Family’s Firing of Son After Company Takeover Not Whistleblower Retaliation

Takeaway: Because of the burden-shifting analysis in employment law, an unlawful termination claim can often be defeated if another reason for discharge is shown.

In this case, the plaintiff claimed he was fired for reporting family members to the IRS for alleged tax code violations. The court found, however, that he was fired for unsuccessfully trying to take control of the family company.

The plaintiff became a 20 percent shareholder of Adroit Medical Systems Inc. when his father started Adroit in 1990. His father retained the other 80 percent and served as the company’s president. The plaintiff served on the board and worked at Adroit. His day-to-day responsibilities at Adroit included sales and marketing, social media, product development, patents and trademarks, supplier and distribution agreements, regulatory compliance, and exports.

According to the plaintiff, he noticed a decline in his father’s health and capacity to run the business in early 2019. Others in the family noticed too, so his stepmother and stepsister took over more of Adroit’s day-to-day operations. By July 2019, the plaintiff became suspicious of charges that his stepmother and stepsister were authorizing for themselves as company expenses—which neither reported as taxable income. He claimed that when he examined company financial records, including expense reimbursements, he found payments to personal credit cards and company employees for noncompany labor dating back to 2017.

The plaintiff concluded that his stepmother and stepsister were committing tax fraud, theft and embezzlement. In January 2020, he provided company documents to the IRS that he believed incriminated his stepmother and stepsister. No one in his family knew what he was doing at the time.

On March 4, 2020, Adroit sent out a notice informing its shareholders that the board would vote on the stepmother assuming the office of president the following week. She was succeeding the father as president, based on his wishes as expressed in his durable power of attorney documents.

That same day, the plaintiff filed an emergency petition to be designated as his father’s conservator in Loudon County, Tenn., probate court. The probate court granted the plaintiff’s emergency conservatorship petition ex parte on March 5 and scheduled a follow-up hearing for March 10. The plaintiff used his conservatorship power to add his allies, including his brother, to the board of directors and remove his stepmother, suspend his stepmother and stepsister’s employment, change the office locks, and tell employees that he was now in charge. On March 7, he told his stepmother, stepsister and father of his conservatorship power and that they were under IRS investigation. IRS agents searched Adroit’s offices and took a hard drive to complete an audit.

But on March 10, the plaintiff’s takeover ended. The probate court dissolved his power as emergency conservator over his father, finding that the father “was not disabled under Tennessee law” and citing his “long-established wish” that the stepmother “act on his behalf should he become disabled.”

Once the father regained control of the company, he appointed a new board of directors to replace the plaintiff’s board. At a March 11 shareholder meeting, the new board of directors, which included the stepmother and stepsister, voted to fire the plaintiff and his brother for cause.

The plaintiff sued Adroit and his father, stepmother and stepsister, alleging violations of the federal Taxpayer First Act and the Tennessee Public Protection Act in terminating him for reporting alleged financial misdeeds to the IRS. He also sued his father, stepmother and stepsister for intentional interference and civil conspiracy. The defendants moved for summary judgment, which the court granted.

On appeal, the defendants argued that they terminated the plaintiff for his hostile takeover of the company and acted within their corporate capacities in terminating him. The 6th Circuit found that it was reasonable to infer that the reconstituted board, which included the plaintiff’s stepmother and stepsister, was angry that the plaintiff placed the company under IRS scrutiny.

Nevertheless, the defendants provided clear and convincing evidence that they would have fired the plaintiff even if he had not reported them to the IRS. The attempted coup itself sufficiently motivated the defendants to get the plaintiff out of the business—the IRS reporting was just icing on the cake. The fact that the defendants also fired the plaintiff’s brother, who was not involved in the IRS reporting, supported their claim that the takeover motivated the discharge.

Therefore, the 6th Circuit upheld the decision of the district court dismissing the claims.

Gammons v. Adroit Medical Systems Inc., 6th Cir., No. 23-5374 (Jan. 22, 2024).

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.