Huang v. Harman International Industies

Filing 37

ORDER denying 19 Motion to Dismiss. See attached order. Signed by Judge Vanessa L. Bryant on 07/29/15. (Thomas, R.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
JIAN HUANG,
Plaintiff,

:
:
:
:
:
:
:
:

v.
HARMAN INTERNATIONAL
INDUSTRIES, INC.,
Defendant.

CIVIL ACTION NO.
3:14-cv-1263-VLB

July 29, 2015

MEMORANDUM OF DECISION DENYING DEFENDANT HARMAN
INTERNATIONAL INDUSTRIES, INC.‟S MOTION TO DISMISS
Jian Huang, pro se, sues his former employer, Harman International
Industries, Inc.1 (“Harman”), alleging that it retaliated against him in violation of
the Sarbanes-Oxley Act of 2002 (“SOX”), 18 U.S.C. § 1541A.2 Harman moves to
dismiss Huang‟s complaint for failure to state a claim. For the following reasons,
Harman‟s motion is DENIED.
FACTS AND PRODUCEDURAL BACKGROUND
Huang brings a SOX-retaliation claim against his former employer, Harmon.
ECF, doc. 1 (Compl.). His complaint contains the following allegations. While
working for Harman, Huang “reported several potential accounting frauds to the
company board as well [as the] SEC.” Id. at 3. Huang also “reported several
potential accounting frauds to the Company‟s Chairman/CEO or/and the chairman

1

Plaintiff omits “Inc.” from Defendant‟s name. The Clerk of Court is
directed to amend the caption accordingly.
2
Huang also checks the Title VII box on his form complaint for employment
discrimination, but he does not identify the facts necessary for stating a Title VII
claim, e.g., he does not make a selection in the section requiring him to select his
protected class membership. ECF, doc. 1 (Compl.). Accordingly, the Court
construes Huang not to be raising a Title VII claim. If the Court is mistaken,
Huang should file an amended complaint within 30 days of entry of this order.
1

of [the] Audit Committee.”

Id. at 4.

On October 17, 2012, after receiving an

“unfair performance rating,” Huang filed a SOX-retaliation complaint with the
Occupational Safety and Health Administration (“OSHA”). Id. at 3. Huang was
fired on February 8, 2013. Id. Huang seeks, inter alia, monetary and injunctive
relief. Id. at 5. Huang also attached his August 2014 right-to-sue letter from
OSHA. Id. at 7.
Harman moves to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6), arguing that Huang‟s complaint fails to state a SOX-retaliation claim
because “[Huang] does not allege facts sufficient to establish that he engaged in
statutorily protected activity.” ECF, doc. 20 (Mem.) at 9. Specifically, Harmon
argues that Huang‟s unspecified allegations of “accounting frauds and significant
control deficiencies” are too vague to determine whether Huang reasonably
believed that “the conduct in question amounted to mail fraud, bank fraud, or
securities fraud or otherwise violated any statute, rule[,] or regulation relating to
fraud against shareholders.” Id. at 10–11. Harmon further argues that Huang‟s
OSHA complaint was not a protected activity because the OSHA complaint (as
alleged in his instant federal complaint) did not identify conduct that Huang
reasonably believed to be a protected activity. Id. at 15–16.
Huang opposes, arguing, in relevant part, that he had a reasonable belief
that Harmon was engaging in shareholder fraud.

ECF, doc. 21 (Opp‟n).

In

support, Huang attaches his OSHA complaint in which he explains that he was a
certified public accountant, worked as a full-time auditor for Harmon, and was
mostly responsible for conducting SOX audits. ECF, doc. 21-5 (OSHA Compl.) at

2

1; see also ECF, doc. 21-1 (Email Attached to OSHA Compl.). Huang‟s OSHA
complaint further states that, while working for Harmon, he uncovered
accounting errors, which led to the overstatement of profits in publically
disclosed financial reports by approximately $20 million.

Id.

Huang‟s OSHA

complaint alleges numerous specific instances of those errors, including:
(1) during Q1 of 2012, Harmon‟s Amplifier Business Unit overstated its operating
profits both by using an illogical calculation and misstating inventory reserves
even by its improper method of calculation, id. at 2; see also ECF, doc. 21-1
(Email Attached to OSHA Compl.); and (2) in Harmon‟s Form 10-Q filing for Q2 of
2012, the report overstated net sales and gross margin by 5–7% in violation of
generally accepted accounting principles (“GAAP”), id. at 3; see also ECF, doc.
21-3 (Email Attached to OSHA Compl.).

