USDOL/OALJ: Sarbanes-Oxley ("SOX") Whistleblower Digest: Causation

Sarbanes-Oxley Act (SOX)
Whistleblower Digest
BURDEN OF PROOF AND PRODUCTION
CAUSATION
[Last Updated Nov. 14, 2014]

Contributing Factor/Motiving Factor Standard
Adverse Inference
Summary Decision
Temporal Proximity
Respondent's Knowledge
Complainant's Admission of Misconduct

Contributing Factor/Motiving Factor Standard

FEDERAL COURT DECISIONS

CONTRIBUTING FACTOR; EMPLOYER NEED NOT HAVE BEEN WRONGFULLY MOTIVATED

In Halliburton v. Administrative Review Board, USDOL , No. 13-60323 (5th Cir. Nov. 12, 2014) (per curiam) (case below ARB Nos. 12-026, ALJ No. 2007-SOX-5) ( Revised Opinion - Dec. 29, 2014), the complainant (Menendez), an employee of Halliburton's finance and accounting department, used the company's confidential internal procedures to raise a concern about whether certain revenue recognition practices conformed to generally accepted accounting practices. The complainant also filed a complaint with the SEC. The SEC contacted Halliburton and instructed it to retain certain documents during the SEC's investigation. Halliburton inferred from the SEC notice that the complainant had filed a complaint with the SEC. Halliburton sent an email to the complainant's colleagues that instructed them to start retaining certain documents because "the SEC has opened an inquiry into the allegations of Mr. Menendez." The complainant's colleagues, whom he had essentially accused of fraud, then generally refused to work and associate with him. The 5th Circuit affirmed the ARB's determination that Halliburton's disclosure of the complainant's identity as the SEC whistleblower, resulting in the complainant's workplace ostracism, constituted illegal retaliation under § 806 of the Sarbanes-Oxley Act ("SOX"), 18 U.S.C. § 1514A(a).

On appeal, Halliburton contended that the ARB erred because it is not enough that the protected conduct be a "contributing factor" in the employer's adverse action, but rather, an employee must prove a "wrongfully- motivated causal connection." The court rejected this contention because it conflicted with the court's statement in Allen that a "contributing factor" is "any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision." Id . at 15, quoting Allen , at 476 n.3 (citation omitted, emphasis added). The court also found that the contention entirely lacked support in the case law.

FOURTH CIRCUIT CLARIFIES THAT COMPLAINANT'S BURDEN ON "CONTRIBUTING CAUSE" ELEMENT AT SUMMARY JUDGMENT PHASE IS PREPONDERANCE OF THE EVIDENCE RATHER THAN THE PRIMA FACIE CASE STANDARD OF SUFFICIENT EVIDENCE TO RAISE INFERENCE

In Feldman v. Law Enforcement Associates Corp. , No. 13-1849 (4th Cir. May 12, 2014) (2014 WL 1876546), the 4th Circuit noted that it held in Welch v. Chao , 536 F.3d 269, 275 (4th Cir. 2008), that an employee must show that his communications to his employer definitively and specifically related to one of the law enumerated in Section 1514A, and that subsequently the ARB concluded in Sylvester v. Parexel Int'l LLC , ARB No. 07-123 (ARB May 25, 2011), that this standard applies too strictly and that the critical focus is instead on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law. The court declined to clarify its holding in Welch because it decided in the instant appeal that the Plaintiff failed to establish the "contributing cause" element of a prima facie case. The court noted that in Welch , it had referred to the four part standard framing a prima facie case under a regulation that describes a complainant's burden at the investigatory stage of the administrative proceeding. For the fourth "contributing cause" element, the complainant must a prima facie showing that the circumstances were sufficient to raise an inference that the protected activity was a contributing factor in the adverse decision. See 29 C.F.R. § 1980.104. The court noted that other circuits and the ARB have noted that at the evidentiary stage, the regulation requires the complainant to prove by a preponderance of the evidence that the protected activity was a contributing factor in the adverse action, 29 C.F.R. § 1980.109(a), and not merely that the circumstances were sufficient to raise an inference. In the instant case, which was decided at the summary judgment stage before the district court, the 4th Circuit stated that it would apply the contributing factor element as articulated under the adjudicatory stage regulation at 29 C.F.R. § 1980.109(a).

CONTRIBUTING FACTOR; 10TH CIRCUIT EMPLOYS ARB'S KLOPSTEIN STANDARD

In Lockheed Martin v. Adm. Review Bd., USDOL , No. 11-9524 (10th Cir. June 4, 2013) (case below ARB No. 10-050, ALJ No. 2008-SOX-49), the Tenth Circuit affirmed the ARB's decision in Brown v. Lockheed Martin Corp. , ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011), in which the ARB affirmed the decision of an ALJ that Lockheed violated Section 806 of the Sarbanes-Oxley Act by constructively discharging the Complainant after she engaged in protected activity.

Background

The Complainant worked as a Communications Director and brought concerns to Lockheed's Vice President of Human Resources that the Vice President of Communications was using company funds for illicit activities. The Vice President of Human Resources submitted an anonymous complaint on the Complainant's behalf. Upon questioning by the Vice President of Communications about who reported her, the Complainant revealed that she told the Vice President of Human Resources "a few things," but stated that she was not sure if her comments resulted in the complaint. Shortly thereafter, the Complainant received a lower performance rating. In a company reorganization, the Complainant's position was advertised, and when she applied, SHE was lambasted for doing so. The Complainant was told to vacate her office and either work from home or use the visitor's office (which doubled as a storage room), lost her title and supervisory responsibilities, and was told she could not attend a communications conference that she had attended in the past. When the Complainant came to work and found that someone else was using the visitor's office, she was told that the company was looking for a cubicle for her. The Complainant protested that as a Level 5 employee with a leadership position (an "L code" classification) she was entitled to an office, but was then told that her L code was in the process of being removed. At that point, the Complainant took medical leave for depression, and filed a forced discharge/constructive discharge complaint with OSHA. The ARB affirmed the ALJ's decision finding a constructive discharge in violation of AIR21. On appeal to the 10th Circuit, Lockheed argued that the ARB's findings of fact and conclusions of law were in error as to protected activity, unfavorable personnel action, and contributing factor.

Contributing Factor

   -- Klopstein standard applied

The court, largely adopting the ARB's decision in Klopfenstein v. PCC Flow Techs. Holdings, Inc. , ARB No. 04-149, 2006 WL 3246904, at *13 (ARB. May 31, 2006), described the contributing factor element of a SOX complaint as follows:

   To establish a prima facie case under Section 806, a complainant must show her protected activity was a contributing factor in the unfavorable personnel action. 18 U.S.C. § 1514A(b)(2)(C); 49 U.S.C. § 42121(b)(2)(B)(I); 29 C.F.R. § 1980.109(a); Harp, 558 F.3d at 723. This element is broad and forgiving: the Board has defined a "contributing factor" as "any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision." Klopfenstein v. PCC Flow Techs. Holdings, Inc. , No. 04-149, 2006 WL 3246904, at *13 (Admin. Rev. Bd. May 31, 2006) (emphasis added) (quotation omitted); see also Allen , 514 F.3d at 476 n.3. "[T]he contributing factor standard was 'intended to overrule existing case law, which requires a whistleblower to prove that his protected conduct was a 'significant,' 'motivating,' 'substantial,' or 'predominant' factor in a personnel action in order to overturn that action." Klopfenstein , 2006 WL 3246904, at *13 (quoting Marano v. Dep't of Justice , 2 F.3d 1137, 1140 (Fed. Cir. 1993)). Temporal proximity between the protected activity and adverse employment action may alone be sufficient to satisfy the contributing factor test. Van Asdale v. Int'l Game Tech. , 577 F.3d 989, 1003 (9th Cir. 2009); see also Marx v. Schnuck Mkts., Inc. , 76 F.3d 324, 329 (10th Cir. 1996) (stating, in context of Fair Labor Standard Act's "motivating factor" element, protected conduct closely followed by adverse action may justify an inference of retaliatory motive).

Slip op. at 26-27.

   -- Temporal proximity in constructive discharge case; relevant time frame is not when the constructive discharge occurred, but when the conduct leading up to the discharge began

Lockheed sought to discredit DOL's conclusion that the Complainant's protected activity was a contributing factor in her constructive discharge based on the argument that a significant amount of time passed between the Complainant's report of the Vice President for Communications' activities and the ultimate constructive discharge. Lockheed argued that the gap between the Complainant's report of the Vice-Presidents' activities and the Complainant's departure was more than 20 months, and even if the gap was calculated from the date the Vice-President became aware that the Complainant was the person who filed the complaint against her, there was still a full calendar year gap. Lockheed cited Title VII authority for the proposition that a period of two to three months between protected activity and adverse employment action is insufficient to establish causation. The court rejected this argument noting that in a Title VII case the requirement is to make a prima facie showing of causation, whereas in a SOX Section 806 case a complainant is only required to show that protected activity was a contributing factor. The court also stated "More importantly, when evaluating temporal proximity for purposes of determining whether [the Complainant's] protected activity was a contributing factor in her constructive discharge, the relevant time frame is not when the constructive discharge occurred, but when the conduct leading up to the discharge began." Slip op. at 28 (citation omitted). The court also noted that in the instant case, the Complainant's contributing-factor showing was not based solely on temporal proximity.

   -- Cat's paw theory of liability

In the instant case, the ARB concluded that although new managers to whom the Complainant reported after a company reorganization did not know about the Complainant's ethics complaint against the Vice President of Communications, both were poisoned by the Vice President of Communications' biased reports of the Complainant's professional competence. The court noted that the Tenth Circuit has applied the subordinate bias, or "cat's paw" theory of liability in other employment discrimination contexts, and that the Supreme Court had recently endorsed the theory in the context of an action under the Uniformed Services Employment and Reemployment Rights Act. The court noted that, importantly, "the required showing to establish causation for a claimant under Section 806 is less onerous than the showing required under Title VII, the ADEA, or USERRA." Slip op. at 29 (citations omitted). The court thus summed up that it "must determine whether the ALJ's finding that [the Vice President of Communications] 'poisoned' [the new manager's] opinion of [the Complainant] is supported by substantial evidence, keeping in mind that [the Complainant] satisfies the causation element of her Section 806 claim by demonstrating merely that her ethics complaint contributed to the adverse employment actions taken against her." Slip op. at 29-30 (footnote omitted). Although the ALJ drew certain inferences from the testimony, and those inferences were not the only possible interference that could have been drawn, the court found that such a possibility "is a grossly insufficient basis to disturb an agency's findings on appeal." Slip op. at 30-31. The court affirmed the ALJ and ARB's finding that the Complainant's protected activity was a contributing factor in her termination from employment.

ALLEGED PROTECTED ACTIVITY UNDER SOX FOUND NOT TO BE A CONTRIBUTING FACTOR IN TERMINATION OF EMPLOYMENT

In Hemphill v. Celanese Corp. , No. 08-2131-B (N.D.Tx. June 16, 2010)(unpublished)(case below 2008-SOX-31), a former employee filed suit against his former employer asserting claims for violations of the whistleblower protection provisions of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A. The former employee alleged that he was terminated in response to reports he made as part of an audit expense report investigation. The employer filed a motion for summary judgment asserting that the employee did not engage in protected activity and that his alleged protected activity was not a contributing factor in his termination. The employer asserted that there was clear and convincing evidence that the employer would have terminated the employee regardless of his alleged protected activity.

The District Court found that a material issue of fact remained as to whether the employee engaged in protected activity, however, the Court granted summary decision finding that no reasonable trier of fact could find that the employee's alleged protected activity was a contributing factor in his termination. The Court reasoned that the employer established by clear and convincing evidence that it would have terminated the employee regardless of any protected activity.

PROTECTED ACTIVITY UNDER SOX NOT A CONTRIBUTING FACTOR TO FORMER EMPLOYEE'S DISCHARGE; HISTORY OF POOR PERFORMANCE THAT PRECEDED PROTECTED ACTIVITY

In Robinson v. U.S. Dep't of Labor , No. 10-1587 (7th Cir. Dec. 27, 2010)(unpublished)(case below ARB No. 07-070, ALJ No. 2005-SOX-44), the defendant, a financial services company, fired the plaintiff from her senior auditor position six months after she submitted a memo to its President and CFO reporting improper business practices. The plaintiff sued her former employer alleged that it violated SOX by discharging her in retaliation for her protected activity of reporting corporate fraud. The ALJ determined that the employee was instead fired for poor performance and the ARB affirmed.

The Court of Appeals denied the plaintiff's petition for review holding that: (1) substantial evidence supported the ARB's determination that the employee was not terminated as a result of any protected activity; and (2) ALJ's credibility determination and evidentiary ruling were not arbitrary or capricious.

CONTRIBUTING CAUSE; RIF OF PLAINTIFF'S ENTIRE AUDITING UNIT

In Harp v. Charter Communications, Inc. , No. 07-1445 (7th Cir. Mar. 16, 2009), the Plaintiff alleged that her termination was in retaliation for her whistleblowing activities in violation of the Sarbanes-Oxley Act. The Seventh Circuit affirmed the district court's grant of summary decision, finding that the Plaintiff had failed to point to any evidence to indicate that her termination was attributable to something other than the financial problems that necessitated a RIF. The Plaintiff's entire technical auditing department plus about 25 employee from other departments had been RIFed. The record showed that the Employer had not met its budget revenues, and as a result missed its cash flow in the first month of the year, resulting in a need to address the problem as soon as possible. The Plaintiff's supervisor was instructed to move quickly to reduce expenses, and he decided to eliminate positions least related to customer recruitment and retention to minimize impact on revenues. Consequently, the Plaintiff's audit department was targeted, and its functions turned over to a department in charge of quality control. The court found that the Plaintiff was only able to reply to these facts by pointing out minor discrepancies as to when the directive to reduce costs was issued. Rather, the Plaintiff mainly focused on the timing of the RIF, which was proximate to her protected activity. The court, however, found that the timing was also proximately tied to revenue shortfall. Moreover, the court found that the sheer scope of the RIR was relevant to whether an inference of retaliation could be drawn. The court stated that a "jury would have to conclude that in an effort to cover up the retaliatory action against [the Plaintiff], [the Defendant] laid off the entire audit department as well as approximately 25 other individuals in other departments." One member of the court dissented. Although acknowledging that on initial blush the Plaintiff's contention that the RIF was merely cover for retaliation was highly implausible, the dissenter found that the Plaintiff had offered enough evidence to make the contention plausible enough to go to a jury.

