Pennsylvania District Court Grants Employer Summary Judgment on Whistleblower Retaliation Claims

On December 6, 2022, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on whistleblower retaliation claims brought under SOX and the Consumer Financial Protection Act of 2010 (“CFPA”).  It held that the plaintiff could not prove that her alleged complaints of illegal conduct contributed to the decision to discharge her, and that even if she could prove that, the employer would have fired her anyway.  Real-Loomis v. The Bryn Mawr Trust Company, No.-cv-0441.

Background

Plaintiff, who was employed as a banker, alleged that the defendant-employer subjected its employees to “relentless” and “incessant” pressure to meet sales quotas by tracking how much new business employees generated, which caused them to fear that their employment would be terminated if they did not meet their sales goals.  Plaintiff claimed that, on three separate occasions, she complained to her supervisor and branch manager about the sales pressure she allegedly experienced, stating her belief that the employer’s sales tactics were “inappropriate, fraudulent, and not at all in the best interests of customers.”  The branch manager then shared Plaintiff’s concerns with the regional manager.

Shortly thereafter, Plaintiff opened a joint bank account with her husband after the branch manager allegedly asked for help fulfilling the branch’s sales quota.  A senior manager subsequently noticed that there had been an unusually large number of new account openings at Plaintiff’s branch on the same day, and that many of the account openings for employees’ relatives.  Following an investigation due to the suspicious nature of these openings, it was allegedly determined that Plaintiff had forged her husband’s signature.  As a result, the senior manager decided to discharge multiple employees for their involvement in the allegedly fraudulent account openings, including Plaintiff and the branch manager to whom she had previous complained.

Plaintiff proceeded to file suit (following a complaint to the U.S. Department of Labor) claiming was retaliated against for her complaints about the pressure she faced to meet sales quotas in violation of SOX and the CFPA.

Ruling

The court granted the defendant-employer’s motion for summary judgment, finding that Plaintiff could not demonstrate at least two elements of a prima facie case because she did not show: (i) that she engaged in protected activity, or (ii) that any protected activity contributed to the decision to discharge her.  The court noted that Plaintiff’s general reference to “fraudulent” conduct in her complaints to the branch manager did not constitute protected activity under SOX or the CFPA because she failed to identify specific practices that she believed violated either of those laws.  Plaintiff also could not establish that her complaints to the branch manager or her subsequent complaint to the U.S. Department of Labor was a contributing factor in the termination decision.  Plaintiff offered no evidence that the senior manager who decided to discharge her was aware of Plaintiff’s complaints to the branch manager, and therefore those complaints could not have factored into the decision.  Plaintiff’s complaint to the Department of Labor, moreover, post-dated Plaintiff’s discharge and therefore could not have played a role in the termination decision.

The court also found that Plaintiff’s claims failed because the employer established that it would have made to same decision to discharge Plaintiff regardless of any protected activity.  The court noted that the employer fired two other employees as a result of its investigation: another employee who had also purportedly forged a family member’s signature, and the branch manager who had orchestrated the purported scheme.  The court held that this treatment of similarly situated employees who did not complain about violations of SOX and the CFPA constituted clear and convincing evidence that Plaintiff would have been discharged absent any protected activity.

Implications

This decisions reaffirms certain basic principles underlying typical whistleblower retaliation claims, including the common sense notion that an employer cannot decide to retaliate against an employee based on a complaint it did not know about or that was first made after the allegedly retaliatory conduct occurred.

AML Whistleblower Improvement Act Signed Into Law

On December 7, 2022, the U.S. Senate voted unanimously to expand whistleblower incentives and strengthen whistleblower protections by passing the Anti-Money Laundering Whistleblower Improvement Act.

The bill bolsters the anti-money laundering whistleblower program by adding support for whistleblowers who report violations of U.S. sanctions laws, guaranteeing that whistleblowers will be paid a minimum award amount, and providing a funding mechanism to pay whistleblower awards.  Specifically, the new legislation:

  • Enables whistleblowers who disclose a violation of the International Emergency Economic Powers Act, the Foreign Narcotics Kingpin Designation Act, and/or the Trading with the Enemy Act that leads to a successful enforcement action;
  • Entitles whistleblowers to an award of between 10 and 30 percent of the value of fines collected as a result; and
  • Creates a $300 million fund to pay whistleblower awards from fines collected by the Justice and Treasury Departments.

