Source: https://www.whistleblower-defense.com/
Timestamp: 2019-04-18 15:11:31+00:00

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Per our previous post, the European Parliament and the Member States agreed to adopt new rules that would set the standard for protecting whistleblowers across the EU from dismissal, demotion, and other forms of retaliation when they report breaches of various areas of EU law. According to a press release issued by the European Parliament yesterday, April 16, 2019, the Parliament approved these changes by an overwhelming majority. The new rules require that employers create safe reporting channels within their organization, protect whistleblowers who bypass internal reporting channels and directly alert outside authorities, including the media under certain circumstances, and require that national authorities provide independent information regarding whistleblowing. This legislation marks a significant departure from the jurisdiction-specific approach that has resulted in disparate protection across Europe, with some jurisdictions, like Germany and France, offering relatively limited protection when compared to other jurisdictions, such as the UK. These changes, if approved by the EU ministers, will set a uniform baseline and therefore considerably increase whistleblower protections in the EU. Member States will have two years to achieve compliance. We will continue to monitor this development.
On February 28, 2019, a Los Angeles jury issued a verdict of $1.5 million in damages to a former employee who alleged his employer retaliated against him for reporting misconduct in violation of the False Claims Act (“FCA”), 31 U.S.C. § 3730(h), the Defense Contractor Whistleblower Protection Act (“DCWPA”), 10 U.S.C. § 2409, and California’s whistleblower statute, California Labor Code section 1102.5. Lillie v. ManTech Int’l Corp, No. 17-cv-02538 (C.D. Cal.). The verdict form can be accessed here.
Plaintiff, a former NASA Mars mission engineer at ManTech International Corp. (the “Company”), alleged his employment was terminated because he reported that he had received unauthorized access to classified and proprietary information owned by a third-party government contractor in violation of federal rules governing sensitive United States government procurement contracts. He alleged that he had previously received positive performance evaluations and generous pay increases, but after he raised his concerns he was sent home without pay, placed on furlough, and then discharged.
Plaintiff brought claims for retaliation under the FCA, the DCWPA and California’s whistleblower statute in the U.S. District Court for the Central District of California. Finding in his favor on all of these claims, the jury awarded Plaintiff approximately $522,000 for past lost wages, $340,000 for future lost wages, and nearly $644,000 for past and future emotional distress damages.
This case is consistent with a trend of sizable jury verdicts in whistleblower retaliation claims. We recently reported on an $11 million whistleblower verdict in San Francisco, much of which was upheld on appeal, and other large whistleblower verdicts in Missouri, Oregon and Illinois. This trend highlights the risks employers face under federal and state whistleblower laws, and serves as a wake-up call for employers to carefully review their whistleblower protection policies and related protocols.
According to data released by OSHA, the number of whistleblower complaints filed under SOX and the Consumer Financial Protection Act (“CFPA”) declined in 2018. OSHA received 45 complaints under the CFPA in 2018 (down 50% from the 90 complaints received in 2017) and 155 complaints under SOX (down from the 186 received in 2017).
On February 26, 2019, the Ninth Circuit affirmed much of a jury’s approximately $11M verdict finding that a former general counsel was discharged in retaliation for reporting alleged Foreign Corrupt Practices Act (“FCPA”) violations. Wadler v. Bio-Rad Labs., Inc., No. 17-cv-16193.
Sanford Wadler, then the former General Counsel of Bio-Rad Laboratories, Inc. (the “Company”) filed whistleblower retaliation claims against the Company and its CEO under SOX and Dodd-Frank, along with a wrongful termination claim against the company under California common law. Wadler’s claims were premised on his allegation that he was discharged for submitting a memorandum to Bio-Rad’s audit committee asserting FCPA violations.
The district court denied the Company’s motion to dismiss after the SEC filed an amicus brief arguing that Dodd-Frank prohibits retaliation based on internal complaints, and the case proceeded to trial. On the eve of trial, the Company filed a motion to exclude evidence it claimed was shielded by the attorney-client privilege. The SEC submitted another amicus brief, arguing that federal whistleblower laws are designed to protect all employees of public companies from retaliation, and preempt California’s ethical rules that generally prohibit attorneys from disclosing client confidences. The motion was denied and a trial was held over several weeks in January and February 2017. On February 6, 2017, the jury found in Wadler’s favor on each of his claims and awarded him approximately $11M, including $2.96M in backpay, which was doubled under Dodd-Frank, and $5 million in punitive damages under his California public policy claim. An appeal to the Ninth Circuit followed.
The Ninth Circuit upheld the award of damages with the exception of the award of double backpay under Dodd-Frank, recognizing that the U.S. Supreme Court in Digital Realty Trust, Inc. v. Somers, No. 10-1276 (2018), held that Dodd-Frank does not protect purely internal complaints (discussed here). However, the Ninth Circuit vacated the verdict as to the SOX claim, concluding that the jury instructions erroneously listed the FCPA’s anti-bribery and books-and-records-provisions as “rules and regulations of the SEC” under SOX Section 806. The court explained that those provisions are not “rules or regulations” of the SEC under Section 806 of SOX because Congress’s use of the phrase “rule or regulation” in conjunction with an administrative agency (the SEC) suggests it was only intended to encompass administrative rules or regulations. This interpretation was supported by Congress’s use of that phrase in the same list of unlawful activities (in Section 806 of SOX) as violations of “Federal law relating to fraud against shareholders,” which suggests there is a difference between the meaning of a “law”—which encompasses statutes (like the FCPA)—and a “rule or regulation”—which does not. The Ninth Circuit ruled that the district court erred in instructing the jury otherwise, and that the error was not harmless with respect to the SOX claim. It remanded the case for consideration of whether a new trial is warranted and directed the district court to consider whether any retrial would result in a double recovery given the portion of the decision affirming the California public policy verdict and the corresponding verdict for compensatory damages for past economic loss. Notably, the Ninth Circuit did not address the district court’s ruling allowing the use of privileged information at trial.
The Ninth Circuit’s narrow reading of what constitutes an SEC “rule or regulation” will make it more difficult for plaintiffs to show they engaged in protected activity under SOX.
On March 4, 2019, the U.S. Commodity Futures Trading Commission (CFTC) issued a whistleblower award totaling more than $2 million to be paid to an individual whistleblower, as part of its Dodd-Frank whistleblower program. This award is particularly interesting because the whistleblower “provide[d] critical information through independent analysis of market data,” according to the CFTC press release, but was not a corporate insider.
The CFTC Order highlighted that the whistleblower’s original information caused the CFTC to open an investigation and bring a successful covered action. It also highlighted that the information led, in part, to the initiation and resolution of a related action brought by an unnamed “Federal Regulator.” The whistleblower was lauded by the CFTC Order for providing the Staff with “assistance and analysis in interpreting voluminous data” during the investigation.
This is the CFTC’s first award of 2019 and only the sixth award issued since the inception of its whistleblower bounty program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As is the case with the CFTC’s prior awards, the Agency did not provide details about the whistleblower or the information that led to the enforcement action.
On February 15, 2019, the Fifth Circuit affirmed the grant of summary judgment in favor of Andeavor Corporation f/k/a Tesoro Corporation on a SOX whistleblower claim, concluding that the plaintiff lacked an objectively reasonable belief that the company was misreporting its revenue to the SEC. Wallace v. Andeavor Corp., No. 17-cv-50927.
Plaintiff, a Vice President of Pricing and Commercial Analysis, was a sub-certifier of the company’s financial statements. He was tasked with investigating the company’s financial performance in various industry segments, and purportedly concluded that it improperly booked taxes as revenues in certain internal reporting channels. On February 8, 2010, he reported his concerns to his supervisor. Yet, shortly thereafter, he certified that he knew of no reason why the company’s 2009 10-K could not be certified. That 10-K, which was filed on March 1, 2010, included a statement disclosing that certain taxes were included in both the “Revenues” and “Costs of Sales and Operating Expenses.” Also, on March 12, 2010, Plaintiff certified that he was unaware of any “business or financial transaction that may not have been properly authorized negotiated or recorded” for 2009.
While Plaintiff was investigating the company’s internal profitability and accounting for taxes, the human resources department determined that he had been creating a hostile work environment, and his employment was terminated. His termination occurred on March 12, 2010, the same day he provided the above-referenced certification. Plaintiff filed suit in the Western District of Texas under Section 806 of SOX, claiming he was discharged in retaliation for reporting the company’s alleged practice of booking sales taxes as revenues, which he claims was not properly disclosed in SEC filings. The district court granted summary judgment in the company’s favor, concluding that the decision to terminate the plaintiff’s employment was not prohibited retaliation and that the plaintiff did not have an objectively reasonable belief that the company had misreported its revenue to the SEC.
The Fifth Circuit focused on whether Plaintiff had an objectively reasonable belief that the company was misreporting revenue. In ruling on this issue, it noted that Plaintiff had extensive business experience, including with the company’s accounting systems, and had expertise in SEC financial reporting practices. It concluded that in light of his position as a sub-certifier with accounting oversight experience, he should have investigated to ensure the reasonableness of his conclusion that the public disclosures contained a reporting violation. According to the court, had he conducted a limited investigation, he would have determined that the company had properly disclosed its treatment of certain taxes as revenue in the 10K that was filed with the SEC. Thus, the court concluded, he lacked an objectively reasonable belief that the company had violated the law.
As we previously reported (here and here), and as set out in the ARB’s seminal holding in Welch v. Cardinal Bankshares Corp., ARB Case No. 05-064 (May 31, 2007), the “reasonable belief” standard looks beyond a plaintiff’s purported subjective belief of wrongdoing to whether that belief is objectively reasonable based on the expertise and background of the complainant. This decision holds experienced professionals bringing SOX whistleblower claims to a higher standard and considers whether they conducted reasonable investigations in determining whether they held an objectively reasonable belief that unlawful conduct occurred.

References: § 3730
 § 2409
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