Show posts for: Whistleblowers

  • | Jason M. Knott

    The Securities & Exchange Commission gained significant new enforcement powers in the Dodd-Frank Act of 2010.  Under the Act, the SEC can award bounties to whistleblowers who provide information leading to successful enforcement actions.  It has already exercised this power, making eight whistleblower awards since starting its whistleblower program in late 2011.  The Dodd-Frank Act also allows the SEC to sue an employer who retaliates against a whistleblower, but the SEC hasn’t previously taken that step. 

    Ten days ago, that changed.  The SEC announced that it had charged Paradigm Capital Management and owner Candace King Weir with engaging in prohibited trades and retaliating against a head trader who reported the trades to the SEC, and that Paradigm and Weir had settled the charges for $2.2 million.  Without its new enforcement authority under Dodd-Frank, the SEC wouldn’t have been able to bring the retaliation charge. 

    According to the SEC’s press release, Paradigm “removed [the whistleblower] from his head trader position, tasked him with investigating the very conduct he reported to the SEC, changed his job function from head trader to a full-time compliance assistant, stripped him of his supervisory responsibilities, and otherwise marginalized him.” 

    The formal order issued by the SEC further describes what happened to the whistleblower.  The day after the trader told Paradigm that he had reported these particular trades to the SEC, Paradigm removed him from his position.  The trader and Paradigm tried to negotiate a severance package, but when that fell through, Paradigm brought him back to investigate trades and work on compliance policies – but not to resume his head trading responsibilities. 

  • | Andrew P. Torrez

    While we’re talking about whistleblowers, it’s worth noting that two days ago, the U.S. Court of Appeals for the Second Circuit heard oral argument on appeal from the a federal district court’s opinion in Meng-Lin Liu v. Siemens AG, 978 F.Supp.2d 325 (S.D.N.Y. 2013). This case raises the significant question as to whether the anti-retaliation provisions of the Dodd-Frank Act, 15 U.S.C. § 78u-6(h)(1)(a), apply to an employee who is terminated by a non-U.S. corporation that does business in (and is regulated by) the United States.

  • | Andrew P. Torrez

    One recurring topic here at Suits by Suits is the default corporate practice of including mandatory arbitration clauses in employment contracts; we’ve written frequently about that practice.  Such clauses typically specify that “the parties agree to submit any dispute arising out of this Agreement to binding arbitration.”

  • | Jason M. Knott

    In 2010, Congress passed the Dodd-Frank Act, strengthening legal protections for employees who report violations of the securities laws.  However, as we’ve covered here, here, and here, the courts have diverged widely as to whether an employee must report directly to the SEC in order to be shielded from retaliation.

    In Asadi v. GE Energy (USA), LLC, which we addressed in this post, the Fifth Circuit decided that to meet Dodd-Frank’s definition of a “whistleblower” – and to be protected by its anti-retaliation provision – an employee must in fact provide information to the SEC.    However, most of the district courts that have addressed the issue have decided that an employee need not report to the SEC in order to be protected from adverse actions by his or her employer.

  • | Jason M. Knott

    On this blog, we frequently cover employment relationships that go wrong.  Sometimes, really wrong.  But only rarely do we cover events that could land someone in the slammer.

    The recent case of Stephen Marty Ward is one of those rare events.  Ward’s case shows that employment relationships gone sour can result in more than hurt feelings and lawsuits – they can result in jail time. 

    As reported by Law360, Ward worked for Corsair Engineering, Inc.  During a three-month project for Insitu, a Boeing subsidiary, he gathered information about a “small tactical unmanned aircraft system” – i.e., a drone – that the Navy was working on.  In particular, Ward had access to a “maintenance manual for an integrator system” that had flown over 500,000 combat flight hours.  Here’s a link to some nifty pics of the “integrator system” from the Insitu website, if you’re curious. 

