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Eastern District of Pennsylvania Grants Summary Judgment on SOX Claim

On July 18, 2019, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the Plaintiff did not have an objectively reasonable belief that the defendant violated any SEC regulation.  Reilly v. Glaxosmithkline, LLC, No. 17-cv-2045.

Background

Plaintiff worked in the company’s Information Technology Department as a member of the team responsible for the AS/400 computer operating system, which hosts manufacturing and financial applications for portions of the company’s business.  In late 2011, Plaintiff noticed that the company’s computer servers were experiencing performance instability.  Plaintiff attributed the server instability to a co-worker’s decision to implement uncapped processors on the company’s AS/400 system (uncapping processors allows a server to use available computer capacity from another server, which can increase exposure to cyber threats).  From 2012 until 2015, Plaintiff repeatedly voiced concerns to his supervisor that security risks associated with the server’s performance problems could implicate a SOX audit.

Plaintiff ultimately escalated his complaints up the company’s entire chain of command, even lodging a complaint with the CEO.  In his complaints, Plaintiff expressed his belief that, among other things, the company’s 2013 report to the SEC omitted reference to any of the performance and security concerns he raised regarding server performance.  In response, the company launched an internal investigation which found Plaintiff’s complaints unsubstantiated.

In March 2014, the company announced that all but two of the AS/400 service team positions would be outsourced by September 2014.  Although the company invited Plaintiff to apply for one of the two positions, Plaintiff opted not to apply based on language in a memorandum he received during the internal investigation which stated that the company would “get back to [him] following the outcome of the investigation regarding [his] employment status.”  Thereafter, the effective date of termination was repeatedly postponed until Plaintiff received the last notice on April 8, 2015, notifying him that his position was being eliminated.  June 30, 2015, was the last day of Plaintiff’s employment.  Plaintiff filed suit shortly after his termination alleging that he was retaliated against in violation of SOX for reporting his concerns.

Ruling

Defendant moved for summary judgment arguing that: (i) the Plaintiff’s Complaint was untimely because it was not filed within 180 days from the date Plaintiff first received notice of his termination; and (ii) Plaintiff did not have an objectively reasonable belief that the company’s conduct violated the SEC rules covered by SOX.  Although Defendant argued that the statute of limitations began running from March 2014, the date that Plaintiff received his first notice that his position would be eliminated, the Court held that Plaintiff had cast doubt as to whether he received sufficient notice of his termination.  Specifically, the Court reasoned that the language in the memorandum Plaintiff received, in conjunction with the postponement of his termination several times, was sufficient to constitute “mixed official signals” regarding whether his termination would take effect.  Accordingly, because the statute of limitations did not begin to run until Plaintiff received his final, definitive notice on April 8, 2015, the statute of limitations did not bar the SOX claim.

However, the Court sided with Defendants on the question of whether Plaintiff had an objectively reasonable belief that the company violated SOX.  The Court, citing the company’s report to the SEC, held that the company sufficiently disclosed the risks associated with the poor performance its computer systems experienced.  The company’s report expressly noted, among other things, that the failure to “adequately protect critical and sensitive systems and information . . . could materially and adversely affect our financial results.”  Based on this, the Court held that no reasonable person in Plaintiff’s position, with his training and experience, could have believed that Defendant’s conduct violated SOX.

Implications

This decision stresses the need for a purported whistleblower to hold an objectively reasonable belief of a violation of one of the provisions enumerated in SOX and reiterates the ability of employers to escape liability based on the application of the “reasonable relief” standard.

© 2020 Proskauer Rose LLP. National Law Review, Volume IX, Number 218
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About this Author

Lloyd B Chinn, Financial, Whistleblower Attorney, Proskauer Law Firm
Partner

Lloyd B. Chinn is a Partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd's practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media,...

212-969-3341
Tony S. Martinez Labor & Employment Attorney Proskauer Rose Law Firm
Associate

Tony Seda Martinez is an associate in the Labor & Employment Law Department and assists clients in a wide range of labor and employment law matters.

Prior to joining Proskauer, Tony attended Rutgers School of Law. While in law school, he interned for the United States Attorney’s Office, the Honorable Judge Esther Salas of the United States District Court for the District of New Jersey, and the Honorable Chief Justice Stuart Rabner of the Supreme Court of New Jersey. In addition, Tony served as a senior notes and comments editor of the Rutgers Law Review and a clinical law student at the Rutgers Community & Transactional Lawyering Clinic. Tony also served as a research assistant to Professor Bernard Bell and as a teaching assistant to Professor Taja-Nia Henderson.

212.969.3014
Pinny Goldberg Labor and Employment Lawyer Proskauer Rose Law Firm
Associate

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims. 

In...

212.969.3074
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