Neuer v. Bessellieu (agency decision, August 31, 2009)

Plain-English summary

Mannes Neuer worked for Sapiens Americas, the privately held subsidiary of publicly traded Sapiens International. He alleged that company executives fired him after he told a consultant that one manager was overworked and another was incompetent. The Board held that those personnel and management concerns did not definitively and specifically relate to shareholder fraud, securities violations, or another subject covered by the Sarbanes-Oxley Act. Because Neuer's OSHA complaint did not plead facts showing protected activity, he was not entitled to an investigation, discovery, or an evidentiary hearing to develop a different claim. The Board affirmed the ALJ's dismissal.

Decision snapshot

• Cited authorities: 18 U.S.C. § 1514A; 29 C.F.R. § 1980.110(b)
• Outcome: ALJ dismissal affirmed.
• Key point: General complaints about poor management or personnel decisions are not protected under SOX unless they relate specifically to fraud, securities rules, or another covered violation.

Full text (DOL official public release)

U.S. Department of Labor Administrative Review Board
200 Constitution Avenue, N.W.
Washington, D.C. 20210

  In the Matter of:

  MANNES NEUER,                                       ARB CASE NOS. 07-036

                  COMPLAINANT,                        ALJ CASE NO.    2006-SOX-132

         v.                                           DATE: August 31, 2009

  STEVEN BESSELLIEU, PRESIDENT,
  SAPIENS AMERICAS,

         and

  RONI ALDOR, CEO,
  SAPIENS INTERNATIONAL,

                  RESPONDENTS.


  BEFORE:         THE ADMINISTRATIVE REVIEW BOARD

  Appearances:

  For the Complainant:
         Gustav Goldberger, Esq., Silver Spring, Maryland

  For the Respondents:
         Ian E. Bjorkman, Esq., Rachel Lebejko Priester, Esq., Wiggin & Dana LLP,
         New Haven, Connecticut


                            FINAL DECISION AND ORDER

         This case arises under the employee protection provision of the Sarbanes-Oxley
  Act of 2002 (SOX)1 and its implementing regulations.2 Mannes Neuer filed a complaint

  1
         18 U.S.C.A. § 1514A (West 2006).
  2
         29 C.F.R. Part 1980 (2007).

USDOL/OALJ REPORTER PAGE 1
alleging that the Respondents, Steven Bessellieu, President of Sapiens Americas, and
Roni Aldor, CEO of Sapiens International, violated the SOX by discharging him from
employment. On December 5, 2006, a Department of Labor Administrative Law Judge
(ALJ) granted the Respondents’motion to dismiss. We affirm.

                                       BACKGROUND

         Sapiens International, a publicly traded corporation, is a global information
  technology company headquartered in Israel. Sapiens Americas is a privately held
  subsidiary of Sapiens International.3 Neuer worked for Sapiens International from April
  1, 2000, until his transfer to Sapiens Americas on February 21, 2005. Sapiens Americas
  employed Neuer in North Carolina as a Private Marketing Director until his termination
  on January 17, 2006.4

         On December 7, 2005, while he was in Israel on a business trip, Neuer met with
  Anat Dvash, a consultant Aldor hired to review the company’       s business practices.
  During the meeting, Neuer told Dvash that he had concerns about the performance of two
  managers with Sapiens Americas. Specifically, he told her that he believed that Richard
  Weidenback was severely over-tasked and that Mary Onate was incompetent.5

          The next day, December 8, Neuer returned to work at Sapiens Americas in North
  Carolina.6 At a meeting on January 17, 2006, Bessellieu told Neuer that he was firing
  him. He offered Neuer a termination letter to sign. According to Neuer, he “  was allowed
  only three days in which to sign the termination letter or else be deprived of Bessellieu’
                                                                                           s
  tantalizing settlement offer consisting of a substitution from the word ‘fire’to the words
  ‘laid off,’a letter of recommendation, one month severance pay, some unused vacation
                                         7
  pay, and two weeks medical benefits.”    He signed the letter. 8

         On April 7, 2006, Neuer filed a complaint with the Occupational Safety and
  Health Administration (OSHA) alleging that Bessellieu and Aldor violated the SOX by
  discharging him from employment on January 17.9 His complaint alleged that he

  3
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 1.
  4
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 1-2.
  5
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 5-6.
  6
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 5.
  7
         Complainant’
                    s Brief at 15 (emphasis in original).
  8
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 10.
  9
         ALJ Dismissal at 9; Complainant’
                                        s Brief, Tab 1 (OSHA Complaint).

USDOL/OALJ REPORTER PAGE 2
engaged in protected activity when he disclosed to Dvash that he believed that (1)
Weidenbeck was “ over-tasked which had the adverse effect of Sapiens Americas
experiencing a significant decline”and (2) “ Onate clearly lacked the ability to carry out
10
[her duties as Marketing Director] and was in essence unfit for the job.”

