The Employment Law Group® Law Firm Obtains Favorable Decision in False Claims Act Retaliation Case

On February 27, 2008, The Employment Law Group® law firm achieved a victory for a whistleblower who suffered retaliation because he opposed fraud on the government that he believed would endanger the lives of U.S. troops in Iraq. In a memorandum opinion, in Glynn v. EDO et al., No. JFM 07-1660 (D.Md. Feb. 27, 2008), Judge Motz rejected defendants’narrow construction of the False Claims Act, concluding that Glynn’s disclosures to senior management and to the Department of Defense Office of Inspector General about his former employer’s provision of allegedly malfunctioning military equipment to the government constitutes protected conduct.Yesudian ex rel. United States v. Howard University, 153 F.3d 731, 740 (D.C. Cir. 1998). In other words, the Rule 9(b) heightened pleading standard that applies to qui tam claims does not apply to retaliation claims under the False Claims Act.

Role of the False Claims Act in Combating Fraud Related to the War in Iraq

Congress originally enacted the False Claims Act in 1863 to deter war profiteering related to the Civil War. One hundred forty five years later, the False Claims Act remains a critical and necessary tool to punish contractors who defraud the U.S. government. Glynn’s disclosures concerning defective IED jammers highlights the need for the Department of Justice to prosecute unscrupulous contractors. More than 80 qui tam cases have been filed related to the War in Iraq, yet the Department of Justice has not intervened in one of those cases. Hopefully, this Administration will consider holding contractors accountable, rather than protecting them.

Federal Circuit Vacates MSPB Ruling on the Standard for Evaluating Protected Conduct under the Whistleblower Protection Act

In Chambers v. Dept. of Interior, No. 2007-3050 (Fed. Cir. Feb. 14, 2008), the Federal Circuit held that the Merit Systems Protection Board erred by conflating the standards for evaluating disclosures of risks to public health and safety and disclosures of gross mismanagement under the Whistleblower Protection Act (WPA). Chambers, the former Director of the National Park Service, was placed on administrative leave and subsequently terminated shortly after she disclosed to the media and to Congress staffing and security problems at the national monuments. The MSPB evaluated her disclosures as pertaining solely to gross mismanagement, a category of protected conduct that is difficult to establish because it requires a showing that reasonable people could not debate the error in the policy. The Federal Circuit held that Chambers’s disclosures about the consequences of a policy decision to provide what she considered inadequate funding for security at national monuments can be considered disclosures about a danger to public safety, a category of protected conduct that is established where the employee reasonably believes that the problem evidences a substantial and specific danger to public safety: While Chambers certainly expressed a disagreement with a policy decision, she also potentially disclosed a danger to public safety that may have resulted from that decision . . . . Chambers’s opinions about the consequences of the policy decisions could have disclosed a danger to public safety.  Coincidentally, the Interior Department’s Inspector General released a report lapproximately one week prior to the issuance of the Federal Court’s opinion revealing that the Park Service is understaffed and that security at the national monuments is inadequate, thereby corroborating the concerns that Chambers raised in 2004. Chambers should not have had to wait nearly four years for her disclosures to be validated. Fortunately, both the House and Senate recently approved amendments to the WPA that would provide genuine protection for whistleblowers in the federal government, including the option to remove WPA actions into federal court for a jury trial. Hopefully, Congress will soon enact amendments to the WPA.

Texas Federal Court Applies Broad Construction of Sarbanes-Oxley Whistleblower Provision

In Ciavarra v. BMC Software, Inc., C.A. No. H-07-0413 (S.D.Tex. Feb. 7, 2008), Judge Atlas broadly construed the whistleblower protection provision of SOX:

SOX Coverage Defendants moved for summary judgment in part on the basis that Plaintiff was an employee of BMC Software Distribution, Inc., a subsidiary company that is not publicly traded and is therefore not covered under SOX. Judge Atlas held that Plaintiff presented evidence from which a trier of fact could find that he was a covered employee under SOX, including evidence that he was offered a separation agreement prepared at the direction of BMC Software, Inc., the publicly traded parent company of BMC Software Distribution, Inc., and evidence demonstrating that a BMC Software, Inc. officer was the supervisor of Plaintiff’s immediate supervisor and therefore had the authority to affect Ciavarra’s employment.

Protected Activity Plaintiff alleged that he engaged in protected conduct by reporting to superiors at BMC and to BMC’s otside auditor that a $67 “reversion” invoice was not properly recognizable because it was not collectible. Holding that protected conduct under SOX includes providing information regarding any conduct which the employee reasonably believes constitutes a violation of Sarbanes-Oxley, any rule or regulation of the Securities and Exchange Commission,or any provision of Federal law relating to fraud against shareholders,Judge Atlas concluded that there was a genuine issue of material fact as to whether Plaintiff provided information to BMC management and to its outside auditor regarding the anticipated recognition of a $67 million “reversion” invoice to Verizon, and that he reasonably believed that the improper recognition of the amount reflected in the invoice was a violation of Sarbanes-Oxley and other federal laws relating to fraud against shareholders.

Temporal Proximity is Sufficient to Raise an Inference of Causation Judge Atlas held that a gap of approximately three months between Plaintiff’s protected conduct and his discharge raised an inference of causation sufficient to avoid summary judgment.

Level of Detail Required in Pleading Protected Conduct Following the close of discovery, Defendants moved to amend their answer to plead that Plaintiff failed to exhaust his administrative remedies because his complaint did not plead every detail of his protected conduct. Holding that there is no requirement that a party exhaust each factual allegation in the complaint, Judge Atlas concluded that Plaintiff clearly exhausted his claim that his employment was terminated in retaliation for having brought the recognition issue to the attention of his boss’s superiors and of the outside auditors.

The Employment Law Group® Law Firm is a Contributing Author of ABA Update on Sarbanes-Oxley Whistleblower Retaliation Claims

The Employment Law Group® law firm is a contributing author of an annual update on the whistleblower retaliation provision of the Sarbanes-Oxley Act of 2002, a copy of which is available here. This annual update is a project of the ABA Section of Labor and Employment Law Committee on Federal Labor Standards Legislation Subcommittee on the Sarbanes-Oxley Act of 2002.

SOX Protected Conduct Includes the Disclosure of a Violation of Any SEC Rule or Regulation

More than five years after SOX was enacted, the scope of protected conduct is still unsettled, but one aspect of protected conduct is becoming clear, SOX protection is not limited solely to disclosures about shareholder fraud. Disregarding the plain meaning of SOX, employers have convinced a few DOL ALJs and at least one federal judge that SOX protected conduct is limited exclusively to complaints pertaining to shareholder fraud. On February 7, 2008, Judge Marrero of the Southern District of New York held in Mahony v. Accenture Ltd., 2008 WL 344710 (S.D.N.Y 2008) that SOX contains six provisions that enumerate six specific forms of misconduct which, if reported by an employee, protect the whistleblower from employer retaliation: (1) 18 U.S.C. § 1341 (mail fraud); (2) 18 U.S.C. § 1343 (wire fraud); (3) 18 U.S.C. § 1344 (bank fraud); (4) 18 U.S.C. § 1348 (securities fraud); (5) any rule or regulation of the SEC; or (6) any provision of federal law relating to fraud against shareholders. Applying basic principles of statutory construction, Judge Marrero rejected the employer’s contention that the phrase “related to fraud against shareholders” modifies each of the preceding phrases. Accordingly, a disclosure about a reasonably perceived violation of any rule of regulation of the SEC, including rules designed to prevent fraud, is protected under SOX. For example, a disclosure about inadequate internal accounting controls would be protected.