Lozada-Leoni v. Moneygram Int'l, No. 20-cv-68 (E.D. Tx. Oct. 19

United States District Court

EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION

JUAN LOZADA-LEONI §

V. § No. 4:20CV68-RWS-CMC

MONEYGRAM INTERNATIONAL, §

INC. and MONEYGRAM PAYMENT §

SYSTEMS, INC. §

REPORT AND RECOMMENDATION

OF THE UNITED STATES MAGISTRATE JUDGE

The above-referenced case was referred to the undersigned United States Magistrate Judge

for pre-trial purposes in accordance with 28 U.S.C. § 636. Before the Court are the following

pending motions:

Defendant MoneyGram International, Inc.’s Motion for Summary Judgment,

and Brief in Support (Docket Entry # 83); and

Defendants’ Motion for Summary Judgment, and Brief in Support (Docket

Entry # 109).

The Court, having reviewed the relevant briefing, recommends Defendants’ motions for summary

judgment be DENIED.

Table of Contents

I. Factual Background…………………………………………………………………............4

II. Summary Judgment Motions....................................................................................................7

III. Legal Standard..............................................……………………………….....…..............7

IV. Summary Judgment Evidence .............................................................................................9

A. The evidence and objections thereto........................................................................9

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1. MGI’s motion for summary judgment.........................................................9

a. MGI’s evidence................................................................................9

b. Plaintiff’s response...........................................................................9

c. MGI’s objections to statements in Plaintiff’s declaration..............10

d. Supplemental briefing....................................................................12

2. Defendants’ combined motion for summary judgment.............................13

B. Material facts.........................................................................................................14

1. Relevant orders regarding MoneyGram prior to Plaintiff’s employment..14

2. Plaintiff’s employment with MoneyGram.................................................16

3. Administrative proceedings.......................................................................20

4. Relevant orders regarding MoneyGram after Plaintiff’s employment.......23

C. Procedural background in federal court.................................................................24

D. Evidence regarding MoneyGram entities...............................................................28

1. MGI’s motion for summary judgment.......................................................28

2. Plaintiff’s response.....................................................................................28

3. Plaintiff’s surreply......................................................................................29

V. Applicable Law.………………………………………………………….........................33

A. Statutory overview, generally................................................................................33

B. Anti-retaliation provision of Sarbanes-Oxley........................................................35

VI. Whether Plaintiff May Proceed Against Both MPSI and MGI.......................……….......38

A. Parties’ assertions...................................................................................................38

B. Theories by which a parent can be held liable for the acts of a subsidiary............40

1. Application of state law or federal common law.......................................40

2. Federal common law theories....................................................................42

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a. “Pierce the corporate veil” theories...............................................43

b. Vicarious liability based on general agency principles..................47

c. Direct liability where the parent directly participated in the

complained-of wrong.....................................................................47

3. What theories have been sufficiently raised by Plaintiff............................54

C. Sarbanes-Oxley Section 806 (codified at 18 U.S.C. § 1514A)..............................63

1. Interpretations of § 1514A prior to Dodd-Frank........................................63

a. Administrative proceedings...........................................................65

b. Federal court decisions...................................................................75

2. Lawson opinions........................................................................................77

a. Lawson I.........................................................................................78

b. Lawson II.......................................................................................81

c. Lawson III......................................................................................81

3. Interpretations of § 1514A following Dodd-Frank....................................83

a. Administrative proceeding.............................................................85

b. Federal court decisions...................................................................86

D. Discussion............................................................................................................101

VII. Whether Plaintiff is Barred From Litigating his SOX Claims in this Court Because the

Initial OSHA Complaint Was Factually Insufficient.......................................................117

A. Applicable law, generally.....................................................................................117

B. Summary judgment evidence...............................................................................118

C. Parties’ assertions.................................................................................................121

D. Discussion ...........................................................................................................123

VIII. Recommendation.............................................................................................................137

Objections........................................................................................................................137

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I. FACTUAL BACKGROUND

In his original complaint and First Amended Complaint, Plaintiff Juan Lozada-Leoni

(“Plaintiff”) sued MoneyGram International, Inc. (“MGI”), as well as Juan Manuel Gonzalez and

Christopher Ponder, pursuant to the whistleblower provision of the Corporate and Criminal Fraud

Accountability Act of 2002, also known as the Sarbanes-Oxley Act (“SOX”), codified at 18 U.S.C.

§ 1514A(a),

as amended by Section 929A of the Dodd-Frank Wall Street Reform and Consumer

Protection Act of 2010. On May 16, 2019, Plaintiff filed his Second Amended Complaint (“SAC”),

dismissing the individual defendants and adding MoneyGram Payments Systems, Inc. (“MPSI”) as

a defendant, along with MGI (collectively, “Defendants”). See Docket Entry # 21. MPSI is a

subsidiary of parent company MGI, a publicly-traded money transfer company; MPSI’s financial

information is included in the consolidated financial statements of MGI. Id., ¶¶ 5-7.

According to the SAC, on October 21, 2009, MGI entered a Stipulated Order with the Federal

Trade Commission (“2009 FTC Order”), which enjoined MGI from, among other things, failing to

establish, implement, and maintain a comprehensive anti-fraud program that was reasonably

designed to protect United States and Canadian consumers. Id., ¶ 11. On November 9, 2012, MGI

entered a Deferred Prosecution Agreement (“DPA”) with the United States Department of Justice

(“DOJ”). Id., ¶ 12. In the DPA, MGI admitted to criminally aiding and abetting wire fraud and failing

to maintain an effective anti-money laundering program. Id. According to a DOJ November 9, 2012

press release (“DOJ 2012 Press Release”), MGI was involved in mass marketing and consumer fraud

phishing schemes, perpetrated by corrupt MGI agents and others, that defrauded tens of thousands

of victims in the United States. MGI also failed to maintain an effective anti-money laundering

Cases addressing this statute refer to this section alternatively as “Section 806" or “Section 1514A.”

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program in violation of the Bank Secrecy Act. Id.

On November 8, 2018, the DOJ levied a substantial fine against MGI and entered into an

Amendment and Extension of Deferred Prosecution Agreement (“Amended DPA”) with MGI. Id.,

¶ 14. The Amended DPA extended the DPA entered on November 9, 2012. Id. Under the terms of

the Amended DPA, the DOJ agreed to continue to defer prosecution for a period of thirty months.

Id., ¶ 16.

In a related case, MGI agreed to settle allegations made by the FTC alleging MGI violated

the 2009 FTC Order. Id., ¶ 17. The Stipulated Order for Compensatory Relief and Modified Order

for Permanent Injunction (“Modified FTC Order”) required that MGI block money transfers of

known perpetrators of fraud schemes and provide refunds to fraud victims and enhanced diligence,

investigative and disciplinary requirements. Id., ¶ 21. According to the SAC,

[w]hile the Amended DPA and the Modified FTC Order did not single out any one

of MGI’s agents, they identified a wide range of systemic, illegal conduct that forms

the basis for the Amended DPA. This was the same conduct that Plaintiff began

complaining about almost immediately after he was hired at MGI, e.g., insufficient

transaction analysis; insufficient suspicious activity reports (‘SARs’); insufficient

oversight of minority owned stores; failure to conduct independent reviews, and

breakdown of the fraud interdiction system, specifically the Individual Watch List

(‘IWL’) program.

Id., ¶ 22. Plaintiff alleges this “illegal conduct by MGI continued during Plaintiff’s tenure at MPSI.”

Id., ¶ 23.

Plaintiff began work as a Senior Manager for the U.S. Regional Compliance Team for MPSI

in mid-October 2016. Id., ¶ 24. Plaintiff was responsible for supervising MGI’s regional compliance

officers (“RCOs”), senior regional compliance officers (“Sr. RCOs”), and managers on the United

States team. Id. Plaintiff also was responsible for monitoring MGI’s agents’ implementation of

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MGI’s Global Partner Compliance Policy, which contained MGI’s anti-fraud and anti-money

laundering policies and procedures. Id., ¶ 26. Plaintiff worked under the direction of Juan Manuel

Gonzalez. Id., ¶ 27. During Plaintiff’s entire tenure at MPSI, MGI was operating under the

requirements of the Amended DPA and the Modified FTC Order. Id., ¶ 28.

Plaintiff alleges that during his tenure at MPSI, “MGI had knowledge of, yet ignored,

suspicious activities of several of its largest agents, including Wal-Mart, Schnucks, SuperValu,

RaceTrac, Valero and CVS.” Id., ¶ 29. Plaintiff alleges that as he learned “more about the intricacies

of his position, Plaintiff noticed some significant discrepancies between the image that MGI

presented to its external stake-holders about the effectiveness of its compliance program and the

reality on the ground.” Id., ¶ 42. According to Plaintiff, the technology MGI was using was so

outdated that it was becoming increasingly clear to Plaintiff that MGI “simply did not have the

technology to run an effective compliance program as required by the DPA and 2009 FTC Order.”

Id., ¶ 43.

In or about 2017, Plaintiff shadowed Pablo Rivera, MGI’s Senior RCO in charge of the CVS

account. Rivera knew firsthand the irregularities that occurred at CVS stores because of a lack of

proper reporting. Id., ¶ 50. Rivera and Plaintiff attended meetings where MGI sales managers would

talk CVS representatives out of implementing measures that would lower fraud. Id., ¶ 53. Plaintiff

alleges he notified MGI management of its compliance infractions, “but to no avail.” Id. at pp. 12-

19.

Plaintiff alleges he was retaliated against for his complaints about MGI’s illegal conduct.

Id. at p. 19. Plaintiff asserts Defendants violated Section 806, the SOX whistleblower provision, by

taking adverse employment actions against him, including, but not limited to, termination and other

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forms of retaliation, because of his protected conduct under 18 U.S.C. § 1514A. Id. at p. 22.

According to Plaintiff, approximately eighteen months after he was terminated, MGI was found to

have violated the 2009 FTC Order and “was hit with massive new fines and sanctions, along with

the brand-new Amended DPA.” Id., ¶ 86.

II. SUMMARY JUDGMENT MOTIONS

On April 15, 2020, MGI filed a motion for summary judgment regarding the sole issue of

whether Plaintiff may assert a SOX retaliation claim against parent company MGI, in addition to the

SOX retaliation claim asserted against MPI’s subsidiary, MPSI. According to MGI, Plaintiff’s

former employer was MPSI, not MGI. In its reply, MGI acknowledges that because MPSI is a

subsidiary of MGI, whose financial information is included in publicly traded parent company MGI’s

financial statements, MPSI is subject to SOX. However, MGI asserts Plaintiff’s additional SOX

retaliation claim against MGI should be dismissed because Plaintiff has not sufficiently shown (or

even sufficiently alleged) MGI can also be considered Plaintiff’s employer for purposes of his §

1514A claims.

On August 12, 2020, Defendants filed a combined motion for summary judgment, asserting

the sole issue of whether Plaintiff is barred from litigating his claims in this Court based on the

“bare-bones complaint [Plaintiff] filed with the Department of Labor – which then determined that

it was barred from investigating that complaint because [Plaintiff] failed to articulate a prima facie

case.” Docket Entry # 109 at p. 1.

III. LEGAL STANDARD

The purpose of summary judgment is to isolate and dispose of factually unsupported claims

or defenses. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). Summary judgment is proper

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if the pleadings, the discovery and disclosure materials on file, and any affidavits “[show] that there

is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter

of law.” FED. R. CIV. P. 56(a). A dispute about a material fact is genuine “if the evidence is such that

a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986). The trial court must resolve all reasonable doubts in favor of the party

opposing the motion for summary judgment. Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655

F.2d 598, 602 (5th Cir. 1981) (citations omitted). The substantive law identifies which facts are

material. Anderson, 477 U.S. at 248.

The party moving for summary judgment has the burden to show that there is no genuine

issue of material fact and that it is entitled to judgment as a matter of law. Id. at 247. If the movant

bears the burden of proof on a claim or defense on which it is moving for summary judgment, it must

come forward with evidence that establishes “beyond peradventure all of the essential elements of

the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986) (emphasis in

original). Where the nonmovant bears the burden of proof, the movant may discharge its burden by

showing there is an absence of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325;

Byers v. Dallas Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried

its burden, the nonmovant must “respond to the motion for summary judgment by setting forth

particular facts indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson,

477 U.S. at 248-49). The nonmovant must adduce affirmative evidence. Anderson, 477 U.S. at 257.

No “mere denial of material facts nor…unsworn allegations [nor] arguments and assertions in briefs

or legal memoranda” will suffice to carry this burden. Moayedi v. Compaq Computer Corp., 98 Fed.

Appx. 335, 338 (5th Cir. 2004). Rather, the court requires “significant probative evidence” from the

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nonmovant in order to dismiss a request for summary judgment supported appropriately by the

movant. United States v. Lawrence, 276 F.3d 193, 197 (5th Cir. 2001). The court must consider all

of the evidence, but must refrain from making any credibility determinations or weighing the

evidence. See Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).

IV. SUMMARY JUDGMENT EVIDENCE

A. The evidence and objections thereto

1. MGI’s motion for summary judgment

a. MGI’s evidence

MGI attached the following to its motion for summary judgment: (1) excerpts from Plaintiff’s

Second Amended Complaint; (2) excerpts from Plaintiff’s Unopposed Motion for Leave to File a

Second Amended Complaint “to add MPSI as a Defendant in this matter;” (3) excerpts from

Plaintiff’s Response in Opposition to All Defendants’ Jurisdictional Motions; (4) Declaration of

Elizabeth Weathers-Nguyen (“Weathers-Nguyen Decl.”), with attached offer letter from MPSI; (5)

excerpts from the deposition of Juan Lozada-Leoni (“Plaintiff Dep.”); and (6) excerpts from

deposition of Juan Manuel Gonzalez (“Gonzalez Dep.”).

b. Plaintiff’s response

Plaintiff attached the following evidence to his response:(1) Declaration of Theodore Garber

(“Garber Decl.”); (2) Second Amended Docket Control Order; (3) MGI’s 2017 10-K (“Ex. 5"); (4)

Declaration of Juan Antonio Lozada (“Lozada Decl.”), with attachments; (5) MGI’s Motion for

Summary Judgment and Brief in Support; (6) MoneyGram Global Partner Compliance Policy (“Ex.

The Court has considered the entire admissible record in this case, including the evidence attached by the

parties to other filings. See FED. R. CIV. P. 56 (c)(3) (“Materials Not Cited. The court need consider only the cited

materials [filed with a motion for summary judgment or response], but it may consider other materials in the record.”).

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8"); (7) excerpts from Plaintiff’s deposition; (8) Plaintiff’s Second Amended Complaint; (9) MGI’s

Original Answer; (10) Deferred Prosecution Agreement (“Ex. 13"); (11) 2014 SuperValu Review

Worksheet (“Ex. 14"); (12) 2016 SuperValu Review Worksheet (“Ex. 15"); (13) excerpts from

Gonzalez’s deposition; (14) excerpts from emails from MGI’s Senior Recruiter (“Ex. 17"); (15)

excerpts from emails from Gonzalez (“Ex. 18"); and (16) email regarding Plaintiff’s onsite interview

with MGI (“Ex. 19").

c. MGI’s objections to statements in Plaintiff’s declaration

In its reply, MGI objects to the following statements contained in Plaintiff’s declaration:

• “I never made a distinction between MoneyGram Payment Systems, Inc. and Money

Gram International because we always referred to ourselves as being employees of

MoneyGram[.]”

• “For operating purposes MoneyGram was a single company, not two companies.”

• “I always made decisions premised on the fact that I was an employee of a company

called MoneyGram International, Inc.”

• “MGI uses MPSI’s property as its own.”

• “The daily operations of MGI and MPSI are not kept separate. MGI uses MPSI to

provide money transfer services. The directors and officers of MPSI take their orders

from MGI and act in MGI’s interests. MPSI makes decisions with the sole purpose

of benefitting MGI.”

Docket Entry # 92 at p. 2. MGI asserts the italicized portions are conclusory, lack foundation, and

are insufficient to either support or defeat a motion for summary judgment. MGI moves to strike the

remaining statements under the sham affidavit doctrine, asserting the statements contradict Plaintiff’s

deposition testimony and other statements in his declaration that he was employed by MPSI and that

MPSI fired him. Id. at pp. 2-3.

MGI also objects to the following portions of Plaintiff’s declaration, asserting they are

conclusory and unsubstantiated and are barred by the best evidence rule:

• “The signature block of the Sr. Director, AML/CTF Compliance – Americas, Juan

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Manuel Gonzalez, stated that he worked for MoneyGram International.”

• “My direct supervisor, Juan Manuel Gonzalez, sent an email to every member of the

compliance department at MoneyGram on October 7, 2016, announcing that I had

been hired to lead the US Regional Compliance Team and never referred to

MoneyGram Payment Systems as the company he or anyone else in the message was

working for.”

• “All the materials that we gave our agents said MoneyGram, the policies that we

drafted were MoneyGram policies.”

• “When we visited agents, we showed them a MoneyGram International issued badge

that identified us as employees of MoneyGram International, not MoneyGram

Payment Systems.”

• “[W]e were told that our bosses were Andres Villareal, the Chief Compliance Officer

for MoneyGram and Alex Holmes, the CEO of MoneyGram International, Inc.”

Docket Entry # 92 at pp. 3-4.

Self-serving affidavits may serve as competent summary judgment evidence. See United

States v. Carter, 737 Fed. Appx. 687, 691 (5th Cir. 2018); see also C.R. Pittman Constr. Co. v. Nat’l

Fire Ins. Co., 453 Fed. Appx. 439, 443 (5th Cir. 2011) (per curiam) (unpublished) (“[A]n affidavit

based on personal knowledge and containing factual assertions suffices to create a fact issue, even

if the affidavit is arguably self-serving.”). Statements setting forth conclusory or ultimate facts or

asserting conclusions of law are insufficient evidence on a motion for summary judgment. See Clark

v. America’s Favorite Chicken Company, 110 F.3d 295, 297 (5th Cir.1997).

While parts of Plaintiff’s declaration may be conclusory, the Court will give it the weight it

deserves in considering the motion for summary judgment. See, e.g. Bianco v. Globus Med., Inc.,

30 F. Supp. 3d 565 (E.D. Tex. 2014) (declining to strike any portion of a declaration containing

impermissible legal opinions but noting the court would disregard those legal conclusions in ruling

on the correction of inventorship issue which was tried to the court). It is true a party may not

overcome a motion for summary judgment with an “affidavit that impeaches, without explanation,

sworn testimony.” Vianet Grp. PLC v. Tap Acquisition, Inc., No. 3:14-CV-3601-B, 2016 WL

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4368302, at *15 (N.D. Tex. Aug. 16, 2016) (citing S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489,

495 (5th Cir. 1996)). But courts may consider an affidavit that supplements rather than contradicts

prior deposition testimony. See id. at 496. An affidavit supplements if it clarifies or amplifies the

facts by “giving greater detail or additional facts not previously provided;” whereas it contradicts

when it “tells the same story differently.” See id.

Moreover, the Fifth Circuit has declined to strike a party’s affidavit “even if it conflicts with

earlier testimony in the party’s deposition.” Suncoast Post-Tension, Ltd. v. Scoppa, No. 4:13-CV-

3125, 2015 WL 12762260, at *3 (S.D. Tex. Sept. 2, 2015) (citing Kennett-Murray Corp. v. Bone,

622 F.2d 887, 893 (5th Cir. 1980)). In Kennett-Murray, the Fifth Circuit stated a district court, in

considering a motion for summary judgment, “must consider all the evidence before it and cannot

disregard a party’s affidavit merely because it conflicts to some degree with an earlier deposition,”

noting the “two in conjunction may disclose an issue of credibility.” Kennett-Murray, 622 F.2d at

893. “Thus, a genuine issue can exist by virtue of a party’s affidavit even if it conflicts with earlier

testimony in the party’s deposition.” Id. Any inconsistencies between Plaintiff’s declaration and his

prior testimony are appropriately treated as impeachment evidence but not as a basis for striking the

affidavit. See Rimkus Consulting Grp., Inc. v. Cammarata, 688 F. Supp. 2d 598, 639 n. 32 (S.D.

Tex. 2010).

For these reasons, the Court overrules MGI’s objections to Plaintiff’s declaration.

d. Supplemental briefing

As allowed by the Court in its September 24, 2020 Order, Plaintiff attached to his surreply

excerpts from the depositions of Craig Bernier, Sylvia Gil, Derya White, and Fredy Morales, which

were taken after Plaintiff filed his response. Plaintiff also attached to his surreply a copy of a May

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4, 2017 press release from the DOJ entitled “Acting Manhattan U.S. Attorney Announces Settlement

Of Bank Secrecy Act Suit Against Former Chief Compliance Officer At Moneygram For Failure to

Implement And Maintain An Effective Anti-Money Laundering Program and File Timely SARS.”

2. Defendants’ combined motion for summary judgment

Defendants attached the following evidence to their combined motion for summary

judgment: (1) excerpts from Plaintiff’s deposition; (2) Plaintiff’s September 28, 2017 Complaint

under Section 806 of SOX filed with the Occupational Safety & Health Administration (“OSHA”)

(“OSHA complaint”); and (3) OSHA’s October 12, 2017 determination letter (“Determination

letter”). Defendants attached to their reply a copy of the OSHA complaint in Wallace v. Tesoro

Corp., Civil Action No. 5:11-CV-00099, in the United States District Court for the Western District

of Texas, San Antonio Division (“Wallace OSHA Complaint”).

In his response, Plaintiff objects to Exhibit 1 to Defendants’ motion, which are excerpts from

Plaintiff’s deposition in which he describes his background as an attorney. In their reply, Defendants

state their purpose in introducing this evidence is to demonstrate Plaintiff’s “obvious awareness of

the importance of following all applicable rules and regulations (such as the exhaustion requirement

at issue).” Docket Entry # 113 at p. 3. Even though Plaintiff attached the OSHA Determination letter

to his response in opposition to MPSI’s motion to dismiss (see Docket Entry # 23-3), Plaintiff also

objects to Exhibit 3 attached in support of Defendants’ motion for summary judgment. Both

objections are based upon relevance. See Docket Entry # 110 at p. 1. According to Plaintiff,

“[n]either exhibit possesses any probative value in addressing the sweep of [Plaintiff’s] OSHA

complaint.” Id. The Court overrules Plaintiff’s objections and will give each exhibit the weight it

deserves in considering Defendants’ motion for summary judgment.

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B. Material facts

1. Relevant orders regarding MoneyGram prior to Plaintiff’s employment

On October 21, 2009, MGI and the FTC stipulated to the entry of a Stipulated Order for

Compensatory Relief and Modified Order for Permanent Injunction, resolving allegations in the

FTC’s complaint charging MGI with engaging in unfair or deceptive acts or practices in the course

of providing money transfer services to consumers in the United States through its worldwide money

transfer network. See Docket Entry # 34-2, Ex. B at pp. 1-2. The 2009 FTC Order enjoined MGI

from, among other things, failing to: establish, implement, and maintain a comprehensive anti-fraud

program that was reasonably designed to protect US and Canadian consumers; conduct thorough due

diligence on prospective agents and ensure its written agreements require agents to have effective

anti-fraud policies and procedures in place; and adequately monitor its agents by, among other

things, providing appropriate and ongoing training, recording all complaints, reviewing transaction

activity, investigating agents, taking disciplinary actions against problematic agents, and ensuring

that its agents were aware of their obligations to detect and prevent fraud and comply with MGI’s

policies and procedures. Id. at p. 2.

On November 9, 2012, MGI entered the Deferred Prosecution Agreement (“DPA”) with the

United States Department of Justice (“DOJ”). Docket Entry # 89, Ex. 13; see also Docket Entry #

34, Ex. C. In the DPA, MGI admitted to criminally aiding and abetting wire fraud and failing to

implement an effective anti-money laundering program and acknowledged it was responsible for the

The material facts set forth in this section represent the facts as discerned by the Court from the pleadings and

the parties’ respective evidentiary submissions, in light of the relevant summary judgment standard requiring the record

be viewed in the light most favorable to the nonmoving party. Accordingly, these are the “facts” for purposes of summary

judgment only; they may not be the actual facts. See Willmore-Cochran v. Wal-Mart Assocs., Inc., 919 F. Supp. 2d 1222,

1228 (N.D. Ala. 2013).

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acts of its officers, directors, and employees as charged in the Information, and as set forth in the

Statement of Facts and incorporated by reference into the agreement.

Id. at pp. 1-2. The DPA was

“effective for a period beginning on the date on which the Information [was] filed and ending five

(5) years from that date (the ‘Term’).” Id. at p. 2.

In return for the full cooperation of the Company, and its compliance with the other terms

and conditions of the DPA, the DOJ agreed, subject to certain paragraphs, “not to use any

information related to the conduct described in the attached Statement of Facts against the Company

in any criminal or civil case, except: (a) in a prosecution for perjury or obstruction of justice; or (b)

in a prosecution for making a false statement.” Id. at p. 6. The DOJ also agreed, except as provided

therein, not to bring any criminal case against the Company “or any of its wholly owned or

controlled subsidiaries related to the conduct of the present and former officers, directors, employees,

agents, agent employees and consultants. . . or relating to the information that the Company disclosed

to the Department prior to the date on which this Agreement was signed.” Id. at pp. 6-7.

The Company represented it had or would undertake, in addition to the enhancements it had

already made to its anti-fraud and anti-money laundering programs, the enhanced compliance

obligations described in Attachment C to the DPA and also retain an independent compliance

monitor “(Monitor”). Id. at p. 7. According to Attachment C, the Company would create an

Independent Compliance and Ethics Committee of Board of Directors “with direct oversight of the

Chief Compliance Officer and the Compliance Program.” Id., Att. C. Attachment C further provided

“[t]he Company will require all MoneyGram Agents around the world, regardless of their location,

In his surreply, Plaintiff argues this is a judicial admission on the part of MGI, asserting the Statement of Facts

for which MGI acknowledged it was responsible sets forth the compliance functions performed by MPSI. Docket Entry

# 118 at p. 5.

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to adhere to either the anti-fraud and anti-money laundering standards as defined by the FATF

interpretive guidelines for Money Services Businesses or the U.S. anti-fraud and anti-money

laundering standards, whichever is stricter. This new policy will ensure that all MoneyGram Agents

throughout the world will, at a minimum, be required to adhere to U.S. anti-fraud and anti-money

laundering standards.” Id.

2. Plaintiff’s employment with MoneyGram

Plaintiff began working for MPSI in October 2016 as a Senior Manager for the U.S. Regional

Compliance Team. SAC, ¶¶ 4, 24. In his declaration, Plaintiff states he learned through LinkedIn

about a job opening in MoneyGram’s compliance department in late August 2016; he visited the

MoneyGram website posting the job vacancy and applied for the position; and he never visited a

website or applied for any jobs listed by “MoneyGram Payment Systems.” Plaintiff’s Decl., p. 1.

Thereafter, Plaintiff received several emails from Alan Brooks. Id. at pp. 1-2. On August 19,

2016, Brooks wrote Plaintiff an email in which Brooks stated the following: “Thank you for applying

to MoneyGram International. I would love to arrange a phone interview to discuss your background,

and the Regional Compliance Manager position, located in our Miami Office.” Docket Entry # 89,

Ex. 17. The email identified Brooks as the Senior Recruiter for MGI. Id. Brooks’ email was listed

as abrooks@moneygram.com. Id.; see also Plaintiff’s Decl., p. 2.

According to Plaintiff, the “first face to face interview took place at the offices of

MoneyGram located at 5201 Blue Lagoon Drive, Suite 500, Miami, FL, 33126.” Id. On September

6, 2016, Brooks emailed Plaintiff, cc’ing Juan Manuel Gonzalez (JMGonzalez@moneygram.com),

regarding the agenda for Plaintiff’s interview with the team in Miami. Docket Entry # 89, Ex. 19.The

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email regarding the panel interview provided as follows: “Friday September 9th: Onsite interview

with MoneyGram International.” Id. Plaintiff states he was offered a position shortly after that

interview. Plaintiff’s Decl., p. 2.

On September 26, 2016, Brooks sent Plaintiff a letter containing a formal offer with

“MoneyGram Payments Systems, Inc. ‘MoneyGram’.” Weathers-Nguyen Decl., ¶ 4, and Ex. 1. On

October 7, 2016, Plaintiff’s direct supervisor, Juan Manuel Gonzalez, sent an email to members of

the Americas Regional Compliance Team announcing Plaintiff would be joining MoneyGram

October 17 and would be assuming the leadership role for the U.S. Regional Compliance Team. See

Docket Entry # 89, Ex. 18. The signature block on the email indicated Gonzalez was the Sr. Director,

AML/CTF Compliance – Americas for MoneyGram International. Id.

Plaintiff began working as a Senior Manager for the U.S. Regional Compliance Team for

MoneyGram on October 18, 2016. Plaintiff’s Decl., p. 2. Plaintiff has alleged that, during the course

of his employment, he complained about what he believed were alleged improprieties in MGI’s

business operations. SAC, ¶¶ 54-61. In particular, Plaintiff alleges he complained to Christopher

Ponder and Plaintiff’s supervisor Gonzalez. Id., ¶¶ 27, 54-55.

According to Plaintiff, he never made a distinction between MPSI and MGI because “we

always referred to ourselves as being employees of MoneyGram, we were told that our bosses were

Andres Villarreal, the Chief Compliance Officer for MoneyGram and Alex Holmes, the CEO of

MoneyGram International, Inc.” Id., pp. 2-3. Plaintiff states all the materials they gave their agents

“said MoneyGram, the policies that [they] drafted were MoneyGram policies;” and he showed his

agents a MGI-issued badge that identified him as an employee of MGI, not MPSI. Id., p. 3.

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Plaintiff further states “[w]e enforced MoneyGram’s International Global Partner Compliance

Policy,” which implied MoneyGram was one company. Id. According to Plaintiff, MoneyGram’s

Compliance Policy provides that MoneyGram can suspend agents who violate the policy. Id.

According to the 2016 Global Partner Compliance Policy, the purpose of the policy was as follows:

MoneyGram Agents and other non-agent distribution channels are important partners

in offering MoneyGram money transfers and other services and products to our

valued customers. Because MoneyGram and its partners are required to comply with

various laws and governmental regulations worldwide, MoneyGram has issued this

Global Partner Compliance Policy (‘Policy’).

Agents and their employees are part of the first line of defense in protecting

consumers and preventing criminal abuse and exploitation of MoneyGram products

and services. The Policy outlines the responsibilities of Agents globally to comply

with applicable laws and regulations, with MoneyGram’s policies and procedures,

and the required actions for effective implementation of strict anti-money laundering

and anti-fraud standards.

This Policy also reinforces MoneyGram’s commitment to protecting its consumers

and to preventing the use of its products and services by anyone for fraudulent

purposes, money laundering, terrorist financing, or other illegal activities.

MoneyGram requires the same commitment from its Agents and their owners,

shareholders, governing authorities, management, and employees. Agents are

responsible for implementing this Policy. To carry out this Policy, MoneyGram has

incorporated the key requirements that govern the relationship between MoneyGram

and its Agents.

MoneyGram continues to update its Anti-Money Laundering and Anti-Fraud

Compliance Programs (‘Programs’) to review and respond to issues related to the

implementation of this Policy. MoneyGram encourages its Agents to contact the

MoneyGram Regional Compliance Officer or other compliance contact assigned to

the Agent regarding questions about this Policy.

Docket Entry # 89, Ex. 8 at p. 2. The definition of “Agent” includes “any party entering into a

contractual relationship with MoneyGram or its subsidiaries and affiliates for the purposes of

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providing MoneyGram’s products and services to consumers” and “also includes all Subagents of

an Agent.” Id. at n. 1.

In his declaration, Plaintiff states Derya White is a regional compliance officer for

MoneyGram; Dana Johnson is the “regulator and compliance manager for SuperValu, an agent of

MoneyGram;” and Dayna Karel was a sales manager for MoneyGram. Plaintiff’s Decl., pp. 3-4.

Plaintiff states MoneyGram ensures its agents are following the MoneyGram Global Partner

Compliance Policy through Headquarters Reviews.

Id., p. 4.

According to Plaintiff, in March 2017, he and Derya White assisted the quarterly business

review that Dayna Karel was facilitating at SuperValu. Id.; see also Gonzalez Dep. at 43:7-17

(testifying regional compliance officer White, who was under Plaintiff as a senior manager, was

instructed to assist the quarterly business review that Karel was facilitating). In his declaration,

Plaintiff states during the SuperValu meeting he “learned that we did not know the owners of 13

SuperValu stores,” which was a violation of MoneyGram’s Compliance Policy, which provides that

“Agents shall provide accurate and complete information to MoneyGram when there are any material

change(s) in the ownership of the Agent.” Plaintiff’s Decl., p. 4. After the meeting, Plaintiff told his

boss Gonzalez that MoneyGram should suspend the thirteen stores. Id. According to Plaintiff,

Gonzalez removed Plaintiff from the SuperValu account, which was a demotion. Plaintiff was fired

in April 2017. Id.

Elizabeth Weathers-Nguyen is employed by MPSI as an Associate General Counsel.

Plaintiff attached documentation to his response indicating Derya White conducted a headquarters review of

SuperValu on April 6, 2014, and Dana Johnson represented SuperValu at that meeting. Docket Entry # 89, Ex. 14. On

December 19, 2016, Derya White conducted another headquarters review of SuperValu, and Dana Johnson represented

SuperValu at that meeting as well. Docket Entry # 89, Ex. 15.

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Weathers-Nguyen Decl., ¶ 2. In her declaration, Weathers-Nguyen states Plaintiff worked for MPSI

from approximately October 2016 until April 2017, when MPSI terminated his employment. Id.,

¶ 4. According to Weathers-Nguyen, Plaintiff was never employed by MGI. Id., ¶ 5.

Weathers-Nguyen states Ponder is MPSI’s Head HR Partner in Frisco, Texas, and Gonzalez

is MPSI’s Head of Regional Compliance and Strategic Projects in Miami, Florida. Id.; see also

Gonzalez Dep. at 6:4-10 (stating his current employer is “MoneyGram Payment Systems”).

According to Weathers-Nguyen, MPSI employed Ponder and Gonzalez, and neither Ponder nor

Gonzalez has ever been employed by MGI. Id. In previous briefing, Plaintiff attached an excerpt of

the October 18, 2018 deposition of Chris Ponder, wherein he stated he worked for “MoneyGram.”

Docket Entry # 34-7 at 23:24-25.

In his deposition in this case, Gonzalez testified he is the individual who decided to terminate

Plaintiff’s employment, though he partnered with his H.R. business partner Ponder in that decision.

Gonzalez Dep. at 89:9-24. Gonzalez testified they also partnered with “internal labor counsel to

discuss the circumstances of the case, and everybody agreed that we were ready to move forward.”

Id. at 89:24-90:14 (also testifying they shared information with Peter Green and the company’s chief

compliance officer, Andy Villareal).

3. Administrative proceedings

On September 28, 2017, Plaintiff (through counsel) filed a formal complaint under Section

806 of the Sarbanes-Oxley Act of 2002 with OSHA, identifying MGI as the respondent. OSHA

complaint. Plaintiff’s OSHA complaint first stated Section 806 protects employees of publicly traded

companies (and subsidiaries of same) from retaliation when they complain and “reasonably believe”

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(that the complained-of conduct) constitutes a violation of one of six federal laws, e.g., Sections

1341, 1343, 1344, or 1348, any rule or regulation of the SEC, or any provision of federal law relating

to fraud against shareholders. Docket Entry # 109, Ex. 2 at p. 1. Under “facts,” Plaintiff stated he was

hired on October 18, 2016, and had the job title of Manager, AML/CTF Regional Compliance USA.

Id. at pp. 1-2. Plaintiff further stated as follows:

Two of his essential responsibilities were (1) compliance with anti-money laundering

rules and regulations; and (2) compliance with a consent decree that required, inter

alia, compliance with anti-money laundering rules and regulations.

In a scenario that is becoming increasingly predictable, his efforts to achieve

compliance were met with (1) resistance; (2) outright hostility, and (3) finally

resulted in his termination on April 4, 2017.

Id. at p. 2.

Under “[p]rotected conduct,” Plaintiff stated as follows:

This is essentially a Sharkey v. JP Morgan Chase case, with one additional twist: on

top of violating the underlying anti-money laundering laws, the employer here

violated an existing consent decree that prohibited future violations of the underlying

anti-money laundering laws.

Id. According to Plaintiff, in addition to “on-the-job harassment, verbal abuse, isolation, and

marginalization,” Plaintiff was terminated on April 4, 2017. Id.

OSHA issued a determination letter on October 12, 2017. Determination letter at p. 1. The

letter advised as follows:

Following an investigation by a duly-authorized Investigator, the Secretary of Labor,

acting through his agent, the Acting Regional Administrator for the Occupational

Safety and Health Administration (OSHA), Region VI, finds there is insufficient

evidence to prove the complaint has merit.

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Id. The letter further stated Plaintiff “did not present a prima facie showing.” Id. Because OSHA did

not have reasonable cause to believe a violation of SOX occurred, the complaint was dismissed. Id.

at p. 2. The letter advised Plaintiff he had “30 days from the receipt of these Findings to file

objections and to request a hearing before an Administrative Law Judge.” Id.

Plaintiff lodged objections on November 13, 2017, requesting a hearing in front of an

Administrative Law Judge (“ALJ”). Docket Entry # 23-4.Thereafter, the Department of Labor

opened Case Number 2018-SOX-00004, which it styled Juan Lozada-Leoni v. MoneyGram

International. The case was assigned to ALJ Tracy A. Daly. See Docket Entry # 23, Exs. 5 and 6.

Plaintiff filed his Original [Administrative] Complaint on March 5, 2018. Docket Entry # 23-8.

Plaintiff filed his First Amended [Administrative] Complaint on March 26, 2018. Docket Entry #

23-9.

MPSI responded to Plaintiff’s First Amended [Administrative] Complaint on April 6, 2018.

Docket Entry # 23-10. In particular, MPSI filed the Response as “Respondent MoneyGram Payment

Systems, Inc., improperly named herein as MoneyGram International.” Id. at p. 1. In answering

Plaintiff’s allegation that MGI employed him, “MoneyGram state[d] that Complainant was employed

by MoneyGram Payment Systems, Inc. rather than by MoneyGram International[.]” Id. at § II, ¶ 1.

Among other things, MPSI admitted MoneyGram is a party to a 2012 Deferred Prosecution

Agreement; that it paid a fine in 2009 as part of an agreement with the Federal Trade Commission;

that it terminated Plaintiff’s employment; and that Gonzalez told Plaintiff he was not a good fit. Id.,

¶¶ 28, 37, 156.

MPSI, as Respondent, further stated on behalf of MoneyGram that Plaintiff’s claims were

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barred, in whole or in part, by Plaintiff’s failure to exhaust his administrative remedies. Id., ¶ 225.

According to MPSI, “in his September 28, 2017, initial complaint presented to [OSHA], [Plaintiff]

alleged only that his ‘protected conduct’ included ‘efforts to achieve compliance’ with ‘anti-money

laundering laws,’ and with the DPA that ‘prohibited future violations of the underlying anti-money

laundering law.’” Id. MPSI asserted Plaintiff’s allegations in the amended complaint were “far

broader than those [Plaintiff] presented to OSHA for investigation, and all such claims are barred.”

Id.

Plaintiff gave deposition testimony on May 23, 2018. Docket Entry # 23-11. Ponder was

deposed on October 18, 2018 (Docket Entry # 34-7), and Gonzalez was deposed on December 5,

2018 (Docket Entry # 34-6).

On December 19, 2018, Judge Daly set the ALJ proceeding for a bifurcated final hearing,

beginning on January 16, 2019. Docket Entry # 23-12. However, on December 21, 2018, counsel

for Plaintiff “informally notified” Judge Daly’s office of his client’s intention to “exercise his right

under 29 C.F.R. 1980.114 to bring this matter in a U.S. District Court.” Docket Entry # 23-13.

Specifically, Plaintiff’s counsel advised that “next week we will be filing the formal removal notice

under Section 1980.114.” Id. Judge Daly entered an order suspending the existing filing deadlines

until January 4, 2019 and directing Plaintiff to provide a copy of the federal complaint within seven

days after filing in federal court. Id.

4. Relevant orders regarding MoneyGram after Plaintiff’s employment

Meanwhile, on November 8, 2018, the DOJ levied a substantial fine against MGI and entered

into an Amendment and Extension of Deferred Prosecution Agreement (“Amended DPA”) with

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MGI, based on the Company’s failure, despite some progress during the original term of the DPA,

to successfully complete the implementation of the enhanced compliance undertakings as required

by the DPA. Docket Entry # 34, Ex. D-1. The Amended DPA extended the term of the DPA entered

on November 9, 2012, until May 10, 2021. Id. Under the terms of the Amended DPA, Attachment

C was amended to require reporting to the DOJ on a monthly basis. Id. at pp. 7-9. In consideration

of the Company’s ongoing and future cooperation, payment of the additional forfeiture amount,

implementation of remedial measures described in the amendment, and the Company’s agreement

to undertake further anti-fraud compliance measures, the DOJ agreed to continue to defer

prosecution for the extended term. Id. at p. 14.

On November 13, 2018, MGI agreed to settle allegations made by the FTC alleging MGI

violated the 2009 FTC Order. Docket Entry # 34, Ex. B. The Stipulated Order for Compensatory

Relief and Modified Order for Permanent Injunction (“Modified FTC Order”) required that MGI

block money transfers of known perpetrators of fraud schemes and provide refunds to fraud victims

and enhanced diligence, investigative and disciplinary requirements. For purposes of the Order,

“Defendant” meant MoneyGram International, Inc., its subsidiaries and affiliates, and its successors

and assigns. Id. at p. 3.

C. Procedural background in federal court

Plaintiff filed his original complaint in the Texarkana Division of the Eastern District of

Texas on January 23, 2019, naming MGI, Gonzalez, and Ponder as defendants.

Docket Entry # 1.

On January 24, 2019, Judge Daly issued an Order of Dismissal, acknowledging what he believed to be a

complaint that had been filed in the Northern District of Texas, Dallas Division, and ordering that “the complaint filed

in this matter under the Sarbanes-Oxley Act is DISMISSED with prejudice.” Docket Entry # 23-16.

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On April 11, 2019, along with two motions to dismiss filed by Gonzalez and Ponder, MGI filed its

motion to dismiss for improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil

Procedure, or in the alternative, motion to transfer venue under 28 U.S.C. § 1406(a) to the Northern

District of Texas, Dallas Division. Docket Entry # 5. On May 16, 2019, Plaintiff filed his Response

in Opposition to All Defendants’ Jurisdictional Motions and his Second Amended Complaint,

wherein Plaintiff dismissed Gonzalez and Ponder and added a single cause of action against MPSI

for unlawful retaliation in violation of SOX. SAC, ¶¶ 88-90.

Thereafter, MPSI filed its motion to dismiss, or alternatively, motion to transfer venue.

Docket Entry # 23. Because Plaintiff did not name MPSI as a respondent in his administrative

complaint filed with the Department of Labor and only sought relief against MGI, MPSI moved to

dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction and/or pursuant to Rule

12(b)(6) for failure to state a claim against MPSI upon which relief may be granted. Id. at p. 2.

Alternatively, MPSI moved the Court to transfer this case to the Dallas Division of the Northern

District of Texas, or the Sherman Division of the Eastern District of Texas, pursuant to 28 U.S.C.

§ 1404. Id.

On November 25, 2019, the undersigned issued a Report and Recommendation regarding

proposed findings of fact and recommendations that Defendants’ motions to dismiss and § 1406(a)

motion to transfer venue be denied and that Defendants’ alternative § 1404(a) motions to transfer

venue be granted. Docket Entry # 48. In considering Defendants’ motions to dismiss and specifically

whether Plaintiff was required to name MPSI in his administrative complaint, the Court noted

Plaintiff referred to an integrated enterprise (or single employer) test and provided evidence

indicating MGI and MPSI are substantially identical entities for purposes of notice of the underlying

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charges. Lozada-Leoni v. MoneyGram Int’l, Inc., No. 5:19CV11-RWS-CMC, 2019 WL 7875058,

at *11-12 (E.D. Tex. Nov. 25, 2019), report and recommendation adopted, No. 5:19CV11-RWS-

CMC, 2020 WL 428080 (E.D. Tex. Jan. 28, 2020) (citation omitted)). Noting it had not located any

cases on point within the Fifth Circuit applying the single employer test in a SOX case, the Court

stated it did not need to rely on any such test in order to find in Plaintiff’s favor. Id. at *12.

The Court stated “Defendants correctly note a SOX-retaliation claim requires exhaustion of

administrative remedies, but they go too far in arguing a party must be specifically named as a

respondent in the administrative action.” Id. After discussing the cases relied upon by Defendants,

the Court discussed a case from within the Fifth Circuit wherein the court “rejected an overly

formulaic exhaustion requirement.” Id. at *13 (citing Buchanan v. Sterling Constr. Co., Inc., Civil

Action No. H-16-3429, 2017 WL 6888308 (S.D. Tex. July 26, 2017)). The Court noted that in the

Fifth Circuit “[t]he scope of a judicial complaint is limited to the sweep of the OSHA investigation

that can reasonably be expected to ensue from the administrative complaint.” Id. (quoting Buchanan,

2017 WL 6888308, at *3 (citing Wallace v. Tesoro Corp., 796 F.3d 468, 476 (5th Cir. 2015)).

According to the undersigned, the evidence showed MPSI was included in the underlying

administrative action. Id. The Court further stated as follows:

MPSI’s Associate General Counsel Weathers-Nguyen received notification of the

filings and actively participated in the administrative action. MPSI employees,

Gonzalez and Ponder, were referenced throughout both administrative complaints

and were both deposed. However, at their depositions, they indicated they were

employed by MGI. Importantly, MPSI filed the answer to Plaintiff’s amended

administrative complaint, and it did not raise the improper entity issue in its failure

to exhaust arguments.

Id. “Considering the unique facts of this case,” the undersigned found Plaintiff’s claims against

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MPSI can reasonably be expected to grow out of the administrative complaints against MGI. Id.

Accordingly, the undersigned concluded Plaintiff exhausted his administrative remedies as to the

SOX retaliation claim against MPSI and recommended MPSI’s motion to dismiss for lack of

jurisdiction be denied. Id. Because the undersigned recommended MPSI’s motion to dismiss be

denied, the undersigned did not need to consider MGI’s motion to dismiss under Rule 12(b)(3) and

alternative § 1406(a) motion to transfer to the Northern District of Texas. Id. at *13, n. 6.

The undersigned then considered Defendants’ alternative§ 1404(a) motions to transfer venue,

and after discussing each private and public interest factor, found that, on balance, such factors

weighed in favor of transfer. The undersigned recommended Defendants’ alternative motions to

transfer pursuant to § 1404(a), on an intra-district basis, be granted. Id. at *19.

No objections were filed to the findings and conclusions contained in the Report and

Recommendation. On January 28, 2020, District Judge Schroeder adopted the Report and

Recommendation as the findings and conclusions of the Court and transferred the case to the

Sherman Division of the Eastern District of Texas. Docket Entry # 53.

Defendants together have filed a motion for summary judgment regarding the sufficiency of

the initial complaint presented to OSHA. MGI has also filed a separate motion for summary

judgment regarding the issue of whether it may be considered Plaintiff’s employer, along with MPSI,

for purposes of Plaintiff’s SOX retaliation claims. The parties have filed the following evidence

regarding the MoneyGram entities.

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D. Evidence regarding MoneyGram entities

1. MGI’s motion for summary judgment

In her declaration, Weathers-Nguyen states as follows. MPSI is a subsidiary of MGI, a

Delaware corporation who has maintained its principal place of business at 2828 N. Harwood Street

in Dallas, Texas since 2010. Weathers-Nguyen Decl., ¶ 2. “MPSI is likewise headquartered at 2828

N. Harwood Street in Dallas, Texas” and maintains its personnel records for all U.S. offices in

Dallas. Id., ¶ 3. Plaintiff worked for MPSI at MPSI’s office in Frisco, Texas. Id., ¶ 4. That office

space is leased by MPSI, not MGI, and MGI does not transact business in MPSI’s Frisco, Texas

office. Id.

2. Plaintiff’s response

In the SAC, Plaintiff alleges MPSI is a subsidiary of parent company MGI, a publicly-traded

money transfer company, and MPSI’s financial information is included in the consolidated financial

statements of MGI. SAC, ¶¶ 5-7. In its answers, MGI admitted this allegation. Docket Entry # 89,

Ex. 11, ¶¶ 5-7.

In its 2017 Form 10-K, MGI states under “Overview” that “MoneyGram International, Inc.

