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Administrative Review Board

200 Constitution Ave. NW

Washington, DC 20210-0001

In the Matter of:

THOM THIBODEAU,

COMPLAINANT,

ARB CASE NO.

2017-0078

ALJ CASE NO.

2015-SOX-00036

DATE: December 17, 2020

WAL-MART STORES, INC.,

RESPONDENT.

Appearances:

For the Complainant:

Lynne Bernabei, Esq. and Alan R. Kabat, Esq.; Bernabei & Kabat,

PLLC; Washington, District of Columbia

For the Respondent:

Jane W. Duke, Esq. and Scott D. Provencher, Esq.; Mitchell, Williams,

Selig, Gates & Woodyard, P.L.L.C.; Little Rock, Arkansas

For the Solicitor of Labor, Amicus Curiae:

Kate S. O’Scannlain, Esq.; Jennifer S. Brand, Esq.; Sarah H. Marcus,

Esq.; Megan E. Guenther, Esq.; Sarah Y. Caudrelier, Esq.; United

States Department of Labor; Washington, District of Columbia

Before: James D. McGinley, Chief Administrative Appeals Judge; James A.

Haynes, Thomas H. Burrell, and Randel K. Johnson, Administrative

Appeals Judges, presiding en banc

DECISION AND ORDER

PER CURIAM. This case arises under the whistleblower protection provisions

of Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002,

Title VIII of the Sarbanes-Oxley Act (SOX), and its implementing regulations.1

Complainant Thom Thibodeau alleges that Respondent Wal-Mart Stores, Inc.

violated SOX by terminating his employment because he engaged in activity

protected by the statute. On September 11, 2017, a United States Department of

Labor Administrative Law Judge (ALJ) issued a Decision and Order (D. & O.)

dismissing the claim. Complainant appealed to the Administrative Review Board

(ARB or the Board). For the reasons that follow, we affirm the ALJ’s decision.

BACKGROUND2

1. Complainant’s Employment and the Change Request Process

Complainant began working for Respondent as a Senior Estimator in its

Estimating Department in 2007.3 One of Complainant’s core responsibilities was to

evaluate and provide recommendations on change requests submitted by

contractors who were building or remodeling stores for Respondent.4 Change

requests are requests for additional payment for expenses not included in the

original contract.5

The change request process began when a contractor submitted a proposal to

Respondent’s Construction Department outlining the proposed scope of work along

with a cost estimate.6 If the Construction Department approved the work, it

authorized the contractor to begin.7 The contractor then submitted a change request

for the actual value of the work.8 When the size of the change requests exceeded a

certain dollar threshold or when the Construction Department wanted extra input,

it sent the change request to the Estimating Department for review.9 Estimators,

like Complainant, then reviewed the submissions and made recommendations to

the Construction Department on the “validity and fair market value” in order to

18 U.S.C. §1514A (2010); 29 C.F.R. Part 1980 (2020).

In reciting this background, the Board draws from the ALJ’s recitation of facts and

information in the record, and is not making findings of fact.

Hearing Transcript (Tr.) at 16-17.

Complainant’s Exhibit (CX) 3; Tr. at 17-19.

Tr. at 17-19.

Id. at 429-30, 490-92.

Id.

Id. at 432-33, 491. At the times relevant to this case, the threshold for submissions

to the Estimating Department was $50,000. Id. at 59.

help mitigate construction costs.10 However, Estimators’ recommendations were

non-binding; the Construction Department made the final decision on change

requests and had the discretion to reject Estimators’ advice.11

2. Cancellation of Estimating Software

In November 2013, Jason Cantey, Complainant’s supervisor, considered

whether to cancel licenses for certain estimating software because of price increases

for the products.12 Complainant wanted to keep the software because he believed it

was essential to his ability to review change requests.13 Nevertheless, Cantey

cancelled the licenses after determining that most Estimators did not consistently

use the software.14

Complainant escalated his concerns to Volker Heimeshoff, the Vice President

for Prototype and New Format Development, on January 10, 2014, and reiterated

his belief that he needed the software to perform reviews.15 After further discussion

in early 2014, Cantey asked Complainant to negotiate a lower license rate on the

software.16 Complainant succeeded and Respondent renewed the software.17

3. Complainant’s First Coaching

On March 21, 2014, Cantey and Kevin Ruehle, Complainant’s second-level

supervisor, met with Complainant to discuss a number of recent performance

issues.18 First, they criticized Complainant for an email he copied to an outside

contractor on March 20, 2014.19 Cantey was concerned Complainant’s email was not

focused on customer service and reflected the existence of friction between the

CX 3; Tr. at 17-18, 20-21, 353.

Tr. at 111-12, 433.

See CX 43, 44; Tr. at 34.

See CX 43, 44; Tr. at 45-49. Complainant used the software to compare contractor

costs with market rates and to verify submissions regarding labor quantities or equipment

required for the work. CX 43; Tr. at 45-46.

CX 44; Tr. at 253-54.

CX 45; Tr. at 49-51. Heimeshoff was Cantey’s second-level supervisor. Tr. at 174-75.

CX 50, 52; Tr. at 132-33, 254-55. Cantey testified he was not aware that

Complainant had escalated his concerns to Heimeshoff when he asked Complainant to

renegotiate the licenses. Tr. at 254-55.

CX 50, 52; Tr. at 132-33, 324.

CX 54; Tr. at 174, 268-69.

CX 53.

Construction and Estimating Departments.20 Cantey and Ruehle also criticized

Complainant for two instances in which they considered him to have been

insubordinate. In the first instance, Complainant refused Cantey’s request to

review a change request outside of Complainant’s territory.21 In the second

instance, Complainant discussed a topic at an inter-departmental meeting despite

Cantey’s prior instruction not to do so.22 Complainant also made a comment during

the March 21, 2014 meeting that his female colleague counted as “half” of an

estimator.23 Complainant claimed that he was merely referring to her part-time

status, but Cantey and Ruehle regarded Complainant’s phrasing as inflammatory

and belittling.24

After the meeting, Cantey consulted with Respondent’s Human Resources

Department and issued Complainant a second-level coaching under Respondent’s

progressive discipline policy.25 After the first coaching, Cantey also issued

Complainant his annual performance review, in which Cantey stated that

Complainant struggled with communication and needed to improve his delivery

with customers and contractors.26 Over the years, communication and interactions

with others had often been identified as areas in which Complainant needed to

improve, and witnesses testified that Complainant could be abrasive,

unprofessional, and offensive.27

4. The Marysville Project and Complainant’s Second Coaching

One project to which Complainant was assigned was the construction of a

new store in Marysville, Washington (the Marysville Project), which was beset by

CX 53, 54; Tr. at 211-14, 216.

CX 54; Tr. at 257-58.

CX 54; Tr. at 266-67.

CX 54; Tr. at 258-62.

CX 54; Tr. at 258-60.

CX 54, 57; Tr. at 268-69. Respondent’s policy provided three levels of progressive

coaching, although levels could be skipped depending on the severity of conduct. CX 11; Tr.

at 564-65. Cantey, Ruehle, Heimeshoff, and a Human Resources representative determined

Complainant’s conduct warranted skipping the first level. Tr. at 269. Any discipline after

the third level automatically resulted in termination of employment. CX 11; Tr. at 573, 590.

CX 59. Cantey originally gave Complainant an overall rating of “development

needed.” Complainant appealed the review to Heimeshoff, who increased the overall rating

to “solid performer,” but left the criticisms regarding Complainant’s communications skills

intact. CX 59; Tr. at 277-80, 325-26.

CX 25-27; Tr. at 239-40, 618-19.

overages and delays.28 On September 4, 2014, Complainant sent an email with

detailed spreadsheets and other documents concerning the Marysville Project to

Cantey, Ruehle, and Heimeshoff, among others.29 The email and documents

identified the results of change requests, and touted the savings generated from

rejecting or vigorously negotiating poorly documented or unreasonable submissions

from contractors.30

In response to Complainant’s email, Cantey told Complainant that, moving

forward, Complainant should get Cantey’s approval before communicating with

upper-level management.31 Cantey testified that he wanted to ensure that

discussions with management were effective and efficient.32 Complainant agreed to

Cantey’s instruction, but days later, on September 16, 2014, he sent a nearly

identical email about the Marysville Project to two other Vice Presidents, without

asking permission or even copying Cantey on the email.33 Cantey consulted with the

Human Resources Department and issued Complainant a third-level coaching for

disobeying his instruction.34 The coaching notified Complainant that his

employment would be subject to termination if the behavior continued.35

5. The Glendora Project and Complainant’s Termination

Another project to which Complainant was assigned was the remodeling of a

store in Glendora, California (the Glendora Project).36 On March 4, 2015,

Complainant had a telephone conversation with the Senior Project Manager for the

contractor on the Glendora Project regarding a change request that Complainant

believed was deficient.37 Among other things, Complainant expressed his concern

that the Senior Project Manager was charging his entire salary to Respondent even

though he split his time among other projects.38

CX 73; Tr. at 36-37.

CX 73.

Id.; CX 82; Tr. at 70.

CX 74, 81.

Tr. at 280-85.

CX 75; Tr. at 68.

CX 81, 83, 92; Tr. at 225-27, 285-86, 587-90.

CX 83.

E.g., CX 89, 94, 96; Tr. at 75-76.

Tr. 86-89.

Id. at 75, 88-89.

The call became contentious. Evidence shows that Complainant asked the

Senior Project Manager if he thought he was worth what he was being paid.39 After

learning about the manner in which Complainant had spoken to the contractor,

Cantey conferred again with Respondent’s Human Resources Department.40

Because Complainant had already received a third-level coaching, his employment

was terminated on March 11, 2015.41

6. Procedural History

Complainant filed a complaint with the Occupational Safety and Health

Administration (OSHA) on August 27, 2015, alleging that Respondent terminated

his employment in violation of SOX. OSHA dismissed the complaint on September

16, 2015, and Complainant requested a hearing with the Department of Labor’s

Office of Administrative Law Judges. The ALJ conducted a hearing from January

10 to 12, 2017, and issued the D. & O. dismissing Complainant’s complaint on

September 11, 2017. This appeal followed.

