Sandy Kuba will take Disney to trial; the judge seems to really like her case
It's not easy for whistleblowers to sue and then overcome motions to dismiss and summary judgment, to bring a big corporation to trial and, potentially, to justice
Judge John Antoon II, for the U.S. District Court in the Middle District of Florida (Orlando), begins his order denying plaintiff Sandy Kuba’s Motion for Partial Summary Judgment and granting in part and denying in part defendant Disney Financial Services’ Motion for Summary Judgment with a quote from author Joseph Conrad:
[N]o department appears perfectly wise to the intimacy of its workers. Joseph Conrad, The Secret Agent (1907).
Judge Antoon was asked to decide whether Sandy Kuba, who he implies voiced the perception she knew her employer better than it knew itself, was unlawfully retaliated against by Disney because her knowledge cast a very unfavorable light on her employer, or whether that question must go to a jury.
Conrad is likely better known by most for his novels Heart of Darkness and Lord Jim. But the novel Judge Altoon chose to quote, The Secret Agent, popularized a French proverb attributed to Anne-Marie Bigot de Cornuel who was once the mistress of King Louis XIV. The words that come before the sentence the judge selected say much more, I believe, about what he is truly thinking about this case.
A department is to those it employs a complex personality with ideas and even fads of its own. It depends on the loyal devotion of its servants, and the devoted loyalty of trusted servants is associated with a certain amount of affectionate contempt, which keeps it sweet, as it were. By a benevolent provision of Nature no man is a hero to his valet, or else the heroes would have to brush their own clothes. Likewise no department appears perfectly wise to the intimacy of its workers. A department does not know so much as some of its servants. Being a dispassionate organism, it can never be perfectly informed. It would not be good for its efficiency to know too much.
Judge Antoon first summarizes the Kuba case and embellishes with some descriptive language about Kuba to set the mood:
On September 21, 2017, DFS fired Plaintiff Sandra Kuba, an eighteen-year veteran of the company who last served as a Senior Financial Analyst in the Revenue Operations department. DFS claims that it fired Kuba-an employee with a long history of prickly interactions-for making a series of unfounded, bad-faith accusations against her coworkers in violation of company policy. Kuba claims that she was actually fired for blowing the whistle on the company's unwise and unlawful accounting practices, which she reported both internally and to the Securities and Exchange Commission (SEC) shortly before her termination.
The judge tells us that Kuba was an eighteen-year veteran of the company, a CPA with a degree in accounting and forensic accounting, and gives us her title, Senior Financial Analyst in the Revenue Operations department. He is signaling, in my opinion, that Kuba was a loyal devoted servant of Disney for eighteen years and Kuba may have known more than her bosses about its accounting.
Disney claims it fired Kuba — an employee with what the judge characterizes as “a long history of prickly interactions” — for making what Disney said was “a series of unfounded, bad-faith accusations against her coworkers in violation of company policy.”
Kuba claims, however, that she was fired for blowing the whistle shortly before her termination internally and to the Securities and Exchange Commission about what the judge characterized as Disney’s “unwise and unlawful accounting practices.”
Sandy Kuba has lost so much, including her husband, during this ordeal to hold Disney accountable for its business and its treatment of an employee who only wanted to protect the company. Her level of loyalty to her former employer, despite the horrible mistreatment and now character assassination in service to beating her at court, is reminiscent of Mauro Botta’s towards PwC. (PwC has been Disney’s auditor for a very long time.) Both hated to leave their long-time employers.
The judge’s background of the case — which goes on from page 3 to the middle of page 20 — is a great summary of key moments in Sandy Kuba’s saga, and sets up his legal arguments for his eventual decisions very well. I will testify, however, that this account only scratches the surface of the allegations Sandy Kuba has made about Disney’s accounting, in particular its revenue recognition processes.
