Recent Developments in Whistleblower Retaliation Litigation

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Stephanie Williams
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1 Recent Developments in Whistleblower Retaliation Litigation Jason Zuckerman Zuckerman Law Washington, D.C. (202)

Agenda Trends in whistleblower retaliation litigation Supreme Court s Lawson decision Protected Whistleblowing Under Dodd-Frank & Sarbanes-Oxley Key Procedural

2 Agenda Trends in whistleblower retaliation litigation Supreme Court s Lawson decision Protected Whistleblowing Under Dodd-Frank & Sarbanes-Oxley Key Procedural Distinctions Between Sarbanes- Oxley and Dodd-Frank Retaliation Claims Self-help discovery and counterclaims False Claims Act and NDAA Whistleblower Protections

3 Trends in Whistleblower Retaliation Litigation Expansion of federal and state protections Large incentives under whistleblower reward statutes, e.g., $30M SEC award March 2014 Zulfer $6M SOX jury verdict SEC enforcement action in Paradigm Capital Management, Release No (June 16, 2014) Increase in filings

4 Whistleblower Filings at OSHA

of the 1934 Securities and Exchange Act Company that is

Commission under Section 15(d) of the 1934 Act A subsidiary

consolidated financial statement of one of these Any officer,

5 SOX 806 Who is Covered? Company that registers a class of securities under Section 12 of the 1934 Securities and Exchange Act Company that is required to file reports with the Securities Exchange Commission under Section 15(d) of the 1934 Act A subsidiary or affiliate whose financial information is included in the consolidated financial statement of one of these Any officer, employee, contractor, subcontractor or agent of such company or nationally recognized statistical rating organization

Lawson v. FMR Lawson v. FMR, No. 12-3 (U.S.

public company's private contractors and

Spinner v. David Landau & Assocs. LLC, No.

14-1913, 2014 U.S. Dist. LEXIS 79369 (E.D. Pa.

6 Lawson v. FMR Lawson v. FMR, No (U.S. Mar. 4, 2014) SOX protects employees of a public company's private contractors and subcontractors Similar to ARB s holding in Spinner v. David Landau & Assocs. LLC, No (ARB May 31, 2012) Lawson does not rule out limiting principles Gibney v. Evolution Marketing Research LLC, No , 2014 U.S. Dist. LEXIS (E.D. Pa. June 11, 2014) offers a limiting principle Impact on accounting firms and law firms

7 SOX Elements Protected Conduct Adverse Action Knowledge Causation (contributing factor)

8 SOX Litigation Must file at OSHA 180-day statute of limitations OSHA can order preliminary reinstatement Hearing before ALJ Appeal to ARB Appeal to Circuit Court of Appeals 180-day kick out provision

9 SOX Protected Conduct Sylvester v. Parexel Int l, LLC, ARB , 2011 WL (May 25, 2011) Protected conduct not limited to disclosures of shareholder fraud and need not prove each element of fraud (scienter, materiality, etc.) Disclosure about a potential violation protected Rejects ARB s Platone decision requiring disclosure definitively and specifically relate to a violation of one of the categories of fraud or SEC rule violations Iqbal/Twombly pleading standard does not apply to claims filed at OSHA

10 SOX Protected Conduct Will federal courts adopt Sylvester? Sharkey v. J.P. Morgan Chase & Co., cv (Oct. 9, 2014) Wiest v. Lynch, 710 F.3d 121 (3rd Cir. 2013) Lockheed Martin Corp. v. Administrative Review Bd., 717 F.3d 1121 (10th Cir. 2013) Villanueva v. U.S. Dep t of Labor, 743 F.3d 103 (5th Cir. 2014) Leshinsky v. Televent GIT, SA, 942 F. Supp. 2d 432 (S.D.N.Y. 2013) But see Gauthier v. Shaw Group, Inc., 2012 WL (W.D.N.C. 2012); Andaya v. Atlas Air, Inc., 2012 U.S. Dist. LEXIS 78654, at *10 (S.D.N.Y. 2012)

Dodd-Frank Whistleblower Protection Dodd-Frank adds three new whistleblower retaliation causes of action, including a retaliation provision accompanying the SEC whistleblower