JURISDICTION AND STANDARD OF REVIEW

The Secretary of Labor has delegated to the Board the authority to review

ALJ decisions under SOX.42 The ARB reviews questions of law presented on appeal

de novo, but is bound by the ALJ’s factual determinations if they are supported by

substantial evidence.43 Substantial evidence means “such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion.”44 The Board

will also uphold ALJ credibility determinations unless they are “inherently

incredible or patently unreasonable.”45

CX 106; Tr. at 485, 519-23; Deposition of William Ross at 35. Complainant disputed

what Respondent asserted transpired on the call. The ALJ weighed the evidence and made

reasonable credibility determinations, and found that Respondent’s version of events was

more believable than Complainant’s. D. & O. at 7 n.6.

CX 106, 107.

CX 11, 108; Tr. at 234, 573, 590.

Secretary’s Order No. 01-2020 (Delegation of Authority and Assignment of

Responsibility to the Administrative Review Board (Secretary’s discretionary review of ARB

decisions)), 85 Fed. Reg. 13186 (Mar. 6, 2020).

29 C.F.R. § 1980.110(b); Johnson v. The Wellpoint Cos., Inc., ARB No. 2016-0020,

ALJ No. 2010-SOX-00038, slip op. at 3 (ARB Aug. 31, 2017).

Consol. Edison Co. of N.Y. v. N.L.R.B., 305 U.S. 197, 229 (1938).

Wong v. Sumitomo Mitsui Banking Corp., ARB No. 2018-0073, ALJ No. 2016-SOX00005, slip op. at 3 (ARB Oct. 26, 2020) (quoting Jacobs v. Liberty Logistics, Inc., ARB No.

2017-0080, ALJ No. 2016-STAA-00007, slip op. at 2 (ARB Apr. 30, 2019) (reissued May 9,

2019)).

DISCUSSION

SOX prohibits covered employers, like Respondent, from discharging or

otherwise discriminating against an employee for “provid[ing] information . . .

regarding any conduct which the employee reasonably believes constitutes a

violation of section 1341 [mail fraud], 1343 [wire 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 .

. . .”46 To prevail on his SOX claim, Complainant must prove by a preponderance of

the evidence that (1) he engaged in activity that SOX protects; (2) Respondent took

unfavorable personnel action against him; and (3) the protected activity was a

contributing factor in the adverse personnel action.47 If Complainant can establish

each of these elements, Respondent will nevertheless prevail if it proves by clear

and convincing evidence that it would have taken the same adverse employment

action in the absence of Complainant’s protected activity.48

The ALJ determined that Complainant did not prove that he engaged in

protected activity. The ALJ also found that Respondent proved by clear and

convincing evidence that it would have terminated Complainant’s employment in

the absence of his alleged protected activity. The ALJ’s opinion is well-reasoned, is

supported by substantial evidence, and is in accordance with applicable law.

Therefore, we affirm.

1. Complainant Did Not Engage in Protected Activity

Complainant asserts he engaged in protected activity by reporting conduct

which he believed violated a “rule or regulation of the Securities and Exchange

Commission.”49 Specifically, he stated that he believes the Estimating Department’s

review of change requests was a part of the company’s internal controls over

financial reporting.50 Complainant argues he provided information concerning the

circumvention of these controls, and therefore engaged in protected activity, when

he complained about Respondent’s decision to cancel the estimation software and

18 U.S.C. § 1514A(a)(1).

29 C.F.R. § 1980.109(a); see also 18 U.S.C. § 1514A(b)(2)(A) (citing 49 U.S.C. §

49121(b)); Sylvester v. Parexel Int’l LLC, ARB No. 2007-0123, ALJ Nos. 2007-SOX-00039, 00042, slip op. at 9-10 (ARB May 25, 2011).

29 C.F.R. § 1980.109(b); see also 18 U.S.C. § 1514A(b)(2)(A) (citing 49 U.S.C. §

49121(b)); Klopfenstein v. PCC Flow Techs. Holdings, Inc., ARB Nos. 2007-0021, -0022, ALJ

No. 2004-SOX-00011, slip op. at 6 (ARB Aug. 31, 2009).

See 18 U.S.C. § 1514A(a)(1).

Complainant’s Post-Hearing Brief at 42.

when he reported and protested poorly documented and unjustified change requests

on the Marysville and Glendora Projects.51

The ALJ found that the Estimating Department’s review of change requests

was not a part of Respondent’s internal controls under SEC rules. The ALJ also

determined that it was not objectively reasonable for Complainant to believe such

controls were violated.

A. The Estimating Department’s Change Request Reviews Were Not Internal

Controls over Financial Reporting

SEC regulations require certain publicly traded companies, like Respondent,

to establish, maintain, and provide public reports concerning “internal controls over

financial reporting.”52 Internal controls over financial reporting are defined as

processes under the supervision of a company’s principal executive and financial

officers that “provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in

accordance with generally accepted accounting principles . . . .”53 Such controls are

defined to include those policies and procedures that:

(1) Pertain to the maintenance of records that in

reasonable detail accurately and fairly reflect the

transactions and dispositions of the assets of the issuer;

(2) Provide reasonable assurance that transactions are

recorded as necessary to permit preparation of financial

statements in accordance with generally accepted

accounting principles, and that receipts and expenditures

of the issuer are being made only in accordance with

authorizations of management and directors of the issuer;

and

(3) Provide reasonable assurance regarding prevention or

timely detection of unauthorized acquisition, use or

disposition of the issuer’s assets that could have a material

effect on the financial statements.[54]

Id. at 46-50.

