Articles Posted in Whistleblowing

Leah Kessler

On Tuesday, November 28, 2017, the U.S. Supreme Court heard oral arguments in the case of Digital Realty Trust, Inc. v. Paul Somers. While the Supreme Court’s ruling on this case is not expected until next June, the outcome, as well as the arguments made this week, have serious ramifications for the accepted legal definition of “whistleblowing” and the protections that definition provides.

Paul Somers was the Vice President at Digital Realty Trust, Inc., from 2010 to 2014, during which time he filed reports to senior management about possible securities law violations by the company. When Digital Realty fired Somers, he filed suit in the U.S. district court for California, alleging that Digital Realty fired him for his reports of securities law violations in violation of the anti-retaliation protections created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank was passed in 2010 in the wake of the 2008 financial crisis and expanded the whistleblower incentives and protections under the 2002 Sarbanese-Oxley Act. (Here is a side-by-side comparison of these two whistleblowing acts, including both the definitions they use and the protections they provide.) Although the district court held Somers to be a “whistleblower” under the statute, and the Ninth Circuit affirmed the district court’s decision on behalf of Somers, Digital Realty appealed to the Supreme Court on the grounds that Somers was not a “whistleblower” as defined by Dodd-Frank because Somers did not report his concerns to the Securities and Exchange Commission (SEC) before he was terminated.

Lev Craig

On September 8, Wells Fargo was fined $100 million by the Consumer Financial Protection Bureau (CFPB)—the largest fine in the agency’s history, according to its director—after an investigation found that bank employees had opened over two million bank accounts and credit cards without customers’ knowledge or consent between May 2011 and July 2015.

In addition to fines, Wells Fargo will be required to compensate any affected customers for fees incurred on the unauthorized accounts, such as annual fees or overdraft fees. On September 16, three plaintiffs in Utah filed suit against Wells Fargo, alleging theft and fraud and seeking class action status on behalf of up to a million customers who may have been affected.

Edgar Rivera, Esq.

In a complaint filed in the Southern District of New York on December 21, 2015, Debra Martin, a former employee of Middletown Community Health Center Inc. (“MCHC”), alleged that MCHC unlawfully terminated her employment due to her reporting to her superiors that MCHC had misused of federal funds and over billed Medicare and Medicaid.

MCHC, a federally qualified non-profit health center, provides community health care services in several locations in New York and Pennsylvania. Ms. Martin, who was charged with reviewing MCHC’s finances, claims that MCHC misused funds it received from the Health Resources and Services Administration and billed Medicare and Medicaid for services that it had not provided. She alleges that MCHC’s director, Theresa Butler, knew, approved, and often directed these practices.

Jennifer Melendez

On November 15, 2015, the National Union of Healthcare Workers (NUHW) and the health insurance company Kaiser Permanete (Kaiser) arrived at a tentative agreement ending a 5 year dispute regarding employee compensation and patient treatment.

In November of 2011, NUHW’S health care clinicians made a complaint on behalf of their patients, which prompted a 15-month investigation by the state. The investigation resulted in the California Department of Managed Health Care (DMHC) finding that Kaiser’s patients endured illegally long waiting periods for their treatments and were refused access to care, in violation of California’s Mental Health Parity Act and that Kaiser clinicians were instructed to falsify appointment times to hide those long waits. The DMHC fined Kaiser $4 million for these infractions. The DMHC states:

On December 8, 2014, in Khazin v. TD Ameritrade Holding Corp., the United States Court of Appeals for the Third Circuit decided that the anti-arbitration provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) only applieds to the whistleblower-protection causes of action arising under the Security and Exchange Act (the “Exchange Act”) and not to those arising under the Sarbanes-Oxley Act (“SOX”).

A “whistleblower” is someone, usually an employee, who reports an employer who has broken the law to an outside agency. In Khazin, TD Ameritrade, Inc. (“TD”) terminated Boris Khazin, a financial services professional, after Khazin reported to his supervisor that the price of one of TD’s products did not comply with the relevant securities regulations. Khazin’s supervisor instructed Khazin not to correct the problem because remedying the violation would cost TD two million dollars ($2,000,000) in revenue. About one month later, TD terminated Mr. Khazin when it allegedly discovered a billing irregularity. According to Mr. Khazin, the alleged irregularity was outside of his duties and responsibilities at TD. Regardless, the result of TD’s investigation was that the irregularity did not exist at all. Nevertheless, TD bank told Mr. Khazin his termination was final because he could not be trusted.

