a paralegal had exclusively
handled those tasks. Tr. at 268-269. Ms. Kalkunte
testified that her duties and work hours
increased post-bankruptcy. Id. at 289-292, 352. She also
provided testimony as to her new set
of responsibilities post-bankruptcy, which included
putting together schedules on the location of
DVIs assets, buying problem loans out of the
securitization pool, drafting and changing
resolutions for the company, fielding telephone calls
from DVIs international offices, taking
charge of the litigation schedule, and reviewing various matters for which DVI was being sued. Tr. at 286-292. In that respect, contrary to Mr. Toneys assertion that she was not adding value to the estate or being adaptable in light of the bankruptcy, Ms. Kalkuntes testimony suggests just the opposite: it demonstrates that post-bankruptcy she undertook a whole new set of responsibilities.
It is clear that Ms. Kalkuntes understanding of her
post-bankruptcy duties was markedly
different than that of Mr. Toney, Ms. Clay, and Mr.
Meller. To put these differing views in
perspective, it is useful to recall Mr. Toneys testimony
that the situation at DVI postbankruptcy
was not one where there were specific job descriptions
for each employee. Tr. at
554. He testified: Its not a union contract where, no,
they don’t step outside of the bounds
of what theyre supposed to be doing. I look at an
attorney in-house or any organization as
being able to adapt to the environment and do whatever
is needed to keep the process
moving. Id. In that regard, I accept that there was no
formal job description for Ms.
Kalkuntes position post-bankruptcy, that she was
expected to be adaptable to the new
demands faced by the company, and that the chaos created by the bankruptcy explains why there was ambiguity and confusion surrounding Ms. Kalkuntes precise role. However, from Ms. Kalkuntes testimony, it appears that she was being adaptable to the crisis situation by taking on new responsibilities and working longer hours, and that her role was not redundant.
The record reflects that at one point a seeming attempt was made by Mr. Toney to clarify Ms. Kalkuntes role post-bankruptcy. He specifically requested that Ms. Clay obtain a list of Ms. Kalkuntes job duties from Ms. Kalkunte herself and report back to him. Tr. at 252-254, 541, 647-649. However, Ms. Clay never obtained the list.45 Id. Instead, Respondents set about consulting with everyone but Ms. Kalkunte about what her role at the company was. Mr. Toney testified that he consulted with Mr. Heller in this regard, and that Mr. Heller explained that he really wasnt utilizing Ms. Kalkunte that much. Tr. at 539.
According to Mr. Toney, Mr. Schildhorns remarks were that he basically ... was not using [Ms. Kalkunte]. He said that she had been cooperating in helping with getting the motions.
Id. at 540. Ms. Clay testified that Mr. Judd, Mr. Schildhorn, and Mr. Meller all told her that Ms. Kalkunte was performing more of a record-keeping type function rather than day-today transactional business functions, and that [her] role in their opinion was more administrative. Id. at 647.
I accept that Respondents may have expected Ms.
Kalkuntes role to change postbankruptcy,
and I accept the possibility that her role could have
become redundant given the
changed circumstances at DVI. However, I find that
Respondents have failed to prove that
Ms. Kalkunte was unwilling to adapt, and further failed
to prove that her role did actually
become redundant post-bankruptcy. As pointed out above,
the notion that Ms. Kalkunte was
unwilling to adapt is belied by her testimony that she
undertook a whole new set of
responsibilities post-bankruptcy. Furthermore, upon
inspection of the evidence relevant to
whether Ms. Kalkuntes role had become redundant, it is
clear that Respondents failed to
clarify with Ms. Kalkunte whether this was so, and
instead based their determination on
some remarks made by outside counsel working for the
company. Accordingly, I do not find
that the Respondents have persuasively proved that Ms.
Kalkuntes role had become largely
Moreover, I find that the Complainant is more credible than Respondents. If they had such suspicions, they failed to document anything contemporaneous to the time of discharge.46
Mr. Toney further advising that she would not be receiving a response from the Latham & Watkins team on these specific issues.
Next, I will address the proffered reason that Ms.
Kalkuntes work performance was
flawed. I note that much of the evidence supporting this
assertion is derived from comments
made by outside counsel working for DVI. For example,
Mr. Athanas testified that Ms.
Kalkunte had provided him with inaccurate information on
a project. Athanas Deposition at 7-
8, 11; Tr. at 540. Mr. Meller also indicated that Ms. Kalkunte had provided charts that were just plain wrong. Meller Deposition at 11-12. Mr. Heller indicated that for whatever reason Ms. Kalkunte could not immediately access what was needed, and with respect to the general operations of the company, there were things she indicated that she just didnt know. Heller Deposition at 10-11. In addition, Ms. Cascioli testified that between December 2002 and September 2003, she got the general sense that Ms. Kalkunte would rub people the wrong way
. . Cascioli Deposition at 130. In Mr. Toneys
Certification, he alluded to certain errors in
judgment on Ms. Kalkuntes part, but states that these
were not the reasons for her termination.
CX 47:¶ 35. Specifically, he pointed to the fact that in
one instance she improperly
contacted attorneys for the Unsecured Creditors
Committee and in another instance
demanded information regarding a sensitive issue to which she was not privy in a confrontational manner. See id. at ¶ 20-28.
I accept all of these performance problems alleged by
Respondents as true. In
particular, I note that Ms. Kalkunte was a
whistleblower, who admittedly made repeated
inquiries into the status of an investigation at her
company. Therefore, Respondents
testimony that she rubbed people the wrong way or
demanded information regarding
goings-on at the company in a confrontational manner is
not difficult to believe. As Ms.
Kalkunte herself indicated in an email to her colleagues post-termination, she believed Respondents considered her a rabble rouser with respect to employee issues. CX 13.
I also accept the assertions of Mr. Athanas and Mr. Meller that Ms. Kalkunte provided them with inaccurate information as I found their deposition testimony to be credible, and Ms. Kalkunte never disputed these assertions.
Notwithstanding my acceptance of Respondents allegations
Kalkuntes work performance, I must weight all of the evidence discussed above to determine whether Respondents have met their burden to prove by clear and convincing evidence that they would have taken the same unfavorable personnel action in the absence of Ms. Kalkuntes protected behavior. I find that they failed to do so. In sum, I rejected the Respondents assertion that Ms. Kalkuntes role had become largely redundant as I concluded that the evidence was not strong enough to support such an assertion. On the other hand, I accepted that there is credible evidence demonstrating Ms. Kalkuntes flawed work performance;
however, such a finding does not compel me to find that the Complainants flawed performance was the true reason for her termination. Indeed, if such problems with Ms. Kalkuntes work performance rose to a serious level, I would expect documentation contemporaneous to the time of discharge. None was submitted by Respondents. By contrast, the Complainant asserted three persuasive points in undermining Respondents alleged reasons for discharge: (1) the phony reduction in force of one; (2) Mr. DeCandias transfer to Ms. Kalkuntes former
department; and (3) Respondents inconsistent post-hoc explanations for termination.
Accordingly, I find that Respondents have failed to meet their burden to prove by clear and convincing evidence that they would have taken the same unfavorable personnel action in the absence of Ms. Kalkuntes protected behavior.
The Sarbanes-Oxley Act provides that any employee who prevails in an action under the whistleblower provision of the statute shall be entitled to all relief necessary to make the employee whole. 18 U.S.C. § 1514A(c)(1). Relief under the Act includes reinstatement, back pay with interest, and compensation for any special damages sustained, including litigation costs, expert witness fees, and reasonable attorney fees. See 18 U.S.C. § 1514A(c)(2)(A)-(C). The back pay and benefit considerations may include lost overtime, lost vacation and other chargeable pay remedies such as compensatory time, sick time, etc., and may include lost pension and health benefit losses and contributions to those plans for hours that would otherwise have been worked. However, the Complainant failed to request reinstatement of fringe benefits in this case.
DVI is no longer in business, and therefore
reinstatement is not a proper remedy in this
case. Normally, reinstatement is the preferred remedy
for unlawful employment discrimination,
and front pay is the disfavored alternative, available
only when reinstatement is impracticable or
impossible. Ford Motor Co. v. EEOC, 458 U.S. 219, (1982); Hobby v. Georgia Power Co, ARB No. 98-166, ALJ No. 1990-ERA-30 (ARB Feb. 9, 2001); Martin v. The Department of the Army, 93-SDW-1 (Sec’y July 13, 1995); Kucia v. Southeast Ark. Cmty. Action Corp., 284 F.3d 944, 948-49 (8th Cir.2002) (Title VII case). However, in this case, there is no job to reinstate. In DeFord v. Tennessee Valley Authority, 81-ERA-1 (Sec’y Aug. 16, 1984), the Secretary issued an Order on Remand from the Sixth Circuit, see DeFord v. Secretary of Labor, 700 F.2d 281 (6th Cir. 1983), in which he implemented the court’s direction to revise DeFord’s remedies.
