Federal Court Whistleblower Decisions - 2011

Aviation Investment and Reform Act for the 21st Century

PROTECTED ACTIVITY AND ADVERSE ACTION UNDER AIR 21; EMPLOYER PROVED BY CLEAR-AND-CONVINCING-EVIDENCE THAT ABSENT THE PROTECTED ACTIVITY THE EMPLOYER WOULD NOT HAVE PROMOTED THE PLAINTIFF

In Hoffman v. Solis , 636 F.3d 262 (6th Cir. 2011) (case below ARB No. 09-021, ALJ No. 2007-AIR-7), the plaintiff, a pilot, filed a complaint alleging that his employer had violated 49 U.S.C. § 42121, Aviation Investment and Reform Act for the 21st Century (AIR 21), by failing to promote him in retaliation for reporting safety and regulatory compliance concerns to his employer and the Federal Aviation Administration (FAA). The ALJ denied the plaintiff's complaint and the ARB affirmed. The plaintiff did not contest the ALJ and ARB's findings on protected activity and adverse action on appeal. Instead, the plaintiff appealed the ALJ's finding that the defendant had produced clear-and-convincing-evidence of its non-discriminatory rationale. Specifically, the plaintiff argued that the court failed to apply the heightened burden of proof required under AIR 21's "clear and convincing evidence" standard, and that the evidence in the record could not support the ALJ's finding that the employer had satisfied its burden.

The Court of Appeals held: (1) substantial evidence supported finding that the employer proved by clear and convincing evidence that it would have declined to promote the pilot even absent the pilot's safety and regulatory reports; (2) the ALJ did not abuse its discretion in denying the pilot's motion to supplement his complaint; and (3) any error committed by the ARB in striking objected-to matters was harmless.

The Court of Appeals found that AIR 21 provides for judicial review pursuant to the standards of the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-706. See 49 U.S.C. § 42121(b)(4)(A). The standard of review provided by the APA is whether the ALJ's findings, as affirmed by the ARB, are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," or "unsupported by substantial evidence in a case. . . otherwise reviewed on the record of an agency hearing provided by statute." 5 U.S.C. § 706(2)(A), (E). Furthermore, other courts have held that judicial review of the ARB's AIR 21 determinations are conducted using a substantial-evidence standard. Contrary to the plaintiff's argument, the court concluded that the deferential substantial-evidence standard of review is not inconsistent with the clear-and-convincing evidence standard delineated in AIR 21. The plaintiff's argument conflated the ARB's and the federal court's standard of review with the burdens of proof that are applicable to AIR 21 complaints at the ALJ level.

STATE WRONGFUL TERMINATION CLAIM BASED ON PUBLIC POLICY EMBODIED BY AIR21; FEDERAL COURT LACKED JURISDICTION TO HEAR THE CLAIM

In Conklin v. Moran Industries, Inc . , CA No. 11-411, 2011 WL 2135647 (E.D.Pa. May 31, 2011), two pilots made complaints that the defendants were not complying with FAA regulations and flight safety laws, and were both subsequently terminated. The plaintiffs first filed a wrongful termination claim in state court, asserting that their termination violated the public policy of Pennsylvania as set forth in AIR21.

The defendants removed the case to federal district court, arguing that because the plaintiffs would have to prove that their termination violated AIR21 to be successful on their claim, the federal court had federal question jurisdiction over the claim. However, the court explained that the defendants have the burden establishing that federal district court has subject matter over the plaintiffs' wrongful termination claim, but the defendants had failed to argue that policy evidenced by AIR21 is, in fact, the public policy of Pennsylvania. Consequently, the defendants failed to meet their burden of proving subject matter jurisdiction.

oreover, assuming Pennsylvania's public policy incorporates the policies embodied in AIR21's whistleblower protection provision, the court found that it did not have federal question jurisdiction over the claim because the parties did not dispute the meaning of AIR21 itself, nor did the claim involve an "interpretation or application of AIR21 that would implicate significant federal interests." Consequently, plaintiffs' claim did not involve a substantial question of federal law, and the court remanded the case to state court.

Environmental Statutes

[Nuclear and Environmental Digest XII D 1 a]
NO PROTECTED ACTIVITY; OCCUPATIONAL SAFETY AND HEALTH COMPLAINTS ARE NOT GENERALLY PROTECTED ACTIVITIES UNDER THE NUCLEAR, ENVIRONMENTAL, AND PIPELINE SAFETY STATUTES ABSENT SOME ADDITIONAL PUBLIC SAFETY, HEALTH, OR ENVIRONMENTAL IMPACT

In Carpenter v. Solis , No. 09-4394, 439 Fed.Appx. 480 (6th Cir. 2011), the plaintiff was a rig operator at Bishop Well Services, and after the plaintiff suffered an on-the-job injury and filed a workers' compensation claim, the employer placed him on light duty, "which allowed him to sit in a truck observing the work while receiving full pay." The plaintiff requested additional work restrictions at subsequent workers' compensation hearings, which the employer contested, and were eventually denied. According to the employer, it decided in March 2006 to terminate the plaintiff's light duty position, but decided to wait until the plaintiff's "nonwork-related restrictions" expired at the end of May 2006. After the employer's biggest client complained about the plaintiff remaining on the payroll despite not "doing any actual work," the employer terminated the plaintiff on May 31, 2006, explaining that it could no longer accommodate his "light duty" restrictions.

While on light duty, the plaintiff notified his employer that he had observed mechanical problems on a service rig, and also reported these problems to OSHA. A subsequent OSHA inspection resulted in the issuance of two citations to the employer, but the citations addressed violations that were unrelated to the problems identified in the plaintiff's complaints.

The plaintiff filed a whistleblower complaint with OSHA under the Clean Air Act (CAA), the Safe Drinking Water Act (SDWA), the Energy Reorganization Act (ERA), the Toxic Substances Control Act (TSCA), Comprehensive Environmental Resources, Compensation, and Liability Act (CERCLA), and the Pipeline Safety Improvement Act (PSIA). After OSHA dismissed his complaint, the ALJ likewise dismissed his complaint for failure to engage in protected activity. On appeal to the ARB, the plaintiff argued that he did not receive a fair trial because of several of the ALJ's procedural and evidentiary rulings, but the ARB rejected those arguments and affirmed the dismissal of his claim.

The plaintiff then petitioned the Court of Appeals for the Sixth Circuit, arguing that the ALJ's procedural and evidentiary rulings denied him due process of law. Specifically, he pointed to the ALJ's decisions to deny his motion to compel discovery responses, deny his motion to continue the hearing, refuse to compel the employer to produce a specific manager at the hearing, and permit the employer to call an expert in Ohio workers' compensation law to testify at the hearing.

The Court of Appeals explained that even assuming the ALJ's denial of the plaintiff's motion to compel discovery requests was an abuse of discretion, the decision caused no prejudice because the plaintiff failed to show any of the discovery requests would cure the crucial defect in his complaint—his failure to allege that he engaged in protected activity. The plaintiff's sole alleged protected activity in this case—calling OSHA to report mechanical problems—is clearly protected by the Occupational Safety and Health Act, but the whistleblower provisions invoked in the plaintiff's complaint "generally do not protect complaints restricted solely to occupational safety and health, unless the complaints also encompass public safety and health or the environment." Accordingly, the Court of Appeals not need determine whether the ALJ erred in denying his motion to compel discovery requests because the plaintiff offered no reason to believe those requests would reveal that he engaged in protected activity under any of the statutes invoked by his complaint.

The Court of Appeals also rejected the plaintiff's arguments regarding his motion to continue the hearing, finding the ALJ's denial of the motion proper because the plaintiff brought the motion less than seven days before the hearing. Moreover, the denial did not prejudice the plaintiff because the ALJ worked with the plaintiff to allow him to present his testimony out of order to accommodate the plaintiff's schedule, and also provided the plaintiff with sixty days after the hearing to take additional depositions as needed.

The plaintiff also failed to show that he was prejudiced by the ALJ's decision to permit the employer to call an Ohio workers' compensation law expert to testify at the hearing, who the employer decided to call to testify after the ALJ expressed confusion regarding Ohio's workers' compensation system at the first day of the hearing. Even though the employer failed to disclose her as an expert during the discovery process, the Court of Appeals explained that the plaintiff was given the opportunity to cross-examine the expert, and to dispose his own expert to rebut the testimony within sixty days of the hearing.

The plaintiff's final argument regarding the ALJ's refusal to compel the employer to produce a manager at the hearing was likewise denied, as the court found the plaintiff had previously waived his right to compel the witness.

Federal Rail Safety Act

FRSA COMPLAINT; DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT WHERE THE PLAINTIFF'S SUPERVISOR SUGGESTED IN DEPOSITION TESTIMONY THAT HE WOULD NOT HAVE DISCIPLINED THE PLAINTIFF FOR A SAFETY RULE VIOLATION ABSENT AN INJURY, BUT CLARIFIED IN A SUBSEQUENT DECLARATION THAT HE WAS UNSURE IF HE WOULD HAVE REACTED DIFFERENTLY IF THE PLAINTIFF DID NOT INJURE HIMSELF

In Cook v. Union Pacific R. Co. , No. 10-6339-TC, 2011 WL 5842795 (D.Or. Nov. 18, 2011), after "deadheading" home on an Amtrak train at the end of a day's work at another Union Pacific yard, the plaintiff, a locomotive engineer for Union Pacific for over 20 years, discovered that he did not have a ride from the Amtrak station to his home train yard, although he had called ahead to arrange one in accordance with the company's common practice. After waiting forty-five minutes and unsuccessfully attempting to phone the company clerk that previously promised to arrange his transportation, the plaintiff decided to walk the two-and-a-half miles from the Amtrak station to the train yard whilst carrying approximately fifty pounds of luggage and safety gear. Upon arrival at the yard, the plaintiff realized he had had injured his back over course of the walk, and in accordance with company policy, he immediately reported his injury to his union representative, who alerted his supervisor in turn.

