Michael Gale v. U.S. Department of Labor

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 08-14232 ELEVENTH CIRCUIT
JUNE 25, 2010
________________________
JOHN LEY
CLERK
Agency No. ARB 06-083
MICHAEL GALE,
Petitioner,
versus
U.S. DEPARTMENT OF LABOR,
Respondent,
WORLD FINANCIAL GROUP, INC.,
Intervenor.
________________________
Petition for Review of a Decision of the
Department of Labor
_________________________
(June 25, 2010)
Before EDMONDSON and BIRCH, Circuit Judges, and HODGES,* District
Judge.
*
Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of
Florida, sitting by designation.
PER CURIAM:
Michael Gale (“Gale”) petitions for review of the final order of the U.S.
Department of Labor’s Administrative Review Board (“ARB”) denying his
whistleblower claim brought under Section 806 of the Sarbanes-Oxley Act of 2002
(“SOX”), 18 U.S.C. § 1514(A)(a)(1). Gale contends that the ARB’s conclusion
that he did not engage in protected activity as contemplated by SOX is not
supported by substantial evidence. We disagree and DENY the petition.
I. BACKGROUND
In 2003, Gale filed a whistleblower complaint with the Occupational Safety
and Health Administration (“OSHA”), in which he claimed that World Financial
Group (“WFG”) violated SOX when it terminated his employment. Specifically,
Gale alleged he was discharged because
he, among other things, provided information and opposed decisions
made by Company Officers relating to waste and misuse of Corporate
Monies that resulted in loss of Stockholders equity and because of
raising concerns regarding the violation of the SEC [Securities and
Exchange Commission] rules and regulations in the operation of a
Broker Business by World Financial Group operating under the name
of World Group Securities.
Doc. 21, Exh. 1.1 WFG markets the products of insurance and financial services
companies through affiliated businesses. World Group Securities (“WGS”) is
1
Document numbers correspond to the certified list of documents filed with us on 11
September 2008.
2
WFG’s affiliated broker dealer. Prior to his termination, Gale served as the Chief
Operations Officer and as a Director of WGS.
OSHA investigated Gale’s complaint and determined that WFG did not
violate SOX because WFG was not a covered employer under SOX. Gale
appealed that decision to an Administrative Law Judge (“ALJ”) of the Department
of Labor. The ALJ allowed discovery, including depositions and information
exchanges. During Gale’s deposition, the following exchange occurred:
Q: Well, did you, during the time that you were employed at – by
World Financial Group or at World Group Securities, believe that the
company was engaging in any kind of illegal, fraudulent or
racketeering activity?
A: I was uncomfortable with some of the practices that I observed.
Q: That was not the question that I asked you. The question was, did
you believe that the company was engaging in any kind of illegal or
fraudulent activities?
A: I did not believe that.
Doc. 18 at Exh. D, p. 205-06.
Prior to a hearing before the ALJ, WFG filed a motion for summary
decision.2 WFG asserted that Gale’s case was without merit because (1) WFG is
not a covered employer under SOX, and (2) Gale did not engage in any protected
2
Summary decision is akin to a grant of summary judgment under Federal Rule of Civil
Procedure 56. See 29 C.F.R. § 18.40(d) (2010). Thus, summary decision is warranted if the
pleadings and other materials in the record “show that there is no genuine issue as to any
material fact.” Id.3
activity under SOX, as evidenced in part by his deposition testimony that he did
not believe WFG’s conduct violated the law. The ALJ denied summary decision
on the first ground, finding that a genuine issue of material fact existed as to
WFG’s covered status. With regard to the second issue, however, the ALJ found
“no factual basis that [Gale] had an actual or subjective belief” that WFG
committed illegal or fraudulent acts prohibited by SOX. Doc. 26 at 10.
Furthermore, the ALJ found that “none of [Gale’s] expressed concerns identified
any unlawful or fraudulent activity, whether viewed objectively or subjectively.”
Id. at 11. Gale’s complaint thus lacked the essential element that he reasonably
believed WFG’s activities were illegal or fraudulent in nature. The ALJ
recommended that WFG’s motion for summary decision be granted and that Gale’s
complaint be dismissed.
On appeal, the Administrative Review Board (“ARB”)3 agreed with the
ALJ’s findings and recommendation. The ARB concurred that a genuine issue of
material fact existed with regard to WFG’s covered status. Nonetheless, like the
ALJ, the ARB concluded that summary decision was appropriate because “Gale
has not presented sufficient evidence to create a genuine issue of fact that he
engaged in SOX-protected activity, an essential element of his claim.” Doc. 32 at
3
The ARB has the authority to issue final agency decisions under SOX’s employee
protection provisions. See 29 C.F.R. § 1980.110(a) (2010).