The Secretary directed respondent to reinstate complainant to his former position, and stated that "[i]f his former position no longer exists or there is no vacancy, TVA shall apply to the Administrative Law Judge for approval of the job in which it proposes to place DeFord with an explanation of the duties, functions, responsibilities, physical location and working conditions of the job sufficient for the ALJ to determine whether it is comparable to DeFord’s former position."
A complainant has the burden of establishing the amount
of back pay that a respondent
owes. Pillow v. Bechtel Construction, Inc., 87-ERA-35
(Sec’y July 19, 1993). The purpose of
reinstatement and a back pay award is to make the
employee whole, that is, to restore the
employee to the same position he would have been in if
not discriminated against. Back pay
awards should, therefore, be based on all of the earnings the employee would have received but for the discrimination. Blackburn v. Metric Constructors, Inc., 86-ERA-4 (Sec’y Oct. 30, 1991). In Mosbaugh v. Georgia Power Co., the Secretary held that reasonable salary increases
should be included in the award of back pay. 91-ERA-1 and 11 (Sec’y Nov. 20, 1995). In this case, the Complainant asserts that, after termination, it took her several months to 55 find work, and she eventually had to accept a job paying $95,000.00 a year, which she alleges is $45,000 per year less than what she was earning at DVI, and $43,000.00 per year less than the median income for attorneys in the Washington, D.C. metropolitan area who possess the number of years experience she has. Tr. at 78.
As of December 15, 2004, the date of trial, Dr. Richard Edelman, an economist, calculated that Ms. Kalkuntes lost backpay award is equal to $151,976.00. CX 54. DVI alleges that even if damages are due, there is no more than about $100,000, or less, at issue in this matter. See Brief. DVI alleges that Complainant refused the chance OSHA gave her to mitigate her damages through reinstatement in April, 2004. I am told that DVI was liquidating and, no matter what, was not going to offer Complainant the opportunity to continue to make her $130,000 salary beyond 2004.47
Uncertainties in establishing the amount of back pay to be awarded are to be resolved against the discriminating party. McCafferty v. Centerior Energy, 96-ERA-6 (ARB Sept. 24, 1997); Johnson v. Bechtel ConsTruction Co., 95-ERA-11 (Sec’y Sept. 11, 1995).
Mitigation of Damages
DVI argues that Ms. Koslows expert analysis of lost
wages did not take into
consideration that Complainant refused reinstatement at
DVI when offered it by OSHA in May,
2004. Tr. 98. It argues that the Complainants back pay
damages should be cut off from that
point. I am advised by DVI that the Complainant had
relocated to the Washington, D.C. area by
that time, after she married in April, 2004.
Although the SOX employee protection provision does not
explicitly require victims of
employment discrimination to attempt to mitigate
damages, the ARB has consistently imposed
such a requirement, in keeping with the general common
law "avoidable consequences" rule and
the parallel body of damages law developed under other anti-discrimination statutes. The respondent bears the burden of proving that the complainant did not properly mitigate.48
relies on Fiedler v. Indianhead Truck Line, Inc., 670
F.2d 806, 809 (8th Cir. 1982), to assert
that failure to accept an offer of reinstatement
precludes damages such as back pay and front pay.
Wilson v. S & L Accuisition Co., 940 L2d 1429, 1433 n.
6, 1434 (11th Cit 1991).
A respondent bears the burden of proving that the
complainant did not properly mitigate
damages. To meet this burden, the respondent must show
that (1) there were substantially
47 If DVI is liable at all, it is for Complainants lost
salary from mid-September 2003 through April 2004, or
$81,250. (Seven and a half months of salary at $10,833
per month, or $130,000 annually.) See Brief.
equivalent positions available; and (2) the complainant
failed to use reasonable diligence in
seeking these positions. The benefit of the doubt
ordinarily goes to the complainant. Hobby v.
Georgia Power Co., supra; complainant may be "expected
to check want ads, register with
employment agencies, and discuss potential opportunities
with friends and acquaintances."
Doyle v. Hydro Nuclear Services, 89-ERA-22 (ARB Sept. 6,
1996), quoting Helbing v.
Unclaimed Salvage and Freight Co., Inc., 489 F. Supp. 956, 963 (E.D. Pa. 1989), quoting Sprogis v. United Air Lines, 517 F.2d 387, 392 (7th Cir. 1975).
The record shows that on September 18, 2003, Ms.
Kalkunte was terminated by
Respondents. Thereafter, she remained in Pennsylvania,
performing work searches until she ran
out of funds, in March or April, 2004. Tr. at 315, 426.
She testified that she loved her job at
DVI. Id. She sent her resume to fifty to sixty different places, and to headhunters, but was told that the market for her services was poor at that time. Id. at 313-314. Respondent DVI asserts that in May, 2004, the Complainant was offered reinstatement and she declined. See Brief. In that regard, I am referred to Tr. at 98-99. A review of the
colloquy shows that Mr. Edelman was asked on cross examination by DVI to assume the offer was made as a matter of fact. Mr. Edelman was asked:
Hypothetically speaking, if you knew that Ms. Kalkunte
had the opportunity to
return to her DVI employment at the same salary level in
April/May, 2004, and
refused, would that have changed your calculations at
Tr. at 142.
The record does not contain any evidence of an offer.
There is a reference to waiver of
reinstatement in OSHAs Preliminary Order of April 7,
2004, but this does not mean that the
Complainant overtly waived an offer of reinstatement
made by Respondents. There is no
showing who made the offer and DVIs Brief states that an
offer was made by OSHA, which I
find is irrational. There is no showing of terms of any
offer. There is no evidence submitted to
substantiate the assumed fact not in evidence (that a
rejection had been made to a valid offer) set
forth by DVIs questioning at Tr. at 98-99.
After a review of the evidence, I find that the Complainant made an acceptable attempt to mitigate damages, and in fact secured alternative employment. I find that there is no offer of reinstatement of record and no rejection of any offer in evidence.
After a review of the entirety of the record, I find
that any reinstatement offer has not
been admitted into evidence, and therefore I discount
the question asked of the experts as it was
based on a false assumption of facts not of record. My
rulings can be issued only on
consideration of the record of the hearing. 5 USC §
556(d)(Administrative Procedure Act). The
transcript of testimony and exhibits is the exclusive record for decision and shall be made available to parties. 5 U.S.C.§ 556(e).
If I had found that the Complainant refused
reinstatement, I would have accepted that an
offer to return to past work is a reasonable equivalent
to show that (1) there were substantially
equivalent positions available; and (2) the complainant
failed to use reasonable diligence in
seeking these positions. An employer charged with
discrimination in hiring can toll the
continuing accrual of back pay liability by
unconditionally offering the complainant the job
previously denied, and the employer is not required to
offer seniority retroactive to date of the
alleged discrimination, and that absent special
circumstances, rejection of the unconditional job
offer ends the accrual of potential back pay liability.
Ford Motor Co. v. EEOC, supra;
Blackburn v. Metric Constructors, Inc., 86-ERA-4 (Sec’y Oct. 30, 1991).
I note that DVI was in bankruptcy in May, 2004, when the offer was supposed to have been made. However, I credit the Complainants testimony and DVIs argument that DVIs ability to last until 2009 was speculative. EX 64:311- 312 However, I find that the Respondents fail to prove that (1) there were substantially equivalent positions available; and (2) the Complainant failed to use reasonable diligence in seeking these positions. Ford Motor Co. v. EEOC, supra and Hobby v. Georgia Power Co,
Extent of Back Pay
The Complainant began working at Kramer & Levine as an associate attorney in June 2004. Tr. at 263. She should be entitled to full back pay to that date. DVIs Brief states: The backpay analysis is a simple, back-of-the-envelope calculation ... If DVI is liable at all, it is for Complainants lost salary from mid-September 2003 through April 2004, or about $81,250. (Seven and a half months of salary at $10,833 per month, or $130,000 annually.)
I accept the premise and find that the Complainant is entitled to back pay from September 18, 2003, to June, 2004, when she went to work for Kramer and Levine, easily ascertained by a ministerial calculation.
However, the Complainant alleges that she earned
$140,000.00 per year at date of
termination, as calculated by Ms. Koslow. Tr. at 77.
According to the Complainant, this was
$140,000 structured into [her] receiving $130,000 base
salary with a guaranteed bonus of
$10,000 to be received at the end of June 2003. Tr. at
268. She was told that even in the event
of bankruptcy, the bonus was earmarked for her and other DVI attorneys. Tr. at 295. As she was being terminated, Ms. Clay told her that no decision had been made about the guaranteed bonus. Tr. at 306.
