On May 1, 2013, the U.S. District Court for the Southern District of New York (“SDNY”) joined a growing number of courts across the country in liberalizing the requirements for a whistleblower’s communications to constitute “protected activity” under the Sarbanes-Oxley Act of 2002 (“SOX”).
In Leshinsky v. Telvent GIT, S.A., et al., the SDNY applied the liberalized standard set forth by the Administrative Review Board (“ARB”) of the Department of Labor (“DOL”) in 2011 in Sylvester v. Parexel, and rejected Telvent’s motion for summary judgment upon determining that the plaintiff, Phillip Leshinsky, had introduced sufficient evidence for a reasonable jury to determine that Telvent had illegally retaliated against him in violation of the whistleblower protection provisions of SOX.
Prior to his termination, Leshinsky worked for Farradyne, a company which had recently been acquired by Telvent GIT, a publicly traded company. While working on a project in which the company was bidding on a toll-system maintenance contract, Leshinsky alleges that employees of the company discussed submitting a fraudulent overhead rate in an effort to obtain the contract. After the meeting, Leshinsky informed his supervisor, Glenn Deitiker, of his belief that submitting such a bid might be illegal. Leshinsky alleges that Deitiker grew upset with him and ended the meeting. Over the course of the next several months, Deitiker and others marginalized Leshinsky at work he was finally laid off after a supervisor wrote a memorandum stating that Leshinsky had “lost all interest in being part of the team.”
Telvent moved for summary judgment arguing that because Leshinsky had only told one supervisor on one occasion that the proposed strategy of submitting a fraudulent ovehead rate was “unethical, certainly immoral and may even be illegal,” he had not met the standard set forth by the ARB in Platone v. FLYi, Inc. and adopted by the U.S. Court of Appeals for the Second Circuit in Vodopia v. Koninklijke Phipps Elecs. That standard required that SOX plaintiffs demonstrate that their complaints “definitively and specifically” related to one of the enumerated elements of fraud set forth by SOX.
The court noted, however, that the ARB had explicitly overturned its Platone holding in its Sylvester decision, which liberalized the standard to require only that a complainant show that he “had both a subjective belief and an objectively reasonable belief that the conduct he complained of constituted a violation of relevant law.” The court adopted the Sylvester standard, and concluded that Leshinsky’s expressed concern about the legality of the overhead scheme was sufficient for a jury to determine that he expressed a subjective and objectively reasonable belief that the company would be participating in mail and/or wire fraud by submitting their fraudulent bid.
In reaching this result, the Court agreed with the ARB in Sylvester (and the Third Circuit in Wiest v. Lynch) that protected activity includes concerns about fraudulent activity that has not yet occurred. The court also agreed with the ARB that protected activity under SOX includes reports to a superior even when that superior is implicated in the reported conduct.
According to Debra S. Katz, a partner with Katz, Marshall & Banks, LLP, which specializes in SOX and other whistleblower cases, “this decision – which correctly defines protected activity under SOX in a broad and expansive manner – is in keeping with Congress' purpose in passing SOX: to protect shareholders and the public from fraudulent conduct by publicly traded companies.” Katz added that “this decision is particularly important given the location of the District Court. The SDNY is the district containing New York City, where many large financial service companies conduct business.”