Dietz v. Cypress Semiconductor Corp. ( 2017 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT October 17, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
TIMOTHY C. DIETZ, an individual,
Plaintiff - Appellee/Cross Appellant,
v. Nos. 16-1209 & 16-1249
(D.C. No. 1:16-CV-00832-LTB)
CYPRESS SEMICONDUCTOR (D. Colo.)
CORPORATION, a California corporation,
Defendant - Appellant/Cross
Appellee.
–––––––––––––––––––––––––––––––––––
CYPRESS SEMICONDUCTOR
CORPORATION,
Petitioner,
v. Nos. 16-9523 & 16-9534
(LABR No. 15-017)
ADMINISTRATIVE REVIEW BOARD, (Department of Labor (except OSHA))
UNITED STATES DEPARTMENT OF
LABOR,
Respondent.
------------------------------
TIMOTHY C. DIETZ,
Intervenor.
–––––––––––––––––––––––––––––––––––
CYPRESS SEMICONDUCTOR
CORPORATION,
Petitioner,
v. No. 16-9529
(LABR No. 15-047)
ADMINISTRATIVE REVIEW BOARD, (Department of Labor (except OSHA))
U.S. DEPARTMENT OF LABOR,
Respondent.
------------------------------
TIMOTHY C. DIETZ,
Intervenor.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before HARTZ and EBEL, Circuit Judges.1
________________________________
Section 806 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) protects
whistleblowers from retaliation when they inform their company about conduct
which they reasonably believe violates any one of certain enumerated federal laws,
*
This order and judgment is not binding precedent, except under the doctrines
of law of the case, res judicata, and collateral estoppel. It may be cited, however, for
its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
1
The Honorable Neil Gorsuch participated in the oral argument but not in the
decision in this case. The practice of this Court permits the remaining two panel judges,
if in agreement, to act as a quorum in resolving the appeal. See 28 U.S.C. § 46(d); see
also United States v. Wiles, 106 F.3d 1516, 1516, n.* (10th Cir. 1997) (noting that this
Court allows remaining panel judges to act as a quorum to resolve an appeal). In this
case, the two remaining panel members are in agreement.
2
including mail fraud and wire fraud. 18 U.S.C. § 1514A. In this case, Timothy Dietz
complained to his employer Cypress Semiconductor Corporation (Cypress) that it
concealed a peculiar compensation scheme from new employees when they joined the
company, which Dietz believed amounted to federal mail fraud and wire fraud. He
then allegedly suffered retaliation in the form of disciplinary action and constructive
discharge. The question presented is whether Dietz’s whistleblower complaint
constituted protected activity under Sarbanes-Oxley. We hold that it did not.
I. BACKGROUND
A. Cypress and the Bonus Plan
Dietz was working for Ramtron International Corporation (Ramtron) when
Cypress acquired Ramtron in November 2012. Cypress extended offers to some
former Ramtron employees, including Dietz, inviting them to join the new company.
The offer letters outlined the basic terms and conditions of employment, including
expected salary and that the employment with Cypress would be at-will. Cypress
also stated it would honor the Ramtron severance package if the employee chose to
leave Cypress within one year. In other words, working for Cypress and quitting
within one year would entitle the employee to the same benefits as if he turned down
employment with Cypress in the first instance. Dietz accepted the offer to become a
program manager at Cypress.
The Cypress offer letters, however, omitted one important term of employment
which is the focus of this lawsuit. Cypress did not reference or explain that some of
3
the former Ramtron employees would be subject to a unique compensation scheme
called the Design Bonus Plan (Bonus Plan) created by one of Cypress’s cofounders.
This Bonus Plan involved a mandatory wage deduction under which certain
employees working on certain projects would forfeit ten percent of their salary until
six weeks after the close of each quarter, at which time they would receive a bonus
based on a review of their projects’ performance. If a qualifying project was behind
schedule, then every eligible employee on the team would receive a bonus that was
less than the initial deduction, resulting in a net loss in salary for that quarter; but if a
project was ahead of schedule, the bonus would normally exceed the initial
deduction—sometimes by a substantial margin—resulting in a net gain for the
employees on the team. On average, bonus-eligible employees received a net salary
that was twenty-seven percent higher than their pre-bonus salaries, although some
employees ultimately lost money in certain quarters due to their projects’
underperformance. Further, the potential bonus was subject to forfeiture if an
employee left before a quarterly payout.
