Jones v. Southpeak Interactive Corp.

ANDREA GAIL JONES, Plaintiff,

v. SOUTHPEAK INTERACTIVE CORP., TERRY M. PHILLIPSand MELANIE J. MROZ, Defendants.

Civil Action No. 3:12cv443

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGIN Richmond Division

Dated: March 19, 2013

MEMORANDUM OPINION

For the reasons set forth herein Terry M. Phillips' ("Phillips") and Melanie Mroz's ("Mroz") Fed. R. Civ. P. 12(b)(1) MOTIONS TO DISMISS (Docket Nos. 9, 11) are denied; defendants Phillips and Mroz's Fed. R. Civ. P 12(b)(6) MOTIONS TO DISMISS (Docket Nos. 10, 13) are granted; defendant SouthPeak Interactive Corp.'s ("SouthPeak") Fed R. Civ. P. 12(b) (6) MOTION TO DISMISS (Docket No. 15) is granted; and all defendants' MOTION TO DISMISS COUNT I BASED ON A TWO-YEAR STATUTE OF LIMITATIONS (Docket No. 61) is denied.

FACTUAL AND PROCEDURAL BACKGROUND

This action arises out of Andrea Jones' ("Jones") tenure, and termination, as Chief Financial Officer of SouthPeak, which is a publisher of video games based in Midlothian, Virginia.¹ Jones wasnamed Southpeak's Chief Financial Officer in October 2007. At all times relevant to this action, Phillips was Chairman of the Board of SouthPeak and Mroz was the President, Chief Executive Officer, and a Director of SouthPeak.

In February 2009, Phillips and Mroz agreed that Philips would advance $307,400 of his personal funds to enable SouthPeak to purchase 50, 400 units of a computer game from Nintendo. (Compl. ¶¶ 33-34). Following receipt of the inventory, the Vice-President of Operations at SouthPeak, Patrice Strachan, instructed (a) that the inventory be reflected on the books of the company, but (b) that the advance made by Phillips not be listed as a payable or a liability. (Compl. ¶¶35-36). Strachan further directed that no one talk about the advance. (Compl. ¶36). As a result, the quarterly financial report for SouthPeak erroneously reflected the sale of the inventory, but not the cost of purchasing it. (Compl. ¶38) . At some point toward the end of May 2009, Jones became aware of this discrepancy. (Compl. ¶ 40). Based on her conversations with persons at the company, Jones concluded that the failure to report the advance was part of an attempt by Phillips and SouthPeak to inflate the reported profits of the company. (Compl. ¶42).

Between June 2009 and August 2009, Jones made numerous attempts to report the activity to the Audit Committee of SouthPeak and to its outside counsel, none of which led to any results. (Compl. ¶¶ 44-71). On August 12, 2009, Jones filed a complaint with the Enforcement Division of the Securities and Exchange Commission ("SEC"). (Compl. ¶ 72). On August 14, 2009, Phillips and Mroz informed the plaintiff that she was being terminated effective immediately. (Id. ¶ 74).

On October 5, 2009, Jones' counsel timely filed an administrative complaint with the Occupational Safety and Health Administration ("OSHA") as required by 18 U.S.C. § 1514A(b)(1)(A) and 29 C.F.R. § 1980.103. On July 23, 2010, Jones notified OSHA of her intention to pursue the matter in the district court as permitted by 18 U.S.C. § 1514A(b)(1)(B). On June 18, 2012, Jones filed this action against SouthPeak as well as Phillips and Mroz alleging that she had been terminated in retaliation for her report to the SEC Enforcement Division and seeking relief as provided for by the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), codified at 18 U.S.C. § 1514A and the Dodd-Frank Wall Street Reform Act of 2010 ("Dodd-Frank"), codified at 15 U.S.C. § 78u-6.

On August 13, 2012, Mroz and Phillips filed their motions to dismiss asserting (1) that Jones had failed to exhaust the administrative remedies on the Sarbanes-Oxley claim as to them, thusstripping the Court of jurisdiction; and (2) that Jones' Dodd-Frank claim was barred by the presumption against retroactivity or, in the alternative, did not permit suits against individuals. Contemporaneously, SouthPeak filed its motion to dismiss the Dodd-Frank claim against it because the statute did not apply retroactively. The parties conducted jurisdictional discovery on the administrative exhaustion question and filed their supplemental positions on the issue of jurisdiction. In the meantime, the defendants filed an additional motion to dismiss the Sarbanes-Oxley claim as untimely. Oral argument was held on all the motions on March 5, 2013 and the motions are now ripe for decision.

DISCUSSION

Collectively, the motions present four basic questions: (1) whether the plaintiff adequately exhausted her administrative requirements as to the individual defendants (Phillips and Mroz) under Sarbanes-Oxley; (2) which statute of limitations applies to the Sarbanes-Oxley claim at issue here; (3) whether the provision in Dodd-Frank allowing for a discharged whistleblower to recover two times the owed back pay applies to conduct that occurred before the enactment of the provision; and (4) whether the term "employer," as used in Dodd-Frank, encompasses the individual officers of the corporation. These issues will be addressed in turn.

