Baker v. Smith & Wesson, Inc.

• Decision Date: 13 July 2022
• Docket Number: 21-2019
• Citation: 40 F.4th 43
• Parties: Earl Donald BAKER, Plaintiff, Appellee, v. SMITH & WESSON, INC., f/k/a Smith & Wesson Corp., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

40 F.4th 43

Earl Donald BAKER, Plaintiff, Appellee,

v.SMITH & WESSON, INC., f/k/a Smith & Wesson Corp., Defendant, Appellant.

No. 21-2019

United States Court of Appeals, First Circuit.

July 13, 2022

Connie N. Bertram, with whom Jeffrey E. Poindexter, Bulkley, Richardson & Gelinas, LLP, and Bertram LLP were on brief, for appellant.

John Y. Lee, with whom Benjamin Rudolf, Murphy & Rudolf, LLP, and Lee & Breen, LLC were on brief, for appellee.

Before Barron, Chief Judge, Lynch and Gelpí, Circuit Judges.

LYNCH, Circuit Judge.

This interlocutory appeal from the denial of summary judgment turns on an issue of law: the proper interpretation of the whistleblower protection provision, Section 1514A, of the Sarbanes-Oxley Act. See 18 U.S.C. § 1514A. That provision limits protection under Sarbanes-Oxley to whistleblower claims about "a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders." Id. at § 1514A(a)(1).

Plaintiff Earl Donald Baker is a former employee of Smith & Wesson ("S&W") who sued S&W asserting a claim under Section 1514A for whistleblower retaliation. Baker concedes that his whistleblowing did not involve a violation of any enumerated statute or "any provision of Federal law relating to fraud against shareholders."¹ He also concedes that his claim of purported wrongdoing was not based on a Securities and Exchange ("SEC") rule or regulation. Rather, his argument is that the phrase "any rule or regulation of the Securities and Exchange Commission" also refers to statutes within the enforcement power of the SEC. Baker's particular whistleblower claim is based on an alleged violation of 15 U.S.C. § 78m(b)(2), (5), a Foreign Corrupt Practices Act ("FCPA") provision.

After the completion of discovery, S&W moved for summary judgment and argued, inter alia, that Baker's actions did not fall within any of the definitions of protected activity under Section 1514A. The district court interpreted the statute differently and denied S&W's motion for summary judgment as to the whistleblower retaliation claim.

On interlocutory appeal, we reverse the district court's denial of summary judgment as to the Section 1514A claim and remand with instructions to the district court to enter summary judgment in favor of S&W.

I.

Both parties agree that a complete recitation of the underlying facts is not necessary to address the question of law at issue in this appeal. We briefly summarize the basic facts and procedural history.

In March 2013, Baker was hired as a Cell Coordinator for the Cutter Department at the S&W manufacturing facility in Springfield, Massachusetts. For reasons disputed by the parties, S&W placed Baker on administrative leave in July 2014 and terminated his employment in September 2014.

On June 1, 2018, Baker filed a complaint against S&W asserting that S&W retaliated against him for reporting illegal conduct by S&W employees. He asserts, inter alia, a claim under Section 1514A of Sarbanes-Oxley. Baker alleges that the purported misconduct that he reported to S&W's human resources and general counsel was that management employees received large bribes and provided improper preferential treatment to a vendor.

S&W moved for summary judgment on the Section 1514A claim, arguing that Baker could not satisfy his burden of showing that he engaged in protected activity under the statute. In response, Baker argued that he engaged in protected activity because he reported conduct that he reasonably believed violated 15 U.S.C. § 78m(b)(5), an FCPA provision addressing accounting practices and internal controls.²

On September 10, 2021, the district court denied S&W's motion for summary judgment as to the whistleblower retaliation claim. The court found that "[a] reasonable jury, crediting [Baker]'s testimony, could conclude that [Baker] ‘reasonably believed’ that the behavior he reported violated securities rules concerning accounting practices and internal controls" (emphasis added). The district court thus misstated the "any rule or regulation of the Securities and Exchange Commission" clause in the statute.

S&W subsequently moved for the court to amend its summary judgment order to include a certification for interlocutory appeal under 28 U.S.C. § 1292(b) and a stay pending appeal. On November 24, 2021, the district court granted the motion and certified the following question: "Does 15 U.S.C. § 78m(b)(2), (5) constitute a ‘rule or regulation of the Securities and Exchange Commission’ for the purpose of Section 806 whistleblowing protection under [Sarbanes-Oxley]?" On December 27, 2021, this Court granted S&W's petition for permission to appeal.