This scheme was not described in the offer letters given to Ramtron
employees. A Cypress executive justified the omission on the ground that there was
“no way of knowing which employees would be” subject to the Bonus Plan at the
time Cypress acquired Ramtron. AR 1215. The Bonus Plan only applied to certain
employees, normally design engineers, associated with certain launch projects. And
because of what Cypress perceived as a lack of “management rigor” at Ramtron,
Cypress was unable to clearly define at the time of acquisition which existing
4
projects at Ramtron would eventually be eligible for the Bonus Plan. Id. For this
reason, it did not include the Bonus Plan details in the Ramtron offer letters.
Nevertheless, Cypress did not start making deductions from the former
Ramtron employees’ paychecks until August 2013—approximately nine months after
the Ramtron employees came on board. That is because the first Bonus Plan-eligible
project on which they would work did not launch until late March 2013, and
Cypress’s policy was to pay the employees’ first 18 weeks’ contributions before
beginning deductions from their paychecks.
Before Cypress began making these compulsory deductions, it attempted to
apprise Ramtron employees of the Bonus Plan’s details. In December 2012, a Design
Center Manager named David Still met with them and explained the Bonus Plan.
Then, in April 2013, the Design Bonus Administrator, Ryan Wellsman, conducted a
training session for the Ramtron employees regarding the Bonus Plan. Further, at all
relevant times Cypress described the Bonus Plan in detail on the company’s intranet,
which was accessible by all employees.
Cypress also required that any employee participating in a launched project
acknowledge they have read a document known internally as the Design Governing
Spec, which includes a discussion of the Bonus Plan. Then, as a condition of
participating in a Bonus-Plan eligible project, each qualifying employee was required
to write a memo acknowledging the aspects of the Bonus Plan that were relevant to
the project team. All of this was done with respect to the Ramtron employees’ first
5
eligible project, the TR-20005, before Cypress started deducting anything from their
paychecks around August 2013.
B. Dietz’s Whistleblower Complaint
On April 12, 2013, after one of the Bonus Plan training sessions, Dietz e-
mailed his supervisor, James Nulty, expressing concern about the legality of the
Bonus Plan under California and Colorado wage laws. On April 22, 2013, Dietz had
a follow-up phone conversation with Cypress’s General Counsel, Victoria Valenzuela
during which he made the same assertion—that the Bonus Plan violated state wage
laws. In addition to his state-law complaint, Dietz told Valenzuela that the Bonus
Plan took the Ramtron employees by surprise. He said that the Ramtron offer letters
conveyed to employees “what their salary [was] going to be and then you change the
game.” AR 1307 (emphasis added). Valenzuela assured Dietz that there was no
legal problem with the Bonus Plan itself and that Ramtron employees had been
properly apprised of the scheme.
C. Cypress’s Alleged Retaliation
Shortly after his conversation with Valenzuela, Dietz began having trouble
with his supervisor Nulty. In late May 2013, Nulty arranged a phone meeting with
Dietz and others to go over some recent concerns about Dietz’s performance. In
particular, Nulty was troubled by three observations: (1) Dietz had updated his
project schedule to show a three-week delay for an important milestone that was
6
fourteen weeks away, (2) Dietz did not immediately notify a supervisor when another
manager pulled one of Dietz’s employees off of Dietz’s project, and (3) Dietz
neglected to update the project-management computer system for too long a period.
On June 4, 2013, after the teleconference, Nulty memorialized these concerns in a
written memo to be placed indefinitely in Dietz’s personnel file. The memo
instructed Dietz to prepare a memo explaining what he did wrong and stating that
“[a]ny future infractions will result in further disciplinary action, up to and including
termination.” AR 1401. The ALJ characterized this memo as “career ending.” AR
2230.
On June 5, 2013, Dietz responded with a letter disputing the disciplinary
allegations. He claimed that Nulty’s memo was “unlawful retaliation” for Dietz’s
complaint regarding the Bonus Plan. AR 1412-13. Then, instead of admitting
wrongdoing as Nulty’s letter instructed, Dietz countered:
I will do no such thing, because I have done nothing
wrong, and this requirement is nothing more than bullying
with legal implications. Therefore, my response is that I
am terminating my employment at Cypress. I will agree to
stay onboard through July 1 as a professional courtesy to
my fellow Cypress employees in Colorado Springs, and to
keep the TR20005 project stable while executing an
orderly turnover, unless Cypress chooses to terminate my
employment sooner.
