Court Opinion

ID: 9895715
Source: CourtListenerOpinion
Date Created: 2023-11-08 16:01:25.295537+00
Date Added: 2024-06-11T09:12:58.020670
License: Public Domain

Case: 23-10104         Document: 00516960103             Page: 1      Date Filed: 11/07/2023

              United States Court of Appeals
                   for the Fifth Circuit                                    United States Court of Appeals
                                                                                     Fifth Circuit
                                      ____________                                 FILED
                                                                            November 7, 2023
                                        No. 23-10104
                                                                              Lyle W. Cayce
                                      ____________
                                                                                   Clerk

   Darrell Seybold,

                                                                     Plaintiff—Appellant,

                                             versus

   Charter Communications, Incorporated,

                                                Defendant—Appellee.
                      ______________________________

                      Appeal from the United States District Court
                          for the Northern District of Texas
                                USDC No. 3:21-CV-228
                      ______________________________

   Before Southwick, Engelhardt, and Wilson, Circuit Judges.
   Per Curiam:*
          This case involves an ex-employee’s claim that he was terminated
   from his job for reporting various instances of alleged securities and share-
   holder fraud to his supervisors. Because we hold that the ex-employee failed
   to plausibly plead both his whistleblower claim and his breach of contract
   claim against his employer, we AFFIRM the judgment of the district court.
   I. Factual and Procedural Background

          _____________________
          *
              This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 23-10104       Document: 00516960103            Page: 2     Date Filed: 11/07/2023

                                       No. 23-10104

          Darrell Seybold worked for Charter Communications, Inc. (“Char-
   ter”) as a sales manager for eight years1 before his termination on February
   18, 2020. Charter’s stated reason for terminating Seybold was his unprofes-
   sional conduct and communication. However, Seybold argues that Charter’s
   reasoning was pretextual and that he was in fact fired for reporting Charter’s
   unlawful or unethical corporate behavior.
          Four reports form the basis of Seybold’s allegations against Charter.
   The first involved Charter’s 2015 policy of retagging circuits to make old
   Ethernet customers appear new. The second involved a 2019 policy change
   whereby senior homes were counted as both commercial and residential ac-
   counts, resulting in overreporting. The third involved an inflated sales funnel
   that Seybold believed set an unattainable standard for sales personnel. The
   fourth involved an error in the calculation of commissions, such that sales
   personnel like Seybold were underpaid. Seybold alleged that, through each of
   the actions contained in his reports, Charter engaged in securities fraud and
   shareholder fraud—in other words, Charter was cooking the books. Seybold
   asserted that he detailed his findings in the four categories above to his su-
   pervisor, the regional vice president, and the group vice president at Charter
   via email.
          After Charter fired him, Seybold filed a Sarbanes-Oxley (“SOX”)
   complaint with the Occupational Safety and Health Administration
   (“OSHA”) on July 29, 2020. Once OSHA dismissed his complaint, Seybold
   filed suit against Charter for violations of the whistleblower protections con-
   tained in the SOX Act and for breach of contract relating to the unpaid com-
   missions.

          _____________________
          1
           The eight-year employment period from 2012 to 2020 was Seybold’s second stint
   with Charter. Seybold also previously worked for Charter from 2001 to 2003.

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          Charter filed a Rule 12(c) motion for judgment on the pleadings on
   April 30, 2021. The district court granted Charter’s motion as to the breach
   of contract claim and dismissed that claim with prejudice. The court found
   that Seybold’s contract claim failed under Texas law because a disclaimer in
   the Commission Plan explicitly stated that the plan was not a contract. As for
   the SOX claim, the district court noted several deficiencies in Seybold’s
   pleadings regarding the first, second, and fourth elements of his prima facie
   case. In particular, the court directed Seybold’s attention to the complaint’s
   lack of detail regarding what Seybold knew to be unlawful at the time he made
   the four reports and what those reports actually contained. The district court
   granted Seybold leave to amend his complaint to address these failings.
          Seybold filed his first amended complaint on April 1, 2022. Shortly
   thereafter, Charter filed a Rule 12(b)(6) motion to dismiss, arguing that Sey-
   bold failed to cure the deficiencies previously highlighted by the district
   court. The district court agreed with Charter and dismissed Seybold’s SOX
   claim with prejudice. The district court found that the first amended com-
   plaint “provide[d] zero new, meaningful detail” to cure the pleading defi-
   ciencies. By “simply add[ing] words without adding meaning,” Seybold
   failed to provide “specificity regarding the report’s contents, Seybold’s state
   of mind, and the causal link between the . . . report and Seybold’s termina-
   tion.” In sum, the district court found that “Seybold’s amended complaint
   added a host of details surrounding what Charter did wrong, but it failed to
   sufficiently allege what Seybold actually reported.” Because the court also
   found that Seybold failed to follow prior instructions regarding the errors
   identified in his complaint, the district court denied Seybold leave to file a
   second amended complaint.
          Seybold timely appealed the dismissal of both the SOX claim and the
   breach of contract claim.

