Whistleblower Law Blog

Topic: Whistleblower Protection Act (WPA)

TELG Principal Quoted in Law360 on Landmark ARB Decision for SOX Whistleblowers

Law360 quoted The Employment Law Group® Principal Jason Zuckerman in an article regarding the U.S. Department of Labor’s Administrative Review Board’s en banc decision in Sylvester v. Parexel International on May 25, which clarified the broad scope of protected conduct for Sarbanes-Oxley Act (SOX) whistleblowers.

 Jason Zuckerman, a principal at The Employment Law Group, which represents employees, said the Sylvester decision was in contrast to past ARB rulings that had erected barriers to complainants.

“The current ARB is applying the statute as Congress intended, and in light of the recent financial crisis, it could not be clearer that robust protection of whistleblowers is a crucial bulwark against corporate fraud,” Zuckerman said.

The ARB held that the heightened pleading standards established in federal courts did not apply to SOX claims initiated with OSHA, and that an allegation of shareholder fraud was not a necessary component of protected activity under SOX.  The Sylvester decision will likely lead to more claims surviving initial motions to dismiss or summary judgment than in the past.

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DOL ARB Clarifies Broad Scope of Protected Conduct for SOX Whistleblowers in Sylvester v. Parexel International LLC

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The DOL Administrative Review Board has issued a very significant en banc decision on the whistleblower provision of the Sarbanes-Oxley Act (SOX) that significantly strengthens the statute by clarifying the broad scope of protected conduct.  The ARB’s opinion in Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-039, 042 (May 25, 2011) represents a substantial departure from the extraordinarily narrow construction of SOX in the opinions issued by the ARB appointed by Secretary Chao.  Read in conjunction with the ARB’s recent Johnson v. Siemens Bldg. Techs. decision broadening the scope of SOX coverage and the recent Dodd-Frank amendments to SOX (exempting SOX whistleblower claims from mandatory arbitration, clarifying that SOX claims can be tried before a jury, broadening the scope of coverage, and increasing the statute of limitations), SOX is becoming a robust remedy for whistleblowers.  The primary effect of Sylvester will be a significant increase in the number of SOX retaliation claims that get past motions to dismiss and motions for summary judgment.  The ARB has now removed ridiculous hoops that SOX complainants were required to jump through, which hoops were plainly inconsistent with the plain meaning of the statute.  And the decision will enable OSHA to rule for more complainants during the investigative stage.  Hopefully, federal courts will accord Chevron deference to the decision.  The ARB held:

  1. Twombly/Iqbal heightened pleading standards do not apply to SOX claims initiated with OSHA.
  2. A complainant need only express a “reasonable belief” of a violation to engage in SOX-protected activity,
  3. The reasonable belief standard requires an examination of the reasonableness of a complainant’s beliefs, but not whether the complainant actually communicated the reasonableness of those beliefs to management or the authorities.
  4. Protected activity need not describe an actual violation of law.  A whistleblower complaint concerning a violation about to be committed is protected as long as the employee reasonably believes that the violation is likely to happen. Such a belief must be grounded in facts known to the employee, but the employee need not wait until a law has actually been broken to safely register his or her concern and consistent with this line of authority, an employee’s whistleblower communication is protected where based on a reasonable, but mistaken, belief that the employer’s conduct constitutes a violation of one of the six enumerated categories of law under Section 806.
  5. The holding in Platone that an employee’s communication must “definitively and specifically” relate to the listed categories of fraud or securities violation under Section 806 “has evolved into an inappropriate test and is often applied too strictly.”  Instead, the focus should be on whether the employee reported conduct that he or she reasonablybelieves constituted a violation of federal law.
  6. SOX protected conduct is not limited to disclosures about shareholder fraud and instead includes disclosures about mail fraud, fraud by wire, radio, or television, and bank fraud.  When an entity engages in mail fraud, wire fraud, or any of the six enumerated categories of violations set forth in Section 806, it does not necessarily engage in immediate shareholder fraud. Instead, the violation may be one which, standing alone, is prohibited by law, and the violation may be merely one step in a process leading to shareholder fraud.  Additionally, a reasonable belief about a violation of “any rule or regulation of the Securities and Exchange Commission” could encompass a situation in which the violation, if committed, is completely devoid of any type of fraud.
  7. A SOX complainant need not establish the various elements of criminal fraud to prevail on a Section 806 complaint.  A complainant can have an objectively reasonable belief of a violation of the laws in Section 806, i.e., engage in protected activity under Section 806, even if the complainant fails to allege, prove, or approximate specific elements of fraud, which would be required under a fraud claim against the defrauder directly. In other words, a complainant can engage in protected activity under Section 806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.  The purposes of the whistleblower protection provision will be thwarted if a complainant must, to engage in protected activity, allege, prove, or approximate that the reported irregularity or misstatement satisfies securities law “materiality” standards, was done intentionally, was relied upon by shareholders, and that shareholders suffered a loss because of the irregularity.

