Recent Developments inWhistleblower Law

Jason ZuckermanZuckerman LawWashington, DC

jzuckerman@zuckermanlaw.com(202) 262-8959

https://www.zuckermanlaw.com

Jury Verdicts

Jury Verdicts

• No cap on compensatory damages in SOX and FCA retaliation cases

• Recent jury verdicts in SOX cases:– $6M Zulfer v. Playboy Enterprises Inc., JVR No.

1405010041, 2014 WL 1891246 (C.D.Cal. 2014) – $2.2M in damages and $2.4M in fees Van Asdale v.

Int'l Game Tech., 549 F. App'x 611, 614 (9th Cir. 2013)– $1.6M in compensatory damages in Perez v.

Progenics Pharmaceuticals (S.D.N.Y. 2015)

Sarbanes-Oxley Protected Conduct

SOX Protected Conduct• Sylvester v. Parexel Int’l, WL 2165854 (ARB May 25, 2011)

– Disclosure of potential violation protected– A complaint need not allege shareholder fraud to receive SOX’s

protection– Reasonable belief standard does not require complainants to

have told management or the authorities why their beliefs are reasonable

– SOX complainants no longer need to show that their disclosures “definitively and specifically” relate to the relevant laws

– SOX complainants need not establish criminal fraud

Sarbanes-Oxley Protected Conduct

• Federal courts adopting Sylvester– Nielsen v. AECOM Tech. Corp., No. 13-235-cv (2d

Cir. 2014)– Weist v. Lynch, 710 F.3d 121 (3rd Cir. 2013)– Villanueva v. U.S. Dep’t of Labor, 743 F.3d 103, 109

(5th Cir. 2014)– Rhinehimer v. U.S. Bancorp Investments, Inc., No.

13-6641 (6th Cir. 2015)

Sarbanes-Oxley Protected Conduct

Wallace v. Tesoro Corp., No. 13-51010 (5th Cir. 7-31-2015)• “[P]roviding information about potential fraud

or assisting in a nascent fraud investigation” is protected even though the complainant “might not know who is making the false representations or what that person is obtaining by the fraud”

Dodd-Frank Whistleblower Protection

Dodd-Frank Whistleblower Protection

• Protected activity if:

• Provided information to the SEC ;

• Initiating, testifying in, or assisting in SEC investigation; or

• Disclosing information required or protected by SOX, the 1934 Act, and any other law, rule, or regulation subject to the jurisdiction of the SEC.

Dodd-Frank Whistleblower Protection

• Does it cover internal whistleblowing?– Second Circuit says yes in Berman– Fifth Circuit says no in Asadi– Most district courts say yes– SEC Interpretive Guidance says yes. See

Release No. 34-75592 (Aug. 4, 2015). • SEC is enforcing anti-retaliation provision of

Dodd-Frank

SOX or Dodd-Frank?

Distinctions Between Section 806 of SOX and Section 929A of Dodd-Frank

Key Factors in AssessingPotential Claims

• Damages• Scope of protected whistleblowing• Causation standard

– “Contributing factor” versus “but for” causation• Administrative Exhaustion and Forum• Preliminary Reinstatement• Statute of Limitations• Claim splitting and collateral estoppel

SEC Enforcement of Dodd-FrankAnti-Gag Provision

SEC Enforcement of Dodd-FrankAnti-Gag Provision

• Rule 21F-17(a) under the Exchange Act provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.”

SEC Enforcement of Dodd-FrankAnti-Gag Provision

• April 2015 administrative action against KBR. See Exchange Act Release No. 74619 (April 1, 2015).

• No evidence that agreement prevented a KBR employee from communicating directly with SEC

• $130,000 penalty• Companies are amending confidentiality policies

and agreements

SEC Enforcement of Dodd-FrankAnti-Gag Provision

• Increased scrutiny of gag clauses in settlement agreements and confidentiality policies at other federal agencies:–OSHA–NLRB –EEOC

Ask Questions BeforeAccepting Documents

• State v. Saavedra, N.J. No. A-68-13 (June 23, 2015)

• Factors to consider• Are documents being retained to

make a disclosure to a government agency or instead for a retal claim?

• Are the documents relevant?• Is any of the material privileged?• Were the documents acquired

unlawfully?• Did the employee obtain the

documents in the course of performing ordinary job duties?

Broad Scope of Adverse Actions

Halliburton v. Admin. Review Bd• Merely “outing” a whistleblower is an adverse action under

SOX. Halliburton, Inc. v. Admin. Review Bd., 771 F.3d 254, 259 (5th Cir. 2014).

• “[The] targeted creation of an environment in which the whistleblower is ostracized is . . . in effect, a potential deprivation of opportunities for future advancement.”

• Whistleblower need not demonstrate the existence of a retaliatory motive

Protection for Employees of Government Contractors and Grantees

– False Claims Act, 31 §USC 3730(h)– NDAA, 41 U.S. Code § 4712 and 10 U.S. Code §

2409

FCA Protected Conduct• Broader scope of protected conduct post-2009 FCA amendments

• Protects actions in furtherance of a qui tam action and “other efforts to stop 1 or more violations of [the FCA]”

• Young v. CHS Middle E., LLC, 2015 WL 3396790 (4th Cir. May 27, 2015)– protect[s] employees while they are collecting information about a

possible fraud, before they have put all the pieces of the puzzle together

• Need not prove actual FCA violation

• Higher burden for “duty speech” claims

NDAA Protected Conduct

• Covers employees of nearly all government contractors

• Excludes contractors of Intelligence agencies

• Broad scope of protected conduct

• Violation of law, rule, or regulation relating to federal contracts, including competition for or negotiation of a contract;

• Gross mismanagement, gross waste of federal funds, abuse of authority; or

• Substantial and specific danger to public health or safety

Distinctions Between FCA and NDAA