Livingston v. Wyeth, Inc.

• Decision Date: 24 March 2008
• Docket Number: No. 06-1939.,06-1939.
• Parties: Mark LIVINGSTON, Plaintiff-Appellant, v. WYETH, INCORPORATED; Bruce Kaylos, Wyeth Sanford Managing Director; David McCuaig, Wyeth Sanford Human Resource Director, Defendants-Appellees. United States Chamber of Commerce, Amicus Supporting Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

520 F.3d 344

Mark LIVINGSTON, Plaintiff-Appellant, v. WYETH, INCORPORATED; Bruce Kaylos, Wyeth Sanford Managing Director; David McCuaig, Wyeth Sanford Human Resource Director, Defendants-Appellees.

United States Chamber of Commerce, Amicus Supporting Appellees.

No. 06-1939.

United States Court of Appeals, Fourth Circuit.

Argued: November 1, 2007.

Decided: March 24, 2008.

ARGUED: Thad M. Guyer, T.M. Guyer & Ayers & Friends, P.C., Medford, Oregon, for Appellant. Michael Delikat, Orrick, Herrington & Sutcliffe, L.L.P., New York, New York, for Appellees. ON BRIEF: Joanne Royce, Government Accountability Project, Washington, D.C., for Appellant. James H. McQuade, Orrick, Herrington & Sutcliffe, L.L.P., New York, New York; Terry A. Clark, Constangy, Brooks & Smith, L.L.C., Winston-Salem, North Carolina, for Appellees. Virginia W. Hoptman, Womble, Carlyle, Sandridge & Rice, Tysons Corner, Virginia; Charles A. Edwards, Sheri Roberson, Womble, Carlyle, Sandridge & Rice, Raleigh, North Carolina; Robin S. Conrad, Shane Brennan, National Chamber Litigation Center, Inc., Washington, D.C., for Amicus Supporting Appellees.

Before NIEMEYER and MICHAEL, Circuit Judges, and CLAUDE M. HILTON, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the majority opinion, in which Judge HILTON joined. Judge MICHAEL wrote a dissenting opinion.

OPINION

NIEMEYER, Circuit Judge:

Relying on the whistleblower protection provisions of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A, Mark Livingston commenced this action against his employer Wyeth, Inc., a pharmaceutical company, alleging that Wyeth unlawfully discharged him because of his complaints to Wyeth's management about Wyeth's inability to implement on schedule a training program at its Sanford, North Carolina facility, supposing therefore that local employees would likely misrepresent or cover up the deficiencies in progress to internal compliance auditors and to the Food and Drug Administration. The training program was designed to train employees in good manufacturing practices, and its implementation was required by regulations of the Food and Drug Administration. Livingston asserted that in making his complaints, he reasonably believed that Wyeth's potential conduct in misrepresenting or covering up the deficiencies in timely implementation of the program would constitute violations of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated under it, and therefore that his conduct was protected under the Sarbanes-Oxley Act.

The district court entered summary judgment against Livingston, concluding that his complaints were not protected activity under the Sarbanes-Oxley Act because Livingston could not reasonably have believed that Wyeth was violating the securities laws. The court also concluded that Wyeth had shown, by clear and convincing evidence, that it had discharged Livingston for insubordination in threatening to have the police remove Wyeth's Director of Human Resources from a company-sponsored holiday party and that Wyeth would have discharged Livingston regardless of whether he had complained about the progress of the training program.

Because we conclude that no objectively reasonable basis existed for Livingston to have believed that Wyeth was violating the securities laws, we affirm.

I

On Thursday, December 19, 2002, following a brief investigation, Mark Livingston was discharged from his employment with Wyeth as Associate Director of Training and Continuous Improvement at Wyeth's Sanford, North Carolina facility. The parties agree that the precipitating events occurred on the previous Friday, December 13, 2002, when Livingston held a company-funded lunch party for members of the training staff. David McCuaig, the Director of Human Resources at the Sanford facility, came to the party without an invitation from Livingston, allegedly to wish the group a happy holiday. According to Livingston's own testimony, Livingston approached McCuaig as McCuaig came into the room and asked, "What are you doing here? . . . You're not invited. We have a gift exchange. You have no gift. We have limited food." After some more discussion, Livingston then stated, "I need you to leave. I'm asking you to leave. If you do not leave, I'm going to ask the police escorting holiday traffic downstairs . . . to escort you out." Although there is a factual dispute about the manner in which Livingston told McCuaig to leave, it is undisputed that he threatened to have the police remove him. Wyeth suspended Livingston on the following Monday, December 16, 2002, pending investigation, and, following a three-day investigation, it terminated his employment.

