ODOM v. MORGAN STANLEY SMITH BARNEY LLC et al
Filing
156
ORDER granting in part and denying in part 130 Motion for Summary Judgment. Signed by JUDGE RICHARD SMOAK on 11/20/2014. (jem)
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF FLORIDA
PENSACOLA DIVISION
WESLEY ODOM,
Plaintiff,
v.
CASE NO. 3:11-cv-75-RS-EMT
CITIGROUP GLOBAL MARKETS
INC., and CITIGROUP INC.,
Defendants.
_________________________________/
ORDER
Before me are Defendant’s Motion for Summary Judgment (Doc. 130),
Defendant’s Statement of Undisputed Facts in Support of Motion for Summary
Judgment (Doc. 131), Plaintiff’s Memorandum in Opposition to Defendant’s
Motion for Summary Judgment (Doc. 140), Plaintiff’s Statement of Material Facts
in Dispute (Doc. 141), and Defendant’s Reply in Support of Motion for Summary
Judgment (Doc. 155).
This is a whistleblower case. Wesley Odom, a financial adviser, has sued his
former employer, Citigroup, for firing him after he complained about Citigroup
policies that he believed violated the securities laws. He objected to Citigroup’s
directives to its advisers to (1) market high-interest checking accounts called
Citigold accounts, and (2) refrain from advising their clients to sell Citi preferred
1
securities. Citigroup counters that these directives were legal, and in any event,
they fired him because he violated company policies and seemed to be trying to
redirect their clients to his own startup investment firm.
After review, I find that Odom’s whistleblower claim about the Citigold
accounts fails as a matter of law, because marketing these accounts could not have
been illegal. However, triable issues of fact remain in his claim about the Citi
preferred securities, and that claim must proceed to trial. Defendant’s motion for
summary judgment is therefore granted in part and denied in part.
I.
STANDARD OF REVIEW
The basic issue before the court on a motion for summary judgment is
“whether the evidence presents a sufficient disagreement to require submission to a
jury or whether it is so one-sided that one party must prevail as a matter of law.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S. Ct. 2505, 2512 , 91 L.
Ed. 2d 202 (1986). The moving party has the burden of showing the absence of a
genuine issue as to any material fact, and in deciding whether the movant has met
this burden, the court must view the movant’s evidence and all factual inferences
arising from it in the light most favorable to the nonmoving party. Adickes v. S. H.
Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608, 26 L. Ed. 2d 142 (1970);
Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). Thus, if
reasonable minds could differ on the inferences arising from undisputed facts, then
2
a court should deny summary judgment. Miranda v. B & B Cash Grocery Store,
Inc., 975 F.2d 1518, 1534 (11th Cir. 1992) (citing Mercantile Bank & Trust v.
Fidelity & Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985)). However, a mere
‘scintilla’ of evidence supporting the nonmoving party's position will not suffice;
there must be enough of a showing that the jury could reasonably find for that
party. Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990) (citing Anderson,
477 U.S. at 251).
II.
BACKGROUND
I accept the facts in the light most favorable to Plaintiff. See Galvez v.
Bruce, 552 F.3d 1238, 1239 (11th Cir. 2008). All reasonable doubts about the
facts shall be resolved in favor of the non-movant. Id.
a.
Facts
Plaintiff Wesley Odom was employed for 17 years as a financial advisor in
the Pensacola, Florida, office of Smith Barney, then a division of Defendants
Citigroup Global Markets Inc. and Citigroup Inc. (Doc. 140 at 1). In May 2009,
Odom received a “resign or be fired” ultimatum from his supervisor, Helene Botos,
and chose resignation. (Id. at 8). Odom contends that he was fired for voicing
opposition to illegal practices by Citigroup; Citigroup responds that they fired him
for violating company policies.
3
The problems appear to have begun at the height of the global financial
crisis in late 2008 and early 2009. (Id. at 2). Citigroup encouraged its financial
advisers to “aggressively market” two different financial products to their clients.
(Id. at 3-5). First, advisers were asked to market “Citigold” checking accounts,
high-fee checking accounts that Odom believed were unsuitable for his clients. (Id.
at 3-4). He told Botos that he would not promote them to his clients. (Id.). Second,
advisers were asked to market Citi’s own preferred securities, which at the time
were very risky investments. (Id. at 4-5). Citigroup ordered its advisors not to
encourage their clients to sell the securities and not to recommend sell orders
without lengthy legal disclaimers. (Id.). Odom again objected to and refused to
participate in this practice. (Id.).
Odom’s alleged clash with management over these issues came to a head on
May 4, 2009, when Botos learned that Odom had sent his client a letter. (Id. at 6).
Botos stated she believed this communication with a client to violate company
protocol. (Id.). As she was investigating the letter, she also did some research and
discovered that Odom had founded his own investment firm without informing her.
(Id. at 6-7). After calling and consulting her superiors in Atlanta, and purportedly
based on these two violations of company policy, she came to Odom’s office the
same day and gave him the “resign or be fired” ultimatum. (Id. at 7).
4
The first purported violation of company policy involved another investment
firm that Odom formed in early 2009 called Armada Advisors, Inc. (Id. at 2).
Odom contends that he formed the firm as a backup option in case he was laid off
from his current employment in the wake of then-developing financial crisis. (Id.).
He argues that forming the firm was not in violation of company policy, because
he had not yet (in 2009) had the opportunity to disclose it at his annual review, as
required by the company’s disclosure policy.
Citigroup, however, claims that forming the firm was in violation of
company policy. The Smith Barney 2009 U.S. Employee Handbook and the
Compliance Desk Top Reference manual explicitly require prior approval before
employees engage in outside activities such as directorships of corporations. (Doc.
131 at 7-9).
The second purported violation of company policy involved the letter that
Odom had sent to a client. The letter was regarding a proposed joint venture
between Smith Barney and Morgan Stanley, another investment firm. (Id. at 2-3).
In April 2009, Smith Barney customers were sent a document describing the
merger and the procedures for opting-out. (Id.). According to Odom, when one of
his clients asked him about the opt-out procedure, he sent her a sample opt-out
form consistent with the company’s own form. (Id.).
5
Citigroup viewed the letter much differently. Botos found out about the
letter when a client called and asked to speak to a branch manager about a strange
communication. (Doc. 131 at 2). The communication was not on Smith Barney
letterhead and requested the Smith Barney accounts not to be transferred to
Morgan Stanley but “to another firm.” (Id.). Because the form was not
preapproved, Citigroup maintains that it violated its correspondence policy, which
required approval from a branch manager of all communications regarding firm
business and imposed record-keeping requirements. Furthermore, Botos was
concerned Odom was attempting to transfer Smith Barney clients elsewhere. (Doc.
130 at 3). This concern is allegedly what led her to research his outside activity and
discover Armada Advisers. (Id.).
Odom counters that sending this single form was not in violation of the
correspondence policy and, regardless, it was not the company’s practice to
immediately fire employees for violating either of these policies. (Doc. 140 at 8).
Furthermore, he says that before Botos found out about either of these purported
policy violations, Botos had asked him to a sign a form releasing any claims Odom
had against the company. (Id. at 5). When he refused to sign, a regional manager
from Atlanta came to Odom’s office to urge and pressure him to do so. (Id.; Doc.
155 at 6). The form presented to Odom, which contained the release language, was
6
different from the form presented to at least some other financial advisors. (Doc.
140 at 5; Doc. 155 at 6).
Either way, after learning of the alleged policy violations on May 4, Botos
returned to Odom’s office and gave him the ultimatum. (Id. at 7-8). Odom
immediately resigned from Smith Barney rather than be fired. (Id.).
b.
Procedure
Odom filed suit in state court on January 6, 2011, alleging unpaid wages
(Count I), conversion (Count II), violations of the Florida Whistle-Blower Act
(Count III), fraud (Count IV), negligent misrepresentation (Count V), and
violations of the Securities Exchange Act of 1934 and Rule 10b-5 (Count VI).
Citigroup properly removed the case to this Court on the basis of both federal
question jurisdiction and diversity jurisdiction.
On June 6, 2011, Counts III, IV, V, and VI were transferred to the Southern
District of New York for consolidated discovery as part of In re: Citigroup Inc.
Securities Litigation, MDL No. 2070. (See Doc. 18). The parties later stipulated to
the dismissal of Counts I and II, as well as Citigroup’s counterclaims. (See Doc.
59).
More than two years after the transfer, on December 13, 2013, the Southern
District of New York dismissed with prejudice Counts IV, V, and VI and
remanded Count III, the Florida Whistleblower Act claim, to this Court. (See
7
Odom v. Morgan Stanley Smith Barney, LLC, 1:11-cv-03827-SHS, Doc. 40
(S.D.N.Y. Dec. 13, 2013)).
The litigation resumed in this Court for Count III, the only remaining claim,
in February 2014. (See Doc. 75). I denied Citigroup’s motion to dismiss for failure
to state a claim on August 1, 2014. (See Doc. 109). After additional discovery,
Citigroup now moves for summary judgment.
III.
DISCUSSION
Citigroup contends that Odom’s Florida Whistleblower Act (FWA) claim
should be dismissed as a matter of law because Odom has failed to make a prima
facie case for violation of the Act, because it offered a non-discriminatory reason
for terminating him, and because its reasons were not pretextual.
