Stewart v. Doral Fin. Corp.

• Decision Date: 21 February 2014
• Docket Number: Civil No. 13–1349(DRD).
• Citation: 997 F.Supp.2d 129
• Parties: Ronald STEWART, Plaintiff, v. DORAL FINANCIAL CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

997 F.Supp.2d 129

Ronald STEWART, Plaintiff,

v.DORAL FINANCIAL CORPORATION, et al., Defendants.

Civil No. 13–1349(DRD).

United States District Court, D. Puerto Rico.

Feb. 21, 2014.

Israel Roldan–Gonzalez, Aguadilla, PR, for Plaintiff.

Pedro J. Manzano–Yates, Nicole Marie Rodriguez–Ugarte, Fiddler Gonzalez & Rodriguez, P.S.C, San Juan, PR, for Defendants.

OPINION AND ORDER

DANIEL R. DOMINGUEZ, District Judge.

Plaintiff Ronald Stewart (“Plaintiff” or “Stewart”) filed a Complaint on May 6, 2013 (Docket No. 1) against Doral Financial Corp. (“Doral”) and Insurance Company ABC (collectively, “Defendants”) asserting claims under Sections 806 and 1514 of the Sarbanes–Oxley Act of 2002, Chapter 73 of Title 18 of the United States Code, as amended 18 U.S.C. § 1514A, (“Sarbanes–Oxley” or “SOX”), and for breach of employment contract pursuant to Articles 1206, 1208, and 1210 of Puerto Rico's Civil Code, 31 L.P.R.A. §§ 3371, 3373, and 3375. Therein, Plaintiff alleges that Doral violated Sarbanes–Oxley's whistleblower protection provision when it terminated his employment with the Bank almost immediately after engaging in a protected activity.

I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

On September 7, 2011, Plaintiff was retained by Doral as a Senior Vice–President and Principal Accounting Officer. Docket No. 1, ¶ 10. As Principal Accounting Officer, Plaintiff would report directly to the Chief Financial and Investment Officer (“CFO”) of Doral. Id. Stewart's performanceduring his tenure at Doral was excellent, having been praised by Robert Wahlman, the CFO, on various occasions. Docket No. 1, ¶ 12.

On February 16, 2012, Plaintiff sent a letter to the Chairman of the Audit Committee of Doral expressing his concerns regarding “deficiencies in the Bank's program of internal controls as required by Sarbanes–Oxley.” Docket No. 1, ¶ 13. Stewart was concerned that Doral would fail to accurately report financial information in the upcoming quarters as a result of comments and events personally perceived by him. Id.

Specifically, Stewart alleges that Mr. Wakeman, Doral's Chief Executive Officer, directed him and others to misrepresent the company's financial reports when Wakeman stated “I want our leverage ratio over 9% even if that means booking assets in later periods.” Docket No. 1, ¶ 14. Further, Plaintiff contends that while he and Wakeman were discussing a possible transaction with the Department of the Treasury, Wakeman asserted: “I don't care about the Regulators. I will do whatever it takes to make this deal work and if it means going against the Regulators that's a risk I will take.... the Regulators will not tell me what I can or cannot do when I am trying to increase the Bank's capital by $200MM.” Id.

Plaintiff further avers that Wakeman was constantly undermining Wahlman's credibility, fueling Stewart's belief that a material weakness existed in the internal control environment that could lead to “inaccurate disclosures of the company's financial information.” Docket No. 1, ¶ 15. According to Stewart, Wahlman commented that he “has done things that make [him] very uncomfortable.” Id.

Additionally, Plaintiff was concerned by a corporate initiative strategy known as “Role Clarity,” aimed at reducing costs and personnel. Docket No. 1, ¶ 16. Most troubling to Plaintiff about the initiative strategy was that Doral “had not given consideration to internal controls when personnel decisions were made nor the transition of internal control responsibilities when a change in personnel was involved.” Docket No. 1, ¶ 16.

Stewart contends that the aforementioned statements, when considered in conjunction with Wahlman's assertions and the suspicious implementation of Role Clarity, are indicative of the risks faced by Plaintiff, as Principal Accounting Officer, for failing to comply with Sarbanes–Oxley. Docket No. 1, ¶ 16.

On March 15, 2012, less than one month after sending his letter to the Chairman of Doral's Audit Committee, Plaintiff was terminated effective immediately from his employment at Doral. Docket No. 1, ¶ 19.

