Securities Regulation Daily Cert petition's argument hinges on who decides what is objectively reasonable
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Thursday, August 1, 2019

Cert petition's argument hinges on who decides what is objectively reasonable

By Rodney F. Tonkovic, J.D.

Who should determine whether a whistleblower's belief is objectively reasonable: A jury or the court?

A petition for certiorari urges the Supreme Court to take up the question of whether, in the SOX whistleblower context, objective reasonableness is a question of law or a matter for the trier of fact to resolve. The Fifth Circuit holds that this question should be resolved by a judge, while five other circuits take the contrary position. The petition asserts that the majority rule, that objective reasonableness is ordinarily a matter for the trier of fact is the correct one (Wallace v. Andeavor Corporation, July 1, 2019).

The action was brought by a former employee of Tesoro Corporation, an oil refining company now known as Andeavor Corporation. The employee served as Vice President of Commercial Analysis and Pricing at the company's headquarters in San Antonio, Texas, and in late 2009 or early 2010, was tasked with investigating Tesoro's financial performance in various industry segments. Among other issues, the investigation discovered that Tesoro was improperly booking sales taxes as revenues in certain internal reporting channels. The employee then brought this problem to the attention of his superiors in a series of emails discussing his concerns that sales taxes were not properly accounted for in Tesoro's SEC filings. Shortly thereafter, Tesoro terminated the employee based on poor performance and unacceptable behavior.

The employee filed a complaint against Tesoro with OSHA in May 2010, claiming that he had been retaliated against for engaging in protected activity. OSHA found that the employee's activities had not contributed to his termination. An action filed in 2011 was initially dismissed after the district court found no protected activity and no reasonable belief that the whistleblower had experienced retaliation. The Fifth Circuit remanded, concluding that the employee had cleared the "low hurdle" of plausibly claiming that he believed that Tesoro violated SEC rules.

The district court then found that the employee's termination was not prohibited retaliation and that there was no objectively reasonable belief that a violation of reporting requirements had occurred. In February 2019, the Fifth Circuit affirmed. According to the court, the employee had extensive and specific expertise in Tesoro's SEC financial reporting practices. Given that experience, a "limited investigation" would have shown that a footnote in the filings at issue, and in those for previous years, disclosed that the sales taxes were included in revenues, meaning that there was no actual violation of SEC reporting requirements.

Petition. On appeal, the employee asserted that a court addressing a summary judgment motion regarding the existence of an objectively reasonable belief under section 1514A(a), should restrict itself to deciding whether "reasonable minds could disagree on this issue." If reasonable minds could differ, the trier of fact should determine objective reasonableness. Instead, the court itself made this determination. The petition for certiorari accordingly asks: Should the determination under section 1514A(a) as to whether an employee’s belief was objectively reasonable be made by the trier of fact, so long as reasonable minds could disagree, or by the court as a matter of law?

According to the petition, the Fifth Circuit's decision deepens a circuit conflict on whether the objective reasonableness of a whistleblower's belief is a question of law to be resolved by a judge, or a question of fact to be determined by a jury so long as reasonable minds could disagree. The Fourth and Fifth Circuits, the petition says, hold that a judge decides this question, while the Third, Sixth, Eighth, Ninth and Tenth Circuits (plus the Administrative Review Board) hold that this is an issue for the trier of fact. This conflict, the petition contends, allows defendant corporations to engage in "undesirable manipulative forum shopping and gamesmanship."

The majority rule is correct, the petition argues, noting that the Supreme Court has said (in Hana Financial, Inc. v. Hana Bank, 135 S.Ct. 907 (2015)) that juries are uniquely suited to apply the "reasonable man" standard. The circumstances in this case are the type of situation in which reasonable minds could differ about whether the whistleblower’s belief was objectively reasonable. A jury could have found either way, the petition says, and the majority of circuits would have denied summary judgment.

The petition is No. 19-33.

Attorneys: Christopher J. McKinney (McKinney Law Office) for Kevin Wallace.

Companies: Andeavor Corp.

MainStory: TopStory SarbanesOxleyAct WhistleblowerNews SupremeCtNews LouisianaNews MississippiNews TexasNews

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