The Florida Whistleblower Act (FWA), codified as Florida Statutes
§ 448.102, prohibits retaliatory action against an employee who “[o]bjected to, or
refused to participate in, any activity, policy, or practice of the employer which is
in violation of a law, rule, or regulation.” Fla. Stat. §448.102(3). Federal courts
use the McDonnell Douglas burden-shifting framework to evaluate FWA claims at
summary judgment. Sierminski v. Transouth Fin. Corp., 216 F.3d 945, 950 (11th
Cir. 2000). First, a plaintiff has the initial burden of proving a prima facie case. Id.
Second, the burden shifts to the defendant to proffer a legitimate reason for the
8
adverse action. Id. Third, the burden shifts back to the plaintiff to prove that the
proffered reason is merely a pretext for illegal conduct. Id.
a.
The Prima Facie Case
To establish a prima facie case under the FWA, a plaintiff must establish
three elements. First, the plaintiff must have engaged in some statutorily protected
expression. See Castillo v. Roche Labs., Inc., 467 F. App’x 859, 862 (11th Cir.
2012). Second, the plaintiff must have suffered an adverse employment action. Id.
Finally, the adverse employment action must have been causally linked to the
plaintiff’s protected expression. Id.
1. Statutorily Protected Expression
Odom argues that his refusal to participate in marketing the Citigold
checking accounts and the Citi preferred securities, and his objections to the firm’s
policies regarding these accounts, was expression protected by the FWA. 1
Citigroup counters that his activity is not protected because their conduct was not
illegal, and he has not proved an actual violation of a law.
A. The proper legal standard: “actual violation” vs. “reasonable belief”
To establish protected expression under the FWA, a plaintiff must show that
he objected to or refused to participate in an illegal activity, policy, or practice of
1
In his Amended Complaint (Doc. 122), Odom also alleged that he engaged in protected activity
by opposing Citi’s policy of prohibiting advisors from advising clients regarding financial impact
of the joint venture. However, Odom has not pressed this line in his Memorandum in Opposition
to Defendant’s Motion for Summary Judgment (Doc. 140), and so it appears abandoned.
9
an employer. Fla. Stat. §448.102(3); Aery v. Wallace Lincoln-Mercury, LLC, 118
So. 3d 904, 916 (Fla. Dist. Ct. App. 2013). The parties dispute, however, the
proper standard for what constitutes “illegal.”
Citigroup argues that the approach followed by numerous federal district
courts and unpublished Eleventh Circuit opinions should govern. These courts
require the plaintiff to prove that an actual violation of the law occurred in order to
benefit from FWA protection. See, e.g., Smith v. Psychiatric Solutions, Inc., 358
F. App’x 76, 78 (11th Cir. 2009); White v. Purdue Pharma., Inc., 369 F. Supp. 2d
1335, 1337 (M.D.Fla.2005) (“[A] Plaintiff, in order to prevail under a Florida
Whistle-Blower action . . . must prove that the activity, policy or practice objected
to is, in fact, in violation of a law, rule or regulation.”).2
Odom counters that the long-standing rule has changed. In 2013, the Florida
Fourth District Court of Appeals, with little analysis, applied a different rule. The
court held that, in meeting the “illegal” standard for a FWA claim, “all that is
required is that the employee have a good faith, objectively reasonable belief that
2
See also United States ex rel. Vargas v. Lackman Food Svc., Inc., 510 F. Supp. 2d 957, 968
(M.D. Fla. 2007); Smith v. Psychiatric Solutions, Inc., 3:08CV3/MCR/EMT, 2009 WL 903624,
at *7 (N.D. Fla. Mar. 31, 2009); Paulet v. Farlie, Turner & Co., LLC, No. 10-21021-CIV, 2010
WL 2232662, at *2 (S.D. Fla. June 2, 2010); Gibson v. Walgreen Co., 6:07-CV-1053-ORL28KRS, 2010 WL 366130, at *10 n.13 (M.D. Fla. Jan. 19, 2010); Colon v. Total Renal Care,
Inc., No. 8:07-cv-151-T-26MAP, 2007 WL 4145940, at *2 (M.D. Fla. Nov. 19, 2007); Blanche
v. Airtran Airways, Inc., No. 8:01cv1747-T-30MSS, 2005 WL 1051097, at *2 (M.D. Fla. May 2,
2005); Hogan v. Country Club of Brevard, Inc., No. 604CV272ORL31JGG, 2005 WL 1572985,
at *7 (M.D. Fla. July 1, 2005); Barlow v. Conagra Foods, Inc., No. 804CV2286T17TGW, 2005
WL 3133474, at *4 (M.D. Fla. Nov. 23, 2005).
