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.
Schwabe Ordered to Reinstate SOX Whistleblowers
October 30, 2008 | Leave a Comment
OSHA has ordered The Charles Schwab Corp. to reinstate and pay back pay and damages to two employees who were fired in violation of the whistleblower provision of the Sarbanes-Oxley Act of 2002. The whistleblower complaint was filed with the Occupational Safety and Health Administration (OSHA) on June 15, 2007, naming The Charles Schwab Corp., Charles Schwab & Co. Inc., Charles Schwab Bank and three individuals as defendants. The complaint alleged that the two employees were terminated because they objected to and refused to participate in a scheme at a branch office to falsify entries in Schwab’s database system. An investigation conducted by OSHA’s Whistleblower Protection Program determined that there was merit to the allegations.“This case sends a clear message that OSHA will not tolerate retaliation against corporate whistleblowers,” said Robert Kulick, OSHA’s regional administrator in New York.
The order issued by OSHA awards the two employees reinstatement to their former positions, back pay, interest, compensatory damages, attorneys’ fees and other relief. Either party to the case can file an appeal to the Labor Department’s Office of Administrative Law Judges, but such an appeal does not stay the preliminary reinstatement order.
The Fourth Circuit Rejects ReInstatement for First Sox Whistleblower
August 12, 2008 | Leave a Comment
The first claimant to win a Sox Whistleblower case suffered another setback in a federal appeals court last week. The 4th U.S. Circuit Court of Appeals refused to reinstate David Welch to his job, ruling that he failed to explain how his employer’s alleged shoddy accounting practices could be considered a violation of federal law. Welch was dismissed as chief financial officer of Cardinal Bankshares Corp. in 2002 after reporting what he said were misclassifications in financial reports that essentially overstated the bank’s earnings by $195,000. Cardinal is the holding company for a bank in southwestern Virginia.
In the case, styled Welch v. Chao, Judge Diana Gribbon Motz wrote that a SOX whistleblower doesn’t have to cite code sections to make out a claim, but he has to identify the specific conduct he “reasonably believes” is illegal. Judge Motz wrote that communications about misclassifications in financial statements could form the basis of a SOX whistleblower claim, but that Welch’s SOX claim failed because his citation of accounting treatises and later-passed laws and regulations could not show how the bank’s accounting practices reasonably could have been perceived as a violation of federal securities laws.
French Subsidiary May Have Exposure for Retaliation Under Sarbanes-Oxley
April 7, 2008 | Leave a Comment
O’Mahony v. Accenture
Earlier this year, a New York Federal Judge found that a former senior employee of a global consulting firm who was stationed in Paris can sue for damages under the whistleblower protection provision of Sarbanes-Oxley. Rosemary O’Mahony, a British citizen who worked for Accenture in France for 14 years, claimed the company demoted her after she accused it of withholding more than $3 million it owed in French social security payments. The Southern District of New York Judge rejected a motion to dismiss by co-defendants Accenture, which is based in Bermuda, and itsU.S. subsidiary. The co-defendants argued that the provision of Sarbanes-Oxley did not cover employees outside theUnited States. The Court determined that because the alleged “wrongful conduct and other material acts occurred in the United States … the exercise of jurisdiction by this Court to resolve the dispute before it would not implicate extraterritorial application of American law.” This appears to be the first case that applies Sarbanes-Oxley whistleblower protections to an employee working overseas.
The Plaintiff in the case, O’Mahony, was a partner at Accenture’s U.S. subsidiary from 1984 through Aug. 31, 2004, and a partner and employee of its French subsidiary from Sept. 1, 2004, to Oct. 31, 2006. Around September 1992, she left the United States to establish and head a new office for Accenture in France. She worked in France part time for a year, but in September 1993 her assignment was made full time.Accenture’s U.S. subsidiary received a certificate of coverage exempting it from making contributions to the French social security system for five years. But since she worked in Paris for more than five years, O’Mahony claimed that Accenture was obligated to make payments to the system. O’Mahony alleged in her complaint that her former employer owed the French government “in an amount equal to approximately 36 percent of Ms. O’Mahony’s total compensation for the period September 1997 through September 1, 2004. She said that she earned $10.4 million during that period, making the amount owed to the French $3.7 million. O’Mahony said that she notified American executives about the problem, but in September 2004 Accenture’s global financial controller in New York told her that the company had decided that its “‘interests’ would be better served by not making any of the French social security contributions and continuing to affirmatively conceal from the French authorities the fact that [O’Mahony] had been working in France since 1992. O’Mahony responded that she could not violate the law, and brought the matter to the attention to the French authorities. She claimed that Accenture responded by demoting her in November 2004 and reducing her salary by $670,000.