AR 1413 (emphasis in original). This response “stunned” Cypress managers. AR
1067. But according to Dietz, he was not intending to resign at all—rather, he was
triggering a specific employee-retention policy at Cypress called the “Turnaround
Process.” AR 1249. Under that policy, Cypress would react quickly to a valued
7
employee’s notice of resignation and attempt to persuade that employee to remain at
Cypress.
Cypress’s response, however, was not immediate. The next day, June 6, 2013,
Nulty responded with an invitation for Dietz to attend a meeting for the following
day—an invitation with no attached agenda, which Dietz believed was unusual at
Cypress. Dietz called Nulty about the upcoming meeting but could not reach him.
Because Nulty had waited a full day to respond to the resignation notice, because the
invitation had no agenda, and because he could not get in touch with Nulty, Dietz
concluded that Cypress was not adhering to its turnaround process and was planning
to terminate him. Dietz believed the writing was on the wall and the axe was about
to fall. Thus, on June 7, 2013, before the scheduled meeting he notified Cypress that
his resignation was effective immediately. That was his last day at Cypress.
D. Procedural History
In August 2013, Dietz filed this lawsuit for unlawful retaliation with the
Occupational Safety and Health Administration (OSHA), which investigates and
adjudicates complaints on behalf of the Department of Labor (DOL). The Regional
Administrator of OSHA denied Dietz’s claim for relief. Dietz appealed to an
administrative law judge (ALJ) who found in his favor. The ALJ awarded Dietz
$654,906.00 in front pay, $220,105.85 in back pay, $31,199.08 in back benefits,
immediate vesting of 3,512 shares of Cypress stock and 2,041 shares of Cypress
stock options, interest, costs, and attorneys’ fees.
8
Cypress then appealed to the Administrative Review Board (the Board), which
affirmed the ALJ’s decision and awarded relief to Dietz in March 2016. Cypress
now petitions this Court for review of the Board’s merits decision. Appeal No. 16-
9523. Subsequently the Board affirmed the ALJ’s decision awarding Dietz attorney
fees and costs incurred before the ALJ, and then awarded attorney fees and costs for
litigation before the Board. Cypress petitions this Court for review of those orders as
well. Appeal Nos. 16-9529, 16-9534.
Having won his case before the Board, Dietz filed a civil action in the district
court to enforce the Board’s orders against Cypress. In May 2016, the district court
entered judgment for Dietz, and Cypress timely appealed to this Court. Appeal No.
16-1209. When Cypress appealed the case, it posted a supersedeas bond, which the
district court treated as an automatic stay under Fed. R. Civ. P. 62. Dietz then cross-
appealed on that issue, arguing that the district court lacked jurisdiction to stay the
judgment against Cypress. Appeal No. 16-1249.
In December 2016, we consolidated the petitions for review, Nos. 16-9523
(merits), 16-9529 (fees and costs before the ALJ), 16-9534 (fees and costs before the
Board), with the appeals from the district court, Nos. 16-1209 (appeal), 16-1249
(cross-appeal).
II. STANDARD OF REVIEW
“The Board’s factual determinations may be set aside only if they are
‘unsupported by substantial evidence.’” Lockheed Martin Corp. v. Admin. Rev. Bd.,
9
717 F.3d 1121, 1129 (10th Cir. 2013) (quoting 5 U.S.C. § 706(2)(E)). This standard
“requires more than a scintilla but less than a preponderance of the evidence” for the
Board’s decision to be upheld. Id. As for legal determinations, this Court affords
administrative deference to the Board’s statutory interpretations, as expressed in
formal adjudications, under Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 844 (1984). See Lockheed Martin Corp., 717 F.3d at
1131.
