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Stein Mart's Termination of Whistleblower Did Not Violate Sarbanes-Oxley

Monday, September 12, 2011

Christina DeIasi | Bloomberg Law Johnson v. Stein Mart, Inc., No. 10-13434, 2011 BL 230554 (11th Cir. Sept. 9, 2011) Debra Taylor Johnson could not convince the U.S. Court of Appeals for the Eleventh Circuit that her whistleblower retaliation claims should be reinstated against her former employer, Stein Mart, Inc. (Stein Mart). In an unpublished opinion, the Eleventh Circuit affirmed the district court's dismissal on summary judgment of Johnson's claims under the Sarbanes-Oxley Act (Sarbanes-Oxley) and the Florida Whistleblower Act (FWA).

Johnson Reports Accounting Issues

Johnson started working at Stein Mart in 2001 as a buyer for the boys' clothing department. She was promoted in 2002 to be a buyer for the women's moderate petite department. After this promotion, Johnson allegedly started to make internal complaints about certain Stein Mart business practices that she believed were inappropriate. These included, Johnson alleged, Stein Mart (1) collecting markdown allowances from vendors, (2) changing season codes on older inventory, and (3) improperly accounting for inventory. In October 2003, Stein Mart transferred Johnson to the position of inventory planner for the fragrance, watch, and bath and body departments. Johnson viewed this as a demotion, although she retained the same pay, benefits, bonus calculations, and opportunities for advancement.

Johnson's Performance Problems

A year later, Johnson failed to follow Stein Mart's fragrance forecast plan for 2004. "Instead, she made a decision that new fragrances were selling better than some of the old ones and funded the ones she thought would be more profitable." As a result, several store managers reported low inventories in the fragrances that Johnson was supposed to purchase, and Johnson received a written performance counseling on December 1, 2004. A negative performance evaluation followed on February 11, 2005, and when Johnson's performance did not improve, Stein Mart terminated her on May 19, 2005.

Stein Mart Proved Defense

Johnson filed a complaint claiming that Stein Mart violated Sarbanes-Oxley and the FWA by discharging her in retaliation for reporting fraudulent business practices. However, the Eleventh Circuit, like the district court below, found no evidence in the record to support Johnson's claim. To the contrary, the Eleventh Circuit found that Stein Mart "affirmatively demonstrated, by clear and convincing evidence, that it would have terminated Ms. Johnson's employment in the absence of her protected conduct." Specifically, Stein Mart offered proof that it terminated Johnson because of how she mishandled the company's fragrance purchases during the fall of 2004 and her subsequent failure to improve her performance.
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