Fifth Circuit Holds that “Outing” a Whistleblower is an Adverse Action Under SOX

Sarbanes-Oxley whistleblower

Yesterday the Fifth Circuit issued a seminal decision in Halliburton v. Admin. Review Bd on the scope of Sarbanes-Oxley whistleblower protection, holding that 1) “outing” a whistleblower is a prohibited adverse action; 2) the “contributing factor” causation standard does not require a showing of a retaliatory motive; and 3) SOX affords noneconomic compensatory damages, including emotional distress and reputational harm.

Facts

While working as Director of Technical Accounting Research and Training in the Finance and Accounting department at Halliburton, Anthony Menendez raised concerns internally about questionable accounting practices. In particular, Menendez disclosed to his supervisor his belief that Halliburton’s practices involving revenue recognition did not conform with generally accepted accounting principles. Menendez’s supervisor initially responded by telling Menendez that he was not a “team player” and should try harder to work with colleagues to resolve accounting issues.

After Halliburton failed to address his concerns, Menendez filed a confidential disclosure with the SEC about Halliburton’s accounting practices. In addition, Menendez sent a memo to Halliburton’s Board of Directors raising the same issues he disclosed to the SEC, and that memo was forwarded to Halliburton’s General Counsel (GC). When Halliburton received a notice of investigation from the SEC requiring Halliburton to retain documents, Halliburton’s GC inferred from Menendez’s internal disclosures that he was the source of the SEC inquiry. The GC sent an email to Menendez’s colleagues instructing them to retain certain documents because “the SEC has opened an inquiry into the allegations of Mr. Menendez.”

Subsequent to the GC outing Menendez as a whistleblower, Menendez’s colleagues began treating him differently, refusing to work and associate with him. Menendez described the day that he saw the GC’s email outing him as a whistleblower as one of the worst in his life. Halliburton granted his request for paid administrative leave, and within a year, Menendez resigned.

Scope of Prohibited Adverse Actions Under SOX

The main issue on appeal was whether Menendez suffered an “adverse action” when Halliburton disclosed his identity as a whistleblower. Affirming the ABR’s decision, the Fifth Circuit applied the Supreme Court’s Burlington Northern material-adversity standard to SOX, i.e., the inquiry is whether a company’s actions well might have dissuaded a reasonable worker from engaging in protected conduct. Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53 (2006).

In this case, Halliburton’s outing of a whistleblower to his colleagues and informing them that the whistleblower caused them to be the subject of an SEC investigation “created an environment of ostracism” for the whistleblower, which well might dissuade a reasonable employee from whistleblowing. The court eloquently describes the impact of outing a whistleblower:

It is inevitable that such a disclosure would result in ostracism, and, unsurprisingly, that is exactly what happened to Menendez following the disclosure. Furthermore, when it is the boss that identifies one of his employees as the whistleblower who has brought an official investigation upon the department, as happened here, the boss could be read as sending a warning, granting his implied imprimatur on differential treatment of the employee, or otherwise expressing a sort of discontent from on high . . . In an environment where insufficient collaboration constitutes deficient performance, the employer’s disclosure of the whistleblower’s identity and thus targeted creation of an environment in which the whistleblower is ostracized is not merely a matter of social concern, but is, in effect, a potential deprivation of opportunities for future advancement.

SOX Whistleblowers Need Not Prove Retaliatory Motive

On appeal, Halliburton asserted that a SOX whistleblower must prove a “wrongfully-motivated causal connection.” The Fifth Circuit emphatically rejected this argument, citing its prior decision in Allen v. Admin. Review Bd., 514 F.3d 468 (2008) clarifying that a “contributing factor” is “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.”  In addition, the court relied on a Federal Circuit decision holding “a whistleblower need not demonstrate the existence of a retaliatory motive on the part of the [employer] in order to establish that his [protected conduct] was a contributing factor to the personnel action.” Marano v. Dep’t of Justice, 2 F.3d 1137, 1141 (Fed. Cir. 1993).

SOX Authorizes Damages for Emotional Distress and Reputational Harm

The Fifth Circuit also rejected Halliburton’s contention that SOX does not authorize noneconomic compensatory damages, i.e., emotional distress and reputational harm. Relying on the statutory text (identifying “special damages” as a remedy for a prevailing SOX whistleblower), the Tenth Circuit’s recent decision in Lockheed Martin Corp. v. Admin. Review Bd., 717 F.3d 1121, 1138 (10th Cir. 2013), and cases construing “special damages” under the False Claims Act’s anti-retaliation provision, the court concluded that SOX affords noneconomic compensatory damages.

