Whistleblowing & Compliance Law Blog : Whistleblowing Defense Lawyer & Attorney : Epstein Becker & Green Law Firm : Employment Retaliation, Compliance Counsel

Allen B. Roberts and Stuart Gerson  are co-authors of the recent Law360 article Examining The Purpose Of Sarbanes-Oxley. This summary of recent Administrative Review Board actions explains the shift in the standards whistleblowers must meet, and how employers should prepare for this new era of litigation.

In previous articles and postings, we have cautioned that legislative policy of the Dodd-Frank Wall Street Reform and Consumer Protection Act threatens to circumvent corporate compliance programs and drive whistleblowers having vital information outside the organization in the hope of receiving rich bounty awards. In a recent article published by Bloomberg Law Reports®, Allen Roberts discusses some of the challenges businesses subject to SEC jurisdiction need to address in the face of the SEC’s Final Rule – mindful that the plaintiffs’ bar has geared up to capitalize on new opportunities.

For more information, see Allen B. Roberts, Dodd-Frank Bounty Awards and Protections Change Whistleblower Stakes -- Will Opporunity for Personal Gain Frustrate Corporate Compliance?, Bloomberg Law Reports - Securities Law (2011) (pdf)

By: Stuart M. Gerson

On May 16, 2011, the U.S. Supreme Court decided the case of Schindler Elevator Corp. v. United States ex rel. Kirk (pdf), holding that the public disclosure bar of the False Claims Act (FCA) is triggered by a federal agency’s written response to a Freedom of Information Act (FOIA) request. This important, and much awaited, decision makes it clear that an agency’s FOIA response constitutes a “report” for purposes of the FCA’s public disclosure bar, which forecloses private parties from bringing qui tam whistleblower suits to recover falsely or fraudulently obtained federal payments where those suits are "based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media." 31 U. S. C. §3730(e)(4)(A).

The Respondent in the underlying case, a Vietnam War Veteran, brought a qui tam lawsuit under the FCA, alleging that his former employer submitted hundreds of false claims for payment under federal contracts that were subject to certain reporting requirements under the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA). Specifically, the Respondent alleged that his former employer failed to adequately report the number of veterans it employed to the U.S. Department of Labor (DOL). In support of his allegations, the Respondent relied upon three written responses to FOIA requests, which his wife received from the DOL, which supplied the reports filed by the company, or lack thereof. 

The U.S. Court of Appeals for the Second Circuit, reversing an order of dismissal from the U.S. District Court for the Southern District of New York, held that the DOL’s response was neither a “report” nor an “investigation,” as contemplated by the FCA’s public disclosure bar. The Supreme Court reversed per Justice Thomas, writing for himself, Chief Justice Roberts and Justices Scalia, Kennedy and Alito.  Justice Ginsburg, joined by Justices Breyer and Sotomayor, dissented. Justice Kagan took no part in this case.

By: Allen B. Roberts, Stuart M. Gerson and Daniel J. Schuch

In a case packed with allegations of the kind rarely found beyond the script of a soap opera, the U.S. Department of Labor ("DOL") Administrative Review Board ("ARB") determined that protected activity under the Sarbanes-Oxley Act of 2002 ("SOX") does not require a showing of fraud against shareholders. Rather, per the ARB, it is sufficient that an employee reasonably believes conventional mail or wire fraud has occurred. The holding in Brown v. Lockheed Martin Corp. (pdf) evidences the ARB's adherence to a literal, and clinical, construction of SOX – and serves as a clear indication of the ARB's willingness to reach beyond the underlying objectives envisioned by Congress in the wake of the infamous collapse of Enron and WorldCom. If upheld and followed, Brown effectively expands SOX whistleblower protections well beyond the intended beneficiary of the law – the "innocent investor."

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By Allen B. Roberts and John Houston Pope

With virtually no fanfare, a major sector of the American workforce – those who handle food – won whistleblower protections under the FDA Food Safety Modernization Act (“FSMA”), Pub. L. No. 111-353. The Food and Drug Administration (“FDA”) describes FSMA, signed into law on January 4, 2011, as improving food safety by preventing hazards “from farm to table” and making “everyone in the global food chain responsible for safety.”

