Decisions of the Administrative Review Board
Avlon v. American Express Co.
, ARB No. 09-089, ALJ No. 2008-SOX-51 (ARB May 31, 2011)
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TIMELINESS OF COMPLAINT; TRIGGER DATE FOR LIMITATIONS PERIOD; DETERMINATION OF WHETHER NOTICE OF TERMINATION WAS FINAL, DEFINITIVE AND UNEQUIVOCAL SHOULD INCLUDE CONSISDERATION OF THE PRE- AND POST-NOTICE CONTEXT AND WHETHER THAT CONTEXT SUGGESTED A POSSIBILITY THAT THE TERMINATION MAY NOT OCCUR
In Avlon v. American Express Co. , ARB No. 09-089, ALJ No. 2008-SOX-51 (ARB May 31, 2011), the Complainant was on paid administrative leave during an investigation of complaints she had made against her supervisor. The ARB held that an email from the Respondent's HR representative to the Complainant stipulating conditions for the Complainant's return to work -- (1) scheduling and attending a meeting with HR personnel no later than the following week and (2) returning to the same position and office but reporting to a different supervisor -- and stating that if the Complainant did not meet these conditions, she would be terminated -- was not final, definitive and unequivocal notice of her termination triggering the limitations period for filing a SOX complaint. The ARB made this determination based on the context in which the email was sent. The previous day the Complainant had sent an email explaining that she would just be returning from a vacation and would have only two days to meet, and that she did not want to meet until she had secured legal counsel. Ultimately, the Complainant did not meet with the HR personnel, but was not terminated. Instead, she secured legal counsel who engaged in discussions with the Respondent's counsel over some period of time. The ARB found, therefore, that because there had been discussions after the date of the email regarding the Complainant's employment status, the purported termination notice had not been final and definitive. Moreover, the Respondent continued discussions directly with the Complainant after her legal counsel stopped representing her in the matter. The ARB found that these discussions "undoubtedly extended the possibility that she would not be terminated, and that her employment [with the Respondent] would continue in some fashion."
In contrast, the ARB held that a later email from the Respondent's counsel to the Complainant in which the Complainant was finally, definitively and unequivocally told that she needed either to return to work at her old office or enter into an separation agreement, triggered the limitations period. The complaint was timely when the limitations period was calculated based on this later email.
Jackson v. Major Transport Inc.
, ARB No. 09-113, ALJ No. 2009-STA-22 (ARB May 31, 2011)
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[STAA Digest V B]
PROTECTED ACTIVITY; MERELY ASKING ABOUT RESPONDENT'S POLICIES IS NOT PROTECTED ACTIVITY
In Jackson v. Major Transport Inc. , ARB No. 09-113, ALJ No. 2009-STA-22 (ARB May 31, 2011), the Complainant did not prove that he engaged in protected activity under the STAA when he merely inquired about the Respondent's policy. The Complanant had asked "about the short haul description and other company policies" that were given to him when he applied for a position with the Respondent. The Complainant asked whether the company was authorizing drivers to run illegally and whether drivers were expected to bypass scales if they were overloaded. There was no evidence in the record, however, that the Complainant made a complaint about having to drive illegally, was told that he would have to drive illegally and made a complaint of it, or refused to drive for any reason.
Sitts v. COMAIR, Inc.
, ARB No. 09-130, ALJ No. 2008-AIR-7 (ARB May 31, 2011)
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PROTECTED ACTIVITY; REASONABLENESS OF BELIEF OF SAFETY VIOLATION; FACT THAT EQUIPMENT IS DEFERRED UNDER THE AIRCRAFT'S MINIMUM EQUIPMENT LIST DOES NOT NEGATE PILOT'S OVERALL RESPONSIBILITY FOR SAFETY OF FLIGHT OPERATIONS; THAT RESPONSIBILITY INCLUDES THE SAFETY OF PERSONNEL WHO ASSIST IN DEPLANING
In Sitts v. COMAIR, Inc. , ARB No. 09-130, ALJ No. 2008-AIR-7 (ARB May 31, 2011), the Complainant, a pilot, was terminated from employment with the Respondent after he reported a malfunctioning passenger power door assist system that he believed affected aircraft safety, and when the Respondent did not address the safety concern, refused to fly the plane. The inoperable system appeared on the aircraft's Minimum Equipment List (MEL). An FAA regulation permits operation of an aircraft under specified conditions with inoperative equipment on the MEL. The door could be operated manually, but required ground crew who knew how to do safely. Improper manual operation could result in injury to both the crew and the door.