(together with our subsidiaries, ‘MoneyGram,’ the ‘Company,’ ‘we,’ ‘us,’ and ‘our’) is a global

provider of innovative money transfer services and is recognized worldwide as a financial connection

to friends and family.” Docket Entry # 89, Ex. 5 at p. 3. MGI further stated as follows: “We conduct

our business primarily through our wholly-owned subsidiary, MoneyGram Payment Systems, Inc.

(‘MPSI’), under the MoneyGram brand.” Id. According to the 2017 Form 10-K, W. Alexander

Holmes has served as the Chief Executive Officer since January 2016. Id. at p. 10. The form also

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lists Andres Villareal as a member of its executive leadership team and states Villareal has been

MGI’s Chief Compliance Officer since March 2016. Id. at pp. 10-11.

3. Plaintiff’s surreply

Subsequent to the filing of Plaintiff’s response, the Court permitted Plaintiff to take the

depositions of Craig Bernier (head of MoneyGram’s Anti-Money Laundering, Counter Financing

of Terrorism Division, previously head of Financial Intelligence Unit); Sylvia Gil (MoneyGram

Regional Compliance Officer); Fredy Morales (previously MoneyGram Regional Compliance

Officer and then Supervisor in Global Back Office); and Derya White (previously MoneyGram

Senior Regional Compliance Officer). While Plaintiff asserts “MGI’s SEC filing in and of itself

establishes sufficient nexus between MPSI employees and MGI to establish MGI’s SOX liability,”

in his surreply, Plaintiff asserts “this is bolstered by the testimony of the Compliance employees.”

Docket Entry # 118 at p. 6.

In his deposition, Bernier testified he is employed by MPSI in the position of head of anti-

money laundering and counter financing of terrorism (AML CFT), which is the “biggest compliance

department” within MoneyGram. Bernier Dep. at 5:8-6:7. According to Bernier, he has “oversight

of a team of compliance people who investigate fraud, money laundering, and terrorist activities.”

Id. at 6:8-12. Prior to being head of AML CFT, Bernier was the head of the Financial Intelligence

Unit for MoneyGram, “which is the vast majority still of [his] current work.” Id. at 7:3-9. Bernier

has worked for MoneyGram since November 2013. Id. at 7:9-18.

Bernier stated he is required to comply with the DPA and the FTC’s injunction, and that in

order to do that, he needs “to have an understanding of what is in there, and then [he] can also rely

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on our internal legal counsel for interpretations when things may not be clear . . . in those particular

requirements.” Id. at 13:2-23 (further stating it is “very important for me to have an understanding

of the requirements to perform my job functions”). Bernier testified he signed an acknowledgment

that he received a copy of the federal injunction. Id. at 13:24-14:9.When asked about the DPA

entered against MGI, Bernier testified as follows:

· Q.· I want you to -- let me ask you this:··As a MoneyGram manager -- you’re a senior

manager, aren’t you?

· A.· ·Yes.··Yes.

· Q.· ·As a senior MoneyGram manager, do you have any responsibility for complying

with this [DPA] agreement?

· A.· ·Yes, I do.

Id. at 48:23-49:4; see also id. at 47:1-7.

Q.·I’m asking you specifically about MoneyGram’s agreement with the federal

government. You understand that you are bound by this agreement? You, in your role

as the head of Anti-Money Laundering and Counter Financing of Terrorism, are

bound by this agreement?

A.· I understand the company is bound by it.··I work for the company.··I’ve signed

that I acknowledged it, and, yes, my job is to make some of the issues that were

identified in the Deferred Prosecution Agreement better and not have the same

challenges that the company was fined for in the past.

Id. at 51:6-18.

Q.· What’s your understanding of why MoneyGram required you to read the federal

injunction and the prosecution agreement from the Department of Justice?

A.· As I recall, the company was required to have everyone read and acknowledge

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the Deferred Prosecution Agreement.

Id. at 170:17-22.

When asked if he received training on what MoneyGram’s obligations are under the DPA

and the injunction, Bernier testified that the company conducts annual training, including some

training on the continuing obligations under the FTC order against MGI. Id. at 226:9-17. Bernier

further testified as follows:

Q.· I’m asking you if anyone with MoneyGram has ever addressed with you who

could potentially suffer the consequences if the DPA was violated?

A.·So we do have annual training within the company that does articulate the

consequences of noncompliance.··As I recall, jail is mentioned for noncompliance

as one of the measures that – one of the consequences that could happen, along with

fines.··I don’t recall if it specifically says a position or a person that would be subject

to that. In my mind, compliance is everyone’s responsibility, so I think everyone

should take that training with all seriousness, that, you know, anybody can be

responsible for wrongdoing within the company and should be and is.

Beyond that, I’m aware that the prior chief compliance officer for MoneyGram before

I worked for MoneyGram was personally fined, so I know that has happened.··So in

terms of exactly who, I can’t say that I recall any specific person saying, this person

will go to jail, but I do recall that it is part of our training that jail is consequence –

could be a consequence for noncompliance.

According to Plaintiff, although Bernier testified he is employed by MPSI, the May 4, 2017 press release from

the DOJ states that Bernier’s predecessor, Thomas E. Haider, the former chief compliance officer, was employed by

MGI. Docket Entry # 118, Appx. 103-105. Regarding Bernier’s predecessor, the government announced “that the United

States Department of the Treasury (the ‘Treasury Department’) has settled its claims under the Currency and Foreign

Transactions Reporting Act of 1970 (‘Bank Secrecy Act’ or ‘BSA’) against THOMAS E. HAIDER (‘HAIDER’), the

former chief compliance officer of MoneyGram International, Inc. (‘MoneyGram’).” Id. at Appx. 103 (emphasis added

by Plaintiff). The press release further provides as follows:

During the relevant time period, MoneyGram operated a money transfer service that enabled its

customers to transfer money from one MoneyGram outlet to another. In the settlement – which

resolves claims that HAIDER is liable under the BSA for failing to ensure that MoneyGram

implemented and maintained an effective anti-money laundering (‘AML’) program and filed timely

suspicious activity reports (‘SARs’) with FinCEN, HAIDER has agreed to a three-year injunction

barring him from performing a compliance function for any money transmitter. HAIDER has also

agreed to pay $250,000, and has admitted, acknowledged, and accepted responsibility for [a laundry

list of activity resulting in fraud to consumers].

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Id. at 182:1-24.

In her deposition, Derya White acknowledged the injunction’s reference to “defendants,

officers, agents, employees, attorneys” included White, Gonzalez, and Plaintiff “in that . . . we were

all employees of MoneyGram.” White Dep. at 91:4-94:24. Fredy Morales worked for MoneyGram

from December 2013 to April 2019, first as a compliance officer 1, then as a regional compliance

officer, and finally as a supervisor in the “global back office as leading the agent disciplinary actions

team.” Morales Dep. at 7:17-8:18. When he first began working in compliance for MoneyGram,

Morales was told about the 2009 FTC injunction, and he reviewed the injunction as part of his

responsibilities as a regional compliance officer. Id. at 23:7-21. Morales testified everybody in

compliance at MoneyGram received the same training, which included reading the DPA. Id. at

26:18-27:19.

In her deposition, Sylvia Gil-Wallin testified she has been employed with MoneyGram as a

regional compliance officer since April 2014. Gil Dep. at 5:3-19. According to Gil, when she joined

the company in 2014, she was asked to read the 2012 DPA between MoneyGram and the

government. Id. at 17:2-16 (stating “they ask you to read it when . . . they send you the offer letter”).

Regarding the Amended DPA, Gil testified the company sent it to MoneyGram employees to read

and they subsequently held meetings placing “mitigation actions.” Id. at 67:20-68:6; see also id. at

69:2-16.

Based on this evidence, Plaintiff asserts there is effectively no difference between MGI and

Id. at Appx. 103-104. According to the press release, Haider, as “MoneyGram’s chief compliance officer,” was the most

senior MoneyGram employee with direct oversight over MoneyGram’s Fraud Department and AML Compliance

Department. Id. at Appx. 105.

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MPSI, pointing out MGI officers and employers have authority and oversight over MPSI compliance.

According to Plaintiff, even MPSI employees (and the federal government) acknowledge that MGI

and MPSI operations (including compliance) are “one and the same.” Docket Entry # 118 at p. 9.

Before addressing MGI’s motion, the Court sets forth the applicable law.

V. APPLICABLE LAW

A. Statutory overview, generally

Persons who report certain violations of the securities laws are protected from retaliation

under (at least) two federal statutes: “Sarbanes–Oxley protects employees who blow a whistle to

management or to regulatory agencies; Dodd–Frank protects ‘whistleblowers,’ defined as persons

who report violations ‘to the Commission.’” Berman v. Neo@Ogilvy L.L.C., 801 F.3d 145, 156 (2d

Cir. 2015) (Jacobs, J., dissenting), abrogated by Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767,

200 L. Ed. 2d 15 (2018) (quoting15 U.S.C. § 78u–6(a)(6)). The Sarbanes-Oxley Act of 2002,

referred to herein as SOX or Sarbanes-Oxley, was enacted after the collapse of Enron Corporation

to “safeguard investors in public companies and restore trust in the financial markets.” Moody v. Am.

Nat’l Ins. Co., No. 3:19-CV-00206, 2020 WL 3128259, at *2 (S.D. Tex. June 12, 2020) (quoting

Lawson v. FMR L.L.C., 571 U.S. 429, 432, 134 S.Ct. 1158, 188 L.Ed.2d 158 (2014) (“Lawson III”)).

The whistleblower provision provides federal protection to employees of publicly traded

companies who provide evidence of fraud to federal governmental authorities or their supervisor or

who participate in a proceeding relating to a violation of antifraud laws or Securities and Exchange

Commission rules.

See Brent B. Nicholson, The Perils of Parenthood and Other Dangerous

What became Title VIII of the Sarbanes-Oxley Act of 2002 started out as Section 806 of the Corporate and

Criminal Fraud Accountability Act of 2002 (“CCFAA”), introduced by Senator Patrick Leahy on March 12, 2002. See

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Relationships Under the Whistleblower Protection Provision of the Sarbanes-Oxley Act of 2002, 2

Entrepreneurial Bus. L.J. 415, 416 (2007) (citing 18 U.S.C. § 1514A(a) (2006)). Specifically, 18

U.S.C. § 1514A, established a private right of action for employees of certain companies who are

discharged for, among other things, “provid[ing] information . . . regarding any conduct which the

employee reasonably believes constitutes a violation of [specified securities laws] . . . to . . . a person

with supervisory authority over the employee.” Daly v. Citigroup Inc., 939 F.3d 415, 422 (2d Cir.

2019) (quoting 18 U.S.C. § 1514A(a)(1)(C)). Protected activity is defined as:

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 believes 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. . . .

Wallace v. Tesoro Corp., 796 F.3d 468, 474 (5th Cir. 2015) (quoting 18 U.S.C. § 1514A(a)).

“Essentially, the employee has to provide information or assist in an investigation that he reasonably

believes relates to one or more of six categories of laws and regulations: four specific types of fraud,

a federal offense that relates to fraud against shareholders, or a rule or regulation of the SEC.”

Wallace, 796 F.3d at 474.

Following the financial crisis of 2007-08, Congress passed the Dodd-Frank Wall Street

Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (“Dodd-

Frank”), which amended a variety of federal statutory provisions that had been designed to regulate

the financial industry. Daly, 939 F.3d at 422. Dodd-Frank amended the Securities Exchange Act of

Brent B. Nicholson, The Perils of Parenthood and Other Dangerous Relationships Under the Whistleblower Protection

Provision of the Sarbanes-Oxley Act of 2002, 2 Entrepreneurial Bus. L.J. 415, 417 (2007). Federal whistleblower

protection was written into Section 806 of CCFAA, later to become Title VIII of SOX and codified at 18 U.S.C. §1514A.

Id.

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1934 (“Exchange Act”) to create a private right of action against an employer who retaliates against

a whistleblower for engaging in one or more of three categories of protected activity including

“making disclosures that are required or protected under [SOX].” Id. (quoting 15 U.S.C. §

78u-6(h)(1)(A)(iii)).

B. Anti-retaliation provision of Sarbanes-Oxley

Plaintiff brings his claims under the anti-retaliation provision of SOX, codified at 18 U.S.C.

§ 1514A(a), as amended by Section 929A of Dodd-Frank. “The amended provision extends §

1514A’s protection to employees of public company subsidiaries and nationally recognized statistical

rating organizations (NRSROs).” Lawson III, 571 U.S. at 455. Recently, the Supreme Court, in

comparing this provision with the “core objective” of Dodd–Frank’s robust whistleblower program,

stated Congress had a “more far-reaching objective” when enacting Sarbanes–Oxley’s whistleblower

regime: It sought to disturb the “corporate code of silence” that “discourage[d] employees from

reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but

even internally.” Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767, 777-78, 200 L. Ed. 2d 15 (2018)

(quoting Lawson III, 571 U.S., at ––––, 134 S.Ct., at 1162 (internal quotation marks omitted in

Somers)). Accordingly, the Sarbanes–Oxley anti-retaliation provision covers employees who report

fraud not only to the SEC, but also to any other federal agency, Congress, or an internal supervisor.

Id. at 778.

A SOX retaliation claim requires exhaustion of administrative remedies prior to filing suit.

“Because exhaustion requirements are designed to deal with parties who do not want to exhaust, administrative

law creates an incentive for these parties to do what they would otherwise prefer not to do, namely, to give the agency

a fair and full opportunity to adjudicate their claims.” Erhart v. BofI Holding, Inc., No. 15-CV-02287-BAS-NLS, 2020

WL 1550207, at *5 (S.D. Cal. Mar. 31, 2020) (quoting Woodford v. Ngo, 548 U.S. 81, 90, 126 S.Ct. 2378, 165 L.Ed.2d

368 (2006)). The “law does this by requiring proper exhaustion of administrative remedies, which ‘means using all steps

that the agency holds out, and doing so properly (so that the agency addresses the issues on the merits).’” Id. (quoting

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Buchanan v. Sterling Constr. Co., Inc., Civil Action No. H-16-3429, 2017 WL 6888308, at *3 (S.D.

Tex. July 26, 2017) (citing Wallace, 796 F.3d at 475-76 (holding SOX retaliation suits are limited

by the scope of the administrative complaint)). To pursue a whistleblower retaliation claim under

SOX, a plaintiff must first initiate an administrative action by filing a complaint with the Secretary

of Labor. Erhart v. BofI Holding, Inc., No. 15-CV-02287-BAS-NLS, 2020 WL 1550207, at *6 (S.D.

Cal. Mar. 31, 2020) (citing 18 U.S.C. § 1514A(b)(1)(A)).

The Department of Labor (“DOL”) has delegated the responsibility for investigating and

initially adjudicating the complaint to the Occupational Safety and Health Administration (“OSHA”).

Villanueva v. U.S. Dep’t of Labor, 743 F.3d 103, 106 (5th Cir. 2014) (citing 77 Fed. Reg. 3912; also

citing 29 C.F.R. § 1980.104(a)). The claimant may appeal OSHA’s determination to an ALJ and

ultimately the DOL’s Administrative Review Board (“ARB”). Erhart, 2020 WL 1550207, at *6

(citing Lawson III, 571 U.S. at 436–37 (citing 29 CFR §§ 1980.104 to 1980.110)). “[T]he ARB’s

determination on a § 1514A claim constitutes the agency’s final decision and is reviewable in federal

court under the standards stated in the Administrative Procedure Act, 5 U.S.C. § 706.” Id. (quoting

Lawson III, 571 U.S. at 437). “If, however, the ARB does not issue a final decision within 180 days

of the filing of the complaint, and the delay is not due to bad faith on the claimant’s part, the

claimant may proceed to federal district court for de novo review.” Id. (quoting Lawson III, 571 U.S.

at 437 (citing 18 U.S.C. § 1514A(b))).

The requirements for a prima facie case are articulated in the DOL regulations. Day v.

Staples, Inc., 555 F.3d 42, 53 (1st Cir. 2009). To make out a prima facie case for retaliation under

Woodford, 548 U.S. at 90 (quoting Pozo v. McCaughtry, 286 F.3d 1022, 1024 (7th Cir. 2002))).

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§ 1514A(a), an employee must show “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.’” Wallace v. Andeavor Corp., 916 F.3d 423, 426 (5th Cir.), cert. denied, 140 S. Ct.

206 (2019) (quoting 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))). An

employee’s reasonable belief that conduct violates one of those six categories must be evaluated

under both an objective and a subjective standard. Wallace, 796 F.3d at 474 (citing Allen, 514 F.3d

at 477). The objective standard examines 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.”

Wallace, 796 F.3d at 474-75 (quoting Allen, 514 F.3d at 477).

Then, “[i]f the employee establishes these four elements, the employer may avoid liability

if it can prove by clear and convincing evidence that it would have taken the same unfavorable

personnel action in the absence of that protected behavior.” Hemphill v. Celanese Corp., 430 Fed.

Appx. 341, 344 (5th Cir. 2011) (quoting Allen, 514 F.3d at 476 (internal quotations and citations

omitted in Hemphill)). This “independent burden-shifting framework” is distinct from the

McDonnell Douglas burden-shifting framework applicable to Title VII claims. Allen, 514 F.3d at 476

(citing Williams v. Admin. Review Bd., 376 F.3d 471, 476 (5th Cir.2004) (ERA case); also citing

Trimmer v. U.S. Dep’t of Labor, 174 F.3d 1098, 1101 (10th Cir.1999) (ERA case)).

It is now well accepted that courts should construe Section 806 broadly. Leshinsky v. Telvent

GIT, S.A., 942 F. Supp. 2d 432, 440–41 (S.D. N.Y. 2013) (“Leshinsky II”) (citing Mahony v.

KeySpan Corp., No. 04 Civ. 554(SJ), 2007 WL 805813, at *5 (E.D. N.Y. Mar. 12, 2007) (“The law

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was intentionally written to sweep broadly, protecting any employee of a publicly traded company

who took such reasonable action to try to protect investors and the market.” (citing 149 Cong. Rec.

S1725–01, S1725, 2003 WL 193278 (Jan. 29, 2003))). At the summary judgment stage, a plaintiff

need only demonstrate that a rational factfinder could determine that the plaintiff has made his prima

facie case. Id. at 441. Assuming a plaintiff does so, summary judgment is appropriate only when,

construing all of the facts in the employee’s favor, there is no genuine dispute that the record clearly

and convincingly demonstrates that the adverse action would have been taken in the absence of the

protected behavior. Id. “Thus, the defendant’s burden under Section 806 is notably more than under

other federal employee protection statutes, thereby making summary judgment against plaintiffs in

Sarbanes–Oxley retaliation cases a more difficult proposition.” Id. (citing Delville v. Firmenich, Inc.,

No. 08 Civ. 10891, 920 F.Supp.2d 446, 458–59, 2013 WL 363391, at *9 (S.D. N.Y. Jan. 31, 2013)

(laying out a defendant’s burden under both Title VII and Age Discrimination in Employment Act)).

With this general law in mind, the Court now considers MGI’s motion for summary

judgment, and specifically whether Plaintiff may assert retaliation claims under § 1514A against both

MPSI and MGI as defendant-employers.

VI. WHETHER PLAINTIFF MAY PROCEED AGAINST BOTH MPSI AND MGI

A. Parties’ assertions

In its motion, MGI relies on Lawson III for the proposition that a retaliation plaintiff must

be an employee of the defendant, whether that defendant-employer is the public company itself or

one of its subsidiaries. In his surreply, Plaintiff asserts, among other things, MGI’s insistence that

Lawson III “is controlling is curious.” Docket Entry # 118 at p. 4. According to Plaintiff, Lawson

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involved the question of whether SOX covered claims of an employee of a contractor (not a

subsidiary) of a publicly traded company when the contractor company was not itself publicly traded,

and the Supreme Court held that such claims are covered. Id. Plaintiff further points out as follows:

While Lawson does hold that an employee must sue her ‘employer,’ it should be

noted that the plaintiffs in Lawson were employed by the subsidiaries of the

defendant (FMR, LLC) and the Court allowed the claims to proceed against the

parent company who contracted with the publicly traded company. In fact, the Court

expressly noted Congress’ intent in ‘extending protection comprehensively to

corporate whistleblowers.’ Id. at 456—57. (‘Lawson was employed by Fidelity

Brokerage Services, LLC, a subsidiary of FMR Corp., which was succeeded by FMR

LLC. Zang was employed by a different FMR LLC subsidiary, Fidelity Management

& Research Co., and later by one of that company’s subsidiaries, FMR Co., Inc. For

convenience, we refer to respondents collectively as FMR.’). Id. at 437—38.

Id.

Even though the facts of Lawson (which the Court sets out in detail below) may cut against

MGI’s argument, the Court notes there is no indication in the Lawson opinions that the precise issue

before the Court was raised there. Here, although there is no dispute that Plaintiff was employed by

MPSI or that MPSI is covered by SOX’s whistleblowing statute as amended by Dodd-Frank, there

is a dispute as to whether Plaintiff also has a cause of action, either under an indirect or direct theory

of liability, against MGI as his employer.

As discussed in detail below, not only are there various legal theories available by which a

parent can be liable for the acts of its subsidiaries, but there is also great discrepancy in the case law

as to how, or under what theory, a court should best consider the issue raised in MGI’s motion. To

aid in the Court’s discussion of the ultimate issue raised in MGI’s motion, the Court must first

consider the various theories and determine which of the available theories Plaintiff has adequately

raised. The Court will then consider how administrative proceedings and federal courts have

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interpreted § 1514A, both before and after the enactment of Dodd-Frank, focusing on the various

theories utilized in those opinions.

B. Theories by which a parent can be held liable for the acts of its subsidiaries

1. Application of state law or federal common law

As an initial matter, the Court must determine whether to borrow state law or to apply a

federal common law of indirect liability. In a case involving the Comprehensive Environmental

Response, Compensation, and Liability Act of 1980 (“CERCLA”), 94 Stat. 2767, as amended, 42

U.S.C. § 9601 et seq., the Supreme Court noted in a footnote that there was significant disagreement

among courts and commentators over whether, in enforcing CERCLA’s indirect liability, courts

should borrow state law, or instead apply a federal common law of veil piercing. United States v.

Bestfoods, 524 U.S. 51, 63 n. 9, 118 S. Ct. 1876, 141 L. Ed. 2d 43 (1998) (comparing U.S. v.

Cordova Chemical Co. of Michigan, 113 F.3d 572, 584-85 (6th Cir. May 13, 1997) (Merritt, J.,

concurring in part and dissenting in part) (arguing that federal common law should apply),

Lansford–Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1225 (3d Cir. 1993) (“[G]iven

the federal interest in uniformity in the application of CERCLA, it is federal common law, and not

state law, which governs when corporate veil-piercing is justified under CERCLA”), and Aronovsky

& Fuller, Liability of Parent Corporations for Hazardous Substance Releases under CERCLA, 24

U.S.F.L.Rev. 421, 455 (1990) (“CERCLA enforcement should not be hampered by subordination

of its goals to varying state law rules of alter ego theory”), with, e.g., Cordova/Michigan, 113 F.3d

at 580 (“Whether the circumstances in this case warrant a piercing of the corporate veil will be

determined by state law”), and Dennis, Liability of Officers, Directors and Stockholders under

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CERCLA: The Case for Adopting State Law, 36 Vill.L.Rev. 1367 (1991) (arguing that state law

should apply); also citing In re Acushnet River & New Bedford Harbor Proceedings, 675 F.Supp.

22, 33 (D. Mass.1987) (noting that, since “federal common law draws upon state law for guidance,

. . . the choice between state and federal [veil-piercing law] may in many cases present questions

of academic interest, but little practical significance”); also citing Note, Piercing the Corporate Law

Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv.L.Rev. 853 (1982) (arguing that

federal common law need not mirror state law, because “federal common law should look to federal

statutory policy rather than to state corporate law when deciding whether to pierce the corporate

veil”)). The Supreme Court did not need to decide the question in order to rule on the issues raised

in the Bestfoods appeal.

“The Fifth Circuit has repeatedly declined to address whether, as a matter of federal common

law, courts in this Circuit should apply federal or state law when adjudicating a veil piercing claim.”

United States v. Dawn Properties, Inc., No. 1:14CV224-LG-JCG, 2016 WL 7223398, at *2 (S.D.

