United States District Court, W.D. Washington, Seattle
POWELL PC, Christopher B. Wells, Attorneys for Plaintiff
Gordon Scott Stroh
Jeffrey B. Coopersmith, Brendan T. Mangan, Attorneys for
Defendants DAVIS WRIGHT TREMAINE, LLP
S. ZILLY UNITED STATES DISTRICT JUDGE.
is federal jurisdiction in this case because Plaintiff is
pursuing two federal statutory claims that have survived
motions to dismiss: Plaintiffs Sarbanes-Oxley claim under 18
U.S.C. § 1514A and his Dodd-Frank claim under 15 U.S.C.
Court has subject matter jurisdiction pursuant to 18 U.S.C.
§ l5l4A(b)(1)(B), 15 U.S.C. § 7202(b)(1), 15 U.S.C.
§ 78u-6(h)(1)(B)(i), 15 U.S.C. § 78aa, and 28
U.S.C. § 1331.
is proper under 28 U.S.C. § 1391(c) (1) and (2) because
the individual defendants are domiciled in Bellingham,
Washington and the corporate defendant maintains its
principal place of business in Bellingham.
characterizes the claims that he will pursue at trial as
1. Plaintiff will pursue Sarbanes-Oxley and Dodd-Frank claims
against all three defendants. Plaintiff will seek damages
based on lost compensation - back pay and double back pay
between his termination and the trial plus front or future
pay over the years his whistleblower status will impede his
opportunity to gain equivalent employment.
2. Both of Plaintiff s claims are predicated on the same
facts. Defendant Kaiser imposed a poor "culture of
compliance" or "tone at the top, " as the SEC
describes management's attitude toward adhering to
securities regulations. There are salient examples. Kaiser
mocked prosposals by a compliance and risk management
consultant. When Kaiser perceived a conflict between
securities regulations, he threatened not to comply with
either. Kaiser responded angrily to advice from Stroh about
employee disciplinary disclosure requirements and compliance
with new SEC "pay to play" requirements, leading to
his telling Stroh's compliance team to set aside
compliance functions and pursue "loopholes" and
"arbitrage schemes" instead.
3. Kaiser created the impression of doing due diligence to
comply with AML and SAR duties and avoid facilitating
terrorist financing but in reality prioritized business
development. For example, Kaiser convened a meeting of
Saturna's IT staff and directed them to create a computer
network on his yacht, in case the FBI confiscated the office
computers, in which event the IT staff were not to tell FBI
agents about the yacht network. Kaiser threatened to fire the
entire IT staff when he learned of their reaction to his
directive to lie to the FBI. Kaiser acknowledged that
"red flags" appeared in the investigation of a
prospective customer's ties to terrorist financing and a
U.S. Senate report warned of terrorist financing concerns
about a prospective business partner, but Kaiser brushed them
aside. Kaiser rejected without even skimming a compliance
manual prepared for STC by its president, a veteran trust
officer, and then repeatedly ordered the trust officer, Stroh
and later a lawyer assisting Stroh to violate attorney rules
of professional conduct and state laws regarding authorized
practice of law by drafting instruments for customers.
4. Under the leadership of Kaiser and Carten, Saturna engaged
in a litany of securities regulatory violations from
2011-2014. These included for years failing to file Outside
Business Activity reports on companies that Saturna's
star business developer, Monem Salam, had failed to disclose
and even attempted to conceal. Carten, despite holding a
securities industry supervisor's license, as did Monem
Salam, had also failed to file outside business activity
reports. Kaiser kept excess cash in a mutual fund in
violation of SEC Rule 35d-1 (the "names rule") for
years in spite of Stroh's repeatedly urging him to
rectify it. Kaiser ignored Stroh's advice on investment
advisor "best execution" requirements and
investment of customer account funds in a manner inconsistent
with objectives. When Stroh reported insider trading by an
officer of Saturna and consulted outside counsel, Kaiser
berated Stroh and directed him to terminate the engagement
immediately. Kaiser again harassed Stroh for consulting
outside counsel for an affiliated mutual fund regarding
prospectus disclosure of minimum purchase waivers.
5. When he determined that Saturna was violating securities
regulations, Stroh advised Kaiser and Carten to take
corrective action. Defendants often followed Stroh's
advice, but in the process Kaiser usually attacked
Stroh's competency, belittled him, threatened Stroh with
loss of his job on occasion and continued to harass Stroh.
Kaiser was particularly infuriated by Stroh's directives
to Monem Salam, Saturaa's "MVP, " regarding
repeated compliance problems. Kaiser's retaliation
against Stroh culiminated shortly after a particularly severe
scolding of Monem Salam by Stroh and on the same day Salam
was obtaining permission for yet another outside business
activity, July 16, 2014.
6. On July 15, 2014, Stroh met with Carten, told her how
deeply wounded he was by Saturna's refusal to raise his
pay for the coming year and that he had other employment
options, although he did not. Carten told Stroh to go home
and cool off for two days. Stroh had repeatedly expressed
concern that he and his team - compliance assistant Jacob
Lewis and Saturna Capital Chief Compliance Officer Michael
Lewis - were substantially underpaid because of Kaiser's
animosity toward compliance. Stewart had interviewed with
Frank Russell and Lewis with the SEC, so Stroh was still
pushing for an increase in their compensation as well. After
he left the office on July 15, Stroh sought a concerted
effort by the three, learned that Lewis had been given a pay
raise, and asked Lewis to advocate for Stroh. Lewis did, and
Carten softened her stance. She and Stroh then began
negotiating a raise for Stroh.
