George E. Engstrom & John E Stockwell v. Microsoft Corporation

• Court: Court of Appeals of Washington
• Decided: May 6, 2019
• Docket: 77538-3
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

GEORGE E. ENGSTROM and ) No. 77538-3-1 JOHN E. STOCKWELL, ) ) Appellants, ) DIVISION ONE ) v. ) ) UNPUBLISHED OPINION MICROSOFT CORPORATION, ) ) FILED: May 6, 2019 Respondent. ) )

MANN, A.C.J. — George Engstrom and John Stockwell appeal the trial court's

summary judgment dismissal of their claim for wrongful discharge in violation of public

policy against Microsoft Corporation. They believe that they were terminated from

Microsoft as retaliation for initiating an investigation into another Microsoft employee.

Because Engstrom and Stockwell failed to meet their burden to plead and prove that a

stated public policy, either legislatively or judicially recognized, may have been

contravened, dismissal of their claim for wrongful discharge in violation of public policy

was appropriate. We affirm. No. 77538-3-1/2

I.

Engstrom and Stockwell were high level managers within Microsoft's Online

Services Division. In late 2010, Engstrom and Stockwell began working with Brandon

Yoon, a lower level Microsoft employee. Yoon was tasked with acting as a liaison

between LG Uplus—a Korean cell phone carrier—and Microsoft on a deal that

Engstrom and Stockwell were supervising.

In early 2011, Stockwell and Engstrom became concerned over Yoon's expense

reports. They believed that Yoon may have been taking Microsoft clients to "hostess

bars"—establishments that employ women to provide men with companionship, some

of which also provide illegal prostitution services—and expensing illegal prostitution

masked as benign meal charges. After confronting Yoon about their concerns, which

he denied, Stockwell and Engstrom reported Yoon to Microsoft's Human Resources

department.

In response, Microsoft's Office of Legal Compliance (OLC)opened an

investigation into Yoon's expense reports. Engstrom and Stockwell assert, however,

that Microsoft continually stymied the investigation. They allege that Microsoft refused

to devote sufficient assets to properly investigate their allegations, and did not have a

Korean language translator look at the various receipts that Yoon had submitted for

reimbursement. While this investigation was ongoing, Yoon transferred out of Engstrom

and Stockwell's work group with the help of Corporate Vice President Harry Shum.

Further, Stockwell asserts that Jeff Williams, a Microsoft Human Resources manager,

called him at his house and asked him to drop the complaint against Yoon. Ultimately,

the OLC concluded that there was no evidence of wrongdoing.

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After the investigation was closed, Engstrom and Stockwell assert that the

retaliation against them began. Engstrom and Stockwell believe that Yoon was the

protégé of Harry Shum, who told his good friends, President of Online Services Division

Qi Lu and Corporate Vice President David Ku, to retaliate against Engstrom and

Stockwell. For example, Engstrom and Stockwell were transferred to other working

groups at Microsoft soon after the investigation closed. Engstrom was almost demoted

by Qi Lu but was able to gain temporary protection after e-mailing Microsoft CEO Steve

Ballmer. Engstrom was later demoted by David Ku. Similarly, Stockwell believed that

he was taken off of a potentially lucrative project only after the manager of the project

spoke to Qi Lu about Stockwell. Both Engstrom and Stockwell also believe that they

received unwarranted negative performance reviews as retaliation for reporting Yoon.

In May 2013, Corporate Vice President David Ku notified the 80 Microsoft

employees involved with two projects—"Triani" and "Slice"—that both projects were

cancelled. Engstrom and Stockwell were both members of those projects. Ku told the

employees that they should try to find alternative employment arrangements within

Microsoft. Those employees continued to get paid by Microsoft while trying to find

suitable employment. All but 4 of the 80 affected employees were able to find

alternative employment within Microsoft. Neither Engstrom nor Stockwell found

alternative employment.

In October 2013, Ku prepared a business justification memorandum for a

selective reduction in force for the four employees who had not yet found alternative

employment: Engstrom, Stockwell, Yarom Boss, and Jeffrey Robinson. In December

2013, Ku terminated Stockwell and Boss as part of the reduction in force. Robinson

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was not terminated because he was able to find alternative employment at the last

minute. Engstrom was not terminated until January 2014 because he was on paternity

leave at the time. Ku allowed Engstrom to return from paternity leave and allowed

$335,000 worth of Engstrom's stock options to vest before terminating him.

On February 25, 2015, Engstrom and Stockwell sued Microsoft alleging that it

had wrongfully discharge them in violation of public policy. In June 2015, the trial court

granted Microsoft's motion to dismiss, and Engstrom and Stockwell appealed. In

September 2015, while that appeal was pending, Microsoft agreed to a voluntary

remand in light of three recently decided Supreme Court cases.1 See Engstrom v.

