In October 2019, the Administrative Review Board (“ARB” or “the Board”) issued a noteworthy decision in Hoptman v. Health Net of California, affirming the dismissal of a pro se whistleblower retaliation claim under the Sarbanes-Oxley Act (“SOX”). See ARB Case No. 2017-0052, (Oct. 31, 2019). In Hoptman, the Board held the employee did not engage in protected activity when he inadvertently caused information about possible fraud to be provided to his employer and only “hinted” that he was in the process of filing an undefined complaint. The failure of the employee’s retaliation claim demonstrates that whistleblowers would be well-advised to engage legal counsel in such matters, especially when considering the appropriate steps to take when reporting an employer’s unlawful conduct.

Background on the Whistleblower’s Complaint

David Hoptman worked as a claims representative for Health Net, a health insurance provider and subsidiary of Centene Corporation, a large publicly traded company in the healthcare industry. According to Hoptman, Health Net manipulated funds and held onto excess monies by only processing refunds owed to plan members if they formally complained about an overpayment. When Hoptman was assigned to assist a plan member, referred to as V.M., obtain a refund for an overpayment, he told her about his suspicions and enlisted her help in exposing the fraud. Hoptman sent text messages to V.M., asking her to complete a HIPPA release form so that he could have personal access to her records, and asking her to file a complaint with California’s Department of Managed Health Care (“DMHC”). In his text messages with V.M., Hoptman also told her that he would “gladly share” any financial “payoff” from the fraud report in exchange for her help.

Around this time, Hoptman also learned from online articles that Health Net was being sued for unpaid claims, and that several health care companies owed billions of dollars in back taxes to the IRS. Hoptman contended that this information led him to believe that Health Net was possibly inflating the value of the company to deceive shareholders. Accordingly, when Hoptman met with Human Resources executive Andy Ortiz concerning an unrelated employment matter, he also reported that he had read an article about Health Net owing a billion dollars in back taxes to the IRS, and that the company was “going to be in a lot of trouble,” and that it was “not going to like what happens next” due to a “complaint” that he had “in the works.”

Meanwhile, as Hoptman had suggested, V.M. filed a complaint about the overpayments with the DMHC. During that process, she also told the state regulatory agency about her interactions with Hoptman and faxed it copies of the text messages she exchanged with him. The state agency subsequently provided the text exchange to Health Net, leaving Hoptman “quite surprised” when the company informed him about it and terminated his employment almost immediately.

Hoptman filed a pro se complaint with the Occupational Safety and Health Administration (“OSHA”), alleging that Health Net fired him because he was about to file a complaint with a federal agency, but OSHA dismissed the complaint for failing to establish protected activity. The parties subsequently filed motions for summary decision with the administrative law judge (“ALJ” or “the Judge”).

ALJ Rejects Argument that Whistleblower Engaged in Protected Activity   

Under the whistleblower protection provision of Section 806 of the Sarbanes-Oxley Act (“SOX”), publicly traded companies and their subsidiaries are prohibited from retaliating against whistleblowers when they have engaged in protected activity such as providing information about suspected violations of certain federal financial securities rules or regulations. Here, the issue before the Judge was whether Hoptman’s activities fell within the scope of conduct protected by the SOX. First, Hoptman argued that the employer’s receipt of his text exchange with V.M. “caused information to be provided” within the meaning of § 1514A(a)(1), even though the messages were inadvertently received by the employer through the state regulatory agency. The Judge rejected Hoptman’s argument, noting that the connection between his sending the text messages to V.M. and the employer receiving them was too remote to support a causal connection.

Second, Hoptman argued that the text messages themselves qualified as protected activity under § 1514A(a)(2), which protects employees who “file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed (with any knowledge of the employer)” in cases involving violations of the relevant securities rules or regulations. The Judge dismissed the argument, finding that no reasonable fact-finder could believe that Hoptman’s text messages provided “any knowledge” that he was about to file a complaint with the SEC, or any other proceeding under one of the anti-fraud laws covered by SOX.

Finally, Hoptman argued that he engaged in protected activity when he “hinted” at his SEC complaint in his conversation with Ortiz. The Judge began by noting that protection under 1514A(a)(1) only requires an employee’s “reasonable belief” of a suspected violation of the relevant laws and then discussing the subjective and objective components for such reasonableness. The ALJ found that no reasonable person could conclude that Hoptman actually believed he was reporting conduct related to one of the listed anti-fraud violations by hinting at it with Ortiz and that it was “too great a leap of reason” to infer from Hoptman’s statements about Health Net owing back taxes that he had a reasonable belief that the company violated SOX’s anti-fraud provisions. Additionally, the Judge found that Hoptman’s “hinting” was insufficient to support a rational inference that Ortiz had “any knowledge” about a proceeding about to be filed within the meaning of SOX, finding that his statements regarding the article and the complaint in the works “did not relate in an understandable way to SOX.”  

ARB’s Review

On appeal, the ARB held that Health Net’s receipt of the text exchange from the state regulatory agency could not establish that Hoptman engaged in protected activity given the context of the communications. The Board also held that the Judge appropriately found that Hoptman’s hints to Ortiz did not create a genuine issue of fact that he was “about to file” a complaint, holding that a manager would not be able to ascertain SOX-protected content from Hoptman’s summary of an online article’s content regarding back taxes and his references to an “undefined complaint” that was in the works. In addition, the Board maintained that Hoptman’s communications to both V.M. and Ortiz were “too attenuated and conflated” with other non-SOX protected conduct to convey that he was about to file a SOX-related complaint. In its review, the ARB underscored the fact that Mr. Hoptman’s texts to V.M. were deliberately concealed from the employer and only reached it inadvertently through the actions of third parties, emphasizing Hoptman’s remark that he had been “quite surprised” when he learned the plan member shared his texts with the state regulatory agency.

The Significance of Establishing Protected Activity

The decision highlights that employees should be mindful that the ARB may not look favorably upon any actions taken to deliberately conceal suspected violations. Notably the ARB’s ruling only establishes that hinting at an undefined complaint to an employer is generally insufficient to establish protected activity under SOX. In other words, the Hoptman decision leaves open the question of whether specifically hinting at a SOX-related complaint would qualify as protected activity. Indeed, it’s not clear whether the decision here would have been the same if Hoptman had at least stated that he was in the process of filing a “whistleblower complaint.” The ARB’s decision serves as a note of caution to employees about the importance of seeking legal advice in whistleblower matters, especially when they are contemplating the appropriate steps to take in reporting suspected federal securities violations to employers.