Court Opinion

ID: 6499666
Source: CourtListenerOpinion
Date Created: 2022-07-13 17:00:20.882661+00
Date Added: 2024-06-11T09:16:17.567787
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 21-2019

                       EARL DONALD BAKER,

                      Plaintiff, Appellee,

                               v.

        SMITH & WESSON, INC., f/k/a Smith & Wesson Corp.,

                      Defendant, Appellant.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF MASSACHUSETTS

         [Hon. Mark G. Mastroianni, U.S. District Judge]

                             Before

                      Barron, Chief Judge,
                Lynch and Gelpí, Circuit Judges.

     Connie N. Bertram, with whom Jeffrey E. Poindexter, Bulkley,
Richardson & Gelinas, LLP, and Bertram LLP were on brief, for
appellant.
     John Y. Lee, with whom Benjamin Rudolf, Murphy & Rudolf, LLP,
and Lee & Breen, LLC were on brief, for appellee.

                          July 13, 2022
             LYNCH, Circuit Judge.      This interlocutory appeal from

the denial of summary judgment turns on an issue of law: the proper

interpretation of the whistleblower protection provision, Section

1514A, of the Sarbanes-Oxley Act.            See 18 U.S.C. § 1514A.      That

provision limits protection under Sarbanes-Oxley to whistleblower

claims about "a violation of section 1341, 1343, 1344, or 1348,

any rule or regulation of the Securities and Exchange Commission,

or    any   provision   of   Federal   law    relating   to   fraud   against

shareholders."     Id. at § 1514A(a)(1).

             Plaintiff Earl Donald Baker is a former employee of Smith

& Wesson ("S&W") who sued S&W asserting a claim under Section 1514A

for    whistleblower     retaliation.         Baker   concedes    that    his

whistleblowing did not involve a violation of any enumerated

statute or "any provision of Federal law relating to fraud against

shareholders."1     He also concedes that his claim of purported

       1  Baker argues for the first time in supplemental briefing
that his whistleblowing involved a "provision of Federal law
relating to fraud against shareholders" and attempts to repudiate
his previous concession to the district court. In his opposition
to S&W's motion for summary judgment, Baker had conceded: "Baker
has not premised his [Sarbanes-Oxley] claim on alleged shareholder
fraud. Rather, his complaint makes clear that he believed, and
reported, that S&W's conduct violated federal securities laws and
regulations and company rules and policies."
          We reject Baker's reversal of his concession. "[A] party
cannot concede an issue in the district court and later, on appeal,
attempt to repudiate that concession and resurrect the issue. To
hold otherwise would be to allow a litigant to lead a trial court
down a primrose path and later, on appeal, profit from the invited
error." United States v. Miranda-Carmona, 999 F.3d 762, 767 (1st
Cir. 2021) (alteration in original) (quoting United States v.

                                   - 2 -
wrongdoing was not based on a Securities and Exchange ("SEC") rule

or regulation.    Rather, his argument is that the phrase "any rule

or regulation of the Securities and Exchange Commission" also

refers to statutes within the enforcement power of the SEC.

Baker's particular whistleblower claim is based on an alleged

violation   of   15   U.S.C.   § 78m(b)(2),   (5),   a   Foreign   Corrupt

Practices Act ("FCPA") provision.

            After the completion of discovery, S&W moved for summary

judgment and argued, inter alia, that Baker's actions did not fall

within any of the definitions of protected activity under Section

1514A.   The district court interpreted the statute differently and

denied S&W's motion for summary judgment as to the whistleblower

retaliation claim.

            On interlocutory appeal, we reverse the district court's

denial of summary judgment as to the Section 1514A claim and remand

with instructions to the district court to enter summary judgment

in favor of S&W.

                                    I.

            Both parties agree that a complete recitation of the

underlying facts is not necessary to address the question of law

Rivera-Ruperto, 846 F.3d 417, 431 n.10 (1st Cir. 2017)); see also
McPhail v. Mun. of Culebra, 598 F.2d 603, 607 (1st Cir. 1979) ("A
party may not 'sandbag' his case by presenting one theory to the
trial court and then arguing for another on appeal.").

