Connecticut Court Clarifies SOX Whistleblower Pleading Standard

by Proskauer - Whistleblowing & Retaliation
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On December 15, 2015, the District of Connecticut refused to dismiss a SOX whistleblower retaliation claim, ruling that:  (1) the heightened Rule 9(b) pleading standard for fraud claims does not apply to SOX whistleblower retaliation claims; and (2) to plead a “reasonable belief,” a SOX whistleblower plaintiff needs to show that her claim at least approximately satisfied the elements of a claim under the securities laws that allegedly were violated (i.e., that it is sufficiently “tethered” to a claim for a securities law violation).  Wiggins v. ING U.S., Inc., No. 14-cv-01089.

Background

Plaintiff Eva Wiggins was an Operations Consultant at ING (Company).  She alleged that the Company terminated her employment after she raised concerns about irregularities in the processing of terminated retirement plans which she purportedly believed violated federal securities laws, including “frequent inaccuracies in market value assessments on retirement plans that were being terminated and sent to other providers, incorrect and inconsistent application of deferred sales charges, and deliberately failing to provide identified ‘problem’ files for quarterly auditing procedures.”  She subsequently filed suit under the SOX and Dodd-Frank whistleblower protection provisions, claiming she was retaliated against for her internal complaints.

Ruling

The Company moved to dismiss Plaintiff’s SOX whistleblower claim, arguing that Plaintiff must meet the heightened pleading requirement under Rule 9(b) with respect to allegations of fraud, which underlie the claim.  Rejecting this argument, the court reasoned that because SOX protects employees who only “reasonably believe” fraud is occurring—even if the complained-of conduct turns out not to be fraudulent—Rule 9(b) does not apply.

The court also rejected the Company’s argument that Plaintiff failed to allege that her belief of wrongdoing was objectively reasonable.  Analyzing the ARB’s decision in Sylvester v. Parexel International LLC, (ARB May 25, 2011) and the Second Circuit’s decision in Nielsen v. AECOM Technology Corp. (2d Cir. 2014) (here is our post on that decision), the court concluded that a SOX whistleblower must allege that she believed her employer’s actions at least approximately satisfied the elements of a claim under the securities laws allegedly violated.  Ultimately, the court concluded that “[a]lthough the Amended Complaint could be drafted with more specificity, it is not so vague or conclusory as to render it deficient for lack of ‘tethering,’” and the court added that “the Amended Complaint sufficiently tethers the behavior that Wiggins believed was illegal to the federal statutes or SEC rules that she believed ING’s conduct violated.”

Implications

Wiggins is a mixed bag for employers.  On the one hand, the court set forth a less demanding pleading standard for SOX whistleblower plaintiffs, not requiring satisfaction of a Rule 9(b) pleading standard.  But, on the other hand, the court still required SOX whistleblower plaintiffs to show that the employer’s complained-of conduct at least approximately satisfies the elements of a claim for a violation of the federal securities law at issue.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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