Sylvester v. Parexel International LLC: Civil Pleading Requirements Do Not Apply to SOX Whistleblower Claims

In Sylvester v. Parexel, ARB Case No. 07-123, the Administrative Review Board (“ARB”) held that an administrative law judge could not dismiss a Sarbanes-Oxley Act (“SOX”) whistleblower claim because it did not have the specificity required by Twombly and Iqbal. Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).  

 Plaintiffs Kathy Sylvester (“Sylvester”) and Theresa Neuschafer (“Neuschafer”) both worked for Parexel International LLC (“Parexel”) in Baltimore, Maryland.  In March 2006, Sylvester and Neuschafer separately reported allegedly false recording of clinical data by employees to Parexel upper management. In the same month, Parexel issued letters of warning to both women.  In May 2006, Sylvester again reported allegedly fraudulent documentation to management.  On June 15, 2006, the Director of Business Operations discharged Sylvester for not being a “team player.”  The Director then fired Neuschafer on August 10, 2006, claiming that her “personality did not fit in.”

In September and October 2006, Sylvester and Neuschafer filed separate whistleblower complaints against Parexel with the Occupational Safety and Health Administration (“OSHA”).  These complaints alleged that Parexel violated SOX by firing them in retaliation for reporting fraudulent acts by Parexel employees.  OSHA dismissed their complaints and the women requested a hearing before an Administrative Law Judge (“ALJ”). Before the hearing, Parexel filed Motions to Dismiss the Complaints pursuant to Fed. R. Civ. P. 12(b)(1), alleging that the women’s allegations did not “fall within the closely prescribed subject matter jurisdiction authorized by Congress for the Department of Labor to hear SOX complaints.” 

In August 2007, the ALJ dismissed the women’s complaints pursuant to Fed. R. Civ. P. 12(b)(1) because the women had not engaged in SOX-protected activities.  More specifically, the ALJ held that the women failed to establish that their actions: “(1) ‘definitely and specifically’ related to a violation of any of the laws covered by SOX Section 806, (2) involved an actual violation by Parexel of any of the laws enumerated in Section 806, (3) involved shareholder fraud, fraud generally, or were otherwise adverse to shareholders’ interests, or (4) constituted reasonable concerns about SOX violations.”  The women then appealed to the Administrative Review Board (“ARB”).

The ARB overturned the ALJ’s decision.  The ARB held that the ALJ had erred in finding that the women had not established subject matter jurisdiction and that the women had provided sufficient allegations of SOX-protected activity to proceed with their complaints.  A whistleblower claim does not require a particular form of complaint, except that it must be in writing and contain a full statement of the acts and omissions, with pertinent dates, which are believed to constitute the violations.  29 C.F.R. § 1980.103(b).  While Twombly and Iqbal require that factual allegations “raise a right to relief above the speculative level” and allow the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged,” the ARB pointed out that these requirements do not apply to SOX allegations.  The complainant need only show that he or she had a subjective belief that the complained-of conduct constituted a violation of relevant law, and that this belief is objectively reasonable.  The court must consider the knowledge available to a reasonable person in the same factual circumstances with the same training and experience as the grieved employee.  Because the ALJ dismissed the claims before an evidentiary hearing, the women did not have the opportunity to present evidence of the reasonableness of their alleged SOX-protected activities.

The ARB explained that the protected activity does not need to describe an actual violation of the law and a SOX complaint does not have to relate to fraud against shareholders.  As a result, the ARB held that Neuschafer and Sylvester had sufficiently pled that they had engaged in protected activity under SOX whistleblower provisions and reversed and remanded the case.

The primary materials for this case may be found on the DU Corporate Governance website.