                                  - 3 -
at issue in this appeal.     We briefly summarize the basic facts and

procedural history.

           In March 2013, Baker was hired as a Cell Coordinator for

the   Cutter   Department    at    the   S&W   manufacturing   facility     in

Springfield, Massachusetts.        For reasons disputed by the parties,

S&W   placed   Baker   on   administrative      leave   in   July   2014   and

terminated his employment in September 2014.

           On June 1, 2018, Baker filed a complaint against S&W

asserting that S&W retaliated against him for reporting illegal

conduct by S&W employees.         He asserts, inter alia, a claim under

Section 1514A of Sarbanes-Oxley.         Baker alleges that the purported

misconduct that he reported to S&W's human resources and general

counsel was that management employees received large bribes and

provided improper preferential treatment to a vendor.

           S&W moved for summary judgment on the Section 1514A

claim, arguing that Baker could not satisfy his burden of showing

that he engaged in protected activity under the statute.                    In

response, Baker argued that he engaged in protected activity

because he reported conduct that he reasonably believed violated

15 U.S.C. § 78m(b)(5), an FCPA provision addressing accounting

practices and internal controls.2

      2   Section   78m(b)(2)  and  (5)   are   FCPA  provisions
incorporated into the United States Code as Section 13(b) of the
Securities Exchange Act of 1934. Section 78m(b) provides:

                                    - 4 -
(2) Every issuer which has a class of securities
registered pursuant to section 78l of this title
and every issuer which is required to file reports
pursuant to section 78o(d) of this title shall--

    (A) 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;

    (B) devise and maintain a system of internal
    accounting controls sufficient to provide
    reasonable assurances that--

         (i) transactions    are   executed   in
         accordance with management's general or
         specific authorization;

         (ii) transactions   are    recorded   as
         necessary (I) to permit preparation of
         financial statements in conformity with
         generally accepted accounting principles
         or any other criteria applicable to such
         statements,   and   (II)   to   maintain
         accountability for assets;

         (iii) access to assets is permitted only
         in accordance with management's general
         or specific authorization; and

         (iv) the recorded accountability for
         assets is compared with the existing
         assets at reasonable intervals and
         appropriate action is taken with respect
         to any differences; and

    (C) notwithstanding any other provision of
    law, pay the allocable share of such issuer of
    a reasonable annual accounting support fee or
    fees, determined in accordance with section
    7219 of this title.

. . .

(5) No person shall knowingly circumvent or
knowingly fail to implement a system of internal

                         - 5 -
            On September 10, 2021, the district court denied S&W's

motion for summary judgment as to the whistleblower retaliation

claim.      The court found that "[a] reasonable jury, crediting

[Baker]'s    testimony,    could    conclude    that   [Baker]    'reasonably

believed' that the behavior he reported violated securities rules

concerning accounting practices and internal controls" (emphasis

added).      The district court thus misstated the "any rule or

regulation of the Securities and Exchange Commission" clause in

the statute.

            S&W subsequently moved for the court to amend its summary

judgment order to include a certification for interlocutory appeal

under 28 U.S.C. § 1292(b) and a stay pending appeal.              On November

24, 2021, the district court granted the motion and certified the

following question:       "Does 15 U.S.C. § 78m(b)(2), (5) constitute

a 'rule or regulation of the Securities and Exchange Commission'

for the purpose of Section 806 whistleblowing protection under

[Sarbanes-Oxley]?"     On December 27, 2021, this Court granted S&W's

petition for permission to appeal.

            This Court heard oral argument on June 9, 2022.                   S&W

argued that Baker's whistleblower claim fails for two independent

reasons.      First,   Section     78m(b)(2),   (5)    is   not   a   "rule   or

regulation of the Securities and Exchange Commission."                 Second,

     accounting controls or knowingly falsify any book,
     record, or account described in paragraph (2).