In announcing the passage of the bill, Senator Chuck Grassley, one of the bill’s co-sponsors (along with Senators Raphael Warnock, Elizabeth Warren, and Catherine Cortez Masto), noted that “with the False Claims Act saving taxpayers $70 billion, the SEC whistleblower program saving over $4.8 billion and the IRS whistleblower program saving over $6 billion[,] I’m optimistic that our new program encouraging individuals to come forward for suspected sanctions violations will be successful as well.”  Senator Grassley further explained that “[g]iven the expansive sanctions we’ve implemented on Russia as they wage an unjust war in Ukraine, our legislation is urgently needed to hold bad actors accountable.”

On December 29, 2022, President Biden signed the bill into law.  This legislation could significantly expand the potential monetary rewards available to whistleblowers under the AMLA, further incentivizing whistleblowers to report potential violations of the sanctions laws.

Third Circuit: Whistleblowers Are Not Shielded From Discipline for Misconduct

On August 26, 2022, the Third Circuit affirmed a grant of summary judgment in favor of an employer, holding that whistleblower retaliation protections in the False Claims Act did not protect an employee from being discharged for harassing a co-worker.  Crosbie v. Highmark Inc., et al., No. 21-1641.

Background

Plaintiff was a fraud investigator for a health insurance company.  In 2017, he reported to his managers his discovery that some doctors in the company’s network had been convicted for selling opioid prescriptions, and that other doctors lacked required Medicaid licenses.  The managers investigated the concerns but decided not to take any action and told him to drop it, even after Plaintiff repeatedly pressed the issue.

On October 1, 2018, Plaintiff’s co-worker lodged a harassment complaint, alleging that Plaintiff called her “Miss Piggy” and “oinked” at her.  Human Resources then conducted an investigation, during which an eyewitness corroborated the complainant’s story.  The HR investigator also spoke with one of the managers who allegedly told Plaintiff to drop the fraud issue.  The manager stated that although he normally would have questioned the harassment allegations, he believed the allegations were true because he had heard Plaintiff make “coughing” and “snorting” noises earlier that day.  HR then terminated Plaintiff’s employment.

Plaintiff filed suit in the U.S. District Court for the Eastern District of Pennsylvania under the FCA, claiming he was discharged in retaliation for reporting potential fraud.  The company argued that the people in HR who decided to discharge Plaintiff knew nothing about his fraud reports and discharged him for a valid reason—for harassing a co-worker.  The district court granted summary judgment in the company’s favor, concluding that Plaintiff had failed to show “that the employers’ reason was a mere pretext for retaliation.”

Ruling

On appeal, the Third Circuit affirmed.  First, the court concluded that even if the investigation was imperfect, Plaintiff did not present any evidence that the “investigation was so thoroughly flawed that a jury could find [the investigation] unbelievable.”  Second, the timing between Plaintiff’s fraud reports and his termination did not support an inference of pretext because Plaintiff had initially reported the potential fraud more than one year before his discharge, and his last complaint was submitted one month prior.  The court also concluded that Plaintiff could not establish a causal connection between his protected activity and subsequent termination because the HR team that fired him was unaware of Plaintiff’s fraud reports.

The court also rejected Plaintiff’s argument that his manager had used the harassment investigation as a “cat’s-paw.”  Under a cat’s-paw theory, an employee must show that a non decision-maker harbored retaliatory animus and induced a decision-maker to act against the employee.  Plaintiff’s cat’s-paw theory failed because: (i) Plaintiff offered no evidence that his manager wanted to discharge him; and (ii) there was no indication that the HR investigator, who interviewed several other witnesses, was influenced by or relied on the manager’s interview in deciding to discharge Plaintiff.

Implications

This decision serves as a reminder that although anti-retaliation protections under the FCA are broad, employers maintain the right to discipline employees who engage in misconduct in the workplace—even if they are whistleblowers.

