IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 06-60849

PATRICIA ALLEN; LAURA WALDON; DANA BREAUX

Petitioners

v.

ADMINISTRATIVE REVIEW BOARD, UNITED STATES DEPT OF LABOR

Respondent

Petition for Review of an Order

of the United States Department of Labor

Before JONES, Chief Judge, and DeMOSS and STEWART, Circuit Judges.

DeMOSS, Circuit Judge.

Patricia Allen, Dana Breaux, and Laura Waldon (“the Petitioners”) filed

a Sarbanes-Oxley (“SOX”) whistleblower complaint against their employer,

Stewart Enterprises, Inc. (“Stewart”). They claim that Stewart retaliated

against them for engaging in protected activity, created a hostile work

environment, and then terminated them through inclusion in a company-wide

reduction-in-force (“RIF”). After a hearing on the merits, the Administrative

Law Judge (“ALJ”) dismissed the Petitioners’ complaint. On appeal, the

Administrative Review Board (“ARB”) affirmed the ALJ’s decision, which

constituted the final order of the of the Secretary of Labor (“Secretary”). The

Petitioners filed a timely petition for review of the Secretary’s final order with

United States Court of Appeals

Fifth Circuit

F I L E D

January 22, 2008

Charles R. Fulbruge III

Clerk
No. 06-60849

2

this Court. Because we conclude that the Petitioners did not engage in protected

activity, we affirm.

I. Factual Background

Allen, Breaux, and Waldon are former employees of Stewart, a publiclytraded company that has been in the funeral home and cemetery business for

over 90 years. Stewart is headquartered in New Orleans and has four operating

divisions: Eastern, Central, Southern, and Western. The company also has a

Corporate Division in New Orleans, which consists of employees working at the

corporate office and employees working at the Shared Services Center (“SSC”).

Much of the accounting and financial data generated by the SSC is reported to

the Securities and Exchange Commission (“SEC”).

Stewart employed Allen and Breaux as Quality Assurance Representatives

(“QAs”). QAs served as a liaison between the four operating divisions and the

SSC. Although Allen worked for the Central Division and Breaux for the

Eastern Division, both employees were based in New Orleans and worked

together. Waldon was Director of Administration (“DOA”) for the Central

Division. As the DOA, Waldon was responsible for managing Funeral Security

Plans (“FSP”) in Kansas City, as well as supervising three Records Management

Centers (“RMCs”), which were located in Kansas City, Dallas, and New Orleans.

A. AS400 Interest Calculations

Stewart uses the AS400 computer system (“AS400”) to calculate balances

for customer accounts. In late 2000, during an internal audit of cash receipts,

Stewart discovered a malfunction in its computer system for calculating interest

when customers prepaid their installment contracts for services or merchandise

to be provided in the future. The AS400 did not correctly calculate interest in

quoting the amount the customer owed, and thus many of these “payoff”

amounts were erroneous. The AS400 only calculated interest correctly when a

customer paid the full amount on the due date. Upon discovering the error,
No. 06-60849

3

Stewart immediately began working on a new computer program to calculate

interest. Further, to remedy the error, Stewart’s Special Projects group, a

division under the SSC headed by Patricia Beatty, performed manual

amortizations on all accounts that showed credit balances with a history of prepayments on principal. 

Beginning in April 2003, all three Petitioners expressed concerns to their

supervisors about the faulty functioning of the AS400. As QAs for the Eastern

and Central Division, Allen and Breaux were responsible for gathering

supporting data needed to resolve certain issues involving customer refunds.

Allen and Breaux complained that SpecialProjects, which performed the manual

amortizations, was uncooperative and unresponsive in handling adjustments

that Allen, Breaux, and Waldon submitted to correct overcharged accounts.

Moreover, when they submitted an adjustment to Special Projects to correct an

AS400 interest calculation problem, Beatty told them thatthese errors would be

charged to their division on the contract error reports issued monthly for each

division. Allen and Waldon testified that these errors were linked to their

overall performance records and bonuses, and they believed thatthey were being

penalized for their protected activity of pointing out these errors.

The Petitioners testified that they never thought that Stewart

intentionally programed the AS400 to overcharge customers. They knew that

Special Projects was performing manual amortizations as an internal control

until the computer problem was fixed. Although the Petitioners knew that

Stewart was actively working on a solution for the problem, they believed that

Stewart was taking too long to fix the problem and the delay was due to

Stewart’s desire to keep the problem a secret. All three Petitioners were

concerned that Stewart might be overcharging customers who did not complain

and that the refunds were incorrectly calculated.
No. 06-60849

4

Allen and Breaux met separately with Beth Schumacher, Stewart’s

Director of Internal Audit. They complained to Schumacher that the SSC

personnel were “stonewalling” their efforts to accomplish their work. They also

complained about the SSC’s failure to communicate with the QAs, the untimely

refunds, and the inaccurate interest calculations. Breaux told Schumacher that

she was concerned about manual amortizations and that the RMCs should have

an amortization schedule so they could do their own amortizations. 

