Villanueva v. United States Department of Labor

Case: 12-60122 Document: 00512530392 Page: 1 Date Filed: 02/12/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 12-60122 February 12, 2014
Lyle W. Cayce
WILLIAM VILLANUEVA, Clerk
Petitioner
v.
UNITED STATES DEPARTMENT OF LABOR,
Respondent
Petition for Review of an Order
of the United States Department of Labor
Before JONES, DENNIS, and HIGGINSON, Circuit Judges.
DENNIS, Circuit Judge:
Section 806 of the Corporate and Criminal Fraud Accountability Act of
2002, Title VIII of the Sarbanes-Oxley Act (“SOX”), “creates a private cause of
action for employees of publicly-traded companies who are retaliated against for
engaging in certain protected activity.” Allen v. Admin. Review Bd., 514 F.3d
468, 475 (5th Cir. 2008); see 18 U.S.C. § 1514A(a). Generally speaking, § 806
bars any publicly traded company from retaliating against an employee who
provides information to his or her employer regarding conduct that the employee
reasonably believes violates federal mail-, wire-, bank-, or securities-fraud
statutes; any rule or regulation of the Securities and Exchange Commission
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(“SEC”); or any other federal law related to fraud against shareholders. See 18
U.S.C. § 1514A(a)(1)(C).1
The petitioner in this case, William Villanueva (“Villanueva”), is a
Colombian national who, until recently, was employed in Colombia by Saybolt
de Colombia Limitada (“Saybolt Colombia”), an indirect affiliate of Core
Laboratories N.V. (“Core Labs”).2 Core Labs is a Netherlands limited liability
company, whose stock is publicly traded in the United States and therefore is an
entity covered under § 806. See id. Core Labs provides services to petroleum-
industry clients in more than fifty countries and has more than seventy offices.
Villanueva alleged that starting in January 2008 he raised concerns to several
Core Labs and Saybolt Colombia employees that Core Labs was orchestrating
a transfer-pricing scheme by requiring Saybolt Colombia to use Core
Laboratories Sales, N.V. (“Core Labs Sales”), domiciled in the Dutch Antilles, as
the contracting party for inspection services that Saybolt Colombia performed
for non-Colombian clients. Villanueva alleged that as part of the scheme, ten
1
Section 806 states, in relevant part:
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 [18 U.S.C.] 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 law relating to fraud against shareholders, when the information or
assistance is provided to or the investigation is conducted by[] . . . a person with
supervisory authority over the employee (or such other person working for the
employer who has the authority to investigate, discover, or terminate
misconduct)[] . . . .
Id.
2
Saybolt Colombia is 95 percent owned by Saybolt Latin America B.V., which is wholly
owned by Saybolt International B.V., which is wholly owned by Core Labs.
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percent of the contract revenues were paid to Core Lab Sales even though it
neither procured the contracts nor performed the services. Villanueva further
claimed that, at the direction of Core Labs officials in Houston, Saybolt
Colombia’s accounting department wrongfully claimed value-added tax (“VAT”)
exemptions on work transferred to Core Lab Sales and that, as a result, Saybolt
Colombia was able to underreport its taxable revenue to Colombian authorities.
Subsequently, Villanueva was passed over for a pay raise at Saybolt Colombia
and eventually terminated.
Villanueva filed a complaint with the Occupational Safety and Health
Administration (“OSHA”), asserting that Saybolt Colombia and Core Labs had
violated § 806 by retaliating against him for blowing the whistle on the alleged
scheme to violate Colombian tax law. OSHA, an Administrative Law Judge
(“ALJ”), and the Administrative Review Board (“Board”) all rejected Villanueva’s
complaint. Villanueva now appeals to this court, see 18 U.S.C. § 1514A(b)(2)(A);
49 U.S.C. § 42121(b)(4)(A), and the parties ask us to determine whether § 806
applies extraterritorially.
