[Last Updated May 29, 2015]
DISCLAIMER: This memorandum was created solely to assist the Office of Administrative Law Judges in researching caselaw pertaining to the whistleblower provision of the Sarbanes-Oxley Act. This memorandum does not constitute the official opinion of the Department of Labor or of the Office of Administrative Law Judges. This memorandum does not necessarily contain an exhaustive or current treatment of case holdings, and cannot substitute for a party's own research. It is intended to be used as a research tool, not as final legal authority and should not be cited or relied upon as such.
I. INTRODUCTION
The Administrative Review Board's (ARB) May 2011 decision in Sylvester v. Paraxel Int'l LLC expressly abrogated the Board's previous ruling in Platone v. FLYi, Inc. that an employee's communication to an employer must "definitively and specifically" relate to at least one of the sources of law listed in §1514A of SOX to constitute protected activity under the statute. However, since the ARB issued the Platone decision in September 2006, many federal district and appellate courts have adopted this requirement and applied it to the SOX whistleblower complaints before them. A review of the federal court decisions that have applied some version of the "definitively and specifically" standard since the Platone decision reveals that most federal circuits have adopted the standard, although it has been interpreted differently from court-to-court. To date, no federal court has explicitly embraced the ARB's abrogation of the "definitively and specifically" standard in Sylvester , and Sylvester has had only a modest impact on federal district courts' interpretations of what an employee must communicate to an employer to engage in protected activity under the statute. This memorandum summarizes how federal courts in each circuit have applied the Platone standard in SOX whistleblower cases, and categorizes the various interpretations of the "definitively and specifically" standard that have emerged in those decisions.
II. BACKGROUND
In Platone v. FLYi, Inc. , ARB No. 04-154, ALJ No. 2003-SOX-27, slip op. at 17 (ARB Sept. 29, 2006), the ARB held that "under SOX, the employee's communications must 'definitively and specifically' relate to any of the listed categories of fraud or securities violations under 18 U.S.C.A. § 1514A(a)(1)." The phrase "definitively and specifically" originated in a Sixth Circuit Court of Appeals decision in a whistleblower case arising under Energy Reorganization Act (ERA) of 1974, 42 U.S.C.A. § 5851, in which the court held that for an employee's communications to constitute protected activity under ERA's "catch-all" provision, 42 U.S.C.A. § 5851(a)(1)(F), the communication "must definitively and specifically relate to nuclear safety." American Nuclear Res., Inc. v. United States Dep't of Labor , 134 F.3d 1292, 1295-96 (6th Cir.1998). The Platone decision marked the first occasion that the ARB applied the "definitively and specifically" standard to a whistleblower complaint arising under SOX, and ultimately turned on the finding that the complainant in Platone failed to "provide[] her employer with specific information regarding any conduct the employee reasonably believes constitutes a violation" of a source of law listed in §1514A. Platone , ARB No. 04-154, at 18.
In Sylvester v. Paraxel Int'l LLC , ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42, slip op. at 17-18 (ARB May 25, 2011), the ARB retreated from the position it took in Platone , ruling that because "the SOX whistleblower protection provision contains no similar language [to ERA's catch-all provision] and instead expressly identifies the several laws to which it applies," the "standard announced in Platone has evolved into an inappropriate test." Acknowledging that the standard "has been followed in a number of ARB decisions � and deferred to on appeal in several circuit court decisions since the Platone decision," the ARB found that the standard is nonetheless in conflict with "the plain language of the SOX whistleblower protection provision, which protects �all good faith and reasonable reporting of fraud.'" Id . The Sylvester decision asserted that "the critical focus is on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law," rather than "whether that information �definitively and specifically' described one or more of those violations." Id. at 19.
III. REVIEW OF FEDERAL COURT DECISIONS APPLYING THE DEFINITIVELY AND SPECIFICALLY STANDARD IN SOX WHISTLEBLOWER CASES
First Circuit
In Day v. Staples , 555 F.3d 42 (1st. Cir. 2009), the Court of Appeals for the First Circuit did not explicitly use the phrase "definitively and specifically" when stating the standard for determining whether an employee's reports to his or her employer constitute protected activity under SOX. However, the court did require that the employee's complaint be "specifically related" to one of the laws enumerated in §1514A. Id. at 55. Notably, the Day court discussed this requirement as part of its analysis of whether the plaintiff had an objectively reasonable belief that his employer had violated a listed source of law. Ultimately, the court answered that question in the negative, and rejected the plaintiff's "attempts to connect [his] allegations to violations of �general accounting principles' and then to connect violations of accounting principles to 'shareholder fraud.'" Id. at 57. Thus, while the Day court explicitly affirmed the district court's dismissal of the case for failure to demonstrate an objectively reasonable belief of shareholder fraud, the appellate court reached that conclusion, at least in part, because plaintiff's allegations did not "specifically relate" to shareholder fraud.
A district court in the First Circuit applied Day' s "specifically related" standard to a SOX whistleblower plaintiff's alleged protected activity in Lawson v. FMR LLC , 724 F. Supp. 2d 141 (D. Mass. 2010). 1 Similar to the appellate court's approach in Day , the Lawson court discussed this standard as part of the plaintiff's necessary showing that he had an objectively reasonable belief that a legal violation had occurred. Id. at 163. The Lawson court then went a step further to state that the First Circuit's "specifically related" standard requires that "the employee's theory of fraud must at least approximate the basic elements of a claim of securities fraud." Id. (citations omitted). The district court cited Day for its interpretation of the "specifically related" standard, and distinguished its approach from that taken by the Southern District of New York in O'Mahony v. Accenture Ltd. , 537 F.Supp.2d 506 (S.D.N.Y. Feb. 5, 2008), which did not require that the misconduct reported by the employee relate to shareholder fraud, so long as it related to one of the sources of law enumerated in § 1514A. Id.
[ Update Feb. 26, 2014: In Stewart v. Doral Financial Corp. , 13-cv-1349 (D.Puerto Rico Feb. 21, 2014) (2014 WL 661587), the Plaintiff was a Senior Vice President and Principal Accounting Officer for a financial corporation. He sent a letter to the Defendant's Audit Committee about his concerns about SOX-required internal controls, and a concern that the Defendant would fail to accurately report financial information in the upcoming quarters as a result of comments and events personally perceived by him. The Defendant filed two motions to dismiss arguing, inter alia, that the Plaintiff had not engaged in protected activity under SOX Section 806. In deciding the motions, the preliminary question before the court was whether the ARB's decision in Sylvester v. Paraxel Int'l LLC , ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42, slip op. at 17-18 (ARB May 25, 2011) (2011 WL 2165854), was entitled to Chevron deference. The court determined that Chevron deference applied, despite the fact that the ARB had changed course in Sylvester , because two Circuit Courts of Appeals had granted such deference, and because the ARB had thoroughly outlined its reasons for its reversal of course. Thus, the court applied the Sylvester "reasonable belief" standard rather than the "definitively and specifically" standard of Platone v. FLYi, Inc. , ARB No. 04-154, ALJ No. 2003-SOX-27, slip op. at 17 (ARB Sept. 29, 2006) (2006 WL 3193772). ]
Second Circuit
[ Update June 3, 2014: Yang v. Navigators Group, Inc. , No. 13-cv-2073, (S.D.N.Y. May 8, 2014) ( 2014 WL 1870802), the court stated that the Second Circuit's adoption of the "definitive and specific" standard in Vodopia was not binding because in the Second Circuit, rulings by summary order do not have precedential effect. The court noted that the ARB had found this standard to be inappropriate, and stated that the ARB's determination was entitled to some level of deference in the federal courts. The court, however, made no determination whether the standard applied: "Regardless of whether it applies, the employee is not required to communicate to the employer which laws the employer's conduct allegedly violated. Andaya , 2012 WL 1871511, at *3 (citing Fraser v. Fiduciary Trust Co. Int'l , 417 F. Supp. 2d 310, 322 (S.D.N.Y. 2006)). The employee's communication need only �identify the specific conduct that the employee believes to be illegal.� Ashmore v. CGI Grp. Inc. , No. 11 Civ. 8611 (LBS), 2012 WL 2148899, at *6 (S.D.N.Y. June 12, 2012) (emphasis added) (quoting Welch v. Chao , 536 F.3d 269, 276 (4th Cir. 2008))." Slip op. at 15. ]
[ Update May 9, 2013: In Leshinksy v. Telvent GIT, S.A. , No. 10-cv-4511, 2013 WL 1811877 (S.D.N.Y. May 1, 2013), the court stated that it agreed with the ARB's decision in Sylvester that the "definitive and specific" test is inapplicable to SOX violations. ]
The Court of Appeals for the Second Circuit adopted Platone 's "definitively and specifically" standard in its unpublished decision in Vodopia v. Koninklijke Phlips Elecs, N.V. , 398 Fed. Appx. 659, 2010 WL 4186469 (2nd Cir. 2010) (not reported). In doing so, the court followed the lead of the Courts of Appeals for the First, Fourth, Fifth, and Ninth Circuits. Vodopia , 398 Fed.Appx. at 662-63 (citing Day, 555 F.3d at 56; Welch v. Chao , 536 F.3d 269, 275 (4th Cir.2008); Allen v. Admin. Review Bd. , 514 F.3d 468, 476 (5th Cir.2008); Van Asdale v. Int'l Game Tech. , 577 F.3d 989, 996�97 (9th Cir.2009)). Applied to the case before it, the Vodopia court dismissed the plaintiff's claim because "the communications at issue did not �directly and specifically' relate to any of section 1514A's enumerated federal laws or rules," but rather related only to "alleged fraud on the Patent Office and the potential invalidity of certain patents as a result." Vodopia , 398 Fed.Appx. at 663.
Even after the ARB issued its decision in Sylvester , the Southern District of New York in Andaya v. Atlas Air, Inc. , 2012 WL 1871511 (S.D.N.Y. Apr. 30, 2012) (not reported) followed Vodopia and imposed the "definitively and specifically" standard. In fact, the district court in Andaya did not mention the Sylvester decision, and instead cited Vodopia, Day , and Van Asdale in demanding that the plaintiff's communication "definitively and specifically relate to one of the listed categories of fraud or securities violations," and also required that "the employee's allegations of wrongdoing � resemble the allegations of shareholder fraud." 2 Andaya , 2012 WL 1871511, *3 (citations omitted). Similarly, in Barker v. UBS AG , 2012 WL 2361211, *4, n.4 (D.Conn. May 22, 2012) (not reported), the court acknowledged the conflict between Vodopia and Sylvester , but chose not to rule on which standard should apply because the instant plaintiff's communications satisfied either standard.
However, three post- Sylvester district court opinions from the circuit appear to have adopted a more permissive approach to the standard. In Sharkey v. J.P. Morgan Chase & Co. , 805 F.Supp.2d 45, 56-57 (S.D.N.Y. Aug. 19, 2011), the district court clarified that "SOX prohibits an employer from retaliating against an employee who complains about any of the six enumerated categories of misconduct," and therefore required only that "the employee's communications � identify the specific conduct that the employee believes to be illegal." Likewise, the court in Gladitsch v. Neo@Ogilvy , 2012 WL 1003513, *8 (S.D.N.Y. Mar. 21, 2012) (not reported) cited Sharkey and Sylvester in explaining that the employee's communication to the employer "need only identify the conduct with specificity." Most recently, the district court in Ashmore v. CGI Group Inc. , 2012 WL 2148899, *6 (S.D.N.Y. June 12, 2012) (not reported) cited Welch in holding that "what the specificity requirement � demands is that employees' communications ... identify the specific conduct that the employee believes to be illegal." These articulations of the standard indicate that when a court evaluates an employee's communication of illegal conduct to an employer, the court's focus should be on whether the employee provided sufficient information about the conduct that he or she believed was illegal, rather than which source of law the employee's reports implicated.
Prior to the ARB's decision in Sylvester , several Second Circuit district court decisions expressly applied the "definitively and specifically" standard to SOX whistleblower complaints. See Fraser v. Fiduciary Trust Co., Int'l , 2009 WL 2601389 (S.D.N.Y Aug. 25, 2009) (not reported); Pardy v. Gray , 2008 WL 2756331 (S.D.N.Y. July 15, 2008) (not reported); O'Mahony v. Accenture Ltd. , 537 F.Supp.2d 506 (S.D.N.Y. Feb. 5, 2008); Portes v. Wyeth Pharmaceuticals, Inc. , 2007 WL 2363356 (S.D.N.Y. Aug. 20, 2007) (not reported). Two additional pre- Sylvester district court cases did not use the phrase "definitively and specifically," but still required that the plaintiff communicate his or concerns to the employer with sufficient "specificity." See ( Cloke-Browne v. Bank of Tokyo-Mitsubishi UFJ, Ltd. , 2011 WL 666187, *7 (S.D.N.Y. Feb. 9, 2011) (requiring that the employee report violation of applicable laws "with some specificity"); Fraser v. Fiduciary Trust Co., Int'l , 417 F.Supp.2d 310, 322 (S.D.N.Y. 2006) (stating that the employee must report illegal conduct with "a certain degree of specificity and must state particular concerns which, at the very least, reasonably identify a respondent's conduct that the complainant believes to be illegal.").
