January 26, 2021

Volume XI, Number 26

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January 25, 2021

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Pennsylvania Magistrate Judge Recommends Dismissal of SOX Whistleblower Claim for Lack of Protected Activity

On May 5, 2020, a Magistrate Judge in the U.S. District Court for the Western District of Pennsylvania issued a report and recommendation recommending that a defendant-employer’s motion for summary judgment dismissing a SOX whistleblower retaliation claim be granted, finding that the plaintiff had not engaged in protected activity.  Wutherich v. Rice Energy Inc, No. 18-cv-00200.

Background

Plaintiff was a manager at the defendant-employer, an energy company involved in fracking.  In July 2016, Plaintiff allegedly overheard a co-worker discussing data regarding wells that the co-worker had obtained from a previous employer.  Plaintiff reported this incident to his supervisor and told him that he thought his co-worker had done something illegal and could go to jail for his actions.  In August 2016, Plaintiff allegedly expressed concern about a conflict of interest regarding the company’s use of a service provider in which Plaintiff’s supervisor had a 25% ownership interest.  Plaintiff alleged that, in response to his two complaints, his employment was terminated.  Plaintiff filed suit against the defendant-employer, alleging, among other claims, that he was retaliated against for providing information about incidents that he reasonably believed constituted fraud against shareholders, in violation of Section 806 of SOX.

Ruling

The parties filed cross-motions for summary judgment.  The court recommended that the defendant-employer’s motion be granted, finding that Plaintiff did not engage in protected activity.  With respect to the first alleged whistleblower incident, the court found that Plaintiff did not demonstrate that he subjectively believed that his co-worker’s alleged data theft should have been disclosed to shareholders.  With respect to the second alleged whistleblower incident, the court found that Plaintiff did not show that he reasonably believed he was reporting conduct which constituted a securities violation.  Rather, Plaintiff merely stated that his supervisor’s purported conflict of interest was “wrong,” but did not raise any concerns about the defendant-employer potentially failing to disclose this information to shareholders.

The court also found that even if Plaintiff had shown that he had engaged in protected activity, he did not show that the defendant-employer was aware that he had engaged in such activity.  In addition, the court noted that SOX “is not a general anti-retaliation statute.”  Therefore, it was not enough for the defendant-employer to know that Plaintiff had reported something unethical; rather, it had to know or suspect that he had reported a Section 806 violation.

Implications

This decision reaffirms the principle that SOX does not extend whistleblower protection to complaints about any form of purportedly improper conduct, but only protects complaints that are related to one of the six categories of misconduct specified in Section 806 of SOX.

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© 2020 Proskauer Rose LLP. National Law Review, Volume X, Number 134
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About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm
Partner

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

312-962-3545
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
Heylee S. Bernstein Associate Proskauer Labor & Employment Employment Counseling & Training
Associate

Heylee Bernstein is an associate in the Labor & Employment Law Department and a member of the Employment Counseling & Training Group. Heylee earned her J.D. cum laude from Harvard Law School, where she served as the President of the Committee on Sports and Entertainment Law. In addition, she was a Senior Article Editor for the Journal of Sports and Entertainment Law, and served as a Research Assistant in the Labor & Worklife Program. 

1-617-526-9621
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