While much attention and controversy surrounded the whistleblower bounty awards of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) enacted in July 2010, the potentially more significant whistleblower provision of FSMA passed in the final days of the 2010 legislative session in routine and undramatic fashion. Indeed, the most significant whistleblower portions of the bill did not emerge until a version of the bill was reported out of a Senate committee in mid-November. (No written report explained the major changes written into the law.) Because of the sheer size of the workforce that touches food and the comprehensive definition of “protected activity,” however, the relatively unheralded law extends coverage and companion employer obligations in potentially unprecedented measure. The claims that result could dwarf those arising under whistleblower laws receiving far more media and business attention.

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By David W. Garland and Allen B. Roberts

Major provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) will gain substance and vitality only with amplifying interpretive rules. On December 17 the period closed for submitting comments on rules proposed by the Securities and Exchange Commission (SEC) to implement whistleblower provisions added in a new Section 21F to the Securities Exchange Act of 1934 (Exchange Act). With the comment period having closed, and final rules expected to be implemented in the Spring of 2011, this is a good time to take account of the proposed rules regarding the statute’s anti-retaliation provisions and their potential impact on employers.   

Dodd-Frank authorizes bounty awards to eligible whistleblowers who voluntarily provide original information to the SEC about a violation of the federal securities laws leading to a successful enforcement action and resulting in a monetary sanction exceeding $1,000,000.  It is not surprising that much of the analysis and media attention generated by Dodd-Frank concerns the bases on which the SEC will make determinations about paying potentially enormous bounty awards that can range from 10% to 30% of the amount of monetary sanctions. 

Section 21F also protects whistleblowers against retaliation by their employers, with the scope of protection circumscribed by the statutory definition of a whistleblower.  Rather than providing protection equally for internal disclosures to the employer and external disclosures to authorized agencies and authorities, as is seen commonly in whistleblower statutes, Section 21F protects only certain external disclosures. It defines a whistleblower narrowly as any individual, acting alone or jointly, who provides information relating to a violation of the securities laws to the SEC in the manner prescribed by the SEC.

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Whistleblower considerations are likely to be especially prominent in the new year and as a new Congressional term begins, leading to the 2012 election campaign.

Please join me and other attorneys from my firm, EpsteinBeckerGreen, as we present a full-day program covering labor and employment law topics that have increasingly impacted employers over the past two years. In addition, we will offer an outlook of what we should expect in the coming two years. Our keynote speaker is Darrel Thompson, Senior Advisor to Senate Majority Harry Reid, who will offer comments concerning the agenda of the 112th Congress. We are particularly pleased that Norah O'Donnell, MSNBC Chief Washington Correspondent, is attending the event as our guest luncheon speaker.

For more details and registration information, please visit the EpsteinBeckerGreen website.

I hope to meet you and other readers of this blog.

An in-house patent attorney who protested that his employer knowingly assigned a $50 million value to acquire patents alleged to be worthless could not link his discharge to whistleblower activity protected by the Sarbanes-Oxley Act. Affirming dismissal in Vodopia v. Koninklijke Philips Electronics, N.V., et al., the Second Circuit Court of Appeals observed that: (1) the complaint clearly centered on the plaintiff’s concern that the patents were invalid, not on the value the company assigned to them; and (2) the complaint did not allege that the $50 million value assigned to those patents was ever reported to the public or to shareholders.

Sarbanes-Oxley Section 806 makes it unlawful for an employer to take an unfavorable personnel action by discharging, or in any other manner discriminating against, an employee in the terms or conditions of employment because of any lawful act done by the employee to provide information or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of certain enumerated federal laws. 

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In the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Congress has crafted an array of bounty awards and whistleblower protections broadly affecting securities, commodities and futures, and consumer financial products firms and those associated with them. Although there was an opportunity to create incentives promoting internal reporting in aid of corporate compliance programs and to rationalize whistleblowing with standardized definitions, procedures and remedies, Congress went in different directions. The result is a set of whistleblower inducements that may frustrate attainment of corporate compliance objectives by driving whistleblowers outside the organization and an enigmatic patchwork of whistleblower protections laden with internal variations that must be mastered.

Into the mix of entirely new extensions of coverage by way of bounty awards and whistleblower protections, Dodd-Frank adds provisions mandating whistleblowing for nationally recognized statistical rating organizations. It also adds significant changes enabling whistleblowers to fare better under the Sarbanes-Oxley Act and the False Claims Act.

