Court: District Court, S.D. Florida; March 31, 2017; Federal District Court
The Court, presided over by Judge Kenneth A. Marra, denied Tyco International Management Company, LLC's motion to dismiss an amended complaint filed by plaintiff Carolina Thomas. Thomas, an accountant and former Financial Reporting Manager at Tyco, alleged that Tyco hired Alida Garcia, a contractor who falsely claimed to be a CPA and held a master’s degree. Despite Thomas's objections regarding Garcia's qualifications, which she raised during a meeting with senior staff, Tyco proceeded to hire Garcia, who was then responsible for reporting $4 billion annually to Tyco’s financial headquarters and the SEC. Thomas asserted that Garcia’s employment violated the Sarbanes-Oxley Act, Dodd-Frank Act, and Florida’s Whistleblower Act due to her lack of proper qualifications and training in generally accepted accounting principles (GAAP), which posed a risk to the integrity of Tyco's financial management and shareholder interests. The Court found that Thomas had presented plausible claims for relief, leading to the denial of the defendant's motion.
Approximately two months after the Plaintiff raised concerns about Garcia’s qualifications, she received her first negative performance review since joining Tyco in 2005, along with a reduced bonus compared to her peers. The Plaintiff expressed doubts about the reliability of a new monthly tie-out process for financial data due to insufficient IT and compliance involvement, lack of formal data change approvals, and inability to detect manual data manipulations. Her testing revealed deficiencies in this process, leading her to report potential material misstatements in SEC filings and believe these workflow issues violated section 404 of the Sarbanes-Oxley Act (SOX).
On December 2, 2013, she filed a complaint with the internal ombudsman regarding Garcia’s credentials and the unreliable tie-out process. Following this, she faced reassignment of her reporting responsibilities to Garcia and disciplinary action for questioning it. The ombudsman eventually closed the case without finding wrongdoing, and despite notifying Tyco’s attorney about the tie-out process issues, no serious investigation took place.
On March 2, 2014, the Plaintiff filed a complaint with OSHA, citing threats to Tyco's financial integrity due to Garcia's lack of qualifications and deficiencies in the financial workflow. Tyco's attorney initiated an internal investigation upon learning of the OSHA complaint, leading to changes in the tie-out process. The Plaintiff's OSHA complaint was later dismissed at her request to pursue this action. Additionally, the SEC was notified of her OSHA complaint and maintained regular communication with her until her termination.
The Plaintiff was terminated on May 14, 2014, while the SEC investigation was still ongoing. Tyco claimed her termination was due to an accusation of improperly accessing another employee's records, which was cited as a violation of company policy.
The Plaintiff obtained certain records through legitimate sources in Colombia, and the company policy allegedly breached was later rescinded by Tyco as part of a settlement with the National Labor Relations Board. The Plaintiff filed a three-count Amended Complaint against the Defendant, alleging violations of Florida’s Whistleblower Act (Count I), retaliation under the Sarbanes-Oxley Act (Count II), and retaliation under the Dodd-Frank Act (Count III). The Defendant responded with a Motion to Dismiss, arguing that the Plaintiff's complaints do not constitute protected activities under the relevant statutes, that there is no causal connection between the complaints and the termination for the Dodd-Frank claim, and that the complaint is improperly vague or "shotgun."
The legal standard for evaluating the Motion to Dismiss requires that the complaint contain a "short and plain statement" showing entitlement to relief, as outlined in Rule 8(a) of the Federal Rules of Civil Procedure. The Supreme Court has clarified that while detailed factual allegations are not necessary, the complaint must provide enough factual content to raise a plausible right to relief above mere speculation. The Court must accept the Plaintiff's factual allegations as true when assessing the viability of the claims.
In Count II, the Plaintiff asserts that she was terminated and faced adverse employment actions in retaliation for reporting issues regarding the credentials of an accountant responsible for reporting significant revenue figures, arguing this constituted a violation of the Sarbanes-Oxley Act.
SOX prohibits retaliation by publicly traded companies against employees for reporting any conduct they reasonably believe violates specific federal laws related to fraud against shareholders or SEC regulations. To succeed in a SOX retaliation claim, an employee must show both a subjective and an objectively reasonable belief that the employer's conduct violated the law. The determination of a reasonable belief is fact-dependent and varies by case circumstances.