    When Ward was fired in October 2011, he called a Corsair employee and said that he had a lot of information and wanted a “healthy settlement” to go away quietly.  In a ruse worthy of Hank Schrader and Jesse Pinkman, Corsair executives negotiated a $400,000 settlement with Ward.  Ward came to pick up his down payment of $10,000, and found himself in handcuffs. 

  • | William A. Schreiner, Jr.

    We see – and report on – plenty of whistleblower complaints here at Suits-by-Suits. We’re mostly interested in how those complaints play out legally, and what they can teach us about ways to avoid, or manage, whistleblower disputes and what leads to them.  But outside of the law, some complaints include alleged facts that just tell a compelling story in and of themselves. 

    How about these allegations in Glenn Meeks’ wrongful termination complaint against Chicago State University: Financial mismanagement, a romantic relationship between top university executives, high-level posts filled with unqualified personnel, intrigue on the university’s board of trustees after Meeks complained of these things, and – a bonus, from a storytelling perspective – a suspicion of improper interference by the Governor of Illinois in the whole thing. 

    And another bonus: Meeks filed his complaint in Illinois state court just two weeks after another whistleblower at the same university was awarded $2.5 million 

  • | Jason M. Knott

    Top ‘o the mornin’ to ya!  In honor of St. Patrick’s Day, we considered writing today’s inbox entirely in Irish-speak.  We could have told you to sit down and wet the tea, or sip on a pint of Gat, while we spun tales of how an executive’s suit put the heart crossways in his employer.  But because we didn’t want anyone feeling the fear tomorrow, we decided to stick with our tried-and-true approach of (somewhat) plain American English.

    • Bonuses on Wall Street are flowing like Guinness, says The Age.  New York’s state comptroller says that firms paid their highest bonuses since 2007, with an average of $164,530.  However, for those looking to get a piece of that pot of gold, the news wasn’t all good: jobs in finance declined.
    • Glenn Kessler of the Washington Post’s Fact Checker put together this interesting piece on Edward Snowden’s claim that federal law did not protect him from whistleblower retaliation.  Kessler concluded by awarding Snowden only one Pinocchio for “some shading of the facts.”  Snowden has many Pinocchios to go if he wants to reach the levels achieved by many illustrious citizens of Washington, D.C.
    • Andrew Burrell of The Australian reports that BHP Billiton’s decision to pay large bonuses has boomeranged on the executives of the resources giant, with shareholders voicing their disapproval (subscription required).  Yes, we included this news solely to use the pun.  No, we do not have a subscription to The Australian.
    • TheTownTalk.com brings us news of a Louisiana College VP’s lawsuit against his employer in state court.  The vice president, Tim Johnson, claims that the Baptist school and its president retaliated against him for blowing the whistle on the president’s diversion of funds.  An outside law firm has already advised the college that the president “misrepresented material information to the Board of Trustees on countless occasions,” but a committee appointed by the board rejected that conclusion.
    • A New York trial judge questioned a hedge fund’s efforts to have a former analyst jailed for stealing trade secrets, reported Stewart Bishop of Law360 (subscription required, and yes, we do have one).  Justice Jeffrey Oing told lawyers for Two Sigma Investments LLC that it might be “going over the top” by pursuing jail time for Kang Gao, who is accused of illegally accessing and copying Two Sigma’s confidential information.
  • | Jason M. Knott

    In yesterday's post, we covered the background of Tuesday's Supreme Court decision in Lawson v. FMR, LLC, and took an in-depth look at Justice Ginsburg's majority opinion.  Today, we look at what the other Justices had to say.

    Justice Scalia, joined by Justice Thomas, signed on to Justice Ginsburg's opinion in principal part, but also authored his own opinion.  Justice Scalia and Justice Thomas subscribe to the position that a judge, in reading and interpreting a statute, should not examine what Congress said in places other than the statutory language, such as in committee reports and floor speeches.  Based on that judicial philosophy, Justice Scalia criticized Justice Ginsburg for her “occasional excursions beyond the interpretative terra firma of text and context, into the swamps of legislative history.” 

