Co-authored by Jason F. Clouser.
Plaintiff Benjamin Ashmore brought a claim alleging that defendants CGI Group Inc. (CGI) and CGI Federal Inc. (CGI Federal) violated Section 806 of the Sarbanes-Oxley Act, otherwise known as the whistleblower provision. The U.S. District Court for the Southern District of New York denied the defendants’ motion to dismiss, rejecting the argument that plaintiff’s objections to an allegedly fraudulent scheme were not sufficiently specific under § 806. The court also rejected arguments that amendments to Section 806 enacted under the the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) not be applied retroactively.
The case involved an alleged scheme to evade a potential HUD requirement limiting the number of housing units to which private subcontractors such as defendants could provide administrative services. After HUD announced that it was considering a 300,000 unit cap on the number of units that any private subcontractor could administer, plaintiff, an employee of CGI Federal at the time, allegedly learned that a team of CGI Federal employees had developed a scheme to evade the cap. Under the scheme, which never went into effect because HUD decided against imposing the cap, CGI Federal directors would resign their positions and set up new independent companies to acquire unit contracts. CGI Federal would later acquire these companies, and with them, their contracts, thus evading the cap.
In applying Section 806 to the facts and circumstances of the case, the defendants unsuccessfully challenged the sufficiency of two allegations. As for the first allegation, a whistleblower claim requires that the plaintiff engaged in protected activity. The court held that plaintiff’s belief that the scheme constituted mail and/or wire fraud was objectively and subjectively reasonable, and his communications relaying this belief to the defendants were sufficiently specific to afford him protection under the statute. He was not required to describe to defendants how the relevant conduct violated the statute.
As for the second requirement, a whistleblower claim requires that the employer knew of or suspected, actually or constructively, the protected activity. The court held that a plaintiff need only demonstrate that he communicated his reasonable belief as to the illegality of the company’s conduct to his employer. Plaintiff’s complaint met this requirement by alleging “how, when and to whom” he communicated his objections to the alleged scheme.
Congress amended Section 806 to explicitly apply the whistleblower provision to employees of those private subsidiaries of public companies that report financial information included in the consolidated financial statements of the public company. The defendants contended that the provision should not apply retroactively to the plaintiff, as his employment was terminated on June 16, 2010, while the amendment came into effect on July 22, 2010. The court accepted the plaintiff’s argument that the 2010 amendment clarified, rather than substantively altered, the meaning of Section 806. As a result, the general presumption against retroactivity should not apply. Similarly, as a result of the retroactivity, the court considered plaintiff’s complaint timely despite the fact that he filed it 177 days after the alleged violation occurred. As of his termination, whistleblowers had 90 days to file their complaints. However, the Dodd-Frank Act doubled this period, giving whistleblowers 180 days to file complaints.
Ashmore v. CGI Group Inc., No. 11 Civ. 8611(LBS), 2012 WL 2148899 (S.D.N.Y. June 12, 2012).