20 MONTH GAP BETWEEN PROTECTED ACTIVITY AND ADVERSE ACTION FOUND TO ESTABLISH THAT PROTECTED ACTIVITY WAS NOT A CONTRIBUTING FACTOR IN THE PLAINTIFF'S TERMINATION

In Johnson v. Stein Mart, Inc. , No. 3:06-cv-00341 (M.D.Fla. June 20, 2007) (case below 2006-SOX-52), the district court found that - not only did a 20 month gap between the protected activity and the adverse action fail to indicate a temporal link sufficient to establish causation - but in fact showed that the protected activity was not a contributing factor in the Plaintiff's termination.

CONTRIBUTING FACTOR; MARANO v. DEPT. OF JUSTICE STANDARD

In Collins v. Beazer Homes USA, Inc. , __ F.Supp.2d __, 2004 WL 2023716 (N.D.Ga. Sept. 2, 2004), the court wrote that

Under the evidentiary framework [of a SOX whistleblower cause of action], Plaintiff must also establish that there are circumstances which suggest that the protected activity was a contributing factor to the unfavorable action. 49 U.S.C. § 42121(b)(2)(B)(iii); see Marano v. Dep't of Justice , 2 F.3d 1137, 1140 (Fed. Cir. 1993)(stating that under the Whistleblower Protection Act, 5 U.S.C. § 1221(e)(1), "[t]he words 'a contributing factor' . . . mean any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision" and noting that "[t]his test is specifically intended to overrule existing case law, which requires a whistleblower to prove that his protected conduct was a 'significant,' 'motivating,' 'substantial,' or 'predominant' factor in a personnel action in order to overturn that action.").

ADMINISTRATIVE REVIEW BOARD DECISIONS

WEIGHING OF EVIDENCE ON CONTRIBUTING FACTOR ELEMENT; NOTICE OF EN BANC REVIEW

In Powers v. Union Pacific Railroad Co. , ARB No. 13-034, ALJ No. 2010-FRS-30 (ARB Oct. 17, 2014), , the ARB provided notice that it will address, en banc, the "contributory factor" analysis addressed in Fordham v. Fannie Mae , ARB No. 12-061, ALJ No. 2010-SOX-51 (ARB Oct. 9, 2014).

SPLIT PANEL OF THE ARB RULES THAT A RESPONDENT'S EVIDENCE OF LEGITIMATE, NON-RETALIATORY REASON FOR ADVERSE ACTION MAY NOT BE WEIGHED BY ALJ WHEN DETERMINING WHETHER COMPLAINANT MET HIS OR HER BURDEN OF PROVING CONTRIBUTING FACTOR CAUSATION BY A PREPONDERANCE OF THE EVIDENCE

In Fordham v. Fannie Mae , ARB No. 12-061, ALJ No. 2010-SOX-51 (ARB Oct. 9, 2014), the Complainant (Fordham), an IT Technical Risk Specialist, filed a SOX Section 806 complaint against Fannie Mae. In Fordham , a three-judge panel of the ARB took a fresh look at the contributing factor causation element of a SOX claim and held that

... the ALJ committed reversible error by weighing evidence offered by Fannie Mae in support of its affirmative defense that it would have taken the personnel action at issue in the absence of Fordham's protected activity for legitimate, non-retaliatory reasons. SOX statutorily imposes different burdens of proof on the respective parties, with the respondent required to prove by clear and convincing evidence that it would have taken the same personnel action had there been no whistleblower protected activity, should the complainant prove by a preponderance of the evidence that protected activity was a contributing factor in the adverse personnel action. Consequently, a respondent's evidence of a legitimate, non-retaliatory reason or basis for its decision or action is not weighed against a complainant's causation evidence in the determination of whether a SOX complainant has met his or her initial burden of proving "contributing factor" causation. The determination whether a complainant has met his or her initial burden of proving that protected activity was a contributing factor in the adverse personnel action at issue is required to be made based on the evidence submitted by the complainant, in disregard of any evidence submitted by the respondent in support of its affirmative defense that it would have taken the same personnel action for legitimate, non-retaliatory reasons only. Should the complainant meet his or her evidentiary burden of proving "contributing factor" causation, the respondent's affirmative defense evidence is then to be taken into consideration, subject to the higher "clear and convincing" evidence burden of proof standard, in determining whether or not the respondent is liable for violation of SOX's whistleblower protection provisions.

Slip op. at 2-3 (footnote omitted). In Powers v. Union Pacific Railroad Co. , ARB No. 13-034, ALJ No. 2010-FRS-30 (ARB Oct. 17, 2014), the ARB provided notice that it will review, en banc, the "contributory factor" analysis addressed in Fordham .

In its ruling in Fordham , the ARB panel indicated that the ALJ erred in not analyzing the evidence in terms of a prima facie case. The panel, quoting Bechtel v. Administrative Review Board, USDOL , 710 F.3d 443 (2d Cir. 2013), indicated that a prima facie case is merely a term referring to the four elements of a whistleblower complaint, and that "'[T]he same basic four-part framework of the complainant's prima facie case applies not only when deciding whether the allegations are legally sufficient, see 29 C.F.R. § 1980.104(e)(2), but also when an ALJ considers whether the complainant has satisfied his or her evidentiary burden under 49 U.S.C.A. § 42121(b)(2)(B)(iii).'''

With that clarification, the ARB panel turned to "[w]hat evidence is appropriately to be considered at the hearing stage in determining whether a complainant has met his or her burden of proving 'contributory factor' causation by a preponderance of the evidence test", and more specifically "whether the respondent's evidence of legitimate, non-retaliatory reasons for its action may be weighed against the complainant's causation evidence...." Id . at 19. The panel found that the case law was inconclusive on the subject, and therefore it would treat the issue as a matter of first impression.

The panel began with an analysis of Section 806 of SOX, which incorporates the legal burdens of proof set forth in the whistleblower provision of AIR21. The panel noted that "[i]t would seem self-evident" from AIR21's delineation of a "clear and convincing evidence" burden for the respondent for its affirmative defense, that the respondent's evidence on this point is not considered at the initial " contributing cause" stage where a preponderance of the evidence test applies. The panel reasoned that permitting the employer to put on such evidence at the initial stage would render the statutorily prescribed affirmative defense meaningless. The panel concluded that weighing of the evidence at the initial stage "is exactly what the 'contributing factor' statutory provision was designed to eliminate." Id . at 23. The panel wrote: "An employer's legitimate business reasons may neither factually nor legally negate an employee's proof that protected activity contributed to an adverse action." Id .

The panel then turned to ARB case law, and found that it was inconclusive on the issue and had served to confuse "what otherwise appears straightforward." Id . Finding that ARB case authority did not resolve the issue presented, the ARB panel looked to federal appellate case law, and found that it was of no greater assistance. The ARB panel then looked to the statutory history of AIR21 and found nothing that addressed the issue directly. The ARB panel found, however, that the legislative history indicated Congress' intention to adopt the burdens of proof articulated in Mt. Healthy School Dist. Bd. of Educ. v. Doyle , 429 U.S. 274 (1977), which tied AIR21 whistleblower provisions to the 1992 amendments to the ERA whistleblower provision, which in turn tied AIR21 to the whistleblower provisions of the Whistleblower Protection Act (WPA) as originally adopted. The ARB panel, therefore, applying the statutory construction principle of in pari material , looked to the WPA for guidance.

Reviewing federal caselaw interpreting the WPA and the legislative origins of the WPA, the ARB panel found it clear that a respondent's evidence of a non-retaliatory basis for its action "is not weighed under the preponderance of the evidence standard against the complainant's evidence of 'contributing factor' causation." Fordham, supra at 33. The ARB panel noted that its ruling applied only to the contributing factor element of the four basic elements of a whistleblower complaint. An ALJ may consider the respondent's evidence directed at the other three basic elements. The panel acknowledged that the evidentiary methodology it found is "mandated by the 'contributing factor/clear and convincing evidence' burdens of proof distinction differs from the traditional evaluation of evidence under the preponderance of the evidence burden of proof standard whereby findings of fact are based on the weighing of all the evidence introduced by both parties." Id . at 34.

The majority, however, reasoned that "[p]roof by a complainant of the elements of a prima facie case of retaliation by a preponderance of the evidence, including proof of 'contributing factor' causation, shifts to the employer the burden of proving by 'clear and convincing evidence' not only the existence of a legitimate, non-retaliatory basis for the contested personnel action but that the employer would have taken the contested action on that basis alone had the complainant not engaged in protected activity." Id . at 37.

The dissent noted that the Fordham majority's analysis appears to be a significant departure from prior ARB rulings regarding the evidence to be considered by an ALJ when determining the "contributing factor element of a SOX claim. The dissent wrote:

    The complainant must prove the "contributory factor" element of her case by a preponderance of the evidence. This standard derives from the word "demonstrate" in the statute. This means that the complainant's supporting evidence must outweigh the evidence offered to rebut the complainant's claim of whistleblower retaliation. The Board's recent discussion of "contributory factor" in Bobreski [v. J. Givoo Consultants, Inc. , ARB No. 13-001, ALJ No. 2008-ERA-003 (ARB Aug. 29, 2014)], discussed this point:

To answer that question, where the complainant presents his case by circumstantial evidence, we repeatedly stated that the ALJ must consider "all" the evidence "as a whole" to determine if the protected activity did or did not "contribute." By "all" of the evidence, we mean all the evidence that is relevant to the question of causation. This requires collecting the complainant's evidence on causation, assessing the weight of each piece, and then determining its collective weight. The same must be done with all of the employer's evidence offered to rebut the complainant's claim of contributory factor. For the complainant to prove contributory factor before the ALJ, all of his circumstantial evidence weighed together against the defendant's countervailing evidence must not only permit the conclusion, but also convince the ALJ, that his protected activity did in fact contribute to the unfavorable personnel action. Because contributory factor permits unlawful retaliatory reasons to co-exist with lawful reasons, a complainant does not need to prove that lawful reasons were pretext.

After the parties present all of their evidence supporting their versions of the events, then the ALJ must decide which version to believe.

Fordham, supra , USDOL/OALJ Reporter at 45-46) (footnotes omitted). The majority found, however, that the Bobreski decision (and similar decisions) were "inconclusive" on the point. Id . at 21, n.35.

CAUSATION; BREACH OF ASSURANCE OF CONFIDENTIALITY IS ALMOST CERTAINLY CAUSALLY LINKED TO WHISTLEBLOWING ACTIVITY

AFFIRMATIVE DEFENSE; CLEAR AND CONVINCING EVIDENCE TO SHOW THAT BREACH OF ASSURANCE OF CONFIDENTIALITY WOULD HAVE OCCURRED IN ABSENCE OF PROTECTED ACTIVITY IS A DIFFICULT BUT NOT IMPOSSIBLE BURDEN

In Menendez v. Halliburton, Inc. , ARB No. 12-026 ALJ No. 2007-SOX-5 (ARB Mar. 15, 2013) (reissued with corrected caption Mar. 20, 2013), the Complainant alleged that the Respondent retaliated against him in violation of SOX's employee protection provision after he had alerted the SEC and the Respondent's Audit Committee to concerns about GAAP principles with respect to revenue recognition and joint venture accounting practices. Following a hearing, the ALJ had dismissed the complaint finding that the Complainant failed to prove retaliatory adverse action. On appeal, the ARB reversed, and held that the Respondent's breach of the Complainant's confidentiality was adverse action. The ARB remanded for the ALJ to determine whether the protected activity was a contributing factor to this adverse action, and if so, whether the Respondent demonstrated by clear and convincing evidence that it would have acted adversely in the absence of the Complainant's whistleblowing.

The Complainant had emailed the Respondent's Audit Committee with his concerns after ascertaining his right to whistleblowing confidentiality. The Respondent's Assistant General Counsel forwarded the Complainant's email to the Audit Committee and to the Respondent's General Counsel and the Respondent's CFO. The CFO in turn forwarded the complaint to other persons. Later, the Respondent's General Counsel emailed a "document retention" email, identifying in the email the Complainant's identity. This email was forwarded by the CFO to 15 members of the Respondent's Finance and Accounting (F&A) group, including the Complainant. The Complainant's work was in support of the F&A group.

On remand, the ALJ found that the Respondent proved by clear and convincing evidence legitimate business reasons for its disclosure of the Complainant's identity, and again dismissed the complaint. The ALJ, however, recognized that the ARB may not agree that motive or legitimate business reasons are relevant, and therefore made alternative findings that (1) the causation element needed no discussion because it was proven by operation of law, and (2) it would be "metaphysically impossible" for the Respondent to demonstrate its affirmative defense.

Causation (Contributing Factor) - Exposure of Complainant's Identity is Almost Certainly a Contributing Factor in Adverse Action of Breach of Confidentiality

On the appeal of the remand decision, the ARB affirmed the ALJ's alternative findings. In regard to causation, the ARB noted that proof of causation or "contributing factor" in a SOX whistleblower case is not a demanding standard. The complainant need only establish by a preponderance of the evidence that his or her protected activity, alone or in combination with other factors, tended to affect in any way the outcome of the adverse personnel decision. The ARB reiterated that "motive or animus is not a requisite element of causation as long as protected activity contributed in any way - even as a necessary link in a chain of events leading to adverse activity." USDOL/OALJ Reporter at 15 (footnote omitted). The ARB noted that it had observed in its earlier decision that "it is difficult to conceive of any case in which a whistleblower's anonymous and confidential submission of concerns regarding questionable accounting or auditing matters to his employer would not be a 'contributing factor' to any subsequent disclosure of his identity." Id. at 14-15. The ARB wrote:

   As the ALJ observed in his most recent opinion, in a strictly literal sense, the exposure of a whistleblower's identity is always "caused" by his whistleblowing. But this seemingly circular logic is supported by sound policy reasons. The availability of confidential avenues for reporting fraud is required under SOX and crucial to encouraging employees to expose violations of law. Effective enforcement of SOX requires a prophylactic rule prohibiting the disclosure of a whistleblower's identity where anonymity is reasonably to be expected as Section 301 provides. Given the Board's previous ruling that the right to confidentiality afforded by Section 301 constitutes a "term and condition" of Menendez's employment, the breach of which constitutes an adverse action in violation of SOX Section 806, the conclusion is inescapable under the facts of this case that Menendez's protected activity was a contributing factor in the disclosure of Menendez's identity.

Id . at 15 (footnote omitted).