Miss. Dec. 13, 2016) (quoting Port of S. La. v. Tri-Parish Indus., Inc., No. 11-3065, 2013 WL

2394859, at *3 (E.D. La. May 28, 2013); also citing Bestfoods, 524 U.S. at 64 n.9 (declining to

address the issue)). In Dawn Properties, the plaintiff brought claims against the defendant under the

Fair Housing Act (“FHA”) under both theories of vicarious and direct liability. Id. at *1. Noting the

claims were all predicated on the federal FHA, the court was of the opinion that federal common law

applied to the veil piercing claim. Id. at *2 (citing Melson v. Vista World Inc. & Assocs., No. 12-135,

2012 WL 6002680, at *4 (E.D. La. Nov. 30, 2012) (where “subject matter jurisdiction is predicated

upon a federal question[,] federal common law applies”)). The court also found persuasive case law

from other courts applying federal common law to veil piercing claims in the context of the FHA and

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other federal statutes. Id. (citing Equal Rights Ctr. v. Equity Residential, No. 06-1660, 2016 WL

1258418, at *3 (D. Md. Mar. 31, 2016) (“The court applies federal common law in deciding whether

to pierce the corporate veil because that decision implicates an important federal interest: liability

for violations of the FHA.”); also citing U.S. ex rel. Dekort v. Integrated Coast Guard Sys., 705 F.

Supp. 2d 519, 546 (N.D. Tex. 2010) (FCA); also citing Shuck v. Wichita Hockey, Inc., 356 F. Supp.

2d 1191, 1194 (D. Kan. 2005) (COBRA)).

Similarly here, the Court finds that “given the federal interest in uniformity in the application

of [SOX], it is federal common law, and not state law, which governs” matters of indirect liability.

See United States v. Gen. Battery Corp., 423 F.3d 294, 298 (3d Cir. 2005) (CERCLA case) (quoting

Lansford-Coaldale, 4 F.3d at 1225). Having determined that federal common law applies, the Court

next turns to that law itself. Dawn Properties, 2016 WL 7223398, at *2. However, as explained in

Piercing the Corporate Law Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv.

L. Rev. 853 (1982), piercing the corporate veil under federal common law has become a variant,

rather than a “common,” law.

Id. at 861.

2. Federal common law theories

Generally speaking, a parent company cannot ordinarily be held liable for its subsidiary’s

conduct. However, there are three theories by which the parent can be held liable for the acts of its

For example, labor disputes are governed by “federal law, which the courts must fashion from the policy of

our national labor laws;” although state law may be adopted as the federal rule of decision, this may be done only “in

order to find the rule that will best effectuate the federal policy.” Piercing the Corporate Law Veil: The Alter Ego

Doctrine Under Federal Common Law, 95 Harv. L. Rev. 853, 859 (1982) (citations omitted). “Despite this importance

of federal policy considerations, lower courts’ treatment of alter ego questions in labor disputes has been erratic,” with

some courts automatically applying state law standards and other courts noting that federal law must apply, but then

without further discussion applying state corporate law standards either directly or as adopted by other federal courts.

Id. at 859-60. Inconsistency in the application of alter ego doctrines similarly plagues other areas of federal law. Id. at

860.

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subsidiaries: (1) an alter ego theory to “pierce the corporate veil;” (2) vicarious liability based on

general agency principles; or (3) direct liability where the parent directly participated in the

complained-of wrong. 111 Am. Jur. Trials 205, § 4 (Originally published in 2009) (citing Gillespie

v. HSBC North America Holdings, Inc., 2006 WL 2735135, at *5 n.5 (M.D. Fla. 2006) (citing In re

Managed Care Litigation, 298 F.Supp.2d 1259, 1309 (S.D. Fla. 2003) (case involving RICO

claims))). “The complementary theories of limited liability and piercing the corporate veil have

provoked consternation among courts and legal scholars alike.” Domain Prot., L.L.C. v. Sea Wasp,

L.L.C., No. 4:18-CV-792, 2019 WL 5189200, at *12 (E.D. Tex. Oct. 15, 2019). “They have been

variously described as a ‘legal quagmire,’ Ballantine, Separate Entity of Parent and Subsidiary

Corporations, 14 CALIF. L. REV. 12, 15 (1925), and as being ‘enveloped in the mists of metaphor.’

United States v. Jon-T Chems., Inc., 768 F.2d 686, 691–92 (5th Cir. 1985) (citing Berkey v. Third

Avenue Ry., 244 N.Y. 84, 155 N.E. 58, 61 (1926) (Cardozo, J.)).” Id.

a. “Pierce the corporate veil” theories

Alter ego theory to “pierce the corporate veil”

The tests employed to determine when circumstances justifying “veil-piercing” exist are

variously referred to as the “alter ego,” “instrumentality,” or “identity” doctrines; the formulations

are generally similar, and courts rarely distinguish them. 111 Am. Jur. Trials 205, § 4 (Originally

published in 2009). Under federal common law, courts are reluctant to pierce a corporate veil and

impose liability on a separate, related entity, but may do so under extraordinary circumstances.

Clipper Wonsild Tankers Holding A/S v. Biodiesel Ventures, L.L.C., 851 F. Supp. 2d 504, 509 (S.D.

N.Y. 2012) (citing Arctic Ocean Int’l, Ltd. v. High Seas Shipping Ltd., 622 F.Supp.2d 46, 53 (S.D.

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N.Y. 2009)). In order to “pierce the corporate veil” under the federal common law standard, a

plaintiff must show that an alter ego was used to “perpetrate a fraud” or was “so dominated” and its

corporate form so “disregarded” that the alter ego “primarily transacted [another entity’s] business

rather than [its] own corporate business.” Id. (quoting Kirno Hill Corp. v. Holt, 618 F.2d 982, 985

(2d Cir.1980)).

“Veil piercing determinations are fact specific and differ with the circumstances of each

case.” Id. (quoting Thomson–CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d, 773, 777–78 (2d Cir.1995)

(internal quotation marks and citation omitted in Clipper)). Thus, the alter ego determination must

be made in view of “the totality of the facts.” Id. (quoting United States v. Funds Held in the Name

or for the Benefit of Wetterer, 210 F.3d 96, 106 (2d Cir. 2000)). There are several factors relevant

to determining whether one entity is the “alter ego” of another, and thus whether to pierce the

corporate veil. These include:

(1) disregard of corporate formalities; (2) inadequate capitalization; (3) intermingling

of funds; (4) overlap in ownership, officers, directors, and personnel; (5) common

office space, address and telephone numbers of corporate entities; (6) the degree of

business discretion shown by the allegedly dominated corporation; (7) whether the

dealings between the entities are at arms length; (8) whether the corporations are

treated as independent profit centers; (9) payment or guarantee of the corporation’s

debts by the dominating entity, and (10) intermingling of property between the

entities.

Id. at 509-10 (quoting Matter of Arbitration between Holborn Oil Trading Ltd. and Interpol

Bermuda Ltd., 774 F.Supp. 840, 844–45 (S.D. N.Y. 1991)).

Courts in the Fifth Circuit generally limit veil piercing to situations in which the corporate

subsidiary is (1) established to perpetrate a fraud (or if its shareholders drain the corporation’s assets)

or (2) totally dominated and controlled by the parent corporation as its business conduit, as its alter

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ego. United States v. Wallace, 961 F. Supp. 969, 978 (N.D. Tex. 1996) (citing United States v. Jon–T

Chemicals, Inc., 768 F.2d 686, 691 (5th Cir.1985) (listing factors)). No one factor is dispositive, and

courts have considered additional factors as well. Clipper, 851 F. Supp. 2d at 510 (citing Williamson

v. Recovery Ltd. P’ship, 542 F.3d 43, 53 (2d Cir. 2008) (“Instead of a firm rule, the general principle

guiding courts in determining whether to pierce the corporate veil has been that liability is imposed

when doing so would achieve an equitable result.” (internal quotation marks omitted in Clipper));

see also Jon-T Chemicals, Inc., 768 F.2d at 694 (“[T]here is no litmus test for determining whether

a subsidiary is the alter ego of its parent.”).

Labor-specific veil-piercing tests

Additionally, there is the concept of joint or multiple employers, which has long been a staple

of labor relations law. Murdock v. City of Houston, No. 4:10-CV-00056, 2011 WL 7109286, at *3

(S.D. Tex. Sept. 21, 2011) (citing Boire v. Greyhound Corp., 376 U.S. 473, 481, 84 S.Ct. 894, 11

L.Ed.2d 849 (1964); also citing NLRB v. Pennsylvania Greyhound Lines, Inc., 303 U.S. 261, 58 S.Ct.

571, 82 L.Ed. 831 (1938) (“Together, respondents [affiliated corporations] act as employers of those

employees . . . and together actively deal with labor relations of those employees.” (emphasis added

in Murdock)); also citing NLRB v. Condenser Corp. of America, 128 F.2d 67, 72 (3d Cir.1942) (“It

is rather a matter of determining which of two, or whether both, respondents control, in the capacity

of employer, the labor relations of a given group of workers.” (emphasis added in Murdock))). The

existence of joint employer status is “essentially a factual issue,” and hinges on whether the putative

employer “possesse[s] sufficient control over the work of the employees to qualify as a joint

employer.” Id. (quoting Boire, 376 U.S. at 481).

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The joint employers doctrine is often confused with a related, but quite distinct, legal doctrine

known as the “single employer” or “integrated enterprise” theory. Id. at *4 (citing John E. Higgins,

Jr., The Developing Labor Law, vol. II, at 2247 (5th ed. 2006)). The integrated enterprise doctrine

also originated in labor relations law, primarily as a way of determining whether related business

entities, such a parent and a subsidiary, should be considered together as a single statutory employer

for jurisdictional purposes. Id. According to the Third Circuit Court of Appeals, there is the

“integrated enterprise” test for the presence of a single employer, “a sort of labor-specific

veil-piercing test, first developed by the National Labor Relations Board.” Pearson v. Component

Tech. Corp., 247 F.3d 471, 485 (3d Cir. 2001).

In Radio Union v. Broadcast Service of Mobile, Inc., the Supreme Court upheld NLRB

jurisdiction over a Mobile radio station, even though the station’s gross revenues were below the

Board’s jurisdictional minimum of $100,000, because the station was “an integral part of a group

of radio stations owned and operated by [a parent company] and . . . the annual receipts of the

common enterprise are in excess of $100.000.” Murdock, 2011 WL 7109286, at *4 (quoting Radio

Union v. Broadcast Service of Mobile, Inc., 380 U.S. 255, 256, 85 S.Ct. 876, 13 L.Ed.2d 789

(1965)). The Court endorsed the Board’s practice of “consider[ing] several nominally separate

business entities to be a single employer where they comprise an integrated enterprise,” and

approved the Board’s four-factor test: (1) interrelation of operations, (2) common management, (3)

centralized control of labor relations, and (4) common ownership. Id. (citing Radio Union, 380 U.S.

at 256). The integrated enterprise doctrine has also been employed by the Fifth Circuit Court of

Appeals in the employment discrimination context, using the same four Radio Union criteria. Id.

(citing Schweitzer v. Advanced Telemarketing Corp., 104 F.3d 761, 764 (5th Cir.1997) (ADEA); also

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citing Trevino v. Celanese Corp., 701 F.2d 397, 404 (5th Cir.1983) (Title VII)).

“The integrated enterprise test, with its focus only on labor relations and its emphasis on

economic realities as opposed to corporate formalities, see Phillip I. Blumberg, The Law of

Corporate Groups: Problems of Parent and Subsidiary Corporations Under Statutory Law of General

Application § 13.03, at 398 (1989), is demonstrably easier on plaintiffs than traditional veil

piercing.” Pearson, 247 F.3d at 486. Ultimately, “the policy underlying the single employer doctrine

is the fairness of imposing liability for labor infractions where two nominally independent entities

do not act under an arm’s length relationship.” Id. (quoting Murray v. Miner, 74 F.3d 402, 405 (2d

Cir. 1996)).

b. Vicarious liability based on general agency principles

The Restatement (Third) of Agency § 1.01 provides as follows:

Agency is the fiduciary relationship that arises when one person (a ‘principal’)

manifests assent to another person (an ‘agent’) that the agent shall act on the

principal’s behalf and subject to the principal’s control, and the agent manifests

assent or otherwise consents so to act.

Restatement (Third) of Agency § 1.01. Agency will be further addressed in the Court’s discussion

below of the various administrative and federal court cases interpreting § 1514A.

c. Direct liability where the parent directly participated in the complained-of wrong

Although not often employed to hold parent corporations liable for the acts of subsidiaries

in the absence of other hallmarks of overall integration of the two operations, it has long been

acknowledged that parents may be “directly” liable for their subsidiaries’ actions when the “alleged

wrong can seemingly be traced to the parent through the conduit of its own personnel and

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management,” and the parent has interfered with the subsidiary’s operations in a way that surpasses

the control exercised by a parent as an incident of ownership. Pearson, 247 F.3d at 486–87 (citing

Bestfoods, 524 U.S. at 64 (quoting William O. Douglas & Carrol M. Shanks, Insulation from

Liability Through Subsidiary Corporations, 39 Yale L.J. 193, 207 (1929))). In such situations, the

parent has not acted on its own (in which case there would be no need even to consider the

subsidiary’s actions), nor has it acted in its capacity as owner of the subsidiary; rather, it has forced

the subsidiary to take the complained-of action, in disregard of the subsidiary’s distinct legal

personality. Id. (citing Esmark, Inc. v. NLRB, 887 F.2d 739, 756–57 (7th Cir.1989)). Thus, in the

labor context, “direct” liability may attach if the parent has overridden the subsidiary’s ordinary

decision-making process and ordered it to institute an unfair labor practice, or to create

discriminatory hiring policies. Id. (citing Esmark, 887 F.2d at 757). In this way, direct liability

functions essentially as a kind of “transaction-specific” alter ego theory. Id. (citing Esmark, 887 F.2d

at 756).

“In order to prevent the ‘direct participation’ theory of liability from extinguishing the

general rule of the parent corporation immunity from the obligations of a subsidiary, that theory must

be carefully limited to situations in which the parent corporation’s control over particular

transactions is exercised in disregard of the separate corporate identity of the subsidiary.” 111 Am.

Jur. Trials 205, § 5 (Originally published in 2009) (quoting Weinberger, Stanley R., Parent

Corporations and Their Subsidiaries’ Liabilities: Guidelines, Corporate Counselor, May 2008).

The facts of Bestfoods are illustrative. In that case, the United States brought an action under

CERCLA for the costs of cleaning up industrial waste generated by a chemical plant. Bestfoods, 524

U.S. at 55. CERCLA imposes liability on “any person who at the time of disposal of any hazardous

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substance owned or operated any facility at which such hazardous substances were disposed of.”

Nat’l Fuel Gas Midstream Corp. v. Pennsylvania Dep’t of Envtl. Prot., No. 116 C.D. 2016, 2017 WL

2391719, at *12 (Pa. Commw. Ct. June 2, 2017) (quoting Section 107(a)(2) of CERCLA, 42 U.S.C.

§ 9607(a)(2) (emphasis added in Midstream)).

The issue before the Supreme Court was whether a parent corporation that actively

participated in, and exercised control over, the operations of a subsidiary may, without more, be held

liable as an operator of a polluting facility owned or operated by the subsidiary. Bestfoods, 524 U.S.

at 55. The Supreme Court answered “no, unless the corporate veil may be pierced.” Id. However,

the Supreme Court also clarified that a “corporate parent that actively participated in, and exercised

control over, the operations of the facility itself may be held directly liable in its own right as an

operator of the facility.” Id.

The district court held that operator liability may attach to a parent corporation both directly,

when the parent itself operates the facility, and indirectly, when the corporate veil can be pierced

under state law. Id. at 58 (citing CPC Int’l, Inc. v. Aerojet–General Corp., 777 F.Supp. 549, 572

(W.D. Mich.1991)). A divided panel of the Court of Appeals for the Sixth Circuit reversed in part,

United States v. Cordova/Michigan, 59 F.3d 584, then granted rehearing en banc and vacated the

panel decision, 67 F.3d 586 (1995), again reversing the district court in part, 113 F.3d 572 (1997).

Id. at 59. According to the Supreme Court, the “majority remarked on the possibility that a parent

company might be held directly liable as an operator of a facility owned by its subsidiary: ‘At least

conceivably, a parent might independently operate the facility in the stead of its subsidiary; or, as a

sort of joint venturer, actually operate the facility alongside its subsidiary.’” Id. (quoting U.S. v.

Cordova Chemical Co. of Michigan, 113 F.3d 572, 579 (6th Cir. May 13, 1997)). The Sixth Circuit

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“refused to go any further and rejected the District Court’s analysis with the explanation:”

‘[W]here a parent corporation is sought to be held liable as an operator pursuant to

42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which

owns the facility, the parent will be liable only when the requirements necessary to

pierce the corporate veil [under state law] are met. In other words, . . . whether the

parent will be liable as an operator depends upon whether the degree to which it

controls its subsidiary and the extent and manner of its involvement with the facility,

amount to the abuse of the corporate form that will warrant piercing the corporate

veil and disregarding the separate corporate entities of the parent and subsidiary.

Id. at 59-60 (quoting Cordova/Michigan, 113 F.3d at 580). Applying Michigan veil-piercing law,

the Sixth Circuit “decided that neither CPC nor Aerojet was liable for controlling the actions of its

subsidiaries, since the parent and subsidiary corporations maintained separate personalities and the

parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice.” Id. at 60.

The Supreme Court granted certiorari to resolve a conflict among the circuits over the extent

to which parent corporations may be held liable under CERCLA for operating facilities ostensibly

under the control of their subsidiaries. Id. The Court vacated and remanded. Id.

The Supreme Court observed that “[i]t is a general principle of corporate law deeply

‘ingrained in our economic and legal systems’ that a parent corporation (so-called because of control

through ownership of another corporation’s stock) is not liable for the acts of its subsidiaries. . . .

Thus it is hornbook law that the exercise of the ‘control’ which stock ownership gives to the

stockholders . . . will not create liability beyond the assets of the subsidiary.” Id. at 61-62 (citations

omitted). The Court then pointed out “there is an equally fundamental principle of corporate law,

applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be

pierced and the shareholder held liable for the corporation’s conduct when, inter alia, the corporate

form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on

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the shareholder’s behalf.” Id. at 62.

At the outset of the discussion, the Court defined “operator” under CERCLA as “someone

who directs the workings of, manages, or conducts the affairs of a facility.” United States v.

Kayser-Roth Corp., 272 F.3d 89, 98 (1st Cir. 2001) (quoting Bestfoods, 524 U.S. at 66). It also,

however, set forth a definition more specific to pollution-related activities at the facility. Id. at 89-90

(citing Bestfoods, 524 U.S. at 66-67). Later in the opinion, the Court also recited the broader

definition of “operator,” noting Congress’s use of the word “to operate” means “something more

than mere mechanical activation of pumps and valves, and must be read to contemplate ‘operation’

as including the exercise of direction over the facility’s activities.” Id. at 99 (quoting Bestfoods, 524

U.S. at 71). Applying these definitions, the Court identified two flaws with the district court’s

treatment of direct operator liability. Id.

First, the Court rejected the district court’s erroneous “fusion of direct and indirect liability.”

Id. (quoting Bestfoods, 524 U.S. at 67). “Rather, to keep direct and derivative liability distinct, the

Court focused the direct ‘operator’ liability inquiry not on the parent’s interaction with the

subsidiary, but rather on the parent’s interaction with the facility: ‘The question is not whether the

parent operates the subsidiary, but rather whether it operates the facility, and that operation is

evidenced by participation in the activities of the facility, not the subsidiary. Control of the

subsidiary, if extensive enough, gives rise to indirect liability under piercing doctrine, not direct

liability under the statutory language.’” Id. (quoting Bestfoods, 524 U.S. at 67–68 (internal quotation

marks omitted in Kayser-Roth) (quoting Lynda J. Oswald, Bifurcation of the Owner and Operator

Analysis under CERCLA, 72 Wash. U.L.Q. 223, 269 (1994))).

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“Second, the Bestfoods Court noted that, ‘[i]n addition to (and perhaps as a reflection of) the

erroneous focus on the [parent-subsidiary] relationship,’ the district court assumed erroneously that

the actions of the joint officers and directors were necessarily attributable to the parent CPC.” Id.

(quoting Bestfoods, 524 U.S. at 68). “In doing so, the district court failed to recognize that ‘it is

entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and

that fact alone may not serve to expose the parent corporation to liability for its subsidiary’s acts.’”

Id. (quoting Bestfoods, 524 U.S. at 69 (internal quotation marks omitted in Kayser-Roth)). The Court

stated that,

[s]ince courts generally presume that the directors are wearing their subsidiary hats

and not their parent hats when acting for the subsidiary, it cannot be enough to

establish liability here that dual officers and directors made policy decisions and

supervised activities at the facility. The Government would have to show that, despite

the general presumption to the contrary, the officers and directors were acting in their

capacities as [parent] officers and directors, and not as [subsidiary] officers and

directors, when they committed those acts.

Id. (quoting Bestfoods, 524 U.S. at 69–70 (internal quotation marks and citations omitted in

Kayser-Roth)).

The Supreme Court described examples of activities that would be sufficient to find a parent

directly liable as an operator of a polluting facility, including “when the parent operates the facility

in the stead of its subsidiary or alongside the subsidiary in some sort of joint venture.” Id. (quoting

Bestfoods, 524 U.S. at 71 (citing Cordova/Michigan, 113 F.3d at 579)). Another occurs when a dual

officer or director might depart so far from the norms of parental influence exercised through dual

officeholding as to serve the parent, even when ostensibly acting on behalf of the subsidiary in

operating the facility. Id. at 99-100 (citing Bestfoods, 524 U.S. at 71). In a third scenario, “an agent

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of the parent with no hat to wear but the parent’s hat might manage or direct activities at the facility.”

Id. at 100 (quoting Bestfoods, 524 U.S. at 71).

To distinguish a parental officer’s oversight of a subsidiary from control over the operation

of the subsidiary’s facility, “norms of corporate behavior (undisturbed by any CERCLA provision)

are crucial reference points.” Id. “Elaborating on the general contours of these norms, the Court

noted that liability would not arise out of activities involving the facility but ‘consistent with the

parent’s investor status, such as monitoring of the subsidiary’s performance, supervision of the

subsidiary’s finance and capital budget decisions, and articulation of general policies and

procedures.’” Id. (quoting Bestfoods, 524 U.S. at 72 (citations and internal quotation marks omitted

in Kayser-Roth)). Thus, “[t]he critical question is whether, in degree and detail, actions directed to

the facility by an agent of the parent alone are eccentric under accepted norms of parental oversight

of a subsidiary’s facility.” Id.

The Court found “some evidence that CPC engaged in just this type and degree of activity”

at the plant in question. Id. Specifically, a CPC agent “played a conspicuous part in dealing with”

the toxic risks emanating from the operation of the plant. Id. The district court found that this agent,

Williams, served in the capacity of CPC’s governmental and environmental affairs director and

became heavily involved in environmental issues at CPC’s subsidiary. “Drawing no ultimate

conclusions, the Court nevertheless found these findings sufficient ‘to raise an issue of CPC’s

operation of the facility’ and therefore remanded to the district court for a ‘reevaluation’ of CPC

agents’ role in operating the facility at issue.” Id. (quoting Bestfoods, 524 U.S. at 72–73).

The First Circuit Court of Appeals explained in Kayser-Roth it “is clear that direct operator

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liability requires an ultimate finding of the parent’s involvement with ‘operations having to do with

the leakage or disposal of hazardous waste, or decisions about compliance with environmental

regulations.’” Id. at 102 (quoting Bestfoods, 524 U.S. at 66–67). According to the First Circuit, at

the end of Bestfoods the Court’s attention to facts specific to the involvement of CPC (and its agent

Williams) in its subsidiary’s environmental matters indicates that the pollution-related focus is

controlling. Id. (citing Bestfoods, 524 U.S. at 72–73). The First Circuit noted this reading is

consistent with that of other courts interpreting CERCLA liability since Bestfoods. Id. (generally

citing Carter–Jones Lumber Co. v. Dixie Distrib. Co., 166 F.3d 840, 846–47 (6th Cir.1999) (reading

Bestfoods in arranger liability context to require “active[ ] involve[ment] in the arrangements for

disposal”); also citing United States v. Green, 33 F.Supp.2d 203, 217 (W.D.N.Y.1998) (requiring

participation in management of “facility’s pollution control operations” for operator liability to

attach)); see also PPG Indus. Inc. v. United States, 957 F.3d 395, 401 n. 5 (3d Cir. 2020) (“Under

the specific facts of Bestfoods, there was evidence that an agent of the parent corporation ‘played a

conspicuous part in dealing with the toxic risks emanating from the operation of the plant.’ . . .

