Lead Opinion
OPINION OF THE COURT
Appellant Jeffrey Wiest brought an action under the whistleblower protection provisions set forth in Section 806 of the Sarbanes-Oxley Act (“SOX”), 18 U.S.C. § 1514A, and under Pennsylvania law against Appellees Tyco Electronics Corporation and several officers and directors of Tyco Electronics (collectively, “Tyco”). The District Court granted Tyco’s Motion to Dismiss the federal whistleblower claims, declined to exercise supplemental
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 Wi-est’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 18 U.S.C. § 1514A.
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 29 C.F.R. § 1980.104(e)(2)(i) — the District Court determined that Wiest had to allege that his communications (a) “definitively and spe
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 Pla-tone ’s “definitive and specific” standard in favor of a “reasonable belief’ standard in Sylvester v. Parexel Int’l LLC, ARB 07-123,
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 28 U.S.C. § 1331 and we have appellate jurisdiction under 28 U.S.C. § 1291.
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 Federal Rule of Civil Procedure 59(e) motion to alter or amend a judgment, the prescribed time limits are claims-processing rules, rather than jurisdictional rules. Lizardo v. United States,
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,
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,
In addition, we review a district court’s dismissal pursuant to Rule 12(b)(6) de novo. Phillips v. Cnty. of Allegheny,
C. Whistleblower Claims Under Section 806 of SOX
SOX Section 806 prohibits publicly traded companies and their employees from retaliating against an employee who
*129 provide[s] information, eause[s] information to be provided, or otherwise assists] in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341 [mail fraud], 1343 [wire, radio, or television fraud], 1344 [bank fraud], or 1348 [securities and commodities fraud], any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information is provided to or the investigation is conducted by ... a person with supervisory authority over the employee (or such other person working for the employer who has the authority to investigate, discover, or terminate misconduct) ....
18 U.S.C. § 1514A. To establish a prima facie case for a Section 806 claim, the employee must allege that he or she (1) “engaged in a protected activity;” (2) “[t]he respondent knew or suspected that the employee engaged in the protected activity;” (3) “[t]he employee suffered an adverse action;” and (4) “[t]he circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the adverse action.” 29 C.F.R. § 1980.104(e)(2)(i)-(iv).
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. 18 U.S.C. § 1514A(b)(1)(A), (2) (incorporating the Department of Labor complaint procedures under 49 U.S.C. § 42121(b)). If the Secretary fails to issue a final decision within 180 days of the filing of the complaint, the complainant may also file a civil action in federal district court. Id. § 1514A(b)(1)(B). The Secretary of Labor has delegated the authority to review appeals under Section 806 and issue final agency decisions to the ARB. Delegation of Authority and Assignment of Responsibility to the Administrative Review Board, 75 Fed. Reg. 3924, 3924-25 (Jan. 25, 2010).
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,
In Sylvester, however, the ARB abandoned the “definitive and specific” standard announced in Platone. Sylvester,
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,
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,
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.,
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,
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,
While agreeing that the definitive and specific standard should be jettisoned, ami-cus 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,
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 33
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,
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 “[wjhistleblower 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,
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,
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,
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 Wi-est’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.
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.
3. The Wintergreen Resort Event
Regarding the $356,000 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
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 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
For the foregoing reasons, we reverse the District Court’s Order denying Wiest’s Motion for Reconsideration. See McDowell v. Phila. Housing Auth.,
Notes
. The enumerated provisions are mail fraud, wire fraud, bank fraud, securities fraud, "any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders...." 18 U.S.C. § 1514A.
. The District Court noted that the Motion for Reconsideration was untimely under Local Rule 7.1(g), but nonetheless decided the motion on the merits.
. In addition, we have also held more plainly that "[a] timely appeal from a denial of a Rule 59 motion to alter or amend ‘brings up the underlying judgment for review.’ " Fed. Kem-per Ins. Co. v. Rauscher,
. In decisions issued subsequent to Sylvester, the ARB has asserted that the definitely and specifically standard does in fact conflict with the language of Section 806. See Zinn v. Am. Commercial Lines, Inc., ARB No. 10-029,
. The Dissent asserts that the accounting treatment of the Atlantis event does not suggest fraudulent conduct, characterizing the manner in which the event's expenses were originally to be treated as an "error” or "mistake.” (Dissenting Op. at 144-45 n.12.) That characterization ignores the fact that we are dealing solely with the allegations of a complaint, which must be viewed in the light most favorable to Wiest. See Phillips,
. The Dissent questions whether unauthorized expenditures for the Wintergreen Resort event could support a claim under one of the anti-fraud laws listed in § 806. Approval authorities exist to ensure that large expenditures are undertaken for appropriate business purposes. Expenditures for which required approvals have not been obtained raise the specter that they are not undertaken for an appropriate business purpose. Once again, 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.
. In light of the reinstatement of the SOX Section 806 claims, the District Court's decision to decline to exercise supplemental jurisdiction will be vacated.
Dissenting Opinion
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 18 U.S.C. § 1514A), I respectfully dissent.