The ARB first analyzed whether the Complainant reasonably believed that his report of the inoperable system involved a violation of aircraft safety. The ARB found that FAA regulations would lead a pilot to reasonably believe that he or she has direct responsibility for determining whether an aircraft is in safe condition, and the duty to report such concerns. The ARB found credible testimony in the record that the pilot's obligations over flight safety includes the moments prior to takeoff, and the moments after landing and deplaning. Thus, the pilot's safety obligations reasonably extend to the safety of the personnel who assist in deplaning. The ARB noted that the Complainant's past experiences with inoperable passenger power door assist systems supported a finding that his safety concerns were genuine. The Respondent contended that the pilot in command regulations conflict with the MEL regulation and that MEL-deferrals should take priority. The ARB found that ". . . these two regulations do not necessarily conflict. While the MEL regulation authorizes pilots to fly aircraft with malfunctioning equipment, there is nothing in the regulation requiring that pilots do so . Indeed, there is no language in the MEL regulation mandating that aircraft with MEL-deferred equipment be flown. Rather, the MEL regulation permits pilots to fly such aircraft by carving an exception to the general rule that "no person may take off an aircraft with inoperative instruments or equipment installed unless" certain conditions are met." USDOL/OALJ Reporter at 112 (emphasis as in original) (footnote omitted). The ARB found that substantial evidence supported the ALJ's finding that the Complainant had an objectively reasonable belief that flying an aircraft with a malfunctioning passenger power door assist system, even though MEL-deferred, was unsafe. The ARB also agreed with the ALJ that the Respondent's efforts to convince the Complainant that the working conditions were safe, were insufficient to undermine the continuing reasonableness of the Complainant's safety concerns. Thus, the Complainant's subsequent decision not to fly the aircraft was reasonable and protected activity under the AIR21 whistleblower provision.
Field v. BKD, LLP
, ARB No. 09-136, ALJ No. 2009-SOX-46 (ARB May 27, 2011)
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COVERED EMPLOYER; NON-PUBLICLY TRADED OUTSIDE ACCOUNTING FIRM
In Field v. BKD, LLP , ARB No. 09-136, ALJ No. 2009-SOX-46 (ARB May 27, 2011), the ARB summarily affirmed the ALJ's dismissal of the Complainant's SOX complaint against an outside accounting firm, and one of its subsidaries. According to the complaint, the outside accounting firm had ignored the waste and fraud reported of the Complainant's employer (a public water agency) and had worked with corrupt agency water managers to suppress the misconduct. The ALJ dismissed because he found that the Respondents were not publicly traded companies covered by the SOX whistleblower provision. The ARB described a complainant's burden to establish that named respondents are covered companies under the SOX whisleblower provision:
To prevail on the merits of a Section 806 case, a covered employee must prove by a preponderance of the evidence that he or she, inter alia , suffered an unfavorable personnel action by a covered company. 49 U.S.C.A. § 42121; 18 U.S.C.A. § 1514A(b)(2)(C). Therefore, as a threshold matter, to avail himself of the SOX whistleblower protections, Field must demonstrate that the Respondents are covered companies under Section 806, i.e., a company "with a class of securities registered" under the Securities Exchange Act, or that is "required to file reports" under the Act. 18 U.S.C.A. § 1514A(a).
