### In the



# United States Court of Appeals

For the Seventh Circuit

____________________

No. 16

‐ 3502

N EAL R. V ERFUERTH

, Plaintiff

‐ Appellant

,

v.

O RION E NERGY S YSTEMS

, I NC

., Defendant

‐ Appellee

.

____________________

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 14

‐ C

‐ 352

— William C. Griesbach

, Chief Judge

.

____________________

A RGUED S EPTEMBER 27, 2017

— D ECIDED J ANUARY 11, 2018

____________________

Before W OOD

, Chief Judge

, and F LAUM and K ANNE

, Circuit

Judges

.

W OOD

, Chief Judge

. Neal Verfuerth is the founder and

former CEO of Orion Energy Systems, a company that

specializes in energy

‐ efficient lighting. Orion fired Verfuerth

in November 2012, following several disputes between

Verfuerth and Orion’s board of directors. These disputes

involved a patchwork of issues, including the billing practices

of outside counsel, the conduct of Orion’s board of directors,2 No. 16

‐ 3502

and a defamation suit filed by one of Orion’s former

employees. Shortly after his departure from the company,

Verfuerth brought this lawsuit. He argues that his complaints

to the board about the board’s own managerial decisions

amounted to “whistleblowing” and that, by firing him, Orion

violated federal whistleblower

‐ protection laws. The district

court resolved the case with a grant of summary judgment in

Orion’s favor. Verfuerth appealed and now seeks to convince

us that the district court was wrong.

I

Verfuerth founded Orion in 1996 and took the company

public in 2007. His tenure as CEO appears to have gone

smoothly until sometime in 2012. At the beginning of that

year, Verfuerth announced that he was divorcing his wife.

The divorce promised to be costly, and so Verfuerth had to

find a way to pay for it. One option would have been to sell

some of his shares of Orion stock, but Orion’s investors might

have taken a dim view of that action. To avert any such re

‐

sponse, the board agreed to reimburse Verfuerth’s out

‐ of

‐ pocket divorce expenses and attorney’s fees.

Shortly thereafter, several managerial disagreements

arose between Verfuerth and various members of Orion’s

board of directors. As Verfuerth tells it, he raised concerns

about a hodgepodge of matters, including: (1) overbilling by

outside counsel; (2) a potential patent infringement by one of

Orion’s products; (3) potential conflicts of interests involving

a member of the board and a company executive; (4) miscel

‐

laneous violations of internal company policy, such as con

‐ sumption of alcohol at an “informal [board] meeting;” (5) the

board’s handling of a defamation suit brought by a former

employee who had been accused of stock manipulation; andNo. 16

‐ 3502 3

(6) the fact that the chairman of Orion’s audit committee al

‐

lowed his CPA license to expire.

The district court’s opinion explains the facts behind each

of these grievances in detail. See Verfuerth v. Orion Energy Sys.

,

No. 14

‐ C

‐ 352, 2016 WL 4507317 (E.D. Wis. Aug. 25, 2016). Tak

‐ ing all facts and inferences in Verfuerth’s favor, as we must, it

is enough to say that Verfuerth complained about these issues

multiple times between May and August 2012. Verfuerth also

advised the board to disclose these issues to Orion’s share

‐

holders. The board ignored this advice, and Verfuerth himself

never mentioned these issues in any of the quarterly or annual

reports he filed on Orion’s behalf with the Securities and Ex

‐ change Commission.

Other differences of opinion between Verfuerth and the

board exacerbated these conflicts. For example, Verfuerth and

certain directors argued about communication techniques,

sales tactics, and product innovation. In addition, around late

September 2012, the board began to investigate Verfuerth’s

divorce

‐ expense reimbursements. By that time, Orion had re

‐

imbursed Verfuerth for more than $170,000 in attorney’s fees

(along with a six

‐ figure tax gross

‐ up), but the board discov

‐

ered that Verfuerth had paid only about two thirds of this

sum to his divorce lawyer. Verfuerth’s explanation is that he

had withheld the remaining $60,000 from his lawyer because

of a fee dispute. Nonetheless, he failed to return this money

to Orion or otherwise to account for it.

On September 27, the board of directors held a special ad

‐ visory meeting during which it removed Verfuerth as CEO

and reassigned him to the advisory position of “chairman

emeritus.” Emails exchanged by board members prior to Ver

‐4 No. 16

‐ 3502

fuerth’s demotion cite several reasons for the board’s deci

‐

sion, including falling stock prices, Verfuerth’s “intimidat

‐ ing” leadership style, high rates of “senior management turn

‐

over,” and a litany of business

‐ strategy disagreements.

As a precondition for receiving emeritus status, Verfuerth

was required to take a six

‐ month sabbatical. The board sent

Verfuerth a “Board Directives Letter” instructing him that

during the sabbatical he was not to communicate with Orion

employees about company business. The stated purpose of

this restriction was to prevent Verfuerth from undermining

Orion’s new CEO, John Scribante.