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h[is] activity is protected by the statute.” Aery v. Wallace Lincoln-Mercury, LLC,
118 So. 3d 904, 916 (Fla. Dist. Ct. App. 2013) (citations and quotations omitted).
The court cited to a federal court opinion, Luna v. Walgreen Co., 575 F. Supp. 2d
1326, 1343 (S.D.Fla.2008), which applied the “objectively reasonable belief”
standard simultaneously to both an FWA claim and an Americans with Disabilities
Act claim. Luna appeared to conflate the FWA and ADA standards.
Only a handful of courts, all federal, have acknowledged Aery. Two declined
to address the apparent split of authority. See Bonnafant v. Chico's FAS, Inc., No.
2:13-CV-893-FTM-29CM, 2014 WL 1664554, at *4 (M.D. Fla. Apr. 25, 2014);
Denarii Sys. LLC v. Arab, No. 12-24239-CIV, 2014 WL 2960964, at *3 n. 4 (S.D.
Fla. June 30, 2014). Another rejected the majority rule and applied the new Aery
rule. See Hernandez v. Publix Super Markets, Inc., No. 14-20491-CIV, 2014 WL
1379141 (S.D. Fla. Apr. 9, 2014).
I agree with the well-reasoned order of the Hernandez court that Aery
changed the rule and now governs FWA cases. While the federal courts developed
the “actual violation” standard, no state court opinion that carries binding authority
appears to have ever addressed the issue, stated the rule, or even cited approvingly
to a federal court’s articulation of the rule. Rather, Aery is the only binding Florida
state court authority on the matter.
11
When interpreting state law, federal courts must apply the substantive law of
the state. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188
(1938). Where no Florida Supreme Court precedent exists on a matter, federal
courts are bound to adhere to the decisions of the state’s intermediate appellate
courts absent some persuasive indication the state’s highest court would decide the
issue otherwise. Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008, 1021
(11th Cir. 2014). Although the Aery court’s reasoning is minimal, and its logic is
questionable, it is the only binding statement of authority on the matter from any of
the Florida appellate courts. Unless and until another Florida appellate court
disagrees with Aery, or there is some other indication that the Florida Supreme
Court would change the rule, Aery states the rule on the matter, and I am bound to
follow it.
I therefore hold that, under the new rule stated in Aery, in claims brought
under the Florida Whistleblower Act, Fla. Stat. §448.102(3), an employee need
only demonstrate that he had a “good faith, objectively reasonable belief” that the
conduct that the employee objects to is illegal; the conduct does not need to
actually violate the law. Aery, 118 So.3d at 916. If the employee demonstrates such
a reasonable belief, he satisfies the “protected activity” prong of the prima facie
case for an FWA claim.
12
I now apply this rule to Odom’s objections to the two purported illegal
activities of Citigroup—the aggressive marketing of the Citigold checking
accounts and the Citi preferred securities.
B. The Citigold Checking Accounts
Odom argues that Citigroup’s aggressive marketing of the high-fee Citigold
Checking accounts violated Rule 10b-5.
Rule 10b-5 was promulgated under § 10(b) of the 1934 Securities Exchange
Act. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 156-57, 128
S. Ct. 761, 768, 169 L. Ed. 2d 627 (2008). The rule makes it illegal to
“(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.”
17 C.F.R. § 240.10b-5.
In the case of the Citigold checking accounts, it is apparent, and the parties
do not appear to dispute, that the checking accounts are not securities. See 15
U.S.C. § 77b(a)(1); Marine Bank v. Weaver, 455 U.S. 551, 555, 102 S. Ct. 1220,
1223, 71 L. Ed. 2d 409 (1982) (holding that certificate of deposit was not a
security); Lenczycki v. Shearson Lehman Hutton, Inc., No. 88 CIV. 9262 (RWS),
1990 WL 151137, at *5 (S.D.N.Y. Sept. 29, 1990) (noting that “interest-bearing
13
checking account” was not a security). There is therefore no conceivable way for
Citigroup’s conduct in marketing the checking accounts to violate Rule 10b-5,
which applies only “in connection with the purchase or sale of any security.”
(Emphasis added).
Odom is required only to prove a “good-faith, objectively reasonable belief”
that a violation occurred, rather than prove an actual violation of the law. Aery, 118
So.3d at 916. However, as to the checking accounts, Odom is not able to prove
even a reasonable belief that he engaged in protected activity. Odom was an
experienced financial adviser with a large, respected financial institution. Under
the objective Aery test, no reasonable experienced financial adviser would believe
that conduct in marketing checking accounts, which are not securities, violated the
securities laws. Additionally, Odom cannot disclaim ignorance of the substantive
law to argue that his belief was reasonable. Weeks v. Harden Mfg. Corp., 291 F.3d
1307, 1317 (11th Cir. 2002). And, other than Rule 10b-5, Odom has not advanced
any other theories for why the aggressive marketing of the checking accounts was
illegal.