Before the ALJ, the Respondents submitted documentary evidence demonstrating that BKD, LLP, and BKD Corporate Finance, LLC have no class of securities registered under section 12 and are not required to file reports under section 15(d) of the Securities Exchange Act of 1934. Field offered no evidence to the contrary. Instead, Field argued that Section 806 should apply because: (1) BKD, LLP is a certified public accounting firm registered with the Public Company Accounting Oversight Board, which must follow accepted accounting procedures; (2) BKD, LLP has a contract with Denver Water and must work in the best interest of Denver residents; (3) BKD, LLP provides services to publicly-owned companies, and (4) BKD, LLP's failure to address the waste and fraud affected Field's employment at Denver Water. Based upon the Respondents' uncontroverted evidence, the ALJ found that the Respondents are not publicly-traded companies within the meaning of 18 U.S.C.A. § 1514A(a). Therefore, the ALJ concluded that the Respondents are not subject to Section 806. Accordingly, the ALJ dismissed Field's complaint.
USDOL/OALJ Reporter at 3-4. The ARB found the ALJ's finding that the Respondent accounting firm and its subsidiary were not covered employers under section 1514A was correct as a matter of law.
Field v. Denver Water
, ARB Nos. 09-099, 09-100, ALJ Nos. 2009-SOX-22 and 24 (ARB May 26, 2011)
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COVERED EMPLOYER; GOVERNMENT WATER AGENCY
In Field v. Denver Water , ARB Nos. 09-099, 09-100, ALJ Nos. 2009-SOX-22 and 24 (ARB May 26, 2011), the ALJ properly granted summary decision because Denver Water was not demonstrated by the Complainant to be a covered company under Section 806, i.e., a company "with a class of securities registered" under the Securties Exchange Act, or that is "required to file reports" under the Act. 18 U.S.C.A. § 1514A(a).
Israel v. Branrich, Inc.
, ARB No. 09-069, ALJ No. 2008-STA-1 (ARB May 26, 2011)
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[STAA Digest II H 4]
APPEAL TO ARB; DEFAULT AGAINST NON-APPEALING PARTY FOR FAILURE TO RESPOND TO APPEAL IS NOT APPROPRIATE; NON-APPEALING PARTY IS NOT OBLIGATED TO FILE RESPONSE
In Israel v. Branrich, Inc. , ARB No. 09-069, ALJ No. 2008-STA-1 (ARB May 26, 2011), the Respondent informed the ARB that the company had ceased operations and formally dissolved, and the ARB issued an order to show cause why the Board should not dismiss the appeal. The Complainant argued that default sanctions should awarded against the Respondent because it had failed to file a brief responding to the Complainant's petition for review by the ARB, citing the OALJ rule of practice and procedure at 29 C.F.R. § 18.5(b). The ARB found that the OALJ rule was inapplicable to the appellate proceeding, and that - because the Complainant had lost his case before the ALJ and was the appealing party - it was the Complainant who had the burden to prove his arguments on appeal. The Respondent did not carry such a burden and was not required to respond to the Complainant's appeal.
Because the Complainant provided no argument or legal discussion concerning maintaining an appeal against a dissolved company, and even pro se litigants must develop arguments with citation to authority, the ARB dismissed the appeal.
Sylvester v. Parexel International LLC
, ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42 (ARB May 25, 2011)
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SUMMARY DECISION; PLEADING STANDARDS FOR SOX SECTION 806 CASES
PROTECTED ACTIVITY; CONVEYENCE OF REASONABLENESS OF BELIEF NOT REQUIRED TO SUPPORT CLAIM; ACTUAL VIOLATION NEED NOT HAVE ALREADY TAKEN PLACE; "DEFINITIVE AND SPECIFIC" STANDARD HAS BEEN MISAPPLIED; FRAUD AGAINST SHAREHOLDERS VERSUS GENERAL CORPORATE FRAUD; SOX COMPLAINT NEED NOT ESTABLISH ELEMENTS OF CRIMINAL FRAUD OR QUANTUM OF MATERIALITY
In Sylvester v. Parexel International LLC , ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42 (ARB May 25, 2011), the Respondent was a publicly traded company that tests drugs for drug manufacturers and other clients. The Respondent consistently reported to shareholders that it strictly adheres to the FDA's "Good Clinical Practice" (GCP) standards. One Complainant worked as a Case Report Forms Department Manager, and one Complainant worked as a Clinical Research Nurse. Both alleged that they were discharged in retaliation for reporting clinical research fraud (failure to adhere to GCP standards). The ALJ granted dismissal of the complaints on the ground that the Complainants' OSHA complaints failed to establish subject matter jurisdiction under the SOX because those complaints failed to allege protected activity under SOX Section 806. The ARB decided the appeal en banc to clarify several areas of SOX adjudication.