Correcting the AS400 problem was listed as one of the goals in Stewart’s

strategic plan for 2002-03. In June 2003, the QAs convened a quality assurance

conference in Dallas, at which both Breaux and Allen discussed the interest

calculation problem, refund requests, and payoffs with field office directors.

Stewart sponsored the conference and paid for the attendees’ travel and lodging

expenses.

B. Untimely Refunds

Special Projects, which calculated refunds and payoffs, had a significant

backlog. In the Central Division, Special Projects took four to six weeks to

calculate refunds. Allen, Breaux, and Waldon testified that they believed that

delayed refunds exposed the company to litigation from customers that could

thereby affect shareholders. They were particularly concerned that the delayed

refunds violated Missouri and Texas state law requirements that refunds be

issued within 30 and 15 days, respectively. They were afraid that this delay

could lead to state sanctions, including revocation of Stewart’s license, which

would adversely affect shareholders.

C. Pending Other Source (“POS”) Accounts

Allen and Breaux were also concerned about Stewart’s POS system and

reported their concerns to Beatty and the CFOs. Stewart’s POS accounts are

accounts that a third party, such as an insurance company, pays fully or

partially. In situations where the customer paid his or her part of the account
No. 06-60849

5

balance, but the third party did not pay its part, the customer would receive a

statement showing a zero balance. Allen and Breaux believed that this POS

billing system made it difficult for the company to collect the unpaid balance

from the customer and would affect revenue if the other source did not pay the

balance. Stewart managers, however, testified that the POS billing system did

not prevent the company from collecting the balance because customers with

these accounts were contractually obligated to pay any amount not paid by the

third party, and the company used collection agencies to collect from customers

who refused to pay. 

D. SAB-101 Compliance

In 2000, the SEC staff issued Staff Accounting Bulletin 101 (“SAB-101”),

which prohibits publicly-traded companies from recognizing sales revenue before

they deliver merchandise to the customer. Prior to this bulletin, Stewart had

recognized revenue at the time of sale. SAB-101 required that Stewart change

its accounting practice and recognize revenue at the time Stewart actually

delivered merchandise.

After reviewing internal accounting reports and speaking with Beau

Royster, head of internal audit, Waldon became concerned that Stewart was not

complying with SAB-101. Waldon was aware that Stewart did not submit these

internal accounting reports to the SEC, but she was concerned thatthe company

was overstating its gross profit. She later discovered that the company was

making adjustments for SAB-101 compliance.

Waldon discussed her concerns about SAB-101 compliance with Mike

Hymel, Stewart’s Chief Accounting Officer, who assured her that Stewart was

working on making adjustments to its system for fiscal year 2003. Waldon did

not ask Hymel about SAB-101 compliance for fiscal years 2001 and 2002.

The internal consolidated financial statements for the Central Division are

not the statements submitted to the SEC, but rather working documents for
No. 06-60849

6

managers to compare costs from year to year. According to Hymel, this internal

document did not contain the SAB-101 “top-side adjustments.” Budde testified

that in fiscal year 2001, which commenced November 1, 2000, Stewart began

making SAB-101 adjustments to the documents it submitted to the SEC.

Waldon does not believe the improper recording of costs was done intentionally

by Stewart, but she does believe that understating costs will result in an

overstatement of the company’s gross profit, thus misleading shareholders.

E. Workspace Relocation and “Stonewalling” by the SSC

Allen, Breaux, and DoCampo (the Southern District QA),testified thatthe

QA department work spaces were moved at least four times during their

employment. In October 2003, Stewart moved the QA department work spaces

from the fourth to the first floor of the SSC office building to make room for

employees moving in as a result of the relocation of corporate offices to the SSC

in New Orleans. Due to extensive construction at the SSC building, many other

employees were also moved around. According to the Petitioners, their new

work space location was temporary, and their cubicles were not a standard size,

did not have proper lighting, and were located next to a storage area. 

Allen, Breaux, and Waldon testified that after raising their concerns about

Stewart’s accounting practices, they began to experience stonewalling and

resistance from the SSC, exclusion from emails and meetings, lack of notification

of policy and procedural changes, and delays in receiving responses from the

SSC. The Petitioners argue that Stewart subjected them to a hostile work

environment for engaging in protected activity.

F. Reduction-in-Force (“RIF”)

In December 2003, after experiencing several years of declining revenue

and decreasing earnings per share, Stewart announced a company-wide RIF.

Bill Rowe, Stewart’s Chief Operating Officer, testified that he asked each

division president to determine the positions within their divisions to be
No. 06-60849

7

included in the RIF, but he told them that their RIF decision should not have

any impact on the quality of service provided to customers. As part of the RIF,

Stewart sought to cut 300 jobs, which would result in a cost savings of

approximately $10 million. The company did not give the division presidents

any written criteria to assistthem in making their RIF decisions. Three division

presidents testified that they focused on administrative positions that did not

impact customer service, and they looked at job functions rather than the

individuals in the jobs. The Petitioners, in contrast, argue that Stewart selected

them for the RIF because they had complained about the firm’s accounting

practices.

