Wiest v. Lynch

15 F.Supp.3d 543

Jeffrey A. WIEST & Laura E. Wiest, h/w, Plaintiffs

v.Thomas J. LYNCH et al., Defendants.

Civil Action No. 10–3288.

United States District Court, E.D. Pennsylvania.

Signed April 15, 2014.

Filed April 16, 2014.

Daryl E. Christopher, Richard C. Angino, Angino & Rovner, P.C., Harrisburg, PA, for Plaintiffs.

Amy C. Foerster, Cory Scott Winter, Michael A. Finio, Saul Ewing LLP, Harrisburg, PA, for Defendants.

MEMORANDUM OPINION

PRATTER, District Judge.

Jeffrey Wiest has sued Tyco Electronics Corporation (“Tyco”) and four individual Defendants under the whistleblower protection provision of the Sarbanes–Oxley Act, section 806, 18 U.S.C. § 1514A, for retaliating against him for his intracompany reports of suspected fraud and violations of federal tax law. The Defendants together filed a Motion to Dismiss (Docket No. 35), which the Court now grants in part and denies in part.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

In the course of an earlier iteration of this dispute, the Third Circuit Court of Appeals canvassed the factual background of the case as follows:

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. Around 2007, Wiest established a pattern of rejecting and questioning expenses that failed to satisfy accounting standards or securities and tax laws....

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. 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.” 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. 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....

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.... [T]he 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.

Wiest v. Lynch, 710 F.3d 121, 124–25 (3d Cir.2013) (internal quotation marks and citations omitted). Mr. Wiest also reported a number of concerns about other events, including, for instance, his doubts about the propriety of approving certain items for a “Venetian Resort Event,” as well as his reservations about other allegedly lavish parties and expenditures. See id.

Upon the Defendants' first Motion to Dismiss (Docket No. 5), this Court held that Mr. Wiest had not established a prima facie case for retaliation under section 806 of the Sarbanes–Oxley Act, 18 U.S.C. § 1514A, because he could not show, under the standard announced by the United States Department of Labor in Platone v. FLYi, Inc., ARB No. 04–154, 2006 WL 3246910 (Dep't of Labor Sept. 29, 2006), aff'd, 548 F.3d 322 (4th Cir.2008), that his communications were activities protected from retaliation because his reports of Tyco and its agents' misconduct did not “definitively and specifically” relate to violations of statutes or rules listed in section 806. On appeal, the Third Circuit Court of Appeals, observing that in Sylvester v. Parexel International LLC, ARB No. 07–123, 2011 WL 2165854 (Dep't of Labor May 25, 2011) (en banc), “however, the [Administrative Review Board (‘ARB’) of the Department of Labor² ] abandoned the ‘definitive and specific’ standard announced in Platone ” in favor of a “reasonable belief” standard entitled to Chevron deference,³ reversed. Wiest, 710 F.3d at 129–32.⁴ Turning to apply Sylvester's “reasonable belief” standard, the Court of Appeals concluded that Mr. Wiest had adequately pleaded protected activity under section 806 with his reports regarding the Atlantis and Wintergreen Resort Events, but affirmed this Court's dismissal of his claims based on other reports, including that relating to the Venetian Resort Event, because he did not have a “reasonable belief” that Tyco's conduct relevant thereto constituted a violation of a provision enumerated in section 806. See id. at 135–38. The Court of Appeals then remanded the case “for further proceedings consistent with [its] opinion.” Id. at 138.

Now before this Court on remand, the Defendants have filed a renewed Motion to Dismiss on four different grounds, each of which, they contend, warrants dismissal of Mr. Wiest's section 806 claim (and therefore the Court's relinquishment of supplemental jurisdiction over the Wiests' state law claims).⁵ The Defendants argue that (1) Mr. Wiest did not suffer an adverse employment action; (2) Mr. Wiest has not pleaded a sufficient causal connection between the alleged protected activity and any adverse employment action; (3) the Complaint's allegations are not sufficiently specific as against the four individual Defendants; and (4) in any event, section 806 of Sarbanes–Oxley did not, at the time of the events alleged in the Complaint, provide coverage to employees, like Mr. Wiest, of non-publicly traded subsidiaries of publicly held companies. And, Defendants point out, Tyco is a non-publicly traded subsidiary of Tyco Electronics Ltd. (“Tyco Limited”) (which, the Defendants do not dispute, is allegedly covered by section 806 of Sarbanes–Oxley, but which Mr. Wiest has not named as a Defendant).⁶

After the parties notified the Court that the Supreme Court had granted a writ of certiorari in Lawson v. FMR LLC, ––– U.S. ––––, 134 S.Ct. 1158, 188 L.Ed.2d 158 (2014) —the potential applicability of which case the parties continue to contest—“to resolve the division of opinion on whether [18 U.S.C.] § 1514A extends whistleblower protection to employees of privately held contractors who perform work for public companies,” id. at 1165, this Court placed the instant case in suspense pending the Supreme Court's decision. After the Supreme Court announced that decision, this Court ordered supplemental briefing on three issues, see Mar. 11, 2014 Order (Docket No. 47):

1. The impact, if any, of Lawson on the issue of whether pre-Dodd–Frank section 806 of the Sarbanes–Oxley Act, 18 U.S.C. § 1514A, protects employees of privately held subsidiaries of public companies (and/or whether the Dodd–Frank amendment applies retroactively);

2. Whether, and if so, how, the text of pre-Dodd–Frank § 1514A is in fact ambiguous for purposes of both Chevron deference and retroactivity analysis;⁷ and

3. Whether Mr. Wiest alleged an adverse employment action (and, specifically, constructive discharge).⁸

The parties' earlier briefing had suggested that the first or second issue could be dispositive because the events Mr. Wiest complains of occurred before Dodd–Frank amended section 806.

The parties submitted their supplemental briefing on April 4, 2014, and the Court, having removed the case from suspense (Docket No. 50) now decides the Motion to Dismiss.

II. STANDARDS OF REVIEW

Before turning to the familiar standard to be applied at the motion to dismiss stage, the Court addresses Mr. Wiest's argument that the Defendants are barred from filing their renewed Motion to Dismiss because the Third Circuit Court of Appeals decided that he had cognizable claims and that that ruling constitutes the law of this case.

A. The Defendants' Second Motion to Dismiss Is Not Barred by the Law of the Case Doctrine

Mr. Wiest, contending that “[t]he Third Circuit [Court of Appeals] applied a plenary standard in reviewing the dismissal of [his] Complaint,” argues that the Court of Appeals held, as the law of the case, that he “stated cognizable claims with regard to the Atlantis and Wintergreen Resort Events,” such that Defendants' instant Motion to Dismiss must be denied without further analysis. Mem. Opp. 2–3 (Docket No. 39). To support this position, he points to the following statement in the Court of Appeals' opinion: “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 state a claim.” Wiest, 710 F.3d at 134–35. The negative implication of this statement, Mr. Wiest suggests, is that because the Court of Appeals did not “nevertheless” dismiss his claims, he must not have “failed to plead sufficient facts to state a claim.” See Mem. Opp. 2. But the Wiest panel's words carry no such suggestion. Mr. Wiest's reading of the Court of Appeals' opinion not only ignores the context...