  • | Jason M. Knott

    On Tuesday, the Supreme Court issued an opinion that may have sweeping implications for whistleblowers and employers.  In Lawson v. FMR LLC, the Court decided that the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1514A) allows an employee to bring a claim even if that employee works for a private contractor or subcontractor of a public company.  The Court’s decision could lead to a wide range of Sarbanes-Oxley lawsuits by outside counsel, private accountants, cleaning services, and others.

    Lawson was a split decision.  Justice Ginsburg, joined by Chief Justice Roberts, Justice Breyer, and Justice Kagan, and by Justices Scalia and Thomas “in principal part,” wrote for the majority.  Justice Scalia wrote a separate concurrence, joined by Justice Thomas.  And in an unusual grouping, Justice Sotomayor authored the dissent, joined by Chief Justice Roberts and Justice Alito.  Today, we'll tackle Justice Ginsburg's opinion; tomorrow, we'll take a look at what Justices Scalia and Sotomayor had to say.

    But first, a little background.

  • | William A. Schreiner, Jr.

    There’s often a fine line between being a bona fide whistleblower and being just an angry plaintiff suing for wrongful termination.  The plaintiff’s allegations of whistleblowing conduct can often be very similar to the conduct that gave rise to him or her being fired – setting up something of a Rorschach blot test for the court that is trying to figure out what’s really going on. 

    That’s the position doctor Mark Fahlen found himself in.  Doctor Fahlen was fired by his employer, a group of doctors working at a hospital in California.  The doctor said he was fired, in part, because he complained – as a whistleblower – about nurses in the hospital failing to provide adequate care for his patients because they failed to follow his instructions.  The group of doctors fired Fahlen after the hospital revoked his privileges (apparently a necessary part of being a member of the group) because it said Fahlen had angry fights with those same nurses – and, therefore, he was fired because he wasn’t a suitable employee.  So, essentially the same factual allegations could be whistleblowing or a basis for termination.  

  • | William A. Schreiner, Jr.

    Here at the Suits by Suits Worldwide Operations Center, weather continues to have us flummoxed, vexed, and annoyed: even though a famous Pennsylvania rodent discerned that we would have six more weeks of our brutal winter, we’ve had a pleasant warm spell that is about to come to a crushing end due to a storm front that goes by the curious name of "Texas Hooker" (we did not make that up).  And we’re about to be plunged back into the depths of the polar vortex yet again – although our earlier bouts with the grim chill may have wiped out our area’s growing population of stink bugs.   

    In any event, we always take shelter from the storms, the cold, and the heat by digging into our Inbox of interesting developments in executive employment disputes and the issues that surround them, including:

  • | Jason M. Knott

    Love is in the air as couples celebrate Valentine’s Day with chocolates, flowers and romantic dinners.  But there’s no love lost between some employers and their executives, as this week’s Inbox shows:

    • BLR.com reports on a fascinating case involving Bruce Kirby, former CEO of Frontier Medex.  In a lawsuit in Maryland federal district court, Kirby alleged that he was the beneficiary of a change-in-control severance plan and that Frontier kept him on for over a year solely for the purpose of defeating his severance benefits, even though it told him it was going to terminate him before that.  The court ruled that he was not contractually entitled to severance, but could pursue a claim that Frontier interfered with his benefits, violating ERISA.
    • Retired Ohio Bureau of Workers’ Compensation attorney Joe Sommer is asking the Ohio Supreme Court to review a decision that limited the application of whistleblower protections in that state.  He believes that the Franklin County Court of Appeals overly limited whistleblower claims when it ruled that an employee had to report criminal conduct in order to be protected from retaliation.
    • According to Benefits Pro, the EEOC “slammed” CVS over its severance deals in a lawsuit against the company in Illinois federal court.  The lawsuit alleges that CVS required employees to sign severance agreements with five pages of small print, some of which bargained away the employees’ rights to communicate to agencies about practices that violated the law.  CVS says that nothing in those agreements barred employees from going to the EEOC with complaints.
    • Hook ‘em, Mack!  Former Texas football coach Mack Brown, who resigned after this season, did get some love from his employer, as the San Francisco Chronicle reports that he will receive $2.75 million that he was owed under his contract in event of termination.  He will also get a cushy $500k job this year as special assistant to the president for athletics.
    • John O’Brien of Legal News Line reports that a California appellate court will allow a whistleblower’s claim of retaliation under the False Claims Act to be heard in state court.  Dr. Scott Driscoll, a radiologist, claims that he was fired for complaining that his employer was committing Medicare fraud.  When the employer sued him in state court, Driscoll counterclaimed for FCA violations.  The California court decided that it had jurisdiction to hear the claim, rejecting the employer’s argument that federal courts have exclusive jurisdiction over FCA retaliation claims.
  • | Jason M. Knott