Subject matter jurisdiction
Initially, the ARB found that the ALJ erred in characterizing the issue of whether the Complainants engaged in protected activity as an issue involving subject matter jurisdiction under FRCP 12(b)(1). The ARB noted that subject matter jurisdiction which is not particularly onerous to establish - concerns a tribunal's power to hear a case a separate issue from the issue of whether a complainant's actions are covered as protected activity. The ARB found that subject matter jurisdiction clearly existed because the Complainants had filed complaints alleging that the Respondent violated the SOX by discharging them from employment. The ARB suggested that the ALJ's 12(b)(1) analysis, however, was essentially a 12(b)(6) analysis under a different label.
Heightened pleading standards for federal pleadings do not apply; ALJs should freely grant amendments
In regard to the ALJ's consideration of the matter, in effect, under FRCP 12(b)(6) (failure to state a claim upon which relief can be granted), the ARB found that the ALJ erred in applying the pleading standard for complaints initiating a federal court action. Rather, the ARB observed that SOX complaints are initiated before OSHA, and if the federal court pleading standard was applied, a SOX complainant would have to be mindful of those pleading requirements when first filing the complaint with OSHA. The ARB held that "SOX claims are rarely suited for Rule 12 dismissals," given that they inherently involve issues of fact. The ARB held that "ALJs should freely grant parties the opportunity to amend their initial filings to provide more information about their complaint before the complaint is dismissed, and dismissals should be a last resort. Dismissal is even less appropriate when the parties submit additional documents that justify an amendment or further evidentiary analysis under the ALJ rules governing motions for summary decision ." USDOL/OALJ Reporter at 13. The ARB limited its ruling to SOX whistleblower cases, and did not voice an opinion on the application of federal pleading standards on other whistleblower statutes within the ARB's scope of authority.
Reasonable belief standard does not include a requirement that a complainant actually convey the reasonableness of the belief to management or the authorities
In his decision, the ALJ wrote:
Complainants' many explanations and conclusory assertions in their complaints which attempt to expand or elaborate the scope of their actual reports of clinical fraud, which they allege comprise protected activity, to establish a connection with shareholder fraud are immaterial as a matter of law. The relevant inquiry is not what Complainants have alleged or argued in their complaints, but what Complainants actually communicated to Respondent prior to their respective terminations as alleged in their pleadings. Until the allegedly protected a activities are shown to have a sufficiently definitive and specific relationship to any of the listed categories of fraud or securities violations under 18 U.S.C. § 1514A(a)(1), what Complainants might have believed or been told by Respondent regarding any relationship of such false reporting to SOX is irrelevant and immaterial to the legal sufficiency of their complaints under SOX. Complainants' beliefs in such regard would also not be objectively reasonable.
Sylvester v. Parexel International LLC , ALJ Nos. 2007-SOX-39 and 42 (ALJ Aug. 31, 2007) (footnote and citations omitted) (excerpt is from the ALJ's decision, which was not quoted in full in the ARB decision). The ARB found that the ALJ had failed to acknowledge the basic requirements for establishing protected activity described in the statute. The ARB noted that the plain language of the statute provides that where the complainant's asserted protected conduct involves providing information to one's employer, the complainant need only show that he or she "reasonably believes" that the conduct complained of constitutes a violation of the laws listed at Section 1514. 18 U.S.C.A. § 1514A(a)(1). The ARB reiterated it has interpreted the reasonable belief standard to include both a subjective and objective component. The ARB stated that "[t]he 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." USDOL/OALJ Reporter at 15 (citation omitted). Moreover, the ARB stated that the issue of objective reasonableness often involves issues of fact that cannot be decided in the absence of an adjudicatory hearing.
