Livingston v. Wyeth, Incorporated, et al.

Case Updates

The Fourth Circuit agreed with NCLC that Sarbanes-Oxley (SOX) “whistleblower protection” against retaliation applies only if the employee subjectively believes that the reported conduct may constitute fraud on shareholders, and if there is a reasonable, objective basis for suspecting fraud. The Fourth Circuit affirmed the lower decision, rejecting Livingston’s claim because he failed to produce evidence that a reasonable employee could have believed that Wyeth’s activities constituted a violation of the securities laws. By limiting the application of SOX to preventing or exposing reasonable suspicions of shareholder fraud, this decision helps prevent the exploitation of SOX to second-guess an employer’s sound business decisions to terminate or otherwise discipline an employee.

NCLC recommended that the court of appeals uphold the lower court’s ruling that Sarbanes-Oxley (SOX) whistleblower protection protects against retaliation only where the employee subjectively believes at the time that the reported conduct may constitute fraud on shareholders, and there is a reasonable, objective basis for suspecting such fraud. In this case, Wyeth entered into a consent degree with the FDA that required a training program, and plaintiff raised concerns about whether the program would be implemented in a timely fashion. Wyeth contended the plaintiff was terminated because he engaged in gross misconduct at a company party. The district court held that there was no obligation for Wyeth to inform shareholders of the alleged training program problems prior to action by the FDA. The lower court also emphasized the role of materiality under the securities laws, and that the alleged wrongful conduct in this case did not specifically relate to public financial statements.