Clegg v. Amcor Rigid Packaging U.S. LLC

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MICHAEL CLEGG, Plaintiff, v. AMCOR RIGID PACKAGING USA, LLC, Defendant.

Civil Action No. 5:21-232-DCR

United States District Court, E.D. Kentucky, Central Division, Lexington

January 3, 2022

MEMORANDUM OPINION AND ORDER

Danny C. Reeves, Chief Judge

The Sarbanes-Oxley Act of 2002 (“SOX”) was congress's response to a series of major corporate and accounting scandals, typified by the collapse and fall of companies like Enron and WorldCom. SOX makes it illegal for publicly traded companies to retaliate against an employee who reports suspected fraud or who assists in a fraud investigation or enforcement proceeding. See 18 U.S.C. § 1514A. To effectuate the protection of these whistleblowers, SOX created a private right of action allowing employees who believe they have been retaliated against to file suit directly in federal court. See 18 U.S.C. § 1514A(b)(1)(B). Plaintiff Michael Clegg brings such an action against his former employer, Defendant Amcor Rigid Packaging USA, LLC (“Amcor”). [Record No. 1]

Clegg alleges that he was terminated in retaliation for his opposition to improper inventory practices. [Id. ¶¶ 12-23] Amcor has responded with a motion to dismiss, arguing that Clegg has failed to plead facts sufficient to establish that he was engaged in a protected activity. [Record No. 10, p. 1] After carefully considering this matter, Amcor's motion will be granted because no reasonable person would believe that the facts known to Clegg justified his belief that illegal conduct was occurring.

I.

Amcor is a subsidiary of Amcor plc, a publicly traded company with annual sales of $12.9 billion.^[1] [Record No. 10-1, p. 7, 27] The defendant operates fifty-one facilities across eleven countries, and accounts for 22% of Amcor plc's consolidated sales. [Id.]

Amcor hired Clegg in July 2018. [Record No. 1, ¶ 5] He was transferred to Amcor's Nicholasville, Kentucky facility to work as a Supply Chain Manager in July of 2020. [Id.] As a Supply Chain Manager, Clegg was responsible for “accurately assess[ing] and report[ing] the facility's inventory reconciliation.” [Id., ¶ 6] This included adjusting or “writing-down” discrepancies found in the cycle counts of materials like plastic bottles, cardboard, and wooden shipping pallets. [Id.]

Clegg alleges that, during his employment in Nicholasville, he discovered “serious improprieties” in the facility's inventory practices. [Id. ¶¶ 8-11] Setting aside the generalized allegations of “suspicious and incorrect . . . practices, ” Clegg provides only two concrete examples of improprieties. [Id., ¶¶ 8-15] The first involves “a large quantity of . . . plastic bottles being stored in an improper location.” [Id., ¶ 12] Clegg asserts that this was done to avoid writing off the value of the bottles on the company's financial statements. [Id.] He admits, however, that when he raised this problem with management, they promised to “tak[e] efforts to resolve the issue[].” [Id.]

The second of Clegg's well-pleaded allegations details “an issue with the Nicholasville plant's cycle count of cardboard.” [Id., ¶ 14] Cycle counting is an ongoing method of auditing by which a company confirms that their physical inventory matches their computerized records. Clegg asserts that one of his subordinates found “[d]iscrepancies” in the cycle count, and that the plant manager initially refused to accept the count. [Id., ¶ 14] But after additional counts to confirm the discrepancy, the plant manager “agreed to accept the cycle count” and to “properly document the loss with a six-figure write-off.” [Id., ¶ 15] According to Clegg, these improprieties caused Amcor to overstate its assets by a total of “several hundred thousand[] . . . dollars.” [Id., ¶¶ 8, 10]

Amcor placed Clegg on a Performance Improvement Plan several weeks after the second incident, citing his inability to get along with other employees and the fact that he was a “bully.” [Id., ¶ 16, 25] Amcor terminated Clegg's employment on or about November 16, 2020, citing his “failure to improve.” [Id., ¶ 22] Clegg then filed this action. [See generally Record No. 1.]

II.

Rule 12 of the Federal Rules of Civil Procedure allows a party to seek dismissal of a complaint that fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible upon its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court construes the complaint in the plaintiff's favor and accept all well-pleaded allegations as true. Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007) (citing Evans-Marshall v. Bd. of Educ., 428 F.3d 223, 228 (6th Cir. 2005)). However, it need not accept as true legal conclusions or unwarranted factual inferences. Id. (quoting Gregory v. Shelby Cnty., 220 F.3d 433, 446 (6th Cir. 2000)). The Court will dismiss a complaint if the factual allegations are insufficient “to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

III.

