     Case: 17-50927     Document: 00514837986   Page: 1   Date Filed: 02/15/2019




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT

                                                                United States Court of Appeals

                                 No. 17-50927
                                                                         Fifth Circuit

                                                                       FILED
                                                                February 15, 2019

KEVIN WALLACE,                                                    Lyle W. Cayce
                                                                       Clerk
             Plaintiff - Appellant

v.

ANDEAVOR CORPORATION,

             Defendant - Appellee




                Appeal from the United States District Court
                      for theWestern District of Texas


Before JONES, CLEMENT, and SOUTHWICK, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
      This suit concerns the federal Sarbanes-Oxley Act, which protects those
who blow the whistle on their employer’s failure to comply with Securities and
Exchange Commission reporting requirements. The district court found that
the employer’s decision to fire the plaintiff was not prohibited retaliation and
that the plaintiff did not have an objectively reasonable belief that a violation
of reporting requirements had occurred. We AFFIRM.


                      FACTS AND PROCEDURAL HISTORY
      Plaintiff Kevin Wallace worked for Tesoro Corporation from June 2004
until his termination in March 2010. In 2009 and 2010, Wallace was a Vice
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President of Pricing and Commercial Analysis. Wallace reported to Claude
Moreau, who reported to Everett Lewis. At some point in late 2009 or early
2010, Lewis tasked Wallace with investigating financial performance in
various industry segments.          Through the investigation, Wallace came to
believe that Tesoro misunderstood the comparative profitability of certain
regions. Wallace also determined that Tesoro improperly booked taxes as
revenues in certain internal reporting channels. 1
       On February 8, 2010, Wallace sent an email to Moreau and Tracy
Jackson, Tesoro’s Vice President of Internal Audits, explaining that Pacific
Northwest intracompany profit calculations were erroneous in part due to the
accounting for taxes. Wallace wrote that “external retail could be ok because
it is treated differently in the intracompany process.” After sending that email,
Wallace met with Jackson on either February 8 or 9. According to Wallace,
Jackson was concerned that a footnote in Tesoro’s SEC disclosures might have
been incorrect.
       On February 9, Wallace sent another email discussing Tesoro’s practice
of booking taxes as revenues and stated that he did not think “there is any
chance that at the corporate level this is not properly accounted for.”
Inferences from Wallace’s testimony could be drawn that after the February 9
email he changed his mind, became concerned that Tesoro did not properly
account for sales taxes in Tesoro’s SEC disclosures, and spoke to Moreau about
the issue.




       1We were notified in the appellee’s briefing that in 2017, Tesoro changed its name to
Andeavor Corporation. Appellant moved in November 2018 to substitute Marathon
Petroleum Corporation as the appellee, as Marathon allegedly had acquired all the shares of
Andeavor. We agree to substitute Andeavor as the appellee in the caption of this case but
see no basis to make Marathon the party. We will, nonetheless, refer to the appellee in the
opinion as Tesoro, as it was the name of the party at the time of these events.
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       Wallace was also a sub-certifier of Tesoro’s financial statements. In early
2010, Wallace certified that he knew of no reason why the 2009 Form 10-K
could not be certified. The filing expressly included the following:
              Federal excise and state motor fuel taxes, which are remitted
       to governmental agencies through our refining segment and
       collected from customers in our retail segment, are included in
       both “Revenues” and “Costs of sales and operating expenses.”
       These taxes, primarily related to sales of gasoline and diesel fuel,
       totaled $283 million, $278 million and $240 million in 2009, 2008
       and 2007, respectively.
Tesoro also disclosed in its 10-K that “[f]ederal and state motor fuel taxes on
sales by our retail segment are included in both ‘Revenues’ and ‘Costs of sales
and operating expenses.’” Jackson testified that the disclosures included both
excise and sales taxes. On March 12, 2010, the day of Wallace’s termination,
Wallace certified that he was unaware of any “business or financial transaction
that may not have been properly authorized, negotiated, or recorded” for 2009.
       While Wallace was investigating internal comparative profitability and
accounting for taxes, the Tesoro human resources department began
investigating Wallace. It found a pattern of unacceptable behavior, including
favoritism and fostering a hostile work environment.          Tesoro terminated
Wallace and asserts it was for his poor performance. Wallace claims he was
terminated in retaliation for reporting Tesoro’s practice of booking sales taxes
as revenues, which he claims was not properly disclosed in Tesoro’s public
filings.
       Wallace brings his claim under the anti-retaliation provision of the
Sarbanes-Oxley Act (“SOX”). 18 U.S.C. § 1514A(a). He claims he personally
told Moreau that Tesoro “puffed” revenue figures in SEC filings. Tesoro moved
for summary judgment. Wallace responded with briefing and a declaration
from Douglas Rule. Tesoro moved to strike the declaration. The magistrate
judge struck only those portions that it determined were expert testimony, and
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the district court adopted those recommendations. The magistrate judge also
recommended that summary judgment be granted to Tesoro. The district court
did so. Wallace appeals, claiming error in granting summary judgment and in
striking portions of Rule’s declaration.