    For those of us who follow whistleblower law, Wednesday was a big day – and a good one for employers.  In two separate federal appellate decisions, courts affirmed the dismissal of whistleblower actions based on very different issues.  For potential whistleblowers and employers alike, the decisions demonstrate yet again the importance of the particular requirements and scope of the law that a whistleblower relies on to support his claim.

    The first decision, Villanueva v. Department of Labor, No. 12-60122 (5th Cir. Feb. 12, 2014), comes to us from the Fifth Circuit. It involves William Villanueva, a Colombian national who worked for a Colombian affiliate of Core Labs, a Netherlands company whose stock is publicly traded in the U.S.  Villanueva claimed that he blew the whistle on a transfer-pricing scheme by his employer to reduce its Colombian tax burden, and that his employer passed him over for a pay raise and fired him in retaliation for his whistleblowing.

  • | Jason M. Knott

    The federal courts are drawing a clear battle line over the disclosures that an employee must make before bringing a whistleblower retaliation claim under the Dodd-Frank Act of 2010.  Leading the charge on the one side is the Fifth Circuit, which held in Asadi v. GE Energy (LLC) that a fired employee can’t bring a Dodd-Frank retaliation claim unless he reported corporate misconduct to the SEC prior to his firing.  On the other side, the SEC and judges in New York, Connecticut, and Tennessee are massing in support of allowing a plaintiff to bring a retaliation claim even if he only disclosed the misconduct internally prior to firing. 

    Two months ago, Judge Richard Stearns of the U.S. District Court for the District of Massachusetts joined the SEC’s side of the battle.  He ruled that Richard Ellington could pursue a Dodd-Frank retaliation claim against his former employer, New England Investment & Retirement Group, Inc. (NEINV), and his boss, Giacoumakis, even though Ellington only reported concerns about wrongdoing to NEINV’s compliance officer prior to his termination, and did not go to the SEC until after he was fired. Ellington v. Giacoumakis, No. 13-11791-RGS (D. Mass. Oct. 16, 2013). 

  • Here at Suits by Suits, we are thankful that the news about executive-employer disputes keeps flowing like gravy.  This past month, we focused a lot of attention on non-compete agreements, many of which met the same fate as an unpardoned turkey.  On a day as cold as chilled cranberry sauce, we sent a live correspondent to cover the oral argument in Lawson v. FMR LLC, in which the Supreme Court will decide whether employees of privately-held contractors of public companies have viable Sarbanes-Oxley claims.  Finally, as per our holiday tradition, we recapped the history of Thanksgiving, in a post as entertaining as the most memorable Cowboys loss.

    If you are interested in more information about legal issues involving executives and their employers, on December 10, 2013, Zuckerman Spaeder LLP partners and Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.”  In the session, Ms. Marcus and Mr. Knott will discuss the basics of these whistleblower and anti-retaliation provisions and address new developments in the law, including the Sarbanes-Oxley case currently pending before the U.S. Supreme Court.  To register, click here

