The content is drawn from an event in the Mayer Brown series, In Focus: Corporate Litigation Web Series, co-hosted with Incisive Media and featuring Patrick Tagtow, Vice President of Litigation for BMC Software, Inc.

Whistleblower Litigation: Dealing With SOX Allegations in the Current Economic Climate

c o r p o r a t e l i t i g a t i o n w h i t e p a p e r

In today’s troubled economy, public companies face a greatly increased risk of reprisal by dismissed workers claiming whistleblower retaliation. This white paper aims to bring companies and their counsel up to date regarding the most recent trends and the best practices for dealing with whistle-blower retaliation complaints.

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Whistleblower Litigation: Dealing With SOX Allegations in the Current Economic Climate

By Marcia Goodman, Diana Hoover, Kendall Burr and Kristin Silverman

Table of Contents

1 Introduction

1 The Legal Framework of a SOX Whistleblower Retaliation Claim

2 Internal Procedures for Responding to Whistleblower Reports

4 Preventing and Dealing With Retaliation Claims

6 Recent Trends in the Law

6 MeaningofPlaintiff’s“ReasonableBelief”ofaCoveredViolation

6 Definitionof“CoveredEmployer”LiableUnderSection806

7 Right to Jury Trial for Whistleblower Retaliation Claims

7 ArbitrabilityofSection806Claims

7 AvailabilityofAttorneys’FeesUnderSection806

8 RecentTrendsinDispositionofCases

8 PotentialChangesintheLaw

8 CallsforSOXWhistleblowerReform

9 EconomicDownturn’sPotentialImpactonClaims

9 NewLegislation’sPotentialImpactonClaims

9 PotentialApplicationtoUSEmployeesWorkingAbroad

9 Conclusion

12 Notes / references

Introduction

More than six years have passed since Congress enacted anti-retaliation protection for

whistleblowing corporate employees in the Sarbanes-Oxley Act of 2002 (SOX).1 The relatively

young jurisprudence interpreting SOX’s whistleblower protections is still evolving, and federal

courts and administrative judges are still in the process of developing consistent principles

governing their application. But over time, corporate defendants and their counsel had begun to

better understand what to expect—at least, until the recent economic downturn.

In today’s troubled economy, public companies face a greatly increased risk of reprisal by

dismissed workers claiming retaliation due to whistleblower allegations. The likely rise in

whistleblower claims poses a significant concern for companies whose internal procedures for

handling and responding to such claims are not yet optimized. Commentators have suggested that

the statute should be amended in response to complaints seeking broader protections for

whistleblowers and stiffer standards for companies.

In addition, since the new administration has taken office, new whistleblower protections have

been added to the landscape as a part of the American Recovery and Reinvestment Act (Stimulus

Bill), which was signed into law on February 17, 2009, with public comments closing on June 1,

2009. Those facts, combined with the innate uncertainty in the evolution of recent legislation,

suggest that the state of the federal whistleblower law as it exists today may be very different from

the state of the law a year from now.

As such, it is essential for companies and their counsel to be attentive to the legal trends and to

watch closely for changes that may necessitate alterations to their policies for dealing with

whistleblower claims. This paper aims to bring companies and their counsel up to date regarding

the most recent trends and the best practices for dealing with whistleblower retaliation complaints

during these volatile times. After presenting the basic legal framework for a SOX whistleblower

claim, we discuss various ideas for internal policies on how to deal with whistleblower reports, and

how to prevent and deal with retaliation claims. We then survey recent decisions of the federal

courts and the Department of Labor, examining application of the law and identifying potential

changes that might be expected going forward.

The Legal Framework of a SOX Whistleblower Retaliation Claim

In Section 806 of SOX, Congress gave whistleblowing employees of public companies a cause of

action for adverse retaliatory employment claims. It provides that covered employers may not

“discharge, demote, suspend, threaten, harass, or in any other manner discriminate against” any

employee who participates in a protected whistleblowing activity.2 Section 806 applies primarily to

publicly traded companies; the statute directly regulates corporations with registered securities or

that are required to file reports under Section 15(d) of the Securities Exchange Act of 1934.3

2 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

Non-public subsidiaries of covered companies may in some circumstances also be covered by