15 U.S.C. §§ 78m(B)(2)(b), 7241(a)(4), 7262(a); 17 C.F.R. § 240.13a-15(a).

17 C.F.R. § 240.13a-15(f)

Id.; accord 15 U.S.C. § 78m(b)(2)(B) (defining internal accounting controls).

In adopting this definition, the SEC distinguished internal controls over financial

reporting from other internal operational and managerial controls, with which SEC

rules are not concerned:

A few of the commenters urged us to adopt a considerably

broader definition of internal controls that would focus not

only on internal control over financial reporting, but also

on internal control objectives associated with enterprise

risk management and corporate governance. While we

agree that these are important objectives, the definition

that we are adopting retains a focus on financial

reporting . . . .[55]

The SEC further clarified that internal controls over financial reporting do not

encompass other processes related to the “effectiveness and efficiency of a

company’s operations and a company’s compliance with applicable laws and

regulations, with the exception of compliance with the applicable laws and

regulations directly related to the preparation of financial statements . . . .”56

Thus, the SEC’s requirements for internal controls are concerned specifically with

ensuring the accuracy, completeness, and integrity of financial statements and

public companies’ accounting and auditing functions.

In light of the foregoing, the ALJ reasonably concluded that the Estimating

Department’s change request reviews were not part of an “internal control over

financial reporting” as that term is defined by the SEC. Complainant did not

present evidence that the Estimating Department’s reviews ensured, or were

intended to ensure, that transactions were recorded fairly, accurately, and in

compliance with generally accepted accounting principles (GAAP) and other

financial reporting rules, or that the evaluations otherwise affected the accurate

and fair recording of Respondent’s assets and transactions, or related to the

company’s accounting and audit functions. Heimeshoff testified, without

contradiction, that Estimating’s reviews did not affect the integrity of the reported

construction numbers and the fact that “we are paying and we report what we

pay.”57

The record supports the ALJ’s conclusion that Estimating’s reviews were,

instead, a cost-saving endeavor that was not involved in controlling or ensuring the

In re Mgmt.’s Report on Internal Control Over Fin. Reporting & Certification of

Disclosure in Exch. Act Periodic Reports, S.E.C. Release Nos. 33-8238, 34-47986, IC-26068;

80 S.E.C. Docket 1014 (June 5, 2003) (emphasis added).

Id. (emphasis added).

Tr. at 354-57.

fair and accurate reporting of Respondent’s financials.58 Complainant referred to

himself as a “cost-analyst,” and his position description states that he was

responsible for “mitigat[ing] cost of construction claims,” “making recommendations

for claim mitigation or cost avoidance,” “provid[ing] cost estimates,” and “driving

initiatives to minimize these costs.”59 Heimeshoff and other witnesses also

confirmed that Complainant’s department was a cost-control center meant to give

advice on costs and value and help Respondent save money.60 Complainant may

have helped Respondent make wise economic decisions, but saving Respondent on

construction costs is outside of the scope of the SEC’s rules for internal controls over

financial reporting.61

B. It Was Not Objectively Reasonable for Complainant to Believe Internal

Controls Over Financial Reporting Were Being Violated

As the ALJ noted, although the Estimating Department’s reviews were not

actually internal controls over financial reporting, Complainant might nevertheless

be protected by SOX if he reasonably, albeit mistakenly, believed the conduct about

which he complained constituted a violation of such controls.62 This reasonable

belief standard includes subjective and objective components. The subjective

component is met if the employee actually believed that the conduct complained of

constituted a violation of relevant law.63 The objective component is met if the

totality of the circumstances known or reasonably perceived by the complainant at

the time of the complaint, analyzed in light of his training and experience, would

lead a reasonable person to believe that the conduct complained of constituted a

violation of relevant law.64

The ALJ determined that, without question, Complainant subjectively

believed Estimating’s reviews were part of Respondent’s internal controls over

financial reporting. However, the ALJ determined that Complainant’s belief was

not objectively reasonable and that a person in Complainant’s circumstances would

See D. & O. at 18.

CX 3, 72.

Tr. at 352-53, 388, 431-32.

Notably, throughout his appellate briefs, Complainant refers to “internal controls,”

rather than “internal controls over financial reporting.” Complainant’s omission helps

illustrate the disconnect between the conduct with which Complainant was concerned (costmanagement controls) and the specific controls with which SEC rules are concerned

(financial reporting).

Sylvester, ARB No. 2007-0123, slip op. at 16.

Id. at 14 (citing Harp v. Charter Commc’ns, 558 F.3d 722, 723 (7th Cir. 2009)).

Id. at 15 (citing Harp, 558 F.3d at 723).

not have believed such controls were being violated. Substantial evidence supports

these conclusions.

