10th Circuit Affirms SOX Whistleblower Ruling

Eric Paltell
Eric Paltell

On June 4, 2013, the United States Court of Appeals for the 10th Circuit affirmed a ruling by the United States Department of Labor’s Administrative  Review Board and held that Lockheed Martin violated the Sarbanes-Oxley Act (“SOX”) by constructively discharging an employee after she complained about an executive who allegedly had sexual affairs with soldiers she met through the company’s pen-pal program.  Lockheed Martin Corp. v. ARB, 10th Cir No. 11-9524 (June 4, 2013).   The case is significant because the Court of Appeals rejected Lockheed’s contention that SOX protects only complaints of mail or wire fraud that are related to shareholder fraud. Additionally, the 10th Circuit adopted the “cat’s paw” theory of liability, concluding that an employer could be liable for SOX violations, even if the decision-makers were not aware of the discharged employee’s whistleblower activity, but were influenced by reports from other managers who were aware of the protected conduct.

The case arose out of a complaint filed with the Department of Labor by Andrea Brown, Lockheed’s Director of Communications in Colorado Springs, Colorado. Brown learned that Wendy Owen, Lockheed’s Vice  President of Communications, was allegedly having sexual relationships with soldiers  stationed in Iraq who corresponded with employees through a company pen-pal program. After Brown submitted an anonymous complaint about Owen’s alleged behavior, Brown claims that she was subjected to an array of adverse actions, including lower performance reviews, loss of her title, loss of responsibilities, exclusion from meetings, and reassignment to a less desirable office. After filing a whistleblower complaint under the Sarbanes-Oxley Act the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) in January 2008, Brown resigned, alleging she was constructively discharged by Lockheed.

Although OSHA initially denied her complaint, Brown requested a hearing before an administrative law judge, who ruled in her favor and awarded her reinstatement, back pay, medical expenses, attorneys fees, and $75,000 for emotional pain and suffering. The award was confirmed by the Labor Department’s Administrative Review Board, and Lockheed subsequently appealed the case to the 10th Circuit.

Under the Sarbanes-Oxley act (“SOX”), employees are protected from retaliation for reporting conduct which they reasonably believe constitutes mail, wire, bank, or securities fraud; a violation of any Securities and Exchange  Commission or regulation; or a violation of “any provision of federal law relating to fraud against shareholders.” 18 U.S.C. §1514 A (a)(1). The Court of Appeals affirmed the ARB’s conclusion that Brown had presented sufficient evidence to show that she reasonably believed Owen’ sactivities constituted mail or wire fraud. The Court agreed there was sufficient evidence showing that Brown had “communicated a reasonable belief that Owen was fraudulently and illegally diverting company funds for her personal use, and that she was using the company’s pen-pal program to perpetuate that scheme.”

This decision continues a recent trend by both the Administrative Review  Board and appellate courts to take a more expansive reading of the protections afforded whistleblowers under the Sarbanes-Oxley Act than had previously been taken under the administration of President George  W. Bush. Given the actions the National Labor Relations Board, the Department of Labor, and the Equal Employment Opportunity Commission under the Obama administration, it is no surprise to see this trend.


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