4
5. The ARB explained that Gale failed to produce evidence that he reasonably
believed that WFG was violating the fraud statutes, SEC rules or regulations, or a
federal law concerning fraud against shareholders. To the contrary, “Gale’s
deposition testimony indicates that he did not believe WFG engaged in any illegal
or fraudulent activity.” Id. at 4. Accordingly, the ARB granted WFG’s motion for
summary decision and denied Gale’s complaint.
In his petition for review, Gale argues that the ARB erred in determining
that he did not engage in SOX-protected activity. He questions whether it is
necessary for an employee to subjectively believe that his employer engaged in
unlawful conduct. In Gale’s view, he voiced sufficient concerns about his
employer’s practices to establish a reasonable belief that his employer was
engaging in prohibited activity under the SOX.
II. DISCUSSION
Our review of the ARB’s decision is governed by the Administrative
Procedure Act. See Fields v. United States Dep’t of Labor Admin. Review Bd.,
173 F.3d 811, 813 (11th Cir. 1999) (per curiam). We may not reweigh the
evidence or substitute our judgment in place of the ARB’s. See id. at 814. Rather,
we must affirm the ARB’s decision so long as it is supported by substantial
evidence and it is not “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with [the] law.” Id. at 813 (quotation marks and citation
5
omitted). Substantial evidence means relevant evidence that “a reasonable mind
might accept as adequate to support a conclusion.” Stone & Webster Eng’g Corp.
v. Herman, 115 F.3d 1568, 1571 (11th Cir. 1997) (quotation marks and citation
omitted). Although we review matters of law de novo, we must apply due
deference to the Secretary of Labor’s interpretation of the statutes which he
administers. See id.The whistleblower protection provision of SOX prohibits a publicly traded
company or their officers from discharging an employee for providing information
to a supervisory authority about conduct that the employee “reasonably believes”
constitutes a violation of federal laws against mail fraud, wire fraud, bank fraud,
securities fraud, any SEC rule or regulation, or any provision of federal law
relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1) (2009).
Department of Labor regulations provide that a complaint alleging a violation of
SOX “shall be dismissed unless the complainant has made a prima facie showing
that protected behavior or conduct was a contributing factor in the unfavorable
personnel action alleged in the complaint.” 29 C.F.R. § 1980.104(b) (2010). To
make this showing, the employee must prove by a preponderance of the evidence
that (1) he engaged in protected activity, (2) the employer knew or suspected that
the employee engaged in a protected activity, (3) the employee suffered an
unfavorable personnel action, and (4) the protected activity was a contributing
6
factor in the unfavorable action. See id. § 1980.104(b)(1); Allen v. Admin. Review
Bd., 514 F.3d 468, 475-76 (5th Cir. 2008). Both the ALJ and the ARB determined
here that Gale failed to establish the first element (that he engaged in a protected
activity) because he did not reasonably believe his employer’s conduct was illegal
or fraudulent.
Although we have not had occasion to define what “reasonably believes”
means under § 1514A(a)(1), all of our sister circuits which have addressed this
issue have uniformly held that it encompasses both a subjective and an objective
component. See Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1000 (9th Cir.
2009); Harp v. Charter Comm., Inc., 558 F.3d 722, 723 (7th Cir. 2009); Day v.
Staples, Inc., 555 F.3d 42, 54 (1st Cir. 2009); Welch v. Chao, 536 F.3d 269, 275
(4th Cir. 2008), cert. denied, ___ U.S. ___, 129 S. Ct. 1985 (2009); Allen, 514 F.3d
at 477.4 We find their reasoning to be persuasive. As the Fourth Circuit has
explained, a common sense interpretation of the statute’s language dictates that the
employee has an actual belief, as well as an objectively reasonable belief, that his
company’s conduct is illegal or fraudulent:
To “reasonably believe” that company conduct “constitutes a
violation” of law, as those terms are used in § 1514A(a)(1), [an
4
In an unpublished opinion, the Eighth Circuit favorably cited Allen, 514 F.3d at 477, for
the proposition that an “employee’s reasonable belief must be scrutinized under both subjective
and objective standard[s].” Pearl v. DST Sys., Inc., No. 08-2196, 2010 WL 27066, at *1 (8th
Cir. Jan. 7, 2010) (per curiam) (unpublished).