Because of the work of this agent, the parent corporation ‘became directly involved in environmental

and regulatory matters.’. . . Thus, the Supreme Court found that the parent corporation’s ‘operation’

of the facility was an issue and remanded the case for further proceedings.”).

3. What theories have been sufficiently raised by Plaintiff

Based on Plaintiff’s briefing in this and other matters, Plaintiff has raised different types of

veil-piercing theories, whether classified as “integrated enterprise”/“single employer” from labor law

or the more traditional alter ego theory to “pierce the corporate veil.” In its reply, MGI asserts

Plaintiff has not sufficiently pleaded that MPSI is the alter ego of MGI, that he was jointly employed

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by MPSI and MGI, or that MGI should be held vicariously liable for the acts of MPSI under any

corporate veil piercing or other similar theories; thus, according to MGI, Plaintiff’s SOX retaliation-

claim against MGI should be dismissed. Docket Entry # 92 at p. 5.

There is some authority pre-dating the Dodd-Frank amendment which supports MGI’s

assertion in its reply that a plaintiff must plead facts supporting a single employer or joint employers

theory. In Trusz v. UBS Realty Investors, 2010 WL 1287148 (D. Conn.2010), the plaintiff brought

suit against UBS AG and its non-publicly traded subsidiary UBS Realty, alleging they jointly

constituted an “integrated employer” because of their interrelated operations and control. Id. at *5.

In ruling on the defendants’ motion to dismiss, the court discussed the so-called integrated employer

test, also referred to as the single employer test, and concluded the test would be applicable in a SOX

case. Id. at *6. According to the court, the plaintiff had alleged that UBS AG and UBS Realty

constituted an “integrated employer,” sharing common management, human resources strategies,

integrated training, and compensation plans. Id. at *7. The plaintiff also alleged “he was directly

employed by UBS Realty, his employment was governed by UBS AG’s policies and procedures and

that UBS AG officials were involved in and made decisions concerning the functioning of UBS

Realty.” Id. The court concluded the plaintiff pleaded “a sufficient level of interrelatedness and

control in human resources decisions between UBS AG and UBS Realty.” Id. Thus, the court held

the allegations were sufficient to defeat a Rule 12(b)(1) motion to dismiss.

Id.

Six years later, in an Amended Ruling on Cross-Motions for Summary Judgment, another district judge in the

same court noted that a threshold question was whether UBS Realty– as distinct from UBS AG– was subject to the

whistleblowing provisions of the Act. Trusz v. UBS Realty, No. 3:09-CV-00268 (JAM), 2016 WL 1559563, at *4 (D.

Conn. Apr. 18, 2016). Noting the events at issue in the case all took place before the passage of Dodd-Frank, the court

agreed with the “weight of case law in this circuit and the analysis of the ARB” in Johnson v. Siemens Building

Technologies, Inc., discussed in this Report and Recommendation below, that the Dodd-Frank amendment to § 1514A

“merely clarified existing law and therefore applie[d] to past conduct consistent with well-established principles of

retroactivity.” Id. at *5. According to the court, both UBS Realty and UBS AG were subject to Sarbanes-Oxley during

the events at issue. Id.

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Although it does not involve claims against both a subsidiary and a parent corporation, the

Court also finds instructive Gladitsch v. Neo@Ogilvy, No. 11 CIV. 919 -DAB, 2012 WL 1003513

(S.D.N.Y. Mar. 21, 2012). There, the plaintiff brought SOX retaliation claims against defendants

Neo and Ogilvy, two subsidiaries of publicly traded company WPP, whose financial information was

consolidated in WPP’s financial statements. Id. at *1. The plaintiff worked under the supervision of

two individual defendants who were directors at Neo. Id. In considering the defendants’ Rule

12(b)(6) motion to dismiss, the court first addressed the defendants’ argument that because the

plaintiff worked for subsidiaries of a publicly traded company and not for the publicly traded

company itself, defendants Neo and Ogilvy were not subject to SOX. Id. at *4.

Noting Dodd-Frank was enacted while the plaintiff’s OSHA complaint was pending, the

court held Dodd-Frank is a “clarifying” amendment, functioning to correct a misinterpretation rather

than effect a substantive change in the law; therefore, Section 929A of Dodd-Frank applied to the

plaintiff’s pending case. Id. (citing Johnson v. Siemens Building Technologies, Inc., ARB Case No.

08–032 at 8–9, ALJ Case No.2005–SOX–015 (Dept. of Labor ARB Mar. 31, 2011)). According to

the court, because Neo and Ogilvy were subsidiaries whose financial information was included in

publicly traded parent company WPP’s financial statements, they were subject to SOX. Id.

The court then denied the defendants’ motion to dismiss the plaintiff’s SOX claims against

sister subsidiary Ogilvy on grounds that Ogilvy and its sister subsidiary Neo were not a “single

employer.” Id. at *5. The court explained as follows:

Notably, in a footnote, the court stated that even if the Dodd-Frank amendment did not apply to the relevant

conduct, UBS Realty might still be liable, on the ground—as set forth by the district judge in her previous ruling on the

motion to dismiss—that UBS AG and UBS Realty were together an “integrated employer.” Id. at *5 n. 3 (citing Trusz,

2010 WL 1287148, at *5).

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Here, Plaintiff’s Complaint alleges that [publically traded parent company] ‘WPP

exercises control over the board of directors, management and, shares the same

Human Resource policies and procedures, and maintains bottom-line financial

responsibility for Neo and [Ogilvy].’ (SAC ¶ 12.) Neo and Ogilvy share common

ownership, premises, directors and/or officers, and financial control. (SAC ¶ 14.)

Moreover, Neo’s own description of its relationship with Ogilvy explains that

‘Neo@Ogilvy is a fully integrated division of OgilvyOne Worldwide, and therefore

part of Ogilvy & Mather Worldwide. As part of the Ogilvy network, [Neo@Ogilvy

is] uniquely positioned to work in partnership with Ogilvy companies . . .

Neo@Ogilvy develops and implements media and search concepts for the entire

Ogilvy Group.’

Id. The court concluded the complaint, combined with publicly available information and documents

integral to the complaint, sufficiently showed that sister subsidiaries Ogilvy and Neo were a single

or joint employer. Id.

Here, if it were to rely on the so-called labor-specific veil-piercing integrated enterprise or

single employer test in this SOX case, the Court would similarly find that the allegations in the SAC

(which allege MGI and MPSI file consolidated financial statements and that MPSI is a wholly owned

subsidiary of MGI), combined with the publicly available information and documents integral to the

complaint (DPA, Amended DPA, and FTC orders), are sufficient to put MGI on notice that Plaintiff

might be asserting the integrated enterprise or single employer test.

This is bolstered by the fact that

as early as June 2019, Plaintiff raised the integrated enterprise or single employer test in response

to MPSI’s motion to dismiss for failure to exhaust; thus, Defendants have been on notice of

Plaintiff’s possible reliance on a veil-piercing type theory for over ten months before MGI filed its

current motion for summary judgment. See Docket Entry # 34 at p. 7.

The Court notes that to the extent a plaintiff’s claims fail for insufficiency of his pleadings, and not as a matter

of law, he would be afforded an opportunity to re-plead. Foster v. UPS Freight, Inc., No. 18CV10294 (NSR)(LMS),

2020 WL 5350446, at *11 (S.D. N.Y. Sept. 4, 2020) (citing White v. Best Cheese Corp., No. 17 CV 4487 (NSR), 2018

WL 4684163, at *6 (S.D. N.Y. Sept. 27, 2018)). The Court further notes that this case is currently at the motion for

summary judgment stage of the case, with motions to dismiss having been decided over eight months ago. The pretrial

conference is scheduled in two weeks.

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However, based on its consideration of the extensive case law discussed in detail below, the

Court does not find Plaintiff must rely on such veil-piercing theories of liability in order to defeat

MGI’s motion, as Plaintiff’s pleadings and evidence also sufficiently raise vicarious liability based

on general agency principles as well as direct liability.

In his response, Plaintiff specifically disputed MGI’s assertion that only MPSI was his

employer. See Docket Entry # 89 at p. 4. Although Plaintiff’s response focused on alter ego and

“piercing the corporate veil” theories, in his surreply, Plaintiff argues (without focusing on any

indirect liability theory) that he is an employee of both MPSI and MGI for purposes of SOX liability.

Although MGI attempts to refute Plaintiff’s alter ego theory to “pierce the corporate veil,” MGI does

little to negate the asserted theories of vicarious liability based on general agency principles and

direct liability of MGI.

In a sur-surreply allowed by the Court, MGI asserts Plaintiff alleges for the first time in his

surreply, without pleading or proof, that “Mr. Lozada was an employee of both the subsidiary,

MoneyGram Payment Systems, Inc. (MPSI) and the parent, MoneyGram International, Inc. (MGI).”

Docket Entry # 119 at p. 1 (citing Docket Entry # 118 at p. 1 (emphasis added by MGI)). According

to MGI, instead of briefing the alter ego issue or some other unpleaded theory of vicarious liability

as anticipated, “Plaintiff has taken advantage of the Court’s decision to permit a surreply to advance

an entirely new legal argument: ‘whether an employee of a subsidiary is also an employee of the

parent company for purposes of SOX protection.’” Id. at p. 4 (quoting Docket Entry # 118 at p. 1).

MGI argues Plaintiff should not be allowed to raise this argument in his surreply.

In the event the Court considers the argument, MGI asserts it fails as a matter of law. Docket Entry # 119 at

p. 4. MGI attempts to distinguish the cases relied upon by Plaintiff, asserting they predate the Dodd-Frank amendments.

Id. at pp. 4-5. MGI asserts the issue of whether a parent could have been held liable for the actions of its subsidiary

against a subsidiary’s employee is “now moot because SOX, as currently enacted, unambiguously provides a direct cause

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To the extent the Court finds the theories appropriate after considering of the case law set out

below, the Court will consider whether there is a genuine issue of material fact that MGI is also

Plaintiff’s employer under general agency principles and/or a direct theory of liability. The Court

finds that Plaintiff sufficiently alleged direct liability of the parent corporation. Although Plaintiff

has argued various theories of parent-subsidiary derivative or indirect liability in briefing in this case,

Plaintiff’s SAC contains allegations which suggest MGI is subject to direct, rather than derivative

or vicarious liability, to the extent there is sufficient evidence to create a genuine issue of material

fact that MGI was also his employer along with MPSI. See In re Managed Care Litig., 298 F. Supp.

2d 1259, 1309 (S.D. Fla. 2003); see also Docket Entry # 21, ¶ 9 (“MGI violated a number of federal

statutes as well as government directives by failing to establish, implement and maintain

comprehensive anti-fraud and anti-money laundering programs, failing to conduct due diligence on

its agents, failing to adequately monitor, investigate and discipline its agents for significant breaches

of its global compliance policy, and failing to ensure that its agents met their obligations to detect

and prevent fraud, and money laundering, as outlined in both MGI’s Agent’s Global Partner

Compliance Policy and government filings.”), ¶ 10 (“Plaintiff raised complaints to management

regarding MGI’s continuing and willful violations of its policy, applicable laws and regulations as

well as the government directives. He was terminated for seeking to stop MGI’s illegal acts.”), ¶ 11

(“On October 21, 2009, MGI entered a Stipulated Order with the Federal Trade Commission

(‘FTC’).”), ¶ 12 (“On November 9, 2012, MGI entered a Deferred Prosecution Agreement (‘DPA’)

with the United States Department of Justice (‘DOJ’).”), ¶ 14 (“On November 8, 2018, the DOJ

levied a substantial fine against MGI and entered into an Amendment and Extension of Deferred

of action against the subsidiary.” Id. at p. 5.

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Prosecution Agreement (‘Amended DPA’) with MGI.”), ¶ 22 (“While the Amended DPA and the

Modified FTC Order did not single out any one of MGI’s agents, they identified a wide range of

systemic, illegal conduct that forms the basis for the Amended DPA. This was the same conduct that

Plaintiff began complaining about almost immediately after he was hired at MGI, e.g., insufficient

transaction analysis; insufficient suspicious activity reports (‘SARs’); insufficient oversight of

minority owned stores; failure to conduct independent reviews, and breakdown of the fraud

interdiction system, specifically the Individual Watch List (‘IWL’) program.”), ¶ 23 (“This illegal

conduct by MGI continued during Plaintiff’s tenure at MPSI.”), ¶ 24 (“As Senior Manager for the

U.S. Regional Compliance Team, Plaintiff was responsible for supervising MGI’s regional

compliance officers (‘RCOs’), senior regional compliance officers (‘Sr. RCOs’) and managers on

the United States team.”), ¶ 26 (“Plaintiff also was responsible for monitoring MGI’s agents’

implementation of MGI’s Global Partner Compliance Policy, which contained MGI’s anti-fraud and

anti-money laundering policies and procedures.”), ¶ 28 (“During Plaintiff’s entire tenure at MPSI,

MGI was operating under the requirements of the Amended DPA and the Modified FTC Order.”),

¶ 29 (“During Plaintiff’s tenure, MGI had knowledge of, yet ignored, suspicious activities of several

of its largest agents, including Wal-Mart, Schnucks, SuperValu, RaceTrac, Valero and CVS.”), ¶ 30

(“MGI knew of the suspicious activities by virtue of annual on-site regional compliance reviews of

all of its large agents. These reviews were conducted by MGI’s Sr. RCOs. The findings of the Sr.

RCOs’ reviews were recorded in reports called Review Worksheets, Agent (Headquarter) Review

– Enhanced Due Diligence Program Review (hereafter ‘Agent Review Worksheets’).”), ¶ 32 (“Agent

Review Worksheets were kept on file by MGI.”), ¶ 33 (“At the end of the annual review, the agent

received two documents from the Sr. RCO: one, somewhat similar to a report card, was called an

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‘AML/Fraud Compliance Review Report’ and the other, similar to a ‘to-do’ list, was called an

‘Acknowledgement Form.’ The Acknowledgement Form was then signed by the agent’s Sr. RCO

or its compliance department representative and returned to MGI.”), ¶ 36 (“Shortly after starting his

position at MPSI, Plaintiff began observing significant flaws with the way in which MGI was

implementing and enforcing its anti-fraud and antimoney laundering policies, particularly when it

involved large agents of MGI.”), ¶ 46 (“Kristi Diehl (‘Diehl’), the VP of Global Compliance

Enhancement Program and Technology Projects, managed a large team that was the target of

constant criticism within compliance for its lack of effectiveness and inability to fix significant

problems. Plaintiff recalls having a frank discussion with Diehl about the IWL program in January

2017. . . .”), ¶ 47 (“That same week, Plaintiff met with Craig Bernier, the Head of Compliance

Monitoring (Financial Intelligence Unit), and Bernier told Plaintiff that he was aware of the problem

and that he also was frustrated with the lack of a solution.”), ¶ 49 (“MGI continued to turn a blind

eye to ongoing violations of the DPA, the 2009 FTC Order, and the BSA.”), ¶ 55 (“Plaintiff also

brought his concerns regarding MGI’s compliance infractions to the attention of Christopher Ponder

(‘Ponder’), the Director of Human Resources for the Compliance Department of MGI. Ponder

refused to investigate Plaintiff’s claims of ethical violations on the part of Gonzalez, and

subsequently criticized Plaintiff for his lack of deference to Gonzalez.”), ¶ 58 (“Over and over again,

senior employees at MGI portrayed an image that completely misrepresented MGI’s compliance

program and bragged about the effectiveness of MGI’s IWL, even though they knew it was false.”),

¶ 63 (“MGI, therefore, concealed its ongoing infractions of the DPA, the FTC Order and the BSA

for its own gain.”), ¶ 68 (“MGI enforced a hiring freeze from November 2016 to January 2017.

During that time, over one-third of the Regional Compliance Team (‘RCT’) positions in the U.S.

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remained vacant, and the RCT remained seriously understaffed. Plaintiff became convinced that the

main goal of MGI was to cut expenses, even if that meant hiding the program’s flaws from the

Monitor, MGI’s own partner agents and its investors.”), ¶ 69 (“In one particular meeting in January

or February 2017, Gonzalez told members of the RCT to not put compliance deficiencies in writing

but, instead, to pick up the phone and call their colleagues to avoid creating a paper trail. Gonzalez

reminded the RCT that the Monitor would use key words to search all emails sent within

compliance, and that MGI wanted to avoid having to explain an email to the Monitor.”), ¶ 71

(“Another example of MGI hiding its compliance problems from the Monitor occurred during a

conference in Miami, where Plaintiff was to give a presentation to the RCT team about the DPA.

One of the attorneys assigned to the Monitor’s team, Phil Underwood (‘Underwood’), attended the

conference. Plaintiff took advantage of this opportunity to raise some of his concerns with

Underwood. . . .”), ¶ 72 (“Peter Green, MGI’s Head of Regional Compliance for the Americas and

Europe, also saw Plaintiff speaking to Underwood and asked Plaintiff what their conversation

entailed.”), ¶ 75 (“Plaintiff again was amazed by how senior leaders in MGI compliance were

working hard to ensure that the Monitor was kept in the dark. This was clearly not a Gonzalez issue

alone; Plaintiff had seen attorneys from MGI attend a meeting where Gonzalez told RCT team

members not to communicate with other members of the team about compliance deficiencies in

writing.”), ¶¶ 82-83 (“Plaintiff was concerned that Gonzalez’s decision [to allow certain stores to

continue to operate contrary to MGI’s written policies and in violation of the BSA] and told

Gonzalez this. Plaintiff also told Gonzalez that this issue needed to be brought to MGI’s legal

department, but Gonzalez ignored Plaintiff’s recommendation.”), ¶ 84 (“Plaintiff approached the

legal department a few days later and was told that Gonzalez’s decision was troubling by Leah

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Carlisle Pfeifer, an attorney with MGI.”), ¶ 85 (“ Four days after Plaintiff’s conversation with MGI’s

legal department, Gonzalez called Plaintiff and told him that he could not believe that Plaintiff had

gone to the legal department behind his back and that he did not think that Plaintiff could continue

to work as one of his managers anymore. Plaintiff was stunned. A few days after this phone

conversation, Plaintiff was fired.”).

In short, the Court will not, based on Plaintiff’s pleadings, limit consideration of any potential

theory of recovery against MGI which would be appropriate under the facts of this case. As pointed

out by Plaintiff in his surreply, pre-Dodd-Frank cases holding that a parent corporation can be sued

under SOX for the conduct of a subsidiary arrived at that conclusion in several ways. Docket Entry

# 118 at p. 2. According to Plaintiff, those ways include “an analysis of the definition of ‘employee’

in the Act itself, the agency relationships between parent and subsidiary companies and the arguably

incontrovertible analysis set forth by” the ALJ in Morefield v. Exelon Servs., 2004-SOX-2, 2004 WL

5030303 (ALJ Jan. 28, 2004). Id. In the following section, the Court attempts to summarize the

various ways administrative proceedings and federal courts have dealt with the issue, both before

and after Dodd-Frank.

C. Sarbanes-Oxley Section 806 (codified at 18 U.S.C. § 1514A)

1. Interpretations of § 1514A prior to Dodd-Frank

Prior to Dodd-Frank’s enactment, Section 806 provided that SOX’s whistleblower provision

applied to companies with securities registered under Section 12 of the Exchange Act or required

to file reports under Section 15(d) of that Act. Section 806 read as follows:

(a) Whistleblower protection for employees of publicly traded companies.

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No company with a class of securities registered under section 12 of the Securities

Exchange Act of 1934 (15 U.S.C. 78l ), or that is required to file reports under

section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)), or any

officer, employee, contractor, subcontractor, or agent of such company, may

discharge, demote, suspend, threaten, harass, or in any other manner discriminate

against an employee in the terms and conditions of employment because of any

lawful act done by the employee—

(1) 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) a Federal regulatory or law enforcement agency;

(B) any Member of Congress or any committee of Congress; or

working for the employer who has the authority to investigate, discover, or terminate

misconduct); or

(2) to file, cause to be filed, testify, participate in, or otherwise assist in a proceeding

filed or about to be filed (with any knowledge of the employer) relating to an alleged

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.

Leshinsky v. Telvent GIT, S.A., 873 F. Supp. 2d 582, 588-89 (S.D. N.Y. 2012) (“Leshinsky I”)

(quoting 18 U.S.C.A. § 1514A (2002)).

After SOX was enacted, a question that arose frequently in administrative proceedings and

in federal courts was whether subsidiaries of publicly held companies were subject to Section 806.

Under the pre-Dodd-Frank version of 18 U.S.C. § 1514A, it was unclear whether “employees of

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publicly traded companies” included employees of the public company’s wholly owned subsidiaries,

or if the statute applied only to employees who were employed directly by the publicly traded parent

company. Leshinsky I, 873 F. Supp. 2d at 588.

a. Administrative proceedings

Because SOX also covered any “officer, employee, contractor, subcontractor, or agent of”

a covered company, the DOL’s ARB and ALJs typically applied traditional tests such as “agency”

or “pierc[ing] a corporate veil” to determine whether SOX coverage extended to employees of non-

public subsidiaries. Q 27:01 What Companies May be Subject to SOX Whistleblower Claims?,

CPSAB Q 27:01(citing Klopfenstein v. PCC Flow Techs. Holdings, Inc., ARB No. 04-149, ALJ No.

2004-SOX-011, 2006 WL 3246904 (ARB May 31, 2006) (“Klopfenstein I”), aff’d sub nom.

Klopfenstein v. Administrative Review Bd. 402 Fed. Appx. 936 (5th Cir. 2010) (holding that non-

public subsidiaries of covered parent companies may be covered where the subsidiary is deemed an

agent of the parent for purposes of the complainant’s employment); also citing Morefield v. Exelon

Servs., 2004-SOX-2, 2004 WL 5030303 (ALJ Jan. 28, 2004) (holding that a non-publicly traded

company was a covered entity simply because it was a subsidiary of a publicly traded company)).

Administrative law judges adjudicating pre-Dodd-Frank Section 806 cases approached the issue of

private subsidiaries in several ways: “One judge has held private subsidiaries will always fall under

the scope of 806 [Morefield], while others have based their rulings on common law principles of

agency [Klopfenstein], used the integrated enterprise test [Merten v. Berkshire Hathaway, Inc., ALJ

No. 2008-SOX-00040, at 5-7 (Dep’t of Labor ALJ Oct. 21, 2008)], or utilized corporate veil-piercing

principles [Pittman v. Siemens AG, ALJ No. 2007-SOX-00015, at 3 (Dep’t of Labor ALJ July 26,

2007)].” See Meghan Elizabeth King, Blowing the Whistle on the Dodd-Frank Amendments: The

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Case Against the New Amendments to Whistleblower Protection in Section 806 of Sarbanes-Oxley,

48 Am. Crim. L. Rev. 1457, 1466 (2011).

In Platone v. Atlantic Coast Airline Holdings, Inc., ALJ No. 2003-SOX-00027 (Apr. 30,

2004), ACA Holdings argued that Platone was not one of its employees, but was instead employed

by ACA. In The Matter Of: Stacy M. Platone v. Flyi, Inc., ARB No. 04-154, 2006 WL 3246910, at

*5 (U.S. Dept. of Labor SAROX Sept. 29, 2006). In addressing ACA Holdings’ argument, the ALJ

acknowledged the corporate law principle that a parent company was not liable for the acts of its

subsidiary; however, she found that ACA Holdings had disregarded ACA’s separate corporate

identity in its dealings with the public, the SEC, and with its own employees. Id. “The ALJ,

therefore, held ACA Holdings liable on the grounds that it was ACA’s alter ego.” Id.

On appeal to the ARB, ACA Holdings continued to object to its designation as a party to the

complaint. Id. at *8. For the purpose of its decision, the ARB assumed, without holding, that the ALJ

correctly ruled that ACA Holdings was a proper respondent. Id. The ARB’s review of Platone’s

whistleblower claim addressed the issue of whether she engaged in protected activity; because the

ARB held that she did not, “her inability to establish that element of her SOX cause of action [was]

fatal to her claim, and [the ARB] need not address other issues raised on appeal.”

Id.

In Morefield, extensively relied upon by Plaintiff in this case, the complainant sued both his

employer, which was not publicly traded, as well as its public parent company, alleging a violation

of pre-Dodd-Frank version of § 1514A. In their motion to dismiss, the respondents argued the

whistleblower provisions of SOX were not available to Morefield because he was not an employee

The Fourth Circuit Court of Appeals affirmed the decision of the ARB in Platone v. U.S. Dep’t of Labor, 548

F.3d 322 (4th Cir. 2008).

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of a publicly traded company, but rather worked for a subsidiary of a subsidiary of a publicly traded

company, Excelon Corporation. Morefield, 2004 WL 5030303, at *1. In denying the motion, ALJ

Levin noted the term “employees of publically traded companies” in Section 806, when considered

in context, would include the employees of the subsidiaries of publicly traded companies. Id. at *2.

Although the complainant argued the subsidiaries of a publicly traded company should be

considered “agents” for accounting and financial reporting purposes, the ALJ in Morefield observed

that while it would not be inappropriate to view subsidiaries as “agents” as the complainant

suggested, subsidiaries, for Sarbanes-Oxley purposes, “are more than mere agents like an outside

auditor or consultant.” Id. at *2-*3. Noting SOX imposed extensive reporting and disclosure

obligations on public companies, which include obligations to report information about the

companies’ subsidiaries, the ALJ stated subsidiaries like Excelon Services “are an integral part of

the publicly traded company, inseparable from it for purposes of evaluating the integrity of its

financial information.” Id. at *3. As further explained by the ALJ in Morefield:

The publicly traded entity is not a free-floating apex. When its value and performance

[are] based, in part, on the value and performance of component entities within its

organization, the statute ensures that those entities are subject to internal controls

applicable throughout the corporate structure, that they are subject to the oversight

responsibility of the audit committee, and that the officers who sign the financials are

aware of material information relating to the subsidiaries. A publicly traded

corporation is, for Sarbanes-Oxley purposes, the sum of its constituent units; and

Congress insisted upon accuracy and integrity in financial reporting at all levels of

the corporate structure, including the non-publicly traded subsidiaries.

Id. The ALJ concluded, “the term ‘employee of a publicly traded company’ as used in the caption

of the whistleblower provision of Sarbanes–Oxley is sufficiently broad to include a[n officer] of a

non-publicly traded subsidiary, within and integral to, the corporate structure” of the parent. Id. at

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*5.

In a second administrative proceeding five years later, ALJ Levin again indicated Section 806

would apply to the private subsidiaries of publicly traded companies. In that case, the plaintiff sued

both his former employer, subsidiary Schweiz, and the parent corporation, Deutsche Bank AG.

Matter of Walters v. Deutsche Bank AG, ALJ No. 2008-SOX-70, 2009 WL 6496755, at *2 (U.S.

Dept. of Labor SAROX March 23, 2009). According to the ALJ, in the years following Section 806's

enactment, a number of administrative decisions construing the pre-Dodd-Frank provision denied

Section 806 protection to employees of non-publicly traded wholly owned subsidiaries of publicly

traded companies, basically theorizing “that the publicly traded parent is not the whistleblower’s

employer, and the subsidiaries are not publicly traded; therefore, wholly owned subsidiaries are not

subject to Section 806 unless they are ‘agents’ of the parent company for employment matters.” Id.

at *4. Although the ALJ framed the issue as assessing the direct responsibility of a publicly traded

parent corporation for the termination of a whistleblower who worked for one of its wholly owned

subsidiaries, the ALJ noted a number of administrative cases had relied upon the “labor law”

approach to dismiss whistleblower complaints against both the parent and the subsidiary. Id. at *5.

The ALJ explained that in labor law cases, the courts employ an “integrated enterprise test” as a “sort

of labor-specific veil-piercing test” when parent/subsidiary relationships are involved, and the labor

law test is simply another method of establishing derivative, rather than direct, liability upon a

corporate parent for the action of its subsidiaries. Id.

Although the ALJ’s decision in Walters was not predicated on derivative agency liability

between Deutsche Bank AG and Schweiz, the ALJ stated the labor law approach to Section 806 was

“questionable from yet another perspective,” noting the labor law test would, for example, deny

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protection to a whistleblower working for a contractor or agent like the accounting firm Arthur

Andersen which helped shred Enron documents. Walters, 2009 WL 6496755, at *7 (citation

omitted). According to the ALJ, no evidence was uncovered that the accounting firm was Enron’s

agent for personnel or employment matters, or that Enron controlled Arthur Andersen’s employment

practices related to whistleblowers within Arthur Anderson’s ranks; yet, “Congress was clearly

concerned about whistleblowers in such situations because it knew Enron was an important client

of Arthur Anderson and a significant source of its revenue. . . .” Id.

The ALJ stated that”[u]nder such circumstances, simply to state the labor law test in the

context of Sarbanes-Oxley seems sufficient to refute it, because it leaves essentially unchanged

conditions Congress passionately wanted to reform.” Id. As further explained by the ALJ, “proof

of agency for financial reporting purposes or even for the commission of fraud that may wipe out the

equity of public shareholders has not been factored into the administrative labor law decisions

denying Section 806 coverage.” Id. at *8. In Walters, the ALJ further elaborated as follows:

If Congress wanted to encourage corporate insiders to monitor and report financial

fraud and deception, and clearly it did, very little in cases that apply the labor law test

and deny that protection seems consistent with that goal. To the contrary, any

employee of a subsidiary familiar with the labor test case law might still find it

difficult to ignore the advice of the attorney who advised Enron of the minimal risk

associated with the terminating [of] a whistleblower. Yet even more important, the

burdens and hurdles associated with proof of agency for labor law purposes seem

misdirected and unnecessary not only because Section 806 imposes direct

responsibility on the publicly traded company, but also because Section 806 is

fundamentally an antifraud law, not a labor law.

Id.

According to the ALJ, “[d]irect parent company responsibility was, therefore,

Sarbanes-Oxley’s answer to the tangled web of entities used to obfuscate the value of the public

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shareholders’ investments and the answer to protecting public shareholders from financial

misrepresentation by their company’s own management.” Id. at *17. The ALJ stated Senator Leahy

laid out in considerable detail “how public shareholders were defrauded by parent companies through

the use and operations of subsidiaries, partnerships, and off-the-book entities,” but his efforts “seem

largely lost in a thicket of [pre-Dodd-Frank] Section 806 cases which uncritically apply corporate

law doctrine.” Id. According to the ALJ, “a careful reading of the legislative history of

Sarbanes-Oxley yields nothing which suggests that Congress was in any mood to entertain the type

of notions which protect the corporate parent while leaving exposed a whistleblower whose

protection is smothered under a ‘corporate veil.’ Such concepts may, in a different setting, be

consistent with general corporate law doctrine, but they fall far short of the Congressional vision of

Section 806 as a meaningful antifraud measure.” Id.

After quoting the Morefield opinion, the ALJ in Walters concluded as follows:

I conclude that the term ‘employee of a publicly traded company’ in Section 806 is,

for parent/wholly owned subsidiary relationships, co-extensive with the employee

coverage in Section 301 and includes, within its meaning, all employees of every

constituent part of the publicly traded company, including subsidiaries and

subsidiaries of subsidiaries which are consolidated on its balance sheets, contribute

information to its financial reports, are covered by its internal controls and the

oversight of its audit committee, and subject to other Sarbanes-Oxley reforms

imposed upon the publicly traded company. . . . In summary, the scope of

Sarbanes-Oxley whistleblower protection: ‘at a minimum, tracks the flow of financial

and accounting information throughout the corporate structure and remains as

permeable to the internal “corporate veils” as the financial information itself,’ see,

Morefield at 3; and considering the legislative history, specific provisions, special

policies, and purposes which anchor Sarbanes-Oxley and Section 806, in particular,

Bestfoods supports this conclusion.

As such, I conclude that Complainant is, for Sarbanes-Oxley purposes, an employee

of the publicly traded company as that term is used in Section 806, and that the

corporate parent, Deutsche Bank AG, is directly responsible for acts of

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discrimination against a whistleblower working in one of its operating units within

a non-publicly traded, consolidated subsidiary of a subsidiary of a subsidiary within

Deutsche Banks AG’s corporate family.

Id. at *20 (internal citations omitted).

Other administrative law judges adjudicating Section 806 cases “with issues of subsidiaries

have not accepted ALJ Levin’s rationale and have declined to extend whistleblower protection to

all employees of every subsidiary of a publicly traded company. Many have instead made their

determination based on the principles of common law agency.” See Meghan Elizabeth King,

Blowing the Whistle on the Dodd-Frank Amendments: The Case Against the New Amendments to

Whistleblower Protection in Section 806 of Sarbanes-Oxley, 48 Am. Crim. L. Rev. 1457, 1467

(2011).

In Klopfenstein, the claimant filed a SOX retaliation claim only against his employer’s parent,

PCC Flow Technologies Holdings, Inc. (“Holdings”), and its representative, Allen Parrott.

Klopfenstein I, 2006 WL 3246904, at *1. Following an ALJ’s recommendation that the complaint

be dismissed, the ARB determined in Klopfenstein I that the ALJ erred in his legal analysis of two

of the four contested elements: coverage and causation. Id. On appeal, the ARB noted Klopfenstein

began employment with Flow Products, Inc., (“Flow Products or Flow”), which was “a division of

PCC Flow Technologies, LP, a limited partnership wholly owned by PCC FT I LLC and PCC FT

II LLC, which in turn [were] wholly-owned subsidiaries of PCC Flow Technologies Holdings, Inc.

(Holdings).” Id. According to the ARB, Holdings was a wholly owned subsidiary of Precision

Castparts Corp. (PCC), and PCC was a company with a class of securities registered under Section

12 of the Securities and Exchange Act of 1934, 15 U.S.C. § 78l. Id. Parrott, the other named

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respondent, was Flow’s Vice President of Finance when Klopfenstein’s employment was terminated.

Id.

In considering first whether the ALJ erred in concluding that Holdings and/or Parrott were

not covered parties under § 1514A, the ARB noted Klopfenstein argued Holdings and Parrott were

agents of PCC and that agents could be named respondents in a SOX case. Id. The ARB did not

interpret the pre-Dodd-Frank version of § 1514A to require a complainant to name a corporate

respondent that itself was registered under Section 12 of the Exchange Act or required to file reports

under Section 15(d) of that Act, “so long as the complainant names at least one respondent who is

covered under the [SOX] as an ‘officer, employee, contractor, subcontractor, or agent’ of such a

company.” Id.

The ARB stated nothing in the meaning of the term “agent” gave it reason to conclude that

a subsidiary, or an employee of a subsidiary, could not ever be a parent’s agent for purposes of the

employee protection provision. Id. The ARB noted the issue of whether a particular subsidiary or

its employee is an agent of a public parent for purposes of the SOX employee protection provision

should be determined according to principles of the general common law of agency. Id. The ARB

noted certain facts identified by the ALJ made it “hard to imagine that Holdings was not PCC’s agent

for purposes of the termination of Klopfenstein’s employment.” Id.

The ARB in Klopfenstein I remanded the case with instructions for the ALJ to make whatever

factual findings were necessary to properly apply agency principles in determining whether either

or both respondents were PCC’s agents with regard to the termination of Klopfenstein’s

employment. Id. The ARB also expressly “le[ft] it to the ALJ to determine whether to grant

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Klopfenstein’s motion to add [the parent] as a party.”

Id. The ARB also asked the ALJ to clarify

his holding on causation.

Following remand, the ALJ affirmed his prior findings of fact.

See In the Matter of Keith

Klopfenstein v. PCC Flow Technologies Holdings, Inc. and Allen Parrott, ALJ Case No.

2004-SOX-011, ARB Case Nos. 07-021 07-022, 2009 WL 6546648, at *3 (U.S. Dept. of Labor

SAROX) (Aug. 31, 2009) (“Klopfenstein II”). “Applying the ARB’s guidance on the agency

doctrine, he ruled that Holdings was PCC’s agent with regard to the termination of Klopfenstein’s

employment.” Id. “However, applying agency principles, the ALJ held that Parrott was not PCC’s

agent with regard to Klopfenstein’s discharge.” Id. On the issue of causation, the ALJ held that

Klopfenstein’s concerns were not a contributing factor in his termination, and that Holdings provided

clear and convincing evidence that Klopfenstein’s violation of a policy was the sole reason for his

discharge. Id. at *4. Therefore, the ALJ issued a recommended decision and order on remand,

dismissing Klopfenstein’s complaint.

Holdings and Klopfenstein appealed the ALJ’s decision on remand to the ARB. Id. Holdings

sought review of the ALJ’s decision that it was an agent of PCC in the adverse action taken against

Klopfenstein, and Klopfenstein appealed the balance of ALJ’s decision, “namely that Parrott was

As explained by ALJ Levin in Walters, the ARB in Klopfenstein I specifically noted that the publicly traded

parent was not involved in the proceeding before it, and left it “to the ALJ to determine whether to grant Klopfenstein’s

motion to add PCC [the publicly traded parent] as a party” on remand. Matter of Walters v. Deutsche Bank AG, ALJ No.

2008-SOX-70, 2009 WL 6496755, at *6 (U.S. Dept. of Labor SAROX March 23, 2009) (quoting Klopfenstein I, 2006

WL 3246904). Because the publicly traded parent was not a party to the complaint, the ARB “sought to make clear,

although apparently not sufficiently clear in some quarters, that its decision was limited to the circumstances in which

the non-publicly traded subsidiary, acting as an agent, could itself be directly liable as a covered employer under the Act.

Id. According to the ALJ in Walters, the ARB was not called upon to address the parent company’s liability, and nothing

in its holding in Klopfenstein I “is, therefore, inconsistent with direct parent company liability for adverse actions against

a whistleblower by one of its wholly owned subsidiaries.” Id.

On remand, the publicly traded parent was not joined as a party to the proceedings. Walters, 2009 WL

6496755, at *6 n. 6 (citation omitted).

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not a PCC agent and that Klopfenstein did not prove that his alleged protected activity was a

contributing factor in his termination.” Id.

In its Final Decision and Order Following Remand, the ARB affirmed in Klopfenstein II. The

ARB noted it had indicated in Klopfenstein I that subsidiaries can be held liable as agents of publicly

held companies for SOX purposes; and that an ALJ can apply the common law of agency to the facts

in making the determination. Id. at *6 (citing Klopfenstein I, slip op. at 13-15). In Klopfenstein II,

the ARB did not need to “go beyond that statement or define the degree of congruence required

between a subsidiary and an agent to reach the proper resolution of th[e] case.” Id. The ARB held

substantial evidence supported the ALJ’s conclusion that Holdings was PCC’s agent for the purpose

of discharging Klopfenstein, noting the policy Klopfenstein allegedly violated was a PCC policy that

it applied to its subsidiaries. Id. at *6. According to the ARB, Holdings officials became “the

instrumentality for enforcing a violation of PCC policy.” Id. The ARB agreed with the ALJ that

Parrott was not a decision maker in the termination of Klopfenstein’s employment. Id. Regarding

the causation issue, the ARB concluded substantial evidence supported the ALJ’s findings. Id. at *7.

Accordingly, the ARB denied Klopfenstein’s complaint.

Id. at *8.

Instead of using the test outlined by the ARB, some ALJs subsequently used the integrated

enterprise test from labor law to determine whether a subsidiary was an agent of the public parent.

See, e.g. Merten v. Berkshire Hathaway, Inc., ALJ No. 2008-SOX-00040 (Dep’t of Labor ALJ Oct.

Klopfenstein sought review of the decision of the ARB. Because the Fifth Circuit Court of Appeals could

not conclude the ARB’s decision was arbitrary and capricious, the court denied the petition. Klopfenstein v. Admin.

Review Bd., U.S. Dep’t of Labor, 402 Fed. Appx. 936, 937 (5th Cir. 2010) (“Klopfenstein III”). Holdings did not appeal

the ARB’s decision, and Klopfenstein did not appeal the ARB’s conclusion regarding Parrott. Id. at n. 2. Therefore, even

though the SEC filed an amicus brief discussing the applicability of Section 806 to employees of contractors and agents,

the Fifth Circuit did not address the brief’s arguments, including several arguments why Section 806 was applicable to

Holdings. Id.

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21, 2008).

b. Federal court decisions

Before the enactment of Dodd-Frank, few federal courts considered the issue of whether

employees of publicly traded companies included employees of the public company’s wholly owned

subsidiaries, or if the statute applied only to employees who were employed directly by the publicly

traded parent company. Leshinsky I, 873 F. Supp. 2d at 588. However, a handful of district courts

held the statute did not apply to employees of non-public subsidiaries. Id. (citations omitted). For

example, a district court for the Eastern District of Michigan considered whether and under what

circumstances a non-public subsidiary of a public parent was subject to SOX’s whistleblower

protection provisions, concluding a non-public subsidiary was not an agent of its parent for purposes

of § 1514A merely on the basis of its subsidiary status. Rao v. Daimler Chrysler Corp., 2007 WL

1424220 (E.D. Mich. May 14, 2007). In reaching this conclusion, the court rejected a line of ALJ

opinions which, based on SOX’s remedial nature and extensive financial reporting requirements,

broadly interpreted § 1514A’s whistleblower protection provisions as covering all “constituent units”

of a public company, including its non-publicly traded subsidiaries. Malin v. Siemens Med. Sols.

Health Servs., 638 F. Supp. 2d 492, 499–500 (D. Md. 2008) (citing Rao, 2007 WL 1424220, at *3

(quoting Morefield, 2004–SOX–00002 at 6)).

The Rao court adopted instead the reasoning of another line of ALJ opinions that applied “the

general principle of corporate law that a parent is not automatically liable for the actions of a

subsidiary, absent a clear intent from Congress to the contrary.” Malin, 638 F. Supp. 2d at 500 (citing

Rao, 2007 WL 1424220, at *4 (citing Lowe v. Terminix Int’l Co., L.P., 2006–SOX–00089 at 7–8

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(A.L.J. Sept. 15, 2006); also citing Bothwell v. Am. Income Life, 2005–SOX–00057 at 6, 2005 WL

4889047 (A.L.J. Sept. 19, 2005))). Applying similar reasoning, the Rao court also held that a general

agency relationship between the public parent and non-public subsidiary was insufficient to implicate

the whistleblower provisions of § 1514A; rather, the subsidiary must have the authority to act and

actually take some action against the whistleblowing employee on behalf of the public company. Id.

(citing Rao, 2007 WL 1424220 at *4–*5 (citing Klopfenstein I, 2006 WL 1788436) (remanding the

matter to the ALJ to “make whatever factual findings are necessary to properly apply agency

principles in determining whether either or both [subsidiaries] were [the parent’s] agents with regard

to the termination of Klopfenstein’s employment.”)).

According to the court in Malin, in pre-Dodd-Frank cases where non-public subsidiaries were

held to be subject to § 1514A, “the subsidiary was found to have acted as an agent of its public

parent particularly with respect to employment matters or the parent was involved in some direct

manner in the alleged misconduct.” Malin, 638 F. Supp. 2d at 501-02 (citing Carnero v. Boston

Scientific Corp., 433 F.3d 1, 4–7 (1st Cir. 2006) (holding that complainant could proceed on a SOX

whistleblower claim despite the fact that he was directly employed by a non-public subsidiary of a

public company where he presented evidence that the parent company’s employees exercised

“extensive and continuous control” over his work duties, he frequently traveled to the parent

company’s office to “meet with supervisors there” and he reported his concerns of alleged

accounting misconduct to employees of the parent company); also citing Collins v. Beazer Homes

USA, Inc., 334 F. Supp. 2d 1365, 1369–70, 1373 n. 7 (N.D. Ga. 2004) (Addressing the issue in a

footnote, the court allowed the plaintiff to proceed on her SOX whistleblower claim against the

publicly-traded parent of her non-public employer where the parent company admitted that it had the

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authority to affect the terms and conditions of her employment; in the recitation of facts, the court

also noted that the plaintiff had presented evidence that she made complaints concerning her

employment and her employer’s activities directly to the parent company, which undertook an

investigation and was consulted regarding the decision to terminate her.); also citing Platone v.

Atlantic Coast Airlines, Holdings, Inc., 2003–SOX–27, 2004 WL 5032621, at *21 (ALJ Apr. 30,

2004) (holding that complainant demonstrated sufficient facts to warrant holding a public parent

company liable for the acts of its non-public subsidiary where the complainant received her offer

letter on letterhead that bore the logo of the parent company, her 401K plan and other employee

benefits were provided by the parent company, and one of the board members of the parent company

was also president and CEO of the subsidiary and made the ultimate decision to terminate the

complainant’s employment)).

2. Lawson opinions

The United States Supreme Court expanded the scope of SOX’s whistleblower protections

in Lawson v. FMR L.L.C., 571 U.S. 429, 134 S.Ct. 1158, 188 L.Ed.2d 158 (2014), the case relied

upon primarily by MGI in its motion for summary judgment. In Lawson III, the first SOX

whistleblower case to be heard by the Supreme Court, the Court considered the class of individuals

that the pre-Dodd-Frank version of § 1514A protects. Moody v. Am. Nat’l Ins. Co., No.

3:19-CV-00206, 2020 WL 3128259, at *2 (S.D. Tex. June 12, 2020) (citing Lawson III, 571 U.S.

429, 134 S.Ct. 1158). In that case, two plaintiffs brought whistleblower retaliation claims against

their former employers, private companies that provided contracted advisory and management

services to a family of mutual funds. Id. (citing Lawson III, 571 U.S. at 433). The mutual funds were

public companies but had no employees; thus, the mutual funds themselves employed no potential

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whistleblower to raise concerns about putative fraud related to the funds. Id. “The plaintiffs raised

concerns related to accounting methodologies that allegedly overstated the expenses associated with

operating the funds and inaccuracies in a draft for a registration statement that was to be filed with

the SEC.” Id. (citing Lawson III, 571 U.S. at 438).

After one plaintiff was constructively discharged and the other was fired, each filed suit

against their respective employer, alleging retaliation proscribed by pre-Dodd-Frank § 1514A.

Id.

Before delving into the Supreme Court’s analysis in Lawson III, the Court must look for context to

the lower court opinions in that case.

a. Lawson I

The defendants in Lawson’s suit were three privately held companies involved in the

business of mutual fund investments: Defendant FMR LLC was the successor to Defendant FMR

Corp., and Defendant Fidelity Brokerage Services, LLC was its subsidiary. Lawson’s specific

employer until her resignation in 2007 was Fidelity Brokerage. Lawson v. FMR L.L.C., 724 F. Supp.

2d 141, 144–45 (D. Mass. 2010), rev’d in part, 670 F.3d 61 (1st Cir. 2012), rev’d and remanded,

571 U.S. 429, 134 S. Ct. 1158, 188 L. Ed. 2d 158 (2014) (“Lawson I”).

The defendants in Zang’s suit were Defendant FMR LLC, the parent company of Defendant

Fidelity Management & Research Company, which itself was the parent of Defendant FMR Co., Inc.

Plaintiff Zang began his employment for Fidelity Management in 1997, but in 2001 his specific

employer changed from Fidelity Management to FMR Co., Inc. and remained so until his termination

In Lawson III, the Supreme Court noted Congress amended § 1514A in 2010 to extend whistleblower

coverage to employees of public companies’ subsidiaries and nationally recognized statistical ratings organizations.

Lawson v. FMR L.L.C., 571 U.S. 429, 435 & n. 2, 134 S. Ct. 1158, 1163, 188 L. Ed. 2d 158 (2014) (further noting the

plaintiffs did not fall in either category and holding, in any event, their claims were governed by the prior version of §

1514A).

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in 2005. Under Zang’s employment agreement, he was employed “by FMR Corp., and/or any entity

which is directly or indirectly owned or controlled wholly or in part by FMR Corp.” Lawson I, 724

F. Supp. 2d at 146-47.

In motions to dismiss, the private-company defendants argued that § 1514A protected only

employees of a publicly traded company from retaliation by the company or the company’s

contractors. Id. (citing Lawson III, 571 U.S. at 441). The defendants argued Lawson and Zang, as

employees of privately held companies, were not covered by the SOX whistleblower provision.

Lawson I, 724 F. Supp. 2d at 152. “For their part, Lawson and Zang argue[d] that the statute

encompasse[d] not only employees of public companies but also employees of private companies,

particularly those that act as investment advisers to public investment companies.” Id. Specifically,

the plaintiffs argued that “an employee” also includes employees of “any officer, employee,

contractor, subcontractor, or agent of such company.” Id.

Starting with the statutory text itself, which protected “an employee” but did not directly state

at which entity the individual must be employed, the district court interpreted the word “employee”

by reference to the rest of the language in the subsection, which required choosing between two

interpretations: “the Defendants’ reading (‘an employee of a publicly traded company’), or a more

expansive reading (‘an employee of a publicly traded company or of any officer, employee,

contractor, subcontractor, or agent of such company.’).” Id. at 152-53. According to the district court,

under the plaintiffs’ proposed construction, the subject and object of the sentence would be distinct

groups: the subject would be a “publicly held company” or its “officer, employee, contractor,

subcontractor, or agent,” while the object of the sentence would be the “employee” of one of these

discriminating entities. Id. at 153.

