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Trzaska v. L'Oreal USA, Inc.

United States Court of Appeals, Third Circuit

July 25, 2017


          Argued November 16, 2016

         Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 2-15-cv-02713) District Judge: Honorable Susan D. Wigenton

          Daniel Bencivenga Harold I. Goodman (Argued) Raynes McCarty Counsel for Appellant

          George P. Barbatsuly Laura Scully Christopher R. Carton (Argued) K&L Gates Eric A. Savage (Argued) Littler Mendelson Counsel for Appellees

          Before: AMBRO, CHAGARES, and FUENTES, Circuit Judges


          AMBRO, Circuit Judge.

         Steven J. Trzaska was an in-house patent attorney for L'Oréal USA, Inc. ("L'Oréal USA"), a cosmetics company. It fired him, he alleges, for his refusal to violate various ethical rules that govern the legal profession. He asserts that this action violated New Jersey employment law, as one cannot be fired for refusing to violate regulations or public policy at the instruction of his employer. The District Court dismissed Trzaska's claim without discovery. Because his allegations against the beauty-products corporation are more than skin-deep, we reverse.

         I. BACKGROUND

         Beginning in 2004, Trzaska was employed as the head of L'Oréal USA's regional patent team in Clark, New Jersey, overseeing the process by which the latter would patent the company's newly developed products and inventions. The process would begin when an inventor submitted to the patent team an "invention disclosure" for a new product describing its potentially patentable subject matter. A patent attorney on the team then vetted the invention disclosure to determine the product's patentability by interviewing the inventor and searching L'Oréal USA's internal database to confirm that the subject matter of the product did not already exist. If the patent team determined that the product was patentable, an attorney prepared the necessary paperwork and submitted a patent application to the United States Patent and Trademark Office ("USPTO").

         As with any legal practitioner, the attorneys on L'Oréal USA's patent team were required to follow various ethical standards known as Rules of Professional Conduct that guide and regulate the legal profession. Because he was admitted to practice law in Pennsylvania and before the USPTO, both the Rules of Professional conduct established by the Supreme Court of Pennsylvania and the professional rules promulgated by the USPTO (collectively, the "RPCs") governed Trzaska's conduct. In relevant part, these RPCs barred attorneys from filing frivolous or bad-faith patent applications or from knowingly making false statements before a tribunal.[1] Violations of the RPCs could result in sanctions or disbarment.

         L'Oréal, S.A.-the French parent company of L'Oréal USA (collectively, "L'Oréal")-established a global quota of patent applications that each regional office must file each year. In 2014, the annual quota for Trzaska's team was 40 patent applications. Management officials at L'Oréal told Trzaska and his team members that, if they failed to meet that quota, "there would be consequences which would negatively impact their careers and/or continued employment." J.A. at 32. At the same time, L'Oréal adopted an initiative to improve the quality of patent applications it filed with the USPTO. Adopting this company policy resulted in fewer invention disclosures submitted to the patent team for vetting.

         With two competing company policies in place-one that required the patent team to meet an annual minimum of patent applications and one that effectively reduced the amount of invention disclosures that could be evaluated- Trzaska's team found itself in a predicament. According to several members of the team, there were very few patentable products submitted to it for vetting while L'Oréal continued to demand that the team meet the annual quota. Consequently, the patent team did not believe it was able to meet the mandatory quota for 2014 without filing patent applications for products that it did not in good faith believe were patentable. And, as L'Oréal had threatened, if the team did not meet that quota, the patent attorneys' job security would be in peril.

         In the hope of resolving this professional Catch-22, Trzaska approached his superiors. He explained that neither he nor his team would be willing to file any patent applications for products that they in good faith believed were not patentable. He advised management that if any attorney on the patent team filed such a patent application, he or she would be in violation of the ethical standards-or RPCs-to which they were bound as licensed patent attorneys. Though Trzaska did not identify any offending patent application that he nonetheless was instructed to file, he informed his superiors that he would not do so should he come across one, even if that meant that the annual quota would not be met.

         Apparently L'Oréal did not receive well Trzaska's protest. In the weeks following Trzaska's meeting with management, L'Oréal offered him two severance packages that he could accept so long as he left the company. If he chose not to leave, he was instructed to "go back to [his] office and get back to work." J.A. at 34. After he rejected both severance packages offered, L'Oréal fired Trzaska, stating that his position was no longer needed.

         Trzaska brought suit in District Court against both L'Oréal entities for wrongful retaliatory discharge in violation of the New Jersey Conscientious Employee Protection Act ("CEPA"), N.J. Stat. Ann. § 34:19-1 et seq. Among other things, CEPA protects an employee from retaliatory termination following his disclosure of the employer's violation of law or his refusal to participate in illegal activity at the request of the employer, including a practice that the employee believes contravenes public policy. Trzaska alleged he was fired because he refused to participate in an illegal activity by filing frivolous or bad-faith patent applications that would violate the RPCs and his ethical obligations as a licensed patent attorney.

         The District Court dismissed Trzaska's claims under Federal Rule of Civil Procedure 12(b)(6) because in its view the RPCs were an inadequate basis to maintain his CEPA claim. It reasoned that, because the RPCs do not govern any activities, ethical obligations, or business decisions of the L'Oréal entities, they did not violate any law on which a CEPA claim could be based. It further determined that Trzaska failed to show he had a reasonable belief that L'Oréal had violated a law or that a violation was imminent (which it deemed a necessary element for a CEPA claim). (Interestingly, the Court also dismissed Trzaska's claims against L'Oréal, S.A. for the same reasons even though it only sought a Rule 12(b)(5) dismissal for insufficient service of process.) This appeal followed.


         We have jurisdiction over final orders of the District Court per 28 U.S.C. § 1291. We review de novo a district court's dismissal of a complaint under Rule 12(b)(6) for failure to state a claim. Chavarriaga v. N.J. Dep't of Corr., 806 F.3d 210, 218 (3d Cir. 2015). When conducting our review, "we must accept the allegations in the complaint as true . . . [but] are not compelled to accept unsupported conclusions and unwarranted inferences, or a legal conclusion couched as a factual allegation." Morrow v. Balaski, 719 F.3d 160, 165 (3d Cir. 2013) (quotations omitted).

         III. ANALYSIS

         A. RPCs and CEPA Violations

         "CEPA . . . protect[s] employees from retaliatory actions by employers . . . ." Blackburn v. United Parcel Serv., Inc., 179 F.3d 81, 91 (3d Cir. 1999) (quotations omitted). To that end, courts construe it flexibly. Id. It provides in relevant part:

An employer shall not take any retaliatory action against an employee because the employee does any of the following:
. . .
(c) Objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes: (1) is in violation of a law, or a rule or regulation promulgated pursuant to law . . .; (2) is fraudulent or criminal . . .; or (3) is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.

N.J. Stat. Ann. § 34:19-3(c).[2] Accordingly, a plaintiff must identify a law, rule, regulation, or clear mandate of public policy, that supports the basis of his CEPA claim as well as "unacceptable practices in the defendant employer's business" that contravene the identified ...

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