The presidents of the Eastern and Central Divisions decided to eliminate

the QA position because it was an administrative support position that did not

directly affect customers. The Western Division president did not eliminate the

QA position because he considered it to be essential to the Western Division’s

operating and training needs. The Western Division QA was based in California

rather than New Orleans and had different duties than the QAs in the other

divisions. Allen, Breaux, and DoCampo were among the approximately 300

employees included in the RIF.

The last day of employment for RIFed employees was December 3, 2003.

Because the RIF involved a restructuring of the company, Stewart added 150

new positions between November 25, 2003 and January 28, 2004, and Stewart

provided a job hotline so that RIFed employees could inquire about the new

positions. Many employees applied for jobs and were rehired. Allen and Breaux

did not use the job hotline or apply for any of the new positions in the company.

Since the RIF was undertaken, Stewart’s financial performance has improved.

Waldon was the Central Division’s DOA, and she was not on Central

Division’s original RIF list. As a result of the proposed restructuring, Waldon

understood that many of the functions that she oversaw would either be
No. 06-60849

8

eliminated or transferred to the SSC, and many of the people that she

supervised would be included in the RIF. 

Concerned about her job security, Waldon asked Schumacher on October

23, 2003 whether she would continue to have a job at Stewart. Schumacher told

Waldon that she believed that Waldon’s position would be eliminated in the

future, but it would not be included in the initial RIF because Waldon’s skills

were valued and she would be needed to assist with the transition after the RIF.

Schumacher offered Waldon a position in a training capacity in Kansas City at

a substantially lower pay than the QA position, but she refused to accept it.

On November 5, 2003, Waldon told Schumacher that she would resign

with two weeks notice if the company did not meet the following list of demands:

notice of her termination date, consideration for out-of-pocket expenses she

incurred while she was residing in New Orleans, and assurances that she would

receive her fiscal year 2003 bonus, her pro-rata bonus, and a severance plan. 

After several e-mail exchanges, Schumacher emailed Waldon a draft

separation agreement on November 25, 2003. On November 26, 2003, Waldon’s

name was added to the Central Division’s RIF list. At the suggestion of Waldon,

Schumacher made changes to the draft separation agreement and emailed the

second draft to Waldon on December 2, 2003. Although Waldon never signed

and returned the second draft, Schumacher still believed that she and Waldon

had reached an agreement that Waldon would stay with the company through

January 31, 2004. Waldon, however, did not believe that she had reached an

agreement with the company. Stewart paid for the cancellation of Waldon’s

apartment lease in New Orleans, paid her 2003 bonus and paid for the expenses

of her one business trip to New Orleans, all of which Waldon had requested in

her original demands. Waldon worked through the January 31, 2004 deadline

contained in the second draft separation agreement and received the benefits of

the RIFed employees. Schumacher and Crane testified that Waldon would still
No. 06-60849

9

be employed as the DOA if she had not forced the issue of her separation and

made her various demands. According to Crane, Waldon made a verbal

agreement with Shumacher to leave Stewart voluntarily.

II. Analysis

A. The SOX Whistleblower Statute

Section 806 of SOX, codified at 18 U.S.C. § 1514A, creates a private cause

of action for employees of publicly-traded companies who are retaliated against

for engaging in certain protected activity. Section 1514A(a) states, in relevant

part:

No [publicly-traded 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 an investigation

regarding any conduct which the employee reasonably believes

constitutes a violation of [18 U.S.C.] 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,

when the information or assistance is provided to or the

investigation is conducted by—(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) . . . .

18 U.S.C. § 1514A(a)(1)(C). An employee must file a complaint with the

Secretary no later than 90 days after the date on which the alleged violation

occurred. Id. § 1514A(b)(2)(D).

The legal burdens of proof set forth in the Wendell H. Ford Aviation

Investment and Reform Act for the 21st Century (“AIR 21”), 49 U.S.C. §

42121(b), govern SOX whistleblower actions. 18 U.S.C. § 1514A(b)(2)(C). To
No. 06-60849

1 The employee is entitled to the relief provided by § 1514A(c) “only if the [employee]

demonstrates that [her protected activity] was a contributing factor in the unfavorable

personnel action alleged in the complaint.” 49 U.S.C. § 42121(b)(2)(B)(iii). The term

“demonstrates” means to prove by a preponderance of the evidence. See Dysert v. Sec’y of

Labor, 105 F.3d 607, 610 (11th Cir. 1997) (addressing analogous statutory burden-shifting

framework under the Energy Reorganization Act of 1974 (“ERA”)).

2

In AIR 21 cases, the ARB has adopted the definition of “adverse employment action”

set forth in the recent Supreme Court case of Burlington Northern & Santa Fe Railway Co. v.

