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Whistleblower Law Blog

The Week in Whistleblowing

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Tax day fell on April 18 this year, and law enforcers celebrated by announcing their wins in recent tax cases. Especially notable was a $40 million settlement unveiled by New York’s attorney general Eric Schneiderman — the largest-ever tax recovery under the New York False Claims Act, which was amended in 2010 to cover tax-related claims (as the federal FCA ought to be, too). A whistleblower brought the case against Harbert Management and related entities, alleging that Harbert helped its hedge-fund managers to declare income in Alabama, where Harbert is based, rather than in New York, where they worked under the leadership of Philip Falcone, a billionaire who’s currently barred from the securities industry after he admitted wrongdoing in a separate action by the Securities and Exchange Commission. The Harbert whistleblower’s name was redacted in this week’s settlement agreement, but he or she will receive a generous $8.8 million share of the recovery. Bragging rights go to Getnick & Getnick and Labaton Sucharow, the firms that represented the whistleblower.

The U.S. Office of Special Counsel (OSC) had a busy week with the Merit Systems Protection Board (MSPB), the tribunal to which many government employees appeal adverse actions — often without help from lawyers. After getting a civilian employee reinstated at least temporarily to his Navy job, from which he had been removed for reporting safety concerns, the agency further supported whistleblowers by filing amicus briefs in two other cases: Johnen v. MSPB at the U.S. Court of Appeals for the Ninth Circuit, in which OSC argued that employees need not cite precise legal details in order to claim unlawful retaliation; and Ryan v. Department of Defense at the MSPB, in which OSC noted that retaliation claims can be valid even if an employee blew the whistle partly for “interpersonal” reasons. Adjudications like Ryan currently are stalled at the MSPB because the board lacks a quorum, a problem that predates President Trump by a couple of weeks, but that must be resolved by him.

Meanwhile, the U.S. Department of Labor, which enforces the whistleblower retaliation provisions of the Sarbanes-Oxley Act (SOX), drew attention to a recent opinion in the U.S. District Court for the Eastern District of Wisconsin. Although the court’s April 7 decision granted summary judgment against Lisa Lamb, who claimed she was fired by Rockwell Automation, Inc. for flagging its lax security reporting, it rejected the notion that retaliation victims must provide chapter-and-verse legal citations in order to prevail in a SOX case — the private-sector equivalent of the OSC’s argument in Johnen, above.

The Lamb case evidently was the first to raise this issue in the Seventh Circuit since 2011, when the Obama-era Labor Department adopted a new interpretation of SOX that didn’t require whistleblowers to become legal experts in order to claim protection. In Lamb, Judge J.P. Stadtmueller agreed with this forgiving approach, but noted that retaliation complaints still must be “minimally tethered” to a warning of wrongdoing that would likely violate SOX without too many “inferential leaps.” Ms. Lamb didn’t pass this test, he said, echoing several aspects of a 2014 Second Circuit decision, Nielsen v. AECOM Technology Corp.

In particular, said Judge Stadtmueller, complaining that a company has violated “industry best practice” is not enough, by itself, to claim SOX protection — and if the whistleblower can’t articulate a real or likely (“not theoretical or hypothetical”) legal violation, courts need not “go fishing through securities law and regulation” to find it:

SOX whistleblowers, who are not often lawyers, should not be expected to cite the precise provision of law they believe was violated. But neither is it logical to say that they need merely point to conduct that, if carefully analyzed by lawyers after the fact, could be or lead to a SOX violation. It cannot be that those employees who know the least about legal matters should be given the greatest leeway to report whatever undesirable conduct they see and later be sheltered as unwitting whistleblowers.

That’s not a sympathetic treatment of Ms. Lamb, whom Rockwell fired for what she claimed was a harmless policy violation used as a pretext for retaliation. Still, minimal “tethering” probably is a workable standard for most whistleblowers.

In other whistleblower news:

  • AstraZeneca predictably got nowhere with its argument that a whistleblower case about its drug Seroquel could be defeated by the U.S. Supreme Court’s recent Escobar decision. As reported by Law360 (subscription), the pitch was rejected not only by the judge in U.S. ex rel. Zayas v. AstraZeneca Biopharmaceuticals Inc., but also in an emphatic letter from the U.S. government, which earlier had declined to intervene in the case.
  • Two whistleblowers will share $2.3 million in the $9.9 million settlement of False Claims Act cases they filed against Walgreen Co., which they accused of billing both California and federal insurance programs for drugs without proper documentation. The whistleblowers are Loyd F. Schmuckley Jr., a former Walgreens pharmacist represented by Waters & Kraus, and Debbie G. Rinehart, a former Walgreens pharmacy technician represented by Berger & Montague.
  • The scope of willful blindness in the Wells Fargo scandal became clearer, as an internal report by the Office of the Comptroller of the Currency — the nation’s main banking regulator — revealed that bank examiners knew back in 2010 of 700 whistleblower complaints about perverse incentives that could (and did) breed unethical actions by bank employees. According to the report, since-fired Wells Fargo executive Carrie Tolstedt told examiners that the high volume of complaints actually was a good sign.
  • A whistleblower was awarded $1 million for drawing attention to Princess Cruise Lines’ use of a so-called magic pipe to dump untreated oily waste into the ocean. gCaptain, a fascinating Web site that’s new to us, has a good recap of the case.
  • Per Crain’s, a new book identifies the whistleblower in the Volkswagen diesel pollution scandal as an American executive who took part in the wrongdoing.
  • Sen. Chuck Grassley (R-Iowa) complained that, four months after President Obama signed a bipartisan bill upgrading whistleblower protection at the Federal Bureau of Investigation, the FBI continues to act like the law doesn’t exist.

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