Law 360 Quotes Whistleblower Attorney Jason Zuckerman About Fifth Circuit Sarbanes-Oxley Whistleblower Decision

In a story titled “Both Sides Claim Victory In 5th Circuit SOX Row,” Law 360 reports about the Fifth Circuit’s decision in Villanueva v. U.S. Dep’t of Labor holding that a disclosure about a scheme to violate Colombian tax law does not constitute protected conduct under Section 806 of the Sarbanes-Oxley Act. The article describes how management side lawyers consider it a big win and plaintiff-side lawyers view it as helpful to Sarbanes-Oxley plaintiffs in that it embraces whistleblower-friendly precedent on the scope of protected conduct.

The article states:

The Fifth Circuit said it agreed the Parexel ruling’s conclusion that SOX’s whistleblower protections’ “critical focus” was on whether a worker reported conduct that he or she reasonably believed amounted to a violation of federal law.
The appeals court also drew from the Welch ruling for the proposition that an employee doesn’t have to cite a “code section” that he or she believed to have been violated, but must identify the “specific conduct” that’s believed to be illegal.
While the Villanueva decision might look like [a] win for the defense bar at first glance, the fact that it adopted those holdings makes it helpful for SOX plaintiffs, said Jason Zuckerman of Zuckerman Law.

“This is a major step forward compared to prior Fifth Circuit rulings on the scope of protected conduct under SOX. The current ARB’s seminal Sylvester decision has now been adopted by several circuits, which significantly reduces the likelihood that the business community will be able to get this issue before the Supreme Court,” Zuckerman said.

The defense bar has been trying to convince federal courts not to apply the ARB’s Sylvester decision and has failed, Zuckerman said.

Zuckerman’s comments to Law360 about Villanueva stem from the following passage, which appears to signal an important shift in Fifth Circuit precedent on the scope of Sarbanes-Oxley protected conduct:

We agree with the Board that § 806’s ‘critical focus is on whether the employee reported conduct that he or she reasonably believes constituted a violation of federal law.’ Sylvester v. Parexel Int’l LLC, ARB No. 07-123, 2011 WL 2165854, at *15 (ARB Page 11 May 25, 2011) (first emphasis added). Admittedly, “[a]n employee need not cite a code section he believes was violated in his communications to his employer, but the employee’s communications must identify the specific conduct that the employee believes to be illegal.” Welch v. Chao, 536 F.3d 269, 276 (4th Cir. 2008) (internal quotation marks omitted).

Villanueva represents a seminal shift in that it adopts the ARB’s Sylvester v. Parexel Int’l decision broadly construing SOX protected conduct, thereby at least implicitly abandoning its prior ruling in Allen v. Admin. Review Bd., 514 F.3d 468 (5th Cir. 2008), which created several barriers for SOX complainants that are contrary to the plain meaning and intent of the statute. Allen essentially required SOX whistleblowers to show that their alleged protected disclosures cite a specific securities law chapter and verse, and imposed an onerous burden of objective reasonableness that limited SOX whistlebower protection to securities law experts. Contrary to the text of Section 806 requiring only a “reasonable belief” that a company is violating one of the enumerated fraud provisions in Section 806, Allen essentially requires that the whistleblower disclose an actual violation.

In Sylvester v. Parexel Int’l LLC, the ARB specifically criticized Allen for imposing a requirement on whistleblowers to show that the activity or conduct for which protection is claimed “definitively and specifically” relates to one or more of the enumerated fraud provisions in Section 806, a standard that emerged from the prior ARB’s Platone decision. Parexel expressly rejects the Platone “definitively and specifically” standard as “an inappropriate test” that is contrary to the plain meaning of Section 806. By citing favorably to Parexel, the Fifth Circuit is signaling that it no longer applies Platone.

In addition, Villanueva’s deference to the ARB’s decision in Parexel signals that the Fifth Circuit is adopting other critical holdings in Parexel, including the following:

SOX protected conduct is not limited to disclosures about shareholder fraud and instead encompasses disclosures about mail fraud, wire fraud and bank fraud. And a disclosure about a violation of “any rule or regulation of the Securities and Exchange Commission” (one of the enumerated categories of protected conduct) can encompass a situation in which the violation is devoid of fraud, such as an internal control deficiency.
The Twombly/Iqbal pleading standards do not apply to SOX claims filed with OSHA.
Protected activity need not describe an actual violation of law. A disclosure concerning a violation about to be committed is protected as long as the employee reasonably believes that the violation is likely to happen.
A SOX complainant need not establish the various elements of criminal fraud to prevail on a Section 806 complaint.

The Fifth Circuit is generally not a favorable forum for employees in discrimination and whistleblower lawsuits, but Villanueva portends that the Fifth Circuit could become a better forum for SOX whistleblowers now that its prior Allen decision no longer defines the scope of SOX protected conduct.

Guide to Sarbanes Oxley Whistleblower Protection Law

The whistleblower protection provision of the Sarbanes-Oxley Act provides robust protection to corporate whistleblowers, and indeed some SOX whistleblowers have achieved substantial recoveries.

On the fifteenth anniversary of SOX, leading whistleblower law firm Zuckerman Law released a free guide to the SOX whistleblower protection law: “Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.” The guide summarizes SOX whistleblower protections and offers concrete tips for corporate whistleblowers based on lessons learned during years of litigating SOX whistleblower cases.

The goal of the guide is to arm corporate whistleblowers with the knowledge to effectively combat whistleblower retaliation, avoid the pitfalls that can weaken a SOX whistleblower case, and formulate an effective strategy to obtain the maximum recovery.

Leading Sarbanes-Oxley (SOX) Whistleblower Attorneys

The whistleblower lawyers at leading whistleblower firm Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims and have achieved substantial recoveries for officers, executives, accountants, auditors, and other senior professionals. To learn more about corporate whistleblower protections, see our Sarbanes-Oxley Whistleblower Protection FAQ. Click here to read client testimonials about the firm’s work in SOX whistleblower matters and other employment-related litigation.

See our column in Forbes: One Billion Reasons Why The SEC Whistleblower-Reward Program Is Effective.
See our column in Going Concern: Sarbanes-Oxley 15 Years Later: Accountants Need to Speak Up Now More Than Ever.
See our post in Accounting Today: Whistleblower Protections and Incentives for Auditors and Accountants.

To schedule a free preliminary consultation, click here or call us at 202-262-8959.

Leading whistleblower law firm Zuckerman Law has written extensively about whistleblower protections and is quoted frequently in the media on this topic. A sample of those blog posts and articles appears below: