DOL Allows SOX Claim Where Foreign Whistleblower Alleged Violation of United States Law

The Department of Labor’s Administrative Review Board (ARB) just recently held that a previous staff member of Exelis Systems Corporation who was utilized in Afghanistan might bring a SOX claim even though he worked specifically beyond the United States. Blanchard v. Exelis Systems Corp./ Vectrus Systems Corp., ARB Case No. 15-031 (August 29, 2017). In so ruling, the ARB unlocked to the possible extraterritorial application of SOX, reversing course from its previous choice resolving this exact same issue.

Background

Plaintiff was previously utilized by Exelis as a Security Supervisor. He was stationed in Afghanistan, where his responsibilities consisted of an evaluation of local or foreign nationals who looked for access to a U.S. flying force base. Plaintiff declared that his work was ended (while in Afghanistan) in retaliation for reporting to Exelis’ personnel’s staff that his managers had actually taken part in wire and email scams. Particularly, Complainant reported that his manager had tried to conceal that another worker had enabled an unapproved person to go into the flying force base without the correct qualifications, and directed a private investigator to avoid reporting the security breach to the United States armed forces. He thought that his managers kept or falsified info connecting to the breach, which this incorrect detail, which was sent out to U.S. military workers, made up an offense of U.S. law– particularly, mail and wire scams. He also reported that an indirect manager was working fewer hours than he was reporting on his timesheet, which he also thought made up email and wire scams. Plaintiff consequently submitted a grievance versus the Company with the DOL, declaring that the company broke § 806 of SOX by striking back versus him because of his safeguarded activities.

Holding

Trusting Obama-era ARB precedent, an Administrative Law Judge dismissed the grievance on the premises that the Complainant’s issues occurred from conduct that happened in Afghanistan and SOX § 806 does not use extraterritorially. The ARB reversed, describing that the issue of the extraterritorial application was unneeded in this case because the Complainant asserted accusations that fell within the domestic reach of the statute (i.e. infractions of U.S. mail and wire scams). Appropriately, the ARB held that because the plaintiff’s supposed problems included “a U.S.-based corporation taken part in sending incorrect claims to the United States federal government about U.S. security and military operation on a U.S. flying force base,” his problems “fall directly within the kind of impropriety that both SOX and § 806 intended to hinder.”.

ARB in Dicta Addresses The Potential Extraterritorial Application of SOX

As explained in our previous post, the appropriate requirement in examining the extraterritorial application of a statute emerges from the Supreme Court’s choice in Morrison v. National Australian Bank, Ltd., 130 S. Ct. 2869 (2010). There, the court used a “two-step test” to figure out (1) whether Section 10(b) of the Securities Exchange Act of 1934 (” SEA”) reached extraterritorial claims and, if not, (2) whether the truths declared in the grievance need an impermissible extraterritorial application. The Supreme Court held that, because the SEA did not offer a “clear sign of an extraterritorial application, it has none.”.

Trusting Morrison, the ARB in Villanueva v. Core Labs. NV, Arb. Case No. 09-108 (ARB Dec. 22, 2011) held that SOX does not use extraterritorially. In Villanueva, the complainant (who was utilized beyond the United States) declared that he had been ended for grumbling about his company’s supposed underreporting of taxes due to the Columbia federal government. The ARB held that the plaintiff’s claims of illegal conduct were not secured activity under SOX because his problems worried entirely infractions of foreign laws.

In the Blanchard choice, the ARB (in dicta) explained its previous holding in Villanueva as “suspect” due to the Supreme Court’s current judgment in RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016). In RJR Nabisco, the Supreme Court used the Morrison two-step procedure and held that the Racketeer Influenced and Corrupt Organizations Act (RICO) uses extraterritorially because it includes a variety of predicates that use to foreign conduct, which signified that Congress planned for RICO to use extraterritorially.

Pointing out RJR Nabisco, the ARB specified that because SOX’s anti-retaliation arrangement uses to all business that signs up securities and those that are needed to submit reports under the SEA, its protection consists of “foreign personal providers” that undergo U.S. securities laws because they chose to sell the United States Therefore, the ARB specified that it was “not likely that Congress meant to restrict enforcement of Section 806 to U.S. business and exempt the misbehavior of foreign providers of securities in the United States monetary market” because such an outcome would “provide unjust benefit to foreign companies” and “weaken the twin objectives of SOX to secure both investors of publicly-traded business in addition to the stability of our progressively worldwide and interconnected U.S. monetary system.” The ARB even more kept in mind that the legal history of SOX “includes duplicated recommendations to the interconnectedness and internationalization of nationwide markets” and for that reason concluded that restricting Section 806 to domestic activity “would significantly damage Congress’ restorative function.” The ARB specified that at least 3 of the 6 enumerated kinds of secured activity under SOX (wire scams, securities scams, and scams versus investors) “extend to some foreign conduct.”.

Considerably, the ARB acknowledged that SOX does not cover all foreign conduct of publicly-traded foreign business which “the misbehavior of a foreign issuer/employer under the statute should still ‘impact in some substantial way’ the United States.”.

Ramifications

The ARB’s dicta in Blanchard relating to the prospective extraterritorial application of SOX is straight contrary to its previous choice in Villanueva (which was verified by the 5th Circuit Court of Appeals) and other court choices. Significantly, the ARB did not reverse its previous holding in Villanueva and explained that a SOX whistleblower’s claims of misbehavior need to have a “substantial” effect in the United States. It for that reason stays to be seen whether courts will accord any deference to Blanchard in thinking about the extraterritorial application of SOX. In addition, although not the focus of this post, companies must keep in mind that the ARB in Blanchard continued to broaden the idea of “secured activity” under SOX beyond any possible function related to the statute’s enactment.

DOL Allows SOX Claim Where Foreign Whistleblower Alleged Violation of United States Law.