White, 126 S. Ct. 2405 (2006). See Hirst v. Southeast Airlines, Inc., ARB Case No. 04-116, 2007

WL 352447, at *4-*5 (ARB Jan. 31, 2007) (AIR 21 case) (using the term “adverse employment

action” and “unfavorable personnel action” interchangeably). Burlington held that “a plaintiff

must show that a reasonable employee would have found the challenged action materially

adverse, which in this context means it well might have dissuaded a reasonable worker from

[engaging in the protected activity].” 126 S. Ct. at 2415 (internal quotation marks and

citations omitted). Based on the similarity of the whistleblower protections afforded under

SOX and AIR 21, we find that the Burlington definition of “unfavorable personnel action”

applies to SOX whistleblower claims. Compare 18 U.S.C. § 1514A(a) (SOX protections), with

49 U.S.C. § 42121(a) (AIR 21 protections).

3 A contributing factor is “any factor, which alone or in combination with other factors,

tends to affect in any way the outcome of the decision.” Klopfenstein v. PCC Flow Techs.

Holdings, Inc., ARB Case No. 04-149, 2006 WL 3246904, at *13 (ARB May 31, 2006) (quoting

Marano v. Dep’t of Justice, 2 F.3d 1137, 1140 (Fed. Cir. 1993)).

10

prevail, an employee must prove by a preponderance ofthe evidence1that(1) she

engaged in protected activity; (2) the employer knew that she engaged in the

protected activity; (3) she suffered an unfavorable personnel action;2 and (4) the

protected activity was a contributing factor in the unfavorable action.3 49 U.S.C.

§ 42121(b)(2)(B)(iii); Stojicevic v. Arizona-American Water, ARB Case No. 05-081,

2007 WL 3286331, at *7 (ARB Oct. 30, 2007); Welch v. Cardinal Bankshares

Corp., ARB Case No. 05-064, 2007 WL 1578493, at *5 (ARB May 31, 2007); see

Reyna v. ConAgra Foods, Inc., 506 F. Supp. 2d 1363, 1380 (M.D. Ga. 2007); see

also 29 C.F.R. § 1980.104(b)(1)(i)-(iv). 

If the employee establishes these four elements, the employer may avoid

liability if it can prove “by clear and convincing evidence” that it “would have

taken the same unfavorable personnel action in the absence of that [protected]

behavior.” 49 U.S.C. § 42121(b)(2)(B)(iv). This “independent burden-shifting
No. 06-60849

11

framework” is distinct from the McDonnell Douglas burden-shifting framework

applicable to Title VII claims. See Williams v. Admin. Review Bd., 376 F.3d 471,

476 (5th Cir. 2004) (ERA case); see also Trimmer v. U.S. Dep’t of Labor, 174 F.3d

1098, 1101 (10th Cir. 1999) (ERA case). 

If the employee files a timely petition for review of the ARB’s decision, our

review is governed by the standard established in the Administrative Procedure

Act (“APA”), 5 U.S.C. § 706. See 49 U.S.C. § 42121(b)(4)(A); 29 C.F.R. §

1980.112(a). Under that standard, the decision of the ARB will be upheld unless

it is “arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.”

Williams, 376 F.3d at 475 (quoting Macktal v. U.S. Dep’t of Labor, 171 F.3d 323,

326 (5th Cir. 1999)). Factual findings are subject to substantial evidence review.

Id. at 475-76. “Under the substantial evidence standard, the ARB’s decision

must be upheld if, considering all the evidence, a reasonable person could have

reached the same conclusion as the ARB.” Id. at 476. Substantial evidence is

“more than a mere scintilla but less than a preponderance.” Id. (internal

quotation marks omitted). The ARB’s conclusions of law are reviewed de novo.

Id.

B. The Petitioners did not engage in protected activity.

Both the ALJ and the ARB concluded that the Petitioners did not engage

in protected activity. We agree with the ARB’s legal conclusion that an

employee’s complaint must “definitively and specifically relate” to one of the six

enumerated categories found in § 1514A: (1) 18 U.S.C. § 1341 (mail fraud); (2)

18 U.S.C. § 1343 (wire fraud); (3) 18 U.S.C. § 1344 (bank fraud); (4) 18 U.S.C. §

1348 (securities fraud); (5) any rule or regulation ofthe SEC; or (6) any provision

of federal law relating to fraud against shareholders. See Platone v. FLYI, Inc.,

ARB Case No. 04-154, 2006 WL 3246910, at *8 (ARB Sept. 29, 2006) (“[A]n

employee’s protected communications must relate definitively and specifically

to the subject matter of the particular statute under which protection is
No. 06-60849

4 We have previously declined to address whether the “reasonable belief” element of a

Title VII retaliation claim includes both a subjective and objective component. Payne v.

