On October 2, 2018, the U.S. District Court for the Western District of Pennsylvania federal court denied a Rule 12(b)(6) motion to dismiss a SOX whistleblower retaliation claim, reasoning that Plaintiff sufficiently alleged that he engaged in protected activity and that his protected activity was a contributing factor in his
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.
The ARB recently affirmed a motion for summary decision against a Complainant claiming retaliatory discharge under SOX, finding that he failed to demonstrate that he engaged in protected activity and that the Company would have discharged him in the absence of any protected activity given his misconduct. Latigo v. ENI…
On April 23, 2018, the U.S. District Court for the Northern District of Illinois ruled that a plaintiff’s SOX claim precluded his claim for common law retaliatory discharge. Cohen v. Power Solutions International, Inc., No. 17-cv-4385.
Plaintiff, a COO, claimed that in early 2016, he became suspicious of the…
On February 22, 2018, the Tenth Circuit Court of Appeals reversed a district court’s grant of summary judgment against Plaintiff who claimed that his employment was terminated in violation of the SOX whistleblower protection provision. The court concluded that genuine issues of material fact existed as to whether Plaintiff actually…
On February 12, 2018, the United States District Court for the Northern District of Mississippi recently denied a motion for summary judgment in a SOX whistleblower claim where the defendant company alleged that it terminated the plaintiff pursuant to a reduction-in-force (RIF). Hendrick v. ITT Engineered Valves, LLC, No.…
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.
On October 17, 2017, the Tenth Circuit overturned the ARB’s decision in favor of complainant for want of protected activity under SOX. Dietz v. Cypress Semiconductor Corp., No. 16-9529 (Oct. 17, 2017). This decision rolled back the ARB’s expansive determination that a company violated federal mail and wire fraud laws by implementing a mandatory bonus plan that failed to comply with state wage payment laws.
Background. Complainant worked for another entity before it was acquired by the Company. Offer letters were sent to some of the prior company’s employees, including Complainant, which included compensation information. The offer letters, however, omitted the fact that some of the employees would be subject to an alternative compensation plan (the “Design Bonus Plan”). The Design Bonus Plan involved a mandatory wage deduction, which would later be recuperated based on the performance of the affected employees’ projects. The Company did not start making the deductions until approximately nine months after the prior company’s employees started working for the Company. Training sessions about the Design Bonus Plan were also offered. In April 2013, after one of the training sessions, Complainant emailed his supervisor to discuss his concerns about the legality of the Design Bonus Plan and also discussed this with the General Counsel. Additionally, Complainant complained that the Design Bonus Plan took employees by surprise. Shortly thereafter, the Company disciplined Complainant and allegedly required him to write memos regarding his alleged errors. Two months later, Complainant informed the Company that he intended to resign. Instead of beginning the Company’s turnaround process (designed to retain employees), he was scheduled to attend a meeting two days later.
The Southern District of Florida recently denied a Rule 12(b)(6) motion to dismiss a former employee’s Sarbanes-Oxley and Dodd-Frank whistleblower retaliation claims, finding that the plaintiff sufficiently alleged that she had an objectively reasonable belief regarding alleged securities violations. Thomas v. Tyco Int’l Mgmt. Co., LLC, No. 16-cv-80501 (Mar. 31, 2017). This case is noteworthy because it takes an expansive view of the scope of protected activity under SOX with respect to complaints involving internal controls and data security.
Background. Plaintiff was a former Manager of Financial Reporting for the Company. She allegedly learned during her employment that an applicant for a manager position misrepresented her educational qualifications in her resume. Additionally, she allegedly believed that the applicant did not have sufficient training in generally accepted accounting principles (“GAAP”). According to her complaint, despite raising these concerns with her direct supervisor, the Company hired the applicant for the new manager position. Plaintiff claimed that the new manager was responsible for reporting $4 billion per year to the Company’s headquarters and ultimately to the SEC. Plaintiff also allegedly began doubting the reliability of a new monthly “tie-out” process the Company used to ensure that the financial data in the Company’s ledger system was consistent with the consolidated financial data reported to the SEC. In December 2013, Plaintiff filed a complaint with the internal ombudsman regarding the new manager’s credentials and the tie-out process. The ombudsman found no wrongdoing. In March 2014, Plaintiff filed a whistleblower retaliation complaint with OSHA. In May 2014, her employment was terminated on the grounds that she allegedly improperly accessed another employee’s records.
The Northern District of Illinois recently dismissed an Indiana-based employee’s claims for retaliatory discharge in violation of common law pursuant to Illinois public policy, focusing on the nature of the connection (or lack thereof) to Illinois and noting that the plaintiff possessed adequate statutory remedies under federal whistleblower laws. O’Risky…