Third Circuit Lowers Bar For Determining Whether Internal Complaint Is Sox Protected Activity

In Wiest v. Lynch, No. 11-cv-4257, 2013 U.S. App. LEXIS 5345 (3d Cir. March 19, 2013),the Third Circuit gave Chevron deference to U.S. Department of Labor Administrative Review Board's (ARB) interpretation of "protected activity" under Section 806 of SOX in Sylvester v. Parexel International LLC, No. 07-123 (ARB May 25, 2011), concluding that a whistleblower need only show that his or her communication reflects a reasonable belief that the employer has violated or will violate the law or rules of the SEC. We now see a circuit split on multiple issues, including whether the alleged misconduct "definitively and specifically" relates to one of the categories in Section 806, and whether the employee can engage in protected activity by complaining of potential future violations.

Background

The plaintiff worked for approximately thirty-one years in Tyco Electronics' (Employer) accounting department before his discharge in 2009. In 2007, he engaged in a pattern of rejecting and questioning expenses that he believed failed to satisfy accounting standards or securities and tax laws. He alleged that he routinely reported what he believed were improper expenditures to his supervisors, primarily asserting that improper reporting would either violate the Employer's policies or federal tax laws. Notably, none of his communications indicated his belief that the Employer had engaged in fraud upon shareholders or had otherwise violated the statutes or rules listed in Section 806.

The District Court's Decision

Plaintiff filed suit against the Employer and several officers and directors in the U.S. District Court for the Eastern District of Pennsylvania, alleging he was discharged for reporting improper expenditures. Defendants moved to dismiss, asserting that Plaintiff failed to establish a prima facie case under Section 806 by failing to engage in protected activity. Specifically, they argued that Plaintiff did not allege that his communications about improper expenditures "definitively and specifically" related to a violation of a statute or rule set forth in Section 806.

The district court determined that the plaintiff had to allege that his communications: "definitively and specifically" related to a statute or rule listed in Section 806; expressed "'an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and which risked loss;'" and "reflect[ed] a reasonable belief of an...