7. As the Carten-Stroh negotiation moved toward a midpoint of
their respective positions on July 16, but without
concluding, Carten invited Stroh to ''discuss
further" in the morning his onging employment at a
higher salary or his working on a temporary basis until a
replacement could be obtained. Carten did not tell Stroh that
two days earlier she had signed an agreement with a recruiter
to replace Stroh or that her last offer to Stroh was for an
amount that his replacement would earn. Carten then phoned
Kaiser for advice. Kaiser seized the opportunity to
intercede, and decided that Carten should bring in "an
idependent counsel to help [her] fire her chief legal officer
in the morning." Carten followed Kaiser's
instructions and had an outside counsel meet Stroh the next
moring before he could conclude the negotiation. The outside
counsel greeted Stroh with notice that Stroh was no longer
employed there because Saturna had accepted his resignation -
although Stroh had never tendered it. Stroh begged for his
job but was repeatedly rejected by Carten and the outside
8. Plaintiff objects to application of the "after
acquired evidence" defense on any basis for the reasons
set forth in his Motion in Limine. Plaintiff asserts that he
has standing to bring SOX and Dodd-Frank claims despite his
role of providing legal and compliance advice. Defendants
mischaracterize protected activity by presuming that it is
limited to advice relating to "securities fraud"
alone; but protected activity clearly includes advice
regarding violations of other federal securities statutes as
well as regulations promulgated by the SEC and its
self-regulatory organizations such as FINRA. Controlling
Ninth Circuit authority and rulings in this case on
Defendants' initial motion to dismiss have established
Plaintiffs standing and application of his claims to SEC
regulations beyond fraudulent securities transactions alone.
dispute the legal and factual characterizations in Paragraphs
1 -8 above.
Defendants will pursue the following affirmative defenses at
trial: Failure to State a Claim: SOX,
Dodd-Frank, and Wrongful Termination
Stroh's First Cause of Action for violation of the
Sarbanes-Oxley Act's whistleblower retaliation provisions
("SOX claim") and Second Cause of Action for
violation of the Dodd-Frank Act's whistleblower
retaliation provisions ("Dodd-Frank claim") both
require that Mr. Stroh establish that he suffered some form
of adverse employment action, and that the adverse employment
action was tied in some manner to a protected activity. These
claims fail for lack of proof in the following ways:
a. Mr. Stroh Quit and Refused Saturna's Offer to
evidence will show that Mr. Stroh quit his job and then
refused Saturna's offer to return to work. These facts
defeat all three of the claims set forth above.
b. Mr. Stroh Did Not Suffer Any Adverse
Employment Actions Prior to His Departure from
Saturna.Plaintiff has advised that he claims only
his alleged termination as an adverse employment action for
which any damages are sought. However, to the extent the
claims set forth above turn on an alleged adverse employment
action purportedly suffered by Mr. Stroh prior to his
separation from Saturna, the evidence will show that he did
not in fact suffer any actionable adverse employment action.
Mr. Stroh's Separation Was Because of Money, Not
The evidence will show that the reason for Mr.
Stroh's separation from Saturna - regardless of whether
he quit or was terminated - was his desire for additional
pay. There was no causal link between any protected activity
and the end of Mr. Stroh's employment at Saturna.
Many of Mr. Stroh's Actions Do Not Qualify as Protected
Activities Under SOX.
Many of Mr. Stroh's allegations regarding
Saturna's legal and compliance actions do not relate to
alleged violations of the rules and regulations of the SEC in
order to support Mr. Stroh's SOX claim, or to his making
disclosures that are required or protected under SOX or rules
and regulations under the jurisdiction of the SEC, in order
to support Mr. Stroh's Dodd- Frank claim.
Mr. Stroh's Reports of Compliance Issues are not
Protected Activity Because they do not Step Outside of his
Role as Chief Legal Officer.
Because all of Mr. Stroh's actions in raising
compliance issues took place as part and parcel of his job as
Chief Legal Officer of Saturna Capital Corporation (or his
parallel duties with Saturna's affiliate or subsidiary
companies) they do not constitute protected activities.
Saturna Would Have Made the Same Decision Absent Mr.
Stroh's Protected Activities.
accepted Mr. Stroh's resignation. The evidence will show
that it would have made the same decision to allow him to
resign even in the absence of any protected activity. This
defense defeats Mr. Stroh's claims. As noted above,
Plaintiff claims only his alleged termination as an adverse
employment action for which any damages are sought.
Mr. Stroh's Claims for Damages Are Foreclosed or
After-Acquired Evidence Cuts Off Any Damage Claim.
Mr. Stroh left Saturna, the company's investigation into
his work history (including a review of the hard drive of his
work computer) revealed evidence of gross insubordination,
drug and alcohol use impacting his work performance,
pornographic materials, and other materials evidencing an
egregious lack of respect for and loyalty to his employer.
Saturna also discovered that Mr. Stroh had been convicted of
a felony forgery charge, which he had never disclosed to the
company or to Saturna's regulators. These facts, alone or
in combination, are sufficient to defeat Mr. Stroh's
claim for damages.
Mr. Stroh Failed to Mitigate or Minimize His
Stroh remains unemployed today, nearly three years after his
resignation from Saturna. The evidence will show that Mr.
Stroh rejected Saturna's offer for him to return at a
higher base salary and failed to take reasonable efforts to