McLemore’s Wholesale & Retail Stores, 654 F.2d 1130, 1140 n.11 (5th Cir. Unit A Sept. 1981);

12

afforded.”) (internal quotation marks omitted); see also Harvey v. Home Depot

USA, Inc., ARB Case No. 04-114, 2006 WL 3246905, at *11 (ARB June 2, 2006)

(“[A]n employee’s complaint must be directly related to the listed categories . .

. .”). 

SOX prohibits a publicly-traded company from retaliating against an

employee who reports information to a supervisor “regarding any conduct which

the employee reasonably believes constitutes a violation” of one of the six

enumerated categories. 18 U.S.C. § 1514A(a)(1). We agree that an employee’s

reasonable belief must be scrutinized under both a subjective and objective

standard. See Welch, 2007 WL 1578493, at *7; see also Burlington, 126 S. Ct. at

2415 (“An objective standard is judicially administrable. It avoids the

uncertainties and unfair discrepancies that can plague a judicial effort to

determine a plaintiff's unusual subjective feelings.”). The objective

reasonableness of a belief is evaluated based on the knowledge available to a

reasonable person in the same factual circumstances with the same training and

experience as the aggrieved employee. See Welch, 2007 WL 1578493, at *7; see

also Melendez v. Exxon Chems. Ams., ARB Case No. 96-051, slip op. at 27 (ARB

July 14, 2000). Importantly, an employee’s reasonable but mistaken belief that

an employer engaged in conduct that constitutes a violation of one of the six

enumerated categories is protected. See Collins v. Beazer Homes USA, Inc., 334

F. Supp. 2d 1365, 1376 (N.D. Ga. 2004); see Halloum v. Intel Corp., ARB Case

No. 04-068, 2006 WL 3246900, at *5 (ARB Jan. 31, 2006).

The “objective reasonableness” standard applicable to SOX whistleblower

claims is similar to the “objective reasonableness” standard applicable to Title

VII retaliation claims.4 See Turner v. Baylor Richardson Med. Ctr., 476 F.3d
No. 06-60849

see also Cartagena v. Aegis Mortgage Corp., No. 01-20324, 2001 WL 1268730, at *8 (5th Cir.

Oct. 16, 2001).

13

337, 348 (5th Cir. 2007) (holding that an employee need only show that she had

a “reasonable belief that the employer was engaged in unlawful employment

practices”to satisfy the “opposition requirement” of a Title VII retaliation claim)

(internal quotation marks omitted). In Title VII retaliation cases, the objective

reasonableness of an employee’s belief can be decided as a matter of law in some

cases. See Byers v. Dallas Morning News, Inc., 209 F.3d 419, 427-28 (5th Cir.

2000). However, the objective reasonableness of an employee’s belief cannot be

decided as a matter of law if there is a genuine issue of material fact. See Long

v. Eastfield Coll., 88 F.3d 300, 305 (5th Cir. 1996). If “[r]easonable minds could

disagree on this issue,” the objective reasonableness of an employee’s belief

should not be decided as a matter of law, and the fact-finder’s resolution of the

issue is entitled to deference on appeal. See Lipphardt v. Durango Steakhouse

of Brandon, Inc., 267 F.3d 1183, 1188 (11th Cir. 2001); see also Fine v. Ryan Int’l

Airlines, 305 F.3d 746, 752-53 (7th Cir. 2002). 

The ALJ in this case issued his recommended decision and order after a

six-day hearing on the merits. The ALJ did not resolve the “objective

reasonableness” issue through summary judgment because there was a genuine

issue of material fact. See 29 C.F.R. § 18.40(d); Rollins v. Am. Airlines, Inc., ARB

Case No. 04-140, 2007 WL 1031362, at *1 (ARB April 3, 2007); Carter v.

Champion Bus, Inc., ARB Case No. 05-076, 2006 WL 3246909, at *3 (ARB Sept.

29, 2006). The ALJ determined that the Petitioners’ beliefs were not objectively

reasonable based on the evidence presented atthe hearing. Because reasonable

minds could disagree on this issue, the ALJ’s factual finding regarding the

“objective reasonableness” issue is entitled to deference under the substantial

evidence standard. Consequently, we find that the ARB correctly reviewed the

ALJ’s “objective reasonableness” finding under the substantial evidence
No. 06-60849

5 SAB-101 states the following: “The statements in the staff accounting bulletins are

not rules or interpretations of the Commission, nor are they published as bearing the

Commission’s official approval. They represent interpretations and practices followed by the

Division of Corporation Finance and the Office of the Chief Accountant in administering the

disclosure requirements ofthe Federal securities laws.” SAB-101, 71 S.E.C. Docket 590, 1999

WL 1100908, at *1(Dec. 3, 1999).

14

standard, and we must apply the same deferential standard of review to that

issue.

