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Wiest v. Lynch

United States District Court, E.D. Pennsylvania

April 16, 2014

JEFFREY A. WIEST & LAURA E. WIEST, h/w, Plaintiffs,
THOMAS J. LYNCH et al., Defendants

Decided April 15, 2014.

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For THOMAS J. LYNCH, Chief Executive Officer And Director Of Tyco Electronics Corporation, TYCO ELECTRONICS CORPORATION, CHARLES DOUGHERTY, President, Wireless Systems, A Tyco Business Unit, CHARLES C. POST, ESQUIRE, Sr. Labor & Employment Counsel, TERRENCE CURTIN, Executive Vice President And Chief Financial Officer Of Tyco Electronics Corporation, Defendants: AMY C. FOERSTER, LEAD ATTORNEY, CORY SCOTT WINTER, MICHAEL A. FINIO, SAUL EWING LLP, HARRISBURG, PA.


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GENE E.K. PRATTER, United States District Judge.

Jeffrey Wiest has sued Tyco Electronics Corporation (" Tyco" ) and four individual Defendants under the whistleblower protection provision of the Sarbanes-Oxley Act, section 806, 18 U.S.C. § 1514A, for retaliating against him for his intracompany reports of suspected fraud and violations of federal tax law. The Defendants together filed a Motion to Dismiss (Docket No. 35), which the Court now grants in part and denies in part.[1]


In the course of an earlier iteration of this dispute, the Third Circuit Court of Appeals canvassed the factual background of the case as follows:

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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. Around 2007, Wiest established a pattern of rejecting and questioning expenses that failed to satisfy accounting standards or securities and tax laws. . . .
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. 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." 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. 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. . . .
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. . . . [T]he 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.

Wiest v. Lynch, 710 F.3d 121, 124-25 (3d Cir. 2013) (internal quotation marks and citations omitted). Mr. Wiest also reported a number of concerns about other events, including, for instance, his doubts about the propriety of approving certain items for a " Venetian Resort Event," as well as his reservations about other allegedly lavish parties and expenditures. See id.

Upon the Defendants' first Motion to Dismiss (Docket No. 5), this Court held that Mr. Wiest had not established a prima facie case for retaliation under section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, because he could not show, under the standard announced bye the United States Department of Labor in Platone v. FLYi, Inc., ARB No. 04-154, 2006 WL 3246910 (Dep't of Labor Sept. 29, 2006), aff'd, 548 F.3d 322 (4th Cir. 2008), that his communications were activities protected from retaliation because his reports of Tyco and its agents' misconduct did not " definitively and specifically" relate to violations of statutes or rules listed in section 806.

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On appeal, the Third Circuit Court of Appeals, observing that in Sylvester v. Parexel International LLC, ARB No. 07-123, 2011 WL 2165854 (Dep't of Labor May 25, 2011) (en banc), " however, the [Administrative Review Board ('ARB') of the Department of Labor [2]] abandoned the 'definitive and specific' standard announced in Platone " in favor of a " reasonable belief" standard entitled to Chevron deference,[3] reversed. Wiest, 710 F.3d at 129-32.[4] Turning to apply Sylvester 's " reasonable belief" standard, the Court of Appeals concluded that Mr. Wiest had adequately pleaded protected activity under section 806 with his reports regarding the Atlantis and Wintergreen Resort Events, but affirmed this Court's dismissal of his claims based on other reports, including that relating to the Venetian Resort Event, because he did not have a " reasonable belief" that Tyco's conduct relevant thereto constituted a violation of a provision enumerated in section 806. See id. at 135-38. The Court of Appeals then remanded the case " for further proceedings consistent with [its] opinion." Id. at 138.