It is irrelevant whether marketing the checking accounts violated any
FINRA rules regarding suitability. FINRA rules, which are privately enforced, do
not appear to qualify as a “law, rule, or regulation” under the FWA. Fla. Stat.
§448.102(3). FINRA is a private securities organization responsible for discipline
14
of its members who violate its rules. See Fiero v. Fin. Indus. Regulatory Auth.,
Inc., 660 F.3d 569, 571 (2d Cir. 2011); 15 U.S.C. § 78o-3(b).
I therefore find as a matter of law that Odom has failed to meet his burden of
proving that he had an objectively reasonable belief that Citi’s conduct in
marketing the checking accounts was illegal. Odom thus did not engage in any
protected expression, and his FWA claims about the Citigold checking accounts
are dismissed with prejudice.
C. The Citi Preferred Securities
On the other hand, it is undisputed that the Citi preferred securities are
securities potentially subject to Rule 10b-5. Specifically, Odom contends that
Citi’s instructions to its financial advisers about the preferred securities violated
the prohibition against making investment recommendations that are not suitable
for a client. See Brown v. E.F. Hutton Grp., Inc., 991 F.2d 1020, 1031 (2d Cir.
1993) (recognizing § 10(b) unsuitability claim where financial adviser knowingly
recommended purchase of securities unsuited to the buyer’s needs); O’Connor v.
R.F. Lafferty & Co., 965 F.2d 893, 897-98 (10th Cir. 1992); Sec. & Exch. Comm’n
v. Solow, No. 06-81041 CIV, 2007 WL 1970806, at *3 (S.D. Fla. May 10, 2007),
aff’d, 308 F. App’x 364 (11th Cir. 2009).
Odom testified that that Citigroup instructed its financial advisors that they
could not advise their clients to sell the preferred securities and that they did not
15
fully disclose the risks involved with the securities. (Doc. 140 at 4). Botos, in an
email, instructed advisers that “Solicitation of sells on Citigroup preferred
securities may not take place until [a] Disclosure Statement3. . . is verbally
conveyed” to clients. (Doc. 131-21). This email and the requirement of the
confusing disclaimer appear to serve as evidence of a policy of at least
discouraging sell recommendations, even as to securities that became unsuitable
for the clients.
This evidence, when taking all of the disputed facts in the light most
favorable to the plaintiff, is sufficient to show that Odom had at least an
objectively reasonable belief that Citigroup was violating the securities laws. The
evidence shows that Odom could have reasonably believed that Citigroup had a
policy of forbidding, restricting, or at least strongly discouraging its advisers from
advising clients to sell securities that became unsuitable to their needs. Such a
policy could violate Rule 10b-5, which has been interpreted by numerous courts
and the SEC, by way of “unsuitability claims,” to forbid financial advisers from
intentionally advising their clients to make unsuitable investment decisions. Such a
policy would likewise amount to “reckless disregard for the investor’s interests.”
3
The 86-word disclosure statement states that “On February 6, 2009, Fitch downgraded the
rating on Citigroup' s Preferred Securities from BBB to BB. Moody's currently rates Citigroup's
Preferred stock structures Baa3 with a negative watch and Trust structures A3 with a negative
watch. S&P rates Citigroup's Preferred Securities BB. The recent ratings actions taken by Fitch
lowered the composite rating on Citigroup's Preferred Securities to below investment grade.
Citigroup is an affiliate of Citigroup Global Markets Inc. (CGMI). CGMI is rated A2 negative
watch by Moody’s and A stable outlook by S&P.” (Doc. 131-21).
16
O’Connor v. R.F. Lafferty & Co., 965 F.2d 893, 898 (10th Cir. 1992). See also In
the Matter of Olde Disc. Corp., 67 S.E.C. Docket 2045 (Sept. 10, 1998) (“Making
unsuitable recommendations to customers without disclosing the unsuitability of
those solicited investments, in breach of an affirmative duty to disclose arising
from a fiduciary or similar relationship of trust and confidence, violated [Rule 10b5].”).
Citigroup’s argument that the activity could not be illegal because it
involved only holding securities, rather than purchasing or selling them, has no
merit. It is true that plaintiffs in private 10b-5 actions may not recover for fraud
manifested in the mere holding, rather than purchase or sale, of securities. Blue
Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 755, 95 S. Ct. 1917, 1934, 44 L.