1. SAB-101 Problem

Waldon, who is a certified public accountant (“CPA”), argues that she

reasonably believed that Stewart was violating an SEC rule or regulation when

she expressed concerns to her supervisors that Stewart was not complying with

SAB-101. Unlike a rule promulgated by the SEC pursuant to its ruling-making

authority, see 15 U.S.C. § 78w(a), an SEC Staff Accounting Bulletin “does not

carry with it the force of law.”5 See Ganino v. Citizens Utils. Co., 228 F.3d 154,

163 (2d Cir. 2000). SAB-101 was not a new accounting rule promulgated by the

SEC; rather,the SEC staff issued SAB-101 “to guide companies in applying SEC

Rules and GAAP to revenue recognition issues.” Barrie v. Intervoice-Brite, Inc.,

397 F.3d 249, 257 (5th Cir. 2005). To the extent that SAB-101 assists a company

in complying with existing SEC financial reporting rules, an alleged SAB-101

violation could fall within the fifth enumerated category found in § 1514A. For

instance, we have previously held that alleged SAB-101 violations in financial

statements submitted to the SEC could survive a Rule 12(b)(6) motion to dismiss

a Rule 10b-5 claim. Barrie, 397 F.3d at 257-58. However, by its own terms,

SAB-101 applies only to revenue recognition in financial statements submitted

to the SEC, which are available to shareholders, not to a company’s internal

financial documents. 1999 WL 1100908, at *1, *17-*18; see also Barrie, 397 F.3d

at 257. 
No. 06-60849

6 Waldon has a Bachelor of Science degree in management accounting and has been

licensed as a CPA since 1999.

15

Regarding the SAB-101 compliance problem, the ARB found that

substantial evidence supports the ALJ’s factual finding that Waldon did not

reasonably believe that Stewart was violating a rule or regulation of the SEC.

Because reasonable minds could disagree on this issue, the substantial evidence

standard applies, so we may not review this issue de novo, reweigh the evidence,

or substitute our own opinion for that of the ALJ and the ARB. See Payne v.

Weinberger, 480 F.2d 1006, 1007 (5th Cir. 1973). Based on the limited nature

of Waldon’s inquiry concerning the SAB-101 problem and her extensive

accounting background, we concur with the ARB’s holding that substantial

evidence supports the ALJ’s factual finding regarding the “objective

reasonableness” issue. 

Because she is a licensed CPA, the objective reasonableness of Waldon’s

belief must be evaluated from the perspective of an accounting expert.6 Waldon

knew that the internal consolidated financial statements for the Central

Division, which she alleged did not comply with SAB-101, were not financial

statements submitted to the SEC. Waldon testified that she knew these internal

financial statements did not need to be SAB-101 compliant. Considering the fact

that she is an accounting expert and Stewart’s SEC statements were publicly

available, Waldon could have ascertained whether Stewart’s SEC statements

failed to comply with SAB-101 and informed her supervisors of this fact, but she

did not. Although Waldon apparently had subjective suspicions that Stewart’s

SEC statements might not be SAB-101 compliant based on her review of

Stewart’s 2003 internal financial statement, substantial evidence supports the

ALJ’s and ARB’s factual finding that she did not sufficiently complain or raise

particular concerns about whether Stewart’s SEC statements were SAB101compliant. Waldon’s only direct complaint to her supervisors concerning
No. 06-60849

7 We express no opinion on whether Waldon’s SAB-101 complaint would rise to the level

of protected activity if made by a layperson without her extensive accounting knowledge.

16

SAB-101 compliance related to Stewart’s 2003 internal financial statement, and

substantial evidence supports the ALJ’s and ARB’s factual finding that she did

not complain about SAB-101 compliance for fiscal years 2001 and 2002. We find

that Waldon’s general inquires concerning SAB-101 compliance in Stewart’s

internalfinancial documents, which she knew were not released to shareholders,

do not constitute protected activity under SOX.7 See, e.g., Bechtel Const. Co. v.

Sec’y of Labor, 50 F.3d 926, 931 (11th Cir. 1995).

2. AS400 interest calculation,untimely refund, and POSbilling

problems

Allen, Breaux, and Waldon complained about the AS400 interest

calculation, untimely refund, andPOS billing problems to their supervisors. The

Petitioners do not allege that Stewart’s conduct regarding these three problems

constituted mail fraud, wire fraud, bank fraud, securities fraud, or a violation of

a specific SEC rule or regulation. Instead, the Petitioners simply argue that

they “reasonably believed” that Stewart’s conduct violated some unidentified

federal law relating to fraud against shareholders. Thus, the Petitioners’

complaints regarding these three problems must fall within the sixth

enumerated category of protected activity, if any.

The Petitioners make two distinct but related arguments regarding why

their complaints about the AS400 interest calculation, untimely refund, and POS

billing problems constituted protected activity: (1) Stewart’s financial condition

would be negatively impacted by these three problems, which would adversely

impact Stewart’s shareholders; and (2) Stewart intentionally failed to disclose

these three problems to its shareholders. 

