Feldman v. Law Enforcement Assocs. Corp.

955 F.Supp.2d 528

Paul H. FELDMAN and Martin L. Perry, Plaintiffs,

v.LAW ENFORCEMENT ASSOCIATES CORPORATION, et al., Defendants.

No. 5:10–CV–08–BR.

United States District Court,

E.D. North Carolina,

Western Division.

June 28, 2013.

R. Scott Oswald, John T. Harrington, The Employment Law Group, Washington, DC, Michael C. Byrne, Law Offices of Michael C. Byrne, Raleigh, NC, for Plaintiffs.

Amy Jenkins, McAngus Goudelock & Courie, LLC, Mt. Pleasant, SC, Tracey R. Downs, McAngus Goudelock & Courie, PLLC, Charlotte, NC, for Defendants.

ORDER

W. EARL BRITT, Senior District Judge.

This matter is before the court on the 23 January 2013 motion for summary judgment filed by defendants Law Enforcement Associates Corporation (“LEA”), Anthony Rand (“Rand”), James J. Lindsay (“Lindsay”), Joseph A. Jordan (“Jordan”) and Paul Briggs (“Briggs”).¹ (DE # 92.) Also before the court is the 11 February 2013 motion filed by plaintiffs Paul H. Feldman (“Feldman”) and Martin L. Perry (“Perry”) ² to continue the trial and plaintiffs' 13 February 2013 motion for leave to file a separate statement of material facts in conjunction with their opposition to defendants' motion for summary judgment. (DE 95, 97.) The motions are ripe for disposition.

I. FACTUAL AND PROCEDURAL HISTORY

This case was previously before the court on defendants' motion to dismiss. (DE # 37.) On 10 March 2011, the motion was granted in part and denied in part. (DE # 57.) See Feldman v. Law Enforcement Assocs. Corp., 779 F.Supp.2d 472 (E.D.N.C.2011). Although the 10 March 2011 order set forth the relevant factual allegations that were before the court at the time of the decision, subsequent discovery has revealed facts that differ in varying degrees from those alleged in the amended complaint. The court also notes that the parties sharply dispute a large number of facts at the summary judgment stage of the proceedings. Instead of cataloging and discussing each of these disputes,the court will focus on the facts that are germane to the resolution of the issues presented. Because the court's findings make many of the contested areas of fact irrelevant, numerous facts submitted by the parties are omitted. Additional relevant facts will be set forth as appropriate in the discussion section of this opinion.

LEA is a manufacturer of security and surveillance equipment used by local, state, federal, and international law enforcement agencies and by public and private companies. (Am. Compl., DE # 34, ¶¶ 4, 22; M. Perry Dep., DE # 99–2, at 14:7–20; J. Lindsay Dep., DE # 99–7, at 15:10–14; J. Jordan Dep., DE # 99–17, at 31:17–32:2.) The company was founded by John Carrington (“Carrington”), who also owned Sirchie Fingerprint Laboratories, Inc. (“Sirchie”). (P. Feldman Dep., DE # 99–4, at 13:12–18; 17:4–7.) Carrington appointed Feldman to become President of LEA at some time prior to 2001, and Feldman remained the company's President and CEO through 27 August 2009. ( Id. at 23:16–28:7.)

Perry was initially a sales contractor who conducted business with LEA. (M. Perry Dep., DE # 99–2, at 15:1–17:7; P. Feldman Dep., DE # 99–4, at 28:8–19.) In 2006, Feldman hired Perry to be LEA's Vice President of Sales and Marketing. (M. Perry Dep., DE # 99–2, at 21:5–24.) Perry was the second highest ranking employee at LEA and reported directly to Feldman. ( Id. at 22:10–13; 27:18–21; P. Feldman Dep., DE # 99–4, at 42:14–16.)

In 2005, Carrington pled guilty to export violations involving Sirchie. (M. White Dep., DE # 92–8, Ex. 19.) As a result, he was subjected to an Export Denial Order, which precluded him from engaging in certain export activities for five years. ( Id.) In relation to these legal issues, Carrington resigned from LEA's Board of Directors (“Board”) in April 2005, and he has not been a Board member, officer, or employee of LEA since that time. (P. Feldman Dep., DE # 99–4, at 39:25–40:25; J. Lindsay Dep., DE # 99–7, at 14:5–10.) Carrington did continue to hold a significant amount of LEA stock. (P. Feldman Dep., DE # 99–4, at 26:7–13.)

During the time period relevant to this lawsuit, LEA's Board consisted of five members: Feldman, Perry, Rand, Lindsay, and Jordan. (A. Rand Aff., DE # 92–15, ¶ 2; J. Jordan Aff., DE # 92–16, ¶ 2; J. Lindsay Aff., DE # 92–17, ¶ 2; A. Rand Suppl. Aff., DE # 92–19, ¶ 2; M. Perry Dep., DE # 99–2, at 29:6–30:21 & Ex. 38, DE # 92–3, at 222; ³ P. Feldman Dep., DE # 99–4, at 39:5–6; 44:10–25; M. Finkelstein Dep., DE # 99–9, at 17:4–7.) Feldman and Perry will be referred to as the “Inside Directors” because they were both directors and employees of LEA. Rand, Lindsay, and Jordan will be referred to as the “Outside Directors” because they were never employees of the company.

An “extraordinarily palpable” split existed between the Inside Directors and the Outside Directors since at least 1 November 2007. (M. Finkelstein Dep., DE # 99–9, at 20:18; see also id. at 22:2–7; 42:7–11; 69:14–19; P. Briggs Aff., DE # 92–7, ¶ 5; Pls.' Statement Material Facts, DE # 99–1, at 2 ¶ B; P. Briggs Dep., DE # 99–5, at 262:16–263:2; E. Littman Dep., DE # 99–15, at 39:20–40:12; Pls.' Mem. Opp'n Mot. Summ. J., Ex. 19, DE # 99–20.) The exact reason for the split is hotly disputed, but it is apparent from the record that it was related to the announcement of Carrington's sale of LEA stock to Raymond James. The Outside Directors contend that this event damaged the relationship between them and the Inside Directors because Feldman was angry about the sale. Carrington had previously told Feldman that he did not intend to sell LEA and that he would give Feldman a chance to purchase his stock if he ever did try to sell the company. (P. Briggs Aff., DE # 92–7, ¶ 3; P. Briggs Aff., DE # 92–13, ¶¶ 14–15; S. Carrington Aff., DE # 92–14, ¶ 3; P. Feldman Dep., DE # 99–4, at 180:6–181:25; M. White Dep., DE # 99–6, at 43:20–44:21; E. Littman Dep., DE # 99–15, at 156:21–157:15.) In contrast, plaintiffs maintain that the proposed sale soured relations not because Feldman was angry about the sale, but because the Outside Directors, who had personal relationships with Carrington, became consumed with protecting Carrington and with ensuring that the sale of the company would go through. (Pls.' Statement Material Facts, DE # 99–1, at 22–25 § III.A.; P. Briggs Dep., DE # 99–5, at 265:14–266:1; E. Littman Dep., DE # 99–15, at 38:7–39:12; 53:4–54:18; 71:19–74:4.)

In or around December 2007, plaintiffs confirmed that Carrington owned fifty percent of a company called SAFE Source. (M. Perry Dep., DE # 99–2, at 243:9–12; 245:14–247:11; P. Feldman Dep., DE # 99–4, at 178:8–180:5; P. Briggs Dep., DE # 99–5, at 184:16–185:1.) In 2005 or 2006, LEA had shipped some of its products to SAFE Source, and SAFE Source then exported the products to Chile. (M. Perry Dep., DE # 99–2, at 247:8–11; P. Feldman Dep., DE # 99–4, at 176:13–16; P. Briggs Dep., DE # 99–5, at 169:10–170:12; 174:10–18.) Because Carrington had been banned from making exports for five years and because he had an ownership interest in SAFE Source, plaintiffs maintain that it was illegal for SAFE Source to engage in the export business. (Pls.' Mem. Opp'n Mot. Summ. J., Ex. 44, DE # 99–45.)

A meeting of LEA's Board was conducted on 27 December 2007. There is a sharp dispute about what was said and by whom at the meeting, and competing versions of the meeting minutes were subsequently circulated. (Defs.' Mem. Supp. Mot. Summ. J., DE # 92–1, at 4–5; M. Perry Dep., DE # 99–2, at 249:16–250:6 & Ex. 38, DE # 92–3, at 221, 227–28; P. Feldman Dep., DE # 99–4, at 188:13–24.) At this meeting, plaintiffs contend that Feldman notified the Board that there were possible export violations relating to Carrington and SAFE Source and that these violations needed to be reported to the proper governmental agencies. (M. Perry Dep., DE # 99–2, at 324:3–325:20; P. Feldman Dep., DE # 99–4, at 188:13–191:12.) Plaintiffs believed that LEA's involvement with SAFE Source caused LEA to engage in illegal exports and that this involvement with SAFE Source also constituted violations of the Securities and Exchange Commission's rules governing internal accounting controls. (M. Perry Dep., DE # 99–2, at 324:3–325:1.) On 14 January 2008, plaintiffs sent a letter to Phil Kuhn, an agent with the Bureau of Industry and Security, which is a division of the Department of Commerce, regarding Carrington's ownership of SAFE Source and the illegal export business that SAFE Source conducted with LEA. (M. Perry Dep., DE # 99–2, at 222:3–6; 228:9–21; 264:13–265:1; P. Feldman Dep., DE # 99–4, at 166:7–167:2; Pls.' Mem. Opp'n Mot. Summ. J., Ex. 44, DE # 99–45.)

In February or March 2008, Feldman relocated LEA's headquarters from Youngsville, North Carolina to Raleigh, North Carolina. (A. Rand Aff., DE # 92–15, ¶ 10; P. Feldman Dep., DE # 99–4, at 198:23–202:10 & Ex. 63, DE # 92–4, at 113; P. Briggs Dep., DE # 99–5, at 124:20–22.) The Outside Directors were concerned about possibly being obligated under the old and new leases, and they viewed Feldman's actions as insubordination because he had been instructed not to go forward with the new lease until the Outside Directors could review the matter. (M. Perry Dep., Ex. 38, DE # 92–3, at 225–26; P. Feldman Dep., Ex. 63, DE # 92–4, at 113; A. Rand Aff., DE # 92–15, ¶ 10; J. Jordan Aff., DE # 92–16, ¶ 4; J. Lindsay Aff., DE # 92–17, ¶ 7; A. Rand Dep., DE # 99–3, at 203:9–204:6, 262:22–263:6; 264:7–11; P. Briggs Dep., DE # 99–5, at 141:2–142:11; J. Lindsay Dep., DE # 99–7, at 57:10–60:2; M. Finkelstein Dep., DE # 99–9, at 36:22–37:2; 141:12–20; 148:3–11; E. Littman Dep., DE # 99–15, at 70:19–71:14.) Feldman claims that he moved LEA to a new location because it benefitted the company in numerous ways. (Pls.' Statement Material Facts, DE # 99–1, at 35–39 § III.G.; P. Briggs Dep., DE # 99–5, at 123:10–124:19; 127:3–140:19.)

In 2009, Feldman and other LEA representatives met with LEA shareholders Joseph and Barbara Wortley (the “Wortleys...