Whistleblower Law Blog

Adam Augustine Carter, a Principal at The Employment Law Group® law firm, was quoted in a January 4, 2010 article published by Law360 about TELG’s success in a SOX case before the Fourth Circuit.  The article discusses the Fourth Circuit’s decision in Stone v. Instrumentation Laboratory Company which we blogged about here.  Stone was a case of first impression clarifying that a SOX whistleblower had the right to de novo review of a SOX claim in federal court once the complaint has been pending before DOL more than 180 days, as long as DOL has not issued a final decision in the case.

In the article, Mr. Carter points out that “‘[o]thers have taken the position that if you go all the way down the line with the DOL. . . it would be absurd to get another trial after that. . . . [t]his decision rejects that.’”  Regarding the impact of the decision, Carter notes that it will “‘make clear that if the DOL is not going to move quickly, then the whistleblowers are free to come right to district court and start afresh.’”

For information on The Employment Law Group® law firm’s Sarbanes-Oxley Whistleblower Practice, click here.

On December 31, 2009, in a case of first impression, the Fourth Circuit held in Stone v. Instrumentation Laboratory Company that a Sarbanes-Oxley (SOX) complainant may seek de novo review in federal court after the complaint has been pending before DOL for over 180 days without a final decision by the Secretary of Labor.  In Stone, the whistleblower lost a Motion for Summary Decision before the DOL’s Administrative Law Judge (ALJ) and successfully petitioned the Administrative Review Board (ARB) for review.  Before his initial brief was due, Stone followed all necessary procedures and brought an action in federal district court seeking de novo review.  The employer filed a Motion to Dismiss which the district court granted, relying on comments in DOL implementing regulations stating that “the Secretary anticipates that Federal courts will apply [preclusion] principles” when a SOX claim is removed to federal court.  The district court held that allowing de novo review of a “final judgment” would be absurd and an inefficient use of judicial resources.  The district court remanded the case to the ARB for a faster review of the ALJ’s decision. 

On appeal, the Fourth Circuit unequivocally rejected the lower court’s decision, finding that:

• The ARB’s dismissal of a SOX claim due to the complainant’s removal of the case to federal court  does not result in a final decision being issued by the Secretary of Labor;

• Comments from the Secretary of Labor do not inform the literal interpretation of a federal statute, nor do they override congressional intent;

• Congress, in enacting SOX, “expressly provided for de novo non-deferential review in district court;”

• Deferring to an administrative agency, “even if more efficient, is in direct conflict with the unambiguous language of [SOX];”

• “‘Courts do not, of course, have free rein to impose rules of preclusion. . . the question is not whether administrative estoppel is wise but whether it is intended by the legislature.’”

In essence, the Fourth Circuit held that a right to a de novo review means just that.  “The plain language of § 1514(b)(1)(B) unambiguously establishes a Sarbanes-Oxley whistleblower complainant’s right to de novo review in federal district court if the DOL has not issued a ‘final decision’ and the statutory 180-day period has expired.”

Mr. David R. Stone is represented by Adam Augustine Carter and R. Scott Oswald, Principals at The Employment Law Group® law firm.  To learn more about the firm’s Sarbanes-Oxley Whistleblower Practice, click here.

Monday, the DC Council approved the Whistleblower Protection Amendment Act of 2009, which strengthens the DC Whistleblower Protection Act (DC Code § 1-615.51 et seq.) and The Employees of District Contractors and Instrumentality Whistleblower Protection Act of 1998 (DC Code § 2-223.01 et seq.).  The Whistleblower Protection Amendment Act of 2009 eliminates loopholes in the existing DC statutes and provides critical enhancements, including the following:

• Clarifying that a whistleblower need not be an original source of a protected disclosure.  The legislative history states: “prospective whistleblowers should not have to guess about whether a supervisor already knows about misconduct in government.”

• Eliminating the “duty speech” loophole, i.e., protected conduct includes blowing the whistle in the course of performing one’s job duties.  Protected acts under the DC WPA include “disclosure[s] made in the ordinary course of an employee’s duties.”