Third Circuit
[ Update March 20, 2013: In Wiest v. Lynch , __ F.3d __, No. 11-4257 (3d Cir. Mar. 19, 2013), the Third Circuit Court of Appeals reversed the district court decision discussed below, and gave Chevron deference to ARB's decision in Sylvester . ]
The initial discussion of the "definitively and specifically" standard in the Third Circuit is found in the district court decision in Wiest v. Lynch , 2011 WL 2923860, *4-5 (E.D. Pa. July 21, 2011) (not reported), reversed Wiest v. Lynch , __ F.3d __, No. 11-4257 (3d Cir. Mar. 19, 2013). Although the district court cited Platone , Van Asdale , Day , and Allen , the Wiest court adopted a version of the "definitively and specifically" standard that most closely resembles the approach taken by First Circuit's Court of Appeals in Day . Citing Day , the Wiest court required that the employee communicate "an objectively reasonable belief there has been shareholder fraud," and clarified that it was not enough for an employee's communication to "merely allege that wrongdoing has occurred." Id. at *4. Instead, an "employee's communication must convey that his concern with any alleged misconduct is linked to an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss." Id. (citations omitted). The court "must look to what the employee actually communicated to the employer at the time the alleged SOX violation occurred" in order to determine whether the employee "provide[d] information that reflects a reasonable belief of an existing violation." Id. (citations omitted).
The same court reiterated this position when it considered the plaintiff's motion for reconsideration, in which the plaintiff argued that the Sylvester decision abrogated the "definitively and specifically" standard announced in Platone , and therefore constituted an intervening change in applicable law. See Wiest v. Lynch, 2011 WL 5572608 (E.D. Pa. Nov. 16, 2011) (not reported), reversed Wiest v. Lynch , __ F.3d __, No. 11-4257 (3d Cir. Mar. 19, 2013). The district court rejected this argument, explaining that "an ARB decision is not binding authority on a United States district court," that the Sylvester decision did not affect the validity of the case law on which it relied (e.g. Day ), and, even if the court were to discard the "definitively and specifically" standard, the plaintiff still failed to demonstrate that he had "an objectively reasonable belief that the complained-of conduct constituted shareholder fraud or a violation of one of the statutes or rules listed in § 1514A." Id. at *4.
Fourth Circuit
[ Update June 3, 2014: In Feldman v. Law Enforcement Associates Corp. , No. 13-1849 (4th Cir. May 12, 2014) (2014 WL 1876546), the 4th Circuit noted that it held in Welch v. Chao , 536 F.3d 269, 275 (4th Cir. 2008), that an employee must show that his communications to his employer definitively and specifically related to one of the law enumerated in Section 1514A, and that subsequently the ARB concluded in Sylvester v. Parexel Int�l LLC , ARB No. 07-123 (ARB May 25, 2011), that this standard applies too strictly and that the critical focus is instead on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law. The court declined to clarify its holding in Welch , however, because it decided in the instant appeal that the Plaintiff failed to establish the "contributing cause" element of a prima facie case. ]
[ Update Nov. 13, 2013: In Feldman v. Law Enforcement Associates Corp. , No. 5:10�CV�08�BR (EDNC June 28, 2013), the court noted that the ARB had explained why the "definitively and specifically" standard was inappropriate in Sylvester v. Parexel Int�l LLC , ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42, 2011 WL 2165854, at *15 (ARB May 25, 2011). However, because the court assumed, without deciding, that the Plaintiffs� met the higher definite and specific standard, the court stated that it was not necessary to resolve whether the ARB's decision affected the Fourth Circuit precedent in Welch . ]
The Fourth Circuit first adopted the "definitively and specifically" standard in the Court of Appeals' decision Welch v. Charo , 536 F.3d 269, 276 (4th Cir. 2008), which the court described as a necessary showing, but one that is additional to the plaintiff's showing of a subjective and objectively reasonable belief. The Welch court clarified that the purpose of the "definitively and specifically" showing is to "ensure[] that an employee's communications to his employer are factually specific," and therefore the "employee's communications must identify the specific conduct that the employee believes to be illegal." Id. at 276-77. Contrary to the defendant's assertions, the Fourth Circuit explained that this does not impose a "heightened pleading standard," as the requirement relates to what the employee communicated to the employer, rather than what the employee alleged in his or her complaint. Id. at 277. However, the Fourth Circuit did not have cause to apply the standard to the facts of the case, as it focused its review on whether complaint failed for lack of an objectively reasonable belief that a violation had occurred.
The Fourth Circuit Court of Appeals further entrenched the "definitively and specifically" standard in its SOX whistleblower case law when it affirmed the ARB's Platone decision in Platone v. United States Dept. of Labor , 548 F.3d 322 (4th Cir. 2008). Moreover, two district courts have applied the standard in subsequent SOX whistleblower cases. In Feldman v. Law Enforcement Associates Corp. , 779 F.Supp.2d 472, 491-92 (E.D.N.C. Mar. 10, 2011), the district court found that the plaintiffs satisfied the "definitively and specifically" standard when they reported to federal authorities their employer's failure to report one of its export business relationships, which they reasonably believed violated SEC rules. In Harkness v. C-Bass Diamond, LLC , 2010 WL 997101, *7 (D.Md. Mar. 16, 2010) (not reported), the district court quoted Welch in requiring that the plaintiff's "communications must identify the specific conduct that the employee believes to be illegal," ultimately finding that the plaintiff's disclosures in the instant case failed to meet that standard.
Fifth Circuit
The "definitively and specifically" standard reached the Fifth Circuit in Allen v. Administrative Review Board , 514 F.3d 468 (5th Cir. 2008), where the Court of Appeals "agree[d] with the ARB's legal conclusion that an employee's complaint must �definitively and specifically relate' to one of the six enumerated categories found in § 1514A." Allen , 514 F.3d at 477 (citing Platone , ARB Case No. 04-154, *8). The Allen court did not have cause to apply the standard to the facts of the case before it, but two subsequent district court decisions in the Fifth Circuit did, and both found the plaintiffs' communications sufficient to satisfy the standard. See Sequeira v. KB Home , 716 F.Supp.2d 539, 550-51 (S.D.Tex. Jan. 12, 2009) (noting that the plaintiff's communication to his employer identified the specific behavior that formed the basis of his belief); Hemphill v. Celanese Corp. , 2010 WL 2473845, *5 (N.D.Tex. June 16, 2010) (not published) (finding that the plaintiff adduced sufficient evidence to avoid summary judgment as to whether his reports to his employer about inaccurate financial records contained enough specificity to relate to a source of law listed in § 1514A).
Sixth Circuit
Update May 29, 2015: In Rhinehimer v. U.S. Bancorp Investments, Inc. , No. 13-6641 (6th Cir. May 28, 2015), the Sixth Circuit stated:
Slip op. at 9.][W]e reject the �definitively and specifically� standard recited in Riddle as inconsistent with � 1514A and the statutory scheme, and we adopt the emerging rule that the employee's reasonable belief is a simple factual question requiring no subset of findings that the employee had a justifiable belief as to each of the legally-defined elements of the suspected fraud. See Nielsen v. AECOM Tech. Corp. , 762 F.3d 214, 220-21 (2d Cir. 2014); Weist v. Lynch , 710 F.3d 121, 131 (3rd Cir. 2013).
The Court of Appeals for the Sixth Circuit has not stated whether it applies the "definitively and specifically" standard to whistleblower complaints under SOX, but three unpublished, post- Platone district court decisions have implemented the standard.
First, in Walton v. NOVA Info. Sys. , 2008 WL 1751525, *8 (E.D. Tenn. Apr. 11, 2008) (not reported), the district court described the "definitively and specifically" standard as constituting "a minimal requirement" to prevent "vague whistleblowing," and requires "identifying conduct by Defendants that [the employee] believed to be illegal." The Walton court found that the instant plaintiff satisfied that standard in an email in which she identified "perceived non-compliance areas," and even specified a section of SOX that she believed had been violated. Id.
A few years later, the district court in Mann v. Fifth Third Bank , 2011 WL 1575537, *9 (S.D.Ohio, Apr. 25, 2011) (not reported), citing Platone, Day, Welch, Allen, and Sharkey , stated that "because SOX only protects certain disclosures, � a plaintiff must prove that the cited conduct �definitively and specifically' relates to one of the classes of laws listed in 18 U.S.C. § 1514A(a)(1)." In describing the standard this way, the Mann court appears to have focused less on whether the plaintiff communicated his belief with specificity, and more on whether the activity that he reported is related to one of SOX's enumerated laws. The court's application of the standard to facts of the case supports this conclusion: In addressing the defendants' argument that the plaintiff's complaint did not "definitively and specifically" relate to one of the enumerated laws, the court not only looked to what the plaintiff claimed that he actually reported to his employer, but also considered the plaintiff's explanation in his deposition testimony as to why those complaints related to fraud against shareholders. Id. at *9-10. The Mann court, therefore, appears to have ventured beyond what the plaintiff "actually communicated" in order to reach its finding that the "plaintiff reasonably believed that the violations he disclosed definitively and specifically related to fraud against shareholders." Id. at *10.
In the sole Sixth Circuit opinion to apply the "definitively and specifically" standard after the ARB issued its decision in Sylvester , the district court in Riddle v. First Tennessee Bank , 2011 WL 4348298, *6 (M.D.Tenn. Sept. 16, 2011) (not reported), citing Welch , stated that this standard requires the employee to "identify the specific conduct that he believes is illegal, as general inquiries do not constitute protected activity." Although the Riddle court did not clearly apply the standard to the employee's complaints, it did find that the employee's complaints to his employer that it had acted in violation of the Bank Bribery Act was not sufficiently related to SOX's coverage of claims of fraud against shareholders. Id. at *7.
Seventh Circuit
In Harp v. Charter Comm. , 558 F.3d 722 (7th Cir. 2009), the Court of Appeals for the Seventh Circuit did not use the phrase "definitively and specifically," but did hold that the "critical focus" for determining whether an employee engaged in protected activity is "on whether the employee reported specific conduct that constituted a violation of federal law, not whether the employee correctly identified that law." Harp , 558 F.3d at 725 (citing Welch , 536 F.3d at 276). Thus, the court held that "if the specific conduct reported was violative of federal law, the report would be sufficient to trigger Sarbanes�Oxley protection even if the employee did not identify the appropriate federal law by name." Id. The Harp court did not apply the standard further to the facts of the case, and instead affirmed dismissal of the complaint for lack of an objectively reasonable belief that a violation occurred. However, by only requiring that the employee communicate "specific conduct" that is "violative of federal law," the Harp court adopted a less restrictive interpretation of the standard that resembles the approach taken in Welch , Sharkey , Gladitsch , and Ashmore .
Eighth Circuit
In an unpublished district court decision, the court in Pearl v. DST Syst., Inc. , 2008 WL 8602367, *14 (W.D.Mo. Apr. 25, 2008) (not reported) did not use the phrase "definitively and specifically," but did state that a court "must first analyze whether the complaints relate to one of the six enumerated categories in section 1514A." In reviewing each of the plaintiff's alleged protected activities, the court simultaneously analyzed each communication for its relation to an enumerated category, and also for whether the plaintiff had a reasonable belief that the employer had committed a violation. The district court dismissed two of the alleged protected activities for lack of a reasonable belief, and dismissed several other alleged protected activities because they did not implicate securities fraud or SEC rules violations. Id. at *16-17. In a brief, unpublished opinion, the Court of Appeals for the Eighth Circuit affirmed the district court's dismissal of the complaint for lack of an objectively reasonable belief of a violation. See Pearl v. DST Syst., Inc. , 359 Fed.Appx. 680 (8th Cir. 2010) (not reported).
Citing the Southern District of New York's decisions in Portes and Fraser (2006), and the Fourth Circuit's decision in Livingston , the district court in Skidmore v. ACI Worldwide Inc. , 2008 WL 2497442, *4 (D.Neb. June 18, 2008) (not reported) stated that an employee's disclosures only constitute protected activity under SOX "when they implicate the substantive law protected in SOX relating to fraud against shareholders definitely and specifically," and "must be related to illegal activity and involve shareholder fraud." By associating the "definitively and specifically" standard with the additional requirement that the employee's communication "involve shareholder fraud," the Skidmore court adopts a more restrictive approach to the "definitively and specifically" standard.
In a post- Sylvester unpublished opinion, the district court in Miller v. Stifel, Nicolaus & Co. , Inc. , 812 F.Supp.2d 975 (D.Minn. Sept. 20, 2011) stated that the "definitively and specifically" standard applied, citing the Southern District of New York's decision in Fraser (2009). However, because the nature of the plaintiff's complaints to her employer clearly did not implicate federal law at all, let alone the laws enumerated in § 1514A, the court granted summary judgment for the employer.
Ninth Circuit
The Court of Appeals for the Ninth Circuit formally adopted the "definitively and specifically" standard in Van Asdale v. Int'l Game Tech , 577 F.3d 989, 997-98 (9th Cir. 2009), noting that the appellate courts in Day , Welch , and Allen had already accepted the standard announced by the ARB in Platone . Prior to reaching the Court of Appeals, the district court in Van Asdale v. Int'l Game Tech , 498 F.Supp.2d 1321, 1330 (D.Nev. June 13, 2007) interpreted the "definitively and specifically" standard as requiring an employee's communication to "incriminate" or "accuse" the employer of violating an enumerated law, and also required that the communication identify the specific conduct underlying the employee's belief.