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, Die.,
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.” 29 C.F.R. § 1980.104(e)(2); see also Day,
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 plaintiffs 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 plaintiffs mind or how the plaintiff may later describe his actions; it is what is communicated to the employer that counts. See Welch,
The imperative that the whistleblower sound off with clarity was the subject of the ARB’s opinion in Platone v. FLYi, Inc.,
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,
[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 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,
To discredit the “definitive and specific” requirement, the ARB said that the requirement had been erroneously drawn from a different statute. The whistleblow-ing provision in the Energy Reorganization Act (“ERA”), 42 U.S.C. § 5851, protects an employee who participates in any “proceeding or in any other action to carry out the purposes” of that statute. 42 U.S.C. § 5851(a)(1)(F). The ARB reasoned that the “importation” of a pleading
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.
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,
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
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,
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 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 18 U.S.C. § 1348, which involves fraud in connection with a sale of securities, or of a “rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. § 1514A(a)(1). However, Wiest’s communication with Tyco about the Atlantis Event contains none of the elements of a securities fraud. In particular, it contains no hint of falsity but rather suggests that an accounting judgment was faulty and needed to be corrected, which it was.
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.”
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.”
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 whis-tleblower, 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,
. In contrast to § 806, other whistleblower statutes often identify the targeted wrongdoing within the same statutory scheme. See, e.g., 42 U.S.C. § 7622(a)(1) (defining protected conduct pursuant to the Clean Air Act as having "commenced, caused to be commenced, or [to be] about to commence ... a proceeding” under the Act or testifying or assisting in such a proceeding); 42 U.S.C. § 5851(a)(1) (defining protected conduct pursuant to the Energy Reorganization Act as having notified an employer of a violation of the Act, refusing to engage in practices prohibited by the Act, or commencing or testifying in a proceeding regarding violations of the Act); 30 U.S.C. § 815(c)(1) (defining protected conduct pursuant to the Federal Mine Safety and Health Act as having "filed or made a complaint under or related to” the Act); 29 U.S.C. § 158(a)(4) (defining protected conduct pursuant to the National Labor Relations Act as having "filed charges or given testimony” under the Act); 31 U.S.C. § 3730(h)(1) (defining protected conduct under the False Claims Act as "lawful acts done by the employee[ ] ... in furtherance of an action under [the Act] or other efforts to stop 1 or more violations of [the Act]”).
. The Majority contends that “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.” (Majority Op. at 134.) That, however, is contradicted by what the Majority acknowledges is the second element of a § 806 claim, namely that the employer “knew or suspected that the employee engaged in the protected activity.” {Id. at 129 (internal quotation marks omitted).) The communication of a suspected fraud is the protected activity.
. See, e.g., Van Asdale v. Int’l Game Tech.,
. The rather tenuous connection between the company’s conduct and "fraud against shareholders” that the Sylvester employees asserted was that, "by covering up clinical research fraud ... Parexel engaged in fraud against its shareholders, financial institutions, and others” because disclosure of the compliance failures would have been "at the expense of the long-term financial performance of the company ... [and] would have significantly reduced Parexel’s revenue and reputation.” Sylvester v. Parexel Int’l LLC,
. Chevron deference extends only to reasonable agency interpretations of ambiguous statutory language. See Chevron U.S.A., Inc. v. Natural Res. Def. Council,
. 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,
. Moreover, prior to Sylvester, our sister circuits treated the "definitive and specific” requirement as separate from the statutory requirement of reasonable belief. See, e.g., Welch,
. The Majority follows the ARB’s approach, concluding that a “whistleblower's communication need not ring the bell on each element of one of the stated provisions of federal law in [§ 806]” (Majority Op. at 134), without specifying which, if any, bells must be rung.
. The Majority perceives no inconsistency because it "doles] not think Congress intended such a formalistic approach to the question of whether an employee has engaged in 'protected activity.’ ” (Majority Op. at 132.) I do not agree that requiring that an allegedly protected communication clearly relate to one of the laws enumerated in § 806 is an exercise in formalism. But even if it were, Congress has expressed its intent in the text of the statute, which sets forth the particular laws that may give rise to a SOX whistleblower claim.
. The Majority correctly points out that an employee’s reasonable belief may not always be determined as a matter of law or on the basis of averments in a complaint. However, a SOX whistleblower's claim must be based on allegations of mail, wire, and securities fraud, which are required to be pled with specificity pursuant to Federal Rule of Civil Procedure 9(b) or are subject to the heightened pleading standards of the Private Securities Litigation Reform Act (PSLRA), Pub. L. No. 104-67, 109 Stat. 737 (1995). Rule 9(b) "gives defendants notice of the claims against them, provides an increased measure of protection for their reputations, and reduces the number of frivolous suits,” In re Burlington Coat Factory Sec. Litig.,
. We are not required to follow — and arguably are constitutionally compelled to reject— an agency’s reversal of course that contradicts prior judicial interpretations of a statute. “Article III courts do not sit to render decisions that can be reversed or ignored by executive officers.” Nat’l Cable & Telecommc’ns Ass'n v. Brand X Internet Servs.,
. My colleagues in the Majority appear to have been persuaded by an allegation in Wiest’s complaint that, but for his intervention, the Atlantis Event would have resulted in "a misstatement of accounting records and a fraudulent tax deduction.” (Majority Op. at 124 (quoting App. at 43-44) (internal quotation marks omitted).) Following the Majority's instruction that the determination of reasonable belief "should be based upon all of the attendant circumstances, and not be lim