Jeffrey A. WIEST; Laura E. Wiest, His Wife, Appellants v. Thomas J. LYNCH, Chief Executive Officer and Director of Tyco Electronics Corporation; Terrence Curtin, Executive Vice President and Chief Financial Officer of Tyco Electronics Corporation; Charles Post, Esquire, Senior Labor & Employment Counsel; Charles Dougherty, President, Wireless Systems, A Tyco Business Unit; Tyco Electronics Corporation.
No. 11-4257.
United States Court of Appeals, Third Circuit.
March 19, 2013
Argued Oct. 5, 2012.
121
Stephen M. Kohn, Esq. (Argued), Kohn, Kohn & Colapinto, Washington, D.C., for Amicus Curiae National Whistleblowers Center.
Michael A. Finio, Esq. (Argued), Amy C. Foerster, Esq., Cory S. Winter, Esq., Saul Ewing LLP, Harrisburg, PA, for Appellees.
Eugene Scalia, Esq., Gibson, Dunn & Crutcher LLP, Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States of America.
Before: McKEE, Chief Judge, JORDAN and VANASKIE, Circuit Judges.
OPINION OF THE COURT
VANASKIE, Circuit Judge.
Appellant Jeffrey Wiest brought an action under the whistleblower protection provisions set forth in Section 806 of the Sarbanes-Oxley Act (“SOX“),
I.
A. Background
According to the Complaint, Wiest worked for approximately thirty-one years in Tyco‘s accounting department until his termination in April 2010. For Wiest‘s last ten years of employment, his office was under “a high level of audit scrutiny” due to the well-known corporate scandal involving its former parent company, Tyco International, and its CEO, Dennis Kozlowski. (App. 42, ¶ 31.) Around 2007, Wiest “established a pattern of rejecting and questioning expenses” that failed to satisfy accounting standards or securities and tax laws. (Id. at 43, ¶ 33.)
1. The Atlantis Resort Event
In mid-2008, Wiest refused to process a payment and sent an email to his supervisor regarding an event that Tyco intended to hold at the Atlantis Resort in the Bahamas, which was similar to a corporate party under Kozlowski‘s management that had drawn significant criticism. Expenses for the $350,000 Atlantis event included “Mermaid Greeters” and “Costumed Pirates/Wenches” at a cost of $3,000; a “Tattoo Artist (includes tattoos)” and “Limbo” and “Fire” at a cost of $2,350; chair decorations at a cost of $2,500; and hotel room rentals ranging from $475 to $1,000 per night. (Id. at 45, ¶ 41.) In an email to his supervisor, Wiest expressed his belief that the costs were inappropriately charged entirely as advertising expenses. He asserted that the costs needed to be detailed and charged as income to attending employees because the employees were bringing guests, and the expenses needed to “be reviewed for potential disallowance by a taxing authority based on excessive/extravagant spend [sic] levels.” (Id. at 84, Ex. E.) Following Wiest‘s email, Tyco‘s management determined that the five-day event included only a single one-and-one-half hour business meeting. As a result, they determined that processing the payment “would have resulted in a misstatement of accounting records and a fraudulent tax deduction,” and that Tyco needed to treat the event as income for attending employees. (Id. at 43-44, ¶ 35.) Tyco decided to proceed with the event and to compensate the attendees for the additional tax liability by increasing (i.e., “grossing-up“) their bonuses.
2. The Venetian Resort Event
Also in mid-2008, Wiest received a request to process a payment of $218,000 for a conference at the Venetian Resort in Las Vegas, Nevada. The request lacked both sufficient documentation for tax purposes and proper approval pursuant to Tyco‘s “delegation of authority.” Additionally, the request included inaccurate accounting and tax treatment information. At Wiest‘s direction, one of his subordinates sent an email to the Tyco employee who submitted the request, explaining that the accounts payable department could not process the request until it had received an agenda and business purpose for the event, correct accounting treatment for various expenses, and approval pursuant to Tyco‘s delegation of authority. The tax department eventu-
3. The Wintergreen Resort Event
In late 2008, Wiest was presented with a request for approval of a conference at the Wintergreen Resort in Virginia in the amount of $335,000. Like the Venetian Resort request, the Wintergreen expense request lacked both sufficient documentation and proper approval from Tyco‘s CEO. Wiest emailed his supervisor, explaining that he believed Tyco‘s internal policies required that the CEO be notified about the transaction. To the best of Wiest‘s knowledge, Tyco processed the payment without the CEO‘s approval, in violation of Tyco‘s internal policies.
4. Other Matters
Wiest also alleges that he questioned other events between 2007 and 2009. In particular, he questioned expenses for a “relatively lavish ‘holiday party,‘” a $52,000 audit team meeting, and an employee baby shower. (Id. at 49, ¶ 55.) He also sent an email to management when he received an expense request from an employee that included duplicate entries, additional nights of hotel bills, and undocumented expenses. He informed management that processing that improper expense request would constitute invalid or undocumented business expenses if Tyco was not reimbursed or if the amount was not reported as income on the employee‘s W-2 form.
5. Termination of Employment
Wiest alleges that Tyco became frustrated with his persistence in following proper accounting procedures. In September 2009, two human resources employees met with Wiest and informed him that he was under investigation for incorrectly reporting the receipt of two basketball game tickets in August 2009, for having a relationship with a coworker ten years earlier, and for allegedly making sexually-oriented comments to co-workers. After Wiest learned of the investigation, his health declined and he went on medical leave. Seven months later, Tyco terminated his employment.
