Regular readers of Suits by Suits know that employees – including executive-level employees with lucrative employment contracts and low-level employees who are at-will and have no contract – may claim wrongful termination against their former employers if the employees were fired in violation of “public policy.” Recently, the former Executive Vice President of Louisiana College, Timothy Johnson – who had an employment contract with the College – filed a lawsuit alleging that the College retaliated against him after he raised concerns that the College’s President misdirected the contributions of a large donor to a project in Tanzania. A link to Johnson’s complaint is in this recent report about the lawsuit. A photo taken in the Serengeti National Park in Tanzania is above.
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.
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:
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.
Ah, the smells of the holiday season: fresh-cut evergreen trees, just-baked cookies and other goodies, bowls of tasty fruit punch. Take a deep whiff wherever you are. Breathe it in deep.
But be careful about sniffing those smells, though.
That is the apparent lesson from the Fifth Circuit Court of Appeals’ decision in Tonia Royal’s retaliation lawsuit against her employer, an apartment management company named CCC&R Tres Arboles. The appellate court held that the trial court incorrectly gave the apartment company summary judgment, because too many material facts about the basis for Ms. Royal’s firing were in dispute. And many of those facts relate to the behavior of other CCC&R employees, who Ms. Royal alleged sexually harassed her by sniffing her in a rather curious and uncomfortable manner.
On Tuesday, the Supreme Court heard oral argument in Lawson v. FMR LLC. As 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.
The federal government is closed, but the Suits by Suits news continues to roll in:
A Baltimore police officer claimed she was fired because she got married. The police department agreed. The problem was that the officer married Carlito Cabana, an incarcerated murderer and the “supreme commander” of a prison gang called Dead Man, Inc. The question presented was whether the police department’s action violated the officer’s “constitutional right to marry and to engage in intimate association.” The Maryland courts didn’t think much of that claim, see Cross v. Baltimore City Police Dep’t, and it does seem as though the police department had a point.
But what about Mr. Cabana? Surely Cabana’s “employer,” nominally a private corporation, could not have been pleased with his choice of spouse, either. (Let’s ignore Dead Man’s failure to register to do business in Maryland.) Could the Dead Man board have fired Cabana for marrying a cop? Could a legitimate private employer (like the Coca-Cola Co.) have fired an executive for marrying an employee of its mortal adversary (like PepsiCo)?
As we’ve covered here and here, the Supreme Court will decide this term whether a whistleblower can pursue a Sarbanes-Oxley claim for retaliation by a privately-owned employer. Jackie Lawson and Jonathan Zang, former employees of Fidelity investment advisory companies, say yes. The First Circuit said no.
Lawson and Zang have now filed their opening brief in their attempt to persuade the Supreme Court to disagree with the First Circuit and reinstate their claim. And they have even included a non-gratuitous George Clooney reference. (Hat tip to scotusblog.com for making this and numerous other Supreme Court resources available.)
Lawson and Zang’s argument involves the interpretation of 18 U.S.C. § 1514A, the provision of Sarbanes-Oxley that allows whistleblower claims. They argue that the plain language of Section 1514A applies to protect not only employees of publicly traded companies and mutual funds, but also employees of contractors of those companies, such as the Fidelity investment advisers at issue in their case. The statute bars contractors from retaliating against an “employee”: Lawson and Zang contend that this should be read to refer to those contractors’ “own employees,” in addition to the employees of public companies with whom the contractors work. Br. at 15. They argue that it wouldn’t make any sense to only prohibit retaliation by contractors against others’ employees, since it would be very difficult, if not impossible, for a contractor to terminate someone else’s employee. Br. at 22.
In federal courts across the country, employers have sought to limit the Dodd-Frank Act’s definition of “whistleblower.” Just last week, this challenge seemed futile. Both the SEC (in its regulations) and a number of federal district courts had rejected employers’ reading of the statute, under which the “whistleblower” term – and the accompanying right of action for retaliation – would be limited to those employees who reported misconduct to the SEC.
Last Wednesday, the Fifth Circuit flipped the script, holding that “the plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC.” Asadi v. GE Energy (USA), L.L.C., No. 12-20522 (5th Cir. Jul. 17, 2013), slip op. at 5.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.
John J. Connolly
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