M.D. Pennsylvania Grants Summary Judgment on SOX Retaliation Claim

On April 12, 2021, the U.S. District Court for the Middle District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the company demonstrated that it would have terminated Plaintiff’s employment even in the absence of any alleged protected activity as part of a broad reduction-in-force (RIF).  Wickens v. Rite Aid Hdqtrs. Corp., No. 19-cv-02021.


Plaintiff, a former in-house attorney at the company, allegedly learned in early 2017 that several vice presidents sold their stock in the company shortly before a merger with a competitor was publicly announced, and internally reported his concern that they had engaged in insider trading.  The company terminated Plaintiff’s employment in January 2018 and Plaintiff subsequently filed suit, alleging that his employment was terminated in retaliation for his report, in violation of Section 806 of SOX.


The court granted the company’s motion for summary judgment and dismissed Plaintiff’s SOX claim.  Notably, the court did not consider whether Plaintiff had adequately established a prima facie case.  Instead, the court focused on its conclusion that the company had established that it would have terminated Plaintiff in the absence of any protected activity as part of a RIF that resulted in the elimination of over 80 positions.


This decision strengthens defendants’ ability to prevail on causation grounds where a purported whistleblower’s employment was terminated in connection with a RIF.

SEC Awards $22 Million to Two Whistleblowers

On May 10, 2021, the SEC’s Office of the Whistleblower announced multi-million dollar awards to two whistleblowers who provided the SEC with information that assisted the agency in bringing a successful enforcement action against a financial services firm.  (The order granting the awards can be accessed here.)  The larger of the two awards, $18 million, was awarded to the whistleblower who was the initial source of the information that prompted the SEC’s investigation.  The second award of $4 million was given to a second whistleblower who submitted additional information after the investigation was already underway.

Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower, said in a press release that “[t]he reporting of credible information by these whistleblowers and their subsequent cooperation with the staff’s investigation allowed the Commission to better understand complex transactions related to the matters under investigation.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $838 million to 156 individuals.

Pennsylvania District Court Grants Employer Summary Judgment on SOX Claim

On March 29, 2021, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the plaintiff lacked an objectively or subjectively reasonable belief that the company violated any law enumerated in Section 806 of SOX.  Ngai v. Urban Outfitters, Inc., No. 19-cv-1480.


Plaintiff, a Director of Sourcing and Technical Design, was responsible for ensuring that overseas factories properly executed apparel designs while minimizing production expenses.  He was required to ensure that factories were limiting waste and competitively pricing material, labor, and other costs.

Plaintiff claimed that throughout his employment, he reported general allegations of corporate waste and improper conduct by some of the company’s outside vendors and manufacturers.  Specifically, he complained that outside contractors were being wasteful, overcharging, self-dealing, inflating production costs, creating conflicts of interest within the company’s supply chain, and paying kickbacks to executives to secure high volume orders in violation of the company’s policies and Code of Conduct.  Plaintiff initially voiced his concerns directly to his supervisors, and then in April 2018 hired a lawyer, who sent over 20 letters to the company outlining Plaintiff’s concerns.  The company terminated Plaintiff’s employment in September 2018 and Plaintiff subsequently filed suit alleging, among other claims, that his employment was terminated in retaliation for his complaints.


The Court held that Plaintiff failed to establish that he had a subjectively or objectively reasonable belief that the company engaged in conduct covered by SOX.  Plaintiff failed to prove that he had a subjectively reasonable belief of a violation because the record showed that he personally believed he was reporting violations of company policies, as opposed to violations of the federal statutes covered by SOX.  The court said that while there is no need to “ring the bell” on each element of a law covered by SOX when making a complaint, a plaintiff needs to show more than a “veiled reference” to unspecified legal violations, especially where, as here, the plaintiff sent over 20 letters memorializing his allegations.

The court also held that Plaintiff failed to show an objectively reasonable belief that he was reporting violations covered by SOX.  Relying on the Third Circuit’s decision in Wiest v. Lynch (see our post on that case here), the court held that Plaintiff failed to show that his belief that the company was committing one of the enumerated forms of fraud was objectively reasonable in light of the fact that Plaintiff’s primary job was to increase efficiencies and reduce costs.  The court ruled that an objectively reasonable person with Plaintiff’s background and job responsibilities would not believe a failure to root out misconduct by outside vendors constituted bank, wire, or securities fraud, or a violation of SEC rules.