As previously noted, § 806 bars companies that are publicly traded in the
United States from retaliating against a whistleblowing employee, but only if the
employee seeking the statute’s protection demonstrates that he provided
information regarding conduct that he or she reasonably believed violated one
of the six enumerated provisions of U.S. law. See 18 U.S.C. § 1514A(a)(1)(C);
Allen, 514 F.3d at 476. On review of the facts of the case—in particular, the
allegations Villanueva made to Saybolt Colombia, to Core Labs, and in his
complaint to OSHA—we conclude that Villanueva did not provide information
regarding conduct that he reasonably believed violated one of the six provisions
of U.S. law enumerated in § 806; rather, he provided information regarding
conduct that he reasonably believed violated Colombian law. In other words, he
failed to show that he engaged in protected activity under § 806. See Allen, 514
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F.3d at 475-77. Because Villanueva’s claim does not fall within the scope of §
806’s protection, we AFFIRM.1
BACKGROUND
A. Statutory and Regulatory Framework
A person alleging retaliation under § 806 may seek relief by filing a
complaint with the Secretary of Labor. 18 U.S.C. § 1514A(b)(1)(A). The
Secretary has delegated responsibility for receiving and investigating SOX
whistleblower complaints to OSHA. See 77 Fed. Reg. 3912; see also 29 C.F.R. §
1980.104(a). Following an investigation, OSHA must, within 60 days, issue a
determination either dismissing the complaint or finding reasonable cause to
believe that retaliation has occurred and ordering appropriate relief. See 18
U.S.C. § 1514A(b)(2)(A); 49 U.S.C. § 42121(b)(2)(A); 29 C.F.R. § 1980.105. Either
the complainant or the respondent may file objections to OSHA’s determination
with an ALJ. See 18 U.S.C. § 1514A(b)(2)(A); 49 U.S.C. § 42121(b)(2)(A); 29
C.F.R. § 1980.106. The ALJ’s decision is subject to discretionary review by the
Board, which issues the final order of the Secretary. See 29 C.F.R. § 1980.110.
“Any person adversely affected or aggrieved by” a final order of the Secretary
“may obtain review of the order in the United States Court of Appeals for the
circuit in which the violation[] . . . allegedly occurred or the circuit in which the
complainant resided on the date of such violation.” 49 U.S.C. § 42121(b)(4)(A);
see 18 U.S.C. § 1514A(b)(2)(A).
B. Facts and Procedural Posture
Villanueva lived in Bogota, Colombia and worked for Saybolt Colombia for
more than twenty-four years. For the last sixteen of those twenty-four years,
Villanueva served as the company’s general manager. Villanueva is not a U.S.
citizen and he has never worked in the United States for Saybolt Colombia.
1
Because we affirm on this narrower ground, we need not reach the argument,
advanced by the government and Core Labs, that § 806 does not apply extraterritorially.
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Saybolt Colombia is a Colombian limited liability company that is
headquartered in Bogota and is an indirect affiliate of Core Labs. Core Labs is
a Netherlands limited liability company with headquarters in Amsterdam and
a U.S. office in Houston, Texas. Core Labs’s securities are registered under § 12
of the Securities and Exchange Act of 1934 (“Exchange Act”) and are publicly
traded on the New York Stock Exchange. Saybolt Colombia does not register
securities under § 12 or file reports under § 15(d) of the Exchange Act.
Consequently, Core Labs is a publicly traded company under SOX, but Saybolt
Colombia is not. See 18 U.S.C. § 1514A. Additionally, Villanueva submitted
evidence that, he claims, shows that Core Labs directly controlled all aspects of
Saybolt Colombia’s business, finances, and operations.
Starting in January 2008, Villanueva raised concerns to employees at both
Core Labs and Saybolt Colombia regarding what he believed to be Saybolt
Colombia’s fraudulent underreporting of taxable revenue to the Colombian
government. Villanueva informed these individuals that Core Labs had required
Saybolt Colombia to use Core Labs Sales as the contracting party for inspection
services that Saybolt Colombia performed for non-Colombian clients and that
this policy required that ten percent of any contract revenue be paid to Core
Labs Sales even though it did not procure the contracts or perform the services.
