On January 25, 2012, six current and former Food and Drug Administration (FDA) employees filled a lawsuit in the U.S. District Court for the District of Columbia alleging that the FDA violated their constitutional privacy rights. The employees claim that the FDA monitored the employees’ emails sent from private accounts over a period of two years. The lawsuit also alleges that the employees were targeted for their whistle-blowing after they expressed concern to Congress that the FDA has approved purportedly unsafe medical devices.

The FDA terminated two of the employees and did not renew the contracts of another two following the whistleblowers’ decision to come forward and report the approval of medical products they believed were unsafe.

Responding to the FDA’s alleged intrusion into the whistleblowers’ private emails, Mr. Oswald told the Federal Times:

“I think the FDA went too far in its zeal to monitor these employees. Employers who access [and] retain emails or other electronic stored information from a third-party server risk violating an employee’s privacy interest.”

The article, “When Can Agencies Monitor Your Email? FDA Case Sparks Debate Over Policy”, appeared in the February 5, 2012 edition of the Federal Times.

The Employment Law Group® law firm has an extensive nationwide whistleblower practice representing employees who have been victims of retaliation.

According to the complaint filed by the Department of Justice (DOJ), Ethex falsified Food and Drug Administration (FDA) certifications of two products, Nitroglycerin ER and Hyoscyamine Sulfate ER, to CMS, thereby allowing the company to sell these unapproved drugs to Medicare patients.  The Food, Drug, and Cosmetic Act requires that all drugs must be approved by the FDA for safety and effectiveness before they can be marketed for mass consumption.  Neither drug has received FDA approval, which potentially places consumers at risk.  Ilisa Bernstein, acting director of the Office of Compliance for the FDA, outlined the seriousness of this violation, stating, “This settlement sends a strong message to those who seek to put the health of American patients at risk by distributing and promoting drugs which have not been approved by the FDA.”

To settle the case, KV has agreed to pay the federal government $10,158,695 and $6,841,305 to the state Medicaid Services.  The whistleblower who reported the company’s unlawful actions received $1,523,804 of the federal share and additional amounts from the state share.

On June 1, 2009 the employee called the local OSHA office and relayed his continued safety concerns regarding plant operations.  RockTenn suspended the employee on June 18 and then terminated him on June 23 for allegedly giving inaccurate and untruthful testimony during an internal investigation. OSHA concluded that the company had unlawfully and intentionally terminated the worker’s employment for engaging in activity protected by the Occupational Safety and Health Act.

Teresa Harrison, OSHA’s acting regional Administrator in Atlanta stated:

“Employees have the congressionally-mandated right to engage in safety-related matters at their workplace, including participating in accident investigations and contacting OSHA at any time.  We will hold employers accountable for limiting or deterring any employee who exercises these rights.”

The lawsuit asks the court to order remedies that include reinstating the employee; paying back wages and benefits; paying punitive and compensatory damages; and expunging the employee’s personnel records with respect to the matters at issue in the case.  The suit also requests a permanent injunction against future violations of this law by the employer.

In the complaint, Belli asserts that Allied made many loans through various “shadow” branches that were not HUD-approved and lacked proper quality control. Allied would then “submit those loans to HUD using one of the unique branch identification numbers (“HUDIDs”) assigned to a HUD-approved branch.”  Then, “HUD endorsed these loans for insurance based on false certifications that the loans were originated in compliance with HUD requirements, including, most fundamentally, that the loans originated from HUD-approved branches.”   To maintain this ‘culture of corruption’ at Allied, the complaint states that Hodge and others threatened senior management with termination, aggressively monitored employees’ e-mail communications,  and even silenced former employees by threatening legal action.

The federal government claims that nearly 1 in 3 of the HUD-insured loans Allied made between 2001 and 2010 went into default because of Allied’s reckless lending practices. These defaults reportedly created more than $834 million in insurance claims and forced thousands of borrowers out of their homes while Allied earned millions of dollars. Another 2,509 loans underwritten by Allied are currently in danger of default, which may result in additional losses estimated at $363 million.

The government is seeking triple damages and civil fines for Allied’s alleged fraud and is seeking an injunction to stop Allied from making any further loans out of its undisclosed branches.

Related articles

• U.S. Sues Allied Home Mortgage Over Lending Practices (nytimes.com)
• Feds sue Allied Home Mortgage and founder for fraud (usatoday.com)
• NYC U.S. Att’y Sues Allied Home Mortgage For Fraud (newyork.cbslocal.com)

Pennsylvania Gov. Tom Corbett, a Republican, stated:

“The assistant coach who in 2002 witnessed former Penn State assistant coach Jerry Sandusky allegedly abusing a child met the minimum obligation of reporting it up to head coach Joe Paterno, but the assistant did not, in my opinion, meet a moral obligation.”