B. Procedural History
On July 7, 2010, Wiest sued the Tyco Defendants, asserting that his discharge was in retaliation for his reports of improper expenditures, in violation of Section 806 of SOX. That section prohibits certain employers from discriminating against employees for reporting information that they reasonably believe constitutes a violation of one of several enumerated provisions relating to fraud and securities regulations. See
As to the threshold question for a prima facie case in a retaliation case under Section 806—whether the Complaint sufficiently alleges that the plaintiff had engaged in “protected activity,” see
The District Court‘s Order dismissing the Complaint granted Wiest leave to file an amended complaint. Rather than filing an amended complaint, Wiest, on August 10, 2011, presented a motion entitled “Motion for Reconsideration Nunc Pro Tunc By the Eastern District Court En Banc of Judge Pratter Memorandum Opinion of July 21, 2011, Or, In the Alternative, Motion to Dismiss Plaintiffs’ Complaint with Prejudice and Enter a Final Appealable Order and Judgment” (“Motion for Reconsideration”). In his Motion for Reconsideration, Wiest raised for the first time the argument that the ARB overruled Platone‘s “definitive and specific” standard in favor of a “reasonable belief” standard in Sylvester v. Parexel Int‘l LLC, ARB 07-123, 2011 WL 2165854, at *11 (Dep‘t of Labor May 25, 2011) (en banc). Wiest argued that he was entitled to reconsideration because Sylvester was an intervening change in controlling law, and that the District Court‘s reliance on the ARB‘s prior Platone decision was a clear error of law.
The District Court disagreed, reasoning that Sylvester was not an intervening decision because, although the ARB issued Sylvester after the parties completed briefing on Tyco‘s Motion to Dismiss, the opinion preceded the District Court‘s ruling. Additionally, the District Court determined that Sylvester was not controlling precedent, and that even if it was binding, reconsideration was not warranted because (1) its initial decision relied on cases other than Platone, and (2) Sylvester‘s alteration of the standard for demonstrating protected activity did not change its conclusion that Wiest failed to establish that he communicated an objectively reasonable belief that Tyco‘s conduct violated any statute or rule listed in Section 806.
Wiest filed a notice of appeal on November 23, 2011, to appeal the District Court‘s Order denying his Motion for Reconsideration. Wiest did not expressly indicate whether he also was appealing the District Court‘s initial Order dismissing the Complaint.
II.
The District Court had jurisdiction under
A. Procedural Issues
Before turning to the merits, we must address three procedural issues. First, Tyco argues that, because Wiest filed his Motion for Reconsideration twenty days after the District Court entered its dismissal Order, the Motion was untimely
We see no jurisdictional bar due to Wiest‘s failure to move for reconsideration within the time constraints established by a local rule of court. We have recognized that, in the context of a
Tyco also argues that the scope of our review is limited to the District Court‘s November 2011 Order denying reconsideration because Wiest did not designate for appeal the District Court‘s July 2011 Order granting Tyco‘s Motion to Dismiss. When a party appeals only a specified judgment, we acquire jurisdiction to review only that judgment or a judgment “‘fairly inferred” by the notice of appeal. Sulima v. Tobyhanna Army Depot, 602 F.3d 177, 184 (3d Cir.2010) (quoting Elfman Motors, Inc. v. Chrysler Corp., 567 F.2d 1252, 1254 (3d Cir.1977)). Yet, we have also held that we “liberally construe[] notices of appeal.” Id. (internal quotations marks omitted). We may exercise appellate jurisdiction over orders not specified in the notice of appeal where: “(1) there is a connection between the specified and unspecified orders; (2) the intention to appeal the unspecified order is apparent; and (3) the opposing party is not prejudiced and has a full opportunity to brief the issues.” Id. (internal quotation marks omitted).
Here, there is an adequate connection between the District Court‘s Order denying reconsideration and its underlying Order granting Tyco‘s Motion to Dismiss because Wiest requested the District Court to reconsider the legal standard it applied to his Section 806 claims in the original dismissal Order. Second, because the two Orders of the District Court were intertwined, we infer that Wiest intended to appeal the underlying dismissal Order. Wiest‘s intention was apparent in his principal brief, in which he argues that the
Finally, we also reject Tyco‘s third procedural argument that Wiest waived any arguments based on Sylvester because he failed to raise those arguments in his brief in opposition to Tyco‘s Motion to Dismiss. Although the District Court noted that Wiest first brought Sylvester to its attention in his Motion for Reconsideration and that a motion for reconsideration should not raise new arguments that the party could have made previously, the District Court proceeded to address Sylvester in its reconsideration ruling. The District Court evidently did not deem Wiest to have waived any arguments based on Sylvester, and neither do we.
B. Standard of Review
We have held that “a proper Rule 59(e) motion must rely on one of three grounds: (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error of law or prevent manifest injustice.” Lazaridis v. Wehmer, 591 F.3d 666, 669 (3d Cir.2010) (citing N. River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir.1995)). We generally review a district court‘s denial of reconsideration for abuse of discretion. Max‘s Seafood Cafe v. Quinteros, 176 F.3d 669, 673 (3d Cir.1999) (citing N. River Ins., 52 F.3d at 1203). An “errant conclusion of law, an improper application of law to fact, or a clearly erroneous finding of fact” may result in an abuse of discretion. McDowell v. Phila. Housing Auth., 423 F.3d 233, 238 (3d Cir.2005). More specifically, when a district court predicates its denial of reconsideration on an issue of law, our review is plenary, and when it bases its denial on an issue of fact, we review for clear error. Id.
In addition, we review a district court‘s dismissal pursuant to
C. Whistleblower Claims Under Section 806 of SOX
SOX Section 806 prohibits publicly traded companies and their employees from retaliating against an employee who
Section 806 provides that an employee alleging discrimination in violation of SOX may file a complaint with the Secretary of Labor, who may issue a final order.