There are two concurring opinions.  Judges Corchado and Royce opine that thePlatone “definitive and specific requirement” is incompatible with the plain meaning of the statute and therefore should be abandoned.  Judge Brown opines that (i) Rule 12(b)(6) does not apply to SOX complaints, but ALJs can use OALJ summary decision procedure (29 C.F.R. § 18.40) to test the sufficiency of the complainant’s evidence; (ii) the Platone “definitive and specific requirement” should not be applied to SOX but the complainant must establish a basis for concluding that the employer’s conduct of concerns relates to the laws listed under Section 806; (iii) violations of SOX need not relate to fraud against shareholders; and (iv) a SOX complainant alleging that he disclosed shareholder fraud need not prove the specific elements of fraud.

Related articles

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SEC Issues Rules Favorable to Whistleblowers

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The Securities and Exchange Commission is receiving praise from whistleblower advocates for issuing finalized rules that do not require whistleblowers to report fraudulent or illegal activity internally to their employer, but instead allow whistleblowers to blow the whistle direct to the SEC. The Dodd-Frank Act established a new whistleblower program at the SEC, requiring the SEC to reward whistleblower who provides original information with between 10% and 30% of the amount recovered by the SEC. Allowing employees to report information directly to the SEC does not diminish the strong incentive for employees to blow the whistle internally, because employees can still get a reward so long as the employee provides the same information to the SEC within 120 days.

Internal compliance programs failed miserably to avert the financial crisis. Where fraud is pervasive in upper management, it would be futile for an employee to blow the whistle internally and it would be in the best interest of shareholders for the whistleblower to disclose fraud directly to the SEC. But where companies have implemented effective programs that are not merely a tool of management to cover up violations, then employees will use those programs. Unfortunately, far too many find their company’s internal compliance program is deficient and in some cases a tool for management to retaliate against whistleblowers.

The new reward program is already beginning to bear fruit. Similar whistleblower rewards under the False Claims Act where extremely effective at inducing employees t report fraud to the government, leading to the recovery of over 27 billion dollars.

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IRS Awards Whistleblower $4.5 Million

The IRS Whistleblower Office paid a $4.5 million reward under its new Whistleblower Reward Program to an unidentified accountant who discovered a tax liability greater than $20 million at a Fortune 500 financial services firm.  The firm had declined to report the tax liability to the IRS after it was discovered. The whistleblower came forward with information and reported the tax liability to the IRS, resulting in a large reward. In 2006, Congress passed legislation implementing the new IRS Whistleblower Reward Program where individuals who expose tax fraud can receive an award ranging from 15% to 30% of the proceeds recovered by the IRS.

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Federal Whistleblower Teresa Chambers Reinstated as Chief of U.S. Park Police

The U.S. Merit System Protections Board (MSPB) ordered whistleblower Teresa Chambers reinstated to her former position as Chief of the U.S. Park Police (USPP) and compensated her for over six years of lost wages.  While under pressure from Debbie Weatherly, a staff member of the House of Representatives Interior Appropriations Subcommittee, the U.S. Department of the Interior illegally retaliated against Chambers becasuse she told the media the truth: more police officers were needed to keep the GW Parkway and federal parks safe.  The MSPB wrote in Chambers v. Dep’t of Interior that:

We have found that the appellant [Teresa Chambers] made protected disclosures of substantial and specific dangers to public health or safety that are reflected in the December 2, 2003 Washington Post article in which she indicated that traffic accidents had increased on the BW Parkway, which often had two officers on patrol instead of the recommended four, and that the diversion of USPP patrol officers from national parks resulted in an increase in drug dealing in smaller national parks. In addition, the appellant made a protected disclosure in her December 2, 2003 e-mail to Ms. Weatherly concerning the number of officers patrolling the GW Parkway, the consequent decision not to arrest suspected drunk drivers, and the resulting jeopardy to parkway travelers. Underlying these disclosures were the appellant’s statements indicating that the substantial and specific dangers existed because the USPP did not have sufficient staffing or funding.

The federal Whistleblower Protection Act (WPA) protects federal employees, like Teresa Chambers, who report waste, fraud, or abuse from retaliation by their supervisor or agency.  The MSPD’s decision demonstrates that federal employees can be protected when they truthfully report safety concerns to the public.  For more information about the Whistleblower Protection Act or to report fraud, click here.