Ed. 2d 539 (1975). However, the Blue Chip Stamps rule only governs the
judicially-created private 10b-5 action and does not address illegality of making
hold recommendations in violation of the securities laws. Rather, the Eleventh
Circuit has noted that the securities laws, as enforced to their fullest extent by the
SEC, apply to “holders of securities.” Instituto De Prevision Militar v. Merrill
Lynch, 546 F.3d 1340, 1348 (11th Cir. 2008). If it were reasonable for Odom to
believe that Citigroup’s alleged conduct, even though it involved only “hold”
decisions, was illegal and could be prosecuted by the SEC, then he satisfies the
“illegality” threshold of the FWA.
17
It is true that, even within the realm of the SEC enforcement powers, which
are broader than private 10b-5 actions, holder unsuitability claims are a novelty.
Nonetheless, the question before me is not whether such prosecution would
actually be valid, but rather whether Odom could have reasonably believed that it
is valid. “Reasonable belief” includes both a subjective and objective component.
Gale v. U.S. Dep't of Labor, 384 F. App’x 926, 929 (11th Cir. 2010). In this case, I
ask whether it was objectively reasonable for an experienced financial adviser to
believe that the conduct violated the securities laws.
The SEC has stated that violations based on unsuitable trading
recommendations occur when (1) the securities recommended are unsuitable to the
client’s needs; (2) the broker knew or reasonably believed that the securities were
unsuited to the client’s needs; (3) the broker recommended the unsuitable securities
anyway; and (4) the broker, with scienter, made material misrepresentations (or
failed to disclose material information) relating to the suitability of the securities.
In the Matter of Geoffrey A. Newman, 70 S.E.C. Docket 1051 (Sept. 2, 1999).
Given that SEC enforcement powers extend to holder claims, and there
appears to be no law stating that such claims are beyond the enforcement powers
of the SEC, Odom could have at least reasonably believed that such claims are
within the SEC’s enforcement power. Applying the elements of an unsuitability
claim to a holder claim, it could have been reasonable to believe that Citigroup’s
18
blanket hold recommendation could have violated the securities laws: (1) the
securities could have become unsuitable for the client’s needs; (2) the broker could
have known that the securities were unsuited to the client’s needs; (3) the broker
could have failed to recommend the sale the of the unsuitable securities, based on
the directives and pressure from management; and (4) the broker, with scienter,
could have failed to disclose material information relating to the suitability of the
securities, based on the directives and pressure from management.
It was reasonable for Odom, as an experienced stockbroker, to believe that a
blanket hold directive would have caused financial advisers to make unsuitable
recommendations and withhold material information regarding suitability from
clients, and it was reasonable to believe such conduct violated the securities laws.
When Odom objected to the conduct that he reasonably believed was illegal, he
engaged in protected activity.
Therefore there exists at least a triable issue of fact as to whether Odom
engaged in protected activity with respect to the Citi preferred securities—that is,
whether he could have reasonably believed that Citigroup engaged in illegal
conduct and objected to that conduct.
2. Adverse Employment Action
Citigroup next contends that, even if Odom engaged in protected activity, he
did not suffer an adverse employment action because he resigned voluntarily.
19
Citigroup relies on Hargray v. City of Hallandale, 57 F.3d 1560 (11th Cir. 1995),
in which the court ruled, although in a due process rather than employment
retaliation context, that “there are two situations in which an employee's
resignation will be deemed involuntary, and thus a deprivation of due process: (1)
where the employer forces the resignation by coercion or duress; or (2) where the
employer obtains the resignation by deceiving or misrepresenting a material fact to
the employee.” Id. at 1568.
It is unclear whether Hargray applies to retaliation against an at-will
employee of a private corporation. At least one court has held that it does not. See
Andazola v. Logan's Roadhouse Inc., 871 F. Supp. 2d 1186, 1208 (N.D. Ala.
2012). I need not decide whether it does, however, because it appears that the rule
in Hargray is not broad enough to cover the facts of Odom’s termination, taken in
the light most favorable to him. The Hargray court emphatically noted that
“resignations can be voluntary even where the only alternative to resignation is
facing possible termination for cause or criminal charges,” Hargray, 57 F.3d at
1568, because in such cases ‘the fact remains that plaintiff had a choice. [Plaintiff]
could stand pat and fight.’” Id. (citations and quotations omitted) (emphasis in
original).
Odom, under his version of the facts, was given an immediate “resign or be
fired” ultimatum. He had the choice of (1) resigning, or (2) declining resignation
20
and being fired seconds later. Odom, unlike Hargray, did not have the alternative
between resignation and “facing possible termination.” He had the alternative
between resignation and facing definite, immediate termination. He likewise did
not have an opportunity to “stand pat and fight;” it was made clear that no matter
what he chose, that was the last time he was ever going to be in his office.