Focusing on the “protected activity” prong in its Memorandum accompanying its Order granting Tyco‘s Motion to Dismiss, the District Court invoked the ARB‘s opinion in Platone and concluded that “[f]or a communication to be protected, it must ‘definitively and specifically’ relate to one of the statutes or rules listed in” Section 806. Wiest, 2011 WL 2923860, at *4. The Court of Appeals cases cited by the District Court in support of its application of the “definitive and specific” standard either relied upon or cited with approval Platone‘s standard. See Van Asdale v. Int‘l Game Tech., 577 F.3d 989, 996-97 (9th Cir.2009) (deferring to Platone‘s “definitive and specific” standard as a reasonable interpretation of the statute); Day v. Staples, Inc., 555 F.3d 42, 55 (1st Cir.2009) (quoting the Fourth Circuit‘s opinion affirming the ARB‘s decision in Platone in which the court employed the “definitive and specific” standard); Allen v. Admin. Review Bd., 514 F.3d 468, 476-77 (5th Cir.2008) (“We agree with the ARB‘s legal conclusion that an employee‘s complaint must ‘definitively and specifically relate’ to one of the six enumerated categories found in” Section 806).
In Sylvester, however, the ARB abandoned the “definitive and specific” standard announced in Platone. Sylvester, 2011 WL 2165854, at *15. The ARB noted that the test adopted in Platone originated in cases under the whistleblower provision in the Energy Reorganization Act,
As the ARB recognized in Sylvester, the SOX whistleblower provision does not contain language similar to the ERA‘s catchall provision. Id. Instead, it expressly enumerates the laws and rules to which it applies. Therefore, the ARB concluded that the importation of the definitive and specific standard is “inapposite to the question of what constitutes protected activity under SOX‘s whistleblower protection provision.” Id. Moreover, the ARB determined that the definitive and specific standard potentially conflicts with the statutory language of Section 806, which prohibits retaliation against employees for reporting information that he or she reasonably believes violates SOX. Id.4
SOX does not define what constitutes a “reasonable belief.” The ARB interprets the phrase to require that the plaintiff have a subjective belief that the employer‘s conduct violates a provision listed within Section 806 and that the belief is objectively reasonable. Id. at *11-12. Indeed, as the ARB noted in Sylvester, the legislative history of Section 806 provides that Congress intended this reasonable belief standard to “impose the normal reasonable person standard used and interpreted in a wide variety of legal contexts (See generally, Passaic Valley Sewerage Commissioners v. U.S. Department of Labor, 992 F.2d 474, 478 [3d Cir.1993]).” Id. at *11 (quoting S.Rep. No. 107-146, at 19 (2002)).
The ARB opined that to meet the subjective element, the plaintiff must actually have believed that the conduct in question violated the laws enumerated in SOX. Id. The ARB explained that “the legislative history of Sarbanes-Oxley makes clear that its protections were ‘intended to include all good faith and reasonable reporting of fraud, and there should be no presumption that reporting is otherwise. ‘” Id. (alteration omitted) (quoting Van Asdale v. Int‘l Game Tech., 577 F.3d 989, 1002 (9th Cir.2009) (quoting 148 Cong. Rec. S7418-01, (daily ed. July 26, 2002))). Regarding the objective element, the ARB clarified that the plaintiff‘s belief “is evaluated based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experi-
We conclude that the ARB‘s rejection of Platone‘s “definitive and specific” standard is entitled to Chevron deference. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) (“If ... the court determines Congress has not directly addressed the precise question at issue ... the question for the court is whether the agency‘s answer is based on a permissible construction of the statute.“). As previously discussed, Section 806 provides that an employee seeking whistleblower protection under SOX may file a complaint with the Secretary of Labor, who may issue a final order.
The fact that the ARB reconsidered and abandoned the “definitive and specific” standard does not preclude our deference to the reasonable belief standard it subsequently announced in Sylvester. In National Cable & Telecommunications Ass‘n v. Brand X Internet Services, 545 U.S. 967, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005), the Court explained that “[a]gency inconsistency is not a basis for declining to analyze the agency‘s interpretation under the Chevron framework.” Id. at 981. The Court elaborated that “if the agency adequately explains the reasons for a reversal of policy, change is not invalidating, since the whole point of Chevron is to leave the discretion provided by the ambiguities of a statute with the implementing agency.” Id. (internal quotation marks omitted). Here, the ARB thoroughly explained why it reversed the course it previously set in Platone. See Sylvester, 2011 WL 2165854, at *14-15. Therefore, Chevron deference applies.
While agreeing that the definitive and specific standard should be jettisoned, amicus curiae National Whistleblower Center (“NWC“) contends that the objective belief standard established in Sylvester is too stringent. NWC argues that Section 806 protects an employee as long as he or she has a good faith belief in the existence of a violation. For support, NWC relies on our decision in Passaic Valley Sewerage Commissioners v. U.S. Department of Labor, 992 F.2d 474 (3d Cir.1993).
In Passaic Valley, we interpreted the whistleblower provision of the Clean Water Act, which protects employees who have “filed, instituted, or caused to be filed or instituted any proceeding under” the Clean Water Act. Id. at 478 (quoting
Because the legislative history of Section 806 references Passaic Valley in stating Congress‘s intention “to impose the normal reasonable person standard used and interpreted in a wide variety of legal contexts,” S.Rep. No. 107-146, at 19 (2002), NWC contends that Congress intended to adopt Passaic Valley‘s good faith belief test as the only standard to meet in bringing a claim under Section 806. We disagree. First, at issue in Passaic Valley was the meaning of the term “proceeding,” Passaic Valley, 992 F.2d at 478, not the phrase “reasonably believes.” As a result, its standard does not control the issue at hand. Second, a good faith belief goes to the employee‘s subjective belief that a violation occurred, which is only one element of the reasonable belief standard applicable to Section 806. Therefore, whatever guidance Passaic Valley provides, it relates only to the subjective element of a reasonable belief test. As explained in Sylvester, the reasonable belief standard also includes an objective element. Sylvester, 2011 WL 2165854, at *11. As we did in Passaic Valley, and as explained above, we defer to the administering agency‘s reasonable interpretation of the statute. As a result, an employee must establish not only a subjective, good faith belief that his or her employer violated a provision listed in SOX, but also that his or her belief was objectively reasonable. Id. at *11. A belief is objectively reasonable when a reasonable person with the same training and experience as the employee would believe that the conduct implicated in the employee‘s communication could rise to the level of a violation of one of the enumerated provisions in Section 806. Id. at *11-12.
The Dissent contends that we have adopted an internally inconsistent test by recognizing that an employee must have an objectively reasonable belief of a violation of one of the listed federal laws but not a reasonable belief that each element of a listed anti-fraud law is satisfied. We perceive no inconsistency because we do not think Congress intended such a formalistic approach to the question of whether an employee has engaged in “protected activity.” As so aptly stated by our dissenting colleague, the purpose of “[w]histleblower statutes like SOX § 806 [is] to protect people who stand against institutional pressures and say plainly, ‘what you are doing here is wrong’ ... in the particular way identified in the statute at issue.” (Dissenting Op. at 138.) By identifying conduct that falls within the ample bounds of the anti-fraud laws, an employee has done just that. That employee should not be unprotected from reprisal because she did not have access to information sufficient to form an objectively reasonable belief that there was an intent to defraud or the information communicated to her supervisor was material to a shareholder‘s investment decision. “Congress chose statutory language which ensures that ‘an employee‘s reasonable but mistaken belief that an employer engaged in conduct that constitutes a violation of one of the six enumerated categories [set forth in § 806] is protected.‘” Van Asdale, 577 F.3d at 1001 (quoting Allen, 514 F.3d at 477). An
In addition to rejecting the definitive and specific standard that the District Court relied upon in granting Tyco‘s Motion to Dismiss, Sylvester conflicts with two additional legal conclusions reached by the District Court relating to protected activity under Section 806. First, in dismissing Wiest‘s Complaint, the District Court concluded that an “employee‘s communication must convey that his concern with any alleged misconduct is linked to ‘an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss.‘” Wiest, 2011 WL 2923860, at *4 (quoting Day v. Staples, Inc., 555 F.3d 42, 56 (1st Cir.2009)). Sylvester expressly rejected such an interpretation. Observing that “[s]ome courts have misinterpreted [Platone‘s] analysis as a requirement that SOX complainants must allege elements of a securities fraud claim for protection,” the ARB reasoned that “requiring a complainant to prove or approximate the specific elements of a securities law violation contradicts the statute‘s requirement that an employee have a reasonable belief of a violation of the enumerated statutes.” Sylvester, 2011 WL 2165854, at *18. The ARB further explained, “a complainant can engage in protected activity under Section 806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.” Id. We find this interpretation to be reasonable because there is nothing in the statutory text that suggests that a complainant‘s communications must assert the elements of fraud in order to express a reasonable belief that his or her employer is violating a provision listed in Section 806. Therefore, the District Court erred by requiring that an employee‘s communication reveal the elements of securities fraud, including intentional misrepresentation and materiality.
Second, the District Court concluded that to constitute protected activity, the information contained within an employee‘s communication must implicate “a reasonable belief of an existing violation.” Wiest, 2011 WL 2923860, at *4 (emphasis added) (citing Livingston v. Wyeth, 520 F.3d 344, 352 (4th Cir.2008)). Sylvester rejected this requirement as well. The ARB held that Section 806 protects an employee‘s communication about a violation that has not yet occurred “as long as the employee reasonably believes that the violation is likely to happen.” Sylvester, 2011 WL 2165854, at *13. We find this interpretation of the “reasonably believes” statutory phrase,
Moreover, whether an employee‘s communication is indeed “protected activity” under § 806 is distinct from whether the employer had reason to suspect that the communication was protected. To show that the communication is protected, the employee must have both a subjective and an objective belief that the conduct that is the subject of the communication relates to an existing or prospective violation of one of the federal laws referenced in § 806. The communication itself need not reveal all the facts that would cause a reasonable person with the whistleblower‘s training and background to conclude that a referenced federal law has been or will be violated. That determination should be based upon all the attendant circumstances, and not be limited to the facts conveyed by a whistleblower to the employer. If the communication itself had to convey facts sufficient to support an objectively reasonable belief of a violation of one of the referenced laws, Congress would not have imposed liability upon an employer who merely “suspected” that the communication is protected from reprisal.
In this case, the District Court did not decide this matter on the ground that Wiest‘s pleadings failed to support a plausible inference that Tyco knew or suspected that Wiest had engaged in protected activity. Instead, the District Court decided that Wiest‘s Complaint was inadequate because the communications did not “definitively and specifically” relate to a statute or rule listed in § 806 and failed to articulate facts that supported a reasonable belief of actionable fraudulent conduct directed at investors. Consistent with according Chevron deference to the ARB‘s holding in Sylvester, we have found that the standards used by the District Court were too stringent. We now turn to Wiest‘s Complaint to ascertain whether it states a § 806 claim for relief under the standard announced in Sylvester.
D. Application of Sylvester‘s Reasonable Belief Standard
Although we hold that the District Court applied the wrong legal standard in analyzing Wiest‘s claims under Section 806, dismissal is still appropriate if Wiest nevertheless failed to plead sufficient facts to
1. The Atlantis Resort Event
The Complaint alleges that Wiest refused to process a payment for and questioned the legitimacy of an extravagant event to be held at the Atlantis Resort. In particular, in a June 3, 2008 email to his supervisor, Wiest explained, among other concerns, that “[a]s submitted, the costs are charged entirely to advertising expense which seems inappropriate and does not address the issue of breaking out the meals and entertainment portions which we feel would fall into the 50% deductibility classification for tax purposes.” (App. 84, Ex. E.) The Complaint also alleges that Wiest, like many others, was aware of a similar event held during Kozlowski‘s tenure. Wiest‘s email to his supervisor expressed his concerns about Tyco treating the costs of the event as business expenses and his belief that certain costs should be treated as income for the guests. Because of his communication, a review of the expenses revealed that if Tyco had processed the transaction as originally submitted, it “would have resulted in a misstatement of accounting records and a fraudulent tax deduction....” (App. 43, ¶ 35.)
