Opinion by Judge Catherine C. Blake
Held: The Plaintiff, the general counsel of the defendant's predecessor, Fieldstone, did not suffer retaliation under the Sarbanes-Oxley Act of 2002 because her activities failed to qualify as protected activity under the Act because of (i) her limited research regarding violations of the Act and (ii) her failure to specify which federal securities laws or regulations were violated by the corporation.
In April of 2004, Fieldstone submitted its application to become a publicly-traded company with the Securities and Exchange Commission ("SEC") and adopted an internal Code of Business Conduct that closely followed the rules and regulations to which publicly-traded companies are subject in anticipation of the approval of its application to be a publicly-traded company. The adopted Code of Business Conduct required that Fieldstone create an Audit Committee that would be comprised of independent directors and prohibited Fieldstone employees from disclosing material, non-public information about the corporation to third parties.
In response to Harkness' report, the Chair of the Audit Committee requested that Harkness interview Sonnenfeld and then provide the Audit Committee with her legal opinion regarding the violation of Regulation FD. In the interview, Sonnenfeld confirmed his disclosure to the outside investor and stated that he told the investor that he could not trade based on the information. Prior to Harkness delivering her legal opinion, the Chair of the Audit Committee informed her that it was the opinion of the outside securities counsel that Sonnenfeld's disclosure did not violate Regulation FD because the company was not yet a publicly-traded company and because Sonnenfeld told the outside investor that he could not trade based on the disclosed information and asked Harkness to prepare a report for the Audit Committee regarding whether the company's Code of Business Conduct or Regulation FD had been violated by Sonnenfeld. After asking LaFond to review Regulation FD in preparation for the report, Harkness reported to the Audit Committee that Sonnenfeld's disclosure would likely be deemed a violation of Regulation FD if the company was subject to Regulation FD due to its shares being publicly registered. (Emphasis added.)
Harkness later met with Fieldstone executives to discuss the possibility of her resignation and to negotiate a severance package and then took a planned vacation. Upon Harkness' return, Fieldstone presented her with a termination letter and a proposed severance package that Harkness believed to be insufficient. Prior to leaving Fieldstone, Harkness completed a disclosure questionnaire in which she stated that she believed Fieldstone to have violated Title VII and the Sarbanes-Oxley Act of 2002 (the "Act") by terminating her based on sex discrimination or retaliation.
After reviewing all steps taken by Harkness in connection with the investigation and research of Sonnenfeld's disclosure and its possible violation of Regulation FD, the Court found that Harkness failed to demonstrate that she had an objectively reasonable belief that Sonnenfeld's disclosure constituted a violation of Regulation FD because, prior to talking with the Chair of the Audit Committee, she failed to do any research on whether Regulation FD even applied to Sonnenfeld's disclosure, to request that LaFond, who was experienced in securities laws, do any research, or seek the opinion of the corporation's outside securities counsel with respect to the possible violation of Regulation FD and only requested that LaFond research Regulation FD upon the Chair of the Audit Committee's statement that outside securities counsel did not believe Sonnenfeld's actions to violate Regulation FD. With Harkness having over 20 years of legal experience, the Court found that such routes of investigation and research should have been readily ascertainable when Harkness was deciding the applicability of Regulation FD to Sonnenfeld's disclosure and that because of her failure to utilize the resources that were available to her to determine whether Regulation FD was applicable, she failed to establish that a reasonable person in her position would have believed that Sonnenfeld's disclosure violated Regulation FD.