Of the District of Puerto Rico, sitting by designation. *

United States Court of Appeals

For the First Circuit

No. 08-1689

KEVIN M. DAY,

Plaintiff, Appellant,

v.

STAPLES, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

 Lynch, Chief Judge,

Howard, Circuit Judge,

and Garcia-Gregory, District Judge. *

Bryan J. Day for appellant.

Dawn Reddy Solowey with whom Ariel D. Cudkowicz, Krista Green

Pratt, and Seyfarth Shaw LLP were on brief for appellee.

February 9, 2009
-2-

LYNCH, Chief Judge. This is our first occasion to

interpret the requirements for an action under the whistleblower

protection provision of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C.

§ 1514A. Kevin Day sued his former employer, Staples, Inc.,

alleging he was fired for reporting fraud, in violation of this

federal whistleblower protection provision and of state law. SOX

prohibits discharging an employee because the employee provides

information to a supervisor "regarding any conduct which the

employee reasonably believes constitutes a violation of [several

enumerated laws] . . . or any provision of Federal law relating to

fraud against shareholders." Id.

Day's complaint did not assert any specific violations of

securities laws; rather, it stated that he believed certain Staples

practices resulted in the "manipulat[ion] [of] accounting data in

an unlawful manner that had negative financial ramifications for

Staples," which "defrauded Staples' shareholders" and violated the

Staples Code of Ethics. The district court granted summary judgment

in favor of Staples. Day v. Staples, Inc., 573 F. Supp. 2d 336 (D.

Mass. 2008). We establish the criteria by which such claims are to

be evaluated and affirm.

I.

On an appeal from a grant of summary judgment, we take all

reasonable inferences in favor of the plaintiff, as the nonmoving

party. Mellen v. Trs. of Boston Univ., 504 F.3d 21, 24 (1st Cir.
-3-

2007). We may nonetheless ignore "conclusory allegations,

improbable inferences, and unsupported speculation." Prescott v.

Higgins, 538 F.3d 32, 39 (1st Cir. 2008) (quoting Medina-Munoz v.

R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990)).

We tell the material facts, which are undisputed, not in

entirely chronological order, but as parallel accounts of Day's

complaints to Staples and of Staples's growing dissatisfaction with

Day's work. Day worked for Staples for less than three months, from

May 23, 2005 to August 5, 2005, never progressing from his entry

level Analyst position in Staples's Reverse Logistics Department.

During his employment, he offered many criticisms of Staples

business practices. The nature of those criticisms is at the heart

of this case.

Day was offered a position as a Reverse Logistics Analyst

on May 6, 2005, shortly before his graduation from the University

of Massachusetts-Amherst, in a letter which stated that Day would

have to sign Staples's Code of Ethics on his first day of work as

a condition of employment.

The Reverse Logistics Department analyzes open product

returns and coordinates product returns from customers who order

Staples products in large volume and also return products in bulk.

Such product returns involve two separate departments. Reverse

Logistics handles the actual delivery of returned products to the
Day was told that Staples policy mandated that before 1

issuing a credit to a customer, Staples required two pieces of

supporting documentation: a return authorization form indicating

the item had been picked up from a customer and a pallet manifest

showing the item was on the pallet on its way back to Staples's

warehouse.

-4-

warehouse; by contrast, it is Staples's Customer Service Department

which normally issues monetary credits to the customer.

Day's duties included analyzing open customer returns for

assigned warehouse locations and addressing issues with couriers who

picked up returned products. Although Day was initially told in his

interview that his job responsibilities would include up to 70

percent travel in order to work with midwest regional returns, Day's

actual duties did not involve travel, other than for his initial

training. Mary-Ellen Julio, the Manager of the Reverse Logistics

Department, supervised Day's work. She became the subject of

several of his complaints. 

A. Day's Complaints of Alleged Shareholder Fraud

Day soon came to believe that certain Staples business

practices he observed in Reverse Logistics were potentially unlawful

and unethical. He ultimately complained to his supervisors about

three types of practices, which we summarize and then return to in

some detail. First, he claimed to his employer that Reverse

Logistics issued monetary credits to customers without having

received proper documentation; this, in his view, raised the risk 1

of Staples overpaying credits to customers who did not return goods.
-5-

Second, he alleged that Reverse Logistics knowingly withheld money

from contract customers by under-issuing credits over $25.00; this,

in his view, raised the risk to Staples of inaccurately accounting

by overstating Staples revenues and to customers of not getting full

refunds. Third, he claimed that Reverse Logistics's practice of

canceling and reissuing pick-up orders could permit couriers to

overbill Staples. This, in his view, raised the risk of a reduction

in Staples's profits.

Two of the alleged harms were ostensibly against Staples's

corporate self-interest: the possible overpayment of refunds to

customers who returned goods and the possible overpayment of

couriers. Day argued, however, that the canceling and reissuing

practice benefitted Staples managers because it resulted in the

manipulation of an internal metric called "aging days," the time

interval between Staples's receipt of a customer request for a

pickup of a product for return and when a Staples courier actually

picked up the product. Day believed that his supervisor Julio's

bonus was tied to the average aging day metric, and that it was in

her interest to make that number seem artificially low. Day was

incorrect and his belief was based on a conversation with a coworker named Jason Englemeyer. Day never actually saw a bonus

policy and was never told about the bonus calculation by Julio,

whose bonus was never tied to the aging days metric.
-6-

Day communicated his concerns about these three practices

to Julio and other supervisors in a series of face-to-face meetings

and email exchanges. Day first articulated his concerns on July 14,

2005. That day, he met with Julio at her request; to Julio's

dismay, Day had recommended a competitor company's product to a

dissatisfied customer over the phone. During the meeting, Day

communicated one of his three key allegations: he told Julio that

he believed the company was inappropriately canceling and reissuing

return orders and this permitted her to manipulate the company's

measurement of aging days so that Julio would "look good for her

bosses." Day stated that if the information about the alleged

accounting manipulation "ever went to Wall Street[,] heads would

turn." Julio explained the business reasons for canceling and

reissuing return orders, including that the couriers in the

locations that Day handled did not have the ability to reprint the

previous orders or obtain Staples's paperwork in any other way than

canceling and reissuing. Julio felt that Day refused to accept the

explanations.