These facts are sufficient to support a plausible inference that Wiest reasonably believed that Tyco‘s conduct would violate one of the provisions in Section 806 because he foresaw a potentially fraudulent tax deduction and misstatement of accounting records if he did not bring that information to the attention of his supervisors. Furthermore, Tyco‘s decision to “gross-up” its employees’ income by compensating them for extra tax liabilities due to the Atlantis trip not being considered a business expense also plausibly created a reasonable belief in Wiest that a SOX violation would occur, given Wiest‘s familiarity with Kozlowski having used the “grossing-up” method during the Tyco scandal.
We find that the alleged facts show not only that Wiest subjectively believed that Tyco‘s conduct may have violated a provision listed in Section 806, but also support an inference that his belief was objectively reasonable. A reasonable person in Wiest‘s position who had seen the expense request for the extravagant Atlantis event could have believed that treating the Atlantis event as a business expense violated a provision of Section 806, especially given the scrutiny Tyco received during the Tyco International scandal under Kozlowski. We find, therefore, that Wiest pled sufficient facts to establish that his communication relating to the Atlantis event was protected activity under Section 806. As a result, we reverse the District Court‘s dismissal Order with respect to Wiest‘s communication relating to the Atlantis event.5
Wiest also alleges that he directed an expense request for an event at the Venetian Resort to be held while the tax department evaluated the business purpose of the event and until his department received proper documentation and accounting treatment. After receiving a revised agenda, the tax department eventually approved the event as a business expense. In an email chain attached to the Complaint relating to the Venetian event, the only reference to Wiest indicates that he asked his subordinate to forward a colleague additional information that Wiest‘s department had received about the event. That particular email also reveals that although the accounts payable department requested additional review of the expenses, the department “believe[d] the information provided substantiates this [event] as a business expense....” (App. 114, Ex. M.)
Even if the facts in the Complaint established that Wiest subjectively believed the expense request for the Venetian event could have violated a provision in Section 806, we conclude that, objectively, a reasonable person in Wiest‘s position would not have believed that the expense request that initially lacked a detailed agenda and breakdown of expenses would constitute a violation of one of the provisions listed in Section 806. Therefore, we affirm the District‘s dismissal Order with respect to Wiest‘s communications relating to the Venetian event.
most favorable to the plaintiff, and [to] determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief” (internal quotation marks omitted)). In any event, the issue is not whether the contemplated accounting treatment was or was not part of a scheme to defraud. The
3. The Wintergreen Resort Event
Regarding the $355,000 event that took place at the Wintergreen Resort, Wiest alleges that the initial invoice lacked sufficient documentation and accounting breakdowns. In addition, Wiest alleges that a planned attendee of the event had approved the request instead of Defendant Thomas Lynch, the CEO, as required by Tyco‘s delegation of authority. Emails relating to the event show that Wiest twice indicated to management that Lynch needed to approve the request. In the first email, Wiest requested clarification from the CFO, Defendant Terrence Curtin, that he was approving the entire cost of the event and asked that Curtin copy Lynch on his response to communicate his approval. After Curtin apparently responded by giving his approval without copying Lynch, Wiest then emailed his supervisor reiterating that he still believed that Lynch should be informed about the matter because Curtin could only approve up to $100,000 for events. Curtin failed to copy Lynch.
The averments of the Complaint support an inference that Wiest subjectively believed that the lack of the CEO‘s approval, which contravened internal control procedures, would violate one of the provisions enumerated in Section 806. Furthermore, it is plausible that a reasonable person in Wiest‘s position could have believed that the event‘s approval by an attendee of the event, who would therefore directly benefit from that approval, instead of by the CEO as required by internal control procedures, may have violated one
issue is whether such accounting treatment could reasonably be believed by Wiest to be fraudulent. Given the Kozlowski scandal, a jury could find that Wiest reasonably believed that the sins of Kozlowski were being repeated.
4. Other Matters
Wiest emailed management in 2007 about an employee who submitted improper expenses to inform management that if it wished to claim the expenses as business expenses then either Tyco would have to be reimbursed or the charges would have to be reported as income for the employee. The allegation and corresponding email show only that Wiest explained to management the potential tax consequences relating to the expenses. Without more, the Complaint lacks sufficient facts to establish that Wiest reasonably believed that Tyco‘s handling of the matter constituted a violation of a law listed in Section 806.
In addition, Wiest alleges that he “raised questions” about proper accounting treatment of other events that occurred between late 2007 and September 2009, including a “lavish” holiday party, a team meeting that did not break out entertainment and meal expenses, and a baby shower for an employee. Aside from stating that it took several attempts to confirm that the baby shower would be treated as a business expense, Wiest fails to allege any facts suggesting that he reasonably believed these events violated an enumerated provision in Section 806. The Complaint does not specify anything about the
Notes
nature or content of his communications. By itself, the allegation that Wiest “raised questions” does not create a plausible inference that he or any reasonable person in his position would believe that expenditures on the events rose to the level of a violation of a provision in Section 806. As a result, we affirm the District Court‘s dismissal Order with respect to Wiest‘s communications relating to the improper business expense claims of an individual employee as well as the holiday party, team meeting, and baby shower events.
III.
