Griffo v. Book Dog Books, LLC, Robert William Holdings, LLC, and Robert William Management, LLC (agency decision, May 2, 2019)

Plain-English summary

Book Dog Books CFO John Griffo alleged that privately held book businesses fired him after he reported financial and inventory inconsistencies. He argued that the companies were covered by Sarbanes-Oxley because they sold books through Amazon and held a line of credit with PNC, both publicly traded companies. The Board held that merely having a contract with a public company is not enough to become its contractor under Section 806. At minimum, the private business must perform a service for the public company, while Book Dog Books was only a customer of Amazon and PNC. The Board affirmed summary decision and denied the complaint.

Decision snapshot

• Cited authorities: 18 U.S.C. § 1514A; 29 C.F.R. § 18.72(a)
• Outcome: Summary decision affirmed and SOX complaint denied because the employers were not covered contractors.
• Key point: Ordinary customer or sales relationships with publicly traded companies do not make a private company a SOX contractor.

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:

  JOHN T. GRIFFO,                                ARB CASE NO.   2018-0029

                  COMPLAINANT,                   ALJ CASE NO.   2016-SOX-00041

         v.                                      DATE: May 2, 2019

  BOOK DOG BOOKS, LLC,
  ROBERT WILLIAM HOLDINGS, LLC,
  and ROBERT WILLIAM
  MANAGEMENT, LLC,

                  RESPONDENTS.

  Appearances:

  For the Complainant:
        John T. Griffo; pro se; London, Ohio

  For the Respondents:
        Gary S. Batke, Esq. and Jolene S. Griffith, Esq.; Bailey Cavalieri LLC,
        Columbus, Ohio

  Before: William T. Barto, Chief Administrative Appeals Judge; James A
  Haynes and Daniel T. Gresh, Administrative Appeals Judges



                         FINAL DECISION AND ORDER





         PER CURIAM. This case arises under the employee protection provision of the
  Sarbanes-Oxley Act of 2002 (SOX), as codified at 18 U.S.C. § 1514A (2010) and its
  implementing regulations at 29 C.F.R. Part 1980 (2018). Complainant John Griffo
  filed a complaint alleging that Respondents Book Dog Books, LLC, Robert William
  Holdings, LLC, and Robert William Management LLC (Respondents) terminated
  his employment in retaliation for engaging in SOX-protected activities. A
  Department of Labor Administrative Law Judge (ALJ) dismissed the complaint,
  determining that the Respondents are not covered employers under the SOX. We
  affirm the ALJ.

                                      BACKGROUND

         The Respondents are not publicly traded companies and their business is the
  purchase, rental, and sale of text books. As part of their business, the Respondents
  sell books through Amazon.com, Inc. (Amazon) and Amazon has a contractual right
  to purchase shares of Book Dog Books. The Respondents also have accounts with
  PNC Bank, a subsidiary of PNC Financial Services Group, Inc. (PNC). Amazon and
  PNC are publicly traded companies.

         Complainant was the Chief Financial Officer of Book Dog Books. His job
  duties included performing audits of the Respondents’ financial accounts and book
  inventory. In November 2015, he complained to various entities, including PNC,
  about financial and inventory inconsistencies at Book Dog Books. In the record
  before us, Complainant at no time alleges that he performed contractual services for
  PNC, Amazon or any other entity with which the Respondents had a contract.

        The Respondents discharged Complainant on November 12, 2015. On May 9,
  2016, Complainant filed a SOX complaint with the Occupational Safety and Health
  Administration (OSHA) alleging that the Respondents had engaged in fraud and
  discharged him for reporting that fraud. OSHA denied the complaint and
  Complainant requested a hearing before an ALJ.

        On September 20, 2017, the Respondents filed a Motion for Summary
  Decision (Motion), to which Complainant filed a response. On December 7, 2017, the
  ALJ issued an Amended Decision and Order 1 concluding that the Respondents were



  1      The ALJ originally issued a Decision and Order on November 22, 2017, but because
  that document did not include a notice of appeal rights, the Amended Decision and Order
  was issued to include the notice of appeal rights



  entitled to summary decision as a matter of law because they were not covered
  employers under the SOX. Complainant appealed the ALJ’s ruling to the Board.


