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Halliburton, Inc. v. Administrative Review Board

United States Court of Appeals, Fifth Circuit

November 12, 2014


Petition for Review of the Final Decision and Order of the United States Department of Labor Administrative Review Board.

For HALLIBURTON, INCORPORATED, Petitioner: W. Carl Jordan, Esq., Tara Porterfield, Esq., Counsel, Vinson & Elkins, L.L.P., Austin, TX.

For ADMINISTRATIVE REVIEW BOARD, UNITED STATES DEPARTMENT OF LABOR, Respondent: Paul Leon Edenfield, Steven Jay Mandel, U.S. Department of Labor, Office of the Solicitor, Washington, DC.

For ANTHONY MENENDEZ, Intervenor: Howard Taylor Dulmage, Law Offices of Howard T. Dulmage, P.L.L.C., Houston, TX.

Before STEWART, Chief Judge, DENNIS, Circuit Judge, and GILSTRAP,District Judge.[*]


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Anthony Menendez, an employee of Halliburton, used the company's internal procedures to submit a complaint to management about what he thought were " questionable" accounting practices. Menendez also lodged a complaint about the company's accounting practices with the Securities and Exchange Commission (" SEC" ), which led the SEC to contact Halliburton and instruct it to retain certain documents during the pendency of the SEC's investigation. When Halliburton received the SEC's notice of the investigation, the company inferred from Menendez's internal reports that Menendez must have reported his concerns to the SEC too. Halliburton sent an email to Menendez's colleagues that instructed them to start retaining certain documents because " the SEC has opened an inquiry into the allegations of Mr. Menendez." Once his identity as the whistleblower was disclosed, Menendez's colleagues, whom he had essentially accused of fraud, began treating him differently, generally refusing to work and associate with him. The Administrative Review Board of the Department of Labor determined that the

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company's disclosure to Menendez's colleagues of his identity as the SEC whistleblower who had caused an official investigation, thus resulting in Menendez's workplace ostracism, constituted illegal retaliation under § 806 of the Sarbanes-Oxley Act (" SOX" ). See 18 U.S.C. § 1514A(a). For the reasons that follow, we affirm.


A. Facts

Menendez was hired by Halliburton, a global energy products and services company, in March 2005 as Director of Technical Accounting Research and Training in the Finance and Accounting department of the company's Houston office. In that position, Menendez monitored accounting issues and gave advice and training to field accountants. He reported directly to Mark McCollum, Chief Accounting Officer.

In July 2005, Menendez raised concerns that some of Halliburton's accounting practices involving revenue recognition did not conform with generally accepted accounting principles. Menendez circulated a memorandum on the revenue recognition issue to colleagues within his department, including his direct supervisor, McCollum. McCollum met with Menendez and suggested that, although the memorandum was good, Menendez was not a " team player" and needed to work more closely with colleagues to resolve any concerns over accounting practices. Halliburton ordered a new study of the revenue recognition issue, and, in October 2005, the study concluded that the company's practices were proper. That same month, Menendez sought another meeting with McCollum regarding the revenue recognition practices, but McCollum declined to meet with Menendez again.

On November 5, 2005, Menendez filed a confidential complaint with the SEC alleging that Halliburton was engaged in " questionable" accounting practices with respect to revenue recognition. After submitting the SEC complaint, Menendez continued to try to engage the company on the issue. In late 2005, he contacted Charles Muchmore, the Vice President of Financial Controls, who, after following up on Menendez's concerns and deciding that they lacked merit, suggested to Menendez that he go to the Audit Committee of the Board of Directors if he felt strongly enough about the issues. As required by SOX, the Audit Committee had " establish[ed] procedures for" " the confidential, anonymous submission by employees of the [company] of concerns regarding questionable accounting or auditing matters." See 15 U.S.C. § 78j-1(m)(4)(B). According to the Audit Committee's policy, " [employees] can report [their] concerns anonymously or confidentiality" and " [their] confidentiality shall be maintained," subject to certain exceptions not relevant here.[1] To report such concerns, the Audit Committee instructed employees to call a listed number or to write or email the Board of Directors.

