November 28, 2020

Volume X, Number 333

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Sarbanes-Oxley Whistleblower Case Clarifies the Burden for Pleading Knowledge of Protected Whistleblowing

A recent Pennsylvania district court decisionWestawski v. Merck & Co., Inc clarifies that “when a plaintiff files a complaint alleging a SOX violation against the corporation itself, if she alleges facts that she engaged in protected activity directly to, at the very least, supervisors, oversight committees, or the corporation itself, she satisfies [the scienter] element for the purposes of withstanding a motion to dismiss.”

Plaintiff Joni Westawski began working for Defendant Merck in 2001, earned several promotions, and by 2009 she was in a management-track position as a market research analyst in Merck’s managed care corporate headquarters. In 2009, Westawski’s supervisor put her in charge of a new study, but Westawski began to have concerns that the study involved violations of both Merck internal policies as well as federal law.

Westawski alerted various Merck employees that throughout the study:

  • Merck contracting practices were not being followed;

  • the number of study subjects was too small compared to the amount of money Merck was spending on the study and that the “cost per interview” was too high;

  • the study was running behind schedule, ultimately by five months;

  • she believed Merck was making inappropriate payments to an outside contractor.

Westawski alleged that she brought her concerns to her own supervisor, her supervisor’s supervisor, individuals in Merck’s business practice and compliance department, human resources personnel, the company ombudsman, and two company vice presidents.

Three years after Westawski took over the study, Merck informed her that it was reorganizing her department and that her position was being eliminated. The next day she received an email with a new organizational chart and discovered that her position had not been eliminated; she had merely been replaced.

WHEN A CORPORATION IS THE NAMED DEFENDANT, PLAINTIFF CAN SUPPORT RETALIATION CLAIM BY ALLEGING CORPORATE KNOWLEDGE

The Westawski court drew an important distinction between the allegations a plaintiff must make when naming individual plaintiffs as compared to when the plaintiff names the corporation itself as a defendant.

To state a claim for SOX retaliation, a plaintiff must allege, among other things, that “[t]he respondent knew or suspected that the employee engaged in the protected activity”. Wiest v. Lynch, 710 F.3d 121, 131 (3d Cir. 2013) (quoting 29 C.F.R. § 1980.104(e)(2)(i)–(iv)). Merck moved to dismiss Westawski’s SOX retaliation claim by arguing that she failed to meet this scienter element because she failed to allege that her supervisors were aware of her alleged protected activity.

The Court disagreed with Merck, noting that by its count Westawski had complained directly to at least eight Merck employees. However, relying on the Third Circuit’s opinion in Wiest, the Westawski court held that “while a plaintiff cannot bring a SOX complaint against individual defendants if she cannot allege facts with reasonable particularity to the effect that the named individual defendant knew that she had engaged in protected activity,” Westawski had not brought suit against the individual Merck employees to whom she had made her protected disclosures, but sued the company itself. The Court opined:

As Merck is the only named Defendant in this case, Merck is the only ‘person’ Plaintiff must allege ‘knew or suspected that [she] engaged in the protected activity’ for the purposes of defeating this Motion. Considering the number of Merck employees who were made aware of the Plaintiff’s concerns by the Plaintiff herself, it simply cannot be said at this stage in the proceedings that Merck the corporation, the only defendant, was unaware of the Plaintiff’s protected activity, and the Court will not hold otherwise.

To support this assertion, the Court cites to a variety of authority, including:

  • Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1002-03 (9th Cir. 2009) (stating that one meeting with individuals who had undisputed “supervisory authority” over the plaintiffs suggesting a potential fraud on the shareholders sufficed to satisfy this element);

  • Stewart v. Doral Fin. Corp., 997 F. Supp. 2d 129, 138 (D.P.R. 2014) (denying motion to dismiss plaintiff’s Sarbanes-Oxley whistleblower protection claims where a single letter sent by the plaintiff to the chairman of the defendant corporation’s audit committee, standing alone, satisfied the second prong and “sufficed to show that the [defendant corporation] knew that [p]laintiff was engaging in protected activity”);

  • Johnson v. U.S. Bancorp, No. 11 Civ. 2010, 2012 WL 6615507, at *3 (W.D. Wash. Dec. 18, 2012) (holding that the allegation in the complaint that the defendant corporation knew of the protected activity was evidenced by a letter from OSHA regarding its intent to enter findings favorable to the plaintiff; defendants argued that the plaintiff’s complaint was “missing . . . basic allegations detailing . . . the individuals involved, whether those individuals knew of the [plaintiff’s] DOL SOX complaint, or when the communications occurred,” and stating that “such detail is not required at this stage of the proceedings, [as] Rule 8(a) ‘simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence’ to support the allegations” (internal citations omitted);

  • Guitron v. Wells Fargo Bank, N.A., Civ. 10 No. 3461, 2012 WL 2708517, at *2-3, *15 (N.D. Cal. July 6, 2012) (complaints to supervisors were considered sufficient evidence).

© 2015 Zuckerman LawNational Law Review, Volume V, Number 132
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About this Author

Jason Zuckerman, Whistleblower Litigation Attorney, Washington DC  Law Firm
Principal

Described by the National Law Journal as a “leading whistleblower attorney,” Jason Zuckerman litigates whistleblowe r retaliation, whistleblower rewards, wrongful discharge, and other employment-related claims. His practice focuses on representing senior executives and senior professionals in high-...

(202) 262-8959
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