The defendant launched disciplinary proceedings against the plaintiff, and after a two day disciplinary hearing, the plaintiff was fired for violating company Rule 1.6, which "prohibits employees from being careless of the safety of themselves or others or being negligent." Cook at *2. The plaintiff filed a whistleblower complaint with OSHA under the Federal Railroad Safety Act (FRSA), 49 U.S.C. § 20109, and after sufficient time expired without an OSHA decision, filed the instant suit in federal district court. Meanwhile, the Public Law Board ruled upon the plaintiff's appeal of his termination via his union's collective bargaining agreement with the defendant, finding that the plaintiff improperly left his job to walk to the yard without authority, but nonetheless reinstate the plaintiff without back pay.

The plaintiff filed a motion for summary judgment, claiming that the defendant admitted that it violated FRSA when the plaintiff's supervisor, in his deposition testimony, suggested that the plaintiff would not have violated Rule 1.6 if he had reached the yard without suffering an injury. However, the plaintiff's supervisor subsequently filed a declaration clarifying that he is unsure what he would have done if the plaintiff had survived the walk unscathed, and therefore the Court found it unable to rule for the plaintiff as a matter of law, and denied the motion for summary judgment.

RETROACTIVITY; SUMMARY JUDGMENT; EIGHTH CIRCUIT DECLINES TO APPLY FRSA AMENDMENTS RETROACTIVELY TO COVER EVENTS IN 2006, AFFIRMS SUMMARY JUDGMENT FOR RAILROARD WHERE STATUTE AS IT EXISTED AT THE TIME OF THE EVENTS DID NOT PROVIDE ENTITLEMENT TO RELIEF

Purcell v. Union Pac. R.R. , 420 Fed. Appx. 650 (8th Cir. July 8, 2011) (per curiam), cert. denied , No. 11-8326 (U.S. Mar. 5, 2012) (case below 2008-FRS-2): The Eighth Circuit summarily affirmed summary judgment in a railroad in an FRSA case on the grounds that the statute as it existed in 2006, when the relevant events happened, did not provide entitlement to relief on the complaint. It also “decline[d] [plaintiff’s] invitation to retroactively apply a subsequent amendment to the statute.

Sarbanes-Oxley Act

Removal to Federal District Court; Exhaustion of Administrative Remedies

FAILURE TO STATE A CLAIM UNDER SOX WHERE PLAINTIFF FAILED TO FILE A WHISTLEBLOWER COMPLAINT WITH OSHA PRIOR TO FILING IN DISTRICT COURT

In Bond v. Rexel, Inc. , No. 5:09-CV-122, 2011 WL 1578502 (W.D.N.C. Apr. 26, 2011), the plaintiff filed a complaint against her former employer, which included a cause of action under Sarbanes-Oxley Act, as well as several other employment based actions. The Court held that the plaintiff's SOX allegations failed to state a claim upon which relief could have been granted because the plaintiff did not allege that she filed a SOX whistleblower complaint with the Occupational Safety and Health Administration (OSHA) at any time prior to filing her claim in federal district court. The plaintiff's complaint also failed to allege any facts suggesting that she filed a claim with OSHA within the 90 day statute of limitations period or otherwise. Therefore, the plaintiff's SOX claim failed as a matter of law and was dismissed with prejudice.

Procedure Before and Review by Federal Courts

SOX CASE; FRCP 56(d) DISCOVERY REQUESTS

In Xie v. Hospira, Inc. , No. 10 C 6777, 2011 WL 1575530 (N.D. Ill. Apr. 27, 2011) (case below ALJ No. 2010-SOX-32), The plaintiff sued his former employer, contending that it retaliated against him for reporting alleged violations of the Sarbanes-Oxley Act by his immediate supervisor. The defendant moved for summary judgment. In response, the plaintiff, who was proceeding pro se , filed a Rule 56(d) affidavit seeking additional discovery to enable him to respond to the defendant's motion. The defendant opposed the plaintiff's request. The court granted in part and denied in part the defendant's discovery requests.

The defendant contended that summary judgment was proper because: (1) the plaintiff did not engage in protected activity; (2) the plaintiff could not show that his rebuttal was a contributing factor in his discharge; and (3) individually named defendants could not be held personally liable as a matter of law. Accordingly, the plaintiff had to explain how the discovery he sought would allow him to raise a genuine issues of fact with respect to these arguments. The court addressed each discovery request individually and granted part of the requests.

SOX CLAIM; JUDGMENT AS A MATTER OF LAW; MOTION FOR NEW TRILA OR REMITTITUR

In Van Asdale v. Int'l Game Technology , No. 3:04-CV-00703-RAM, 2011 WL 2118637 (D. Nev. May 24, 2011), the plaintiffs filed their complainant against the International Game Technology ("IGT") asserting a claim for whistleblower protection relief under § 1514A along with various state law claims. A jury trial was held on the SOX claims. Before the jury reached a verdict, IGT filed a Motion for Judgment as a Matter of Law. The trial resulted in a verdict in favor of the plaintiffs and the jury awarded them over $2 million in damages. After the judgment was entered, IGT filed a Renewed Motion for Judgment as a Matter of Law and Motion for New Trial or Remittitur. The court found both motions to be timely filed.

On the Renewed Motion for Judgment as Matter of Law, IGT first argued that the plaintiffs failed to establish causation—that any alleged protected activity was a contributing factor in their termination. Viewing the evidence in the light most favorable to the plaintiffs, the court found that the testimony at trial provided substantial evidence from which the jury could reasonably conclude that causation was established. The court also found substantial evidence to defeat IGT's argument that the plaintiffs failed to establish that they definitely and specifically reported shareholder fraud. Lastly, the court rejected IGT's arguments that the plaintiffs did not have a subjectively or objectively reasonable belief that shareholder fraud occurred.

On the Motion for New Trial or Remittitur, IGT challenged the jury's award to one plaintiff of $955,597, which appeared to correlate with his purported loss of stock options. IGT argued that the uncontroverted evidence showed that the plaintiff failed to mitigate his damages. The plaintiffs argued that IGT's mere speculation as to why the jury awarded damages to the plaintiff was not an adequate basis for a new trial or remittitur. The plaintiffs further argued that even if the only component of the jury award was lost stock options, those were included in the definition of backpay in the jury instructions, and IGT waived any objection to that jury instruction. The court found no basis for a new trial.

Causation

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.

Protected Activity

THIRD PARTY FRAUD UNDER SOX; SOX DOES NOT REQUIRE THAT THE FRAUDULENT CONDUCT OR VIOLATION OF FEDERAL SECURITIES LAW BE COMMITTED DIRECTLY BY THE EMPLOYER THAT TAKES THE RETALIATORY ACTION; SPECIFIC AND DEFINITIVE VIOLATIONS MUST BE THE SUBJECT OF THE SOX WHISTLE BLOWING CLAIM

In Sharkey v. J.P. Morgan Chase & Co. , No. 10-cv-3824 (S.D.N.Y. Jan. 14, 2011), the plaintiff sued her former financial service employer and individual defendants alleging claims under the whistleblower provision of SOX, § 1514A. While serving as Vice President and Wealth Manager, the plaintiff was notified by the compliance and risk management team that a long-term client may be involved in illegal activity, including mail fraud, bank fraud and money laundering. After an independent investigation the plaintiff concluded that the client was involved in illegal activity and recommended that the company terminate the client relationship. The individual defendants allegedly dismissed the plaintiff's concerns because they directly contradicted their own conclusions and her concerns exposed weaknesses in the company's risk processing procedures, particularly since the company had been doing business with the client for 20 years. As a result of her refusal to condone the client relationship, the plaintiff alleged that the individual defendants began retaliating against her by removing her from several client accounts, excluding her from important meetings involving her own clients, refusing to pay her a bonus for 2009, and ultimately terminating her employment.

The defendants moved for summary judgment alleging that the plaintiff's actions did not constitute protected activity under SOX because the illegal activity she reported was that of the employer's client and not the employer. In the plaintiff's view, reporting violations of federal law by third parties other than the employer is covered by SOX. Interpreting the SOX statute broadly, the district court found that "the statute by its terms does not require that the fraudulent conduct or violation of federal securities law be committed directly by the employer that takes the retaliatory action." Sharkey at 5.

The defendant's also asserted that the plaintiff's complaint failed because it only refers to "illegal activities" and does not "specifically or definitively" state how the third party client allegedly violated any of the laws or regulations enumerated in SOX. The defendants also argued that the plaintiff failed to allege facts supporting her "reasonable belief" that illegal activities occurred. The district court found that the plaintiff had failed to identify the allegedly illegal conduct that formed the basis for her whistleblower complaint. The court concluded that "because of the SOX requirement that specific violations must be the subject of the whistle blowing and because of the absence of such specificity, the Complaint fails to state a SOX claim." Sharkey at 8.

PROTECTED ACTIVITY UNDER SOX � NO INDEPENDENT MATERIALITY REQUIREMENT; LOW CONTRIBUTING FACTOR STANDARD

In Barker v. UBS AG , No. 3:09-cv-2084(CDF) (D. Conn. Jan. 26, 2011) (2011 WL 283993) (case below 2009-SOX-65), the plaintiff sued UBS for discrimination and retaliation under the Sarbanes-Oxley Act's whistleblower provision. As an employee of UBS, the plaintiff was assigned the task of reconciling UBS's existing exchange seat share with former company records when she discovered that certain of UBS's historical exchange seat holdings had been improperly accounted for, or not accounted for at all, on UBS's balance sheets. UBS realized approximately $80 million from the sale of exchange seats that had previously been overlooked. The plaintiff alleged that during the following year she experienced a pattern of adverse treatment (poor performance reviews and sudden, undesirable assignments) that ultimately led to her termination. UBS filed a motion to dismiss, which the court denied, holding that Barker adequately pled a prima facie SOX whistleblower claim.

