Donald Bregin v. Liquidebt Systems Incorporated ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1390
D ONALD A. B REGIN,
Plaintiff-Appellant,
v.
L IQUIDEBT SYSTEMS, INC. and SIRVA, INC.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Indiana, Fort Wayne Division.
No. 1:06-CV-23—Theresa L. Springmann, Judge.
A RGUED S EPTEMBER 25, 2008—D ECIDED N OVEMBER 19, 2008
Before P OSNER, FLAUM, and E VANS, Circuit Judges.
E VANS, Circuit Judge. After Donald A. Bregin was
discharged from his employment at Liquidebt Systems,
Inc. (LSI) he filed this lawsuit, contending that his dis-
charge was in retaliation for his refusal to participate
in illegal accounting practices or, alternatively, for being
a whistle-blower, and that SIRVA, Inc. (in conspiracy
with LSI) tortiously interfered with his employment.
The district court granted summary judgment for both
2 No. 08-1390
companies, and Bregin appeals. Our review is de novo.
Alexander v. Wis. Dep’t of Health and Family Servs., 263 F.3d
673 (7th Cir. 2001).
SIRVA provides relocation and moving services; North
American Van Lines, Inc. (NAVL) is its subsidiary. Until
the late 1990s Bregin worked at NAVL doing, primarily,
the collecting of accounts receivable. He than was a
subcontractor for LSI and, later, he worked as a con-
sultant for SIRVA. At SIRVA his job was to identify ways
SIRVA could improve its collections procedures. Near
the end of his time as a consultant, he provided a “To-Do
List” for SIRVA. In preparing the list he reported that
internal financial documents were incorrect in that
SIRVA included, in accounts receivable, money that
should have been refunded to customers.
Also during this period NAVL decided to outsource
its collection efforts. At this point LSI entered the picture.
It negotiated with NAVL to provide collection services. As
a consultant to NAVL’s parent, SIRVA, Bregin was in-
volved in the negotiations that resulted in a contract
between NAVL and LSI, which the parties refer to as
the LSI/SIRVA contract. Bregin was also involved in
determining the benchmark for evaluating LSI’s perfor-
mance under the contract.
LSI expressed an interest in hiring Bregin to oversee
the SIRVA account. SIRVA liked the idea because of
Bregin’s familiarity with SIRVA and its employees. So it
happened that Bregin became LSI’s vice-president of
operations and was considered the project manager on
the SIRVA account. He no longer had an employment
relationship of any kind with SIRVA or NAVL.
No. 08-1390 3
As part of LSI’s responsibility for collecting SIRVA’s
outstanding customer accounts, LSI employees were to
contact SIRVA’s customers as soon as an invoice was
past due. Payments were made directly to SIRVA. LSI
was not involved in either calculating SIRVA’s accounts
or handling refunds and credits.
To evaluate LSI’s performance, SIRVA measured how
quickly receivables were collected, referred to as the
days sales billed (DSB). Under the contract, LSI’s perfor-
mance goal—or “benchmark”—was to improve collec-
tion of SIRVA’s accounts receivable by 10 percent
during 2003. The 2003 DSB would be compared to the
2002 DSB to see whether LSI met the benchmark. The
maximum incentive for LSI to exceed the benchmark
was a payment of $150,000; the maximum penalty for
failing to meet it was also $150,000.
SIRVA regularly reviewed LSI’s performance. During
the spring and summer of 2003, LSI failed to lower the
DSB, causing officials at SIRVA to express concern about
the job LSI was doing. Bregin believed that because of
certain accounting practices (for instance, including
customer overpayments in accounts receivable), the
DSB did not accurately reflect LSI’s performance. Bregin
did not think the numbers for the two years—2002 and
2003—were comparable and believed that the manner
in which the 2003 figures were calculated made it impos-
sible for LSI to improve its performance. He repeatedly
discussed his concerns with James Drolshagen, the presi-
dent and sole shareholder of LSI, and with Tom McKenna,
LSI’s director of client relations. Bregin requested
4 No. 08-1390
that SIRVA recalculate the DSB. Throughout this time
period, SIRVA continued to doubt whether LSI could
meet the contract goals, and Bregin continued to
believe that it was SIRVA’s accounting that created a
perception that LSI was not performing adequately.
In the fall, it became clear to Drolshagen that LSI was
not meeting its performance goals under Bregin’s leader-
ship. He called it a “monumental failure.” But because
Bregin continued to blame the problem on SIRVA’s
treatment of its accounts receivable, Drolshagen asked
McKenna to independently evaluate Bregin’s complaints.
If McKenna found that the complaints were well-
founded, Drolshagen intended to demand relief from
the penalty provisions in the contract. But, instead, what
McKenna concluded was that LSI’s performance was so
poor that the company would be subject to a penalty
even if SIRVA made the changes Bregin requested.