SEC Releases FY 2022 Whistleblower Annual Report

On November 15, 2022, the SEC’s Office of the Whistleblower (OWB) released its annual report to Congress covering the period from October 1, 2021 to September 30, 2022.  The report highlights a record-breaking year for the SEC’s whistleblower bounty program in certain respects, explains factors that can increase or decrease award amounts, and discusses recent amendments to the program’s rules.

Record-Breaking Year for Whistleblower Tips

According to the report, the SEC received 12,322 whistleblower tips in fiscal year 2022, which was the record for the most tips received in any year since the SEC established the whistleblower program in 2011.

These submissions were received from around the globe.  In the U.S., the greatest number of tips were submitted by putative whistleblowers in Florida, South Carolina, California, Texas, and New York.  In the rest of the world, Canada, the United Kingdom, Germany, China, Mexico, and Brazil led the pack.

There was also a notable uptick from the previous year of tips received relating to Initial Coin Offerings and Cryptocurrencies—more than doubling as a percentage of overall tips.  The most common violations reported included: Manipulation (21%), Offering Fraud (17%), Initial Coin Offerings and Cryptocurrencies (14%), and Corporate Disclosures and Financials (13%).

Overall, the SEC awarded approximately $229 million in 103 awards in FY 2022, making this the SEC’s second highest year in terms of dollar amounts and number of awards.  The largest payout was a $40 million award to two individuals.

Since the beginning of the program, the SEC has paid more than $1.3 billion in 328 awards to whistleblowers who provided information that led to successful enforcement actions by the SEC and other agencies.

Factors that Increase or Decrease Awards

The report highlighted factors that may affect the size of an award.  Positive factors include the significance of the information provided, the nature and extent of assistance rendered by the whistleblower, the level of interest from law enforcement, and whether the whistleblower reported internally prior to their reporting even where they were not required to.

On the other hand, factors that could decrease an award include whether the whistleblower unreasonably delayed their reporting, engaged in culpable conduct, or interfered with internal reporting systems.

Changes to Whistleblower Program Rules

As we previously reported, the SEC adopted two amendments to its whistleblower program rules, which went into effect on October 3, 2022.  The first amendment permits whistleblowers otherwise eligible for an award under another whistleblower program to alternatively receive an award from the SEC if the SEC’s award would be higher.  The second amendment affirms the SEC’s authority to consider the dollar amount of a potential award as a consideration for increasing (but not decreasing) an award.

The OWB noted that these amendments “help ensure that whistleblowers are both incentivized and appropriately rewarded for their efforts in reporting potential violations of the law to the Commission.”

SEC Announces $20 Million Award to Whistleblower

On November 28, 2022, the SEC announced an award of $20 million to a whistleblower who provided new and critical information that contributed to a successful enforcement action.  (The order granting the award can be accessed here.)  The SEC noted that in determining the appropriate award amount, it considered that the whistleblower provided significant information and continuing assistance that helped Enforcement Division staff more quickly and efficiently investigate complex issues.

Creola Kelly, Chief of the SEC’s Office of the Whistleblower noted that “[w]histleblowers can help advance existing investigations in meaningful ways when their information saves the agency time and resources, and when their contributions allow SEC staff to better understand complicated issues.”

Since issuing its first whistleblower award in 2012, the SEC has awarded more than $1.3 billion to 283 individuals.

Ninth Circuit Takes Broad View of Protected Activity under the California Whistleblower Protection Act

On October 20, 2022, the Ninth Circuit reversed in part a grant of summary judgment in favor of an employer, finding that the district court misapplied the substantive law of California in holding that Plaintiff’s disclosures to his supervisor and to a third-party contractor did not constitute protected activity under the California Whistleblower Protection Act.  Killgore v. Specpro Pro. Serv., LLC, No. 21-15897.

Background

Plaintiff worked as a consultant for a firm retained by the United States Army Reserve (“Reserve”) to conduct an independent environmental assessment, pursuant to the National Environmental Policy Act (“NEPA”), in connection with a proposal to modify the use of certain helicopter landing sites.  Plaintiff alleged that he was discharged after he raised concerns to his supervisor and to the project leader at the Reserve that he was being required to prepare the environmental assessment in a manner that violated a requirement of the NEPA.

Plaintiff filed suit in California state court alleging various claims, including claims of unlawful retaliation and wrongful termination under the California Whistleblower Protection Act, Cal. Lab. Code § 1120.5(b).  After the case was removed to federal court, the U.S. District Court for the Northern District of California granted summary judgment in favor of Plaintiff’s former employer.  The district court held that any complaints Plaintiff made to his supervisor did not constitute protected activity because California law only protected disclosures to a person who both had (i) authority over the employee, and (ii) authority to correct the alleged violation or noncompliance.  The district court concluded that Plaintiff had not engaged in protected activity because his supervisor lacked the power to correct the Reserve’s alleged noncompliance.

The district court also held that Plaintiff’s disclosure of potential violations to the Reserve project leader was not protected activity because: (i) such communications were part of Plaintiff’s “normal duties” as part of his employment; and (ii) Plaintiff’s disclosure to the project leader of the project leader’s own wrongdoing was not a “disclosure” to her, and therefore did not qualify as protected activity.

Ruling

On appeal, the Ninth Circuit reversed the district court’s ruling in part, holding that the California Supreme Court would likely construe § 1102.5(b) to protect employees who disclose wrongdoing to a supervisor, even if the supervisor lacked authority to correct the issue.  The Ninth Circuit relied on dicta in the California Supreme Court’s recent decision in Lawson v. PPG Architectural Finishes, Inc., 12 Cal. 5th 703 (2022)—which drew a distinction between disclosures to government agencies, persons with authority over the whistleblower, or other employees with authority to investigate or correct the violation—to support a reading of the statute that makes these avenues of reporting independent of one another.  (See our post on Lawson here.)

The Ninth Circuit also concluded that the district court misapplied California law in holding that Plaintiff’s disclosures to the Reserve project leader were not protected activity.  First, the record did not support the conclusion that the Reserve project leader was Plaintiff’s supervisor with authority over him; rather, Plaintiff was an employee of the government contractor and the project leader was an employee of the Reserve who affirmatively disclaimed any supervisory authority over Plaintiff.  Plaintiff’s disclosures to her therefore were disclosures to a “government agency” under the plain language of the statute.  Second, to the extent that Plaintiff’s disclosures could be considered part of Plaintiff’s “normal duties,” amendments to the statute in 2014 expressly extended protection to a whistleblower’s disclosures “regardless of whether disclosing the information is part of the employee’s job duties.”  Cal. Lab. Code § 1102.5(b).  Finally, the Ninth Circuit relied on several state appellate court decisions holding that communications with the alleged wrongdoer are protected under § 1102.5(b).

Implications

The Ninth Circuit’s broad reading of § 1102.5 (b) may ease plaintiffs’ ability to show that they engaged in protected activity under the California Whistleblower Protection Act.

OSHA Orders Company to Reinstate Whistleblowers and Orders Payment of Over $800k for Purported SOX Violations

On October 7, 2022, OSHA announced that it had ordered ExxonMobil Corp. to immediately rehire two computational scientists who alleged that they were fired in retaliation for leaking to the media their concerns about improper conduct by the company.  In addition to reinstatement, the former employees were also awarded over $800,000 in back-pay, interest and compensatory damages.

Background

In April 2019, Complainants raised concerns with the company’s Human Resources department about a financial disclosure filed with the SEC, which they purportedly believed contained overinflated production estimates and valuations concerning certain oil and gas wells.

On August 27, 2020, the Wall Street Journal (“WSJ”) contacted the company for comment in connection with an article it intended to publish which would mention the concerns raised by Complainants about the allegedly misleading statements.  On September 13, 2020, the WSJ published an article titled “Exxon Used to Be America’s Most Valuable Company. What Happened?’  The WSJ noted in the article that it had interviewed over 20 current and former employees, but did not identify either of the Complaints as sources.

According to OSHA, after conducting an investigation, the company determined that Complainants had access to the data that was shared with the WSJ and might have given the information to the publication.  The company subsequently fired them.

In February 2021, Complainants filed a complaint with OSHA claiming they were terminated in violation of SOX’s whistleblower retaliation protection provision.

OSHA’s Order

OSHA interpreted SOX to protect employee communications with the media that could result in the exposure of employer wrongdoing.  According to Assistant Secretary for Occupational Safety and Health Doug Parker: “[w]histleblower protection is integral to ensuring that financial disclosure laws work.”  Parker further explained that “[a]s was the case in this instance, OSHA will aggressively protect the rights of employees who raise concerns related to financial.”

Implications

This order shows that OSHA is taking an aggressive approach to enforcing SOX’s whistleblower retaliation provision.  And we expect a debate to ensue as to whether complaints to the media constitute protected activity under SOX.

Tenth Circuit Affirms $1 Million Jury Award to Whistleblower

On July 20, 2022, the Tenth Circuit affirmed a $1 million jury award to a former employee who claimed he was demoted in retaliation for reporting that his supervisor instructed him to falsify test results on a program used by the U.S. military.  Casias v. Raytheon Co., Nos. 21-1195 and 21-1205 (10th Cir. 2022).

Background

Plaintiff alleged that his supervisor instructed him to change certain data on a GPS project designed for the U.S. Air Force, which made the project appear more successful.  Plaintiff allegedly complied and then immediately notified leadership of his superior’s instruction.  A few months later, Plaintiff was reassigned from his testing role, where he managed dozens of employees, to a minor role managing only two employees.  Plaintiff eventually accepted a position at a different defense contractor where his salary, benefits and rank were lower.

Plaintiff filed suit in the U.S. District Court for the District of Colorado alleging various claims, including a claim under the Defense Contractor Whistleblower Protection Act (“DCWPA”).  The jury found for Plaintiff, and awarded him $43,000 in backpay and $1,000,000 in noneconomic damages.  The district court struck the backpay award but confirmed the noneconomic damages award.  The company filed a motion for judgment notwithstanding the verdict and remittitur after trial, arguing: (1) Plaintiff did not show an adverse employment action or causation; (2) the noneconomic damages were excessive; and (3) the weight of evidence was against Plaintiff.

Ruling

On appeal, the Tenth Circuit affirmed the $1 million jury award, finding that Plaintiff presented enough evidence for a reasonable jury to find for him on all of the issues appealed.  First, the Tenth Circuit found that it was reasonable for the jury to infer Plaintiff suffered an adverse employment action because Plaintiff’s reassignment was a change in responsibilities with a decrease in reputation and job prospects, and Plaintiff was hired at a lower rank and salary at his subsequent job.  Second, the jury could reasonably infer Plaintiff’s superior retaliated against him, even though the superior lacked a personal reason for doing so.  Finally, the Tenth Circuit found the damages were not excessive because the act of falsifying information used by the U.S. military could have far reaching repercussions, and retaliating against an employee for reporting that falsification is a serious violation of the DCWPA.  Although the $1 million jury award was indeed large, the Tenth Circuit found that the award did not represent a “miscarriage of justice” given the circumstances.

Implications

This sizeable adverse jury verdict highlights the risks that employers may face in trying whistleblower retaliation suits to a jury and may lead to further similar lawsuits.

Second Circuit: SOX Whistleblower Claims Require Retaliatory Intent

On August 5, 2022, the Second Circuit overturned a nearly $1 million jury award granted to a former employee of UBS Securities LLC (“UBS”).  The Court held that the judge’s instruction to the jury—that Plaintiff was “not required to prove that his protected activity was the primary motivating factor in his termination”—was incorrect as a matter of law.  Instead, the Sarbanes-Oxley Act (“SOX”) requires whistleblowers to specifically prove that the employer took the adverse employment action “with retaliatory intent.”  Murray v. UBS Securities LLC et al., No. 20-4202.

Background

Trevor Murray sued UBS in 2014, alleging that he was terminated by UBS after he complained that he was pressured to alter his research, in violation of SOX’s antiretaliation provision, 18 U.S.C. § 1514A.  Section 1514A prohibits publicly traded companies from taking adverse employment actions to “discriminate against an employee… because of” any lawful whistleblowing activity.  18 U.S.C. § 1514A(a).  At trial, the district court instructed the jury on the elements of a section 1514A claim as follows:

First, that plaintiff engaged in activity protected by Sarbanes-Oxley;

Second, that UBS knew that plaintiff engaged in the protected activity;

Third, that plaintiff suffered an adverse employment action — here, the termination of his employment at UBS; and

Fourth, that plaintiff’s protected activity was a contributing factor in the termination of his employment.

