Day v. Staples, Inc.

• Citation: 555 F.3d 42
• Decision Date: 09 February 2009
• Docket Number: No. 08-1689.,08-1689.
• Parties: Kevin M. DAY, Plaintiff, Appellant, v. STAPLES, INC., Defendant, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

555 F.3d 42

Kevin M. DAY, Plaintiff, Appellant, v. STAPLES, INC., Defendant, Appellee.

No. 08-1689.

United States Court of Appeals, First Circuit.

Heard December 3, 2008.

Decided February 9, 2009.

Bryan J. Day, for appellant.

Dawn Reddy Solowey with whom Ariel D. Cudkowicz, Krista Green Pratt, and Seyfarth Shaw LLP were on brief for appellee.

Before LYNCH, Chief Judge, HOWARD, Circuit Judge, and GARCIA-GREGORY,^* District Judge.

LYNCH, Chief Judge.

This is our first occasion to interpret the requirements for an action under the whistleblower protection provision of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C. § 1514A. Kevin Day sued his former employer, Staples, Inc., alleging he was fired for reporting fraud, in violation of this federal whistleblower protection provision and of state law. SOX prohibits discharging an employee because the employee provides information to a supervisor "regarding any conduct which the employee reasonably believes constitutes a violation of [several enumerated laws] ... or any provision of Federal law relating to fraud against shareholders." Id.

Day's complaint did not assert any specific violations of securities laws; rather, it stated that he believed certain Staples practices resulted in the "manipulat[ion] [of] accounting data in an unlawful manner that had negative financial ramifications for Staples," which "defrauded Staples' shareholders" and violated the Staples Code of Ethics. The district court granted summary judgment in favor of Staples. Day v. Staples, Inc., 573 F.Supp.2d 336 (D.Mass.2008). We establish the criteria by which such claims are to be evaluated and affirm.

I.

On an appeal from a grant of summary judgment, we take all reasonable inferences in favor of the plaintiff, as the nonmoving party. Mellen v. Trs. of Boston Univ., 504 F.3d 21, 24 (1st Cir.2007). We may nonetheless ignore "conclusory allegations, improbable inferences, and unsupported speculation." Prescott v. Higgins, 538 F.3d 32, 39 (1st Cir.2008) (quoting Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990)).

We tell the material facts, which are undisputed, not in entirely chronological order, but as parallel accounts of Day's complaints to Staples and of Staples's growing dissatisfaction with Day's work. Day worked for Staples for less than three months, from May 23, 2005 to August 5, 2005, never progressing from his entry level Analyst position in Staples's Reverse Logistics Department. During his employment, he offered many criticisms of Staples business practices. The nature of those criticisms is at the heart of this case.

Day was offered a position as a Reverse Logistics Analyst on May 6, 2005, shortly before his graduation from the University of Massachusetts-Amherst, in a letter which stated that Day would have to sign Staples's Code of Ethics on his first day of work as a condition of employment.

The Reverse Logistics Department analyzes open product returns and coordinates product returns from customers who order Staples products in large volume and also return products in bulk. Such product returns involve two separate departments. Reverse Logistics handles the actual delivery of returned products to the warehouse; by contrast, it is Staples's Customer Service Department which normally issues monetary credits to the customer.

Day's duties included analyzing open customer returns for assigned warehouse locations and addressing issues with couriers who picked up returned products. Although Day was initially told in his interview that his job responsibilities would include up to 70 percent travel in order to work with midwest regional returns, Day's actual duties did not involve travel, other than for his initial training. Mary-Ellen Julio, the Manager of the Reverse Logistics Department, supervised Day's work. She became the subject of several of his complaints.

A. Day's Complaints of Alleged Shareholder Fraud

Day soon came to believe that certain Staples business practices he observed in Reverse Logistics were potentially unlawful and unethical. He ultimately complained to his supervisors about three types of practices, which we summarize and then return to in some detail. First, he claimed to his employer that Reverse Logistics issued monetary credits to customers without having received proper documentation;¹ this, in his view, raised the risk of Staples overpaying credits to customers who did not return goods. Second, he alleged that Reverse Logistics knowingly withheld money from contract customers by under-issuing credits over $25.00; this, in his view, raised the risk to Staples of inaccurately accounting by overstating Staples revenues and to customers of not getting full refunds. Third, he claimed that Reverse Logistics's practice of canceling and reissuing pick-up orders could permit couriers to overbill Staples. This, in his view, raised the risk of a reduction in Staples's profits.