In sum, we hold that the reasonable belief test is the appropriate standard with which to analyze the communications that Wiest contends constitute “protected activity.” As explained in Sylvester, that standard requires that an employee‘s communication reflect a subjective and objectively reasonable belief that his employer‘s conduct constitutes a violation of an enumerated provision in Section 806. The District Court erred in dismissing Wiest‘s Complaint by employing the “definitive and specific” standard, by interpreting Section 806 to require that an employee‘s alleged “protected activity” reveal the elements of securities fraud, and by requiring that his or her communication reference an existing violation. We find that Wiest has pled adequate facts to show that his communications relating to the Atlantis and Wintergreen events were protected activity under Section 806. We agree with the District
such expenditures could plunder corporate assets for the benefit of those attending lavish events, masking personal income. We believe that the Complaint alleges sufficient facts to plausibly support an inference that Wiest had an objectively reasonable belief that the absence of the CEO‘s authorization for the Wintergreen Resort Event was part of a fraudulent scheme.
For the foregoing reasons, we reverse the District Court‘s Order denying Wiest‘s Motion for Reconsideration. See McDowell v. Phila. Housing Auth., 423 F.3d 233, 238 (3d Cir.2005) (explaining that an errant conclusion of law may result in an abuse of discretion). We also reverse the District Court‘s Order granting Tyco‘s Motion to Dismiss as to Wiest‘s communications relating to the Atlantis and Wintergreen events and affirm the dismissal as to Wiest‘s communications relating to the other events.7 We remand this matter to the District Court for further proceedings consistent with this opinion.
JORDAN, Circuit Judge, Dissenting.
Because I believe the District Court properly determined that the Wiests failed to establish that Mr. Wiest held or communicated an objectively reasonable belief that the actions of Tyco officials constituted a violation of one or more of the laws referenced in § 806 of the Sarbanes-Oxley Act of 2002 (“SOX“), Pub. L. No. 107-204, 116 Stat. 745 (codified at
Whistleblower statutes like SOX § 806 seek to protect people who have the courage to stand against institutional pressures and say plainly, “what you are doing here is wrong“—not wrong in some abstract or philosophical way, but wrong in the particular way identified in the statute at issue. See Day v. Staples, Inc., 555 F.3d 42, 55 (1st Cir.2009) (requiring that an employee‘s Section 806 complaint “be measured against the basic elements of the laws specified in the statute“). The protection of § 806 depends upon the whistleblower identifying wrongdoing made illegal by federal laws targeting fraud, especially fraud against the holders of publicly traded securities. To qualify as a whistleblower under § 806, the employee must have provided information regarding conduct “which the employee reasonably believes constitutes a violation of [
As the Majority notes, the elements of a § 806 retaliation claim are that (1) the employee “engaged in a protected activity,” (2) the employer “knew or suspected that the employee engaged in the protected activity,” (3) the employee “suffered an adverse action,” and (4) the circumstances were “sufficient to raise the inference that the protected activity was a contributing factor in the adverse action.”
The second element of a SOX retaliation claim confirms that conclusion. It is difficult to see how a defendant, such as a whistleblower‘s supervisor, can know or suspect that the whistleblower-plaintiff is engaged in protected conduct if the plaintiff‘s intra-corporate communications do not relate in an understandable way to one of the stated provisions of federal law. What matters is not what is locked inside the plaintiff‘s mind or how the plaintiff may later describe his actions; it is what is communicated to the employer that counts. See Welch, 536 F.3d at 277 (“[T]he relevant inquiry is what an employee actually communicated to [his] employer prior to the ... termination; it is not what [is] alleged in [the employee‘s] OSHA complaint.” (alterations in original) (internal quotation marks omitted)). Both the Department of Labor‘s Administrative Review Board (“ARB“) and the Majority effectively bypass that element of a SOX retaliation claim and concentrate their focus on the complainant‘s frame of mind and after-the-fact spin. In doing so, they ignore the need for a whistleblower‘s employer to actually perceive that a whistle has been blown.2
The imperative that the whistleblower sound off with clarity was the subject of the ARB‘s opinion in Platone v. FLYi, Inc., 25 IER Cases 278 (Sept. 29, 2006). That opinion, the reasoning of which was adopted by several courts of appeals,3 re-
The ARB evidently viewed that standard as too stringent. When confronted in Sylvester with complainants who alleged that their intra-corporate communications concerning compliance with FDA testing protocols were actually allegations of securities fraud,4 the ARB in effect said “good enough.” More precisely, it said:
[b]ecause a complainant need not prove a violation of the substantive laws, ... a [SOX] complainant can have an objectively reasonable belief of a violation of the laws in Section 806 ... even if the complainant fails to allege, prove, or approximate specific elements of fraud, which would be required under a fraud
ically’ relate to [one] of the listed categories of fraud or securities violations under [§ 1514A]“); Day v. Staples, Inc., 555 F.3d 42, 55 (1st Cir.2009) (“The employee must show that his communications to the employer specifically related to one of the laws listed in § 1514A.“); Welch v. Chao, 536 F.3d 269, 275 (4th Cir.2008) (“[A]n employee must show that his communications to his employer definitively and specifically relate[d] to one of the laws listed in § 1514A.” (internal alteration and quotation marks omitted)); Allen v. Admin. Review Bd., 514 F.3d 468, 476 (5th Cir.2008) (“We agree with the ARB‘s legal conclusion that an employee‘s complaint must definitively and specifically relate to one of the six enumerated categories found in § 1514A.” (internal quotation marks omitted)).
claim against the defrauder directly. In other words, a complainant can engage in protected activity under Section 806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.
Sylvester, 32 IER Cases at 512 (emphasis added). Ponder that: without “alleg[ing]” or “prov[ing]” or even “approximat[ing]” a charge of fraud, the complaints of a so-called whistleblower are, in the ARB‘S view, supposed to put a company on notice that a fraud has been identified. The rationale the ARB offered for that conclusion was the ipse dixit that “the purposes of the whistleblower protection provision will be thwarted,” id. at 512, if a § 806 complainant proceeding on a theory of underlying shareholder fraud must actually say something pointing out such fraud.
