Fifth Circuit reinstates SOX claim alleging protected activity regarding accounting for taxes
On July 31, 2015, the United States Court of Appeals for the Fifth Circuit in Wallace v. Tesoro Corp., 796 F.3d 468 (5th Cir. 2015), reversed in part a decision dismissing a Sarbanes-Oxley Act (SOX) whistleblower claim for failure to allege protected activity.
The plaintiff contended that he engaged in protected activity with respect to four types of impropriety, including that the defendant was improperly booking taxes as revenue.
The magistrate judge and the district court dismissed the claim as to three counts of an amended complaint, including the claim regarding taxes, as not having sufficiently alleged protected activity.
With respect to a fourth claim regarding wire fraud, the court ruled that the alleged protected activity was outside the scope of the Occupational Safety and Health Administration (OSHA) complaint that the plaintiff had initially filed.
The Fifth Circuit agreed that the district court correctly dismissed the plaintiff’s wire fraud claim because it was outside the scope of the OSHA complaint or any investigation that it might have prompted.
With respect to the plaintiff’s report that the company was booking taxes as revenue, the Fifth Circuit reversed the district court and held that the plaintiff had sufficiently pleaded that he reasonably believed that the accounting practice violated SEC rules.
The court rejected the district court’s observation that the plaintiff was an accounting expert and therefore his inability to identify a specific rule that had been violated rendered his belief of a violation unreasonable, saying “the basis for that belief in this case, including the level and role of [plaintiff’s] accounting expertise and how that should weigh against him, are grounded in factual disputes that cannot be resolved at this stage of the case.”
In rejecting the defendant’s arguments, the court held that Federal Rule of Civil Procedure 9(b) does not apply to SOX complaints, citing SOX’s “low hurdle of pleading a plausible case for relief.”