Kentucky Employment Law Blog

What Must a Credit Union Whistleblower Prove In a Retaliation Case?

The Federal Credit Union Act, 12 U.S.C. sec. 1790b, makes it unlawful to retaliate against a whistleblower who engages in certain protected activity. The statute states as follows:

No insured credit union may discharge or otherwise discriminate against any employee with respect to compensation, terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to the [National Credit Union Administration] Board or the Attorney General regarding any possible violation of any law or regulation by the credit union or any director, officer, or employee of the credit union.

The Fifth Circuit recently identified in Schroeder v. Greater New Orleans Federal Credit Union, No. 10-31169 (December 19, 2011), the elements of a cause of action for violation of this statute as follows: (1) that the plaintiff-employee engaged in a protected activity; (2) that the employer credit union took adverse employment action against him or her; and, (3) that a causal link exists between the protected activity and the adverse employment action.

The Fifth Circuit followed earlier decisions by the First Circuit, Simas v. First Citizens Federal Credit Union, 170 F.3d 37 (1st Cir. 1999), and the Sixth Circuit, McNett v Hardin Community Federal Credit Union, 118 Fed.Appx. 960 (6th Cir. 2004), for this holding.  

Robert L. Abell
www.RobertAbellLaw.com 

RICO Claims Arise From Retaliation Against Corporate Whistleblower, Seventh Circuit Rules

A tax employee, who claimed that he was fired in retaliation for his whistleblowing reports of tax fraud, may pursue claims and remedies under the Racketeering and Corrupt Organizations Act (RICO), 18 U.S.C. secs. 1962(c), (d), the Seventh Circuit ruled recently in DeGuelle v. Camilli, No. 10-2172 (7th Cir., December 15, 2011).  The ruling reversed a district court's dismissal of the case.

Michael DeGuelle was employed in the tax department of S.C. Johnson & Son, Inc., a company with over 120,000 employees world-wide. He learned that the company had received $5 million plus in improper foreign tax credits due to an IRS auditing error. He reported the discovery to his supervisor, Wenzel, who told him to destroy records to keep the IRS from finding out the truth and to alter some relevant returns.  This was the first instance, according to the court's opinion, where records were altered or destroyed and falsified returns mailed to the IRS. The court's opinion recites a number of disturbing instances and transactions that followed in the next few years.

DeGuelle, according to the court's opinion, met with much grief for bringing to light the company's wrongdoing.  His supervisor, Wenzel, became highly antagonistic toward him and, at times, physically aggressive.  DeGuelle received a procedurally irregular and highly negative mid-year performance review that followed only a few months his receipt of an award for outstanding job performance, had the company's human resources department acknowledge that his negative review was in retaliation for his whistleblowing activities, and received an offer to have his attorney's fees paid in exchange for signing a release of claims and confidentiality agreement the same day that he said that he would file a Sarbanes-Oxley whistleblower complaint with the Department of Labor.  DeGuelle did file a complaint with the DOL and attached financial statements, tax documents and internal emails to his complaint.  Subsequently, he was offered one year salary in exchange for his resignation, release of all claims and signing of a confidentiality agreement.  Subsequently and after DeGuelle declined the resignation etc. offer, he was fired for wrongfully taking and disclosing company documents and for being untruthful during the company's investigation of his reports.  

DeGuelle filed suit following his termination and pleaded various claims including two under RICO, 18 U.S.C. 1962(c) and (d). The district court dismissed his claims on the grounds that the retaliation against DeGuelle was unrelated to his reports of alleged tax fraud by his employer. This remarkably erroneous ruling was met with strong criticism by the Seventh Circuit:

When an employer retaliates against an employee, there is always an underlying motivation. In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme. Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Although there may not be the same victims or results, in most cases retaliatory acts and the underlying scheme "are interreleated by distinguishing characteristics and are not isolated events."  

Accordingly, the Seventh Circuit reinstated DeGuelle's RICO claims and rejected decisions by other courts that have not permitted RICO claims in similar circumstances.  

Although the court's opinion is not clear exactly what company documents the employer claimed that DeGuelle wrongfully possessed and/or disclosed, if those documents are the ones that DeGuelle tendered with his whistleblower complaint to the Department of Labor, the company's reliance on that disclosure may raise some of the issues discussed in an earlier post on this blog, Can A Policy Violation Also Be Protected Activity?

Robert L. Abell
www.RobertAbellLaw.com 

Whistleblower To Receive $48.7 Million In Government Contract Fraud Settlement

A whistleblower, who claimed in a suit under the False Claims Act that TRW knowingly sold defective electronic parts to the government for use in spy satellites, will receive $48.7 million as part of a settlement between the Northrup Grumman Corporation, which acquired TRW, and the government according to a report in the Los Angeles Times, "Northrup Grumman - TRW Whistleblower Case Settled." Tthe False Claims Act allows private suits by persons not affiliated with the government to sue government contractors on behalf of the government. Successful claimants may receive 15 - 25% of the total settlement or recovery.

