Lockheed Martin Corp. v. Administrative Review Board
717 F.3d. 1121, 2013 CCH OSHD 33,302, 35 I.E.R. Cas. (BNA) 1516 (2013)
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Rule of Law:
The Sarbanes-Oxley Act's anti-retaliation provision protects an employee who reports conduct that they reasonably believe constitutes mail or wire fraud, even if the reported conduct does not specifically relate to fraud against shareholders.
Facts:
- Andrea Brown, a Communications Director at Lockheed Martin, learned from a coworker that her supervisor, Wendy Owen, was allegedly using company funds for personal and sexual relationships with soldiers from a company-sponsored pen pal program.
- Brown became concerned Owen was committing fraud by using company funds for gifts, travel, and lodging, and that these costs, which were normally billed to government contracts, constituted illegal activity.
- In May 2006, Brown reported her concerns to Jan Moncallo, Lockheed's Vice President of Human Resources, who filed an anonymous ethics complaint on Brown's behalf.
- After Lockheed conducted an investigation, Brown, who had previously received high performance ratings, began receiving lower ratings and experienced negative treatment from new supervisors.
- In December 2006, Brown admitted to Owen that she had reported her, after which the negative treatment escalated.
- Brown was subjected to a series of adverse actions: her job was posted online, she was berated for applying for it, and a new director, David Jewell, was hired with input from Owen.
- Under Jewell, Brown was stripped of her title, supervisory responsibilities, and her office, being forced to work from a storage room or home.
- Jewell informed Brown she was being considered for a layoff and that her leadership status was being removed, which caused Brown to suffer an emotional breakdown and take medical leave, after which she felt forced to resign.
Procedural Posture:
- Andrea Brown filed a complaint with the Occupational Safety and Health Administration (OSHA) alleging Lockheed Martin violated the Sarbanes-Oxley Act.
- After providing Lockheed with a notice of forced termination, Brown amended her OSHA complaint to allege constructive discharge.
- OSHA investigated and denied Brown's complaint.
- Brown requested and was granted a hearing before a Department of Labor Administrative Law Judge (ALJ).
- The ALJ found in favor of Brown, concluding Lockheed had constructively discharged her in violation of the Act.
- Lockheed Martin, as petitioner, appealed the ALJ's decision to the Administrative Review Board (ARB).
- The ARB affirmed the ALJ's decision in a Final Decision and Order.
- Lockheed Martin then petitioned the United States Court of Appeals for the Tenth Circuit for review of the ARB's order.
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Issue:
Does an employee's report of conduct reasonably believed to constitute mail or wire fraud constitute 'protected activity' under the Sarbanes-Oxley Act's anti-retaliation provision, even if the report does not allege fraud against shareholders?
Opinions:
Majority - Murphy
Yes, an employee's report of conduct reasonably believed to be mail or wire fraud constitutes protected activity under the Sarbanes-Oxley Act's anti-retaliation provision, even if it does not allege shareholder fraud. The plain text of § 1514A(a)(1) lists violations of specific fraud statutes (like mail and wire fraud) separately from the general clause 'any provision of Federal law relating to fraud against shareholders.' To read the shareholder fraud clause as modifying the entire list would render the specific enumerations of mail and wire fraud superfluous, violating a core principle of statutory construction. Even if the text were ambiguous, the court must defer to the Administrative Review Board's permissible interpretation. Substantial evidence also supports the findings that Brown's belief of fraud was objectively reasonable, that she was constructively discharged due to intolerable working conditions, and that her protected activity was a contributing factor in that discharge through temporal proximity and the 'cat's paw' theory, where Owen poisoned the new supervisors against Brown.
Analysis:
This decision significantly clarifies the scope of Sarbanes-Oxley's whistleblower protections by affirming that employees are protected for reporting various forms of corporate fraud, not just those directly harming shareholders. It solidifies the Administrative Review Board's broad interpretation of 'protected activity,' making it easier for employees to bring retaliation claims for reporting suspected mail or wire fraud. The court's application of the 'cat's paw' theory in the SOX context also reinforces that employers cannot escape liability when a biased subordinate influences an otherwise neutral decision-maker. This broadens protections for whistleblowers and increases the burden on companies to ensure retaliatory motives do not infect personnel decisions.
