EDPAIn Westawski v. Merck & Co., No. 14-cv-3239 (E.D. Pa. Oct. 18, 2016), the Eastern District of Pennsylvania granted Defendant Merck & Co. (Company) summary judgment on Plaintiff Joni Westawski’s (Plaintiff) SOX whistleblower retaliation claim, concluding that her purported belief that the Company violated securities laws was not objectively reasonable.

Background

Plaintiff was a Market Research Analyst at the Company. She alleged that the Company terminated her employment after she raised concerns about irregularities relating to the Company’s retention of an outside market research firm that she believed contravened internal controls, including the Company’s vendor selection process and cost guidelines.  She filed suit under Section 806 of SOX, claiming her employment was terminated in retaliation for her complaints.

Ruling

The District Court granted the Company summary judgment on Plaintiff’s SOX whistleblower claim. The court ruled that Plaintiff could not show that she engaged in protected activity because no reasonable person in Plaintiff’s position could have believed that the concerns she raised amounted to a violation of one of the laws enumerated in Section 806 of SOX.

After noting that Plaintiff conceded at oral argument that could not show that a reasonable person in her position would have believed that the concerns she raised amounted to bank fraud or securities fraud, the court analyzed the remaining enumerated laws. It held that Plaintiff fell short of establishing that a reasonable person in her position would believe that the concerns she raised amounted to mail fraud, since she failed to identify any legal prohibitions on the practices she complained of and the record suggested they were common industry practice.  The court reached the same conclusion with respect to wire fraud, finding that Plaintiff failed to demonstrate a reasonable belief that the Company used interstate wires in furtherance of its retention of the outside market research firm.  The court also concluded that it was not objectively reasonable for Plaintiff to believe that the conduct she complained of constituted fraud on shareholders, since the project at issue cost the company just over $200,000, or 0.000004% of its sales revenue that year.  This amount could not meet the materiality requirement for an objectively reasonable belief of fraud on shareholders.

Implications

Westawski is valuable precedent for employers facing claims based on alleged breaches of internal company polices that do not amount to a violation of the securities laws covered by SOX, or claims of fraud on shareholders amounting to a very small percentage of the employer’s overall revenues.  Although the court adopted the employee-friendly standard articulated by the Administrative Review Board in Sylvester v. Parexel the court concluded (consistent with the Eighth Circuit’s recent decision in Beacom v. Oracle America, Inc.) that an employee lacks a reasonable belief of fraud on shareholders even under this more lenient standard where claims are based on amounts that would be immaterial to shareholders.

Posted in SOX Whistleblower Decisions
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Photo of Steven J. Pearlman Steven J. Pearlman

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

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

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

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. 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.

Thought Leadership and Accolades. Steven was named 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 has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often 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.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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