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Xe Services (Blackwater) Procedural Challenge to Whistleblower Lawsuit Fails


Judge T. S. Ellis, III denied Xe Services LLC’s motion to dismiss a whistleblower lawsuit, alleging the company defrauded the government by overcharging for its security services.  Xe Services, formerly known as Blackwater, came to notoriety for its controversial government contracts to supply private security in Iraq and Afghanistan.  Former employees Melan and Brad Davis, brought the allegations of fraud under the False Claims Act (FCA), seeking a reward of up to 30% of the funds recovered by the government.  Xe Services challenged the lawsuit under the theory that the amended FCA complaint must be sealed.  The court disagreed, holding that ordinarily FCA complaints – including amended complaints – must be sealed, but when the amended complaint is not substantially different from the original complaint and merely provides additional details, its unsealed filing does not “deprive the government of the opportunity to investigate [the] allegations and to decide whether to intervene.”  For more information about the False Claims Act or to report fraud, click here.

Federal Judge Interprets SOX to Protect Whistleblowers Who Report Fraud Committed by Clients and Business Partners

Judge Robert Sweet of the United States District Court for the Southern District of New York stated in the case of Sharkey v. J.P. Morgan Chase that the Sarbanes-Oxley Act (SOX) protects whistleblowers who report fraudulent activity by their employer or by third parties such as clients and business partners:

The legislative history concerning the sox whistleblower provision indicated that Sarbanes-Oxley was enacted to counteract a corporate culture that “discourages employees from reporting fraudulent behavior not only to the proper authorities such as the FBI and the SEC, but even internally. This ‘corporate code of silence’ not only hampers investigations, but also creates a climate where ongoing wrongdoing can occur with virtual impunity. The consequences of this corporate code of silence for investors in publicly traded companies, in particular, and for the stock market, in general, are serious and adverse, and they must be remedied.” S. Rep. No. 107 146, at *5.

SOX precludes an employer from retaliating against any employee who provides information or otherwise assists in an investigation regarding conduct which the employee reasonably believes constitutes a violation of “section 1341 [Frauds and Swindles], 1343 [Fraud by Wire, Radio or Television], 1344 [Bank Fraud], or 1348 [Securities and Commodities Fraud], any rule or regulation of the [SEC], or any provision of Federal law relating to fraud against shareholders.” 18 U.S.C. 1514A(a) (1) . The statute by its terms does not require that the fraudulent conduct or violation of federal securities law be committed directly by the employer that takes the retaliatory action.

Under the Judge’s interpretation of SOX, companies are prohibited from either requiring employees to ignore the illegal activity of clients and business partners or punishing those employees with the integrity to report illegal activity.  For more information about the Sarbanes-Oxley Act or reporting illegal activity, click here.

IRS Broadens Opportunities for Whistleblower Rewards

The Internal Revenue Service (IRS) recently issued new rules that now permit whistleblowers to be rewarded for reporting a company’s illegal tax scheme that leads to ill-gotten tax refunds or credits.  Under the IRS’s whistleblower program, whistleblowers can be rewarded up to 30% of the funds recouped in return for reporting tax fraud.

Dept. of Labor ARB Affirms Broad Scope of Adverse Employment Actions Under AIR 21 in Whistleblower Case Against American Airlines

The U.S. Department of Labor Administrative Review Board (ARB) held in the case of Williams v. American Airlines that a written warning or counseling session conducted by an employer is presumptively an adverse employment action against an employee where:

  1. it is considered discipline by policy or practice,
  2. it is routinely used as the first step in a progressive discipline policy, or
  3. it implicitly or expressly references potential discipline.

The ARB further clarified the broad definition for adverse employment actions under the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR 21):

To settle any lingering confusion in AIR 21 cases, we now clarify that the term “adverse actions” refers to unfavorable employment actions that are more than trivial, either as a single event or in combination with other deliberate employer actions alleged. . . . While we agree that it is consistent with the whistleblower statutes to exclude from coverage isolated trivial employment actions that ordinarily cause [trifling] harm or none at all to reasonable employees, an employer should never be permitted to deliberately single out an employee for unfavorable employment action as retaliation for protected whistleblower activity.  The AIR 21 whistleblower statute prohibits the act of deliberate retaliation without any expressed limitation to those actions that might dissuade the reasonable employee.  Ultimately, we believe our ruling implements the strong protection expressly called for by Congress.