Mr. Khazin filed a complaint in the District Court of New Jersey for TD’s unlawful termination of his employment in violation of the Dodd-Frank’s whistleblower provision amending the Exchange Act. TD moved to dismiss the complaint and to compel arbitration pursuant to an employment agreement Khazin signed.

Following the collapse of Enron Corporation in 2001 due to fraudulent financial and accounting practices, the federal government passed the Sarbanes-Oxley Act (SOX) in an attempt to prevent similar corporate implosions. Under SOX, each corporation’s executives are required to certify the accuracy of the company’s financial records. The new law also created new penalties for fraudulent financial activity and increased the independence of the outside auditors who review the accuracy of corporate financial statements. As part of the latter changes, to increase the accountability of public companies with regard to their financial and accounting practices and accounting, SOX outlawed retaliation against whistleblowers who make good-faith reports of corporate fraud. Enforcement of whistleblower-protection provisions of SOX was assigned to the Departmet of Labor, which in turn assigned OSHA to investigate and adjudicate such claims.

On March 4, 1014 the U.S. Supreme Court in the case Lawson v. FMR LLC et al., in which the plaintiff alleged that she had been constructively terminated in retaliation after expressing concerns about the FMR’s accounting methods. Writing for the 6-Justice majority, Justice Ginsburg gave careful consideration to the text of the law in light of Congress’s reasons for enacting it. The central question in the case is whether the protection granted to whistleblowers applies i) only to the employees of public companies, or ii) to the company’s employees, its contractors, and the employees of its contractors. The majority reasoned that, because mutual fund companies are almost always nominal companies with no actual employees, the Sarbanes-Oxley Act would be able to have none of its intended effect if it was understood to apply only to those companies’ employees. For example, if the employees of a private accounting firm that managed the finances of a mutual fund had no legal protection when they reported fraud, because they were not employees of the mutual fund company itself, then there would be no one in a position to report the fraud. Justice Ginsburg reasoned that this interpretation of the law would undermine both the text and the purpose of the law. The law actually states that “no…contractor…may discharge an employee,” clearly referring to an employee of the contractor since the contractor is not in a position to retaliate. Further, since mutual fund companies almost never have employees, under the dissent’s narrow interpretation the law would have almost no effect; thus, she Justice Ginsburg writes, “This Court’s reading of § 1514A avoids insulating the entire mutual fund industry from § 1514A.”

In her dissent, Justice Sotomayor reasons that the majority’s construction of the law carries the absurd implication that, for example, that SOX authorizes a babysitter to bring a federal case against his employer–a parent who happens to work at the local Walmart (a public company)–if the parent stops employing the babysitter after he expresses concern that the parent’s teenage son may have participated in an internet purchase fraud.” Justice Ginsburg replies: “Instead of indulging in fanciful visions of whistleblowing babysitters and the like…the dissent might pause to consider whether a Congress, prompted by the Enron debacle, would exclude from whistleblower protection countless professionals equipped to bring fraud on investors to a halt.” Further, the majority argues, “the issue…is likely more theoretical than real. Few housekeepers or gardeners, we suspect, are likely to come upon and comprehend evidence of their employer’s complicity in fraud.”

On December 24, 2013, the New Jersey Appellate Division issued its decision in the State of New Jersey v. Saavedra case. The Appellate Division upheld criminal charges against the Defendant who took hundreds of highly confidential original and copied documents, after being terminated from her employment as a school board clerk. Defendant claimed that she took those document for the purpose of supporting discrimination, whistleblowing, and other claims against her employer in her lawsuit.

In her complaint, the Defendant alleged that she was a victim of gender, ethnic, and sex discrimination. The complaint also alleged that the Plaintiff terminated Defendant’s son, who was working in the same school, son because Defendant spoke out about issues in the workplace regarding, pay irregularities, improper reimbursement for unused vacations, wrongful denial of unpaid family leave, violations of study team regulations and overall unsafe working conditions.

