Appeal from the United States District Court for the Western District of Texas.
For Kevin Wallace, Plaintiff - Appellant: Richard Randolph Renner, Kalijarvi, Chuzi, Newman & Fitch, P.C., Washington, DC; Alexander Lawrence Katzman, Katzman & Katzman, San Antonio, TX; Christopher John McKinney, Attorney, McKinney Law Firm, San Antonio, TX.
For Tesoro Corporation, Defendant - Appellee: Michael Delikat, Renee Phillips, Orrick, Herrington & Sutcliffe, L.L.P., New York, NY; Wallace Bernard Jefferson, Alexander Dubose Jefferson & Townsend, L.L.P., Austin, TX; Robert A. Valadez, Shelton & Valadez, San Antonio, TX.
For Thomas E. Perez, Secretary, Department of Labor, Amicus Curiae: Radha Ranjani Vishnuvajjala, Esq., U.S. Department of Labor, Office of the Solicitor, Washington, DC.
Before SMITH, PRADO, and OWEN, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Kevin Wallace appeals the dismissal of his retaliation claim against Tesoro Corporation (" Tesoro" ). He contends that Tesoro terminated his employment for engaging in protected activity under the Sarbanes-Oxley Act of 2002 (" SOX" ) in violation of 18 U.S.C. § 1514A. The district court held in part that Wallace had failed to state a claim and in part that some of the allegations had not been properly exhausted before the Occupational Safety and Health Administration (" OSHA" ). Wallace did not satisfy the applicable exhaustion requirement for some of his allegations and failed to state a claim for others, but because he stated a claim relating to his investigation of Tesoro's accounting practices, we affirm in part and reverse in part and remand.
These facts are taken from Wallace's second amended complaint, with the exception of the facts relating to his activities related to suspected wire fraud, which are in the third amended complaint: Wallace was the Vice President of Pricing and Commercial Analysis at Tesoro. He contends that before he was fired in March 2010, he engaged in protected activity relating to four categories of suspected unlawful activity: Tesoro counted taxes as revenues on certain financial forms, including the company's Forms 10-K and 10-Q filings, even though that money was collected just for transmittal to the Treasury; Tesoro had some sort of side agreement in Idaho Falls, Idaho, that would violate antitrust laws; Wallace disclosed, on two annual certificates of compliance, that he had observed retaliation for raising concerns about violations of the Tesoro Code of Conduct; and Tesoro was engaged in wire fraud by providing some customers advance notice of price changes and by giving after-the-fact discounts to certain customers.
On the claim of booking taxes as revenue, Wallace states that, at an unspecified time in 2009, he began investigating a discrepancy between Tesoro's financial forecasts and cash performance. He discovered that Tesoro was reporting taxes as revenue, making some segments of the company look more profitable than they really were. Wallace brought the problem to the attention of his supervisor, Claude Moreau; the Vice President of Internal Audit, Tracy Jackson; and the Director of Commercial Accounting, Greg Belisle.
Belisle told Wallace that the system would no longer book taxes as revenue as of April 2010. At some later time, Wallace learned that Moreau had dissuaded Belisle from implementing that change. Wallace also met with Moreau a week before his termination and told him the results of a study that included the practice of booking taxes as revenue.
For the Idaho Falls issue, Wallace became aware in January or February 2010 of behavior he suspected was pricing collusion. John Moore, the Vice President of Wholesale, informed Wallace that he believed there was a " side agreement" that violated antitrust laws. Tesoro terminated Wallace before he could investigate the issue and report his findings.
The third practice that Wallace identified was his self-reporting of retaliation. Specifically, he was responsible every year for filling out an Annual Certificate of Compliance that asked a litany of questions designed to ensure compliance with SOX and antitrust laws, including this question: " Are you aware of any retaliation for raising a concern, in good faith, about anything that might violate our Code?" Wallace checked " yes" on the 2008 and 2009 Certificates, which were submitted in February 2009 and March 2010.
Finally, Tesoro engaged in two practices that Wallace believed to be fraudulent. The " price signaling" was a practice by which Tesoro would represent to customers that they would all receive information regarding price changes at the same time; Tesoro would actually give some customers advance notice of pricing changes, giving them an advantage over competitors in buying fuel. The " inconsistent discounts" were a practice by which Tesoro would represent to customers that they would all be treated the same on price, but it would give some of them a discount after the fact. Wallace first received reports of the inconsistent discounts in 2008 reports from subordinate employees, and in the summer of 2009 he met with a group who discussed the illegality of the inconsistent discounts. Wallace informed Charles Parrish, Tesoro's General Counsel, of the violations before his termination.
Wallace was fired on March 12, 2010. He contends that his activities relating to the foregoing suspected wrongful activities motivated the termination.
Wallace filed a complaint against Tesoro with OSHA in May 2010, stating that Tesoro had retaliated against him for engaging in protected activity: marking " yes" to the retaliation questions on the certificates of compliance, investigating " the continuing anti-trust issues in Idaho Falls," and " discovering taxes collected by Tesoro were being booked as revenue." The complaint did not reference price signaling, inconsistent discounts, or wire fraud.
OSHA dismissed the complaint in October 2010. It determined that Wallace's protected activity did not contribute to his termination. The Administrative Review Board (" ARB" ) had not issued a final decision on Wallace's case within 180 days of his filing it, so he sued in February 2011.
After some proceedings not relevant to this appeal, Wallace filed a second amended complaint alleging essentially four categories of protected activity: investigating and reporting the booking of taxes as revenues, investigating the Idaho Falls issue, identifying retaliation on the certificates of compliance, and investigating and reporting suspected wire fraud from inconsistent discounts and price signaling. Tesoro moved to dismiss, and the magistrate judge (" MJ" ) recommended granting the motion as to the first three categories of protected activity and allowing amendment to cure deficiencies related to the wire-fraud-based claim.
In addition to filing objections, Wallace filed a third amended complaint. Tesoro moved to dismiss it, raising for the first time the argument that the wire-fraud-based claims had not been presented in the OSHA complaint and were therefore unexhausted. The M.J. recommended dismissing that complaint based on the failure to exhaust, to which Wallace objected.
The district court accepted the MJ's recommendations, dismissing the first three categories of protected activity from the second amended complaint. The court accepted the MJ's reasoning: Wallace was objectively unreasonable in believing that booking taxes as revenue violated SEC rules; he had not engaged in protected activity relating to Idaho Falls because he had not reported the pricing issue to Tesoro before his termination (meaning he also could not show a causal link between Idaho Falls and his termination); his 2008 Certificate disavowed his having experienced retaliation, so it did not show a reasonable belief that he had experienced retaliation; and the 2009 Certificate was not protected activity because it contained no information other than a checked box and a refusal to say more except in private. The district court accepted the MJ's recommendation to dismiss the wire-fraud-based portions of the third amended complaint, which was the only extant claim of protected activity, because that alleged protected activity was outside the scope of the OSHA complaint.
Wallace contends that the dismissal was improper. As we explain, SOX has an exhaustion requirement, and the district court correctly concluded that Wallace's wire-fraud-based protected activity was outside the scope of the OSHA complaint or any investigation it would reasonably prompt. Wallace does not question the district court's conclusions that his Idaho Falls-related activity was not protected activity and that Tesoro was unaware of any of Wallace's actions relating to Idaho Falls, and he has therefore abandoned any challenge to them. Wallace did ...