Although the Court of Appeals did not directly address the district court's interpretation of the standard, it appeared to take a less restrictive approach when it applied the standard to the disclosures at issue in the case. For example, the Court of Appeals agreed with the district court that one of the plaintiff's discussions with two company executives satisfied this standard, in part because one of the executives "testified that it was her impression after the meeting that [the plaintiff] believed that [the defendant] had been misled." Van Asdale , 577 F.3d at 997. This application of the standard recalls the district court's interpretation of the standard in Bozeman v. Per-Se Technologies, Inc. , 456 F.Supp.2d 1282, 1359 (N.D.Ga. Sept. 12, 2006), which, as discussed below, found that the "definitively and specifically" standard is satisfied if the recipient of the disclosure understands the "serious nature of complaint."
Additionally, at one point in its review of the plaintiffs' alleged protected activities, the Court of Appeals states that "report[ing] conduct that definitively and specifically related to shareholder fraud�is all that § 1514A requires." Van Asdale , 577 F.3d at 997. However, because the facts of Van Asdale concerned reports to the employer that withholding certain information prior to a merger constituted fraud against shareholders, it is unclear whether the Court of Appeals meant that all employee disclosures must relate definitively and specifically to shareholder fraud to constitute protected activity under SOX, or whether that is just what was required in the case before it. Even so, the Court of Appeals in Van Asdale placed its focus on whether the conduct that the plaintiffs actually reported definitively and specifically related to a source of law listed in § 1514A, and therefore its interpretation of the standard resembles the approach endorsed by the Second Circuit in Vodopia and Andaya . The Court of Appeals adopted this same approach in Nance v. Time Warner Cable, Inc. , 433 Fed.Appx. 502, 503 (9th Cir. 2011) (not reported), where it affirmed the district court's denial of a wrongful termination claim because the content of the plaintiff's communications to his employer did not sufficiently relate to a source of law listed in § 1514A.
In four unpublished opinions issued after the ARB's decision in Sylvester , district courts in the Ninth Circuit followed the Court of Appeals decision in Van Asdale and applied the "definitively and specifically" standard. See Kim v. Boeing Co. , 2011 WL 4437086 (W.D.Wash. Sept. 23, 2011) (not reported); McManus v. McManus Financial Consultants, Inc. , 2012 WL 937812 (D.Nev. Mar. 19, 2012) (not reported); Guitron v. Wells Fargo Bank, N.A. , 2012 WL 2708517 (N.D.Cal. July 6, 2012) (not reported); Nordstrom v. U.S. Bank, N.A., Inc. , 2012 WL 3000416 (S.D.Cal. July 23, 2012) (not reported). In Kim , the plaintiff expressly argued in opposition to the employer's motion for summary judgment that Sylvester had abrogated the "definitively and specifically" standard, but because the court found that the employer had adduced clear and convincing evidence that it would have acted the same even absent the protected activity, the district court avoided ruling on whether the standard was still applicable to SOX complaints. Kim , 2011 WL 4437086, *4.
Tenth Circuit
No appellate or district court decisions in the Tenth Circuit were identified in which the court discussed or applied the "definitively and specifically" standard in a Sarbanes-Oxley whistleblower case.
[ Note Nov. 15, 2013: In Lockheed Martin v. Adm. Review Bd., USDOL , No. 11-9524 (10th Cir. June 4, 2013) (case below ARB No. 10-050, ALJ No. 2008-SOX-49), the court noted the ARB's reach the ARB's disavowing of the �definite and specific� standard for SOX complaints in Sylvester , 2011 WL 2165854 at *14-15, but did not reach the question of whether the ARB was correcetd beucse that the complaint in the instant case met that standard. ]
Eleventh Circuit
Decided prior to the ARB's Platone decision, the district court's decision in Collins v. Beazer Homes USA, Inc. , 334 F.Supp.2d 1365 (N.D.Ga. Sept. 2, 2004), does not include the phrase "definitively and specifically." However, the defendant's argument in Collins that the plaintiff "never specifically alleged securities or accounting fraud and � her complaints were too vague to constitute protected activity" resembles a challenge that the plaintiff did not "definitively and specifically" complain of illegal activity. Id. at 1376. The district court rejected that argument, finding that although the "connection of Plaintiff's complaints to the substantive law protected in Sarbanes-Oxley is less than direct," the plaintiff's allegations contained sufficient detail. Id. at 1377. Additionally, because "the individuals to whom they were addressed understood the serious nature of Plaintiff's allegations," the district court disagreed that the complaints were impermissibly vague. Id.
Two years later, the same district court in Bozeman v. Per-Se Technologies, Inc. , 456 F.Supp.2d 1282, 1359 (N.D.Ga. Sept. 12, 2006) introduced the phrase "definitively and specifically" to the Eleventh Circuit, citing Sixth Circuit's original articulation of phrase in American Nuclear Res., Inc. v. United States Dep't of Labor , 134 F.3d 1292, 1295-96 (6th Cir.1998). However, building off the Collins decision, the Bozeman court found that this requirement is satisfied if "the individuals to whom [the complaints] were addressed understood the serious nature of [the employee's] allegations." Bozeman , 456 F.Supp.2d at 1359 (citing Collins , 334 F.Supp.2d at 1377-78). Although it did not have cause to apply the standard to the facts of the case before it, the Bozeman court's interpretation represents perhaps the most permissive iteration of the "definitively and specifically" standard.
D.C. Circuit
No appellate or district court decisions in the D.C. Circuit were identified in which the court discussed or applied the "definitively and specifically" standard in a Sarbanes-Oxley whistleblower case.
IV. ANALYSIS OF FEDERAL CASE LAW
Although some version of the "definitively and specifically" standard has worked its way into most federal court circuits, a review of these decisions reveals considerable variation in how the standard is interpreted and applied from court-to-court. Particularly, courts seem to disagree as to whether the focus of the "definitively and specifically" inquiry should be on the quality of the employee's communication (i.e., its factual specificity), the content of the employee's communication (i.e., its subject matter), or both. Additionally, a handful of courts have combined the "definitively and specifically" inquiry with its review of whether the employee had a reasonable belief that the employer violated an enumerated law. As discussed below, federal courts' varying interpretations of the "definitively and specifically" standard can be grouped into three categories.
1. Decisions that Focus on the Factual Specificity of the Employee's Communication
One group of federal court decisions view the "definitively and specifically" standard as a basic requirement that the employee's actual communication to the employer be sufficiently specific and factually detailed. The Fourth Circuit's decision in Welch , for example, describes the purpose of the "definitively and specifically" standard as "ensur[ing] that an employee's communications to his employer are factually specific." Welch v. Charo , 536 F.3d at 276-77; s ee also, e.g., Walton , 2008 WL 1751525, *8 (the "definitively and specifically" standard is "a minimal requirement" that is intended to prevent "vague whistleblowing," and requires the employee to "identify[] conduct by Defendants that [the plaintiff] believed to be illegal."); Harkness v. C-Bass Diamond, LLC , 2010 WL 997101, *7 (D.Md. Mar. 16, 2010) (adopting the Welch court's interpretation of the "definitively and specifically" standard).
The Southern District of New York adopted a version of this approach in three post- Sylvester decisions. The Sharkey , Gladitsch , and Ashmore courts interpreted the standard as requiring that the employee "identify the specific conduct that the employee believes to be illegal," and ruled that the employee "need only identify the conduct with specificity." Sharkey , 805 F.Supp. 2d at 55-56; Gladitsch , 2012 WL 1003513, *8; see also Ashmore , 2012 WL 2148899, *5-6. Some decisions in this group require that the specific conduct that the employee communicated at least "constitute a violation of federal law," Harp , 558 F.3d at 725, while others interpret this basic requirement as demanding only that the employee's disclosure identify "the specific behavior that formed the basis of his belief," regardless of whether that behavior reported actually violates a law. Sequeira , 716 F.Supp.2d at 550-51 (S.D.Tex. Jan. 12, 2009). The Eleventh Circuit district court decision in Bozeman articulates an even broader interpretation of the standard, requiring only that the recipient of the complaint understand "the serious nature of [the employee's] allegations." Bozeman , 456 F.Supp.2d at 1359.
In short, the decisions in this first category require that the employee's communication contain a minimal level of factual specificity so as to avoid "vague whistleblowing." The additional issue of whether the employee's complaint "relates" to one of the sources of law identified in § 1514A is handled separately, and is addressed when the court determines whether the employee had a reasonable belief that the employer had engaged in illegal conduct. See, e.g. Sharkey , 805 F.Supp. 2d at 55-57 (first analyzing whether plaintiff had a reasonable belief that the employer's conduct violated one or more categories of misconduct identified in SOX, and then separately addressing defendant's argument that the employee's communication lacked sufficient specificity).
2. Decisions that Additionally Focus on Whether the Content of the Communication Relates to One of the Laws Enumerated in § 1514A.
A second group of decisions add a layer to the "definitively and specifically" inquiry by also looking at whether the content of the employee's complaint implicates one of the sources of law identified in § 1514A. These decisions appear to interpret the purpose of the "definitively and specifically" standard as ensuring that that the complained-of conduct is sufficiently related to the laws identified in SOX to trigger the statute's protections. In contrast with the first group, these decisions interpret the "definitively and specifically" standard as more than a check on the factual specificity of the employee's complaint. Instead, these decisions look at the content of the employee's disclosures to ensure that the subject matter of the complaint relates to the categories of misconduct listed in the statute. Where the first group requires only that the employee had a reasonable belief of a violation that relates to a listed source of law, the second group views the "definitively and specifically" standard as requiring that the content of the employee's actual communication relates to a listed source of law.
A few of the decisions in this group focus exclusively on whether the employee's complaint related to an enumerated law, and do not analyze the factual specificity contained in the employee's communication at all. For example, the Court of Appeals for the Second Circuit in Vodopia did not explain whether the employee's communication was sufficiently detailed, and instead affirmed the district court's dismissal of the complaint because the employee's complaint related to "alleged fraud on the Patent Office," rather than one the sources of law listed in SOX. Vodopia , 398 Fed.Appx. at 663; see also, e.g., Andaya , 2012 WL 1871511, *3 (district court focused its inquiry on whether the subject matter of the employee's complaints were sufficiently "related" to the laws enumerated in SOX); Miller , 812 F.Supp.2d 975 (D.Minn Sept. 20, 2011) (the plaintiff's complaints were not analyzed for specificity, and instead dismissed for failure to implicate any federal law).
More commonly, however, these decisions require both that the employee's complaint to employer be sufficiently detailed so as to constitute more than a vague inquiry about potentially illegal conduct, and that the content of the complaint relates to a source of law enumerated in SOX. Several of the Southern District of New York's pre- Sylvester decisions adopted this approach. See, e.g., Cloke-Browne , 2011 WL 666187, *7 ("for the purposes of Section 806, an employee engages in a protected activity when he reports to his employers with some specificity that they are violating applicable laws."); Pardy v. Gray , 2008 WL 2756331, *5 (requiring that the employee's disclosure contain "some specificity" and relate to one of the laws enumerated in § 1514A). Additionally, the Court of Appeals for the Ninth Circuit appeared to take this approach in Van Asdale when it required that the employee "report conduct that definitively and specifically related to shareholder fraud," but suggested that the report must have enough specificity such that the recipient of the complaint understood its seriousness. Van Asdale , 577 F.3d at 997; see also, e.g., Hemphill , 2010 WL 2473845, *5 (the plaintiff avoided summary judgment because his "reports contained enough specificity as to the conduct he was identifying to raise a material issue of fact as to whether his report properly related to one of § 1514A's specifically enumerated categories.").
This approach to the "definitively and specifically" standard is further complicated where the court finds that the employee's complaints must allege fraud against shareholders in order to constitute protected activity. See, e.g. Skidmore , 2008 WL 2497442, *3 (requiring that the employee "implicate the substantive law protected in SOX relating to fraud against shareholders definitely and specifically" in order to engage in protected activity); Portes , 2007 WL 2363357, *4 (requiring that employee communications identify specific conduct "that would alert [a defendant] that [the employee] believed the company was violating any federal rule or law related to fraud against shareholders.").
3. Decisions that Combine the "Definitively and Specifically" Analysis with Its Analysis of Whether the Employee Had a Reasonable Belief that a Violation Occurred
Although most federal court decisions treat the "definitively and specifically" analysis as distinct and separate from the court's analysis of whether the employee had an objectively reasonable belief that a violation occurred, a third group of decisions have eroded this barrier, and apply the "definitively and specifically" standard as part of its reasonable belief analysis. For example, though it did not use the phrase "definitively and specifically," the First Circuit in Day included its discussion of whether the employee's complaint was "specifically related" to an enumerated law within its larger analysis of whether the employee had an objectively reasonable belief of shareholder fraud. Day , 555 F.3d at 55. Likewise, the district court in Lawson , following Day 's lead, not only discussed the "specifically related" standard as part of its objective reasonability analysis, but also stated that the standard demanded that "the employee's theory of fraud � at least approximate the basic elements of a claim of securities fraud." Lawson , 724 F.Supp.2d at 163 (emphasis added). By mixing the "specifically related" standard in with the court's assessment of whether the employee's belief was reasonable, the Day and Lawson decisions go beyond the confines of the employee's actual communication to the employer when applying the standard, and look also to the employee's "theory" for why the reported conduct violates an enumerated source of law. See also, e.g., Mann, 2011 WL 1575537, *9-10 (looking at both the plaintiff's actual communications and his explanation as to why his complaints related to fraud against shareholders to find that the "plaintiff reasonably believed that the violations he disclosed definitively and specifically related to fraud against shareholders.").