Implications

By clarifying the broad scope of actionable adverse actions and the low burden to establish causation, Halliburton establishes very helpful precedent for whistleblowers. In addition, the case also offers an important glimpse into the challenges that corporate whistleblowers face when disclosing accounting fraud. Despite having robust compliance and reporting procedures in place, Halliburton responded to a whistleblower by accusing him of not being a team player and then outing him and essentially destroying his career at the company. The facts of the case highlight why it is so important for whistleblowers to have the option to make confidential disclosures to the SEC, and confirms that the SEC was correct to reject Dodd-Frank rulemaking proposals from the business community to require whistleblowers to report internally before becoming eligible for a whistleblower award. Indeed, the SEC recently issued an award to a whistleblower who “engaged in diligent efforts to correct and to bring to light the underlying misconduct” prior to making a disclosure to a self-regulatory agency and the SEC.

Whistleblower attorney Jason Zuckerman Will Speak at ABA Seminar About Litigating Whistleblower Claims at the U.S. Department of Labor

SOX whistleblower protection provision

DC whistleblower lawyer Jason Zuckerman will be speaking at a panel about litigating whistleblower claims at the U.S. Department of Labor on December 8, 2014 at the Hillsborough County Bar Association in Tampa, FL.   The program is sponsored by the ABA Section of Labor and Employment Law, National Employment Lawyers Association, Florida Bar Labor and Employment Section and the Hillsborough County Bar Association Labor and Employment Section.  Click here to register.

Zuckerman is privileged to join distinguished panelists Edwin G. Foulke, Jr., Fisher & Phillips LLP, Atlanta, GA, Megan Guenther, U.S. Department of Labor, Washington, DC, and Cynthia N. Sass, Law Offices of Cynthia N. Sass, P.A., Tampa, FL.

Program Description

From the Sarbanes-Oxley Act and the Affordable Care Act to the Occupational Safety and Health Act, more than 25 whistleblower statutes are now enforced by the United States Department of Labor. Given the rise in whistleblower protections, practitioners need to know how to navigate the DOL’s administrative adjudication process for whistleblower claims. A distinguished panel, featuring Megan Guenther from the DOL, along with experienced practitioners, will discuss DOL’s recently-expanded Whistleblower Protection Program and its recently-modified procedures for investigating and adjudicating whistleblower claims. In addition, the expert panel will offer practical insights on litigating before the DOL, and explore the considerations involved in deciding whether to invoke the “kick out” provisions that allow litigants to bring claims under DOL-enforced statutes in federal court.

 

Whistleblower Lawyer Jason Zuckerman Speaking at Seminar About Navigating the Maze of Private Sector Whistleblower Anti-Retaliation Laws

DC whistleblower lawyer Jason Zuckerman is privileged to join Richard Renner, Of Counsel, Kalijarvi, Chuzi, Newman & Fitch, to speak on November 18, 2014 program about “Navigating the Maze of Private Sector 
Whistleblower Anti-Retaliation Laws.” The proliferation of whistleblower retaliation and reward laws has created a complex maze of claims and remedies. This brown bag will examine issues that frequently arise in private sector whistleblower cases. The topics will include recent developments under the Sarbanes-Oxley and Dodd-Frank Acts, preserving retaliation claims while pursuing reward claims, choosing the optimal forum, minimizing claim splitting and claim preclusion risks, and exhausting administrative remedies.

Whistleblower Lawyer Jason Zuckerman Speaking at CLE About Mastering Whistleblower, Qui Tam, & SLAPP Law

Whistleblower Lawyer Jason Zuckerman will be speaking at a CLE on November 12, 2014 titled “Mastering Whistleblower, Qui Tam, & SLAPP Law.” Click here to register.

Learn the latest on Mastering Whistleblower, Qui Tam, & SLAPP Law with this convenient, live telephonic seminar. All registered attendees who are unable to participate in the live teleconference will be e-mailed a complimentary absentee recording & podcast of the full-length seminar two days after the live teleconference. Register to obtain CLE & MCLE credit, receive access to complete course & reference materials, and attend this telephonic seminar.