                          JURISDICTION AND STANDARD OF REVIEW

         The Secretary of Labor has delegated to the Board the authority to act on
  appeals from ALJ decisions arising under the SOX and to issue final agency
  decisions in those matters. 2 The ARB reviews an ALJ’s grant of summary decision
  de novo. . Summary decision is permitted where “there is no genuine dispute as to
  any material fact and the movant is entitled to decision as a matter of law.” 3 On
  summary decision, the ALJ, in the first instance and the Board on appeal must
  review the record in the light most favorable to the non-moving party. 4


                                         DISCUSSION

          Congress enacted the SOX on July 30, 2002, as part of a comprehensive effort
  to detect and punish corporate fraud. The employee-protection provision of SOX
  prohibits covered publically traded companies from retaliating against employees
  who provide information or assist in investigations related to certain fraudulent
  acts. 5 A “contractor” of a covered publically traded company is also covered under
  this provision and the definition of that term presents the legal issue in this appeal.

  2     Secretary’s Order No. 01-2019 (Delegation of Authority and Assignment of
  Responsibility to the Administrative Review Board), 84 Fed. Reg. 13072 (Apr. 3, 2019).

  3      29 C.F.R. § 18.72(a) (2018).

  4      Micallef v. Harrah’s Ricon Casino & Resort, ARB No. 2016-0095, ALJ No. 2015-SOX-
  00025, slip op. at 3 (ARB July 5, 2018).
  5
         18 U.S.C. § 1514A provides as follows:

                  (a)   WHISTLEBLOWER     PROTECTION FOR EMPLOYEES OF
                  PUBLICLY TRADED COMPANIES. No company with a class of
                  securities registered under section 12 of the Securities
                  Exchange Act of 1934 (15 U.S.C. 78l), or that is required to
                  file reports under section 15(d) of the Securities Exchange
                  Act of 1934 (15 U.S.C. 78o(d)), including any subsidiary or
                  affiliate whose financial information is included in the
                  consolidated financial statements of such company, . . . or



         The Respondents assert that they contracted with Amazon only to sell,
  purchase and rent books, and with PNC Bank to obtain a line of credit. Motion at
  17-18. Respondents argue that, based on the United States Supreme Court’s ruling
  in Lawson v. FMR, LLC 6 and the analysis that the United States District Court for
  the Eastern District of Pennsylvania applied in its ruling in Gibney v. Evolution



                  any officer, employee, contractor, subcontractor, or agent of
                  such company, . . . may discharge, demote, suspend,
                  threaten, harass, or in any other manner discriminate
                  against an employee in the terms and conditions of
                  employment because of any lawful act done by the
                  employee --

                            (1) to provide information, cause information to
                  be provided, or otherwise assist in any investigation
                  regarding any conduct which the employee reasonably
                  believes constitutes a violation of section 1341 [mail fraud],
                  1343 [wire, radio, TV fraud], 1344 [bank fraud], or 1348
                  [securities fraud], any rule or regulation of the Securities
                  and Exchange Commission, or any provision of Federal law
                  relating to fraud against shareholders, when the
                  information or assistance is provided to or the
                  investigation is conducted by –

                                     (A) a Federal regulatory or law enforcement
                  agency; . . . or

                               (C) a person with supervisory authority over
                  the employee (or such other person working for the
                  employer who has the authority to investigate, discover, or
                  terminate misconduct); or

                            (2) to file, cause to be filed, testify, participate in,
                  or otherwise assist in a proceeding filed or about to be filed
                  (with any knowledge of the employer) relating to alleged
                  violation of section 1341, 1343, 1344, or 1348, any rule or
                  regulation of the Securities and Exchange Commission , or
                  any provision of Federal law relating to fraud against
                  shareholders.[5]
  6      571 U.S. 429 (2014).