Villanueva further alleged that, at the direction of Core Labs officials in
Houston, Saybolt Colombia had wrongfully claimed VAT exemptions on work
transferred to Core Labs Sales pursuant to this claimed policy.
Among the people to whom Villanueva raised his concerns were Fernando
Padilla (“Padilla”), Saybolt Colombia’s Controller, and Osiris Goenaga
(“Goenaga”), Core Labs’s accounting assistant for Colombia. Additionally,
Villanueva copied C. Brig Miller, Core Labs’s Chief Accounting Officer based in
Houston, on his emails to Padilla and Goenaga. Villanueva requested that
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Padilla correct the tax exemptions before closing the books for Saybolt Colombia
on March 31, 2008.
Villanueva alleged that between January and April 2008, Core Labs
directed two Colombian law firms to provide Villanueva with opinion letters.
Both firms concluded that there was no impropriety in the transactions between
Saybolt Colombia and Core Labs Sales or with respect to the claimed VAT
exemptions. Villanueva, who has a Colombian law degree, was dissatisfied with
the firms’ legal conclusions. Relying on his own analysis under Colombian tax
law, Villanueva refused to sign Saybolt Colombia’s tax returns, which were due
to the Colombian tax authorities by April 17, 2008.
On April 3, 2008, Villanueva was passed over for a pay raise while other
Saybolt Colombia employees received raises. Villanueva alleged that the
decision to deny him a pay raise was made by Ivan Piedrahita (“Piedrahita”), the
Regional Manager for Saybolt Latin America B.V., and Jan Heinsbroek
(“Heinsbroeck”), the President of Saybolt Latin America B.V. and a director of
Saybolt International B.V. On April 29, 2008—after Villanueva had refused to
certify and file Saybolt Colombia’s tax returns—Villanueva’s employment was
terminated. On that same day, a letter, signed by Heinsbroeck and personally
delivered to Villanueva in Bogota by Piedrahita, informed Villanueva of his
discharge.
On July 28, 2008, Villanueva filed a complaint with OSHA alleging that
Saybolt Colombia and Core Labs violated § 806 by retaliating against him for
blowing the whistle on the alleged scheme to violate Colombian tax law.
Specifically, Villanueva alleged that he “was abruptly fired . . . as a result of his
complaints about, and investigation of, income-tax and value-added-tax fraud
that was being perpetrated by Saybolt Colombia in Colombia at the direction of
Core Lab[s]’s accounting and legal executives in Houston, Texas.” OSHA
dismissed the complaint; because the adverse employment actions—the denial
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of the pay raise and Villanueva’s subsequent termination—took place outside the
United States, the agency reasoned that it lacked jurisdiction over the
complaint.2
Villanueva sought review before an ALJ, who, agreeing with OSHA,
dismissed the complaint. The ALJ reasoned that applying § 806 to the facts of
the case would entail extraterritorial application of SOX’s whistleblower
protection and that such application was impermissible because § 806 does not
apply extraterritorially. The ALJ concluded that because Villanueva, a foreign
national working for a foreign subsidiary of a covered entity, complained of fraud
and termination, both of which occurred in Colombia, he lacked jurisdiction
under SOX.