Wyeth contends that this incident was the culmination of a long history of abusive and insubordinate conduct by Livingston, about which he had been warned numerous times previously. Livingston contends, however, that he was fired in retaliation for complaining about the insufficient progress in implementing a training program to teach employees good manufacturing practices, as required by the Food and Drug Administration ("FDA"), and about the potential that Wyeth could misrepresent the progress of the program or cover up its true status, in violation of the securities laws.

Wyeth, Inc., formerly known as American Home Products Corporation, is a publicly traded company that develops pharmaceutical and consumer health products worldwide. Its net revenue in 2001 was approximately $14.1 billion. Its Sanford, North Carolina facility is one of more than two dozen at which it develops and manufactures products.

From August 2000 to December 2002, Mark Livingston was employed at the Sanford site, first as a manager of Training and Continuous Improvement, and then as Associate Director of Training and Continuous Improvement. He reported to Bruce Kaylos, the managing director of the Sanford site. During the period of his employment, Livingston oversaw audits of training programs at the Sanford facility to monitor their progress. The events which form the basis of Livingston's complaint in this case occurred during July and August 2002.

Wyeth's manufacturing operations are regulated by the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et. seq., and the FDA regulations promulgated thereunder. Pharmaceutical products, such as the vaccine components produced at the Sanford facility, must be made in accordance with "current good manufacturing practice." 21 C.F.R. § 211.1. In addition to specific mandates, such as requiring workers to wear clean clothing during drug production, see id. § 211.28(a), the regulations for good manufacturing practices require that "[e]ach person engaged in the manufacture . . . of a drug product shall have education, training, and experience" sufficient to perform the functions assigned to them. Id. § 211.25. The regulations do not specify what training is required, how it should be accomplished, or how it must be documented, but rather leave it to each regulated company to create and implement appropriate procedures, subject to FDA inspection. If a pharmaceutical product is produced in a facility that does not adhere to good manufacturing practices, including training for good manufacturing practices, the product is legally considered adulterated and is subject to seizure by the FDA. See 21 U.S.C. §§ 351(a), 334(a)(1).

Precisely for this reason — a failure to follow good manufacturing practices — the FDA seized allegedly adulterated products at Wyeth's Pearl River, New York and Marietta, Pennsylvania facilities, leading to a Consent Decree in October 2000, directed at those facilities. While the decree did not apply to any other facility, it did require Wyeth to retain an expert consultant to conduct a "division-wide" assessment of its quality control programs at all sites, including the Sanford site, and to respond to the expert's report, providing the FDA with a timetable for its responsive actions. As required, Wyeth did retain a consultant and, in May 2001, advised the FDA that it would revise its training guidance documents, setting September 30, 2002, as the date by which it would implement training changes and verify compliance with the new program. The FDA has never suggested that Wyeth ever violated the October 2000 Consent Decree.

Wyeth's training for good manufacturing practices at the Sanford facility required each manufacturing employee to have a "curriculum" of required training courses and a signed record to document the training. Beginning in 2002, these records were to be loaded into an electronic document control system known as ISOtrain. To transition to the new system, managers needed to be trained on the new system, curricula needed to be drafted, and forms and data for all employees needed to be entered into ISOtrain. As part of his job responsibilities, Livingston was designated to direct and oversee preparations for training system audits at the Sanford site between January 2001 and September 2002, which were to be conducted to monitor progress. For the period through June 2002, Livingston found no problem with the program's progress. He advised management on May 22, 2002, that the Sanford facility remained "on track" for the September 30, 2002, implementation date.

Wyeth's Office of Compliance scheduled the final internal verification of the new training system for July 29, 2002, two months before September 30, 2002, the date committed to the FDA. By July 9 2002, Livingston became convinced that Wyeth could not meet this internal verification deadline, and he formally expressed his concerns in a July 10, 2002 memorandum to Kaylos and various corporate directors and managers. He stated in the memorandum that several departments of the Sanford site

require additional time to implement the initial components of the Wyeth Site Employee Training System. As well, we...