Courts Should Adopt Professor Hesch’s “Zone of Protection” Immunizing Whistleblowers From Contract or Tort Claims Arising From FCA Disclosures



As the qui tam provisions of the False Claims Act (FCA) have become increasingly effective in enabling the government to recover billions of dollars in fraud, employers have become increasingly aggressive in suing whistleblowers for disclosing company “confidential” documents to the government.  While these lawsuits are often frivolous and do not allege any real damages, they undermine the FCA by deterring whistleblowers from reporting fraud.

Professor Joel Hesch has published a terrific article in the Drake Law Review titled “The False Claims Act Creates a ‘Zone of Protection’ That Bars Suits Against Employees Who Report Fraud Against the Government,” which provides compelling statutory and public policy justifications for the creation of a “zone of protection” that immunizes whistleblowers from contract or tort claims flowing from FCA disclosures.  Hopefully federal and state courts will adopt this “zone of protection,” and thwart companies from improperly inhibiting relators from disclosing FCA violations.

ARB Affirms $100,000 Compensatory Damages Award in STAA Whistleblower Retaliation Case

truck driver whistleblower protection law

In Fink v. R&L Transfer, Inc., the ARB affirmed an award of compensatory damages in the amount of $100,000.00, and punitive damages in the amount of $50,000 to a truck driver who was terminated for refusing to drive in unsafe winter weather conditions.

Complainant Fink had an unblemished record of almost thirteen years operating large commercial trucks, including tractor trailers hauling double trailers. On the night of January 11, 2011, Fink refused to haul a double trailer approximately 175 miles because he concluded that it was unsafe to drive in severe winter conditions.   Fink was concerned that icy roads or high winds can result in loss of control by the driver with the possibility of jackknifing on ice and the “crack the whip” effect in high winds.  The terminal manager warned Fink that if he refused to drive his scheduled run, R&L would consider him to have resigned.  Fink refused to drive, and the following day, R&L terminated his employment.

The whistleblower protection provision of the Surface Transportation Act protects a truck driver who refuses to drive because of a reasonable apprehension of serious injury to himself or the public because of a vehicle’s unsafe condition.  The ARB affirmed the ALJ’s finding that R&L violated the STAA by terminating Fink for his refusal to drive in unsafe weather conditions.

The ALJ found that R&L violated the STAA by terminating Fink in retaliation for his refusal to drive based on his reasonable apprehension of serious injury to himself or the public from driving in dangerous conditions.  The ALJ awarded compensatory damages in the amount of $100,000.00, and punitive damages in the amount of $50,000.00.

The ARB affirmed the compensatory damages award, which was based on Fink’s testimony and not corroborated by any expert testimony.  The ALJ’s awarded $100,000 in compensatory damages for the following reasons:

  • Fink had to seek public assistance to pay basic living expenses.
  • Fink and his family lost their home.
  • Fink had to borrow money from family members.
  • Fink has difficulty sleeping, wondering how he will be able to support his family.

The ARB also affirmed the punitive damages award:

To determine whether a punitive damages award was warranted, the ALJ found significant that R&L’s terminal manager did not make any attempt to determine if there was any substance to Fink’s concerns about driving the route in the snowy and icy weather, and only consulted persons in other states about whether the route should be driven. Id. at 22. He also observed that the terminal manager “by characterizing Mr. Fink’s termination as a “resignation,” [] foreclosed any possibility that Mr. Fink might participate in the peer review process and retain his job” and delayed Fink’s receipt of unemployment benefits. Id. The ALJ found “that the Respondent’s conduct reflects a degree of conscious disregard for how its practices obstruct Congress’ mandate in the Surface Transportation Assistance Act, and that punitive damages are appropriate to correct and deter this conduct.” Id. . . . An award of punitive damages may be warranted where there has been “reckless or callous disregard for the plaintiff’s rights, as well as intentional violations of federal law.”