Building off of the First Circuit, the Third Circuit district court in Wiest likewise combined the "definitively and specifically" and "objectively reasonable belief" inquiries, and required that an employee's communication "provide information that reflects a reasonable belief of an existing violation." Wiest , 2011 WL 2923860, *4. The court went on to clarify that to satisfy this standard, the employee's communication "must convey that his concern with any alleged misconduct is linked to an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss." Id. By clouding the distinction between the "definitively and specifically" analysis and the objective reasonableness analysis, and by requiring that all protected activity allege shareholder fraud, the Wiest decision imposes a relatively heightened burden for an employee's disclosure to satisfy the "definitively and specifically" standard. Under Wiest , not only must the communication describe the conduct at issue with sufficient specificity, but it must also communicate to the employer that the conduct that is being described relates to the employee's belief that the employer has materially defrauded its shareholders, and it must indicate that the employee's belief is objectively reasonable. 3
V. CONCLUSION
A review of post- Platone case law in federal courts reveals that some version of the "definitively and specifically" standard has been adopted in most circuits of federal courts, albeit inconsistently interpreted and applied from court-to-court and case-to-case. Since it was issued in May 2011, the ARB's decision in Sylvester has had only a modest impact on how the standard has been applied. The Southern District of New York cited Sylvester in Sharkey and Gladitsch , and three of that district court's post- Sylvester decisions have adopted a more employee-friendly interpretation of what an employee's disclosure to an employer must contain. However, the Sylvester approach to employee complaints has not been expressly embraced by any federal appellate court, and one district court ( Wiest ) dismissed outright the ARB's abrogation of the "definitively and specifically" standard in Sylvester . For now, some iteration of Platone 's "definitively and specifically" standard remains applicable in most circuits, although a universally accepted interpretation of what the standard requires continues to elude federal courts.
Attachment: Case Summary Table
1 The Lawson decision was subsequently reversed because the Court of Appeals for the First Circuit determined that the plaintiffs were not employees of a covered employer under Section 806 of SOX. See Lawson v. FMR, LLC , 670 F.3d 61 (1st. Cir. 2012).
2 The Andaya court's additional requirement that the employee's complaint "resemble the allegations of shareholder fraud" also conflicts with the ARB's decision in Sylvester , which clarified that "a complaint of shareholder or investor fraud is not required to establish SOX-protected activity." Sylvester , ARB No. 07-123 at 19. For a detailed discussion of the state of the "fraud against shareholders" requirement in federal courts, see Memorandum: Fraud Against Shareholders as Element of Protected Activity under SOX, Section 806 (July 17, 2012), available at:
www.oalj.dol.gov/PUBLIC/WHISTLEBLOWER/REFERENCES/REFERENCE_WORKS/SOX_DIGEST_PROTECTED_ACTIVITY_FRAUD_ELEMENT.HTM
3 In requiring that the employee's disclosure actually communicate that he or she reasonably believes that the employer has violated the law, the Wiest court directly conflicts with the ARB in Sylvester , which held that SOX does not "require that a complainant actually convey the reasonable belief to management." Sylvester , ARB No. 07-123, slip op. at 14 (citing Knox v. U.S. Dept. of Labor , 434 F.3d 721, 725 (4th Cir. 2006)).
Case Citation
Description
FIRST
Day v. Staples , 555 F.3d 42 (1st Cir. 2009)
An employee of an office supply company complained about allegedly fraudulent return policies and claimed that they amounted to accounting fraud. In a letter to the Human Resources Department, the employee described the return practices as �intentionally and selfishly defrauding the shareholders� of the company.
Citing the Fraser (2006) decision's requirement that the plaintiff 'state particular concerns which, at the very least, reasonably identify [Defendant's] conduct that [Plaintiff] believes to be illegal,� the district court found that the plaintiff articulated his concerns with sufficient particularity. Day v. Staples, Inc. , 573 F.Supp.2d 336, 345 (D.Mass.2008) (citing Fraser 417 F. Supp 2d. at 322). However, the district court still granted summary judgment for the employer, finding that the plaintiff lacked a reasonable belief that the return policies constituted fraud. Particularly, the district court found that he lacked �the knowledge, training and experience to harbor a reasonable belief of fraud,� and that �his theorization of a link between return policies and shareholder fraud was creative at best, and precipitate in the extreme.� Day, 573 F.Supp.2d at 346.
The Court of Appeals for the First Circuit affirmed the district court's decision, although it did not agree that the plaintiff stated his concerns with sufficient particularity. Stating that "[t]he employee must show that his communications to the employer specifically related to one of the laws listed in � 1514A,� the court found the plaintiff's communications failing, as he unreasonably attempted to connect perceived violations of �general accounting principles� to shareholder fraud. Day, 555 F.3d at 55. Intermingled with its discussion of whether the complaint must implicate fraud against shareholders, the court stated that �t he employee need not reference a specific statute, or prove actual harm, but he must have an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss.� Id. at 56.
The First Circuit did not cite Platone or refer to the 'specifically and definitively� standard in name, but, as mentioned above, it did require that the plaintiff's communication be 'specifically related� to the laws listed in SOX. The court lumped this requirement in with its discussion of the requirement that the plaintiff's belief of a violation be objectively reasonable. Id.
Lawson v. FMR LLC , 724 F. Supp. 2d 141 (D. Mass. 2010)
The plaintiff was the Senior Director of Finance, and alleged that she suffered retaliation after she raised concerns to the company's Vice President regarding the company's cost accounting methodologies.
Following the lead of the First Circuit Court of Appeals in Day , the district court stated that �to demonstrate an objectively reasonable belief, the plaintiff does not need to cite a particular code provision, but the plaintiff �must show that his communications to the employer specifically related to one of the laws listed in � 1514A.� Lawson v. FMR LLC , 724 F. Supp. 2d 141, 163 (D. Mass. 2010) (citing Day, 555. F.3d at 55). As a secondary citation for this standard, the district court cited the Fourth Circuit's decision in Platone , summarizing Platone as �concluding that a plaintiff must state with sufficient particularity why she believes the actions would violate securities laws and constitute fraud.� Id. , 163-164 (citing Platone 548 F.3d at 327). The district court then went a step further, and summarized, �in other words, the employee's theory of fraud �must at least approximate the basic elements of a claim of securities fraud. (quoting Day , 555 F.3d at 55).
Applying this standard to Plaintiff Lawson, the district court found that she satisfied this standard sufficient to defeat Respondent's motion for dismissal because she allegedly reported her concerns regarding improper fee retention and inaccurate reports to the company's Vice President. Lawson , 724 F.Supp.2d at 164. Distinguishing Lawson's disclosures from �generalized complaints or complaints of administrative missteps,� quoting Livingston , 520 F.3d at 352 n. 1, the court found that because Lawson �reported specific problems in corporate conduct � that involved the delicate and regulated relationship between mutual fund and investment adviser,� she may have had a reasonable belief of fraudulent activity. Lawson , 724 F.Supp.2d at 164.
Stewart v. Doral Financial Corp. , 13-cv-1349 (D.Puerto Rico Feb. 21, 2014) (2014 WL 661587)
In Stewart v. Doral Financial Corp. , 13-cv-1349 (D.Puerto Rico Feb. 21, 2014) (2014 WL 661587), the Plaintiff was a Senior Vice President and Principal Accounting Officer for a financial corporation. He sent a letter to the Defendant's Audit Committee about his concerns about SOX-required internal controls, and a concern that the Defendant would fail to accurately report financial information in the upcoming quarters as a result of comments and events personally perceived by him. The Defendant filed two motions to dismiss arguing, inter alia, that the Plaintiff had not engaged in protected activity under SOX Section 806. In deciding the motions, the preliminary question before the court was whether the ARB's decision in Sylvester v. Paraxel Int'l LLC , ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42, slip op. at 17-18 (ARB May 25, 2011) (2011 WL 2165854), was entitled to Chevron deference. The court determined that Chevron deference applied, despite the fact that the ARB had changed course in Sylvester , because two Circuit Courts of Appeals had granted such deference, and because the ARB had thoroughly outlined its reasons for its reversal of course. Thus, the court applied the Sylvester "reasonable belief" standard rather than the "definitively and specifically" standard of Platone v. FLYi, Inc. , ARB No. 04-154, ALJ No. 2003-SOX-27, slip op. at 17 (ARB Sept. 29, 2006) (2006 WL 3193772). The court found no doubt that the Plaintiff met the "subjective belief" element of Sylvester analysis given his letter to the Chairman of the Audit Committee. The court then examined whether the Plaintiff met the element of the Sylvester analysis "whether a reasonable person, in the same factual circumstances and with the same training and experience as the [Plaintiff], would have held a reasonable belief that the conduct complained of constituted a violation of pertinent law." Slip op. at 16. The court noted that the Plaintiff was the Defendant's Principal Accounting Officer and was responsible for the accurate reporting of the Defendant's financial statements, general ledger and budget, and would be "would be implicated immediately if any oversight or inconsistencies were detected in any of [the Defendant's] financial disclosure statements." Id . The court was persuaded that sufficient facts had been alleged to show that a reasonable Principal Accounting Officer in the Plaintiff's position could have plausibly held a reasonable belief that a SOX violation was likely to occur (essentially a plan to "cook the books" and report inaccurate financial information).
SECOND
Vodopia v. Koninklijke Phlips Elecs, N.V. , 398 Fed. Appx. 659, 2010 WL 4186469 (2nd Cir. 2010) (not reported)
The plaintiff claimed that his employer had acquired several patents by defrauding the Patent Office, and stated that he attempted to report the invalidity of these patents to his employer on various occasions.
The district court dismissed his claim pursuant to FRCP 12(b)(6) for failure to allege that he engaged in protected activity under the statute.
Citing the appellate courts� decisions in Van Asdale, Day, Welch, and Allen , the court of appeals stated that to �qualify as protected activity, the �employee's communications must definitively and specifically relate to [one] of the listed categories of fraud or securities violations [in] 18 U.S.C. � 1514A(a)(1). Vodopia , 398 Fed. Appx. at 662-63 (quoting Van Asdale v. Int'l Game Tech. , 577 F.3d 989, 996�97 (9th Cir.2009).
Applied to the plaintiff in Vodopia , the court held that his communications �did not �directly and specifically� relate to any of section 1514A's enumerated federal laws or rules,� because the misconduct that he communicated �alleges fraud on the Patent Office and the potential invalidity of certain patents as a result.� Vodopia , 398 Fed. Appx. at 663. Consequently, his communications did not relate to the categories of violations listed in 18 U.S.C. � 1514A(a)(1).
Leshinksy v. Telvent GIT, S.A. , No. 10-cv-4511, 2013 WL 1811877 (S.D.N.Y. May 1, 2013)
The Defendants contended in their summary judgment motion that the Plaintiff's statement to the acquired company's President was plainly insufficient to constitute "providing information" under Section 1515A, as the Plaintiff did not use the word "fraud" and was not even sure if the two overhead scheme was illegal. The court noted that a "specifically and definitively" test had been adopted in Platone v. United States Dep't of Labor , 548 F.3d, 322, 327 (4th Cir. 2009), but that the U.S. Department of Labor, Administrative Review Board (ARB) had subsequently rejected the existence of such a test in Sylvester v. Parexel Int'l LLC , ARB No. 07�123, 32 IER Cases 497, 508 (ARB May 25, 2011). Finding that ARB decisions are entitled to some level of deference (albeit the level of deference was in dispute), the court stated that it agreed with the ARB that the "definitive and specific" test is inapplicable to SOX violations. Rather, the critical focus is on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law.
Ashmore v. CGI Group Inc. , 2012 WL 2148899 (S.D.N.Y. June 12, 2012) (not reported)
The defendant was a subcontractor of a public housing authority that provided services related to the administration of HUD's Section 8 project-based rental subsidy program. The plaintiff worked for the defendant's Rebid Assessment Team (RAT), which coordinated rebidding process for Section 8 administrative services contracts. While working in this capacity, the plaintiff allegedly caught wind of a scheme concocted by several RAT coworkers to violate HUD rules limiting the number of rental units that can be administered by a single public housing authority or private subcontractor. According to the plaintiff, he complained to his coworkers and supervisor about the scheme, and alleged in his complaint that he reasonably believed that his coworker's use of telephone lines and emails to implement the scheme violated federal mail and wire fraud statutes.
Citing a pre- Platone ARB decision, the district court required that the plaintiff 'show that the information she provided about the conduct was not overly general,� and that she �reported information [with] a certain degree of specificity.� Ashmore , 2012 WL 2148899, *5 (citing Lerbs v. Buca Di Beppo, Inc. , No. 2004�SOX�8, 2004 WL 5030304, *33�34, (ARB June 15, 2004)). According to the court, �the fact that [the plaintiff] did not specifically inform [the employer] � of his belief that the scheme involved mail or wire fraud, or his reasons for thinking so, does not mean that the information he communicated was insufficiently specific to count as activity protected by � 806.� Id. at *6. Citing Welch , the district court clarified that �what the specificity requirement instead demands is that �employees' communications ... identify the specific conduct that the employee believes to be illegal. Id. (citation omitted). In the instant case, it was undisputed that the plaintiff specifically identified the conduct that he believed to be illegal in his disclosures (i.e. the scheme to avoid HUD's limit on unit administration), and the court found his disclosures sufficient to satisfy the specificity standard.
Barker v. UBS AG , 2012 WL 2361211 (D.Conn. May 22, 2012) (not reported)
The plaintiff was the Associate Director in the Business Management Group of the Equities Chief Operating Officer's office, primarily tasked with �reconciling� the company's exchange holdings to ensure that they were accurately reported. The plaintiff alleged that she was included in a large-scale reduction in force because she disclosed reporting discrepancies that she identified during the course of her duties.
The district court cited Vodopia and quoted Van Asdale in requiring that the employee's communications to his or her employer �definitively and specifically relate to [one] of the listed categories of fraud or securities violations [in] 18 U.S.C. � 1514A(a)(1),� and clarified that the standard requires that the employee �provide factually specific information to the employer regarding conduct she believes to be illegal.� Barker, 2012 WL 2361211, *4 (citations omitted). In a footnote, however, the court recognized that the ARB's Sylvester decision abrogated the �definitively and specifically� test. While the court acknowledged that it affords Chevron deference to ARB decisions, the court decided that it need not determine which standard applies after Sylvester because the plaintiff had adduced sufficient evidence to satisfy the more stringent �definitively and specifically� test.
The defendant challenged the plaintiff's alleged protected activity on the grounds that she did not step outside the bounds of her normal job responsibilities, and that she did not have a subjectively or objectively reasonable belief that the employer was engaged in fraudulent activity. Consequently, the court did not further elaborate on why her communications to her employer satisfied the �definitively and specifically� standard.
Andaya v. Atlas Air, Inc. , 2012 WL 1871511 (S.D.N.Y. Apr. 30, 2012) (not reported)
The district court granted summary judgment for the employer where the plaintiff, the former Director of the company's Project Management Office, made a host of complaints, but none constituted protected activity under SOX.
Citing the Second Circuit's decision in Vodopia and the Ninth Circuit's decision in Van Asdale , the district court stated that �for an action to qualify as a protected activity, the �employee's communications must definitively and specifically relate to one of the listed categories of fraud or securities violations in 18 U.S.C. � 1514A(a)(1). Andaya, 2012 WL 1871511, *3 (citations omitted). The court went on to clarify that while the employee is not required to identify a specific law when reporting a potential violation, he �must complain of conduct which he reasonably believes �definitively and specifically relate� to conduct included in Section 1514A.� Id. at *3 (citing Welch v. Chao , 536 F.3d 269, 276�77 (4th Cir.2008)).
The district court found that the plaintiff's allegations did not meet this standard, stating that the �plaintiff does not explain how his complaints about (a) employment and staffing issues; (b) general corporate waste; (c) [a coworker] taking fees to speak to vendors; and (d) excessive consulting fees implicate any of the subjects identified by Section 1514A.� Id. at *5. Because his allegations did not allude to �criminal conduct, shareholder fraud, or fraudulent intent,� the court found that it could not find that the plaintiff actually complained of any fraud sufficient to implicate Section 1514A(a)(1). Id.
In support of this finding, the court compared the plaintiff's insufficient allegations to those at issue in Day v. Staples , 555 F.3d 42 (1st Cir. 2009), as the plaintiffs in both cases failed to make a connection between the complained-of practices and shareholder fraud. The court also cited the Fourth Circuit's decision in Platone because it similarly found that the plaintiff's alleged protected activity insufficiently articulated how the company's practices were defrauding shareholders. Id.
Gladitsch v. Neo@Ogilvy , 2012 WL 1003513 (S.D.N.Y. Mar. 21, 2012) (not reported)
The district court denied the employer's motion to dismiss under FRCP 12(b)(6) where an Associate Media Director at a media communications services company complained that clients had been overcharged.
Citing the court's previous decision in Sharkey v. J.P. Morgan Chase & Co. , 805 F.Supp.2d 45, 57 (S.D.N.Y.2011), the court explained that �the employee's communications must identify the specific conduct that the employee believes to be illegal� to constitute protected activity. Gladitsch, 2012 WL 1003513, *8. The court also cited the ARB's decision in Sylvester , stating that �an employee's communication to the employer need only identify the conduct with specificity.� Id. (citing Sylvester v. Parexel , ARB No. 07�123, slip op. at 19 (ARB May 25, 2011)).
Applied to the instant case, the court found that the plaintiff's complaint met this standard. �In her communications with supervisors, Plaintiff identifies specifically the overcharges to IBM through third-party vendor purchases of media services as the conduct she believed to be unlawful,� and her �allegations implicate sections 1341 [mail fraud] and 1343 [wire fraud].� Id.
Sharkey v. J.P. Morgan Chase & Co. , 805 F.Supp.2d 45 (S.D.N.Y. Aug. 19, 2011)
Sharkey v. J.P. Morgan Chase & Co. , 2011 WL 135026 (S.D.N.Y. Jan. 14, 2011) (not reported)
The plaintiff allegedly reported to her employer that a client (�Suspect Client�) had engaged in fraudulent and otherwise-illegal activities. She believed those activities violated several of the anti-fraud statutes enumerated in SOX and put the company's shareholders at risk. See Sharkey , 805 F.Supp.2d at 57. Her communications culminated in a �final report,� in which the Plaintiff recommended �that J.P. Morgan exit its relationship with the Suspect Client due to the concerns [that she] had previously reported.� Id.
In response to defendant's motion to dismiss the plaintiff's first complaint, the district court in Sharkey v. J.P. Morgan Chase & Co. , 2011 WL 135026 (S.D.N.Y. Jan. 14, 2011) held that the plaintiff's reports of the client's illegal conduct could constitute protected activity under SOX, but her complaint nonetheless failed to 'specifically or definitively� state how the Suspect Client allegedly violated any of the laws or regulations enumerated in SOX. Because her complaint referred only to the Suspect Client's �illegal activities,� she failed to identify the allegedly illegal conduct that formed the basis of her whistleblower complaint, and therefore she failed to plead with sufficient specificity.
Subsequently, the plaintiff filed an amended complaint that fully described the content of her disclosures to her employer, and offered a detailed description of the factual basis for her belief that the Suspect Client had engaged in fraud. The defendant filed a new motion dismiss, which argued in part that the amended complaint's descriptions of the plaintiff's disclosures still lacked sufficient specificity to determine if the disclosures �definitively and specifically related� to a source of law in � 1514A.
Citing both the Fourth Circuit's decision in Welch and the ARB's decision in Sylvester , the district court explained that �a whistleblower need not cite a code section he believes was violated in his communication to his employer, but the employee's communications must identify the specific conduct that the employee believes to be illegal.� Id. , at 56-57 (internal quotations omitted). The court found that the plaintiff had sufficiently alleged protected activity by pleading that 'she repeatedly reported her concerns regarding the [Suspect] Client's illegal activity to the Individual Defendants and�the risk and compliance team,� and her amended complaint provided adequate factual specificity to avoid dismissal. Id. at 57.
Cloke-Browne v. Bank of Tokyo-Mitsubishi UFJ, Ltd ., 2011 WL 666187 (S.D.N.Y. Feb. 9, 2011) (not reported)
A high-level bank manager in the bank's credit portfolio management division alleged that he alerted senior management of his reasonable belief that serious violations of the securities laws and other legal obligations were occurring and/or might occur. The plaintiff alleged that he reported his belief that the company was not calculating, nor publicly reporting, accurate risk levels, and were thus defrauding shareholders, and even submitted a 12�page report to his superiors to explain the erroneous risk calculations and other deficiencies. Cloke-Browne, 2011 WL 666187, *8.
Citing the decisions in Pardy and O'Mahony , the district court stated that �for the purposes of Section 806, an employee engages in a protected activity when he reports to his employers with some specificity that they are violating applicable laws.� Id. at *7. The district court found the plaintiff's alleged conduct to be sufficient to constitute protected activity under SOX, and distinguished the plaintiff's alleged protected activity from that alleged in Vodopia , noting that in the instant matter, the plaintiff 'specifically alleges that he warned Defendants of securities law violations relating to the public disclosure of risk levels.� Id.
Fraser v. Fiduciary Trust Co., Int�l , 2009 WL 2601389 (S.D.N.Y Aug. 25, 2009) (not reported)
The district court granted summary judgment for the defendant, finding that the plaintiff, the Vice President of the company, failed to allege protected activity when he alerted the company's President about a business decision made by the New York office, but was not shared with the company's other field offices. The plaintiff alleged two forms of protected activity: (1) an email regarding the New York office's decision to sell off the specific bonds, in which he stated that the other offices were not alerted to this decision when it was made several months earlier, and (2) a conversation regarding internal company documents, in which he expressed his belief that the certain accounts were erroneously included, and therefore the document overstated the number of assets that were under defendant's management.
Citing the Fifth Circuit's decision in Allen , the district court clarified that �in order to qualify as protected activity, �an employee's complaint must definitively and specifically relate to one of the six enumerated categories� of misconduct contained in SOX � 806, i.e. mail fraud, wire fraud, bank fraud, securities fraud, violation of an SEC rule or regulation, or violation of a federal law relating to fraud against shareholders.� Fraser, 2009 WL 2601389, *5 (citing Allen, 514 F.3d at 476�77. Because �general inquiries do not constitute protected activity,� the court stated that �the reported information must have a certain degree of specificity,� and therefore a �whistleblower must state particular concerns which, at the very least, reasonably identify a respondent's conduct that the complainant believes to be illegal.� Id. at *5.
Applied to the plaintiff in Fraser , the district court found that the plaintiff's email �did not express any specific concern about any fraud enumerated in SOX � 806�it merely indicated that the New York office had decided to sell its WorldCom bonds.� Id. Accordingly, the district court classified the email as �a general inquiry regarding a business decision rather than a specific complaint of fraud.� Id. Additionally, the court observed that the plaintiff's �own explanation of his reason for sending the e-mail to Yun negates his argument that he was attempting to report fraud or misconduct.� Id. Likewise, the court dismissed the plaintiff's conversation with his superior as a �general inquiry,� stating that although he raised questions about the document � he never expressed a specific concern that the information contained in the document was illegal.� Id. at *6.
Pardy v. Gray , 2008 WL 2756331 (S.D.N.Y. July 15, 2008) (not reported)
A Senior Art Buyer claimed that she was discharged from her employment in reprisal for her communications to her superiors regarding allegedly fraudulent invoices.
The district court stated that a SOX plaintiff must �implicate the substantive law protected in Sarbanes�Oxley definitively and specifically.� Pardy , 2008 WL 2756331, *5 (citing Fraser , 417 F.Supp.2d at 322) (internal quotations omitted). Even though a plaintiff need only a reasonable belief that the employer was violating federal law, the court clarified that �the claims must have some degree of specificity.� Id.
Because the plaintiff alleged in her complaint that her employer committed wire and mail fraud when it fraudulently billed a client, and her communications were sufficient to make her supervisors aware of what she was alleging, the court found that the plaintiff engaged in protected activity. Id. Nonetheless, the district court granted summary judgment for the employer because the plaintiff adduced insufficient evidence of causation, and the defendant proved by clear and convincing evidence that it would have terminated her employment even absent the protected activity. Id. at 6.
O'Mahony v. Accenture Ltd. , 537 F.Supp.2d 506 (S.D.N.Y. Feb. 5, 2008)
The plaintiff, working abroad in France, informed various executives at her employer that the company was responsible for retroactively paying French social security contributions owed on her behalf. When her employer declined to do so, the plaintiff objected, claiming she was unwilling to be a party to tax fraud.
When discussing protected activity under the statute, the district court explained that �the context of the disclosure and the circumstances giving rise to the communication, if closely related to potential fraud against shareholders, may be sufficient to satisfy the pleading requirements of a [� 1514A] claim.� O'Mahony, 537 F.Supp.2d at 516 (citing Portes v. Wyeth Pharm., Inc. , 2007 WL 2363356, *4 (S.D.N.Y. Aug. 20, 2007) (internal quotation marks omitted). Citing Fraser , the district court therefore held that �protected activity must implicate the substantive law protected in Sarbanes�Oxley definitively and specifically.� Id. (citing Fraser , 417 F.Supp.2d at 322 (citations and internal quotation marks omitted)).
The district court did not discuss the �definitively and specifically� standard further, and instead, in response to arguments raised by the defendant, the court analyzed whether a SOX complainant must allege �fraud against shareholders� to engage in protected activity (ultimately finding in the negative).
Portes v. Wyeth Pharmaceuticals, Inc. , 2007 WL 2363356 (S.D.N.Y. Aug. 20, 2007) (not reported)
The plaintiff, who was the principal manager in charge of the defendant's corporate compliance project regarding a consent decree that the company had entered with FDA, made in-person and email disclosures to his supervisors communicating his belief that the employer was failing to comply with the consent decree by not reporting compliance deficiencies to the FDA, SEC and shareholders.
Citing Fraser and ERA case law, the court stated that �disclosures are protected only when they implicate the substantive law protected in Sarbanes-Oxley definitively and specifically,� Portes , 2007 WL 2363356, *4 (internal quotations omitted), and held that �where a communication is �barren of any allegations of conduct that would alert [a defendant] that [the plaintiff] believed the company was violating any federal rule or law related to fraud against shareholders,� the reporting is not protected by SOX.� Id. (quoting Fraser , 417 F.Supp.2d at 322). The district court also cited the ARB's decision in Platone to explain that the �relevant inquiry is not what [is alleged in the complaint filed with OSHA], but [what was] actually communicated to [the] employer prior to ... termination.� Id. (quoting Platone v. FLYi, Inc. , ARB 2003-SOX-27, 2006 WL 3246910, *8 (ARB Sept. 29, 2006)).