• Clarifying that retaliatory investigations are a form of actionable retaliation.  The DC WPA now defines retaliation to include “conducting or causing to be conducted an investigation of an employee or applicant for employment because of a protected disclosure made by the employee or applicant who is a whistleblower.”  An investigation includes a fitness for duty examination.

• Extending the statute of limitations to 3 years and clarifying that § 12-309 (the pre-suit notice provision) does not apply to DC WPA claims.  Under the revised DC WPA, a “civil action shall be filed within 3 years after a violation occurs or within one year after the employee first becomes aware of the violation, whichever occurs first.” 

• Clarifying that a DC WPA action can be brought against a DC supervisor or official having personal involvement in the prohibited personnel action.  “Any person” who is found to have participated in prohibited retaliation may be “subject to appropriate disciplinary action including dismissal.”

• Providing a financial incentive for whistleblowing.  In particular, a whistleblower may receive an award of up to $50,000 for providing information that enables the District to recover or prevent the loss of more than $100,000 in public funds. 

• Increasing the civil penalty for retaliation from $1,000 to $10,000.

For information on The Employment Law Group® law firm’s Whistleblower Retaliation Practice, click here.

On December 15, 2009, The Employment Law Group® law firm participated in the launch of Voices for Corporate Responsibility (Voices).  Voices is a project sponsored by Grant & Eisenhofer P.A., Mehri & Skalet, PLLC, and The Employment Law Group® law firm.  Its mission is to help and encourage corporate employees to take a stand against corporate wrongdoing and irresponsibility.  The project aims to facilitate participation in legislative and regulatory reform and provide a networking environment for those who have been injured as a result of wrongful conduct. 

Among the speakers at the event were David E. Welch and Jon Oberg.  Dr. Welch is the first whistleblower to win a case before an Administrative Law Judge under the Sarbanes-Oxley whistleblower provision.  The Employment Law Group® law firm wrote an amicus curiae brief in support of Dr. Welch. Dr. Oberg is a TELG client currently bringing suit against several student lending companies seeking the return of $1 billion in “special allowances” wrongfully extracted from the United States Department of Education. 

For information on The Employment Law Group® law firm’s Whistleblower Retaliation Practice, click here.

Tom Harrington, an associate at The Employment Law Group® law firm, was quoted in a December 3, 2009 article published by The Raleigh News & Observer.  The article, “Tony Rand accused of insider trading,” discusses accusations of insider trading by Paul Feldman, the former President of Law Enforcement Associates.  Mr. Feldman claims he was unlawfully terminated after leading LEA for more than 19 years.  He has filed an administrative complaint with the Department of Labor alleging LEA fired him because he disclosed information to federal authorities, and participated in investigations by federal authorities, about conduct by LEA that violated rules of the Securities and Exchange Commission, federal laws, rules and regulations relating to securities fraud and fraud against shareholders, and various other federal laws.  His insider trading allegations implicate as many as 50 North Carolina politicians.  North Carolina state senator Tony Rand, chairman of LEA’s board, recently announced that he will step down from his position as Senate Majority Leader. 

Mr. Feldman is represented by The Employment Law Group® law firm.  To learn more about the firm’s Whistleblower Practice, click here. 

On November 30, 2009, Judge Jeffrey S. White of the U.S. District Court for the Northern District of California partially denied the defendants’ motion to dismiss in Galli v. Pittsburg Unified School District.  The Court held that an employee’s wrongful termination constitutes an ongoing violation and that reinstatement is prospective injunctive relief from unconstitutional state action.  Accordingly, a request for reinstatement is not barred by the Eleventh Amendment.  The Court also held that since damages sought from Superintendent Barbara Wilson and board member Percy McGee as individuals will not come from public funds, they are not immune from claims that they deprived Mr. Galli of federal rights under the color of state law.  Accordingly, Mr. Galli may proceed against them in their individual capacitates and seek punitive damages. 

This decision is an important victory for public employees.  It shows that it is possible to pierce the veil of immunity surrounding government officials, holding them personally responsible for their violations of individuals’ rights and the law.  Mr. Galli is represented by David Scher, a principal at The Employment Law Group® law firm.  For information on The Employment Law Group® law firm’s Wrongful Discharge Practice, click here. 

