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Legal Report December 2013


WHISTLEBLOWERS. A federal appeals court has ruled that the whistleblower provisions of the Sarbanes Oxley act apply to employees of publicly traded companies who report fraud, even if that fraud does not relate to company shareholders.

Andrea Brown was employed as a communications director by Lockheed Martin from 2000 to 2008. In 2003, Brown worked in Colorado Springs, Colorado, and reported directly to Wendy Owen, vice president of communications.

In May 2006, Brown began having trouble getting responses from Owen. Brown asked two coworkers why Owen was hard to get in touch with, and they told her that through a program in which Lockheed employees could become “pen pals” with members of the military stationed in Iraq, Owen had apparently developed sexual relationships with several soldiers. Owen sent the men inappropriate and expensive gifts, including a laptop purchased by the company. Owen also traveled to welcome-home ceremonies for soldiers, presumably on company business. When there, Owen would rent limousines to drive the soldiers to expensive hotels. Most of the expenses incurred by Owen were passed on to Lockheed’s customers, in this case, the federal government.

Brown took that information to Lockheed’s vice president of human resources, Jan Moncallo. Moncallo filed an anonymous ethics complaint on Brown’s behalf. Lockheed investigated Owen for a month before discontinuing the pen pal program. The company transferred Owen to another position, but she retained her previous title.

Owen asked Brown who had reported her. Brown admitted to having told Moncallo “a few things” but denied filing a complaint. After this discussion, Brown’s performance reviews suffered. Brown was asked to vacate her office and was told to either work at home or use the visitor’s office, which doubled as a storage room. She was also prohibited from attending a communications conference, though she had attended in the past and was scheduled to receive an award.

On January 3, 2008, Brown came into the office to find the visitor’s office occupied. When Brown complained, she was told that a cubicle was being sought for her to work in. Brown noted that as an employee with supervisory responsibilities, she should have an office. Brown was told that she was being stripped of her supervisor status. Brown subsequently had an emotional breakdown. She became depressed and took medical leave. Eventually, Brown filed a notice of forced termination with the company, claiming that her poor working conditions had given her no choice but to resign.

Brown filed a complaint with the Occupational Safety and Health Administration (OSHA), claiming that she was retaliated against for filing a complaint under the Sarbanes-Oxley Act. OSHA, which handles Sarbanes-Oxley complaints for the Department of Labor, denied Brown’s complaint. Brown filed an appeal with the Office of Administrative Law Judges (ALJ).

The ALJ found that Brown had engaged in protected activity and had suffered adverse employment actions because of her complaint. The ALJ awarded Brown reinstatement, back pay, medical expenses, and $75,000 in compensatory damages. Lockheed appealed the decision, arguing that Brown could not pursue her case because Sarbanes-Oxley covers only fraud that affects shareholders.

The U.S. Court of Appeals for the Tenth Circuit found in favor of Brown, ruling that Sarbanes-Oxley is not limited to fraud against shareholders. Further, the appeals court ruled that Brown had been retaliated against because she reported the wrongdoing to her superiors. (Lockheed Martin v. Administrative Review Board, U.S. Court of Appeals for the Tenth Circuit, No. 11-9524, 2013)

BORDER SECURITY. A border patrol agent violated the Fourth Amendment when he answered a suspect’s phone and impersonated the suspect, even though the suspect had given the agent permission to search the phone.

Andres Lopez-Cruz was being interviewed by border patrol agents near Jacumba, California, when he gave them permission to search the two cell phones he had with him. However, Cruz did not give the agents permission to answer the phone. When the phone rang, an agent answered the call and impersonated Cruz to obtain information leading to Cruz’s arrest on felony charges of attempting to transport illegal aliens into the United States.

Attorneys for Lopez-Cruz moved to suppress the evidence gained form the phone calls. The U.S. District Court for the Southern District of California granted the motion and threw out the evidence. The government appealed the decision.

