Upholding a jury verdict in favor of a former U.S. Bancorp certified financial planner, the Sixth Circuit adopts the majority rule under the Sarbanes-Oxley Act (SOX) that – for a retaliation claim – employees need only show that they had an objectively reasonable belief, based on a totality of the circumstances, that they were reporting actionable fraud to a supervisor under § 1514A(a)(1). The panel rejects a standard, previously adopted in a nonprecedential opinion, that the employee’s complaint “must definitively and specifically relate to one of the six enumerated categories” of fraud by “approximat[ing] the basic elements” of the fraud claim.
Rhinehimer v. U.S. Bancorp Investments, Inc., No. 13-6641 (6th Cir. May 28, 2015): As the panel opinion summarizes, this “case was tried to a jury over five days in 2013. At trial, Plaintiff presented evidence that he was disciplined and fired in retaliation for an email he sent alerting one of his superiors to unsuitable trades made by a co-worker [Harrigan], to the detriment of Plaintiff’s elderly client [Purcell].” Purcell, an investor in his mid-90s, had been Rinehimers client for ten years. Before going on disability leave, Rhinehimer transacted a transfer of some funds from a trust to a conservative, low-cost bond-fund in Rinehimers name.
During his leave, Rinehimers personal assistant called to tell him that another advisor, Harrigan, withdrew some of Purcell’s trust assets and invested them in more expensive funds. Rhinehimer believed that the investments were contrary to the client’s estate plan. Moreover, “Plaintiff also testified that the trade placed by Harrigan resulted in significantly more compensation to the firm and to the broker than the trade he had placed for Purcell the previous year.”
Rhinehimer called his immediate supervisor (Harper) and emailed a supervising principal (Gattermeyer) protesting the transactions. In the email, he wrote:
“I’m sure you know how upset I am over pat h totally disregarding our agreement to leave Norbert [Purcell] alone, not only did he not, he did it behind mine & [his personal assistant] Becky’s back…. in doing so he destroyed his estate plan…. Norbert now has over 1.5 million exposed to probate. the brokerage account ( which is under my rep code as are the worthless, inappropriate [sic] trades that has [sic] lost 30 or 40 k in seven days) needs to be tod [transfer on death] to trust or re-registered to trust. pat is untrained, uneducated, irresponsible [sic] & careless…. please keep this between us……. those trades should have NEVER been placed let alone approved.”
Upon his return to work, Rhinehimer was reprimanded by Harper and Gattermeyer for his “unprofessional” email, which prompted a FINRA investigation. Months later, his new supervisor called him into a closed-door meeting about the investigation. “After Plaintiff admitted that he had contacted an attorney, Eckman told him that his career at USBII was over, and that if he sued the bank his career in the city would be over.” Rhinehimer was placed on probation and fired a few months later.
At trial, the jury was instructed on the elements of a SOX violation:
“The district court accepted Defendant’s statement of the legal standard and instructed the jury that Plaintiff must show that he had ‘an objectively reasonable belief’ that each of the elements of unsuitability fraud ‘existed in connection with the sale by Mr. Harrigan to Mr. Purcell.’ (R. 114, Jury Instructions, PGID 3844-45.) Plaintiff unsuccessfully argued for a lower standard, citing jurisprudential developments that we will shortly discuss in depth. On appeal, Defendant argues that Plaintiff cannot show he had adequate information to form a reasonable belief that USBII intentionally or with reckless disregard misrepresented or omitted material facts in its communications with Purcell about the trades.”
Rhinehimer won a verdict of $250,000 at trial.
The Sixth Circuit affirms the judgment. Despite that nneither party challenged the instruction on appeal, the panel exercises its authority to review the question of whether the instruction accurately stated the law. The instruction was based on a prior, nonprecedential opinion of the Sixth Circuit (Riddle), which in turn relied upon a 2006 opinion of the Administrative Review Board of the U.S. Department of Labor (“ARB”). The 2006 opinion (Platone) was later superseded by a 2011 opinion of the ARB (Sylvester), which held that an employee’s complaint need not “definitively and specifically” relate to an enumerated legal violation.
The Sixth Circuit holds that the Sylvester opinion states the correct rule. Noting that the There federal courts of appeal had retreated from the “definitively and specifically” standard since Sylvester – and that the Sixth Circuit had never addressed the standard in a published opinion – the panel holds that the ARB’s decision warranted at least Skidmore deference.
It also holds that the ARB’s analysis in Sylvester was a correct interpretation:
“The text and design of § 1514A does not suggest any heightened showing of a factual basis for the suspected fraud. The statute prohibits retaliation for ‘any lawful act done by the employee . . . to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation’ of the enumerated provisions. § 1514A(a)(1). Indeed, at every juncture, the statute sweeps broadly, encompassing a wide swath of acts, limited only by their legality, to provide information or assistance to an investigation ‘regarding any conduct’ reasonably believed by the employee to constitute a violation of relevant law.”
Thus, applying this standard, the panel holds that the record supported the jury verdict, because Rhinehimer presented evidence that he had an objectively reasonable belief that Harrigan engaged in unsuitability fraud:
“Although it is true that Plaintiff had no specific knowledge of whether Harrigan had omitted or misrepresented material information in his communications with Purcell, much less any knowledge of whether Harrigan did so intentionally or with reckless disregard, these gaps in Plaintiff’s knowledge are immaterial. Even if, in fact, everything about the trades were above board, courts universally recognize that § 1514A protects employees who reasonably but mistakenly believe that the conduct at issue constitutes a violation of relevant law.”