Ultimately, the district court found that the plaintiff's disclosures fell short of constituting protected activity. The court noted that the plaintiff's �purported violations involved the Consent Decree, FDA regulations, EU regulations, and other drug manufacturing guidelines, not SEC rules or other federal law related to fraud against shareholders,� and therefore his communications �were not sufficiently related to shareholder fraud to constitute protected activity.� Id. Comparing the instant plaintiff's disclosures to those of the plaintiff in the 2006 Fraser decision, the district court explained that because his principal concern was with �violations of regulations governing the manufacture of pharmaceuticals � [t]he circumstances of the disclosures do not suggest a concern� with fraud against shareholders. Id. at *4-5.
Fraser v. Fiduciary Trust Co., Int�l , 417 F.Supp.2d 310 (S.D.N.Y. 2006)
The plaintiff cited four communications with agents of his employer as bases for protected activity, including a memo that he sent to the defendant's Human Resources Department and emails he sent to the company's Vice Chairmen. In his communications, the plaintiff claimed that he 'suggested� that the company could have avoided large losses if his investment advice had been followed, and alleged that specific Fiduciary employees had attempted to �conceal and falsify�performance results...in communication reports to clients.� Fraser , 417 F.Supp.2d at 322 (citations omitted). In other communications, he offered advice to sell certain bonds, which, because they went unheeded, he asserts constitute protected activity.
Clarifying that �general inquiries� do not constitute protected activity, the district court held that a SOX whistleblower complainant must report information with �a certain degree of specificity and must state particular concerns which, at the very least, reasonably identify a respondent's conduct that the complainant believes to be illegal.� Id. (citations omitted). Applied to the case at issue, the district court concluded that the plaintiff failed to alert the employer that he �believed the company was violating any federal rule or law related to fraud on shareholders,� and therefore his actions did not rise to the level of whistleblowing under the statute. Id. at 333. While the �definitively and specifically� standard was not referred to in name, the court's requirement that that the plaintiff communicate a belief relating to shareholder fraud recalls the court's analysis in Portes .
THIRD
Wiest v. Lynch , __ F.3d__, No. 11-4257 (3d Cir. Mar. 19, 2013)
Wiest v. Lynch , 2011 WL 2923860 (E.D. Pa. July 21, 2011) (not reported)
Motion to Reconsider: Wiest v. Lynch , 2011 WL 5572608 (E.D.Pa. Nov. 16, 2011) (not reported)
The Third Circuit gives Chevron deference to ARB's decision in Sylvester .
The plaintiff, who worked in the company's accounts payable department, alleged that certain event expenditures were being improperly treated under internal reimbursement standards, and he therefore refused to process them. He also claimed that processing the expenditures would violate SEC rules and regulations, tax laws, and constitute unethical conduct. The plaintiff, therefore, sent email communications to his supervisors requesting further analysis of the expenditures, and for one expenditure, requested formal approval from certain individuals before processing the payments.
The district court cited the ARB's decision in Platone , and stated that a communication must relate �definitively and specifically� to one of the statutes or rules listed in Section 806. Wiest , 2011 WL 5572608, *4. While the employee does not have to cite a specific statute, the employee �must express an objectively reasonable belief [that] there has been shareholder fraud,� and must communicate that his concern �is linked to an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss.� Id. (citing and quoting Day , 555 F.3d at 55) (internal quotations omitted).
In granting the defendant's motion to dismiss for lack of protected activity, the court considered �whether the content of the emails � gives rise to a reasonable inference that he provided information to his supervisors that definitively and specifically conveyed his objectively reasonable belief that conduct constituting shareholder fraud had either taken place or was in progress.� Id. at *5 (internal quotations omitted). The court analyzed each email that the plaintiff submitted as evidence of protected activity, and found that his �communications simply provided information and suggestions to ensure proper tax and accounting treatment of the Atlantis event expenses.� Id. at *6. As such, �they did not rise to the level of �definitively and specifically� conveying a reasonable belief that a violation of the laws and regulations listed in � 1514A was taking place.� Id. Focusing on the text of the emails, the court found that the plaintiff �did not identify, describe or suggest that the questioned expenses were potentially fraudulent,� or that the company was at risk of committing a SOX violation. Id. at *7.
The plaintiff filed a motion to reconsider the dismissal of his case in light of an intervening change in controlling law, based entirely on the ARB's May 25, 2011, decision in Sylvester . See Wiest v. Lynch , 2011 WL 5572608 (E.D.Pa. Nov. 16, 2011). The district court was not persuaded, noting that the ARB had issued the Sylvester opinion almost two months before the court dismissed the plaintiff's complaint. Additionally, the district court disagreed that Sylvester constituted an intervening change in law because �an ARB decision is not binding authority on a United States district court.� Id. at *3-4. The district court noted that its decision to dismiss the plaintiff's complaint �relied extensively on other ARB decisions unaffected by Sylvester as well as the decisions of numerous other circuit courts of appeals,� and �even assuming the ARB has abrogated the �definitive and specific� test of Platone en banc, it stated that the Ninth Circuit's ruling in Van Asdale remained untouched by this decision. Id. at *4.
FOURTH
Platone v. United States Dept. of Labor , 548 F.3d 322 (4th Cir. 2008), cert denied Platone v. Department of Labor , 130 S.Ct. 622, 175 L.Ed.2d 478, (U.S. Nov 16, 2009) (No. 09-55) (case below ARB No. 04-154, ALJ No. 2003-SOX-27)
The Fourth Circuit affirmed the ARB's decision in Platone , agreeing that plaintiff's reporting of a billing discrepancy to her employer did not constitute protected activity because she did not �identify � why she believed the actions related to the discrepancies would violate securities laws and constitute a fraud.� Platone , 548 F.3d at 327.
The court noted that the Fourth Circuit's Welch decision had already upheld the ARB's ruling in Platone that �allegations to management � must be definitively and specifically related to one of the areas accorded protection in � 1514A(a)(1).� Id. at 326. In likewise adopting and applying the �definitively and specifically� standard, the Fourth Circuit clarified that it did �not heighten the requirements for a complainant's prima facie showing or otherwise change the burden-shifting regime for Sarbanes�Oxley whistleblower actions,� holding instead that �a complainant must alert management to more than the fact that the company's near-term profits were affected by billing discrepancies in order to meet the standard of definitively and specifically alleging mail or wire fraud.� Id. at 327.
Welch v. Charo , 536 F.3d 269 (4 th Cir. 2008)
The plaintiff complained about accounting irregularities, including loan recovery money that was allegedly misreported as income (rather than being placed in the loan reserve account), as well as the company's practice of allowing individuals without accounting experience to make ledger entries. Additionally, the employee complained that the company failed to correct a quarterly 10-QSB report, which had allegedly overstated the company's income. The plaintiff lodged these complaints with the company's Chief Financial Officer. See Welch , 536 F.3d at 273.
The plaintiff's case reached the Fourth Circuit on appeal of the ARB's decision to reverse the decision of an administrative law judge, finding in favor of the employer. In its decision, the ARB held that the plaintiff could not have had an objectively reasonable belief that the company had acted illegally. See Welch v. Cardinal Bankshares Corp., ARB No. 05-064, ALJ No. 2003-SOX-15 (ARB May 31, 2007). The ARB suggested that the misclassification of items in a financial statement can never "present potential investors with a misleading picture of [a company's] financial condition," so long as the misclassification does not affect the "bottom line." Welch , 536 F.3d at 278. Given the plaintiff's experience and expertise, he could not have reasonably believed that the quarterly SEC report presented a misleading picture of the defendant's financial condition. Id.
Citing the ARB's decision in Platone , the Fourth Circuit stated that the plaintiff �must show that his communications to his employer �definitively and specifically relate[d]� to one of the laws listed in � 1514A. Welch , 536 F.3d at 275. According to the Fourth Circuit, this standard is necessary to �ensure[] that an employee's communications to his employer are factually specific,� and �the employee's communications must identify the specific conduct that the employee believes to be illegal.� Id. at 276-77 (citations omitted). This does not require a complainant to complain of an actual violation, nor does the �definitively and specifically� standard amount to a heightened pleading standard. Id . at 277.
Even though the court discussed the �definitively and specifically relate� standard, it did not clearly apply it to the plaintiff's claim, and instead upheld the ARB's decision for want of evidence demonstrating the objective reasonableness of the plaintiff's belief. Id. Although the court rejected the ARB's suggestion that �misclassification of items in a financial statement can never present potential investors with a misleading picture of [a company's] financial condition,� the Fourth Circuit agreed that the plaintiff failed to explain why he had a reasonable belief that the accounting irregularities violated any of the laws listed in � 1514A. Id . at 277-78.
Livingston v. Wyeth Inc. , 520 F.3d 344 (4 th Cir. 2008)
The plaintiff sued his former employer, a pharmaceutical company, alleging that he had been fired in retaliation for complaining about sluggish development of training programs that were required by the Food and Drug Administration (FDA). The plaintiff was required as part of his job responsibilities to ensure that adequate training systems were in place for purposes of complying with federally-mandated training requirements, and reported to his supervisors that he noticed gaps in the company's training documentation. This put the company in violation of the Consent Decree that it had entered into with the FDA, and the plaintiff believed violation of the Degree would negatively impact shareholders. The plaintiff provided evidence of several communications in which he expressed concern that the company's training system was insufficient to meet internal audit requirements, and indicated that otherwise reporting that the company was in compliance with training requirements to �outside auditors� would be misleading. The plaintiff also filed a complaint with the company's internal compliance office, alleging that his criticism of the training system had been ignored, and implied that the company planned to conceal its non-compliance from auditors. See Livingston , 520 F.3d at 346-50.
Before arriving at the Court of Appeals, the district court granted summary judgment for the employer, finding that the plaintiff failed to establish a genuine issue of material fact as to whether he had an objectively reasonable belief of a securities fraud violation. See Livingston v. Wyeth Inc. , 2006 WL 2129794 (M.D.N.C. July 28, 2006) (not reported).
On appeal to the Fourth Circuit, the Court of Appeals did not discuss the 'specifically and definitively� standard in name, and instead stated that the plaintiff �must show not only that he believed that the conduct constituted a violation, but also that a reasonable person in his position would have believed that the conduct constituted a violation.� Livingston , 520 F.3d at 351. Applied to the evidence adduced by the plaintiff, the Court of Appeals found �no suggestion�.that Wyeth or its employees had or even intended to mislead shareholders, as necessary to support a reasonable belief that the securities laws had been or were being violated.� Id. at 354. Therefore, the Court of Appeals affirmed dismissal, finding that the plaintiff had not produced evidence demonstrating that �he provided information or made a complaint to Wyeth about conduct which a reasonable employee in his position could have believed at the time constituted a violation of the securities laws.� Id.
Circuit Judge Michael wrote a dissenting opinion, arguing that the plaintiff had in fact adduced sufficient evidence to defeat the defendant's motion for summary judgment. Specifically, Judge Michael found that even though the plaintiff did not cite specific statutes or rules that he believed were violated, his complaints reasonably implicated fraud against shareholders and violations of federal regulations. Id. at 366.
Feldman v. Law Enforcement Associates Corp. , 779 F.Supp.2d 472 (E.D.N.C. Mar. 10, 2011)
The plaintiffs complained internally and to federal authorities about the employer's failure to report its export business relationship with a client, claiming that it not only violated export laws, but also �constituted violations of SEC rules governing internal accounting controls.� Feldman , 779 F.Supp.2d at 491.
Citing Welch , the district court found that the plaintiffs had sufficiently shown that they engaged in protected activity by �definitively and specifically complain[ing] of insider trading and that plaintiffs complained to a Federal regulatory or law enforcement agency.� Id. at 492 (internal quotations and citations omitted).
Harkness v. C-Bass Diamond, LLC , 2010 WL 997101 (D.Md. Mar. 16, 2010) (not reported)
The plaintiff, who served as the company's general counsel, and also led the company's Quality Control and Human Resources departments, filed reports to the company's Audit Chair and Committee alleging that non-public information had been disclosed to an investor, potentially resulting in an SEC violation.
Citing the Fourth Circuit's decisions in Welch and Platone , the district court stated that the plaintiff must have �identif[ied] the specific conduct the [she] believe[d] to be illegal� in order to have engaged in protected activity. Harkness , 2010 WL 997101, *7 (citations omitted).
The district court found that the plaintiff failed to meet this standard when she complained about being excluded from important meetings, because she �did not report fraud or other illegal conduct.� Id. at *8. Additionally, the district court noted that she �failed to allege which federal securities law or regulation she believed Fieldstone to be in violation of by excluding her from important meetings and events,� and instead, simply alleged that �her exclusion put the company at an increased risk of legal violations.� Id. Consequently, the district court granted summary judgment for the employer.
FIFTH
Allen v. Administrative Review Board , 514 F.3d 468 (5 th Cir. 2008)
A Certified Public Accountant told her superiors that her division's internal consolidated financial statements were not compliant with a SEC Staff Accounting Bulletin, which stated that publicly-traded companies should not calculate sales revenue before they deliver merchandise to the customer. The plaintiff knew, however, that these statements were only used internally, and were not submitted to the SEC or available to shareholders.