For purposes of the sixth enumerated category of protected activity, the

plain language of the statute indicates that some form of scienter related to
No. 06-60849

8 Because the issue is not before us, we express no opinion on whether the first five

enumerated categories of protected activity found in § 1514A require some form of scienter

related to fraud against shareholders. Compare Reyna, 506 F. Supp. 2d at 1381-82 (“The

statute clearly protects an employee against retaliation based upon that employee’s reporting

of mail fraud or wire fraud regardless of whether that fraud involves a shareholder of the

company.”), with Platone, 2006 WL 3246910, at *7 (“[W]hen allegations of mail or wire fraud

arise under the employee protection provision of the Sarbanes-Oxley Act, the alleged

fraudulent conduct must at least be of a type that would be adverse to investors’ interests.”).

We note that several ALJs have held that fraud is an essential element of all whistleblower

claims arising under § 1514A, which necessarily includes an element of intentional deceit.

Gale v. World Fin. Group, ALJ Case No. 2006-SOX-43, 2006 WL 3246898, at *4 (ALJ June 9,

2006) (Romero, J.); Wengender v. Robert Half Int’l, Inc., ALJ Case No. 2005-SOX-59, 2006 WL

3246887, at *11 (ALJ March 30, 2006) (Kennington, J.); Marshall v. Northrup Gruman

Synoptics, ALJ Case No. 2005-SOX-8, 2005 WL 4889013, at *3 (ALJ June 22, 2005) (Price, J.);

Hopkins v. ATK Tactical Sys., ALJ Case No. 2004-SOX-19, slip op. at 6 (ALJ May 27, 2004)

(Wood, J.). 

17

fraud against shareholders is required.8 See Ernst & Ernst v. Hochfelder, 425

U.S. 185, 193 n.12 (1976) (defining scienter in the securities fraud context as “a

mental state embracing intent to deceive, manipulate, or defraud”). Mere

negligence on the part of the employer does not constitute a violation of federal

law relating to fraud against shareholders. See id. at 199; see Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 127 S. Ct. 2499, 2504 (2007). In cases involving the

sixth “catch-all” category, we conclude that the employee must reasonably

believe that his or her employer acted with a mental state embracing intent to

deceive, manipulate, or defraud its shareholders. However, as stated previously,

an employee’s reasonable but mistaken belief that the employer violated some

“provision of Federal law relating to fraud againstthe shareholders” is protected.

See Halloum, 2006 WL 3246900, at *5. 

We find that substantial evidence supports the ALJ’s and ARB’s factual

finding that the Petitioners did not reasonably believe that Stewart acted with

a “mental state embracing intent to deceive, manipulate, or defraud” in

addressing the AS400 interest calculation, untimely refund, and POS billing

problems.
No. 06-60849

9 We are troubled by the Petitioners’ attempt to shoe-horn their complaint that Stewart

intentionally failed to disclose these three problems into the sixth “catch-all” category of

protected activity. It appears that this generic fraudulent omission claim is essentially a

watered-down Rule 10b-5 claim. In cases involving an alleged fraudulent omission in violation

of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, the objective

reasonableness of the employee’s belief is evaluated in part through reference to the elements

of a Rule 10b-5 claim. See, e.g., Platone, 2006 WL 3246910, at *11 (“Platone’s . . . allegation

that ACA violated SEC Rule 10b-5 is baseless. Her revelations to Rodgers and others at ACA

do not even approximate any of the basic elements of a claim of securities fraud—a material

misrepresentation (or omission), scienter, a connection with the purchase, or sale of a security,

reliance, economic loss and loss causation.”); see also Regents of Univ. of Cal. v. Credit Suisse

First Boston (USA), Inc., 482 F.3d 372, 382 (5th Cir. 2007) (regarding the elements of a Rule

10b-5 claim). Although an employee who makes a complaint concerning an alleged fraudulent

omission does not need to prove that an actual violation of federal law occurred, the employee

does need to prove that his or her belief was objectively reasonable under the circumstances.

Because we conclude that substantial evidence supports the ALJ’s and ARB’s factual finding

that Stewart did not act with fraudulent intent in failing to disclose these three problems to

its shareholders, we need not decide whether the objective reasonableness of all generic

fraudulent omission complaints must be evaluated in part through reference to the elements

of a Rule 10b-5 claim.

18

The more difficult question is whether the Petitioners’ complaint that

Stewart intentionally failed to disclose these three problems falls within the

sixth enumerated category of protected activity. Even assuming that Stewart’s

response to these unintended problems was merely negligent, the Petitioners

argue that Stewart acted with fraudulentintentin failing to disclose these three

problems to its shareholders. Being mindful of our deferential standard of

review, we conclude that substantial evidence supports the ALJ’s and ARB’s

factual finding that Stewart was attempting in good faith to correct these three

problems and that Stewart did not intend to defraud its shareholders when it

failed to disclose this information.9

a. AS400 Problem

We find that substantial evidence supports the ALJ’s and ARB’s factual

finding that the Petitioners did not reasonably believe that Stewart’s delay in

reprogramming the AS400 constituted a fraud on the shareholders. The

Petitioners knew that the AS400 interest calculation problem was the direct

result of unintentional computer programming errors that Stewart was
No. 06-60849

19

attempting to correct. Stewart instructed its technology personnel to re-program

the AS400 when it discovered the problem, and in the interim, Stewart’s

accounting personnel were performing manual amortizations of accounts as a

temporary measure to ensure that payoffs were correctly calculated. Although

the reprogramming of the AS400 failed during testing, substantial evidence

indicates that Stewart attempted to remedy the problem in good faith.