Now before this Court on remand, the Defendants have filed a renewed Motion to Dismiss on four different grounds, each of which, they contend, warrants dismissal of Mr. Wiest's section 806 claim (and therefore the Court's relinquishment of supplemental jurisdiction over the Wiests' state law claims).[5] The Defendants argue that

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(1) Mr. Wiest did not suffer an adverse employment action; (2) Mr. Wiest has not pleaded a sufficient causal connection between the alleged protected activity and any adverse employment action; (3) the Complaint's allegations are not sufficiently specific as against the four individual Defendants; and (4) in any event, section 806 of Sarbanes-Oxley did not, at the time of the events alleged in the Complaint, provide coverage to employees, like Mr. Wiest, of non--publicly traded subsidiaries of publicly held companies. And, Defendants point out, Tyco is a non--publicly traded subsidiary of Tyco Electronics Ltd. (" Tyco Limited" ) (which, the Defendants do not dispute, is allegedly covered by section 806 of Sarbanes-Oxley, but which Mr. Wiest has not named as a Defendant).[6]

After the parties notified the Court that the Supreme Court had granted a writ of certiorari in Lawson v. FMR LLC, 134 S.Ct. 1158, 188 L.Ed.2d 158 (2014)--the potential applicability of which case the parties continue to contest--" to resolve the division of opinion on whether [18 U.S.C.] § 1514A extends whistleblower protection to employees of privately held contractors who perform work for public companies," id. at 1165, this Court placed the instant case in suspense pending the Supreme Court's decision. After the Supreme Court announced that decision, this Court ordered supplemental briefing on three issues, see Mar. 11, 2014 Order (Docket No. 47):

1. The impact, if any, of Lawson on the issue of whether pre--Dodd-Frank section 806 of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, protects employees of privately held subsidiaries of public companies (and/or whether the Dodd-Frank amendment applies retroactively);
2. Whether, and if so, how, the text of pre--Dodd-Frank § 1514A is in fact

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ambiguous for purposes of both Chevron deference and retroactivity analysis; [7] and
3. Whether Mr. Wiest alleged an adverse employment action (and, specifically, constructive discharge).[8]

The parties' earlier briefing had suggested that the first or second issue could be dispositive because the events Mr. Wiest complains of occurred before Dodd-Frank amended section 806.

The parties submitted their supplemental briefing on April 4, 2014, and the Court, having removed the case from suspense (Docket No. 50) now decides the Motion to Dismiss.


Before turning to the familiar standard to be applied at the motion to dismiss stage, the Court addresses Mr. Wiest's argument that the Defendants are barred from filing their renewed Motion to Dismiss because the Third Circuit Court of Appeals decided that he had cognizable claims and that that ruling constitutes the law of this case.

A. The Defendants' Second Motion to Dismiss Is Not Barred by the Law of the Case Doctrine

Mr. Wiest, contending that " [t]he Third Circuit [Court of Appeals] applied a plenary standard in reviewing the dismissal of [his] Complaint," argues that the Court of Appeals held, as the law of the case, that he " stated cognizable claims with regard to the Atlantis and Wintergreen Resort Events," such that Defendants' instant Motion to Dismiss must be denied without further analysis. Mem. Opp. 2-3 (Docket No. 39). To support this position, he points to the following statement in the Court of Appeals' opinion: " Although we hold that the District Court applied the

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wrong legal standard in analyzing Wiest's claims under Section 806, dismissal is still appropriate if Wiest nevertheless failed to plead sufficient facts to state a claim." Wiest, 710 F.3d at 134-35. The negative implication of this statement, Mr. Wiest suggests, is that because the Court of Appeals did not " nevertheless" dismiss his claims, he must not have " failed to plead sufficient facts to state a claim." See Mem. Opp. 2. But the Wiest panel's words carry no such suggestion. Mr. Wiest's reading of the Court of Appeals' opinion not only ignores the context of this and other statements, but it is also based on a mistaken notion of what exactly it is that appellate courts do, and what the " law of the case" doctrine entails.