Robert L. Abell
www.RobertAbellLaw.com

L-3 Communications Whistleblower To Receive $720,000 Of Share Of Settlement

A whistleblower, an employee, Buster Roderigas, of an L-3 Communications subsidiary, L-3 Vertex Aerospace, will receive $720,00 of the company's $4 million settlement with the Department of Defense, the Atlanta Journal-Constitution reports, "Whistle-blower Shares Settlement."  Roderigas protected the public by blowing the whistle on fraudulent bills the company submitted for helicopter maintenance services on a contract in Iraq.  Roderigas will also receive $318,000 to cover his attorney's fees in the case.  

When an private company employee blows the whistle on fraudulent billing submitted to the federal government and, as a result, the government recovers some of the money, the employee is entitled under the law to a percentage.  The law serves to protect the public by giving employees, who are positioned to blow the whistle, incentive to do so.  It is unlawful for a company to retaliate against an employee who has blown the whistle in this way. 

Robert L. Abell

www.RobertAbellLaw.com 

Kentucky Whistleblower Act Protects Employees That Threaten To Report Government Wrongdoing

The Kentucky Whistleblower's Act protects employees that threaten to report wrongdoing within a government agency, department or cabinet, the Kentucky Supreme Court has ruled in Consolidated Infrastructure Management Authority, Inc. v. Allen, No. 2006-SC-000188-DG (November 26, 2008).  

Thomas Allen was the Safety Director for Consolidated Infrastructure Management Authority, a joint venture of the cities of Russellville and Auburn to administer water and sewer services.  During an inspection of the facilities he noticed numerous safety violations and twice reported them to CIMA's Board of Directors, stating that if they were not timely remedied he would request a survey from OSHA.  Three months after his second report to the Board, Allen was told that he was being "laid off" due to financial constraints.  He then made his report to OSHA, which performed a survey, found numerous violations and imposed fines.

Allen filed suit and claimed that he was terminated in violation of the Kentucky Whistleblower's Act. CIMA argued that Allen never made an actual report to OSHA before he was terminated.  The Court rejected that argument, holding that a protected "disclosure not only occurs when a report is actually made, but also when the threat of a report is made."  

Robert L. Abell

www.RobertAbellLaw.com 

Kentucky Whistleblower's Act Applies To An Employee's Internal Report

When an employee becomes aware of actual or possible wrongdoing in their agency or department, their initial and most logical inclination is to report the matter to those persons in the agency or department with power to investigate and remedy the matter.  The Kentucky Supreme Court has ruled in Workforce Dev. Cabinet v. Gaines, No. 2005-SC-000965-DG (November 26, 2008) that such an internal report with the employee's own agency, department or cabinet is protected by the Kentucky Whistleblower's Act.

Mary Gaines, an auditor in the Jefferson County office of the Division of Unemployment Insurance within the Workforce Development Cabinet, reported the possible wrongful destruction of confidential documents to a Cabinet lawyer who, in turn, further reported the matter to James Thompson, Commissioner of the Department for Employment Services within the Cabinet.  Two days later, Gaines suffered what she alleged was a wrongful and retaliatory transfer

The issue before th Kentucky Supreme Court was whether Gaines's internal report through the Cabinet channels was a protected report under the Kentucky Whistleblower's Act.  The Court began its analysis by examining the purpose of the whistleblower's act:

The Act has a remedial purpose in protecting public employees who disclose wrongdoing.  It serves to discourage wrongdoing in government, and to protect those who made it public.  The purpose of the Whistleblower Act is clear, and it must be liberally construed to serve that purpose.

After considering the persons and entitles specifically listed to whom a protected report may be made, the Court decided whether language protecting a report to "any other appropriate body or authority" could include an employee's own agency, department or cabinet.  The Court asserted that to conclude otherwise would be "absurd," since an "internal report is often the most logical first step, and in many cases may be the only step necessary to remedy the situation."  Therefore, the Court advised and ruled as follows:

We believe that "any other appropriate body or authority" should be read to include any public body or authority with the power to remedy or report the perceived misconduct.  This interpretation serves the goals or liberally construing the Whistleblower Act in favor of its remedial purpose, and of giving words their plain meaning.  Generally, the most obvious public body with the power to remedy perceived misconduct is the employee's own agency (or the larger department or cabinet).

Robert L. Abell
www.RobertAbellLaw.com

Employee Fired For Reporting Co-Employee's Illegal Acts May Sue

An employee fired for reporting a co-employee's illegal acts relating to their employment may sue for wrongful termination and retaliatory discharge, the Mississippi Supreme Court ruled recently in DeCarlo v. Bonus Stores, Inc. (No. 2007-FC-02287-SCT).

DeCarlo learned that the company CEO was defrauding the company.  He reported this information to the company's CFO and several members of the company's board of directors.  He was fired and filed a wrongful termination lawsuit for retaliatory discharge.  The court ruled that his claim presented an exception to the employment-at-will doctrine and that a wrongful termination claim arose from a "discharge in retaliation for reporting a co-employee's illegal acts that relate to the employer's business." 

Robert L. Abell
www.RobertAbellLaw.com