The court found that the plaintiff engaged in protected activity within the meaning of SOX because she had both a subjective and objectively reasonable belief that UBS's failure to properly record the exchange seat shares could subject the company to federal liability. Barker at 6. The court found that Barker's complaint indicated that she informed various individuals at UBS that she believed the failure to disclose the exchange seat assets on UBS balance sheet was a significant problem. The court rejected UBS's assertion that the plaintiff could not adequately plead a SOX shareholder fraud claim because the discrepancy she discovered was not material, reasoning that § 1514A of SOX does not contain an independent materiality requirement. Id . at 7. The court clarified that the plaintiff does not need to prove fraud was actually material, but rather that she had an objectively reasonable belief that it was material.

The court also held that the plaintiff pleaded a plausible claim that her protected activity was a contributing factor in the termination of her employment. UBS argued that the plaintiff could not demonstrate any "contributing factors" because she was rewarded by management for her work on the exchange seat project; she was encouraged by UBS personnel to complete the seat exchange audit; and UBS was in financial hardship, like many other banks in the winter of 2008, when she was terminated. The court noted that the contributing factor standard is low, and an employee's participation in protected activity need only be one factor in the termination decision.

NO PROTECTED ACTIVITY UNDER TITLE VII; LACK OF SUBJECT MATTER JURISDICTION IN DISTRICT COURT OVER SOX CLAIMS FILED PRIOR TO THE EXPIRATION OF THE 180-DAY INVESTIGATIVE PERIOD AT DOL

In Martin v. Wyndham Vacation Resorts , No. 4:09-cv-0589 (D.S.C. Feb. 7, 2011), adopted Martin v. Wyndham Vacation Resorts , No. 4:09-cv-0589 (D.S.C. Mar. 15, 2011), the district court granted the defendant's motion for summary judgment when the plaintiff failed to show that the conduct he reported amounted to an unlawful employment practice under Title VII. The court found that the plaintiff failed to establish a prima facie case of retaliation because he failed to show that he engaged in protected activity. The plaintiff claimed that he heard female employees claim that they had been sexually harassed by other male employees; however, the plaintiff did not claim to have personally observed this alleged harassment, nor did he present evidence that he reported these complaints to anyone. The plaintiff also failed to present sufficient evidence that the single incident he did witness and report was so severe and pervasive that it created a hostile work environment. The court found that the plaintiff provided insufficient evidence as to the frequency of the conduct, its severity, whether it was physically threatening or humiliating, or whether it unreasonably interfered with the victim's work performance.

The district court further held that it did not have subject matter jurisdiction over the plaintiff's SOX claim because the plaintiff filed his claim in district court prior to the expiration of the 180-day investigative period. Under SOX, a person who alleges retaliation in violation of SOX must first file a complaint with the Secretary of Labor, and cannot file an action for de novo review of the claim in district court until 180 days after the complaint was filed with the Department of Labor.

NO PROTECTED ACTIVITY UNDER TITLE VII WHEN ALLEGED ACTIVITY POST-DATED THE TERMINATION OF EMPLOYMENT; PRIMA FACIE CASE FOR RETALIATION UNDER SOX; PROTECTED ACTIVITY

In Cloke-Browne v. Bank of Tokyo-Mitsubishi UFJ, Ltd. , No. 10 Civ. 2249 (S.D.N.Y. Feb. 9, 2011), the district court granted in part and denied in part the defendants' motion for summary judgment. The court found that the plaintiff's retaliation claims under 42 U.S.C. § 1981 and Title VII of the Civil Rights Act of 1964, failed as a matter of law because the plaintiff did not "allege facts that would amount to a protected activity under the relevant statutes with which he [could] demonstrate a relevant causal relationship." Slip. op. at 7. The court found that the complaints allegedly filed by the plaintiff to the EEOC, OSHA, the New York Commission of Human Rights and the Office of Corporation Counsel of the City of New York between June and August of 2009, qualified as protected activity, however, all his complaints post-dated the termination of his employment and the last alleged act of discrimination or retaliation. The court, therefore, granted the defendant's motion for summary judgment on these claims.

The court denied the defendant's motion for summary judgment on the SOX claims finding that the plaintiff stated a prima facie case for retaliation. The plaintiff alleged that he repeatedly warned the defendants and other senior management of his reasonable belief that serious violations of the securities laws and the company's obligations as a publically-traded company were occurring or might occur. The plaintiff alleged that he reported to his superiors that he believed the defendants were not calculating, nor were they publicly reporting, accurate risk levels, and thus, the defendants were defrauding shareholders. The plaintiff also claimed that he distributed a 12-page report to his superiors to inform them of the erroneous risk calculations and other deficits. The court found that the plaintiff's alleged expressions of concerns about the company's publically-reported financial health were sufficient to allege plausibly protected activity under Sarbanes-Oxley. The court held, accordingly, that the plaintiff pleaded sufficient facts to allege causation and stated a prima facie case of retaliation under SOX against the defendants.

PROTECTED ACTIVITY UNDER SOX; PLAINTIFF'S POST-EMPLOYMENT ACTIVITY NOT PROTECTED ACTIVITY UNDER SOX

In Feldman v. Law Enforcement Assoc. Corp. , No. 5:10-CV-08-BR (E.D.N.C. Mar. 10, 2011), the district court denied the employer's motion for summary judgment on the plaintiffs' SOX claims to the extent that they relied on actions taken by the plaintiffs prior to their respective employment termination dates. The defendants did not challenge the second, third and fourth elements of the plaintiffs' SOX claim, and therefore the court addressed whether the plaintiffs had sufficiently pled that they engaged in protected activity. First, the court found that disclosures regarding reasonably perceived violations of SEC rules governing internal control standards [15 U.S.C. § 78m(b)(5)] can constitute protected conduct under SOX. Second, the court found that because the plaintiffs alleged that they disclosed possible insider trading to federal authorities, the court need not address whether one of the defendant's had "supervisory authority" over the plaintiffs when they discussed insider trading issues with him. Third, the Court agreed with the defendants that the plaintiffs' post-employment conduct could not constitute protected activity under the statute because the plaintiffs failed to demonstrate that an employer-employee relationship existed between the dates the plaintiffs were terminated and the date they were removed as directors of the board. Therefore, the court found that the plaintiffs' SOX claims must be dismissed to the extent that they rely on post-employment actions.

SUMMARY JUDGMENT FOR EMPLOYER UNDER SOX AND FIRREA; CLEAR AND CONVINCING EVIDENCE UNDER FIRREA; NO PROTECTED ACTIVITY UNDER SOX

In Mann v. Fifth Third Bank , Nos. 1:09-cv-014, 1:09-cv-476, 2011 WL 1575537 (S.D. Ohio Apr. 25, 2011) (case below ALJ No. 2009-SOX-51), the plaintiff, a former Vice President, sued his former employer, Fifth Third Bank ("Bank"), under the Financial Institution Reform Recovery and Enforcement Act ("FIRREA''), SOX, and under Ohio common law for wrongful termination of employment in violation of public policy. The plaintiff alleged that he was terminated for reporting violations by the Bank to his superiors and the Bank's regulators. The Bank filed for summary judgment, contending that the plaintiff was fired for sending unprofessional emails and engaging in retaliatory conduct towards a subordinate.

To establish a prima facie case under FIRREA, the plaintiff must prove:

…that he provided information to a Federal Banking agency regarding either a possible violation of any law or regulation, or gross mismanagement, gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety by the depository institution or any director, officer, or employee of the institution; and (2) that his disclosures were a contributing factor in Defendants' decision to fire him, which may be proved circumstantially by showing that Defendants had actual knowledge of plaintiff's disclosures and that the decision to fire him was made close enough in time that a reasonable inference can be drawn that it was a contributing factor in Defendants' decision.

Mann v. Fifth Third Bank , 1:09-cv-014 at 3. The court found that the plaintiff satisfied the first prong because he reported the Bank's possible violations to the local Federal Reserve examiner. On the second prong, the Bank argued that the plaintiff could not prove that his disclosures were a contributing factor in the decision to terminate his employment because: (1) in the employment termination process there was no evidence that the plaintiff's complaints were a factor, and (2) the disclosures to bank regulators failed lacked temporal proximity to his termination. The plaintiff claimed that he first reported the possible violations in late 2005 or early 2006 and he was fired in late 2008. The Bank argued that his alleged whistleblowing was too remote in time to be a contributing factor in his termination, thus failing to satisfy the requirements for proof by circumstantial evidence under 5 U.S.C. § 1221(e)(1)(A) and (B). The plaintiff responded that he continued to report possible violations to bank regulators up to the time of his termination in September 2008. The court concluded that a reasonable person could conclude that the plaintiff's disclosures were a contributing factor in his dismissal.

Because the Vice President established a prima facie case under FIRREA, the burden shifted to the Bank to rebut his claims by showing, by clear and convincing evidence, that they would have terminated his employment without his disclosures to regulators. The Bank put forth significant evidence that the plaintiff was fired for repeatedly sending intemperate emails to his fellow Fifth Third employees. He was given a warning and corrective counseling when his offensive emails first came to light. Six months later, he was fired after sending similar name-calling missives. The court concluded that the evidence was overwhelming that the Bank would have fired the plaintiff for his repeated inappropriate emails even in the absence of his disclosures to regulators.

On his SOX claim, the Bank submitted that the plaintiff could not establish the first or fourth elements of a prima facie retaliation complaint. Additionally, even if the plaintiff could make a prima facie case of retaliation, the Bank argued that summary judgment was appropriate because clear and convincing showed they would have fired him irrespective of his whistleblowing. The court found that while the plaintiff subjectively believed that the conduct that he reported constituted shareholder fraud, the fact that the Federal Reserve regulators did not appear to consider them to be violations mitigates against finding that belief objectively reasonable. The court concluded that a reasonable person in the plaintiff's position would not believe that the Bank's actions constituted shareholder fraud. Therefore, the plaintiff's alleged whistleblowing was not protected activity under SOX and failed to present a prima facie case for retaliation.