On July 24, 2013, Doral filed two motions to dismiss (Docket Nos. 10 and 11) arguing, inter alias, that Stewart did not engage in protected activity under Sarbanes–Oxley, as he lacked both a subjectively and objectively reasonable belief that the conduct complained of constituted a violation. Doral further averred that Plaintiff's breach of contract claims are subject to a valid arbitration agreement thereby warranting dismissal. Lastly, Doral argued that both the Memorandum to the Chairman of the Audit Committee and the Employment Agreement were incorporated by reference in the complaint and should thus be considered by the Court.¹

On September 4, 2013, Plaintiff filed his Response in Opposition to Defendants' Motions to Dismiss (Docket No. 17). Therein, Plaintiff contends that Defendants failed to apply the correct legal standard with regards to the Sarbanes–Oxley claim. Stewart argues that his allegations, when analyzed under the purview of the appropriate legal standard, clearly show a prima facie SOX claim. Lastly, Plaintiff posits that the Court should assume jurisdiction over his breach of contract claims, as the arbitration agreement contained in the Employment Agreement is invalid and unenforceable.

On September 21, 2013, Doral filed its Reply to Plaintiff's Opposition (Docket No. 20) urging the Court to proceed with caution when deciding whether to grant Chevron deference to the Department of Labor's Administrative Review Board's (“ARB”) decision in Sylvester v. Parexel Int'l, LLC, ARB 07–123, 2011 WL 2165854 (Dept. of Labor, May 25, 2011). Nonetheless, Doral emphasizes that the alleged allegations are not covered under SOX, even if the Court opts to apply the more liberal pleading standard outlined in Sylvester. Additionally, Doral avers that the employment contract between the parties is subject to a valid arbitration agreement and that Stewart has failed to demonstrate that it would be prohibitively expensive to enforce said agreement.

On October 14, 2013, Plaintiff filed its Sur–Reply (Docket No. 25) explaining why the ARB's decision in Sylvester is entitled to Chevron deference. Specifically, Plaintiff argues that the only Circuit Courts to have examined this issue have all arrived at the same conclusion, that Chevron deference is warranted.

II. STANDARD OF REVIEW FOR MOTIONS TO DISMISS

Federal Rule of Civil Procedure 8(a) requires plaintiffs to provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Under Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), a plaintiff must “provide the grounds of his entitlement [with] more than labels and conclusions.” See Ocasio–Hernandez v. Fortuño–Burset, 640 F.3d 1, 12 (1st Cir.2011) (“in order to ‘show’ an entitlement to relief a complaint must contain enough factual material ‘to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).’ ”)(quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955) (citation omitted). Thus, a plaintiff must, and is now required to, present allegations that “nudge [his] claims across the line from conceivable to plausible” in order to comply with the requirements of Rule 8(a). Id. at 570, 127 S.Ct. 1955; see e.g. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

When considering a motion to dismiss, the Court's inquiry occurs in a two-step process under the current context-based “plausibility” standard established by Twombly, 550 U.S. 544, 127 S.Ct. 1955, and Iqbal, 556 U.S. 662, 129 S.Ct. 1937. “Context based” means that a Plaintiff must allege sufficient facts that comply with the basic elements of the cause of action. See Iqbal, 556 U.S. at 677–679, 129 S.Ct. 1937 (concluding that plaintiff's complaint was factually insufficient to substantiate the required elements of a Bivens claim, leaving the complaint with only conclusory statements). First, the Court must “accept as true all of the allegations contained in a complaint [,]” discarding legal conclusions, conclusory statements and factually threadbare recitals of the elements of a cause of action. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. “Yet we need not accept as true legal conclusions from the complaint or ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Maldonado v. Fontanes, 568 F.3d 263, 268 (1st Cir.2009) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).

Under the second step of the inquiry, the Court must determine whether, based upon all assertions that were not discarded under the first step of the inquiry, the complaint “states a plausible claim for relief.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. This second step is “context-specific” and requires that the Court draw from its own “judicial experience and common sense” to decide whether a plaintiff has stated a claim upon which relief may be granted, or, conversely, whether dismissal under Rule 12(b)(6) is appropriate. Id.

Thus, “[i]n order to survive a motion to dismiss, [a] plaintiff must allege sufficient facts to show that he has a plausible entitlement to relief.” Sanchez v. Pereira–Castillo, 590 F.3d 31, 41 (1st Cir.2009). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘show[n]’ ‘that the pleader is entitled to relief.’ ” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (quoting Fed.R.Civ.P. 8(a)(2)). Furthermore, such inferences must be at least as plausible as any “obvious alternative explanation.” Id. at 679–80, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 567, 127 S.Ct. 1955). “A plaintiff is not entitled to ‘proceed perforce’ by virtue of allegations that merely parrot the elements of the cause of action.” Ocasio–Hernandez,...