Mastering Whistleblower, Qui Tam, & SLAPP Law Live CLE

90-Minute Live Telephonic Seminar

Noon-1:30 PM (Eastern Time)

Benefits:

Fluency in Qui Tam, Whistleblower, & SLAPP law has become increasingly important in recent years due to a significant expansion of whistleblower reward and protection laws. Over the past two decades, nearly $30 billion has been recovered through Qui Tam cases under the False Claims Act, and recently the SEC’s whistleblower program has issued large awards. At the same time, recent amendments to whistleblower laws and significant decisions construing whistleblower protection laws have resulted in an increase in whistleblower litigation. Similarly, SLAPP actions (Strategic Law Suits Against Public Participation) and anti-SLAPP have become a staple in complex litigation. The Rossdale faculty for this seminar features three national authorities in these evolving practices, who will describe the latest developments and cutting edge issues in whistleblower protection, litigating & handing Qui Tam claims, as well as SLAPP law. Registration includes online access to course and reference materials that serve as a helpful guide to the numerous topics and techniques discussed in the program.

Agenda:

Whistleblower Retaliation:

  • Recent Developments in Laws Protecting Whistleblowers, including import of the Supreme Court’s Lawson v. FMR LLC decision
  • What is the Scope of Protected Whistleblowing Under Dodd-Frank & Sarbanes-Oxley?
  • Key Procedural Distinctions Between Sarbanes-Oxley and Dodd-Frank Retaliation Claims
  • Use of “Purloined” Documents and Self-Help Discovery to Prove Retaliation Claims
  • SEC’s Increased Focus on “Gag Provisions” in Settlement Agreements

Successfully Litigating False Claim Act Claims:

  • Winning Techniques for Qui Tam Enforcement
  • Unearthing the Fastest Growing Area of Federal Litigation
  • Decoding the Recent Amendments to False Claim Legislation
  • Navigating FCA Investigations & Demands

Effective Handling Anti-SLAPP Matters:

  • Background Essentials of SLAPP
  • Winning the Inevitable Appeal
  • Best Practices on Preserving Issues
  • Anti-SLAPP Fees & Motions
  • Interactive Question & Answer Session

 

 

 

SEC Whistleblower Lawyer Jason Zuckerman Quoted About Tips for SEC Whistleblowers

Dodd-Frank whistleblower protection lawyer

A Law360 article titled Dos And Don’ts For Lucrative SEC Whistleblower Tips quotes whistleblower lawyer Jason Zuckerman extensively about submitting tips that capture the SEC’s attention and maximize the chances of an eye-popping payday:

 Zuckerman Law’s Jason Zuckerman says the requirement that a whistleblower provide “original information” also acts as an incentive for early disclosure because of the potential for someone else to bring the same information to light first.
And any tip that gives the SEC a chance to step in and put a halt to fraud that’s still going on is likely to pique the agency’s attention.
. . . Zuckerman says a good tip will give the SEC a “roadmap for a successful enforcement action” by pointing out supporting precedent and identifying where additional evidence might be located.
. . . Voicing concerns in-house, however, isn’t always the way to go, says Zuckerman. If a company’s senior management is elbow-deep in the alleged fraud, internal reporting can be pointless and lead to retaliation, he says.
“Internal reporting will increase the whistleblower’s reward, but at certain companies, it can be futile and could potentially interfere with an SEC investigation by tipping off the company and giving it an opportunity to alter or destroy evidence,” said Zuckerman.

Whistleblower Attorney Jason Zuckerman Speaks at Seminar About Whistleblower Claims

DOL Whistleblower Protection

DC whistleblower lawyer Jason Zuckerman recently spoke at an ABA seminar titled SOX, OSHA, and Beyond: Litigating Whistleblower Claims at the DOL. Zuckerman was privileged to appear alongside Solicitor of Labor Patricia Smith and Proskauer partner Connie Bertram. The current edition of the ABA Section of Labor and Employment Law’s Flash newsletter reports about this outreach program designed to provide practical information and advice about how to navigate the administrative investigative and adjudication processes of whistleblower claims at the DOL:

To say “there has been quite a bit of attention paid to whistleblower claims and lawsuits recently” is likely the understatement of the year. Indeed, the U.S. Senate declared July 30, 2014, as “National Whistleblower Appreciation Day” for the second year in row. This resolution came on the anniversary of the first ever whistleblower protection law enacted on July 30, 1778. Things have certainly changed since 1778 and, most significantly, within the past 10 years. It is more critical now, than ever, for labor and employment attorneys, corporate executives, human resources professionals, community and union leaders, and employees to know the evolving rights and responsibilities of whistleblowers and their employers in this ever-changing arena.