III. DISCUSSION
A. Applicable Law
Congress enacted Sarbanes-Oxley “[t]o safeguard investors in public
companies and restore trust in the financial markets following the collapse of Enron
Corporation[.]” Lawson v. FMR LLC, 134 S. Ct. 1158, 1161 (2014) (citation
omitted). To do this, Section 806 encourages employees of publicly traded
companies to report corporate fraud and securities violations by sheltering those
employees from retaliation. 18 U.S.C. § 1514A. It provides:
No [publicly traded] company . . . may discharge, demote,
suspend, threaten, harass, or in any other manner
discriminate against an employee in the terms and
conditions of employment because of any lawful act done
by the employee . . . to provide information, cause
information to be provided, or otherwise assist in an
investigation regarding any conduct which the employee
reasonably believes constitutes a violation of section 1341
[mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348
[securities fraud], any rule or regulation of the Securities
and Exchange Commission, or any provision of Federal
10
law relating to fraud against shareholders, when the
information or assistance is provided to . . . a person with
supervisory authority over the employee . . . .2
Id. § 1514A(a)-(a)(1) (emphasis added). Under its plain terms, Sarbanes-Oxley
protects whistleblower activity only when the employee reasonably believes the
company has engaged in certain enumerated federal offenses. See Id. § 1514A(a).
This reasonable-belief standard “include[s] both a subjective and an objective
component; an employee must actually believe in the unlawfulness of the employer’s
actions and that belief must be objectively reasonable.” Lockheed Martin Corp., 717
F.3d at 1132. At issue in this case is whether it was reasonable for Dietz to believe
that Cypress committed mail fraud or wire fraud when it did not disclose the Bonus
Plan to the Ramtron employees in their initial offer letters.
The federal mail fraud and wire fraud statutes require: “(1) a scheme or artifice
to defraud or obtain property by means of false or fraudulent pretenses,
representations, or promises, (2) an intent to defraud, and (3) use of the mails [or
wires] to execute the scheme.” United States v. Welch, 327 F.3d 1081, 1104 (10th
Cir. 2003) (citing 18 U.S.C. §§ 1341, 1343). For the commission of either offense, a
person must actually harbor the intent to deprive a victim of property or honest
2
We use the term “publicly traded” company as shorthand for the statute’s
reference to companies that either have “a class of securities registered under section
12 of the Securities Exchange Act of 1934,” or that are “‘required to file reports
under section 15(d)” of that Act. § 1514A(a); see also Lawson, 134 S. Ct. at 1164.
11
services.3 Id. at 1105 (“[T]he intent to defraud under §§ 1341 and 1343 is akin to the
intent to deceive in order to deprive one of property . . . .” (emphasis added)); see
also Cleveland v. United States, 531 U.S. 12, 26 (2000) (“We conclude that § 1341
requires the object of the fraud to be ‘property’ in the victim’s hands . . . .”);
Pasquantino v. United States, 544 U.S. 349, 355 n.2 (2005) (suggesting that
Cleveland’s construction of the § 1341 (mail fraud) applies equally to § 1343 (wire
fraud)). In other words, it is not enough merely to fraudulently induce a victim to
take some action—there must be a conscious objective to deprive the victim of
property.4
Turning to the case before us, the question is whether Dietz reasonably
believed that Cypress intended to deprive Ramtron employees of their property when
it did not disclose the Bonus Plan in their offer letters.5 If Dietz could not have
3
Honest-services fraud is not at issue in this case because it is limited to
bribery or kickback schemes. See Skilling v. United States, 561 U.S. 358, 408-09
(2010). With that understanding, for convenience this order refers only to property
deprivation as the requisite intent of the fraud.
4
We stress that this intent-to-deprive requirement is not a feature of Sarbanes
Oxley itself, but rather is an element of the mail fraud and wire fraud statutes, which
are referenced as enumerated offenses in Sarbanes Oxley.
5
In Sylvester v. Parexel International LLC, No. 07-123, 2011 WL 2165854, at
*17-19 (Admin. Rev. Bd. May 25, 2011), the Board indicated that a whistleblower
claimant under Sarbanes-Oxley—at least in the context of a securities-fraud complaint to
his employer—need not prove or allege the specific elements of the crime he believes
that his employer committed. We interpret this to mean that the whistleblower need not
show the elements of the crime were actually satisfied; but that does not absolve the
claimant from showing that he made his whistleblower complaint with the reasonable
belief that an enumerated offense occurred or was occurring. If the facts known to the
claimant could not even reasonably be squared with the elements of a crime referenced in
12
formed such a reasonable belief, then his whistleblower complaint was not protected
by Sarbanes-Oxley.