After a review of the record, I find that the
Complainant is credible regarding the bonus
obligation, and I accept that although the company was
in bankruptcy, and DVI asserts a right
not to pay it based on what it considers a reasonable
basis, she is entitled to it. Ms. Clays
testimony constitutes an admission that the Complainant
was due a bonus. Tr. at 166, 542-543.
Mr. Toney testified that none of the other employees
received a bonus because the company
could not afford to pay them. In essence, he accepts the
obligation but asserts an incapacity to
pay as an affirmative defense. It did not have the
budgetary allowance to do it. Second is under
the Bankruptcy Code, it’s [because] there is a maximum
that’s allowed to be paid towards priority
or pre-petitioned wages to employees. Tr. at 542-543.
However, Mr. Toney admitted that after
the close of the DVI project, he is entitled to receive a bonus from AP. Tr. at 643. The purpose of back pay is to provide full recovery, not discount recovery because collection would be difficult or even impossible.49
I find that the law in whistleblower cases is to place the complainant in a position that she would have been in if not discriminated against. Blackburn v. Metric Constructors, Inc., 86-ERA-4 (Sec’y Oct. 30, 1991). However, after reviewing the expert testimony, I find that the experts do not show a rational basis to conclude that a performance bonus was an ongoing part of her employment contract as there is no evidence that the bonus was to be ongoing.
Ms. Koslow testified that Ms. Kalkunte was actually earning what she should have been [earning] when she was at DVI. Tr. at 78. However, while the Complainant is entitled to receive the bonus, it should not be considered as back pay for the period after she obtained new employment. A review of the Complainants testimony and the testimony of the experts shows that there was no foundation to assume that the bonus is anything more than a one-time contingency.
Therefore, I find that the Complainant is entitled to $10,833.00 per month from September 18, 2003, to June, 2004; nine (9) months totaling $97,497 in back pay for that period.
Dr. Edelman notes and the record substantiates that the employer contribution for pensions, yields about 4 percent of monetary income, Complainant also lost employer paid insurance, which is 2.8 percent of income. Those total 6.9 percent of income, or $747.48 per month. Tr. 136-137. There is no evidence in the record to refute this testimony. As the record shows that these benefits are not provided by Kramer & Levine, Complainant is entitled to these payments from September 18, 2003 to the date that the Respondents pay them.
The Complainant is also entitled to an additional
$10,000.00 for the bonus she was
entitled to receive under her 2003 employment contract.
I note that the Complainant became employed as of June,
2004. At that time she earned
$95,000 per year, or $7916.67 per month. From that date
to the present, her back pay will be
reduced from $10,833 per month to $3663.81 ($2916.33
plus $747.48) per month from June,
2004 to the date of payment by the Respondents. Back pay
continues to accrue until paid.
Chapman v. T.O. Haas Tire Co., 94-STA-2 (Sec’y Aug. 3, 1994). If there is a dispute as to the calculation of back pay, the Department of Labor, Division of Fair Labor Standards, shall perform the necessary calculations.
Prejudgment Interest on Back Pay
Prejudgment interest on back wages recovered in litigation before the Department of Labor is calculated, in accordance with 29 C.F.R. § 20.58(a), at the rate specified by the Internal Revenue Code, 26 U.S.C. § 6621. The employer is not to be relieved of interest on a back pay award because of the time elapsed during adjudication of the complaint. See Palmer v. Western Truck Manpower, Inc., 85-STA-16 (Sec’y Jan. 26, 1990) (where employer has the use of money during the period of litigation, employer is not unfairly prejudiced).
Therefore, I find that the Complainant should provide prejudgment interest from the date of termination to the date of payment of this Order.
Although front pay is an equitable remedy, Excel Corp. v. Bosley, 165 F.3d 635, 639 (8th Cir.1999), I may not bypass the procedural protections of our adversarial system in resolving disputed adjudicative facts, Lussier v. Runyon, 50 F.3d 1103, 1113 & n. 13 (1st Cir.1995), and a front pay award must be based on evidence. See Davoll v. Webb, 194 F.3d 1116, 1143-45 (10th Cir.1999). Downes v. Volkswagen of America, Inc., 41 F.3d 1132, 1141-43 & n. 10 (7th Cir.1994). However, in Simmons v. Florida Power Corp., 89-ERA-28 and 29 (ALJ Dec. 13, 1989) (Supplemental Decision ALJ, Apr. 11, 1990), dismissed on review by the Secretary based on settlement agreement in decision consolidated with 88-ERA-28 and 30, Simmons v. Fluor Constructors, Inc., 88-ERA-28 and 30 and 89-ERA-28 and 29 (Sec’y June 28, 1991), another ALJ found it appropriate despite the difficulty in predicting the extent of future employment.
In the abstract, front pay could be considered compensation for "future pecuniary losses", in which case it would be subject to the statutory cap. The term "compensatory damages ... for future pecuniary losses" is not defined in the statute, and, out of context, its ordinary meaning could include all payments for monetary losses after the date of judgment. Front pay, like reinstatement, is a form of equitable relief. Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 847-48, 121 S.Ct. 1946, 150 L.Ed.2d 62 (2001).
Dr. Koslow, a vocational expert (Tr. at 73), opined that it will take the Complainant between four and five years to reach her DVI salary level. Tr. at 78. Dr. Edelman, the economist, opined that the valuation of Ms. Kalkuntes lost income and benefits through 2009 is $272,208.00. Tr. 129, 136. He relied on Dr. Koslows report. Dr. Edelman, determined that after reduction of the future value to present value, November, 2004 dollars, the Complainant would be entitled to $272,208.00 in back and front pay and other employee benefits. Tr. at 130, 135; CX 21. As a payment of future damages, a front pay award must be discounted to present value. Berkman v. U.S. Coast Guard Academy, ARB No. 98-056, ALJ No. 1997-CAA-2 and 9 (ARB Feb. 29, 2000).
He relied on the Complainants vital statistics such as
age and date of birth, a description
of the 401(k) profit-sharing plan at Kramer & Levine,
the DVI December 13, 2003 employment
letter, Ms. Kalkunte’s resume, 2003 tax returns and W-2
forms, an October 24, 2004 Kramer &
Levine pay stub, and an April 25, 2004 letter showing her COBRA payments. Tr. at 131-134.
He also referenced federal government documentation involving life expectancy, work life expectancy, projection of wages, inflation and the like. He explained that the $272,208.00 would replace the loss to date, and then from that investment, the Complainant could withdraw an amount that would return the difference between the income she should have earned at DVI, the income she is anticipated to earn on her new job, and that in the middle of 2009 there would be nothing left in the investment. Tr. at 135-136.
The record shows that Dr. Edelman predicated the income at DVI at $140,000.00 per year. In addition to that, there are fringe benefits, which are those benefits that an employer buys for an employee. I find, as stated above, that her back pay was at a rate of $130,000.00.
However, he added: And in this particular case, we had two fringe benefits at DVI. One, the contribution into pensions, which is about 4 percent of monetary income, and then the value of the lost insurance, which is 2.8 percent of income. Those total 6.9 percent of income.
Next, each year the income grows in compensation for cost of living and merit productivity. For a professional, a person with a professional specialty, the average rate of growth that we project is a little bit over 4 percent per year, it’s about 4.5 percent per year.
Subtracted from that is the column that is labeled post termination income. And in 2003, that is the amount that was actually paid to her, plus benefits from DVI. She didn’t work from the point of termination from September 18th, 2003 to June 2004. And she began work at $95,000 in June 2004. This was at Kramer [and Levine], and at Kramer there is no insurance. There is a 401(k) and the company will contribute 4 percent into it and begin that contribution after three months of service.
The vocational expert told me, through her report, that between four to five years she would reach parity with her former level of income, and that is an increase of roughly $17,600 per year, until May 2009, where she will be at the same income she was before. So the loss diminishes, gets smaller and smaller each year as it catches up. Tr. at 136-137. Dr. Edelman assumed a growth in wages, a termination of the loss, reaching parity in May, 2009, and a reduction for survival probabilities, as well as cost-of-living adjustments. Tr. at 137-138. He testified that if the Complainant were to reach parity by the end of 2007, loss would be $257,097. Id.
On cross examination, however, Dr. Edelman acknowledged that if the Complainant would have ultimately been terminated in 2004, it would lower the loss. Tr. at 139. Dr. Edelman estimated that if the hypothetical layoff were true, the Complainants loss would be reduced to about $100,000. Id. He estimated the loss based on a wage growth factor of 16 to 17 percent growth each year. Dr. Edelman also acknowledged that the facts surrounding the alleged Complainants refusal of reinstatement would also reduce her loss. Id. at 142.