This decision underscores the need for a purported SOX whistleblower to hold a belief of a violation of one of the provisions enumerated in SOX that is both subjectively and objectively reasonable.

6th Circuit: FCA Whistleblower Protections Extend to Post-Employment Retaliation

On March 31, 2021, the Sixth Circuit addressed an issue of first impression in the circuit, holding that the False Claims Act’s (“FCA”) whistleblower protection provisions protect former employees from post-employment retaliation.  United States, ex rel. Felten v. William Beaumont Hospital, No. 20-1002.


Plaintiff was employed as a doctor at a Michigan hospital.  He filed a qui tam action against the hospital alleging that it was paying kickbacks to various physicians and physicians’ groups in exchange for patient referrals.  Plaintiff also claimed that the hospital terminated his employment and then maligned him in retaliation for his reports of illegal conduct, thus undermining his employment applications to numerous other institutions.

The U.S. District Court for the Eastern District of Michigan dismissed Plaintiff’s retaliation claims pertaining to conduct that occurred after his termination, holding that the FCA’s anti-retaliation protections apply only to conduct occurring during the course of employment.  Plaintiff requested that the dismissal order be amended to restore all of his claims, and the district court certified for interlocutory appeal the question of whether the FCA’s anti-retaliation provision applies to allegations of post-employment retaliation.  The Sixth Circuit granted interlocutory review.


A split Sixth Circuit panel vacated the district court’s dismissal order, holding that the FCA’s anti-retaliation provision protects former employees from post-employment retaliation.  Following the statutory interpretation framework laid out by the Supreme Court in Robinson v. Shell Oil, 519 U.S. 337 (1997)—in which the Court held that Title VII covers former employees—the court concluded that the term “employee,” as used in the FCA, is ambiguous and could encompass both current and former employees.

Given the statute’s ambiguity, the court examined the “broader context” and “primary purpose” of the FCA’s anti-retaliation provision to determine whether it covers former employees.  Explaining that the provision is meant to encourage the reporting of fraud against the government by protecting individuals who assist in the discovery and prosecution of such fraud, the court held that former employees can invoke the statute’s protections.  The court reasoned that potential whistleblowers would be dissuaded from reporting fraud if employers had the ability to retaliate against them without repercussion as long as they terminate the employee first.  Notably, however, the court did not address whether blacklisting is a form of retaliatory conduct that is prohibited by the FCA, and it remanded the issue for the district court to decide.


This decision creates a circuit split, as the Sixth Circuit’s holding contradicts the decisions of the Tenth Circuit and numerous federal district courts which have held that former employees are not covered by the FCA’s anti-retaliation provision.

SEC Awards Joint Whistleblowers More Than $50 Million

On April 15, 2021, the SEC announced payment of more than $50 million to joint whistleblowers who provided the SEC with information that resulted in the return of tens of millions of dollars to harmed investors.

Jane Norberg, Chief of the SEC’s Office of the Whistleblower, noted that “this award is the second largest in the history of the SEC’s whistleblower program” (following only the record-breaking $114 million award announced in October 2020), and reflects “the tremendous contribution of these joint whistleblowers to our ability to recover funds for harmed investors.”

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $812 million to 151 individuals, including over a quarter of a billion dollars in the first seven months of this fiscal year alone.  The order granting the award can be accessed here.

SEC Whistleblower Chief Jane Norberg to Leave, Agency Announces

The SEC announced on April 8, 2021 the departure of Jane Norberg, Chief of the SEC’s Office of the Whistleblower.  Ms. Norberg had been with the Office nearly since its inception in 2012, serving as its first Deputy Chief and then as Chief following the departure of Sean McKessy in 2016.