Allen B. Roberts explores the provisions and variations existing within Dodd-Frank that present compliance challenges, and a trigger for affected firms to revisit compliance policies, practices and procedures, in The Sounds of New Whistleblower Awards and Protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act (pdf), originally published by Bloomberg Finance L.P. (reprinted with permission).

[Ed. Note: We thank our colleague Richard D. Tuschman for this post, which was originally published on EBG’s Florida Employment & Immigration Law Blog]

An employee claiming Whistleblower protection under the Sarbanes-Oxley Act must have actually believed that his company’s conduct was illegal in order to state a claim under the Act, according to a recent decision by the Eleventh Circuit Court of Appeals, Gale v. U.S. Department of Labor, Case No. 08-14232 11th Cir. June 25, 2010) (pdf).

The case arose when Michael Gale was terminated from his employment at World Financial Group (“WFG”). Gale filed a Whistleblower complaint with the Occupational Safety and Health Administration, which enforces the SOX Whistleblower provisions. Gale alleged that he was terminated because he opposed decisions made by company officers relating to waste and misuse of corporate funds, and because he raised concerns regarding the alleged violation of SEC rules and regulations.

Under SOX, a publicly traded company and its officers are prohibited from discharging an employee for providing information to a supervisory authority about conduct that the employee “reasonably believes” constitutes a violation of federal laws against mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation, or any provision of federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1). 

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We continue to follow developments on Wall Street financial reform legislation and the whistleblower rights and protections that will come with its enactment. Now recast as the Dodd-Frank Wall Street Reform and Consumer Protection Act, the bill will be considered with its Conference Report (pdf).

A preview of the legislation is addressed in the interview of Allen Roberts by Bloomberg legal analyst Spencer Mazyck, now available in video, below:

By: Allen B. Roberts, Victoria M. Sloan

The typical set of protections or awards featured in a familiar array of whistleblower statutes has a new entrant with the imposition of mandated reporting in the Elder Justice Act section of the recently enacted Patient Protection and Affordable Care Act (“PPACA”). In a notable departure from other laws, the Elder Justice Act provides that every individual employed by or associated with a long-term care facility as an owner, operator, agent or contractor has an independent obligation to report a “reasonable suspicion” of a crime affecting residents or recipients of care. Reports must be made directly to both the Secretary of Health and Human Services (“HHS”) and one or more law enforcement entities in as little as two hours following the formation of the reasonable suspicion.

Although limited to reports of crimes against residents and recipients of services of long-term care facilities, the mandate of the Elder Justice Act sets a new standard of conduct – and backs it up with stiff penalties affecting long-term care facilities and those associated with them.

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A new wave of whistleblower monetary awards and protections will come to the financial services industry once the Restoring American Financial Stability Act of 2010 (RAFSA) is enacted. With final resolution of differences between House and Senate versions accomplished, both houses of Congress now will consider the conference committee bill.

Bloomberg legal analyst Spencer Mazyck has been following whistleblowing changes we are likely to see with the anticipated enactment of RAFSA. Spencer explored with me some contours and ramifications of the pending legislation during 20-minute Bloomberg podcast.

Click here to listen to the audio podcast 
 

On the heels of its 2-1 decision in Hyman v. KD Resources, allowing equitable estoppel to extend the Sarbanes-Oxley (SOX) statute of limitations (noted in our blog posting of April 20, 2010), the Department of Labor Administrative Review Board (ARB) has issued a unanimous decision clarifying the burden for whistleblowers to survive dismissal of complaints that are not filed within the explicit 90-day statute of limitations. Daryanani v. Royal & Sun Alliance, ARB No. 08-106, ALJ No. 2007-SOX-79 (ARB May 27, 2010).

Adhering to the principle that equitable estoppel may apply when certain employer conduct interferes with a whistleblower-employee’s exercise of rights, the ARB nevertheless refused to extend the SOX statute of limitations on the basis of alleged inaction by an employer. Holding equitable estoppel would not be available in the circumstances, the ARB observed that the employer had no affirmative obligation to:

• inform the employee of potential causes of action,
• inform the employee of time limitations applicable under statutes creating a cause of action, or
• counter-sign a severance release agreement within the statute of limitations deadline.

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