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   II. Standards of Review
          a. Federal Rules of Civil Procedure 12(b)(6) and 12(c)
          This Court reviews de novo the district court’s grant of a motion to
   dismiss pursuant to Rule 12(b)(6). See Asadi v. G.E. Energy (USA), L.L.C.,
   720 F.3d 620, 622 (5th Cir. 2013). “To survive a motion to dismiss, a com-
   plaint must contain sufficient factual matter, accepted as true, to state a claim
   to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
   (2009) (citation and internal quotation marks omitted). A claim is facially
   plausible when the plaintiff pleads facts that allow the court to “draw the rea-
   sonable inference that the defendant is liable for the misconduct alleged.” Id.
   (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “Factual allega-
   tions must be enough to raise a right to relief above the speculative level on
   the assumption that all the allegations in the complaint are true (even if
   doubtful in fact).” Twombly, 550 U.S. at 555 (cleaned up).
          Similarly, “[w]e evaluate a motion under Rule 12(c) for judgment on
   the pleadings using the same standard as a motion to dismiss under Rule
   12(b)(6) for failure to state a claim.” Gentilello v. Rege, 627 F.3d 540, 543–44
   (5th Cir. 2010). Thus, this Court reviews a dismissal on the pleadings de novo,
   “accepting all well-pleaded facts as true and viewing those facts in the light
   most favorable to the plaintiff.” Bustos v. Martini Club Inc., 599 F.3d 458, 461
   (5th Cir. 2010) (citation omitted).
          b. Federal Rule of Civil Procedure 15(a)
          Whether to allow a party to amend its complaint “is left to the sound
   discretion of the district court and will only be reversed on appeal when that
   discretion has been abused.” U.S. ex rel. Willard v. Humana Health Plan of
   Tex., Inc., 336 F.3d 375, 387 (5th Cir. 2003).
   III. Analysis

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          Seybold raises three arguments on appeal: (1) the district court im-
   properly dismissed Seybold’s SOX claim under Rule 12(b)(6); (2) the district
   court improperly dismissed Seybold’s breach of contract claim under Rule
   12(c); and (3) the district court abused its discretion by denying Seybold leave
   to file a second amended complaint under Rule 15(a). We address each argu-
   ment in turn below.
          a. Failure to state a SOX claim
          Seybold first argues that the district court improperly dismissed his
   SOX claim for failure to state a claim upon which relief can be granted under
   Rule 12(b)(6). The SOX Act, “codified at 18 U.S.C. § 1514A, creates a pri-
   vate cause of action for employees of publicly-traded companies who are re-
   taliated against for engaging in certain protected activity.” Allen v. Admin.
   Rev. Bd., 514 F.3d 468, 475 (5th Cir. 2008). To succeed on a SOX claim, “an
   employee must prove by a preponderance of the evidence that (1) she en-
   gaged in protected activity; (2) the employer knew that she engaged in the
   protected activity; (3) she suffered an unfavorable personnel action; and (4)
   the protected activity was a contributing factor in the unfavorable action.”
   Id. at 475–76.
          A “protected activity” for SOX purposes includes:
                    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 be-
                    lieves constitutes a violation of section 1341 [mail
                    fraud], 1343 [wire fraud], 1344 [bank fraud], or
                    1348 [securities fraud], any rule or regulation of
                    the Securities and Exchange Commission, or any
                    provision of Federal law relating to fraud against
                    shareholders . . . .

