Apparent Lack Of Timely And Complete Documentation Leads Fifth Circuit To Revive Whistleblower Action

Schroeder v. Greater New Orleans Fed. Credit Union, No. 10-cv-31169, 2011 WL 6307889 (5th Cir. Dec. 19, 2011)

The Fifth Circuit Court of Appeals revived a whistleblower retaliation claim against Greater New Orleans Federal Credit Union (the Company) under the Federal Credit Union Act (12 U.S.C. § 1790b(a)(1)) (the Act), finding that a jury question existed as to whether Plaintiff Mary Schroeder (Plaintiff) engaged in protected activity.  The court found that internal complaints are not protected activity under the Act, and a genuine issue of material fact existed as to whether Plaintiff complained of fraud to the National Credit Union Administration (NCUA).  The court also found that questions of fact bearing on causation existed due to the scope of documentation regarding Plaintiff’s performance issues and the timing of when certain documents were added to her personnel file.  

Background

The Company hired Plaintiff as a collections manager in May 2006, and promoted her in July 2007 to also manage the Company’s lending department and call center.  In December 2007, Plaintiff’s relationship with the CEO began to deteriorate, and around this same time, Plaintiff informed the CEO that she believed potentially fraudulent conduct was occurring in connection with lending practices.  In March 2008, Plaintiff made the same reports to the Board of Directors (Board).  On May 30, 2008, Plaintiff brought her claims of fraud to the chair of the Company’s Supervisory Committee (Committee).  On June 9, 2008, the CEO relieved Plaintiff of most managerial duties for the stated reason that she failed to accomplish certain pre-set goals for her department. 

According to Plaintiff, on June 19 and 20, 2008, she made seven calls to the NCUA.  However, the NCUA had no record of her calls, and the Plaintiff never told any supervisors about the calls.  But, two co-workers claimed that Plaintiff expressed her plans to contact the NCUA in June 2008.  A week after her alleged calls to the NCUA, Plaintiff again complained to the Committee, and the Company hired an auditor to investigate.  The investigation confirmed that some loans violated internal policies, but there was no criminal fraud.  In mid-July 2008, co-workers asserted that they informed the CEO that Plaintiff contacted the NCUA.  A day or two later, the CEO sent the Committee a letter indicating that she understood the audit was a result of Plaintiff’s internal reports and added that Plaintiff was underperforming and creating disturbances within the organization.  That letter made no reference to Plaintiff’s complaints to the NCUA, and the CEO said she did not learn of Plaintiff’s complaint to the NCUA until months later. 

On August 8, 2008, the CEO reduced Plaintiff’s salary to her pre-promotion level.  Two weeks later, Plaintiff sent the Board and Committee a letter characterizing that action as retaliatory.  That letter made no mention of any complaints to the NCUA.  In addition, on October 1, 2008, Plaintiff’s attorney sent an e-mail to the NCUA, but it made no reference to any prior calls to the NCUA in June 2008.  Over the next week, the Company included several employee complaints about Plaintiff’s attitude and management style in her personnel file.  Also, Plaintiff claimed to have sent letters to the NCUA (and the FBI) on October 6, 2008, but the NCUA recorded its receipt on October 21, 2008.  On October 8, 2008, the Board discharged Plaintiff. 

The Court’s Decision

Following her discharge, Plaintiff filed a whistleblower retaliation suit under the Act, claiming that the Company demoted and discharged her in retaliation for reporting of fraud.  The Act’s whistleblower provision expressly bars a credit union from retaliating against an employee because that individual provided information to the NCUA or the U.S. Attorney General regarding any violation (by a credit union) of any law or regulation.  The District Court granted the Company summary judgment, ruling that Plaintiff’s complaints to the CEO and Board were not protected.  It also found that Plaintiff failed to establish a causal connection between any protected activity and the adverse employment actions.  Rather, it found that Plaintiff’s alleged performance problems supported her termination.

The Fifth Circuit affirmed the finding that Plaintiff’s demotion, which was preceded only by internal complaints, was not actionable.  However, it found that there was a genuine issue of material fact as to whether the Company knew Plaintiff complained to the NCUA.  The Fifth Circuit also ruled that fact questions existed as to causation issues given its conclusion that there was little evidence of disciplinary problems in Plaintiff’s personnel record, and that Plaintiff’s performance issues were recorded in her personnel file after her complaints to the NCUA and just a week before her termination. 

Implications for Employers

This decision illustrates the importance of timely, accurate and complete documentation in situations where an employee with performance problems “blows the whistle.”  In particular, it shows that documenting performance concerns only after an employee complains could lead to the perception / misperception that the employer is trying to “paper the record” for strategic reasons.  To minimize risks, counseling should correspond to robust documentation to correct the performance issues.  This has the added benefit of demonstrating that an employer’s decision was driven by legitimate and non-retaliatory reasons in situations where litigation is unavoidable.

By:  Steven J. Pearlman and Rachel Urquharthttp://www.seyfarth.com/RachelUrquhart

Steven J. Pearlman is a partner in Seyfarth’s Chicago office and Rachel Urquhart is an associate in the Chicago office.  If you would like further information, please contact your Seyfarth attorney, any member of the firm’s SOX Whistleblower Team, Steve Pearlman at spearlman@seyfarth.com or Rachel Urquhart at rurquhart@seyfarth.com.