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Noting both of the opposing interpretations suggested somewhat “awkward applications to

various business relationships,” the court could not rule out either interpretation given “their

comparable feasibility as grammatical and logical constructions.” Id. at 154. Further noting

decisional law had done “little to enlighten the issue,” the court found the meaning of “employee”

in § 1514A was ambiguous and turned to other considerations to provide further guidance. Id. at

154-55. Because the scope of SOX requires whistleblowing activity that must “relat[e] to fraud

against shareholders,” the court stated protecting employees of a public company’s “related entities

would not result in an overly broad application of the statute that would be counter to the statute’s

purpose.” Id. at 159-60. According to the court, this was “a compelling limiting principle for the

Plaintiffs’ reading of the statute.” Id. at 160. The court further noted that the defendants’

construction, while not inconsistent with the text, “would result in an excessively forced and

formalistic reading,” whereas the “legislative history of SOX makes clear that Congress was

concerned about the related entities of a public company becoming involved in performing or

disguising fraudulent activity, and wanted to protect employees of such entities who attempt to report

such activity.” Id.

Having determined that pre-Dodd-Frank Section 806 protected employees of any related

entity of a public company (i.e., employees of agents, contractors, and subcontractors of public

companies), the district court then determined whether Lawson and Zang fell into this category,

noting that to do so, the plaintiffs’ employer must be an “officer, employee, contractor,

subcontractor, or agent,” or rather, have a plausible claim to being one of these entities. Id. at 161;

see also id. at 163. The court concluded that Lawson and Zang had sufficiently pleaded facts

indicating the defendants were either contractors, subcontractors, or agents of publicly held

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investment companies. Id. at 161. The court found that Lawson and Zang, as employees of

investment advisors to mutual funds, were covered by Section 806. Id. at 162.

b. Lawson II

On appeal, a divided panel of the First Circuit Court of Appeals reversed with respect to the

applicability of the Sarbanes-Oxley whistleblower claims. Lawson v. FMR L.L.C., 670 F.3d 61 (1st

Cir. 2012) (“Lawson II”). The majority agreed with the defendants that “an employee” referred only

to employees of public companies and did not cover a contractor’s own employees. Id. at 68-80.

c. Lawson III

In Lawson III, the Supreme Court reversed the decision of the First Circuit. In deciding that

pre-Dodd-Frank § 1514A “shelters employees of private contractors and subcontractors, just as it

shelters employees of the public company served by the contractors and subcontractors,” and thus

extended to the plaintiffs, the Court started with the language of the statutory provision. Lawson III,

571 U.S. at 433, 440. The Supreme Court noted the dissenting opinion from the First Circuit’s

judgment observed that “boiling [§ 1514A(a)] down to its relevant syntactic elements, it provides

that ‘no ... contractor ... may discharge ... an employee.’” Id. at 440 (quoting Lawson II, 670 F.3d at

84 (quoting § 1514A(a))). According to the Supreme Court, the ordinary meaning of “an employee”

in this proscription is the contractor’s own employee. Lawson III, 571 U.S. at 440.

Presuming the operative language means a contractor may not retaliate against its own

employee for engaging in protected whistleblowing activity, the Court further explained as follows:

Section 1514A's application to contractor employees is confirmed when we enlarge

our view from the term ‘an employee’ to the provision as a whole. The prohibited

retaliatory measures enumerated in § 1514A(a)—discharge, demotion, suspension,

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threats, harassment, or discrimination in the terms and conditions of

employment—are commonly actions an employer takes against its own employees.

Contractors are not ordinarily positioned to take adverse actions against employees

of the public company with whom they contract. FMR’s interpretation of § 1514A,

therefore, would shrink to insignificance the provision’s ban on retaliation by

contractors.

Id. at 441 (emphasis in original). The Court made clear that SOX’s whistleblower protection is

limited to employees suing their employers. Id. at 442 (“Moving further through § 1514A to the

protected activity described in subsection (a)(1), we find further reason to believe that Congress

presumed an employer-employee relationship between the retaliator and the whistleblower.”); 443

(“The reference to employer knowledge is an additional indicator of Congress’ expectation that the

retaliator typically will be the employee’s employer, not another entity less likely to know of

whistleblower complaints filed or about to be filed. Section 1514A's enforcement procedures and

remedies similarly contemplate that the whistleblower is an employee of the retaliator.”). Under

Lawson III, SOX whistleblower protection could even extend to the employees of a public

company’s officers and employees, which could, in theory, include housekeepers or gardeners

(though the Supreme court noted that “[f]ew housekeepers or gardeners, we suspect, are likely to

come upon and comprehend evidence of their employer’s complicity in fraud”). Id. at 445-46.

The Court stated its textual analysis of § 1514A fit the provision’s purpose, which is to

prevent future fraud like the “Enron debacle.” Id. at 447. According to the Court, as the ARB

observed in Spinner,

“Congress plainly recognized that outside professionals—accountants, law

Several months after Lawson II, the ARB issued a decision in an unrelated case, Spinner v. David Landau

& Assoc., L.L.C., ALJ No. 2010–SOX–029, ARB No. 10–111 etc., 2012 WL 1999677 (May 31, 2012), disagreeing with

the First Circuit’s interpretation of § 1514A. Lawson III, 571 U.S. at 439. “In a comprehensive opinion, the ARB

explained its position that § 1514A affords whistleblower protection to employees of privately held contractors that

render services to public companies.” Id.

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firms, contractors, agents, and the like—were complicit in, if not integral to, the shareholder fraud

and subsequent cover-up [Enron] officers . . . perpetrated.” Id. (quoting Spinner, ALJ No.

2010–SOX–029, pp. 12–13).

In arguing that legislative events subsequent to SOX’s enactment show Congress did not

intend to extend § 1514A’s protections to contractor employees, the defendants pointed to the 2010

Dodd-Frank, which amended § 1514A to read as follows:

No company with a class of securities registered under section 12 of the Securities

Exchange Act of 1934 (15 U.S.C. 78l ), or that is required to file reports under

[section 12] of the [1934 Act] (15 U.S.C. 78o (d)) including any subsidiary or

affiliate whose financial information is included in the consolidated financial

statements of such company, or nationally recognized statistical rating organization

(as defined in section 3(a) of the [1934 Act] (15 U.S.C. 78c), or any officer,

employee, contractor, subcontractor, or agent of such company or nationally

recognized statistical rating organization, may discharge, demote, suspend, threaten,

harass, or in any other manner discriminate against an employee in the terms and

conditions of employment because of any [protected activity].

Id. at 455 (quoting 18 U.S.C. § 1514A(a) (2012 ed.) (emphasis added and footnote omitted in

Lawson III)). The defendants argued that Congress’s decision to add nationally recognized statistical

rating organizations (“NRSROs”) to § 1514A “shows that the provision did not previously cover

contractor employees.” Id. The Court rejected that argument, noting that at the time of the Dodd-

Frank amendments “DOL regulations provided that § 1514A protects contractor employees. . . .” Id.

3. Interpretations of § 1514A following Dodd-Frank

As noted by the Supreme Court in Lawson III, on July 21, 2010, Section 806 was amended

by Dodd–Frank to provide that no public company, “including any subsidiary or affiliate whose

financial information is included in the consolidated financial statements of such company,” may

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retaliate against a whistleblowing employee. Leshinsky I, 873 F. Supp. 2d at 588 (quoting

Dodd–Frank § 929A). Dodd-Frank thus clarified the issue by providing that SOX’s whistleblowing

provisions apply to employees of subsidiaries or affiliates “whose financial information is included

in the consolidated financial statements of [a publicly traded company],” substantially expanding the

number of companies that may be subject to SOX whistlebower claims. Thus, SOX whistleblower

provisions apply to publicly-traded companies with a class of securities registered under Section 12

of the Exchange Act, or that are subject to the periodic reporting requirements of Section 15(d), as

well as to their subsidiaries whose financial information is consolidated into their financial

statements.

The Court has not located many cases interpreting the post-Dodd-Frank version of § 1514A

under facts similar to those raised in this case. However, the Court finds helpful two more recent

federal court decisions (one of which utilized the pre-Dodd-Frank version in its discussion) and the

ARB opinion on which they rely (Johnson v. Siemens Bldg. Tech., Inc., ARB No. 08–032, 2011 WL

1247202 (DOL ARB Mar. 31, 2011) (en banc)). The Court starts with the ARB’s opinion in

Johnson.

The Court notes the Fifth Circuit has not decided whether the ARB’s reasonable interpretations of § 1514A

are entitled to deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct.

2778, 81 L.Ed.2d 694 (1984). See Getman v. Admin. Review Bd., 265 Fed. Appx. 317, 319 n.7 (5th Cir. Feb. 13, 2008)

(“We have not addressed Chevron deference in the context of an ARB decision on Sarbanes-Oxley. It appears that

Chevron deference is due, as the ARB is an adjudicative body, but we leave that question for another day.”).

Under Chevron, courts defer to an agency’s permissible interpretation of the law if Congress has not spoken

to the precise issue by statute. Rhinehimer v. U.S. Bancorp Investments, Inc., 787 F.3d 797, 809 (6th Cir. 2015) (citing

Chevron, 467 U.S. at 842–43, 104 S.Ct. 2778). Chevron deference should be applied “when it appears that Congress

delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation

claiming deference was promulgated in the exercise of such authority.” Id. (quoting United States v. Mead Corp., 533

U.S. 218, 226–27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001)). Agency interpretations not entitled to Chevron deference

may nonetheless “merit some deference” in light of agency expertise and the value of uniformity in interpreting of the

law. Id. (quoting Mead, 533 U.S. at 234, 121 S.Ct. 2164). “The deference due in such cases is governed by Skidmore

v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944).” Id. (citing Mead, 533 U.S. at 238–39, 121 S.Ct. 2164

(remanding with instructions for the Federal Circuit to determine whether the customs ruling letters at issue were entitled

to deference under Skidmore)).

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a. Administrative proceeding

On March 31, 2011, the ARB held the Dodd-Frank amendment should apply to a case on

appeal because the amendment is a mere clarification of Section 806, intended to make “what was

intended all along ever more unmistakably clear.” Leshinsky I, 873 F. Supp. 2d at 588 (quoting

Johnson, 2011 WL 1247202, at *11 (citation omitted in Leshinsky I)). The ARB also held that even

“absent Dodd–Frank’s amendment for subsidiary coverage in Section 929A, [the Board] would

nonetheless hold that subsidiaries for the same reasons are covered under pre-amendment Section

806's term ‘company.’” Id. The ARB also briefly addressed the issue of agency coverage under

Section 806. Id. (citing Johnson, 2011 WL 1247202, at *12 (“Section 806 provides ‘No company

. . . or any officer, employee, contractor, subcontractor, or agent of such company, . . . may . . .

discriminate . . . .’ 18 U.S.C.A. § 1514A(a)”)). The ARB held the ALJ, by exclusively focusing on

the agency factors to hold the subsidiary was not acting as the parent’s agent and thus was not

covered as an “agent” under Section 806, “failed to consider alternative bases and factors upon

Circuits holding that the ARB’s decisions interpreting § 1514A are entitled to Chevron deference note that the

statute expressly provides for adjudication of whistleblower complaints by the Secretary of Labor, who in turn “delegated

the authority to review appeals under Section 806 and issue final agency decisions to the ARB.” Id. (quoting Wiest v.

Lynch, 710 F.3d at 131 (citing Delegation of Authority and Assignment of Responsibility to the Administrative Review

Board, 75 Fed. Reg. 3924, 3924–25 (Jan. 25, 2010))). In Lawson III, the Supreme Court declined to decide whether the

ARB’s interpretations of the statute were entitled Chevron deference. Id. (citing Lawson v. FMR L.L.C., ––– U.S. ––––,

134 S.Ct. 1158, 1165 n. 6, 188 L.Ed.2d 158 (2014)). In her dissent, Justice Sotomayor argued that Congress granted the

SEC, rather than the Secretary of Labor, interpretive authority over § 1514A. Id. (citing Lawson III, 134 S.Ct. at 1186–87

(Sotomayor, J., dissenting) (arguing that the ARB has not been granted interpretive authority over § 1514A)).

In Rhinehimer, the Sixth Circuit Court of Appeals declined to reach whether the ARB’s interpretations of §

1514A were entitled to Chevron deference and instead found them persuasive even under lesser Skidmore deference.

Id. The court noted Skidmore deference is grounded in the recognition that “the rulings, interpretations, and opinions”

of the agency that administers an act “constitute a body of experience and informed judgment to which courts and

litigants may properly resort for guidance.” Id. at 809-10 (quoting Skidmore, 323 U.S. at 140, 65 S.Ct. 161). “The weight

of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of

its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade,

if lacking power to control.” Id. at 810 (quoting Skidmore, 323 U.S. at 140, 65 S.Ct. 161). In determining whether an

agency’s interpretation is persuasive under Skidmore, “[courts] look to the statute’s text and design, including whether

the [interpretation] is consistent with the congressional purpose.” Id. (quoting S. Rehab. Grp., PLLC v. Sec’y of Health

& Human Servs., 732 F.3d 670, 685 (6th Cir.2013) (citations omitted in Rhinehimer)).

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which common law agency might be established.” Id. Thus, in light of the ARB’s conclusion that

a consolidated subsidiary is covered under Dodd-Frank, and the indication in the record that SBT

was a consolidated subsidiary at all relevant times, the ARB remanded for the ALJ to determine if

SBT was consolidated with Siemens AG at the time of the termination and, if so, whether it

unlawfully retaliated against Johnson. Id.

b. Federal court decisions

In Wiest v. Lynch, 15 F. Supp. 3d 543 (E.D. Pa. 2014), the district court relied upon the

opinion in Johnson but did not need to decide, like the ARB in Johnson did, that Section 929A is

a clarification of Section 806 and thus should apply to the case. Even though the court considered

the pre-Dodd-Frank version of § 1514A and the case did not involve both a subsidiary and a parent,

the Court finds instructive the Wiest court’s discussion on agency, as illuminated by both the

concurrence in Johnson and the Supreme Court’s decision in Lawson III.

In Wiest, the plaintiff sued Tyco Electronics Corporation (“Tyco”) and four individual

defendants under § 1514A for retaliating against him for his intracompany reports of suspected fraud

and violations of federal tax law. Wiest, 15 F. Supp. 3d at 547. The defendants filed a motion to

dismiss raising four arguments, the last of which is relevant to the issue raised in MGI’s motion.

According to the defendants in Wiest, Section 806 of Sarbanes–Oxley did not, at the time of the

events alleged in the complaint, provide coverage to employees, like the plaintiff, of non-publicly

traded subsidiaries of publicly held companies. Id. at 550. The defendants pointed out Tyco was a

non-publicly traded subsidiary of Tyco Electronics Ltd. (“Tyco Limited”), which the defendants did

not dispute was allegedly covered by Section 806 but which the plaintiff had not named as a

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defendant. Id.

The district court granted in part and denied in part the defendants’ motion to dismiss. In so

doing, the court rejected the defendants’ assertions that the plaintiff had not sufficiently pleaded

either an adverse employment action or a sufficient causal connection between the protected activity

and any adverse employment action. See id. at 558–67. The court granted the motion, however, with

respect to three of the four individually named defendants—Lynch, Curtin, and Post—but concluded

that the plaintiff had “just barely state[d] a claim” with respect to the fourth individual, Dougherty.

Id. at 566–67. Regarding the last issue, the district court held the plaintiff could proceed against Tyco

and Dougherty on the grounds that Tyco was an agent of publicly held Tyco Limited. Id. at 568.

The court did not need to decide whether to apply the post-Dodd-Frank version of § 1514A

because the plaintiff “highlighted (without elaboration) in his Memorandum in Opposition [to the

defendants’ motion to dismiss], section 806 provides that ‘[n]o company . . . or such agent of such

company’ may discriminate against an employee for that employee’s protected whistleblowing

activity.” Id. (quoting pre-Dodd-Frank version of 18 U.S.C. § 1514A(a)). In considering that version,

the court first noted that both “parties ostensibly ignore the potential impact of the Supreme Court’s

recent Lawson decision with respect to the question of whether an employee of an agent was covered

by pre-Dodd–Frank section 806.” Id. (citing Lawson III, 134 S.Ct. 158). According to the court in

Wiest, if there was any doubt, “perhaps sowed by the First Circuit Court of Appeals’ opinion” in

Lawson II, the Supreme Court’s decision in Lawson III “should have resolved it by analogy to

contractors.” Id.

The court in Wiest stated there was “no reason to think that the Supreme Court’s holding in

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Lawson does not also apply, beyond contractors of public companies, to agents of public companies

and those agents’ employees.” Id. (noting the ARB’s discussion in Spinner v. Landau & Associates,

L.L.C., ARB Nos. 10–111, 10–115, 2012 WL 1999677 (Dep’t of Labor May 31, 2012) “makes clear

that at least the ARB and DOL read section 806's provisions as extending protection to employees

of agents of publicly held companies”). The court also cited Klopfenstein I for the proposition that,

at least with regard to the pre-Dodd-Frank version of Section 806, the ARB’s approach had been to

determine the issue of whether a particular subsidiary or its employee is an agent of a public parent

for purposes of the SOX employee protection provision according to principles of the general

common law of agency. Id. at 568-69 (citing Klopfenstein I, 2006 WL 3246904, at *10 (“Nothing

in . . . the Act, the interim and final regulations, and the common meaning of the term ‘agent’ gives

us reason to conclude that a subsidiary, or an employee of a subsidiary, cannot ever be a parent’s

agent for purposes of the employee protection provision.”)).

The court noted the disagreement among lower courts and the ARB as to the scope or nature

of the required agency relationship and further noted that at the time of the Wiest court’s decision,

no tribunal had considered, to the Wiest court’s knowledge, “the issue of the scope or nature of the

required agency relationship since the Supreme Court’s decision in Lawson.” Id. at 569. However,

the Wiest court noted the ARB had recently “continued to expand section 806's coverage.” Id. (citing

Johnson, 2011 WL 1247202). According to the court in Wiest, in reversing the ALJ on the alternative

ground “that a consolidated subsidiary is covered under Dodd–Frank, and the indication in the record

that [the defendant] was a consolidated subsidiary at all relevant times,” the ARB “decline[d] to

discuss further subsidiary coverage under agency law,” but nevertheless hinted that “[t]he ALJ, by

exclusively focusing on the agency factors upon which the [ARB’s] ruling in Klopfenstein turned,

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failed to consider alternative bases and factors upon which common law agency might be

established.” Id. at 570 (quoting Johnson, 2011 WL 1247202, at *12).

The court in Wiest focused on Deputy Chief Administrative Appeals Judge E. Cooper

Brown’s concurrence in Johnson, wherein he “addressed the agency issue in thorough detail

suggesting the direction in which the ARB is headed.” Id. at 570. The court in Wiest quoted Judge

Brown as follows:

In finding the subsidiary in Klopfenstein to have acted as an agent of the publicly

traded parent company with regard to the challenged employment action therein at

issue, the Board focused on the common law factors relevant to a determination

under employment law of the existence of ‘actual’ agency authority. However,

‘actual authority’ is not the only basis upon which common law agency may be found

in an employment or labor law context. Common law agency contemplates at least

two other basis for attributing legal consequences of one party’s actions to another

party, i.e., ‘apparent authority’ and ‘respondeat superior.’ By exclusively focusing on

the agency factors upon which the Board’s ruling in Klopfenstein turned, the ALJ in

the instant case failed to consider these alternative bases for establishing agency

within an employment law context. . . .

Fundamentals of statutory construction support the conclusion that liability for

retaliation against whistleblowing extends to an agent of a publicly traded company

engaged in securities related activities independent of whether or not the infringing

entity acts as the agent of the public company with respect to the challenged adverse

employment action. . . .

To interpret ‘agency’ under Section 806 as limited to imposing liability in only those

situations where an entity acts as a publicly traded company’s agent in an

employment/labor law context would fly in the face of the foregoing canons of

statutory construction, for such an interpretation would effectively render the words

‘officer, employee, contractor, subcontractor’ superfluous. . . .

We are well aware of the lower court decisions that have reached a contrary

conclusion. Nevertheless, the rationale adopted by the courts is unpersuasive. In each

instance, the court was concerned that viewing ‘agency’ as applicable to anything

other than an employment/labor law context would result in expansion of Section

806's coverage protection far beyond Congress’s intent. In Brady v. Calyon Secs., 406

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F.Supp.2d 307 (S.D.N.Y.2005), the court refused to impose liability for

whistleblower retaliation on a securities broker for publicly traded companies for fear

that doing so would result in the adoption of ‘a general whistleblower protection

provision governing the employment relationships of any privately-held employer,

such as a local realtor or law firm, that has ever had occasion, in the normal course

of its business, to act as an agent of a publicly traded company, even as to employees

who had no relation whatsoever to the publicly traded company.’ 406 F.Supp.2d at

318. For similar reasons, in Malin v. Siemens Med. Solutions Health Servs., 638

F.Supp.2d 492 (D. Md.2008), agency liability was rejected in the absence of a

showing that the agent acted on behalf of the public company with respect to the

alleged retaliation. See also Rao v. Daimler Chrysler Corp., 2007 WL 1424220 (E.D.

Mich.2007) (not reported) (general agency relationship between the public parent and

non-public subsidiary insufficient to implicate whistleblower provisions of Section

806).

Assuredly, Section 806 does not go so far as to create a general whistleblower

protection provision imposing liability on any private company or entity acting as an

agent of a publicly traded company with respect to any matter whatsoever. However,

a proper construction of the scope of agency coverage outside of the employment law

context is more limited. Outside of the employment law context, an entity will be

held independently liable as a covered agent under Section 806 where it is established

that the entity engaged in retaliatory conduct was serving as the public company’s

agent with respect to securities related matters.

In terms of what a whistleblower must prove to establish the agency relationship

referenced in Section 806, distinguishing SOX as predominantly an antifraud

measure is significant. Construed as an antifraud provision, rather than an

employment or labor law, it is sufficient, as an example, to establish that the

retaliating entity exists as an agent of the publicly traded parent company for

purposes of producing accounting or financial information which is consolidated into

the parent’s financial reports, or that an agent or contractor facilitated fraud like the

subsidiaries, off-the-books special purpose entities (SPEs), and the accounting firms

that helped precipitate the financial collapse of Enron, the key corporate figure in the

legislative history of Sarbanes–Oxley. In such instances, the focus for coverage

purposes is on the agent’s role in preparing financial data or its participation in fraud

or deception.

Construing Section 806 as extending coverage to an agent of a publicly traded

company engaged, on behalf of that company, in securities related activities, thereby

imposing liability for whistleblower retaliation upon such an entity, is not to say that

Section 806 precludes an employment law agency analysis for purposes of finding

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the publicly traded company liable (or for holding the agent liable in such a context,

as was the case in Klopfenstein). At the same time, an employment law agency

analysis does not preclude inquiry under Section 806 into whether the entity charged

with retaliation exists as an agent of a publicly traded company for securities related

purposes, nor does it bar the imposition of liability upon an agent acting in such

capacity where it independently retaliates against a whistleblower in violation of

Section 806.

Wiest, 15 F.Supp. 3d at 570-71 (quoting Johnson, 2011 WL 1247202, at *14–18 (Brown, J.,

concurring) (citations, internal quotation marks, and footnotes omitted in Wiest)).

According to the court in Wiest, in addition to Judge Brown’s “persuasive reasoning and

possible reasons for deferring to such a position as may become a majority of the ARB’s in an

appropriate case in the future, the Supreme Court’s decision in Lawson also suggests that Judge

Brown’s approach is largely correct.” Id. at 571. The Wiest court noted the “main modification to

Judge Brown’s view would be that, in addition to agency based on engagement ‘in securities related

activities,’ agency might also be based on types of services with regard to which fraud contemplated

under section 806 might be perpetrated (in essence, Judge Brown’s rationale). In other words, agency

could also be based on the performance, inter alia, of accounting and tax services and the like, as

here.” Id.

The court in Wiest held the plaintiff’s complaint contained “sufficient allegations—although

Mr. Wiest does not go so far as to identify, collect, and analyze them—to establish, for purposes of

adjudicating the Defendants’ Motion to Dismiss, that Tyco acted as an agent for Tyco Limited,

which, Defendants do not dispute, is allegedly covered by section 806.” Id. According to the court,

if, as Judge Brown observed, “[o]utside of the employment law context, an entity will be held

independently liable as a covered agent under Section 806 where it is established that the entity

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engaged in retaliatory conduct was serving as the public company’s agent with respect to securities

related matters,” it seems clear enough from the allegations in the Wiest case that Tyco served as

Tyco Limited’s agent with respect to accounting- and tax-related matters (and that Tyco took adverse

action against the plaintiff). Id. at 572-73 (quoting Johnson, 2011 WL 1247202, at *17).

