In Villanueva v. United States Department of Labor, No. 12-60122, 2014 WL 550817 (5th Cir. Feb. 12, 2014), the Fifth Circuit Court of Appeals held that the petitioner had not engaged in protected activity under Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”) because he “blew the whistle” on alleged violations of Colombiantax law, not one of the six categories of U.S. law enumerated in the statute.  This blog post summarizes the Court’s holding and analyzes the implications for employers.

William Villanueva is a Colombian national who was formerly employed in Colombia by Saybolt de Colombia Limitada (“Saybolt Colombia”), an indirect affiliate of Core Laboratories N.V. (“Core Labs”).  Core Labs is a Netherlands limited liability company whose stock is publicly traded in the United States and, therefore, is covered under Section 806.  Villanueva allegedly raised concerns to several employees at Core Labs and Saybolt Colombia that Core Labs was orchestrating a transfer-pricing scheme and that, as part of that scheme, Saybolt Colombia was able to underreport its taxable revenue to Colombian authorities.  Following these complaints, Villanueva was passed over for a pay raise and ultimately terminated.

Villanueva subsequently filed a complaint with the Occupational Safety and Health Administration (“OSHA”), claiming that Saybolt Colombia and Core Labs retaliated against him in violation of Section 806 for reporting this alleged plot to circumvent Colombian tax law.  OSHA, an Administrative Law Judge, and the Administrative Review Board (“ARB”) all dismissed Villanueva’s complaint.  Specifically, the ARB held that Section 806 did not apply extraterritorially and that the facts of the case required such application.  (For more on the ARB’s decision, see our prior newsletter SOX Whistleblower Provision Does Not Apply to Employee Working Overseas, Says the Department of Labor.)  Although the Fifth Circuit affirmed the ARB’s dismissal, it did so for the reasons below.

Holding 

In reaching its decision, the Fifth Circuit emphasized that Section 806 only prohibits retaliation when the employee reports conduct that he or she reasonably believes violated one of six enumerated categories of U.S. law.  These categories cover U.S. federal mail-, wire-, bank-, and securities-fraud statutes, all rules and regulations of the Securities Exchange Commission, and any other federal law related to fraud against shareholders.  As noted above, the Court concluded that the “focus” of Villanueva’s complaints concerned violations of Colombian tax law.  That Villanueva had noted in one of his complaints that the alleged fraud was perpetrated at the express direction of executives in Houston through the use of mail, email, and telephone was, according to the Court, “insufficient to demonstrate that he had a reasonable belief that there was a violation of U.S. mail- and wire-fraud statutes.”  And, because Villanueva failed to show that he had engaged in protected activity, the Fifth Circuit found it “unnecessary” to consider whether Section 806 applies extraterritorially.

Takeaway

The Fifth Circuit’s decision is a positive development for employers in that it suggests that, notwithstanding certain decisions by the current ARB dramatically expanding the scope of protected activity under SOX, courts may continue to apply a more narrow focus, consistent with the statute’s purpose.  Moreover, although the Fifth Circuit did not address whether Section 806 applies extraterritorially, employers should note that a number of other federal courts and the ARB have held unequivocally that the statute does not have such application.  Despite these favorable trends, multinational employers still should prepare for the possibility that a different mix of domestic and foreign conduct might form the basis for a SOX claim that is essentially “domestic” in nature, notwithstanding the fact that certain aspects of the claim arose abroad.