For more information about the rest, see my MarketWatch story, first published Aug. 19, 2019 and these subsequent newsletters:
I am going to cut to the chase and tell you what the judge decided on the five counts Kuba originally outlined in her complaint:
Count 1 – The Sarbanes-Oxley Whistleblower Claim
Count 2 – The Dodd-Frank Whistleblower Claim
Count 3 - The California False Claims Act Claim
Count 4 - The Florida Private Whistleblower Act Claim
Count 5 - The Equal Pay Act Claim
First, I should point you to the discussion that starts on page 20 of the applicable legal standard for the judge to grant summary judgment on any of the claims. Judge Antoon comes back to it as he dispenses with each claim. In each case, the party not making the motion for summary judgment gets the benefit of the doubt, which makes for a lot of mental gymnastics when both parties are making a motion but on different claims.
Kuba wants summary judgment on her SOX whistleblower claim right now. Disney wants judgement in favor of it as the defendant on all five of Kuba’s claims now.
Count 1 – The Sarbanes-Oxley Whistleblower Claim
How does one make a prima facie case of retaliation under SOX? According to Judge Antoon’s order, a plaintiff must show by a preponderance of the evidence that
(i) the employee engaged in a protected activity or conduct;
(ii) the [employer] knew or suspected, actually or constructively, that the employee engaged in the protected activity;
(iii) the employee suffered an unfavorable personnel action; and
(iv) the circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the unfavorable action.
He cites Johnson v. Stein Mart, Inc., 440 F. App'x 795, 800 (11th Cir. 2011) (quoting 29 C.F.R. § 1980.104(b)(l)).
Once Kuba has established a prima facie case of retaliation under SOX, Disney may only escape liability, according to Judge Antoon, by establishing "by clear and convincing evidence that [it] would have taken the same personnel action in the absence of the protected activity." Stein Mart, 440 F. App'x at 801 (quoting Welch v. Chao, 536 F.3d 269, 275 (4th Cir. 2008)).
Judge Antoon argues Kuba easily meets the first three prongs of this standard.
“…there is little doubt that the core of Kuba's June 18 email to Kalogridis — including her statement the company lacked "internal controls over the accounting system/accounting flow" for coupon codes and was thus "not in compliance with SOX — constituted "protected activity" under § 1514A(a). In fact, DFS has stipulated to just that. (Doc. 39 ,r 2). It is also clear that DFS knew about this protected activity and that Kuba "suffered an unfavorable personnel action" when she was fired from her job.
What’s left? The judge now must determine whether Kuba's protected activity was "a contributing factor" in her termination. In this discussion the judge outlines how Disney shot itself in the foot by insisting it had decided to fire Kuba before she went to the SEC. That’s because, the United States Court of Appeals for the Eleventh Circuit, which has jurisdiction over federal courts in Florida, ruled in Higdon v. Jackson, 393 F.3d 1211, 1220 (11th Cir. 2004), that "[a] 'close temporal proximity' between the protected expression and an adverse action is sufficient circumstantial evidence of a causal connection for purposes of a prima facie case."
Disney agreed that this strict standard must be followed, citing the Supreme Court which “has established a demanding standard for reliance on temporal proximity alone ... , requiring the events to be 'very close' in time." (Doc. 38 at 17 (quoting Clark Cnty. School Dist. v. Breeden, 532 U.S. 268, 273 (2001)). The Eleventh Circuit has "held that a period as much as one month between the protected expression and the adverse action is not too protracted." Id. (citing Wideman v. Wal-Mart Stores, Inc., 141 F.3d 1453, 1457 (11th Cir. 1998)).
So what happened?
Disney does not dispute that Kuba engaged in protected activity on June 18, 2017 when she emailed George Kalogridis, then-President of the Walt Disney World Resort. Although she was not fired until September 21, after returning from FMLA, DFS insists that the decision to fire her was made on July 14, less than one month after her email to Kalogridis, thereby firing her in close proximity to her act that Disney admits was protected activity under SOX. Judge Antoon writes that “the fact that DFS's plan to fire Kuba was delayed by her own decision to take medical leave before that plan was executed does little to undermine the inference of causation justified by temporal proximity.”
Judge Antoon says he is “not convinced” of what DFS argues in its defense: that "no reasonable jury could conclude that Kuba’s boss Tracy Willis would not retaliate after Kuba's alleged whistleblowing activity to Kalogridis in September 2016, but then suddenly decide to retaliate against her after" sending a similar email on June 18, 2017. (Doc. 38 at 17).