Section 806, as discussed below. Those protected include current and former employees, as well as

applicants.4 Covered employees who prevail in demonstrating that they have suffered prohibited

retaliatory actions may recover compensatory damages, including reinstatement to the same

position or another at the same seniority level, back pay plus interest, and “specialty damages” such

as attorneys’ fees, court costs, and expert fees.5

To prevail on a Section 806 claim, the employee must make a prima facie showing of four

elements: (1) the claimant engaged in a “protected activity;” (2) the employer knew or suspected

that the claimant engaged in protected activity; (3) the claimant suffered an unfavorable personnel

action; and (4) the protected activity was a contributing factor in the unfavorable action.6 If each

element is shown, the employer can then rebut the prima facie case by showing that it would have

taken the unfavorable action regardless of the claimant’s participation in the protected activity.7

All Section 806 retaliation claims must first proceed through an administrative process at the

United States Department of Labor (DOL). An employee who has allegedly suffered retaliation for

whistleblowing must file a written claim with the Occupational Safety and Health Administration

(OSHA) within 90 days after the alleged discrimination occurred, which is defined as the time that

the retaliatory decision was both made and communicated to the claimant.8 OSHA then

investigates the claim, seeking information from both sides, and issues a preliminary finding.9 If

either party objects to OSHA’s findings, they may appeal within 30 days to have the case heard by

an Administrative Law Judge (ALJ), who will then conduct new hearings and review the case a

second time (de novo).10 Either party may seek review of the ALJ’s findings to the Department of

Labor’s Administrative Review Board (ARB).11

Although all retaliation claims must first go through this administrative procedure, there is also an

opportunity for the claimant to exit that procedure and bring a claim in federal court. Once more

than 180 days have passed from the filing of the initial complaint with OSHA, the claimant may

opt out and file a civil action in federal district court, as long as a final decision has not been

rendered by the ARB.12 The option of filing suit in federal court is often available because it usually

takes far longer than 180 days for the case to make its way up to the ARB. In 2005, the average

initial OSHA investigation alone took a total of 127 days, and ALJ hearings often take months or

even years after that before the case ever reaches the ARB.13 Thus, many plaintiffs who seek a

speedier resolution or are disappointed with OSHA’s findings decide to file a complaint in federal

court. There, the case is again reviewed de novo, discovery typically starts again from scratch, and

federal court procedures apply.

Internal Procedures for Responding to Whistleblower Reports

Now more than ever, companies qualifying as covered employers under Section 806 should

carefully develop internal policies and procedures for responding to whistleblower claims.

Employers that receive government funds under the Stimulus Bill should also consider

implementing the same types of policies and procedures to protect themselves against

whistleblower claims of retaliatory discharge. Many companies use a hotline or helpline that

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employees can call to report suspected violations. A company can then investigate such reports

and correct the problem early, before it spirals out of control and creates a much greater risk for

retaliation claims. One thing to keep in mind is that the name the company chooses to call the line

can dramatically affect whether or not employees will actually use it. Terms like “hotline” or “abuse

line” may connote that the line is only to be used for serious emergencies, thus deterring employees

from reporting what they perceive (perhaps mistakenly) to be minor issues. Even a term like

“report line” may suggest that the employee must have concrete proof or specific knowledge before

calling in. On the other hand, terms like “helpline,” “value line” or “care line” are more likely to be

perceived as inviting calls that might not otherwise be made.

Companies should also take care to describe the helpline in a manner likely to assist employees in

deciding whether or not to make the call. A list on the company’s internal website describing the

types of issues that can be reported should be drafted broadly enough to encourage reports of any

issues that could potentially result in costly retaliation claims. Obviously, the risk of defending such

claims must be balanced against the costs involved in investigating seemingly minor reports. While

companies may be tempted to have a more narrow approach to the types of employee calls they

want to invite, or the types of reports that will thereafter be investigated, they should be mindful of

the increased risk of Section 806 claims in this volatile economy.

The question of whether to administer a helpline internally or to use an outside vendor will depend

on the company’s particular needs. An internal helpline may help save costs, although expenses for

an outsourced line are not necessarily prohibitive; vendors can offer such services for as little as

$1,500 per year.14 Internal helplines also give a company more control over the critical initial

reporting process, such as the types of follow-up questions that operators will ask a reporting

employee or the tone they will use on the call. While outside vendors typically try to accommodate

such concerns, companies may wish to be more involved in the process, as each call may be their

only opportunity to get information from a whistleblower who may go underground afterwards.

But outside vendors also have advantages. They can operate around the clock, have greater

capacity to staff the lines, and can accept calls in various languages. Further, employees worried

about potential retaliation may be more likely to perceive an outsourced helpline as confidential

and anonymous.

Companies should also have policies in place regarding the organization and prioritization of

reports once they come in, whether through helplines, calls to managers or human resources

departments, letters or emails to upper management, or any other avenue. If an outside vendor is

used, they should be given a list of names to call immediately for high-priority, time-sensitive

matters. The case could be identified by a number to preserve the anonymity of the whistleblower.