PROTECTED ACTIVITY; WHISTLEBLOWER PROVISION UNDER SOX DOES NOT PROTECT EMPLOYEES FROM RETALIATION WHEN THEY DISCLOSE INFORMATION REGARDING DESIGNATED TYPES OF FRAUD TO THE MEDIA

In Tides v. Boeing Co. , 644 F.3d 809 (9th Cir. May 3, 2011), two former employees brought suits against their former employer, claiming that they were terminated in violation of SOX's whistleblower provision. Following consolidation of the actions, the district court granted summary judgment for the employer, and the employees appealed. The Ninth Circuit held that by its express terms, the SOX's whistleblower provision, 18 U.S.C. § 1514A(a)(1), protects employees of publicly traded companies who disclose certain types of information on to the three categories of recipients specifically enumerated in the Act—federal regulatory and law enforcement agencies, Congress, and employee supervisors. Leaks to the media are not covered.

The plaintiffs, who both worked as auditors in Boeing's Information Technology SOX Audit group, claimed that Boeing managers pressured auditors to rate Boeing's internal IT controls and procedures for financial reporting as "effective." The plaintiffs separately began expressing concerns to management about the alleged pressure, as well as what they perceived to be auditing practice deficiencies that could potentially violate SOX. A few months later a reporter from the Seattle Post-Intelligencer contacted the plaintiffs for an interview about Boeing's SOX compliance. Although Boeing's corporate policy required employees to refer news media inquiries to Boeing's communications department, the plaintiffs spoke with the reporter directly, and sent her internal emails and other company documents. Boeing's policy also prohibited employees from releasing company information without prior review and authorization. After an investigation, Boeing terminated the plaintiffs for violating company policy.

The Ninth Circuit held that the plaintiffs' disclosures to the Post-Intelligencer reporter did not constitute protected activity under SOX Section 1514A(a)(1). The Ninth Circuit did not address the issue of whether the information disclosed by the plaintiffs "definitively and specifically" related to one of the listed categories of fraud or securities violations, or whether the plaintiffs established a genuine issue of fact as to whether Boeing's proffered reason for their firing was a pretext for unlawful discrimination.

In Tides v. Boeing Co ., 123 S.Ct. 518 (Oct. 31, 2011), the Supreme Court of the United States declined to review the Ninth Circuit's decision.

NO PROTECTED ACTIVITY UNDER SOX

In Nance v. Time Warner Cable, Inc. , 433 Fed.Appx. 502, 2011 WL 1749065 (9th Cir. 2011), the Ninth Circuit affirmed the District Court's grant of summary judgment in favor of Time Warner Cable ("TWC") where the plaintiff failed to establish that he engaged in protected activity under SOX § 1514A. The plaintiff alleged that he engaged in protected activity under SOX because he brought to light accounting misstatements and SEC violations in TWV's financial reports.

The court concluded that the issue about which the plaintiff communicated with his superiors did not relate to one of the listed categories of fraud or securities violations. The plaintiff told his superiors about inconsistencies between the way Comcast and TWC calculated their subscriber counts prior to the purchase of Comcast by TWC. None of the plaintiff's statements linked the inconsistency to fraud or to a securities violation, nor did the plaintiff suggest that TWC was violating SEC regulations by not reporting the problem. In his email informing his superior of the exceptions he intended to make, the plaintiff identified one of the other exceptions as a possible SOX violation, but made no similar statement about the subscriber count issue. When the plaintiff disclosed to another TWC official that he believed the information should be disclosed, he reasoned that the information "impacts other partners in the partnership," but did not claim that failure to disclose it would constitute a securities law violation.

The court concluded that the plaintiff's statements about the subscriber count inconsistency demonstrated that, at the time, he did not have a subjective belief that TWC was engaging in fraudulent or illegal activity. Additionally, the court concluded that the plaintiff's purported belief that TWC had engaged in fraudulent or illegal activities would not have been objectively reasonable.

PROTECTED ACTIVITY UNDER SOX; PLAINTIFF'S COMPLAINTS TO EMPLOYER AND REFUSAL TO ACT DID NOT DEFINITIVELY AND SPECIFICALLY RELATE TO LAWS ENUMERATED IN SOX

In Wiest v. Lynch , 2011 WL 2923860, CA No. 10-3288 (E.D.Pa. July 21, 2011), Mr. Wiest, who worked in the company's accounts payable department, alleged that certain event expenditures were being improperly treated under internal reimbursement standards, and he therefore refused to process them. He also claimed that processing the expenditures would violate SEC rules and regulations, tax laws, and constitute unethical conduct. Mr. Wiest, therefore, sent email communications to his supervisors requesting further analysis of the expenditures, and for one expenditure, requested formal approval from certain individuals before processing the payments. After Mr. Wiest continually expressed his concerns regarding event expenditures to management, the company's human resources department launched investigation into his allegedly improper conduct. Specifically, human resources investigated allegations that Mr. Wiest had failed to report a gift he received from a vendor, had made inappropriate sexual comments to coworkers, and had engaged in an inappropriate relationship with a coworker ten years earlier. Mr. Wiest subsequently went on medical leave due to the stress of the investigation, and was terminated seven months later. Mr. Wiest and his wife, as co-plaintiffs, filed a complaint under 18 U.S.C. § 1514A claiming that his termination violated Section 806 of SOX.

The district court granted the employer's motion to dismiss the complaint, finding that the plaintiffs' complaint did not allege sufficient facts demonstrating that Mr. Wiest engaged in protected activity under SOX. Citing the ARB's decision in Platone , the district court stated that an employee's communication must relate "definitively and specifically" to one of the statutes or rules listed in Section 806. While the employee does not have to cite a specific statute, the employee "must express an objectively reasonable belief [that] there has been shareholder fraud," and must communicate that his concern "is linked to an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss." Wiest at *4. The court, therefore, reviewed each of the emails that the plaintiffs' provided as evidence of protected activity to determine "whether the content of the emails … gives rise to a reasonable inference that [Mr. Wiest] provided information to his supervisors that definitively and specifically conveyed his objectively reasonable belief that conduct constituting shareholder fraud had either taken place or was in progress." Id. at *5.

The court analyzed each of Mr. Wiest's emails to his employer regarding the disputed expenditures, finding that his "communications simply provided information and suggestions to ensure proper tax and accounting treatment of the Atlantis event expenses." Id. at *6. As such, "they did not rise to the level of 'definitively and specifically' conveying a reasonable belief that a violation of the laws and regulations listed in § 1514A was taking place." Id. Focusing on the text of the emails, the court found that Mr. Wiest "did not identify, describe or suggest that the questioned expenses were potentially fraudulent," or that the company was at risk of committing a SOX violation. Id.

Additionally, with regard to the plaintiffs' argument that his refusal to process expenditures constituted protected activity under SOX, the court cited a pair of ARB cases in finding that a refusal to act without an accompanying explanation as to the employee's reasons for the refusal does not generally "provide information" under § 1514A. When Mr. Wiest refused to process the event expenditure payment, he did not explain that he was refusing to act because he believed processing the payment would potentially defraud shareholders, and therefore, the court found that his refusal did not "definitively and specifically" alert his employer of his reasonable belief of a violation.

Lastly, as to Mr. Wiest's complaints in his emails that processing expenditures would violate internal policies, the court clarified that raising complaints regarding internal policy violations is not sufficient to constitute protected activity under SOX, absent some additional explanation to the employer that failure to follow internal procedures would implicate shareholder fraud or constitute a SOX violation.

PROTECTED ACTIVITY UNDER SOX; PLAINTIFF'S AMENDED COMPLAINT CONTAINED SUFFICIENT FACTUAL DETAIL REGARDING HER ALLEGED PROTECTED ACTIVITY AND REASONABLE BELIEF TO AVOID DISMISSAL FOR FAILURE TO STATE A CLAIM

In Sharkey v. J.P. Morgan Chase & Co. , 805 F.Supp.2d 45 (S.D.N.Y. Aug. 19, 2011), the plaintiff reported to her employer that a client ("Suspect Client") had engaged in fraudulent and otherwise-illegal activities, and she believed those activities violated several of the anti-fraud statutes enumerated in SOX and put the company's shareholders at risk. Her communications culminated in a "final report," in which the plaintiff recommended "that J.P. Morgan exit its relationship with the Suspect Client due to the concerns [that she] had previously reported." Id. Because of these complaints, the plaintiff alleged that she was terminated and otherwise retaliated against in violation of Section 806 of SOX.

The district court previously dismissed the plaintiff's complaint for failure to describe the illegal activity that plaintiff reported with sufficient specificity, Sharkey v. J.P. Morgan Chase & Co. , No. 10-cv-3824 (S.D.N.Y. Jan. 14, 2011), and granted the plaintiff leave to replead her SOX claim. The plaintiff's amended complaint provided a lengthy, detailed description of her communications with her employer regarding the Suspect Client and the factual basis for her believing that the Suspect Client had violated on or more of the sources of law listed in § 1514A.

The defendant's argued in its motion to dismiss that the district court lacked jurisdiction over the amended complaint because it contained new allegations that were not included in the plaintiff's original complaint with OSHA. The plaintiff countered that her amended complaint simply provided a more detailed, amplified description of the allegations asserted in her OSHA complaint. The district court clarified that each separate and distinct claim must first be pled to OSHA before the claim reaches a district court, but that does not mean a plaintiff may elaborate on the factual basis underlying those claims in a district court complaint. It is enough that the plaintiff asserted her claims—"including specific adverse employment actions, protected activity, and the general nature of the facts that formed Plaintiff's belief in violations of the enumerated statutes giving rise to the protected activity" —in a timely OSHA complaint, and any her amended complaint "only amplifies factual allegations for claims administratively pled." Sharkey at 52-54. Consequently, the district court found that it had jurisdiction to rule on the plaintiff's amended complaint.