Respondent's Affirmative Defense (Clear and Convincing Evidence Standard) - Showing that Breach of Confidentiality Would Have Occurred in Absence of Protected Activity Difficult but Not Impossible

In regard to the Respondent's affirmative defense, the ARB found that the ALJ's construction of the standard as proof by clear and convincing evidence of legitimate business reasons for the disclosure did not comport with the statutory standard of proof, which is that the Respondent would have taken the adverse action even in the absence of protected activity. The ARB noted that Congress had purposely set a high burden of proof for the affirmance defense. The ARB acknowledged that this was a difficult case, writing that

the ALJ's confusion regarding the application of the SOX affirmative defense in this case is understandable given the difficulty of applying the classic whistleblower law formula to the particular facts of this case. The ALJ observed: "It is metaphysically impossible for Respondent to show that if Complainant had never filed his complaints (the protected activity), it still would have disclosed him as the one who made them (the adverse action)." Certainly Halliburton's burden of proof is a high one and, as explained above, purposely so. But it is not impossible. For example, a court order would provide a ground for disclosure extrinsic to the whistleblowing activity itself.

Id . at 16 (footnote omitted). The ALJ had, in holding that the Respondent met its burden on the affirmative defense, found that the Complainant's colleagues were already aware that the Complainant had raised accounting concerns internally; but the ARB found that this was irrelevant to the question of whether the Respondent would have disclosed his identity for reasons outside the whistleblowing activity. The ARB stated that "[c]laiming that the disclosure was harmless does nothing to show that the disclosure advanced a legitimate business reason that would have occurred for reasons extrinsic to the activity itself." Id . at 17 (footnote omitted). The ARB found that the Respondent's supervisor's claim that his intent was to show that the company was addressing the Complainant's concerns did not require the disclosure of the Complainant's identity. The ARB found as a matter of law that the evidence of record was insufficient to support a finding by clear and convincing evidence that the Respondent would have disclosed the Complainant's identity absent his protected activity.

CONTRIBUTING FACTOR; A PARTY'S BURDEN ON APPEAL IS NOT TO SHOW THAT ITS VIEW OF CASE IS SUPPORTED BY SUBSTANTIAL EVIDENCE, BUT RATHER THAT THE ALJ'S FINDINGS WERE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE

CONTRIBUTING FACTOR; A COMPLAINANT DOES NOT NEED TO ESTABLISH PRETEXT TO PREVAIL; HOWEVER, A FAILURE TO SHOW PRETEXT MAY BE A NEGATIVE FACTOR IN A CIRCUMSTANTIAL EVIDENCE CASE

In Bechtel v. Competitive Technologies, Inc. , ARB No. 09-052, ALJ No. 2005-SOX-33 (ARB Sept. 30, 2011), the ARB found that substantial evidence supported the ALJ's conclusion that the Complainant had failed to prove that his protected activity under the SOX was a contributing factor in his discharge. The findings of fact supporting the ALJ's conclusion included, inter alia, a finding of no temporal proximity (the ARB also noting that because of several business challenges faced by the Respondent at the time, temporary proximity was a weak basis to establish or even infer causation) and a finding that the discharge was based on the Respondent's financial condition and revenue problems. The ARB noted that although the Complainant "was not required to prove pretext to prevail on his complaint, his failure to convince the ALJ of pretext negated a substantial portion of his circumstantial evidence regarding the issue of causation." USDOL/OALJ Reporter at 18 (footnote omitted). Although the ARB observed that the Complainant's circumstantial evidence of animus and temporal proximity had been "noteworthy," substantial evidence supported the ALJ's conclusions. The ARB noted that a party cannot prevail on appeal merely by demonstrating that substantial evidence supports that party's view; rather, the party must demonstrate that substantial evidence did not support the ALJ's findings.

CAUSATION; FINDING OF LACK OF RETALIATORY MOTIVE NOT CREDIBLE UNDER THE FACTS OF THE CASE; RETALIATORY MOTIVE IS NOT A NECESSARY ELEMENT IN DETERMINING CAUSATION

In Menendez v. Halliburton, Inc. , ARB Nos. 09-002, -003, ALJ No. 2007-SOX-5 (ARB Sept. 13, 2011), the Complainant filed confidential reports by email to the SEC and the Respondent's Audit Committee asserting questionable accounting practices with respect to revenue recognition. The Respondent's assistant general counsel forwarded the Complainant's email to the Audit Committee, the Respondent's general counsel and the CFO. The CFO forwarded the email to certain officials of the Respondent and its auditor. The SEC notified the Respondent's general counsel that it was opening an investigation and directed the Respondent to retain relevant documents. The Respondent's general counsel issued a "document retention" email to a number of company officials. That email stated that "the SEC has opened an inquiry into the allegation of Mr. Menendez." The Respondent's Chief Accounting Officer forwarded the email to 15 members of the Respondent's Finance and Accounting organization, one of whom was the Complainant.

The ARB found disingenuous the Respondent's argument that the disclosure of the Complainant's identify was for the sole purpose of retaining documents necessary for a review of the accounting practices that the Complainant had identified to the SEC. The ARB found that the documents for retention could have been identified by subject matter rather than the Complainant's identity (as the SEC had done). The ARB noted that the general counsel would have not necessarily linked the Complainant's name to the SEC investigation had he not previously been forwarded the Audit Committee email complaint.

The Respondent argued on appeal that protected activity did not cause the breach of confidentiality because its officials harbored no retaliatory motive. The ALJ had found no retaliatory motive, concluding that the Chief Accounting Officer credibly testified that he never intended to harm the Complainant and had believed that the Complainant would actually appreciate that his concerns were being addressed. The ARB found this testimony not to be credible or necessarily relevant to a finding of contributing factor. The ARB found that the Chief Accounting Officer had been identified by the Complainant as complicit in fraud and therefore resentful of such criticism. The ARB found that no reasonable CAO would have assumed that exposing a whistleblower's identity would be welcome. Although the CAO had counseled colleagues against retaliation, this action could not exonerate the CAO.

The ARB further stated that the ALJ's finding that the CAO lacked retaliatory motive in the breach of confidentiality does not preclude a finding of causation. "Nothing in Section 806 requires a showing of retaliatory intent. The statute is designed to address (and remedy) the effect of retaliation against whistleblowers, not the motivation of the employer. Proof of 'retaliatory motive' is not necessary to a determination of causation. McCollum's breach of confidentiality, however well meaning, nonetheless demonstrates a lack of understanding of its foreseeable consequences and does not absolve Halliburton of responsibility. The ALJ thus erred as a matter of law in deciding that lack of retaliatory motive precluded a finding of causation." USDOL/OALJ Reporter at 31-32 (footnotes omitted).

The ARB remanded the matter to the ALJ to make findings on whether protected activity contributed to the breach of confidentiality and whether the Respondent could prove by clear and convincing evidence that there existed legitimate business reasons dictating the disclosure.

CONTRIBUTING CAUSE NOT ESTABLISHED WHERE THE RECORD SHOWED THAT THE COMPLAINANT WAS DISCHARGED FOR POOR PERFORMANCE

In Robinson v. Morgan Stanley , ARB No. 07-070, ALJ No. 2005-SOX-44 (ARB Jan. 10, 2010), the Complainant, a Senior Auditor in the Respondent's Discover card subsidiary, failed to establish that her SOX protected activity was a contributing factor in her discharge. The record supported a finding that she was discharged because she did not respond to performance feedback and failed to meet performance standards. The Complainant first raised a concern about improper dating of bankruptcy discharges in 2001, but was not retaliated against at that time. Between 2001 and 2004, she was put on performance action plans. Although her performance improved by the end of the first plan, in 2003 it dropped, and by the end of that year she was placed on a second plan, and given a performance review by past and present supervisors, co-workers, and auditees ("360 review"). In early 2004, she submitted a memorandum about her perceptions of operational problems dating back to 2001. But the Respondent investigated those concerns, engaged in efforts to aid her professional development, and presented a written statement of what she needed to accomplish to retain her job. The Complainant's performance did not improve: she refused to accept performance feedback, and continued to miss deadlines and to engage in confrontational exchanges. It was not only her supervisors who identified these performance problems, but also the employees who participated in the 360 Review Process.

CONTRIBUTING CAUSE NOT SHOWN

In Klopfenstein v. PPC Flow Technologies Holdings, Inc. , ARB Nos. 07-021, 07-022, ALJ No. 2004-SOX-11 (ARB Aug. 31, 2009), the ARB affirmed the ALJ's holding that the Complainant failed to prove that his complaints about an overstatement of revenue were a contributing factor in the decision to discharge the Complainant. The evidentiary value of the temporal proximity of the alleged protected activity (neither the ALJ or the ARB reached the issue of whether the Complainant had actually engaged in protected activity under SOX) was defeated in part by the intervening event that the Complainant had been found to have violated a company policy on revenue recognition. Although other employees were not disciplined over the revenue recognition issue, the ALJ had accepted the testimony of officials making a distinction between the Complainant - who had directed and fostered an atmosphere that allowed a violation of the policy - and others who did not understand the implications of the actions (which involved shipping items off premises so that revenue would be recognized before title and risk of loss had passed to the customer). The ALJ relied on testimony of the Complainant's subordinates that he directed them to move inventory and post close-outs to find that the Complainant had not established pretext. The ARB found no evidence to support the Complainant's contention that the Respondent had provided shifting explanations for the discharge.

CONTRIBUTORY FACTOR; PRETEXT; SUBSTANTIAL EVIDENCE STANDARD

In Leak v. Dominion Resources Services, Inc. , ARB Nos. 07-043 and 07-051, ALJ No. 2006-SOX-12 (ARB May 29, 2009), the Complainant was a Technical Specialist who had been given the task of resolving deficiencies cited in a state public utilities commission notice. While performing this task, the Complainant became convinced that four gas lines needed to be operated at no higher pressure than the lowest maximum allowable operating pressure of one of the systems. The Complainant's supervisor disagreed with the Complainant's conclusion, and directed him to consider alternative operational models. The Complainant continued to express his concerns about line pressure. After being given a below expectations rating for his performance on the project, the Complainant filed two "Problem Resolution" complaints - one about the rating, and one about his concerns regarding the project. He also made an anonymous hotline call. At a meeting to discuss the Problem Resolutions, it was determined that company policy did not permit the Complainant to tape record the meeting. Subsequently, the Complainant asked his supervisor to sign documents used to justify increases in system pressure. The supervisor declined to do so. After speaking with a USDOT official, the Complainant repeated the request for the supervisor to sign the documents, which he again declined to do. The Complainant's supervisors and other managers then decided to hold a meeting to determine whether the Complainant had any legal or safety reasons for insisting that the supervisor sign the justification records. Depending on what the Complainant told them, they would then determine whether to give the Complainant an "Employment Decision Day."

At the start of the meeting, the Complainant asked if he could record the meeting, and he was told "no." The Complainant refused to participate without a recording, asked to be excused, and got up to walk out. The supervisor stated that if the Complainant left, he would be terminated. The Complainant responded "Then terminate me," and the supervisor then said "You're terminated." The Complainant was escorted out of the building. That same day, the supervisor issued a discharge letter based on the Complainant's insubordinate refusal to attend the meeting. Following a hearing, the ALJ found that the Complainant had engaged in protected activity, but that he failed to establish that such activity was a contributing cause in his termination.

On appeal, the ARB agreed with the ALJ that the Complainant engaged in protected activity when he (1) sent a memo to management about the gas line pressure; (2) submitted a Problem Resolution complaint with a copy to the Respondent's vice president; (3) insisted that his supervisor sign the justification records; (4) and engaged in a phone conversation with the USDOT official. The ARB noted the Respondent's argument that the phone conversation was about a regulatory rather than a safety issue, but found that the although the purpose of the call was different, the discussion included the Complainant's concerns about potential violation of pipeline safety rules and regulations.

The ARB also found, however, that substantial evidence supported the ALJ's finding that the Complainant failed to prove that his protected activity was a contributory factor in his discharge. Essentially, the Complainant's argument on appeal was that the meeting about the Complainant's reasons for demanding his supervisor's signature had been concocted to either force the Complainant to abandon his protected activity, or to provoke him into insubordination. The ARB found that substantial evidence supported the ALJ's finding, however, that the meeting had been called to discuss the legal and safety reasons for the Complainant's insistence that his supervisor sign the justification records, and to issue an Employment Day Decision. The ALJ also found that the supervisors did not provoke the Complainant - and that the Complainant's own behavior precipitated his termination. The ARB found that the ALJ therefore found that neither the purpose of the meeting nor the reaction to the Complainant's insubordination were pretextual. The ARB found that the ALJ had very thoroughly analyzed the evidence, and the the Complainant's argument on appeal essentially reduced to an argument that the ALJ erred by not accepting his version of the evidence. The ARB found that the substantial evidence standard required it to uphold the ALJ's findings of fact supported by substantial evidence, even if there is also substantial evidence in support of the other party, or even if the ARB would justifiably made a different choice if the matter had been before it de novo.

CONTRIBUTING CAUSE; EVIDENCE OF TEMPORAL PROXIMITY, PRETEXT AND RETALIATORY ANIMUS, FOUND TO BE SUBSTANTIAL EVIDENCE SUPPORTING ALJ'S FINDING THAT PROTECTED ACTIVITY WAS A CONTRIBUTING FACTOR IN COMPLAINANT'S DISCHARGE

In Kalkunte v. DVI Financial Services, Inc. , ARB Nos. 05-139, 05-140, ALJ No. 2004-SOX-56 (ARB Feb. 27, 2009), the Complainant, a contract attorney, had reported allegations of financial improprieties to the board of directors, the audit committee and other officials. Later, she made inquiries about the status of the investigation by an outside law firm, which had been delayed because a bankruptcy court declined to authorize payment for the outside investigation. After being discharged, the Complainant filed a SOX whistleblower complaint. The ARB found that substantial evidence supported the ALJ's finding that the Complainant proved by a preponderance of the evidence that her protected activity was a "contributing factor" in her discharge. First, there was temporal proximity between the protected activity and her discharge. Second, there was evidence of pretext and retaliatory animus. Within hours of receipt of an e-mail in which the Complainant asked to discuss the status of the outside law firm's investigation into her SEC violations report, the turnaround specialist acting as CEO began looking into the Complainant's tasks and responsibilities but not those of other in-house attorneys. At a meeting, the CEO suggested that the Complainant worked for him and not the audit committee and that her interest in following up on the investigation was outside her assigned duties and a source of irritation to him. The CEO admitted that the meeting made him focus on the Complainant's role in the organization "hastening our inevitable decision to terminate her." The acting chief administrative officer consulted some, but not other outside counsel about the Complainant's duties and responsibilities, and in making the termination decision, never met with the Complainant about those duties and responsibilities. The ARB found that the "surrounding circumstances clearly suggest pretext; that, notwithstanding legal work for her to do, [the Complainant] had become a thorn in [the CEO's] side, and he was devising a way to eliminate her." A reduction in force was given as as the reason for the Complainant's discharge. At the hearing, this was explained as being so that the Complainant could collect unemployment and get another job. At the hearing the Respondent also alleged that the Complainant was also discharged for performance issues. The ARB, however, observed that the only other position eliminated during the same month that the Complainant was discharged was an administrative assistant who had requested to be laid off for personal reasons. Moreover, although the Complainant was told her position was no longer necessary, another lawyer was transferred in to take over her work. Finally, the ARB found evidence of animus in that the Complainant was the only discharged employee to be immediately escorted out of the building. The ARB emphasized that the Complainant did not need to show that her protected activity was the only factor in her discharge, but just that it was a "contributing factor."