                                 DISCUSSION
      We review the grant of summary judgment de novo. Morris v. Powell,
449 F.3d 682, 684 (5th Cir. 2006). All inferences “must be viewed in the light
most favorable to the nonmoving party.” Bolton v. City of Dallas, 472 F.3d 261,
263 (5th Cir. 2006). A movant is entitled to summary judgment if it “shows
that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).
      Wallace’s retaliation claim is brought under the whistleblower
protections of SOX. Registered companies are prohibited from
      discharg[ing] . . . an employee . . . because of any lawful act done
      by the employee to provide information . . . regarding any conduct
      which the employee reasonably believes constitutes a violation of
      . . . any rule or regulation of the Securities and Exchange
      Commission . . . when the information . . . is provided to . . . a
      person with supervisory authority over the employee.
18 U.S.C. § 1514A(a). A retaliation claim under that provision requires an
employee prove “by a preponderance of the evidence, that (1) he engaged in
protected whistleblowing activity, (2) the employer knew that he engaged in
the protected activity, (3) he suffered an ‘adverse action,’ and (4) the protected
activity was a ‘contributing factor’ in the ‘adverse action.’” Halliburton, Inc. v.
Admin. Review Bd., 771 F.3d 254, 259 (5th Cir. 2014) (footnote omitted)
(quoting Allen v. Admin. Review. Bd., 514 F.3d 468, 475-76 (5th Cir. 2008)).
Wallace must also show that his belief that Tesoro committed a covered
violation was both objectively and subjectively reasonable. Wallace v. Tesoro
Corp., 796 F.3d 468, 474-75 (5th Cir. 2015). “The objective standard examines
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whether the belief would be held by ‘a reasonable person in the same factual
circumstances with the same training and experience as the aggrieved
employee.’” Id. (quoting Allen, 514 F.3d at 477).
      Wallace claims that the covered conduct he reported was that Tesoro
reported “puffed” revenue figures “to the SEC and the public.” Wallace points
to a statement by a “Tesoro pricing official,” who “confirmed” that the
“misallocations found by Wallace’s investigation overstated profits by $30
million.” Wallace’s claim centers on his purported belief that the inclusion of
sales taxes in revenues for the retail segment was not properly disclosed in
SEC filings. Wallace acknowledges that excise taxes were disclosed, but he
believed Tesoro was not accurately reporting its treatment of sales taxes.
Wallace claimed that “revenues were not being recognized appropriately,
affected consolidated numbers[,] and were misreported in the 10-K and 10-Q
filings . . . . violat[ing] the SEC rules requiring compliance with GAAP, keeping
accurate books, maintaining internal controls[,] and filing correct reports.”
      This case turns on whether Wallace’s purported belief that his employer
was misreporting its revenue was objectively reasonable in light of the
undisputed facts. If Wallace’s belief was not objectively reasonable, his SOX
retaliation claim fails. See id. In answering that question, we must also
resolve an evidentiary dispute.


      A. Objective Reasonableness of Wallace’s Claimed Belief
      We start with examining Wallace’s training and experience that forms
the basis of his belief. See id. Wallace had extensive business experience that
included “implementing best business practices,” performance and market
analysis, oversight of accounting services, asset valuation, and experience with
Tesoro’s internal accounting system, which Wallace refers to as a “SAP
system.” As a sub-certifier at Tesoro, Wallace had specific expertise in its SEC
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                                  No. 17-50927
financial reporting practices. Given Wallace’s background and experience with
accounting and SEC reporting, he should be capable of understanding
disclosures in SEC filings.
      We next turn to the facts underlying Wallace’s claim. Wallace testified
he reviewed the 2009 10-K, which was filed March 1, 2010, shortly before his
termination on March 12, 2010.        As a certifier, he was required to state
whether he knew of any reason why the 2009 10-K could not be certified.
Wallace testified that he knew of no reason why the 2009 10-K could not be
certified. Notably, the 2009 10-K included the following language:
             Federal excise and state motor fuel taxes, which are remitted
      to governmental agencies through our refining segment and
      collected from customers in our retail segment, are included in
      both “Revenues” and “Costs of sales and operating expenses.”
      These taxes, primarily related to sales of gasoline and diesel fuel,
      totaled $283 million . . . in 2009.”

