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Estate Of Roach v. TRW

July 19, 2000

ESTATE OF FRANK L. ROACH, PLAINTIFF-APPELLANT, AND KATHERINE BORAL, PLAINTIFF,
v.
TRW, INC., DEFENDANT-RESPONDENT, AND FRANCES KRUSE, INDIVIDUALLY AND AS AGENT FOR TRW, INC., DEFENDANT.



The opinion of the court was delivered by: Verniero, J.

Argued May 2, 2000

On certification to the Superior Court, Appellate Division, whose opinion is reported at 326 N.J. Super. 493 (1999).

This appeal requires us to consider whether the jury's verdict in favor of plaintiff is sustainable under the Conscientious Employee Protection Act, N.J.S.A. 34:19-1 to -8 (CEPA). The Appellate Division set aside the verdict based on its conclusion that plaintiff did not articulate, as purportedly required by CEPA, that the actions of his co- employees, about which he complained, implicated the public interest. Because we differ in our interpretation of the statute and conclude that the jury's verdict is sustainable on the record presented, we reverse.

I.

Frank Roach, a decorated military veteran, began his employment with TRW, Inc. in 1981. (In this opinion, we refer to Roach as "plaintiff" because he appeared in that posture in the original litigation. Plaintiff is now deceased and his estate has replaced him in this appeal.) For seventeen years prior to that employment, plaintiff had been an Army intelligence officer. He was hired by TRW as the Staff Assistant of Physical Security, to protect TRW's secrets, including classified information provided to TRW by the United States government. Plaintiff was twice promoted in the security division and received positive evaluations.

As a defense contractor, TRW was directed by the United States to implement an ethics program for the training and education of its employees. That program required TRW to promulgate a company code of conduct. In 1987, TRW named plaintiff the Assistant Manager of the Business Ethics and Conduct Program; he was promoted to manager in 1988. As the manager of TRW's ethics program, plaintiff was substantially involved in implementing the code of conduct.

The code of conduct provides:

It is the policy of [TRW] to comply fully with all laws governing its operations and to conduct its affairs according to the highest legal and ethical standards. Compliance with this policy means not only observing the law, but so conducting [TRW] business that [TRW] will deserve and receive recognition as an ethical and law-abiding enterprise, alert to all the responsibilities of good corporate citizenship. It should be understood that the spirit of this policy requires that [TRW] maintain a high degree of integrity in all of its interactions with shareholders, employees, customers, suppliers, local communities, governments at all levels and the general public.

An infraction by any employee of this policy, of the applicable laws or of recognized ethical business standards will subject the employee to disciplinary action, which may include warning, reprimand, probation, reduction in compensation, demotion, suspension or dismissal.

In defining the responsibilities of TRW employees, the code provides, in part, that "[e]very employee should bring possible violations of [the code] to the attention of (i) his or her supervisor or another [TRW] executive and (ii) a [TRW] attorney." More specifically, the code requires that "[a]ny employee who acquires information that gives such employee reason to believe that another employee is engaged in conduct prohibited by this policy" has a responsibility to report promptly such information to his or her supervisor or a TRW attorney. To facilitate reporting of violations, TRW set up an independent hotline managed by TRW attorneys. As stated in TRW's literature, the hotline was intended to provide employees with the mechanism to "satisfy[] their reporting obligations. . . ." Failure to report a violation of the policy could result in disciplinary action, including termination.

In a section titled "Contracting with the United States Government," the code indicates that "[b]ecause even the appearance of impropriety can erode the public confidence in [TRW] and in the Government procurement process, this policy affirms required standards of conduct and practices with respect to transactions with the United States Government." The code further explains:

The standards of conduct covered by this policy explicitly require that scrupulous attention be given to . . . proper recording and charging of all costs to the appropriate account, regardless of the status of the budget for that account. The falsification of timecards, charging unsupportable indirect costs, incorrect classification of costs, improper shifting of costs between contracts or other intentional allocation of costs to a Government contract contrary to the contract provisions or related laws, rules and regulations are [also] prohibited by this policy.

In another section, the code prohibits conflicts of interest, stating: "As a condition of employment, . . . employees are required to avoid any situation that does or may involve a conflict of interest between their personal interests or the interests of the company." A conflict of interest is defined as "an activity, interest, or relationship that affects or appears to affect the objectivity, judgment, or effectiveness of an employee in performing his/her job."

In June 1990, although he did not have a marketing background, plaintiff requested a transfer to a marketing position, District Office Manager, in TRW's Electronic Systems Group. Plaintiff was interviewed by seven people including his future supervisor, Charles Briggs. Another interviewer, Jim Vrungos, indicated that plaintiff was not qualified for the position. Nevertheless, plaintiff was hired for that position in the Fort Monmouth office. Vernon DeBord worked in that office, under the supervision of Vrungos.

In his new position, plaintiff was involved in acquiring and maintaining a contract with the Army worth approximately $65,000,000 over five years. He also was responsible for acquiring new business. Plaintiff received generally favorable performance reviews, although his evaluations contained some constructive criticisms from Briggs, who by that time was plaintiff's supervisor.

DeBord's secretary, Frances Kruse, approached plaintiff in November 1991 and alleged improper activities on the part of DeBord and Vrungos. (Apparently, DeBord had previously mentioned to plaintiff that he wanted to discharge Kruse.) The alleged activities included DeBord's filing of a false expense report seeking reimbursement for a minor lunch expense, and false time cards; DeBord's failure to disclose conflicts of interest with subcontractors; leasing equipment on behalf of TRW for DeBord's personal use; and failing to disclose a conflict of interest with a company that TRW considered acquiring, including allegations of kick- back payments intended for DeBord and Vrungos if the acquisition took place. Plaintiff investigated the matters, concluding that each complaint was valid. (In summarizing the complaints against Debord and Vrungos, we make no judgment regarding their validity and imply no wrongdoing on anyone's part.) Importantly, plaintiff testified that he reasonably believed that, by their actions, DeBord and Vrungos had violated TRW's code of conduct and were engaged in illegal and unethical conduct.

Plaintiff reported his findings to Briggs who, according to plaintiff, indicated that he would "follow-up." Plaintiff believed that in following up Briggs would call the hotline and report the matter to TRW attorneys, but, instead, Briggs told Vrungos about plaintiff's complaints. According to plaintiff, Briggs and Vrungos informed plaintiff during a conference call that the allegations were not important enough to warrant further investigation and that the allegations were "gray" in nature.

On November 22, 1991, plaintiff met with Briggs in Washington, D.C. Plaintiff stated to Briggs that the two of them should submit plaintiff's findings to the legal department to comply with their reporting obligations under the code of conduct. According to plaintiff, Briggs responded that Vrungos was not "happy" with plaintiff and that plaintiff was not a "team player." Plaintiff asked Briggs to acknowledge in writing that he (plaintiff) had satisfied his reporting obligations. Plaintiff never received such acknowledgment. Later that week, Vrungos went to the Fort Monmouth office and had a "heated" meeting with plaintiff. ...


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