Family drama. Hostile corporate takeovers. (Alleged) tax fraud. The 6th Circuit’s recent opinion in Gammons v. Adroit Medical Systems reads more like a screenplay from HBO’s award-winning series Succession than a court decision.1 But it’s an employment case arising out of East Tennessee — a retaliation case to be exact — that provides some helpful (and entertaining) guidance on the proper framework for certain retaliation claims. Also, the decision explains the importance of temporal proximity (the time between the protected activity and the adverse action) in these types of cases.

The Gammons Family Saga

Gene Gammons, the family patriarch, started Adroit Medical Systems in the early 1990s. Scott went to work for his father’s company and was given a 20% stake. Gene was the president and retained the remaining 80% interest.

Fast forward to 2019. Gene’s health declined, and so did his ability to manage Adroit’s affairs. As a result, Gene’s wife, Grazyna (Scott’s stepmother), and stepdaughter, Kelley (Scott’s stepsister), began to take over more of the company’s day-to-day operations. Gene had executed general power-of-attorney documents that tapped Grazyna to manage his affairs in the event of his incapacity.

Scott was suspicious that his stepmother and stepsister were misusing company funds for their own personal benefit, and that they weren’t reporting those funds as taxable income. Thus, in January 2020, Scott turned over documents to the IRS that he believed incriminated his Grazyna and Kelley.

March 2020 was about to get interesting for the Gammons family, and it had nothing to do with the global pandemic on the horizon. On March 4, 2020, Adroit sent out a notice to shareholders that the following week the board would vote on Grazyna replacing Gene as the company president. Scott sprang into action. That same day, he filed an emergency petition in Loudon County probate court seeking to be designated as Gene’s conservator. Scott cited Grazyna and Kelley’s alleged misdeeds and his petition was granted, but only on a temporary basis. This temporary conservatorship gave Scott enough time to take over his family’s company.

With the conservatorship in place, Scott now had full control of the company and he wasted no time asserting his newfound power at Adroit. He removed Grazyna from the board and added allies, like his brother Jeff. He suspended Grazyna and Kelley’s employment, changed the locks, and told all the employees he was now in charge. On March 7, he told Grazyna, Kelley and Gene that they were under IRS investigation. Any doubts the three had about Scott’s investigation claim quickly vanished the following Monday when IRS agents descended on Adroit’s offices and took a hard drive to complete a financial audit.

Scott’s power was short-lived. The probate court dissolved Scott’s conservatorship over his father less than a week after it was issued. The probate court found that Gene was not disabled and that even if he had been, Gene had designated Grazyna to act on his behalf if he was incapacitated.

Scott’s control over the company dissolved with the conservatorship. Once his father regained his controlling interest, he appointed a new board of directors. The day after the conservatorship was dissolved, the new board voted to terminate both Scott and his brother Jeff’s employment.

The District Court Litigation

Scott filed suit against Adroit asserting retaliation claims under the federal Taxpayer First Act (TFA) and the Tennessee Public Protection Act (TPPA).2 Adroit moved for summary judgment.

The Taxpayer First Act makes it unlawful for an employer to discharge an employee for providing information related to tax fraud to the IRS. To make out a prima facie case under the TFA, plaintiffs like Scott must show that providing that information was a “contributing factor” to the adverse employment action. At the district court level, the parties and the court agreed that the three-step McDonnell Douglas burden-shifting framework should apply, with a modification for the causation standard. Scott relied on the close temporal proximity — four days — between when Adroit learned of his protected activity and his termination in an attempt to overcome summary judgment. But the district court held that Scott could not meet the “contributing factor” standard because temporal proximity alone is insufficient to establish a prima facie case.

The TPPA makes it unlawful for an employer to discharge an employee solely for refusing to participate in, or remain silent about, illegal activities. The district court determined that Scott’s TPPA claim failed for the same reason as his TFA claim: he relied on nothing more than temporal proximity. The district court dismissed all claims against Adroit.

The Appeal

Scott appealed the district court’s order granting summary judgment. The 6th Circuit affirmed, but on different grounds.

On the TFA claim, the 6th Circuit pointed out that courts are “statutorily required” to apply a two-step burden-shifting framework rather than the familiar three-step McDonnell Douglas analysis that the parties and the court agreed would apply at the summary judgment stage. Under the two-step framework, once an employee establishes a prima facie case, the employer can defeat the TFA claim by identifying “clear and convincing evidence” that it would have fired the employee even if he had not engaged in protected activity.