                                    - 6 -
the phrase "relating to fraud against shareholders" modifies all

three preceding clauses, and Section 78m(b)(2), (5) -- whether a

"rule or regulation of the Securities and Exchange Commission" --

is not "relat[ed] to fraud against shareholders."

              The next day, we entered an order directing the parties

to file supplemental briefing on the following issues:

              (a) the proper interpretation of "relating to
              fraud against shareholders" in 18 U.S.C.
              § 1514A(a)(1), and which of the three phrases
              it modifies under § 1514A(a)(1): "a violation
              of section 1341, 1343, 1344, or 1348, any rule
              or regulation of the Securities and Exchange
              Commission, or any provision of Federal law;"

              (b) the relevance of      question   (a)   to   the
              issues before us; and

              (c) whether it is necessary to             resolve
              question (a) to resolve this case.3

The parties timely filed supplemental briefs pursuant to our order.

              In supplemental briefing, S&W argues that the phrase

"relating to fraud against shareholders" modifies each of the three

parts    of    the   definition   of   protected   activity    in   Section

1514A(a)(1).      S&W also argues that it is not necessary to resolve

     3    In an interlocutory appeal under Section 1292(b),
"appellate jurisdiction applies to the order certified to the court
of appeals, and is not tied to the particular question formulated
by the district court." Yamaha Motor Corp., U.S.A. v. Calhoun,
516 U.S. 199, 205 (1996); see 28 U.S.C. § 1292(b). The appellate
court may address issues other than those certified by the district
court which are fairly included within the certified order. See
Yamaha Motor Corp., 516 U.S. at 205; Consumer Fin. Prot. Bureau v.
All Am. Check Cashing, Inc., 33 F.4th 218, 221 n.2 (5th Cir. 2022)
(Jones, J., concurring).

                                   - 7 -
this   issue    because    the    original      certified    question       raises   a

dispositive legal issue.

           Baker     argues       that     "relating        to     fraud     against

shareholders"      only    modifies       the     last      clause     in    Section

1514A(a)(1): "any provision of Federal law."

                                         II.

           On appeal, we review de novo questions of law, including

questions of statutory interpretation.              See Gen. Motors Corp. v.

Darling's, 444 F.3d 98, 107 (1st Cir. 2006); see also Simon v.

G.D. Searle & Co., 816 F.2d 397, 400 (8th Cir. 1987) ("[W]e review

de novo the questions of law certified by the district court [under

Section 1292(b)].").

           To make out a prima facie case under Section 1514A, a

plaintiff must allege the existence of facts and evidence showing:

           (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.

Day v. Staples, Inc., 555 F.3d 42, 53 (1st Cir. 2009) (alteration

in original) (quoting 29 C.F.R. § 1980.104(b)(1)).

           On    appeal,    the    parties      dispute     only     whether   Baker

satisfied his burden of showing the first requirement, that he

                                      - 8 -
"engaged in a protected activity or conduct."     Id.   Section 1514A

provides whistleblower protection to:

            [A]ny 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 section 1341, 1343, 1344, or
            1348, any rule or regulation of the Securities
            and Exchange Commission, or any provision of
            Federal   law   relating   to   fraud   against
            shareholders,    when   the   information    or
            assistance is provided to or the investigation
            is   conducted   by   . . .   a   person   with
            supervisory       authority       over      the
            employee . . . .

18 U.S.C. § 1514A(a) (flush language).     To satisfy the "protected

activity" requirement, an employee must show that he had both a

subjective belief and an objectively reasonable belief that the

conduct that he reported constituted a violation of one of the

provisions listed in Section 1514A(a)(1).    See Day, 555 F.3d at 55

("The employee must show that his communications to the employer

specifically related to one of the laws listed in             [Section]

1514A.").   "The employee is not required to show that there was an

actual violation of the provision involved."     Id.