  • | Jason M. Knott

    On December 10, 2013, Suits by Suits contributing editors Ellen D. Marcus and Jason M. Knott will present a live webinar titled “Whistleblower Watch: Big Issues in the Latest Whistleblower Cases Under Dodd-Frank, Sarbanes-Oxley, and the Internal Revenue Code.”  During the webinar, Ms. Marcus and Mr. Knott will discuss the whistleblower and anti-retaliation provisions of the Dodd-Frank and Sarbanes-Oxley Acts, the Internal Revenue Code, and other federal statutes.  Their presentation will address the types of businesses and conduct that can be targeted by whistleblowers, the procedures that whistleblowers must follow to pursue and preserve a claim, the remedies available to whistleblowers, and more.  Ms. Marcus and Mr. Knott will also examine the pressing issues under these laws that are being debated in the courts. This includes contradictory decisions about whether the Sarbanes-Oxley Act’s whistleblower provision covers employees of privately-held companies, such as investment advisers—an issue that is currently before the U.S. Supreme Court in the case of Lawson v. FMR LLC, which we have previously covered in various posts.  To register for the webinar, click here.

  • | Jason M. Knott

    On Tuesday, the Supreme Court heard oral argument in Lawson v. FMR LLCAs we explained in this post, Lawson presents the question of whether Sarbanes-Oxley’s whistleblower anti-retaliation provision (Section 806 of Sarbanes-Oxley, codified at 18 U.S.C. § 1514A) shields employees of privately-held contractors of public companies such as the plaintiffs, who are employees of investment advisers for Fidelity mutual funds.  We editors of Suits by Suits don’t often get the chance to report live on the cases we cover, but an argument at One First Street was too tempting to pass up, even on a blustery Washington day.  Here are five major takeaways that we drew from the argument (with the caveat that reading the tea leaves from an oral argument is always a difficult proposition):

    1.      The Court is uncomfortable with the scope of potential Sarbanes-Oxley claims that would result from the Fidelity employees’ interpretation of the statute.

    A number of Justices pressed Eric Schnapper, who argued for the Fidelity employees, and Nicole Saharsky, arguing for the United States in support of the employees, as to how the Court could limit the reach of the statute if it holds that Sarbanes-Oxley allows employees of private companies to bring whistleblower retaliation claims.  Justice Breyer posed a hypothetical involving an employee of a privately-held gardening company who reports on mail fraud by his employer, is fired, and then brings a whistleblower anti-retaliation claim, arguing that he is covered by Sarbanes-Oxley because his company has gardening contracts with public companies.  Schnapper argued that the statute as written would cover the gardener, but the Justices were less convinced that Congress intended this kind of reach for Sarbanes-Oxley.  Justice Breyer even commented that the fear of expanding the statute to cover “any fraud by any gardener, any cook, anybody that had one employee in the entire United States” was the “strongest argument” against the Fidelity employees’ position.

  • | Jason M. Knott

    Twitter’s founders are cashing in on Wall Street, and journalists are piggybacking on the news with articles like this one, which recaps 10 “surprising superstars” of the social network.  No, Suits by Suits didn’t make the cut, but you can still follow us at @suitsbysuits, where we’ll bring you 140-word tweets about news related to executive-employer disputes.  These are the kinds of stories we track:

    • The Texas Supreme Court heard argument this week in Exxon Mobil’s dispute with former executive William Drennen.  Jeremy Heallen of Law360 (subscription required), wrote that after Drennen retired from Exxon (@exxonmobil) and went to work for competitor Hess, Exxon claimed that he had forfeited his restricted stock under a “detrimental-activity provision” in his incentive plan.  Exxon is seeking reversal of the lower court’s holding that the forfeiture violated Texas law, which disfavors “unreasonable” noncompetition agreements.
    • AIG has settled a $274 million dispute with former real estate executive Kevin Fitzpatrick, reported (@nateraymond) Nate Raymond of Reuters.  The terms are confidential, but Fitzpatrick’s lawyer says that he is “very happy.”  Given the potential dollar amounts between $0 and $274 million, it’s easy to guess why.
    • Rachel Louise Ensign of the Wall Street Journal (@RachelEnsignWSJ) (subscription required) covered a developing trend this week: more whistleblowers are coming from corporate compliance departments.  As one example, Ensign described Meng-Lin Liu’s case against Siemens AG, which we covered here.  The possibility of lucrative awards under the Dodd-Frank Act’s whistleblower program may be sparking the trend, although as Ensign points out, compliance officers are subject to additional restrictions under that program.
    • In other whistleblower news, the Senate approved a bill to prohibit companies from retaliating against whistleblowers who report violations of the antitrust laws.  Jennifer Koons of Main Justice (@jenkoons) said that the bill passed with bipartisan support.  “Bipartisan” – does anyone still remember that concept?
    • Newscaster Larry Conners is still trying to get back on television, despite a prior ruling that his noncompete agreement prohibited him from working for other TV stations in the St. Louis market for a year.  Conners’s attorney asked the judge to modify that ruling, which restricted Conners to radio work, wrote (@STLSherpa) Joe Holloman of the St. Louis Times-Dispatch.  We’ve previously examined Conners’s case here and here.
  • | Jason M. Knott