Rail Safety Whistleblower Obtains $100,000 in Punitive Damages

rail industry whistleblower rights

In Griebel v. Union Pacific Railroad Company, the ARB affirmed an award of $100,000 in punitive damages to a former Union Pacific employee who alleged that his employment was terminated because he reported a work-related injury.

Under the Federal Rail Safety Act (FRSA), employees in the rail industry are protected against retaliation for disclosing an alleged violation of federal laws and regulations related to railroad safety and security or for reporting hazardous safety or security conditions, reporting a work-related injury or illness, or refusing to work under certain conditions.  Under the FRSA, a prevailing whistleblower can recover:

  • back pay (lost wages and benefits);
  • compensatory damages, including emotional distress damages;
  • punitive damages of up to $250,000; and
  • attorneys’ fees and costs.

Punitive damages are awarded  where there has been “‘reckless or callous disregard for the plaintiff’s rights, as well as intentional violations of federal law.’”   The ALJ’s award of $100,000 in punitive damages was driven by the following facts:

  • Griebel was discouraged from filing an injury report, and then coerced in to report the injury not as an on-duty injury.
  • 70% of employees who report an injury are subjected to discipline.
  • Union Pacific  disfavors its employees consulting with a “FELA attorney” prior to the filing of an injury report.
  • Two days after filing an injury report, Griebel was pulled from service and charged with dishonesty based upon suspicion rather than hard evidence.
  • Union Pacific never had a company attorney review the case to determine whether the Complainant’s legal rights under the FRSA were being properly observed, or the possible ramifications of its actions in dismissing the Complainant.

Whistleblower Lawyer Jason Zuckerman Will Speak at Bloomberg BNA Webinar on Recent Developments in Whistleblower Reward and Retaliation Claims

SEC whistleblower reward

Whistleblower attorney Jason Zuckerman will speak at a Bloomberg BNA webinar on April 30, 2014 at 1:00p.m. ET about  recent developments in whistleblowers reward and retaliation claims, including Sarbanes-Oxley and Dodd-Frank retaliation claims. The panelists are

  • Christopher Ehrman, Commodity Futures Trading Commission;
  • Sean McKessy, Securities and Exchange Commission;
  • Steven J. Pearlman, Proskauer Rose LLP;
  • Anthony Rosa, Department of Labor, Occupational Safety & Health Administration; and
  • Jason Zuckerman, Zuckerman Law

Employee whistleblower retaliation claims under a range of laws, such as the Sarbanes-Oxley and Dodd-Frank Acts, are on the rise, and whistleblowers now have a significant financial incentive to report fraud to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Though there is a definite spike in whistleblower claims implicating financial and accounting-related issues, they can arise in virtually all business functions and include alleged compliance failures ranging from violations of the Code of Conduct to infractions of securities laws or criminal fraud. It is critical to understand the robust protections available to whistleblowers and the financial incentives for employees to report fraud directly to the government.

The faculty presenting this program will address the latest cutting-edge developments in Sarbanes-Oxley and Dodd-Frank whistleblower retaliation claims, including:

  • Practical implications of the recent U.S. Supreme Court’s Lawson v. FMR LLC decision;
  • An update on the SEC and CFTC whistleblower reward program;
  • Whether internal disclosures are protected under Dodd-Frank;
  • ARB, federal and state court guidance on the use of purloined documents in whistleblower retaliation claims;
  • Extraterritorial application of Sarbanes-Oxley and Dodd-Frank;
  • Trends in OSHA enforcement of whistleblower protection laws; and
  • Whether Dodd-Frank whistleblower claims can be waived in separation agreements.

More information about the webinar is available here.

NJ District Court Holds that Dodd-Frank Protects Internal Whistleblowing


Dodd-Frank whistleblower protection lawyer

As discussed in a prior post on this blog, there is a spit of authority about whether the whistleblower protection provision of the Dodd-Frank Act protects internal disclosures.  Last summer, the Fifth Circuit held in Asadi v. G.E. Energy that Dodd-Frank Act protected conduct is limited to disclosures to the SEC.  Most of the district courts addressing this issue, however, have held that internal disclosures are protected under Dodd-Frank’s whistleblower protection provision.