This Court heard oral argument on June 9, 2022. S&W argued that Baker's whistleblower claim fails for two independent reasons. First, Section 78m(b)(2), (5) is not a "rule or regulation of the Securities and Exchange Commission." Second, the phrase "relating to fraud against shareholders" modifies all three preceding clauses, and Section 78m(b)(2), (5) -- whether a "rule or regulation of the Securities and Exchange Commission" -- is not "relat[ed] to fraud against shareholders."

The next day, we entered an order directing the parties to file supplemental briefing on the following issues:

(a) the proper interpretation of "relating to fraud against shareholders" in 18 U.S.C. § 1514A(a)(1), and which of the three phrases it modifies under § 1514A(a)(1) : "a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law;"

(b) the relevance of question (a) to the issues before us; and

(c) whether it is necessary to resolve question (a) to resolve this case.³

The parties timely filed supplemental briefs pursuant to our order.

In supplemental briefing, S&W argues that the phrase "relating to fraud against shareholders" modifies each of the three parts of the definition of protected activity in Section 1514A(a)(1). S&W also argues that it is not necessary to resolve this issue because the original certified question raises a dispositive legal issue.

Baker argues that "relating to fraud against shareholders" only modifies the last clause in Section 1514A(a)(1) : "any provision of Federal law."

II.

On appeal, we review de novo questions of law, including questions of statutory interpretation. See Gen. Motors Corp. v. Darling's, 444 F.3d 98, 107 (1st Cir. 2006) ; see also Simon v. G.D. Searle & Co., 816 F.2d 397, 400 (8th Cir. 1987) ("[W]e review de novo the questions of law certified by the district court [under Section 1292(b) ].").

To make out a prima facie case under Section 1514A, a plaintiff must allege the existence of facts and evidence showing:

(i) the employee engaged in a protected activity or conduct; (ii) the [employer] knew or suspected, actually or constructively, that the employee engaged in the protected activity; (iii) the employee suffered an unfavorable personnel action; and (iv) the circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the unfavorable action.

Day v. Staples, Inc., 555 F.3d 42, 53 (1st Cir. 2009) (alteration in original) (quoting 29 C.F.R. § 1980.104(b)(1) ).

On appeal, the parties dispute only whether Baker satisfied his burden of showing the first requirement, that he "engaged in a protected activity or conduct." Id. Section 1514A provides whistleblower protection to:

[A]ny lawful act done by the employee ... to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of section 1341, 1343, 1344, or 1348, any rule or regulation of the Securities and Exchange Commission, or any provision of Federal law relating to fraud against shareholders, when the information or assistance is provided to or the investigation is conducted by ... a person with supervisory authority over the employee ....

18 U.S.C. § 1514A(a) (flush language). To satisfy the "protected activity" requirement, an employee must show that he had both a subjective belief and an objectively reasonable belief that the conduct that he reported constituted a violation of one of the provisions listed in Section 1514A(a)(1). See Day, 555 F.3d at 55 ("The employee must show that his communications to the employer specifically related to one of the laws listed in [ Section] 1514A."). "The employee is not required to show that there was an actual violation of the provision involved." Id.

Baker argues that he has satisfied his burden of showing the "protected activity" requirement because he reported conduct that he reasonably believed violated Section 78m(b)(2), (5).⁴ He concedes that Section 78m(b)(2), (5) is not one of the fraud statutes listed in Section 1514A(a)(1) -- Sections 1341 (mail fraud), 1343 (wire fraud), 1344 (bank fraud), or 1348 (securities fraud) -- and is not a "provision of Federal law relating to fraud against shareholders." 18 U.S.C. § 1514A(a)(1). He argues only that the FCPA, including Section 78m(b)(2), (5), is a "rule or regulation of the Securities and Exchange Commission." Id.

We disagree. The plain text of Section 1514A(a)(1) makes clear that the FCPA is not a "rule or regulation of the Securities and Exchange Commission."

We start with the text of Section 1514A(a)(1). See Oklahoma v. Castro-Huerta, ––– U.S. ––––, 142 S.Ct. 2486, 2496, ––– L.Ed.2d –––– (2022) ("As this Court has repeatedly stated, the text of a law controls over purported legislative intentions unmoored from any statutory text."); Merit Mgmt. Grp., LP v. FTI Consulting, Inc., ––– U.S. ––––, 138 S. Ct. 883, 893, 200 L.Ed.2d 183 (2018). We "strive to interpret statutes so that each word in the statutory text has meaning," Woo v. Spackman, 988 F.3d 47, 51 (1st Cir. 2021), and interpret a statute's text in accordance with its ordinary,...