Microsoft Corp., No. 74200-1-1 (Wash. Ct. App. Feb. 16, 2016)(unpublished)(per

curiam). For the next two years the parties engaged in extensive discovery. After

discovery closed Microsoft moved for summary judgment, which the trial court orally

granted on September 25, 2017.

A week later, Engstrom and Stockwell moved for leave to amend their complaint

to assert a new source of public policy under the Sarbanes-Oxley Act, 18 U.S.C. §

1514A(d). The trial court denied the motion because it found that the Engstrom and

Stockwell had unduly delayed bringing the motion, the amendment would be futile, and

Microsoft would be unduly prejudiced by the amendment. Engstrom and Stockwell then

unsuccessfully moved for reconsideration. Engstrom and Stockwell appeal.

1 Rose v. Anderson Hay and Grain Co., 184 Wn.2d 268, 358 P.3d 1139 (2015); Becker v. Community Health Systems, Inc., 184 Wn.2d 252, 359 P.3d 746(2015); and Rickman v. Premera Blue Cross, 184 Wn.2d 300, 358 P.3d 1153(2015). -4- No. 77538-3-1/5

II.

We review a trial court's grant of summary judgment de novo. Camicia v. Howard

S. Wright Constr. Co., 179 Wn.2d 684, 693, 317 P.3d 987(2014). Summary judgment

is appropriate only when there is no genuine issue as to any material fact and the

moving party is entitled to judgment as a matter of law. CR 56(c). When making this

determination, we consider all facts and make all reasonable factual inferences in the

light most favorable to the nonmoving party. Young v. Key Pharms., Inc., 112 Wn.2d

216, 226, 770 P.2d 182(1989).

A.

The Washington Supreme Court first recognized the wrongful discharge in

violation of public policy tort in Thompson v. St. Regis Paper Co., 102 Wn.2d 219, 232,

685 P.2d 1081 (1984). There, the court described the tort as a narrow exception to the

at will employment doctrine. "Flo state a cause of action, the employee must plead and

prove that a stated public policy, either legislatively or judicially recognized, may have

been contravened." Thompson, 102 Wn.2d at 232. "[Tjhe burden shifts to the employer

to prove that the dismissal was for reasons other than those alleged by the employee."

Thompson, 102 Wn.2d at 232-33. In Gardner v. Loomis Armored, Inc., the Supreme

Court clarified that there are four situations when the tort is recognized:

(1) where employees are fired for refusing to commit an illegal act;(2) where employees are fired for performing a public duty or obligation, such as serving jury duty;(3) where employees are fired for exercising a legal right or privilege, such as filing workers' compensation claims; and (4) where employees are fired in retaliation for reporting employer misconduct, i.e., whistleblowing.

128 Wn.2d 931, 936, 913 P.2d 377(1996).

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When the employee's case "does not fit neatly within one of these [four]

scenarios . . . a more refined analysis may be necessary, and the four-factor Perritt

analysis may provide helpful guidance." Becker v. Community Health Systems, Inc.,

184 Wn.2d 252, 259, 359 P.3d 746(2015)(citing HENRY H. PERRITT, JR., WORKPLACE

TORTS: RIGHTS AND LIABILITIES, § 3.7(1991)(hereinafter Perritt). To meet their burden of

proof under the Perritt test, a plaintiff must show:(1) the existence of a clear public

policy (the clarity element),(2) that discouraging the conduct in which the plaintiff

engaged would jeopardize the public policy (the jeopardy element),(3) that the public-

policy-linked conduct caused the dismissal (the causation element), and (4) that the

defendant has not offered an overriding justification for the dismissal of the plaintiff (the

absence of justification element). Gardner, 128 Wn.2d at 941; Martin v. Gonzaga

University, 191 Wn.2d 712, 723, 425 P.3d 837(2018).

B.

As a preliminary matter, Engstrom and Stockwell assert that the Perritt test does

not apply because they are whistleblowers. Microsoft disagrees and argues that

Engstrom and Stockwell are not whistleblowers because they only raised concerns

about an employee's expense records, they did not complain that their employer,

Microsoft, had committed misconduct.

Viewed in the light most favorable to Engstrom and Stockwell, we assume

without deciding that they are whistleblowers and thus fit within the scope of Gardner.