On March 11, 2014, a New Jersey district judge held in Khazin v. TD Ameritrade Holding that internal reporting of potential securities law violations is protected whistleblowing under the Dodd-Frank Act’s anti-retaliation provision.  The holding rests largely on the SEC’s final rule implementing the Dodd-Frank Act whistleblower reward provision, which defines protected whistleblowing to include individuals who report potential violations to a supervisory authority and not to the SEC itself (citing 17 C.F.R. § 240.21F-2(b)(1); SEC Securities Whistleblower Incentives and Protections, 76 Fed. Reg. 34300-01).

Khazin acknowledges the Fifth Circuit’s decision in Asadi holding that Dodd-Frank Act whistleblower protection applies exclusively to individuals who have reported information to the SEC, but also notes that most of the decisions construing the Dodd-Frank Act’s whistleblower provision have held that it protects internal whistleblowing:

On the other hand, most district courts addressing this issue have concluded that the Dodd-Frank Act’s whistleblower provision is ambiguous on its face and they have relied on the SEC’s final rule for guidance. See e.g., Ellington v. Giacoumakis, No. 13-11791, 2013 WL 5631046, at *3 (D. Mass. Oct. 16, 2013) (relying on SEC’s comments to the Dodd-Frank Act in holding that “Congress intended that an employee terminated for reporting Sarbanes-Oxley violations to a supervisor or an outside compliance officer, and ultimately to the SEC, have a private right of action under Dodd-Frank whether or not the employer wins the race to the SEC’s door with a termination notice”); Murray v. UBS Sec., LLC, No. 12-5914, 2013 WL 2190084, at *4 (S.D.N.Y. May 21, 2013) (giving deference to the SEC’s interpretation of the rule and holding that the anti-retaliation whistleblower provisions apply to individuals who report information to the SEC or provide disclosures that fall under § 78u-6(h)(1)(A)(iii)). At least six district courts have construed the term “whistleblower” broadly and concluded that the Dodd-Frank anti-retaliation protections extend to individuals protected under the Sarbanes-Oxley Act regardless of whether disclosures were made to the SEC itself. See Ellington, 2013 WL 5631046 at *3; Murray, 2013 WL 2190084, at *7; Genberg v. Porter, 935 F. Supp. 2d 1094, 1106-07 (D. Colo. 2013); Nollner v. S. Baptist Convention, Inc., 852 F. Supp. 2d 986, 995 (M.D. Tenn 2012); Kramer v. Trans-Lux Corp., No. 11 Civ. 1424, 2012 WL 4444820, at *6-7 (D. Conn. Sept. 25, 2012); Egan v. Tradingscreen, Inc., No. 10 Civ. 8202, 2011 WL 1672066, at *6-7 (S.D.N.Y., May 4, 2011).

Recently, the SEC filed an amicus brief advocating broad construction of SOX protected conduct in a case on appeal to the Second Circuit.  If a circuit split emerges, the issue may warrant Supreme Court review.

Jury Awards Six Million Dollars to Whistleblower in Sarbanes-Oxley Case

SOX whistleblower protection provision

A jury awarded six millions dollars to Catherine Zulfer, a former accounting executive who alleged that her employment was terminated in retaliation for disclosing to her former employer’s Chief Financial Officer and Chief Compliance Officer concerns about accruing discretionary executive bonuses without Board approval.  The jury also ruled in Zulfer’s favor on her count of wrongful discharge in violation of California public policy and has not yet awarded punitive damages.  This case will likely set a record for the highest damages awarded under the whistleblower provision of the Sarbanes-Oxley Act.

One of the forms of protected conduct under Sarbanes-Oxley is the disclosure of a potential violation of “any rule or regulation of the Securities and Exchange Commission.”   Zulfer alleged that the bonus accrual to which she objected could violate SEC rules prohibiting the circumvention of internal accounting controls.  More detail about the claim is available in this brief filed by her attorneys.