One hour after that July 14 meeting, Julio met with AnneMarie Bourque, the Staples human resources representative for

Reverse Logistics. Julio expressed her concerns about Day's

behavior and recommended that Day's employment be terminated because

of his poor performance, including Day's recommendation of a

competitor's product to a customer. At Bourque's suggestion, Julio
-7-

documented Day's performance issues in a memo. The memo also

included reports of conflicts with co-workers and unprofessional

behavior and recommended termination. 

The next day, July 15, 2005, Day delivered a letter to

Doreen Nichols, Director of Associate Relations and Diversity in

Staples's Human Resources Department, which repeated the allegations

he had made the previous day about the cancellation and reissuance

policies. His letter contained a section entitled "Forced

Participation in Fraudulent Activity." In his letter, Day

complained that: (1) he felt he was "being pressured into knowingly

committing fraud so that [his] supervisor Mary-Ellen Julio can

report false and inaccurate numbers"; (2) while he knew Julio was

not happy with his job performance, he "refuse[d] to knowingly take

part in the mass canceling and reissuing of pickup orders just for

the sake of resetting aging days," a practice he described as

"defrauding the shareholders of this company of their return on

investment so that [Julio] can make herself look good for her

supervisors"; and (3) "any auditor" could "find hundreds, if not

thousands, of cases of inaccurate reporting of figures, accounting

fraud and general unethical behavior," much of it defrauding

customers. He stated that the "fraudulent activity . . . needs to

stop immediately." The letter also contained a section in which Day

alleged there were misrepresentations in his job description,

stating that he had not traveled as much as had been promised.
-8-

 Nichols met with Day on July 15 for one hour so that

Nichols could get a clear understanding of Day's concerns. She

assured Day his concerns would be forwarded to the appropriate

personnel. Nichols forwarded Day's letter to Ellen Kruse, Staples's

Regional Director of Human Resources, and Nan Stout, Staples's Vice

President of Ethics. Stout did not contact Day directly, but

instead asked Robert McGrath, Staples's Director of Loss Prevention,

to investigate the allegations in the letter.

Three days later, on July 18, 2005, Day met with Bourque

and Kruse to discuss the July 15 letter. At the meeting, Kruse told

Day that the allegations in the letter were very serious, and she

requested more specific examples of the type of accounting fraud and

unethical behavior that Day had alleged in his July 15 letter. Day

then identified the three practices that now form the basis of his

claim for § 1514A protection: the canceling and reissuing of

returns, the withholding of credits from contract customers, and the

issuance of credits without proper documentation. Kruse told Day

she thought he was wrong about his allegations; still, Bourque and

Kruse told Day that they would investigate his allegations. Indeed,

McGrath had already been asked to look into the allegations. 

On July 20 and 21, 2005, Staples brought in Reverse

Logistics senior managers to address Day's allegations with him.

On July 20, George Zalitis, Director of Staples's Office of Project

Management, Julio, Kruse, and Bourque met with Day. Zalitis oversaw
-9-

all of Reverse Logistics, including Julio's team. Day complained

he was not traveling more and said the Reverse Logistics Analyst job

did not require analytic skills; it could be done by a high school

student. In the discussion of whether the returns process was

improper, Day's supervisors stated that there were business reasons

for the practices. For example, Zalitis explained that canceling

and reissuing returns was necessary for efficient delivery of

paperwork to couriers: sometimes a courier who was scheduled to

pick up a return either lost or misplaced paperwork and therefore

did not pick up the return. Reverse Logistics had determined that

the most efficient way to get that paperwork back to the courier was

simply to cancel and reissue the return rather than to fax the

paperwork to the courier, as Day preferred to do. Further, Zalitis

explained that the critical metric he used was the completion rate

of deliveries rather than aging days and that any technical

improvements in the system were not worth it: they would be

expensive and time-consuming to implement. In the July 20 meeting,

Day was instructed to perform his job as directed while the company

investigated his July 15 allegations and to undergo additional

training.

In a third meeting on July 21, 2005, Day discussed his

concerns with Kruse and McGrath, who had been assigned to

investigate Day's complaints. McGrath assured Day that his

allegations would be investigated and invited him to submit further
-10-

information about his concerns. That day, McGrath met with Zalitis

and Greg Igo, the Director of Planning, who had previously helped

create the Reverse Logistics Department. Igo and Zalitis explained

the business purposes behind the credit and returns processes to

McGrath, so that McGrath would understand the entire returns process

in assessing Day's complaints.

On July 23, 2005, Day sent a follow-up email to McGrath

elaborating on the situations in which the alleged unethical and

fraudulent activity in Reverse Logistics were occurring and urging

McGrath to examine those specific examples. In particular, Day

expressed concern with Staples's practice regarding the issuance of

credits to contract customers and of requiring that contract

customers call before Reverse Logistics would issue a credit. 

On July 25, McGrath emailed Day to report that, having

conducted his investigation, he had found no evidence of fraud or

unethical behavior. McGrath stated that he had followed up with

Zalitis and Igo to discuss Day's allegations. McGrath wrote that

"management is aware the returns goal is being impacted by the

process of cancelling/reissuing. The process . . . is being

followed to communicate with couriers and fleet locations in the

absence of a more efficient method." McGrath also indicated that

he would share the concerns Day raised in his July 23 email with

Zalitis. 
-11-

Day felt, however, that his concerns were not being taken

seriously, due to the short duration of McGrath's investigation and

the brevity of his email. Day contends McGrath's investigation

consisted only of the July 21 meeting with Day, the July 21 meeting

with Zalitis and Igo, and Day's follow-up email on July 23, and that

this was insufficient to address his allegations.

