SOX Whistleblowers Protection

PROTECTED ACTIVITY; CHEMIST’S DISCLOSURE OF PURPORTED VIOLATION OF FDA CONSENT DECREE, FDA AND EU REGULATIONS, AND OTHER DRUG MANUFACTURING GUIDELINES FOUND NOT PROTECTED ACTIVITY UNDER SOX

In Portes v. Wyeth Pharmaceuticals, Inc., No. 06-CV-2689 (S.D.N.Y. Aug. 20, 2007), the court accepted as true (for purposes of the motion) that the terminated employee was a chemist, and the principle project manager for a “Sustainable Compliance Initiative” that was established as the result of a consent decree entered into with the FDA after the Defendant had failed to comply with certain FDA regulations, including good manufacturing practices for the production of pharmaceutical and biological products. The Plaintiff uncovered problems with his direct supervisor’s work, leading him to believe that the Defendant was in violation of the consent decree, and certain federal and EU regulations. He communicated his findings to a higher level supervisor, who allegedly retaliated against him. After being placed on a PIP, the Complainant filed additional complaints through various channels at the Defendant alleging violations of regulations relating to the manufacture of pharmaceuticals and complaining of “whistleblower” retaliation. The Plaintiff was eventually terminated as a result of those disclosures and complaints.

The Defendant moved for summary judgment based on a contention that the Plaintiff did not engage in protected activity under the SOX because none of his reports were sufficiently related to securities fraud or any violation enumerated in section 1514A(a)(1). The court agreed.

The court closely followed the analysis from Fraser v. Fiduciary Trust Co. Int’l, 417 F.Supp.2d 310 (S.D.N.Y.2006), which protected disclosures under SOX only when they “implicate the substantive law protected in Sarbanes-Oxley ‘definitively and specifically.’” Slip op. at 7 (citations omitted). The Plaintiff argued that if the Defendant had violated regulations, it faced fines and other penalties that might have significantly affected share prices. He also asserted that, in light of prior references to the consent decree in financial reports, he had a reasonable belief that the company was obligated to report the violations to the FDA, SEC, and shareholders. He did not, however, allege that he explicitly referred to fraud, shareholders, securities, statements to the SEC, or SOX in his disclosures to his superiors at the Defendant. The court stated that the purported violations involved the consent decree, FDA and EU regulations, and other drug manufacturing guidelines, and not federal law related to fraud against shareholders. Thus, the court found that the disclosures were not sufficiently related to shareholder fraud to constitute protected activity.

The Court found that the circumstances did not suggest a concern that the Defendant was being unfair to its investors, that its lack of compliance with FDA regulations might have implications for its reports to investors and the SEC, or that it was otherwise engaged in conduct that would have alerted it that the Plaintiff believed that the Defendant was violating a federal rule or law related to fraud against shareholders.

The court observed that the Plaintiff was employed as a chemist and project manager implementing standards for drug manufacturing, and not as an investment analyst. Thus, the court would not infer that the Plaintiff was concerned with shareholder fraud based on the nature of his job responsibilities or his work.

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