Sarbanes-Oxley Claim

Exhaustion of Administrative Remedies

Sarbanes-Oxley, as codified at 18 U.S.C. § 1514A(a), prohibits any publicly traded company, or any officer thereof, from discharging or otherwise discriminating against any employee who "provide[s] information, cause[s] information to be provided, or otherwise assist[s] in an investigation regarding any conduct which the employee reasonably believes constitutes a violation" of an enumerated set of federal laws and regulations. 18 U.S.C. § 1514A(a)(1). The statute further provides that "a person who alleges discharge or other discrimination by any person in violation" of the above section may "seek relief" by, initially "filing a complaint with the Secretary of Labor" and, "if the Secretary has not issued a final decision within 180 days of the filing of the complaint," the complainant may bring an action "for de novo review in the appropriate district court of the United States." 18 U.S.C. § 1514A(b) (1) (A)-(B). The statute goes on to direct that the complainant must make the administrative complaint as provided in 4 9 U.S.C. § 42121(b). 18 U.S.C. § 1514A(b)(2)(A).

Section 42121, in turn, provides that a person alleging discrimination must "file (or have any person file on his or her behalf) a complaint with the Secretary of Labor alleging such discharge or discrimination." 49 U.S.C. § 42121(b)(1). After thecomplaint is filed, the Secretary must "notify, in writing, the person named in the complaint . . . of the allegations contained in the complaint, of the substance of evidence supporting the complaint, and of the opportunities that will be afforded to such person." Id. The Secretary has designated OSHA as the appropriate agency with which to file a retaliation complaint under §1514A. See 29 C.F.R. § 1980.103(c) ("The complaint should be filed with the OSHA office responsible for enforcement activities in the geographical area where the employee resides or was employed . . . .). The pertinent regulation provides that "[n]o particular form of complaint is required. A complaint may be filed orally or in writing." 29 C.F.R. 1980.103(b).

The exhaustion requirement exists to allow "OSHA the opportunity to resolve the allegations administratively." Smith v. Psychiatric Solutions, Inc., 2009 WL 903624 at *8 (N.D. Fla. Mar. 31, 2009). There is no question that compliance with statutorily required administrative exhaustion is jurisdictional in nature. See e.g. JDS Uniphase Corp. v. Jennings, 473 F. Supp. 2d 705, 710 (E.D. Va. 2007) (noting that "[t]his exhaustion requirement is jurisdictional").

Jones filed her administrative complaint in the form of a three-page letter from her attorney, Thomas Bowden, to the RegionalAdministrator of OSHA. To that letter, Jones attached a four-page narrative description of her discovery of and attempts to report the perceived violation, as well as copies of numerous communications that Jones had with various individuals before, during, and after her decision to report the violation to the SEC. See Administrative Complaint and Exhibits (Docket NO. 51-1). The letter from Mr. Bowden contained a series of bolded paragraph headings. Under Paragraph 2, the complaint purports to list: "The names and addresses of the company(s) and person(s) who are alleged to have violated the Act (who the complaint is being filed against):" In that paragraph, Jones' Complaint listed:

SouthPeak Interactive Corporation

2900 Polo Parkway

Midlothian, VA 23113

Terry Phillips, Chairman of the Board

Patrice Strachan, Vice President of Operations

Melanie Mroz, Chief Executive Officer

After receiving the complaint, the OSHA regional office sent a letter to SouthPeak (but not to the individuals listed) notifying it that a claim had been filed. It is undisputed that OSHA failed to investigate the Sarbanes-Oxley claim against the individual defendants and that the individual defendants were not specifically notified by Jones of the claim against them until she notified them of the lawsuit. It would be unfair to impute OSHA's failures to Jones if she had adequately named the individual defendants in hercomplaint. Therefore, the question is whether Jones properly filed an administrative complaint against the individual defendants.

The defendants rely, principally, on three decisions to support their contention that Jones failed properly to name the individual defendants: Smith v. Psychiatric Solutions, Inc., 2009 WL 903624 (N.D. Fla. March 31, 2009); Bozeman v. Per-Se Technologies, Inc., 456 F. Supp. 2d 1282 (N.D. Ga. 2006); and Hanna v. WCI Communities, Inc., 2004 WL 6072492 (S.D. Fla. Nov. 29, 2004). In each of those actions, the plaintiff had failed to clearly identify certain defendants in the "heading" or elsewhere in the administrative complaint and the court, accordingly, found that the administrative remedies had not been exhausted as to those defendants. See Smith, 2009 WL 903624 at *8 (dismissing a Sarbanes-Oxley complaint...