UPDATE: California Federal Court Permits Former Bank Internal Auditor’s Whistleblower Claims to Proceed

A California federal court—in Erhart v. BofI Holding, Inc., 2017 U.S. Dist. LEXIS 14755, Case No. 15-cv-02287 (S.D. Cal. Sept. 11, 2017)—recently denied BofI Federal Bank’s (“BofI’s”) motion to dismiss the Sarbanes-Oxley whistleblower claims plead in their former internal auditor Charles Erhart’s amended complaint. The court also denied BofI’s motion as to Erhart’s defamation claim, allowing it to proceed, but dismissed Erhart’s claims for (i) violation of the Confidentiality of Medical Information Act (“CMIA”); (ii) intentional infliction of emotional distress; and (iii) breach of the implied covenant of good faith and fair dealing. Continue Reading

DOL Allows SOX Claim Where Foreign Whistleblower Alleged Violation of US Law

The Department of Labor’s Administrative Review Board (ARB) recently held that a former employee of Exelis Systems Corporation who was employed in Afghanistan could bring a SOX claim even though he worked exclusively outside of the United States.  Blanchard v. Exelis Systems Corp./Vectrus Systems Corp., ARB Case No. 15-031 (August 29, 2017).  In so ruling, the ARB opened the door to the potential extraterritorial application of SOX, reversing course from its prior decision addressing this same issue. Continue Reading

N.D.N.Y. Refuses to Dismiss Dodd-Frank Whistleblower Claim

The Northern District of New York recently denied a Rule 12(b)(6) motion to dismiss a former employee’s Dodd-Frank whistleblower retaliation claim, finding that the plaintiff sufficiently alleged that he had an objectively reasonable belief with respect to alleged securities violations and causation.  McManus v. Tetra Tech Construction, Inc., No. 16-cv-894 (May 11, 2017).

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E.D. Virginia Tosses Dodd-Frank Whistleblower Claim for Lack of SEC Complaint

The U.S. District Court for the Eastern District of Virginia recently granted a Rule 12(b)(6) motion to dismiss a Dodd-Frank whistleblower retaliation claim brought by an ex-project manager, finding that Plaintiff failed to allege that her protected activity involved any disclosures to the SEC.  Smith v. Raytheon Co., No. 17-cv-00438 (E.D. Va. Aug. 11, 2017).

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Purported Whistleblower Barred from Pursuing Illinois Retaliatory Discharge Claim

The Northern District of Illinois recently dismissed an Indiana-based employee’s claims for retaliatory discharge in violation of common law pursuant to Illinois public policy, focusing on the nature of the connection (or lack thereof) to Illinois and noting that the plaintiff possessed adequate statutory remedies under federal whistleblower laws.  O’Risky v. Mead Johnson Nutrition Co., No. 17-cv-1046 (N.D. Ill. Aug. 8, 2017).

Background.  Plaintiff worked for Mead Johnson Nutrition since 1990, most recently in the position of Director of Global Product Compliance.  In that role, she worked primarily at the Company’s Evansville, Indiana facility, and spent 10-15% of her time at the Company’s headquarters in Glenview, Illinois.  She alleged that she raised concerns about food safety issues related to the Company’s manufacture of infant formula through an anonymous internal complaint.  An internal investigation ensued.  After the investigation concluded, Plaintiff’s employment was terminated, allegedly in connection with a reduction-in-force.  Claiming the termination constituted retaliation for her complaint, she filed suit in the Northern District of Illinois, asserting claims based on: (1) Illinois common law (i.e., retaliatory discharge in violation of public policy), (2) the Dodd-Frank Act; (3) the Sarbanes-Oxley Act; and (4) the Food Safety Modernization Act.  The Company moved to dismiss the common law retaliatory discharge and Dodd-Frank claims pursuant to Rule 12(b)(6).

Ruling.  The court granted the Company’s motion to dismiss the common law retaliatory discharge claim and denied the motion as to the Dodd-Frank claim, without prejudice to later refile that motion after the U.S. Supreme Court’s decision in Somers v. Digital Realty Trust, Inc. (discussed here) is issued.  With respect to the retaliatory discharge claim, the court rejected Plaintiff’s request to apply Illinois law, as it concluded that Indiana (and not Illinois) had the most significant relationship to the Plaintiff and her alleged injuries.  And because Indiana law does not recognize a common law claim for whistleblower retaliation (unlike Illinois law), the court dismissed the claim.  Significantly (albeit in a footnote), the court went on to note that the retaliatory discharge claim would have failed even under Illinois law, because she had adequate statutory remedies—i.e., the federal whistleblower statutes.

Implications.  This decision underscores the basic rule that a common law retaliatory discharge claim based on whistleblowing activity is not actionable under Illinois law given the existence of available remedies under federal whistleblower statutes.  The is especially valuable to employers given the risk of punitive damages attendant to common law retaliatory discharge claims.