  Marketing Research, LLC, 7 these relationships are not of a nature which would
  cause them to be covered “contractor[s]” under § 1514A.
        Complainant points to the Respondents’ commercial relationships with
  Amazon to argue that Respondents are covered “contractor[s]” under SOX.
  Complainant asserts that the Respondents and Amazon were involved in
  “contractual relationships [that] are way more compelling than those described in
  Lawson.” 8 The ALJ considered the parties’ assertions and other evidence of record
  and concluded that the Respondents are not contractors under the SOX. We agree.
         In Lawson the petitioners (Lawson and Zang) were employees of investment
  advisors providing professional services under contract to several publicly traded
  mutual funds. Lawson alleged that she was discharged for reporting accounting
  practices that overstated expenses associated with the funds management. Zang
  alleged that he was discharged for expressing concerns about inaccuracies in a draft
  registration statement prepared on behalf of the funds. The respondents in Lawson
  argued that the SOX only prohibited contractors from retaliating against the
  employees of publicly traded companies. The United States Supreme Court held
  that 18 U.S.C. § 1514A also prohibits, under certain circumstances, contractors
  from retaliating against their own employees for engaging in the same
  whistleblowing activities that would be protected under the SOX if the employees of
  the publicly traded company had engaged in them. The Court emphasized that the
  contractor’s employees in Lawson were covered because their employment tasks
  could implicate shareholders of the publicly traded companies. 9 But the Court also
  stated that it was not determining that all businesses that contract with publicly
  traded companies were to be treated as “contractors” under § 1514A. 10


  7      25 F.Supp. 3d 741 (E.D. Pa. 2014). The ALJ cited to Gibney in his opinion as it
  provided a persuasive analysis of the United States Supreme Court’s decision in Lawson.

  8     See Complainant’s Objection to Respondents Book Dog Books, LLC, Robert William
  Holdings, LLC, and Robert William Management LLC’s Motion for Summary Decision and
  Complainant’s Request for Federal Assistance in Pursuing This SOX Claim at 7.

  9      See Lawson, 571 U.S. at 454 (“The potential impact on shareholders of false or
  misleading registration statements needs no elaboration. If Lawson and Zang's allegations
  prove true, these plaintiffs would indeed be ‘firsthand witnesses to [the shareholder] fraud’
  Congress anticipated § 1514A would protect. S. Rep., at 10.”).

  10     Id. (“[T]he Solicitor General suggests that we need not determine the bounds of
  § 1514A today, because plaintiffs seek only a “mainstream application” of the provision's
  protections . . . . . We agree. Plaintiffs’ allegations fall squarely within Congress' aim in



         In Gibney, a federal district court applied Lawson to a dispute in which the
  plaintiff alleged that his former employer discharged him after he complained about
  a business plan he believed would result in fraudulent billing of a publicly traded
  company. The plaintiff’s former employer was a contractor of the publicly traded
  company. Gibney argued that, as the employee of a business which had a contract
  with a publicly traded company, his complaints about the business plan were
  protected under § 1514A. The district court granted the respondent’s motion to
  dismiss, concluding that Gibney was “advocat[ing] for an impermissibly broad
  definition of SOX protection that was neither intended by Congress nor
  contemplated by the Supreme Court in Lawson:”

                  Here, however, Plaintiff has not alleged that he blew the
                  whistle on fraud committed by Merck (either acting on its
                  own or acting through contractors like Evolution). Rather,
                  Plaintiff is alleging that Evolution committed fraud
                  against Merck. Thus, based on Plaintiff’s allegations,
                  Merck is the victim of fraud rather than its perpetrator.
                  Nothing in the text of § 1514A or the Lawson decision
                  suggests that SOX was intended to encompass every
                  situation in which any party takes an action that has some
                  attenuated, negative effect on the revenue of a publicly-
                  traded company, and by extension decreases the value of a
                  shareholder’s investment. As Evolution argues, extending
                  SOX’s protections in this way presents obvious
                  “overbreath” (sic) concerns that risk “mak[ing] SOX a
                  general anti-retaliation statute applicable to any private
                  company that does business with a public company.” 11


  enacting § 1514A ... If Lawson and Zang’s allegations prove true, these plaintiffs would
  indeed be “firsthand witnesses to [the shareholder] fraud” Congress anticipated § 1514A
  would protect. S. Rep., at 10.”). The Court also noted in Lawson that the publicly traded
  mutual funds which were covered under the SOX had no employees. Instead, contractual
  investment advisors did all the work for the publically traded mutual funds. Id. at 437,
  450. The plurality opinion observed that if § 1514A was to cover any protected activity, it
  must be the protected activity of an employee of a contractor. Id. at 459. The dissenting
  opinion in Lawson asserts that the plurality opinion fails to offer any convincing principle
  that would limit the expansion of SOX jurisdiction to all contractual employees, either a
  business or individual, of the covered persons and entities set forth in § 1514A. Id. at 462-
  480.