The SEC’s press release highlights a number of milestones achieved during Ms. Norberg’s tenure as Chief of the Office, including:

  • The issuance of awards totaling nearly $650 million to more than 110 individual whistleblowers under the SEC’s whistleblower program, including nine of the ten largest awards in the program’s history.
  • A record-breaking year during Fiscal Year 2020, in which the number of awards issued to whistleblowers was tripled and the SEC received a record number of whistleblower tips.
  • Successful enforcement actions that resulted in orders for more than $3.1 billion in sanctions, including more than $1.8 billion in disgorgement of ill-gotten gains and interest.
  • Eight enforcement actions for violations of the provision that prohibits a company or individual from impeding someone’s efforts to report information to the commission (we covered some of those actions here, here, and here), as well as three cases for retaliating against whistleblowers (see our post here).

The SEC also noted that $200 million has been awarded to 40 individuals under the program during the first six months of Fiscal Year 2021, already surpassing the record set in FY2020.  This trend shows no sign of slowing down, as demonstrated by the SEC’s announcement on April 9, 2021 that it had awarded $2.5 million to yet another whistleblower under the program.

According to the press release, the Office’s Deputy Chief, Emily Pasquinelli, will serve as Acting Chief following Ms. Norberg’s departure.

7th Circuit Affirms Denial of Equitable Tolling of Statute of Limitations Under SOX

On March 22, 2021, the Seventh Circuit affirmed a decision by the ARB dismissing a whistleblower retaliation complaint under SOX for failure to file within the 180-day statutory deadline.  Xanthopoulos v. U.S. Department of Labor, No. 20-2604.  The court rejected the plaintiff’s equitable tolling arguments.


Plaintiff was an employee of an investment company, and his employment was terminated on October 3, 2017.  Prior to and after his discharge, Plaintiff filed several reports on the SEC’s whistleblower website by submitting a “tips, complaints, and referrals” electronic form (“TCR Form”).  The TCR Forms focused on allegations that Plaintiff’s employer was engaged in securities fraud by manipulating investment portfolio ratings and disseminating those ratings to clients.

On September 18, 2018, Plaintiff filed a complaint under SOX with OSHA.  Plaintiff renewed his securities fraud claims and alleged that his employer violated SOX’s anti-retaliation provision by terminating him.  OSHA dismissed the complaint as untimely because Plaintiff filed 350 days after his termination, which was outside SOX’s 180-day statute of limitations.  Plaintiff appealed the decision, arguing that the statute of limitations should be equitably tolled because the TCR Forms he submitted to the SEC constituted SOX claims mistakenly filed in the wrong forum.  The ARB dismissed his claims and Plaintiff appealed.  (We previously covered the ARB’s decision here.)


On review, the Seventh Circuit held that equitable tolling due to a mistakenly filed claim was warranted only if a plaintiff could demonstrate that he had “raised the precise statutory claim in issue but done so in the wrong forum.”  If, instead, the earlier, timely-filed claim has remedies that are “separate, distinct, and independent” from those of the untimely claim, the two claims are distinguishable, and the statute of limitations is not tolled.

The Seventh Circuit agreed with the ARB that Plaintiff did not seek employee-based remedies available under SOX in his TCR Forms, such as reinstatement, back pay, or other damages associated with his termination.  Instead, Plaintiff repeatedly referenced Dodd-Frank and sought a whistleblower award, which is only available under Dodd-Frank, not SOX.  The Seventh Circuit found that Plaintiff sought not to “vindicate his right to be free from retaliation under Sarbanes-Oxley … but rather to prosecute [his employer’s] securities fraud, a separate and independent remedy.”  The court concluded that Plaintiff’s filings did not constitute the “precise statutory claim” mistakenly filed in the wrong forum, and thus, equitable tolling of SOX’s 180-day statute of limitations was not warranted.


The Seventh Circuit’s decision highlights notable distinctions between SOX and Dodd-Frank.  Though both statutes contain anti-retaliation provisions, the two differ in important respects.  For example, Dodd-Frank authorizes an aggrieved employee to file directly in federal court, while SOX requires a claim to be filed first with OSHA.  In addition, SOX provides standard employment-based remedies, such as reinstatement, backpay, and other damages.  Dodd-Frank goes further and permits the SEC to provide a whistleblower award of up to 30% of the total monetary sanctions resulting from the whistleblower’s complaint.  As this decision illustrates, a plaintiff who seeks to recover under Dodd-Frank by submitting TCR Forms may not later assert that he or she was actually making a SOX claim all along.

ARB Affirms Dismissal of SOX Whistleblower Claim for Lack of Protected Activity

On December 17, 2020, the Administrative Review Board (“ARB”) of the U.S. Department of Labor affirmed the dismissal of a former employee’s whistleblower retaliation claim under Section 806 of SOX.  The ARB concluded that the Complainant did not engage in protected activity, noting that his complaints regarding a lack of what he characterized as “internal controls” were inadequate.  The ARB also concluded that the Respondent showed it would have terminated Complainant’s employment even in the absence of his alleged protected activity.  Thibodeau v. Wal-Mart Stores, Inc., ARB Case No. 2017-0078.


Complainant worked for Respondent as a Senior Estimator, with responsibility for evaluating contractors’ requests for additional payments.  When Complainant’s supervisor cancelled the licenses for certain estimating software, he escalated concerns to management because he believed the software was essential for reviewing payment requests.  After Complainant successfully negotiated a lower license rate, Respondent renewed the software.  Throughout the following several months, Complainant’s supervisors brought numerous performance issues to his attention, issued him three levels of coaching under Respondent’s progressive discipline policy, and notified him that his employment was subject to termination if issues continued.  Later that year, Complainant raised concerns that a contractor’s payment request was deficient, resulting in a contentious telephone conversation with the contractor.  This incident prompted an automatic third-strike-and-out termination of Complainant’s employment.

Complainant filed a complaint with OSHA claiming that his termination violated SOX’s whistleblower protection provision.  After OSHA dismissed the complaint, an ALJ conducted a hearing and similarly dismissed the complaint.  Complainant then appealed to the ARB.


The ARB affirmed, finding that: (1) Complainant did not engage in protected activity, and (2) Respondent nevertheless would have terminated Complainant’s employment in the absence of his alleged protected activity, as evidenced by Complainant’s progression through the discipline policy.

Notably, the Complainant argued that reviewing contractors’ additional payment requests was a part of the internal controls over financial reporting, and that he therefore engaged in protected activity when he complained about the software license cancellation and reported deficient contractor requests.  The ARB ruled, however, that internal operational and managerial controls are distinguishable from internal controls over financial reporting.  The ARB concluded that Complainant’s payment request reviews are a cost-saving endeavor for Respondent, and thus fall outside the scope of the SEC’s rules for internal controls over financial reporting.  The ARB further held that, although Complainant subjectively believed the conduct he was reporting constituted a violation of SEC regulations, that belief was not objectively reasonable.

Of significance, the ARB also clarified its position regarding what constitutes “protected activity” under SOX.  The ARB previously held in Sylvester v. Parexel Int’l LLC, No. 07-123 (ARB May 25, 2011), that an employee’s complaint need not “definitively and specifically” relate to an enumerated legal violation, and that complainants only had to show that they reasonably believed the conduct complained about violated one of the laws enumerated in SOX.  Here, the ARB clarified that the standard established in Sylvester should not be interpreted to convert SOX into a general anti-retaliation statute.  Rather, complainants must still provide information regarding conduct that they reasonably believe constitutes a violation of one of the legal violations enumerated in SOX.  The ARB further clarified that an ALJ may consider, as part of the totality of the circumstances, evidence relevant to particular elements of the enumerated law when deciding if it was reasonable for the employee to believe that the law had been violated.


This decision is a valuable win for employers, as it clarifies what a complaint regarding a lack of internal controls must include and fortifies the rule that SOX is not a general anti-retaliation statute, despite the standard articulated in Sylvester.

Whistleblower Attorney Challenges SEC Final Rule Changing Its Whistleblower Program

On January 13, 2021, a New York whistleblower attorney filed a lawsuit in the U.S. District Court for the District of Columbia challenging a recent final rule adopted by the Securities and Exchange Commission (the “Commission or “SEC”) which made several changes to the SEC’s whistleblower program.