The 6th Circuit then clarified that temporal proximity — especially when an employer terminates an employee upon its first opportunity after learning of protected activity — can be enough to establish a prima facie case of retaliation. This is the exception rather than the rule. Nevertheless, in this case, the 6th Circuit determined that because Adroit terminated Scott on the same day he lost control of the company, this was sufficient to establish a prima facie case. The 6th Circuit went even further, though, holding that there was additional evidence — in addition to temporal proximity — like Grazyna’s recognition that the investigation was “very serious” and the IRS searching the business that could have motivated the decision to terminate Scott’s employment.

But ultimately, Scott’s TFA claim fared no better on appeal than it did before the district court. The 6th Circuit had no trouble in determining that Adroit presented “clear and convincing” evidence that Scott would have been terminated even if he hadn’t gone to the IRS. The court  agreed with Adroit’s position that Scott’s bogus conservatorship of his father and his hostile takeover, albeit short-lived, were the reasons for his termination, not his involvement with the IRS investigation. The 6th Circuit pointed out that Adroit’s decision to terminate Scott’s brother Jeff, who did not report any wrongdoing to the IRS, was good evidence that he would have been terminated even absent whistleblowing to the IRS.

The dismissal of Scott’s TPPA claim was also affirmed on appeal, but the 6th Circuit took a somewhat different view of the evidence than the district court. The 6th Circuit recognized that, unlike a TFA claim, a prima facie case under the TPPA cannot be established through temporal proximity alone. But the 6th Circuit pointed out that there was other evidence — Grazyna’s recognition that the investigation was “very serious” and the IRS raid — to infer a causal connection between Scott’s protected activity and his discharge.

But that wasn’t enough to salvage Scott’s TPPA claim. The 6th Circuit determined that Adroit easily pointed to a non-retaliatory reason for Scott’s discharge (the conservatorship and takeover), so the burden shifted to Scott to prove it was pretextual. There were three ways for Scott to show pretext: (1) the conservatorship and takeover were not based in fact; (2) they did not actually motivate his termination; or (3) they were insufficient to explain his termination.

Scott could not deny that the conservatorship and takeover actually happened, so option one wasn’t feasible. As to option three, Scott would have had to show that others who engaged in substantially similar conduct were not terminated. This didn’t work because Scott’s brother Jeff participated in the takeover attempt, and he was terminated as well. Relying on the second option, Scott had two theories. First, he claimed that he was planning a takeover as early as January 2020 (before Adroit learned of IRS involvement) and Adroit knew it but didn’t terminate him until after it learned of his involvement with the IRS. The court didn’t buy this argument, reasoning that Scott didn’t have the ability to takeover the company in January 2020, so any evidence before the conservatorship petition is insufficient to show pretext. Second, Scott claimed that once Adroit learned of his report to the IRS, it focused on that and somewhat lost interest in the conservatorship and takeover. The evidence didn’t really support this theory, though. At best, it showed that Adroit may have considered the IRS report alongside the conservatorship and takeover. But that was insufficient, the 6th Circuit held, to establish pretext.

The Takeaway

Temporal proximity can be sufficient to establish a prima facie case in retaliation cases, but only when the adverse action occurs very close in time to when the employer learns of the protected activity. But here, it was not lost on the court that the termination occurred immediately after the employer regained an opportunity to take the adverse action. As Judge Amul Thapar pointed out in his concurrence, in some cases, the passage of time between the protected activity and the adverse action matters less when the employer was in no position to take an adverse action. “Knowledge of protected activity is inert without an accompanying ability to retaliate,” the concurrence states. The more important inquiry in these types of cases is how quickly did the employer act once it had the opportunity to do so.

But, as Gammons highlights, even if temporal proximity is enough to establish a prima facie case of retaliation (that’s not the case for TPPA claims, though), the claim may still fail when the employer can produce strong evidence of a non-retaliatory motive. |||

EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is a lawyer with Kramer Rayson LLP in Knoxville. He represents businesses, educational institutions and religious institutions in employment and civil rights related matters. He holds a bachelor’s degree from the University of Tennessee and a law degree from the University of Tennessee College of Law.

NOTES

1. 91 F.4th 820 (6th Cir. 2024)
2. Scott also asserted common law claims against his father, stepmother and stepsister. Those claims were also dismissed by the district court.