Substantial evidence also supports the ALJ’s and ARB’s factual finding

that Stewart was not attempting to conceal the AS400 problem. Stewart listed

correcting the AS400 problem as a goal in the company’s strategic plan for 2002-

03, and this plan was distributed to team leaders, ground leaders, and QA

representatives within the company. Furthermore, Stewart sponsored a

conference in Dallas where QA Representatives addressed the problem openly

with field personnel and paid for the attendees’ travel and lodging expenses.

Considering the fact that Stewart did not intentionally cause the AS400

problem, did not conceal it, and attempted to correct it, a reasonable person

could conclude that Stewart’s conduct regarding the AS400 problem did not

violate some provision of federal law relating to fraud against shareholders.

b. Untimely Refund Problem

The ALJ and ARB found that the Petitioners’ complaints about delayed

refunds did not constitute protected activity because they held that SOX does not

provide protection for employees who report state law violations. See Williams

v. Sirva, Inc., ALJ Case No. 2006-SOX-6, 2006 WL 3246817, at *2 (ALJ Feb. 13,

2006) (providing information to management concerning alleged violations of

state law, standing alone, is not protected activity under SOX). We express no

opinion on whether an employee’s complaint regarding alleged violations of state

law could constitute protected activity because substantial evidence supports the
No. 06-60849

10 Even assuming that a company's intentional failure to disclose alleged state law

violations to it shareholders might constitute a violation of Section 10(b) and Rule 10b-5, that

issue was not raised by the Petitioners, so we decline to address it.

20

ALJ’s and ARB’s factual finding that Stewart did not possess the requisite

scienter regarding the untimely refund problem.10

The record indicates that Special Projects, which calculated refunds and

payoffs, had a significant backlog and was attempting to remedy the problem.

We agree with the ARB that substantial evidence supports the ALJ’s factual

finding that Stewart did not act with a mental state embracing intentto deceive,

manipulate, or defraud its shareholders in addressing this refund backlog

problem. Thus, the Petitioners’ complaints regarding the untimely refunds do

not fall within the six enumerated category of protected activity found in §

1514A. 

c. POS Account Problem

The ARB found that substantial evidence supports the ALJ’s factual

finding that Breaux and Allen did not reasonably believe that Stewart was

violating some provision of federal law relating to fraud against shareholders by

issuing incorrect POS statements to its customers. We agree. Both Breaux and

Allen knew that Stewart’s customers were contractually obligated to pay any

balance remaining when a third party refused to take responsibility for payment

and that Stewart collected any remaining balances through its customer service

office and outside collection agencies. Substantial evidence supports the ALJ’s

and ARB’s factual finding that Stewart was not losing any money on its POS

accounts and that Breaux and Allen could not reasonably believe that the

incorrect POS statements adversely affected Stewart’s shareholders. Breaux

and Allen complained about Stewart’s allegedly inadequate response to an

unintended computer programming problem. Thus, substantial evidence

supports the ALJ’s and ARB’s factual finding that Breaux and Allen did not
No. 06-60849

21

engage in protected activity when they complained about the POS billing

problem because Stewart did not possess the requisite scienter.

III. Conclusion

The Petitioners have failed to establish the first element of their SOX

whistleblower claims. Regarding the fifth enumerated category of protected

activity, a reasonable person could conclude that Stewart did not violate a rule

or regulation of the SEC because Waldon knew that Stewart’s internal financial

documents did not need to be SAB-101 compliant. Regarding the sixth

enumerated category of protected activity, the Petitioners must reasonably

believe that Stewart acted with a mental state embracing intent to deceive,

manipulate, or defraud its shareholders. Stewart’s unsuccessful attempts to

remedy the AS400 interest calculation, untimely refund, and POS billing

problems do not qualify as a fraud on the shareholders because Stewart did not

possess the requisite scienter. A reasonable person could conclude that Stewart

did notintentionally cause these three problems, did not concealtheir existence,

and attempted to remedy them. At most, Stewart inadequately responded to

three unintended problems that arose in the regular course of business, and

substantial evidence supports the ALJ’s and ARB’s factual finding that Stewart

did not intend to defraud its shareholders in failing to disclose these problems.

We decline to address the Petitioners’ remaining arguments because we conclude

that they did not engage in protected activity. 

AFFIRMED.