Staples then brought in even more senior management to

meet with Day on August 3. Day repeated his allegations in a

meeting with Steve Bussberg, Vice President of Finance for North

American Delivery, Igo, McGrath, and Kruse. Bussberg is the most

senior Staples official who met with Day. Igo again explained that

senior management had made a considered judgment to implement the

practice of canceling and reissuing orders about which Day

complained, and that this method was preferable because it allowed

Staples to re-drop the paperwork for outstanding orders. He also

explained why Day's proposed alternative practice -- reprinting and

faxing the orders -- would be less efficient. 

At the August 3, 2005 meeting, Igo also explained the

reasons for the process of issuing credits to contract customers.

Staples's business practice is to offer "hassle-free" returns to the

customer, which allows contract customers to return a product with

any subsequent order and have the credit applied to that subsequent

order. Logistical difficulties in the past had led to Staples often

issuing duplicate credits, because both Customer Service, which
-12-

addressed customer concerns, and Reverse Logistics, which

coordinated the physical returns, would credit the customer. Igo

explained that Staples's approach avoided such double crediting.

Staples had studied the issue in 2005, weighing the costs and

benefits of issuing duplicate credits compared to giving immediate

credits to the customer, and determined that the best practice was

for the Reverse Logistics Department to enter a "log note" in the

system, because the Customer Service Department had likely already

issued a credit.

Day, however, insisted his methods were preferable to

those the company had adopted after consideration. Igo believed

that because the August 3 meeting was at least the fourth meeting

Day had had with upper management, Day should have had a broader

perspective on the Reverse Logistics processes, but that Day did

not.

After his August 3, 2005 meeting with Day, Igo recommended

termination of Day's employment. Igo based his recommendation on

his own experience with Day's inflexibility and the prior complaints

from Day's direct supervisors that Day was not performing his job

well and threatened not to follow his managers' instructions. Long

before this meeting, Julio had complained to Igo about Day's

unsatisfactory performance in July and August. Joanie Cordani,

another Staples manager, had also told Igo that Day was abrasive.

Kruse and Bussberg agreed with Igo's recommendation. 
-13-

On August 4, Day emailed Kruse with further concerns about

his job and affirmed his concerns with crediting procedures. He

requested that the issue be discussed the following day. 

Staples terminated Day's employment on August 5, during

a meeting that Day had requested to address his concerns further.

That day, the plaintiff had an exit interview with McGrath and

Kruse. At the meeting, McGrath told Day that he was "looking for

perfection in an imperfect process" and that he was a distraction

and was disruptive. Day asked whether he was protected under the

SOX whistleblower protection provision, and McGrath responded that

Day was not protected because McGrath had investigated and found no

fraud. Staples offered him three months' salary and outplacement

services as part of a proposed severance package, which contained

a general release of liability. Day felt the offer was "insulting"

and did not accept it.

Four days later, on August 9, Kruse created a "Personnel

Action Notice" regarding Day's termination. That document states

that the reason for Day's termination was his "Inability to Perform

Job." Day claims that he was never told the reason for his firing

was his inability to perform his job and that he never received any

type of written warning from Staples that his employment might be

terminated.
-14-

B. Prior Concerns About Day's Job Performance 

Day's supervisors described many instances of serious

dissatisfaction with Day's job performance independent of his

complaints about potentially fraudulent business practices at

Staples. These concerns about poor performance began approximately

three weeks after Day began working at Staples -- one month before

Day ever voiced concerns about possible fraud in Reverse Logistics

practices to his supervisors -- and continued until his employment

terminated.

On June 13, 2005, Day traveled to California for two weeks

of training with Staples personnel, including Wendy Watanabe. Day

clashed with his supervisors during the first days of this training.

Day later testified in his deposition that he had a "rocky

relationship" with Watanabe and that they "weren't compatible." In

a July 18, 2005 email, sent in response to a request by Julio that

she make a statement regarding Day's training, Watanabe stated that

she had had difficulty with Day. She stated that he "was

argumentative and sometimes [made] offensive comments about the

process and [others'] ability to do their job." Another supervisor,

Judith Gutierrez, and a co-worker, Scott Martin, also told Julio

that Day was confrontational during the California training session.

On the July 4 holiday, Day called Julio at her home to ask

for a co-worker's telephone number to complain about IT issues,

during which he described the IT department as incompetent. Julio
-15-

felt it was inappropriate to call employees at home over the holiday

and that the work should have been completed earlier.

On July 5, 2005, Day sent an email complaining about a

courier company named SpeeDee. Day expressed concerns about

SpeeDee's lack of responsiveness, which led to a number of returns

being reissued. He complained that he was "getting the brush off"

and experienced the equivalent of "a blank stare" over the phone.

When Julio told Day to be more professional, he stated in an email

that "[s]ometimes I may come across as rash, but it is all in an

effort to get things taken care of . . . . Perhaps my downfall is

that I say things that need to be said and sometimes don't worry if

somebody is hurt or embarrassed, especially if they are in fact to

blame."

Julio testified that during the July 14 meeting with Day,

Day was demanding and constantly interrupted her and that "[a]ny

explanation [she] would try to give him, he would just overpower."

Day told Julio that he could do a better job in Reverse Logistics

than Julio, that Julio was complacent in her job, and that she had

not done anything to make any improvements in the returns process

during the course of her working at Staples. Day conceded in his

deposition that he had a "rocky relationship" with Julio.

Day's supervisors were further dissatisfied with his

performance during the additional training he received to address

concerns about his performance. Day was dismissive of the training
-16-

he received on July 26-28 and August 1. Day questioned the efficacy

of Staples's procedures and thought that his training on "Staples

Values" on July 28 was a "waste of time." 

His trainer Vicky Thomes, who instructed Day on proper

telephone protocol, expressed frustration with Day's insistence on

questioning many Staples customer service procedures. She

complained in an email to Julio that "[Day] just asks so many

questions that have nothing to do with what we are working on at the

time." For example, Analysts calling to inquire about whether a

return had been picked up were directed to say, "This is Staples

quality control, and we were wondering how your return went." Day,

however, believed that this script was effectively "lying" because

he would prefer to simply ask directly whether the courier had

picked up the return. 