But regardless of whether Engstrom's and Stockwell's actions constituted

whistleblowing, they must still demonstrate that their discharge may have been

motivated by actions that contravene a clear expression of public policy. See e.g.,

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Martin, 191 Wn.2d at 724-25(When the appellant's claim is based on whistle-blowing

he still "has the burden to show that his discharge may have been motivated by reasons

that contravene a clear mandate of public policy.").2

To meet their burden, Engstrom and Stockwell were required to "plead and prove

that a stated public policy, either legislatively or judicially recognized, may have been

contravened." Thompson, 102 Wn.2d at 232; Martin, 191 Wn.2d at 725. In Thompson,

the Supreme Court "embraced a burden-shifting analysis in which the analytical focus

was whether the employee could establish that the discharge clearly contravened public

policy." Rose, 184 Wn.2d at 275 (citing Thompson, 1102 Wn.2d at 232-33). And while

Gardner "refined the tort's analytical framework somewhat [the Supreme Court]

expressly refrained from substantively changing the underlying tort requirements."

Rose, 184 Wn.2d at 277. "[T]he tort [remains] a narrow exception to the at-will doctrine

and must be limited only to instances involving very clear violations of public policy."

Rose, 184 Wn.2d at 276.

"The question of what constitutes a clear mandate of public policy is one of law

and can be established by prior judicial decisions or constitutional, statutory, or

regulatory provisions or schemes." Martin, 191 Wn.2d at 725 (quoting Dicomes v.

State, 113 Wn.2d 612, 617, 782 P.2d 1002 (1989)). "A court may not sua sponte

manufacture public policy but rather must rely on that public policy previously

manifested in the constitution, a statute, or a prior court decision." Rickman v. Premera

Blue Cross, 184 Wn.2d 300, 310, 358 P.3d 1153(2015).

2 Counsel for Engstrom and Stockwell agreed at oral argument.

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Engstrom and Stockwell rely on the Foreign Corrupt Practices Act of 1977, 15

U.S.C. § 78m (FCPA), to demonstrate that there is a clearly established public policy

against falsifying corporate records or books. The FCPA makes it illegal for

corporations to bribe foreign officials. 15 U.S.C. § 78dd-1(a)(1)("It shall be unlawful for

any [publically traded corporation to]. . . pay[], promise to pay, or authoriz[e]. . .

payment of any money.. .[to] any foreign official for purposes of. . . influencing any act

or decision . . . or inducing such foreign official to use his influence" to favor the

corporation). The FCPA also contains a books and records provision, which requires

corporations to "make and keep books, records, and accounts, which, in reasonable

detail, accurately and fairly reflect the transactions and dispositions of the assets of the

issuer." 15 U.S.C.§ 78m(b)(2)(A).

Engstrom and Stockwell assert that the books and records provision of the FCPA

established a second public policy beyond just prohibiting the bribery of foreign officials.

But contrary to their argument, our Supreme Court has previously stated that "the _

[FCPA] is a clear expression of public policy that bribery of foreign officials is contrary to

the public interest and that specific companies. . . must institute accounting practices to

ensure that this public policy is advanced." Thompson, 102 Wn.2d at 234.3 See also S.

REP. No. 95-114, at 3, 7("Taken together, the accounting requirements and [bribery]

prohibitions of[the FCPA]should effectively deter corporate bribery of foreign

government officials. . . . The accounting standards. . . are intended to operate in

3 See also Sedlacek v. Hillis, 145 Wn.2d 379, 386, 36 P.3d 1014 (2001)(the FCPA is "a clear expression of public policy in favor of careful accounting to prevent bribery of foreign officials."); Danny v. Laidlaw Trans. Servs. Inc., 165 Wn.2d 200, 219-20, 193 P.3d 128(2008)(the FCPA's public policy is to "prohibit[] bribery of foreign officials."). -8- No. 77538-3-1/9

tandem with the [antibribery provisions). . . to deter corporate bribery."), reprinted in

1977 U.S.C.C.A.N. 4098, 4100, 4104.

Engstrom and Stockwell further argue that because the FCPA makes it illegal to

falsify corporate books or records, the Supreme Court's language in Thompson, that

courts should "inquire whether the employer's conduct contravenes the letter or purpose

of a constitutional, statutory, or regulatory provision or scheme[,]" indicates that the

clear public policy element is met here. 102 Wn.2d at 232. But, contrary to the

appellants' assertion, this language was intended to indicate that the asserted public

policy must be clear. The quote continues: "courts should proceed cautiously if called

upon to declare public policy absent some prior legislative or judicial expression on the

subject." Thompson, 102 Wn.2d at 232 (citing Parnar v. Americana Hotels, Inc., 65

Hawaii 370, 652 P.2d 625 (1982)).

Engstrom and Stockwell do not allege anything related to the bribery of foreign

officials. Rather, they allege that they were discharged for internally reporting a

subordinate's expense reports. Because the FCPA's public policy was not implicated

here, Engstrom and Stockwell failed to meet their initial burden to demonstrate a prima

facie case for wrongful discharge in violation of public policy.

Ill.

Lastly, Engstrom and Stockwell contend that the trial court abused its discretion

in denying their motion to amend their complaint to include a second public policy under

the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, et seg. We disagree.

