Earlier this month, the U.S. Court of Appeals for the 10th Circuit issued a wonderful decision for corporate fraud whistleblowers. The case is Lockheed v. ARB, Case No. 11-9524 (10th Cir. 06/04/2013). Denver attorney Diane King represents the whistleblower, Andrea Brown. They prevailed at the Administrative Law Judge (ALJ) and Administrative Review Board (ARB) levels of the Department of Labor’s whistleblower protection program. Ms. Brown had a claim for constructive discharge under the Sarbanes-Oxley Act.
The 10th Circuit relied on the traditionally deferential standard of review. It would not disturb the Department of Labor’s factual findings as long as the record has substantial evidence to support them. The court recognized that it reviews legal conclusions “de novo.” Still, the court affirmed the findings of protected activity, constructive discharge and causation, based mostly on Mr. Brown’s own testimony (which the ALJ found to be credible).
Andrea Brown worked as the Communications Director for Lockheed Martin from 2000 to February 2008. In 2003, she began working in Colorado Springs, Colorado, under Wendy Owen, Lockheed’s Vice President of Communications. In 2006, Brown discovered that Owen was abusing Lockheed’s “pen pal” program for U.S. Military personnel. Owen used the program to find opportunities for sexual relationships with soldiers, buying them expensive gifts, and even paying for expensive hotels and limousines.
Brown became concerned that these expenses were being charged to the government and could lead to an audit, a scandal, and consequences for Lockheed’s contracting opportunities and stock value. Brown reported her concerns to Lockheed’s Human Resources and Ethics Departments. Soon, Lockheed discontinued the pen pal program. Owen suspected that Brown’s coworker had made the report and started treating that employee poorly and even threatened termination. Eventually, Brown disclosed that she had made the complaint. Owen lost her supervisory duties over Brown, but stayed in the department and kept her title. Brown’s new supervisor treated Brown poorly, reducing her performance evaluation and her duties. Brown lost a bid for promotion, and Owen was now threatening her job. The new director took away Brown’s office and parking space. Brown suffered an emotional breakdown and resigned.
Brown filed a retaliation complaint with OSHA. Although OSHA dismissed her complaint, she had the right to request an ALJ hearing. After a two-day hearing, the ALJ found that Brown’s concerns were protected by SOX. The ALJ also found that Lockheed had caused Brown to suffer retaliation, and that Brown was justified in concluding that she had to resign. The ALJ awarded Brown $75,000 in compensatory damages. After the ARB upheld the award, Lockheed appealed to the 10th Circuit.
Among my favorite holdings are:
1. The ARB is entitled to “Chevron” deference (pp. 15-16). While I had taken such deference for granted under prior administrations, the 1st Circuit had denied DOL any deference in Lawson v. FMR (a case the Supreme Court accepted for review just last month). With this new opinion, the 10th Circuit joins other circuits that have applied traditional deference to government agencies.
2. The decision follows the Supreme Court’s holding in FCC v. Fox Television Stations, Inc., 556 U.S. 502, 514-15 (2009) and says clearly that the ARB is allowed to change its interpretation of the law, as long as the new interpretation is a permissible one. Thus, the court rejected the holding of the prior administration’s ARB in Platone v. FLYi, Inc., No. 04-154, 2006 WL 3246910 (ARB, Sept. 29, 2006), aff’d on other grounds, 548 F.3d 322 (4th Cir. 2008).
3. The opinion favorably discusses the ARB’s decision in Sylvester v. Parexel Int’l LLC, No. 07-123, 2011 WL 2165854 at *15–16 (Admin. Rev. Bd. May 25, 2011). See pages 16-17. However, the court finds that the evidence in Brown’s case even meets the old “definitively and specifically” standard for protected activity. Lockheed will have a hard time arguing its way out of this holding.
4. On pages 14-15, the opinion puts to rest the idea that protected activity has to allege shareholder fraud. The opinion takes apart the SOX text, clause by clause, and finds that activity addressing any one of its clauses is protected. Whistleblowers do not have to say “fraud” to be protected. Here, an inquiry about whether expenses would be charged to the client (the government) was enough. (See p. 18)
5. On page 19, the court addresses Lockheed’s claim that Brown not only has to allege fraud, but she needed evidence that her antagonist had the specific intent to commit fraud. The court takes this invitation by the horns and finds that Brown saw her antagonist profit personally from the charged expenses, and that was enough to meet the “reasonable belief” standard.
6. On constructive discharge, the court finds good grounds for the finding based on a drop in performance ratings, a reduction in job duties, discouragement from seeking promotion, and a loss of job title, office and the parking space. Lockheed could not defeat this claim by arguing that Brown could have looked for other options to get out of the situation. Since Lockheed did not present Brown with any other options, Brown had an objectively reasonable basis to believe that resigning was were only option. Pp. 23-25.
7. On causation, the court gave particular emphasis to SOX’s “contributing factor” standard. See 18 U.S.C. § 1514A(b)(2)(C); 49 U.S.C. § 42121(b); and 29 C.F.R. § 1980.104(b)(1). In concrete terms, this standard means that a longer period of time (13 months) can establish an inference by temporal proximity. Pp. 27-28. The court used the same analysis to adopt a relaxed application of Staub v. Proctor Hosp., 131 S. Ct. 1186, 1191–92 (2011) to the cat’s paw theory — finding that the antagonist’s precise role in the adverse action is not as important. P. 29.
Finally, although Lockheed did not adequately brief its dispute with the remedies, including $75,000 in compensatory damages, since the respondent agreed that damages could be updated, the court is remanding the case for redetermination of remedies. That means that the Department of Labor could now award Brown even more.
Notably, Lockheed never tried to show that it would have created the same conditions in the absence of any protected activity. The opinion, p. 12, fn 5, notes that Lockheed waived this argument by not raising it below. If Lockheed had raised it, it would have had to prove it by “clear and convincing” evidence. 49 U.S.C. § 42121(b)(2)(B).
Michael T. Anderson, of Murphy Anderson, Joan M. Bechtold, of Sweeney & Bechtold and Rebecca M. Hamburg Cappy, submitted a most helpful amicus on behalf of NELA. Lockheed could still appeal to the Supreme Court. So far, the Supreme Court has shown interest in only one SOX case, Lawson v. FMR LLC, 670 F.3d 61 (1st Cir. 2012). In Lawson, the 1st Circuit refused to give deference to the Department of Labor and held that SOX does not protect the employees of contractors (even though SOX specifically says that contractors cannot retaliate). It is a good thing that the Supreme Court accepted the Lawson case, and a good thing that the 10th Circuit sees the righteousness of protecting corporate fraud whistleblowers.
Congratulations to Diane, Michael, Joan and Rebecca. This is a well deserved outcome.
– this blog post was prepared by Richard Renner, Of Counsel. You may reach him at 202-331-9260 or firstname.lastname@example.org.