Image of Sarbanes-Oxley Case Clarifies the Burden for Pleading Knowledge of Protected Whistleblowing

Sarbanes-Oxley Case Clarifies the Burden for Pleading Knowledge of Protected Whistleblowing

Westawski SOX Action

A recent Pennsylvania district court decisionWestawski v. Merck & Co., Inc clarifies that “when a plaintiff files a complaint alleging a SOX violation against the corporation itself, if she alleges facts that she engaged in protected activity directly to, at the very least, supervisors, oversight committees, or the corporation itself, she satisfies [the scienter] element for the purposes of withstanding a motion to dismiss.”

Plaintiff Joni Westawski began working for Defendant Merck in 2001, earned several promotions, and by 2009 she was in a management-track position as a market research analyst in Merck’s managed care corporate headquarters. In 2009, Westawski’s supervisor put her in charge of a new study, but Westawski began to have concerns that the study involved violations of both Merck internal policies as well as federal law.

Westawski alerted various Merck employees that throughout the study:

  • Merck contracting practices were not being followed;
  • the number of study subjects was too small compared to the amount of money Merck was spending on the study and that the “cost per interview” was too high;
  • the study was running behind schedule, ultimately by five months;
  • she believed Merck was making inappropriate payments to an outside contractor.

Westawski alleged that she brought her concerns to her own supervisor, her supervisor’s supervisor, individuals in Merck’s business practice and compliance department, human resources personnel, the company ombudsman, and two company vice presidents.

Three years after Westawski took over the study, Merck informed her that it was reorganizing her department and that her position was being eliminated. The next day she received an email with a new organizational chart and discovered that her position had not been eliminated; she had merely been replaced.

Proving Knowledge of Protected Conduct

The Westawski court drew an important distinction between the allegations a plaintiff must make when naming individual plaintiffs as compared to when the plaintiff names the corporation itself as a defendant.

To state a claim for SOX retaliation, a plaintiff must allege, among other things, that “[t]he respondent knew or suspected that the employee engaged in the protected activity”. Wiest v. Lynch, 710 F.3d 121, 131 (3d Cir. 2013) (quoting 29 C.F.R. § 1980.104(e)(2)(i)–(iv)). Merck moved to dismiss Westawski’s SOX retaliation claim by arguing that she failed to meet this scienter element because she failed to allege that her supervisors were aware of her alleged protected activity.

The Court disagreed with Merck, noting that by its count Westawski had complained directly to at least eight Merck employees.  Relying on the Third Circuit’s opinion in Wiest, the Westawski court held that “while a plaintiff cannot bring a SOX complaint against individual defendants if she cannot allege facts with reasonable particularity to the effect that the named individual defendant knew that she had engaged in protected activity,” Westawski had not brought suit against the individual Merck employees to whom she had made her protected disclosures, but sued the company itself. The Court opined:

As Merck is the only named Defendant in this case, Merck is the only ‘person’ Plaintiff must allege ‘knew or suspected that [she] engaged in the protected activity’ for the purposes of defeating this Motion. Considering the number of Merck employees who were made aware of the Plaintiff’s concerns by the Plaintiff herself, it simply cannot be said at this stage in the proceedings that Merck the corporation, the only defendant, was unaware of the Plaintiff’s protected activity, and the Court will not hold otherwise.

To support this assertion, the Court cites to a variety of authority, including:

  • Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1002-03 (9th Cir. 2009) (stating that one meeting with individuals who had undisputed “supervisory authority” over the plaintiffs suggesting a potential fraud on the shareholders sufficed to satisfy this element);
  • Stewart v. Doral Fin. Corp., 997 F. Supp. 2d 129, 138 (D.P.R. 2014) (denying motion to dismiss plaintiff’s Sarbanes-Oxley whistleblower protection claims where a single letter sent by the plaintiff to the chairman of the defendant corporation’s audit committee, standing alone, satisfied the second prong and “sufficed to show that the [defendant corporation] knew that [p]laintiff was engaging in protected activity”);
  • Johnson v. U.S. Bancorp, No. 11 Civ. 2010, 2012 WL 6615507, at *3 (W.D. Wash. Dec. 18, 2012) (holding that the allegation in the complaint that the defendant corporation knew of the protected activity was evidenced by a letter from OSHA regarding its intent to enter findings favorable to the plaintiff; defendants argued that the plaintiff’s complaint was “missing . . . basic allegations detailing . . . the individuals involved, whether those individuals knew of the [plaintiff’s] DOL SOX complaint, or when the communications occurred,” and stating that “such detail is not required at this stage of the proceedings, [as] Rule 8(a) ‘simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence’ to support the allegations” (internal citations omitted);
  • Guitron v. Wells Fargo Bank, N.A., Civ. 10 No. 3461, 2012 WL 2708517, at *2-3, *15 (N.D. Cal. July 6, 2012) (complaints to supervisors were considered sufficient evidence).

Experienced Sarbanes-Oxley Whistleblower Protection Lawyers

The whistleblower lawyers at Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims.  Click here to read client testimonials about the firm’s work in SOX whistleblower and other employment-related litigation.  For a free consultation, click here or call us at 202-262-8959.

Guide to SOX Corporate 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.

SOX whistleblower protection

The SOX whistleblower guide addresses the following topics:

WHISTLEBLOWERS PROTECTED BY THE SARBANES-OXLEY ACT

  • Who is protected under SOX’s whistleblower-protection provision

ELEMENTS OF A SOX WHISTLEBLOWER RETALIATION CLAIM

  • Can a whistleblower sue an individual under SOX?

PROTECTED WHISTLEBLOWING

  • Is a SOX whistleblower required to prove shareholder fraud?
  • Does SOX protect whistleblowing about potential violations of federal securities laws?
  • Are SOX whistleblowers required to show that their disclosures relate “definitively and specifically” to a federal securities law?
  • Does SOX-protected conduct require a showing of materiality?
  • What are some types of proof to show that a disclosure is objectively reasonable?
  • Are disclosures made in the course of performing one’s job duties protected?
  • Is a whistleblower’s motive for engaging in protected activity relevant in a whistleblower-protection case?
  • Does SOX protect disclosures about fraud on the government or gross mismanagement of a federal contract or grant?
  • Are disclosures about consumer financial fraud protected under SOX?
  • Is there some variation in how courts interpret the scope of SOX protected whistleblowing?

KNOWLEDGE OF PROTECTED CONDUCT

  • Must a whistleblower prove that the individual who made the final decision to take the adverse action has personal knowledge of the whistleblower’s protected activity?

PROHIBITED WHISTLEBLOWER RETALIATION UNDER SOX

  • What acts of retaliation are prohibited by the SOX whistleblower-protection provision?
  • Is constructive discharge a prohibited act of retaliation under SOX?
  • Does SOX prohibit employers from “outing” confidential whistleblowers?
  • Does SOX prohibit post-termination retaliation?
  • Is retaliation that occurred outside of the statute-of-limitations period relevant evidence of retaliation?

PROVING SOX WHISTLEBLOWER RETALIATION (CAUSATION)

  • What is a whistleblower’s burden to prove retaliation under SOX?
  • In a mixed-motive case (where there is evidence of both a lawful and unlawful motive for the adverse action), does the evidence of a legitimate justification for the adverse action negate the whistleblower’s evidence that whistleblowing partially influenced the decision to take the adverse action?
  • Is a SOX whistleblower required to prove that the employer’s justification for the adverse action is false (otherwise known as pretext)?
  • Is a SOX whistleblower required to prove that the employer had a retaliatory motive?
  • Is close temporal proximity sufficient to establish causation?
  • Does subjecting an employee to heightened scrutiny evidence retaliation?

EMPLOYER AFFIRMATIVE DEFENSE

  • What is the employer’s evidentiary burden in a SOX whistleblower-retaliation case?

DAMAGES

  • What damages can a whistleblower recover under SOX?
  • If reinstatement is not feasible, can a judge award front pay in lieu of reinstatement?
  • Does SOX authorize an award of punitive damages?

LITIGATING SOX WHISTLEBLOWER CLAIMS

  • Who administers the whistleblower-protection provision of SOX?
  • What is the statute of limitations for a SOX whistleblower-retaliation case?
  • What level of detail is required in a SOX complaint?
  • Where can a whistleblower file a SOX retaliation complaint?
  • Do mandatory arbitration agreements encompass SOX whistleblower claims?
  • Can OSHA order reinstatement of a SOX whistleblower?
  • Where are SOX whistleblower cases litigated?
  • How can a SOX whistleblower appeal an ALJ’s decision?
  • If a SOX whistleblower prevails before the ALJ, can they appeal part of the ALJ’s decision?
  • Where can a SOX whistleblower appeal an ARB decision?
  • Can a SOX whistleblower bring a retaliation case in federal court?
  • Is there a time limit for filing a SOX complaint in federal court after removing the claim from the Department of Labor?
  • Does the SOX Act authorize jury trials?
  • What is the scope of discovery in a SOX whistleblower case?
  • Do formal rules of evidence apply in SOX whistleblower trials at the Department of Labor?
  • Does Section 806 of SOX preempt other claims or remedies?

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Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.