The defendant also claimed that the amended complaint nonetheless failed to state a claim under SOX because the plaintiff did not identify which specific source of law she believed the Suspect Client had violated. The district court explained that the plaintiff is not required to show an actual violation of the law, and instead, the "myriad of allegations" presented in the plaintiff's amended complaint could lead a reasonable person to believe that the Suspect Client was engaged in a source of law listed in §1514A. Also rejected was the defendant's argument that the plaintiff's amended complaint still failed to describe the illegal conduct that she reported to her employer with sufficient specificity to determine whether her complaints "definitively and specifically" related to a law identified in § 1514A. Reviewing the allegations in the amended complaint, the court disagreed, finding that the plaintiff sufficiently alleged that she communicated specifically-described concerns to the defendant. Moreover, contrary to the defendant's assertion otherwise, the court found that the amended complaint satisfactorily alleged that the defendant's knew about the basis of her complaints. Consequently, the defendant's motion to dismiss was denied.

NO PROTECTED ACTIVITY UNDER SOX; PLAINTIFF DID NOT STEP OUTSIDE HIS ROLE AS AN INVESTIGATOR WHEN HE REPORTED EMPLOYEE MISCONDUCT THAT HE DISCOVERED DURING AN INVESTIGATION TO HIS EMPLOYER, AND MISCONDUCT PLAINTIFF REPORTED DID NOT RELATE TO FRAUD AGAINST SHAREHOLDERS

In Riddle v. First Tennessee Bank , No. 3:10-CV-0578, 2011 WL 4348298 (M.D.Tenn. Sept. 16, 2011), the plaintiff, a Corporate Security Investigator, investigated issues regarding an employee's alleged misuse of the corporate credit card, and after interviewing the employee, the plaintiff suspended the employee for making improper cash advances. The next day, the plaintiff's supervisors advised him that the employee's advances were not, in fact improper, but the plaintiff did not accept their conclusion, and wrote up the employee for a violation of the Bank Bribery Act. The plaintiff continued to complain about his supervisors' refusal to report the employee's alleged Bank Bribery Act violations to the United States Treasury Department's Financial Crimes Enforcement Network. The plaintiff's supervisors issued the written performance counseling to the plaintiff for his performance failures during the investigation, such as poor judgment and communication, and misunderstanding the guidelines for making cash advances.

Prior to this investigation, the plaintiff had received warnings for additional performance issues, including interfering with another investigator's investigation, failure to follow investigation protocol, and failure to maintain a professional appearance and demeanor at work. After the mishandled cash advance investigation, the plaintiff made false statements to company employees regarding the company's internal reporting system, which the defendant feared would deter employees from reporting policy violations and suspicious activity through the designated channels. The defendant, therefore, terminated the plaintiff's employment for continued failure to use good judgment.

First, the district court rejected the plaintiff's attempt to "bootstrap" an alleged Bank Bribery Act violation into the "catch-all" provision of § 1514A, which covers allegations of fraud against shareholders. Stating that "an employee's complaint must definitively and specifically relate" to one of the categories enumerated in § 1514A in order to constitute protected activity, the court disagreed with the plaintiff's assertion that a violation of "the Bank Bribery Act is, 'at its core', a fraud against shareholders," and even so, the plaintiff offered not made the showing that the fraudulent actor possessed the requisite "scienter" to substantiate a shareholder fraud allegation. Riddle at *8-9. Consequently, his complaints to his supervisors about the employee's cash advances did not sufficient relate to the laws listed in § 1514A to constitute protected activity under SOX.

Additionally, the district court rejected the plaintiff's assertion that his protests against his supervisors' refusal to further report the employee's allegedly improper behavior constitutes protected activity under SOX. Although the plaintiff reported the employee's misconduct to his supervisors, he did not "step outside his role" as an investigator and take additional action, which the district court stated was necessary to establish protected activity. In short, the district court found that the plaintiff's performance of his job duties, without more, was not enough to constitute protected activity under the statute.

oreover, the district court found that even if he subjectively believed that the subject of his investigation had violated the Bank Bribery Act, a reasonable person in his position would not have believed that the employee's cash advances, which were common bank practice within the employee's division, violated the Bank Bribery Act. As such, the court found it objectively unreasonable to believe that criminal activity was occurred.

Finally, the district court stated that even if the plaintiff could establish a prima facie allegation under SOX, the employer had produced clear and convincing evidence that it legitimately terminated the plaintiff's employment because he repeatedly exercised questionable judgment.

NO PROTECTED ACTIVITY UNDER SOX; PLAINTIFF'S COMPLAINTS ABOUT UNETHICAL COWORKER CONDUCT DID NOT RELATE TO THE LAWS ENUMERATED IN SECTION 806 OF SOX, AND PLAINTIFF DID NOT REASONABLY BELIEVE THAT THE CONDUCT SHE REPORTED CONSTITUTED A VIOLATION OF AN ENUMERATED LAW

In Miller v. Stifel, Nicolaus & Co., Inc. , 812 F.Supp.2d 975 (D.Minn. Sept. 20, 2011) (case below ALJ No. 2009-SOX-57), the plaintiff, an Investment Executive and Financial Advisor, made numerous complaints to her employer about several of her coworkers' allegedly illegal or improper activities. She complained to her employer about coworkers that had allegedly used and sold marijuana on company property, used the copy machine for personal printing, accessed an off-limits area at the office, had affairs, and spent too much time traveling. She also complained about the employer's storage of potentially sensitive files, and its alleged failure to pay a postage bill. At her request, the plaintiff was transferred to a new branch, where she immediately had difficulty meeting her production requirements, and her performance problems continued over the next several years.

A few months before her termination, the plaintiff's key client complained to the defendant that the plaintiff had engaged in overly aggressive trading, causing it suffer large monetary losses, and therefore removed all of its accounts with the defendant. In the course of investigating the client's allegations, the defendant discovered that the plaintiff's trading activities were inconsistent with company trading policies, and consequently it terminated the plaintiff's employment.

Stating that only activity "definitively and specifically relate[d] to one of the six enumerated categories of misconduct contained in [Section] 806," is protected under SOX, the district court found that none of the plaintiff's complaints to her employer—which largely concerned personnel matters and alleged ethical lapses of coworkers—implicated any of the categories of activities protected by Section 806. Additionally, the district court found no evidence that the plaintiff had a reasonable belief that the conduct she reported constituted a violation of an enumerated source of law. Finally, even assuming the plaintiff's complaints could amount to protected activity under SOX, she did not offer sufficient evidence suggesting that her complaints contributed to the decision to terminate her employment. Consequently, the district court granted summary judgment for the employer.

PROTECTED ACTIVITY UNDER SOX; ARB'S DECISION IN SYLVESTER ABROGATING REQUIREMENT ANNOUNCED IN PLATONE THAT EMPLOYEE COMPLAINTS MUST "DEFINITIVELY AND SPECIFICALLY" RELATE TO A SOURCE OF LAW LISTED IN § 1514A IS NOT CONTROLLING LAW FOR A UNITED STATES DISTRICT COURT, AND THE COURT DID NOT ERR IN DISMISSING A COMPLAINT FOR FAILURE TO MEET THE PLATONE STANDARD WITHOUT CONSIDERING THE SYLVESTER RULING.

In Wiest v. Lynch , CA No. 10-3288, 2011 WL 5572608 (E.D.Pa. Nov. 16, 2011), three months after the court dismissed the plaintiffs' complaint for failure to proper plead that Mr. Wiest engaged in protected activity under SOX, Wiest v. Lynch , 2011 WL 2923860, CA No. 10-3288 (E.D.Pa. July 21, 2011) (not reported), the court denied on the plaintiffs' motion for reconsideration, which argued that because the ARB's decision in Sylvester v. Parexel Int'l LLC , ARB No. 07-123, 2011 WL 2165854, *14-15 (ARB May 25, 2011) abrogated the ARB's previous requirement in Platone v. FLYi, Inc. , ARB No. 04-154, 2006 WL 3246910, *8 (ARB Sept. 29, 2006) that an employee's communication relate "definitively and specifically" to a source of law listed in § 1514A, the court should revisit whether Mr. Wiest's email communications with his supervisors constitute protected activity under Section 806 of SOX. The court explained that the plaintiffs' burden on their motion for reconsideration is to demonstrate either "(1) an intervening change in the controlling law; (2) the availability of new evidence which was not available when the court issued its order; or (3) the need to correct a manifest injustice stemming from a clear error of law or fact." Wiest at *2 (citations omitted). The plaintiffs did not argue that new evidence was now available, and the court therefore limited its focus to the first and third theories for reconsideration.

The district court found that the ARB's decision in Sylvester did not constitute an intervening change in controlling law. First, the Sylvester decision was published nearly two months before the district court dismissed the plaintiffs' complaint on July 21,2011, and therefore the plaintiffs had ample opportunity to bring Sylvester to the court's consideration prior to dismissal. Second, the court clarified that ARB decisions are not binding authority on a United States district court, and thus, the Sylvester decision is not "controlling law." Third, even if Sylvester were binding on the district court, the district court's July 2011 decision dismissing the plaintiffs' complaint did not rely exclusively on Platone , and instead invoked a myriad of federal district and appellate court case law in applying the "definitive and specific" standard.

Additionally, the district court found that its failure to consider the Sylvester decision prior to the July 21, 2011 decision did not amount to manifest injustice or clear error. The court did not "overlook" the Sylvester decision because the plaintiffs failed to bring it to the court's attention, and because the plaintiffs' complaint contained "inherent deficiencies . . . irrespective of the posture of the Sylvester decision," the court did not err in dismissing the complaint. Wiest at *5.

PROTECTED ACTIVITY; IN ORDER TO BE OBJECTIVELY REASONABLE, THE PLAINTIFF’S COMPLAINTS MUST TIE THE ALLEGED WRONGFUL ACTION DEFINITIVELY AND SPECIFICALLY TO ONE OF THE LAWS ENUMERATED IN SOX SECTION 1514A

PROTECTED ACTIVITY; EVEN IF THE PLAINTIFF HAD OBJECTIVELY REASONABLE BELIEF THAT HIS SUPERVISOR MADE AN ERROR THAT RESULTED IN A MATERIAL MISSTATEMENT OF THE DEFENDANT’S INCOME, SUMMARY DECISION IS WARRANTED WHERE PLAINTIFF PRESENTED NO EVIDENCE TO SHOW THAT THE SUPERVISOR ACTED WITH INTENT TO MISLEAD COWORKERS OR SHAREHOLDERS

In Xie v. Hospira, Inc. , No. 10-cv-06777 (N.D. Ill. Sept. 2, 2011) (case below 2010-SOX-32), the court granted summary judgment against the Plaintiff based on the finding that the Plaintiff, a CPA, failed to offer evidence “definitively and specifically” tying his supervisor's actions to one of the laws enumerated in SOX section 1514A(a)(1), and therefore, no reasonable jury could find that the Plaintiff's belief that his supervisor violated one of those laws was objectively reasonable. The Plaintiff offered evidence to show that the supervisor failed to comply with certain of the Defendant's internal policies. The court, however, found that the Plaintiff's evidence failed to suggest that the documents at issue were given to shareholders or otherwise made public, or were in any way material to shareholders. The evidence might have shown negligence, but the court stated that mere negligence does not constitute a violation of federal law relating to fraud against shareholders. The court noted the Plaintiff's argument that the internal control violations led indirectly to fraud against shareholders by enabling the supervisor to book fraudulent income. The court found this the argument not to be persuasive because the Plaintiff's bookings theory was not well explained and appeared to constitute an arbitrary comparison of unrelated accounting figures, and because the Plaintiff offered no evidence or coherent argument linking the bookings to the supervisor's purported non-compliance with the Defendant's internal control standards.

The Plaintiff also accused the supervisor of concealing a $6 million accounting discrepancy during a management meeting. The Plaintiff, however, had no personal knowledge of what was said during the meeting, and based his accusation on body language and assumed reticence on the part of the supervisor at the meeting. The court found that even if the Plaintiff could show that the supervisor failed to inform others about the accounting discrepancy, there was no evidence from which a reasonable jury could find that this conduct constituted a fraud against shareholders. The court noted that the Plaintiff's rebuttal had shown that the discrepancy was the result of a simple calculation error that the Plaintiff was able to resolve. The court found that because the Plaintiff was able to fix the error, there was no reasonable basis to conclude that the error resulted in harm to shareholders. Although the Plaintiff argued that the error was not actually corrected and still resulted in a $1.4 million discrepancy on the Defendant's 2008 financial statements, the court found no evidence or comprehensive argument to link the discrepancy with a publicly filed financial statement. Finally, the court noted that even if the Plaintiff reasonably believed that the discrepancy resulted in a material misstatement of the Defendant's income, he had offered no evidence suggesting that the supervisor acted with intent to mislead his coworkers or the Defendant's shareholders, citing Allen , 514 F.3d at 480 (“In cases involving the sixth ‘catch-all’ category [from section 1514A(a)], we conclude that the employee must reasonably believe that his or her employer acted with a mental state embracing intent to deceive, manipulate, or defraud its shareholders. ”).

Clear and Convincing Evidence

SOX CLAIM; PROTECTED ACTIVITY NOT A FACTOR IN EMPLOYEE'S TERMINATION; CLEAR AND CONVINCING EVIDENCE THAT THE EMPLOYEE WOULD HAVE BEEN TERMINATED REGARDLESS OF HIS PROTECTED ACTIVITY

In Hemphill v. Celanese Corp. , 430 Fed.Appx. 341, No 10-10746 (5th Cir. June 23, 2011), the plaintiff, a former internal audit manager, filed suit against his former employer, a public corporation that manufactured and distributed industrial chemicals, alleging that he had been terminated in violation of the whistleblower protection provisions of the Sarbanes-Oxley Act. The District Court granted the defendant's summary judgment motion, holding that the plaintiff's protected activity was not a contributing factor in his termination, and moreover, that the employer demonstrated by clear and convincing evidence that it would have terminated the plaintiff regardless of his protected activity. The plaintiff appealed, and the Court of Appeals for the Fifth Circuit held that: (1) the plaintiff's protected activity of reporting irregularities in internal audit or public corporation's construction project in Mexico was not a contributing factor in his termination, but (2) even if protected activity was a factor, the employer would have taken the same personnel action against him in the absence of protected behavior.

In 2007, the plaintiff began work on an internal audit of the defendant's construction project in Mexico. The team of auditors managed by the plaintiff identified several potential violations of law and company policy regarding this project and reported these results in an audit report. The plaintiff also reported these results to his supervisor and a compliance officer. The plaintiff participated in further investigations of the accounting problem. The defendant's auditors eventually determined that several of the defendant's employees had violated company policy, but not any laws, and one employee was removed from the project. The plaintiff never reported these accounting problems to a governmental authority while working for the defendant. The court noted that the record indicated that no legal enforcement action was ever initiated against the defendant on the basis of these accounting irregularities. Around this time the plaintiff also worked on projects reviewing the travel and entertainment records for several of the defendant's employees. He and his staff discovered certain violation of the company's policies. The plaintiff testified at deposition that in his view, these violations created risk of "books and records violation" of the Securities and Exchange Commission rules. The plaintiff advised his supervisor of the violations and asked to raise the issues with the defendant's audit committee. His supervisor rebuffed this request.

In August 2007, the plaintiff was observed yelling at his secretary in an abusive manner regarding her handling of arrangements to rent a boat for a corporate outing. Two employees, both of whom worked in a different department of the company, witnessed the event and reported his actions to the human resources director. After investigating the plaintiff's verbal abuse of his secretary, the human resources department recommended that the plaintiff be terminated for "lying during a formal investigation, harassment of an employee, and creating a negative work environment for the team and those around him." The plaintiff was then terminated by his supervisor.

Assuming that the plaintiff raised genuine issues of fact regarding the first three elements of his prima facie claim, the court focused on the fourth and final element: whether his protected activity was a "contributing factor" in the defendant's decision to terminate him. The court found that the defendant's human resources department conducted a thorough investigation of the verbal abuse incident. The primary human resources employee conducting the investigation had no prior knowledge of the plaintiff's audit activities. The employees who witnessed the incident and reported the plaintiff's behavior were interviewed. These employees worked in a different department of the company than the plaintiff and had no material interest in the plaintiff's auditing activity. It was also found that the plaintiff lied about his behavior during the formal investigation. The court found no evidence that the two executives contributing to the decision to fire the plaintiff (the human resources director and the vice president for human resources) had any particular knowledge of or interest in the plaintiff's audit work. The only executive participating in the termination decision who knew of his discovery of accounting irregularities was his supervisor. The undisputed evidence indicated that she simply accepted the unanimous termination recommendation provided to her. The court concluded that the evidence clearly and convincingly proved that the defendant terminated the plaintiff because the defendant concluded that he mistreated his secretary. The court also found that the plaintiff failed to produce any evidence casting doubt on the integrity of the investigation that lead to his termination.

CLEAR AND CONVINCING EVIDENCE OF NON-DISCRIMINATORY RATIONALE; AFFIRMING SUMMARY JUDGMENT FOR THE EMPLOYER WHERE IT PRODUCED CLEAR AND CONVINCING EVIDENCE THAT IT TERMINATED THE PLAINTIFF FOR FAILURE TO IMPROVE HER POOR JOB PERFORMANCE AFTER RECEIVING SEVERAL WARNINGS

In Johnson v. Stein Mart, Inc. , No. 10-13434, 440 Fed.Appx. 795 (11th Cir. 2011) (case below ALJ No. 2006-SOX-52), the plaintiff, a buyer at a publicly traded retail sales company, made internal complaints about the defendant's allegedly inappropriate business practices, including improper collection of markdown allowances from vendors, changing season codes on older inventory, and inaccurate accounting of the value of inventory. Subsequently, the plaintiff was transferred to another position as a "planner", which she viewed as a demotion, even though the transfer did not affect her compensation and benefits. The plaintiff's work performance struggled in this new position, and she received written performance counseling and a negative performance evaluation after she made purchasing decisions that strayed from the defendant's purchase plan for its fragrance inventory. She renewed her complaints about the defendant's business practices to the company's Chief Financial Officer, and also complained that she was suffering retaliation for voicing her concerns, but the company's investigation into her allegations revealed no evidence of wrongdoing. Ultimately, three months after she received a "final warning" for her inadequate work performance, the plaintiff was terminated.

The United States District Court of the Middle District of Florida previously granted summary judgment for the employer on the plaintiff's SOX claim, Johnson v. Stein Mart, Inc. , No. 3:06-cv-341-J-33TEM, 2007 WL 1796265, (M.D.Fla. June 20, 2007) (not reported), but the Court of Appeals vacated and remanded that decision because the district court failed to address the status of certain sealed discovery documents, and failed to discuss the plaintiff's outstanding motion under FRCP 56(f). Johnson v. Stein Mart, Inc. , No. 07-13338, 276 Fed.Appx. 931 (11th Cir. 2008) (not reported). After the district court reinstated its prior opinion on remand, the plaintiff appealed.

The Court of Appeals found that the district court did not err when it granted summary judgment for the defendant on the plaintiff's SOX claim because the defendant produced clear and convincing evidence that it would have discharged the plaintiff for substandard performance reasons even absent her SOX-protected complaints. Other than her own personal suspicions, the plaintiff failed to adduce any evidence suggesting the defendant incorrectly assessed her performance as a planner as unsatisfactory, while the defendant produced ample evidence that the plaintiff mishandled the company's fragrance purchases in 2004, and that her performance failed to improve prior to her discharge.

CLEAR AND CONVINCING EVIDENCE THAT THE EMPLOYER DISCHARGED THE PLAINTIFF FOR INSUBORDINATION—SPECIFICALLY, REFUSAL TO ACCEPT A CHANGE IN JOB DUTIES

In Kim v. Boeing Co. , No. C10-1850RSM, 2011 WL 4437086 (W.D.Wash. Sept. 23, 2011) (case below ALJ No. 2010-SOX-22), aff'd Kim v. The Boeing Co. , No. 11-35879 (9th Cir. Oct. 25, 2012), the plaintiff, a business analyst for cost management in Boeing's supplier management and procurement division, reported what he believed to be cost accounting irregularities and violations of the Sarbanes-Oxley Act to the company's Ethics Office, and also repeatedly reported financial irregularities to his managers. In at least one of his reports to his managers, he specifically suggested that the irregularities he perceived be communicated to the company's SOX Audit Committee, but after each report, his managers assured him that no further action was warranted. The plaintiff alleged that his "working environment became incrementally more hostile and appeared plainly designed to discourage him from pursuing his concerns about SOX noncompliance," and eventually, the plaintiff's manager advised him to transfer to another position. Initially, the plaintiff believed that the transfer was voluntary, and he therefore declined, but several months later, the human resources office informed him that the transfer was mandatory. When the plaintiff still refused to accept the position change, he was suspended for insubordination. The plaintiff thereafter went on medical leave, and was eventually laid-off as part of a reduction-in-force.

Although the defendant also challenged whether the plaintiff had produced sufficient evidence of protected activity to avoid summary judgment, the district court did not make a finding on its argument, and instead granted summary judgment for the employer because it adduced clear and convincing evidence that it would have suspended and terminated the plaintiff even absent any protected activity. The district court explained that the employer had produced evidence that the plaintiff's coworkers had complained about his attitude at work, that the plaintiff had problems with attendance, and that these issues had negatively impacted his performance reviews. The defendant explained that although the job transfer was first offered as an option for improving the plaintiff's job satisfaction, the plaintiff's immediate manager and the defendant's human resources office later agreed that the plaintiff should be transferred regardless of his preferences. In the face of his manager's order to swap job responsibilities with a coworker, the plaintiff became increasingly insubordinate, and at a meeting with human resources to discuss the transfer, the plaintiff's refusal to perform work left human resources "no choice but to discharge plaintiff for insubordination." The plaintiff did not sufficiently dispute these facts, and therefore, the court granted the employer's motion for summary judgment.

Covered Respondent - Covered Employee

COVERED ENTITY UNDER SOX; A LOCAL GOVERNMENTAL ENTITY IS NOT A PUBLICLY TRADED COMPANY AND IS NOT A COVERED ENTITY UNDER SOX

In addition to claims under Title VII of the Civil Rights Act of 1964 and the Family Medical Leave Act, the plaintiff alleged that the Dallas Independent School District ("DISD") retaliated against him in violation of SOX when it terminated his employment. The district court granted the defendant's motion to dismiss his SOX claim because DISD is not a publicly traded company, and as a local governmental entity, it is not a covered employer under SOX. Sherman v. Dallas ISD , No. 3:10-CV-1146-B-BH, 2011 WL 477500 (N.D.Tex. Jan. 24, 2011), adopted Sherman v. Dallas ISD , No. 10-cv-1146 (N.D.Tx. Feb. 8, 2011).

SOX; NOT A COVERED COMPANY

In Hudes v. Aetna Life Ins. Co. , 806 F.Supp.2d 180 (D.D.C. Aug. 30, 2011) (case below ALJ No. 2010-SOX-12), aff'd Hudes v. Aetna Life Ins. Co. , No. 11-7109 (CA DC Nov. 20, 2012), the plaintiff worked as a lawyer at the World Bank, and alleges that the Bank fired her in retaliation for "reporting corruption and securities law violations to [the World Bank's] Audit Committee and U.S. Congressional committees charged with oversight." Hudes at 185. In addition to several other claims, the plaintiff filed a retaliation complaint under Section 806 of SOX. The World Bank argued that it is not a covered company under § 1514A, as its securities are explicitly exempt under both the Securities Act and the Exchange Act. The court agreed, and dismissed the plaintiff's SOX complaint.

Arbitration Agreements

RETROACTIVE APPLICATION OF THE DODD-FRANK ACT ARBITRATION BAN; FEDERAL COURT SUBJECT MATTER JURISDICTION

In Pezza v. Investors Capital Corp. , No. 10-10113-DPW (D. Mass. Mar. 1, 2011), the district court held that the provision of Dodd-Frank Wall Street Reform and Consumer Protection Act amended the whistleblower protection set forth in SOX by banning pre-dispute arbitration agreement and that the amendment applied to conduct that arose prior to the enactment of the Act. Before the Dodd-Frank Act became law, in January 2010 the plaintiff sued Investors Capital Corp., his former employer, and two co-defendants, alleging that they had violated SOX by firing him for reporting the defendants' alleged financial misconduct to state and federal regulators. The plaintiff had previously signed an employment agreement that required him to submit such disputes to arbitration. Citing those agreements, Investor's Capital moved to compel arbitration of the plaintiff's SOX claim and asked the district court to stay or dismiss his suit. The plaintiff, on the other hand, argued that Section 922 of the Dodd-Frank Act, which was enacted while his suit was pending, applied to his case and required the court to deny the motion to compel arbitration.

The judge applied a two-step analysis to determine if the statute should be applied retroactively: (1) whether Congress has expressly prescribed the statute's proper reach; and (2) in the absence of clear congressional intent, whether retroactively applying the statue to the plaintiff would undesirably affect the substantive rights, liabilities, or duties of the parties arising from conduct that occurred after the statute's enactment.

The court found that Congress did not clearly express intent to limit Section 922 of the Dodd-Frank Act to agreements signed or conduct arising after the date of the enactment. As to the retroactive consequence, while Section 922 affects the validity of the arbitration clause, a contractual term agreed upon by the parties, the judge found that Section 922 is better characterized as a statute that confers jurisdiction on the court, as it merely changes the forum in which the plaintiff can pursue the same substantive rights. The Supreme Court found that "jurisdictional statutes may be applied in suits arising before their enactment without raising concerns about retroactivity . . . because statutes conferring or ousting jurisdiction 'speak to the power of the court rather than to the rights or obligations of the parties.'" Pezza at. 7. The district court held that the Section 922 may be applied retroactively, and therefore, federal court, rather than a Financial Industry Regulatory Authority arbitration panel, has subject matter jurisdiction over the plaintiff's whistleblower claims.

DODD-FRANK AMENDMENT PROHIBITING ARBITRATION OF SOX COMPLAINTS UNDER PREDISPUTE ARBITRATION AGREEMENTS DOES NOT APPLY RETROACTIVELY TO ARBITRATION AGREEMENTS THAT EXISTED PRIOR TO JULY 2010

In Henderson v. Masco Framing Corp. , No. 3:11-CV-00088-LRH, 2011 WL 3022535 (D.Nev. July 22, 2011) (case below 2010-SOX-11), the plaintiff's former employer was acquired by the defendant, and in the plaintiff's employment retention agreement with the defendant, he received a retention bonus, which was to be held in escrow and paid out in three annual installments. When the defendant paid the plaintiff the first installment of the bonus, the defendant withheld the employer portion of the FICA Medicare tax and reported the taxed amount as income on the plaintiff's W2. The plaintiff complained to the defendant about withholding this amount, and after the defendant terminated the plaintiff's employment several months later, the plaintiff filed a complaint under SOX, arguing that he was retaliated for complaining about the bonus payment. The dispute resolution policy contained in the plaintiff's employment contract with the defendant contained a clause mandating arbitration of all employment claims, and the plaintiff therefore moved to compel arbitration of his SOX complaint.

After finding the parties' arbitration agreement to be valid, the court reviewed the defendant's argument that the Dodd-Frank Act's amendment of SOX, which to prohibited arbitration of SOX claims under predispute arbitration agreements, 18 U.S.C. § 1514A(e)(2), applies retroactively and prohibits arbitration of SOX claims, even if the arbitration agreement was in place prior to July 2010. Acknowledging that retroactive application of legislative actions is generally disfavored, the court explained that a statute has "retroactive effect" if, when applied to previous actions or conduct, "impair[s] rights a party possessed when he acted, increase[s] a party's liability for past conduct, or impose[s] new duties with respect to transactions already completed." Henderson at *3. The court agreed with the plaintiff that application of Section 922 of Dodd-Frank would "fundamentally interfere with the parties' contractual rights and would impair the "predictability and stability" of their earlier agreement." Consequently, the court found that the Dodd-Frank amendments to SOX did not apply retroactively, and granted the plaintiff's motion to compel arbitration. Id. at *4.

DODD-FRANK AMENDMENT PROHIBITING ARBITRATION OF SOX COMPLAINTS UNDER PREDISPUTE ARBITRATION AGREEMENTS DOES NOT APPLY TO COMPLAINTS FILED UNDER THE FAIR LABOR STANDARDS ACT

In Carrell v. L & S Plumbing Partnership, Ltd. , CA No. H-10-2523, 2011 WL 3300067 (S.D.Tex. Aug. 1, 2011), the plaintiffs filed complaints under the FLSA, claiming that they were not paid for overtime hours, and the defendants motioned to compel arbitration pursuant to the arbitration agreements in the plaintiffs' employment contracts. Even though the plaintiffs filed complaints under FLSA, not SOX, they argued that § 922 of the Dodd-Frank Act, 18 U.S.C. § 1514A(e), prevented arbitration of their complaints. The defendants counter-argued that 18 U.S.C. § 1514A(e) applies only to SOX whistleblower complaints, and that because it is not a publicly traded company, they are not covered by SOX. The court agreed with defendants and granted their motion to compel arbitration.