Unlike the court in Wiest, the court in Leshinsky I, the second case which relied upon the

Johnson opinion which the Court finds helpful, did conclude – similar to the ARB in Johnson – that

the Dodd-Frank amendment is a clarification of Congress’s intent with respect to the

Sarbanes–Oxley whistleblower provision, and thus should be applied to the federal case. See

Leshinsky v. Telvent GIT, S.A., 873 F. Supp. 2d 582 (S.D. N.Y. 2012). Leshinsky I was decided in

2012 following the enactment of Dodd-Frank, but dealt with claims that arose prior to Dodd-Frank;

therefore, the court discussed, in the context of its retroactivity analysis,

the state of the law prior

to the enactment of Dodd-Frank. Although there is no question in this case that the Dodd-Frank

amendment applies to Plaintiff’s claims with respect to the SOX whistleblower provision, the Court

finds the facts and detailed discussion contained in Leshinsky I illustrative here.

In Leshinsky I, the plaintiff alleged that defendant subsidiaries Telvent Farradyne and Telvent

Caseta, along with publicly traded defendant Telvent GIT and two individuals, wrongfully

terminated his employment in violation of the whistleblower provisions of Sarbanes–Oxley. Id. at

584. The plaintiff was formally employed by Telvent Farradyne, but he reported to the president of

In the retroactivity analysis, courts consider ambiguity and conflict in the preexisting interpretation of a

statute an indication that the amendment to the text was intended to clarify the preexisting text rather than create a

substantive change in the law with new legal consequences. Johnson v. Siemens Building Technologies, Inc., ARB Case

No. 08–032 at 8–9, ALJ Case No.2005–SOX–015, 2011 WL 1247202, at *9 (Dept. of Labor ARB Mar. 31, 2011). As

noted by the ARB in Johnson and as demonstrated herein, ALJs and the courts have varied in both theory and application

concerning the scope of subsidiary coverage under Section 806. Id.

Another factor courts consider in determining if an amendment is a clarification is whether the amendment is

a reasonable interpretation of the prior statute and its legislative history. Id.

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Telvent Caseta, in addition to continuing to report to the president of Telvent Farradyne. Id. at 585.

There was no dispute that at all times relevant to the case Telvent GIT included the financial

information of its subsidiaries, including Telvent Farradyne and Telvent Caseta, in its consolidated

financial statements. Id.

The defendants argued that pre-Dodd-Frank Section 806, by its plain language, applied only

to employees of publicly traded companies, but that the plaintiff was employed only by non-public

subsidiaries Telvent Farradyne and Telvent Caseta of the publicly traded defendant Telvent GIT. Id.

at 584. Arguing the plaintiff was never directly employed by Telvent GIT, the defendants argued

Section 806 did not apply to the case. Id.

The court in Leshinsky held an evidentiary hearing and allowed each side to submit proposed

findings of fact and conclusions of law following the hearing. Id. The plaintiff argued the Dodd-

Frank amendment should be applied retroactively, and the statute, as amended by Dodd–Frank,

makes explicit that non-public subsidiaries of publicly traded companies may be liable under

Sarbanes–Oxley’s whistleblower provisions. Id. Alternatively, the plaintiff also argued the evidence

established the defendants could be liable under the earlier version of the statute. Id.

The court treated the defendants’ written and oral arguments as a Rule 12(b)(1) motion to

dismiss. Id. According to the court, the motion required resolution of the novel question of whether

the Dodd-Frank amendment should be applied retroactively. Id. Finding the reasoning of the ARB

in Johnson persuasive, the court in Leshinsky I concluded the Dodd-Frank amendment is a

clarification of Congress’s intent with respect to the Sarbanes–Oxley whistleblower provision, and

thus it applied, giving the court subject matter jurisdiction over the plaintiff’s claims. Id. at 584, 589-

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90.

In its discussion of the relationship among Telvent GIT and the Telvent subsidiaries, the

Leshinsky court noted Telvent’s subsidiaries all adhered to certain corporate branding guidelines;

Telvent Farradyne employees were given “telvent.com” email addresses; Telvent companies used

a uniform “Telvent” logo and color; and press releases from Telvent companies all referenced

“Telvent GIT S.A. (NASDAQ TLVT), the Global RealTime IT Company.” Id. at 586. According

to the court, the plaintiff’s employment agreement was written on “Telvent” letterhead and was

signed by the president of Telvent Farradyne, and it referred to “Telvent” benefits and vacation

entitlements as well as “Telvent” employee application forms. Id. The court further noted the parent

company was involved, to an extent, in the day-to-day management of its subsidiaries. Id. The

decision to terminate the plaintiff’s employment was made after discussions involving the president

of Telvent Farradyne and the president of Telvent Caseta and others at those subsidiary companies.

Id. at 587.

In concluding the Dodd-Frank amendment clarifies, rather than changes, the statute’s

meaning, and thus applied to the plaintiff’s claims, the Leshinsky court discussed the conflict and

ambiguity regarding the statute’s meaning prior to the amendment. Id. at 589-92. As explained by

the court in Leshinsky I, the Rao and Malin courts based their holdings on “the general principle of

corporate law that a parent is not automatically liable for the actions of a subsidiary, absent a clear

intent from Congress to the contrary.” Leshinsky I, 873 F. Supp. 2d at 588 (quoting Rao, 2007 WL

1424220, at *4). The court in Leshinsky also noted the ALJs of the DOL, which was responsible for

administering the provision, “reached widely divergent views on the issue, although a majority

appeared to agree with the district courts’ conclusion.” Id.

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As explained by the Leshinsky court, some ALJs interpreted the pre-Dodd-Frank “language

of Section 806 to hold that the statute did not protect the employees of non-public subsidiaries of

public companies.” Id. at 593. “These decisions were based upon the principle that the subsidiary

was ‘not a publicly traded company and [was] therefore not covered by the Act,’ Grant v. Dominion

East Ohio, No. 2004–SOX–63, 2005 WL 6185928, at *31 (DOL ALJ March 10, 2005), along with

the ‘[t]he general principle of corporate law . . . that a parent corporation is not liable for the acts of

its subsidiaries.’ Lowe v. Terminix Int’l Co., No. 2006–SOX–89, 2006 WL 6576807, at *5 (DOL

ALJ Sept. 15, 2006).” Id. The court in Leshinsky I noted these decisions recognized limited

exceptions to this rule under principles of corporate law and agency law from the employment and

labor context. Id. The Leshinsky court elaborated as follows:

Thus, some decisions held that a non-public subsidiary could be covered by the Act

if the judge could pierce the corporate veil and find that ‘the parent company and its

wholly owned subsidiary are so intertwined as to represent one entity.’ Hughart v.

Raymond James & Assocs., Inc., No. 2004 SOX 9, 2004 WL 5308719, at *43 (DOL

ALJ, Dec. 17, 2004); see also Bothwell v. Am. Income Life, No. 2005 SOX 57, 2005

WL 6476839, at *7 (DOL ALJ Sept. 19, 2005) (‘Even in decisions holding that the

whistleblower protections found in the Act apply to employees of a non-public

subsidiary of a publicly traded company, the administrative law judges have required

the complainants to name the publicly traded parent as a respondent and to show

sufficient commonality of management and purpose to justify piercing the corporate

veil and holding the parent company liable for its subsidiary’s actions.’ (citing

cases)). Other ALJs, focusing on the term ‘agent’ from the statute itself, held that a

non-public subsidiary could be liable if it acted as the public company’s agent with

respect to the adverse employment action. See, e.g., Savastano v. WPP Group, PLC,

No. 2007–SOX–34, 2007 WL 6857428, at *7 (DOL ALJ July 18, 2007) (holding that

complainant was required to show that the non-public subsidiaries were ‘acting as

agents of [the public parent] in connection with the termination of her employment’).

And other decisions imported the ‘integrated enterprise test’ from labor law in order

to ‘focus on labor relations and economic realities, rather than corporate formalities,

to determine whether a parent corporation and its subsidiary are both liable for

statutory violations.’ Merten v. Berkshire Hathaway, Inc., No. 2008–SOX–40, 2008

WL 7835816, at *5 (DOL ALJ Oct. 21, 2008) (citing Pearson v. Component Tech.

Corp., 247 F.3d 471, 485–86 (3d Cir.2001)). That test requires a plaintiff to show (1)

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interrelation of operations; (2) common management; (3) centralized control of labor

relations; and (4) common ownership or financial control. Id. (holding that parent and

subsidiary were not integrated enterprise, despite extensive personnel links and

management controls by parent).

Id. at 593-94 (footnote omitted). In a footnote, the Leshinsky court noted these decisions also were

not in accord as to whether an employee of a subsidiary must also name the public parent as a

defendant. Id. at 594, n. 9 (comparing Hughart, 2004 WL 5308719, at *4 (“A publicly traded entity

must be named in any complaint involving its subsidiaries to be held liable.”) with Lowe, 2006 WL

6576807, at *5 (“A publicly held company does not have to be named as a respondent and it is

possible for a privately held subsidiary of a publicly held company to fall within the Act” if the

complainant “establish[es] an agency relationship” between the companies.)).

“At the same time, a different line of ALJ decisions looked more broadly at the remedial

purposes of Sarbanes–Oxley and held that these purposes would be fulfilled only if the

whistleblower protection was interpreted to include employees of subsidiaries of the public

company.” Id. at 594 (citing Morefield v. Exelon Servs., Inc., ALJ No. 2004 SOX 2, 2004 WL

5030303, at *4 (DOL ALJ, Jan. 28, 2004) (“Nothing in the Act persuades me that Congress intended

to wall off from whistleblower protection [under] Sarbanes–Oxley vast segments of corporate

America that reside under the umbrella of publicly traded companies. . . . To limit whistleblower

coverage exclusively to those in the know, and their contractors or agents, at the level of the

corporate parent is not compatible with the Act’s intended purpose.”)). In Morefield, discussed

above, the ALJ concluded “the term ‘employee of a publicly traded company’ as used in the caption

of the whistleblower provision of Sarbanes–Oxley is sufficiently broad to include a[n officer] of a

non-publicly traded subsidiary, within and integral to, the corporate structure” of the parent. Id. at

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595 (citing Morefield, 2004 WL 5030303, at *3, *5; also citing Gonzalez v. Colonial Bank, No.

2004–SOX–39, 2004 WL 5840274, at *3 (DOL ALJ Aug. 24, 2004) (declining to dismiss complaint

where employee of subsidiary also named parent as respondent because “it is determined that

Congress intended to provide whistleblower protection to employees of subsidiaries of publicly

traded companies”); also citing Walters v. Deutsche Bank AG, No. 2008 SOX 70, 2009 WL

6496755, at *20 (DOL ALJ Mar. 23, 2009) (providing comprehensive overview of “the legislative

history, specific provisions, special policies, and purposes which anchor Sarbanes–Oxley and Section

806,” as well as decisions interpreting the provision, and concluding that Section 806 protects

employees of subsidiaries of public companies)).

The Leshinsky court noted some “federal court decisions embraced the possibility that the

statute could protect employees of non-public subsidiaries, even without piercing the corporate veil

or finding an agency relationship.” Id. at 596. According to the Leshinsky court, in Collins v. Beazer

Homes USA, Inc., 334 F. Supp. 2d 1365 (N.D. Ga. 2004), the district court looked to the OSHA

regulations to determine that an employee of a non-public subsidiary of a public parent was covered

by the statute because her employment “could be affected” by the public parent. Id. (citing Collins,

334 F.Supp.2d at 1373 n. 7). In O’Mahony v. Accenture, Ltd., 537 F. Supp. 2d 506 (S.D.N.Y.2008),

the plaintiff was an employee of the U.S. subsidiary of a Bermuda-based publicly traded company.

Id. The court in Leshinsky stated as follows:

The [O’Mahony] court examined whether it would have ‘extraterritorial jurisdiction’

over the different entities, and concluded that it would have subject matter

jurisdiction over the United States subsidiary ‘because the alleged wrongful conduct

and other material acts occurred in the United States by persons located within the

United States.’ Id. at 515. The court also held that, based upon the allegations in the

pleadings, it was unclear to what extent the parent participated in the alleged fraud

or retaliation, or whether the parent maintained control over the subsidiary sufficient

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to pierce the corporate veil to hold the parent liable for the acts of its subsidiary. Id.

But the court apparently did not question whether the fact that the plaintiff was

employed by the subsidiary and not the public parent would have divested the court

of jurisdiction under Section 806, even if the parent itself was not directly liable.

Id. at 596-97.

According to the court in Leshinsky, in Carnero v. Boston Scientific, 433 F.3d 1 (1st Cir.

2006), a case dealing with similar issues of extraterritorial application of Section 806, the court

assumed, “without deciding,” that an employee of foreign subsidiaries of a publicly traded U.S.

company was a covered employee of the public company.

Id. at 597 (citing Carnero, 433 F.3d at

6). In Carnero, “[n]either party contested that the plaintiff was a covered employee, but the court

noted that the plaintiff, ‘by virtue either of his own asserted contacts with [the parent] or his direct

employment by its subsidiaries, or both, may well be an ‘employee’ of [the parent] for purposes of

seeking whistleblower relief under Sarbanes–Oxley,’ citing both the Northern District of Georgia’s

decision in Collins, 334 F.Supp.2d at 1373 n. 7, and the ALJ’s decision in Morefield, 2004 WL

5030303.” Id.

The Leshinsky court then discussed a case which acknowledged the line of ALJ decisions

holding that non-public companies can be liable if they “acted as agents of publicly traded companies

with respect to their employment relationships.” Id. (quoting Brady v. Calyon Securities, 406

F.Supp.2d 307, 318 n. 6 (S.D.N.Y.2005)). According to the court in Leshinsky, the Brady court cited

the Morefield decision “to support the proposition that ALJs have held subsidiaries liable when they

As pointed out by MGI in its sur-surreply, in Carnero neither party contested that the plaintiff was a covered

employee of the parent. See Docket Entry # 119 at p. 5. In this proceeding, however, MGI has raised the issue.

“Consequently, the assumption which facilitated the Court’s decision in Carnero, that the whistleblower was an employee

of the publicly traded parent, is a contested issue in this proceeding.” Matter of Walters v. Deutsche Bank AG, 2009 WL

6496755, *3 (U.S. Dept. of Labor SAROX March 23, 2009).

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are ‘found to be almost inseparable from the publicly traded company, or subject to the same internal

controls.’” Id.

The Leshinsky court concluded, contrary to the defendants’ assertion, the pre-Dodd-Frank

statute was ambiguous as to its application to employees of non-public subsidiaries, and “this

ambiguity is confirmed by the extensive conflict among the different judicial and administrative

decisions applying the statute.” Leshinsky I, 873 F. Supp. 2d at 597. The court in Leshinsky then

considered whether the Dodd-Frank amendment is consistent with a reasonable interpretation of the

prior enactment and its legislative history, noting that for purposes of SEC reporting, a “public

company” includes its subsidiaries and several of SOX’s provisions “expressly reinforce the

importance of a company’s subsidiaries in gaining a picture of the overall financial state of that

company.” Id. at 599. The court noted the Leshinsky case perfectly illustrated the principle set forth

by the ALJ in Morefield, 2004 WL 5030303, *3, wherein the ALJ stated that a publicly traded entity

is not a “free-floating apex” and is, for Sarbanes-Oxley purposes, the sum of its constituent parts.

Id. at 600.

The court in Leshinsky held, in light of the policy behind Sarbanes–Oxley, and the treatment

of subsidiaries throughout the statutory scheme, the Dodd–Frank amendments reflect a reasonable

interpretation of Section 806. Id. at 601. The court then concluded other recent decisions did not

preclude applying Dodd-Frank to Section 806 retroactively. Id. at 601-02. Finally, the Leshinsky

court considered application of the earlier labor law tests (i.e. single employer, “integrated

enterprise”). Id. at 602-03.

The court noted that the plaintiff alternatively argued, in the event Dodd-Frank was not

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applied retroactively, the defendants might still be liable because the subsidiaries, which directly

employed the plaintiff, were agents of Telvent GIT. Id. In particular, the plaintiff argued that because

“Telvent GIT directed and controlled the operations and employment decisions of its subsidiaries,”

the plaintiff should be deemed an employee of Telvent GIT. Id. at 603. On the other hand, the

defendants argued that a non-public subsidiary could be liable only if the plaintiff could demonstrate

the existence of “extraordinary circumstances” that justify “treat[ing] the employees of a corporate

entity as the employees of a related entity.” Id. (quoting Murray v. Miner, 74 F.3d 402, 404 (2d

Cir.1996)).

The court in Leshinsky stated “[a]pplying the earlier labor law-derived tests to this case only

serves to further demonstrate that the amended language is more consistent with the statute’s purpose

than the contrary reading.” Id. at 602. After setting forth the “single employer” test adapted from the

labor and employment context, id. at 603, the court explained as follows:

The evidentiary hearing in this case revealed many indicia of control of operations

in general—and employment matters in particular—by Telvent GIT. For example,

Plaintiff’s employment agreement with Farradyne was on ‘Telvent’ letterhead. And

although the human resources or information technology functions at Farradyne were

not administered by employees of Telvent GIT itself, the fact that these functions

were administered out of different Telvent subsidiaries demonstrates the

interrelationship between the subsidiaries and the parent.

In addition, the fact that Sanchez Ortega, CEO of Telvent GIT, installed the general

managers of Telvent’s newly acquired subsidiaries, and that those general managers

had extensive control over day-to-day operations and personnel management,

demonstrates some involvement by the parent, even if those managers were not

directly consulting with the parent itself with regard to each decision. . . .

At the same time, it is not clear that Telvent GIT was so directly involved as to meet

the standards established by the cases that arise in the employment context. It is

difficult to conclude that Telvent GIT's control of labor relations truly ‘exceeds the

100

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control normally exercised by a parent corporation which is separate and distinct

from the subsidiary.’. . . And it is undisputed that no representative from the parent

itself was involved in the ‘final decision’ to terminate Plaintiff. . . . But this only

illustrates the inappropriateness of the labor law approach to this issue.

The ‘integrated enterprise’ test is designed to test whether a parent company can be

liable for the employment decisions of a related entity. Thus, the test naturally

focuses on the degree of control by the parent over employment matters. In the

context of an employment discrimination case, it makes sense to look primarily at

who was involved in making the decision giving rise to the charge of discrimination.

. . .

Id. at 604 (internal citations omitted).

As explained by the Leshinsky court, “Sarbanes–Oxley, however, is not a labor or

employment statute—it is an anti-fraud statute concerned with corporate transparency.” Id. at 604

(citing Johnson, 2011 WL 1247202, at *16). Relying on Judge Levin’s opinion in Walters, the

Leshinsky court stated, as a matter of policy under Sarbanes–Oxley, “it makes more sense to focus

on whether a subsidiary was the parent’s agent ‘for purposes of producing accounting or financial

information which is consolidated into the parent’s financial reports,’ than whether the subsidiary

was the parent’s agent with respect to human resources matters.” Id. at 605 (quoting Matter of

Walters v. Deutsche Bank AG, 2009 WL 6496755, at *7 (U.S. Dept. of Labor SAROX March 23,

2009)).

D. Discussion

MGI and Plaintiff both rely on a few snapshots from the vast landscape of administrative and

federal court decisions dealing with § 1514A, with MGI focusing on the Supreme Court’s statements

in a different context in Lawson III that SOX retaliation claims must be asserted against a defendant-

employer and Plaintiff focusing in his surreply on Morefield and a few other pre-Dodd-Frank federal

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court cases. With no discussion of how the term “employee” should be interpreted in the context of

a parent/wholly owned subsidiary relationship, MGI asserts the Supreme Court in Lawson III held

there must be a “direct employer-employee relationship between a SOX plaintiff and the entity the

plaintiff seeks to hold liable for alleged misdeeds.” Docket Entry # 119mat p. 4. According to MGI,

Plaintiff was a former employee of only MPSI and not also MGI; thus, under the current version of

§ 1514A, Plaintiff’s remedy is against MPSI only.

On the other hand, Plaintiff argues in his surreply as follows:

As noted in the Morefield opinion, there is no question that a parent corporation

should face SOX consequences for termination of a subsidiary employee when the

parent’s value and performance is based on the value and performance of subsidiaries

within its organization. A publicly traded corporation is, for Sarbanes-Oxley

purposes, the sum of its constituent units; and Congress insisted upon accuracy and

integrity in financial reporting at all levels of the corporate structure, including the

non-publicly traded subsidiaries. . . . MGI has represented to investors, the

government and the public that MPSI employees are its employees. Nowhere does

MGI take the position that MPSI employees are not its employees EXCEPT in this

lawsuit in order to avoid liability (and perhaps other litigation)—one of the very

things that SOX is designed to fix. Plaintiff Juan Lozada was an employee of MPSI

and of MGI for purposes of SOX liability.

Docket Entry # 118 at p. 9 (emphasis in original). In its sur-surreply, MGI asserts Plaintiff has now

asked the Court to hold MGI liable for its own alleged actions (not for the actions of MPSI), and

“Plaintiff has not directed the Court to any authority for the proposition that an employee of a

subsidiary can reach the parent without pleading and proving alter ego or some other theory of

vicarious liability.” Docket Entry # 119 at p. 3.

The Court first addresses Plaintiff’s direct liability theory raised in the surreply and supported

by the SAC. It is the Court’s intent, in providing an exceedingly lengthy recitation of the law

regarding § 1514A from both before and after Dodd-Frank, to minimize the analysis which must be

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done in order to recommend MGI’s motion for summary judgment be denied on this ground. It is

clear to the Court the interpretations of the pre-Dodd-Frank version of § 1514A set forth in the

Morefield and Walters opinions have become even more persuasive in light of Lawson III and the

cases interpreting § 1514A in light of Dodd-Frank’s “clarification,” including consideration of how

the Department of Labor’s most recent regulations define “employee.”

SOX fails to define the term “employee,” which has led to debates about how restrictively

the term “employee” should be applied. Jonathan Lee, Whistle with A Purpose: Extending Coverage

Under Sox to Employees Discharging Their Duties, 93 Wash. U.L. Rev. 1613, 1615 (2016). Under

the Department of Labor regulations effective until November 2, 2011, an “employee” meant “an

individual presently or formerly working for a company or company representative, an individual

applying to work for a company or company representative, or an individual whose employment

could be affected by a company or company representative,” and “company representative” meant

any “officer, employee, contractor, subcontractor, or agent of a company.” However, the current

regulations define “employee” as “an individual presently or formerly working for a covered person,

an individual applying to work for a covered person, or an individual whose employment could be

affected by a covered person.” Moody v. Am. Nat’l Ins. Co., No. 3:19-CV-00206, 2020 WL 3128259,

at *3 (S.D. Tex. June 12, 2020) (quoting 29 C.F.R. § 1980.101(g)). “Covered person means any

company, including any subsidiary or affiliate whose financial information is included in the

consolidated financial statements of such company, or any nationally recognized statistical rating

organization, or any officer, employee, contractor, subcontractor, or agent of such company or

nationally recognized statistical rating organization.”

Potts v. Ctr. for Excellence in Higher Educ.,

The Court affords Skidmore deference to DOL regulations. See Kshetrapal v. Dish Network, L.L.C., No.

14-CV-3527 (PAC), 2018 WL 1474375, at *7 n. 1 (S.D. N.Y. Mar. 23, 2018), appeal withdrawn sub nom. Kshetrapal

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Inc., 908 F.3d 610, 617 (10th Cir. 2018) (quoting 29 C.F.R. § 1980.101(f)).

As persuasively set forth by ALJ Levin in Morefield when interpreting the pre-Dodd-Frank

version of § 1514A, although it would not be inappropriate to view subsidiaries as “agents” as the

complainant suggested in that case, subsidiaries, for Sarbanes-Oxley purposes, “are more than mere

agents like an outside auditor or consultant.” Morefield, 2004 WL 5030303 at *2-*3. Noting SOX

imposed extensive reporting and disclosure obligations on public companies, which include

obligations to report information about the companies’ subsidiaries, the ALJ stated subsidiaries “are

an integral part of the publicly traded company, inseparable from it for purposes of evaluating the

integrity of its financial information.” Id. at *3. As further explained by the ALJ in Morefield: