BURDEN OF PROOF AND PRODUCTION
[Last Updated Nov. 4, 2014]
FEDERAL COURT DECISIONS
SOX WHISTLEBLOWER PROVISION HAS A FOUR-PART BURDEN-SHIFTING FRAMEWORK; PURPOSE; KNOWLEDGE ELEMENT OF FRAMEWORK IS IMPLICIT ELEMENT AND MUST BE PROVED BY PREPONDERANCE OF EVIDENCE AT ALJ LEVEL OF PROCEEDING
In Bechtel v. Administrative Review Bd., U.S. Dept. of Labor , F.3d , No. 11-4918 (2d Cir. Mar. 5, 2013) (2013 WL 791334) (case below ARB No. 09-052, ALJ No. 2005-SOX-33), the Second Circuit Court of Appeals clarified the burden-shifting framework applicable to whistleblower retaliation claims under the Sarbanes-Oxley Act (the "Act"), 18 U.S.C. § 1514A. The Court stated:
Section 806 of the Sarbanes-Oxley Act, 15 U.S.C. § 1514A, seeks to combat what Congress identified as a corporate "culture, supported by law, that discourage[s] employees from reporting fraudulent behavior not only to the proper authorities, such as the FBI and the SEC, but even internally." S.Rep. No. 107-146, at 5 (2002). To accomplish this goal, § 1514A "protects 'employees when they take lawful acts to disclose information or otherwise assist ... in detecting and stopping actions which they reasonably believe to be fraudulent.'" Guyden v. Aetna, Inc., 544 F.3d 376, 383 (2d Cir.2008) (quoting S.Rep. No. 107-146, at 19). Specifically, § 1514A makes it unlawful for publicly traded companies to "discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee ... to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of" certain laws, rules, and regulations addressing various types of fraud. 18 U.S.C. § 1514A(a)(1).
Bechtel, supra , slip op. at 5 (footnote omitted).
The court quoted the relevant portions of the SOX and the implementing regulations, and summarized the elements and burdens of proof as explained by sister Courts of Appeals:
"To prevail under [ § 1514A ], an employee must prove by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew that she engaged in the protected activity; (3) she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action. If the employee establishe[s] these four elements, the employer may avoid liability if it can prove 'by clear and convincing evidence' that it 'would have taken the same unfavorable personnel action in the absence of that protected behavior.'"
Harp v. Charter Commc'ns, Inc., 558 F.3d 722, 723 (7th Cir.2009) (alterations omitted) (quoting Allen v. Admin. Review Bd., 514 F.3d 468, 475-76 (5th Cir.2008), in turn quoting 49 U.S.C. § 42121(b)(2)(B)(iv)). We agree that this framework is established by the relevant regulations and is consistent with the statute. See 49 U.S.C. § 42121(b)(2)(B)(iii), (iv); 29 C.F.R. § 1980.109(a), (b).
Bechtel, supra , slip op. at 7 (footnote omitted). In a footnote, the Court observed that the employer's knowledge element of the four-part framework is not expressly stated in the statute or regulations, but that it agreed with sister circuits that
the same basic four-part framework of the complainant's prima facie case applies not only when deciding whether the allegations are legally sufficient, see id. § 1980.104(e)(2), but also when an ALJ considers whether the complainant has satisfied his or her evidentiary burden under 49 U.S .C. § 42121(b)(2)(B)(iii). See Harp, 558 F.3d at 723 (citing 29 C.F.R. § 1980.104(b)(1)); Allen, 514 F.3d at 476 (same). As other circuits and the ARB have noted, however, at the evidentiary stage, the fourth element requires the complainant to prove by a preponderance of the evidence that the "protected activity was a contributing factor in the adverse action," 29 C.F.R. § 1980.109(a), and not merely show that "[t]he circumstances were sufficient to raise the inference that the protected activity was a contributing factor in the adverse action," 29 C.F.R. § 1980.104(e)(2). See Harp, 558 F.3d at 723; Allen, 514 F.3d at 476; Bechtel v. Competitive Technologies, Inc., ARB Case No. 06-010, 2008 WL 7853800, at *4 (ARB Mar. 26, 2008).
Bechtel, supra , slip op. at n.5.
GENERAL LEGAL BURDENS OF PROOF APPLICABLE TO SOX WHISTLEBLOWER COMPLAINTS
In Allen v. Administrative Review Bd., USDOL , No. 06-60849, ___ F.3d ___, 2008 WL 171588 (5th Cir. Jan. 22, 2008) (case below ARB No. ARB No. 06-081, ALJ Nos. 2004-SOX-60 to 62), the Fifth Circuit Court of Appeals provided an overview of the legal burdens of proof applicable to Sarbanes-Oxley Act whistleblower complaints, following in large part the interpretative caselaw developed by the ARB:
The legal burdens of proof set forth in [AIR21], 49 U.S.C. § 42121(b), govern SOX whistleblower actions. 18 U.S.C. § 1514A(b)(2)(C). To prevail, an employee must prove by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew that she engaged in the protected activity; (3) she suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action. ...
If the employee establishes these four elements, the employer may avoid liability if it can prove "by clear and convincing evidence" that it "would have taken the same unfavorable personnel action in the absence of that [protected] behavior." 49 U.S.C. § 42121(b)(2)(B)(iv). This "independent burden-shifting framework" is distinct from the McDonnell Douglas burden-shifting framework applicable to Title VII claims. ...
Slip op. at 9-10 (citations and footnotes omitted). The Court noted that an employee is entitled to relief only if the employee demonstrates that the protected activity was a contributing factor in the unfavorable personnel action alleged in the complaint, 49 U.S.C. § 42121(b)(2)(B)(iii), and held that the term "demonstrates" means to prove by a preponderance of the evidence. Slip op. at n.1.
The Court also held that the Burlington Northern & Santa Fe Railway Co. v. White , 126 S. Ct. 2405 (2006), definition of "unfavorable personnel action" applies to SOX whistleblower claims -- i.e. , a plaintiff must show that a reasonable employee would have found the challenged action materially adverse, which in this context means it well might have dissuaded a reasonable worker from engaging in the protected activity.
EVIDENTIARY FRAMEWORK; PLAINTIFF'S BURDEN OF PROOF
In Collins v. Beazer Homes USA, Inc. , __ F.Supp.2d __, 2004 WL 2023716 (N.D.Ga. Sept. 2, 2004), the court summarized a plaintiff's burden in establishing a SOX whistleblower cause of action under 11th Circuit law as follows:
Under the statutory framework, a plaintiff in federal court must show by a preponderance of the evidence that the plaintiff's protected activity was a contributing factor in the unfavorable personnel action alleged in the complaint. 49 U.S.C. § 42121(b)(2)(B)(iii).13 That is, the plaintiff must show by a preponderance of the evidence that (1) she engaged in protected activity; (2) the employer knew of the protected activity; (3) she suffered an unfavorable personnel action; and (4) circumstances exist to suggest that the protected activity was a contributing factor to the unfavorable action. Proximity in time is sufficient to raise an inference of causation. The defendant employer may avoid liability if it can demonstrate by clear and convincing evidence that it "would have taken the same unfavorable personnel action in the absence of [protected] behavior." 49 U.S.C. § 42121(b)(2)(B)(iv).
Collins , 2004 WL 2023716 * 7 (citations and footnotes omitted).
ADMINISTRATIVE REVIEW BOARD DECISIONS
SPILT ARB PANEL HOLDS THAT ALJ ERRS BY NOT CONSIDERING SOX CLAIM IN TERMS OF PRIMA FACIE CASE
In Fordham v. Fannie Mae , ARB No. 12-061, ALJ No. 2010-SOX-51 (ARB Oct. 9, 2014), a split panel of the ARB indicated that an ALJ errs in not analyzing the case in terms of a prima face case. The ARB panel indicated that the ALJ's error was understandable becuase the ARB had been inconsistent in speaking about the showing required at the investigatory and the adjudicatory stages of a SOX case. The panel, quoting Bechtel v. Administrative Review Board, USDOL , 710 F.3d 443 (2d Cir. 2013), indicated that a prima facie case is merely a term referring to the four elements of a whistleblower complaint, and that "'[T]he same basic four-part framework of the complainant's prima facie case applies not only when deciding whether the allegations are legally sufficient, see 29 C.F.R. § 1980.104(e)(2), but also when an ALJ considers whether the complainant has satisfied his or her evidentiary burden under 49 U.S.C.A. § 42121(b)(2)(B)(iii).'''
The ARB panel made a distinction between a showing sufficient to raise a prima facie inference at the investigatory stage, and the elements of a prima facie case at the adjudicatory stage. The Fordham panel stated: "at the evidentiary stage the complainant is required to prove the four prima facie elements by a preponderance of the evidence." Id ., USDOL/OALJ Reporter at 19. See also Id. at 17 (ALJ's failure to analyze the evidence in terms of a prima facie case may be due, at least in part, to the ARB's confusing and inconsistent use of terms); Id . at 20 (for a complainant to prove at hearing before an ALJ a prima facie case of retaliation through circumstantial evidence, that evidence must establish by a preponderance of the evidence that the protected activity was a contributing factor in the adverse action.).
[Editor's Notes: In earlier statements from the ARB, it was indicated that an ALJ errs analytically when considering whether a complainant made out a prima facie case following an evidentiary hearing on the merits - the question at that stage only being whether the complainant met his or her burden of proof by a preponderance of the evidence. See, e.g, Henrich v. Ecolab, Inc. , ARB No. 05-030, ALJ No. 2004-SOX-51 (ARB June 29, 2006), slip op. at 16 ("Merely presenting a prima facie case does not entitle a complainant to prevail, but merely forces a respondent to articulate its reason or reasons for an unfavorable personnel action. Once a respondent has done so, and a full hearing has been held, the prima facie case analysis is no longer relevant."); Clemmons v. Ameristar Airways, Inc. , ARB Nos. 05-048, 05-096, ALJ No. 2004-AIR-11 (ARB June 29, 2007) (ALJ erred in analytical approach by considering whether the complainant proved a prima facie case by a preponderance of the evidence; rather, once a case has proceeded to hearing, a complainant's burden is to prove by a preponderance of evidence ("demonstrate") that the protected activity was a contributing factor in the alleged adverse action); Adornetto v. Perry Nuclear Power Plant , 1997-ERA-16 (ARB Mar. 31, 1999) (once a case has been tried fully on the merits, it no longer serves any analytical purpose to address and resolve the question of whether the complainant presented a prima facie case. Instead, the relevant inquiry is whether the complainant prevailed by a preponderance of the evidence on the ultimate question of liability).
The Fordham decision was primarily about what evidence should be weighed in determining whether a complainant had established "contributing cause" by a preponderance of the evidence. In Powers v. Union Pacific Railroad Co. , ARB No. 13-034, ALJ No. 2010-FRS-30 (ARB Oct. 17, 2014), the ARB provided notice that it will review, en banc, the "contributory factor" analysis addressed in Fordham .]
ALJS ARE DISCOURAGED FROM DISCUSSING PRIMA-FACIE-CASE FRAMEWORK APPLICABLE BEFORE OSHA ONCE CASE HAS BEEN FULLY TRIED
In Barrett v. e-Smart Technologies, Inc. , ARB Nos. 11-088, 12-013, ALJ No. 2010-SOX-31 (ARB Apr. 25, 2013), the Respondent argued on appeal that the ALJ erred by applying a prima-facie-evidence causation inference rather than a standard of proof. The ARB found that although the ALJ had been loose with language speaking to the prima-facie-case framework applicable before OSHA, he actually applied the correct "contributing factor" standard of proof and not merely an inference of causation. In a footnote, the ARB cited a 2003 decision in which it had noted that ALJ are discouraged from unnecessary discussion of whether a whistleblower has established a prima facie case when a case has been fully tried.
PRETEXT IS NOT PART OF THE COMPLAINANT'S BURDEN OF PROOF UNDER SOX
In Zinn v. American Commercial Lines Inc. , ARB No. 10-029, ALJ No. 2009-SOX-25 (ARB Mar. 28, 2012), the ALJ erred by conflating the SOX burden of proof with the Title VII burden of proof , including improperly requiring the Complainant to establish that the Respondent's articulation of a legitimate business reason for the adverse employment action was pretext. The ARB wrote:
To prevail on a complaint, the employee need not necessarily prove that the employer's reasons for the adverse action was pretext." While doing so does provide "circumstantial evidence of the mindset of the employer, which may be sufficient to establish by a preponderance of the evidence that his or her protected activity" contributed to the adverse action, such a showing is not required for a complainant to prevail under Section 806. Rather than assess any such pretext evidence as rebuttal evidence to ACL's nondiscriminatory reasons for firing Zinn, the ALJ must "weigh the circumstantial evidence as a whole [which includes any 'pretext' evidence] to properly gauge the context of the adverse action in question."
USDOL/OALJ Reporter at 12-13 (footnotes and citations omitted).
WHERE THERE IS A FAILURE ON PROOF ON AN ELEMENT OF A SOX WHISTLEBLOWER CLAIM, IT IS NOT NECESSARY FOR THE ALJ TO DETERMINE WHETHER THE OTHER ELEMENTS OF THE CLAIM WERE ESTABLISHED
In Klopfenstein v. PCC Flow Technologies Holdings, Inc. , ARB Nos. 07-021, 07-022, ALJ No. 2004-SOX-11 (ARB Jan. 13, 2010), the ALJ had not reached the question of whether the Complainant had engaged in protected activity because the complaint failed on other elements of proof. On appeal, the ARB affirmed the ALJ's findings as supported by substantial evidence. The Complainant filed a motion for reconsideration arguing that the ARB's decision was procedurally inadequate because it had failed to make finding of fact on some facts he contested or rulings of law on some issues. Denying the motion, the ARB reiterated that substantial evidence supported the ALJ's "extensive findings on the issues material to the resolution" of the case. The ARB wrote:
Because a failure of proof on any one element of Klopfenstein's claim means that his entire case must fail, it was not necessary for the ALJ to determine, for example, whether Klopfenstein engaged in protected activity.
Slip op. at 2-3 (citation omitted).
SOX ANALYSIS, GENERALLY
In Bechtel v. Competitive Technologies, Inc. , ARB No. 06-010, ALJ No. 2005-SOX-33 (ARB Mar. 26, 2008), the ARB remanded where the ALJ's decision, although thorough and mostly well reasoned, had applied the wrong legal standards under SOX, which was still a new law when the ALJ rendered her decision. The ARB summed up the proper analysis as follows:
the ALJ should determine whether Bechtel established by a preponderance of the evidence that his protected activity was a contributing factor in CTI's decision to fire him. If Bechtel meets his burden of proof, the ALJ should then determine whether CTI established by clear and convincing evidence that it would have taken unfavorable action against Bechtel absent his protected activity. If CTI meets this burden, then it will avoid liability under the SOX. If CTI does not, and providing that Bechtel has established his protected activity as a contributing factor of his discharge, then the ALJ should consider appropriate remedies under the SOX. See 18 U.S.C.A. § 1514A(c).
USDOL/OALJ Reporter at 7.
ELEMENTS OF SOX CAUSE OF ACTION
The legal burdens of proof set forth in AIR21, 49 U.S.C.A. § 42121(b), govern SOX actions. Accordingly, to prevail, a complainant must prove that: (1) the complainant engaged in a protected activity; (2) the respondent knew that the complainant engaged in protected activity; (3) the complainant suffered an unfavorable personnel action; and (4) the protected activity was a contributing factor in the unfavorable action. Reddy v. Medquist, Inc. , ARB No. 04-123, ALJ No. 2004-SOX-35 (ARB Sept. 30, 2005).
SUMMARY JUDGMENT; COMPLAINANT'S RESPONSIVE BURDEN
A complainant must show the existence of a material issue of fact on an essential element of the SOX cause of action if challenged to do so on a motion for summary judgment. Reddy v. Medquist, Inc. , ARB No. 04-123, ALJ No. 2004-SOX-35 (ARB Sept. 30, 2005).