11 Dodd-Frank Whistleblower Protection Dodd-Frank adds three new whistleblower retaliation causes of action, including a retaliation provision accompanying the SEC whistleblower reward program CFTC reward provision also includes protection against retaliation Section 1057 creates a SOX-type cause of action for disclosures about consumer financial protection

12 Section 922 Dodd-Frank Act Protected Conduct Providing information to the SEC in accordance with 922; Initiating, testifying in, or assisting in any investigation or judicial or administrative action of the SEC based upon or related to such information; or Disclosing information required or protected by SOX, the 1934 Act, and any other law, rule, or regulation subject to the jurisdiction of the SEC.

13 Section 922 Dodd-Frank Act Protected Conduct Does it protect internal disclosures? Section 78u-6(a)(6) defines a whistleblower as someone who provides information to the Commission. Asadi v. G.E. General (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) (922 does not protect internal disclosures) Three district courts have followed Asadi and the majority of district court decisions have adopted a contrary position deferring to SEC regulations Implementing legislative intent to protect internal disclosures Avoid rendering statutory text superfluous

14 Dodd-Frank Act SEC Whistleblower Protection Private right of action No administrative exhaustion requirement Statute of limitations is 6 years after retaliation occurred, or 3 years after employee should have known of the retaliation, but no later than 10 years Not exempt from mandatory arbitration

Distinctions Between Section 806 of SOX and Section 922A of Dodd-Frank SOX Dodd-Frank Administrative exhaustion Must file initially at OSHA No administrative exhaustion requirement Statute of

15 Distinctions Between Section 806 of SOX and Section 922A of Dodd-Frank SOX Dodd-Frank Administrative exhaustion Must file initially at OSHA No administrative exhaustion requirement Statute of limitations 180 days 3-10 years Right to jury trial Y N Exempt from mandatory arbitration Y Causation standard Contributing factor but for causation (although not sole cause) Double back pay N Y N Special damages (emotional distress and reputational harm) Y N

16 Self-Help Discovery Vannoy v. Celanese Corp., ALJ Case No SOX-00064, ARB Case No (ALJ July 24, 2013) (disclosing confidential company information to IRS can be protected under SOX) Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, (9th Cir. 2011) (affirming damages for breach of confidentiality agreement for indiscriminate taking of 11GB of data, including privileged information and trade secrets)

Counterclaims SEC Rule 21F-17 prohibits actions that

possible securities law violation, including

17 Counterclaims SEC Rule 21F-17 prohibits actions that impede communications to the Commission about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement or order. Confidentiality agreements and severance/settlement agreements should be revised to conform to this rule

18 Whistleblower Protections for Government Contractors False Claims Act, 31 USC 3730(h) Sections 827 and 828 of 2013 NDAA, 10 U.S. Code 2409 and 41 U.S. Code 4712

FCA Anti-Retaliation Provision Broader scope of

Protects actions in furtherance of a qui tam

violations of [the FCA] Need not prove actual FCA

pay, double back pay, and special damages

19 FCA Anti-Retaliation Provision Broader scope of protected conduct post-2009 FCA amendments Protects actions in furtherance of a qui tam action and other efforts to stop 1 or more violations of [the FCA] Need not prove actual FCA violation Damages include reinstatement or front pay, double back pay, and special damages (emotional distress and reputational harm), and attorney s fees and costs.

NDAA Whistleblower Protection Covers employees of

protected conduct Gross mismanagement, gross waste,

regulation relating to contracts, including competition

20 NDAA Whistleblower Protection Covers employees of nearly all government contractors Broad scope of protected conduct Gross mismanagement, gross waste, abuse of authority; violations of law, rule, or regulation relating to contracts, including competition for a contract; or substantial and specific danger to public health or safety

OIG 210-day kick-out provision Damages include

21 NDAA Whistleblower Protection Employee-favorable causation standard (contributing factor) Requires exhaustion at agency OIG 210-day kick-out provision Damages include reinstatement, backpay, compensatory damages, and attorney fees and costs.

A Year For Whistleblower Rewards And Protections

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