In November 2003, Drolshagen removed Bregin from
the SIRVA account but kept him on the payroll at $110,000
per year. Drolshagen told Bregin that if “he could bring
in some customers for us, that would be a way of him
maintaining his position.” Bregin failed to draw in
new clients, and in December his employment was termi-
nated. LSI did not meet the benchmark in 2003 and
was assessed the $150,000 penalty.
Bregin filed this lawsuit under Indiana law, contending,
in part, that LSI terminated his employment in retalia-
tion for his reporting SIRVA’s illegal financial practices,
for refusing to engage in those practices, or for being a
whistle-blower. Given the undisputed facts, the claim
must fail.
No. 08-1390 5
Recently, the Indiana Supreme Court reaffirmed the
Indiana employment-at-will doctrine which “permits
both the employer and the employee to terminate the
employment at any time for a ‘good reason, bad reason,
or no reason at all.’” Meyers v. Meyers, 861 N.E.2d 704, 706
(Ind. 2007), quoting Montgomery v. Bd. of Trustees of
Purdue Univ., 849 N.E.2d 1120, 1128 (Ind. 2006). The
court stated that on “rare occasions, narrow exceptions
have been recognized.” Meyers, at 706. On one “rare”
occasion a “narrow” exception was found in McClanahan v.
Remington Freight Lines, Inc., 517 N.E.2d 390 (Ind. 1988).
McClanahan was a truck driver who was permitted to
pursue a cause of action against an employer who
fired him for refusing to haul a load that exceeded
the weight limits on Illinois highways. He could have
been personally liable for a violation. A narrow exception
to at-will employment was recognized in that case to
avoid encouraging criminal conduct. A second exception
is set out in Frampton v. Central Indiana Gas Co., 297 N.E.2d
425 (Ind. 1973). The court found a cause of action for
retaliatory discharge based on explicit language in a
statute—the Indiana Worker’s Compensation Act. The
court said that “under ordinary circumstances, an em-
ployee at will may be discharged without cause. However,
when an employee is discharged solely for exercising
a statutorily conferred right an exception to the general
rule must be recognized.” At 428. The narrowness of
this exception was made clear, however, in Wior v. Anchor
Industries, Inc., 669 N.E.2d 172 (Ind. 1996), when the
court refused to allow a claim brought by a manager
who was terminated for refusing to follow a supervisor’s
6 No. 08-1390
order to fire an employee who filed a worker’s compensa-
tion claim.
Bregin acknowledges that he has no statutory basis for
his claim; he relies on the exception in McClanahan—that
he was fired for refusing to commit an illegal act for
which he could be personally responsible. He seems to
contend that SIRVA’s accounting practices were illegal
and that he could not lawfully stay silent about them. In
an affidavit, he refers to “financial mismanagement,”
“overstating income,” and “failure to pay customer
refunds and overpayments.” But he does not offer specif-
ics. And he does not identify any illegal act which he is
being asked to commit—or for that matter to condone.
What he says is that
[t]here are numerous laws governing tax returns,
securities, banking, conspiracy, and abandoned prop-
erty that SIRVA may have violated. Appellant directly
or indirectly, would have been facilitating these acts
in his role at LSI and, thus, personally liable.
His major complaint involves the way the benchmark
data was calculated. But the benchmark data is specific
to the contract, and Bregin does not explain how these
calculations have significance to, say, tax or securities
laws. Furthermore, he admitted in his deposition that
he was never in a position where he was required to
authenticate or verify any of SIRVA’s financial statements.
Given Indiana’s reluctance to allow for even rare and
narrow exceptions, we would be far out of line to find
that some speculative accounting violation on SIRVA’s
part, for which Bregin had no responsibility, could qualify
as an exception to Indiana’s employment-at-will doctrine.
No. 08-1390 7
Undeterred, Bregin also urges us to find a new excep-
tion. He says that he is a “whistle blower” and that “as a
‘whistle blower’ under 18 U.S.C. § 1514A [the Sarbanes-
Oxley Act], he was afforded certain protections against
wrongful discharged [sic] under state law.” In a footnote
he explains that he did not file a claim under Sarbanes-
Oxley and is not claiming that he is protected under the
administrative scheme set out in the Act. What he claims
is that he “nevertheless is protected under the Whistle
Blower Act as a person that cannot be retaliated against
under state law.” On the other hand, he also says, quite
correctly, that in Indiana whistle-blowers “are not included
in the public policy exception to at-will terminations . . . .”
His argument is that they “should be.” This case, he says,
should establish such protection.
We cannot agree. As we just discussed, Bregin does
not pinpoint any law that has been violated. He says
because SIRVA was in the process of issuing an initial
public offering (IPO), the company did not want any
irregularities to come to light. But, again, the irregularities
he is talking about are vague. We cannot conclude that,
contrary to what the Indiana courts have repeatedly
said, they would now decide—especially based on the
facts before us—that whistle-blowing is an exception to
the employment-at-will doctrine. That they would not is
clear from Campbell v. Eli Lilly & Co., 413 N.E.2d 1054 (Ind.