Prior to reaching the Court of Appeals for the Fifth Circuit, the ALJ dismissed the complaint, and the ARB affirmed, for failure to engage in protected activity � specifically, the plaintiff's failure to prove that she communicated an objectively reasonable belief that her employer had violated an SEC rule or engaged in fraud against shareholders. See Allen v. Stewart Enterprises, Inc. , ARB No. 06-081, ALJ Nos. 2004-SOX-60 to 62 (ARB July 27, 2006).
Citing the ARB's decision in Platone , the Fifth Circuit �agree[d] with the ARB's legal conclusion that an employee's complaint must �definitively and specifically relate� to one of the six enumerated categories found in � 1514A.� Allen , 514 F.3d at 476-77. However, in upholding the ARB's decision, the Fifth Circuit did not make a finding on whether the employee's complaint �definitively and specifically� related to an enumerated category. Instead, applying substantial evidence review, the Fifth Circuit �concur[red] with the ARB's holding that substantial evidence supported the ALJ's factual finding regarding the �objective reasonableness� issue.� Id. at 479.
Additionally, as it related to the 'sixth enumerated category of protected activity� � i.e., reporting a reasonably believed violation of � any provision of federal law relating to fraud against shareholders � � the Fifth Circuit held that 'some form of scienter related to fraud against shareholders is required,� and therefore, �the employee must reasonably believe that his or her employer acted with a mental state embracing intent to deceive, manipulate, or defraud its shareholders.� Id. at 479-80. Employing substantial evidence review, the Fifth Circuit likewise concurred with the ARB that the ALJ correctly dismissed the plaintiff's complaints because the defendant �did not possess the requisite scienter.� Id. at 482.
Hemphill v. Celanese Corp. , 2010 WL 2473845 (N.D.Tex. June 16, 2010) (not published)
The plaintiff, an internal audit manager, alleged that he notified management on several occasions of specific issues regarding the accuracy of financial records and potential violations of law and company policy.
In considering the employer's motion for summary judgment, the district court cited the Allen decision, and stated that �an employee's complaint must definitively and specifically relate to one of � 1514A's six enumerated categories and be based on the employee's reasonable belief that a violation of one of the six categories occurred.� Hemphill , 2010 WL 2473845, *5. Even though the plaintiff's �reports did not specifically cite the statute he perceived was being violated,� the district court found that the plaintiff's �reports contained enough specificity as to the conduct he was identifying to raise a material issue of fact as to whether his report properly related to one of � 1514A's specifically enumerated categories.� Id. However, the district court still granted summary judgment for the employer because �no reasonable trier of fact could find Hemphill's protected activity was a contributing factor in Celanese's decision.� Id .
Sequeira v. KB Home , 716 F.Supp.2d 539 (S.D.Tex. Jan. 12, 2009)
A Senior Marketing Manager at a publicly-held home manufacturer and mortgage financier alleged that he engaged in protected activity by reporting to his superiors that the marketing division lacked internal accounting controls, and by questioning the accuracy of a SOX compliance spreadsheet.
In denying the employer's motion for summary judgment, the district court stated that the plaintiff's complaint must �definitively and specifically relate� to one of these categories of law enumerated in � 1514A. Sequeria , 716 F. Supp.2d at 550 (citing Allen , 514 F.3d at 476�477). Although it clarified that �general inquires about the company's activities do not rise to the level of protected activity,� the court found that the plaintiff had adduced sufficient evidence to raise a genuine issue of material fact as to whether he engaged in protected activity. Id. at 553. Specifically, the district court noted that the plaintiff �identified specific behavior, regarding vendor contracts, inventory controls, and the SOX spreadsheet� as forming the basis of his belief, and by communicating his concern that the company had insufficient internal controls to his boss, he put his employers on notice of his reasonable belief. Id.
The district court distinguished the instant case from the plaintiff's allegations in Allen , as the plaintiff in Sequeria believed that his employer �willfully violated this law by failing to follow its own procedures regarding vendor contracts and inventory controls,� and that the arguably-inaccurate �information on the SOX Spreadsheet is used for Sarbanes�Oxley compliance.� Id. at 554. Instead, the court compared the plaintiff's alleged protected activity to that of the plaintiff in Collins v. Beazer Homes USA, Inc. , 334 F.Supp.2d 1365, 1377-78 (N.D.Ga. Sept. 2, 2004), in which �the district court denied summary judgment because the plaintiff's allegations detailed violations of the company's internal accounting controls in favor of preferential treatment based on personal relationships,� even though �the plaintiff's complaints to the substantive law protected in Sarbanes�Oxley was �less than direct. Id. at 554.
SIXTH
See Rhinehimer v. U.S. Bancorp Investments, Inc. , No. 13-6641 (6th Cir. May 28, 2015) (rejecting Riddle and finding that the �definitively and specifically� standard is inconsistent with � 1514A and the statutory scheme)
Riddle v. First Tennessee Bank , 2011 WL 4348298 (M.D.Tenn. Sept. 16, 2011) (not reported)
The plaintiff, a Corporate Security Investigator, alleged violations by a bank employee to his supervisors, and continually complained when his supervisors refused to report the alleged violations to the United States Treasury Department's Financial Crimes Enforcement Network. He alleged that his supervisor's failure to report the conduct constituted a violation of the Bank Bribery Act.
The district court relied on Allen in stating that �an employee's complaint must definitively and specifically relate� to one of the categories enumerated in � 1514A in order to constitute protected activity. Riddle , 2011 WL 4348298, at *6. In this case, the plaintiff alleged a violation of the Bank Bribery Act, which is not enumerated in Section 806 of SOX, and �consequently, Plaintiff attempts to �bootstrap� an alleged Bank Bribery Act violation into the �catch-all� shareholder fraud claim.� Id.
Not only did the district court disagree with the plaintiff's assertion that a violation of �the Bank Bribery Act is, �at its core�, a fraud against shareholders,� but because the plaintiff did not 'step outside his role� as an investigator and take action additional to his normal job duties, he did not engage in protected activity. Id. at *8. This finding, combined with its finding that the plaintiff had not demonstrated that he had an objectively reasonable belief that his employer had committed shareholder fraud, led the district court to grant summary judgment for the employer. Id. at *8-9.
Mann v. Fifth Third Bank , 2011 WL 1575537 (S.D.Ohio, Apr. 25, 2011) (not reported)
The plaintiff, the Vice President of the bank's Real Estate Valuation Unit, complained to his superiors and Federal Reserve regulators about potential violations of banking regulations due to the defective reporting structures, inadequate staffing, and perceived improprieties in the bank's loan management practices, and alleges that he reasonably believed that these violations constituted fraud against shareholders.
The district court stated that �a plaintiff must prove that the cited conduct �definitively and specifically� relates to one of the classes of laws listed in 18 U.S.C. � 1514A(a)(1),� and in a footnote, explained that this requirement was �first annunciated by the Department of Labor's Administrative Review Board in Platone � [and] has been uniformly followed, including by the First, Fourth, and Fifth Circuits, as well as the District Court for the Southern District of New York, among others.� Mann , 2011 WL 1575537, *9, n.7.
Pointing to the plaintiff's deposition testimony, in which he explained his rationale for believing that violations of a banking regulation would constitute fraud against shareholders, the district court explained that the �plaintiff is not required to be a legal expert to receive SOX whistleblower protection,� and therefore he had sufficiently demonstrated his reasonable belief that �the violations he disclosed definitively and specifically related to fraud against shareholders.� Id. at *10.
However, the district court still granted summary judgment for the employer because the plaintiff had not raised a genuine issue of material fact as to whether he had an objectively reasonable belief that his employer had engaged in fraud against shareholders. Noting that �courts have required some showing of scienter when a plaintiff asserts that he reported potential shareholder fraud, the catch-all category in 18 U.S.C. � 1514A(a)(1),� the district court found that the plaintiff had adduced �no evidence that Defendants engaged in such conduct with an intent to deceive shareholders.� Id. at *11 (citing Allen , 514 F.3d at 479�80).
Walton v. NOVA Info. Sys., 2008 WL 1751525 (E.D. Tenn. Apr. 11, 2008) (not reported)
A database administrator at a credit card processing company made complaints to his superiors about database security deficiencies.
In its motion for summary judgment, the employer argued that the �plaintiff's complaints failed to implicate the substantive law of SOX �definitively and specifically. Walton , 2008 WL 1751525, *8 ( citing Van Asdale , 498 F.Supp.2d at 1330) .
The district court disagreed, finding that the plaintiff's email to his supervisors was not �vague whistleblowing,� and because the email 'specifically identifies perceived non-compliance areas by Defendants and cites a specific section of SOX, ... Plaintiff has met the minimal requirement of identifying conduct by Defendants that she believed to be illegal.� Id.
Nonetheless, the district court granted summary judgment for the employer on the plaintiff's SOX whistleblower claim because his �complaints about database security compliance are too speculative for a reasonable belief of a violation of securities laws.� The district court found that the plaintiff �at best�had a belief that a violation [was] about to happen upon some future contingency� � i.e., if �the required disclosures and reports were not made by management� � and, citing the Fourth Circuit's decision in Livingston , held that 'such speculative beliefs do not comprise an existing violation as required by Section 806.� Id. at *9.
SEVENTH
Harp v. Charter Comm ., 558 F.3d 722 (7th Cir. 2009)
The plaintiff was a supervisor in the Technical Audit Department, and along with the entire audit department, was terminated as part of a reduction in force. Prior to termination, the plaintiff complained that her supervisor authorized payments to a contractor for work that was not actually performed.
Although the Court of Appeals for the Seventh Circuit did not discuss the �definitively and specifically� standard in name, it did note that �the critical focus is on whether the employee reported specific conduct that constituted a violation of federal law, not whether the employee correctly identified that law.� Harp , 558 F.3d at 725 (citing Welch , 536 F.3d at 276). Accordingly, the court clarified that �if the specific conduct reported was violative of federal law, the report would be sufficient to trigger Sarbanes�Oxley protection even if the employee did not identify the appropriate federal law by name.� Id. In this case, the plaintiff �reported a violation of the code of ethics, as opposed to a violation of federal laws.� Id.
The Court of Appeals affirmed the district court's dismissal of the plaintiff's claim because the plaintiff failed to demonstrate that she reasonably believed that a violation occurred, finding that �no basis, subjective or objective, for [the plaintiff] to conclude at that time that [her supervisor] had authorized full payment [to the contractor].� Id. at 726.
EIGHTH
Pearl v. DST Syst., Inc. , 359 Fed.Appx. 680, 2010 WL 27066 (8th Cir. Jan 7, 2010) (not reported)
Pearl v. DST Syst., Inc. , No. 06-918, 2008 WL 8602367 (W.D.Mo. Apr. 25, 2008) (not reported)
A Senior Systems Programmer alleged that he made four complaints or reports to his employer about conduct that he believed constituted a securities violation and/or fraud against shareholders, including u nder reporting of earnings and violations of ethics policies.
The district court did not refer to the �definitively and specifically� standard in name, but, citing Allen , stated that � the Court must first analyze whether the complaints relate to one of the six enumerated categories in section 1514A.� Pearl , 2008 WL 8602367, *13.
The court then reviewed each of the plaintiff's alleged protected activities, and found all of the plaintiff's communications insufficient to protect him under the statute. As to his complaint that the company had underreported earnings, the court found that his lack of actual information regarding the report's origins and legitimacy revealed that he lacked a reasonable belief that earnings were misrepresented in the report. Id. at *14. The district court also found the plaintiff's concerns regarding accounting irregularities were not based on anything more than �mere speculation,� and therefore could not constitute protected activity under the SOX.
In a brief unpublished decision, the Court of Appeals for the Eighth Circuit affirmed the dismissal of the complaint, because �even assuming [the plaintiff] subjectively believed [his employer] had understated its earnings in a way that violated SOX, the evidence showed that such a belief was not objectively reasonable.� Pearl , 359 Fed.Appx. at 681.
Miller v. Stifel, Nicolaus & Co., Inc. , 812 F.Supp.2d 975 (D.Minn. Sept. 20, 2011)
The plaintiff, an Investment Executive and Financial Advisor, made numerous complaints to her employer about several of her coworkers� allegedly illegal or improper activities. She complained to her employer about coworkers that had allegedly used and sold marijuana on company property, used the copy machine for personal printing, accessed an off-limits area at the office, had affairs, and spent too much time traveling. She also complained about the employer's storage of potentially sensitive files, and its alleged failure to pay a postage bill.
Citing the Southern District of New York's Fraser (2009) decision, the magistrate judge stated that only activity �definitively and specifically relate[d] to one of the six enumerated categories of misconduct contained in [Section] 806,� is protected under SOX. Miller , 812 F.Supp.2d at 987. Even if assumed to be true, the district court found that none of the plaintiff's reports implicated any of the categories of activities protected by Section 806, as �failure to address personnel matters in a manner satisfactory to the complaining party� does not constitute a violation of SOX. Id. (quoting Pearl v. DST Sys., Inc. , 2008 WL 8602367, *16 (W.D.Mo.2008)). Consequently, the employer's motion for summary judgment was granted.
Skidmore v. ACI Worldwide Inc. , 2008 WL 2497442 (D. Neb. June 18, 2008) (not reported)
The plaintiff refused to follow the Chief Financial Officer's instructions to apply an estimated tax rate in the company's forecasted budget because the plaintiff believed that the actual numbers did not justify application of the estimated tax rate. The plaintiff reported his refusal to the company's General Counsel and Chief Compliance Officer, and also prepared a report articulating his concerns, which the Chief Compliance Officer refused to accept.