*     *     *

For a protected activity to be a contributing factor, it must have either alone or in combination with other factors tended to affect in any way UBS’s decision to terminate plaintiff’s employment.  Plaintiff is not required to prove that his protected activity was the primary motivating factor in his termination, or that UBS’s articulated reasons for his termination . . . was a pretext, in order to satisfy this element.

While UBS contended that it had terminated Plaintiff in connection with a large reduction in force triggered by substantial recent financial losses, the jury found UBS liable and issued an advisory verdict on damages awarding Plaintiff $653,300 in back pay, no front pay, and $250,000 in non-economic damages.  The district court subsequently adopted the jury’s advisory verdict on damages, and awarded an additional $1,769,387.52 in attorney’s fees and costs.

At issue on appeal was whether the district court properly instructed the jury on the fourth element.  UBS argued that the district court erred by failing to instruct the jury that Murray had to prove UBS’s retaliatory intent to prevail on his section 1514A claim.  Plaintiff responded that retaliatory intent is not an element of such a claim.

Ruling

Relying on the plain meaning of the statutory language and its interpretation of a nearly identical statute, the Second Circuit concluded that “retaliatory intent is an element of a section 1514A claim” and that “[t]he district court committed a non-harmless error by failing to instruct the jury accordingly.”

First, the Second Circuit determined that the “plain meaning” of the statutory language makes clear that retaliatory intent is an element of a section 1514A claim because the text of the statute prohibits discriminatory actions “because of” whistleblowing, which necessarily requires retaliatory intent – i.e., the employer’s adverse action must be motivated by the employee’s whistleblowing.

Second, the Second Circuit found that reading retaliatory intent into this provision is consistent with the Court’s previous interpretation of nearly identical language in the Federal Railroad Safety Act, and that “[w]e generally interpret identical language in different statutes to have the same meaning.”

The panel concluded that it was “unconvinced” that the erroneous jury instruction did not influence the verdict, and therefore vacated the jury’s verdict and remanded to the district court for a new trial.

Implications

This narrow interpretation of section 1514A will make it more challenging for plaintiffs within the Second Circuit’s jurisdiction to prove causation.  As the Second Circuit acknowledged, however, this decision is at odds with the approach of the Fifth and Ninth Circuits, which have specifically read the statute not to require retaliatory intent.  It remains to be seen whether the United States Supreme Court will ultimately resolve this circuit split.

SEC Adopts Amendments to Whistleblower Program Rules

On August 26, 2022, the U.S. Securities and Exchange Commission announced that it had adopted two amendments to its whistleblower program rules proposed earlier this year (see our post here).

The first amendment allows whistleblowers who would have been eligible for an award under another whistleblower program that would not give them as high an award as under the SEC’s program—such as the whistleblower programs run by the Commodity Futures Trading Commission (CFTC) or the Internal Revenue Service (IRS)—to receive an award from the SEC.  Under the previous version of the final rule adopted on September 23, 2020 (see our post here), whistleblowers were not eligible for awards under the SEC’s whistleblower program if the SEC determined that some other award program more appropriately applied.

The second amendment affirmed the SEC’s authority to consider the dollar amount of a potential award for the limited purpose of increasing an award, but not to lower an award.  Under the previous version of the rule, the SEC retained discretion to make downward adjustments to award amounts in excess of $5 million.

In announcing the new amendments, Chair Gensler noted:

Today’s amendments enact two changes to help enhance the whistleblower program.  The first amendment expands the circumstances in which a whistleblower who assisted in a related action can receive an award from the Commission for that related action rather than from the other agency’s whistleblower program.  Under the second amendment, when the Commission considers the size of the would-be award as grounds to change the award amount, it can do so only to increase the award, and not to decrease it.  I think that these rules will strengthen our whistleblower program.  That helps protect investors.

The SEC also published a fact sheet summarizing the whistleblower rule amendments, which will become effective 30 days after publication in the Federal Register.

These amendments are likely to result in increased tips to the SEC and larger payouts to successful whistleblowers.

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