Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

Hurston notes on page 8 of his memo that most SOX whistleblowers will not remain anonymous. Either the caller's name will be leaked, or managers will figure out who had the disclosed information and the motive to call, or the whistleblower will want to claim credit for raising the concern about the wrongdoing. Once the identity is out, the whistleblower will need to brace for the internal investigation. Hurson also notes the sad statistics for SOX whistleblowers.  Of 1,455 complaints, the federal government has ruled in favor of only 21 whistleblowers.  Not good odds.

Hurson comments that many dismissals are based on the view that SOX's employee protection applies to parent companies, and not their subsidiaries.  Although there is a provision in the pending financial reform bill (as passed by the House) to fix this loophole, I do not believe that this view reflects current law.  I believe that the new Department of Labor will be applying SOX to subsidiaries under the current law, although the Congressional fix will be welcome on this and other issues.

The Van Asdales were former in-house attorneys at International Game Technology (IGT). IGT began merger discussions with Anchor Gaming. The Van Asdales expressed concerns that communications made in connection with the merger were fraudulent and might be costly to shareholders who relied on them.  IGT fired the Van Asdales.

The district court granted IGT’s motion for summary judgment, concluding that the attorneys did not engage in protected conduct in that they "hadn’t reached a conclusion" that IGT engaged in actual shareholder fraud. The Ninth Circuit reversed, holding that "[r]equiring an employee to essentially prove the existence of fraud before suggesting the need for an investigation would hardly be consistent with Congress’s goal of encouraging disclosure." Noting that the legislative history of SOX makes clear that it protects "all good faith and reasonable reporting of fraud," the court held that plaintiffs’ "subjective belief that the conduct that they were reporting violated a listed law" sufficed to demonstrate protected conduct. Moreover, the court concluded that merely requesting an investigation of potential shareholder fraud constitutes protected conduct.

The Ninth Circuit also held that in-house counsel may proceed with a retaliation claim that may require the disclosure of attorney-client privileged information. According to the Ninth Circuit, "confidentiality concerns alone do not warrant dismissal of Van Asdales' claims." The Court adds that "Congress plainly considered the role [in-house] attorneys might play in reporting possible securities fraud," and thus, to the extent that a suit may implicate confidentiality-related concerns, a court must use "equitable measures at its disposal to minimize the possibility of harmful disclosures, not dismiss the suit altogether."

This decision finally points in the right direction of giving corporate fraud whistleblowers the same broad interpretation of protected activity that environmental, nuclear and safety whistleblowers have had for years.

The case number for Amy Stroupe's case is 2008SOX00047. The first public announcement of the decision of the Administrative Law Judge will come from the Office of Administrative Law Judges (OALJ).  OALJ issues new decisions every work day.  To monitor OALJ's web page for new decisions, follow this link.  Then search either for "Stroupe" as a complainant, "2008-SOX-00047" as a case number, or check for particular recent dates of decision to see all the new ALJ decisions.

The amicus brief was filed on behalf of the National Whistleblowers Center (NWC) and the Government Accountability Project (GAP). GAP attorneys Kasey Dunton-Dermont and Tom Devine assisted with the brief.

The SOX provision at issue is 18 U.S.C. §1514A(b)(1)(B).  It provides that if the Department of Labor (DOL) does not issue a final order within 180 days, then the complainant can file a de novo civil action in U.S. district court.  

Between 1999 and 2005, David Stone became a quick climber of the corporate ladder at Instrumentation Laboratory Company (IL).  Promoted twice, we went from a Sales Representative to Director of National Accounts.  In this national management position, Stone learned that IL had not been paying required administrative fees to Group Purchasing Organizations (GPOs). Combined with internal control problems, this meant that IL was misrepresenting its financial condition to investors. Stone reported these problems to corporate officials who promptly began retaliating.  First they gave Stone a bad performance appraisal.  Then, in March 2006, they fired him.

Stone filed a SOX whistleblower complaint with DOL's Occupational Safety and Health Administration (OSHA) which (as it does in most cases) found no merit in the complaint.  Stone appealed to an administrative law judge (ALJ) who dismissed the case without allowing Stone to have discovery or a hearing.  It is no wonder then that Stone decided to leave the DOL process and file in federal court.

The federal judge, however, also did not want to hear the case.  Citing a decision from Louisiana, and a comment by the Secretary of Labor, the judge said that allowing Stone to have a trial after the ALJ had issued a recommended decision was an "absurd result."  Ignoring the plain language of SOX, the judge ordered that the case go back to DOL for a final decision.  Stone appealed.