In deciding ultimately to terminate Day's employment on

August 5, Day's supervisors felt that he was inflexible, that he

insisted he knew how to carry out Reverse Logistics functions better

than his supervisors, and that he often threatened not to follow his

managers' instructions. Kruse cited Day's August 4 email as further

evidence of Day's refusal to follow Staples internal processes. 

C. Day's SOX Whistleblower Violation Complaint

Day filed a complaint with OSHA on September 26, 2005,

alleging retaliatory termination in violation of the SOX

whistleblower protection provision, 18 U.S.C. § 1514A. On November
Day also filed a complaint against Staples in state 2

court, but withdrew the action before the court reached a decision

on Staples's motion for summary judgment.

Day does not appeal from the district court's entry of 3

summary judgment on his state law promissory estoppel claim. 

-17-

23, 2005, the OSHA investigator concluded Day's claim lacked merit

because Day's concerns appeared to be a "disagreement with

management" about internal procedures and were not the "protected

activity of alleging intentional deceit of shareholders or

violations of [Securities and Exchange Commission ("SEC")] rules or

regulations." Day filed timely objections to the investigator's 2

findings and requested an administrative hearing, which took place

on March 3 and March 6, 2006. On March 14, 2006, Day filed a Notice

of Intent to File a Complaint in District Court. The Administrative

Law Judge accordingly dismissed the complaint.

Day filed his federal court complaint on April 11, 2006,

alleging SOX and state-law claims. On February 7, 2008, the

district court granted Staples's motion for summary judgment on all

counts and denied Day's cross-motion for summary judgment. The 3

court held that Day's SOX claim failed as a matter of law because

his belief that Staples was engaged in accounting fraud was not

reasonable. The court reasoned that although "[Day's] concerns were

stated with adequate particularity, Plaintiff's belief that he had

uncovered fraud was not reasonable." Day, 573 F. Supp. 2d at 346.

It based its decision in part on a determination that "Day lack[ed]
-18-

the knowledge, training and experience to harbor a reasonable belief

of fraud." Id. The court emphasized that Day "had little relevant

work experience" and had only worked in the Department for seven

weeks before complaining of fraud. Id.

The court further held that Day's state-law claims failed

because Staples had violated neither SOX nor its Code of Ethics.

On February 11, Day filed a Motion to Amend Findings and Vacate

Order, arguing the court erred in assuming that Day lacked

experience and attempting to introduce evidence about Day's prior

financial work experience. The court denied Day's motion. Day

appeals only from the court's February 7, 2008 summary judgment

ruling.

II.

We review a district court's grant of summary judgment de

novo and may affirm the district court's decision on any grounds

supported by the record. Collazo v. Nicholson, 535 F.3d 41, 44 (1st

Cir. 2008) (quoting Estades-Negroni v. Assocs. Corp. of N. Am., 377

F.3d 58, 62 (1st Cir. 2004)). Summary judgment is appropriate where

"there is no genuine issue as to any material fact and . . . the

movant is entitled to judgment as a matter of law." Fed. R. Civ.

P. 56(c). 
-19-

III. 

DAY'S SOX WHISTLEBLOWER CLAIM

A. Statutory Background

SOX protects "whistleblower" employees of publicly-traded

companies by prohibiting employers from retaliating against

employees because they provided information about specified

potentially unlawful conduct. 18 U.S.C. § 1514A; see Welch v. Chao,

536 F.3d 269, 275 (4th Cir. 2008). The provision 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 . . . 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. § §] 1341

[mail fraud], 1343 [wire fraud], 1344 [bank

fraud], or 1348 [securities fraud], any rule or

regulation of the [SEC], or any provision of

Federal law relating to fraud against

shareholders, when the information or

assistance is provided to . . . a person with

supervisory authority over the employee . . . .

18 U.S.C. § 1514A(a)(1). There is no dispute that Staples is

subject to the SOX whistleblower protection provision. It is useful

to set this language in the context of the problem Congress was

trying to address. Congress passed this protection in response to:

[A] culture, supported by law, that

discourage[s] employees from reporting

fraudulent behavior not only to the proper

authorities . . . but even internally. This
The Secretary of Labor has delegated responsibility for 4

receiving and investigating whistleblower complaints to OSHA, an

agency within the DOL. See Carnero,433 F.3d at 3, n.1; Delegation

of Authority and Assignment of Responsibility to the Assistant

Secretary for Occupational Safety and Health, 67 Fed. Reg. 65,008,

65,008 (Oct. 22, 2002); see 29 C.F.R. § 1980.103(c).

If the Secretary of Labor has not issued a final decision 5

within 180 days of the filing of the complaint and there is no

showing that such delay is due to the bad faith of the claimant,

the claimant may file suit for de novo review in the appropriate

federal district court, which will have jurisdiction over such

-20-

"corporate code of silence" not only hampers

investigations, but also creates a climate

where ongoing wrongdoing can occur with

virtual impunity.

S. Rep. No. 107-146, at 5 (2002). Section 1514A was enacted to

remedy this problem. The § 1514A whistleblower provision thus

serves to "encourage and protect [employees] who report fraudulent

activity that can damage innocent investors in publicly traded

companies." Id. at 19. It also aimed "to provide federal

protection to private corporate whistleblowers, as was already done

with government employees, in light of the 'patchwork and vagaries

of current state [whistleblower protection] laws.'" Carnero v.

Boston Scientific Corp., 433 F. 3d 1, 11 (1st Cir. 2006) (emphasis

omitted) (quoting S. Rep. 107-146, at 10). 

An employee seeking § 1514A protection must first file an

administrative complaint with the Department of Labor ("DOL").

§ 1514A(b)(1)(A). An administrative appeal to the DOL 4

Administrative Review Board ("ARB") is available, but not

mandatory. After exhaustion of the DOL complaint procedure, the 5
action regardless of the amount in controversy. 18 U.S.C.