The SEC Final Rule

The final rule was adopted on September 23, 2020 after an extended notice-and-comment period following issuance of the proposed rule on June 28, 2018 (our post on the final rule is here).  Among other changes, the proposed rule had originally included amendments allowing the SEC to conduct a separate review process to reduce “exceedingly large awards” of at least $30 million.  The final rule scrapped this process and instead asserted that the Commission already possessed discretion to reduce large awards with high dollar amounts under the existing statutory award factors.

In addition to modifying Rule 21F-6, the final rule also amended the definition of “related action” to allow the Commission to deny an award based on an action by another regulatory authority if it determines that a different whistleblower award program (such as the CFTC’s whistleblower program) has a “more direct or relevant connection to the action.”

The Complaint

In his complaint, the whistleblower attorney alleged several violations of the Administrative Procedure Act (“APA”).  Plaintiff emphasized that in the proposed rule, the Commission “repeatedly and expressly acknowledged” that it lacked authority under its existing regulations to consider the dollar amount of a potential award, which is why it was forced to propose a “separate review process” in the first place.  The complaint also alleged that the Commission implicitly acknowledged its lack of authority by stating that the separate review process outlined in its proposed rule would only apply to future whistleblower applications.

Plaintiff also asserted that the final rule’s amendment to the definition of “related action” allowing the SEC to deny awards better suited to a different whistleblower program violated the APA.  Plaintiff alleged that the statutes enacting the whistleblower program defined a “related action” as “any judicial or administrative action brought by [the specified government entities],” and did not provide the Commission with discretion to impose additional requirements.  The complaint cited dissenting Commissioners who warned that allowing the SEC to determine, at its discretion, the most relevant whistleblower program would decrease certainty and efficiency for whistleblowers and frustrate the aim of the program—to maximize deterrence.

Finally, Plaintiff noted that whistleblowers often fear being retaliated against or blacklisted due to their actions, and thus prefer to report anonymously.  By diverting whistleblowers to other programs, many of which do not offer anonymous reporting, some individuals will choose not to report at all.  


This lawsuit presents a novel challenge to the Commission’s final rule, which drew criticism by numerous stakeholders in the years prior to its adoption.  It remains to be seen whether plaintiff’s claims under the Administrative Procedure Act will bear fruit.  The true impact, if any, of the final rule on the whistleblower program is unlikely to be revealed until the SEC releases its annual report later this year.

Fifth Circuit Affirms Dismissal of SOX Whistleblower Claim for Lack of Employer-Employee Relationship

On January 29, 2021, the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a SOX whistleblower retaliation claim where the plaintiff failed to establish an employer-employee relationship with the defendant.  Moody v. Am. Nat’l Ins. Co., No. 20-cv-40462.


Plaintiff was the owner and president of Moody Insurance Group (“MIG”).  MIG contracted with American National Insurance Company (“ANICO”) to sell ANICO’s insurance products.  During the term of the contract, Plaintiff complained to the ANICO Board that ANICO was in violation of certain SEC regulations.  He also filed a shareholder derivative suit.  The ANICO Board subsequently terminated ANICO’s contract with MIG.

In June 2019, Plaintiff filed suit in the U.S. District Court for the Southern District of Texas, alleging that ANICO retaliated against him in violation of Section 806 of SOX for his complaints by canceling his company’s contract, among other things.  In June 2020, the district court granted ANICO’s Rule 12(b)(6) motion to dismiss the SOX claim, holding that Plaintiff failed to allege facts showing that he was a covered employee of ANICO under SOX (our post on that decision is here).  The district court agreed with ANICO’s argument that the U.S. Supreme Court’s decision in Lawson v. FMR (2014) (discussed here), only permits the employees of a contractor to bring suit against their actual employer, and not against the public company with which their employer contracts.


The Fifth Circuit affirmed the district court’s grant of ANICO’s motion to dismiss, explaining that the Supreme Court made clear in Lawson that SOX only covers “actions an employer takes against its own employees” and, therefore, “the whistleblower entitled to protection must be an employee of the retaliator.”  Because Plaintiff was an employee of MIG (a private company), and not ANICO (a public company), Plaintiff failed to plead sufficient facts to show that he is a covered employee protected by SOX.


This decision clarifies that even under the Lawson, employees of private companies that contract with public companies can only pursue a SOX claim against their actual employer.


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