" The doctrine of law of the case comes into play only with respect to issues previously determined." Quern v. Jordan, 440 U.S. 332, 348 n.18, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979) (citing In re Sanford Fork & Tool Co., 160 U.S. 247, 256, 16 S.Ct. 291, 40 L.Ed. 414 (1895)). When a higher court remands a case, the lower court " may consider and decide any matters left open by the mandate of [the higher] court." Id. (quoting Sanford Fork & Tool Co., 160 U.S. at 256). And certainly, when the higher court is " not presented with [a given] question," and remand is ordered " for further proceedings consistent with [the higher court's] opinion," the law of the case doctrine cannot be said to apply to the resolution of that unaddressed issue. Id. " While a mandate is controlling as to matters within its compass, on the remand a lower court is free as to other issues," id. (quoting Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 168, 59 S.Ct. 777, 83 L.Ed. 1184 (1939)), and " [t]he opinion delivered by [the higher] court at the time of rendering its decree may be consulted to ascertain what was intended by its mandate," Sanford Fork & Tool Co., 160 U.S. at 256.

The Third Circuit Court of Appeals, elaborating the role and scope of the law of the case doctrine, has explained that the doctrine " preclude[s] review of only those legal issues that the court in a prior appeal actually decided, either expressly or by implication; it does not apply to dicta." In re City of Phila. Litig., 158 F.3d 711, 718 (3d Cir. 1998). The doctrine applies " when [a court's] prior decisions in an ongoing case either expressly resolved an issue or necessarily resolved it by implication. " United Artists Theatre Circuit, Inc. v. Township of Warrington, 316 F.3d 392, 397-98 (3d Cir. 2003) (quoting Aramony v. United Way of Am., 254 F.3d 403, 410 (2d Cir. 2001)). " The doctrine does not bar litigation 'of all questions which were within the issues of the case and which, therefore, might have been decided.'" Field v. Mans, 157 F.3d 35, 40 (1st Cir. 1998) (quoting Conkling v. Turner, 138 F.3d 577, 587 (5th Cir. 1998) (internal quotation marks and citations omitted)). Thus, even if a court issued a prior decision in a case, if it did not address the particular issue, e.g., Schultz v. Onan Corp., 737 F.2d 339, 345 (3d Cir. 1984), or if it addressed subissues but not the respective ultimate issue, e.g., Arroyo v. Astrue, 347 F.App'x 802, 804 (3d Cir. 2009), the law of the case doctrine is inapplicable.

Moreover, general statements alone, even that a plaintiff has a cause of action, are insufficient to imply that all related issues or subissues have been decided. E.g., Westside Mothers v. Olszewski, 454 F.3d 532, 539 (6th Cir. 2006) (" 'Because the [prior] holding refers generally to the 'screening and treatment provisions,' . . . [t]here is . . . no assurance that the panel considered whether the specified provisions of the Medicaid Act confer enforceable rights under § 1983 before holding

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that the plaintiffs have a cause of action under § 1983. . . ." (citing United Artists Theatre Circuit, 316 F.3d at 398)); see also, e.g., Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co., 988 F.2d 414, 430 (3d Cir. 1993) (" [T]he first district judge granted summary judgment . . . on the bottlers' Lanham Act claims because there was neither likelihood of confusion nor evidence that the Company diluted the trademark by marketing the other Coke products. The other language concerning the unamended bottlers' rights in the trademark and how they affect the unamended bottlers' contract claim is dicta which cannot be the predicate for a ruling that the doctrine of law of the case was violated." (citation omitted)). " Where there is substantial doubt as to whether a prior panel actually decided an issue, the [court] should not be foreclosed from considering the issue." United Artists Theatre Circuit, 316 F.3d at 398.

