In Rhinehimer v. U.S. Bancorp Investments, Inc., 2015 WL 3404658 (6th Cir. May 28, 2015), the United States Court of Appeals for the Sixth Circuit affirmed a $250,000 verdict for a plaintiff who alleged that he was terminated in violation of the Sarbanes-Oxley Act (SOX). In so doing, the Sixth Circuit joined other Circuits by rejecting the “definitively and specifically” standard for proving protected activity that it had previously articulated in Riddle v. First Tennessee Bank, National Association, 497 F. App’x 588 (6th Cir. 2012).
In Rhinehimer, the plaintiff (Rhinehimer), a certified financial planner at U.S. Bancorp Investments, Inc. (Bancorp), alleged that he was fired in retaliation for alerting his superiors to unsuitable trades made by a co-worker covering one of his elderly clients while he was on disability leave. According to Rhinehimer, after he complained about the trades, he returned to work and was told by his supervisors that his complaints had prompted an investigation by the Financial Industry Regulatory Authority (FINRA). Rhinehimer then claimed that his job was threatened, he was placed on a performance plan that he could not achieve, and he was terminated as a result of failing to meet the performance plan goals. Rhinehimer commenced action against Bancorp alleging retaliation in violation of SOX. Id. In 2013, a federal jury in Kentucky returned a verdict in his favor and awarded him $250,000.
Bancorp appealed the decision arguing that the evidence did not support a finding that Rhinehimer could have had an objectively reasonable belief that the individual conducting trades on his client’s behalf was engaged in securities fraud. 2015 WL 3404658, at *6. Based on the Department of Labor’s Administrative Review Board’s (ARB) decision in Platone v. FLYi Inc., ARB Case No. 04-154 (Sept. 29, 2006), Bancorp argued that to meet the reasonable belief standard, Rhinehimer was “required to establish facts from which a reasonable person could infer each of the elements of an unsuitability fraud claim” — including the “misrepresentation or omission of material facts, and that the broker acted with intent or reckless disregard for the client’s needs.” Id.
The Sixth Circuit, however, found the ARB’s reasoning in Sylvester v. Parexel International LLC, No. 07-123 (ARB May 25, 2011), persuasive and rejected the “definitively and specifically” standard that it had previously adopted. 2015 WL 3404658, at *11. In doing so, the Sixth Circuit joined other circuits in finding that the “reasonable belief” standard requires the complainant “to have a subjective belief that the complained-of conduct constitutes a violation of relevant law, and also that the belief is objectively reasonable” in light of the factual circumstances, including the “training and experience” of the complainant. Id. Applying this fact-based standard, the Sixth Circuit concluded that the evidence was “more than adequate to sustain the judgment” against Bancorp where Rhinehimer “knew the structure of his client’s estate plans” and “learned of trades that a reasonable investment professional would recognize as inconsistent with those plans.” Id. at *11-12. This was so even though Rhinehimer had no specific knowledge of whether anyone omitted or misrepresented information in communicating with his client nor whether the broker executing the trades did so intentionally or with reckless disregard. Id. at *12.