Friday, May 19, 2017

Ninth Circuit Holds that Dodd-Frank Offers Broad Protection for Whistleblowers

On March 8, 2017, a three-judge panel of the Court of Appeals for the Ninth Circuit ruled in favor of Paul Somers, a former Vice President of Digital Realty Trust. Mr. Somers was fired after disclosing what he viewed to be several serious securities law violations. What distinguished Mr. Somers from many of his fellow Dodd-Frank whistleblowers—and indeed, what could make this an issue for the Supremes—was that Digital Realty Trust fired him before he had the opportunity to transmit this information to the Securities and Exchange Commission (SEC), which is tasked under Dodd-Frank to investigate and prosecute such violations. This, Digital Realty Trust attempted to argue, precluded Mr. Somers from the whistleblower retaliation provisions under Section 21F of the Exchange Act, entitled “Securities Whistleblower Incentives and Protection.”

The Ninth Circuit disagreed. It ruled that Dodd-Frank’s anti-retaliation provision “unambiguously” protected employees who made only internal disclosures. The two-judge majority referred to the legislative history of the Sarbanes-Oxley Act, a law Congress enacted in the aftermath of the 2002 Enron collapse to safeguard investors and to restore public confidence in financial markets. Sarbanes-Oxley, or SOX, plays a key role in Section 21F of the Exchange Act, which states:
No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—

(i) in providing information to the Commission in accordance with this section;

(ii) in initiating, testifying in, or assisting in any investigation or judicial or

administrative action of the Commission based upon or related to such information; or

(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), this chapter, including section 78j-1(m) of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

While Subsections (i) and (ii) clearly only protect disclosures that are made to officials, Subsection (iii) potentially allows for far broader protections. Indeed, the SEC itself interprets Subsection (iii) as providing anti-retaliation protection to internal disclosures:

Finally, our interpretation best comports with our overall goals in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting.

The Ninth Circuit’s interpretation deepens the pre-existing circuit split between the Second Circuit and the Fifth Circuit. Where the Second Circuit similarly favored broad protections for employee whistleblowers in Berman v. Neo@Ogilvy LLC, the Fifth Circuit took a much narrower view. In Asadi v. G.E. Energy, LLC, the Fifth Circuit ruled that Khaled Asadi, who served as G.E. Energy’s Iraq Country Executive, could not be considered a “whistleblower” when he reported up his chain of command about practices that he believed violated the Foreign Corrupt Practices Act. The Fifth Circuit hinged its analysis on 15 U.S.C. § 78u–6, which defines “whistleblower” as “any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” According to the Fifth Circuit, this definition of a whistleblower was “clear,” “unambiguous,” and simply did not protect internal disclosures.

All three courts overlooked a line of cases that have held that reports to company officials are a normal way for workers to commence disclosures that later lead to the government. As such, they deserve the same legal protections as direct disclosures to the government. In Phillips v. Interior Board of Mine Operations Appeals, the D.C. Circuit held that coal miners are protected for making safety complaints to their supervisors. In Kasten v. Saint Gobain Performance Plastics Corp., the Supreme Court held that an oral report to a supervisor about a wage violation is protected under the phrase “filed any complaint.”

Somers v. Digital Realty Trust is still an important victory for whistleblower rights. A narrow interpretation of Dodd-Frank gives employers a perverse incentive to quickly terminate employees after internal disclosures are made, but before they have an opportunity to make a disclosure to the SEC (even though the whistleblowers would still have 180 days to file a SOX retaliation complaint to OSHA). Not only does a narrow interpretation result in serious gaps in legal protection for whistleblowers, but it also completely vitiates the very purpose of federal statutes designed to root out waste, fraud, and abuse.



Written by Nina Ren.