i. Estimating Software

Although Complainant subjectively believed that the Estimating

Department’s reviews of change requests were internal controls over financial

reporting, the ALJ determined that it was not objectively reasonable for

Complainant to believe that Respondent violated such controls by temporarily

cancelling the software Complainant used in the review process. Evidence showed

that only four of the twelve Estimators consistently used the software.65 The ALJ

concluded that if the majority of Estimators performed reviews without the

software, it was not objectively reasonable for Complainant to believe that losing

the software would render the alleged internal control ineffective.66

Complainant does not dispute that only four of the twelve Estimators used

the cancelled software. However, he contends that the four Estimators who used the

software were the only four Estimators who performed change request reviews. He

asserts that this demonstrates the importance of the software to the review

function, specifically.67 The evidence Complainant cites does not support this

assertion. Although it may be true that only four Estimators performed change

request reviews, the testimony cited by Complainant does not show that these were

the same Estimators who used the cancelled software.68

Moreover, other evidence bolsters the ALJ’s conclusion that it was not

reasonable for Complainant to conclude that the software was critical to the alleged

controls. Cantey testified that although some other Estimators used the software,

no other Estimator felt that he or she could not do the job without it.69 Complainant

also acknowledged that no other Estimator complained about losing the software to

the same level and degree as Complainant.70 In an email discussing the efficacy of

one of the software products, Complainant also stated “[i]t is my impression that

the program is underutilized by this department . . . ”71 This suggests that

Complainant understood the software was not regarded by others as a critical

component of the review process, although he felt it was. This evidence

Tr. at 253-54.

D. & O. at 20.

Complainant’s Brief (Compl. Br.) at 19-21.

Compl. Br. at 19-20 (citing Tr. at 57-58; CX 9).

Tr. at 253.

Id. at 136-37.

CX 43.

substantiates the ALJ’s conclusion that the software was not essential to

Estimating’s reviews. As a result, it was not objectively reasonable for Complainant

to believe the temporary loss of the software violated or circumvented the alleged

internal controls over financial reporting.

ii. Marysville and Glendora Projects

The ALJ also determined that it was not objectively reasonable for

Complainant to believe that Respondent was violating internal controls over

financial reporting when he reported and protested inadequately documented and

unjustified change requests on the Marysville and Glendora Projects.72

Complainant argues the ALJ erred because evidence adduced at the hearing

showed that a purpose of having Estimators review change requests was to collect

sufficient documentation to substantiate and validate costs and to create a “paper

trail.”73 It is not clear, but Complainant seems to suggest that he reasonably

believed that this review function was necessary to protect against the

unauthorized use or disposition of Respondent’s assets.74 However, substantial

evidence supports the ALJ’s finding that a reasonable person in Complainant’s

circumstances would not have believed that the Estimating Department provided

that accountability, in light of its limited role.

Although it is true that Complainant and other Estimators requested

documentation to validate costs, the ALJ recited evidence that Complainant knew

Estimators did not have authority over Respondent’s expenditures, the disposition

of Respondent’s assets, or the accurate or complete recording of Respondent’s

transactions. Evidence showed, for example, that Estimators merely provided

recommendations on particular projects and that the Construction Department and

other managers retained complete discretion with respect to change requests, and

had the authority to reject Estimators’ advice.75 Evidence also showed that decisions

on change requests were made by balancing many factors that were beyond the

scope of an Estimator’s reviews.76 A reasonable person in Complainant’s

D. & O. at 20-23.

Compl. Br. at 20-22.

See 17 C.F.R. 240.13a-15(f)(3) (defining an internal control over financial reporting

as a process designed to provide “reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use or disposition of the issuer’s assets that could

have a material effect on the financial statements.”). Beyond general assertions that he

believed reviews were part of internal controls, Complainant did not identify which type of

controls he believed Respondent was violating with respect to the Marysville and Glendora

Projects.

See D. & O. at 17-18, 21-22.

D. & O. at 16, 21-22.

circumstances would have known that although the Estimating Department

gathered documents to validate costs, it lacked the ability to actually account for

Respondent’s expenditures or ensure the accuracy of financial reporting.77

iii. The ALJ Did Not Require Complainant to Prove an Actual Violation

of Internal Controls Over Financial Reporting

Complainant also contends that the ALJ erroneously required him to prove

that Respondent actually violated the SEC’s rules governing internal controls over

financial reporting, rather than merely that he reasonably believed such rules were

being violated. We must disagree. The ALJ repeatedly cited the reasonableness

standard and correctly applied it throughout the D. & O.78 For the reasons set forth

above, we affirm the ALJ’s decision that Complainant not only failed to prove an

actual violation of the rules governing internal controls over financial reporting, but

also that it was not reasonable for a person in Complainant’s circumstances to

believe such rules were being violated.

iv. The ALJ Did Not Err by Considering Materiality When Assessing

the Reasonableness of Complainant’s Belief

As quoted above, internal controls over financial reporting include those

processes which “provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use or disposition of the issuer’s assets that

could have a material effect on the financial statements.”79 Therefore, in addition

to the reasons cited above, the ALJ also considered the materiality of Complainant’s

concerns when assessing the reasonableness of Complainant’s belief that

Respondent violated internal control rules. The fact that the savings generated by

the Estimating Department’s reviews were only a fraction of one percent of

Respondent’s total construction and operating costs supported the ALJ’s conclusion,

when weighing the totality of the circumstances, that Complainant could not have

This is not to say that Respondent was not required to, or did not, have internal

controls over financial reporting concerning its construction expenditures. We note that the

ALJ determined that Respondent’s Evoco system, which was used to maintain records for

all change request expenditures and record who authorized them, was an internal control

that contrasted with Estimating’s more limited cost review-and-recommendation function.

Complainant did not challenge this finding. Because it was not raised on appeal, we offer no

opinion on whether the Evoco system or any other process or function employed by

Respondent outside of the Estimating Department’s change request reviews were internal

controls over financial reporting. Our opinion is limited to the specific facts of this case and

issues presented on appeal.

