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Ruling Gives Clues for Whistleblower Cases

by Gerard Panaro, BOL Guru

The US Court of Appeals for the Eleventh Circuit reversed a lower court's judgment in favor of the bank in Lippert v. Community Bank, Inc., No. 04-16535 (February 08, 2006).

The decision is significant because even though it reversed the judgment in favor of the bank, the Eleventh Circuit held that internal reports are not protected disclosures under 12 U.S.C. ? 1831j, a part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").

Another lesson to learn from the case is this: there are numerous "whistleblower protection" statutes, under both federal and state law, and each has its own criteria for what is protected and what one must do to come under the protection of the statute. For example, statutes may protect only certain employees (e.g., internal auditors, but not sales people); they may require reporting in a certain sequence (e.g., first internally, then to outside regulators or law enforcement); they may require (and protect) reporting to specific agencies, and to those agencies alone (e.g., regulatory agency, but not police); and they protect only certain types of reporting (e.g., reporting of fraud, but not reporting of mere negligence). If a person does not comply with the statute, s/he may not be protected.

The lower court held that the Bank could not have fired the plaintiff in retaliation for protected whistleblowing because it did not know of his protected reporting to the FDIC. However, for the reasons it set forth in its opinion, the Court of Appeals found that there was sufficient evidence from which a jury could conclude that the Bank did know of the plaintiff's protected disclosures (note, however, that in the posture of this case, the Eleventh Circuit was only holding that the plaintiff had stated sufficient allegations to let his case go to trial; the decision was not a final ruling in favor of the plaintiff).

The chain of events began when the plaintiff sent a letter to an employee at the FDIC and an employee of the Alabama State Banking Department, in which he complained that the Bank's management was resisting his recommendations. In particular, he criticized Community Bank's grading of delinquent loans and the level of the Bank's loss reserve. Shortly after this, he was fired.

Section 1831j(a)(1) provides that a bank can not discharge or otherwise discriminate against an employee who provides information to any federal banking agency or to the attorney general regarding a possible violation of law or gross mismanagement, waste, abuse or danger to health or safety.

The district court held that the plaintiff's internal reports to the Bank's Audit Committee and Board of Directors were not protected disclosures under this statute, even though the chairman and CEO of the bank, the plaintiff's boss, and the Board knew that such reports would inevitably come to the attention of the FDIC in its audits. The Eleventh Circuit agreed with this conclusion and affirmed it on appeal.

The Eleventh Circuit reversed the district court, however, on its ruling that the plaintiff had failed to produce sufficient evidence to allow a jury to find that the CEO and Board had knowledge of the plaintiff's disclosures to the FDIC. The following allegations were sufficient to allow the jury to infer knowledge on the CEO and Board's part, if it were persuaded of their truthfulness.

The CEO knew:

  • That the plaintiff was suggesting significant changes in several of the Bank's procedures (e.g., improvements in the loan grading procedures and increases in the loss reserves).
  • That such changes related to matters which would obviously be matters of particular interest to the FDIC in view of the recent tumultuous years experienced by the Bank, which had prompted a cease and desist order and close scrutiny by FDIC. These problems had also prompted employment of the Bank's new management team.
  • Of the suggestions or constructive criticism memorialized in the plaintiff's several memoranda addressed to the Bank's local presidents and senior management during the relevant time period;
  • That the plaintiff perceived resistance from some in the management to his efforts.
  • Of the content of the plaintiff's recommendations to senior management contained in his memoranda;
  • That the plaintiff met with an FDIC examiner during the latter's visit to the Bank
  • Of the plaintiff's memorandum to senior management, the contents of which he discussed with the plaintiff.
  • Of a revised memo which the plaintiff left at his office.
  • That the FDIC audit team was in the Bank and met with the plaintiff twice in preparation for the imminent FDIC audit.

"A reasonable jury could find from the foregoing facts that by the time the decision was made in August to terminate Plaintiff," the Eleventh Circuit concluded, "the decision-maker [the CEO and the Board] knew that Plaintiff had communicated to the FDIC the recommendations he was simultaneously proposing to the Bank's senior management."

First published

About the Author: Gerard P. Panaro has more than 25 years' experience in employment law and is available to assist readers on an individual basis. You may reach him at 202-861-1314. Mr. Panaro is of counsel with Howe & Hutton, in the Washington, DC office.

First published on 02/17/2006

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