Texas Federal Court Applies Broad Construction of Sarbanes-Oxley Whistleblower Provision

In Ciavarra v. BMC Software, Inc., C.A. No. H-07-0413 (S.D.Tex. Feb. 7, 2008), Judge Atlas broadly construed the whistleblower protection provision of SOX:

SOX Coverage Defendants moved for summary judgment in part on the basis that Plaintiff was an employee of BMC Software Distribution, Inc., a subsidiary company that is not publicly traded and is therefore not covered under SOX. Judge Atlas held that Plaintiff presented evidence from which a trier of fact could find that he was a covered employee under SOX, including evidence that he was offered a separation agreement prepared at the direction of BMC Software, Inc., the publicly traded parent company of BMC Software Distribution, Inc., and evidence demonstrating that a BMC Software, Inc. officer was the supervisor of Plaintiff’s immediate supervisor and therefore had the authority to affect Ciavarra’s employment.

Protected Activity Plaintiff alleged that he engaged in protected conduct by reporting to superiors at BMC and to BMC’s otside auditor that a $67 “reversion” invoice was not properly recognizable because it was not collectible. Holding that protected conduct under SOX includes providing information regarding any conduct which the employee reasonably believes constitutes a violation of Sarbanes-Oxley, any rule or regulation of the Securities and Exchange Commission,or any provision of Federal law relating to fraud against shareholders,Judge Atlas concluded that there was a genuine issue of material fact as to whether Plaintiff provided information to BMC management and to its outside auditor regarding the anticipated recognition of a $67 million “reversion” invoice to Verizon, and that he reasonably believed that the improper recognition of the amount reflected in the invoice was a violation of Sarbanes-Oxley and other federal laws relating to fraud against shareholders.

Temporal Proximity is Sufficient to Raise an Inference of Causation Judge Atlas held that a gap of approximately three months between Plaintiff’s protected conduct and his discharge raised an inference of causation sufficient to avoid summary judgment.

Level of Detail Required in Pleading Protected Conduct Following the close of discovery, Defendants moved to amend their answer to plead that Plaintiff failed to exhaust his administrative remedies because his complaint did not plead every detail of his protected conduct. Holding that there is no requirement that a party exhaust each factual allegation in the complaint, Judge Atlas concluded that Plaintiff clearly exhausted his claim that his employment was terminated in retaliation for having brought the recognition issue to the attention of his boss’s superiors and of the outside auditors.

Tagged: Sarbanes-Oxley Act (SOX), Whistleblower Laws (Federal)