To discredit the “definitive and specific” requirement, the ARB said that the requirement had been erroneously drawn from a different statute. The whistleblowing provision in the Energy Reorganization Act (“ERA“),
My colleagues in the Majority conclude that “the ARB‘s rejection of Platone ‘s ‘definitive and specific’ standard is entitled to Chevron deference” (Majority Op. at 131) because “the ARB thoroughly explained why it reversed the course it previously set in Platone” (id. at 131). With all due respect, I cannot agree with that generous characterization of the ARB‘s work product. Sylvester‘s rejection of Platone is hardly explained and far from persuasive.5 It is strange, for example, to hear the ARB claim that the greater specificity of § 806 makes the “definitive and specific” standard inappropriate but then hear it say in the next breath that one need not bother with alleging, proving, or even approximating a statement showing that the specifics of § 806 have been satisfied.
Moreover, the reasoning behind the “definitive and specific” standard applies with at least equal force to § 806 as it does to the pertinent provision of the ERA. I agree with the ARB at least to the extent that it observed that courts have construed the ERA catch-all provision “in light of [that statute‘s] overarching purpose of protecting acts implicating nuclear safety,” and thus courts have required “that. an employee‘s actions implicate safety ‘definitively and specifically” to constitute protected activity. Sylvester, 32 IER Cases at 509. In the same way, the overarching purpose of SOX is to expose and therefore deter fraud against shareholders of companies whose shares are publicly traded, see Cohen v. Viray, 622 F.3d 188, 195 (2d Cir.2010) (noting that “[SOX] outlaws fraud and deception by managers in the auditing process” (quoting S.Rep. No. 107-205, at 23 (2002) (internal quotation marks omitted))), and, just as the ERA cases call for a definitive and specific linkage to that statute‘s purpose, so a SOX whistleblower was, once upon a time, required to demonstrate “definitively and specifically” that the subject of his allegedly protected communication implicated the kind of unlawful activity targeted by SOX.6
tection provision“). Quoting not the statute, but its legislative history, the ARB says that § 806 protects “‘all good faith and reasonable reporting of fraud.‘” See id. (quoting 148 Cong. Rec. S7418-01, S7420 (daily ed. July 26, 2002)). That broad statement does not support the standardless liability imposed by Sylvester, but, more to the point, we are not trying to apply legislative history. Our job is to interpret and apply the statute itself. The plain language of § 806 protects only reporting of conduct that an employee “reasonably believes” constitutes a violation of one of four specific fraud provisions set forth in federal criminal law, or certain SEC rules and regulations, or, at the catch-all level, any other provision of federal law that targets “fraud against shareholders.”
806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.“); id. (“[A] complainant ... [need not] allege, prove, or approximate that the reported irregularity or misstatement satisfies securities law ‘materiality’ standards, was done intentionally, was relied upon by shareholders, and that shareholders suffered a loss because of the irregularity.“).8
Trying to apply the impossibly vague “standard” of Sylvester, the Majority has adopted an internally inconsistent test. On one hand, my colleagues rightly reject the argument offered by our amicus, the National Whistleblower Center, that no more than an employee‘s own subjective good faith belief is required to allege a § 806 violation. (See Majority Op. at 132 (“As explained in Sylvester, the reasonable belief standard also includes an objective element.“).) On the other hand, they go on to conclude that the ARB “expressly rejected” the District Court‘s interpretation of § 806 as requiring that Wiest demonstrate “an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors which were material and which risked loss.” (Majority Op. at 133 (quoting Wiest
ed law in order “to trigger the protections of the Act“); Day, 555 F.3d at 54 (treating the “definitively and specifically” requirement and “reasonable belief” requirement separately); Allen, 514 F.3d at 477 (same). Consequently, although the ARB eliminated the “definitive and specific” standard as “an inappropriate test [that] is often applied too strictly,” 32 IER Cases at 509, the determination of the objective reasonableness of a SOX complainant‘s belief remains a necessity.
Pre-Sylvester case law from federal courts made it clear that “[t]he reasonableness of [a SOX complainant‘s] belief for purposes of § [806] must be measured against the basic elements of the laws specified in the statute.” Day, 555 F.3d at 55. Logically, that ought still to be the case. Section 806 references identifiable pieces of positive law. They are not mere generalities and they do not open the door to whistleblower relief to anyone with vague feelings of unease or even specific discomfort with something other than that which is identified in § 806. Particularly pertinent here, “ ‘[f]raud’ itself has defined legal meanings and is not, in the context of SOX, a colloquial term.” Id.10 Section 806
thus requires a SOX whistleblower to demonstrate that he has done more than criticize undesirable corporate conduct. He is required to demonstrate that his protected communication concerned a “violation” of one of the listed statutes or of an SEC rule or regulation or other Federal law relating to fraud on shareholders. A violation can only be said to “relat[e] to ... fraud against shareholders” if it manifests at least some of the elements of fraud as defined in the securities context, such as falsity, scienter, and materiality. Cf. In re Cabletron Sys., Inc., 311 F.3d 11, 34 (1st Cir.2002) (“Merely stating in conclusory fashion that a company‘s books are out of compliance with GAAP would not in itself demonstrate liability under section 10(b) or Rule 10b-5.“); DSAM Global Value Fund v. Altris Software, Inc., 288 F.3d 385, 390 (9th Cir.2002) (“[T]he mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, does not establish scienter” in a securities fraud
them, provides an increased measure of protection for their reputations, and reduces the number of frivolous suits,” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir.1997), while the PSLRA is intended to “curb frivolous lawyer-driven litigation, while preserving the [plaintiffs‘] ability to recover on meritorious claims,” Winer Family Trust v. Queen, 503 F.3d 319, 326 (3d Cir.2007). Notwithstanding the ARB‘s conclusion that those sorts of heightened pleading requirements “should not be applied to SOX whistleblower claims,” Sylvester, 32 IER Cases at 505, the same concerns that gave rise to those requirements suggest that communications that serve as the basis of a claim under § 806 should contain something more than vague allegations concerning a possible fraud. I am not suggesting the importation of pleading standards to the review of a whistleblower‘s allegedly protected communications. I am suggesting that it is not too much to ask for some specificity, especially since SOX whistleblower protection has the effect of shielding an employee from any disciplinary action and should not be lightly granted.