Odom’s situation is more appropriately analyzed under an “actual
termination” theory. “The inquiry as to whether actual termination has occurred
involves analysis of the employer’s intent.” Thomas v. Dillard Dep’t Stores, Inc.,
116 F.3d 1432, 1434 (11th Cir. 1997). Here, Citigroup intended to have Odom
walk out of his office that day unemployed; they were simply generous enough to
give him the choice to avoid the stigma of direct termination.
Where, as here, an employee is given a choice between immediate
resignation and immediate termination, the employee does not have a choice at all
under Hargray; rather, the employee has been terminated. Odom has therefore
raised a triable issue of fact as to whether he suffered an adverse employment
action.
3. Causal Connection
Citigroup next argues that even if Odom engaged in protected expression
and suffered an adverse employment action, the two were not causally related.
21
The causation requirement is “broadly construed,” and a plaintiff may
establish a prima facie case for retaliation so long as the protected activity and the
adverse employment action are not completely unrelated. Pennington v. City of
Huntsville, 261 F.3d 1262, 1266 (11th Cir. 2001). This causation may be
established by temporal proximity, Higdon v. Jackson, 393 F.3d 1211, 1220 (11th
Cir. 2004), as well as by showing that an employer knew of a protected activity
and adverse employment actions commenced shortly thereafter, Jiles v. United
Parcel Serv., Inc., 360 F. App’x 61, 66 (11th Cir. 2010), citing Wideman v. WalMart Stores, Inc., 141 F.3d 1453, 1457 (11th Cir. 1998).
Citigroup argues that the four-to-seven month gap between Odom’s
objections to the preferred securities and his termination is too long to establish
causation. See, e.g., Higdon, 393 F.3d at 1221 (three and four month periods,
standing alone, did not imply causation).
Here, it is undisputed that Citigroup knew about the purportedly protected
activity of objecting to the blanket hold instructions. So there is more than mere
temporal proximity. Furthermore, construed in the light most favorable to Odom,
Citigroup may have had a reason to delay firing him. Citigroup claims that it had a
widespread policy of offering employees financial incentives to employees who
agree to release any potential claims against it. (Doc. 155 at 6). Citigroup, in a
seemingly unique fact pattern in retaliation jurisprudence, would have had an
22
incentive to wait to fire Odom until after he waived his claims. It was not clear that
Odom declined to sign the claims form until late March of 2009—barely a month
before he was terminated. (Id.). The Eleventh Circuit has held that a one-month
time frame, combined with knowledge of the protected activity, is sufficient to find
causal relation. See Wideman, 141 F.3d at 1457.
Odom has therefore raised a triable issue of fact as to whether his
termination was causally related to his protected activity, and thus has met his
burden of establishing a prima facie case for retaliation in violation of the FWA.
b.
Pretext
Because Odom, under the version of the disputed facts most favorable to
him, has made out a prima facie case for FWA retaliation, the burden shifts to
Citigroup to proffer legitimate, non-retaliatory reasons for his termination.
Castillo, 467 F. App’x at 862-63. Citigroup argues that it fired Odom for violating
two of its policies—the prohibition on unauthorized communications and the
prohibition on engaging in unapproved outside business activity. (Doc. 130 at 20).
Odom appears to concede that these reasons are legitimate and nonretaliatory, but argues that they are nonetheless merely a pretext for firing him.
Once a defendant has proffered legitimate reasons for the termination, the plaintiff
has the opportunity to respond to those reasons and argue that they are a pretext for
the termination. Castillo, 467 F. App’x at 862-63. Odom argues that Citigroup’s
23
proferred reasons are pretextual because of timing issues surrounding his
termination, and because they failed to follow their own enforcement procedures of
their policies.
To show pretext, a plaintiff must demonstrate that the proffered reason was
not the true reason for the termination, either by directly showing that the
discriminatory reason more likely motivated the decision or by indirectly showing
that the proffered explanation is unworthy of credence. Jackson v. State of
Alabama State Tenure Comm’n, 405 F.3d 1276, 1289 (11th Cir. 2005). The
plaintiff must produce enough evidence of allow a reasonable finder of fact to
conclude that the defendant’s articulated reasons for its decision are not believable.
Id.
Here, Odom has demonstrated sufficient “inconsistencies” and
“weaknesses” in Citigroup’s explanation to allow a reasonable factfinder to
conclude that its stated reasons for his termination are “unworthy of credence.”
Jackson, 405 F.3d at 1289. He has pointed to several pieces of evidence that, taken
in the light most favorable to him, could convince a reasonable jury that
Citigroup’s stated termination reasons are a pretext for firing him for objecting to
the blanket hold order on the securities.
First, there is a triable issue of fact whether Odom’s actions actually violated
the policies of Citigroup, at least in the way that Citigroup normally enforced them
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in his 17 years of employment. See Hurlbert v. St. Mary's Health Care Sys., Inc.,
439 F.3d 1286, 1299 (11th Cir. 2006) (“[A]n employer’s deviation from its own
standard procedures may serve as evidence of pretext.”).