Villanueva appealed the ALJ’s decision to the Board, which concluded
that it had jurisdiction but “affirm[ed] the dismissal of th[e] case on narrow
grounds, focusing solely on the extraterritorial nature of Villanueva’s disclosures
about alleged violations of foreign law without a sufficient connection to
violations of domestic law.” Villanueva v. Core Labs. N.V., ARB Case No. 09-
108, 2011 WL 7021145, at *1 (ARB Dec. 22, 2011). The Board stated its belief
that it must address two questions: (1) “analyzing [§] 806’s extraterritorial
reach” and (2) “determining . . . SOX’s primary focus.” Id. at *8. Proceeding to
the second question first, the Board concluded that whereas § 806 limits its
protection to reported violations of one of six enumerated provisions of U.S. law,
“the alleged fraud and/or law violations involved Colombian laws with no stated
violation or impact on U.S. securities or financial disclosure laws.” Id. (emphasis
added). It was on this basis that the Board held that § 806 does not apply
2
The Supreme Court has since clarified that whether a statute applies
extraterritorially is a question on the merits rather than a question of a tribunal’s power to
hear the case. See Morrison v. Nat’l Austl. Bank Ltd., 130 S. Ct. 2869, 2877 (2010). Because
we affirm on the ground that Villanueva failed to show that he engaged in protected activity
under § 806, however, we do not discuss extraterritoriality further. See supra note 1.
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extraterritorially. Id. at *9. Next, in response to Villanueva’s argument that,
even if § 806 did not apply extraterritorially, the facts of his case would trigger
only domestic application of the statute, the Board reiterated its conclusion that
“Villanueva’s reporting of foreign tax law [violations] [was] beyond the reach of
[§] 806.” Id. at *10. Pursuant to 18 U.S.C. § 1514A(b)(2)(A) and 49 U.S.C. §
42121(b)(4)(A), Villanueva appealed to this court.
DISCUSSION
A.
Judicial review of the Board’s order is governed by the standards set out
in the Administrative Procedure Act, 5 U.S.C. § 706(2). See 18 U.S.C. §
1514A(b)(2)(A); 49 U.S.C. § 42121(b)(4)(A); Allen, 514 F.3d at 476. “Under that
standard, the decision of the [Board] will be upheld unless it is ‘arbitrary,
capricious, an abuse of discretion, or otherwise contrary to law.’” Allen, 514 F.3d
at 476 (quoting Williams v. Admin. Review Bd., 376 F.3d 471, 475 (5th Cir.
2004)). We review the Board’s factual findings for substantial evidence. Id.
“Under the substantial evidence standard, the [Board]’s decision must be upheld
if, considering all the evidence, a reasonable person could have reached the same
conclusion as the [Board].” Williams, 376 F.3d at 476. We review the Board’s
conclusions of law de novo. Allen, 514 F.3d at 476.
B.
Because we proceed to address the question of whether § 806 applies to the
conduct about which Villanueva had a reasonable belief and complained—and
because the answer to that question is dispositive—it is unnecessary for us to
consider whether § 806 applies extraterritorially. Section 806 prohibits publicly
traded companies from doing any of the following to an employee who engages
in protected whistleblower activity: “discharge, demote, suspend, threaten,
harass, or in any other manner discriminate against an employee in the terms
and conditions of employment.” 18 U.S.C. § 1514A(a). In this case, the question
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boils down to whether Villanueva has demonstrated that he in fact engaged in
protected whistleblower activity. Section 806 prohibits retaliation only if the
employee provides information regarding conduct that he or she reasonably
believes violates one of six enumerated categories of U.S. law. See 18 U.S.C. §
1514A(a)(1) (listing federal mail-, wire-, bank-, and securities-fraud statutes, all
rules and regulations of the SEC, and any other federal law related to fraud
against shareholders). As the Board held, in neither his complaint to OSHA nor
in his communications to Core Labs and Saybolt Colombia employees did
Villanueva indicate that he was providing information that he reasonably
believed violated any of these six categories. He therefore failed to show that he
engaged in any protected whistleblowing activity, making it unnecessary for us
to decide whether § 806 can have extraterritorial application.