This case highlights the importance of the kick-out provision in Section 806 of the Sarbanes-Oxley Act that authorizes whistleblowers to remove their claims to federal court after exhausting administrative remedies at the Department of Labor.  SOX does not authorize punitive damages, but a SOX whistleblower can add a claim in federal court for which punitive damages are available and try both claims before a jury.  But it is important to check whether the circuit in which the claim would be brought has adopted the Administrative Review Board’s decision in Sylvester v. Parexel Int’l broadly construing Sarbanes-Oxley protected conduct.  Some federal courts might continue to apply the prior ARB’s erroneous decision in Platone, which created several barriers for Sarbanes-Oxley whistleblowers that are contrary to the plain meaning and intent of the statute.

Whistleblower Attorney Zuckerman Will Speak at Upcoming ABA Conference

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Whistleblower lawyer Jason Zuckerman will speak on a panel at the March 2014 ABA ERR Midwinter Meeting titled “Handling Whistleblower Claims:  New Opportunities Create More Complex and Emerging Issues for Employment Lawyers.”  Zuckerman is honored to appear on the panel alongside experienced practitioners Stacey A. Campbell of Littler Mendelson P.C., Lloyd B. Chinn of Proskauer Rose LLP, Philip Hilder of Hilder & Associates, PC, and Gerald Waites of O’Donoghue & O’Donoghue.   The panel will explore in depth the fast-changing legal landscape for whistleblowers while offering practical insight on the latest issues. Topics covered will include:  latest developments on forum and claim selection for relaxed burdens of proof; financial incentives and other remedies; managing thorny confidentiality issues; handling highly public whistleblower cases; contingent labor as whistleblowers; mandatory arbitration (or not); and key recent cases defining the scope of protected activities.

Supreme Court Decision Strengthens Corporate Whistleblower Rights

Today the Supreme Court held in Lawson v FMR that employees of contractors and subcontractors of publicly-traded companies are protected against retaliation under the whistleblower protection provision of the Sarbanes-Oxley Act (SOX).  The decision is a big win for corporate whistleblowers, a rejection of the Chamber’s attempt to create a massive loophole in SOX, and an important bulwark in protecting investors and avoiding another Enron.

Jackie Lawson and Jonathan Zang were employed by private companies that provided investment advisory services to the Fidelity mutual funds and brought SOX retaliation claims alleging that their employment was terminated for disclosing violations of SEC rules.  In the mutual fund industry, the corporate entities that are required to file reports with the SEC typically do not have employees, and the funds are managed by employees of investment advisors.  Despite statutory text prohibiting contractors and subcontractors of publicly traded companies from retaliating against whistleblowers, the First Circuit held that SOX covers only employees of publicly-traded companies, thereby excluding employees in the mutual fund industry from SOX whistleblower protection.

Applying the plain meaning of the statue and what Justice Ginsberg termed “common sense,” the Court held, by a vote of 6-3, that employees of contractors and subcontractors of publicly-traded companies can bring SOX actions when they suffer retaliation for disclosing what they reasonably believe to be a violation of an SEC rule, shareholder fraud, mail fraud wire fraud, or bank fraud.

Implications of the decision include:

1. Lawson benefits millions of Americans who invest their retirement savings in mutual funds in that employees in the mutual fund industry will now be protected against retaliation when they complain about shareholder fraud or violations of SEC rules.

2. The decision will also benefit employees at law firms and accounting firms that prepare SEC filings and disclosures for publicly-traded companies.  Section III of the opinion contains a good discussion of the well-documented role of accountants and lawyers in perpetuating Enron’s fraud and covering it up.  Lawson notes that “Congressional investigators discovered ample evidence of contractors demoting or discharging employees they have engaged who jeopardized the contractor’s business relationship with Enron by objecting to Enron’s financial practices.”  Under Lawson, an associate at a law firm who suffers retaliation for disclosing inaccurate statements in a client’s draft annual report or other SEC filing can sue the firm under SOX.  It will be interesting to see what impact Lawson has on large law firms and accounting firms, which ostensibly act as gatekeepers and exercise independent professional judgment, but are also under intense pressure to please clients and generate new business.