§ 1514A(b)(1)(B). 

-21-

employee may then file a federal civil cause of action, or may, if

he has chosen an administrative appeal, thereafter seek judicial

review under the APA. See Carnero, 433 F.3d at 16-17 & n.16. An

employee must file a complaint with the Secretary no later than

ninety days after the date on which the alleged violation occurred.

§ 1514A(b)(2)(D). 

The statute specifies that § 1514A claims are governed by

the procedures applicable to whistleblower claims brought under the

Wendell H. Ford Aviation Investment and Reform Act for the 21st

Century, 49 U.S.C. § 42121(b). 18 U.S.C. § 1514A(b)(2); see also

Carnero, 433 F.3d at 13 n.12. Under this burden-shifting framework,

the employee bears the initial burden of making a prima facie

showing of retaliatory discrimination because of a specific act.

See 49 U.S.C. § 42121(b)(2)(B) ("The Secretary of Labor shall

dismiss a complaint filed under this subsection and shall not

conduct an investigation . . . unless the complainant makes a prima

facie showing that [a whistleblower complaint] was a contributing

factor in the unfavorable personnel action alleged in the

complaint."). The burden then shifts to the employer to rebut the

employee's prima facie case by demonstrating by clear and convincing

evidence that the employer would have taken the same personnel

action in the absence of the protected activity. 49 U.S.C.
This prima facie case under SOX is not identical to that 6

under Title VII and McDonnell Douglas, which requires the plaintiff

to show (1) he is a member of a protected class; (2) he was

qualified for the job; (3) the employer took an adverse employment

action; and (4) the position remained open or was filled by a

person with similar qualifications. See St. Mary's Honor Ctr. v.

Hicks, 509 U.S. 502, 506 (1993). Indeed, the SOX burden may be

more difficult to meet because an inference does not arise

automatically if the four criteria are met, but only when the

circumstances are sufficient to raise an inference and because the

employee must show that he engaged in the protected activity. 

-22-

§ 42121(b)(2)(B); see also Welch, 536 F.3d at 275; Allen v. Admin.

Review Bd., 514 F.3d 468, 475-76 (5th Cir. 2008).6

The requirements for a prima facie case are articulated

in the DOL regulations. To make a prima facie showing, the

employee's complaint must allege the existence of facts and evidence

showing that: "(i) the employee engaged in a protected activity or

conduct; (ii) the [employer] knew or suspected, actually or

constructively, that the employee engaged in the protected activity;

(iii) the employee suffered an unfavorable personnel action; and

(iv) the circumstances were sufficient to raise the inference that

the protected activity was a contributing factor in the unfavorable

action." 29 C.F.R. § 1980.104(b)(1).

SOX authorizes an award of make-whole relief to an

employee who prevails in the DOL administrative proceedings. This

can include reinstatement with "the same seniority status that the

employee would have had but for the discrimination," "back pay, with

interest," and compensation for any special damages sustained,
Chevron deference is appropriate when it appears from the 7

"statutory circumstances that Congress would expect the agency to

be able to speak with the force of law." United States v. Mead

Corp., 533 U.S. 218, 229 (2001); see also Rucker v. Lee Holding

Co., 471 F.3d 6, 11-12 (1st Cir. 2006). The Supreme Court has

instructed that "Congress['s] contemplat[ion] [of] administrative

action with the effect of law [can be assumed] when it provides for

a relatively formal administrative procedure" such as formal

-23-

including litigation costs, and reasonable attorneys' fees. See 18

U.S.C. § 1514A(c)(2); see also 29 C.F.R. § 1980.105(a).

B. Application of SOX Whistleblower Provision to the Facts

of Day's Case

This case turns on the appropriate interpretation of the

applicable legal standards. 

We focus on the statutory requirement that a SOX

complainant be a person who "provide[s] information . . . regarding

any conduct which the employee reasonably believes constitutes a

violation" of the pertinent laws listed in § 1514A, here securities

fraud or shareholder fraud. Here, the complaint alleges Day

reasonably believed that Staples violated § 1514A through its

manipulation of accounting data, and that the data manipulation

violated an unidentified "relevant provision" of federal law

relating to fraud against shareholders. The issue is what

constitutes a reasonable belief that the conduct constitutes

securities fraud. 

There are some common understandings about the viewpoints

with which to approach the question of what is a reasonable belief.

Both the DOL regulations, which are entitled to Chevron deference,7
adjudication. Mead, 533 U.S. at 230 & n.12. Congress explicitly

delegated to the Secretary of Labor authority to enforce § 1514A by

formal adjudication, see 18 U.S.C. § 1514A(b)(1)(A), and the

Secretary has delegated her enforcement authority to the ARB, see

Delegation of Authority and Assignment of Responsibility to the

Administrative Review Board, 67 Fed. Reg. 64,272 (Oct. 17, 2002).

See Welch, 536 F.3d at 275 (holding that an employee had 8

to show both a subjective belief and an objectively reasonable

belief that the conduct he complained of constituted a violation of

relevant law); Livingston v. Wyeth, Inc., 520 F.3d 344, 352 (4th

Cir. 2008); Allen, 514 F.3d at 477; Melendez, ARB No. 96-051 (July

14, 2000), available at http://www.oalj.dol.gov/PUBLIC/

WHISTLEBLOWER/DECISIONS/ARB_DECISIONS/ERA/93ERA06E.HTM.

The legislative history states that Congress "intended to 9

impose the normal reasonable person standard used and interpreted

in a wide variety of legal contexts . . . ." S. Rep. No. 107-146,

at 19. It also states that "[t]he threshold is intended to include

all good faith and reasonable reporting of fraud, and there should

be no presumption that reporting is otherwise, absent specific

evidence." 148 Cong. Rec. 57420 (daily ed. July 26, 2002)

(statement of Sen. Leahy). 

