- S.D.N.Y. Dismisses SOX Whistleblower Case, Applying Strict Protected Activity Standard And Finding No Causation
- December 18, 2013 | Authors: Steven J. Pearlman; Daniel L. Saperstein
- Law Firms: Proskauer Rose LLP - Chicago Office ; Proskauer Rose LLP - New York Office
On December 12, 2013, the U.S. District Court for the Southern District of New York granted an employer summary judgment on a long-running SOX whistleblower claim. Sharkey v. J.P. Morgan Chase & Co., No. 10-cv-3824 (S.D.N.Y. Dec. 12, 2013). The court ruled that (i) Plaintiff Jennifer Sharkey (Plaintiff) had not engaged in protected activity because her complaints did not “definitively and specifically” relate to any category of misconduct set forth in Section 806 of SOX, and (ii) her complaints did not contribute to the decision to terminate her employment, rejecting Plaintiff’s reliance on temporal proximity.
Plaintiff worked as a Private Health Manager (PHM) in the Private Wealth Management Division of Defendant J.P. Morgan Chase & Co. (Company). One of responsibilities was to “Know Your Customer” (KYC), which required her to identify potential “high risk factors” with regard to clients. In the course of the KYC process for a client, Plaintiff allegedly expressed concerns to her supervisor and the Risk Department that the client might be engaging in money laundering and violating the Patriot Act. Plaintiff’s supervisor initially agreed to terminate the Company’s relationship with the client based on Plaintiff’s contention that the client had not furnished all of the requested KYC documentation. However, the Company later learned that Plaintiff did not inform the client that those documents were missing. When so informed, the client promptly provided all of the information necessary to complete the KYC process and, upon doing so, was reinstated as a client.
Meanwhile, over the years, Plaintiff’s superiors voiced concerns about the quality of her work performance, focusing on her understanding of various financial products, as well as the nature of her interactions with clients. She also did not pass the Series 7 exam on her first two attempts. Plaintiff also was placed on a “watch list” of “people who were struggling.” The Company held at least two meetings to discuss these issues with her.
The Company ultimately decided to terminate Plaintiff’s employment when she admitted to lying to her supervisor regarding whether she had returned a manager’s call. The individuals who made the termination decision did not consider Plaintiff’s purported concerns about the client. Plaintiff filed suit under Section 806 of SOX, alleging her employment was terminated based on her report of the client’s alleged unlawful activity.
First, the court concluded that Plaintiff had not engaged in protected activity because she her allegations regarding client misconduct did not “definitively and specifically” relate to one of the six categories of misconduct enumerated in Section 806 of SOX. In this regard, the court stressed that Plaintiff did not “explain how her facts support a scheme or artifice to defraud, fraudulent intent, who was being defrauded by Client A, the nature of the purported fraud, or most importantly, how these allegations meet the elements of the enumerated categories required under SOX.” Rather, according to the court, alleged money laundering and violations of the Patriot Act do not “reasonably identify” cognizable conduct under the enumerated categories.
Second, the court found that Plaintiff did not possess a “subjectively reasonable” belief that she engaged in protected activity, as she merely felt “uncomfortable” with certain aspects of the client’s businesses. In so finding, the court emphasized that Plaintiff was a PHM with over a decade of experience in the financial industry who, despite her complaints, still recommended retaining some of the client’s business and did not make her belief of illegal activity sufficiently explicit. Moreover, the court reasoned that the steps the Company took to initially exit the relationship with the client were contrary to Plaintiff’s assertions.
Finally, the court noted that, even if Plaintiff had engaged in protected activity, her complaints did not contribute to the decision to terminate her employment. The court noted that “temporal proximity” alone does not establish causation and even if Plaintiff had begun “blowing the whistle” on around three months prior to her discharge, that timeframe was insufficient to establish causation. Rather, the court determined that there was a “legitimate intervening basis” for Plaintiff’s termination—lying to her supervisor and performance issues—and that no evidence otherwise existed to tie Plaintiff’s complaint to her termination.
This decision is a positive development for employers for several important reasons. As we have discussed in multiple posts, federal circuit courts of appeal are split as whether a plaintiff must show that alleged misconduct “definitively and specifically” relates to one of the six categories enumerated in Section 806 of SOX, and this court embraced the more rigorous standard. The court also accepted the Company’s challenges to causation, concluding that its legitimate-non-retaliatory reasons for termination compelled dismissal of the claim. We will report on future courts’ reliance on this well-reasoned decision for our readers as well as whether any appellate activity ensues.