On October 5, 2012, the Third Circuit U.S. Court of Appeals conducted oral arguments in Wiest v. Lynch, a case that tests the scope of protection for whistleblowers under the 2002 Sarbanes Oxley Act (SOX). Harrisburg, Pennsylvania, attorney Richard Angino argued the case for Jeffrey Wiest. He generously shared his time with attorney Stephen M. Kohn, Executive Director of the National Whistleblowers Center (NWC). The panel of three judges consisted of Chief Judge Theodore A. McKee, Judge Kent A. Jordan and Judge Thomas I. Vanaskie. In the earlier arguments that day, Judge Jordan was the most active questioner of lawyers on both sides of each case. The Court was running late as the questioning exceeded the time allotted for all the attorneys.
You can read the continuation of this blog post for a more detailed report of the judge’s questions and the issues that arose. However, I want to emphasize a moment at the end of Stephen Kohn’s rebuttal argument. Judge Jordan had been questioning all the attorneys on whether any whistleblower protection can protect disclosures employees make as part of their official duties. Stephen Kohn answered that many frauds and violations are discovered by employees performing their duties and raising a concern to their supervisor. Therefore, whistleblower laws would lose much of their effectiveness if they did not protect this most common form of raising concerns. He cited the nuclear whistleblower case, Mackowiak v. University Nuclear Systems, Inc., 735 F. 2d 1159, 1163 (9th Cir. 1984) (employers may not discharge employees engaged in quality control because they do their jobs too well). He got Judge Jordan to agree that establishing protected activity is "a low bar." Stephen Kohn emphasized how the Department of Labor opinion in Sylvester v. Parexel International LLC, ARB No. 07-123, ALJ Nos. 2007-SOX-39 and 42 (ARB May 25, 2011), is entitled to deference, and how the legislative history showed that in enacting SOX, Congress relied on the Third Circuit’s decision in Passaic Valley Sewerage Comm. v. U.S. Department of Labor, 992 F.2d 474, 478-79 (3d Cir. 1993). Past the official time limit, he even pointed to the roots of protecting employee communications to supervisors in the old Mine Safety Act cases, Phillips v. Interior Bd. of Mine Operations Appeals, 500 F.2d 772, 778 (D.C. Cir. 1974), cert. denied, 420 U.S. 938 (1975), and Munsey v. Federal Mine Safety and Health Review Comm’n, 595 F.2d 735, 741 (D.C. Cir. 1978). Finally, Judge Jordan said, "I gotcha" and the argument concluded. To me, the persistence of the argument, Stephen Kohn’s determination to draw on all the available authority, and his keen understanding of the practicalities of whistleblower protection, made it possible for us to believe that all three judges might agree to reinstate Jeffrey Wiest’s case. It will probably be months before we get the Court’s opinion, but I am already convinced that this oral argument had a positive effect on the outcome of this case and on the state of the law. Bravo!
Richard Angino opened his argument by explaining that whistleblowers serve a public function in holding companies accountable for frauds and pollution. He addressed the pleading standard when Judge McKee asked about what a whistleblower is supposed to allege to make a valid claim of retaliation. He asked what the district court did wrong. Richard Angino answered directly that the judge required Wiest to plead his protected activity "specifically and definitively." He asked the judges to look at his complaint and see that the protected activity is covered through more than twenty paragraphs of detailed allegations. Judge Jordan asked if the district court erred in relying on the Department of Labor’s cases issued before Sylvester. Richard Angino answered that if the holding is wrong as a matter of law, today’s law, then it is wrong. Richard Angino said that it was wrong under the plain language of the SOX statute which requires only that the employee "reasonably" believes there was a violation. Judge Jordan asked if the protected activity has to have some level of effect on the value of the company. Judge McKee asked if it would be sufficient to say that the violations were similar to the ones that got Dennis Kozlowski (former Tyco CEO) thrown into jail. Angino said, "yes."
In Stephen Kohn’s main argument, Judge Jordan questioned him about whether concerns raised in the course of performing duties should be protected. Unlike the judges writing the Federal Circuit WPA cases of Willis and Huffman and the Supreme Court in Garcetti (who were concerned with the employer’s ability to control the work the employer was paying for), Judge Jordan was concerned with the problem of enforcing legitimate discipline of employees (like the accountant Wiest was) who perform compliance work as their regular duty. In any such routine discipline matter, the employee could point to any normally performed work and claim it was protected activity.
Stephen Kohn (pictured in his argument to the Administrative Review Board in the Sylvester case) immediately explained how this is not a question of the scope of protection (which should be an easy question), but rather a question of causation (which is typically the hardest question in a whistleblower case). He described the body of law that developed under the nuclear power law (even though these cases were not briefed). Steve also explained that Congress adopted the established DOL body of law when it enacted SOX.
Michael Finio, arguing for Tyco, homed in on the "duty speech" issue and focused on the Federal Circuit Huffman case. Although Judge Jordan remained the primary questioner, Judges McKee and Vanaskie asked enough to make clear that they didn’t care if protected activity was part of official duties if it would help detect fraud. Finio also argued that if Wiest had an objectively reasonable basis to be concerned about tax deducting a $300,000 island party at Tyco after the Koslowski scandal, he didn’t express it in the emails that District Court Judge Pratter focused on (a fact I would have disputed on the record). During this argument, Angino’s associate Kristen Sinisi suggested to me that the ARB covered this issue in Sylvester. I pulled out page 15 of the ARB’s Sylvester decision which explained why objective reasonableness has to be determined at hearing, and need not be contained in the protected activity. I underlined these conclusions and handed it to Stephen Kohn.
In the "two minute" rebuttal (which Angino allowed Stephen Kohn to do), Judge Jordon returned to the duty issue. Stephen made clear that Congress anticipated and resolved this issue for SOX by explicitly protecting disclosures to a supervisor. He called Judge Jordan’s attention to page 15 of Sylvester. Although Judge Jordan didn’t make specific note of this page, I am trusting that his law clerks did. Well past the red light, Steve hammered away at how an objectively reasonable concern can even be completely mistaken and must still be protected. Steve relied on the 3d Circuit’s Passaic Valley case. Passaic Valley Sewerage Comm. v. U.S. Department of Labor, 992 F.2d 474, 478-79 (3rd Cir. 1993). He called attention to the old mine safety cases that Passaic Valley drew upon (and which were in our amicus brief). Munsey and Phillips, cited above. Finally, Judge Jordan said, "I gotcha, Mr. Kohn." It was 11:46 pm when this argument ended and I had to split to catch a train to DC to record my Honesty Without Fear radio program, so I didn’t stick around for the post mortem. But I did share with Stephen my assessment that he protected the public record from a decision that could have been problematic for years to come. Indeed, it is reasonable to believe, on the basis of the oral argument, that the favorable decision might be unanimous. Let us hope so.
Copies of the briefs are available from this prior blog post.