The U.S. Court of Appeals for the Ninth Circuit upheld the lower court’s ruling. The court found that border patrol agents must have either a warrant that allows them to answer the phone or specific consent from the phone’s owner. In the written opinion of the case, the court wrote that “consent to search a cell phone is insufficient to allow an agent to answer that phone; rather, specific consent to answer is necessary.” (U.S. v. Lopez-Cruz, U.S. Court of Appeals for the Ninth Circuit, No. 11-50551, 2013)


PRIVACY. The Federal Trade Commission has settled a complaint with TRENDnet, which markets video cameras for the home market. Though the company advertised their cameras as secure, the units were equipped with faulty software that allowed hackers to remotely view the feeds. Once the company became aware of the problem, it devised a patch and alerted customers to download the fix from the TRENDnet Web site. The complaint also alleges that TRENDnet transmitted user login credentials in “clear, readable” text over the Internet.

Under the terms of the settlement, TRENDnet is prohibited from misrepresenting the security of its cameras or the integrity of the information transmitted by the cameras. The company must also notify customers about the security problems and offer two years of free technical support to assist customers in updating or removing their cameras.


ECONOMIC ESPIONAGE. Sen. Sheldon Whitehouse (D-RI) and Sen. Lindsey Graham (R-SC) are circulating a draft bill designed to thwart cyber espionage and trade secret theft. The bill would expand existing economic espionage law to cover government-sponsored hacking incidents and would give victimized companies the chance to testify about the value of their secrets during criminal trials. Whitehouse, who is chairman of the Senate Judiciary Committee’s Subcommittee on Crime and Terrorism, has announced plans to hold a hearing to consider the legislation before the end of the year.

CYBERSECURITY. A bill (S. 1353) introduced by Sen. John D. Rockefeller IV (DWV) that would make part of President Barack Obama’s cybersecurity framework the law of the land has been approved by the Senate Commerce, Science, and Transportation Committee. The bill must now come before the full Senate for a vote.

The bill would codify the part of the cybersecurity framework that requires the National Institute of Standards and Technology (NIST) to work with private industry to develop cybersecurity best practices. However, the bill would not require that companies adopt the best practices.

When approving the measure, the Senate committee added amendments that would establish research centers for cybersecurity and would require that the government conduct a report every two years noting progress towards protecting critical infrastructure from cyberattacks.

EMBASSY SECURITY. A bill (S. 1386) that would provide security training for high-risk diplomatic posts has been approved by the Senate Foreign Relations Committee. The bill must now be considered by the full Senate.

Under the measure, security and foreign language training would be provided for diplomatic security personnel assigned to high-threat posts. The bill would also require that the government implement a plan to incorporate additional Marine Corps Security Guard personnel at high-risk diplomatic facilities and to conduct an annual review of the guard program. S. 1386 would authorize the government to improve the physical security of educational facilities that are established for the children of U.S. government employees.


New Jersey

EMPLOYMENT. Legislation (A.B. 2648) recently signed into law by Gov. Chris Christie will make it illegal for employers in the state to retaliate against employees who discuss their jobs and compensation with colleagues if the discussion is intended to uncover discriminatory treatment. The bill covers discussions about pay, bonuses, benefits, or any other type of compensation. The new law is intended to overcome obstacles to wage discrimination created by workplace policies that ban discussing salaries.


SCHOOL SECURITY. A new Texas law (formerly H.B. 1009) establishes the placement of school marshals in the state’s public elementary, middle, and high schools. The school marshals may carry a handgun unless they have regular, direct contact with students. In that case, the marshal may have access to a gun that is locked and secured in a safe within the marshal’s reach.

Training for the marshals includes 80 hours of instruction on issues such as strategies for preventing school shootings, securing victims of shootings, use of force, and handgun proficiency.

Before becoming a marshal, an applicant must undergo a psychological evaluation to ensure that he or she is fit to respond to emergency situations.

This column should not be construed as legal or legislative advice.