As to the communication, the parties dispute the significance of and
meaning of the communication. Odom testified that he sent the form in response to
a customer request for a sample opt-out form to opt out of the forthcoming joint
venture with JP Morgan, and that the form was substantially similar to a form that
was already approved by Citigroup. Citigroup, either in its motion or its reply
brief, does not appear to directly rebut this contention. Instead, Citigroup argues
that it appeared to be an attempt to by Odom to transfer the clients to a different
firm, presumably his own Armada Advisers. While there are weaknesses in
Odom’s argument—the document was not on Smith Barney letterhead or
envelopes, and the language “to another firm” seems unusual—a reasonable jury
could weigh the evidence and determine that Odom had not violated the
unapproved communication policy, or at least committed a fairly minor violation.
As to the business activities, Odom testified that in the Pensacola branch, in
practice, all employees disclose any outside business activities at their annual
review (which had not yet occurred in 2009), rather than preemptively as the firm’s
formal policies require. Citigroup counters that while this was may have been true
of many minor outside activities, it would not be true in the case of forming a
25
potentially competing investment firm. Odom, however, maintains that his
intention was never to compete with Citigroup, but merely to have a ready-made
backup job in the event that he lost his job during the uncertainty of the financial
crisis. The jury must decide whom to believe. If the jury believes Odom, it may
reasonably conclude that Odom committed only a trivial and, in practice, excusable
violation of the policy when he failed to obtain permission to form Armada
Advisers.
Therefore, a triable issue of fact remains as to the extent to which Odom’s
conduct violated Citigroup’s policies as they were applied in the Pensacola branch
office.
Second, there is a triable issue of fact whether Citigroup’s response was out
of line with its normal disciplinary procedures. Odom testified that the normal
procedure for dealing with policy violations, especially minor ones, was to send
“letters of education” to employees. Citigroup merely responds that it had the right
to fire him for violating these policies. Taken in the light most favorable to Odom,
the decision to terminate Odom rather than take less severe disciplinary action
could lead the jury to conclude that Citigroup was motivated by something other
than the policy violations.
Third, the timing of Citigroup’s termination decision casts some doubt on its
legitimacy. Odom testified that he was strongly pressured by a senior executive to
26
sign a form waiving all his claims against the company. Just a month later, Botos
received word that he had sent a form to a client without permission. She called
senior management about the issue, decided in response to the form to search for
additional business activities of Odom, and made the decision the same day to fire
him. Such a hurried decision to fire a 17-year veteran for what could be construed
as two relatively minor policy violations, coming shortly after applying aggressive
pressure on Odom to waive his claims against the company, could lead a jury to
conclude that the termination was about something other than mere violations of
these policies. Further, there appear to be factual disputes whether Botos was
required to ask Odom to explain his conduct, and whether she actually asked him
to do so. (See Doc. 141 at 8; Doc. 130 at 3; Doc. 140 at 7; Doc. 155 at 5).
Taken as a whole, and in the light most favorable to Odom, Odom has
produced enough evidence of pretext: Citigroup wanted Odom fired, and it tried to
pressure Odom to release his claims against the company; when it failed to do so, it
deviated from its past enforcement methods and fired Odom for two fairly minor,
otherwise excusable, violations of company policy. Such a narrative, while
certainly not compelled by the record, is not beyond the realm of plausibility for a
reasonable jury.
Odom has therefore raised a triable issue of fact whether Citigroup’s reasons
for firing him were a pretext for retaliation against his protected conduct. Odom’s
27
claim for retaliation against him objected to Citigroup’s blanket hold policy on the
Citi preferred securities should thus proceed to trial.
IV.
CONCLUSION
I therefore find that Odom’s claims about the Citigold checking accounts fail
as a matter of law, because he could not have reasonably believed that such activity
was illegal. I find, however, that numerous factual issues remain in dispute in
Odom’s claims about the Citi preferred securities. Odom has produced sufficient
evidence, taken in the light most favorable to him, that could convince a jury both
that he has made out a prima facie case for whistleblower retaliation and that
Citigroup’s stated reasons for firing him were pretextual.
The relief requested in Defendant’s Motion for Summary Judgment (Doc.
130) is GRANTED IN PART, DENIED IN PART. The motion is granted for the
claims about the Citigold checking accounts; those claims are DISMISSED
WITH PREJUDICE. The motion is denied as to the claims about the Citi
preferred securities; those claims must proceed to trial.
ORDERED on November 20, 2014.
/s/ Richard Smoak
RICHARD SMOAK
UNITED STATES DISTRICT JUDGE
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