One member of the ARB dissented, finding that the majority had applied too narrow a canvassing of the record, and that examination of the whole record revealed overwhelming evidence that supported findings contrary to the ALJ's.

CONTRIBUTING FACTOR STANDARD

In Allen v. Stewart Enterprises, Inc. , ARB No. 06-081, ALJ Nos. 2004-SOX-60 to 62 (ARB July 27, 2006), the ARB summarized the "contributing factor" standard:

    To prevail under the SOX, the whistleblower must prove by a preponderance of the evidence that her protected activity was a contributing factor in the unfavorable personnel action. A contributing factor is "any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision." The contributing factor standard was "intended to overrule existing case law, which requires a whistleblower to prove that her protected conduct was a 'significant,' 'motivating,' 'substantial,' or 'predominant' factor in a personnel action in order to overturn that action."

Slip op. at 16-17.

CONTRIBUTING FACTOR STANDARD; COMPLAINANT IS NOT REQUIRED TO ESTABLISH PRETEXT

In Klopfenstein v. PCC Flow Technologies Holdings, Inc. , ARB No. 04-149, ALJ No. 2004-SOX-11 (ARB May 31, 2006), the ARB stated the correct standard for establishing whether protected activity was a contributing factor to the adverse employment action, and clarified that a complainant does not have the burden to establish that a respondent's articulated reason for the adverse action was pretext, albeit it if often wise to do so. The Board wrote:

    Under the SOX, the correct standard is whether protected activity was a contributing factor in Klopfenstein's termination. See Getman , slip op. at 8; AIR 21, § 42121(a)-(b)(2)(B)(iii)-(iv); Halloum v. Intel , ARB No. 04-068, ALJ No. 2003-SOX-7 (Jan. 31, 2006), slip op. at 8 (SOX complainant need not show protected activity was primary motivating factor in order to establish causation). A contributing factor is "any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision." Marano v. Department of Justice , 2 F.3d 1137, 1140 (Fed. Cir. 1993) (interpreting the Whistleblower Protection Act, 5 U.S.C.A. § 1221(e)(1)). As Marano explains, the contributing factor standard was "intended to overrule existing case law, which requires a whistleblower to prove that his protected conduct was a 'significant,' 'motivating,' 'substantial,' or 'predominant' factor in a personnel action in order to overturn that action." Id.

    Because, in examining causation, the "ultimate question" is whether the complainant has proven that protected activity was a contributing factor in his termination, a complainant need not necessarily prove that the respondent's articulated reason was a pretext in order to prevail. Of course, most complainants will likely attempt to prove pretext, because successfully doing so provides a highly useful piece of circumstantial evidence. But a complainant is not required to prove pretext, because a complainant alternatively can prevail by showing "that the defendant's reason, while true, is only one of the reasons for its conduct, and another 'motivating factor' is the plaintiff's protected characteristic." Rachid v. Jack in the Box, Inc. , 376 F.3d 305, 312 (5th Cir. 2004).

USDOL/OALJ Reporter at 18-19 (footnotes omitted).

CAUSATION; CONTRIBUTING FACTOR; LEGALITY OF RESPONDENT'S ACCOUNTING PRACTICES AS EVIDENTIARY FACTOR ON MOTIVE

In Henrich v. Ecolab, Inc. , ARB No. 05-030, ALJ No. 2004-SOX-51 (ARB June 29, 2006), the ALJ had found that, because the Complainant's concerns about certain accounting practices did not result in the exposure of illegal conduct, the decision to terminate the Complainant's employment could not be explained as a hostile reaction to such exposure. The Complainant argued on appeal that it was error to use the legality of the accounting practices as a basis for concluding that protected activity did not contribute the termination decision because such a standard would eviscerate the reasonable belief standard - i.e., requiring the Complainant to show actual illegality. The ARB held that the ALJ had not created such a rule, but had merely repeated the parties' assumption that the accounting practices were not illegal. The ARB found that the ALJ had properly focused on whether the Complainant had a reasonable belief that the practice was a violation of SOX-listed law or regulation and whether expression of that belief contributed to the termination decision.

CAUSATION; COMPLAINANT ONLY NEEDS TO ESTABLISH THAT PROTECTED ACTIVITY WAS A MOTIVE, NOT NECESSARILY THE PRIMARY MOTIVE

In Halloum v. Intel Corp. , ARB No. 04-068, 2003-SOX-7 (ARB Jan. 31, 2006), the ARB concurred with the ALJ's determination that the Respondent's decision to modify a Corrective Action Plan pertaining to the Complainant was motivated in part by the Complainant's protected activity. It was not necessary for this motive to have been the primary motivating factor in order to establish causation.

ADMINISTRATIVE LAW JUDGE DECISIONS

CONTRIBUTING FACTOR; FIRING FOR INSUBORDINATION FOR REFUSING TO COOPERATE IN INVESTIGATION

In Grove v. EMC Corp. , 2006-SOX-99 (ALJ July 2, 20007), the ALJ found that the Complainant did not meet his burden of proving by a preponderance of the evidence that protected activity was a contributing factor in his termination. The ALJ acknowledged that the SOX contributing factor standard is a relatively low hurdle, but found that the evidence clearly showed that rather than contributing to his termination, protected activity if anything insulated the Complainant from adverse actions for a period of time and effectively delayed the termination decision which was not based on conduct protected under SOX. The decision to terminate the Complainant was initiated when the Complainant failed to appear at a mandatory training session by a manager who at that time did not know about the Complainant's protected activity. Rather, when other managers learned of the protected activity, the Complainant was immediately reinstated. The ALJ found that at this point, the Complainant "had blown the whistle, and [the Respondent] was ready to listen. However, over the next several weeks, [the Complainant] swallowed the whistle and decided not to cooperate with [the Respondent] in investigating his concerns...." Slip op. at 27. The Complainant argued that he was entitled to something like asylum after "entering protected activity." The ALJ rejected this contention, finding that the legislative history of SOX "expresses an implicit expectation that when an employee makes a protected disclosure of fraudulent activity to an employer, the employee would not unreasonably refuse to cooperate in the employer's lawful investigation into the disclosure." Slip op. at 27. It was when the Complainant refused to cooperate in the investigation and stopped working that he was discharged for insubordination. The ALJ found that the Complainant had offered no evidence that he had a valid reason to be wary of the Respondent's general counsel, who tried repeatedly with no success to meet with the Complainant to discuss the allegations.

CAUSATION; DEFINITION OF CONTRIBUTING FACTOR; TEMPORAL PROXIMITY AS INFERENTIAL EVIDENCE

In Halloum v. Intel Corp. , 2003-SOX-7 (ALJ Mar. 4, 2004), the ALJ, after finding that the Complainant had established protected activity, knowledge of that activity by the Respondent, and adverse employment action in the form of unreasonable modifications to a Corrective Action Plan (CAP), wrote:

    As the final element, Complainant must prove that his disclosures to the SEC and to Intel's CEO contributed to the decision to modify his CAP. 29 C.F.R. § 1980.109(a). In the context of similar whistle blower cases, a contributing factor includes "any factor which, alone or in connection with other factors, tends to affect in any way the outcome of the decision." Marano v. Dep't of Justice , 2 F.3d 1137, 1140 (Fed. Cir. 1993) (citations omitted) (defining "contributing factor" in the Whistleblower Protection Act for federal employees). A whistle blower need not prove his protected conduct was a "significant," "motivating," "substantial," or "predominant" factor in an adverse personnel action.

    An unfavorable personnel action taken shortly after a protected disclosure may lead the fact finder to infer that the disclosure contributed to the employer's action. 29 C.F.R. § 1980.104(b)(2). Judges have drawn inferences of causation when the adverse action happened as few as two days later, Lederhaus v. Donald Paschen & Midwest Inspection Serv., Ltd. , 1991-ERA-13 (Sec'y Oct. 26, 1992), to as much as about one year later. Thomas v. Ariz. Pub. Serv. Co. , 1989-ERA-19 (Sec'y Sept. 17, 1993). The causal connection may be severed by the passage of a significant amount of time, or by some legitimate intervening event. Tracanna v. Arctic Slope Inspection Serv. , 1997-WPC-1 (ARB July 31, 2001) (slip op. at 7-8).

    Employer imposed the CAP modifications on August 19, 2002, some five months after Complainant made his allegations to the SEC on March 14, 2002, two months after Intel assigned Steve Rodgers to investigate whether those allegations were true, and immediately upon Complainant's actual return to work. Callaghan, the author of the modifications, had learned of the charges Complainant made about him to Intel's CEO Barrett and to the SEC in May. I do not believe he could segregate this knowledge from other reasons for the modifications; it played some role in his decision to modify the CAP as he did. It was not the primary motivating factor, but it need not be for Complainant to establish this element of his case. More than just the timing, the unreasonable nature of the two new assignments also leads me to infer retaliation. Setting Complainant up to fail by adding unreasonable goals to his CAP carried a none-too-subtle message of management's displeasure that would make others think twice about disclosing suspicions of corporate wrongdoing to the government.

The ALJ then proceeded to analyze the case under the dual motive analysis.

See also Welch v. Cardinal Bankshares Corp. , 2003-SOX-15 (ALJ Jan. 28, 2004) (citing Marano v. Dep't of Justice , 2 F.3d 1137 (Fed. Cir. 1993) for the definition of "contributing factor").

Adverse Inference

ADMINISTRATIVE LAW JUDGE DECISIONS

EVIDENCE; ADVERSE INFERENCE; LACK OF DOCUMENTATION OF NON-DISCRIMINATORY REASONS FOR ADVERSE ACTION

In Allen v. Stewart Enterprises, Inc. , 2004-SOX-60, 61 and 62 (ALJ Feb. 15, 2005), the ALJ rejected the Complainants' contention that the Respondent's lack of documentation stating why they had been selected for a RIF supported an inference of discrimination. The Complainants cited Tyler v. Union Oil Co. of California , 304 F.3d 379 (5th Cir. 2002), an age discrimination case in which the employers failed to follow its HR Manual instruction to document non-discriminatory reasons for adverse personnel decisions. The court in that case concluded that such a failure may, in appropriate circumstances, support an inference of discrimination if the employee establishes some nexus between the employment action and protected activity. The ALJ distinguished Tyler because the Respondent's HR guide in the instant case did not prescribe such an analysis in selection for layoffs; moreover, the Complainants had not established a nexus between their alleged protected activity and the employment action. The ALJ also noted that the SOX does not mandate documentation of employment actions.

Summary Decision

FEDERAL COURT DECISIONS

CAUSATION; SUMMARY DECISION WARRANTED WHERE THE COMBINATION OF FACTORS OF LACK OF TEMPORAL PROXIMITY, PRE-EXISTING ANIMUS, AND INTERVENING EVENTS, ESTABLISHED THAT NO REASONABLE JURY COULD FIND THAT THE PROTECTED ACTIVITY WAS A CONTRIBUTING FACTOR TO THE PLAINTIFFS' TERMINATION FROM EMPLOYMENT

In Feldman v. Law Enforcement Associates Corp. , No. 5:10-CV-08-BR (EDNC June 28, 2013), the Defendant company was a manufacturer of security and surveillance equipment. SOX whistleblower complaints were brought by two former employees - the company's president and CEO, and a vice-president of sales and marketing. The relationship between the president/CEO and the company's founder and its board of directors became contentious, including in regard to the Plaintiffs' belief that possible export violations had occurred and needed to be reported to government agencies. Eventually the president/CEO was removed by the board of directors in a dispute over moving the company to a new location. The vice-president, who had a history of multiple sclerosis, was taken to the hospital the day of the board meeting that resulted in the president/CEO's removal. The vice-president did not return to his job, and after failing to respond to communications from the Defendant company, the company determined that the vice-president had voluntarily quit his job. The Defendants filed a motion for summary judgment.

The court found that the Plaintiffs failed to show that the company knew about their report of insider trading. The Plaintiffs contended that the company knew about the report because a subordinate of the president/CEO participated in the call to the state agent. The court held that a subordinate's knowledge of the report of insider trading was insufficient to demonstrate that the Defendant company knew about the report. Although the Plaintiffs contended that the subordinate employee told the outside members of the board of directors about the call, they presented no credible evidence to support this assertion, and the employee denied telling anyone.

The court, however, found that the Plaintiffs had presented sufficient evidence to establish that the company was aware of their reports concerning the allegation that the founder of the company had involved the company in illegal export trade.

In regard to these remaining SOX protected activities, the court turned to the question of whether the whistleblowing was a contributing factor to the unfavorable personnel actions taken against the Plaintiffs. The court found that there was a 16 to 17 month gap between the protected activity and the unfavorable employment actions, which was too attenuated to establish causation. The Plaintiffs argued that they were not relying solely on temporal proximity, but were also relying on evidence of continuing retaliatory animus. The court recognized that "where an employee provides other evidence indicating a connection between his protected activity and the adverse personnel action, some courts allow for a more relaxed temporal proximity in SOX cases." Slip op. at 42 (citations omitted). The court found, however, that the record in this case showed that animus developed before the Plaintiffs' first protected activity, which refuted the Plaintiffs' contention that the company had a retaliatory motive. The court also found that, although there was a palpable tension and disagreements between the Plaintiffs and outside members of the board of directors, there was an absence of evidence that the Plaintiffs were actually retaliated against prior to their separation from employment. The court also found that intervening events showed that the president/CEO had been found to be insubordinate with the board of directors, and that the vice-president had provided a legitimate basis for separation from employment by not responding to the company's communications about whether he intended to return to work. The court concluded that under this combination of factors, even in the light most favorable to the Plaintiffs, no reasonable jury could find that the alleged protected activities were a contributing factor to the separation decision.