3. The business community was hoping that the Supreme Court would decline to afford Chevron deference to the Department of Labor Administrative Review Board’s (ARB) decision in Spinner v. David Landau and Associates, LLC, ARB Nos. 10-111 and -115, ALJ No. 2010-SOX-29 (ARB May 31, 2012) broadly construing SOX coverage, just as the Court surprisingly declined to afford deference to EEOC guidance in Nassar.   This is a high priority for the business community because it has been trying to persuade federal courts not to adopt the current ARB’s broad interpretation of the scope of protected whistleblowing under SOX, as articulated in Sylvester v. Parexel Int’l., and instead preserve prior decisions establishing onerous and unreasonable burdens for SOX whistleblowers to prove protected conduct.   In Lawson, the Court found it unnecessary to reach the Chevron issue because the statutory text is unambiguous, but quoted with approval the ARB’s observation in Spinner that “Congress plainly recognized that outside professionals—accountants, law firms, contractors, agents, and the like—were complicit in, if not integral to, the shareholder fraud and subsequent cover-up [Enron] officers . . . perpetrated.”

This decision is a significant defeat for the Chamber’s efforts to weaken SOX whistleblower protection, and renders SOX a potent tool for corporate whistleblowers to remedy retaliation.



Issa-Grassley Report on FDA Surveillance Offers Critical Guidance to Agencies to Avoid Using Electronic Surveillance to Retaliate Against Whistleblowers

fda surveillance report

In a report titled “Limited Surveillance at the FDA: Protecting the Rights of Federal Whistleblowers,” Representative Issa and Senator Grassley offer crucial guidance for agencies to avoid abusing surveillance technology as a tool to retaliate against whistleblowers.  The report recommends that agency surveillance or monitoring policies include the following safeguards (see page 11 of the report):

  • protect employees against retaliation if communications with Congress, the OSC, or personal attorneys are captured through monitoring;
  • establish procedures that ensure protected whistleblower communications cannot be used for retaliation;
  • develop clear guidance for identifying and filtering protected communications so that protected communications are not retained or shared for any reason;
  • employees or contractors involved in the monitoring process should be trained on the safeguards; and
  • employees should be notified that their communications with Congress and the OSC are protected by law.

Hopefully agencies will review the report carefully and take whistleblower rights into account in formulating and implementing electronic surveillance policies.

Federal Courts Are Adopting the Administrative Review Board’s Broad Interpretation of Sarbanes-Oxley Protected Conduct


Dodd-Frank whistleblower protection

Nearly three years ago, the Department of Labor’s Administrative Review Board issued its seminal decision in Sylvester v. Parexel Int’l broadly construing Sarbanes-Oxley protected conduct and expressly rejecting the prior ARB’s erroneous decision in Platone, which created several barriers for Sarbanes-Oxley whistleblowers that are contrary to the plain meaning and intent of the statute.  The business community has tried hard to persuade federal courts not to adopt Sylvester, but that effort has been unsuccessful.

 In an article titled Doral Ruling Shows SOX’s Teeth Getting Sharper, Law 360 reports about a district court decision in Stewart v Doral Financial Corp. deferring to the ARB’s interpretation of Sarbanes-Oxley protected conduct.  The article quotes whistleblower lawyer Jason Zuckerman’s observation that “[t]he ARB’s Sylvester decision is fast becoming the law of the land and SOX is now a potent remedy for corporate whistleblowers.”  Indeed, last year two circuit court decisions expressly adopted Sylvester.  See Weist v. Lynch, 710 F.3d 121, 129 (3rd Cir. 2013); Lockheed Martin Corp. v. Administrative Review Bd., 717 F.3d 1121, 1129 (10th Cir. 2013).   Stewart offers a compelling analysis of Chevron deference to ARB decisions and suggests that a majority of federal court decisions construing Sarbanes-Oxley’s whistleblower protection provision will likely defer to Sylvester.