In this case, the Defendant claimed that he conduct constituted protected activity. Defendant used Quinlan v. Curtiss-Wright Corp., to argue that her actions were not criminally sanctionable because according to Defendant, this case establishes an absolute right for employees with employment discrimination lawsuits to take potentially incriminating documents from their employers. However, the Appellate Division Court disagreed with that reading of the case and stated that the Quinlan seven-part totality-of-the-circumstances test (the “Quinlan analysis“), to determine whether a private employer can terminate its employee for the unauthorized taking of its documents, should not be applied to the facts of the present case. The Court argued that “a criminal court judge is not required to perform a Quinlan analysis to decide a motion to dismiss an indictment charging a defendant with official misconduct predicated on an employment-related theft of public documents. Instead, the judge should apply well-settled standards regarding whether to grant such motions.” As a consequence, the State was required to introduce sufficient evidence before the grand jury to establish a prima facie case that defendant has committed a crime. This case shed light on the differences between protections available to an employee in a civil case and in a criminal case. Indeed, an employee who voluntarily takes confidential or non-confidential documents from his employer to use in a whistleblower or discrimination case may be protected in a civil case, but that same employee is not protected from being criminally prosecuted for stealing those documents from his employer.

On November 4th, 2013, the Senate unanimously voted to pass the Criminal Antitrust Anti-Retaliation Act (CAARA), also known as the Leahy-Grassley Bill to protect whistleblowers in criminal antitrust cases. The bill provides innocent third-party whistleblowers with a civil remedy for employer retaliation for cooperating with the U.S. Department of Justice, which conducts criminal antitrust investigations. Also, the bill is meant to help enforce criminal antitrust law and heighten protections for consumers from this harmful activity.

Introduced last year by U.S. Senators Patrick Leahy and Chuck Grassley, CAARA represents a bipartisan effort to strengthen current criminal antitrust law. The bill is a follow-up to the Antitrust Criminal Penalty Enhancement and Enforcement Act of 2004, which established the Justice Department’s Antitrust Division Leniency Program. This program was designed to encourage companies to investigate antitrust violations, such as price fixing, by their own employees by allowing them to face lesser penalties than companies, which do not discover and report employee violations. Leahy and Grassley argued that initiatives such as the leniency program needed to be supplemented because current law encourages self-report of criminal antitrust activity, but does not provide protection for individuals who assist the process. Consequentially, whistleblowers in this context could risk their careers if they exposed waste, fraud and abuse by their employers. Although the Leahy-Grassley Bill is not designed to incentivize reporting by employees, it is meant to provide them with recourse to fairness in the event they suffer from employer discrimination or retaliation as a result of their actions.

The bill is based on recommendations offered by a July 2011 report from the Government Accountability Office, which stated that there was widespread support for anti-retaliatory protection in criminal antitrust cases. It covers employees, contractors, subcontractors, or agents who provide information on internal or external violations of antitrust laws or violations of other criminal law committed conjointly with a potential violation of the antitrust laws or with an investigation. The legislation would allow these whistleblowers to file complaints with the Department of Labor (DOL) if they believe they have suffered from employer retaliation. They may also bring suit in a U.S. District Court if the DOL fails to take action within 180 days. This law would allow such employees with recourse to relief such as pay with interest, reinstatement, or special damages including reasonable attorney’s fees, litigation costs, and expert witnesses fees.

Regus Group (“Regus”), a global company that provides office spaces, owes $4.6 million to an employee it fired in retaliation for complaining about its labor violations.

Denise Steffens sued office space provider in March 2010, claiming she was fired after a meeting with her supervisor where she complained about Regus denying meal and rest breaks. Ms. Steffens worked for Regus Group for over a decade, managing a commercial building in San Diego. Within months, she was terminated, purportedly for performance reasons despite just receiving a positive review.

The case has a long procedural history, and Ms. Steffens asserted various claims of discriminatory discharge. However, the claim she ultimately prevailed on was the tort of termination in violation of public policy. After trial, the jury awarded her $296,252 in economic damages, $850,000 in non-economic damages, and $3.5 million in punitive damages. Regus moved for new trial, and the judge said, in overruling its motion, “[t]his case went to trial and Regus lost–badly.

A Kentucky miner who was fired after raising workplace safety concerns has won his suit against his former employer.

Reuben Shemwell was terminated by Armstrong Coal in September 2011. He alleged that his firing was retaliation for his complaints about dangerous working conditions, and filed a safety discrimination complaint.

Outrageously, Armstrong then counter-sued Shemwell. The company filed in Kentucky state court, alleging that Shemwell’s complaint was “wrongful use of civil proceedings.” Shemwell’s attorney said it was “the first time I know of anywhere in the country where a company has sued a miner for filing a discrimination complaint.”