## Facts

- Kevin Wallace served as Tesoro Corporation’s Vice President of Pricing and Commercial Analysis.
- Wallace investigated a discrepancy between Tesoro’s financial forecasts and cash performance and concluded Tesoro was booking certain taxes as “revenue,” allegedly inflating segment profitability and affecting SEC filings (Forms 10-K and 10-Q).
- Wallace reported the taxes-as-revenue concern to multiple senior officials, including executives in refining/marketing and audit and commercial accounting.
- Wallace also raised additional concerns internally, including an alleged antitrust “side agreement,” alleged retaliation referenced in a compliance certificate, and alleged wire fraud based on advance disclosure of pricing changes to customers.
- Tesoro terminated Wallace in March 2010.
- Wallace filed a SOX whistleblower complaint with OSHA and later sued in federal court alleging retaliatory termination.

## Issues

1. Which alleged categories of protected activity were administratively exhausted through Wallace’s OSHA complaint, permitting litigation in federal court under SOX § 1514A.
2. Whether a SOX retaliation complaint based on reporting suspected fraud or SEC violations must satisfy Rule 9(b) or instead is governed by Rule 8(a).
3. Whether Wallace plausibly alleged SOX “protected activity,” including an objectively reasonable belief that the reported conduct implicated an enumerated SOX category (e.g., SEC rules or federal fraud statutes), and a causal link to termination.

## Decision

- The Fifth Circuit held Wallace exhausted only the taxes-as-revenue theory within the scope of the OSHA proceeding; other theories were dismissed as unexhausted (or not properly within the expected scope of the administrative investigation).
- The court held Rule 9(b) does not apply to SOX § 1514A retaliation claims; Rule 8(a) governs because the claim targets retaliation based on a reasonable belief, not the underlying fraud itself.
- Applying Rule 8(a), the court held Wallace plausibly pleaded protected activity and retaliation as to the taxes-as-revenue reports, including an objectively reasonable belief of SEC reporting or fraud-related violations.
- The judgment was affirmed in part and reversed in part, allowing the case to proceed only on the exhausted taxes-as-revenue retaliation theory.

## Legal Principles

- A SOX § 1514A plaintiff must first exhaust administrative remedies by filing with OSHA; a later civil action is limited to claims reasonably expected to grow out of the administrative complaint and investigation.
- SOX “protected activity” includes internal reporting where the employee holds an objectively reasonable belief that the conduct reported constitutes a violation of an enumerated category (including SEC rules or federal fraud statutes); proof of actual fraud is not required at the pleading stage.
- SOX retaliation claims are subject to Rule 8(a), not Rule 9(b), even when the reported misconduct sounds in fraud, because the relevant pleading facts concern the employee’s reasonable belief and retaliatory motive rather than the elements of fraud.
- Under Rule 8(a), allegations may be sufficient when they identify the reported practice, connect it to public reporting, describe internal reporting to company decisionmakers, and plausibly link the reporting to an adverse action.

## Conclusion

The Fifth Circuit limited Wallace’s SOX suit to the administratively exhausted theory that he reported an accounting practice of booking taxes as revenue, rejected applying Rule 9(b) to SOX retaliation pleadings, and held that Wallace plausibly alleged protected activity and retaliatory termination under Rule 8(a) on that theory.


Wallace v. Tesoro Corp., 796 F.3d 468 (5th Cir. 2015)