This court reviews a trial court's denial of a motion to amend a complaint for an

abuse of discretion. Shelton v. Azar Inc., 90 Wn. App. 923, 928, 954 P.2d 352(1998).

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The burden of proving an abuse of discretion has occurred "rests upon the challenging

party." Duckworth v. City of Bonney Lake, 91 Wn.2d 19, 34, 586 P.2d 860 (1978).

"[A] party may amend the party's pleadings only by leave of court or by written

consent of the adverse party; and leave shall be freely given when justice so requires."

CR 15(a). "If the underlying facts or circumstances relied upon by a plaintiff may be a

proper subject of relief, he ought to be afforded an opportunity to test his claim on the

merits." Tagliani v. Colwell, 10 Wn. App. 227, 233, 517 P.2d 207 (quoting Foman v.

Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222(1962)). But it is within the trial

court's discretion to deny a motion to amend if there was an undue delay in bringing the

motion, if it would result in undue prejudice to the opposing party, or if the amendment

would be futile. Tagliani, 10 Wn. App. at 233(quoting Foman, 371 U.S. at 182).

The trial court did not abuse its discretion in denying Engstrom and Stockwell's

motion to amend. First, Engstrom and Stockwell unduly delayed in bringing their

motion. The motion for leave to amend was filed over two years after the initial

complaint and a week after the trial court orally granted Microsoft's motion for summary

judgment. The basis for the requested motion was to reference the "public policy of

honesty in corporate financial reporting" recognized in Becker v. Community Health

Systems, Inc, 184 Wn.2d 252, 359 P.3d 746 (2015), and to allege a second public

policy under the whistleblower protection provisions of the Sarbanes-Oxley Act.

Although Becker was decided after Engstrom and Stockwell filed their initial

action, Becker was one of the trio of cases that resulted in the voluntary remand of the

initial appeal. See Engstrom v. Microsoft Corp., No. 74200-1-1 (Wash. Ct. App. Feb. 16,

2016)(unpublished)(per curiam). Had Engstrom and Stockwell wished to amend their

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complaint to include the desired references in Becker, they had the perfect opportunity

to do so after the initial remand and before beginning discovery. But to neglect that

motion until after discovery had been completed and the trial court orally granted the

respondent's motion for summary judgment was an undue delay.

Second, the motion to amend was futile. Shelton v. Azar, Inc., 90 Wn. App 923,

928, 954 P.2d 352(1998)(trial court abused discretion in granting leave to amend

where the amendment was futile). The proposed amendment would have been futile

because the policies behind the whistleblower protections of the Sarbanes-Oxley Act do

not apply here. Section 1514A of Sarbanes-Oxley provides protection to employees of

publically traded corporations if they provided information to or otherwise assisted in an

investigation. 18 U.S.C. § 1514A(a). Under Sarbanes-Oxley, a plaintiff must establish

that he or she engaged in protected activity and the activity must relate to securities

fraud. Sarbanes-Oxley is intended to protect employees who report "'fraudulent activity

that can damage innocent investors" and "to provide federal protection to private

corporate whistleblowers." Day v. Staples, Inc., 555 F.3d 42, 52 (1st Cir. 2009)

(quoting S. Rep. No. 107-146, at 19(2002); Carnero v. Boston Sci. Corp., 433 F.3d 1,

11 (1st Cir. 2006)). A single employee's misuse of expense reports, even if a violation

of company policy, does not rise to the level of securities fraud that Sarbanes-Oxley

was intended to address.

Similarly, in Becker, the plaintiff was the defendant's Chief Financial Officer and

he claimed he refused to publicly misrepresent the company's operating losses in public

filings and that he was constructively discharged for his insubordination. Becker, 184

Wn.2d at 255-56. This is different from Engstrom and Stockwell, whose expense

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concerns involved internal expense reports by a subordinate, not Microsoft's public

financial reports.

Finally, the trial court did not abuse its discretion in denying the motion to amend

due to the prejudice it would cause Microsoft. Engstrom and Stockwell had the requisite

knowledge and opportunity to amend their complaint shortly after its initial filing.

Granting this motion would have essentially forced the parties to reopen discovery and

dispositive motions, more than two years into the litigation. See Evergreen

Monevsource Mortgage Co. v. Shannon, 167 Wn. App. 242, 262-63, 274 P.3d 375

(2012)(no abuse of discretion to deny motion to amend where nonmoving parties would

be required to complete additional discovery and repeat already conducted discovery).

The trial court did not abuse its discretion in denying Engstrom and Stockwell's

motion for leave to amend.

Because Engstrom and Stockwell failed to meet their burden to plead and prove

that a stated public policy, either legislatively or judicially recognized, may have been

contravened, dismissal of their claim for wrongful discharge in violation of public policy

was appropriate.

We affirm.

WE CONCUR:

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