Thus, the ALJ's discounting as "irrelevant and immaterial" of "what the Complainants might have believed or been told by Respondent regarding any relationship of such false [FDA] reporting to SOX' improperly "precluded the Complainants from presenting evidence regarding the reasonableness of their alleged protected activities." Id. at 15-16.
Protected activity need not describe an actual violation that has already taken place
The ALJ had held "until enforcement action is taken," the Complainants' allegations that the Respondent had engaged in fraud were speculative and insufficiently material to the Respondent's financial picture to form a basis for securities fraud or to affect shareholders investment decisions. The ARB found that this was error both because it required a specific reference to fraud and to an illegal act that had already taken place. The ARB stated that "[a] whistleblower complaint concerning a violation about to be committed is protected as long as the employee reasonably believes that the violation is likely to happen. Such a belief must be grounded in facts known to the employee, but the employee need not wait until a law has actually been broken to safely register his or her concern." USDOL/OALJ Reporter at 16 (citations omitted).
"Definitive and specific" evidentiary standard; retreat from Platone ruling
The ARB also found that the ALJ erred in applying caseslaw using the words "definitive and specific" or "definitively and specifically" in determining whether a complainant engaged in SOX-protected activity. The ARB found that use of the words "definitively and specifically" in whistleblower retaliation cases is traced to cases arising under the Energy Reorganization Act, to flesh out a statutory catch-all provision protecting employees who assist or participate in a proceeding or any other action designed to carry out the purposes of that chapter of the ERA or the Atomic Energy Act of 1954. The caselaw construed the phrase to require the employee's actions to relate "definitively and specifically" to nuclear safety. The SOX statute, however, contained no similar language but "instead expressly identifies the several laws to which it applies." The ARB noted that Section 1514A refers to "any provision of Federal law relating to fraud against shareholders" but found that this proviso was far more specific and significantly different from the ERA's catch-all provision. The ARB found importation of the ERA "definitively and specifically" standard to SOX was inapposite and potentially conflicts with the express language of the SOX. The ARB noted that the ARB had introduced the standard in Platone v. FLYi, Inc. , ARB No. 04-154, ALJ No. 2003-SOX-27 (ARB Sept. 29, 2006), and followed it in several subsequent decisions. The ARB also noted that several circuit courts had deferred to the Platone ruling. But the ARB found that the standard had been imposed in the later cases without reflection and without further analysis of the term's origin or correct application. The ARB held that "the standard announced in Platone has evolved into an inappropriate test and is often applied too strictly." USDOL/OALJ Reporter at 18. Rather, the ARB found that the "critical focus is on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law." Id. at 19 (emphasis as in original). Thus, in the instant case, the ARB framed the issue before the ALJ as whether the Complainants provided information to the Respondent "that they reasonably believed related to one of the violations listed in Section 806, and not whether that information definitively and specifically' described one or more of those violations." Id . The ARB concluded that "[i]t was therefore error for the ALJ to dismiss the complaints in this case for failure to meet a heightened evidentiary standard espoused in case law but absent from the SOX itself." Id.
SOX protected activity does not necessarily have to relate to fraud against shareholders
The ARB also found that the ALJ erred in dismissing the complaints on the ground that the Complainant's had not alleged that they had referred to shareholder fraud when reporting false reporting of clinical data. The ARB stated that "[t]his constitutes error because a complaint of shareholder or investor fraud is not required to establish SOX-protected activity. " Id . The ARB looked to the SOX legislative history to find that it "was implemented to address not only securities fraud (in the aftermath of financial scandals involving Enron, Worldcom, and Arthur Anderson), but also corporate fraud generally." Id . (citation omitted). Applying the statutory interpretation "rule of the last antecedent" the ARB noted that the last of the six categories of laws about which a complaint is protected under SOX Section 806, "any provision of Federal law relating to fraud against shareholders," was the only category that referred to fraud against shareholders. The ARB held that "[i]n examining the SOX's language, it is clear that a complainant may be afforded protection for complaining about infractions that do not relate to shareholder fraud. On their face, mail fraud, fraud by wire, radio, or television, and bank fraud are not limited to frauds against shareholders." Id. at 20. Thus:
When an entity engages in mail fraud, wire fraud, or any of the six enumerated categories of violations set forth in Section 806, it does not necessarily engage in immediate shareholder fraud. Instead, the violation may be one which, standing alone, is prohibited by law, and the violation may be merely one step in a process leading to shareholder fraud. Additionally, a reasonable belief about a violation of "any rule or regulation of the Securities and Exchange Commission" could encompass a situation in which the violation, if committed, is completely devoid of any type of fraud. In sum, we conclude that an allegation of shareholder fraud is not a necessary component of protected activity under SOX Section 806.