With respect to the first noted error,

Huang‟s immediate supervisor supported him in following up with the business
department about that error, but that supervisor was fired shortly thereafter. Id.
at 3. Huang also discovered that the error persisted in Q3 of 2012, and Huang
reported that issue to the Chairman of the Audit Committee. Id.
Harman replies that the Court cannot consider at the motion to dismiss
stage any of the documents attached to Huang‟s opposition because those
documents are not integral to the complaint or subject to judicial notice. ECF,
doc. 27 at 3–4. Harman further argues that, even if those documents can be
considered, they still fail to show that Huang had a reasonable belief of securities
fraud because those documents identify only to “innocuous or trivial” accounting
irregularities. Id. at 5–9.

3

LEGAL ANALYSIS
When reviewing a motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(6), a court “accept[s] all factual allegations as true and draw[s]
all reasonable inferences in favor of the plaintiff.” Litwin v. Blackstone Grp., L.P.,
634 F.3d 706, 715 (2d Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint
must plead “enough facts to state a claim to relief that is plausible on its face.” 3
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court affords a pro se litigant
“special solicitude” by interpreting a pro se complaint “to raise the strongest
claims that it suggests.” Hill v. Curcione, 657 F.3d 116, 122 (2d Cir. 2011) (internal
quotation marks and alterations omitted). Additionally, “[a] pro se complaint
should not be dismissed without the [c]ourt‟s granting leave to amend at least
once when a liberal reading of the complaint gives any indication that a valid
claim might be stated.” Grullon v. City of New Haven, 720 F.3d 133, 139 (2d Cir.
2013) (internal quotation marks and alterations omitted).

3

Harman argues, in a footnote, that Huang must meet the special pleading
standards governing fraud. ECF, doc. 20 (Mem) at 15 n.1. However, Federal Rule
of Civil Procedure 9(b) does not apply because Huang brings a retaliation claim
based on his reasonable belief of fraud rather than a claim necessitating proof of
fraud. See Mendiondo v. Centiela Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir.
2008) (holding that the heightened pleading standard of Rule 9(b) does not apply
to FCA retaliation claims because “[t]he fact that the claim arises from an
investigation of potential fraud does not alter its nature as a retaliation claim”);
U.S. ex rel. Mooney v. Americare, Inc., 2013 WL 1346022 at *8 (E.D.N.Y. Apr. 3,
2013) (“Rule 9(b)‟s heightened pleading standard does not apply to plaintiff‟s FCA
retaliation claim since no showing of fraud is required.”)
4

As an initial matter, the parties dispute what documents may now be
considered in determining whether the complaint states a claim. Specifically,
Harmon argues that this Court cannot consider any of the documents that Huang
attached to his opposition because none of them are integral to the complaint or
materials subject to judicial notice.

Harmon is incorrect.

In addition to

documents integral to the complaint and materials subject to judicial notice, this
Court may consider, inter alia, documents incorporated in the complaint by
reference.

See Roth v. Jennings, 489 F.3d, 499, 509 (2d Cir. 2007). A document

is incorporated by reference if “it makes a clear, definite, and substantial
reference to the documents.‟” DeLuca v. AccessIT Group, Inc., 695 F.Supp.2d 54,
60 (S.D.N.Y. 2010) (quotation marks omitted).

Here, Huang incorporates his

OSHA complaint, including the documents attached to his OSHA complaint, by
reference.4 See, e.g., D’Amato v. Conn. Bd. of Pardons and Paroles, 2013 WL
617047 at *1 (D. Conn. 2013) (“In considering Defendants‟ first request, the Court
may consider the EEOC charge, because it was incorporated by reference in
paragraph eighteen of the Complaint.”); Muhammed v. New York City Transit
Auth., 450 F.Supp.2d 198, 204 (E.D.N.Y. 2006) (“Courts in this Circuit have
repeatedly held that when EEOC charges are expressly referred to in the
pleading, they may be considered incorporated by reference.”).
Turning to the merits, SOX prohibits a publicly traded company from
retaliating against an employee who:

4

The Court does not consider exhibits 4, 6, 6-1, 6-2, and 7 because those
documents were not attached to Huang‟s OSHA complaint.
5

provides information, causes information to be provided, or
otherwise assists 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.
Nielson v. AECOM Tech. Corp., 762 F.3d 214, 218 (2d Cir. 2014) (quotation marks
and alterations omitted). To state a plausible SOX retaliation claim, a plaintiff
must allege facts indicating that: “(1) he or she engaged in a protected activity;
(2) the employer knew that he or she engaged in the protected activity; (3) he or
she suffered an unfavorable personnel action; and (4) the protected activity was a
contributing factor in the unfavorable action.” Bechtel v. Admin. Review Bd., 710
F.3d 443, 451 (2d Cir. 2013).
Harmon disputes only whether Huang‟s complaint satisfies the first
element, i.e., whether Huang alleged facts demonstrating that he engaged in a
protected activity. A plaintiff engages in a protected activity when he reasonably
believes that the reported conduct violates an offense set forth in SOX. Nielsen,
762 F.3d at 221 (rejecting the “definitively and specifically” requirement). That
test has both objective and subjective elements: “a plaintiff must show not only
that he believed that the conduct constituted a violation, but also that a
reasonable person in his position would have believed that the conduct
constituted a violation.” Id. (internal quotation marks omitted).

The objective

prong looks at “the basis of knowledge available to a reasonable person in the
circumstances with the employee‟s training and experience.”

Id. (internal

quotation marks omitted). A plaintiff‟s subjective belief, which Harmon does not

6

dispute, turns on whether the plaintiff actually believes the reported conduct
violated the relevant laws. See Leshinsky v. Telvent, GIT, S.A., 942 F.Supp.2d
432, 444 (S.D.N.Y. 2013).
Here, Huang‟s OSHA complaint, which is incorporated by reference, states
sufficient facts concerning his objectively reasonable belief that he was alerting
company executives to shareholder fraud.

First, Huang is a certified public

accountant, was hired by Harmon to work as a full-time auditor, and, as an
auditor, mostly conducted SOX audits. Compare Wood v. Dow Chem. Co., 2014
WL 7157100 at *7 (E.D. Mich. 2014) (complaint stated objectively reasonable belief
of fraud, in part, because plaintiff “had a great deal of experience in accounting
and fraud detection”), with Andaya v. Atlas Air, Inc., 2012 WL 1871511 at *5
(S.D.N.Y. 2012) (“There is no indication in the record that plaintiff‟s training,
education, or experience would give him sufficient knowledge or expertise to
conclude the conduct of which he complained violated 1514A.”). Thus, Huang‟s
training and experience are facts suggesting that Huang reasonably believed that
he was engaging SOX-protected activity.

The reasonableness of Huang‟s

conclusion is supported by the fact that his supervisor encouraged him to
proceed further. Harmon, who hired Huang and his supervisor to perform SOX
audits, cannot now argue that both of these professionals reached unreasonable
conclusions because they did not understand the meaning of fraud.
Moreover, Huang details specific instances when he reported accounting
inaccuracies. Those accounting inaccuracies cannot be deemed “innocuous or
trivial” for several reasons: there were numerous errors occurring in different

7

departments and at different times; those errors resulted from eschewing GAAP
rather than human error; those errors amounted to tens of millions of dollars; and
those errors were reported to shareholders in Harmon‟s Form 10-Q and 10-K
filings.5 See Wood, 2014 WL 7157100 at *7 (plaintiff stated viable SOX-retaliation
claim based on numerous instances of unreported financial activity amounting to
millions of dollars). Finally, Huang alleges facts that, if true, would indicate a
mental state more than mere negligence.

He alleges that his immediate

supervisor was fired shortly after that supervisor encouraged Huang to follow up
on an accounting inaccuracy, that senior management failed to address Huang‟s
reports, and that those errors persisted in subsequent quarterly reports.
Accordingly, these facts are sufficient to state the first element of a SOXretaliation claim.

5

Harmon recently submitted a notice of additional authority in further
support of its motion to dismiss, but that case, Nazif v. Comput. Sci. Corp., 2015
WL 3776892 (N.D. Cal. June 17, 2015), is inapposite. The Nazif court granted
summary judgment in the defendant‟s favor, in part, because “no objectively
reasonable accountant could have believed that a revenue misstatement of
„approximately $15 million‟ was sufficiently material to corporation [sic] as large
as [the defendant corporation] to warrant a colorable suspicion of securities
fraud.” Id. at *7. The summary judgment evidence showed that the defendant
corporation in Nazif reported annual revenue of over 14 billion dollars. Id. at *6.
In other words, the misstatements in Nazif amounted to approximately one tenth
of one percent of the defendant‟s annual revenue. Here, in contrast, Huang
alleges, inter alia, that Harmon‟s 2012 Form 10-Q filing for Q2 overstated net sales
(the number Harmon uses to calculate its revenue) by 5–7%, an error fifty to
seventy times as large as the collective misstatements in Nazif. Moreover,
Harmon does not explain how its 2014 Form 10-K SEC filing has any bearing on
the materiality of the alleged misstatements in its 2012 Form 10-Q and 10-K
filings. Notably, in its 2012 10-K filing, Harmon reported approximately 20% less
in net sales than in its 2014 10-K filing. See http://www.sec.gov/Archives/edgar.
In effect, Harmon attempts to have the case dismissed by comparing apples and
oranges, and the Court does not accept such comparisons as relevant.
8

CONCLUSION
For the foregoing reasons, Harmon‟s motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6) is DENIED.

IT IS SO ORDERED.

________/s/______________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: July 29, 2015

9