The Top Ten Whistleblower Decisions of 2013: Part 1

For whistleblowers and their advocates, 2013 was a whipsaw year: Big advances followed sharp letdowns in quick rotation — sometimes from the same source. (Ahem, Supreme Court and White House.)

Plus there was the Snowden sideshow. But since NSA leaker Edward Snowden was never a real whistleblower — he acted outside the law and fled the consequences — his headline-grabbing revelations taught us no useful legal lessons.

Instead, the true news of 2013 was choppy-but-clear progress toward more employee-friendly readings of federal whistleblower laws. After two years of success at the administrative level, retaliation victims started getting their day in ever-higher courts. The U.S. Supreme Court put a cherry on the trend by hearing arguments in Lawson v. FMR LLC, its first whistleblowing case under the crucial Sarbanes-Oxley Act (SOX).

The high court’s decision to accept Lawson at first seemed ominous, especially after a brace of anti-employee rulings in mid-year. But November’s arguments unveiled a serious-minded attempt to honor the intent of whistleblower protection laws. The prospect tantalized: Might the Court offer an interpretive map not just for SOX — but other anti-retaliation statutes, too?

We’ll see soon enough; the opinion will likely arrive by March. While we wait, here are the ten most significant whistleblower decisions of 2013, as selected by the attorneys of The Employment Law Group, P.C.

In this first installment we’ll count down to Number Six; our Top Five will follow in Part 2.

10. VANNOY v. CELANESE CORP.

This July decision by an administrative law judge at the U.S. Department of Labor laid out how SOX can protect a whistleblower who hands over confidential documents — even if the breach might otherwise be a firing offense.

Judge Clement J. Kennington found that chemical giant Celanese Corp. acted under an illegal pretext when it fired employee Matthew Vannoy, supposedly for violating confidentiality rules but actually in retaliation for, among other things, rejecting expense forms submitted by Celanese’s then-CEO David Weidman.

Celanese promptly tried to settle with Mr. Vannoy, asking the Labor Department’s Administrative Review Board (ARB) to vacate Judge Kennington’s decision and — for good measure — to deep-six all traces from federal databases. The ARB sensibly declined.

9. ASADI v. G.E. ENERGY (USA) L.L.C.

The U.S. Court of Appeals for the Fifth Circuit severely limited the Dodd-Frank Act’s anti-retaliation provisions in July, finding that whistleblowers may invoke the law only if they’re punished for a very specific action: Reporting possible wrongdoing to the U.S. Securities and Exchange Commission (SEC) via prescribed channels.

Whistleblower Khalid Asadi never contacted the SEC about his concerns that G.E. Energy, his former employer, might have broken laws to secure Iraqi contracts. Instead he said he was fired after raising the matter internally, which many companies require. Dodd-Frank doesn’t protect him, the court held.

Despite being the most authoritative court to rule on the issue to date, the Fifth Circuit drew immediate fire for its nitpicky reading of the law, which contradicted lower decisions and the SEC’s own guidelines. In October, a district court judge in the First Circuit slammed Asadi, saying that Dodd-Frank shields whistleblowers “whether or not the employer wins the race to the SEC’s door with a termination notice.”

8. WIEST AND LOCKHEED DECISIONS

While the Fifth Circuit applied mostly textual analysis to interpret a whistleblower statute, other circuits took a broader view — looking also to the purpose of anti-retaliation provisions to guide their interpretation.

In March, for instance, the Third Circuit endorsed the Obama administration’s employee-friendly construction of SOX, holding in Wiest v. Lynch that the statute can’t succeed if employees may be punished for good-faith attempts to report wrongdoing simply because their whistleblowing doesn’t “ring the bell” on every technicality of the law.

A few months later the Tenth Circuit applied Wiest-like reasoning to conclude that SOX protects whistleblowers who flag a wide range of wrongdoing, not just fraud against shareholders. In Lockheed Martin Corp. v. Brown, the court called the SOX retaliation standard “broad and forgiving” and rejected more restrictive interpretations as counterproductive and “incorrect.”

This clash of styles — textual analysis (Asadi) vs. legislative purpose (Wiest and Lockheed) — would reappear in arguments for Lawson; the Supreme Court may declare a winner.

7. THE SEC’s $14 MILLION PAYOUT

In September the SEC destroyed any lingering cynicism about its whistleblower program by awarding a $14 million bounty to the tipster in an unidentified enforcement case. While not a judicial action, the decision resonated deeply in whistleblower circles — in part because of accompanying press statements by the SEC’s top whistleblower officer, Sean McKessy, who promised further big awards and invited cases that might help him prove legal points.

With a big payout behind him, Mr. McKessy should see plenty of takers. His SEC program, established by the Dodd-Frank Act in 2010, pays bounties of 10% to 30% to informants who provide significant help in cases that result in the collection of  more than $1 million in fines for securities violations.

6. U.S. ex rel. SIMPSON v. BAYER HEALTHCARE

In October the U.S. Court of Appeals for the Eighth Circuit blessed the application of “fraud in the inducement” to the False Claims Act (FCA), effectively ruling it illegal to mislead the U.S. government while negotiating a contract — even in the absence of specifically fraudulent individual payments. Under this holding, whistleblowers may claim that all payments under the resulting contract are fraudulent and must be returned to the government.

In Simpson the whistleblower alleged that Bayer had misrepresented its Baycol cholesterol-lowering drug as being no more harmful than competitors, securing two federal contracts as a result. Before long, however, Bayer yanked Baycol from the market amid reports that it could cause a rare muscle disorder. The Eighth Circuit allowed the claim to proceed, even as it upheld the dismissal of more standard claims of Medicare fraud.

The ruling provides a new — and possibly easier — way for plaintiffs to establish FCA liability, while also boosting the potential payout for whistleblowers who file qui tam actions on behalf of the government and claim a share of any recovered funds. Attorneys are eager to test-drive the theory in other jurisdictions during 2014.

COMING  IN PART 2: The Top Five whistleblower decisions of 2013

Tagged: Administrative Review Board (ARB), Dodd-Frank Act, Enforcement Bodies, False Claims Act (FCA), Fraud Types, P.C., Securities and Exchange Commission (SEC), Securities Fraud, The Employment Law Group, P.C., Whistleblower Laws (Federal)