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Fourth Circuit Broadens Scope of Protected Activity Under Whistleblower Protection Act

In Bonds v. Leavitt, the United States Court of Appeals for the Fourth Circuit reversed the lower court’s grant of summary judgment, holding that Dr. Duane Bonds’s disclosure to a supervisor that the National Institute of Health (NIH) unlawfully retained cell lines created from the blood of participants in a clinical trial without their consent was a protected disclosure under the Whistleblower Protection Act (WPA).   The Court suggested that Huffman v. Office of Pers. Mgmt., a Federal Circuit decision creating a “duty speech” loophole in the WPA, may not apply to the Fourth Circuit.  And assuming Huffman even applies, the Court held that Bonds went beyond her normal job duties when she disclosed the illegal activity to a supervisor, because there was no evidence that Bonds had a responsibility to report any concerns to that supervisor.  The Court also rejected the argument that its 2001 decision in Hooven Lewis v. Caldera requires that, to constitute protected conduct, the report must be made to a person the would-be whistleblower believes has actual authority to correct the wrongdoing.

The Employment Law Group® law firm principals R. Scott Oswald and Jason Zuckerman submitted an amicus brief to the Court on behalf of the Project On Government Oversight (POGO) and the Public Employees For Environmental Responsibility, arguing against the adoption of the Hooven-Lewis and Huffman loopholes by the Fourth Circuit.  For more information about the Whistleblower Protection Act, click here.

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Federal Circuit Holds that Whistleblower Protection Act Plaintiff Need Not Prove Actual Violation of Law

In Kahn v. Dep’t of Justice, the Federal Circuit, relying on the Drake decision, held that a WPA plaintiff need not demonstrate that he blew the whistle on an actual violation of law:

We reiterate, however, that “[t]he test is not whether [the petitioner] was able to prove [a violation], but rather could a disinterested observer with knowledge of the essential facts known to and readily ascertainable by [the petitioner] reasonably conclude . . . that a violation did occur.” Drake, 543 F.3d at 1382 (alterations added).

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TELG Associate Quoted by The Raleigh News & Observer

Tom Harrington, an associate at The Employment Law Group® law firm, was quoted in a December 3, 2009 article published by The Raleigh News & Observer.  The article, “Tony Rand accused of insider trading,” discusses accusations of insider trading by Paul Feldman, the former President of Law Enforcement Associates.  Mr. Feldman claims he was unlawfully terminated after leading LEA for more than 19 years.  He has filed an administrative complaint with the Department of Labor alleging LEA fired him because he disclosed information to federal authorities, and participated in investigations by federal authorities, about conduct by LEA that violated rules of the Securities and Exchange Commission, federal laws, rules and regulations relating to securities fraud and fraud against shareholders, and various other federal laws.  His insider trading allegations implicate as many as 50 North Carolina politicians.  North Carolina state senator Tony Rand, chairman of LEA’s board, recently announced that he will step down from his position as Senate Majority Leader. 

Mr. Feldman is represented by The Employment Law Group® law firm.  To learn more about the firm’s Whistleblower Practice, click here

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TELG Client Wins over $282,000 Against UDC in Jury Trial

On October 22, 2009, a D.C. Superior Court awarded Colin Browne over $282,000 for his former employer’s violations of the D.C. Whistleblower Protection Act (WPA).  This is one of the highest awards under the D.C. WPA to date.  The award comes after a 5 day jury trial.  We first blogged about the verdict in Mr. Browne’s case here.

 Browne was the program coordinator for UDC’s federally funded Career Counseling and Development Center where he worked with UDC’s at-risk students.  He discovered that his supervisors were intentionally misrepresenting the program’s success to secure federal funding.  He took a stand against this fraud and in return he was retaliated against and ultimately fired. 

Regarding the verdict, R. Scott Oswald, Managing Principal with The Employment Law Group® law firm said, “This case is an extraordinary victory for whistleblower protection in the District of Columbia.  I especially wish to acknowledge Mr. Browne who demonstrated tremendous courage and fortitude throughout his tenure at UDC and the course of this litigation.”

For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

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Contra Costa Times Publishes Article About Whistleblower Suit Against Pittsburg School District

In an article titled, “Whistle-blower suit filed against Pittsburg school district,” Contra Costa Times reports about Tim Galli’s whistleblower retaliation lawsuit against the Pittsburg school district.  Tim Galli, a 35-year educator and former Pittsburg High principal, suffered retaliation when he raised concerns about the school district’s questionable budgetary practices, and undisclosed financial conflict of interest between the superintendent and a school board member.  According to the suit, the district “engaged in a cover-up effort to hide their retaliation by dredging up an incident that was months old, undergoing an unconstitutional investigation and ultimately voting to terminate Galli without just cause and without following the most basic due process requirements.”  The Employment Law Group® law firm is representing Mr. Galli in his retaliation action under the California Whistleblower Protection Act.  For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

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