Court Opinion

ID: 4115796
Source: CourtListenerOpinion
Date Created: 2017-01-13 21:01:07.530448+00
Date Added: 2024-06-11T07:45:47.205227
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 17a0033n.06

                                           No. 15-6397

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                       FILED
                                                                                 Jan 13, 2017
JOHN S. VERBLE,                                  )                           DEBORAH S. HUNT, Clerk
                                                 )
        Plaintiff-Appellant,                     )          ON APPEAL FROM THE
                                                 )          UNITED STATES DISTRICT
v.                                               )          COURT FOR THE EASTERN
                                                 )          DISTRICT OF TENNESSEE
MORGAN STANLEY SMITH BARNEY,                     )
LLC; MORGAN STANLEY & COMPANY,                   )
INC.,                                            )                   OPINION
                                                 )
        Defendants-Appellees.                    )
                                                 )

Before: BATCHELDER, MOORE, and COOK, Circuit Judges.

       KAREN NELSON MOORE, Circuit Judge. Plaintiff-Appellant John Verble filed a

lawsuit alleging that Defendant-Appellee Morgan Stanley Smith Barney fired him in retaliation

for reporting illegal activity to the FBI. The district court granted defendants’ motion to dismiss,

and Verble appealed.     For the reasons discussed below, we AFFIRM the district court’s

judgment.

                                       I. BACKGROUND

       John Verble worked as a financial advisor for Morgan Stanley Smith Barney, LLC from

November 2006 until he was fired in June 2013. R. 1 (Compl. at ¶¶ 9, 11, 21) (Page ID #3–4, 8).

It is undisputed that Defendant Morgan Stanley Smith Barney, LLC is a wholly owned

subsidiary of Defendant Morgan Stanley & Co., Inc.
No. 15-6397
Verble v. Morgan Stanley Smith Barney LLC et al.

       In his complaint, Verble alleged that he learned of illegal activity by Morgan Stanley

Smith Barney and its clients and that he served as a confidential informant to the FBI in its

investigation into Pilot Flying J. R. 1 (Compl. at ¶¶ 11, 20) (Page ID #4–8). Verble’s complaint

stated, and it is widely known, that former Pilot Flying J employees pleaded guilty to fraud-

related charges. R. 1 (Compl. at ¶¶ 20, 23) (Page ID #5–9). Verble’s complaint provided no

additional factual information about his cooperation with the FBI. Verble initially alleged that

he cooperated with the SEC in addition to the FBI. R. 1 (Compl. at ¶ 29) (Page ID #10).

However, Verble’s complaint provided no factual information about his cooperation with the

SEC. Later, in his appeal brief, he clarified that he “did not report directly to the SEC, although

the FBI reported [Verble’s] disclosures to the SEC.” Appellant Br. at 9. Verble also intimated

that he reported violations to other federal law-enforcement agencies and reported violations

internally to defendants. R. 1 (Compl. at ¶¶ 38, 47) (Page ID #13–14). Again, his complaint

provided no factual information. No subsequent pleadings provided additional information on

Verble’s possible cooperation with other federal law-enforcement agencies or internal reporting.

Verble alleged that “as a direct result of [his] involvement in assisting the FBI,” he “was

retaliated against, discriminated against and illegally discharged from his position in violation of

numerous federal statutes” as well as Tennessee law. R. 1. (Compl. at ¶¶ 22, 32, 51) (Page ID

#8, 10–11, 15).

       Defendants filed a motion to dismiss Verble’s Sarbanes-Oxley retaliation claim, False

Claims Act retaliation claim, Dodd-Frank retaliation claim, and Tennessee state-law claims.

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R. 10 (Mot. to Dismiss) (Page ID #44). The district court dismissed all three federal claims.

R. 34 (12/8/2015 Mem. Op. at 1) (Page ID #443); R. 35 (12/8/2015 Order at 1) (Page ID #470).

Having dismissed all of Verble’s federal claims, the district court “decline[d] to exercise

continuing supplemental jurisdiction over plaintiff’s state-law claims.” R. 34 (12/8/2015 Mem.