See D. & O. at 9, 12-13, 20-23.

17 C.F.R. § 240.13a-15(f)(3) (emphasis added).

objectively believed they had a material effect on Respondent’s financial

statements.80

Principally relying on the Board’s decision in Sylvester v. Parexel Int’l LLC,

Complainant argues that the ALJ erred as a matter of law by considering the

negligible impact of Estimating’s reviews on Respondent’s financial condition or

financial reports.81 In Sylvester, an ALJ granted the respondent’s motion to dismiss

a SOX claim in which the complainants alleged their employment had been

terminated for reporting fraud. Among other reasons, the ALJ dismissed the claim

because the conduct with which the complainants were concerned was not material

to shareholder interests, which was an element of the underlying fraud claim. The

ALJ reasoned that “[t]he alleged fraudulent conduct must ‘at least be of a type that

would be adverse to investors’ interests’ and meet the standards for materiality

under the securities laws . . .” for the complainants to prevail on a SOX claim.82

On appeal, the Board reversed. Recognizing that the statute protects a

complainant’s reasonable, even if erroneous, belief that an enumerated law has

been violated, the Board determined that the ALJ had improperly merged the

elements required to prove fraud with the requirements that a whistleblower must

allege or prove to engage in protected activity. The Board held that a whistleblower

can engage in SOX protected activity even if the whistleblower fails to allege each

element of a fraud claim as required by securities laws.83 While we continue to

adhere to this holding, we acknowledge that it covers a lot of ground as does the

statute itself. In light of subsequent positions taken by the courts and by litigants

like Complainant, we modify or clarify our position. While an employee need not

plead or prove each element of a securities fraud claim or other enumerated law to

gain protection under SOX, SOX is not a general anti-retaliation statute. The

requirements a complainant must satisfy to gain protection cannot be diminished to

such a degree that they are divorced from the statute’s text. A complainant

complaining about personnel actions, race discrimination, or corporate

expenditures, for example, are not covered under SOX.

D. & O. at 18-19, 22-23.

Compl. Br. at 22-25.

Sylvester v. Parexel Int’l LLC, ALJ No. 2007-SOX-00039, -00042, slip op. at 2 (ALJ

Aug. 31, 2007) (citing Platone v. FLYi, ARB No. 2004-0154, ALJ No. 2003-SOX-00027, slip

op. at 15 (ARB Sept. 29, 2006)).

Id.; see also Wiest v. Lynch, 710 F.3d 121, 134 (3d Cir. 2013) (limiting an employee’s

protected activity “because the communication did not recite facts showing an objectively

reasonable belief in the satisfaction of each element of one of the listed anti-fraud

provisions would eviscerate Section 806. An employee may not have access to information

necessary to form a judgment on certain elements of a generic fraud claim, such as scienter

or materiality, and yet have knowledge of facts sufficient to alert the employer to

fraudulent conduct.”).

A complainant is protected only if the complainant supplies information

concerning conduct that the complainant reasonably believes constitutes a violation

of one of the specifically enumerated categories. Thus, a complainant’s complaint

must contain some approximation or tethering to the enumerated categories.84 The

reasonableness of an employee’s belief must be considered in the context of what is

required to establish a violation of the fraud statutes or a rule or regulation of the

SEC.85 However, as stated above, a complainant does need to provide the specificity

that a violation of the underlying securities law claim requires.86 One of Congress’s

goals in protecting corporate whistleblowers is to address problems before investors

are affected. “Requiring an employee to essentially prove the existence of fraud

before suggesting the need for an investigation would hardly be consistent with

Congress’s goal of encouraging disclosure.”87

Moreover, our holding in Sylvester did not forbid the ALJ from considering

evidence of materiality, among other relevant factors, in this case.88 Sylvester does

not operate to exclude relevant facts or to limit the ALJ’s consideration of the facts

or the law. The fact that a complainant need not prove each element of the

underlying law to establish that he reasonably believed the law was violated does

not render the elements of the underlying law irrelevant, as suggested by

Complainant. Therefore, an ALJ may, depending on the particular facts and

circumstances of the case, consider and weigh, among the other factors, evidence

Nielsen v. AECOM Tech. Corp., 762 F.3d 214, 221 n.6 (2d Cir. 2014) (“We are less

certain whether the ARB was correct [in Sylvester] in concluding that a § 1514A complaint

need not even ‘approximate specific elements’ of the enumerated provisions allegedly

violated, or that there is no requirement that the violation must be ‘material.’ We note that

the statute does require plausible allegations that the whistleblower reported information

based on a reasonable belief that the employer violated one of the enumerated provisions set

out in the statute. Thus, the statutory language suggests that, to be reasonable, the

purported whistleblower’s belief cannot exist wholly untethered from these specific

provisions.” (emphasis original)) (citations omitted); see also Lamb v. Rockwell, 249

F.Supp.3d 904, 912 (E.D. Wis. 2017), citing Rocheleau v. Microsemi Corp., Inc., No. 15–

56029, 680 Fed. Appx. 533, 535, 2017 WL 677563, at *1 (9th Cir. Feb. 21, 2017) (quoting

Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009)).

Northrop Grumman Sys. Corp. v. U.S. Dep’t. of Labor, Admin. Rev. Bd., 927 F.3d

226, 234-35 (4th Cir. 2019).