Id . at 21.
Elements of criminal fraud; retreat from Platone "materiality"standard
The ARB also held that some courts had misinterpreted the analysis in Platone as a requirement that SOX complainants must allege the elements of a securities law fraud claim to qualify for SOX Section 806 protection. Thus, caselaw had "merged the elements required to prove a violation of a fraud statute, e.g., materiality and scienter, with the requirements a whistleblower must allege or prove to engage in protected activity." The ARB stated:
But requiring a complainant to prove or approximate the specific elements of a securities law violation contradicts the statute's requirement that an employee have a reasonable belief of a violation of the enumerated statutes. We agree that a complainant who blows the whistle on activity that approximates the elements of a fraud will be protected under Section 806. But because a complainant need not prove a violation of the substantive laws, we feel a complainant can have an objectively reasonable belief of a violation of the laws in Section 806, i.e., engage in protected activity under Section 806, even if the complainant fails to allege, prove, or approximate specific elements of fraud, which would be required under a fraud claim against the defrauder directly. In other words, a complainant can engage in protected activity under Section 806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.
The purpose of Section 806, and the SOX in general, is to protect and encourage greater disclosure. Section 806 exists not only to expose existing fraud, i.e., conduct satisfying the elements of a fraud claim, but also to prevent potential fraud in its earliest stages. We feel the purposes of the whistleblower protection provision will be thwarted if a complainant must, to engage in protected activity, allege, prove, or approximate that the reported irregularity or misstatement satisfies securities law "materiality" standards, was done intentionally, was relied upon by shareholders, and that shareholders suffered a loss because of the irregularity.
Section 806's plain language contains no requirement that a complainant quantify the effect of the wrongdoing the respondent committed. We acknowledge that the Board has, in prior rulings, held that to be protected, an employee's communication must relate to a "material" violation of any of the laws listed under SOX. But the Fourth Circuit rejected this notion in Welch . The court stated that, "[a]lthough many of the laws listed in § 1514A of [SOX] contain materiality requirements, nothing in § 1514A (nor in Livingston ) indicates that § 1514A contains an independent materiality requirement" Welch , 536 F.3d at 276 (emphasis added). Accordingly, we do not impose a materiality requirement on the communication that the complainants contend is protected activity.
Id . at 22. The ARB acknowledged that a complainant's complaint might implicate such a trivial matter that it would not be considered protected activity under SOX Section 806, but noted that "[a] wide range of conduct may be important to regulatory bodies or a reasonable investor that falls short of satisfying the rigorous requirements for securities violations."
Two ARB members wrote separately in a concurring opinion that they believed that the lead opinion left unresolved whether the Platone "definitive and specific" standard was still viable. The concurring opinion described why, in the view of the concurring members, the plain language of the SOX whistleblower statute does not permit dismissals of SOX whistleblower claims pursuant to a "definitive and specific" standard.
One member concurred in part and dissented in part. This member dissented from the majority's ruling sustaining the applicability of FRCP 12(b)(6) to SOX complaints. This member concluded that an ALJ's authority to summarily dismiss a meritless claim that is lacking in either legal or factual support is found in the OALJ Rule of Practice and Procedure at 29 C.F.R. §§ 18.40 and 18.41, and recourse to the pleading requirements of FRCP 8(a)(2) or the provisions of FRCP 12(b)(6) are inapposite because a SOX complaint is not equivalent to a complaint that initiates a federal court proceeding.