Procedures should be set regarding the initial intake team that will be notified of the report, such a

General Counsel and other legal personnel, internal auditors, or members of compliance or ethics

departments.

Investigative teams are typically organized ad hoc based on the nature of the report. Investigations

can require the assistance of consultants such as forensic accountants or private investigating

firms. Procedures should be set in place for communications between the investigative team and

4 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

counsel. Many companies, especially those with fewer internal resources or less experience in

dealing with such investigations, often seek the assistance of outside counsel. One common

approach is to hire one law firm to handle the investigation and submit a report back to the

company, and a second firm to provide legal advice regarding how to respond to the report. All

involved in the investigation should be instructed to take extreme care to keep documents and

communications confidential and circulated only to predetermined recipients, so as not to

inadvertently waive the attorney-client or work product privileges. Also, from the outset of any

investigation, companies should be mindful of the obligation to preserve electronic evidence in case

the investigation results in litigation.

Companies should also develop policies regarding when investigations will be reported to the

Board of Directors. It may be difficult to determine where to draw the line, as issues that at first

appear minor may later turn out to be major problems. Thus, companies should carefully

determine how such decisions will be made, balancing the Board’s other priorities against the need

to err on the side of caution in reporting potential violations.

Special considerations may be appropriate for companies with employees around the globe.

Outsourcing helpline services may be most appropriate for such companies; vendors can often take

reports in dozens of languages and provide translations of the report for in-house counsel within a

few hours of intake. Cultural considerations are also important; other cultures often have different

perceptions of company loyalty and heightened concerns about possible retaliation against

informants. Local laws may also affect investigations, particularly in Europe, where different

standards regarding confidentiality and employee discipline may impede the information-

gathering process. Finally, international investigations often incur additional costs such as

translation services and travel expenses.

Preventing and Managing Retaliation Claims

No matter how carefully a company crafts its internal procedures for encouraging reporting and

investigating potential problems, in some cases it will be unable to keep a whistleblower’s identity

anonymous. Thus, once a whistleblower’s identity is known, great care should be taken to prevent

potential retaliation claims.

First, the informant should be notified that every effort will be made to keep reports anonymous

and that the company will not tolerate any retaliation. This should be communicated directly to the

employee if his or her identity is known, and the company should maintain documentation of this

communication. As for those employees who choose to report anonymously, the company must

rely on its general policies; the company should, therefore, post clear notice of its anti-retaliation

policy on the company’s internal website and in any employee handbooks or written policies.

If possible, the whistleblower’s identity should not be revealed to the employee’s supervisors or

other persons higher up the management chain, and steps should be taken to shield those

managers from the investigation. Such efforts should be carefully documented to show the

company’s good-faith efforts to prevent any retaliatory conduct by those supervisors or managers.

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If it is discovered that the employee’s supervisors or other managers have become aware of the

situation, they should be carefully instructed not to engage in any conduct that might be perceived

as explicit or implicit retaliation, and this should be documented as well. Also, appropriate persons

in the human resources department should be instructed to monitor the employee to make sure

that he or she is not inadvertently demoted or disciplined. Even if such action might be proper for

performance reasons, the timing of such an action might create suspicion and form the basis for a

retaliation claim. But such concerns must be balanced against the needs of the company and the

nature of the employee’s conduct. Some employees who report suspected violations may begin to

take liberties and feel they can avoid discipline because of their whistleblower status.

If, after analyzing the potential risks, it is decided that there is a legitimate and serious problem

with the employee’s performance or conduct, and that discipline, demotion, or termination is

warranted, the company should make every effort to verify that all of its procedures for such an

action are carefully followed. Any disciplinary action should be comparable to and certainly no

more severe than discipline given to other employees in similar circumstances. The disciplinary

decision should be carefully communicated to the employee in such a manner as to minimize the

perception of retaliation. And documentation confirming that all of these steps were taken should

be preserved, so that if necessary the company will be able to make a case that the decision was not

retaliatory and that it would have taken the adverse action regardless.

Often a company will prefer to settle with a whistleblower rather than defend a retaliation claim,

even one that appears to be meritless. To avoid being perceived as trying to cover up or ignore the

report, it is typically prudent, even if the company settles the whistleblower’s claims, to make sure

that the company nevertheless conducts an objective investigation of the allegations.