Given this backdrop, the Labor & Employment Law Section is pleased to announce it has combined forces with the United State Department of Labor to present SOX, OSHA, and Beyond: Litigating Whistleblower Claims at the DOL. This “must see” seminar will be presented in ten major cities around the country, starting September 18 in Washington D.C.

The DOL now enforces more than 25 whistleblower statutes. The program, accordingly, features a presenter from the DOL, as well as a balanced panel of seasoned practitioners. Attendees will receive practical information and advice about how to navigate the administrative investigative and adjudication processes of whistleblower claims at the DOL.

Topics to be addressed during the seminar include recent changes by the DOL to its whistleblower enforcement program, including changes to complaint and investigation procedures, and legislated increased time limits within which employees may file complaints of retaliation. Speakers will also provide practical tips on litigating whistleblower retaliation claims before the OALJ and ARB, including a discussion of the OALJ’s revised procedural rules and the ARB’s new proposed procedural rules.

Whistleblower Lawyer Jason Zuckerman Quoted About SEC Whistleblower Award

Dodd-Frank whistleblower protection lawyer

A Law360 article titled SEC Welcomes Foreign Whistleblowers Though Courts Don’t quotes whistleblower lawyer Jason Zuckerman about the SEC awarding more than $30 million to a whistleblower under the SEC’s Dodd-Frank whistleblower reward program.  The article focuses on two aspects of the SEC’s orderFirst, the order clarifies that the SEC can reward whistleblowers overseas who disclose violations of U.S. securities laws. Second, the order penalizes the whistleblower for not coming forward earlier to disclose the fraud.

The article quotes whistleblower attorney Jason Zuckerman’s observation that the SEC’s order will encourage whistleblower to disclose fraud early on to get a higher award:

“The SEC is sending a strong signal that whistleblowers should report violations early on in order to protect investors,” said Jason Zuckerman, a Washington, D.C.-based sole practitioner who focuses on whistleblower claims. “His massive award will likely embolden more whistleblowers to take the risk entailed in coming forward and reporting fraud.”

Whistleblower Lawyer Jason Zuckerman Quoted About Sarbanes-Oxley Whistleblower Protection

SOX whistleblower protection provision

A Law360 article titled DOL Take On SOX Getting Fed. Court Deference, Lawyers Say quotes whistleblower lawyer about recent federal court decisions construing the scope of protected whistleblower under the Sarbanes-Oxley Act.

The article reports that recent federal court decisions are deferring to the DOL Administrative Review Board’s decision in Sylvester v. Parexel Int’l broadly construing Sarbanes-Oxley whistleblowing.  The article quotes Zuckerman’s observation that “There is a clear trend emerging in which federal courts are deferring to Sylvester.”

In Sylvester, the ARB held:

  • Under the plain language of SOX, “the complainant need only show that he or she ‘reasonably believes’ that the conduct complained of constitutes a violation of the laws listed in Section 1514.”
  • An employee need not wait until the illegal conduct occurs to make a protected disclosure, so long as the employee “reasonably believes that the violation is likely to happen.”
  • A complaint need not allege shareholder fraud in order to be protected under SOX.  The ARB found that SOX was enacted, not solely to address securities fraud, but “corporate fraud generally.”  It is sufficient for an employee to form a reasonable belief that a violation of “any rule or regulation of the Securities and Exchange Commission” could lead to fraud, even if the violation itself is not fraudulent.  For example, SOX would protect a disclosure about deficient or inadequate internal controls over financial reporting, even though there is no allegation that fraud has actually taken place.
  • The reasonable belief standard requires an examination of the reasonableness of a complainant’s beliefs, but not whether the complainant actually communicated the reasonableness of those beliefs to management or the authorities.
  • The ARB overruled prior authority that had required a complainant to establish that the protected disclosure “definitively and specifically” related to one or more of the laws listed under Section 806(a).  See Platone v. FLYi, Inc., ARB 04-154, 2003-SOX-27 (ARB Sept. 29, 2006) (holding that the complainant did not engage in protected activity because she did not provide her employer with specific information regarding the conduct she believed constituted fraud).
  • A SOX complainant has engaged in protected activity if he or she simply has an objectively reasonable belief that a violation of the laws in Section 806 has occurred – the complainant does not need not establish the various elements of criminal fraud.  The ARB found that requiring a complainant to allege, prove, or approximate the elements of fraud (that the reported conduct was “material,” intentional, relied upon by shareholders, and caused a loss to shareholders) would be contrary to the purpose of the whistleblower protection provision.
  • The Iqbal/Twombly plausibility pleading standard does not apply to SOX claims.   Instead, a SOX complainant must simply provide “a full statement of the acts and omissions…which are believed to constitute the violations.”

