Fourth Circuit Confirms that Billing Irregularities Not Enough for SOX Whistleblower Protection
December 17, 2008 | Leave a Comment
The Fourth Circuit Federal Court ruled that an employee who was fired after reporting alleged billing irregularities is not protected by the whistleblower provisions of the Sarbanes-Oxley Act of 2002 (“SOX”).
Plaintiff Stacy Platone began working as the manager of labor relations for Atlantic Coast Airlines (“ACA”) in 2002. Previously, she had worked for the Airline Pilots Association (“Union”). Soon after she began at ACA, Ms. Platone learned that the pilots’ union had not made required reimbursements to ACA when pilots missed flights to attend Union meetings. Under the airline’s flight-loss process, the Union must “reimburse[] the airline when its pilots had to miss flights to attend union meetings.” Ms. Platone also discovered that pilots had intentionally scheduled flights for times when there were mandatory union meetings but the pilots were not originally scheduled to work. Thus, the pilots were paid by ACA for days on which they were originally scheduled days off.
Ms. Platone notified a Union official of the reimbursement discrepancy, and the official assured Ms. Platone’s supervisor that the Union would reimburse ACA for the flight loss. Unsatisfied with the Union’s response, Ms. Platone drafted a letter for her supervisor to send to the union, demanding reimbursement. He refused to send it.
Ms. Platone subsequently met with ACA’s Director of Employment Services to discuss the issue. Notes from that meeting do not indicate that Ms. Platone made any allegation of fraudulent activity. Soon after, Ms. Platone was suspended without pay and, ultimately, terminated. ACA’s apparent reason for the termination was her relationship with an ACA pilot.
Ms. Platone filed a Sarbanes-Oxley whistleblower action with the Occupational Safety and Health Administration (“OSHA”), the agency charged with investigating SOX complaints, alleging that ACA, by not demanding reimbursement from the Union, was transferring money to Union officials in hopes of obtaining bargaining concessions. OSHA found that the plaintiff’s complaints to her supervisors did not constitute “protected activity” under SOX’s whistleblower provisions.
Ms. Platone appealed and requested a hearing before a DOL Administrative Law Judge (“ALJ”). The ALJ ruled in the plaintiff’s favor, concluding that her suspicions of fraud were reasonable, and ACA appealed the ALJ’s decision to the DOL’s Administrative Review Board (“ARB”).
The ARB disagreed with the ALJ. According to the ARB, the plaintiff did not allege mail or wire fraud related to conduct “adverse to investors’ interests,” as required by SOX. The ARB also held that her allegations did not specifically relate to the statutory categories of fraud or securities violations set forth in SOX. The plaintiff appealed to the United States Court of Appeals for the Fourth Circuit. And the Court agreed with the ARB.
“It is true that [Platone] alerted ACA management to a billing discrepancy,” Judge Roger L. Gregory wrote on behalf of the Court, “[y]et, a billing discrepancy, without more, does not equal fraud, and Platone failed to identify to ACA why she believed the actions related to the discrepancies would violate securities laws and constitute a fraud.” Thus, the plaintiff did not engage in protected activity under the whistleblower provisions of SOX, the Court concluded.
Judge Gregory emphasized that Platone does not alter the burdens of proof or persuasion for SOX whistleblower actions. “We hold only that a complainant must alert management to more than the fact that the company’s near-term profits were affected by billing discrepancies in order to meet the standard of definitively and specifically alleging mail or wire fraud,” the Court said.