ADMINISTRATIVE LAW JUDGE DECISIONS

CAUSATION; SUMMARY DECISION APPROPRIATE WHERE RECORD DOES NOT SUPPORT A FACTUAL OR LEGAL INFERENCE OF RETALIATORY DISCRIMINATION

In Gallagher v. Granada Entertainment USA , 2004-SOX-74 (ALJ Apr. 1, 2005), the ALJ granted summary decision in favor of the Respondent where, inter alia , the Complainant failed to make out a triable issue of fact on the causation element of his claim. The Complainant learned that he was not to receive an expected promotion to Senior Vice President following a merger, and after he presented a set of demands and refused to report to the Respondent's choice for the position, a decision was made not to renew his employment contract. For purposes of summary decision, the ALJ assumed that the Complainant had complained about violations of laws relating to fraud against shareholders. The ALJ found, however, that there was insufficient evidence in the record to support a factual or legal inference of retaliatory discrimination, citing Hasan v. U.S. Dept. of Labor , __ F.3d __, 2005 WL 578791 (7th Cir. Mar. 14, 2005). In that case, the 7th Circuit had affirmed an ARB ruling on a job applicant case that a Complainant must show that "only he and not any similarly situated job applicant who did not file [a safety complaint] was not hired even though he was qualified for the job for which he was applying." Id ., 2005 WL 578791 at *1. In the instant case, the Complainant's counterpart at the other merged company was not made a senior vice president but was laid off, and a more senior executive than the Complainant was demoted in the reorganization as compared to his pre-merger status. Neither had made any whistleblower complaints. The ALJ also noted that had there been an intent to retaliate against the Complainant, he would have been the obvious layoff candidate rather than his counterpart at the other company being merged.

Temporal Proximity

FEDERAL COURT DECISIONS

CONTRIBUTING FACTOR STANDARD IMPOSES A LIGHT BURDEN ON A SOX PLAINTIFF; HOWEVER, IN THE INSTANT CASE THAT BURDEN WAS NOT MET DUE TO EVIDENCE OF PRE-EXISTING ANIMUS, LACK OF TEMPORAL PROXIMITY, AND AN INTERVENING EVENT

In Feldman v. Law Enforcement Associates Corp. , No. 13-1849 (4th Cir. May 12, 2014) (2014 WL 1876546), the 4th Circuit affirmed the district court's grant of summary judgment against the Plaintiff on his SOX whistleblower complaint where the Plaintiff failed to sufficiently establish that his alleged protected activities were a contributing factor to his termination. The Plaintiff-Appellant had been the Defendant-Appellees' president and CEO. A dispute developed between the inside and outside directors. The tension deepened in part because the Plaintiff raised concerns about potentially illegal exports. After his termination, the Plaintiff filed a SOX complaint alleging that he was fired for, among other acts, reporting to the board of directors and the federal government the potentially illegal exports, objecting to falsified board meeting minutes, and notifying the government of suspected insider trading. On appeal, the Plaintiff argued that the district court "imposed an improperly onerous burden on him to prove that his protected activities solely or substantially caused his termination." Slip op. at 20. The court of appeals stated that the Plaintiff did not need to show that his protected activity was a primary or even a significant cause of his termination. The court found, however, that the Plaintiff had "failed to satisfy his rather light burden of showing by a preponderance of evidence that the activities tended to affect his termination in at least some way." Slip op. at 21. There was a complete absence of temporal proximity, with the most significant protected activity occurring roughly 20 months prior to the termination. In contrast, less than one month prior to the termination the Plaintiff engaged in activities that caused the outside directors to question his loyalty. The court wrote: "[T]his legitimate intervening event, coupled with the passage of a significant amount of time after Feldman's alleged protected activities, severs the causal connection. See Halloum , 2004 DOLSOX LEXIS 73, at *13." Slip op. at 22. Although the Plaintiff asked the court to take into consideration evidence of recurring animus, the court noted that that another officer had also engaged in one of the most serious instances of protected activity but was asked to remain with the company, and that the Plaintiff had not shown that the animus was a retaliatory response to his activities. The Plaintiff admitted that the acrimony began nearly two months prior to his first protected activity, and offered no evidence that his conduct had changed the status quo.

The contributing factor standard in SOX cases is indeed meant to be quite broad and forgiving. However, under the particular circumstances presented here, the standard would simply be toothless if we held that a preponderance of the evidence shows that these long-past activities affected Feldman's termination given the lengthy history of antagonism and the intervening events which caused the Outside Directors to view Feldman as insubordinate.

Slip op. at 25.

CONTRIBUTING FACTOR; TEMPORAL PROXIMITY IN CONSTRUCTIVE DISCHARGE CASE; RELEVANT TIME FRAME IS NOT WHEN THE CONSTRUCTIVE DISCHARGE OCCURRED, BUT WHEN THE CONDUCT LEADING UP TO THE DISCHARGE BEGAN

In Lockheed Martin v. Adm. Review Bd., USDOL , No. 11-9524 (10th Cir. June 4, 2013) (case below ARB No. 10-050, ALJ No. 2008-SOX-49), the Tenth Circuit affirmed the ARB's decision in Brown v. Lockheed Martin Corp. , ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011), in which the ARB affirmed the decision of an ALJ that Lockheed violated Section 806 of the Sarbanes-Oxley Act by constructively discharging the Complainant after she engaged in protected activity.

Background

The Complainant worked as a Communications Director and brought concerns to Lockheed's Vice President of Human Resources that the Vice President of Communications was using company funds for illicit activities. The Vice President of Human Resources submitted an anonymous complaint on the Complainant's behalf. Upon questioning by the Vice President of Communications about who reported her, the Complainant revealed that she told the Vice President of Human Resources "a few things," but stated that she was not sure if her comments resulted in the complaint. Shortly thereafter, the Complainant received a lower performance rating. In a company reorganization, the Complainant's position was advertised, and when she applied, SHE was lambasted for doing so. The Complainant was told to vacate her office and either work from home or use the visitor's office (which doubled as a storage room), lost her title and supervisory responsibilities, and was told she could not attend a communications conference that she had attended in the past. When the Complainant came to work and found that someone else was using the visitor's office, she was told that the company was looking for a cubicle for her. The Complainant protested that as a Level 5 employee with a leadership position (an "L code" classification) she was entitled to an office, but was then told that her L code was in the process of being removed. At that point, the Complainant took medical leave for depression, and filed a forced discharge/constructive discharge complaint with OSHA. The ARB affirmed the ALJ's decision finding a constructive discharge in violation of AIR21. On appeal to the 10th Circuit, Lockheed argued that the ARB's findings of fact and conclusions of law were in error as to protected activity, unfavorable personnel action, and contributing factor.

Contributing Factor

-- Temporal proximity in constructive discharge case; relevant time frame is not when the constructive discharge occurred, but when the conduct leading up to the discharge began

Lockheed sought to discredit DOL's conclusion that the Complainant's protected activity was a contributing factor in her constructive discharge based on the argument that a significant amount of time passed between the Complainant's report of the Vice President for Communications' activities and the ultimate constructive discharge. Lockheed argued that the gap between the Complainant's report of the Vice-Presidents' activities and the Complainant's departure was more than 20 months, and even if the gap was calculated from the date the Vice-President became aware that the Complainant was the person who filed the complaint against her, there was still a full calendar year gap. Lockheed cited Title VII authority for the proposition that a period of two to three months between protected activity and adverse employment action is insufficient to establish causation. The court rejected this argument noting that in a Title VII case the requirement is to make a prima facie showing of causation, whereas in a SOX Section 806 case a complainant is only required to show that protected activity was a contributing factor. The court also stated "More importantly, when evaluating temporal proximity for purposes of determining whether [the Complainant's] protected activity was a contributing factor in her constructive discharge, the relevant time frame is not when the constructive discharge occurred, but when the conduct leading up to the discharge began." Slip op. at 28 (citation omitted). The court also noted that in the instant case, the Complainant's contributing-factor showing was not based solely on temporal proximity.

CAUSATION; SUMMARY DECISION WARRANTED WHERE THE COMBINATION OF FACTORS OF LACK OF TEMPORAL PROXIMITY, PRE-EXISTING ANIMUS, AND INTERVENING EVENTS, ESTABLISHED THAT NO REASONABLE JURY COULD FIND THAT THE PROTECTED ACTIVITY WAS A CONTRIBUTING FACTOR TO THE PLAINTIFFS� TERMINATION FROM EMPLOYMENT

In Feldman v. Law Enforcement Associates Corp. , No. 5:10-CV-08-BR (EDNC June 28, 2013), the Defendant company was a manufacturer of security and surveillance equipment. SOX whistleblower complaints were brought by two former employees - the company's president and CEO, and a vice-president of sales and marketing. The relationship between the president/CEO and the company's founder and its board of directors became contentious, including in regard to the Plaintiffs' belief that possible export violations had occurred and needed to be reported to government agencies. Eventually the president/CEO was removed by the board of directors in a dispute over moving the company to a new location. The vice-president, who had a history of multiple sclerosis, was taken to the hospital the day of the board meeting that resulted in the president/CEO's removal. The vice-president did not return to his job, and after failing to respond to communications from the Defendant company, the company determined that the vice-president had voluntarily quit his job. The Defendants filed a motion for summary judgment.

The court found that the Plaintiffs had presented sufficient evidence to establish that the company was aware of their reports concerning the allegation that the founder of the company had involved the company in illegal export trade.

The court turned to the question of whether the whistleblowing was a contributing factor to the unfavorable personnel actions taken against the Plaintiffs. The court found that there was a 16 to 17 month gap between the protected activity and the unfavorable employment actions, which was too attenuated to establish causation. The Plaintiffs argued that they were not relying solely on temporal proximity, but were also relying on evidence of continuing retaliatory animus. The court recognized that "where an employee provides other evidence indicating a connection between his protected activity and the adverse personnel action, some courts allow for a more relaxed temporal proximity in SOX cases." Slip op. at 42 (citations omitted). The court found, however, that the record in this case showed that animus developed before the Plaintiffs' first protected activity, which refuted the Plaintiffs' contention that the company had a retaliatory motive. The court also found that, although there was a palpable tension and disagreements between the Plaintiffs and outside members of the board of directors, there was an absence of evidence that the Plaintiffs were actually retaliated against prior to their separation from employment. The court also found that intervening events showed that the president/CEO had been found to be insubordinate with the board of directors, and that the vice-president had provided a legitimate basis for separation from employment by not responding to the company's communications about whether he intended to return to work. The court concluded that under this combination of factors, even in the light most favorable to the Plaintiffs, no reasonable jury could find that the alleged protected activities were a contributing factor to the separation decision.

CONTRIBUTING FACTOR - WHERE TEMPORAL PROXIMITY IS SOLE GROUND FOR PROOF OF CAUSATION THE PROXIMITY MUST BE CLOSE TO SURVIVE SUMMARY JUDGMENT - WHERE THERE IS OTHER EVIDENCE, TIMING OF TEMPORAL PROXIMITY CAN BE MORE RELAXED

In Leshinksy v. Telvent GIT, S.A. , No. 10-cv-4511, 2013 WL 1811877 (S.D.N.Y. May 1, 2013), the Defendants filed a motion for summary judgment. After finding that the Plaintiff presented sufficient evidence to survive the motion as to protected activity, it turned its attention to causation. The court noted that a plaintiff must demonstrate that a genuine issue of material fact exists as to whether his whistleblowing was a contributing factor in his termination. In the instant case, the Defendants argued that a five month gap in time between the protected activity and the termination was too remote to establish a causal connection. The court cited caselaw to the effect that where a plaintiff relies solely on temporal proximity to prove causation, the protected activity and the adverse action must be very close in time, and that a lapse of 2.5 to 3 months had been found to preclude temporal proximity as the sole causal proof. However, where an employee provides other evidence indicating a connection between his protected activity and his termination, the courts in its circuit allow for a more relaxed temporal proximity. In the instant case, the Plaintiff produced proof of marginalization at work between the time of the protected activity and his termination, and given this evidence, there was sufficient temporary proximity to survive summary judgment.

CAUSATION; TEMPORAL PROXIMITY; SIGNIFICANT INTERVENING EVENT

In Fraser v. Fiduciary Trust Co., Int'l , No. 1:04-cv-06958 (S.D.N.Y. Aug. 25, 2009) (case below 2003-SOX-28), the Plaintiff relied on temporal proximity of roughly one month between his allegedly protected activity and his discharge. The court, however, found that such temporal proximity did not compel a finding of causation because there had been a significant intervening event providing a legitimate basis for the Plaintiff's termination - his unauthorized attempt to establish and market a hedge fund.

CONTRIBUTING FACTOR; TEMPORAL PROXIMITY; SIX MONTH GAP BETWEEN PROTECTED ACTIVITY AND ADVERSE ACTION INSUFFICIENTLY PROXIMATE TO RAISE INFERENCE

In Pardy v. Gray , 1:07-cv-06324-LAP (S.D.N.Y. July 15, 2008), the court held that a six month gap between the time the Plaintiff sent letters to a manager complaining of a possible misuse of cash authority and the Plaintiff's termination from employment was "not sufficiently proximate to permit the inference that the protected activity was a contributing factor to her termination...." Slip op. at 15. The court therefore found that the Plaintiff had not established this element of a prima facie case and granted summary judgment in favor of the Defendants.

CAUSATION; ABSENCE OF PROXIMITY BETWEEN PROTECTED ACTIVITY AND DISCHARGE DOES NOT SUPPORT SUMMARY JUDGMENT WHERE A JURY COULD FIND OTHER FACTS SUPPORTING CAUSAL LINK

In Mahony v. Keyspan Corp. , No. 06CV00554 (E.D.N.Y. Mar. 12, 2007) (case below 2004-SOX-24), the Defendant filed a motion for summary judgment arguing that the Plaintiff could not show a causal relationship between his alleged protected activity and his termination because of a 13-month gap. The court denied the motion noting that the gap in time was only one factor that a jury could consider in determining causation. In the instant case, the Plaintiff alleged that he began to experience retaliation almost immediately after a meeting about a co-worker's allegations about accounting irregularities. The Plaintiff had helped to facilitate the CEO"s attendance at the meeting. Specifically the Plaintiff began to experience isolation within the company, a dramatic change in his performance evaluations, and a falling out of favor with the CEO.