          On June 1, 2007, the Respondents filed a Motion to Dismiss Neuer’       s complaint
  under Fed. R. Civ. P. 12(b)(6) for failure to state a claim for which relief can be granted
  and under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction.11 Specifically,
  the Respondents argued that they were entitled to dismissal of the case under Fed. R. Civ.
  P. 12(b)(6) because the complaint failed to establish on its face that Neuer engaged in a
  SOX-protected activity. The Respondents also argued that the ALJ did not have subject
  matter jurisdiction of the case because Neuer was not an employee of a publicly traded
  company, he was not a U.S. citizen, and his alleged protected activity occurred in Israel,
  not the United States.

          The ALJ issued a Grant of Motion to Dismiss and Dismissal of Complaint on
  December 5, 2006. Although he found that he had subject matter jurisdiction of the
  claim, he nevertheless dismissed the complaint for failure to establish a viable claim
  under Fed. R. Civ. P. 12(b)(6). In this regard, he found that Neuer’
                                                                     s comments to Dvash
  on December 7, 2005, were not protected activity, a requisite element for whistleblower
  protection and relief under SOX.12 Neuer petitioned this Board to review the ALJ’     s
  decision.

                         JURISDICTION AND STANDARD OF REVIEW

          The Secretary of Labor has delegated to the Administrative Review Board her
  authority to issue final agency decisions under the SOX.13 Pursuant to the SOX and its
  implementing regulations, the Board reviews the ALJ’      s findings of fact under the
                                 14
  substantial evidence standard.     The Board reviews an ALJ’   s conclusions of law de
  novo.15


  10
         Complainant’
                    s Brief, Tab 1 (OSHA Complaint) at 5-6.
  11
         Respondents’Motion to Dismiss Complaint at 1.
  12
         ALJ Dismissal at 4-5.
  13
        Secretary’ s Order 1-2002 (Delegation of Authority and Responsibility to the
  Administrative Review Board), 67 Fed. Reg. 64,272 (Oct. 17, 2002); 29 C.F.R. § 1980.110.
  14
         29 C.F.R. § 1980.110(b).
  15
        Levi v Anheuser Busch Cos., ARB Nos. 06-102, 07-020, 08-006, ALJ Nos. 2006-
  SOX-037, -108, 2007-SOX-055, slip op. at 6 (ARB Apr. 30, 2008).

USDOL/OALJ REPORTER PAGE 3
DISCUSSION

  The Legal Standards

           The rules governing hearings in whistleblower cases contain no specific
  provisions for dismissing complaints for failure to state a claim upon which relief may be
  granted.16 It is therefore appropriate to apply Fed. R. Civ. P. 12(b)(6), the Federal Rule
  of Civil Procedure governing motions to dismiss for failure to state such claims.17 Under
  Fed. R. Civ. P. 12(b)(6), all reasonable inferences are made in the non-moving party’    s
         18
  favor. The burden is on the complainant to frame a complaint with “        enough facts to
                                                        19
  state a claim to relief that is plausible on its face.”

         To prevail on his SOX complaint, Neuer must prove by a preponderance of the
  evidence that: (1) he engaged in a protected activity or conduct (i.e., provided
  information or participated in a proceeding); (2) the Respondent knew that he engaged in
  the protected activity; (3) he suffered an unfavorable personnel action; and (4) the
  protected activity was a contributing factor in the unfavorable action.20 The Respondent
  can avoid liability by demonstrating by clear and convincing evidence that it would have
  taken the same unfavorable personnel action in the absence of the protected activity.21
  Thus, protected activity is an essential, that is, material element of Neuer’
                                                                              s case.

          SOX Section 806 prohibits certain covered employers from discharging,
  demoting, suspending, threatening, harassing, or in any other manner discriminating
  against employees who provide information to a covered employer or a Federal agency or
  Congress regarding conduct that the employee reasonably believes constitutes a violation
  of 18 U.S.C.A. §§ 1341 (mail fraud), 1343 (wire, radio, TV fraud), 1344 (bank fraud), or
  1348 (securities fraud), or any rule or regulation of the Securities and Exchange
  Commission, or any provision of Federal law relating to fraud against shareholders.
  Employees are also protected against discrimination when they have filed, testified in,


  16
         See 29 C.F.R. Part 18 (2008).
  17
         29 C.F.R. § 18.1(a).
  18
           Fullington v. AVSEC Servs, L.L.C., ARB No. 04-019, ALJ No. 2003-AIR-030, slip
  op. at 5 (ARB Oct. 26, 2005).
  19
         Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2006).
  20
         See 18 U.S.C.A. § 1514(b)(2); Getman v. Southwest Sec., Inc., ARB No. 04-059, ALJ
  No. 2003-SOX-008 (ARB July 29, 2005).
  21
         Getman, slip op. at 8. Cf. § 1980.104(c). See § 42121(a)-(b)(2)(B)(iv).