The December 2009 Washingtonian magazine’s list of top lawyers in the Washington, D.C. metropolitan area lists Jason Zuckerman, a Principal at The Employment Law Group® law firm, as a top whistleblower lawyer.  To learn more about The Employment Law Group® law firm’s whistleblower practice, click here. 

On November 19, 2009, the Department of Defense (DoD) issued an interim rule implementing the whistleblower protection provisions of the National Defense Authorization Acts for Fiscal Years 2008 and 2009.   The rule clarifies the scope of protected conduct, sets forth procedures governing Inspector General investigations, and clarifies the removal provision under which a whistleblower can obtain de novo review in federal district court.

For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

On October 28, 2009 the Health Care Fraud Enforcement Act of 2009 (S. 1959) was introduced to the Senate Committee on the Judiciary.  If passed, the bill would aid the government in prosecuting health care fraud and provide stiffer penalties for cases that involve a loss of over $1 million. 

In addition to increasing the criminal penalties, the bill would lower the mens rea requirement of the existing health care fraud statute (18 U.S.C. 1347).  Under this bill “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.”  The purpose of this amendment is to facilitate claims brought against medical facilities under the False Claims Act.  According to the bill’s sponsors, there have been cases where the government was unable to recoup when a hospital was unaware that claims submitted by doctors were false.  This amendment would empower the government to pursue more claims.  The bill also increases the situations in which the Department of Justice can issue subpoenas.

Perhaps most importantly, the bill provides an additional $20 million to the Attorney General each year from 2011 through 2016.  $10 million is to provide for the offices of the United States attorneys, and $5 million each for the Criminal Division of the Department of Justice and Civil Division of the Department of Justice.  Powerful legislation does little without the man power and resources to enforce it.  For information on The Employment Law Group® law firm’s False Claims Act Practice, click here. 

In an article titled, “Congress May Affect Arbitration More Than High Court,” Law360 reports on the Arbitration Fairness Act of 2009 (S. 931, H.R. 1020).  The article discusses the potential broad impact of the legislation and compares it to the possible impact of three Supreme Court cases on the docket for this term.  The Arbitration Fairness Act would prohibit arbitration agreements in certain employment, financial and commercial areas.

Jason Zuckerman, a principal at The Employment Law Group® law firm declared that, “the AFA was needed to restore fairness and rein in employers’ unequal bargaining power.” According to Mr. Zuckerman, “[t]he current economic downturn was caused by corporate fraud and a legal and regulatory environment in which companies were immune from oversight and accountability.  Restoring access to jury trials is fundamental to achieving corporate accountability.”

For information on The Employment Law Group® Law Firm’s Employment Law Practice, click here.

On October 22, 2009, a D.C. Superior Court awarded Colin Browne over $282,000 for his former employer’s violations of the D.C. Whistleblower Protection Act (WPA).  This is one of the highest awards under the D.C. WPA to date.  The award comes after a 5 day jury trial.  We first blogged about the verdict in Mr. Browne’s case here.

 Browne was the program coordinator for UDC’s federally funded Career Counseling and Development Center where he worked with UDC’s at-risk students.  He discovered that his supervisors were intentionally misrepresenting the program’s success to secure federal funding.  He took a stand against this fraud and in return he was retaliated against and ultimately fired. 

Regarding the verdict, R. Scott Oswald, Managing Principal with The Employment Law Group® law firm said, “This case is an extraordinary victory for whistleblower protection in the District of Columbia.  I especially wish to acknowledge Mr. Browne who demonstrated tremendous courage and fortitude throughout his tenure at UDC and the course of this litigation.”

For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

On October 19, 2009, the Department of Justice announced that four pharmaceutical manufacturers, Mylan Pharmaceuticals, UDL Laboratories, AstraZeneca Pharmaceuticals, and Ortho McNeil Pharmaceutical settled claims brought against them under the False Claims Act for $124 million.  The case alleged that the companies misclassified “innovator” drugs as “non-innovator” drugs and underpaid quarterly rebates owed to state Medicaid programs.  The case was brought by Ven-A-Care, a Key West, Florida company who will receive $10,787,392 for their efforts.

