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McManus v. Tetra Tech Construction, Inc.

United States District Court, N.D. New York

May 11, 2017



          Lawrence E. Kahn U.S. District Judge


         Plaintiff Scott McManus commenced this action against defendants Tetra Tech Construction, Inc. and Tetra Tech, Inc. (collectively, “Tetra Tech”) on July 19, 2016, alleging unlawful retaliation in violation of the employee-protection provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 15 U.S.C. § 78u-6. Dkt. No. 1 (“Complaint”). On September 27, 2016, Tetra Tech moved to dismiss the Complaint. Dkt. Nos. 17 (“Motion”), 17-1 (“Memorandum”), 17-2 (“Request for Judicial Notice”). McManus opposed the motion on October 18, 2016, Dkt. No. 19 (“Opposition”), and Tetra Tech filed its reply on October 24, 2016, Dkt. No. 20 (“Reply”). On November 22, 2016, McManus moved for leave to file an amended complaint. Dkt. Nos. 21 (“Motion to Amend”), 21-1 (“McManus's Memorandum”), 21-2 (“Redline Proposed Amended Complaint”), 21-3 (“PAC”) 21-4 (“Proposed Order”). Tetra Tech opposed McManus's motion on December 19, 2016. Dkt. No. 22 (“Tetra Tech's Opposition”). For the reasons stated below, Tetra Tech's motion to dismiss is denied, and McManus's motion to amend is granted.[1]

         II. BACKGROUND[2]

         McManus began working for Delaney Construction, Inc. in 2000. PAC ¶ 29. In 2007, Tetra Tech, Inc. acquired Delaney Construction, and renamed it Tetra Tech Construction. Id. ¶ 30. Tetra Tech, Inc. is a publicly traded company holding classes of securities registered under Section 12 of the Securities Exchange Act of 1935, 15 U.S.C. § 78o(d), and required to file reports under Section 15(d) of the Exchange Act. Id. ¶ 22. The company provides “consulting, engineering, program management, construction management, and technical services to both government and private sector clients.” Id. ¶ 28. Presently, Tetra Tech Construction is managed under Tetra Tech's Remediation and Construction Management (“RCM”) business group, and headquartered in Gloversville, New York. Id. ¶¶ 25, 27.

         After it acquired Delaney Construction in 2007, Tetra Tech named McManus Director of Business Development in the company's Gloversville, New York-based wind power division. Id. ¶¶ 30-36. In 2014, Tetra Tech invited McManus to join approximately twenty-five other employees in the company's leadership program. Id. ¶ 39. Tetra Tech organized quarterly three- day conferences for leadership program participants and senior management. Id. ¶ 40. At the first leadership conference he attended during the first quarter of 2014, McManus explained during a group conversation “that, based on his own observations of the company's culture, leaders of business units made decisions which focused more on those leaders' personal financial interests than upon the interests of shareholders.” Id. ¶ 46. Specifically, McManus noted that the company's “bonus structure and the way the company executed it served to incentivize business unit leaders to falsify numbers in order to ensure bonuses.” Id. ¶ 47. During a subsequent discussion, McManus stated that he believed that Tetra Tech Construction's cost accounting process “was not effective” and that he “was concerned that Tetra Tech frequently changed systems in an effort to conceal its failure to adequately and timely report losses.” Id. ¶¶ 50, 54.

         On or about July 17, 2014, McManus attended a meeting at RCM's Houston, Texas office with several RCM officials, Executive Vice President Frank Gross, Vice President Larry Brown, and Human Resources Director Patti Holcomb. Id. ¶ 56. The RCM officials told McManus that Tetra Tech planned to close its transportation unit in Gloversville, but that it would maintain the wind energy unit where McManus worked. Id. ¶ 57. The Gloversville unit would eventually be merged with Tetra Tech's Major Project Execution (“MPE”) unit and moved to Houston. Id. Gross informed McManus that he would form part of the new MPE unit's three-person management team and be relocated to Houston. Id. ¶¶ 58, 60. The restructuring plan was revealed to other Tetra Tech employees later that day. Id. ¶ 59. Also in July 2014, Executive Vice President of Water, Environment, & Infrastructure Leslie Shoemaker separately informed McManus that he would be retained after the restructuring. Id. ¶ 60. During the summer of 2014, Tetra Tech announced several different restructuring plans, [3] eventually merging the energy group with RME. Id. ¶ 81.

         McManus had a second meeting with Gross on July 21, 2014. Id. ¶ 61. At this meeting, McManus raised concerns that Tetra Tech's accounting practices did not comply with federal securities laws. Id. ¶¶ 62-75. Specifically, McManus told Gross that he did not believe that Tetra Tech “accurately accounted for losses on projects” and that it “[took] steps to conceal [its] losses until it became convenient for Tetra Tech to report them.” Id. ¶ 65. McManus explained that “nearly all” of the major projects he had worked on at Tetra Tech had become unprofitable prior to completion, but that “Tetra Tech falsified profits by reporting inflated Operating Income/Revenue Growth to impact share price and share metrics.” Id. ¶¶ 67, 69. Essentially, McManus reported, the company delayed reporting losses until it reported “the initial high profitability of new projects to offset [those] losses.” Id. ¶ 71. McManus told Gross that he believed this conduct violated the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7201 et seq. Id. ¶ 62.

         On October 7, 2014, McManus sent an e-mail to Gross and Tetra Tech's human resources director, Bill Marine, detailing his concerns that Tetra Tech's accounting practices violated federal securities laws. Id. ¶¶ 83-85. In his e-mail, McManus stated the following:

I am inquiring on our accounting on projects (lack thereof) and overall financial reporting as they relate to the SOX [Sarbanes-Oxley] act, which relates to SEC compliance of the organization. I would like to understand the process more and discuss the areas where I feel we are not in compliance. This has been a concern of myself and others for some time and I am dissatisfied with the lack of attention it has received. The decision has been made to sell TCI and in turn report the organization as a discontinued operation-I am afraid this is the final attempt to cover up the officers of this company's lack of SEC/SOX compliance and negligent handling of the organization's business reporting.

Id. ¶ 84.

         McManus learned of these accounting issues through his experiences managing projects, as well as discussions with high-ranking Tetra Tech officials and accounting personnel. Id. ¶¶ 67, 86, 93. According to one vice president McManus spoke to, the company had lost approximately $35 million on several projects. Id. ¶ 87. When these losses were reported internally, the president of Tetra Tech Construction at the time stated that “the losses were much higher than what he wished to report.” Id. ¶ 90. The company ultimately “reported the losses much later than when they actually were aware that the losses would occur.” Id. ¶ 91. McManus heard similar concerns about the same project from the company's estimators who were “assigned to perform analyses on the financial future of the project.” Id. ¶ 93. On one occasion, the former president of Tetra Tech Construction instructed estimators who had raised concerns about losses “not to concern themselves with anything to do with the project, including discussion of incurred losses.” Id. ¶ 94. McManus identified several other projects where reporting of “significant losses” was delayed beyond what the estimators believed to be appropriate. Id. ¶¶ 96-97. Based on his knowledge of these projects, McManus “believed there was likely to be a company-wide pattern of delaying the reporting of actual costs and refusing to report other actual costs, which would serve to inflate [Tetra Tech's] appearance of profitability and subsequently [its] stock price.” Id. ¶ 102. These delays created “a windfall for company executives in timing their exercises of stock options or earn-out bonuses.” Id. ¶ 104.

         Within an hour of sending the October 7 email to Gross and Marine, McManus received a phone call from Shoemaker and Senior Vice President of Corporate Human Resources Kevin McDonald. Id. ¶ 107. On the call, Shoemaker and McDonald told McManus that he “had no future” at Tetra Tech and withdrew his invitation to the upcoming leadership program conference. Id. ¶ 108. The next day, McManus received a phone call from Tetra Tech's Chief Executive Officer, Dan Batrack, and its Chief Financial Officer, Steven Burdick, apologizing for the October 7 phone call and assuring McManus that he had a future at the company. Id. ¶¶ 112-113. McManus reiterated the Sarbanes-Oxley concerns he had raised with Gross and Marine the prior day, which Burdick agreed to discuss. Id. ¶¶ 115, 117.

         On January 27, 2015, Steve Ruffing, who was overseeing the wind-down of Tetra Tech Construction, notified McManus that he would be terminated the following week. Id. ¶ 127. During this conversation, McManus asked Ruffing about a project bonus McManus had been promised, but not received. Id. ¶ 131. Later that day, McManus received a bonus that was about half the size he had been promised. Id. ¶ 132. When McManus asked Ruffing about the reduced bonus, Ruffing told him that Tetra Tech had intended to fire him “a while ago” in the fall of 2014. Id. ¶ 133.

         The same day, McManus notified Ruffing of his concerns regarding Tetra Tech's accounting irregularities and potential securities law violations. Id. ¶ 134. He also sent an additional email to senior management describing his concerns that the company had violated Sarbanes-Oxley and that he had only received half of the bonus he was owed. Id. ¶¶ 135-36.

         McManus was not terminated the following week. He continued to work on wind-down projects until his termination was finalized on March 18, 2015. Id. ¶¶ 137-43. Like McManus, several leadership program participants were promised positions within the restructured entity. Id. ¶ 149. None of these employees complained about Tetra Tech's compliance with Sarbanes-Oxley, and none were terminated. Id. ¶¶ 150, 164. In fact, McManus was the only member of Tetra Tech's leadership program terminated in connection with the restructuring. Id. ¶¶ 144-45.


         To survive a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court must accept as true the factual allegations contained in a complaint and draw all inferences in favor of the plaintiff. Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006). Plausibility, however, requires “enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [the alleged misconduct].” Twombly, 550 U.S. at 556. The plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (quoting Twombly, 550 U.S. at 555). Where a court is unable to infer more than the possibility of misconduct based on the pleaded facts, the pleader has not demonstrated that he is entitled to relief, and the action is subject to dismissal. Id. at 678-79. Nevertheless, “[f]act-specific question[s] cannot be resolved on the pleadings.” Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 185 (2d Cir. 2012) (second alteration in original) (quoting Todd v. Exxon Corp., 275 F.3d 191, 203 (2d Cir. 2001)). Presented with “two plausible inferences that may be drawn from factual allegations, ” a court “may not properly dismiss a complaint that states a plausible version of the events merely because the court finds a different version more plausible.” Id.

         IV. ...

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