  11     Gibney, 25 F.Supp. 3d at 748.



        While the SOX does not contain a definition of the word “contractor”
  applicable to § 1514A, other courts have considered the term in this context after
  the decisions in Lawson and Gibney were issued. We agree with those courts that an
  employee cannot invoke SOX protection simply because his employer is a party to a
  contract with a publicly traded company. 12 We hold that, at a minimum, a
  “contractor” under § 1514A must actually perform a service for a publicly traded
  company. 13

        On the facts of this case, the Respondents were customers of both Amazon
  and PNC, but the record below does not establish that the Respondents performed
  any service for either Amazon or PNC. The Respondents assert that Book Dog
  Books “is a simple customer of PNC Bank under a line of credit PNC has issued
  Book Dog.” 14 Complainant does not rebut this assertion.

        Likewise, Respondent Book Dog Books sold books through Amazon, but
  Complainant’s response to the Motion for Summary Decision does not allege facts or
  provide evidence to show that Book Dog Books provided any service to Amazon. 15


  12      See, e.g., Reyher v. Grant Thornton, LLP, 262 F. Supp. 3d 209, 217 (E.D. Pa. 2017)
  (“A purported whistleblower employed by a private company cannot invoke the protections
  of section 1514A simply because her employer happens to contract with public
  companies…”); Anthony v. Nw. Mut. Life Ins. Co., 130 F. Supp. 3d 644, 652 (N.D.N.Y. 2015)
  (“A private company’s fraudulent practices do not become subject to § 1514A merely
  because that company incidentally has a contract with a public company.”).

  13     Cf. “Contractor,” BLACK’S LAW DICTIONARY (10th ed. 2014) (defining the term to
  include both “[a] party to a contract” and “one who contracts to do work for or supply goods
  to another”). But see Yates v. United States, U.S. , 135 S.Ct. 1074, 1081-82, 191 L.Ed.2d
  64 (2015) (“Whether a statutory term is unambiguous, however, does not turn solely on
  dictionary definitions of its component words. Rather, ‘[t]he plainness or ambiguity of
  statutory language is determined [not only] by reference to the language itself, [but as well
  by] the specific context in which that language is used, and the broader context of the
  statute as a whole.’”) (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 341(1997)).

  14     Motion at 18.

  15     Complainant’s failure to do so means that the issues Lawson raised are not reached.
  The Respondents cannot be “contractors” within the meaning of § 1514A unless there is
  some showing that they provided services as a contractor to Amazon and PNC beyond being
  their customer. Virtually every business contracts for, as examples, cell phone and
  computer services, insurance, vehicle and equipment rentals, banking and financial



  Assuming Complainant’s accusation that the Respondents intended to commit fraud
  against Amazon is correct, a contractor’s actions can be “too far removed from
  potentially harming the shareholders of a publicly traded company to be covered
  under § 1514A.” 16 Such was the case here.

        Complainant has failed to establish a genuine issue of material fact on the
  question of whether the Respondents are “contractor[s]” pursuant to the SOX.

                                         CONCLUSION

         The Respondents are entitled to summary decision as a matter of law.
  Accordingly, we AFFIRM the ALJ’s Amended Order Granting Respondent’s Motion
  for Summary Decision and DENY the complaint.

           SO ORDERED.




  services, real estate, employee health and retirement benefits, and advertising, and these
  business relationships may be with covered publically traded companies under the SOX.
  But there is no basis for presuming that the term “contractor” under §1514A of the SOX
  embraces all of these generic business activities merely because a contract may govern the
  rights of the parties.
  16       Brown v. Colonial Sav. F.A., No. 4:16-CV-884-A, 2017 WL 1080937 at *4 (N.D. Tex.
  2017).