Verble v. Morgan Stanley Smith Barney, LLC

148 F.Supp.3d 644

John S. Verble, Plaintiff,

v.Morgan Stanley Smith Barney, LLC, and Morgan Stanley & Co., Inc., Defendants.

No.: 3:15-CV-74-TAV-CCS

United States District Court, E.D. Tennessee, at Knoxville.

Filed December 8, 2015

Jackie Sharp, Jr, Sharp Law, P.C., Nashville, TN, Richard Neely, Neely & Callaghan, Charleston, WV, for Plaintiff.

Andrew J. Schaffran, Morgan, Lewis & Bockius, LLP, New York, NY, Sarah E Bouchard, W. John Lee, Morgan, Lewis & Bockius, LLP, Philadelphia, PA, Keith D. Frazier, Ogletree, Deakins, Nash, Smoak

& Stewart, P.C., Nashville, TN, for Defendants.

MEMORANDUM OPINION

Thomas A. Varlan, CHIEF UNITED STATES DISTRICT JUDGE

This civil matter is before the Court on the motion to dismiss filed by defendants Morgan Stanley Smith Barney, LLC (“MSSB”) and Morgan Stanley & Co., Inc. (“MSC”) [Doc. 10].¹ Plaintiff filed a response [Doc. 17], and defendants replied [Doc. 19]. The United States Securities and Exchange Commission (“SEC”) filed an Amicus Curiae brief on behalf of plaintiff [Doc. 22], and defendants responded [Doc. 23]. The SEC also filed four notices of supplemental authority [Docs. 24, 26, 28, 30], and defendants responded to each notice [Docs. 25, 27, 29, 31]. After careful consideration of the complaint and the relevant law, the Court will grant defendants' motion to dismiss plaintiff's complaint and will dismiss this case.

I. Background²

Plaintiff began working for defendant, MSSB, as a financial advisor in November 2006 [Doc. 1 ¶ 9]. Plaintiff alleges that between November 2006 and March 2010, he became aware of numerous criminal activities on the part of both MSSB and some of MSSB's clients [Id. ¶ 11]. These activities included fraud upon the government, fraud and wrongdoing in the securities industry, as well as fraud and wrongdoing in publically traded companies [Id. ¶ 12].

Plaintiff alleges that he was a confidential source to the Federal Bureau of Investigation (“FBI”) during its investigation into Pilot Flying J [Id. ¶ 20]. Plaintiff claims that his collaboration with the FBI resulted in ten former employees of Pilot Flying J pleading guilty to fraud-related charges involving a fuel rebate scheme [Id. ¶ 20].

During the course of the investigation, plaintiff alleges that he wore a wire and uncovered insider trading activities at MSSB, all in violation of the Sarbanes-Oxley Act [Id. ¶ 28]. Plaintiff alleges that he also worked with the Securities and Exchange Commission (“SEC”) to uncover insider trading and Sarbanes-Oxley Act violations [Id. ¶ 29]. In particular, plaintiff claims to have uncovered insider trading among members of MSSB's Knoxville office and their clients with regard to Miller Energy stock [Id. ¶ 30]. On September 20, 2013, plaintiff brought these concerns to the SEC [Id. ¶ 48].

In November 2012 and again in March 2013, plaintiff's colleague at MSSB, Brian Massengill, observed plaintiff getting into a black sedan with tinted windows accompanied by what appeared to be federal agents [Id. ¶ 13]. Massengill asked plaintiff in November 2012 whether he was working with the FBI and plaintiff stated that he was working with the staff of Congressman John Duncan [Id. ].

On May 7, 2013, executives at MSSB called plaintiff into a conference room where four other MSSB employees were present, including a lawyer, Daniel Derechin [Id. ¶ 14]. Derechin asked plaintiff a series of questions concerning whether plaintiff was cooperating with the FBI [Id. ]. Plaintiff did not discuss any details of his involvement in any investigation or prosecution, but he alleges that his evasive answers signaled to defendants that he was working with federal and/or state authorities [Id. ¶ 16]. During this meeting, the branch manager at MSSB, David Elias, told plaintiff “I am going to take you outside and whip your ass!” [Id. ¶ 17]. Plaintiff then got up and left the room [Id. ¶ 18]. He called the Knoxville FBI office and related the incident and the physical threat to the FBI [Id. ¶ 19].

The next day, Elias told plaintiff he was being placed on temporary leave with pay and that he was not to come into the office or to contact clients [Id. ¶ 21]. Plaintiff remained in that status until he was terminated in June 2013 [Id. ]. Before plaintiff's termination, he brought to defendants' attention the fact that executive employees of defendants' Knoxville branch were violating both SEC regulations and the Sarbanes-Oxley Act [Id. ¶ 47].