We consider the district court's concern about the 10

plaintiff's particular educational background and sophistication to

be relevant to the subjective component. Subjective reasonableness

requires that the employee "actually believed the conduct

complained of constituted a violation of pertinent law." Welch,

536 F.3d at 277 n.4.

-24-

and the caselaw establish that the term "reasonable belief" has 8

both a subjective and objective component. We agree. That twocomponent approach is consistent with the legislative history of the

provision. 

9

As to the subjective component, the law is not meant to

protect those whose complaints are not undertaken in subjective good

faith. Here, there is no evidence that Day did not make his

complaints in subjective good faith.10
In comments to the final regulations implementing the 11

whistleblower provision, DOL stated it:

-25-

We focus on whether Day had an objectively reasonable

belief that the conduct constituted securities fraud or shareholder

fraud. The plain language of SOX does not provide protection for

any type of information provided by an employee but restricts the

employee's protection to information only about certain types of

conduct. Those types of conduct fall into three broad categories:

(1) a violation of specified federal criminal fraud statutes: 18

U.S.C. § 1341 (mail fraud), § 1343 (wire fraud), § 1344 (bank

fraud), § 1348 (securities fraud); (2) a violation of any rule or

regulation of the SEC; and/or (3) a violation of any provision of

federal law relating to fraud against shareholders. The first and

third categories share a common denominator: that the conduct

involves "fraud," and many of the second category claims (violations

of SEC rules or regulations) will also involve fraud. 

The employee must show that his communications to the

employer specifically related to one of the laws listed in § 1514A.

We agree with the Fourth Circuit in Welch, 536 F.3d at 275, that

§ 1514A requires, in addition to a subjective belief, an objectively

reasonable belief that conduct complained of constituted a violation

of the relevant law set out in the statute. The employee is not

required to provide the employer with the citation to the precise

code provision in question. The employee is not required to show 11
[B]elieve[d] that it would be overly

restrictive to require a complaint to include

detailed analyses when the purpose of the

complaint is to trigger an investigation to

determine whether evidence of discrimination

exists . . . . Although the [SOX] complainant

often is highly educated, not all employees

have the sophistication or legal expertise to

specifically aver the elements of a prima

facie case and/or supply evidence in support

thereof.

Procedures for the Handling of Discrimination Complaints Under the

Sarbanes-Oxley Act, 69 Fed. Reg. 163, 52106 (Aug. 24, 2004).

Day specifically theorizes that all three practices 12

"violated the Act's enumerated laws," without citing a specific

statue or SEC regulation. Although he has waived the argument on

appeal, with respect to the use of log notes in issuing credits to

contract customers, he also alleges a violation of the Foreign

Corrupt Practices Act's ("FCPA") requirement that publicly traded

companies "make and keep books, records, and accounts, which, in

reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the issuer." 15 U.S.C.

§ 78m(b)(2)(A). This claim is subject to the same infirmities as

-26-

that there was an actual violation of the provision involved. See,

e.g., Fraser v. Fiduciary Trust Co. Int'l, 417 F. Supp. 2d 310, 322

(S.D.N.Y. 2006) ("While a plaintiff need not show an actual

violation of law, or cite a code section he believes was violated,

'general inquiries . . . do not constitute protected activity.")

(alteration in original) (citations omitted) (quoting Fraser v.

Fiduciary Trust Co. Int'l, No. 04 Civ. 6958 (RMB)(GWG), Slip op. at

16 (S.D.N.Y. June 23, 2005)). Here, plaintiff's theory, both before

the employer and before the court is a generalized theory that

shareholder fraud resulted from three specific practices at

Staples.12
his other claims, as explained later. 

-27-

The reasonableness of Day's belief for purposes of § 1514A

must be measured against the basic elements of the laws specified

in the statute. "Fraud" itself has defined legal meanings and is

not, in the context of SOX, a colloquial term. "The hallmarks of

fraud are misrepresentation or deceit." Ed Peters Jewelry Co. v.

C & J Jewelry Co., 215 F.3d 182, 191 (1st Cir. 2000). That is the

dictionary definition, as well. See Black's Law Dictionary 685 (8th

ed. 2004) (defining fraud as the "knowing misrepresentation of the

truth or concealment of a material fact to induce another to act to

his or her detriment"). Wire or mail fraud is "broader than the

common law definition [of fraud]" but also emphasizes the deceit

requirement. Ed Peters Jewelry Co., 215 F.3d at 192. 

 To have an objectively reasonable belief there has been

shareholder fraud, the complaining employee's theory of such fraud

must at least approximate the basic elements of a claim of

securities fraud. "Securities fraud" itself has additional relevant

elements. The elements of a cause of action for securities fraud

"resembl[e] . . . common-law tort actions for deceit and

misrepresentation." Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341

(2005). Those elements typically include a material

misrepresentation or omission, scienter, loss, and a causal

connection between the misrepresentation or omission and the loss.

See, e.g., Media Gen., Inc. v. Tomlin, 532 F.3d 854, 858 (D.C. Cir.
This is true of the two claims about the company's 13

practices that benefit Staples customers or couriers to the

possible detriment of the company's bottom line. 

-28-

2008). Securities fraud under section 10(b) and Rule 10b-5

requires: "(1) a material misrepresentation or omission; (2)

scienter; (3) connection with the purchase or sale of a security;

(4) reliance; (5) economic loss; and (6) loss causation." Ezra

Charitable Trust v. Tyco Int'l, Ltd., 466 F.3d 1, 6 (1st Cir. 2006).

The employee need not reference a specific statute, or prove actual

harm, but he must have an objectively reasonable belief that the

company intentionally misrepresented or omitted certain facts to

investors, which were material and which risked loss. 

Day's assertions do not meet the basic components of fraud

or of securities fraud. A disagreement with management about

internal tracking systems which are not reported to shareholders is

not actionable. Several of Day's complaints amount to allegations

that the company's practices did not maximize shareholder profits.13

Day's belief is not itself an objectively reasonable belief that

shareholders have been or are likely to be defrauded. A company may

legitimately decide for a number of reasons that maximizing shortterm profits through certain practices is not its goal, particularly

if the practices lead to consumer unhappiness. Further, a company's

management may legitimately decide that certain practices are more

efficient than others. A complaint about corporate efficiency is

also not within the intended protection of SOX.
-29-

Similarly, Day's belief that the process of canceling and

reissuing return orders constituted fraud on shareholders because

it permitted courier overbilling lacks objective reasonableness.