It is also important to proceed cautiously when extending settlement offers. Very common

settlement provisions can be used against the employer by a former employee searching for a cause

of action. For example, although it is quite common for a settlement agreement to include a

confidentiality provision, such provisions have sometimes been attacked as “gag orders,” with

allegations that the offer to include a confidentiality provision is in itself an adverse action in

violation of Section 806.15 While it does not appear that an ALJ has accepted this argument, it has

the potential to interfere with the orderly resolution of potential SOX claims.16 Thus, companies

should be aware that each settlement of a potential retaliation claim is unique, and in some cases it

may be better not to insist that every provision in the company’s standard settlement agreement is

appropriate for that particular employee. It is advisable for the company to assume that the worst-

case scenario will occur and that any provision of a proposed settlement may be used against it,

and approach any disputes from that standpoint.

Finally, notwithstanding a company’s best efforts to prevent retaliation claims, there will be some

employees who proceed to file complaints with OSHA. Often, a company’s receipt of a copy of such

a complaint may be the first time that it learns of the retaliation claim. But regardless of whether

the company believes that the claim has any merit, it is important to establish a cordial

relationship with the OSHA investigator. The investigator issues a report summarizing the results

of the investigation and recommending a finding for consideration by the DOL. If the company is

6 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

contentious and fights the production of requested evidence, the investigator may interpret the

lack of cooperation negatively. The company’s willingness to cooperate and not interfere with

OSHA’s investigation, on the other hand, may demonstrate to the investigator that the company

has nothing to hide and its defenses have merit. Moreover, companies often need to seek

extensions of time to respond to requests for information, or need to ask the investigator to clarify

or narrow such requests. A cordial relationship will aid the company in making those requests.

Recent Trends in the Law

A review of 2007 and 2008 SOX whistleblower litigation17 indicates several noteworthy

developments in the law, including key decisions on substantive and procedural issues and

observed trends in the disposition of Section 806 claims. These developments and trends are

discussed below.

Meaning of Plaintiff’s “Reasonable Belief” of a Covered Violation

The “protected activity” element of a plaintiff’s prima facie case requires a showing that the

plaintiff “reasonably believed” the conduct complained of constituted a covered violation.18 Recent

cases show a dramatic uptick in the number of federal district courts discussing what constitutes a

“reasonable belief.” In 2008, the plaintiff’s lack of a “reasonable belief” provided the ground for

dismissal in 62 percent of dispositive federal district court decisions. Contrasted with dispositive

federal district court decisions in 2007, in which only eight percent discussed the “reasonable

belief” requirement, and ALJ decisions in 2007 and 2008, in which only 14 percent of ALJ

decisions discussed the requirement, the 2008 focus on the requirement marks a dramatic

increase.

In their discussions of the requirement, courts have held that a plaintiff must have both an

objective and subjective belief that the conduct he or she complained of constituted an existing

violation.19 Courts have specified that a reasonable belief that a violation is “about to happen” is

insufficient.20 But in light of the current economic climate, courts may be more reluctant to dismiss

a claim on those grounds, such as a claim by a whistleblower who reports that a fraudulent

financial statement is about to be filed. Although no cases directly on point have been identified, it

seems doubtful that courts would always require employees to wait until a fraud is committed

before blowing the whistle, or risk being ineligible to file a retaliation claim.

Definition of “Covered Employer” Liable Under Section 806

For a plaintiff to have standing to sue under Section 806, he or she must be a “protected employee”

under the Act.21 The number of cases being dismissed by ALJs because the cases do not involve a

“covered employer” appears to be declining. From 2002 to 2006, the “no covered employer”

rationale was the basis of 28.9 percent of ALJ dismissals.22 In 2007, that number dipped to 24.4

percent and in 2008 it dropped even lower to 14.8 percent—about half as many dismissals as in the

2002 to 2006 period.

This observed decline was likely precipitated by recent clarity in the law regarding the treatment of

subsidiaries of public entities under SOX. In 2006, the ARB explained that subsidiaries of public

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companies were only covered employers when they acted as agents of their parents (the “agent

rule”).23 A federal district court noted that by 2007, a “growing number” of ALJ opinions had

concluded that employees of non-public subsidiaries are not covered under Section 806.24 With

the agent rule in place, it is now more clear which of today’s subsidiaries are likely to be covered

employers. This added clarity likely means that fewer claims will be filed against non-covered

entities.