The complainant is Brian Williams, a licensed aviation maintenance technician at John F. Kennedy Airport (JFK), who alleges that American Airlines, Inc. violated the whistleblower protection provisions of AIR 21 when his supervisor disciplined him for ordering the re-inspection of an aircraft’s brakes.  During the first inspection of the aircraft, Williams and another mechanic, Joe Urso, determined that the aircraft’s brakes needed to be changed.  Because the brake change took longer than usual, Williams and Urso believed another inspection was required.  Their immediate supervisor disagreed and reported the incident to Williams’s direct supervisor who then determined that Williams had a job performance issue and scheduled a counseling session with Williams.  The counseling session resulted in Williams having negative remarks entered into his personnel record.

AIR 21 provides that “[n]o carrier or contractor or subcontractor of an air carrier may discharge an employee or otherwise discriminate against an employee with respect to compensation, terms, conditions, or privileges of employment” because the employee has engaged in certain protected activities, including providing information to the employer or the Federal government about a violation, or alleged violation of any Federal law relating to air carrier safety.  Department of Labor regulations define “discrimination” under AIR 21 to include efforts by the employer “to intimidate, threaten, restrain, coerce, blacklist, discharge or in any other manner discriminate against any employee” because the employee engaged in protected activity.  As a matter of law, AIR 21 includes reprimands (verbal or written), as well as counseling sessions that are coupled with references to potential discipline.

Notably, the ARB also rejected the Sixth Circuit’s holding in Melton v. Yellow Transp. Inc. by stating:

We believe it is irrelevant whether the employer’s personnel policies allow its employees to appeal or formally challenge a written warning.  A great number of workers are “at will” employees who have no right to appeal a suspension or termination, much less a written warning.  Personnel policies are often drafted solely by the employer and hinge on the employer’s unilateral assessment as to the extent of appellate procedures it can address given limited resources.

For more information about AIR 21 or to seek assistance with reporting violations.

Federal Whistleblower Teresa Chambers Reinstated as Chief of U.S. Park Police

The U.S. Merit System Protections Board (MSPB) ordered whistleblower Teresa Chambers reinstated to her former position as Chief of the U.S. Park Police (USPP) and compensated her for over six years of lost wages.  While under pressure from Debbie Weatherly, a staff member of the House of Representatives Interior Appropriations Subcommittee, the U.S. Department of the Interior illegally retaliated against Chambers becasuse she told the media the truth: more police officers were needed to keep the GW Parkway and federal parks safe.  The MSPB wrote in Chambers v. Dep’t of Interior that:

We have found that the appellant [Teresa Chambers] made protected disclosures of substantial and specific dangers to public health or safety that are reflected in the December 2, 2003 Washington Post article in which she indicated that traffic accidents had increased on the BW Parkway, which often had two officers on patrol instead of the recommended four, and that the diversion of USPP patrol officers from national parks resulted in an increase in drug dealing in smaller national parks. In addition, the appellant made a protected disclosure in her December 2, 2003 e-mail to Ms. Weatherly concerning the number of officers patrolling the GW Parkway, the consequent decision not to arrest suspected drunk drivers, and the resulting jeopardy to parkway travelers. Underlying these disclosures were the appellant’s statements indicating that the substantial and specific dangers existed because the USPP did not have sufficient staffing or funding.

The federal Whistleblower Protection Act (WPA) protects federal employees, like Teresa Chambers, who report waste, fraud, or abuse from retaliation by their supervisor or agency.  The MSPD’s decision demonstrates that federal employees can be protected when they truthfully report safety concerns to the public.  For more information about the Whistleblower Protection Act or to report fraud, click here.