The aging days metric that Day describes as "data manipulation" was

unrelated to the financial condition of the company, and it was

never reported to shareholders. Day argues that the practice led

to a "needless loss of revenue [that] detrimentally affected

Staples' shareholders." A claim of "needless loss of revenue" is

not a claim of fraud. Even if Staples's pick-up order system

allowed the possibility of overbilling by a delivery company, as Day

alleged, that is a far cry from fraud. Moreover, Day had no

reasonable basis for his erroneous belief that Julio's bonus

depended on the aging days metric. 

One practice was said to benefit Staples to the detriment

of its customers -- that the Reverse Logistics Department "was

knowingly refusing to provide its customers with monetary credit

they were entitled to," thus giving Staples an "unfair benefit."

This is not even plausibly a situation of shareholder fraud. "[A]

billing discrepancy, without more, does not equal fraud." Platone

v. U.S. Dep't of Labor, 548 F.3d 322, 327 (4th Cir. 2008) (holding

that under § 1514A, "a complainant must alert management to more

than the fact that the company's near-term profits were affected by

billing discrepancies in order to meet the standard of definitively

and specifically alleging mail or wire fraud" and rejecting claim
The brief also makes an unspecified reference to SEC 14

regulations; without more, the argument is waived. 

-30-

of plaintiff who never articulated theory of how employer was

defrauding shareholders to the employer). Day may have made a

complaint related to consumer protection, but he does not have an

objectively reasonable belief there was shareholder fraud under

§ 1514A.

Day attempts to connect these allegations to violations

of "general accounting principles" and then to connect violations

of accounting principles to "shareholder fraud." Indeed, he was 14

explicit with Staples "that [its] accounting methods are inaccurate"

and that "the information [Staples] sends to Wall Street is

inaccurate." This theory does not work either. He has not alleged

that the numbers he complained were inaccurate (1) were reported to

shareholders, (2) were inconsistent with generally accepted

accounting principles ("GAAP"), or (3) constituted fraud. A

generalized allegation of inaccuracy in accounting is insufficient

to establish a reasonable belief in a violation of GAAP, much less

a reasonable belief in shareholder fraud. See DSAM Global Value

Fund v. Altris Software, Inc., 288 F.3d 385, 390 (9th Cir. 2002)

("'[T]he mere publication of inaccurate accounting figures, or a

failure to follow GAAP, without more, does not establish scienter'"

in a securities fraud action) (quoting In re Software Toolworks

Inc., 50 F.3d 615, 627 (9th Cir. 1994)). 
Day's citation to the FCPA does not help him. Even 15

assuming arguendo that the FCPA falls within the scope of § 1514A,

but see Diamond, Case No. 2006-SOX-00044, 2007 DOLSOX LEXIS 97, at

*15-16 (2007) (questioning whether FCPA sufficiently relates to

fraud against shareholders within the meaning of § 1514A), Day's

argument that Staples inaccurately "report[ed] increased revenues"

is itself inaccurate in two ways: first, his criticism about the

practice attacks the fairness, rather than the accuracy per se of

Staples's calculation of its total revenues; second, Day's claim is

unreasonable in light of the business reasons Staples articulated

for adopting its policies.

-31-

Further, "merely stating in conclusory fashion that a

company's books are out of compliance with GAAP would not in itself

demonstrate liability under section 10(b) or Rule 10b-5." In re

Cabletron Sys., Inc., 311 F.3d 11, 34 (1st Cir. 2002). Even when

a company's accounting method is in violation of GAAP, "some

techniques . . . might prove to be entirely legitimate, depending

on the specific facts." Id. at 34-35. Claims that there has been

accounting fraud thus require evidence beyond a belief in a mere

accounting irregularity, and not even an accounting irregularity can

be reasonably alleged here. See Novak v. Kasaks, 216 F.3d 300, 309

(2d Cir. 2000) ("[A]llegations of GAAP violations or accounting

irregularities, standing alone, are insufficient to state a

securities fraud claim. Only where such allegations are coupled

with evidence of 'corresponding fraudulent intent,' might they be

sufficient." (citations omitted) (quoting Chill v. Gen. Elec. Co.,

101 F.3d 263, 270 (2d Cir. 1996))). Day's allegations are not of

"accounting fraud" within the meaning of securities law. See, 15

e.g., Joy, Case No. 2007-SOX-74, 2008 DOLSOX LEXIS 5, at *20 (2008)
-32-

("[SOX] does not provide whistleblower protection for all employee

complaints about how a public company spends its money and pays its

bills."). 

Day's belief was also objectively unreasonable because he

has made no showing that any inaccuracy was material to

shareholders. This materiality requirement means the complainant

must believe there is a "likelihood that the disclosure of the

omitted fact would have been viewed by the reasonable investor as

having significantly altered the total mix of information made

available." Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)

(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449

(1976)) (internal quotation marks omitted). Thus complaints about

purely internal practices that are not financial in nature and are

not reported to shareholders do not meet the materiality requirement

for an objectively reasonable belief in shareholder fraud. 

A company's explanations given to the employee for the

challenged practices are also relevant to the objective

reasonableness of an employee's belief in shareholder fraud. As the

district court observed, Day's complaints, which, assuming arguendo,

initially reflected a reasonable concern, "ceased to be reasonable

after Staples' employees reiterated the rationales for the returns

process, and assured Plaintiff that no fraud was being committed."

Day, 573 F. Supp. 2d at 347. Here, Day's beliefs were not initially
This provision states, "Staples will not tolerate 16

retaliation against anyone who in good faith reports a violation or

potential violation of this Code." 

