Halliburton, Inc. v. Admin. Review Bd., No. 13-60323, 2014 U.S. App. LEXIS 21743 (5th Cir. Nov. 12, 2014) (per curiam). In this case, the plaintiff, Anthony Menendez, alleged retaliation under the Sarbanes-Oxley Act (SOX) after his employer revealed his identity in a legal hold notice.

In March 2005, Menendez joined Halliburton as its Director of Technical Accounting Research. His job duties included monitoring accounting issues and advising field accountants. Four months into his work, Menendez noted a discrepancy in the company’s accounting practices and alerted colleagues in his department as well as his boss, Mark McCollum.

The company investigated and found its practices proper. Dissatisfied, Menendez filed a complaint with the Securities and Exchange Commission (SEC). He also continued to pursue the issue in the company, speaking with the Vice President of Financial Controls, who found Menendez’s claims meritless and referred him to the Audit Committee of the Board of Directors.

Under SOX, the Audit Committee was required to establish procedures for employees to submit confidential and anonymous concerns regarding accounting and auditing matters. The committee’s policy followed the rule and allowed for the submission of confidential, anonymous complaints by calling a phone number or by writing or e-mailing the Board. On February 4, 2006, Menendez, following the rules, shared his concerns with the Board via e-mail. The message, which included Menendez’s name and e-mail address, was forwarded to the company’s general counsel, Bert Cornelison. Four days later, Cornelison received a notice from the SEC that it was investigating Halliburton’s accounting practices and that the company should retain documents relating to the investigation. Although the SEC notice did not identify who triggered the complaint, Cornelison inferred that Menendez was the whistleblower.

In response, Cornelison e-mailed McCollum and others, advising them of the SEC’s investigation of Menendez’s allegations and instructing them to preserve documents relevant to the investigation. Subsequently, McCollum forwarded the message to fifteen members of Menendez’s work group, including Menendez. After his colleagues learned about his complaint, Menendez alleged that his colleagues treated him differently and avoided him. Menendez was distraught and came to the office only sporadically; finally, he requested paid administrative leave, which the company granted. Ultimately, he resigned in October 2006, asserting that he could not tolerate the company’s improper accounting practices.

Meanwhile, Menendez had filed a separate complaint alleging retaliation for disclosing his identity as a whistleblower in May 2006 pursuant to with the Occupational Safety and Health Administration (OSHA). To establish retaliation, Menendez had to prove four elements: (1) that he engaged in protected whistleblowing activity; (2) that his employer knew of his protected activity; (3) that he suffered an adverse action; and (4) that the protected activity was a contributing factor in the adverse action.

Menendez’s initial complaint was dismissed, so he asked for another hearing before an Administrative Law Judge (ALJ), who also dismissed his complaint, finding that the disclosure of Menendez’s identity did not rise to the level of an adverse action. Menendez appealed the judge’s decision to the Administrative Review Board (ARB), which overturned the ALJ’s decision, finding adverse action, and remanded the case to the ALJ to determine whether Menendez’s protected activity of filing the complaint contributed to Halliburton’s decision to disclose his identity. The ARB also instructed the ALJ to determine whether the company could establish an affirmative defense: that its disclosure was necessary for legitimate business reasons.

The ALJ again ruled for Halliburton, finding the company’s intent was to address Menendez’s concerns, and thus it had a legitimate reason to disclose Menendez’s identity. Perhaps presuming the ARB would reverse his decision again, the ALJ held in the alternative that $1,000 in damages was a proper remedy because the harms to Menendez were insignificant. As a third alternative, the ALJ suggested that if the ARB disagreed with his damages decision, then $30,000 would be appropriate. Indeed, when Menendez appealed to the ARB again, it overturned the ALJ’s finding, held the company liable for retaliation, and awarded Menendez $30,000.

Halliburton then appealed the case to the Fifth Circuit, which could only overturn the ARB’s decision if it was “‘arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.’” Halliburton argued that Menendez did not suffer an adverse action and that his complaint was immaterial to the disclosure of his identity. The court concluded that the ARB’s decision was not reversible legal error and affirmed the award of $30,000.

Takeaways:

In general, legal hold notices should inform custodians in writing of their obligation to retain documents by describing the parties and potential witnesses, the proceedings, the applicable time frame, and the types of records to retain. However, as this case demonstrates, counsel should be sensitive to the nature of the case in constructing legal hold notices. In whistleblower cases, counsel must balance the need to maintain a complainant’s confidentiality against the duty to preserve evidence.

Here, Halliburton likely followed its normal procedures for preserving evidence. It is clear that the company attempted to do the right thing by issuing a legal hold to preserve relevant documents. However, the company could have issued a legal hold to custodians directing them to retain documents relating to the accounting practices at issue without disclosing the complainant’s name. Sharing the identity of a whistleblower when unnecessary to satisfy an organization’s legal duties risks exposure under federal statutes that protect whistleblowers, including SOX, the Dodd Frank Act, the False Claims Act, the Affordable Care Act, and the Occupational Safety and Health Act, among others, as well as comparable state statutes.

Link to the opinion on Fifth Circuit’s website: http://www.ca5.uscourts.gov/opinions%5Cpub%5C13/13-60323-CV0.pdf