In this instance, the plaintiff alleges a reasonable belief that the defendant violated SOX 404, which mandates that management establish and maintain effective internal controls for financial reporting. The defendant argues for dismissal of the retaliation claim, contending that the plaintiff's allegations do not substantiate a SOX 404 violation. Specifically, the court must evaluate whether the plaintiff’s concerns about an accountant’s qualifications and the reliability of financial data reporting constitute protected activities under SOX.
The defendant characterizes the plaintiff's complaints about the accountant’s allegedly false credentials as a personnel matter outside SOX’s scope. The plaintiff counters that employing an unqualified individual for critical financial reporting violates SOX 404. The defendant's position is supported by precedent where complaints regarding personnel matters, such as questionable credentials or racial discrimination, were determined not to constitute protected conduct under SOX.
Plaintiffs’ internal complaints about Tyco's employment of Garcia alleged broader issues than just the falsification of credentials; they included concerns that Garcia lacked the necessary qualifications and integrity for her role in managing the financial reporting of $4 billion in revenue. The complaint argues that hiring Garcia violated the Sarbanes-Oxley Act (SOX) Section 404 internal control provisions, as she was untrained in U.S. Generally Accepted Accounting Principles (GAAP) and had not validated her foreign degree. Competent accounting personnel are essential for effective internal controls, which ensure the reliability of financial statements. The control environment, which includes integrity and competence, is foundational to all internal control components. A lack of qualified accounting staff can lead to material weaknesses in financial reporting. The document cites previous cases affirming that insufficient qualified personnel can result in disclosures of material weaknesses in SEC filings. Despite Plaintiffs’ concerns regarding Garcia's qualifications, Tyco hired her and increased her responsibilities, suggesting negligence in evaluating her qualifications as a material weakness in its internal controls. The Court found that it was not unreasonable for Plaintiff to believe Tyco failed to assess and disclose these weaknesses, indicating that her complaints about Garcia's qualifications qualify as protected activity under SOX for the purposes of her retaliation claim. The determination of Plaintiff’s reasonable belief is a fact-dependent issue inappropriate for resolution at the motion to dismiss stage.
Defendant contends that the SOX retaliation claim should be dismissed regarding Plaintiffs' complaints about Tyco’s monthly tie-out process, arguing these complaints pertain solely to internal policy violations, which are not protected under SOX. Defendant highlights that while Plaintiffs allege potential misstatements in SEC filings due to these deficiencies, there is no claim of an actual violation. The Court, however, finds that the allegations in the Amended Complaint substantiate a SOX retaliation claim based on the inadequate tie-out process. The Court notes that Plaintiffs raised issues concerning data security, approval processes, and segregation of duties, which are essential controls for accurate financial reporting. Citing relevant legal precedents, the Court asserts that internal control complaints can constitute protected activity under SOX. It also points out that Tyco's initial failure to investigate the complaints implies a lack of compliance with SOX obligations regarding internal controls. The subsequent actions taken by Tyco to address the identified weaknesses further indicate the materiality of these issues. Ultimately, the Court concludes that the Amended Complaint provides sufficient grounds to infer that Plaintiffs reasonably believed Tyco was violating SOX by failing to assess and disclose the effectiveness of its internal controls over financial reporting.
Tyco's Motion to Dismiss is denied regarding the SOX retaliation claim because the Amended Complaint sufficiently indicates that the plaintiff held an objectively reasonable belief that Tyco violated SOX 404, without needing to prove an actual violation occurred. The determination of the reasonableness of the plaintiff’s belief is based on the totality of circumstances known or perceived by the employee, considering their training and experience. The Amended Complaint suggests Tyco failed to investigate significant internal control deficiencies, supporting the plaintiff's belief in a SOX violation.
Regarding the Dodd-Frank retaliation claim, the court also denies the Motion to Dismiss despite Tyco’s arguments that the plaintiff's termination was due to a violation of company policy and lacked a causal connection to her whistleblowing activities. The plaintiff argues that Tyco's stated reason for termination is a pretext for retaliation, supported by allegations that the policy was unlawfully applied and later rescinded. The court finds these allegations sufficient to challenge Tyco's claim of lawful termination based on policy violation.