S.D.N.Y. Dismisses Dodd-Frank Whistleblower Claim Because Retaliation Claims Were Already Arbitrated

The Southern District of New York recently dismissed Dodd-Frank whistleblower retaliation claims brought by an employer’s ex-President and an ex-Director pursuant to Rule 12(b)(6) on res judicata grounds, determining that retaliation claims had already been decided in arbitration and that the Dodd-Frank claims filed in federal court for the first time were therefore barred. Wendt v. The BondFactor Co. LLC, No. 16-cv-7751 (S.D.N.Y. Aug. 2, 2017).

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Ninth Circuit Affirms Dismissal Of Dodd-Frank Whistleblower Case, Using Securities Fraud Standard

The Ninth Circuit recently affirmed a grant of summary judgment in an employer’s favor, dismissing a SOX and Dodd-Frank whistleblower retaliation case based on the plaintiff’s lack of an objectively reasonable belief of violations of securities law.  Rocheleau v. Microsemi Corporation, Inc., 680 Fed. Appx. 533 (2017).

Background.  Defendant, a publicly traded company, hired Plaintiff as an independent contractor in 2006.  Plaintiff claimed that beginning in 2008, she began voicing concerns internally that Defendant misclassified her and others as independent contractors.  In addition, she began filing complaints with the government, including a complaint with the OFCCP on January 10, 2010, and she claimed she was asked to retroactively change hiring and recruiting data in violation of OFCCP regulations.  Her employment was subsequently terminated on February 17, 2010.  She then filed a lawsuit before the United States District Court for the Central District of California, claiming violations of the SOX and Dodd-Frank’s respective anti-retaliation provisions.  In support, she alleged that Defendant’s actions constituted fraud against its shareholders because they allegedly created an unreported risk factor to Defendant’s business and engaged in payroll tax fraud.  Defendant moved for summary judgment on the grounds that Plaintiff failed to establish a prima facie case under either statute, as Plaintiff could not hold an objectively reasonable belief that Defendant’s alleged actions would cause it and its shareholders to suffer significant losses.  The district court granted Defendant summary judgment and Plaintiff appealed.

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SEC Issues Award To Whistleblower Despite Culpability And Delay

On July 27, 2017, the SEC announced that it was paying a $1.7 million bounty award to a whistleblower, even though the whistleblower: (1) had some culpability in the fraud; (2) unreasonably delayed reporting the fraud; and (3) failed to comply with a Dodd-Frank rule requiring whistleblowers to submit inside information in writing in certain circumstances. The SEC did not provide the identity of the whistleblower or the company at issue.

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Third Circuit Revives In-House Attorney’s Whistleblower Claim

On July 25, 2017, the Third Circuit allowed a plaintiff who was an in-house attorney to proceed with a whistleblower retaliation lawsuit under the New Jersey Conscientious Employee Protection Act (CEPA) based on its conclusion that CEPA protects attorneys from being discharged for refusing to violate Rules of Professional Conduct. Trzaska v. L’Oreal USA, Inc., 2017 U.S. App. LEXIS 13381 (3d Cir. July 25, 2017).

Background. Plaintiff was the former head of a regional patent team at the Company. As an attorney, he was bound by the Rules of Professional Conduct of both Pennsylvania (where he was admitted to practice law) and the United States Patent and Trademark Office (USPTO). Plaintiff oversaw the process by which the Company invented and applied for patents on products. He alleged that the Company had an annual minimum quota for patents and that with fewer invention disclosures being submitted to the patent team for vetting, his team could only improve their chances of reaching the quota by filing frivolous patent applications. Plaintiff allegedly complained of this to his superiors, noting that the filing of frivolous or bad-faith patent applications violates the USPTO Rules of Professional Conduct. Plaintiff further alleged that the Company responded by offering him the choice of severance or “go[ing] back to [his] office and get back to work.” His employment was subsequently terminated.

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N.D. Illinois Dismisses Illinois Whistleblower Act Claim

The U.S. District Court for the Northern District of Illinois recently granted a Rule 12(b)(1) and (6) motion to dismiss a former employee’s complaint alleging retaliation under the Illinois Whistleblower Act (“IWA”).  Huang v. Fluidmesh Networks, LLC, No. 16-cv-9566 (N.D. Ill. July 18, 2017).

Background.  Plaintiff was a Supply Chain and Manufacturing Manager for Defendant.  He alleged that Defendant’s Chief Technology Officer (“CTO”) falsely told a third party that a publicly-traded client intended to purchase Defendant.  Plaintiff alleged that because he thought this allegedly false information could impact the client’s stock price, he reported it to his direct supervisor, the CTO and the CTO’s supervisor.  Plaintiff claims that he told these individuals that the disclosure of the information was “illegal” and that he would report the violation to the appropriate authorities.  Plaintiff’s employment was terminated subsequent to his internal reports and he alleged that he received no explanation as to the basis for the termination.

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