Dietz v. Cypress Semiconductor Corp.: Plaintiff Not Protected Under Sarbanes-Oxley
In Dietz v. Cypress Semiconductor Corp., No. 16-1209 & 16-1249, 2017 BL 370853 (10th Cir. Oct. 17, 2017), the United States Court of Appeals for the Tenth Circuit vacated the district court’s judgment in favor of Timothy Dietz (“Plaintiff”) under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). The court found Plaintiff did not reasonably believe his former employer, Cypress Semiconductor Corporation (“Defendant”), committed mail fraud or wire fraud, therefore his whistleblower complaint was not protected activity under Sarbanes-Oxley. Accordingly, the court granted Defendant’s petitions for review, vacated the Administrative Review Board’s (the “Board”) awards for Plaintiff, and vacated as moot the district court’s order enforcing those awards.
Plaintiff was an employee for Ramtron International Corporation (“Ramtron”) until it was acquired by Cypress Semiconductor Corporation (“Defendant”) in November 2012. According to the allegations, Defendant offered some Ramtron employees, including Plaintiff, the opportunity to join the new company. The offer letters outlined terms and conditions of employment, including salary, but omitted that the former employees would be subject to a compensation plan called the Design Bonus Plan (“Bonus Plan”). Defendant explained it had no way of knowing at that time, which employees would be subject to the Bonus Plan. Plaintiff accepted the offer and became a program manager for Defendant. On April 12, 2013, after a training session about the Bonus Plan, Plaintiff expressed concerns to his supervisor about the legality of the plan. Plaintiff allegedly claimed the plan violated state wage laws and “took the Ramtron employees by surprise.” Soon after, Plaintiff began having trouble with his supervisor, and the supervisor required Plaintiff to acknowledge problems with his work performance in a memo. Plaintiff disputed that he had done anything wrong and responded with a letter stating he was “terminating his employment.” Plaintiff claimed he did not intend to definitively quit, but rather intended to trigger an employee-retention policy. However, because his employer’s reaction to his letter caused him to fear he would soon be terminated, Plaintiff made his resignation effective immediately on June 7, 2013. Plaintiff filed suit against Defendant, asserting: (1) Defendant’s concealment of details about the Bonus Plan constituted federal mail fraud and wire fraud; and (2) Plaintiff suffered retaliation for expressing concerns about the Bonus Plan. The Board affirmed an Administrative Law Judge’s grant of awards on the merits for Plaintiff. Plaintiff filed civil action in district court to enforce the Board’s orders and Defendant appealed.
Sarbanes-Oxley protects whistleblower employees who report corporate fraud from employer retaliation “only when the employee reasonably believes the company has engaged in certain enumerated federal offenses.” Federal mail fraud and wire fraud are among these offenses. The reasonable belief standard means an “employee must actually believe in the unlawfulness of the employer’s actions and that belief must be objectively reasonable.” Federal mail fraud and wire fraud statutes require existence of a “conscious objective to deprive the victim of property.”
The court held Plaintiff could not have reasonably believed Defendant was engaged in mail or wire fraud, finding there was not enough evidence Defendant intended to deprive the Ramtron employees of their property. The court considered Defendant had a “plausible, non-nefarious explanation” as to why the employees’ offer letters did not include details about the Bonus Plan.
The court also noted Defendant did not begin taking deductions for the Bonus Plan until nine months after the employees signed their offer letters, by which point it had made sure the employees were aware of the Bonus Plan. Accordingly, the court found no reasonable belief Defendant engaged in one of the enumerated offenses under Sarbanes-Oxley, and so Plaintiff’s whistleblower complaint was not protected.
For the above reasons, the United States Court of Appeals for the Tenth Circuit granted the Defendant’s petitions for review and vacated awards to the Plaintiff.
The primary materials for this case may be found on the DU Corporate Governance Website.