-33-

reasonable as beliefs in shareholder fraud and they became less

reasonable as he was given explanations.

Because, on the undisputed facts, Day did not have the

needed objectively reasonable belief of violation of one of the laws

set forth in § 1514A, we need not determine whether Staples has

proved by clear and convincing evidence that Day would have been

discharged notwithstanding his complaints.

IV.

DAY'S STATE LAW CLAIMS

We also review de novo entry of summary judgment against

Day's state claims for breach of contract and wrongful termination

under Massachusetts law. Both claims fail. 

A. Breach of Contract Based on Staples's Code of

Ethics

Day argues that Staples's Code of Ethics, which contains

an anti-retaliation provision protecting employees who report legal

or ethical violations to their supervisors, was an implied part of 16

his employment contract, and that Staples breached its obligations

under the Code by firing him.

 In Massachusetts, employment is presumed to be at-will

unless there exists an express or implied contract governing its

terms and conditions. Hinchey v. NYNEX Corp., 144 F.3d 134, 141
Day cites Noonan v. Staples, Inc., 539 F.3d 1 (1st Cir. 17

2008), for the proposition that this court has previously treated

the Code as a binding contract, and that Staples cannot fire Noonan

for a violation of the Code in one case while arguing that Day

lacks a reasonable belief in shareholder fraud. Day's reliance is

misplaced. Noonan examined the Code in the context of a claim for

breach of a severance agreement where the terms of the severance

agreement stated that Staples could rely on a violation of the Code

to establish cause for termination. See id. at 14. Noonan has no

bearing on Day's case.

-34-

(1st Cir. 1998). Day argues that under O'Brien v. New England

Telephone & Telegraph Company, 664 N.E.2d 843, 847 (Mass. 1996), the

terms of the Code became an implied part of the at-will employment

relationship between Day and Staples.17

The Massachusetts Supreme Judicial Court has held that

there is no implied contract based on the terms of a personnel

manual where: (1) the employer retained the right to unilaterally

modify terms; (2) the terms of the manual were not negotiated; (3)

the manual stated that it provided only guidance regarding the

employer's policies; (4) no term of employment was specified in the

manual; and (5) the employee did not sign the manual to manifest

assent. Jackson v. Action for Boston Cmty. Dev., Inc., 525 N.E.2d

411, 415-16 (Mass. 1988). There is no "rigid list of prerequisites,

but rather . . . factors that would make a difference or might make

a difference in deciding whether the terms of a personnel manual

were at least impliedly part of an employment contract." O'Brien,

664 N.E.2d at 847; see also LeMaitre v. Mass. Tpk. Auth., 897 N.E.2d

1218, 1218-19 (Mass. 2008) (finding enforceable an incentive program
-35-

described in employee handbook and clarifying that the case did not

raise claim that handbook modified at-will status of a dismissed

employee). 

Day's characterization of the Code of Ethics as a contract

ignores the express contrary language in the documents accompanying

the Code. Day's initial offer explicitly stated, "[t]his letter,

along with the enclosures [including the Code of Ethics], contains

our complete offer of employment and in no way changes your status

as an at-will employee." Further, the Associate Handbook

Acknowledgment Form, contained within the Staples Associate

Handbook, states (in all capital letters): "I also understand that

this handbook is not a contract of employment, and that employment

with Staples is on an at-will basis." The Associate Handbook also

contains a notification that the first 90 days of an associate's

employment are considered the introductory period, and that "[s]ince

employment is at the will of the company and of the associate,

completion of the introductory period is not a guarantee or a right

to continued employment." These statements make clear that the Code

and benefits provided in the Handbook did not alter Day's at-will

employment status. 

Given these disclaimers, the absence of any negotiation

over the terms, and the absence of any specified term of employment,

Day could not "reasonably have believed that the 'employment manuals

he . . . was given constituted the terms or conditions of
-36-

employment, equally binding on employee and employer.'" Hinchey,

144 F.3d at 141 (quoting Derrig v. Wal-Mart Stores, Inc., 942 F.

Supp. 49, 55 (D. Mass. 1996)).

B. Wrongful Termination Claim Based on Public Policy

Exception to Massachusetts's Doctrine of At-Will

Employment

Lastly, Day argues that Staples's violation of § 1514A

provides him with a basis for a wrongful discharge claim pursuant

to the public policy exception to Massachusetts's employment-at-will

doctrine. He further relies on Massachusetts case law giving

protection to whistleblowers under state law. See, e.g., Mello v.

Stop & Shop Cos., 524 N.E.2d 105, 108 n.6 (Mass. 1988).

Massachusetts courts recognize an exception to the general

at-will employment rule "when employment is terminated contrary to

a well-defined public policy." Wright v. Shriners Hosp. for

Crippled Children, 589 N.E.2d 1241, 1244 (Mass. 1992). Under this

doctrine, employees may seek redress if they "are terminated for

asserting a legally guaranteed right (e.g., filing workers'

compensation claim), for doing what the law requires (e.g., serving

on a jury), or for refusing to do that which the law forbids (e.g.,

committing perjury)." Smith-Pfeffer v. Superintendent of the Walter

E. Fernald State Sch., 533 N.E.2d 1368, 1371 (Mass. 1989). This

public policy exception is construed narrowly. King v. Driscoll,

638 N.E.2d 488, 492 (Mass. 1994).
-37-

Day does not have a claim for wrongful termination under

Massachusetts common law. In passing SOX, Congress aimed to create

comprehensive legislation to fill the gaps in a patchwork of state

laws governing corporate fraud and protections for whistleblowers.

It would be entirely inappropriate for plaintiff to be able to use

a federal statute designed to address the inadequacies of state law

to create a new common law cause of action under Massachusetts law.

Nor does Day meet the requirements of existing state law. The

Massachusetts public policy exception for whistleblowing does not

protect "an employee's internal complaint about company policies."

Shea v. Emmanuel Coll., 682 N.E.2d 1348, 1350 (Mass. 1997).

V. 

The district court's grant of summary judgment to Staples

is affirmed.