A copy of the DoJ press release is available here.  For information on The Employment Law Group® law firm’s False Claims Act Practice, please click here.

In Douglas v. Skywest, Inc., the Administrative Review Board (“ARB”) affirmed an Administrative Law Judge’s (“ALJ”) finding that the complainant Don Douglas engaged in protected activity under AIR 21 when he declared himself and his crew unfit to fly, and informed his supervisors on same.  Don Douglas, a 16-year veteran pilot for SkyWest, filed a whistleblower complaint against his employer, alleging that the company retaliated against him when he informed the crew scheduling office that he and his crew were physically incapable of attempting another flight after just a few hours of rest.  SkyWest argued that Douglas did not engage in protected activity because Douglas’s alleged fatigue was not actual but only projected, and AIR 21 does not protect projected future unfitness to fly.  The ALJ rejected SkyWest’s argument, concluding that federal regulations confer “final authority and responsibility” on the pilot in command of the aircraft and thus, Douglas engaged in protected activity when he believed and reported that his crew members were unfit to make the 4:00 am flight.  The ARB affirmed the ALJ’s decision, finding substantial evidence supporting the ALJ’s findings that Douglas genuinely believed that he would be violating air safety regulations if he flew and that his belief was objectively reasonable given the impact of his fatigue on air safety.  For more information on AIR 21, visit The Employment Law Group® law firm’s Airline Whistleblower Practice at http://employmentlawgroup.net/PracticeAreas/AirlineWhistleblower.asp

In an interview with ABC2 News, whistleblower Pete Peterson speaks about the crash of Trooper 2 that led to four deaths last year.  Peterson was the Maryland State Police (”MSP”) Pilot who wrote the whistleblower letter to the Department of Transportation’s (”DOT”) Inspector General last September before the crash of Trooper 2.  In his letter, Peterson raised concerns about MSP’s lack of regulatory compliance and safety issues affecting MSP’s aircraft.  Seventeen days after Peterson’s disclosure, an MSP helicopter crashed in Prince George’s county, killing four people.  Peterson’s whistleblower letter became public shortly after the crash.  More than a month later, MSP terminated Peterson for insubordination and not cooperating with the organization’s internal crash investigation.  Peterson has filed a complaint under AIR 21’s whistleblower protection statutes, alleging that the termination of his employment was in retaliation for his disclosure to DOT.  Peterson is being represented by R. Scott Oswald and Adam Augustine Carter of The Employment Law Group® law firm. 

On October 6, 2009, a jury in the District of Columbia decided in favor of D.C. Whistleblower Colin Browne in the case of Browne v. University of District of Columbia.  In the suit, Colin Browne alleged that his former employer, the University of the District of Columbia (UDC) violated the D.C. Whistleblower Protection Act (WPA) when it retaliated against him for raising concerns that Kevin Naiker, the former Director of UDC’s at-risk program, and his supervisors were intentionally misreporting the retention rate of UDC’s program for at-risk students.  Despite Browne’s repeated disclosures to management, UDC’s Board of Trustees and even to the President of the University, UDC failed to respond.  Browne also discovered that Naiker was unlicensed and did not have a doctorate even though he represented to Browne and others that he was licensed, possessed a doctorate, and would supervise Browne for his licensure. Browne reported Naiker’s misrepresentations of his license status but UDC failed to take action.  Instead, Naiker began retaliating against Browne by “auditing” his files, berating him in front of co-workers, passing him up for promotion and ultimately terminating his employment. 

The jury awarded Browne compensatory damages based on its finding that UDC violated the D.C. WPA and was liable for negligent hiring and negligent supervision of Naiker.  The court will hear evidence on Browne’s economic damages claim on October 22, 2009. 

R. Scott Oswald and David Scher, Principals at The Employment Law Group® law firm (www.employmentlawgroup.com), represented Mr. Browne and can be reached at 202-331-2806 and 202-261-2802, respectively.

