United States District Court, N.D. New York
MEMORANDUM-DECISION AND ORDER
Lawrence E. Kahn U.S. District Judge
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
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.
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,
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,
eventually merging the energy group with RME. Id.
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. ¶
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.
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.
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.
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.
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.
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.
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,
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.