Geographic Area of Job Search
DVI advises that Ms. Koslows analysis is suspect for several other reasons:
For one, she drew at random a 50-mile circle around
Washington, D.C., and made
the assumption that all of the attorneys within the
circle should be considered
comparable in terms of earning potential. That
assumption dramatically weakens
Ms. Koslows analysis. The 50 mile radius has no
connection to the economics of
the Washington, D.C. legal market. For example,
Baltimore is only about 44
miles from Washington, yet Ms. Koslow apparently would
count a lawyer who
works in downtown Baltimore as part of the Washington,
D.C. legal market. In
fact, according to Ms. Koslow, an attorney with five to
eight years of experience
who works in a small, three-person firm six miles north
of Baltimore should
expect to make about $138,000 per year. And query whether the reverse is also true: are lawyers working on K Street actually in the Baltimore legal market...
Perhaps in other areas of the country, 50 miles is an
appropriate radius to draw
around a metropolitan center (though it is doubtful.) As
it pertains to this case,
however, attorneys that work 50 miles outside of
Washington D.C., (or about 32,
as Complainant does) do not make anywhere near their
counterparts who work in
the city themselves.
See Brief citing Tr. at 66:7-67:7. DVI also asserts that
Ms. Koslow failed to research the
Pennsylvania legal market. Neither Respondent placed any evidence into the record of the geographic area and other factors to discount Ms. Koslows vocational assumptions. I accept that the Complainant
remained in Pennsylvania until March or April, 2004, while she looked for work. I therefore credit her testimony in part. DVI also failed to present evidence concerning the Pennsylvania market to impeach Ms. Koslows testimony.
But I do not fully credit her testimony as to future
earnings or earning capacity given that
DVIs apparent insolvency was not adequately referenced
as a predicate to her conclusions. I
also discount her estimate of the base to be used to
establish back pay, and therefore front pay.
See discussion above.
DVI further alleges that Ms. Koslow performed no analysis of the effect that legal specialization has on earning potential. Tr. at 85-86. The argument is that her assessment fails to take into consideration whether corporate attorneys like the Complainant are any more or less in demand than patent attorneys or other specialists. Neither Respondent offered any expert testimony to controvert this evidence.
DVI concludes that as a result of the weaknesses in Ms. Koslows analysis, Dr. Edelmans work is rendered meaningless because he based his analysis on that of Ms. Koslow. Id. at 138. Dr. Edelman based his calculation of the Complainants lost income on the difference between her last salary at DVI and her income at her new position over the course of five years, adjusting for expected annual gains. CX 21:8.
After reviewing all of the evidence, I discount much of
the testimony of both expert
witnesses. I accept the argument that it is apparent
that DVI was in liquidation and at the time
the experts testified, it appeared that liquidation
would occur in 2004, and that there would no
positions left for anyone after that. However, I do not
accept that liquidation excuses the
Respondents from liability.50
Front pay is intended to compensate the complainant for
wages and benefits she would
have received from the defendant employer in the future
if not for the discrimination. Pollard,
supra; Tyler v. Union Oil Co. of Cal., 304 F.3d 379, 402
(5th Cir.2002)(ADEA); Raefenhain v.
Pabst Brewing Co., 870 F.2d 1198, 1213 (7th Cir.1989);
Dalal v. Alliant Techsystems, Inc., No.
94-1483, 1995 WL 747442, at *2-3 (10th Cir. Dec.18,
1995). However Tyler affirms a denial of
front pay where an award would be purely speculative.
But "[c]alculations of front pay cannot
be totally accurate because they are prospective and necessarily speculative in nature." Reneau v. Wayne Griffin & Sons, Inc., 945 F.2d 869, 869 (5th Cir.1991). Loss of future earnings is proved with reasonable certainty by evidence of (1) the amount of wages lost for some determinable period and (2) the future period over which wages will be lost.
Despite the flaws in the logic of the Complainant
experts, I accept the conclusion, based
on a review of the Complainants work history, that she
will need additional time to resume
appropriate compensation. I note that the Complainant
makes less now than she did when she
worked for DVI. I also accept that it will take the
Complainant at least four years to overcome
the effects of the Respondents conduct. I do not need to
rely on the logic that requires a
comparison with similarly situated lawyers to reach this
conclusion, as I note that she makes
significantly less and I accept the testimony from Dr.
Edelman that there are growth and inflation
factors to consider. As back pay continues to accrue until paid, Chapman v. T.O. Haas Tire Co., supra, I accept that front pay of four years shall commence, for a period of four years from the date that the Complainants back pay award is satisfied.51 The front pay award should address the equitable needs of the employee, such as the ability to obtain employment with comparable compensation. E.E.O.C. v. HBE Corp., 135 F.3d 543, 555 (8th Cir.1998).
I credit Dr. Edelmans testimony that for five years
there should be income growth of
between four (4) percent per year and about 4.5 percent
per year. Tr. at 136-137. Dr. Edelman
assumed a growth in wages, a termination of the loss,
reaching parity in May, 2009, and a
reduction for survival probabilities, as well as
cost-of-living adjustments. Tr. at 137-138.52 I
accept this rationale. However, I discount the reference
to other employees wages and the
extrapolation that gives rise to the increase of roughly
$17,600.00 per year, until May, 2009. I
find that back pay and front pay are subject to the same
kinds of calculations as suggested by
DVI in its Brief. Pollard, supra. I note that the Respondents have not proffered an alternative as to time.
Using the differential that I have accepted for back pay, $3663.81.00, multiplying that figure by four years and reducing that figure to present value, I find that the Complainant is entitled to $150,328.33 in front pay.53 In reaching this conclusion, I find that inflation and any cost of living adjustments will, to a reasonable degree of probability, relying on the testimony of Dr. Edelman, offset future value, reducing the future value of $175,862.88 to $150,328.33 in present value.
Compensatory damages may be awarded for emotional pain and suffering, mental anguish, embarrassment, and humiliation. Such awards may be supported by the circumstances of the case and testimony about physical or mental consequences of retaliatory action.
Compensatory damages are designed to compensate not only
for direct pecuniary loss, but also
for such harms as impairment of reputation, personal
humiliation, and mental anguish and
suffering. Martin v. Dep’t of the Army, ARB No. 96-131,
ALJ No. 93-SDW-1, slip op. at 17
(ARB July 30, 1999), citing Memphis Community Sch. Dist.
v. Stachura, 477 U.S. 299, 305-
307 (1986); Creekmore v. ABB Power Systems Energy
Services, Inc., 93-ERA-24 (Dep. Sec’y
Feb. 14, 1996) (compensatory damages based solely upon
the testimony of the complainant
concerning his embarrassment about seeking a new job,
his emotional turmoil, and his panicked
response to being unable to pay his debts); Crow v.
Noble Roman’s, Inc., No. 95-CAA-08, slip
op. at 4 (Sec’y Feb. 26, 1996) (complainant’s testimony
sufficient to establish entitlement to
compensatory damages); Jones v. EG&G Defense Materials, Inc., ARB No. 97-129, ALJ No. 1995-CAA-3 (ARB Sept. 29, 1998) (injury to complainant’s credit rating, the loss of his job, loss of medical coverage, and the embarrassment of having his car and Truck repossessed deemed
sufficient bases for awarding the compensatory damages).54
The testimony of medical or psychiatric experts is not
necessary, but it can strengthen a complainant’s case for entitlement to compensatory
damages. Thomas v. Arizona Public
Service Co., 89- ERA-19 (Sec’y Sept. 17, 1993); Busche
v. Burkee, 649 F.2d 509, 519 n.12 (7th
Cir. 1981), cert. denied, 454 U.S. 897 (1981). See also
United States v. Balistrieri, 981 F.2d
916, 931-32 (7th Cir.1992) (a party’s own statements can support a mental suffering award if they are more than simply conclusory), cert. denied, 510 U.S. 812, 114 S.Ct. 58, 126 L.Ed.2d 28 (1993).
Ms. Kalkunte testified that as a direct and proximate
result of her termination she had to
spend $12,000.00 in savings and $30,000.00 in credit
card debt for living and legal expenses. Tr.
at 311, 318-19.
The Complainant also alleges that she was left unable to sleep, was diagnosed with diabetes, suffered depression, and her hypertension worsened, she suffered from weight loss, weight gain, stress, anxiety, low self-esteem, and other similar problems. Tr. at 309, 319-320. I am requested to award an additional $151,976.00 in special damages to compensate her for emotional distress.