Corbett also mentioned that within the next few weeks, state lawmakers would introduce bills to explicitly outline educators’ responsibilities if they witness or suspect child abuse.

Iowa, Maryland and New York are also considering tougher laws regarding the reporting of child abuse.

Under the CWPA, a state employee must file an administrative claim with the State Personnel Board (SPB), which would then investigate the claim. For state university employees, they must file their claims either to their supervisor or to an internal staff member before they take the matter to a civil court.

If the claimant is seeking damages, the CWPA stipulates that after the State Personnel Board investigates, the employee must bring the matter to the Victim Compensation and Government Claims Board. The board has 45 days to respond to a claim and if it the board rejects the claim, the claimant (employee) has six months to file a lawsuit.  If the board denies the claim because there was no timely response, the claimant has two years to bring the issue before a court.

Oswald and Scher recommend that employees and whistleblowers file their complaints with both the SPB and the claims board. They also recommend that due to the complexities involved, only attorneys with strong knowledge of the administrative requirements of the CWPA handle these cases.

More efficient investigations are among OSHA’s goals, but unless the workload for investigators gets lighter, there are still going to be substantial delays.

You can have the greatest systems in place, but if the demand for them is so great that you have to stand in line for a couple of years, you’re effectively denying the benefits to the populace.

OSHA’s commitment to bolstering investigator training is a positive sign, however, and could translate to a more consistent application of the law to cases.

OSHA is responsible for administering 21 whistleblower laws that prohibit employers from retaliating against employees who report violations of workplace safety, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health care reform, nuclear, public transportation, railroad, and securities laws.

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In Hasan v. Enercon Services, Inc., the Department of Labor’s Administrative Review Board (ARB) overturned a summary decision order in favor of whistleblower Syed Hasan who alleges that Enercon Services, Inc. refused to hire him because he is a whistleblower.

Hasan is a structural engineer who was previously discriminated against by his former employer, American Electric Power Company, for reporting unsafe practices at the D.C. Cook Nuclear Plant to the Nuclear Regulatory Commission.

For Hasan to prevail on his whistleblower complaint under the Energy Reorganization Act of 1978 (ERA), he must show that his whistleblowing while at his former employer was a contributing factor in Enercon’s decision to not hire him.  Evidence of inconsistencies in an employer’s reasons for not hiring a whistleblower can support a finding of pretext by the employer.

The ARB ruled in Hasan’s favor, stating a summary decision was improper given the existence of a genuine factual dispute that requires an evidentiary hearing:

Hasan’s claim is not based on one application to one advertisement for one job vacancy whereupon his application was filed away and forgotten, as likely occurs to thousands of applicants each day across the county.  Rather, Hasan’s claim is that he repeatedly applied for positions at Enercon, and Enercon refused to hire him at any point at least partly due to his whistleblower activities.  Hasan’s letters to Enercon expressed that he was willing to work for Enercon “at any place, for any shift and for any salary” that Enercon deemed was reasonable.  Hasan sent more than one letter making this statement.  He sought employment with Enercon numerous times over the course of two years.  In a letter dated February 5, 2003, Enercon expressly told Hasan that it would keep his resume “on file and hope to identify a work opportunity in the future.”  Enercon admittedly hired more than a dozen civil/structural engineers after its February 5, 2003 letter to Hasan.  So Hasan’s claim is that Enercon repeatedly rejected him, and he believes it was because of his whistleblowing activities.

Recognizing Hasan’s claim as a claim of repeated rejections over a two-year period, there are sufficient documents and facts to allow (but not require) a factfinder to believe that Enercon’s proffered reasons are pretext or that Hasan’s protected activity was a contributing factor in Enercon’s failure to hire Hasan.  Enercon asserts that: (1) the jobs in its advertisements never materialized; (2) the advertisements were used to find former Scientech engineers; (3) the job vacancies were for the Germantown office; or (4) the advertisements never resulted in any hires.  Yet, the advertisements on their faces were for “immediate opportunities” throughout 2003 and 2004 and expressly described the “available positions.”  Enercon’s February 5, 2003 letter expressly told Hasan he would be considered for future opportunities.  The existence of future vacancies was repeatedly confirmed by the dozen engineers hired in 2003 and 2004.  The advertisements only expressed a preference for “local candidates” and had no reference to Scientech employees.  This is not to say that Enercon’s reasons will not prove to be true or legitimate.  However, to choose Enercon’s assertions in its motions over its contradictory advertisements is to engage in factfinding without an evidentiary hearing.  These factual contradictions, even though created by Enercon’s own choices, must be resolved in an evidentiary hearing….