Plaintiff's allegations regarding retaliation related to her complaints to the SEC were upheld, as courts recognize that Dodd-Frank protections extend to whistleblowers facing retaliation for any SOX-protected disclosures, including internal reports. The court dismissed Defendant's argument that retaliation must directly relate to the SEC complaints, determining that the Amended Complaint sufficiently states a Dodd-Frank claim based on her internal disclosures and OSHA complaint. Additionally, the court rejected Defendant’s assertion that a lack of termination among similarly situated employees negated a causal connection, noting that no legal precedent requires such a demonstration for Dodd-Frank claims.
Regarding Plaintiff's claim under Florida's Whistleblower Act (FWA), the court outlined the necessary elements for a successful retaliatory discharge claim: engaging in protected expression, suffering an adverse action that would deter a reasonable employee, and establishing a causal link between the two. To meet the first element, a plaintiff must show objection to or refusal to participate in illegal employer activities, with the standard requiring only a good faith, objectively reasonable belief in the illegality of the conduct. The court confirmed that Plaintiff met these requirements, thereby supporting her claims under both Dodd-Frank and the FWA.
Defendant contends that Plaintiff fails to meet the first element of her Florida Whistleblower Act (FWA) claim, arguing that the Amended Complaint's allegations indicate a breach of internal policy rather than a violation of a law, rule, or regulation. The Court, however, finds that the allegations reflect Plaintiff's good faith and reasonable belief in Tyco's purported violation of Sarbanes-Oxley Act (SOX) 404, leading to the denial of Defendant’s Motion to Dismiss regarding the FWA claim in Count I.
Additionally, Defendant argues that the Amended Complaint constitutes a "shotgun pleading," which should be dismissed for not adhering to Rule 8 of the Federal Rules of Civil Procedure. A shotgun pleading typically incorporates allegations from previous counts, causing confusion and making it difficult for the court to identify relevant facts. The Court, referencing the Eleventh Circuit, concludes that the Amended Complaint does not qualify as a shotgun pleading. Despite some counts incorporating previous allegations, the Court finds that it can discern the relevant facts underlying each claim, thus rejecting Defendant's argument.
Ultimately, the Court determines that Plaintiff has presented plausible claims under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Florida's Whistleblower Act, resulting in the denial of Defendant’s Motion to Dismiss. Furthermore, the Motion for a hearing is deemed moot, and Defendant is ordered to file an answer to the Amended Complaint within fourteen days. The Court notes that Plaintiff holds a bachelor's degree in accounting and management information systems, without a CPA designation, and her challenge regarding the manager position obtained by Alida Garcia is based on Garcia's perceived lack of relevant knowledge and experience in GAAP, rather than qualifications solely related to educational credentials.
Management of issuers required to file annual reports must assess any changes in internal control over financial reporting each fiscal quarter, as mandated by 17 C.F.R. 240.13a-15. Whistleblower protections extend to employees who reasonably believe a violation is imminent, based on known facts, without needing to wait for an actual violation. In Sylvester v. Parexel Int’l LLC, it was established that an employee can report concerns without waiting for a law to be broken. Tyco's failure to counter the plaintiff's claim regarding the reasonable belief standard required by recent case law undermines its Motion to Dismiss, which parallels arguments made against the plaintiff’s SOX retaliation claim previously rejected by the Court. The Court refrains from defining the elements of a Dodd-Frank claim, as the Eleventh Circuit has not done so, and it is unnecessary for ruling on the Motion to Dismiss. Furthermore, Tyco did not dispute the plaintiff's status as a "whistleblower" under Dodd-Frank, nor did it challenge the claim that the plaintiff reported information to the SEC. Regarding Florida's Whistleblower Act (FWA), the Fourth District Court of Appeal in Aery v. Wallace Lincoln-Mercury established that a reasonable, good faith belief in legal violations suffices for a claim, while the Second District in Kearns v. Farmer Acquisition Co. suggested an actual violation is needed; however, Aery remains the controlling precedent as Kearns' discussion on actual violations was deemed dicta. Thus, despite critiques of Aery, the Court is obliged to follow it.