This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Wednesday, May 10, 2017

The Polygraph Confessional

Although the Federal Employee Polygraph Protection Act of 1988, administered by the Department of Labor protects most employees from being required to take a polygraph, federal employees or contractors engaged in national security-related activities may well find themselves required to take and pass a polygraph exam as a condition of being granted access to secure facilities or information.

The idea that simultaneously measuring pulse, blood pressure, respiration, and other largely involuntary physiological functions provides an objective indication of the subject’s state of mind including, especially, whether he or she is telling the truth, has been around for more than a century.  And, although courts have been reluctant to embrace the technology of the polygraph, the federal government relies on the technology to screen employees and contractors before they are allowed to access sensitive or classified information.

Within the federal government, polygraphs are part of the toolbox of Credibility Assessment (CA), which is described as “the multi-disciplinary field of techniques and procedures that assesses truthfulness and relies on physiological reactions and behavioral measures to test the agreement between an individual’s memories and his or her statements.” This sentiment is also reflected in the Polygraph And Credibility Assessment (PCA) Procedures and the Counterintelligence Polygraph Program. Within the Intelligence Community, the Director of National Intelligence (DNI) is charged with administering the CA program; within DOD, the Under Secretary for Defense (Intelligence) (USD(I)) has primary responsibility for the program, but it is the Director of the Defense Intelligence Agency (DIA) who actually manages the Credibility Assessment program. The National Center for Credibility Assessment (NCCA), located at Fort Jackson, South Carolina, provides training for Credibility Assessment for all federal agencies, as well as research into the effectiveness of various techniques and tools.

Polygraph exams may be administered “for personnel security screenings, issue-specific examinations, the adjudication for access to specific types of classified information, and the resolution of other examinee issues.”  Most employees encounter the requirement as part of a new job or security clearance application. You fill out the SF-86 and, if it is required for your agency or job, you find yourself scheduled for a polygraph examination.

If you, as a federal government employee (whether military or civilian) or contractor, are required to undergo polygraph exam, you should receive notice of the exam and its specific purpose. You will be asked to give consent in writing to being polygraphed. You should be told that you may consult a lawyer before either giving consent or being polygraphed. (But your lawyer cannot attend the polygraph session.) At the polygraph, as with providing information on the SF-86 and throughout the clearance application process, you should be wholly truthful and forthcoming in answering questions. At the same time, you should be careful not to agree to statements that are suggested to you by the polygrapher but are not, to your knowledge, true. Hold firm to what you know. Other than technical questions (such as those used to calibrate the polygraph), you should be asked only questions relevant to the particular focus of the polygraph exam. For personnel security screenings, the questions asked in a polygraph exam must arise out of the Adjudicative Guidelines, ICPG 704.2.

You should know that if, during a polygraph exam, you report a possible violation of federal or state criminal laws, the agency is bound to report that information to the Attorney General, the Department of Justice, and to federal investigative agencies (or, in the case of state or local laws, to the relevant law enforcement agency). This holds true for violations of the Uniform Code of Military Justice (which would be reported to the Secretary of Defense and the relevant military criminal investigative unit). Facts that seem to indicate a crime in the planning stages will also be reported.

If you refuse to undergo a polygraph exam, or fail to cooperate during a polygraph examination, you are likely to find that your clearance may be denied or revoked. What the IC calls “purposeful non-cooperation” may also result in a negative determination. Under ICPG 704.6(E)(3)(c), “purposeful non-cooperation” includes confirmed use of polygraph countermeasures. This would include the use of drugs, biofeedback training, or behavioral countermeasures to overcome the physical responses measured by a polygraph. Indeed, instances of an employee simply researching such countermeasures on the web in the days before the exam, if admitted, has been used to justify denying a security clearance.

Federal employees take – and pass – polygraph exams pretty commonly as part of vetting for security clearances. Before undergoing a polygraph, it is good be familiar with the regulations, what they require of you, and how they protect you, although (as noted above) making yourself too familiar may be disqualifying. If you would like to discuss an upcoming polygraph exam, we would be happy to help.

