No Wrongful Discharge Claim For Firing Of Employee/Shareholder In Retaliation For Her Exercise Of Her Statutory Inspection Rights

You probably know that North Carolina is an employment-at-will state.  That means that in the absence of any employment contract, you can be fired from your job at any time, for good reason, no reason at all, or even a bad reason.

There's a skinny exception to that rule: that an employee cannot be terminated for a purpose that contravenes public policy.  So here's a head-scratcher for you: can a company terminate an employee for exercising her statutory right as a shareholder to inspect the company's books and records?

That was an issue before the Business Court in Brady v. Van Vlaanderen, 2013 NCBC 37, in which the Plaintiff, a minority shareholder and employee of a corporation called United Tool, said she was terminated in retaliation for attempting to exercise her shareholder rights to inspect the corporation's records.

Judge Gale dismissed her wrongful discharge claim in an Order last week, relying on two out-of- state cases.  He said he would not "adopt an additional public policy exception to North Carolina's terminable at will doctrine."  Op. 31.

Knowledgeable North Carolina readers of this blog might say "but what about Meiselman?"

For non-North Carolina readers of this blog (like my dad) , and those otherwise ignorant of the North Carolina Supreme Court's important decision in  Meiselman, Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551 (1983) (probably including my dad), that case holds that a shareholder may not be treated by the corporation in a manner contrary to her "reasonable expectations."

Judge Gale indeed did take Meiselman into account, and said that "Plaintiff should pursue her claim for salary and benefits, if at all, through her Meiselman claim."  Op. ¶31.

No wrongful discharge claim for being retaliated against for exercising her inspection rights, but a Meiselman claim for the same bad conduct by the corporation. So that's six of one, half a dozen of the other, right?  I'm not so sure.  Let me know what you think.

Sanctions For Derivative Action Plaintiff And His Lawyers

Egelhof v. Szulik, 2008 NCBC 2 (N.C. Super. Ct. Feb. 4, 2008)(Tennille)

It’s hard to imagine a more inadequate plaintiff than Egelhof to undertake the fiduciary responsibility of being a plaintiff in a derivative action against Red Hat, a publicly traded company. Egelhof was only 24 years old, and held only a few hundred dollars of Red Hat's stock. He had become a plaintiff in response to a solicitation on the internet. As the Court described Egelhof, "[h]e had little investing experience, no experience in litigation, no prior connection with the [his] law firm, no personal knowledge of [the corporation] and its operations, and a minor criminal record."

The Court concluded that this plaintiff "lacked any credentials to act as a fiduciary for a company in multi-million dollar litigation." Noting Egelhof’s paltry stake in Red Hat, the Court held that "[w]hile the size of ownership is not determinative of standing, a potential plaintiff's lack of a real financial stake in the litigation is a warning sign that he or she may not be willing or able to devote the time necessary to fulfill the fiduciary obligations imposed by law on a shareholder derivative plaintiff."

These factors alone would probably not have warranted sanctions, but Egelhof was completely uninvolved in his case. He relocated, more than once, and never gave his lawyers a forwarding address. He sold his stock during the course of the lawsuit, creating a significant standing issue, but never mentioned this to his lawyers. He had never even met his lawyers until the night before his deposition and had spent a total of five hours on the case by the time he was deposed.

The Court's sanction to Egelhof was to prohibit him from being a plaintiff in a class action or derivative action in North Carolina for the next five years. The lawyers came in for an equally harsh sanction.

Continue Reading...