CAUSATION; PASSAGE OF TIME AND INTERVENING EVENTS

In Sussberg v. K-Mart Holding Corp. , No. 05-70378 (E.D.Mich. Nov. 15, 2006), the court granted summary judgment against the Plaintiff under the Sarbanes-Oxley Act whistleblower provision because it found that a reasonable jury could not find that the Plaintiff's alleged protected activity was a contributing factor in his termination. The court observed that "[a] plaintiff must show by a preponderance of evidence that the plaintiff's protected activity was a contributing factor in the unfavorable action. If the employee does so, the burden shifts to the employer to show by clear and convincing evidence that it 'would have taken the same unfavorable personnel action in the absence of [protected] behavior.' 49 U.S.C. § 42121(b)(2)(B)(iv)." Slip op. at 14. In Sussberg , the court found that the complaint failed on causation grounds because of the passage of time between the alleged protected activity and adverse action and the existence of intervening events. The court held that the Plaintiff had failed to establish a genuine issue of fact as to whether he had been subjected to a pattern of retaliation or that one of the managers who recommended that the Plaintiff be fired was motivated by a friendship with a manager against whom the Plaintiff had made allegations of receiving kickbacks from vendors; that complaints about the Plaintiff had been made to this manager before she learned about the Plaintiff's role in investigating the other manager; and that the manager who ultimately made the decision to fire the Plaintiff based his decision on more than the recommendation of the other manager.

ADMINISTRATIVE REVIEW BOARD DECISIONS

CAUSATION; ALJ ERRED IN PARTLY BASING A FINDING OF A LACK OF CAUSAL LINK BETWEEN PROTECTED ACTIVITY AND ADVERSE ACTION BASED ON THE PASSAGE OF TIME WHERE ARB CASELAW INDICATES THAT TEMPORAL PROXIMITY OF SEVEN TO EIGHT MONTHS MAY BE SUFFICIENT CIRCUMSTANTIAL EVIDENCE OF CONTRIBUTING CAUSE

In Zinn v. American Commercial Lines Inc. , ARB No. 10-029, ALJ No. 2009-SOX-25 (ARB Mar. 28, 2012), the ARB held that the ALJ erred in finding no causation in part because the Complainant's alleged protected activity occurred in April and May 2008, and she was not terminated until July 2008. The ARB stated: "However, a temporal proximity of seven to eight months between protected activity and adverse action may be sufficient circumstantial evidence to prove that the protected activity contributed to the adverse action. On remand, the ALJ must re-examine this finding in light of pertinent ARB precedent." USDOL/OALJ Reporter at 12 (footnotes and citations omitted).

CAUSAL LINK BETWEEN PROTECTED ACTIVITY AND ADVERSE ACTION; SUMMARY DECISION; TEMPORAL PROXIMITY SUFFICIENT TO MEET CAUSATION ELEMENT OF PRIMA FACIE CASE IS SUFFICIENT TO CREATE GENUINE ISSUE OF MATERIAL FACT THAT MUST BE RESOLVED IN AN EVIDENTIARY HEARING

In Vannoy v. Celanese Corp. , ARB No. 09-118, ALJ No. 2008-SOX-64 (ARB Sept. 28, 2011), the ARB held that the ALJ erred in granting summary decision in favor of the Respondent on the ground that the Complainant did not suffer an adverse action due to protected activity. In part, the ALJ's conclusion was based on undisputed evidence that the Complainant had received a performance bonus after filing an internal complaint, and that the Complainant was on notice that his position was scheduled for outsourcing. The ARB found other evidence of record to support the Complainant's claim that his termination was adverse action linked to his complaints to management and the IRS about the Respondent's failure to adequately substantiate business expense reporting. The ARB also found that there was sufficient temporal proximity between the protected activity and the adverse personnel actions alleged to establish the element of causation in a prima facie case, and that this was sufficient to create a genuine issue of material fact that must be resolved in an evidentiary hearing.

TEMPORAL PROXIMITY MAY ESTABLISH CAUSATION, BUT IS NOT ITSELF SUFFICIENT TO ESTABLISH RETALIATORY INTENT

In Taylor v. Wells Fargo Bank, NA , ARB No. 05-062, ALJ No. 2004-SOX-43 (ARB June 28, 2007), the ARB wrote: "Temporal proximity does not establish retaliatory intent, but may establish the causal connection component of the prima facie case. The ultimate burden of persuasion that the respondent intentionally discriminated because of complainant's protected activity remains at all times with the complainant." USDOL/OALJ Reporter at n.12 (citation omitted).

CAUSATION; TEMPORAL PROXIMITY; PROBATIVE VALUE DECREASES AS TIME GAP LENGTHENS, PARTICULARLY WHEN SUBSEQUENT PRECIPATING EVENTS EXIST

"The probative value of temporal proximity decreases as the time gap lengthens, particularly when other precipitating events have occurred closer to the time of the unfavorable personnel action." Henrich v. Ecolab, Inc. , ARB No. 05-030, ALJ No. 2004-SOX-51 (ARB June 29, 2006), slip op. at 18 (citation omitted).

ADMINISTRATIVE LAW JUDGE DECISIONS

CAUSATION; TEMPORAL PROXIMITY; INTERVENING EVENT

In Reines v. Venture Bank and Venture Financial Group , 2005-SOX-112 (ALJ Mar. 13, 2007), the Complainant argued that her supervisor removed her authority over the IT department because he knew she would quit; and he wanted to stop her from challenging his future stock trades and retaliate against her for doing so in the past. Reines , slip op. at 57. The ALJ held, however, that there was no evidence in the record indicating that the Complainant's supervisor or anyone else wanted the Complainant to resign. Id . at 58. Rather, the ALJ found that the restriction placed on the Complainant's authority over network access was a reasonable security measure. Id . at 59. The security measure was reasonable given that the Complainant was romantically involved with another of the Respondent's officers who had just been terminated. Id .

The ALJ noted that since the adverse action taken against the Complainant came only a month and a half after the Complainant engaged in protected activity, there would normally be an inference of causation based on such temporal proximity. Id . at 59. Here, however, the ALJ said the inference was severed by the termination of the Complainant's romantic partner, "a significant event which immediately preceded" the removal of the Complainant's network access authority. Id . Finally, the ALJ concluded that even had the Complainant satisfied her burden, the Respondent established by clear and convincing evidence that it had sufficient non-discriminatory reasons to restrict the Complainant's authority over the Respondent's network access. Id .

CAUSATION; TEMPORAL PROXIMITY; ONE YEAR TOO LONG TO RAISE INFERENCE; ONE MONTH RAISES INFERENCE

In McClendon v. Hewlett Packard, Inc. , 2006-SOX-29 (ALJ Oct. 5, 2006), the Complainant had filed two earlier SOX complaints. The Complainant was transferred to a new position one year after he filed the first SOX claim with OSHA and five months after he filed the claim in District Court. The ALJ found that the temporal proximity between the filings and Complainant's transfer was not significant enough, without other evidence, to warrant an inference of causation. McClendon , slip op. at 83.

The ALJ, however, ruled that the temporal proximity between Complainant's filing of his second SOX claim and his transfer to a new position one month later - and his letters to several congressman, the SEC chairman and Respondent's CEO, sent one week before his transfer - was significant enough to infer that Complainant's protected activity contributed to his transfer. McClendon , slip op. at 83-84. The ALJ ultimately held that although Complainant proved temporal proximity in relation to the filing of his second SOX claim and his transfer, he did not show causation by a preponderance of the evidence. Id. at 84.

PRIMA FACIE CASE; TEMPORAL PROXIMITY

In Heaney v. GBS Properties LLC , 2004-SOX-72 (ALJ Dec. 2, 2004), the Complainant was a real estate agent. The ALJ found that Complainant's concerns over a condominium project allegedly built in violation of certain codes within the knowledge of the Respondent was arguably a bank fraud against mortgage lenders and may be protected activity under the Sarbanes Oxley Act. Nonetheless, the ALJ found that the complaint did not arise to the level of a prima facie case because the Complainant's concerns about the project had been raised several years before his termination, and the Complainant had served in uninterrupted employment of the Respondent in the interim, even receiving awards. The ALJ found no temporal proximity between the Complainant's concerns and his termination, and no evidence, either direct or circumstantial, of retaliatory animus on the part of the Respondent and/or discrimination against the Complainant in violation of the Sarbanes Oxley Act.

Respondent's Knowledge

FEDERAL COURT DECISIONS

CONTRIBUTING FACTOR; CAT�S PAW THEORY OF LIABILITY

In Lockheed Martin v. Adm. Review Bd., USDOL , No. 11-9524 (10th Cir. June 4, 2013) (case below ARB No. 10-050, ALJ No. 2008-SOX-49), the Tenth Circuit affirmed the ARB's decision in Brown v. Lockheed Martin Corp. , ARB No. 10-050, ALJ No. 2008-SOX-49 (ARB Feb. 28, 2011), in which the ARB affirmed the decision of an ALJ that Lockheed violated Section 806 of the Sarbanes-Oxley Act by constructively discharging the Complainant after she engaged in protected activity.

Background

The Complainant worked as a Communications Director and brought concerns to Lockheed's Vice President of Human Resources that the Vice President of Communications was using company funds for illicit activities. The Vice President of Human Resources submitted an anonymous complaint on the Complainant's behalf. Upon questioning by the Vice President of Communications about who reported her, the Complainant revealed that she told the Vice President of Human Resources "a few things," but stated that she was not sure if her comments resulted in the complaint. Shortly thereafter, the Complainant received a lower performance rating. In a company reorganization, the Complainant's position was advertised, and when she applied, SHE was lambasted for doing so. The Complainant was told to vacate her office and either work from home or use the visitor's office (which doubled as a storage room), lost her title and supervisory responsibilities, and was told she could not attend a communications conference that she had attended in the past. When the Complainant came to work and found that someone else was using the visitor's office, she was told that the company was looking for a cubicle for her. The Complainant protested that as a Level 5 employee with a leadership position (an "L code" classification) she was entitled to an office, but was then told that her L code was in the process of being removed. At that point, the Complainant took medical leave for depression, and filed a forced discharge/constructive discharge complaint with OSHA. The ARB affirmed the ALJ's decision finding a constructive discharge in violation of AIR21. On appeal to the 10th Circuit, Lockheed argued that the ARB's findings of fact and conclusions of law were in error as to protected activity, unfavorable personnel action, and contributing factor.

Contributing Factor

   -- Cat's paw theory of liability

In the instant case, the ARB concluded that although new managers to whom the Complainant reported after a company reorganization did not know about the Complainant's ethics complaint against the Vice President of Communications, both were poisoned by the Vice President of Communications' biased reports of the Complainant's professional competence. The court noted that the Tenth Circuit has applied the subordinate bias, or "cat's paw" theory of liability in other employment discrimination contexts, and that the Supreme Court had recently endorsed the theory in the context of an action under the Uniformed Services Employment and Reemployment Rights Act. The court noted that, importantly, "the required showing to establish causation for a claimant under Section 806 is less onerous than the showing required under Title VII, the ADEA, or USERRA." Slip op. at 29 (citations omitted). The court thus summed up that it "must determine whether the ALJ's finding that [the Vice President of Communications] 'poisoned' [the new managers] opinion of [the Complainant] is supported by substantial evidence, keeping in mind that [the Complainant] satisfies the causation element of her Section 806 claim by demonstrating merely that her ethics complaint contributed to the adverse employment actions taken against her." Slip op. at 29-30 (footnote omitted). Although the ALJ drew certain inferences from the testimony, and those inferences were not the only possible interference that could have been drawn, the court found that such a possibility "is a grossly insufficient basis to disturb an agency's findings on appeal." Slip op. at 30-31. The court affirmed the ALJ and ARB's finding that the Complainant's protected activity was a contributing factor in her termination from employment.

EMPLOYER'S KNOWLEDGE OF PROTECTED ACTIVITY; SUBORDINATE'S PARTICIPATION IN PHONE CALL IN WHICH CEO REPORTED SUSPECTED INSIDER TRADING WAS INSUFFICIENT TO ESTABLISH EMPLOYER'S KNOWLEDGE OF PROTECTED ACTIVITY WHERE PLAINTIFFS PRESENTED NO EVIDENCE THAT THE SUBORDINATE HAD INFORMED THE BOARD OF DIRECTORS ABOUT THE CALL AND THE SUBORDINATE DENIED TELLING ANYONE

In Feldman v. Law Enforcement Associates Corp. , No. 5:10-CV-08-BR (EDNC June 28, 2013), the Defendant company was a manufacturer of security and surveillance equipment. SOX whistleblower complaints were brought by two former employees - the company's president and CEO, and a vice-president of sales and marketing. The relationship between the president/CEO and the company's founder and its board of directors became contentious, including in regard to the Plaintiffs' belief that possible export violations had occurred and needed to be reported to government agencies. Eventually the president/CEO was removed by the board of directors in a dispute over moving the company to a new location. The vice-president, who had a history of multiple sclerosis, was taken to the hospital the day of the board meeting that resulted in the president/CEO's removal. The vice-president did not return to his job, and after failing to respond to communications from the Defendant company, the company determined that the vice-president had voluntarily quit his job. The Defendants filed a motion for summary judgment.

In regard to the Plaintiffs' report of suspected insider trading, the court found that the Plaintiffs failed to raise a genuine dispute of material fact as to whether they had both a subjective belief and an objectively reasonable belief that their report of possible insider trading was a violation of relevant law. Specifically, the court found that the Plaintiffs did not have an objectively reasonable belief that a violation had occurred because they had very little information on which to make the insider trading allegation, and despite the lack of evidence, they did not try to obtain additional evidence before reporting to a state agent.

The court also found that the Plaintiffs failed to show that the company knew about their report of insider trading. The Plaintiffs contended that the company knew about the report because a subordinate of the president/CEO participated in the call to the state agent. The court held that a subordinate's knowledge of the report of insider trading was insufficient to demonstrate that the Defendant company knew about the report. Although the Plaintiffs contended that the subordinate employee told the outside members of the board of directors about the call, they presented no credible evidence to support this assertion, and the employee denied telling anyone.

CONTRIBUTING FACTOR - KNOWLEDGE OF ONE OF PERSONS RESPONSIBLE FOR ADVERSE ACTION DECISION SUFFICIENT

In Leshinksy v. Telvent GIT, S.A. , No. 10-cv-4511, 2013 WL 1811877 (S.D.N.Y. May 1, 2013), the Defendants filed a motion for summary judgment. After finding that the Plaintiff presented sufficient evidence to survive the motion as to protected activity, it turned its attention to causation. The court noted that a plaintiff must demonstrate that a genuine issue of material fact exists as to whether his whistleblowing was a contributing factor in his termination. The Defendants argued that the Plaintiff could not prove causation because with the exception of the President with which he had spoken about his concerns about the legality of a strategy to win a bid, none of the individuals who made the decision to terminate the Plaintiff's employment were aware of the Plaintiff's complaint. The court held that "Even if that were the case, the fact that one of the persons responsible for Plaintiff's termination knew of the protected activity provides the jury with sufficient evidence to find that Plaintiff's report was a proximate cause of his termination." Leshinksy , supra, slip op. at 26 (citation omitted).