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   18 U.S.C. § 1514A(a)(1). “Essentially, the employee has to provide infor-
   mation or assist in an investigation that he reasonably believes relates to one
   or more of six categories of laws and regulations.” Wallace v. Tesoro Corp.,
   796 F.3d 468, 474 (5th Cir. 2015).
          The “protected activity” at the foundation of Seybold’s claim against
   Charter is the filing of the four reports, described above, via email to his su-
   pervisors. The district court identified errors with several aspects of this
   “protected activity”: whether Seybold knew he was engaging in protected
   activity at the time he sent the emails; whether Charter knew Seybold was
   engaging in protected activity at the relevant time; and whether Seybold pled
   with sufficient particularity the content of the reports, so as to determine
   whether they constituted protected activity at all. As Charter explains it, Sey-
   bold “failed to allege the substance of what he actually said to Charter,” and
   “he did not allege that—at the time of his reports—he believed Charter’s
   policy violated [the relevant] laws.” The district court found that Seybold’s
   first amended complaint failed to cure these errors, and we agree.
          With respect to the first three reports, the fatal flaw in Seybold’s
   pleadings is the lack of any concrete detail regarding what Seybold reported
   to his supervisors and whether he thought the reported conduct was illegal at
   the time. Seybold attempted to explain why he could not provide the court
   with physical copies of his emails (in which he allegedly reported the unlawful
   conduct), but this misses the point: Seybold needed to describe, with partic-
   ularity, what was contained therein so as to demonstrate that he was engaging
   in protected activity under SOX at the time the reports were filed. So while
   providing the emails themselves would perhaps be beneficial, Seybold could
   have provided the detail requested by the district court without them—he
   simply did not do so. Instead, he summarized his actions as “reporting,”
   “opposing,” and “disputing” certain Charter policies. But this does not
   show that Seybold held a “reasonable belief that conduct violates” securities

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   laws; if anything, it expresses mere disagreement with company policy. See
   Wallace, 796 F.3d at 474. Because Seybold did not show what he actually re-
   ported to Charter, he could not show that his actions constituted protected
   activity under SOX, or that Charter believed it to be protected activity. See
   Villanueva v. U.S. Dep’t of Lab., 743 F.3d 103, 110 (5th Cir. 2014) (holding
   that where plaintiff did not demonstrate he engaged in protected activity,
   court could not conclude defendant knew he engaged in the same).
          With respect to the fourth report regarding unpaid commissions, Sey-
   bold was able to provide actual copies of relevant emails, but the emails do
   not evince any allegation of wrongdoing at all. Instead, Seybold’s email high-
   lights a “misapplication” of the Commission Plan that Charter should “re-
   calculate.” Rather than showing that he affirmatively communicated poten-
   tially illegal actions, the email reflects, at most, a disagreement with a
   paycheck. Thus, Seybold’s vague allegations fall short of our pleading re-
   quirements and do not bring his dispute within the scope of SOX’s whistle-
   blower protections.
          In sum, Seybold did not demonstrate that he actually blew the whistle.
   Seybold’s allegations paint a picture of an employee criticizing internal com-
   pany policies, not of an employee highlighting potential illegal conduct by his
   employer. See, e.g., Day v. Staples, Inc., 555 F.3d 42, 58 (1st Cir. 2009) (hold-
   ing that “complaints about purely internal practices” do not satisfy SOX);
   Platone v. U.S. Dep’t of Lab., 548 F.3d 322, 326 (4th Cir. 2008) (holding that
   allegations were insufficient where they amount to “little more than alert-
   ing . . . management to an internal billing issue”); Beacom v. Oracle Am., Inc.,
   No. CIV. 13-985 DWF/FLN, 2015 WL 2339558, at *4–5 (D. Minn. Mar. 11,
   2015), aff’d, 825 F.3d 376 (8th Cir. 2016) (holding plaintiff failed to show
   protected activity under SOX where plaintiff merely complained that sales
   quota was unattainable). Other than asserting that he complained about four
   areas of Charter’s business, Seybold’s pleadings fail to show that he alerted

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   Charter of his belief that its actions were unlawful—not merely “improper”
   or subject to “opposition” from an employee, but actually unlawful. Because
   Seybold did not demonstrate that he engaged in protected activity, or that
   Charter believed Seybold was engaging in the same, his SOX claim fails as a
   matter of law.
          b. Failure to state a breach of contract claim
          Seybold next argues that the district court incorrectly dismissed his
   breach of contract claim for the unpaid commissions. The “contract” under-
   lying Seybold’s claim is the Commission Plan. Notably, the Commission Plan
   itself states that it is not a contract of any kind and emphasizes that the sales
   participant remains an at-will employee despite his involvement in the Com-
   mission Plan. Seybold asserts that under Texas law, an at-will employment
   relationship is still contractual in nature, and therefore, Charter was obligated
   to pay the agreed-upon commissions and likewise lacked the discretion to
   claw back certain advanced commissions. We disagree with Seybold’s char-
   acterization of the Commission Plan and affirm the district court’s finding
   that the breach of contract claim fails as a matter of law.
          Under Texas law, “[t]he essential elements of a breach of contract ac-
   tion are: (1) the existence of a valid contract; (2) performance or tendered
   performance by the plaintiff; (3) breach of the contract by the defendant; and
   (4) damages sustained by the plaintiff as a result of the breach.” Smith Int’l,
   Inc. v. Egle Grp., LLC, 490 F.3d 380, 387 (5th Cir. 2007) (alteration in origi-
   nal) (citation omitted). It follows that where there is no “valid contract,”
   there can be no breach of contract claim. See Binh Hoa Le v. Exeter Fin. Corp.,
   990 F.3d 410, 415 (5th Cir. 2021) (affirming that in absence of a valid agree-
   ment, breach of contract claim fails as a matter of law).
          Here, there is no valid contract. The Commission Plan’s explicit dis-
   claimer decides this issue for us: it states that “nothing in this Plan shall

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   constitute a contract of employment or contract of any other kind” and ex-
   plains that the sales participant “will remain at all times employed at the will
   of Charter.” The district court correctly noted that courts find such disclaim-
   ers binding and prevent similar commission plans from forming the basis of a
   breach of contract claim. See, e.g., Geras v. Int’l Bus. Machines Corp., 638 F.3d
   1311, 1317 (10th Cir. 2011) (finding no intention to enter enforceable contract
   based on disclaimer language); Jensen v. Int’l Bus. Machines Corp., 454 F.3d
   382, 388 (4th Cir. 2006) (finding that defendant, through clear disclaimer
   language, “manifested its clear intent to preclude the formation of a con-
   tract”); Oldham v. ORIX Fin. Servs., Inc., No. 3:05CV2361 M, 2007 WL
   530202, at *3 (N.D. Tex. Feb. 21, 2007) (analyzing similar disclaimer and
   finding that “the language of the Plan manifested an unambiguous intent to
   preclude formation of a contract”).
          Rather than addressing the disclaimer’s clear language head-on, Sey-
   bold diverts this Court’s attention to case law analyzing the contractual na-
   ture of at-will employment relationships. But the cases from this circuit that
   Seybold cites are inapposite because they do not discuss—or involve at all—
   disclaimers such as the one contained in the Commission Plan here. See
   Paniagua v. City of Galveston, 995 F.2d 1310, 1314 (5th Cir. 1993) (explicitly
   noting the lack of a disclaimer “to the effect that they do not create a contract
   or affect legal relations” and therefore not reaching this issue); Jourdan v.
   Schenker Int’l, Inc., 71 F. App’x 308, 312 (5th Cir. 2003) (addressing at-will
   employment and the effect of a sales-incentive plan with no disclaimer). Sey-
   bold cannot point to any case in which this Court ignored a clear disclaimer,
   like the one present here, to allow a breach of contract claim to proceed.
   Based on the explicit language of the Commission Plan’s disclaimer, no con-
   tract existed as a matter of law, and the district court therefore correctly dis-
   missed Seybold’s breach of contract claim for unpaid commissions.
          c. Denial of leave to file second amended complaint

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            Lastly, Seybold argues that the district court abused its discretion in
   denying his request to file a second amended complaint to cure the deficien-
   cies identified in his first amended complaint. Under Federal Rule of Civil
   Procedure 15(a), a court “should freely give leave [to amend] when justice to
   requires.” Fed. R. Civ. P. 15(a)(2). However, “leave to amend properly
   may be denied when the party seeking leave has repeatedly failed to cure de-
   ficiencies by amendments previously allowed and when amendment would
   be futile.” U.S. ex rel. Willard, 336 F.3d at 387.
            Here, the district court found that, although it had explicitly pointed
   out each discrete issue with the original complaint, Seybold failed to cure any
   of his pleading deficiencies and ultimately ignored the district court’s clear
   instructions. The district court believed that after the showing made in the
   first amended complaint, giving Seybold a second chance to amend would be
   futile. We agree and hold that the district court did not abuse its discretion in
   denying Seybold leave to amend his complaint a second time where such an
   amendment likely would not have cured the fatal problems in Seybold’s case.
   IV. Conclusion
            For the foregoing reasons, we AFFIRM the judgment of the district
   court.

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