Verfuerth was not pleased with the terms the board

wanted to impose on him, and so on October 19, he informed

the board of his intention to resign. That notice triggered im

‐

mediate negotiations between Orion and Verfuerth about

Verfuerth’s severance package. These negotiations—which

featured disputes over the unpaid attorney’s fees and a sever

‐

ance package for Verfuerth’s new fiancée (also an Orion em

‐ ployee)—were unsuccessful. On November 6, the chairman

of Orion’s board sent a letter to all members (including Ver

‐ fuerth) notifying them of a special meeting to consider termi

‐ nating Verfuerth’s employment for incurable cause. The

meeting was scheduled for November 8 at 8:00 a.m.

Less than an hour before this meeting, at 7:17 a.m., Ver

‐

fuerth sent an email to the board in which he reiterated his

many complaints about the board’s managerial decisions and

alleged that his impending termination was the result of a

conspiracy against him. Although Verfuerth characterized

this email as a “complaint

... pursuant to Orion Energy Sys

‐

tems Inc Whistle Blower Policy, as well as the Sarbanes Oxley

Act,” the email did not include any reference to any complaintNo. 16

‐ 3502 5

filed with the SEC (or any other government agency), nor did

it provide the board with any new information. Instead, Ver

‐

fuerth’s email simply rehashed the numerous personal and

professional grievances about which he had been complain

‐ ing over the course of the past year.

At the November 8 board meeting, the directors unani

‐ mously voted to dismiss Verfuerth for cause. In its termina

‐

tion letter, the board explained that it was taking this step be

‐

cause of, among other reasons, Verfuerth’s “misappropriation

and conversion of Company funds” in connection with his di

‐

vorce attorney’s fee reimbursements, and his “serial viola

‐

tions of the terms and conditions of [the] September 27, 2012

Board Directives Letter,” including “[d]isparagement of [new

CEO] John Scribante” and “attempt[ing] to form a dissident

shareholder group.”

A year and a half later, Verfuerth brought this lawsuit. He

alleged fourteen violations arising out of his termination,

twelve of which were state

‐ law actions for tort or breach of

contract. Our central concern is with his two federal whistle

‐

blower

‐ protection theories, one under the Sarbanes

‐ Oxley

Act, 18 U.S.C. § 1514A(a), and another derivative claim under

the Dodd

‐ Frank Act, 15 U.S.C. § 78u

‐ 6. The district court dis

‐

missed several of Verfuerth’s state

‐ law counts for failure to

state a claim and rejected the remainder on summary judg

‐

ment. It also granted summary judgment to Orion on both

whistleblower

‐ protection theories, which are the only matters

at issue in this appeal. We turn to them now.

II

The Sarbanes

‐ Oxley Act of 2002 forbids publicly traded

companies, of which Orion is one, from retaliating against an6 No. 16

‐ 3502

employee for “any lawful act done by the employee

... to

provide information

... regarding any conduct which the

employee reasonably believes constitutes a violation of

section 1341 [mail fraud], 1343 [wire fraud], 1344 [bank

fraud], or 1348 [securities fraud], any rule or regulation of the

Securities and Exchange Commission, or any provision of

Federal law relating to fraud against shareholders,” when the

information or assistance is provided to a government agency

or to a person with supervisory authority. 18 U.S.C.

§ 1514A(a).

To succeed on a Sarbanes

‐ Oxley claim, a plaintiff must

prove that he engaged in protected whistleblowing, that his

employer knew he engaged in protected whistleblowing, and

that his whistleblowing was a contributing factor in some un

‐

favorable action taken by the employer against the employee.

Harp v. Charter Communications, Inc.

, 558 F.3d 722, 723 (7th Cir.

2009). Once an employee has established these elements, the

burden of proof shifts to the employer, who must show by

clear and convincing evidence “that it would have taken the

same unfavorable personnel action in the absence of that pro

‐

tected behavior.” Id

. (quotation and alteration marks omit

‐ ted). Whistleblowing is protected by Sarbanes

‐ Oxley only if

the employee subjectively believed fraud was occurring and

was objectively reasonable in holding that belief. Id

. Because

this case comes to us on summary judgment, we consider Ver

‐

fuerth’s Sarbanes

‐ Oxley claim de novo

, treating his factual as

‐

sertions as true and drawing all reasonable inferences in his

favor. Whitfield v. Howard

, 852 F.3d 656, 661 (7th Cir. 2017).

The Dodd

‐ Frank Act also protects whistleblowers, but its

scope is (arguably) narrower than that of the Sarbanes

‐ Oxley

Act. Whereas Sarbanes

‐ Oxley defines a whistleblower asNo. 16

‐ 3502 7

someone who provides information to any federal regulatory

or law enforcement agency or to a person with supervisory

authority over the employee, the Dodd

‐ Frank Act defines a

whistleblower as an “individual who provides

... information

relating to a violation of the securities laws to the [Securities

and Exchange] Commission

... .” 15 U.S.C. § 78u

‐ 6(a)(6) (empha

‐

sis added). Verfuerth argues that, despite this restrictive defi

‐

nition, the Dodd

‐ Frank Act also protects those who make dis

‐

closures protected by Sarbanes

‐ Oxley, even if they do not re

‐

port the violation to the SEC. This argument is the subject of

a circuit split on which the Supreme Court has granted certi

‐

orari. See Somers v. Digital Realty Trust

, 850 F.3d 1045

(9th Cir.), cert. granted

, 137 S. Ct. 2300 (2017). But we need not

take a side in this split, or await the Court’s decision in Somers

,

because Verfuerth’s Dodd

‐ Frank theory is entirely derivative

of his Sarbanes

‐ Oxley theory and, as we explain below, the

Sarbanes

‐ Oxley Act does not protect Verfuerth’s conduct.