A reasonable jury might conclude, for example, that Kuba's second email to Kalogridis demonstrated a dogged commitment to the issue that DFS was unwilling to humor further. Alternatively, a jury might conclude that the direct allegation in Kuba's June 18 email-that DFS was "not in compliance with SOX"-provided a more urgent cause for retaliation.
To be clear, the Court is not suggesting that either of these suppositions is correct. But their easy invention undermines DFS's suggestion that it would be wholly unreasonable to attribute an inference of causation to the temporal proximity between Kuba's June 18, 2017 email and DFS's decision to fire her less than a month later. The two emails to Kalogridis, though similar in kind, are different in degree, and a reasonable jury might fairly treat them as separate instances of protected activity.
Disney also tries to back out of this bind by arguing that "Kuba's own actions sever any causal connection she may attempt to establish through an alleged temporal proximity." (Doc. 38 at 18 (citing Hall v. Teva Pharm. USA, Inc., 214 F. Supp. 3d 1281, 1288-89 (S.D. Fla. 2016))). However Disney can only point to an email she sent later to Employee Relations, after emailing Kalogridis on June 18, in which she complained that another employee, Martin, "feels she can bully me and run rough shot [sic] over me with setting up codes."
The Judge says that email, too, may itself constitute protected activity, and deal “a possibility fatal [blow] to DFS's severance argument.”
Finally, Disney also cites Johnson v. Stein Mart, Inc., an unpublished case in which the Eleventh Circuit affirmed a grant of summary judgment to an employer that argued its employee "would have been terminated for performance reasons regardless of her protected activity." But Judge Antoon says Disney offered “no comparable documentation or corroboration to show by clear and convincing evidence that it would have fired Kuba solely for her allegedly unprotected accusations” and shoots itself in the other foot by providing weak case law to support that argument.
The cases cited by DFS are inapposite… The remaining cases cited by DFS are similarly unpersuasive, doing little to support its argument that Kuba's allegations are not protected under SOX… Finally, the Court rejects DFS's reliance on Armstrong v. BNSF Railway Co., 880 F.3d 377 (7th Cir. 2018), for the proposition that so long as Willis and Widger "honestly believed" that Kuba's accusations against Martin and Advisory & Assurance were made in bad faith-and thus unprotected-DFS could not be held liable for firing her under SOX.
As another court acknowledged in a later case, "the only conclusion to be drawn from Armstrong is the recognition that it would not be possible to show that an employer retaliated in response to an employee engaging in protected activity if the employer could demonstrate that it honestly believed no protected activity had occurred." Frost v. BNSF Ry. Co., 914 F.3d 1189, 1197 (9th Cir. 2019).
Here, however, DFS has already stipulated that Kuba engaged in protected activity when she sent her June 18 email to Kalogridis. The fact that Willis and Widger may have "honestly believed" that certain parts of that email were not protected does nothing to show by clear and convincing evidence that DFS would have fired Kuba even in the absence of those parts that were.
The judge concludes, therefore, that “a reasonable jury could find that Kuba has established by a preponderance of the evidence that she engaged in protected activity, that DFS knew of her protected activity, that she suffered an unfavorable personnel action, and that circumstances exist which create an inference that the protected activity was a contributing factor in that unfavorable personnel action. In other words, the jury could find that Kuba has established her prima facie case of retaliation under SOX.”
Kuba’s case survives Disney’s attempt to dispose of the SOX whistleblower retaliation claim, and earns some very strong words of support from the judge.
Count 2 – The Dodd-Frank Whistleblower Claim
Claims under Dodd-Frank are different than under SOX. (I have to ask why.) They follow the McDonnell Douglas framework used for Title VII claims that deal with employment discrimination based on race, color, religion, sex and national origin.