CAUSATION - KNOWLEDGE OF INDIVIDUAL NAMED AS DEFENDANT CANNOT BE INFERRED SOLELY ON CIRCUMSTANTIAL EVIDENCE

In Leshinksy v. Telvent GIT, S.A. , No. 10-cv-4511, 2013 WL 1811877 (S.D.N.Y. May 1, 2013), one of the named Defendants was the General Manager of the Plaintiff's employer. This Defendant moved for summary judgment on the ground that there was no evidence that he had any knowledge of Plaintiff's complaints. The court granted dismissal of this Defendant because the Plaintiff failed to point to any substantive evidence supporting an inference that the General Manager knew of the protected activity. The court explained that causation cannot be inferred in regard to a decisionmaker's knowledge of the plaintiff's protected activity solely based on circumstantial evidence:

   Retaliation cases must often be proven with "the cumulative weight of circumstantial evidence, since an employer who discriminates against its employee is unlikely to leave a well-marked trail, such as making a notation to that effect in the employee's personnel file." Carlton v. Mystic Transp., Inc. , 202 F.3d 129, 135 (2d Cir. 2000); see also Woodman v. WWOR-TV, Inc., 411 F.3d 69, 83 (2d Cir. 2005) (observing in a Title VII case that "'[k]nowledge' is a fact often established - even in criminal cases where the prosecution's burden is beyond a reasonable doubt'simply through circumstantial evidence" (citations omitted)). In retaliation cases, however, "district courts have consistently held that, with regard to the causation prong of the prima facie standard, "[a]bsent any evidence to support an inference that [the decisionmakers] knew of [p]laintiff[']s [protected activity], [p]laintiff cannot rely on circumstantial evidence of knowledge as evidence of causation.'" Murray v. Visiting Nurse Servs. of N.Y. , 528 F. Supp. 2d 257 (S.D.N.Y. 2007) (collecting cases); see also Gordon v. New York City Bd. of Educ. , 232 F.3d 111, 117 (2d Cir. 2000) (explaining that "the lack of knowledge on the part of particular individual agents is admissible as some evidence of a lack of a causal connection").

Leshinksy , supra, slip op. at 28.

SOX WHISTLEBLOWER PROVISION HAS A FOUR-PART BURDEN-SHIFTING FRAMEWORK; PURPOSE; KNOWLEDGE ELEMENT OF FRAMEWORK IS IMPLICIT ELEMENT AND MUST BE PROVED BY PREPONDERANCE OF EVIDENCE AT ALJ LEVEL OF PROCEEDING

In Bechtel v. Administrative Review Bd., U.S. Dept. of Labor ,     F.3d     , No. 11-4918 (2d Cir. Mar. 5, 2013) (2013 WL 791334) (case below ARB No. 09-052, ALJ No. 2005-SOX-33), the Second Circuit Court of Appeals clarified the burden-shifting framework applicable to whistleblower retaliation claims under the Sarbanes-Oxley Act (the "Act"), 18 U.S.C. § 1514A. The Court stated:

    Section 806 of the Sarbanes-Oxley Act, 15 U.S.C. § 1514A, seeks to combat what Congress identified as a corporate "culture, supported by law, that discourage[s] employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally." S.Rep. No. 107-146, at 5 (2002). To accomplish this goal, § 1514A "protects 'employees when they take lawful acts to disclose information or otherwise assist ... in detecting and stopping actions which they reasonably believe to be fraudulent.' " Guyden v. Aetna, Inc., 544 F.3d 376, 383 (2d Cir.2008) (quoting S.Rep. No. 107-146, at 19). Specifically, § 1514A makes it unlawful for publicly traded companies to "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee ... to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of" certain laws, rules, and regulations addressing various types of fraud. 18 U.S.C. § 1514A(a)(1).

Bechtel, supra , slip op. at 5 (footnote omitted).

The court quoted the relevant portions of the SOX and the implementing regulations, and summarized the elements and burdens of proof as explained by sister Courts of Appeals:

"To prevail under [ § 1514A ], an employee must prove by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew that she engaged in the protected activity; (3) she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action. If the employee establishe[s] these four elements, the employer may avoid liability if it can prove 'by clear and convincing evidence' that it "would have taken the same unfavorable personnel action in the absence of that protected behavior.' "

Harp v. Charter Commc'ns, Inc., 558 F.3d 722, 723 (7th Cir.2009) (alterations omitted) (quoting Allen v. Admin. Review Bd., 514 F.3d 468, 475-76 (5th Cir.2008), in turn quoting 49 U.S.C. § 42121(b)(2)(B)(iv)). We agree that this framework is established by the relevant regulations and is consistent with the statute. See 49 U.S.C. § 42121(b)(2)(B)(iii), (iv); 29 C.F.R. § 1980.109(a), (b).

Bechtel, supra , slip op. at 7 (footnote omitted). In a footnote, the Court observed that the employer's knowledge element of the four-part framework is not expressly stated in the statute or regulations, but that it agreed with sister circuits that

the same basic four-part framework of the complainant's prima facie case applies not only when deciding whether the allegations are legally sufficient, see id. § 1980.104(e)(2), but also when an ALJ considers whether the complainant has satisfied his or her evidentiary burden under 49 U.S .C. § 42121(b)(2)(B)(iii). See Harp, 558 F.3d at 723 (citing 29 C.F.R. § 1980.104(b)(1)); Allen, 514 F.3d at 476 (same). As other circuits and the ARB have noted, however, at the evidentiary stage, the fourth element requires the complainant to prove by a preponderance of the evidence that the "protected activity was a contributing factor in the adverse action," 29 C.F.R. § 1980.109(a), and not merely show that "[t]he circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the adverse action," 29 C.F.R. § 1980.104(e)(2). See Harp, 558 F.3d at 723; Allen, 514 F.3d at 476; Bechtel v. Competitive Technologies, Inc., ARB Case No. 06-010, 2008 WL 7853800, at *4 (ARB Mar. 26, 2008).

Bechtel, supra , slip op. at n.5.

PROTECTED ACTIVITY AND EMPLOYER KNOWLEDGE UNDER SOX; COMPLAINTS TO COWORKERS AND SUPERVISOR ABOUT THEIR ALLEGEDLY-ILLEGAL SCHEME WAS SUFFICIENTLY SPECIFIC TO CONSTITUTE PROTECTED ACTIVITY UNDER SOX

In Ashmore v. CGI Group Inc. , No. 11 Civ. 8611, 2012 WL 2148899 (S.D.N.Y. June 12, 2012), the defendant was a subcontractor of a public housing authority that provided services related to the administration of HUD's Section 8 project-based rental subsidy program. The plaintiff worked for the defendant's Rebid Assessment Team (RAT), which coordinated rebidding process for Section 8 administrative services contracts. While working in this capacity, the plaintiff allegedly caught wind of a scheme concocted by several RAT coworkers to violate HUD rules limiting the number of rental units that can be administered by a single public housing authority or private subcontractor. According to the plaintiff, he complained to his coworkers and supervisor about the scheme, and alleged in his complaint that he reasonably believed that his coworker's use of telephone lines and emails to implement the scheme violated federal mail and wire fraud statutes. The plaintiff alleged that he was first kicked off of RAT, and two days later was fired for opposing the scheme, leading him to file a retaliation complaint under SOX.

The defendant argued that the plaintiff's complaints to his fellow RAT members about the scheme was insufficiently specific to constitute protected activity under SOX. The district court stated that SOX required that the plaintiff "show that the information she provided about the conduct was not overly general," and that she "reported information [with] a certain degree of specificity." Id. (citing Lerbs v. Buca Di Beppo, Inc. , No. 2004-SOX-8, 2004 WL 5030304, *33-34, (ARB June 15, 2004)). According to the court, "the fact that [the plaintiff] did not specifically inform [the employer] - of his belief that the scheme involved mail or wire fraud, or his reasons for thinking so, does not mean that the information he communicated was insufficiently specific to count as activity protected by § 806." Id. at *6. Citing Fourth Circuit's decision in Welch , the district court clarified that "what the specificity requirement instead demands is that 'employees' communications ... identify the specific conduct that the employee believes to be illegal.'" Id. (citation omitted). In the instant case, it was undisputed that the plaintiff specifically identified the conduct that he believed to be illegal in his disclosures (i.e. the scheme to avoid HUD's limit on unit administration), and the court found his disclosures sufficient to satisfy the specificity standard. Likewise, the court rejected the defendant's argument that the plaintiff's belief that the scheme constituted mail or wire fraud was unreasonable.

Because it believed the plaintiff's communications failed to sufficiently inform RAT members that they were violating federal law, the defendant also alleged that it did not have knowledge of the plaintiff's protected activity. The court disagreed, and explained that a plaintiff "does not need to demonstrate that his employer actually believed that what he said about the illegality of the company's conduct was true," but rather he must "demonstrate only that he did in fact communicate his reasonable belief to that effect to his employer ." Id. at *7. The plaintiff satisfied that standard here, and the court dismissed the defendant's motion accordingly.

CONTRIBUTING FACTOR AND EMPLOYER KNOWLEDGE UNDER SOX; GRANTING SUMMARY JUDGMENT FOR EMPLOYER BECAUSE THE PLAINTIFF FAILED TO OFFER EVIDENCE SUGGESTING THAT HIS EMPLOYER KNEW ABOUT HIS COMPLAINT TO THE SEC, AND BECAUSE DEFENDANT DEMONSTRATED THAT ITS DECISION TO TERMINATE HIS EMPLOYMENT PREDATED THE COMPLAINT

In Boyd v. Accuray, Inc. , No. 11-CV-01644-LHK, 2012 WL 1999667 (N.D. Cal. June 4, 2012) (case below ALJ No. 2012-SOX-18), the plaintiff was a senior manufacturing engineer at a biomedical technology company, who was terminated after he received consistently negative performance evaluations over the course of several years. The plaintiff, however, filed a retaliation complaint under SOX, alleging that his ultimately termination was motivated by his complaints to the SEC that the company had developed "an inventory of defective camera detectors," which caused the company to have "reported million[s] of dollars in inflated assets." Boyd at *12. The court granted the defendant's motion for summary judgment because the plaintiff failed to raise a genuine issue of material fact as to whether the employer knew about his complaint to the SEC. The plaintiff admitted that he did not inform his company's human resources office about his SEC complaint, and the defendant offered evidence indicating that the plaintiff's supervisors also had no knowledge of the complaint. Moreover, the plaintiff conceded that he already on the path to termination before he made his complaint, and the defendant demonstrated that the decision to terminate the plaintiff also predated his complaint.

SUMMARY JUDGMENT UNDER SOX; NO CAUSAL CONNECTION EXISTED BETWEEN THE PROTECTED ACTIVITY AND THE ADVERSE EMPLOYMENT ACTION WHERE THE PLAINTIFF MADE CONCLUSORY RATHER THAN FACTUAL ALLEGATIONS THAT TWO INDIVIDUALLY-NAMED DEFENDANTS KNEW OF HIS PROTECTED ACTIVITY AND WERE INVOLVED IN HIS TERMINATION BECAUSE OF THEY OCCUPIED SENIOR MANANGEMENT POSITIONS

In Bury v. Force Protection, Inc. , No. 2:09-1708-DCN-BM, 2011 WL 2550849 (D.S.C. June 27, 2011), the plaintiff filed suit against his former employer for violating the whistleblower protection provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A and the False Claims Act, 31 U.S.C. § 3730(h). The plaintiff is a certified fraud examiner, certified public accountant and licensed attorney who was hired by the defendant Force Protection Industries, Inc. ("FPI") on a contract-to-hire basis to serve as FPI's Acting Director of SEC Financial Reporting. The plaintiff alleged that FPI and its top officers and directors engaged in a wide array of violations of federal securities laws and laws relating to the protection of investors against shareholder fraud. The plaintiff alleged that he refused to acquiesce in this conduct, and not only reported the unlawful activity to his supervisors, but also threatened to report the unlawful activity to authorities outside of FPI. As a result, the plaintiff alleged that FPI refused to retain and promote him, and ultimately terminated his employment, in violation of § 1514A.

In addition to FPI, the plaintiff also named Mr. McGilton (alleged to be a member of FPI's Board of Directors and CEO during the relevant time period) and Mr. Moody (alleged to be a member of FPI's Board of Directors and President during this relevant time) as individual defendants. These two defendants each filed motions to dismiss pursuant to F.R.C.P. 12, arguing that the plaintiff's complaint failed to plead sufficient factual allegations sufficient to state a facially-plausible claim for relief.

The court stated that in order to state a "plausible" claim for relief against either defendant, the plaintiff's complaint must sufficiently set forth facts "on its face" that either or both of the defendants knew that he had engaged in protected activity, were involved in the alleged adverse action, and that a causal connection exists between the protected activity and the adverse employment action taken by the named defendants. The court held that the plaintiff failed to set forth factual allegations establishing that either of the named defendants was personally involved in the relevant employment decisions. The court found that the plaintiff did indeed allege that the defendants unlawfully retaliated against him, but he did so in only the most general and conclusory fashion, sometimes by alleging what one or both of the defendants was thinking; sometimes by ascribing conduct to unnamed "senior management;" or sometimes by just lumping the defendants in with the decisions taken by FPI. The court found that these were not factual allegations, and instead, the plaintiff was simply speculating as to what he believed may have happened.

Further, the court stated that the plaintiff failed to set forth any factual allegations in his lengthy complaint to demonstrate that either individually-named defendant was in any way involved in the decisions to promote or hire him, nor did the plaintiff demonstrate a causal relationship between the actions of the two individuals and his alleged protected activity. Instead, the plaintiff asked the court to infer that the defendants knew about his protected activity and were involved in his termination, simply because of the positions they held with FPI. The Supreme Court in Ascroft v. Iqbal , 129 S.Ct. 1937(2009) held that a plaintiff does not state a claim against an individual if the plaintiff asserts that a supervisor "knew of, condoned," was "instrumental," and/or a "principal architect," of an offending practice or action simply because the individual held a supervisory position. Iqbal , 129 S.Ct. at 1951. The court viewed the plaintiff's allegations in the instant case to be analogous to those in Iqbal , and because he failed to identify any specific actions taken by the two named individuals with respect to his termination, the court held that the plaintiff failed to state a viable claim against either of the two defendants.