a. Villanueva’s OSHA complaint
Villanueva notes that, in his attorney’s letter to OSHA complaining of his
termination, he stated that the retaliation “was undertaken because of his
complaints about, and investigation of, what he reasonably believed to be income
tax and VAT fraud being perpetrated in Colombia at the express direction of
Core Lab[s]’s executives in Houston using mail, email and telephones to
accomplish the fraud.” Villanueva’s single reference in his nine-page OSHA
complaint to the use of mail, email, and telephones by Core Labs officials in the
company’s Houston office, however, is insufficient to demonstrate that he had
had a reasonable belief that there was a violation of the U.S. mail- and wire-
fraud statutes. Rather, as the Board concluded, the focus of Villanueva’s
complaint to OSHA was that Core Labs retaliated against him because he
complained of Saybolt Colombia’s violation of Colombian tax laws. See
Villanueva, 2011 WL 7021145, at *8 n.21 (noting that Villanueva, in a
supplemental filing before the Board, “reasserted that he complained about
violations of foreign laws and did not expressly implicate violations of domestic
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securities or financial disclosure laws” and stating that “Villanueva had ample
opportunity to indicate that his concerns implicated domestic laws or concerns
and, perhaps to his credit, he did not alter or amend his allegations”). For
instance, Villanueva alleged in his OSHA complaint that he “was abruptly fired
. . . as a result of his complaints about, and investigation of, income tax and
value added tax fraud that was being perpetrated by Saybolt Colombia in
Colombia at the direction of Core Lab[s]’s accounting and legal executives in
Houston, Texas.” The Board’s finding is therefore supported by substantial
evidence given that “a reasonable person could have reached the same conclusion
as the [Board].” Williams, 376 F.3d at 476. Accordingly, Villanueva did not
demonstrate that he engaged in protected conduct because he did not complain,
based on a reasonable belief, that one of six enumerated categories of U.S. law
had been violated. See 18 U.S.C. § 1514A.
b. Villanueva’s complaints to Core Labs and Saybolt Colombia
Indeed, Villanueva’s underlying evidence of record does not evince that he
complained to Core Labs or Saybolt Colombia executives that they were violating
U.S. law by using domestic mail or wires to orchestrate Colombian tax-law
violations. Section 806 prohibits a covered entity from retaliating against an
employee who “reports information to a supervisor” regarding his or her
reasonable belief of a violation of, for instance, the U.S. mail- or wire-fraud
statute. Allen, 514 F.3d at 477. “To prevail, an employee must prove by a
preponderance of the evidence that (1) she engaged in protected activity; (2) the
employer knew that she engaged in the protected activity; (3) she suffered an
unfavorable personnel action; and (4) the protected activity was a contributing
factor in the unfavorable action.” Id. at 475-76 (footnotes omitted). We agree
with the Board that § 806’s “critical focus is on whether the employee reported
conduct that he or she reasonably believes constituted a violation of federal law.”
Sylvester v. Parexel Int’l LLC, ARB No. 07-123, 2011 WL 2165854, at *15 (ARB
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May 25, 2011) (first emphasis added). Admittedly, “[a]n employee need not cite
a code section he believes was violated in his communications to his employer,
but the employee’s communications must identify the specific conduct that the
employee believes to be illegal.” Welch v. Chao, 536 F.3d 269, 276 (4th Cir. 2008)
(internal quotation marks omitted). In this case, the “specific conduct” that
Villanueva asserted was illegal was Saybolt Colombia’s underreporting of taxes
due to the Colombian government. In his reply brief, Villanueva claims that he
repeatedly objected to the conduct of Core Labs officials in Houston, sufficient
to satisfy Welch’s point about notice to the employer, but the conduct to which
he objected was the supposed orchestration of violations of Colombia tax law, not
the violation of U.S. mail or wire laws to effectuate those purported Colombian
law violations. Consequently, Villanueva has not demonstrated that he engaged
in any protected activity, and, given this, we cannot say, as required by Allen,
that Core Labs knew that Villanueva engaged in a protected activity that was
a contributing factor in the unfavorable actions of withholding his pay raise and
ultimately terminating him. See 18 U.S.C. § 1514A; Allen, 514 F.3d at 475-76.
CONCLUSION
Because we conclude that Villanueva has not demonstrated that his claim
falls within the scope of § 806, we AFFIRM the Board’s dismissal of Villanueva’s
complaint.
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