retaliation

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On June 28, 2018, the U.S. Securities and Exchange Commission (“SEC” or “Commission”) voted in an open meeting on several final rules and rule proposals that will have a material impact on the Commission’s whistleblower program. Most notably, the SEC approved a rule proposal that would modify its Rule 21F, which defines who is a whistleblower and establishes anti-retaliation protection, to comport with the U.S. Supreme Court’s holding in Digital Realty Tr., Inc. v. Somers, 138 S. Ct. 767 (2018).

As detailed on our blog, in February, the U.S. Supreme Court unanimously held that the anti-retaliation provision of the Dodd-Frank Act only applies to individuals who have provided information regarding a violation of the securities laws to the SEC. In so holding, the Court ruled that the SEC’s Rule 21F-2, which enabled an individual to gain anti-retaliation protection from complaints not made directly to the SEC (such as internal company complaints), was in clear contravention of Congress’s instruction that a “whistleblower” is a person who provides “information relating to a violation of the securities laws to the Commission.”

The SEC’s proposed rule will comport with the Court’s holding by requiring, inter alia, that an individual seeking anti-retaliation protection report, in writing, information about possible securities laws violations to the SEC itself. The proposed rule would apply uniformly: to the SEC’s whistleblower award program, the heightened confidentiality program, as well as for employment anti-retaliation protection.

Last week, the Seventh Circuit Court of Appeals held that a terminated CEO’s complaints about his board of directors’ managerial decisions did not qualify as protected whistleblowing under the Sarbanes-Oxley Act of 2002 (“SOX”) nor under the Dodd-Frank Act of 2010 (“DFA”).  Verfuerth v. Orion Energy Sys., Inc., No. 16-3502, 2018 WL 359814 (7th Cir. Jan. 11, 2018).

Background.  Plaintiff was the founder and former CEO of a company that specializes in energy-efficient lighting.  In November 2012, following a series of disputes between Plaintiff and the company’s board of directors, Plaintiff was terminated for incurable cause.  A year and a half after his termination, Plaintiff brought a lawsuit that alleged that he was retaliated against, in violation of SOX and DFA, for his complaints to various board members about the company’s business practices.  Practices about which Plaintiff alleged to have complained included attorney over-billing, intellectual property disputes, conflicts of interest, and violations of internal company protocol.  The Company moved for summary judgment, arguing in part that Plaintiff’s complaints did not qualify as whistleblowing entitled to protection from adverse employment actions.

Rulings.  Chief Judge Griesbach granted the Company’s Motion for Summary Judgment on Plaintiff’s SOX and DFA claims.  Chief Judge Griesbach held (1) that SOX protects complaints about securities fraud, not “run-of-the-mill corporate problems,” which is what he believed Plaintiff raised here, and (2) that Plaintiff’s complaints to various board members about what he thought they should be doing did not amount to whistleblowing, because “[s]imply telling a person he might be committing fraud is not whistleblowing” and “airing concerns is not whistleblowing.”  Verfuerth v. Orion Energy Sys., Inc., No. 14-CV-352, 2016 WL 4507317 (E.D. Wis. Aug. 25, 2016).

The Seventh Circuit Court of Appeals agreed, holding that “[a]n executive who advises board members to disclose a fact that the board already knows about has not ‘provide[d] information’ about fraud.  At most, he has provided an opinion.”  Verfuerth­ No. 16-3502, 2018 WL 359814 at *4.  The Court emphasized that nothing in SOX, or any other federal statute, prevents a company from firing its executives over differences of opinion.

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).

11th cir A former employee of the upscale outdoor furniture designer and manufacturer Brown Jordan recently failed in his bid to pursue whistleblower retaliation claims against the company and also found himself liable for snooping on his boss’s (and other’s) emails. A three-judge panel of the Eleventh Circuit recently affirmed the District Court’s summary judgment for the employer on the former employee’s purported whistleblower claim, concluding that his report of alleged “misconduct” by his employer’s senior management was not actionable. In their unanimous decision, the judges also affirmed the District Court’s judgment in favor of the employer under the Stored Communications Act (SCA) and Computer Fraud and Abuse Act (CFAA) due to the employee’s spying on the emails of his superiors, colleagues, and subordinates without authorization over a period of months. While both the former employee and former employer traded accusations of wrongdoing during the course of the litigation, after summary judgment, trial and appeal, it is only Carmicle, the former employee, who has been found by the district court and the circuit to have done anything improper. Carmicle v. Brown Jordan Int’l, Inc., et al., No. 16-11350 (11th Cir. Jan. 25, 2017)