Clegg v. Amcor Rigid Packaging USA, LLC, No. 21-232 (E.D. Ky. Jan. 3, 2022) (2022 U.S. Dist. LEXIS 7) (Memorandum Opinion and Order)
PROTECTED ACTIVITY UNDER SOX; REPORTING INVENTORY DISCREPANCIES WAS NOT SHOWN TO BE OBJECTIVELY REASONABLE WHERE THE FINANCIAL IMPACT WAS TOO MINOR TO BEAR A RELATIONSHIP TO SHAREHOLDER INTERESTS; PLAINTIFF’S CONTINUING BELIEF OF ILLEGALITY WAS NOT REASONABLE IN LIGHT OF MANAGEMENT’S ASSURANCES THAT IT WOULD RESOLVE THE PROBLEMS; AND ONE OF PLAINTIFF’S JOB DUTIES WAS TO REPORT SUCH DISCREPANCIES SO THAT THEY COULD BE ADDRESSED
In Clegg v. Amcor Rigid Packaging USA, LLC, No. 21-232 (E.D. Ky. Jan. 3, 2022) (2022 U.S. Dist. LEXIS 7), Plaintiff alleged that he was terminated in violation of SOX, 18 U.S.C. § 1514A, in retaliation for his opposition to improper inventory practices. Defendant filed a FRCP 12(b)(6) motion to dismiss.
Plaintiff worked for Defendant as a Supply Chain Manager, one duty of which was inventory reconciliation. While performing this work, Plaintiff raised a concern about the alleged improper storage of a “large quantity” of plastic bottles, and a concern about purported discrepancies in the cycle count of cardboard.
The focus for the court’s determination was whether “any reasonable supply chain manager would believe that the facts taken from Clegg’s Complaint justify the belief that Amcor was committing shareholder fraud.” Slip op. at 5. The court found that the totality of the circumstances indicated that Plaintiff’s belief of shareholder fraud was not objectively reasonable.
The court first found that the subject of the complaints was exceedingly minor in the context of Plaintiff’s business – an impact of well under a million dollars representing just 0.035% of Defendant’s revenue. The court cited caselaw indicating that such a minor sum in context bears only a tenuous relationship to shareholder interests. The court also noted that when Plaintiff reported the incidents, management indicated that it would resolve the problems. The court noted that an employer’s reaction to a disclosure is relevant to a court’s determination on whether an employee’s belief is objective reasonable. The court determined that Plaintiff had no reason not to take Defendant at its word, and that “[h]is continuing belief of illegality in the face of these assurances was objectively unreasonable.” Id. at 7. Finally, the court noted that the nature of Plaintiff’s employment underscored the objective unreasonableness of his belief. As a Supply Chain Manager, his duties were to accurately assess and report inventory reconciliation—and those duties includes adjusting or writing-down discrepancies found in the cycle counts of plastic bottles, cardboard, and shipping pallets. The court stated:
- Rather than suggesting a plot to defraud shareholders, these matters illustrate that Amcor is a large business with many moving parts, where errors can occur. By reporting these issues, Clegg was acting in accordance with his job description by reporting these issues. No reasonable supply chain managers in Clegg’s position would believe that these issues—the exact type of which they were hired to address—justify a belief that Amcor was committing shareholder fraud.
Id. at 7-8 (footnotes omitted) (emphasis as in original). The court thus granted the motion to dismiss.