Op. at 27) (Page ID #469). Verble filed a timely Notice of Appeal. R. 36 (Notice of Appeal)

(Page ID #471). His appeal challenges the dismissal of his False Claims Act retaliation claim

and Dodd-Frank retaliation claim; he has clarified that he never brought a Sarbanes-Oxley

retaliation claim. See Appellant Br. at 3–4; Reply Br. at 2.

                  II. SARBANES-OXLEY ACT RETALIATION CLAIM

       First, we address Verble’s Sarbanes-Oxley retaliation claim (or rather, as it turns out, the

lack thereof). For most of this litigation, it was not clear whether Verble meant to bring a claim

under Sarbanes-Oxley. In his complaint, Verble cited statutory codifications of the Sarbanes-

Oxley Act but did not state whether he was bringing a Sabanes-Oxley retaliation claim. In

defendants’ Memorandum of Law in Support of Defendants’ Motion to Dismiss Plaintiff’s

Complaint, defendants noted that “Verble appears to assert a retaliation claim under Section 806

of the Sarbanes-Oxley Act” and argued that a Sarbanes-Oxley retaliation claim would be

procedurally barred by the statute of limitations and Verble’s failure to exhaust administrative

remedies. R. 11 (Mem. in Support of Mot. to Dismiss at 2, 7–8) (Page ID #48, 53–54). Verble

did not respond to this argument. R. 17 (Pl.’s Resp. to Mot. to Dismiss) (Page ID #82–97). The

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Verble v. Morgan Stanley Smith Barney LLC et al.

district court dismissed the apparent Sarbanes-Oxley retaliation claim. R. 34 (12/8/2015 Mem.

Op. at 6–8, 27) (Page ID #448–50, 469).

       Verble’s Opening Brief before this court did not clarify whether he meant to bring a

Sarbanes-Oxley retaliation claim and did not state whether he was challenging the district court’s

dismissal of that claim. Verble finally clarified in his Reply Brief that “Appellant [Verble] never

made any claim under the Sarbanes-Oxley Act. . . . The fact that certain disclosures are

‘[]required or protected’ under Sarbanes-Oxley does not mean that Appellant is relying on a

cause of action under Sarbanes-Oxley.” Reply Br. at 2 (emphasis in original). Accordingly,

there is no Sarbanes-Oxley retaliation claim before us, and we now know that there never was a

Sarbanes-Oxley retaliation claim before the district court. Because Verble never brought a

Sarbanes-Oxley retaliation claim, we do not need to rule on whether this claim was properly

dismissed.

       III. FALSE CLAIMS ACT AND DODD-FRANK RETALIATION CLAIMS

       We now turn to the two claims that are before us: the False Claims Act retaliation claim,

see 31 U.S.C. § 3730(h), and the Dodd-Frank retaliation claim, see 15 U.S.C. § 78u–6.1

A. Standard of Review

       We review the district court’s decision to grant a motion to dismiss de novo. See Total

Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 433 (6th Cir.

2008). “[W]e may affirm the district court’s dismissal of [p]laintiff[’s] claims on any grounds,

       1
       Dodd-Frank added the section codified at 15 U.S.C. § 78u–6, captioned “Securities
Whistleblower Incentives and Protection,” to the Securities Exchange Act.

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Verble v. Morgan Stanley Smith Barney LLC et al.

including those not relied on by the district court.” In re Omnicare, Inc. Sec. Litig., 769 F.3d
455, 469 (6th Cir. 2014) (internal quotation marks omitted) (second alteration in original).

        A complaint must include “a short and plain statement of the claim showing that the

pleader is entitled to relief,” FED. R. CIV. P. 8(a)(2), and is properly dismissed if it “fail[s] to state

a claim upon which relief can be granted,” FED. R. CIV. P. 12(b)(6). Although courts “do not

require heightened fact pleading of specifics,” we do require “enough facts to state a claim to

relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “[W]e

must accept non-conclusory allegations of fact in the complaint as true and determine if the

plaintiff has stated a plausible claim for relief.” Bright v. Gallia Cty., 753 F.3d 639, 652 (6th

Cir. 2014) (internal quotation marks omitted). Conclusory allegations are not entitled to the

assumption of truth. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Conclusory allegations or

legal conclusions masquerading as factual allegations will not suffice” to state a plausible claim

for relief. Bright, 753 F.3d at 652 (internal quotation marks omitted).

B. False Claims Act Retaliation Claim

        Because we agree with the district court that Verble did not adequately allege facts to

support his False Claims Act claim and that the court was not required to grant sua sponte Verble

leave to amend his complaint, we affirm the district court’s dismissal of this claim.

        Verble’s complaint stated that “[t]he criminal activities observed by Plaintiff involved . . .

fraud upon the government of the United States” and that “Plaintiff has been fired because he

assisted Federal authorities with regard to (1) fraud perpetrated upon the Government of the

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Verble v. Morgan Stanley Smith Barney LLC et al.

United States . . . .” R. 1 (Compl. ¶¶ 12, 53) (Page ID #4, 16). Defendants argued in their

motion to dismiss that these conclusory allegations did not provide sufficient facts to support

Verble’s False Claims Act retaliation claim. R. 11 (Mem. in Support of Mot. to Dismiss at 19–

20) (Page ID #65–66). In response to defendants’ argument, Verble’s counsel said only:

              The Defendants make great moment of the fact that Plaintiff failed to
       plead “facts plausibly showing that he engaged in protected activity: that he was
       taking action either to stop a specific fraudulent or false claim against the United
       States Government (“Government’) [sic] or in furtherance of a qui tam action or
       an FCA action brought by the Government.” Undersigned counsel represents to
       the Court that Defendants are in error on this point. Plaintiff will answer specific
       inquires [sic] from the Court on this subject under seal.

R. 17 (Resp. to Mot. to Dismiss at 4) (Page ID #85) (emphasis in original). Verble never alleged

additional facts to support this representation and never filed any pleadings or other papers under

seal or requested leave to file any pleadings or papers under seal. He also never filed an

amended complaint or requested leave to file an amended complaint. Determining that Verble’s

complaint did “not adequately allege[] any facts showing he engaged in protected activity in

connection with his FCA retaliation claim,” and that “it is not the Court’s role to inquire about

deficient pleadings and to invite plaintiff to cure the deficiencies,” the district court dismissed the

claim. R. 34 (12/8/2015 Mem. Op. at 25–26) (Page ID #467–68).

       In this appeal, Verble argues that his False Claims Act retaliation claim should not have

been dismissed because “it is Plaintiff’s position that in light of a ‘representation’ by counsel that

there are facts that could be provided under seal, the trial court abused his discretion in ordering

the complaint dismissed . . . rather than giving leave to file of [sic] an amended complaint under

seal.” Appellant Br. at 25.

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Verble v. Morgan Stanley Smith Barney LLC et al.

       As we have stated in prior cases, and as the district court noted in its order, “a district

court does not abuse its discretion in failing to grant a party leave to amend where such leave is

not sought.”    Total Benefits Planning Agency, 552 F.3d at 438 (quoting Sinay v. Lamson

& Sessions Co., 948 F.2d 1037, 1042 (6th Cir. 1991)); see also R. 34 (12/8/2015 Mem. Op. at

26) (Page ID #468) (explaining that the district court is not required to grant sua sponte a party

leave to amend and quoting Total Benefits Planning Agency). “Once [plaintiff] knew of the

thrust of defendants’ arguments for dismissal, it was perfectly free to respond to the motion to

dismiss by providing the district court with additional facts to make its complaint concrete and

plausible.” Total Benefits Planning Agency, 552 F.3d at 438 (internal quotation marks omitted)

(alteration in original). Accordingly, “[t]he argument that the district court should have rescued

Plaintiff[] by sua sponte offering leave to amend the complaint is simply misplaced.” Id.

       Verble’s counsel’s indication that he would answer the court’s inquiries was not

sufficient, as it is Verble’s responsibility, not the court’s, to initiate amendments. Verble “knew

the sufficiency of [his] complaint was at issue” because defendants’ motion to dismiss argued

that Verble had alleged insufficient facts to support a False Claims Act retaliation claim. Id.

Despite Verble’s knowledge that the sufficiency of his complaint was at issue, “nothing in

[plaintiff’s] opposition, or even [his] brief on appeal, has anything factual to underpin [his]

complaint.” Id. (internal quotation marks omitted) (first alteration in original).

       Therefore, because Verble knew that the sufficiency of his complaint was at issue and did

not seek to amend his complaint or otherwise allege facts to support his conclusory allegations,

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No. 15-6397
Verble v. Morgan Stanley Smith Barney LLC et al.

the district court did not abuse its discretion by failing to grant sua sponte Verble leave to amend

his complaint. Because Verble’s complaint made only conclusory allegations and failed to

“plead[] factual content that allows the court to draw the reasonable inference that the defendant

is liable for the misconduct alleged,” we affirm the district court’s dismissal of Verble’s False

Claims Act retaliation claim. Iqbal, 556 U.S. at 678.

C. Dodd-Frank Retaliation Claim

         We affirm the district court’s dismissal of Verble’s Dodd-Frank retaliation claim but on

“grounds . . . not relied on by the district court.” In re Omnicare, Inc. Sec. Litig., 769 F.3d at 469

(internal quotation marks omitted). The district court dismissed Verble’s Dodd-Frank retaliation

claim on the ground that “[b]ecause plaintiff did not provide information to the SEC before his

termination, he does not qualify as a whistleblower as defined in Dodd-Frank and has no

protection under [15 U.S.C.] § 78u-6(h)(1)(A).” R. 34 (12/8/2015 Mem. Op. at 21) (Page ID

#463).     The question that the district court addressed, whether Verble qualifies as a

whistleblower for purposes of Dodd-Frank’s anti-retaliation provision, has divided the courts.

See, e.g., Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 146, 155 (2d Cir. 2015) (holding that

reporting violations internally is sufficient to qualify an individual as a whistleblower for

purposes of Dodd-Frank’s anti-retaliation provision); Asadi v. G.E. Energy (USA), L.L.C.,

720 F.3d 620, 629 (5th Cir. 2013) (holding that only individuals who report violations to the

SEC qualify as whistleblowers for purposes of Dodd-Frank’s anti-retaliation provision). The

answer to this question depends on whether the statutory text is sufficiently ambiguous to

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Verble v. Morgan Stanley Smith Barney LLC et al.

warrant Chevron deference to the SEC, which issued a rule interpreting Dodd-Frank’s anti-

retaliation provision to protect individuals who report violations internally or to other law-

enforcement agencies as well as to the SEC. See Berman, 801 F.3d at 146; Asadi, 720 F.3d at

629; R. 34 (12/8/2015 Mem. Op. at 21) (Page ID #463). Because Verble’s claim suffers from a

more fundamental defect, we do not reach this question.

       Before the district court, defendants argued both that Verble did not qualify as a

whistleblower for purposes of Dodd-Frank’s anti-retaliation provision and that Verble’s

complaint failed to meet the plausibility standard set forth in Twombly and Iqbal. R. 11 (Mem.

in Support of Mot. to Dismiss at 7) (Page ID #53). We hold that Verble’s complaint fails to

allege sufficient facts as to his Dodd-Frank retaliation claim to state a plausible claim for relief.

See Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 557; Bright, 753 F.3d at 652. We uphold the

district court’s dismissal of Verble’s Dodd-Frank retaliation claim on that basis.

       To explain our holding that Verble’s complaint fails to allege sufficient facts to support

his Dodd-Frank retaliation claim, we start by summarizing the allegations in his complaint.

Verble’s complaint alleges that he was “retaliate[ed] against . . . for his legitimate cooperation

with Federal law enforcement authorities, including by way of example, the FBI and SEC.”

R. 1. (Compl. at ¶ 38) (Page ID #13). The complaint provides no factual information about his

cooperation with the SEC or FBI. On appeal, Verble explains that, in fact, he “did not report

directly to the SEC, although the FBI reported [Verble’s] disclosures to the SEC.” Appellant Br.

at 9. Verble never rescinded the argument that he worked directly with the FBI, but he also did

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Verble v. Morgan Stanley Smith Barney LLC et al.

not provide any factual information about his work with the FBI. He says that he “uncovered

insider trading activities at MSSB,” for example, “insider trading among members of MSSB’s

Knoxville office and their clients with regard to Miller Energy stock,” but provided no details.

R. 1 (Compl. at ¶¶ 28, 30) (Page ID #10). The only actual details he provided were in the form

of a list of Pilot Flying J employees who “pled guilty to fraud-related charges involving a fuel

rebate scheme.” R. 1 (Compl. at ¶ 20) (Page ID #5–8). But the fact that these individuals

pleaded guilty is publicly available, and he did not explain how these guilty pleas related to his

Dodd-Frank claim against defendants here. Finally, Verble mentioned in his complaint once

calling the Knoxville FBI office after his Morgan Stanley branch manager threatened him, and

twice being in a black sedan “accompanied by what appeared to be Federal agents”; after a

colleague spotted him in the sedan, Verble asserted that he was working with the staff of a

Congress member. R. 1 (Compl. at ¶¶ 13, 19) (Page ID #4–5).

       “A claim has facial plausibility when the plaintiff pleads factual content that allows the

court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

Iqbal, 556 U.S. at 678. “Although for the purposes of a motion to dismiss we must take all of the

factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion

couched as a factual allegation.” Id. (quoting Twombly, 556 U.S. at 555). Moreover, “where the

well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,

the complaint has alleged—but it has not show[n]—that the pleader is entitled to relief.” Id. at

679 (internal quotation marks omitted) (alteration in original).

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Verble v. Morgan Stanley Smith Barney LLC et al.

       Most of Verble’s allegations are “[c]onclusory allegations or legal conclusions

masquerading as factual allegations,” rather than “non-conclusory allegations of fact.” Bright,
753 F.3d at 652 (internal citations omitted). Under these circumstances, these allegations are not

entitled to the assumption of truth. Iqbal, 556 U.S. at 678; Bright, 753 F.3d at 652. As for the

few specific allegations in Verble’s complaint, none of them provide enough factual material to

state a plausible claim. For example, Verble states that he once called the FBI from a payphone

and was once spotted getting out of a sedan with people who looked like, but may or may not

have been, FBI agents. His complaint says nothing that differentiates his telephone call from the

sort of tip or report that anyone could make to the FBI—he does not say whether he was given

any instructions, whether the FBI took any action in response to his call, or even to whom he

spoke. As for the sedan incident, he does not even specify whether the people in the sedan

actually were FBI agents. These allegations are much too vague to support the claim that he was

fired in retaliation for working with the FBI. Vague assertions of contact with possible FBI

agents cannot “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

Verble also recites an account of the guilty pleas of Pilot Flying J employees, which were widely

publicized and do not mention the defendants in this case. Simply repeating what was in the

media “pleads facts that are merely consistent with a defendant’s liability,” and “stops short of

the line between possibility and plausibility of entitlement to relief.” Iqbal, 556 U.S. at 678

(internal quotation marks omitted).     The allegation that Verble uncovered insider trading

regarding Miller Energy Stock is similarly devoid of any factual material that would allow a

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Verble v. Morgan Stanley Smith Barney LLC et al.

court to assess the plausibility of his claim. Because this allegation is not accompanied by any

facts, it “tenders naked assertion[s] devoid of further factual enhancement,” which does not

“suffice.” Id. (internal quotation marks omitted) (alteration in original).

       Because Verble’s complaint is entirely devoid of any factual material describing his work

with any law-enforcement agency, including the FBI or SEC, it does not allege “enough facts to

state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. Therefore, on this

basis, we affirm the district court’s dismissal of Verble’s Dodd-Frank retaliation claim. Verble’s

complaint fails to meet the threshold requirement of providing enough facts to state a plausible

claim for relief. We do not reach the question of how to interpret Dodd-Frank’s definition of

whistleblower for purposes of the anti-retaliation provision.

                                       IV. CONCLUSION

       For the foregoing reasons, we AFFIRM the district court’s judgment.

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