I am advised by DVI that Complainants special damages
claim must be proved with a
high degree of specificity. Boale v. McClure, 332 L3d
1347, 1359 (11th Cir. 2003). To prove
special damages, the complainant needs to show an
itemization of such costs and expenses,
including supporting documentation. Welch v. Cardinal
Bankshares Corp., 2003-SOX-15, slip
op. at 71 (ALJ Jan. 28, 2004). DVI argues that the Complainant has offered no proof of the special damages she claims, and they therefore should be denied.
"Distress is a personal injury familiar to the law, customarily proved by showing the nature and circumstances of the wrong and its effect on the plaintiff." Carey v. Piphus, 435 U.S. 247, 263-264 (1978). See Memphis Community School Dist. v. Stachura, 477 U.S. 299, 306- 307 (1986)(testimony required as to some form of disagreeable emotion, anxiety, feeling of intimidation, etc.); Hobson v. Wilson, 737 F.2d 1, 61-62 and n.173 (D.C. Cir. 1984), cert. denied, 470 U.S. 1084 (1985) (factfinder may measure this testimony against the circumstances of case to gauge whether violation justifies distress alleged); Seaton v. Sky Realty Co., 491 F.2d 634, 636-637 (7th Cir. 1974). The complainant must prove the existence and magnitude of subjective injuries with "competent evidence." Carey v. Piphus, 435 U.S. at 264 n.20. I credit the Complainants testimony that she has been unable to sleep, was diagnosed with diabetes, suffered depression, and her hypertension worsened, she suffered from weight loss, weight gain, stress, anxiety, low self-esteem, and other similar problems. Tr. at 309, 319-320.
submitted no medical evidence to substantiate her
claims, and therefore, although I find that she
has had emotional distress to some extent, she has not
proved permanency, and has not shown
that her diabetes is related to the whistleblower claim. In determining pain and suffering damages, I may consider the nature and extent of the injured party’s suffering and his "internal condition perceptible to his senses". Jones v. Miller, 290 A.2d 587, 590 n. 5 (D.C.1972). I am
to make her whole, to put her in position she would have been placed, but for respondents conduct. Croley v. Republican Nat. Committee, 759 A.2d 682 (D.C. 2000).
I do not find that the Complainant has submitted
evidence of past medical expenses or
future expenses. She did not produce any medical
testimony. Therefore, I find that the
Complainant is not entitled to medical expenses.
However, I find that she is entitled to compensation for pain, suffering, embarrassment and mental anguish, and the effect on her credit. I note that in other cases, where no medical expert witnesses were called and no psychiatric evidence was forthcoming, whistleblowing complainants were awarded as much as $250,000.00 for compensatory damages based on emotional distress.55 I accept DVIs argument that the Complainant has a garden variety emotional distress claim, as the Complainant has a history of psychiatric problems that began prior to her employment at DVI. DVI accepts that while at DVI, the Complainant received psychiatric counseling and took prescribed anti-depressants. See Brief.
There is little question
that Complainants termination from DVI made her upset,
but it is not clear that she would have
been any less upset had she been terminated in the
normal course of DVIs windown. I accept
that pre-existing conditions may be aggravated or exacerbated by current problems caused at DVI, but the Complainant has failed to show that the mental anguish was completely caused by Respondents conduct. However, I find that the Complainant did suffer symptoms of depression,
and suffered humiliation as a result of Respondents conduct. I credit the Complainants testimony that she was embarrassed and humiliated by the way she was relieved of her job.
I also find that her testimony that she spent $12,000.00 in savings and $30,000.00 in credit card debt as a result of losing her job is credible, and is documented by her testimony, and that this is an accurate measure of further economic special damages. However, I discount the extent of her legal expenses as they are otherwise recoverable. See section Attorneys Fees and Costs, infra. After a review of all the evidence, I find that the Complainant is entitled to $22,000.00 in damages for her pain, suffering, mental anguish, the effect on her credit and the humiliation that she suffered. Interest is not awardable on compensatory damages. Smith v. Littenberg, 92-ERA-52 at 5 (Sec’y Sept 6, 1995).
ATTORNEY FEES AND COSTS
Attorney fees which are reasonably incurred by the
Complainant in connection with
bringing the complaint upon which the order was issued
will be awarded. Deford v.
Secretary of Labor, 42 U.S.C. Section 5851(b)(2)(B). A
reasonable fee is not necessarily
that agreed to by the Complainant and her counsel.
Blanchard v. Bergeron, 489 U.S. 87
(1989); Blackburn v. Metric Constructors, Inc., 86-ERA-4 (Sec’y October 30, 1991.
Factors to be considered in awarding fees are:
1. Time and labor required;
2. Customary fee;
3. Novelty and difficulty of the questions;
4. The skill requisite to perform the legal service properly;
5. Preclusion of other employment by the attorney due to acceptance of the case;
6. Limitations imposed by the client or the legal circumstances. Priority work that
delays the lawyer’s other legal work is entitled to some premium;
7. Amount involved and the results obtained;
8. Experience, reputation, and ability of the attorney;
9. "Undesirability" of the case;
10. Awards in similar cases;
• Bigham v. Guaranteed Overnight Delivery, Case No. 95-STA-37, ARB Case No. 96-108, ARB Dec., Sept.
5, 1997, slip op. at 3. The ARB awarded Bigham $20,000 for mental anguish resulting from discriminatory
• Lederhaus v. Paschen, Case No. 91-ERA-13, Sec’y Dec., Oct. 26, 1992, slip op. at 10. The Secretary
awarded Lederhaus $10,000 for mental distress caused by discriminatory discharge where Lederhaus
showed he was unemployed for five and one half months; foreclosure proceedings were initiated on his
house; bill collectors harassed him and called his wife at her job, and her employer threatened to lay her
off; and his family life was disrupted.
11. Whether the fee is fixed or contingent; and
12. Nature and length of the professional relationship with the client.
Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 718 (5th Cir. 1974).
In addition, litigation costs and expenses are also reimbursable, including monies reasonably spent in pursuing the cause of action. Goldstein v. Ebasco Constructors, Inc. No. 86-ERA-36 (May 17, 1988). This includes lodging, paralegal expenses, and the Complainant’s transportation expenses to and from the hearing.
Accordingly, IT IS RECOMMENDED that Respondents DVI
Financial Services, Inc. and
AP Services, LLC:
1. Pay to the Complainant back pay from September 18, 2004 to the date that back pay is made to the Complainant. If disputed, ministerial calculations of back pay should be performed by the Division of Fair Labor Standards based on the discussion in the Findings as to damages;
2. Pay to the Complainant interest on back pay from the date the payments were due as wages until the actual date of payment. The rate of interest is payable at the rate established by section 6621 of the Internal Revenue Code, 26 U.S.C. § 6621;
3. Pay to the Complainant front pay in the amount of $150,328.33.
4. Pay to the Complainant compensatory damages in the amount of twenty two thousand dollars ($22,000.00) in compensation for distress suffered as a result of the depression, humiliation and retaliation endured.
5. Pay to the Complainant, all costs and expenses, including reasonable attorney fees incurred by her in connection with this proceeding. Counsel for the Complainant will have thirty days from the date of this Order in which to submit an application for attorney fees and expenses reasonably incurred in connection with this proceeding. A service sheet showing that proper service has been made upon the Respondents and the Complainant must accompany the application. Respondents will have fifteen days following receipt of the application to file objections.
DANIEL F. SOLOMON
Administrative Law Judge
NOTICE OF APPEAL RIGHTS: To appeal you must file a
petition for review (Petition)
within ten business days of the date of this decision
with the Administrative Review Board
("Board"), U.S. Department of Labor, Room S-4309, 200
Constitution Avenue, NW,
Washington DC 20210. Your Petition is considered filed
on the date of its postmark, facsimile
transmittal, or e-mail communication; but if you file it
in person, by hand-delivery or other
means, it is filed when the Board receives it. Your Petition must specifically identify the findings, conclusions or orders you object to. You waive any objections you do not raise specifically.
At the time you file the Petition with the Board you must serve it on all parties, and the Chief Administrative Law Judge; the Assistant Secretary, Occupational Safety and Health Administration; and on the Associate Solicitor, Division of Fair Labor Standards, U.S. Department of Labor, Washington, DC 20210.
If you do not file a timely Petition, this decision becomes the final order of the Secretary of Labor pursuant to 29 C.F.R. § 1980.110. Even if you do file a Petition, this decision of the administrative law judge becomes the final order of the Secretary of Labor unless the Board issues an order within 30 days after you file your Petition notifying the parties that it has accepted the case for review. See 29 C.F.R. §§ 1980.109(c) and 1980.110(a)
1The Sarbanes-Oxley Regulations specifically indicate that consideration was given to the regulations implementing the whistleblower provisions of the Wendell H. Ford Aviation Investment Reform Act for the 21st Century (AIR 21 Act), 29 C.F.R. § 1979; the Surface Transportation Assistance Act (STAA), 29 C.F.R. § 1978; and the Energy Reorganization Act (ERA), 29 C.F.R. 24. See 29 C.F.R. § 1980 at 2. Moreover, the legal burdens of proof in Sarbanes-Oxley are taken from AIR 21, 49 U.S.C. § 42121. See also 42 U.S.C. § 5851(b)(3)(legal burdens of proof for whistleblowing under ERA).
2I note that AP did not object on the basis that it was not considered a party at the time that OSHA conducted its investigation, and did not have an opportunity to participate at that time. See AP Objections filed June 8, 2004. This document was not moved into evidence at hearing.
3Mr. Toney testified that Christine Spadafor-Clay (Ms.
Clay) had also been assigned to the DVI project on
August 25, 2003, by AP, and was also a Principal in the
firm. Tr. at 242-243. To the best of his knowledge, Ms.
Clays salary was paid by AP. Id. at 243. Mr. Toney testified that he had asked fellow principal, Ms. Clay, to perform human resources and administrative functions at DVI, under his direction. Id.
4Even if the statute requires AP to have been the Complainants employer, I note that contrary to APs position, the statute does not require that a respondent be an employer to be liable for a violation. See discussion infra.
5In Stephenson v. NASA, No. 98-025 (ARB July 18, 2000), the Administrative Review Board (ARB or Board) considered whether an employer may be held liable for actions it has taken against a person who is not its common law employee. The Board concluded that: [i]n a hierarchical employment context, an employer that acts in the capacity of employer with regard to a particular employee may be subject to liability under the environmental whistleblower provisions, notwithstanding the fact that that employer does not directly compensate or immediately supervise the employee ... The issue of employment relationship necessarily depends on the specific facts and circumstances of the particular case, however.
6Neither Powers nor Flake are applicable to this fact pattern. DVI is a publicly traded company that contracted with AP for the use of Mr. Toney. AP does not deny this fact. It described the relationship as an independent contractor relationship. See APs Brief at 4. The Complainant is an employee of a publicly traded company. Even if AP were an independent contractor, the statute includes contractors.
AP also cites Orell v. UMass Memorial Medical Center,
Inc., 203 F.Supp.2d 52, 64 (D. Mass. 2002). In
Orell, the plaintiff alleged age discrimination,
disability discrimination and retaliation in violation
of the False
Claims Act, 31 U.S.C. § 3730(h). It argues that AP is merely a management firm that contracted with DVI to lease temporary employees to DVI:
As in Orell, the only relationship between Complainant
and APS was the appointment of Toney as DVIs
CEO by virtue of the contract between APS and DVI. Ex.
D, Engagement Letter dated 8/25/03;
Christiansen Affidavit. Just as UMMC granted Corbett the
authority to fire Orell, Toney had the authority
to fire Complainant as DVIs President and CEO. APS did
not supervise Complainants day to day
activities, hire or fire any DVI employees, control work
assignments, issue operating instructions or
conduct any other activity that employers commonly
The False Claims Act does not define the term "employer." In the absence of explicit statutory language to the contrary, Congress intended "employer" in § 3730(h) to have its ordinary, common law meaning. United States v. Texas, 507 U.S. 529, 534 (1993); Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322-23 (1992); United States ex rel. Siewick v. Jamieson Science & Engineering, Inc., 214 F.3d 1372 (D.C. Cir. 2000). Unlike the statutes in Orell, the SOX whistleblower statute protects employees of publicly traded companies from conduct not only by employers but also from conduct by any officer, employee, contractor, subcontractor, or agent of the employer.
7Citing to Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); Douglas v. E.G. Baldwin & Assoc., Inc., 150 F.3d 604, 606 (6th Cir. 1998).
8Citing to Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 92 (2002).
9In essence, the business credit department was financing receivables, paying them into a pool, and then requesting draws on their line of credit to receive money back. Tr. at 270-271. DVI began taking money in, but refusing to honor the lines drawn on it by customers who were non-defaulting. Id. Instead, DVI applied the funds to the customers who were defaulting, since those customers also happened to have a huge amount of exposure to DVIs financial services and this would avoid going into default under their large loans. Id. Ms. Kalkunte testified that this was a breach of contract in addition to ... a lot of ... other improprieties. Id.
Ms. Kalkunte testified that Ms. Turner had told her it was Terry Cady, the president of DVIBC, who had instructed that the funds be rerouted in this manner. Tr. at 271. According to Ms. Kalkunte, Ms. Turner showed her the paperwork to prove this allegation, at which point Ms. Kalkunte became livid and advised the subsidiary to cease and desist sending e-mail around to all the various business people and further advised that it must re-reconcile their numbers, so that non-defaulting customers were receiving their draws and notices of default were sent to defaulting customers. Id.
10Audit Committee members Goldberg and Shapiro are also referred to as Board members throughout.
11The transcript incorrectly states September 21, 2003. Tr. at 282-283.
12Mr. Shapiro also provided testimony on his multiple telephone calls with Ms. Kalkunte that day. He similarly testified that Ms. Kalkunte advised of the delinquency reports being provided to the Board of Directors. Shapiro Deposition at 12. He testified: [I]f the reports that were being presented to us were being changed for the directors
13According to Mr. Toney, when the Arnold & Porter
investigators arrived, they had a list of the employees
with whom they wished to meet; first and foremost was
Ms. Kalkunte. Tr. at 561. Mr. Bromme testified that
Ms. Kalkunte was the only person substantively interviewed that day. Bromme Deposition at 18.
14 According to Mr. Bromme, Ms. Kalkunte did not exactly
make allegations; rather, she reported matters that she
believed to be worthy of further investigation. Bromme
Deposition at 32. Thus, what was most important from
meeting was not the substance of Ms. Kalkuntes comments
but that she pointed them in the right direction as to
whom else at DVI they should contact to learn more about these allegations. Id. at 42-43. While it did not appear that Ms. Kalkunte had firsthand knowledge of these matters, she was clear in distinguishing between things that she had just heard and things that she knew. Id. at 32.
15 Mr. Bromme testified that this issue had also been identified in a memo written by another DVI employee, and that he followed up on this issue with her. Bromme Deposition at 47.
16Mr. Toney also assigned several other professional managers to help supplement the organization, since DVI was in a crisis situation, there were allegations of fraud at the company, and he needed to assess whether the managers in place at the time could adapt to the crisis-type environment. Tr. at 536-537. Thus, Mr. Toney supplemented the key parties or key managers in place at the time with additional managers. Id. Mr. Toney testified that he relied on his AP managers quite a bit to keep him informed. Id. at 537.
18Specifically, Ms. Kalkunte was working heavily with treasury to determine all the faults in the various documents and to put together a list of the assets and the value of the assets. Tr. at 287. She realized that this would take a long time as there were no proper books and records. Id. Ms. Kalkunte noted that, at that time, Mr. Garfinkel, who was most knowledgeable about these matters, had been put on administrative leave. Id. Additionally, Phil Jackson, who had been a senior vice president in the treasury department, had resigned prior to the bankruptcy. Id. Although a replacement had been hired, he was very new to DVI and had not known the company was going into bankruptcy and really had no idea of the structures, the financing, the securitization, the Fleet line, et cetera. Id.
19An email dated September 19, 2003, from John Boyle to Steve Garfinkel indicates this to be the case. CX 15. In that email, Mr. Boyle states that he had been passing information regarding lawsuits along to Ms. Kalkunte, but since she had been terminated, he was wondering where to direct this type of information. Id.
20 However, Ms. Kalkunte testified that at no time while employed by DVI was she ever responsible for maintaining the companys corporate books and records. Tr. at 268-269. Rather, Mr. Breaux, while he was General Counsel of DVI, had hired a paralegal, Jackie Greene, who exclusively took care of those tasks. Id. at 269.
21Ms. Kalkunte testified that, while Mr. Toney claimed
she worked for him, her role was as an attorney for
DVI (i.e. for the corporation, post-bankruptcy, for what
was best for the creditors of the estate). Tr. at 300-
301. She testified: That was my employer, as far as I was concerned, not one particular person at DVI. Id.
22Ms. Kalkunte had presumed as much because on August 16, 2003, she was asked to draft something explaining Arnold & Porters role in order to get them paid immediately. Tr. at 299.
23 A review of Ms. Kalkuntes Personnel Action Notice dated September 18, 2003 states that she was terminated as part of a reduction in force. CX 14.
24 Ms. Clay testified that she directed Ms. Cascioli to
escort Ms. Kalkunte out of the building because Ms.
Kalkunte had had access to sensitive documents given the
nature of her position and was situated differently
in terms of the importance of her title. Tr. at 655-657. Ms. Clay stated: This is about the position. It’s not about Ms. Kalkunte. Anyone sitting in Ms. Kalkunte’s chair would have been treated similarly. Id. at 657. In
addition, Ms. Clay testified that due to the ongoing investigation, it was reasonable and prudent to expect that at some point there would be questions from investigators regarding the process Ms. Kalkunte underwent in leaving the company. Id. Ms. Clay stated: We needed to be able to tell the investigators that all the papers
were in fact left behind. Id.
25On September 19, 2003, Mr. Romano called Ms. Kalkunte and, according to Ms. Kalkunte, advised her that while Mr. Goldberg and Mr. Shapiro were not unsympathetic to her position, they felt it best to no longer communicate directly with her. Tr. at 308. Instead, all communications were to go through Mr. Romano. Id.
26Moreover, Mr. Toney testified that whether an
employee participated in the Arnold and Porter
did not influence his decision making with regard to any
terminations. Tr. at 566-567. In fact, he could not
even recall which DVI employees participated in the investigation other than Ms. Kalkunte. Id. at 566.
27Mr. Toney further testified that the situation at DVI post-bankruptcy was not one where there were specific job descriptions for each employee. Tr. at 554. Mr. Toney testified: Its not a union contract where, no, they don’t step outside of the bounds of what theyre supposed to be doing. I look at an attorney in-house or any organization as being able to adapt to the environment and do whatever is needed to keep the process moving. Id.
28Mr. Toney testified that in crisis situations, such
as the one at DVI, he often used the metaphor of a
boat on the river and it’s got a few holes in it. Tr. at
255-256. He further stated: And in this situation, there
were quite a few holes. And so when I’m looking at a crisis situation, the people that are there, they either have a bucket and theyre bailing water out, or I don’t need the people in the boat. I need to keep that boat afloat, and the objective there was to try to stabilize this company. Tr. at 255-256. Mr. Toney testified that he used this metaphor in regard to all employees and professionals that had been working on the DVI engagement. Tr. at 256. He stated: My job is to be as efficient as possible and manage the creditors money, and so I have to have that philosophy. Tr. at 256.
29Mr. Schildhorn was one of the attorneys from Adelman & Lavine who served more as local counsel in Delaware, where the bankruptcy was filed, and whose job it was to prepare the paperwork and ensure that it was filed with the Court. Tr. at 540.
32I note that Ms. Clay had no such conversation with Ms. Kalkunte.
33Mr. Toney reemphasized DVIs need to have someone gather records, and noted that after DVI terminated Ms. Kalkunte, he discussed with Ms. Clay rehiring a paralegal who had worked with Ms. Kalkunte and been let go in the initial RIF. Tr. at 556. The idea was that the paralegal could be rehired at a lower cost to facilitate record gathering. Id. As it turned out, the paralegal did not wish to return to the company. Id. Mr. Toney testified that, even though DVI never ended up filling the position, the workload was fortunately absorbed and picked up as needed. Id.
34 The rationale was that Ms. Kolbe could not be let go immediately, since after the initial RIF the Court would not allow another RIF for a certain period of time. Kolbe Deposition at 12.
35 Similarly, Ms. Clays Certification states that on
September 15, 2003, Rebecca Kolbes position as an
administrative assistant to Mr. Turek was eliminated
because the minimal administrative support Mr. Turek
could be provided by other staff. CX 48: ¶10.
36 In a mixed motive Title VII case, the burden on the employer is to prove by a preponderance of the evidence that it would have made the same decision even if it had not taken the plaintiffs gender into account. Price Waterhouse v. Hopkins, 490 U.S. 228, 258 (1989).
37 This evidence is uncontroverted as Respondents never deposed Mr. Whelan.
38 There is also a conflict whether the words no way in hell were conveyed to Goldberg and Shapiro. I accept the Complainants version.
39 See, e.g., Halloum v. Intel Corp., 2003-SOX-7, at 15 (ALJ Mar. 4, 2004) (holding that a [t]he accuracy or falsity of the allegations is immaterial; the plain language of the regulations only requires an objectively reasonable belief that shareholders were being defrauded to trigger the Acts protections).
40 I am also advised that an alleged third protected activity at the close of the hearing represents an attempt by the Complainant to amend her Complaint under 29 C.F.R. § 18.5(e). See DVI Proposed Finding III (1). DVI asserts that granting such proposed amendment would unduly prejudice DVI. See id.
41Moreover, Respondents have stipulated that
Complainant engaged in protected activity in August,
2003, when she
reported allegations of fraud and accounting
improprieties to the Board of Directors of named party
DVI, and that
the decision maker at issue, Mark Toney, knew of that
protected activity. See DVI Proposed Finding I (1); Tr.
49-50, 208-209, 738-739.
42Based on the advice she had been given by Thatcher, Proffitt, Ms. Kalkunte knew of her duty as in-house counsel for DVI to report the improprieties up the chain. Tr. at 276; CX 50. Ms. Kalkunte testified: I mustve read that attorney section a hundred times and Im still not exactly sure what I was responsible for. But I was required to follow up on that investigation and look into the improprieties. Tr. at 295-296.
43In that regard, I accept the Complainants assertion that Ms. Kolbe voluntarily resigned, and therefore does not qualify as an employee included in any so-called September, 2003 RIF. Ms. Kolbes deposition testimony substantiates this assertion. She testified that she was the one who initiated her termination, and that she wished to be let go for personal reasons. Kolbe Deposition at 10-12, 17-18. I note that Ms. Clay claimed Ms. Kolbes termination was initiated by Mr. Turek, who allegedly claimed that Ms. Kolbes services were no longer needed at DVI. Tr. at 438-439, 441. However, since I have determined that Ms. Clays testimony is entitled to diminished weight, I credit Ms. Kolbes version of these facts over Ms. Clays version.
44I accept that the duties of the other in-house counsel may have differed from those of Ms. Kalkunte, notwithstanding that they all shared the general baseline trait of being attorneys who worked for the company. In that sense, I accept that it is not wholly accurate to compare when other in-house counsel were terminated in analyzing whether there is pretext. Nonetheless, it is worth noting that none of the other in-house attorneys were terminated until well after Ms. Kalkunte.
45 Ms. Clay claimed that, although she made a point of asking Ms. Kalkunte to provide a list of her job duties at the September 12th meeting, Ms. Kalkunte never provided such a list. Id. at 648-649. Ms. Kalkunte testified that post-bankruptcy she was never asked to discuss her job duties with Ms. Clay. Tr. at 286. I again credit Ms. Kalkuntes testimony over Ms. Clays testimony.
46 I note that Respondents submitted several emails (EX 8, 12, 13, 14, 28) between Ms. Kalkunte and various individuals working at DVI, revealing a certain degree of discord. However, these emails do not document work performance problems on the part of Ms. Kalkunte. Rather, they involve Ms. Kalkuntes frustration with the manner in which certain matters were being handled by DVI.
• EX 8 (September 4, 5, 2003): Ms. Kalkunte expressing frustration that Bob Blau was collecting litigation information and failing to provide it to her and to Mr. DeCandia. Mr. Turek replying that there was enough work for everybody to do without creating fiefdoms.
• EX 12 (September 9, 2003): Ms. Kalkunte requesting
that she be apprised of what was going on with the
second DIP financing and the DVIBC lender issues. Mr.
Toney replying that she should talk with Mr.
Athanas or Mr. Meller and while he appreciate[d] her interest in these topics they were sensitive issues.
• EX 13 (September 10, 2003): Ms. Kalkunte stating that
strangers employed by DVI that are wandering the
halls know about these sensitive issues than [she did].
Requesting that Mr. Toney, the Board, and Mr.
Heller send her an email setting forth the issues that she should not be involved in so she could refrain from reviewing any such information or making inquiries into those issues.
• EX 14 (September 10, 2003): Ms. Kalkunte expressing
frustration that she was not receiving her wages in
the sum of $10,000. Mr. Heller advising Ms. Kalkunte
that he understands her frustrations and will check
into the situation.
• EX 28 (September 17, 2003): Ms. Kalkunte expressing frustration that she was not being told what work was being delegated to others instead of being assigned to her.
