SOX Whistleblowing Complaints Given Narrow Definition by New York Court

Sarbanes-Oxley whistleblowers were dealt a setback earlier this month by the decision of the U.S. District Court for the Southern District of New York dealt in the case of Nielsen v. AECOM Technology Corp., et al. The decision was significant because the Court applied the standard that has been adopted by the 2nd, 5th and 6th Circuits of the U.S. Court of Appeals, which requires that in order for a whistleblower to have engaged in “protected activity” under the Sarbanes-Oxley Act of 2002 (“SOX”), the whistleblowing communications must have “definitively and specifically” related to one of the six enumerated categories of fraud or securities violations in 18 U.S.C. § 1514(a)(1).

The lawsuit was filed by Christian Nielsen, formerly employed as a Fire Engineering Manager for AME, an entity incorporated in the Bailiwick of Jersey, a British Crown Dependency just off the coast of Normandy, France. AME is a wholly-owned subsidiary of AECOM International Consultants Limited ("AIC"), an entity incorporated also incorporated in Jersey. AIC is a wholly-owned subsidiary of AECOM Global, Inc., which is a wholly-owned subsidiary of AECOM. AECOM is a publicly-traded company located in the United States.

In his complaint, Nielsen alleged that about a year after he started working for AME, he discovered that one of his subordinates had allowed more than twenty fire safety designs to be approved without undergoing the requisite review process. Two months later, having met with several supervisors to register his complaints, to no apparent effect, Nielsen informed two members of AME management that if the company did not rectify the fire safety issue, he would resign from AME. AME responded by terminating his employment. Nielsen filed a complaint with the Occupational Safety and Health Administration (“OSHA”) of the Department of Labor (“DOL”), alleging that his termination constituted a violation of the SOX anti-retaliation provisions. OSHA dismissed the complaint, and Nielsen requested a hearing with a DOL administrative law judge (“ALJ”). The ALJ dismissed Nielsen’s claim as well. Nielsen thereafter filed a lawsuit in federal court.

Citing the Second Circuit decision in Vodopia v. Koninklijke Phillips Elecs., N.V., 398 F. App'x 659, 662-663 (2d Cir. Oct. 25, 2010), the Court held that “to constitute protected activity, the employee's communications must definitively and specifically relate to one of the listed categories of fraud or securities violations in 18 U.S.C. § 1514(a)(1).” Moreover, citing Riddle v. First Tenn. Bank, Nat'l Ass'n, No. 11-6277, 2012 WL 3799231, at *8 (6th Cir. Aug. 31, 2012), the Court noted that “To have an objectively reasonable belief that there has been shareholder fraud, the complaining employee's theory of such fraud must at least approximate the basic elements of a claim of securities fraud ... Thus, the employee must have an objectively reasonable belief that the company intentionally misrepresented or omitted certain facts to investors, which were material and risked loss.” However, see our previous blog about the Riddle decision for an explanation for how this interpretation of protected activity under SOX is flawed.

The Court found that there was no allegation or indication that AME or AECOM represented anything at all about its approval procedures for fire safety drawings to its shareholders. Barring any such allegations, and barring any credible allegations that Nielsen believed the fire safety drawings constituted a violation of one of the other enumerated categories of fraud in 18 U.S.C. § 1514(a)(1), the Court found that there was no way for Nielsen to plausibly allege that he engaged in “protected activity” under SOX. Accordingly, the Court dismissed the complaint.