EMPLOYER'S KNOWLEDGE OF PROTECTED ACTIVITY; IN ORDER TO ESTABLISH THIS ELEMENT IT IS ONLY NECESSARY TO SHOW THAT THE INFORMATION WAS PROVIDED TO A PERSON WITH SUPERVISORY AUTHORITY OVER THE COMPLAINANT, NOT THE PERSON WHO MADE THE TERMINATION DECISION

In Van Asdale v. International Game, Technology , No. 3:04-CV-00703-RAM (D.Nev. June 13, 2007), the Magistrate Judge rejected the Defendant's contention that only complaints to those who actually made the termination decision can be used to satisfy the element of a SOX whistleblower complaint that the employer knew of the protected activity. Rather the Magistrate stated that the rule is that "the employee must show that he or she provided the information to some person at the company with supervisory authority over the employee." Slip op. at 16, citing Collins v. Beazer Homes USA, Inc. , 334 F. Supp. 2d 1365, 1378 (N.D. Ga. 2004).

KNOWLEDGE OF PROTECTED ACTIVITY; COURT'S SUSPICION WHERE A "SOLE DECISIONMAKER" IS BROUGHT IN MERELY FOR THE PURPOSE OF FIRING A COMPLAINANT

In Collins v. Beazer Homes USA, Inc. , __ F.Supp.2d __, 2004 WL 2023716 (N.D.Ga. Sept. 2, 2004), the Defendants moved for summary judgment alleging that the person who made the decision to fire the Plaintiff did not know about the Complainant's most recent protected activity. The court denied the motion, finding that the decisionmaker did know about some of the Complainant's complaints. The court stated: " To permit an employer to simply bring in a manager to be the 'sole decisionmaker' for the purpose of terminating a complainant would eviscerate the protection afforded to employees by Sarbanes-Oxley. Collins , 2004 WL 2023716 * 9.

ADMINISTRATIVE REVIEW BOARD DECISIONS

CAUSATION; FAILURE TO RAISE GENUINE ISSUE OF MATERIAL FACT AS TO KNOWLEDGE OF OFFICIALS WHO TERMINATED THE COMPLAINANT OF ALLEGED PROTECTED ACTIVITY

In Fredrickson v. The Home Depot U.S.A., Inc. , ARB No. 07-100, ALJ No. 2007-SOX-13 (ARB May 27, 2010) , the undisputed facts were that the Complainant refused to mark down store-used items as "damaged goods" because he believed it was "illegal" and fraudulent, but that no official involved in or responsible for the Complainant's termination were aware of any alleged protected activity. The Complainant's statement in an affidavit in response to the Respondent's motion for summary decision that his protected activity was a contributing factor in his termination was insufficient to establish a genuine issue of material fact whether the relevant officials of the Respondent were aware of his protected activity.

CAUSATION; "FACTS" AS THEY APPEARED TO DECISIONMAKER AT TIME OF ADVERSE ACTION ARE WHAT IS RELEVANT - NOT WHETHER THE FACTS WERE WELL-GROUNDED; IMPUTED ANIMUS OF SUBORDINATE OFFICIAL MUST BE GROUNDED IN COMPLAINANT'S PROTECTED ACTIVITY RATHER THAN GENERAL ENMITY

In Henrich v. Ecolab, Inc. , ARB No. 05-030, ALJ No. 2004-SOX-51 (ARB June 29, 2006), a resigning production line supervisor made a series of allegations in an exit interview reciting misconduct by the Complainant. The Respondent argued that executives of the Respondent terminated the Complainant because they believed the allegations. On appeal, the Complainant argued that the ALJ failed to consider evidence that the allegations were false. The ARB held that whether the allegations themselves were false was not relevant. The ARB wrote:

Even if Henrich were correct about the falsity of Kelso's allegations - a matter on which we express no opinion - the ALJ did not need to determine the truth or falsity of Kelso's allegations in order to determine that the Ecolab executives relied upon them in deciding to terminate Henrich's employment. Accord EEOC v. BCI Coca-Cola Bottling Co. of Los Angeles d/b/a Phoenix Coca-Cola Bottling Co., __ F.3d __, 2006 WL 145501 (10th Cir. 2006), slip op. at 13, 21 (except where plaintiff has proven that "subordinate bias" caused higher-level decision to terminate, courts generally should determine whether employer had discriminatory intent by evaluating "facts as they appear[ed] to the person making the decision to terminate").

Slip op. at 20. The ARB acknowledged that the Respondent might still be liable if the Complainant was able to prove that the Complainant's supervisor had retaliatory animus and influenced the decisionmakers (i.e., imputing retaliatory animus of a subordinate official to the decisionmakers). The ARB held that any alleged retaliatory animus of the subordinate official "must arise from and be based upon protected activity." Slip op. at 21. Thus, even if the subordinate official was antagonistic toward the Complainant, the Complainant must have shown that the enmity existed because of protected activity. In the instant case, the evidence the Complainant presented was too attenuated and speculative to establish such animus.

ADMINISTRATIVE LAW JUDGE DECISIONS

CAUSATION; EVIDENCE OF PERFORMANCE DEFICIENCIES BOTH PRIOR TO AND AFTER PROTECTED ACTIVITY; SUPERVISOR WHO INITIATED EMPLOYMENT ACTIONS AGAINST THE COMPLAINANT DID NOT KNOW ANY DETAILS ABOUT THE PROTECTED ACTIVITY

In Robinson v. Morgan Stanley , 2005-SOX-44 (ALJ Mar. 26, 2007), the Complainant was a senior internal auditor who engaged in protected activity when she submitted a memorandum to senior executives setting out her concern that banking regulations were being violated in regard to the prompt charge off of credit card bankruptcies. The ALJ, however, found that the Complainant failed to prove that this protected activity contributed to her discharge. Although temporal proximity provided some circumstantial evidence of a causal link between the protected activity and the discharge, the record demonstrated that the Complainant had well documented, pre-existing performance issues in the areas of professional communications, timely work product, and acceptance of feedback, all of which were unrelated to any protected activity. Moreover, the same performance deficiencies persisted after the protected activity. The direct supervisor who initiated the Complainant's post-protected activity job actions was only aware that the Complainant had submitted a memorandum that generated an investigation. This supervisor did not know the nature or extent of the memorandum and related investigation, did not discuss the memorandum with the Complainant, and no one from the investigation or HR contacted the supervisor about the memorandum. The ALJ found, therefore, that the protected activity would not have been a basis for this supervisor's decision to terminate the Complainant's employment. The ALJ found based on credible testimony that the supervisor initiated the post-protected activity job actions on her own. The executive who approved the supervisor's termination decision was aware of the Complainant's protected activity, the expense of the consequent investigation, and the fact that it produced no significant findings. Nonetheless, the ALJ found credible this executive's testimony that his decision to accept the termination decision (which was initiated by the supervisor and not the executive) was based solely on the documented performance issues and not protected activity.

EMPLOYER'S KNOWLEDGE; DISCLOSURE TO PERSON WITH AUTHORITY TO INVESTIVATE, DISCOVER OR TERMINATE MISCONDUCT; ALJ FINDS THAT SOX REQUIRES AN EXPRESS, NOT MERELY A CONSTRUCTIVE, COMMUNICATION

In Frederickson v. The Home Depot, U.S.A., Inc. , 2007-SOX-13 (ALJ July 10, 2007), the Complainant, a department supervisor, had used some hooks in his department, and was told by a supervisor for a different department (who had no supervisory authority over the Complainant) that nothing was to be marked in the store computer as for store use, but rather entered as damaged goods. When the Complainant protested, the other supervisor told him that these were the orders of the store manager. Another employee was present. After the incident, the Complainant mentioned it to several other non-supervisory employees. He did not discuss it with his direct supervisor or the store manager. Several days later, he entered some other items into the store computer under the "store use" category. The Complainant knew that the store manager watched the books closely and concluded that the manager would become aware that he had contravened his instructions as relayed by the other supervisor. The Respondent filed a motion for summary decision arguing that none of the persons that the Complainant complained to had the authority to act on the complaints. The Complainant responded that this was an issue of fact, which could not be determined based upon the Respondent's assertions and self-serving affidavits.

The ALJ noted that the SOX:

anticipates and encourages employees to report fraudulent conduct, to outside agencies, Congress, and company personnel in a supervisory capacity over the employee or "such other person working for the employer who has the authority to investigate, discover, or terminate misconduct." 18 U.S.C. § 1514A (a)(1)(c). Communication of an employee to their supervisor would be a natural course of reporting, following established lines of authority. Likewise, reporting wrongful conduct to another employee vested with the power to take remedial steps would be a logical course to effect change. However, communication of wrongful conduct to parties lacking supervisory authority over the whistleblower, or "authority to investigate, discover, or terminate misconduct," does not constituted [sic] protected activity, as it does not serve the underlying purpose of the Act.

Slip op. at 10 (emphasis as in original). The ALJ found that the Complainant's communications with the other supervisor and non-supervisory employees could not constitute protected activity because none had supervisory authority over the Complainant or the authority to investigate, discover or terminate misconduct. The ALJ found that the Complainant's assumption that the store manager would discover his computer entries would, at best, constitute a constructive communication of the issue of proper input of items for store use. The ALJ found that the SOX encourages employees to come forward with information of wrongdoing, but does not indicate an intent to protect constructive communications. Thus,

the Act seeks to protect employees from retaliation for their purposeful protected communications. There is nothing in the Act to indicate that it intended to protect any constructive communication, as such does not require purposeful effort by the employee and thus would not subject him to retaliation for such effort. Therefore, for a communication to be protected, it arguably must be an express, not constructive, communication.

Slip op. at 11.

EMPLOYER'S KNOWLEDGE; DISCLOSURE TO PERSON WITH AUTHORITY TO INVESTIVATE, DISCOVER OR TERMINATE MISCONDUCT; OUTSIDE LAW FIRM ENGAGED BY AUDIT COMMITTEE; EXTERNAL AUDITORS

In Deremer v. Gulfmark Offshore Inc. , 2006-SOX-2 (ALJ June 29, 2007), the ALJ found that disclosures made to a law firm hired by the audit committee to investigate allegations made by the Complainant were disclosures to "such other person working for the employer who has the authority to investigate, discover or terminate misconduct." See 18 U.S.C. § 1514(A)(1)(c). The ALJ, applying a broad interpretation to comport with the intent of SOX, also found that disclosures made to an external auditor fit within the "complaint to a proper person" element of a SOX whistleblower complaint.

EMPLOYER'S KNOWLEDGE; CONSTRUCTIVE KNOWLEDGE

In Deremer v. Gulfmark Offshore Inc. , 2006-SOX-2 (ALJ June 29, 2007), the ALJ, although denying the claim because he found that the Complainant had not engaged in protected activity, noted that:

A complainant is not required to prove "direct personal knowledge" on the part of the employer's final decision-maker that he engaged in protected activity. The law will not permit an employer to insulate itself from liability by creating "layers of bureaucratic ignorance" between a whistleblower's direct line of management and the final decision-maker. Frazier v. Merit Systems Protection Board , 672 F.2d 150, 166 (D.C. Cir. 1982). Therefore, constructive knowledge of the protected activity can be attributed to the final decision-maker. Id .; see also Larry v. Detroit Edison Co. , Case No. 1986-ERA-32 @ 6 (ALJ October 17, 1986); Platone , supra .

Slip op. at 61-62.

RESPONDENT'S KNOWLEDGE OF PROTECTED ACTIVITY; IMPUTATION OF KNOWLEDGE BY EXECUTIVES WITH CONTROL OVER COMPLAINANT'S EMPLOYMENT WHERE IMMEDIATE SUPERVISORS KNEW ABOUT PROTECTED ACTIVITY

Where a complainant provides credible evidence that his immediate supervisors knew of his protected activity, this knowledge may be imputed to outside executives who had ultimate authority about the complainant's employment status. Henrich v. Ecolab, Inc. , 2004-SOX-51 (ALJ Nov. 23, 2004) (finding that some of the Complainant's allegations of reporting violations to supervisors were not documented and not credible, but that one of his allegations that his immediate supervisors knew of his protected activity was credible and could be imputed to the executives who fired him; the Complainant, however, ultimately failed to establish a causal link between such knowledge and his termination from employment).

EMPLOYER'S KNOWLEDGE; CONSTRUCTIVE KNOWLEDGE WHERE IMMEDIATE SUPERVISOR, WHO HAD KNOWLEDGE OF THE COMPLAINANT'S PROTECTED ACTIVITY, FOUND TO HAVE "PLANTED THE SEED" FOR THE COMPLAINANT'S SUSPENSION

In Platone v. Atlantic Coast Airlines , 2003-SOX-27 (ALJ Apr. 30, 2004), the ALJ found that the Respondent was constructively aware of the Complainant's protected activity under the whistleblower provision of the Sarbanes-Oxley Act, even though the official who made the ultimate decision to terminate the Complainant's employment was not aware of the Complainant's protected activity. The ALJ found that the Complainant's immediate supervisor was aware of her protected activity and had " planted the seeds for the Complainant's dismissal, being careful not to taint any other person among the group that debated [the Complainant's] fate with any knowledge of her protected activities." The ALJ found that the supervisor had "actively participated in the discussions and decisionmaking regarding the Complainant's future employment" and that under such circumstances, "it is appropriate to attribute constructive knowledge of the Complainant's protected activity to the ultimate decision-makers." Slip op. at 26.

Complainant's Admission of Misconduct

ADMINISTRATIVE LAW JUDGE DECISIONS

CAUSATION; CONTRIBUTING CAUSE; WHERE THE GROUND FOR DISMISSAL IS THE COMPLAINANT'S ADMISSION OF MISCONDUCT, THE COMPLAINANT'S BURDEN IS TO SHOW THAT THE REPORTING OF THE MISCONDUCT WAS A FACTOR IN THE DISMISSAL

In Tice v. Bristol-Myers Squibb Co. , 2006-SOX-20 (ALJ Apr. 26, 2006), the ALJ found that, even though there was a degree of temporal proximity between the alleged protected activity and the adverse action, the Complainant's own admitted falsification of sales call data provided a legitimate intervening basis providing overwhelming evidence showing lack of a link between the protected activity and the adverse action. Although the Complainant's admissions of falsification constituted the same subject matter for the asserted protected activity and the ground for termination, the ALJ stated that the Complainant needed to demonstrate that her reporting of these admissions constituted a factor in the Respondent's decision. The overwhelming evidence of record established that she was terminated for the act of falsifying calls, and not for the reporting of doing do.