Case I:
IITRI is a not-for-profit scientific research organization that enjoys tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. In 1993, IITRI hired Milton to supervise administration of a contract between the company and the federal government called the Tax Systems Modernization Institute (TSMI). In 1995, Milton became Vice President of IITRI's Advanced Technology Group, which included TSMI and several other projects. Throughout his ten- ure at IITRI, Milton's office was located at the IITRI facility in Lan- ham, Maryland.
During the course of his employment, Milton became convinced that IITRI was abusing its tax-exempt status by failing to report to the Internal Revenue Service taxable income generated by the substantial portion of IITRI's business that did not constitute scientific research in the public interest. Milton voiced his concerns to IITRI manage- ment, to no avail. In 1995, after similar allegations by a competitor, IITRI initiated an internal examination of the issue. In connection with this inquiry, IITRI received an outside opinion letter concluding that the IRS could well deem some of IITRI's projects unrelated busi- ness activities and that the income from these activities was likely taxable. Milton urged the President of IITRI, John Scott, to take action in response to the letter, but Scott refused. Milton raised the issue with IITRI's Treasurer, who agreed that IITRI was improperly claiming unrelated business income as exempt income and promised to remedy the problem after Scott's then-imminent retirement. How- ever, this retirement did not come to pass. Finally, in November 1996, when Scott falsely indicated to IITRI's board of governors that IITRI had no problem with unrelated business income, Milton reported the falsity of these statements to Lew Collens, Chairman of the Board of IITRI, and informed Collens of the opinion letter.
On January 1, 1997, Scott called Milton at home and informed him that he had been relieved of his Group Vice President title and demoted to his previous position as supervisor of TSMI. On February 12, 1997, Milton's attorney contacted IITRI about the demotion, alleging that it was unlawful retaliation for informing management of IITRI's unlawful practices. Two days later, at his office in Lanham, Maryland, Milton received a letter from Collens terminating his employment with IITRI.
Milton filed suit against IITRI in Virginia state court for wrongful discharge and breach of contract. IITRI removed the case to federal court and successfully moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The district court, applying Virginia choice of law princi- ples, selected Maryland law to govern this dispute. The court found that Maryland law did not recognize a wrongful discharge claim on these facts, as Milton did not allege he was fired for refusing to engage in unlawful activities, and he could point to no statutory duty to disclose IITRI's wrongdoing. The district court also dismissed Mil- ton's breach of contract action. Milton now appeals the dismissal of his wrongful discharge claim.
Case II:
Pierce v. Ortho Pharmaceutical Corp.
84 N.J. 58, 417 A.2d 505 (1980)
POLLOCK,J.
This case presents the question whether an employee at will has a cause of action against her employer to recover damages for the termination of her employment following her refusal to continue a project she viewed as medically unethical.
Plaintiff, Dr. Grace Pierce, sued for damages after termination of her employment with defendant, Ortho Pharmaceutical Corporation. The trial judge granted defendant's motion for summary judgment. The Appellate Division reversed and remanded for a full trial. .
Ortho specializes in the development and manufacture of therapeutic and reproductive drugs. Dr. Pierce is a medical doctor who was first employed by Ortho in 1971 as an Associate Director of Medical Research. She signed no contract except a secrecy agreement, and her employment was not for a fixed term. She was an employee at will. In 1973, she became the Director of Medical Research/Therapeutics, one of three major sections of the Medical Research Department. Her primary responsibilities were to oversee development of therapeutic drugs and to establish procedures for testing those drugs for safety, effectiveness, and marketability.'Her immediate supervisor was Dr. Samuel Pasquale, Executive Medical Director.
In the spring of 1975, Dr. Pierce was the only medical doctor on a project team developing loperamide, a liquid drug for treatment of diarrhea in infants, children, and elderly persons. The proposed formulation contained saccharin. Although the concentration was consistent with the formula for loperamide marketed in Europe, the project team agreed that the formula was unsuitable for use in the United States. An alternative formulation containing less saccharin might have been developed within approximately three months.
By March 28, however, the project team, except for Dr. Pierce, decided to continue with the development of loperamide. That decision was made apparently in response to a directive from the Marketing Division of Ortho. This decision meant that Ortho would file an investigational new drug application (IND) with the Federal Food and Drug Administration (FDA), continuing laboratory studies on loperamide, and begin work on a formulation. FDA approval is required before any new drug is tested clinically on humans. Therefore, loperamide would be tested on patients only if the FDA approved the saccharin formulation.
Dr. Pierce knew that the IND would have to be filed with and approved by the FDA before clinical testing could begin. Nonetheless, she continued to oppose the work being done on loperamide at Ortho. On April 21, 1975, she sent a memorandum to the project team expressing her disagreement with its decision to proceed with the development of the drug. In her opinion, there was no justification for seeking FDA permission to use the drug in light of medical controversy over the safety of saccharin.
Dr. Pierce met with Dr. Pasquale on May 9 and informed him that she disagreed with the decision to file an IND with the FDA. She felt that by continuing to work on loperamide she would violate her interpretation of the Hippocratic oath. She concluded that the risk that saccharin might be harmful should preclude testing the formula on children or elderly persons, especially when an alternative formulation might soon be available.
Dr. Pierce recognized that she was joined in a difference of "viewpoints" or "opinion" with Dr. Pasquale and others at Ortho concerning the use of a formula containing saccharin. In her opinion, the safety of saccharin in loperamide pediatric drops was medically debatable. She acknowledged that Dr. Pasquale was entitled to his opinion to proceed with the IND. . . .
After their meeting on May 9, Dr. Pasquale informed Dr. Pierce that she would no longer be assigned to the loperamide project. On May 14, Dr. Pasquale asked Dr. Pierce to choose other projects. After Dr. Pierce returned from vacation in Finland, she met on June 16 with Dr. Pasquale to discuss other projects, but she did not chose a project at that meeting. She felt she was being demoted, even though her salary would not be decreased. . . .Viewing the matter most favorably to Dr. Pierce, we assume the sole reason for the termination of her employment was the dispute over the loperamide project. Dr. Pasquale accepted her resignation.
Under the common law, in the absence of an employment contract, employers or employees have been free to terminate the employment relationship with or without cause.
Please review the attached cases.
Would the SOX law have protected Dr. Donn Milton? Dr. Grace Pierce?
What kind of corporate wrongdoing might a senior executive discover that would not be covered by SOX?