Attorney's Fees

ATTORNEY FEES, COSTS AND PREJUDGMENT INTEREST

In Van Asdale v. Int'l Game Technology , No. 3:04-CV-00703-RAM, 2011 WL 2118637 (D. Nev. May 24, 2011), the District Court of Nevada awarded the plaintiffs' attorneys fees and costs based on the traditional "lodestar" calculations set forth in Hensley v. Eckerhart , 461 U.S. 424, 422 (1983) and made adjustments based on an evaluation of factors articulated in Kerr v. Screen Extra Guild, Inc. , 526 F.2d 67, 70 (9th Cir. 1975). The plaintiffs' requested a total of $1,237,956 in attorney's fees, which the defendant objected to on several grounds. The court noted that while the mandatory language in 18 U.S.C. § 1514A(c)(2)(C) may deprive the court of discretion on the propriety of awarding fees to the prevailing party, the amount awarded is clearly within the court's discretion because of the statute's use of the term "reasonable." See e.g. Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc ., 676 F.2d 1291, 1312-1313 (9th Cir. 1982). As the Supreme Court specifically noted, the standards set forth in Henley are generally applicable in all cases in which Congress authorized an award of fees to a "prevailing party."

The court rejected the defendant's reliance on the plaintiffs' settlement demands in its "results obtained" analysis because courts generally refrain from referencing proposed settlement agreements in light of the Federal Rule of Evidence 408, which seeks to protect the confidentiality of settlement negotiations. While the court found that the plaintiffs' successful SOX claims and their unsuccessful state claims were clearly related, the court found that the plaintiffs achieved a level of success such that using the hours reasonably expended as the basis for calculating a fee award was appropriate.

The court concluded that although the plaintiff's only prevailed on the SOX claim, the plaintiffs achieved excellent results and should recover a fully compensatory fee. The court noted that this action involved protracted litigation for a period of more than six years, and there could be no question that the result was significant. Although the defendant considers the verdict in excess of $2 million to be small in comparison with the amount the plaintiffs' requested a trial, in the court's experience, they obtained an excellent result.

Surface Transportation Assistance Act

[STAA Whistleblower Digest IV A 2 d]
[STAA Digest V A 2 b]
PROTECTED ACTIVITY UNDER STAA; PLAINTIFF PRODUCED SUFFICIENT EVIDENCE THAT HE WAS "ABOUT TO REPORT" CONDUCT TO THE DEPARTMENT OF TRANSPORTATION TO AVERT SUMMARY JUDGMENT; UNDER CAT'S PAW THEORY, RETALIATORY ANIMUS OF IMMEDIATE SUPERVISOR MAY BE TRACED TO EXECUTIVE OFFICER THAT MADE THE DECISION TO TERMINATE THE PLAINTIFF

In Capalbo v. Kris-Way Truck Leasing, Inc. , 821 F.Supp.2d 397 (D.Me. Oct. 28, 2011), the plaintiff, a commercial truck driver by trade, worked for defendant, a company providing truck rentals and leasing and contract maintenance services, primarily as a "yard jockey," which generally required moving trailers between truck yards. The plaintiff often worked 14 hour days, and although he frequently notified his employer that he was likely to work more hours than permitted under federal regulations, his employer always told him to finish out his work for the day because it did not have other employees to relieve him. The plaintiff filed a complaint with the Maine Department of Labor (MDOL) concerning inadequate pay for overtime. The defendant was aware of this complaint, investigated the plaintiff's wage concerns, and determined that the plaintiff was being paid appropriately.

Prior to January 2008, the plaintiff performed only yard work, and therefore he was not required by his employer to keep driving logs. However, the plaintiff suffered injuries in an on-the-job accident, and when he returned to work three weeks later, he requested more "over-the-road work" to cut down on his time in the yard, to which the defendant agreed. Subsequently, the plaintiff kept driving logs for his "over the road work," but did not turn the logs in regularly. After auditing the defendant in May 2008, the Department of Transportation (DOT) audited a company that contracted with the defendant in August 2008, at which time the plaintiff's supervisor realized that he did not have driving logs for the plaintiff's August 2008 over-the-road work. When questioned by his supervisor, the plaintiff claimed that he already turned them in to the defendant's log drop box.

The plaintiff's supervisor reported to the Vice President of Operations (VPO) that the plaintiff was the only driver that was not regularly submitting driving logs, that he could not find any August 2008 logs for the plaintiff, and that the plaintiff had had problems accurately reporting his hours in the past (although the plaintiff's disciplinary record showed no evidence of this). When the plaintiff, his supervisor, and the VPO met to discuss the log issue, the plaintiff produced a complete logbook, which, after questioning, he admitted that he had recreated from memory. The plaintiff claimed that his supervisor had instructed him to recreate his driving logs to the best of his memory, but because recreating and falsifying logs violates federal law, the VPO terminated the plaintiff's employment for attempting to pass of the inaccurate logs as legitimate.

The plaintiff alleged retaliation in violation of the Surface Transportation Assistance Act (STAA), 49 U.S.C. § 31105, alleging that he was fired because he was "about to report" violations to DOT and "about to cooperate" with DOT's pending audit; because he filed a complaint with MDOL; because he complained to his supervisor about working excessive hours; and because he refused his supervisor's instructions to recreate his log books.

As to the plaintiff's theory that he was "about to report" violations or "about to cooperate" with the DOT, the defendant argued in its summary judgment motion that STAA's "about to file" provision should be interpreted in the same way as the "nearly identical provision in the Seaman's Protection Act," and therefore asserted that the plaintiff must prove that he was "on the verge" of reporting a violation, and that the employer was aware that he was about to do so. Comparing the text of Seaman's Protect Act provision to the text of STAA, the Court disagreed, and found that the STAA provision "is devoid of language requiring that an employee actually have filed, or even have been on the verge of filing, a report or complaint." Instead, STAA protects employees when an employer "perceives that the employee has filed or is about to file a complaint or has begun or is about to begin a proceeding related to a violation[.]" 49 U.S.C. § 31105(a)(1)(A)(ii) (emphasis added). Given the evidence in the record, the Court then found that a reasonable trier of fact could find that the plaintiff's supervisor perceived that the plaintiff had complained, or was about to complain, to the DOT, and therefore denied summary judgment on the plaintiff's first theory.

The court swiftly rejected the plaintiff's second and third theories of protected activity under the STAA—filing a wage complaint with MDOL and complaining about excessive hours—and granted summary judgment for the employer with regard to those two theories of liability. However, the court found that plaintiff's fourth theory—that he was fired because he refused to illegally recreate his logbook and deceive DOT auditors—was not "so inherently incredible as to present no triable issue as to whether he engaged in protected activity," and denied summary judgment as to the fourth theory of liability. In so doing, the court rejected the defendant's argument that the defendant was not liable because the VPO, not the plaintiff's supervisor, made the decision to terminate his employment. The court explained that the supervisor's retaliatory animus could be traced to the VPO via a "cat's paw" theory of liability, as [a]n employer may be held liable if the decision-maker who discharged the plaintiff merely acted as a rubber stamp, or the "cat's paw," for a subordinate employee's prejudice, even if the decision-maker lacked discriminatory intent."

[STAA Digest II M]
DISTRICT COURT DENIED MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISIDCTION IN AN STAA CASE; BAD FAITH COMPONENT OF SECTION 31105(C) NOT A PLEADING REQUIREMENT FOR THE PLAINTIFF BUT EQUIVALENT TO AN AFFIRMATIVE DEFENSE THEREFORE THE DEFENDANT HAS THE BURDEN OF PLEADING BAD FAITH; NO NOTICE REQUIREMENT UNDER SECTION 31105(C)

In Austerman v. Behne, Inc. , Civ. No. 10-4502 (JRT/FLN), 2011 WL 1598419 (D. Minn. Apr. 7, 2011) (case below ARB Nos. 10-149, 11-001, ALJ No. 2010-STA-18), adopted Austerman v. Behne, Inc. , Civ. No. 10-4502 (JRT/FLN), 2011 WL 1598419 (D. Minn. Apr. 28, 2011), the plaintiff filed a civil action under the Surface Transportation Assistance Act (STAA), 29 U.S.C. § 31105, alleging that the defendants' terminated him in retaliation for reporting a safety issue. The defendants' filed a motion to dismiss for lack of subject matter jurisdiction. The court stated that Section 31105(c) identifies two elements for establishing federal court jurisdiction over a STAA complaint: (1) no final decision of the Department of Labor (DOL) within 210 days of filing a complaint; and (2) the delay is not due to the bad faith of the employee. It was undisputed that the DOL had not issued a final decision on the plaintiff's complaint, and that 210 days had passed since the plaintiff filed his claim. The defendants' challenges, therefore, were limited to the issue of bad faith.

The defendants alleged that: (1) pleading lack of bad faith is a jurisdictional prerequisite to bring a claim under 29 U.S.C. § 31105(c); (2) the plaintiff's failure to adhere to DOL's notice requirement under 29 C.F.R. § 1987 constituted bad faith; and (3) removing a Section 31105 action to the District Court after a hearing before an ALJ is evidence of bad faith.

The district court denied the defendants' motion to dismiss for lack of subject matter jurisdiction and held that the plaintiff met the jurisdictional requirements for de novo review under 49 U.S.C. § 31105(c). First, the court found that the "bad faith" component of Section 31105(c) is not a pleading requirement, but rather an equivalent to an affirmative defense. Therefore, the defendants, not the plaintiff, had the burden of pleading that the plaintiff had engaged in bad faith. Second, the court found that the plain reading of Section 31105(c) does not impute a notice requirement on a plaintiff. The court, therefore, did not find the plaintiff's failure to comply with the notice requirement articulated in the DOL's STAA regulations constituted bad faith. Lastly, the court found that the record contained no evidence that the plaintiff sought to mislead or deceive at any point in the proceedings and that seeking statutory remedy provided by Congress is not deceptive, fraudulent, or sinister.