On May 28, 2015, the Sixth Circuit in Rhinehimer v. U.S. Bancorp Investments, Inc. affirmed a $250,000 jury verdict in favor of a former financial advisor for U.S. Bancorp Investments (“USBII”) who alleged that he had been terminated in violation of the Sarbanes-Oxley Act (“SOX”) whistleblower provisions. In doing so, the Sixth Circuit rejected the “definitively and specifically” standard for proving protected activity under SOX and abrogated its prior SOX decision in Riddle v. First Tennessee Bank Nat’l Assoc., 497 F. App’x 588 (6th Cir. 2012) to the extent it relied upon the standard.
Renee B. Phillips
Renee Phillips, a senior associate in the New York office, is a member of the employment law group. Ms. Phillips’ practice includes a full range of employment litigation and counseling, with particular emphasis on discrimination, harassment, and Sarbanes-Oxley/Dodd-Frank whistleblower issues.
Ms. Phillips has successfully defended employers in federal and state court litigations as well as administrative proceedings and arbitrations involving claims of discrimination, harassment, wrongful termination, Sarbanes-Oxley whistleblowing, trade secret misappropriation and other employment-related claims. She regularly counsels employers on a variety of employment-related issues and assists clients in creating and implementing human resources policies, whistleblower policies, negotiating and drafting executive contracts, restrictive covenants and other employment agreements, and conducting internal investigations.
Ms. Phillips is the co-author of the first treatise to be published on the subject of Sarbanes-Oxley/Dodd-Frank whistleblower law. She regularly writes and speaks on whistleblower and other employment topics.
Playboy Enterprises is suing its former defense counsel Sheppard Mullin after being hit with a $6 million jury verdict in a SOX whistleblower case, the highest jury award in a SOX case to date. In Zulfer v. Playboy Enterprises, Inc., Playboy’s former Controller Catherine Zulfer claimed her employment was terminated in part because she objected to an improper instruction by Playboy’s CFO to accrue $1 million in discretionary bonuses for executives when those bonuses had not been approved by Playboy’s Board. A jury agreed and found that Playboy unlawfully retaliated against Zulfer by firing her for her protected reports under SOX and also terminated her employment in violation of public policy under California law. The jury awarded $6 million in unspecified damages with no allocation between the SOX claim and the California wrongful termination claim.
In a much-anticipated move, the SEC on April 1, 2015 commenced a cease-and-desist action against KBR (formerly Kellogg Brown & Root) alleging its confidentiality agreements violated Dodd-Frank’s whistleblower regulations. KBR simultaneously agreed to settle the matter for $130,000. This is the first such case brought by the SEC, which had indicated over the last year or more that it was actively seeking examples of such alleged violations in order to enforce its Rule 21F-17, which provides, “No 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…” In unofficial comments, SEC staff had expressed the view that standard confidentiality and non-disparagement provisions found in many employer agreements might violate the Rule to the extent they did not have express carve-outs stating that nothing in those provisions prevented employees from going directly to the Commission with concerns.
On March 2, 2015, the SEC announced a whistleblower bounty award of between $475,000 and $575,000, its 15th under the Dodd-Frank whistleblower program. While the SEC’s order is scant on detail, it does disclose that the award will go to a corporate officer, making it the first award to go to an officer under the program. This award is in keeping with the SEC’s approach to demonstrate in the relatively small number of awards made to date that a broad range of individuals can get bounties for providing original information of corporate wrongdoing under Dodd-Frank.
On January 20, the United States Supreme Court denied certiorari in CLS Transportation Los Angeles LLC v. Iskanian, leaving intact a decision by the California Supreme Court holding that representative Private Attorney General Act (PAGA) claims cannot be waived in arbitration agreements. Enacted in 2004, PAGA deputizes private citizens to seek penalties on behalf of the state by bringing representative suits for workplace violations.
In Berman V. Neo@Ogilvy LLC, 1:14-cv-523 (Dec. 4, 2014), Judge Gregory Woods of the Southern District of New York dismissed a Dodd-Frank whistleblower retaliation claim on the ground that internal reporting is not protected under the statute. In so holding, the court rejected the reasoning of a majority of district courts to address the issue to date (including several Southern District of New York decisions), as well as the SEC’s interpretation of the statute, and instead adopted the reasoning of the Fifth Circuit in Asadi v. GE Energy (USA), L.L.C. and a minority of district courts, which have held that “the language of the statute unambiguously requires that a person provide information to the [SEC] in order to qualify as a whistleblower under the Act.” You can find our prior blog posts on the split over this issue here (March 4, 2014), here (January 28, 2014), here (October 3, 2013), and here (July 18, 2013).
Thus, until the Second Circuit and other Circuit courts weighs in on this issue, the answer of whether internal reporting is protected under Dodd-Frank may hinge largely upon which district judge is assigned the case.
In Khazin v. TD Ameritrade, No. 14-1689, 2014 WL 6871393 (3rd Cir. Dec. 8, 2014), the Third Circuit affirmed a lower court’s decision compelling arbitration of a Dodd-Frank whistleblower retaliation claim. This is the first circuit court decision to address whether such claims are arbitrable, and the decision is consistent with two district court opinions that have previously addressed the issue.
Recently, there’s been a wave of Fair Labor Standards Act (“FLSA”) rulings adverse to employers in the adult entertainment industry. Early this year, a Southern District of New York judge approved an $8 million settlement for a class of dancers at an adult establishment who alleged that they were misclassified as independent contractors. See In re: Penthouse Executive Club Compensation Litigation, Case No. 1:10-cv-01145, 2014 U.S. Dist. LEXIS 5864 (S.D.N.Y. Jan. 14, 2014). And just last month, the court in Hart, et al. v. Rick’s Cabaret Int’l, Inc., Case No. 1:09-cv-03043, 2014 U.S. Dist. LEXIS 160264 (S.D.N.Y. Nov. 14, 2014) which previously had held that dancers at the New York club were employees under the FLSA, denied a motion to decertify the class and awarded almost $11 million in damages to the dancers for FLSA violations.
The SEC released its Fiscal Year 2014 Annual Report (the “Report”) to Congress on the Dodd-Frank Whistleblower Program on November 18, 2014. The Report analyzes the tips received over the last twelve months by the SEC’s Office of the Whistleblower (“OWB”), provides additional information about the whistleblower awards to date, and discusses the Office’s efforts to combat retaliation against whistleblowers.
On November 12, 2014, the Fifth Circuit affirmed a Department of Labor finding that Halliburton retaliated against a whistleblower by including his name in a document preservation notice. The court also held that emotional distress damages are available under SOX.
In Halliburton, Inc. v. Administrative Review Board, the whistleblower, Anthony Menendez, claimed that he was ostracized and isolated in violation of SOX after Halliburton’s General Counsel sent out a litigation hold notice stating that the SEC had opened an investigation into concerns raised by Menendez about alleged accounting improprieties. Menendez had previously raised these concerns internally to management.