App. 1980). In that case the court rejected a claim by
an employee who was terminated after complaining to
his superiors about a drug manufacturer’s failure to
acknowledge that its products caused adverse reactions. A
lengthy dissent vigorously sets forth the case for
8 No. 08-1390
allowing an exception to the employment-at-will
doctrine for whistle-blowers. But that view did not
carry the day. At this time, whistle-blowing simply does
not form the basis for an exception to Indiana’s employ-
ment-at-will doctrine.
Bregin also claims that SIRVA tortiously interfered
with his employment at LSI. He says SIRVA and LSI
conspired to terminate him because of his constant re-
porting that the SIRVA accounting practices were ille-
gal. We will begin our discussion with the few things that
are clear about this claim: one is the elements of the claim
under Indiana law. They are
(1) the existence of a valid relationship; (2) the defen-
dant’s knowledge of the existence of the relationship;
(3) the defendant’s intentional interference with
that relationship; (4) the absence of justification; and
(5) damages resulting from defendant’s wrongful
interference with the relationship.
Bradley v. Hall, 720 N.E.2d 747, 750 (Ind. App. 1999). Also,
under Indiana law a party to a contract can conspire
with another to tortiously interfere with the contractual
relationship. Winkler v. V.G. Reed & Sons, Inc., 638
N.E.2d 1228, 1234 (Ind. 1994). It is clear that Bregin meets
the first two elements of a tortious interference claim. He
had an employment relationship with LSI, and SIRVA
knew it. Beyond that, it is difficult to articulate exactly
what Bregin is claiming and even more difficult to deter-
mine exactly what evidence he is relying on to support
his claim.
He seems to say that after he was removed from the
SIRVA account, SIRVA pressured LSI to terminate his
No. 08-1390 9
employment to “silence” him. SIRVA allegedly wanted
him silenced so that he would not somehow jinx SIRVA’s
IPO. But, as we have said, it is entirely unclear exactly
what Bregin knew that would have an effect on the
IPO. Furthermore, it is hard to see how terminating
his employment would silence him. It could have quite
the opposite effect. Neither can it be said that terminating
his employment would cut him off from information
about what was going on at SIRVA. He was, after all,
already off the SIRVA account.
Bregin also sees shenanigans somehow involved in the
$150,000 penalty and the way it was paid—or not paid.
Here is Bregin’s argument on this point—word-for-word,
bracket-by-bracket:
Under the Contract, Appellant has presented
evidence in support of his argument that SIRVA
conspired with LSI “under the guise of enforcing the
penalty clause of the contract and through manipula-
tion of the numbers and scheme by SIRVA alleging
poor performance while actually rewarding LSI
with additional cash every month in fees”. [R. 92]
S. App. 2.
Bregin contends that Drolshagen terminated four
other employees as a cost saving measure to offset
the penalty. The terminations saved in excess of
$350,000 and thus were not necessary to pay the
penalty, and were simply a “perpetuat[ion] of the
conspiracy.” [R.92] S. App. 2. The increase contract
fees were received five (5) days later, after Bregin’s
removal shows SIRVA’s influence over LSI to termi-
nate Bregin’s employment.
10 No. 08-1390
We must admit that we are not sure what Bregin means.
Does Bregin claim that LSI fired four employees in
addition to him to facilitate the conspiracy? If so, what
is the proof? We have nothing but Bregin’s conjecture.
Not for the first time, we decline to construct a party’s
argument. See Spath v. Hayes Wheels Int’l-Indiana, Inc.,
211 F.3d 392 (7th Cir. 2000).
The one salient fact in the record relevant to the claim
of tortious interference is that Drolshagen (who, we
repeat, is LSI’s president) testified that no one at SIRVA
requested that Bregin be removed from its account,
much less that he be fired. Drolshagen said that he,
and only he, made the decision to terminate Bregin’s
employment.
Finally, even though Bregin has shown that SIRVA
complained about him to LSI, he cannot show that the
complaint was unjustified. Indiana courts look to a
number of factors to determine whether a defendant’s
conduct is justified, one of which is the defendant’s
motive. Winkler, 638 N.E.2d at 1235. Here, the evidence
shows that LSI was not meeting the established goals
under the contract. SIRVA had concerns about LSI’s
attentiveness, lack of leadership, poor work product, and
unprofessional conduct. For instance, SIRVA’s Anne
Loesch, who was manager of the SIRVA/LSI relationship,
had trouble getting information and responses from
Bregin. Bregin himself understood that Loesch’s percep-
tion was that LSI managers did not have a sense of
urgency about the account. A complaint to LSI under
those circumstances would be justified. For all these
reasons, the claim of tortious interference cannot stand.
No. 08-1390 11
Accordingly, the decision of the district court is
A FFIRMED .
11-19-08