            Baker argues that he has satisfied his burden of showing

the "protected activity" requirement because he reported conduct

that he reasonably believed violated Section 78m(b)(2), (5).4       He

     4    Baker did not identify this statute when he filed the
complaint against S&W asserting his whistleblower retaliation
claim under Section 1514A. Baker identified the statute for the

                                - 9 -
concedes that Section 78m(b)(2), (5) is not one of the fraud

statutes listed in Section 1514A(a)(1) -- Sections 1341 (mail

fraud), 1343 (wire fraud), 1344 (bank fraud), or 1348 (securities

fraud) -- and is not a "provision of Federal law relating to fraud

against shareholders."   18 U.S.C. § 1514A(a)(1).   He argues only

that the FCPA, including Section 78m(b)(2), (5), is a "rule or

regulation of the Securities and Exchange Commission."   Id.

          We disagree. The plain text of Section 1514A(a)(1) makes

clear that the FCPA is not a "rule or regulation of the Securities

and Exchange Commission."

          We start with the text of Section 1514A(a)(1).       See

Oklahoma v. Castro-Huerta, No. 21-429, 2022 WL 2334307, at *8 (U.S.

2022) ("As this Court has repeatedly stated, the text of a law

controls over purported legislative intentions unmoored from any

statutory text."); Merit Mgmt. Grp., LP v. FTI Consulting, Inc.,

138 S. Ct. 883, 893 (2018).   We "strive to interpret statutes so

that each word in the statutory text has meaning," Woo v. Spackman,

988 F.3d 47, 51 (1st Cir. 2021), and interpret a statute's text in

accordance with its ordinary, contemporary, and common meaning,

see Sw. Airlines Co. v. Saxon, No. 21-309, slip op. at 3 (U.S.

2022); Penobscot Nation v. Frey, 3 F.4th 484, 491 & n.5 (1st Cir.

first time in his opposition to S&W's motion for summary judgment.
We assume arguendo that Baker reasonably believed that the conduct
he reported violated Section 78m(b)(2), (5).

                              - 10 -
2021) (en banc).      Further, we presume that "Congress generally

acts intentionally when it uses particular language in one section

of a statute but omits it in another."      Dep't of Homeland Sec. v.

MacLean, 574 U.S. 383, 391 (2015).       "When the text is unambiguous

and the statutory scheme is coherent and consistent, we do not

look to legislative history or Congressional intent."       Penobscot

Nation, 3 F.4th at 491.

          Based on the text of Section 1514A(a)(1), "any rule or

regulation of the Securities and Exchange Commission" does not

include federal statutes, such as the FCPA.      As the Ninth Circuit

explained in Wadler v. Bio-Rad Laboratories, Inc., "Congress uses

the phrase 'any rule or regulation of the [SEC]' in the same list

in which it uses 'any provision of Federal law relating to fraud

against shareholders,' which strongly suggests that there is a

difference between the meaning of 'rule or regulation' and 'law.'"

916 F.3d 1176, 1186 (9th Cir. 2019) (alteration in original)

(citation omitted).    Baker's interpretation of the phrase "rule or

regulation" "violates our usual rule against 'ascribing to one

word a meaning so broad' that it assumes the same meaning as

another statutory term."    Ysleta Del Sur Pueblo v. Texas, 142 S.

Ct. 1929, 1939 (2022) (quoting Gustafson v. Alloyd Co., 513 U.S.

561, 575 (1995)).     In the context of other federal statutes, the

Supreme Court has held that "'federal law' obviously means federal

statutes" and not case law or agency rules and regulations.     Cuomo

                                - 11 -
v. Clearing House Ass'n, 557 U.S. 519, 532 n.4 (2009).                      Here,

"[t]he     most    obvious     explanation    is   that    'law'   encompasses

statutes, like the FCPA, whereas 'rule or regulation' does not."

Wadler, 916 F.3d at 1186.

            Further,     the    inclusion     of   the    qualifier   "of    the

Securities and Exchange Commission" in the statute makes clear

that the phrase "any rule or regulation" does not include federal

statutes because the SEC does not have the authority to enact

statutes.    18 U.S.C. § 1514A(a)(1) (emphasis added).             The Supreme

Court has consistently held that "[t]he use of the word 'of'

denotes ownership."          Bd. of Trs. of Leland Stanford Junior Univ.

v. Roche Molecular Sys., Inc., 563 U.S. 776, 788 (2011) (alteration

in original) (quoting Poe v. Seaborn, 282 U.S. 101, 109 (1930))

(listing cases). This definition also follows the ordinary meaning

of the word "of."         See Of, OED Online, www.oed.com/view/Entry/

130549 (last visited June 29, 2022) (defining "of" as "[o]f origin

or source.        Indicating the thing, place, or person from which or

whom something originates, comes, or is acquired or sought"); Of,

Merriam-Webster,         https://www.merriam-webster.com/dictionary/of

(last visited June 29, 2022) (explaining that "of" can be "used as

a function word to indicate origin or derivation").

            The text of the statute does not support Baker's argument

that "of" should be defined here as "relating to."                     Baker's

strained    reading     contravenes    the    ordinary,    contemporary,     and

                                     - 12 -
common meaning of the word "of" read in the context of the

surrounding text.      See Sw. Airlines Co., slip op. at 3.     In

addition, Congress's use of the words "relating to" in the very

next clause ("any provision of Federal law relating to fraud

against shareholders," 18 U.S.C. § 1514A(a)(1) (emphasis added))

demonstrates that Congress did not intend for the word "of" to

mean "relating to."    See Russello v. United States, 464 U.S. 16,

23 (1983) ("[W]here Congress includes particular language in one

section of a statute but omits it in another section of the same

Act, it is generally presumed that Congress acts intentionally and

purposely in the disparate inclusion or exclusion." (alteration in

original) (quoting United States v. Wong Kim Bo, 472 F.2d 720, 722

(5th Cir. 1972))).

          The statutory structure also reinforces our reading of

Section 1514A(a)(1).     See Merit Mgmt. Grp., 138 S. Ct. at 894.

The first clause in Section 1514A(a)(1)'s list enumerates four

federal statutes explicitly named by Congress: Sections 1341,

1343, 1344, and 1348.      Congress specifically did not cite to

Section 78m(b)(2), (5) in this first clause.    See Russello, 464

U.S. at 23.   Further, Baker's reading of the statute would render

the third clause in Section 1514A(a)(1)'s list superfluous.     If

Baker were correct that "any rule or regulation of the Securities

and Exchange Commission" includes federal statutes, any federal

law "relating to" shareholder fraud would necessarily be a "rule

                               - 13 -
or regulation" relating to the SEC, which oversees enforcement of

laws relating to shareholder fraud.      Thus, under Baker's reading

of Section 1514A(a)(1), the third clause -- "any provision of

Federal law relating to fraud against shareholders" -- would be

entirely subsumed into the second clause.     Congress certainly did

not intend for such a result.    See City of Chicago v. Fulton, 141

S. Ct. 585, 591 (2021) ("The canon against surplusage is strongest

when an interpretation would render superfluous another part of

the same statutory scheme." (quoting Yates v. United States, 574

U.S. 528, 543 (2015))).

          Where "the statutory language is unambiguous and the

statutory scheme is coherent and consistent, . . . our inquiry

must cease."   Penobscot Nation, 3 F.4th at 490 (cleaned up).     We

therefore reject Baker's arguments as to legislative history.    See

Castro-Huerta, 2022 WL 2334307, at *8.    Because Section 78m(b)(2),

(5) is not a "rule or regulation of the Securities and Exchange

Commission," Baker's conduct was not "protected activity" under

Section 1514A, and he cannot satisfy his burden of bringing a claim

for whistleblower retaliation under Section 1514A.     Day, 555 F.3d

at 53.5

     5    Because we hold that Section 78m(b)(2), (5) is not a
"rule or regulation of the Securities and Exchange Commission," we
do not address the separate issue of which of the three clauses
the phrase "relating to fraud against shareholders" modifies under
Section 1514A(a)(1).

                                - 14 -
                             III.

         Reversed and remanded with instructions to enter summary

judgment in favor of S&W.

                            - 15 -