See, e.g., Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005) (listing the elements

of a fraud claim). The SEC does not necessarily require a quantitative threshold in

assessing materiality under securities law, though it may be useful first step. SEC, Staff

Accounting Bulletin No. 99, 64 Fed. Reg. 45,150, 45,151, available at 1999 WL 625156 (Aug.

19, 1999).

Van Asdale, 577 F.3d at 1002-03.

Beacom v. Oracle Am. Inc., 825 F.3d 376, 381 (8th Cir. 2016).

relevant to particular elements of the enumerated law when determining if it was

reasonable for a complainant to believe that law had been violated.89

Accordingly, we find no error in the ALJ’s consideration of materiality in this

case.90 The ALJ fairly concluded that the concerns expressed by Complainant were

so small relative to the overall construction and operational costs that Complainant

could not have reasonably believed that the amounts at issue could have materially

affected Respondent’s financial statements. Importantly, the ALJ did not hold that

the absence of materiality was determinative, or was a threshold deficiency in

Complainant’s claim. The lack of materiality was just one factor that the ALJ

considered in deciding that Complainant’s belief that Respondent violated rules

concerning internal controls over financial reporting was objectively unreasonable.

In fact, the D. & O. suggests that the ALJ would have determined that

Complainant’s belief was not objectively reasonable even without reference to the

relative impact of the potential savings generated by Estimating on Respondent’s

overall operating costs.91 Similarly, we hold that the other evidence referred to

above is substantial, and supports the conclusion that it was not objectively

reasonable for Complainant to believe that Respondent was violating internal

control rules. Therefore, even if we were to hold that the ALJ erred in considering

materiality, the error would be harmless.

Sylvester, 2007-0123, slip op. at 48-49 (J., Brown, concurring in part and dissenting

in part).

As Complainant has argued, some definitions of internal controls over financial

reporting do not include a materiality element, and there is no independent materiality

requirement built into Section 806 of SOX. See 17 C.F.R. § 240.13a-15(f)(1)-(2); Sylvester,

ARB No. 2007-0123, slip op. at 22 (citing Welch v. Chao, 536 F.3d 269, 276 (4th Cir. 2008)).

However, as previously stated, the thrust of Complainant’s argument appears to be that he

believed the Estimating Department’s reviews were controls as defined by Section 240.13a15(f)(3), which does include a materiality element.

See D. & O. at 19 (“though Estimating’s role vis-à-vis the Evoco system interacted

with an internal control (Evoco), Estimating’s actual evaluation of [change order requests]

was not an internal control. Additionally, Estimating’s effect on Respondent’s financial

statements was not material.” (emphasis added)), 22 (“However, given the clarity of

Estimating’s cost-cutting purpose, I find that the undisputed training language is not

enough, in the wake of the other evidence, to persuade a reasonable person that Estimating

was an internal control. Additionally, the extent of Estimating’s savings compared to

Respondent’s construction spend . . . renders it unreasonable to assume that Estimating

had an effect on Respondent’s financial statements.” (emphasis added)).

2. Respondent Proved It Would Have Terminated Complainant’s

Employment in the Absence of His Alleged Protected Activity

The ALJ also found that Respondent proved by clear and convincing evidence

that it would have terminated Complainant’s employment in the absence of his

alleged protected activity. Substantial evidence supports this conclusion. The ALJ

thoroughly recounted the evidence and explained the credibility findings which

establish a history of poor communication, brusque and unacceptable interactions

with both colleagues and contractors, and multiple instances of disobeying his

supervisor’s instructions or requests. The ALJ also found substantial evidence

demonstrating Respondent’s measured progression through a discipline policy that

ended with the termination of Complainant’s employment.

A. Complainant’s First Coaching

The record shows Respondent first coached Complainant under its

progressive discipline policy in March 2014 for conduct unrelated to any alleged

protected activity. The ALJ relied on evidence showing Complainant had exposed

inter-departmental friction in an email with a contractor, refused to conduct a

review requested by his supervisor, discussed a topic at an inter-departmental

meeting after being told by Cantey not to raise it, and referred to his female

colleague in a belittling manner. Complainant claims that the ALJ erred because

Respondent “admitted” that it exaggerated the bases for this first coaching.92 We

find no error in the ALJ’s analysis or consideration of the evidence.

Complainant asserts that Cantey admitted at the hearing that Complainant’s

March 20, 2014 email contained nothing more than what had already been shared

with the contractor and should not have precipitated a coaching. Although Cantey

acknowledged that Complainant clarified some information with his email, Cantey

stated that he was concerned because Complainant’s email did not help resolve the

situation. Cantey felt the email was not focused on customer service, and that it

suggested that there was friction within Respondent’s operation.93 We believe

Complainant’s appeal ignores this further explanatory evidence.

Complainant also contends that Cantey admitted that Complainant’s female

colleague, to whom he referred as “half” an estimator, was, in fact, a part-time

employee. Complainant’s female colleague may have worked part-time, but, as the

ALJ found, Cantey’s concern was with Complainant’s inflammatory phrasing.94 In

Compl. Br. at 28.

CX 63; Tr. at 211-14, 216.