7
employee] must show not only that he believed that the conduct
constituted a violation, but also that a reasonable person in his
position would have believed that the conduct constituted a violation.
It would make no sense to allow [an employee] to proceed if he
himself did not hold the belief required by the statute, and the
language of the statute itself requires that the belief be a “reasonable”
one.
Livingston v. Wyeth, Inc., 520 F.3d 344, 352 (4th Cir. 2008). In addition to the
plain language of the statute, the statute’s legislative history contemplates the use
of the “‘normal reasonable person standard used and interpreted in a wide variety
of legal contexts.’” Van Asdale, 577 F.3d at 1000-01 (quoting S. Rep. No. 107-
146, at 19 (2002)); Day, 555 F.3d at 54 n.9. The “reasonable belief” standard that
we have applied in the context of other retaliation statutes, such as Title VII,
requires both a subjective and an objective element. See Weeks v. Harden Mfg.
Corp., 291 F.3d 1307, 1311-12 (11th Cir. 2002) (“‘A plaintiff must not only show
that he subjectively (that is, in good faith) believed that his employer was engaged
in unlawful employment practices, but also that his belief was objectively
reasonable in light of the facts and record presented.’”). Accordingly, like our
sister circuits, we conclude that § 1514A(a)(1) requires an employee to
demonstrate both a subjective belief and an objectively reasonable belief that the
company’s conduct violated a law listed in that section. A subjective belief means
that the employee “actually believed the conduct complained of constituted a
8
violation of pertinent law.” Welch, 536 F.3d at 277 n.4; accord Day, 555 F.3d at54 n.10.
Here, the record contains substantial evidence to support the ALJ and ARB’s
finding that Gale did not actually believe that WFG’s activities were illegal or
fraudulent. Gale was specifically asked if he believed, during his employment,
“that the company was engaging in any kind of illegal or fraudulent activities,” and
Gale responded, “I did not believe that.” Doc. 18, Exh. D at 206. Besides this
admission, Gale made several other statements indicating his lack of a subjective
belief. For example, although Gale “expressed reservations” about a proposed
“ASAP program” which permitted unregistered brokers to watch sales
presentations by registered brokers, he did not personally know at the time whether
this practice was prohibited under the rules of the National Association of
Securities Dealers. Id. at 114-17. Likewise, Gale raised concerns about the
program’s proposal to initially pay the registration fees for individual brokers,
which Gale said departed from his previous experience where brokers paid
registration fees up front. Yet Gale conceded that “[t]o the best of my
understanding,” there was nothing improper or illegal about a company paying a
broker’s registration fees. Id. at 156-57. Moreover, Gale could not recall ever
communicating any concerns that the ASAP program, as it was ultimately
implemented, violated or potentially violated any law or regulation.
9
Gale also described an incident which made him feel “really uncomfortable”
and “uneasy,” wherein WFG reimbursed a client for an improper sale. Doc. 21,
Exh. 7 at 10; Doc. 18, Exh. D. at 39. In Gale’s view, the client was entitled to
reimbursement, but the individual broker rather than WFG should have paid for the
$17,000 loss incurred in the rescinded sale. Gale claimed a similar situation
happened a month earlier, and he became concerned that the firm’s
reimbursements set a precedent involving a “moral hazard issue,” meaning that
individual brokers would continue to execute improper sales if they were not
personally punished. Doc. 18, Exh. D at 55, 79-80. However, Gale admitted that
he did not know at the time whether such reimbursement by the firm was illegal;
nor did he communicate to anyone that he felt it was illegal.
In sum, substantial evidence supports the ARB’s determination that Gale
failed to create a genuine issue of material fact that he engaged in SOX-protected
activity. As the ALJ found, and the ARB concurred, Gale’s own statements
establish that “he had no belief, let alone a reasonable belief,” that WFG was
engaging in any illegal or fraudulent conduct prohibited under § 1514A(a)(1).
Doc. 26 at 11. Absent this reasonable belief, Gale cannot establish a prima facie
case of retaliation. See 29 C.F.R. § 1980.104(b). The ARB therefore correctly
granted summary decision to WFG on Gale’s whistleblower claim.
10
III. CONCLUSION
Gale petitions for review from the final order of the ARB denying his
whistleblower claim brought under the Sarbanes-Oxley Act. Because we conclude
that the ARB’s decision is supported by substantial evidence, we DENY his
petition for review.
PETITION DENIED.
11