48 Timmons v. Franklin Electric Coop., 1997-SWD-2 (ARB
Dec. 1, 1998); Jones v. EG&G Defense Materials,
Inc., ARB No. 97- 129, ALJ No. 1995-CAA-3 (ARB Sept. 29,
1998); West v. Systems Applications International,
94-CAA-15 (Sec’y Apr. 19, 1995). See also II Dan B. Dobbs, Law Of Remedies §6.10(4) at 221-22 (2d ed. 1993); II Barbara Lindeman and Paul Grossman, Employment Discrimination Law 1792 (3d ed. 1996) ("Although the burden of proving damages generally falls upon the plaintiff, the defendant carries the burden of pleading and
establishing, as an affirmative defense, the plaintiff’s failure reasonably to mitigate."). To meet this burden, the respondent must show that (1) there were substantially equivalent positions available; and (2) the complainant failed to use reasonable diligence in seeking these positions. Johnson v. Roadway Express, Inc., ARB No. 99-111, ALJ No. 1999-STA-5, slip op. at 15 (ARB Mar. 29, 2000); Rasimas v. Michigan Dep’t of Mental Health, 714 F.2d 614, 624 (6th Cir. 1983). See also, II Charles A. Sullivan et al, Employment Discrimination §14.4.5 (1988). "Substantially equivalent employment" would be a position providing the same promotional opportunities,
compensation, job responsibilities, working conditions, and status. See, e.g., Ford Motor Co. v. EEOC, 458 U.S. 219, 102 S. Ct. 3057, 3065 (1982).
49 The record does not establish whether the bonus was claimed in the bankruptcy proceeding. The Respondents did not provide any authority to exert a unilateral right to avoid a contractual obligation
50 See Belk v. City of Eldon, 228 F.3d 872, 883 (8th Cir.2000) (upholding denial of front pay reduction for farming income that employee would have had in any case). Like the remedy of reinstatement, the availability of front pay is committed to the discretion of the trial court, and review of its decision is for abuse of discretion. Shore v. Federal Express Corp., 42 F.3d 373 (6th Cir.1994) (front pay under Title VII, 42 U.S.C. § 2000e-5(g), authorizing "equitable relief"); Roush v. KFC Nat’l Management Co., 10 F.3d 392, 398 (6th Cir.1993), cert. denied, 513 U.S. 808, 115 S.Ct. 56, 130 L.Ed.2d 15 (1994).
51 Schwartz v. Gregori, 45 F.3d 1017, 1023 (6th Cir.1995). In determining the amount of front pay, a district court is to consider a number of factors, including the employee’s work life expectancy. Shore v. Federal Express Corp., 777 F.2d 1155, 1160 (6th Cir.1985). The fact that an employee is an at-will employee, like Schwartz, alone would not justify a refusal of front pay, but can be taken into account in fashioning an appropriate remedy. See Reneau v. Wayne Griffin & Sons, Inc., 945 F.2d 869, 871 (5th Cir.1991); Andover Newton Theological Sch., Inc. v. Continental Casualty Co., 930 F.2d 89, 94 (1st Cir. 1991).
52 I note that in some cases, courts have affirmed a
front pay award for the remainder of a complainant’s
life, where he had been employed by the defendant for
twenty-three years. Newhouse v. McCormick & Co., 110
F.3d 635, 641-42 (8th Cir.1997). However, I accept that
it is not appropriate in this case, where the
has a lengthy work life expectancy.
53 The present value of a sum is the amount of money
that a party must have today in order to amount to a
equal to the loss at a date in the future. Jones &
Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983).
present value calculator at 4% for four years.
54 Compensatory damages are intended to redress the
concrete loss suffered by reason of the wrongful
Restatement (Second) of Torts § 903. State Farm Mut.
Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513, 155 L. Ed.
585, 60 Fed. R. Evid. Serv. 1349 (U.S. 2003). Actual
damages are not limited to out-of-pocket losses, but
encompass all the elements of compensatory awards
generally, including those such as impairment of
personal humiliation, and mental anguish and suffering.
Rasor v. Retail Credit Co., 87 Wash. 2d 516, 554 P.2d
55 Hobby v. Georgia Power Co., ARB No. 98- 166, ALJ No. 1990-ERA-30 (ARB Feb. 9, 2001)($250,000.00).
Other cases include:
• Hall v. U.S. Army, Dugway Proving Ground, 1997-SDW-5 (ALJ Aug. 8, 2002). $400,000 in compensatory damages, based upon his mental anguish, adverse health consequence, and damage to his professional reputation. Complainant presented a most compelling case of repeated and continuous discrimination and retaliation that has resulted in Complainant suffering greatly ... most particularly his mental health has been compromised, and his professional reputation has been destroyed, perhaps forever.
• Roberts v. Marshall Durbin Co., ARB No. 03071 and 03-095, ALJ No. 2002-STA-35 (ARB Aug. 6, 2004). Award of $10,000 for compensatory damages although Complainant failed to mitigate and look for
work for a period of time.
• Moder v. Village of Jackson, Wisconsin, ARB Nos. 01-095 and 02-039, ALJ No. 2000-WPC-5 (ARB June 30, 2003). No award. Emotional distress is not presumed; it must be proven. "Awards generally require that a plaintiff demonstrate both (1) objective manifestations of distress, e.g., sleeplessness, anxiety, embarrassment, depression, harassment over a protracted period, feelings of isolation, and (2) a causal connection between the violation and the distress." Id. "To recover for emotional distress ... the complainant must show by a preponderance of the evidence that he or she experienced mental suffering or emotional anguish and that the unfavorable personnel action caused the harm." Gutierrez v. Univ. of California, ALJ No. 98-ERA-19, ARB No. 99-116, slip op. at 9 (ARB Nov. 13, 2002).
• Hillis v. Knochel Brothers, Inc., 2002-STA-50 (ALJ July 21, 2003). Complainant suffered mental anguish and was forced into bankruptcy from the impact of the Respondent’s employment action. Complainant was
awarded $20,000 in damages for pain and suffering.
• Trueblood v. Von Roll America, Inc., 2002-WPC-3 to 6, 2003-WPC-1 (ALJ Mar. 26, 2003). $50,000 in compensatory damagers for emotional distress.
• Jackson v. Butler & Co., ARB Nos. 03-116 and 03-144, ALJ No. 2003-STA-26 (ARB Aug. 31, 2004). $4000 in damages for emotional distress.
• Van der Meer v. Western Kentucky University, ARB Case No. 97-078, ALJ Case No. 95-ERA-38, ARB Dec., Apr. 20, 1998. The ARB awarded Van der Meer $40,000 because he suffered public humiliation and the respondent made a statement to a local newspaper questioning Van der Meer’s mental competence.
• Gaballa v. The Atlantic Group, Case No. 94-ERA-9, Sec’y Dec., Jan 18, 1996, slip op. at 5. Gaballa had been blacklisted, and testified that he felt his career had been destroyed by the respondent’s action. The
Secretary reviewed the compensatory damages awards for mental and emotional suffering made in a number of cases, which ranged from $10,000 to $50,000, and awarded Gaballa $35,000.
• LaTorre v. Coriell Institute for Medical Research, 97-ERA-46 (ALJ Dec. 3, 1997). The ALJ found that Complainant had testified credibily about his loss of self esteem and emotional pain and suffering resulting
from Respondent’s adverse employment action, and reviewing compensatory damages awards of similar complaints, determined that the circumstances justified an award of $26,500 in compensatory damages.
• Creekmore v. ABB Power Systems Energy Services, Inc., Case No. 93-ERA-24, Dep’y Sec’y Dec., Feb. 14, 1996, slip op. at 25. The Deputy Secretary awarded Creekmore $40,000 for emotional pain and
suffering caused by a discriminatory layoff. Creekmore showed that his layoff caused emotional turmoil and disruption of his family because he had to accept temporary work away from home and suffered the
humiliation of having to explain why he had been laid off after 27 years with one company.
• Michaud v. BSP Transport, Inc., ARB Case No. 97-113, ALJ Case No. 95-STA-29, ARB Dec. Oct. 9, 1997, slip op. at 9. The ARB awarded $75,000 in compensatory damages where evidence of major depression caused by a discriminatory discharge was supported by reports by a licensed clinical social worker and a psychiatrist. Evidence also showed foreclosure on Michaud’s home and loss of savings.
• Smith v. Littenberg, Case No. 92-ERA-52, Sec’y Dec., Sept. 6, 1995, slip op. at 7. The Secretary affirmed the ALJ’s recommendation of award of $10,000 for mental and emotional stress caused by discriminatory
discharge where Smith supported his claim with evidence from a psychiatrist that he was "depressed, obsessing, ruminating and ha[d] post-traumatic problems."
• Blackburn v. Metric Constructors, Inc., Case No.1986-ERA-4, Sec’y Dec. after Remand, Aug. 16, 1993, slip op. at 5. The Secretary awarded Blackburn $5,000 for mental pain and suffering caused by discriminatory discharge where Blackburn became moody and depressed and became short tempered with his wife and children.
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