Affirming a jury’s finding that Mohammed Kakeh, a Controller for the United Planning Organization (“UPO”) was terminated for his refusal to engage in fraudulent billing and for providing information to the Office of Inspector General, Judge Kessler rejected several arguments by UPO that would undermine the statutory whistleblower protections under which Kakeh brought his claim, the D.C. Whistleblower Protection Act (“WPA”) and the retaliation provisions of the False Claims Act (“FCA”) and the D.C. False Claims Act (“DCFCA”).
 
Gross Does Not Apply to FCA Retaliation Claims
UPO argued that the Supreme Court’s recent holding in Gross v. FBL Fin. Svcs., Inc., 129 S. Ct. 2343 (2009) requires courts to apply a “but for” causation standard to the retaliation provisions in the Federal and D.C. False Claims Acts.  Judge Kessler held that Gross does not apply to FCA retaliation claims, distinguishing Gross in part on the ground that it is an ADEA case.  The “because of” causation standard in the text of the FCA’s retaliation provision has been construed as a “motivating factor” causation standard, i.e., plaintiff can prevail by demonstrating that the adverse action was motivated, at least in part, by the employee having engaging in protected activity.
 
The “Duty Speech” Doctrine Does Not Apply to FCA Retaliation Claims
UPO argued that Kakeh’s disclosures were not protected because they were made pursuant to his “regular job duties.”  Relying on U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C. Cir. 1998), which sets forth a favorable standard of protected conduct under the FCA’s retaliation provision, Judge Kessler held that “an employee engages in protected activity when he discloses fraud and corruption, as opposed to making a ‘complaint about mere regulatory compliance’. . . Plaintiff  repeatedly stated that he believed that Defendant’s billing practices were fraudulent and . . . . consistently framed these differences as matters of fraud and ethics, rather than routine disagreements about regulatory compliance. Therefore there was sufficient evidence for a reasonable juror to conclude that Plaintiff was engaging in protected activity.”
 
Plaintiff Need Not Use “Magic Words” to Engage in Protected Conduct
Defendant argued that to be covered by the WPA, Plaintiff’s disclosures must use “the language or terminology of fraud, waste, or misuse.”  Judge Kessler concluded:  “As Plaintiff correctly states, however, Plaintiff was not obligated to use “magic words” to trigger the protections of the WPA. As the WPA indicates, a disclosure is protected if the employee “reasonably believes” that he is revealing a gross misuse of public funds or a violation of a law, rule, regulation, or contract term. D.C. Code 2-223.01(7).”
 
Disclosure of Public Information Can Constitute Protected Conduct
UPO asserted that plaintiff did not disclose to his supervisor any information that “was not already known as [sic] result of the prior year-end audit reports, Mr. Eboda’s preliminary report, the Head Start monitoring review and/or The Washington Post articles.”   Judge Kessler held that “[e]ven if this information was already public and even if Jones already had knowledge of it, Plaintiff was the one responsible for disclosing it in the first instance.”

The United States District Court for the Eastern District of Virginia today unsealed a lawsuit against a number of student loan companies, including Nelnet, Inc and Sallie Mae, filed on behalf of the United States by Dr. Jon H. Oberg. The action seeks the return of approximately $1 billion in “special allowance” payments wrongfully extracted from the United States Department of Education by the defendants. Under a federal student loan program that was intended to be phased out beginning in 1993, student loan companies were eligible for “special allowance” payments that provided interest rates subsidies guaranteeing a 9.5% return on a limited class of student loans generated from monies raised prior to 1993 with tax-free obligations. Faced with a prohibition on generating new eligible loan pools, the loan companies used sham transactions known internally by names such as “dipping” to multiply the loans on which subsidy payments were claimed and thereby swell their profits at taxpayer expense. The result was an approximately $1 billion windfall which Dr. Oberg now is seeking to recover for the government.