Two of the alleged harms were ostensibly against Staples's corporate self-interest: the possible overpayment of refunds to customers who returned goods and the possible overpayment of couriers. Day argued, however, that the canceling and reissuing practice benefitted Staples managers because it resulted in the manipulation of an internal metric called "aging days," the time interval between Staples's receipt of a customer request for a pickup of a product for return and when a Staples courier actually picked up the product. Day believed that his supervisor Julio's bonus was tied to the average aging day metric, and that it was in her interest to make that number seem artificially low. Day was incorrect and his belief was based on a conversation with a co-worker named Jason Englemeyer. Day never actually saw a bonus policy and was never told about the bonus calculation by Julio, whose bonus was never tied to the aging days metric.

Day communicated his concerns about these three practices to Julio and other supervisors in a series of face-to-face meetings and email exchanges. Day first articulated his concerns on July 14, 2005. That day, he met with Julio at her request; to Julio's dismay, Day had recommended a competitor company's product to a dissatisfied customer over the phone. During the meeting, Day communicated one of his three key allegations: he told Julio that he believed the company was inappropriately canceling and reissuing return orders and this permitted her to manipulate the company's measurement of aging days so that Julio would "look good for her bosses." Day stated that if the information about the alleged accounting manipulation "ever went to Wall Street[,] heads would turn." Julio explained the business reasons for canceling and reissuing return orders, including that the couriers in the locations that Day handled did not have the ability to reprint the previous orders or obtain Staples's paperwork in any other way than canceling and reissuing. Julio felt that Day refused to accept the explanations.

One hour after that July 14 meeting, Julio met with Anne-Marie Bourque, the Staples human resources representative for Reverse Logistics. Julio expressed her concerns about Day's behavior and recommended that Day's employment be terminated because of his poor performance, including Day's recommendation of a competitor's product to a customer. At Bourque's suggestion, Julio documented Day's performance issues in a memo. The memo also included reports of conflicts with co-workers and unprofessional behavior and recommended termination.

The next day, July 15, 2005, Day delivered a letter to Doreen Nichols, Director of Associate Relations and Diversity in Staples's Human Resources Department, which repeated the allegations he had made the previous day about the cancellation and reissuance policies. His letter contained a section entitled "Forced Participation in Fraudulent Activity." In his letter, Day complained that: (1) he felt he was "being pressured into knowingly committing fraud so that [his] supervisor Mary-Ellen Julio can report false and inaccurate numbers"; (2) while he knew Julio was not happy with his job performance, he "refuse[d] to knowingly take part in the mass canceling and reissuing of pickup orders just for the sake of resetting aging days," a practice he described as "defrauding the shareholders of this company of their return on investment so that [Julio] can make herself look good for her supervisors"; and (3) "any auditor" could "find hundreds, if not thousands, of cases of inaccurate reporting of figures, accounting fraud and general unethical behavior," much of it defrauding customers. He stated that the "fraudulent activity ... needs to stop immediately." The letter also contained a section in which Day alleged there were misrepresentations in his job description, stating that he had not traveled as much as had been promised.

Nichols met with Day on July 15 for one hour so that Nichols could get a clear understanding of Day's concerns. She assured Day his concerns would be forwarded to the appropriate personnel. Nichols forwarded Day's letter to Ellen Kruse, Staples's Regional Director of Human Resources, and Nan Stout, Staples's Vice President of Ethics. Stout did not contact Day directly, but instead asked Robert McGrath, Staples's Director of Loss Prevention, to investigate the allegations in the letter.

Three days later, on July 18, 2005, Day met with Bourque and Kruse to discuss the July 15 letter. At the meeting, Kruse told Day that the allegations in the letter were very serious, and she requested more specific examples of the type of accounting fraud and unethical behavior that Day had alleged in his July 15 letter. Day then identified the three practices that now form the basis of his claim for § 1514A protection: the canceling and reissuing of returns, the withholding of credits from contract customers, and the issuance of credits without proper documentation. Kruse told Day she thought he was wrong about...