Legal Alerts

New Cautions in SEC Disclosures of "Material Legal Proceedings"


Publicly traded companies subject to the Securities and Exchange Commission ("SEC") periodic reporting requirements, particularly Item 103 of SEC Regulation S-K (17 C.F.R. § 229.103 (1982), which requires companies to describe any material legal proceedings, including the principal parties, facts giving rise to the proceeding, and the relief sought, should review their practices in light of a new Seventh Circuit decision. The Court reversed an initial summary judgment decision favorable to the company based on a former employee's Title VII retaliation claim, noting that retaliatory action could be inferred from the actions of the CEO and from an email by the company's general counsel that evinced "disdain for the EEOC process and animus against [the employee] for filing her complaint" (Greengrass v. International Monetary Systems, Ltd.)


Nine months after she was hired as an account executive for IMS, Ms. Greengrass filed a written complaint alleging harassment by a general manager. The CEO of IMS forwarded a copy of the complaint to the alleged harasser, along with the message: "Call me before you explode." Shortly thereafter, Ms. Greengrass filed an EEOC charge alleging sex discrimination, national origin discrimination, and retaliation. IMS's treasurer/CFO consulted with an outside accountant on whether the employee's EEOC complaint needed to be mentioned as part of its SEC periodic filings as a "material legal proceeding." IMS's Forms 10-Q for the next three quarters reported that IMS was engaged in litigation but did not name the parties other than as "former employees."

As EEOC continued to investigate Ms. Greengrass's complaint, it also sought information on other sexual harassment complaints. IMS's inside general counsel advised the company's management team via email on how IMS should respond, and indicated possible company liability as a result of these additional inquiries.

In its next SEC filing, IMS specifically named Ms. Greengrass and stated that she filed a sexual harassment complaint with the EEOC and that the "claim is still under investigation by the EEOC but IMS believes the claims to be meritless and will vigorously defend itself." These disclosures were repeated in the "Legal Proceedings" portion of IMS's Form 10-K/A Amendment No. 1 and in a subsequent Form 10-Q quarterly disclosure.

The parties subsequently resolved Ms. Greengrass's original EEOC complaint through conciliation. The company then reported the resolution of the dispute in its Annual Report on Form 10-K, but did not refer to any parties by name.

After the disclosure by IMS, Ms. Greengrass attributed her difficulties in finding employment to the SEC filings that identified her by name. She then filed a new EEOC charge against IMS alleging retaliation based on the SEC filings. She ultimately filed suit under Title VII, the Court granted summary judgment for IMS,  and Ms. Greengrass appealed.


The Seventh Circuit reversed the District Court’s summary judgment decision and determined that Ms. Greengrass’s EEOC charges constituted protected activity and that listing the employee’s name in publicly available SEC filings (and referring to her complaint as “meritless”) constituted a materially adverse employment action, supporting the retaliation claim. The Court determined, based on email communication from the general counsel and the CEO’s decision to forward Ms. Greengrass’s complaint to the alleged harasser, that Ms. Greengrass provided sufficient evidence of animus that a reasonable jury could find that IMS decided to retaliate against her by specifically naming her in the SEC filing and emphasizing that the employer did not identify her by name until after the EEOC began seriously investigating her claim. 

IMS argued that its response to filing requirements was based on outside advice, not animus. However, the Court determined that IMS was not credible, based on its shifts in policy, from not including claimants’ names, to including them, and then not including them when settlement was reached.


Although this case is now on remand, and a final decision on the merits of the reprisal claim has not been reached, it illustrates the need for public companies to maintain a consistent policy when reporting material legal proceedings as part of their periodic SEC filings. Certainly, obtaining advice from outside legal counsel about what is a reportable legal proceeding is advisable. Determining the nature of the legal proceeding (public or private, filed or unfiled, administrative claim versus lawsuit) is paramount in constructing the language of any disclosure. A company must balance its reporting obligations against the privacy protections afforded employees, former employees, and claimants and perform a thorough risk assessment based on the facts. A company should always eschew proforma responses.

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