Federal law provides a qui tam remedy to recover government payments made pursuant to illegal claims. Qui tam claims can be brought by knowledgeable individuals, acting as “private attorneys general” on behalf of the government. Dr. Oberg, who filed the Complaint, retired in 2005 after a distinguished career in academia and public service.  As a researcher at the Department’s Institute of Educational Sciences, an arm of the Department legislatively separated from loan administration, he discovered the illegal claims described in the Complaint and reported them through his chain of command.

After being directed by his supervisor not to pursue the issue, Dr. Oberg conducted an investigation that revealed the magnitude of the fraudulent claims. In describing the suit, Dr. Oberg stated that “I have always been a strong supporter of the mission of the Department of Education.  However, particularly in these difficult times, it is critical for both taxpayers and students that federal funds be used to support students in need, not to enrich lenders unlawfully.” 

The case is expected to go to trial in Federal District Court early next year. All inquiries regarding the case should be made to Bert W. Rein (202.719.7080, brein@wileyrein.com) of Wiley Rein LLP, which is serving as counsel for Dr. Oberg along with The Employment Law Group law firm (202.261.2802, dscher@employmentlawgroup.com).

Today, Law360 published a column by principals R. Scott Oswald and Jason Zuckerman of The Employment Law Group® law firm on the Ninth Circuit’s recent decision in Van Asdale v. International Game Technology.  The column discusses how the Van Asdale decision is a substantial victory for SOX whistleblowers in that it resolves ambiguities in favor of employees and rejects arguments that employers commonly assert in SOX whistleblower cases.  To read the column, click here. Additional information on The Employment Law Group® law firm’s Sarbanes-Oxley Whistleblower Practice is available at http://employmentlawgroup.net/PracticeAreas/Sarbanes-OxleyWhistleblower.asp. 

In an article titled, “Recent Court Decision Clarifies Whistleblower Law,” Compliance Week reports about the Ninth Circuit’s recent decision in Van Asdale v. International Game Technology about the scope of the whistleblower retaliation provision of the Sarbanes-Oxley Act (“SOX”).  According to Scott Oswald, a principal with The Employment Law Group® law firm, the Ninth Circuit’s decision “signals that SOX is still a robust remedy for corporate whistleblowers” despite the Labor Department “undermining the statute in its narrow interpretation of the statute.”  For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

On June 29, 2009, California Governor Arnold Schwarzenegger signed into law California’s Electronic Discovery Act.  The new law, which became effective on June 29, 2009, establishes new procedures for parties requesting production to obtain discovery of electronically stored information (ESI) and offers, for the first time, specific definitions of what constitutes electronically stored information.  Other key provisions of the Act include:

1. Requesting Party Can Specify the Form of Production - Under the new law, the party requesting production of ESI can specify the form in which the responding party must produce the requested information.  If however, the form is not specified in the request for production, the responding party must produce the ESI either in the form that it is ordinarily maintained or in a form that is reasonably usable.
2. Discovery of Inaccessible Information – The Act permits parties to seek discovery of ESI that is from a source that is not reasonably accessible and unlike the federal rules, the burden is on the responding party to bring a motion for a protective order or to make written objections to such a request, i.e., that the requested information is from a source that is not reasonably accessible because of undue burden or expense.
3. No Sanctions for Lost, Damaged, or Altered Data – Absent exceptional circumstances, the Act prohibits the court from imposing sanctions on a party for failure to provide ESI that has been lost, damaged, altered, or overwritten as the result of the routine, good faith operation of an electronic information system.
4. Subpoenas – The Act expressly provides for the use of subpoenas to obtain ESI from nonparties to the suit.                

This bill is significant because it provides needed guidance on the discovery of ESI in California state court litigation and in particular California whistleblower litigation.  To read the bill, click here.

In an article titled, “Whistle-blower suit filed against Pittsburg school district,” Contra Costa Times reports about Tim Galli’s whistleblower retaliation lawsuit against the Pittsburg school district.  Tim Galli, a 35-year educator and former Pittsburg High principal, suffered retaliation when he raised concerns about the school district’s questionable budgetary practices, and undisclosed financial conflict of interest between the superintendent and a school board member.  According to the suit, the district “engaged in a cover-up effort to hide their retaliation by dredging up an incident that was months old, undergoing an unconstitutional investigation and ultimately voting to terminate Galli without just cause and without following the most basic due process requirements.”  The Employment Law Group® law firm is representing Mr. Galli in his retaliation action under the California Whistleblower Protection Act.  For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.