On February 4, 2006, Menendez emailed Halliburton's Board of Directors to make the same complaint as he had made to the SEC. Menendez's internal complaint, which was sent from his company email address and included his name, was forwarded to Bert Cornelison, Halliburton's General Counsel. A few days later, on February 8, the SEC contacted Cornelison

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to notify Halliburton that it was investigating the company's allegedly improper accounting practices and that the company was directed to retain certain documents relating to the investigation. The SEC did not specify who had reported Halliburton's accounting practices, but Cornelison, having seen

Menendez's internal complaint, surmised that Menendez must have been the source of the SEC complaint as well. Cornelison sent an email to Menendez's boss, McCollum, and others, instructing them to preserve documents relevant to the SEC's investigation, as directed, because " the SEC has opened an inquiry into the allegations of Mr. Menendez." That same day, McCollum forwarded the email identifying Menendez as the whistleblower to fifteen members of Menendez's work group, including Menendez himself, thus alerting them to the SEC's investigation and to the fact that Menendez had complained to the SEC about the propriety of their accounting practices. Menendez was horrified when he saw the email disclosing his identity as the SEC complainant, and he described that day as one of the worst in his life. Colleagues began to treat him differently, generally avoiding him. Menendez missed work frequently after the revelation, showing up at the office only sporadically and, in early March, requested paid administrative leave " given the current environment and circumstances involving the SEC investigation." The company granted the request.

On September 19, 2006, the SEC concluded that no enforcement action against Halliburton was recommended. On October 17, 2006, Menendez resigned from Halliburton, stating in his resignation letter that he could not " professionally and ethically" return to the company while it persisted in accounting practices that, he continued to maintain, were improper. He had accepted a consultant position at a law firm during his leave of absence.

B. Procedural History

On May 8, 2006, Menendez filed a complaint with the Occupational Safety and Health Administration of the Department of Labor pursuant to § 806 of SOX, the antiretaliation provision, alleging that Halliburton retaliated against him because of his complaints about the company's accounting procedures by disclosing his identity as the whistleblower to his colleagues. The Assistant Secretary for Occupational Safety and Health dismissed the complaint, and Menendez requested a hearing before an Administrative Law Judge. Following a hearing that included several days of testimony, the Administrative Judge issued a decision and order dismissing the complaint. The Administrative Judge concluded, among other things, that, although Menendez's reports to the SEC and the company were protected conduct, the disclosure of his identity was not an " adverse action" (a required element of an antiretaliation claim under SOX) because none of the workplace harm Menendez suffered as a result of being identified as the whistleblower rose to the level of being " materially adverse." Menendez appealed.

On appeal, the Administrative Review Board affirmed the Administrative Judge's conclusion that Menendez engaged in protected conduct but found that the Administrative Judge had erred in determining that the disclosure was not an " adverse action." Contrarily, the Review Board held, under the facts of this case, the disclosure rose to the level of " material adversity." The Review Board remanded to the Administrative Judge for findings on whether Menendez's protected activity was a " contributing factor" in Halliburton's disclosure of his identity and whether Halliburton had satisfied its burden of establishing,

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as an affirmative defense to the retaliation claim, that " legitimate business reasons" mandated the disclosure of Menendez's identity.

On remand, the Administrative Judge held that Halliburton had shown a legitimate business reason for disclosing Menendez's identity as the whistleblower. Specifically, the Administrative Judge found that Halliburton did not intend negative consequences for Menendez and rather believed that, by indicating that the company knew he was the whistleblower, it would show him that the company was seeking to address his concerns. However, recognizing that the Review Board may determine that he had erred, the Administrative Judge held in the alternative that, if he is reversed on liability, $1,000 in damages would be appropriate. The Administrative Judge explained that, although Menendez suffered emotional distress and, to a limited extent, certain reputational injury, the harms were not significant. The Administrative Judge further held in the alternative that, if the Review Board finds his damages award to be inadequate, $30,000 in damages would be appropriate instead. Menendez again appealed.

In the decision that is now under review, the Review Board reversed the Administrative Judge on the affirmative defense, thus holding Halliburton liable for retaliation. As for damages, the Review Board affirmed the Administrative Judge's alternative award of $30,000 in compensatory damages for ...

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