Thus, "if the plaintiff succeeds in proving the prima facie case, the burden shifts to the defendant to articulate some legitimate, nondiscriminatory reason for the [adverse action].... [S]hould the defendant carry this burden, the plaintiff must then have an opportunity to prove by the preponderance of the evidence that the legitimate reasons offered by the defendant were not its true reasons, but were a pretext for [retaliation]." Id. (quoting Texas Dep't. of Cmty. Affairs v. Burdine, 450 U.S. 248, 252-53 (1981)).
Also, unlike SOX, the anti-retaliation provision of Dodd-Frank “does not protect the entire genus of busybody employees who voice their concerns about financial malfeasance,” Judge Antoon writes. Instead, it protects only those who meet the statutory definition of a "whistleblower" under the Dodd-Frank Act: an "individual who provides ... information relating to a violation of the securities laws to the [SEC]." § 78u-6(a)(6); see also Digit. Realty, 138 S. Ct. at 777.
An employee who does tell the SEC is protected from retaliation even for "reports of wrongdoing [made] to an internal supervisor," so long as those reports are "independently safeguarded from retaliation under Sarbanes-Oxley." Id. at 774 (citing § 78u- 6(h)(l)(A)(iii)); see also id. at 779 ("The employee can recover under the statute without having to demonstrate whether the retaliation was motivated by the internal report ... or by the SEC disclosure.").
Disney argues that "Kuba's [Dodd-Frank] claim is fatally defective because she was not a 'whistleblower' when the decision to terminate her employment was made" on July 14, 2017. (Doc. 38 at 19). As the judge mentioned before, Disney admitted Kuba was a Dodd-Frank whistleblower by the time she was actually fired on September 21, 2017.
“[Disney] provides no authority for the proposition that the decision date rather than the termination date matters for the purpose of an employee's Dodd-Frank claim, and the Court is skeptical that it could,” writes the judge, and then he cites in a footnote that the case Disney provides to support this claim is “distinguishable” for reasons Disney “curiously” chooses to omit.
That means it doesn’t count.
“…although DFS has attempted to offer a "legitimate, non-retaliatory reason" for terminating Kuba — her accusations against Kalso, Martin, and Advisory & Assurance — the Court has already explained why those accusations themselves may constitute protected activity. Accordingly, DFS's Motion for Summary Judgment (Doc. 38) must be denied as to Kuba's Dodd-Frank claim.”
Kuba’s case prevails again.
Count 4 - The Florida Private Whistleblower Act Claim
Florida’s Private Whistleblower Act says that an employee seeking to establish a prima facie case of retaliation under the FWA must show that:
(1) she engaged in statutorily protected expression;
(2) she suffered an adverse employment action; and
(3) the adverse employment action was causally linked to the protected activity.
We already know that Disney does not dispute that most of Kuba's June 18 email to Kalogridis constitutes protected activity for the purpose of her FWA claim. (Doc. 39 il 2) Disney tries again to use the argument that “Kuba cannot show a causal connection between this protected activity and her termination and that, even if she could, she cannot prove that DFS's legitimate explanation is pretextual.” (Doc. 38 at 22-24).
Judge Antoon says, SOS.
Because genuine issues of material fact exist regarding whether Kuba's termination was causally connected to her undisputed protected activity, and because DFS's purportedly legitimate reason for Kuba's firing may itself constitute protected activity, DFS's Motion for Summary Judgment (Doc. 38) must be denied as to Kuba's FWA claim.
Kuba’s case prevails again.
Count 3 - The California False Claims Act Claim
Count 5 - The Equal Pay Act Claim
Kuba wanted summary judgment on her SOX whistleblower claim from Judge Antoon. She did not get that — I think she did get 99.9% she can take to a jury— but Disney did not get it dismissed either.
Disney wanted all five of Kuba’s claims dismissed and it got only these two thrown out. You can read why yourself if you are interested, but I would point plaintiffs firms to a footnote in Count 3 that might be interesting for follow-up:
25 In a rather half-hearted effort to circumvent the CFCA's tax bar, Kuba states for the first time in her Response that her CFCA claim actually rests on DFS's "false claims against its shareholders, among whom is CalPERS, a subdivision thereof." (Doc. 48 at 19). Kuba offers no authority for or explication of this novel legal argument, which the Court therefore rejects.