Post-Sylevster, employers have tried to persuade federal courts to ignore the decision and instead defer to the ARB’s prior Platone decision.  Fortunately, that effort has been largely unsuccessful.  See, e.g., Wiest v. Lynch, 710 F.3d 121 (3d Cir. 2013) (holding that Sylvester is entitled to Chevron deference); Leshinsky v. Telvent GIT, S.A., 942 F. Supp. 2d 432, 443 (S.D.N.Y. 2013); Stewart v. Doral Fin. Corp., CIV. 13-1349 DRD, 2014 WL 661587 (D.P.R. Feb. 21, 2014).

In Lockheed Martin Corp. v. Administrative Review Bd., the Tenth Circuit held that “the Board explicitly disavowed the ‘definitive and specific’ evidentiary standard for Sarbanes–Oxley complainants.”  Lockheed Martin Corp. v. Admin. Review Bd., U.S. Dep’t of Labor, 717 F.3d 1121, 1132 n.7 (2013).  In August 2014, the Second Circuit held that Sylvester should be granted Skidmore deference, or “respect according to its persuasiveness.”  Nielsen v. AECOM Tech. Corp., 2014 WL 3882488 (2d Cir. Aug. 8, 2014).   Note though that some jurisdictions continue to apply PlatoneSee, e.g., Gauthier v. Shaw Group, Inc., 2012 WL 6043012 (W.D.N.C. Dec. 4, 2012) (dismissing SOX complaint because the alleged protected conduct did not relate specifically to shareholder fraud).  As federal courts increasingly defer to Sylvester, SOX whistleblowers are more likely to survive summary judgment and establish protected conduct at trial.

 

 

Whistleblower Lawyer Jason Zuckerman Will Speak About False Claims Act Litigation at Taxpayers Against Fraud Conference

contractor whistleblower protection

Whistleblower lawyer Jason Zuckerman will speak on a panel titled “Latest Trends in FCA Defense Tactics” at the Fourteenth Annual Taxpayers Against Fraud Education Fund Conference.  The other panelists are distinguished qui tam attorneys Jennifer Verkamp and Matthew Organ.

TAFEF presents the only national conference dedicated to serving those who prosecute False Claims Act qui tam actions. The TAFEF Annual Conference brings together key FCA players, including government attorneys from the U.S. Department of Justice and U.S. Attorneys offices, federal agency officials, state government attorneys and officials, relators’ counsel, and other experts, and provides valuable educational information and practical analysis in this important legal practice area.

Whistleblower Attorney Jason Zuckerman Will Speak About Sarbanes-Oxley Whistleblower Protection at VBA Conference

Whistleblower attorney Jason Zuckerman will speak about “Navigating the Maze of Private Sector Whistleblower  Protections: Recent Developments in Sarbanes-Oxley, Dodd-Frank, and False Claims Act Whistleblower Litigation” on September 12, 2014 at the 44th Annual VBA Conference on Labor Relations and Employment Law.

The panel will focus on hot topics in Sarbanes-Oxley (SOX), Dodd-Frank, and False Claims Act whistle-blower retaliation claims, including:

  • Practical implications of the recent U.S. Supreme Court’s Lawson v. FMR LLC decision;
  • Whether internal disclosures are protected under Dodd-Frank;
  • DOL and federal court decisions defining the scope of protected conduct under SOX; and
  • Practical tips for litigating whistleblower retaliation claims.