The Boeing Company has agreed to pay $2 million to resolve claims that the company overbilled the government from 2002 to 2005 for work done at a San Antonio Plant.  According to the suit, brought under the qui tam provisions of the False Claims Act, Boeing inflated its estimates for the number of hours required to do non-routine repairs and maintenance on the Air Force KC-135 tankers.  The suit also alleged that the company manipulated its billing records to inflate the number of workers that maintained the Air Force tankers.  The whistleblower who exposed the fraudulent billing practices is entitled to a share of 15 percent to 30 percent of the $2 million settlement.  For information about The Employment Law Group® law firm’s False Claims Act practice, click here.  

On August 13, 2009, the Ninth Circuit issued a key decision on the scope of protected conduct under the whistleblower provision of the Sarbanes Oxley Act, rejecting the district court’s holding that SOX whistleblowers must prove that they blew the whistle on actual shareholder fraud.  In Van Asdale v. Int’l Game Tech., the court held that the “success, or failure of a [SOX] lawsuit does not depend on [whistleblowers’] ability to show any actual fraud, only that they reasonably believed that fraud had occurred” and that “[a]n employee need not cite a code section he believes was violated” to trigger the protections of § 1514A.  

The plaintiffs in Van Asdale  were former in-house attorneys at International Game Technology (“IGT”) who were terminated for reporting possible shareholder fraud in connection with a merger.  The district court granted IGT’s motion for summary judgment, concluding that the attorneys did not engage in protected conduct in that they “hadn’t reached a conclusion” that IGT engaged in actual shareholder fraud.  The Ninth Circuit reversed, holding that “[r]equiring an employee to essentially prove the existence of fraud before suggesting the need for an investigation would hardly be consistent with Congress’s goal of encouraging disclosure.”  Noting that the legislative history of Section 806 of SOX makes clear that it protects “all good faith and reasonable reporting of fraud,” the court held that plaintiffs’ “subjective belief that the conduct that they were reporting violated a listed law” sufficed to demonstrate protected conduct.  Moreover, the court concluded that merely requesting an investigation of potential shareholder fraud constitutes protected conduct.

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

The state and city of New York have agreed to pay a total of $540 million to resolve allegations of Medicaid fraud.  The suit, originally brought under the qui tam provisions of the False Claims Act, alleged that between 1990 and 2001 the state of New York knowingly submitted claims for reimbursement to the federal government for school-based health care services that did not qualify for Medicaid reimbursement.  The whistleblower who exposed the fraudulent billing practices will receive $10 million as his relators’ share of the settlement proceeds.  To learn more about The Employment Law Group® law firm’s False Claims Act Practice, click here.

In an article titled, “Whistleblowers May Do Better Under Obama Administration,” Law 360 reports that the Department of Labor (”DOL’) continues to side with employers in its investigation of whistleblower retaliation claims filed under the Sarbanes-Oxley Act (“SOX”).  Despite the discouraging statistics, Jason Zuckerman of The Employment Law Group® law firm has expressed optimism about the prospects of prevailing in whistleblower retaliation actions before DOL under the Obama Administration.  According to Zuckerman, “Merit findings will increase with President Barack Obama in office and Secretary of Labor Hilda Solis running the DOL.”  Zuckerman explained that as written, SOX is potent, but it has been narrowly construed, and the defense bar has been able to create loopholes Congress never contemplated and that “during the Bush administration, the DOL went out of its way to limit whistleblower protection laws, but now, the department will focus less on protecting employers and instead “enforce whistleblower protection laws as mandated by Congress.”  Recently, the DOL’s Administrative Review Board issued a landmark decision in favor of a SOX whistleblower in Kalkunte v. DVI Financial Services, Inc., a case litigated by The Employment Law Group® law firm.  For information on The Employment Law Group® law firm’s Whistleblower Practice, click here.