So what’s next?
Both parties are preparing for trial in the Court’s October 2022 trial term, according to a joint motion filed Sept. 2. Before that, parties have submitted a joint motion to meet Tuesday Sept. 6, for a settlement conference with a Magistrate Judge of the Court, Leslie Hoffman Price. Judge Antoon also has to consider both sides’ Motions In Limine to exclude evidence that is clearly inadmissible on all potential grounds.
Disney, for example, moved to exclude any and all evidence or argument regarding any OSHA (or SEC) investigation into Plaintiff’s claims. As I wrote:
The Disney whistleblower, Sandy Kuba, told me at MarketWatch that, by 2016, Disney had begun to exploit errors, mistakes, duplicate revenue and revenue recorded in error based on issues with its accounting software implementation, and revenue overstatements then became deliberate.
Kuba filed a tip with the SEC on August 2, 2017 and followed up with more information throughout the rest of 2017, before and after being terminated on Sept 21, 2017. Kuba believes the SEC’s investigation of her tips is ongoing based on subsequent phone and in person conversations with SEC officials. (Those conversations have been ongoing.)
Neither Disney nor the SEC have ever disclosed any investigation into the company’s accounting or other issues based on Kuba’s whistleblower tip.
There is also no evidence, based on FOIA responses from the SEC, that it has ever closed any undisclosed investigation that may have been opened after Kuba’s tip.
Disney wants Kuba to be prohibited from presenting any evidence or argument regarding news articles about her complaints, the SEC or an investigation including any mention of my 2019 MarketWatch article.
Kuba’s motion in limine seeks to exclude various documents related to her original Sarbanes-Oxley whistleblower complaint filed with OSHA and to exclude “The Walt Disney Company and Associated Companies Confidentially Agreement” between Kuba and former employer Walt Disney World Co. dated March 10, 1999.
The OSHA saga is worth reading more about if you want to understand how broken that process was, and is, notwithstanding a recent big award related to Wells Fargo. The confidentiality agreement is another kettle of fish that I think the SEC should investigate immediately, if it is not already doing so.
The confidentiality agreement is an exhibit in the case and is reproduced below.
Disney says that Kuba is “falsely claiming that the Confidentiality Agreement had no relation to her employment with DFS. As explained below, this is an incorrect premise that flies in the face of the express language of the Confidentiality Agreement itself. It is beyond cavil that the Confidentiality Agreement applies to Plaintiff’s employment at DFS, and her motion to exclude any evidence or argument relating to the Confidentiality Agreement should be denied.”
Cavil: "to raise frivolous objections, find fault without good reason," 1540s, from French caviller "to mock, jest," from Latin cavillari "to jeer, mock; satirize, argue scoffingly"
The “cavil” is on Disney, apparently.
Jason Zuckerman, whose namesake firm represents whistleblowers, told me in May and is telling me again today that this agreement violates the SEC’s anti-gag rule, Exchange Act Rule 21F-17. This rule prohibits any person from taking any action to impede an individual from communicating directly with the Commission, including by “enforcing, or threatening to enforce, a confidentiality agreement....”
Disney should have taken steps to modify their confidentiality agreements because the company had notice, and so did every other public company, of SEC enforcement actions for violations of Rule 21F-17 when the SEC started to bring those actions in 2015.
“The confidentiality agree that Ms. Kuba signed does not provide any exception for lawful whistleblowing to the government absent authorization from Disney. I would contend that the agreement was not valid as of 1999. Even prior to Dodd-Frank, it was well-established that contracts between private individuals may be void if they violate public policy,” said Zuckerman.
The case number is 6:21-cv-00312-JA-LHP.
Plaintiff Sandy Kuba is represented by Frank Michael Malatesta, Malatesta Law Office.
Defendant Disney Financial Services is represented by Mary Ruth Houston and Reed Sebastian Arroyo, Shutts & Bowen, LLP, Stephen L. Berry, Paul, Hastings, Janofsky & Walker LLP, and
Jaclyn Sara Clark, Bailey & Glasser LLP .
© Francine McKenna, The Digging Company LLC, 2022