Citing the Southern District of New York's Portes and Fraser (2006) decisions, the district court stated that an employee's disclosures must �implicate the substantive law protected in SOX relating to fraud against shareholders definitely and specifically� in order to engage in protected activity. Skidmore , 2008 WL 2497442, *3. Citing the Fourth Circuit's decision in Livingston , the district court also required that the disclosures �be related to illegal activity and involve shareholder fraud.� Id.
In granting the employer's motion to dismiss the claim for failure to state a claim on which relief can be granted, the district court found that the plaintiff had �not alleged any facts supporting his contention that booking an estimated tax rate � related to fraud against shareholders,� and his complaints to the company's General Counsel and Chief Compliance Officer did not allege that the employer was engaged in fraud of any kind. Id. at *4. The statutory provisions enumerated in � 1514A �can only be implicated under a SOX whistleblower claim if plaintiff's disclosure � relates to fraud against the shareholders,� and therefore the court found the plaintiff's communications insufficient to constitute protected activity. Id.
NINTH
Nance v. Time Warner Cable, Inc., 433 Fed.Appx. 502 (9 th Cir. 2011) (not reported)
In a tort action claiming wrongful termination in violation of public policy, the Ninth Circuit affirmed the district court's finding that the plaintiff did not engage in protected activity under Section 806 of the Sarbanes-Oxley Act when he allegedly revealed accounting misstatements and SEC violations in his employer's financial reports.
When explaining the standard for engaging in protected activity under SOX, the Nance court followed its prior decision in Van Asdale , and required that an �employee's communications must �definitively and specifically� relate to one of the listed categories of fraud or securities violations� in � 1514A. Nance , 433 Fed.Appx at 503 (citations omitted). The court found that the plaintiff's communications regarding �possible errors in Comcast's subscriber count� did not relate to one of the listed categories of fraud or securities violations, let alone definitively and specifically,� and therefore failed to meet the Van Asdale standard. Id.
Van Asdale v. Int'l Game Tech , 577 F.3d 989 (9th Cir. 2009)
Van Asdale v. Int'l Game Tech , 498 F.Supp.2d 1321 (D.Nev. June 13, 2007)
The plaintiffs were in-house intellectual property attorneys who allegedly raised potential shareholder fraud to company executives and its general counsel regarding the failure to disclose, prior to a merger, possible problems with an important patent holding. The plaintiffs claimed that they were terminated in retaliation for these disclosures.
In articulating the standard for engaging in protected activity under SOX, the district court elaborated on the Bozeman court's requirement that �p rotected activity must implicate the substantive law protected in Sarbanes-Oxley �definitively and specifically. Van Asdale , 498 F.Supp.2d at 1329 (quoting Bozeman v. Per-Se Tech., Inc ., 456 F. Supp. 2d 1282, 1359 (N.D. Ga. 2006)). Noting the origination of the �definitively and specifically� standard in the ERA whistleblower case American Nuclear Resources, Inc. v. U.S. Dept. of Labor , 134 F.3d 1292, 1295 (6th Cir.1998), the magistrate judge clarified that this requirement is not satisfied if a plaintiff's communication merely implies or suggests that a violation has occurred. Id . at 1330. Instead, the magistrate judge identified �incriminate� or �accuse� as more appropriate synonyms for �implicate� in this context, and quoted Bozeman 's requirement that �the reported information ... [have] a degree of specificity [and] ... state[s] particular concerns, which, at the very least, reasonably identify a respondent's conduct that the complainant believes to be illegal.� Id. (quoting Bozeman , 456 F.Supp. 2d at 1359).
The district court found that the plaintiffs had not engaged in protected activity when one of the plaintiffs relayed their concerns to the employer's general counsel at a meeting in November 2003, because his complaints related only to fraud on the patent office, rather than fraud on shareholders. Id. at 1331. The court declined to infer that this communication implied that shareholder fraud had occurred, finding such an inference to be �too much of a stretch,� and insufficient to constitute protected activity under the Bozeman standard. Id. Nonetheless, the district court found that one plaintiff's communications with two company executives about potential fraud preceding the merger was sufficient to raise a genuine issue of material fact as to whether he engaged in protected activity. Id. at 1330-32. Even so, the district court still granted summary judgment for the employer because the plaintiffs did not produce sufficient evidence demonstrating that their disclosures contributed to the decision to terminate their employment. Id. at 1334.
The plaintiffs filed a motion to reconsider whether the disclosures at the November 2003 meeting constituted protected activity under SOX, arguing that �the Defendant's General Counsel was an extremely sophisticated recipient of the information, and must have understood that they were alleging shareholder fraud.� Id. at 1336 (internal quotations omitted). Not persuaded, the court reiterated that �the law requires that a whistleblower do more than imply that a SOX violation occurred,� clarifying that the �definitively and specifically� standard requires that the communication �must incriminate or accuse, not merely imply.� Id.
On appeal to the Ninth Circuit, the Court of Appeals followed the lead of the First Circuit in Day , the Fourth Circuit in Welch , and the Fifth Circuit in Allen , and deferred to the ARB's holding in Platone that an �employee's communications must definitively and specifically relate to [one] of the listed categories of fraud or securities violations� to constitute protected activity. Van Asdale , 577 F.3d at 996-97.
The Court of Appeals agreed with the district court that the plaintiff's conversations with the two company executives about potential fraud relating to documents that were concealed prior to the merger were sufficient satisfy this �definitively and specifically� standard. Id. Reiterating that an employee �need not cite a code section he believes was violated to trigger the protections of � 1514A,� and �taking the facts in the light most favorable to the [plaintiffs], [his] statements � reported conduct that definitively and specifically related to shareholder fraud.� Id.
However, the Court of Appeals disagreed with the district court's finding that there was no issue of material fact as to whether the plaintiffs engaged in protected activity when one plaintiff raised potential fraud at the November 2003 meeting with the company's general counsel. Id. at 997. The Court of Appeals found that the district court erred when it �disregarded the portion of [one of the plaintiff's] declaration in which he said that he raised concerns of shareholder fraud � because the district court viewed this portion of the declaration as contradicting [his] deposition testimony.� Id. at 998. After closely reviewing the deposition testimony, the declaration, and additional evidence submitted regarding the meeting, the Court of Appeals found that the district court had improperly invoked the 'sham affidavit rule,� and �taking the facts in the light most favorable to the Plaintiffs, their meeting with [the General Counsel] involved disclosures �definitively and specifically� related to shareholder fraud.� Id. at 1000.
The Court of Appeals went on to disagree with the district court's conclusion regarding whether the plaintiffs had submitted sufficient evidence proving causation to avoid summary judgment, and therefore reversed and remanded the district court's decision. Id. at 1002.
Nordstrom v. U.S. Bank, N.A. , Inc., 2012 WL 3000416 (S.D.Cal. July 23, 2012) (not reported)
A loan officer alleged that he suffered retaliation after he complained about his belief that the bank had inaccurately reported its financial condition to investors, inaccurately reported loan charges, provided inaccurate information to the bank's accountants, and committed additional violations of banking and securities rules and regulations. The plaintiff filed a common law claim for wrongful termination in violation of the public policy against whistleblower retaliation, citing Section 806 of SOX as evidencing that public policy.
Citing Van Asdale , the district court stated that �an employee's communications must definitively and specifically relate to [one] of the listed categories of fraud or securities violations under 18 U.S.C. � 1514A� in order to constitute protected activity under SOX. Nordstrom , 2012 WL 3000416, *4. In this case, although the plaintiff alleged that his employer violated SOX and other securities laws, he failed to allege that � he actually reported such violations to management or supervisors.� Id. (emphasis in original). It was unclear from the plaintiff's allegations whether his complaints about the treatment that he endured were accompanied by complaints about the SOX violations that he allegedly perceived, and therefore the plaintiff's complaint was �too vague so as to not satisfy the �definitive and specific� requirement outlined in Van Asdale .� Id.
Guitron v. Wells Fargo Bank, N.A ., 2012 WL 2708517 (N.D.Cal., July 6, 2012) (not reported)
Two bankers alleged that they suffered retaliation after they reported coworkers for engaging in unlawful and unethical business practices related to customer account management. The plaintiffs argued that their complaints were related to bank, wire and mail fraud.
After restating the �definitively and specifically� standard and citing Van Asdale , the district court found that because the plaintiffs failed to allege in their complaint that their reports were related to wire or mail fraud, they were prohibited from asserting the theory now in opposition to a motion for summary judgment. Guitron , 2012 WL 2708517, *14. The court found that Plaintiff Guitron had presented sufficient evidence showing that her complaints concerned coworkers that were defrauding their employer in order to obtain bonuses, and therefore, she had raised �a genuine dispute of material fact as to whether [the] reports related to bank fraud.� Id. However, as to Plaintiff Klosek, the district court found that her complaints about her coworkers� �overly aggressive sales techniques� did not demonstrate that she had an subjectively and objectively reasonable belief that the coworkers had engaged in bank fraud. Id. at *15.
Ultimately, the district court granted summary judgment for the employer because the employer adduced clear and convincing evidence that it would have acted the same even absent any protected activity by the plaintiffs. Id. at *17.
McManus v. McManus Financial Consultants, Inc. , 2012 WL 937812 (D.Nev. Mar. 19, 2012) (not reported)
The plaintiff served as Chief Financial Officer for Aeolus, which contracted with plaintiff's business for financial consulting services. The plaintiff alleged that he was terminated from Aeolus in retaliation for notifying Aeolus� CEO and Chairman of the Board that their plan to renegotiate the price of Aeolus shares and give additional shares to investors without a new agreement or additional consideration violated 18 U.S.C. � 1348. The plaintiff's communications were disregarded, Aeolus reduced the share price, and the plaintiff signed the Form 8�K that Aeolus filed with the SEC, which explained that the company was lowering the price of its shares �to correct a misunderstanding.�
In considering the defendant's motion to dismiss, the district court recited the �definitively and specifically� standard announced by the Ninth Circuit Court of Appeals in Van Asdale . The court then reviewed the content of the Form 8-K at issue, finding that the information in the document �contradicts Plaintiff's allegation that [the company] failed to disclose to other shareholders � material facts,� and therefore dismissed the plaintiff's SOX complaint for failure to state a claim under � 1514A. McManus , 2012 WL 937812, *4.
Kim v. Boeing Co. , 2011 WL 4437086 (W.D.Wash. Sept.23, 2011) (not reported)
An analyst reported perceived cost accounting irregularities and violations of the Sarbanes�Oxley Act to the company's Ethics Office.
In considering the employer's motion for summary decision, the district court noted that the Ninth Circuit in Van Asdale adopted the �definitively and specifically� standard originally announced in the ARB's Platone decision, but acknowledged the plaintiff's argument in its opposition to the motion that the ARB abrogated Platone in an en banc decision (i.e. Sylvester ). Kim , 2011 WL 4437086, *4. However, the district court chose not to address the argument, nor did it apply the standard to the plaintiff's alleged protected activity, because it found that the �defendant has successfully demonstrated by clear and convincing evidence that it would have taken the same action toward plaintiff in the absence of any protected activity.� Id.
TENTH
[none]
ELEVENTH
Bozeman v. Per-Se Technologies, Inc. , 456 F.Supp.2d 1282 (N.D.Ga. Sept. 12, 2006)
A Human Resources Director at a company that provided medical billing and collection services technology to hospitals and physicians alleged that he suffered harassment and was constructively discharged after he complained to the SEC about financial irregularities.
In stating the standard for protected activity under SOX, the magistrate judge explained that �general inquiries�do not constitute protected activity,� and instead, �protected activity must implicate the substantive law protected in Sarbanes-Oxley �definitively and specifically. Bozeman , 456 F.Supp.2d at 1359 (citations omitted). However, citing Collins , the magistrate judge clarified that �it is sufficient that �the individuals to whom [the complaints] were addressed understood the serious nature of [the employee's] allegations.� Id. (citing Collins , 334 F.Supp.2d at 1377-78).
Because the employer did not contest that the plaintiff engaged in protected activity when he called the SEC, the magistrate judge did not apply these standards to the facts of the case. Rather, the magistrate judge granted summary judgment for the employer because the plaintiff failed to adduce sufficient evidence that he suffered an adverse action.
Collins v. Beazer Homes USA, Inc. , 334 F.Supp.2d 1365 (N.D.Ga. Sept. 2, 2004)
The plaintiff alleged that she was discharged from her position as Director of Marketing for a home manufacturer in retaliation for complaining about the conduct of certain management officials, including overpaying contractors, overpaying sales agents, and making kickback payments to lumber suppliers. The plaintiff argued that the disclosures triggered SOX protection because the conduct reported constituted �attempts to circumvent the company's system of internal accounting controls and therefore state a violation of Section 13 of the Exchange Act.� Collins , 334 F.Supp.2d at 1377.
In denying the employer's motion for summary judgment, the district court rejected the employer's argument that �Plaintiff's complaints were too vague to constitute protected activity [because] the individuals to whom they were addressed understood the serious nature of Plaintiff's allegations.� The court characterized �the connection of Plaintiff's complaints to the substantive law protected in Sarbanes-Oxley [as] less than direct,� but nonetheless found that the plaintiff's communications raised a genuine issue of material fact as to whether she engaged in protected activity under the statute. Id. at 1378.