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Verfuerth v. Orion Energy Systems, Inc.

United States Court of Appeals, Seventh Circuit

January 11, 2018

Neal R. Verfuerth, Plaintiff-Appellant,
Orion Energy Systems, Inc., Defendant-Appellee.

          Argued September 27, 2017

         Appeal from the United States District Court for the Eastern District of Wisconsin. No. 14-C-352 - William C. Griesbach, Chief Judge.

          Before WOOD, Chief Judge, and Flaum and Kanne, Circuit Judges.

          WOOD, CHIEF JUDGE.

         Neal Verfuerth is the founder and former CEO of Orion Energy Systems, a company that specializes in energy-efficient lighting. Orion fired Verfuerth in November 2012, following several disputes between Verfuerth and Orion's board of directors. These disputes involved a patchwork of issues, including the billing practices of outside counsel, the conduct of Orion's board of directors, and a defamation suit filed by one of Orion's former employees. Shortly after his departure from the company, Verfuerth brought this lawsuit. He argues that his complaints to the board about the board's own managerial decisions amounted to "whistleblowing" and that, by firing him, Orion violated federal whistleblower-protection laws. The district court resolved the case with a grant of summary judgment in Orion's favor. Verfuerth appealed and now seeks to convince us that the district court was wrong.


         Verfuerth founded Orion in 1996 and took the company public in 2007. His tenure as CEO appears to have gone smoothly until sometime in 2012. At the beginning of that year, Verfuerth announced that he was divorcing his wife. The divorce promised to be costly, and so Verfuerth had to find a way to pay for it. One option would have been to sell some of his shares of Orion stock, but Orion's investors might have taken a dim view of that action. To avert any such response, the board agreed to reimburse Verfuerth's out-of-pocket divorce expenses and attorney's fees.

         Shortly thereafter, several managerial disagreements arose between Verfuerth and various members of Orion's board of directors. As Verfuerth tells it, he raised concerns about a hodgepodge of matters, including: (1) overbilling by outside counsel; (2) a potential patent infringement by one of Orion's products; (3) potential conflicts of interests involving a member of the board and a company executive; (4) miscellaneous violations of internal company policy, such as consumption of alcohol at an "informal [board] meeting;" (5) the board's handling of a defamation suit brought by a former employee who had been accused of stock manipulation; and (6) the fact that the chairman of Orion's audit committee allowed his CPA license to expire.

         The district court's opinion explains the facts behind each of these grievances in detail. See Verfuerth v. Orion Energy Sys., No. 14-C-352, 2016 WL 4507317 (E.D. Wis. Aug. 25, 2016). Taking all facts and inferences in Verfuerth's favor, as we must, it is enough to say that Verfuerth complained about these issues multiple times between May and August 2012. Verfuerth also advised the board to disclose these issues to Orion's shareholders. The board ignored this advice, and Verfuerth himself never mentioned these issues in any of the quarterly or annual reports he filed on Orion's behalf with the Securities and Exchange Commission.

         Other differences of opinion between Verfuerth and the board exacerbated these conflicts. For example, Verfuerth and certain directors argued about communication techniques, sales tactics, and product innovation. In addition, around late September 2012, the board began to investigate Verfuerth's divorce-expense reimbursements. By that time, Orion had reimbursed Verfuerth for more than $170, 000 in attorney's fees (along with a six-figure tax gross-up), but the board discovered that Verfuerth had paid only about two thirds of this sum to his divorce lawyer. Verfuerth's explanation is that he had withheld the remaining $60, 000 from his lawyer because of a fee dispute. Nonetheless, he failed to return this money to Orion or otherwise to account for it.

         On September 27, the board of directors held a special advisory meeting during which it removed Verfuerth as CEO and reassigned him to the advisory position of "chairman emeritus." Emails exchanged by board members prior to Verfuerth's demotion cite several reasons for the board's decision, including falling stock prices, Verfuerth's "intimidating" leadership style, high rates of "senior management turnover, " and a litany of business-strategy disagreements.

         As a precondition for receiving emeritus status, Verfuerth was required to take a six-month sabbatical. The board sent Verfuerth a "Board Directives Letter" instructing him that during the sabbatical he was not to communicate with Orion employees about company business. The stated purpose of this restriction was to prevent Verfuerth from undermining Orion's new CEO, John Scribante.

         Verfuerth was not pleased with the terms the board wanted to impose on him, and so on October 19, he informed the board of his intention to resign. That notice triggered immediate negotiations between Orion and Verfuerth about Verfuerth's severance package. These negotiations-which featured disputes over the unpaid attorney's fees and a severance package for Verfuerth's new fiancee (also an Orion employee)-were unsuccessful. On November 6, the chairman of Orion's board sent a letter to all members (including Verfuerth) notifying them of a special meeting to consider terminating Verfuerth's employment for incurable cause. The meeting was scheduled for November 8 at 8:00 a.m.

         Less than an hour before this meeting, at 7:17 a.m., Verfuerth sent an email to the board in which he reiterated his many complaints about the board's managerial decisions and alleged that his impending termination was the result of a conspiracy against him. Although Verfuerth characterized this email as a "complaint ... pursuant to Orion Energy Systems Inc Whistle Blower Policy, as well as the Sarbanes Oxley Act, " the email did not include any reference to any complaint filed with the SEC (or any other government agency), nor did it provide the board with any new information. Instead, ...

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