Hence, Verfuerth cannot succeed on his Dodd

‐ Frank claim no

matter how the Supreme Court rules in Somers

.

III

The Sarbanes

‐ Oxley Act protects employees who reveal

evidence of certain types of fraud, such as securities fraud or

wire fraud. The problem for Verfuerth is that the practices

about which he complained—attorney overbilling, intellec

‐

tual property disputes, conflicts of interest, and violations of

internal company protocol—are not “fraud” within the mean

‐ ing of the statute. Verfuerth attempts to cure this obvious de

‐

fect by artfully recharacterizing his disputes with the board.

According to Verfuerth, he was not simply complaining about

the board’s managerial decisions, but rather was (implicitly)8 No. 16

‐ 3502

telling board members that their failure to disclose his griev

‐

ances to Orion’s shareholders amounted to securities fraud.

This theory stretches the language and purpose of Sar

‐

banes

‐ Oxley beyond what the statute can bear. An executive

who advises board members to disclose a fact that the board

already knows about has not “provide[d] information” about

fraud. At most, he has provided an opinion. Nothing in Sar

‐

banes

‐ Oxley, or any other federal statute, prevents a company

from firing its executives over differences of opinion.

Verfuerth could have qualified as a whistleblower if, for

example, he informed the SEC that Orion’s past filings con

‐

tained material omissions, and if he were objectively reason

‐

able in thinking that those omissions were material. But a per

‐

son does not become a whistleblower just by advising his col

‐ leagues about their own disclosure obligations and then do

‐ ing nothing when they fail to follow his advice. Cf

. Smets v.

Merit Sys. Prot. Bd.

, 426 F. App’x 890, 892 (Fed. Cir. 2011)

(“Criticism directed to the wrongdoers themselves is not nor

‐ mally viewable as whistleblowing,” because “the employee is

not making a ‘disclosure’ of misconduct.”) (internal quotation

marks omitted).

Perhaps recognizing that his theory of liability rests on feet

of clay, Verfuerth next asserts that he “attempted” to file an

online complaint with the SEC shortly before Orion fired him.

The SEC never received any such complaint, nor does Ver

‐

fuerth have any record of having sent it. In any case, Sarbanes

‐ Oxley would protect Verfuerth only if his SEC complaint

were the reason Orion fired him, and Verfuerth has not pro

‐

duced any evidence that anyone at Orion knew—or even

could have known—about his alleged attempted report to the

SEC.No. 16

‐ 3502 9

Verfuerth’s theory of liability suffers from numerous ad

‐

ditional flaws. Most obviously, it overlooks the fact that Ver

‐

fuerth himself, as Orion’s CEO during the relevant period,

bore ultimate responsibility for disclosing material infor

‐

mation to the SEC. Thus, if Orion’s failure to disclose the com

‐ plained

‐ of conduct to its shareholders amounted to securities

fraud, then Verfuerth participated in that fraud when he

knowingly filed SEC reports in June and August of 2012 that

made no mention of these issues. (These reports—along with

affidavits that Verfuerth signed in 2013 in connection with the

release of his personal stocks—all required Verfuerth to cer

‐ tify in writing that he was not aware of any material undis

‐

closed facts that could affect the value of Orion’s stock.) Sar

‐

banes

‐ Oxley does not prohibit a company from firing an em

‐ ployee who confesses his own fraudulent conduct.

In addition, Verfuerth has not even attempted to prove

that the conduct he complained about was so significant that

its nondisclosure could constitute securities or shareholder

fraud. The securities laws do not require companies to notify

shareholders about every managerial hiccup or internal pol

‐ icy disagreement, and it is far from obvious that the conduct

of concern to Verfuerth comes anywhere near the level of ma

‐ teriality needed to support a plausible claim of fraud. See Day

v. Staples, Inc.

, 555 F.3d 42, 55–56 (1st Cir. 2009) (“To have an

objectively reasonable belief there has been shareholder

fraud, the complaining employee’s theory of such fraud must

at least approximate the basic elements of a claim of securities

fraud

... includ[ing] material misrepresentation or omission,

scienter, [shareholder] loss, and [causation].”) (internal quo

‐

tation marks omitted).10 No. 16

‐ 3502

IV

Adopting Verfuerth’s interpretation of Sarbanes

‐ Oxley

would mean that any otherwise

‐ at

‐ will employee who gives

his boss advice about a security disclosure is a “whistle

‐

blower” entitled to the vast protections of federal law. Neither

the text nor the legislative history of the statute supports such

an extraordinary result. Nor does anything in Dodd

‐ Frank

salvage what is otherwise a meritless case. Accordingly, we

A FFIRM the judgment of the district court.