    On Tuesday, November 12, the Supreme Court will hear argument in the most-watched case of this Term (at least for those of us who edit this blog).  The case, Lawson v. FMR LLC, presents the question of whether an employee of a privately-held contractor of a public company can bring a whistleblower retaliation claim against his or her employer under the Sarbanes-Oxley Act of 2002.  The plaintiffs in the case, and the parties who have appealed to the Supreme Court, are Jackie Lawson and Jonathan Zang. 

    In their lawsuit, Lawson and Zang claim that their employers – a group of privately-owned Fidelity subsidiaries that serve as “investment advisers” to publicly-held Fidelity mutual funds – retaliated against them for raising concerns about fraud.  Here’s a handy chart from Fidelity’s brief that illustrates the relationship between the parties:

     

    The First Circuit dismissed Lawson and Zang's claims, holding that Sarbanes-Oxley’s anti-retaliation provision only protects employees of public companies.  Because Lawson and Zang worked on the blue side of the chart, and not the yellow side, they couldn’t bring a claim for retaliation.  (The mutual funds on the yellow side have no employees; they do their business through their contractors on the blue side.)

    What do Lawson and Zang argue?

    The parties spend a lot of time parsing the language of the Sarbanes-Oxley anti-retaliation provision (18 U.S.C. § 1514A).  In their opening and reply briefs, Lawson and Zang argue that the plain text of the law shows that Congress intended to shield employees of contractors of public companies from retaliation for reporting corporate misconduct.  If Congress didn’t mean to protect those employees, they say, it wouldn’t have prohibited retaliation by “any officer, employee, contractor, subcontractor, or agent” of “such [public] company.”  Under Fidelity’s reading of this provision, the language about contractors would only come into play if a contractor retaliated against a public company employee, and because that doesn’t happen in the real world, the use of the term “contractor [or] subcontractor” would be meaningless.

  • | Jason M. Knott

    The Dodd-Frank and Sarbanes-Oxley whistleblower laws are hot topics right now.  A split of authority is developing in the federal courts over how an employee can qualify as a whistleblower and bring a retaliation claim under Dodd-Frank.  And the Supreme Court will hear argument next Tuesday in a case, Lawson v. FMR LLC, that will require it to decide whether private employers can be subject to Sarbanes-Oxley retaliation claims by their employees.

    As we at Suits by Suits continue to watch these issues, we thought it would be helpful to step back for a broader view of these important whistleblower laws.  In the table linked here, we have summarized the important facets of each law.  This table will serve as a reference point for new developments, placing them in the broader context of these whistleblower protections.  

     

We cover a broad range of issues that arise in employment disputes. Occasionally, we also spotlight other topics of relevant legal interest, ranging from health care to white-collar defense to sports, just to keep things interesting.

Led by Jason Knott and Andrew Goldfarb, and featuring attorneys with deep knowledge and expertise in their fields, Suits by Suits seeks to engage its readers on these relevant and often complicated topics. Comments and special requests are welcome and invited. Before reading, please view the disclaimer.

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Jason M. Knott
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Andrew N. Goldfarb
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