(citations omitted).

Whistleblowers Wilkins and Willis began employment with United Health Group in 2007, Willis as a general manager for Medicare/Medicaid marketing and sales and Wilkins as a sales representative.  In April 2008, United Health terminated Wilkins’ employment in reaction to his complaints concerning what he perceived were United Health’s illegal practices. Similarly, at some point during 2008, United Health, after demoting Willis for his conduct in making complaints to his supervisors about what he perceived were United Health’s illegal practices, went further and terminated his employment.

On July 10, 2008, Wilkins and Willis filed a qui tam action under the Federal False Claims Act (FCA) alleging that United Health Group also violated the FCA by offering physicians illegal kickbacks and then charging the federal government’s Medicare program for services.

Under the False Claims Act, a private individual with knowledge of fraud committed against the federal government may sue on behalf of the government to recover losses caused by the fraud.  To encourage whistleblowers to come forward and expose fraud on the government, the FCA awards whistleblowers 15% to 30% of the government’s recovery.  The FCA also prohibits any action taken by an employer which has a negative effect on the terms, conditions, or privileges of employment of the whistleblower. This includes termination, demotion, suspension, harassment, and other forms of retaliation.

The Third Circuit, adopting the majority viewpoint among the Federal Appellate Circuits, applied the implied certification theory of liability under the FCA.  This theory of liability is favored by whistleblower advocates because companies defrauding the government can be liable under the FCA without having explicitly stated they were in compliance with applicable laws such as the Medicare Anti-Kickback Statute.  This ruling is a victory for whistleblowers who report corporate or government agency fraud.

 Jason Zuckerman, a principal at The Employment Law Group, which represents employees, said the Sylvester decision was in contrast to past ARB rulings that had erected barriers to complainants.

“The current ARB is applying the statute as Congress intended, and in light of the recent financial crisis, it could not be clearer that robust protection of whistleblowers is a crucial bulwark against corporate fraud,” Zuckerman said.

The ARB held that the heightened pleading standards established in federal courts did not apply to SOX claims initiated with OSHA, and that an allegation of shareholder fraud was not a necessary component of protected activity under SOX.  The Sylvester decision will likely lead to more claims surviving initial motions to dismiss or summary judgment than in the past.

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The DOL Administrative Review Board has issued a very significant en banc decision on the whistleblower provision of the Sarbanes-Oxley Act (SOX) that significantly strengthens the statute by clarifying the broad scope of protected conduct.  The ARB’s opinion in Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-039, 042 (May 25, 2011) represents a substantial departure from the extraordinarily narrow construction of SOX in the opinions issued by the ARB appointed by Secretary Chao.  Read in conjunction with the ARB’s recent Johnson v. Siemens Bldg. Techs. decision broadening the scope of SOX coverage and the recent Dodd-Frank amendments to SOX (exempting SOX whistleblower claims from mandatory arbitration, clarifying that SOX claims can be tried before a jury, broadening the scope of coverage, and increasing the statute of limitations), SOX is becoming a robust remedy for whistleblowers.  The primary effect of Sylvester will be a significant increase in the number of SOX retaliation claims that get past motions to dismiss and motions for summary judgment.  The ARB has now removed ridiculous hoops that SOX complainants were required to jump through, which hoops were plainly inconsistent with the plain meaning of the statute.  And the decision will enable OSHA to rule for more complainants during the investigative stage.  Hopefully, federal courts will accord Chevron deference to the decision.  The ARB held:

1. Twombly/Iqbal heightened pleading standards do not apply to SOX claims initiated with OSHA.
2. A complainant need only express a “reasonable belief” of a violation to engage in SOX-protected activity,
3. The reasonable belief standard requires an examination of the reasonableness of a complainant’s beliefs, but not whether the complainant actually communicated the reasonableness of those beliefs to management or the authorities.
4. Protected activity need not describe an actual violation of law.  A whistleblower complaint concerning a violation about to be committed is protected as long as the employee reasonably believes that the violation is likely to happen. Such a belief must be grounded in facts known to the employee, but the employee need not wait until a law has actually been broken to safely register his or her concern and consistent with this line of authority, an employee’s whistleblower communication is protected where based on a reasonable, but mistaken, belief that the employer’s conduct constitutes a violation of one of the six enumerated categories of law under Section 806.
5. The holding in Platone that an employee’s communication must “definitively and specifically” relate to the listed categories of fraud or securities violation under Section 806 “has evolved into an inappropriate test and is often applied too strictly.”  Instead, the focus should be on whether the employee reported conduct that he or she reasonablybelieves constituted a violation of federal law.
6. SOX protected conduct is not limited to disclosures about shareholder fraud and instead includes disclosures about mail fraud, fraud by wire, radio, or television, and bank fraud.  When an entity engages in mail fraud, wire fraud, or any of the six enumerated categories of violations set forth in Section 806, it does not necessarily engage in immediate shareholder fraud. Instead, the violation may be one which, standing alone, is prohibited by law, and the violation may be merely one step in a process leading to shareholder fraud.  Additionally, a reasonable belief about a violation of “any rule or regulation of the Securities and Exchange Commission” could encompass a situation in which the violation, if committed, is completely devoid of any type of fraud.
7. A SOX complainant need not establish the various elements of criminal fraud to prevail on a Section 806 complaint.  A complainant can have an objectively reasonable belief of a violation of the laws in Section 806, i.e., engage in protected activity under Section 806, even if the complainant fails to allege, prove, or approximate specific elements of fraud, which would be required under a fraud claim against the defrauder directly. In other words, a complainant can engage in protected activity under Section 806 even if he or she fails to allege or prove materiality, scienter, reliance, economic loss, or loss causation.  The purposes of the whistleblower protection provision will be thwarted if a complainant must, to engage in protected activity, allege, prove, or approximate that the reported irregularity or misstatement satisfies securities law “materiality” standards, was done intentionally, was relied upon by shareholders, and that shareholders suffered a loss because of the irregularity.

There are two concurring opinions.  Judges Corchado and Royce opine that thePlatone “definitive and specific requirement” is incompatible with the plain meaning of the statute and therefore should be abandoned.  Judge Brown opines that (i) Rule 12(b)(6) does not apply to SOX complaints, but ALJs can use OALJ summary decision procedure (29 C.F.R. § 18.40) to test the sufficiency of the complainant’s evidence; (ii) the Platone “definitive and specific requirement” should not be applied to SOX but the complainant must establish a basis for concluding that the employer’s conduct of concerns relates to the laws listed under Section 806; (iii) violations of SOX need not relate to fraud against shareholders; and (iv) a SOX complainant alleging that he disclosed shareholder fraud need not prove the specific elements of fraud.

Related articles

• Law360 Quotes TELG Attorney on Ruling Expanding Scope of SOX-protected Conduct (employmentlawgroupblog.com)
• The Employment Law Group Attorney Quoted in Law360 Article on DOL ARB Decision Broadening the Scope of Coverage under SOX(employmentlawgroupblog.com)
• DOL ARB Holds Sarbanes-Oxley Covers Claims by Employees of Subsidiaries of Publicly-traded Companies(employmentlawgroupblog.com)
• DOL ARB Affirms Reinstatement of Sarbanes-Oxley Whistleblower at DOD Contractor (employmentlawgroupblog.com)

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The Securities and Exchange Commission is receiving praise from whistleblower advocates for issuing finalized rules that do not require whistleblowers to report fraudulent or illegal activity internally to their employer, but instead allow whistleblowers to blow the whistle direct to the SEC. The Dodd-Frank Act established a new whistleblower program at the SEC, requiring the SEC to reward whistleblower who provides original information with between 10% and 30% of the amount recovered by the SEC. Allowing employees to report information directly to the SEC does not diminish the strong incentive for employees to blow the whistle internally, because employees can still get a reward so long as the employee provides the same information to the SEC within 120 days.

Internal compliance programs failed miserably to avert the financial crisis. Where fraud is pervasive in upper management, it would be futile for an employee to blow the whistle internally and it would be in the best interest of shareholders for the whistleblower to disclose fraud directly to the SEC. But where companies have implemented effective programs that are not merely a tool of management to cover up violations, then employees will use those programs. Unfortunately, far too many find their company’s internal compliance program is deficient and in some cases a tool for management to retaliate against whistleblowers.

The new reward program is already beginning to bear fruit. Similar whistleblower rewards under the False Claims Act where extremely effective at inducing employees t report fraud to the government, leading to the recovery of over 27 billion dollars.

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.

The Employment Law Group® law firm principals R. Scott Oswald and Jason Zuckerman submitted an amicus brief to the Court on behalf of the Project On Government Oversight (POGO) and the Public Employees For Environmental Responsibility, arguing against the adoption of the Hooven-Lewis and Huffman loopholes by the Fourth Circuit.  For more information about the Whistleblower Protection Act, click here.