In our amicus brief, NWC and GAP argue that the plain and clear language of SOX controls, and it was an error for the judge to refuse to hear Stone's case.  The brief notes that the Fourth Circuit reached the same conclusion for discrimination cases under Title VII, holding that de novo review “makes clear” that the trial in district court “proceeds as if no earlier proceedings had been completed at all.” Laber v. Harvey, 438 F.3d 404, 421 (4th Cir. 2006). Other courts have also followed SOX the way it is written, allowing de novo litigation. JDS Uniphase Corp. v. Jennings, 473 F.Supp.2d 705, 710 (E.D. Va. 2007); Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365, 1374 (N.D. Ga. 2004).

The brief argues that legislative history need not be considered when the statute's language is clear. Nevertheless, the history of SOX supports what the language says.  Senator Patrick Leahy stated “Only if there is not a final decision within 180 days of the complaint (and such delay is not shown to be due to the bad faith of the claimant) may he or she bring a de novo case in federal court with a jury trial available.” Legislative History of Title VIII of HR 2673, the Sarbanes-Oxley Act of 2002, Section 806, 148 Cong. Rec. S7418, S7420 (July 26, 2002).  Congress clearly knew what it was saying.  In fact, Congress has said it six more times in the whistleblower laws it has passed since enacting SOX in 2002:  Energy Reorganization Act, 42 USC 5851(b)(4); Surface Transportation Assistance Act, 49 USC 31105(c); National Transit Systems Security Act of 2007, 6 USC 1142(c)(7); Federal Rail Safety Act, 49 USC 20109(d)(3); Defense Authorization Act, 10 USC 2409(c)(2); and Consumer Product Safety Improvement Act, 49 USC 2087(b)(4).

The brief concludes that it is not “absurd” to follow the law as Congress wrote it.  A decision is expected by the end of 2009.  Click here to download the Brief of Amici Curiae.

In 2002, Atlantic Coast Airlines (ACA) lured Stacy Platone away from her career position with the Airline Pilots Association (ALPA) to become a labor relations manager.  Platone soon noticed that the company was not billing the union for flight-loss time.  Flight-loss time arises when pilots miss flying time to attend meetings on behalf of the union.  Platone discovered that the company continued to pay the pilots, even though they did not fly.  She raised the issue to her superior in the company and was promptly fired.

Platone filed a whistleblower complaint with the U.S. Department of Labor. The company claimed it was not aware of Platone's concern, but the notes of an assistant to the director confirmed that Platone had raised the flight-loss issue in a meeting shortly before she was fired. An administrative law judge (ALJ) issued a decision finding that Platone had a reasonable basis to believe that company officials were involved in a fraud.  The ALJ also found that the company's director was not credible, and that he clearly knew about Platone's concern when he fired her.  In 2004, the ALJ ordered ACA to pay backpay and attorney fees.

ACA appealed to the Department of Labor's Administrative Review Board (ARB). Meanwhile, ACA changed its name to Flyi, Inc., and then went out of business. In 2006, the ARB reversed the ALJ and held that Platone had not been specific enough in raising her concern about fraud. The ARB held that when Platone raised the flight-loss issue, she had not specifically informed her boss that the company had created to acquiesced in a scheme to provide improper payments to the union officers.  The ARB required whistleblowers to be specific in raising their concerns about fraud.

Even though the company was out of business, Platone and her lawyers did a favor for whistleblowers by asking the federal Fourth Circuit to overturn the ARB decision.  Sadly, though, the Fourth Circuit approved the ARB decision. The court defered to the ARB's conclusion the Platone had only alerted management to a billing issue, and had not "specifically and definitively" implicated any fraud when she reported the issue.

The "definite and specific" standard for SOX whistleblowing is not in the SOX law.  It is a creation of the ARB.  The ARB used the same rule to overturn another ALJ decision in the very first SOX case. The Fourth Circuit also affirmed that ARB decision. See Welch v. Chao, 536 F.3d 269, 275-76 (4th Cir. 2008). This special SOX rule is a departure from prior ARB decisions in environmental cases that only required employee concerns to touch on and relate to the issues protected by law.  Does the ARB really mean to encourage law-breakers to fire workers at the first sign of conscience and backbone, before that worker can put all the pieces together to make a specific report of a violation?  Apparently yes.

The outcome in the Platone case exemplifies the way that the current ARB has undercut what Congress made clear in passing SOX and other whistleblower protections.  Hopefully, President-elect Obama will move quickly to appoint new members to the ARB, and to the federal circuits courts of appeals, to protect working people and restore a sense of the law's true purpose.

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