Mr. Wiest's argument that on appeal the Third Circuit Court of Appeals " found that [Mr. Wiest] stated cognizable claims with regard to the Atlantis and Wintergreen Resort Events," such that " [t]hese issues are now completely [and] permanently settled" as " the law of the case," Mem. Opp. 3, is a strained, disconnected, and altogether unsupportable reading of the Court of Appeals' opinion. Mr. Wiest appears to rest his case on the Court of Appeals' statement that " [a]lthough we hold that the District Court applied the wrong legal standard in analyzing Wiest's claims under Section 806, dismissal is still appropriate if Wiest nevertheless failed to plead sufficient facts to state a claim." Wiest, 710 F.3d at 134-35. That statement of law--of a legal standard, as it were--refers to what an appellate court can do, not what it does in fact do in a given case, or what it did here. See id. (" We may affirm the district court on any ground supported by the record." quoting, in a parenthetical, Tourscher v. McCullough, 184 F.3d 236, 240 (3d Cir. 1999)). The law of the case doctrine does not bar consideration of issues that could have been, but were not, decided; " [a]s compared to claim preclusion, it is not enough that the matter could have been decided in earlier proceedings." 18B Charles Alan Wright, Arthur R. Miller, et al., Federal Practice and Procedure § 4478 (2d ed. 2013). And it is evident from the Court of Appeals' Wiest opinion that the only two issues the Court of Appeals decided were (1) what legal standard applies for determining whether an employee blew the whistle under section 806 (" reasonable belief" ) and (2) whether, under that standard, Mr. Wiest actually blew his whistle.[9] The Court of Appeals focused first on this Court's grounds for dismissing Mr. Wiest's Complaint--" the 'protected activity' prong," Wiest, 710 F.3d at 129--and explained that, because the ARB had reversed course in Sylvester, 2011 WL 2165854, therein adopting a " reasonable belief" standard and thereby overruling its prior " definitive and specific" standard from Platone, 2006 WL 3246910, see Wiest, 710 F.3d at 129-31, this Court should have applied Sylvester 's " reasonable belief" test for determining whether an employee's report of a violation of Sarbanes-Oxley is a " protected activity" under section 806, see Wiest, 710 F.3d at 129-34, not whether a complaining employee

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has " stated a claim." [10] Specifically, the Court of Appeals observed,

In this case, the District Court did not decide this matter on the ground that Wiest's pleadings failed to support a plausible inference that Tyco knew or suspected that Wiest had engaged in protected activity. Instead, the District Court decided that Wiest's Complaint was inadequate because the communications did not " definitively and specifically" relate to a statute or rule listed in § 806 and failed to articulate facts that supported a reasonable belief of actionable fraudulent conduct directed at investors. Consistent with according Chevron deference to the ARB's holding in Sylvester, we have found that the standards used by the District Court were too stringent. We now turn to Wiest's Complaint to ascertain whether it states a § 806 claim for relief under the standard announced in Sylvester.

Id. at 134 (emphasis added).[11]

In other words, the Court of Appeals explicitly noted that this Court decided the case on the application of a superseded legal standard regarding a " protected activity," and, therefore, the Court of Appeals (1) enunciated the new, correct standard and (2) then turned to apply that standard. Indeed, this second step is the only other issue the Court of Appeals reached: the " Application of Sylvester 's Reasonable Belief Standard," id., under which rubric the Court of Appeals made the statement on which Mr. Wiest unreasonably relies (" dismissal is still appropriate if Wiest nevertheless failed to plead sufficient facts to state a claim," id. at 134-35). And, in fact, that statement makes sense particularly because the Court of Appeals did " affirm [this Court's] dismissal Order with respect to Wiest's communications relating to the Venetian event," id. at 136 (emphasis added), (as well as this " Court's dismissal Order with respect to Wiest's communications relating to the improper business expense claims of an individual employee as well as the holiday party, team meeting, and baby shower events," id. at 137), because, notwithstanding this Court's application of " too stringent" a standard, id. at 134, under the proper Sylvester standard, " objectively, a reasonable person in Wiest's position would not have believed that the expense request that initially lacked a detailed agenda and breakdown of expenses would constitute a violation of one of the provisions listed in Section 806," id. at 136. To put it bluntly: The Court of Appeals ...

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