NDCalIn Nazif v. Computer Sciences Corporation, No. 13-cv-5498 (N.D. Cal. June 17, 2015), the Northern District of California granted Defendant Computer Sciences Corp. (Company) summary judgment on Plaintiff Nazif’s Dodd-Frank whistleblower retaliation claim, concluding there was no evidence that his purported belief that the Company violated securities laws was objectively reasonable under Section 806 of SOX.  This case illustrates the intersection between the SOX and Dodd-Frank whistleblower provisions and constructs a high hurdle to whistleblowers raising issues of securities fraud.

Background

Plaintiff, a CPA who was employed by the Company, allegedly complained to his managers about various purported errors in the Company’s accounting practices.  His employment was subsequently terminated as part of a company-wide reorganization, and he filed suit claiming, among other things, that his termination constituted retaliation in violation of the whistleblower protection provision in Dodd-Frank.  In support, he argued that his disclosures were protected under Section 806 of SOX.

Ruling

The Company moved for summary judgment on Plaintiff’s Dodd-Frank claim on two grounds.  First, it argued that Plaintiff did not qualify as a “whistleblower” as a matter of law because he failed to complain to the SEC.  The court rejected that argument, relying on the ruling in Somers v. Digital Realty Trust Inc., No. 14-cv-5180 (N.D. Cal. May 15, 2015), that an internal complaint is sufficient.  (Here is our post on that decision.)

Second, the Company argued that Plaintiff failed to engage in protected activity because his belief that the Company violated securities laws was not objectively reasonable under Section 806 of SOX.  In considering this argument, the court relied on Ninth Circuit precedent for the proposition that to have an objectively reasonable belief of there has been shareholder fraud, the complainant’s theory of such fraud must at least approximate the basic elements of a claim of securities fraud.  According to the court, this means that the plaintiff must have had an objectively reasonable belief that violations involved a material misrepresentation or omission, among other things.

Against this standard, the court reviewed Plaintiff’s purported belief that the aggregate effect of the various alleged accounting irregularities would have at most resulted in approximately $15 million in misstatements.  It ultimately concluded that no objectively reasonable accountant could have believed that a revenue misstatement of this size was sufficiently material to a company as large as the Company, which reported annual revenue of over $14 billion.  Moreover, the court indicated that Plaintiff:

(1) presented no evidence that any of the alleged GAAP violations he reported were widespread accounting problems at CSC as opposed to isolated incidents; (2) admits that he had no knowledge at the time he was terminated whether any of the alleged accounting issues were widespread; and (3) conceded at his deposition that at least some of the GAAP ‘violations’ that he identified to Sweeney and Hand are not clear-cut violations of GAAP – rather they would only be considered ‘violations’ by someone who agreed with Nazif’s interpretation of what GAAP requires.

Accordingly, the court granted the Company summary judgment on the Dodd-Frank claim.

Implications

This case is an example of a plaintiff trying to shoehorn a SOX whistleblower claim into a claim under Dodd-Frank; i.e., the plaintiff here argued that the employer violated Dodd-Frank by retaliating against him in violation of the SOX whistleblower provision.  Though the anomalous nature of this dynamic was not tackled in this case, it remains to be seen whether other courts will allow similar claims to proceed, as such claims may be viewed as eviscerating the exhaustion of administrative remedies requirement and other components of Section 806 of SOX.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

Photo of Pinchos Goldberg Pinchos Goldberg

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and…

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims.

In addition to handling litigation and dispute resolution, Pinny regularly advises clients on a wide variety of employment issues, including drafting, reviewing and revising handbooks and workplace policies. He also addresses questions and concerns related to hiring, wage and hour issues, employee leave, performance problems, terminations of employment, and separation agreements and releases.