Wiest v. Lynch

• Decision Date: 19 March 2013
• Docket Number: No. 11–4257.,11–4257.
• Court: U.S. Court of Appeals — Third Circuit
• Parties: Jeffrey A. WIEST; Laura E. Wiest, His Wife, Appellants v. Thomas J. LYNCH, Chief Executive Officer and Director of Tyco Electronics Corporation; Terrence Curtin, Executive Vice President and Chief Financial Officer of Tyco Electronics Corporation; Charles Post, Esquire, Senior Labor & Employment Counsel; Charles Dougherty, President, Wireless Systems, A Tyco Business Unit; Tyco Electronics Corporation.

710 F.3d 121

Jeffrey A. WIEST; Laura E. Wiest, His Wife, Appellants

v.Thomas J. LYNCH, Chief Executive Officer and Director of Tyco Electronics Corporation; Terrence Curtin, Executive Vice President and Chief Financial Officer of Tyco Electronics Corporation; Charles Post, Esquire, Senior Labor & Employment Counsel; Charles Dougherty, President, Wireless Systems, A Tyco Business Unit; Tyco Electronics Corporation.

No. 11–4257.

United States Court of Appeals,

Third Circuit.

Argued Oct. 5, 2012.

Filed: March 19, 2013.

Richard C. Angino, Esq. (Argued), Daryl E. Christopher, Esq., Angino & Rovner, P.C., Harrisburg, PA, for Appellants.

Stephen M. Kohn, Esq. (Argued), Kohn, Kohn & Colapinto, Washington, D.C., for Amicus Curiae National Whistleblowers Center.

Michael A. Finio, Esq. (Argued), Amy C. Foerster, Esq., Cory S. Winter, Esq., Saul Ewing LLP, Harrisburg, PA, for Appellees.

Eugene Scalia, Esq., Gibson, Dunn & Crutcher LLP, Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States of America.

Before: McKEE, Chief Judge, JORDAN and VANASKIE, Circuit Judges.

OPINION OF THE COURT

VANASKIE, Circuit Judge.

Appellant Jeffrey Wiest brought an action under the whistleblower protection provisions set forth in Section 806 of the Sarbanes–Oxley Act (“SOX”), 18 U.S.C. § 1514A, and under Pennsylvania law against Appellees Tyco Electronics Corporation and several officers and directors of Tyco Electronics (collectively, “Tyco”). The District Court granted Tyco's Motion to Dismiss the federal whistleblower claims, declined to exercise supplemental jurisdiction over the state law claims, and denied Wiest's Motion for Reconsideration. Concluding that the District Court erred in requiring that Wiest allege that his communications to his supervisors “definitively and specifically relate to” an existing violation of a particular anti-fraud law, as opposed to expressing a reasonable belief that corporate managers are taking actions that could run afoul of a particular anti-fraud law, we will reverse, in part, the dismissal of the federal whistleblower claims and vacate the dismissal of the state law claim.

I.

A. Background

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. (App. 42, ¶ 31.) Around 2007, Wiest “established a pattern of rejecting and questioning expenses” that failed to satisfy accounting standards or securities and tax laws. ( Id. at 43, ¶ 33.)

1. The Atlantis Resort Event

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. ( Id. at 45, ¶ 41.) 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.” ( Id. at 84, Ex. E.) 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. ( Id. at 43–44, ¶ 35.) 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.

2. The Venetian Resort Event

Also in mid–2008, Wiest received a request to process a payment of $218,000 for a conference at the Venetian Resort in Las Vegas, Nevada. The request lacked both sufficient documentation for tax purposes and proper approval pursuant to Tyco's “delegation of authority.” Additionally, the request included inaccurate accounting and tax treatment information. At Wiest's direction, one of his subordinates sent an email to the Tyco employee who submitted the request, explaining that the accounts payable department could not process the request until it had received an agenda and business purpose for the event, correct accounting treatment for various expenses, and approval pursuant to Tyco's delegation of authority. The tax department eventuallyconcluded that the conference served a business purpose, and the accounts payable department subsequently allowed the payment.

3. The Wintergreen Resort Event

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. Like the Venetian Resort request, the 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.

4. Other Matters

Wiest also alleges that he questioned other events between 2007 and 2009. In particular, he questioned expenses for a “relatively lavish ‘holiday party,’ ” a $52,000 audit team meeting, and an employee baby shower. ( Id. at 49, ¶ 55.) He also sent an email to management when he received an expense request from an employee that included duplicate entries, additional nights of hotel bills, and undocumented expenses. He informed management that processing that improper expense request would constitute invalid or undocumented business expenses if Tyco was not reimbursed or if the amount was not reported as income on the employee's W–2 form.

5. Termination of Employment

Wiest alleges that Tyco became frustrated with his persistence in following proper accounting procedures. In September 2009, two human resources employees met with Wiest and informed him that he was under investigation for incorrectly reporting the receipt of two basketball game tickets in August 2009, for having a relationship with a coworker ten years earlier, and for allegedly making sexually-oriented comments to co-workers. After Wiest learned of the investigation, his health declined and he went on medical leave. Seven months later, Tyco terminated his employment.

B. Procedural History

On July 7, 2010, Wiest sued the Tyco Defendants, asserting that his discharge was in retaliation for his reports of improper expenditures, in violation of Section 806 of SOX. That section prohibits certain employers from discriminating against employees for reporting information that they reasonably believe constitutes a violation of one of several enumerated provisions relating to fraud and securities regulations. See18 U.S.C. § 1514A. ¹ Wiest also presented state law claims, including intentional infliction of emotional distress and wrongful termination, and his wife brought a claim for loss of consortium. Tyco moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), asserting that Wiest failed to state a prima facie claim under Section 806.

As to the threshold question for a prima facie case in a retaliation case under Section 806—whether the Complaint sufficiently alleges that the plaintiff had engaged in “protected activity,” see29 C.F.R. § 1980.104(e)(2)(i)—the District Court determined that Wiest had to allege that his communications (a) “definitively and specifically”related to a statute or rule listed in Section 806; (b) expressed “ ‘an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss;’ ” and (c) “reflect[ed] a reasonable belief of an existing violation.” Wiest v. Lynch, Civil Action No. 10–3288, 2011 WL 2923860, at *4 (E.D.Pa. July 21, 2011) (citations omitted). In concluding that a communication must “definitively and specifically” relate to a violation of a statute or rule listed in Section 806, the District Court relied upon the decision of the U.S. Department of Labor Administrative Review Board (“ARB”) in Platone v. FLYI, Inc., ARB 04–154, 2006 WL 3246910, at *8 (Dep't of Labor Sept. 29, 2006), aff'd548 F.3d 322 (4th Cir.2008), and court decisions that endorsed Platone 's “definitive and specific” standard. Finding that the allegations of the Complaint failed to satisfy this standard, the District Court did not reach the other elements of a prima facie Section 806 case, declined to exercise supplemental jurisdiction over the state law claims, and dismissed the Complaint without prejudice.

The District Court's Order dismissing the Complaint granted Wiest leave to file an amended complaint. Rather than filing an amended complaint, Wiest, on August 10, 2011, presented a motion entitled “Motion for Reconsideration Nunc Pro Tunc By the Eastern District Court En Banc of Judge Pratter Memorandum Opinion of July 21, 2011, Or, In the Alternative, Motion to Dismiss Plaintiffs' Complaint with Prejudice and Enter a Final Appealable Order and Judgment” (“Motion for Reconsideration”). In his Motion for Reconsideration, Wiest raised for the first time the argument that the ARB overruled Platone 's “definitive and...