In this case, the application of a test of objective reasonableness that looks to the elements of securities fraud shows Wiest‘s allegedly protected communications for what they are: a bookkeeper‘s sensible inquiries about proper accounting for expenses, not allegations of fraud. Wiest‘s statements about the Atlantis Resort Event prove the point. The Majority concludes that “[a] reasonable person in Wiest‘s position who had seen the expense request for the extravagant Atlantis event could have believed that treating the Atlantis event as a business expense may
As the ARB sees it, the “plain language” of § 806 somehow demands a different result from the one it previously insisted on in Platone. See Sylvester, 32 IER Cases at 508 (saying that “the ALJ failed to focus on the plain language of the SOX whistleblower pro-have violated a provision of Section 806....” (Majority Op. at 28.) A fair question is “which one?” Wiest does not claim that he reasonably believed that “extravagance” or the possible reporting of employee expenses as advertising expenses constituted mail fraud, wire fraud, or bank fraud. He alleges rather that, “if Tyco had processed the transaction as originally submitted, it ‘would have resulted in a misstatement of accounting records and a fraudulent tax deduction.‘” (Majority Op. at 135 (quoting App. at 43).) That would seem to point to a violation of
Under the Majority‘s approach, the ARB will be “able to disregard that construction and seek Chevron deference for its contrary construction the next time around.” Nat‘l Cable & Telecommc‘ns Ass‘n, 545 U.S. at 1017 (Scalia, J., dissenting). Stare decisis is not a straitjacket, but it must mean something more than “this is the law until the executive branch unilaterally changes its mind.”
ited to the facts conveyed by a whistleblower to the employer” (id. at 134), Wiest‘s Atlantis Event allegation is belied by the record and is inconsistent with applicable tax law. Wiest‘s email regarding the Atlantis Event simply requested that “the relevant tax department resources” review the proposed costs to determine if some would not have been fully deductible as business expenses but rather would have to be treated as employee compensation and reported as income to employees attending. (See App. at 102 (suggesting that the “meal and entertainment portions” might “fall into the 50% deductibility classification for tax purposes” and that expenses associated with spouses and friends attending the event should be “recorded as income to the employees attending“).) As Wiest himself
establish a violation of any of the laws referenced in § 806.
Given the present record, two final observations should be made about the Majority‘s application of the objective reasonableness standard. First, even Sylvester acknowledged that objective reasonableness “is evaluated based on the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the aggrieved employee.” Sylvester, 32 IER Cases at 507 (quoting Harp, 558 F.3d at 723) (internal quotation marks omitted). When an employee is a licensed CPA, and thus able to distinguish between violations of accounting rules and violations of SEC rules or regulations, a failure to do so tends to show his asserted belief that a violation of the latter has occurred to be less than objectively reasonable. Cf. Allen, 514 F.3d at 477 (finding that, although a violation of an SEC accounting bulletin could fall within the general “fraud against shareholder” category of § 1514A, the complainant CPA‘s belief as to the violation was not objectively reasonable). Wiest is a trained accountant who had more than thirty years experience in Tyco‘s accounting department, which, as the Majority points out, had been under “a high level of audit scrutiny” for
admits in his complaint, the result of that review was that Tyco determined that “[t]he trip did not qualify as a business expense per IRS guidelines and[] ... would have to be treated as an award and as income to the attendees and reported on their W-2s.” (App. at 45.) Compensation to employees is treated as a business expense for federal tax purposes, see
Second, as the ARB acknowledged in Sylvester, “many of the laws listed in § [806] of SOX contain materiality requirements,” and “[i]t may well be that a complainant‘s complaint concerns such a trivial matter that he or she did not engage in protected activity under Section 806.” 32 IER Cases at 512. For that grudging acknowledgement of a materiality requirement to be consistent with existing law concerning fraud against shareholders, a SOX complainant must believe that there is “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Basic, Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976) (internal quotation marks omitted)); see also TSC Indus., 426 U.S. at 448 (acknowledging that certain information concerning corporate developments is of “dubious significance“). Wiest‘s allegedly protected communications concerned transactions with no financial impact on Tyco, see supra note 12, or internal control practices that are not financial in nature and are not reported to shareholders. The subjects of Wiest‘s communications were not material, and contrary to the Majority‘s conclusion, those communications do not demonstrate an objectively reasonable belief that a shareholder fraud was being threatened.
The essence of Wiest‘s assertion that the conduct he found objectionable “relates to” fraud against shareholders for purposes of § 806 is, as his attorney put it to the District Court, that “every time you improperly allocate money to something that is improper, you are affecting the value of the company, and the value of the company is determined by individuals who buy and sell stock.” (App. at 290-91.) That sweeping statement, which even the attorney attempted to walk back at oral argument before us, underscores the flaw in the Majority‘s approach to post-Sylvester objective reasonableness. If it is unnecessary to measure a SOX complainant‘s reasonable belief against at least some of the elements of securities fraud, like materiality, then virtually any internal questioning of an accounting mistake or a judgment call turns the questioner into a SOX whistleblower, and that cannot be right.
As the District Court correctly noted, Wiest “failed ... to plead facts reflecting [his] reasonable belief that his communications regarding the tax treatment of certain company expenses related—in any way, definitively and specifically, or otherwise—to shareholder fraud or a violation of one of the statutes or rules listed in § [806].” Wiest v. Lynch, No. 10-3288, 2011 WL 5572608, at *4 (E.D.Pa. Nov. 16, 2011). The District Court recognized that the protection afforded SOX whistleblowers is limited to communications that relate to violations of the law specified in § 806, and it assessed the reasonableness of Wiest‘s alleged belief consistent with the