To bring a SOX retaliation claim, a plaintiff must allege facts to support that: (1) he engaged in protected activity; (2) his employer knew or suspected that he engaged in the protected activity; (3) he suffered an adverse personnel or employment action; and (4) the protected activity was a contributing factor in the unfavorable action. Rhinehimer v. U.S. Bancorp Invs., Inc., 787 F.3d 797, 805 (6th Cir. 2015) (citing Feldman v. Law Enf't Assocs. Corp., 752 F.3d 339, 344 (4th Cir. 2014)).

Here, the only question is whether Clegg was engaged in protected activity. [See Record No. 10, p. 8.] To establish that he was engaged in a protected activity, the plaintiff must show that he “reasonably believe[d] that the conduct complained of constitutes a violation of” one of the provisions enumerated in § 1514A.^[2] Rhinehimer, 787 F.3d at 811 (internal quotation marks omitted) (quoting Sylvester v. Parexecl Int'l LLC, ARB No. 07-123, 2011 DOLSOX LEXIS 39, at *31 (Dep't of Labor May 25, 2011)). Reasonable belief includes both an objective and a subjective component, as the name suggests. Id. (citing Nielsen v. AECOM Tech. Corp., 762 F.3d 214, 221 (2nd Cir. 2014)). The subjective component requires that the plaintiff “actually believe” the conduct complained of was a violation of § 1514A. Id. Amcor does not contest Clegg's subjective belief. Instead, it focuses on whether that belief was objectively reasonable. [See Record No. 10, p. 10.]

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. Rhinehimer, 787 F.3d at 811. The Court considers the totality of the circumstances present at the time of the complaint in conducting this evaluation. Id. (citing Livingston v. Wyeth, Inc., 520 F.3d 344, 361 (4^th Cir. 2008) (Michael, J., dissenting)). The issue is fact-dependent and should be decided as a matter of law only when no reasonable person could have believed that the facts known to the employee justified their belief that illegal conduct was occurring. Id.

Thus, the relevant question is whether any reasonable supply chain manager would believe that the facts taken from Clegg's Complaint justify the belief that Amcor was committing shareholder fraud. And the answer to that question is no. The totality of the circumstances illustrates that Clegg's belief of shareholder fraud was objectively unreasonable.

First, the conduct that was the subject of Clegg's complaints was exceedingly minor. As several courts have noted, “a complainant's complaint [may] concern[] such a trivial matter . . . that he or she did not engage in protected activity under [§ 1514A].” Nielsen, 762 F.3d at 222 (internal quotation marks omitted) (quoting Sylvester, 2011 DOLSOX LEXIS 39, at *19). Clegg's Complaint contains only two well-pleaded allegations forming the basis of his purportedly protected activity. [See Record No. 1.] The first concerns the alleged improper storage of a “large quantity” plastic bottles, while the second concerns purported discrepancies in the cycle count of cardboard. [Id., ¶¶ 12-15] Taking Clegg's assertions as true, the combined impact of both incidents was well under a million dollars. [See id., ¶ 10 (noting that the combined total of the improprieties was “equal to several hundred thousand[] . . . dollars.”).]

As discussed above, Defendant Amcor is a subsidiary of Amcor plc, and accounts for approximately 22% of Amcor plc's $12.9 billion in annual sales. [Record No. 10-1, pp. 7, 27] Thus, a one-million-dollar loss represents just 0.035% of Amcor's revenue. [See id.] Such a sum would constitute a “minor discrepancy to a company that annually generates billions of dollars” in revenue. Beacom v. Oracle Am., Inc., 825 F.3d 376, 381 (8th Cir. 2016) (holding that plaintiff's belief of shareholder fraud based on a $10 million discrepancy was objectively unreasonable); see also Westacki v. Merck & Co., 215 F.Supp.3d 412, 429 (E.D. Pa. 2016) (“Considering [the company's] revenue stream, it cannot be said that such a small amount meets the materiality requirement for an objectively reasonable belief in shareholder fraud.”). Because the sum is minor, it “bears only a tenuous relationship to shareholder interests.” Colesanti v. Dickinson, No 18-491WES, 2019 U.S. Dist. LEXIS 145578, at *21 (D.R.I. July 19, 2019). Thus, the factual allegations taken from Clegg's Complaint do not support an objectively reasonable belief that Amcor was committing shareholder fraud. See Gibney v. Evolution Mktg. Rsch., LLC, 25 F.Supp.3d 741, 748 (E.D. Pa. 201...