USDOL/OALJ REPORTER PAGE 4
participated in, or otherwise assisted in a proceeding filed or about to be filed relating to a
violation of the aforesaid fraud statutes, SEC rules, or federal law.22

         The employee must ordinarily complain about a material misstatement of fact or
  omission concerning a corporation’   s financial condition on which an investor would
  reasonably rely. The protected complaint must “   definitively and specifically”relate to
  the SOX subject matter, be specific enough to permit compliance, and support a
  complainant’ s reasonable belief. 23

  Protected Activity

         On appeal, Neuer argues only that the ALJ erred in finding that he did not engage
  in protected activity when he disclosed his concerns about two Sapiens Americas
  managers to Dvash.

          A SOX complaint “    should include a full statement of the acts and omissions, with
                                                                      24
  pertinent dates, which are believed to constitute the violations.”      A failure to comply
  with the indicated level of specificity could subject the complainant to dismissal. As we
  have already noted, according to his OSHA complaint, Neuer disclosed to Dvash that one
  manager was overworked, and the other was incompetent and redundant. Neuer did not
  allege that he believed, at the time he made disclosures of his concerns to Dvash, that the
  two managers, or anyone else, engaged in mail fraud, wire fraud, bank fraud, or securities
  fraud. Likewise, he did not allege that the managers violated any SEC rules and
  regulations, which regulate the issuance of, and transactions involving, the securities of
  publicly traded corporations. A mere possibility that a challenged practice could
  adversely affect the financial condition of a corporation, and that the effect on the
  financial condition could in turn be intentionally withheld from investors, is not enough.25
  For example, although a company that tolerates incompetence or poor management may
  not be acting in the best interests of its shareholders, a SOX-protected activity must
  involve an alleged violation of a federal law directly related to fraud or securities
  violations. “  SOX protects shareholders from inaccurate reporting of a publicly held
  corporation’ s financial condition . . . . Providing information to management about
  questionable personnel actions, racially discriminatory practices, executive decisions or




  22
         18 U.S.C.A. § 1514A(a).
  23
          Smith v. Hewlett Packard, ARB No. 06-064, ALJ Nos. 2005-SOX-088, -092, slip op.
  at 9 (ARB Apr. 29, 2008).
  24
         29 C.F.R. § 1980.103(a).
  25
         Smith v. Hewlett Packard, slip op. at 9.

USDOL/OALJ REPORTER PAGE 5
corporate expenditures with which the employee disagrees, or even possible violations of
26
other laws . . . standing alone, is not protected conduct under the SOX.”

           Neuer also does not identify in his brief to the Board any specific instances of
  fraud or false statements. Instead, he argues that the ALJ erred in “     not affording [him]
  targeted discovery and a follow-up evidentiary hearing on the ‘           protected activity’
          27
  issue.” He admits, in effect, that he did not allege any SOX-protected activity when he
  states in his brief that if he had “
                                     received a full mandated OSHA investigation, follow-up
  discovery, and an evidentiary hearing, he would have substantially enhanced his chances
  of perfecting his initial allegations, at least sufficient to allow ALJ Gamm to consider the
                                                                                 28
  dismissal motion in a more meaningful and more appropriate perspective.”          But he was
  not entitled to an investigation and a full bearing because his OSHA complaint does not
  allege any facts that, if true, would establish that he engaged in SOX-protected activity.
  OSHA will not conduct an investigation of a complaint unless the complainant “        makes a
  prima facie showing”that protected activity was a contributing factor in the adverse
  action that the complainant suffered.29 Therefore, OSHA did not err in declining to
  investigate his complaint, and the ALJ did not err in denying him discovery and an
  evidentiary hearing.

                                        CONCLUSION

           Because Neuer’  s complaint does not set out sufficient facts to state a claim to
  relief that is plausible on its face, we affirm the ALJ’
                                                         s recommendation and DISMISS
  this complaint.

         SO ORDERED.

                                                OLIVER M. TRANSUE
                                                Administrative Appeals Judge

                                                WAYNE C. BEYER
                                                Chief Administrative Appeals Judge


  26
          Harvey v. Home Depot U.S.A., ARB Nos. 04-114, -115, ALJ Nos. 2004-SOX-020, -
  036, slip op. at 14-15 (ARB June 2, 2006).
  27
         Complainant’
                    s Brief at 4-5.
  28
         Complainant’
                    s Brief at 20.
  29
          18 U.S.C.A. § 1514A (b)(2); 49 U.S.C.A. § 42121(b)(2)(B)(i) (“      The Secretary of
  Labor shall dismiss a complaint filed under this subsection and shall not conduct an
  investigation otherwise required under [the employee protection provision] unless the
  complainant makes a prima facie showing that [protected activity] was a contributing factor
  in the unfavorable personnel action alleged in the complaint”
                                                              ); 29 C.F.R. § 1980.104(b).

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