This blog was written by Mary Kuntz.

This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.

Monday, May 1, 2017

Wrongful termination and the internal investigation in Virginia


This blog continues to assess the relationship between wrongful termination and an internal or external investigation. We previously discussed Maryland and District of Columbia law.  We are now focusing on the law in the Commonwealth of Virginia.

Virginia courts strongly adhere to the common law employment-at-will doctrine. As in Maryland and the District of Columbia, Virginia employers can terminate at-will employees for any legal reason or for no reason at all, unless it violates a law or there is a “public policy” exception.

However, the public policy exception is limited. The Supreme Court of Virginia identified a narrow exception to this rule in Bowman v. State Bank of Keysville. Under Bowman, wrongful discharge under its “public policy” exception must fit into one of two categories. The first involves laws containing explicit statements of public policy (e.g., “It is the public policy of the Commonwealth of Virginia [that]...”). The second category involves laws that do not explicitly state a public policy, but instead are designed to protect the “property rights, personal freedoms, health, safety, or welfare of the people in general,” where such laws must be in furtherance of “an [underlying] established public policy” that the discharge from employment violates.

Subsequent Virginia Supreme Court decisions have held that viable Bowman claims for wrongful discharge are limited to three factual circumstances. In Rowan v. Tractor Supply Co., the Court explained: (1) the employer violates a public policy enabling the exercise of an employee's statutorily-created right; (2) the public policy violated by the employer is explicitly expressed in a statute and the employee is clearly a member of the class of persons directly entitled to the protection enunciated by the applicable public policy; or (3) the discharge is based upon the employee's refusal to engage in a criminal act.  Importantly, and as a threshold matter, caselaw indicates that the plaintiff must identify a Virginia statute establishing a public policy that has been violated by the employer.

In contrast with the decision by the Maryland Court of Appeals in Wholey v. Sears Roebuck, there is no internal whistleblowing defense offered to employers in Virginia. Though there is not much case law directly on point, in Seay v. Grace Jefferson Home, et al., the circuit court overruled a demurrer when plaintiff “brought to her employer’s attention certain violations of state law, and cooperated with a state inspector who was investigating those alleged violations. In permitting the wrongful discharge claim to continue, the Court emphasized that the plaintiff “complained to her employer” and also “complained to a representative of the governmental agency charged with investigating wrongdoing of the type complained of.”

Notably, in Bowman, the Supreme Court stated that it was relying in part on the decision in Harless v. First National Bank in Fairmont (also cited in Seay). In Harless, the Supreme Court of West Virginia held that a bank employee, discharged as a result of attempts to require his employer to comply with both state and federal consumer credit protection laws, had stated a cause of action for wrongful termination. In Harless, the interactions were internal. Specifically, the plaintiff brought allegedly illegal actions to the attention of his superiors who were vice presidents of the bank. Subsequently, plaintiff appeared before a bank committee which was investigating the matter. Later, plaintiff was interviewed by one of the defendants and the bank’s auditor. Thereafter, his employment was terminated.

Thus, the analysis in Virginia focuses on the public policy allegedly violated, and not to whom a complaint of wrongdoing is made.

As to internal whistleblowing, there are reports documenting how the large majority of employee disclosures are made internally. Most employees want to see their issues resolved within the chain of command, or within other processes of their employer. This makes protecting the internal whistleblower all the more important to encourage employees to disclose violations and to allow employers to detect them. Please contact our Firm if you are interested in further information on this issue.

Written by Marc Pasekoff.


This blog is provided to our readers for informational purposes only. It is not offered as legal advice. Communication of information through this blog does not create an attorney-client relationship. You should not rely upon information contained in this blog without first seeking professional legal advice. If you would like a telephone screening or consultation with a KCNF attorney, you are welcome to call 202-331-9260 to begin our intake process, or submit your legal issue at http://www.kcnlaw.com/Contact.shtml.