When discussing its retail segment in its 2009 10-K, Tesoro also disclosed that
“[f]ederal and state motor fuel taxes on sales by our retail segment are included
in both ‘Revenues’ and ‘Costs of sales and operating expenses’.”          Wallace
specifically mentioned sales taxes on fuel in Hawaii as an example of sales tax
revenues that he believed were improperly accounted.
      Wallace attempts to create fact issues on the question of whether his
belief in a covered SOX violation was reasonable by pointing to the timing of
his certifications, noting that he certified the 2009 10-K, “and did not include
the period in 2010 when he discovered and reported his concerns.” He also
specifically testified that his certification on the day of his termination applied
only to 2009.
      Wallace’s factual argument fails because the same accounting issues he
found in 2010 also existed in 2009. Wallace specifically blames the “antiquated
SAP system” and a “lack of controls on [Tesoro’s] transfer prices” for the

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inclusion of taxes as revenues and internal profitability reporting issues, which
were identified in 2008 and known to Wallace at the end of 2009 or beginning
of 2010. That means there is no reasonable dispute that Wallace was aware
that the inclusion of sales taxes as revenues would have occurred in 2009
because nothing indicated to Wallace that the procedure for internal revenue
reporting changed in the beginning of 2010.          Furthermore, a reporting
individual who is a sub-certifier with accounting oversight experience should
conduct a reasonable investigation to ensure the reasonableness of his
conclusion that the public disclosures contained a reporting violation. See
Allen, 514 F.3d at 479. Had Wallace conducted a limited investigation, he
would have determined that the same footnote present in the 2009 10-K was
present in the 2008 10-K. A brief look at the retail segment of the 10-K, which
Wallace alleges was the source of the sales-taxes-as-revenues problem, would
show that Tesoro disclosed that fuel sales taxes were included in revenues.
      Jackson also testified that Tesoro’s SEC disclosures include sales taxes,
not just excise taxes. Wallace attempts to discount the certainty with which
Jackson testified, but he does not offer any conflicting evidence on that point
other than a portion of Rule’s declaration that was struck. Thus, whether there
is a dispute of fact turns on whether the district court erred when it struck
portions of Rule’s declaration.


      B. Striking of Portions of Douglas Rule’s Declaration
      This court reviews evidentiary rulings for abuse of discretion. Seatrax,
Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 370 (5th Cir. 2000). “A trial court
abuses its discretion when it bases its decision on an erroneous view of the law
or a clearly erroneous assessment of the evidence.” United States v. Caldwell,
586 F.3d 338, 341 (5th Cir. 2009).


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                                  No. 17-50927
      We review only the district court’s decision to strike paragraph 22 of
Rule’s declaration. There Rule opined on the differences between sales and
excise taxes and whether Tesoro accurately disclosed sales taxes in its SEC
filings. A party is required to disclose the identity of expert witnesses it plans
to use at trial to present evidence under Federal Rules of Evidence 702, 703,
or 705. FED R. CIV. P. 26(a)(2)(A). In disclosing the identity of the expert
witness, a party is also required to submit a written report. Id. at 26(a)(2)(B).
Wallace does not dispute that he failed to make a timely disclosure of Rule as
an expert or provide a report. At issue here is whether paragraph 22 of Rule’s
declaration constitutes expert or lay opinion testimony.
      Lay opinion testimony is limited to that which is “rationally based on the
witness’s perception” and “not based on scientific, technical, or other
specialized knowledge within the scope of Rule 702.”         FED. R. EVID. 701.
Wallace argues that Rule’s explanation of the difference between excise taxes
and sales taxes is based on his perceptions from working at Tesoro for several
years. Wallace argues that even if Rule’s declaration is based upon “some
specialized knowledge, it is admissible so long as the lay witness offers
straightforward conclusions from observations informed by his or her
experience.” United States v. Sanjar, 876 F.3d 725, 738 (5th Cir. 2017).
      Rule’s training, education, and experience included “‘refinery economics,
strategy management for commercial crude oil, business development,’ and . . .
‘transfer pric[ing] between operating segments.’” Notably, Rule did not deal
explicitly with tax calculations, SEC reporting requirements, or investor
relations. We conclude that Rule’s declaration as to paragraph 22 could not
have been based on his lay experience as a Tesoro employee but rather on
specialized accounting knowledge. Rule’s opinion on the application of tax
accounting definitions to the SEC disclosures is an example of Rule applying


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his “specialized knowledge” to “help the trier of fact . . . understand the
evidence.” FED. R. EVID. 702(a).
       The district court did not abuse its discretion in finding that paragraph
22 of Rule’s declaration was impermissible expert testimony. 2 AFFIRMED.




       2We express no view on the admissibility of any of the remainder of Rule’s declaration,
as those sections are not applicable to the question of Wallace’s reasonable belief.
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