After Elias placed plaintiff on administrative leave, he advised other financial advisors to inform plaintiff's clients that “Dr. John is in trouble” [Id. ¶ 33]. Plaintiff alleges that MSSB slandered plaintiff in his trade to his former clients and others, thus impeding plaintiff's ability to earn a living [Id. ¶ 34].

Plaintiff alleges that he was terminated as a result of his involvement in assisting the FBI's investigation [Id. ¶ 22]. Per a letter from Elias to plaintiff, referenced in the complaint, defendants assert that plaintiff's cooperation with the FBI was not the cause of plaintiff's discharge [Id. ¶ 44]. Rather, according to plaintiff, defendants claim that plaintiff was terminated because of a “gift” plaintiff's daughter received five years earlier [Id. ¶ 44].³ Plaintiff proclaims that defendants' proffered reason is pretextual [Id. ¶ 45].

Plaintiff asserts that defendants are currently holding $242,471 of his money [Id. ¶ 27]. He also alleges that as a result of defendants' actions, he has suffered acute emotional distress, which has caused substantial physical injuries, including acute gastrointestinal distress, chronic headaches, and episodic impairment of his vision [Id. ¶ 56].

Plaintiff claims he was terminated because he assisted federal authorities with regard to (1) fraud perpetrated upon the government of the United States; (2) wrongdoing in the securities industry; (3) fraud and other wrongs committed by persons with regard to a publically traded company [Id. ¶ 53].

Plaintiff filed a complaint to commence this action against MSSB and MSC [Id. at 1]. Plaintiff alleges the following claims: (1) a Sarbanes-Oxley retaliation claim, (2) a Dodd-Frank Act retaliation claim; (3) a False Claims Act retaliation claim; (4) and various state-law claims [Id. ¶¶ 1–2]. Defendants filed a motion to dismiss all of plaintiff's claims [Doc. 10].

II. Standard of Review

Federal Rule of Civil Procedure 8(a)(2) sets out a liberal pleading standard, Smith v. City of Salem , 378 F.3d 566, 576 n. 1 (6th Cir.2004), requiring only “ ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the [opposing party] fair notice of what the ... claim is and the grounds upon which it rests,’ ” Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson , 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ). Detailed factual allegations are not required, but a party's “obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires more than labels and conclusions.” Twombly , 550 U.S. at 555, 127 S.Ct. 1955. “[A] formulaic recitation of the elements of a cause of action will not do,” neither will “ ‘naked assertion[s]’ devoid of ‘further factual enhancement [,]’ ” nor “an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 555, 557, 127 S.Ct. 1955 ).

In deciding a Rule 12(b)(6) motion to dismiss, a court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, draw all reasonable inferences in favor of the plaintiff, and determine whether the complaint contains “enough facts to state a claim to relief that is plausible on its face.” Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ; Directv, Inc. v. Treesh , 487 F.3d 471, 476 (6th Cir.2007) (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. “Determining whether a complaint states a plausible claim for relief will [ultimately] ... be a context-specific task that requires th[is Court] to draw on its judicial experience and common sense.” Id. at 679, 129 S.Ct. 1937.

III. Sarbanes-Oxley Act Retaliation Claim

The Sarbanes-Oxley Act provides whistleblower protection for employees of publically traded companies. 18 U.S.C. § 1514A. In order to pursue a Sarbanes-Oxley retaliation claim in federal court, a plaintiff must first follow some administrative procedures. See id. § 1514A(b). A plaintiff must file a complaint with the Secretary of Labor “not later than 180 days after the date on which the violation occurs, or after the date on which the employee became aware of the violation.” Id. § 1514A(b)(2)(D). “[I]f the Secretary has not issued a final decision within 180 days of filing the complaint,” then the appropriate district court will have jurisdiction. Id. § 1514A(b)(1)(B).

Federal courts lack subject matter jurisdiction over Sarbanes-Oxley retaliation claims where a plaintiff failed to file a complaint with the “Occupational Safety and Health Administration (‘OSHA’) and afford OSHA the opportunity to resolve the allegations administratively.” Hanna v. WCI Cmtys., Inc. , 348 F.Supp.2d 1322, 1326 (S.D.Fla.2004) (internal quotation marks and citation omitted); see, e.g. , Delmore v. McGraw – Hill Cos., Inc. , No. 12–CV–1306, 2013 WL 3717741, at *2 (E.D.Wis. July 12, 2013) (dismissing Sarbanes-Oxley claim because failing to exhaust administrative remedies “deprives the district court of jurisdiction to hear that plaintiff's [Sarbanes-Oxley] claim”); Mart v. Forest River, Inc. , 854 F.Supp.2d 577, 608 (N.D.Ind.2012) (dismissing Sarbanes-Oxley claim because plaintiff failed exhaust his administrative remedies by filing a complaint with OSHA); Radu v. Lear Corp. , No. 04–40317...