CX 54; Tr. at 258-60.

fact, Cantey’s contemporaneous notes, which the ALJ credited, reflect that

Complainant admitted that his comment was inappropriate at the time.95

Complainant has also ignored on appeal the two acts of insubordination—

first, refusing to do a change request review, and second, sharing information at the

inter-departmental meeting—upon which the first coaching was also based. This

conduct further shows that the first coaching would have occurred even in the

absence of Complainant’s alleged protected activity.

B. Complainant’s Second Coaching

The ALJ also aptly noted evidence showing that Respondent coached

Complainant a second time in September 2014 for sending an email about change

requests on the Marysville Project to upper-level management, despite Cantey’s

direct instruction, only days prior, not to do so without approval. Complainant

contends on appeal, as he did below, that his September emails “provid[ed]

information to senior management about serious problems with the Change

Requests” on the Marysville Project.96 Complainant argues, therefore, that the

coaching was an attempt to stifle his ability to report violations of internal controls

and was, in itself, retaliatory.

As quoted by the ALJ in the D. & O., Complainant’s testimony at the hearing

contradicts his more recent characterization of his emails on the Marysville

Project.97 Complainant testified at the hearing that the emails were only meant to

emphasize the effectiveness of the change request review process and to show that

he was providing value to Respondent. He testified at the hearing that his emails

were a “celebration of the construction team working together. Estimating, the

directors, the construction managers had all worked together, and we realized the

savings on a very difficult project with a difficult subcontractor and contractor. It

wasn’t meant as anything else.”98 This evidence substantially supports the ALJ’s

finding that Thibodeau sent the email to “demonstrate [his] worth to upper

management,” and not to report any conduct which he believed violated securities

laws.99 The evidence cited by the ALJ supports the conclusion that Complainant

disregarded a clear instruction from his supervisor when he sent his email to

management. Therefore, we affirm the ALJ’s finding that Respondent would have

issued Complainant’s second coaching for insubordination regardless of any alleged

protected activity.

CX 54.

Compl. Br. at 28.

D. & O. at 25.

Tr. at 70; accord Tr. at 287-88; CX 82.

D. & O. at 25.

C. Termination of Complainant’s Employment

The ALJ found that Respondent offered clear and convincing proof that it

would have terminated Complainant’s employment regardless of his alleged

protected activity because of his disrespectful conversation with the Senior Project

Manager on the Glendora Project. Although Complainant disputed what transpired

on the call, the evidence and the ALJ’s reasonable credibility determinations

support the conclusion that Complainant asked if the Senior Project Manager

thought he was worth what he was being paid. This violated Respondent’s core

principles regarding respect and prompted Complainant’s automatic third-strikeand-out termination.

On appeal, Complainant justifies the way he spoke with the Senior Project

Manager.100 Complainant submits that he had to take a “hard-line” approach only

after the Senior Project Manager ignored Complainant’s instructions on how to

properly submit change requests. Complainant also cites evidence that he was not

alone in finding problems with the change requests submitted by the contractor.101

Complainant may have been justifiably displeased with the Senior Project

Manager’s work, but that does not excuse Complainant’s disrespectful verbal

interaction. We find no error in the ALJ’s finding that Respondent proved it would

have terminated Complainant’s employment as the final step under its progressive

discipline policy for Complainant’s misconduct, even absent his alleged protected

activity.

D. Evidence of Complainant’s History of Poor Communication

In addition to the foregoing misconduct, the ALJ also concluded that

Respondent’s decisions to discipline and terminate Complainant were reinforced by

Complainant’s history of poor communication and brusque manner of speaking with

colleagues and contractors. Complainant argues that the ALJ erred by “uncritically”

relying on Respondent’s subjective assertions regarding Complainant’s

Complainant’s Reply Brief (Compl. Reply Br.) at 10. Although Complainant

attempted to defend his call with the Senior Project Manager in his reply brief, he did not

offer any argument regarding the call in his petition for review or opening brief. Typically

we do not consider arguments raised for the first time in a reply. In re Palisades Urban

Renewal Enterprises, LLP, ARB No. 2007-0124, ALJ No. 2006-DBA-00001, slip op. at 8

(ARB July 30, 2009). For the sake of completeness, we affirm the ALJ’s well-reasoned

analysis regarding the call and Complainant’s third-strike termination as a result thereof.

100

101

Compl. Reply Br. at 10.

communication skills.102 Beyond a general assertion that evaluating Complainant’s

“communication style was inherently subjective,” Complainant did not elaborate on

this argument or direct the Board’s attention to any specific portion of the D. & O.

that places excessive weight on subjective criteria.103 The ALJ cited to Respondent’s

well-documented history of identifying Complainant’s communication style as an

area of concern in past performance reviews, and also included specific examples of

Complainant’s rude or brusque communications in the record.104 We note that the

ALJ also relied heavily on evidence of Complainant’s insubordination and his

failure to follow his supervisor’s instructions. Therefore, we find no error in the

ALJ’s analysis or assessment of the evidence.

CONCLUSION

For the foregoing reasons, we AFFIRM the ALJ’s D. & O., and the complaint

in this matter is DENIED.

SO ORDERED.

102

Compl. Br. at 29-30.

Complainant cited generally to pages 24 to 27 of the D. & O. which encompass

nearly all of the ALJ’s discussion and analysis of the explanation offered by Respondent for

Complainant’s discipline and termination. Compl. Br. at 30.

103

104

D. & O. at 26-27.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.