B. Dietz’s Complaint Was Not Protected By Sarbanes-Oxley
Dietz could not have reasonably believed that Cypress was engaged in mail or
wire fraud, so his complaint was not protected by Sarbanes-Oxley. There simply was
not enough evidence to conclude reasonably that Cypress intended to deprive the
Ramtron employees of their property by nondisclosure of the Bonus Plan in their
offer letters. At the outset, Cypress offered at least a plausible, non-nefarious
explanation for the omission: because the Bonus Plan would only apply to certain
employees on certain launched projects, Cypress had “no way of knowing which
employees would be” subject to the Bonus Plan at the time of the Ramtron
acquisition. AR 1215. But even assuming that excuse is insufficient—perhaps
because Cypress could have included a disclaimer in the offer letters warning that the
employees might be subject to the Bonus Plan—the evidence is still woefully
inadequate to support any belief that Cypress committed a fraud in order to deprive
the employees of their property.
The Ramtron recruits were at-will employees, meaning they could quit for any
reason or no reason at all. Moreover, they could resign within one year of joining
Cypress and likely receive the same benefits package they would have gotten had
Sarbanes-Oxley, then the whistleblower cannot be said to have formed a reasonable
belief necessary to trigger protection under the statute.
13
they declined to join Cypress in the first instance. And most importantly, Cypress
did not start making compulsory deductions under the Bonus Plan until around nine
months after they signed their offer letters.
During that nine-month period, Cypress made sure they were aware of and
understood the Bonus Plan. The company held two training sessions, explained the
Bonus Plan on the corporate intranet, and required all qualifying employees to
acknowledge the Design Governing Spec (which included the Bonus Plan details)
before launching a project governed by the Bonus Plan. In other words, an employee
who did not want to participate in the Bonus Plan after learning about it would still
have time to decide whether to continue working at Cypress knowing the Bonus Plan
would eventually kick in, or to jump ship and get the same severance package it
would have received from Ramtron. Putting all this together, Dietz could not
reasonably believe that Cypress was engaged in a scheme to cheat Ramtron
employees out of their money.
To be sure, there might be some evidence to support the Board’s conclusion
that Cypress concealed a material fact in order to lure Ramtron employees to work
under false pretenses. But as we have said, mail fraud and wire fraud require more
than merely fraudulent inducement—there must be a scheme designed to deprive the
victims of their property. The evidence here does not remotely support the
conclusion that Cypress harbored that intent. Therefore, lacking any reasonable
belief that Cypress was engaged in one of the enumerated offenses in 18 U.S.C.
§ 1514A(a)(1), Dietz’s whistleblower complaint was not protected by Sarbanes-
14
Oxley. Thus any subsequent adverse employment action against Dietz is not
actionable under § 1514A.6
IV. CONCLUSION
Sarbanes-Oxley does not protect Dietz’s whistleblower complaint because he
did not reasonably believe that Cypress engaged in any of the enumerated offenses in
18 U.S.C. § 1514(a)(1). Accordingly, we GRANT Cypress’s petitions for review,
Nos. 16-9523, 16-9529, 16-9534, and VACATE the Board’s awards for Dietz on the
merits and for attorneys’ fees and costs.
As for the district court order enforcing the Board’s merits award to Dietz, that
order is VACATED as moot, as there is nothing now left to enforce. Thus, Appeal
6
This conclusion obviates the need to address the other difficult issues in the
case, including whether Dietz reasonably believed the criminal fraud involved the
mail or wires, whether Dietz adequately communicated his complaint to Cypress in
terms that were specific enough to alert the company that he was alleging federal
mail fraud or wire fraud, whether even such a specificity requirement exists in
Sarbanes-Oxley, whether Dietz’s resignation was a constructive discharge or instead
a voluntarily departure from the company, and whether Nulty’s June 4, 2013
disciplinary memo was an independent adverse employment action. We rest our
disposition solely on the ground that Dietz’s complaint was not protected by
Sarbanes Oxley because it is logically antecedent to these other issues—he could not
reasonably believe that Cypress was engaged in mail fraud or wire fraud so his
whistleblower complaint was not protected by Sarbanes-Oxley at all. Nevertheless,
although we do not reach the issue, we note our skepticism about Dietz’s
constructive-discharge argument—the evidence strongly suggests that Dietz
voluntarily resigned from Cypress with no unlawful coercion or ultimatum by his
supervisors.
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Nos. 16-1209 and 16-1249 are DISMISSED.7
Entered for the Court
David M. Ebel
Circuit Judge
7
The Department of Labor’s Consent Motion to File Under Seal Documents
Subject to Protective Order is hereby GRANTED.
16