Right to Jury Trial for Whistleblower Retaliation Claims

Recent federal decisions have held that Section 806 does not, by its terms, provide a right to a jury

trial.25 Courts have also applied a three-part Seventh Amendment test, holding that there is no

Seventh Amendment right to a jury trial for a SOX whistleblower claim.26

Under the first step of the Seventh Amendment analysis, courts consider whether there is an

analogous common law claim that provides a basis for a jury trial.27 One federal district court

recently held that “[a] close analogy might be made to the claim of wrongful discharge which

existed at common law and thus indicates that plaintiffs’ Sarbanes-Oxley claim is analogous to one

that would be brought in a court of law prior to the merger of the courts of law and equity.”28 The

same district court found that under the second step of the Seventh Amendment analysis the

remedies under Section 806 were “equitable in nature, or otherwise intertwined or inextricably

linked the equitable relief of reinstatement,” which thus “weighs against there being a right to a

jury trial.”29 Finally, under the third step of the Seventh Amendment analysis, courts consider

“whether Congress has assigned adjudication of the statutory claim to a non-Article III

adjudicative body that does not use a jury as factfinder.”30 On this point, the same district court

held that a Section 806 claim could be “reasonably interpreted as being closely integrated into a

public regulatory scheme,” which weighed against a right to a jury trial.31 Because the second and

third steps of the analysis weighed against a right to a jury trial, and because the second step is

“more important than the first step,” courts have concluded that there is no right to a jury trial

under Section 806.32

Arbitrability of Section 806 Claims

Section 806 is silent regarding arbitration. Even so, ALJ decisions, as well as decisions from the

Second and Fifth Circuits and from district courts in the District of Columbia and the Fourth

Circuits, have all recently concluded that SOX whistleblower claims are arbitrable.33 With no DOL

authority to the contrary and the Supreme Court leaning heavily in favor of arbitration, this line of

cases is likely to continue to grow.

Availability of Attorneys’ Fees Under Section 806

Generally, the prevailing party in a Section 806 claim is eligible to recover its attorney’s fees.

The Fourth Circuit, in Grissom v. The Mills Corp., recently considered what constituted a

“prevailing party” entitled to those attorneys’ fees.34 The Grissom court applied the Supreme

Court’s Buckhannon Bd. & Care Home, Inc. v. West Virginia Dept. of Health & Human Resources

analysis, holding that a Federal Rule of Civil Procedure 68 judgment created a “material alteration

of the legal relationship between Plaintiff and Defendant” (step one of the Buckhannon analysis)

8 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

and carried a “judicial imprimatur” (step two of the Buckhannon analysis).35 Because the defendant

in Grissom made a Rule 68 offer of judgment, the Fourth Circuit held the plaintiff was entitled to

attorneys’ fees.36

Recent Trends in Disposition of Cases

Our analysis of SOX whistleblower litigation also revealed several trends relating to the disposition

of Section 806 claims, including a notable decrease in the number of cases dismissed based on an

employer’s rebuttal of a plaintiff’s prima facie case.37 As discussed above, once a plaintiff

establishes a prima facie case under Section 806, an employer may rebut that case by establishing

a legitimate ground for the dismissal. From 2002 to 2006, 14.5 percent of ALJ dismissals were

premised on an employer-defendant’s rebuttal.38 This fell sharply to 4.9 percent in 2007, and to 3.7

percent in 2008. Note, however, that there were no 2007 or 2008 ALJ decisions rejecting an

employer’s rebuttal. It appears that the rebuttal argument is not raised as frequently as it was from

2002 to 2006. In many cases, ALJs find that the claimants failed to prove their prima facie cases,

thus rendering the rebuttal issue moot.

Recent cases also indicate a sharp decline in withdrawn SOX whistleblower claims. Whereas 40

percent of cases pending before ALJs resulted in voluntary withdrawals from 2002 to 2006,39 the

number had fallen to 23 percent by 2007 and to 10.7 percent by 2008. This decline is potentially

explained by a concurrent decrease in the number of meritless claims filed. In other words, if

plaintiffs are filing stronger claims, they are more likely to refuse to withdraw them. The decline

could also mean that the number of settlements has declined,40 because many withdrawals occur

prior to or following confidential settlements.

Potential Changes in the Law

The current political and economic climate and recent news coverage and case law indicate several

potential changes to SOX whistleblower litigation.

Calls for SOX Whistleblower Reform

Late 2008 and early 2009 saw whistleblower advocates critiquing SOX and calling upon the new

Congress and administration to adopt greater protections.41 Reform proponents cite low

whistleblower success rates as evidence of the need for reform.42 Plaintiff success rates have been

historically low (from 2002 to 2006, employees won only 3.6 percent of claims at the OSHA level

and 6.5 percent of claims at the ALJ level),43 and are even decreasing. By late 2008, the OSHA

dismissal rate had climbed to 98 percent.44 In 2007 and 2008, the DOL web site posted no

decisions finding a retaliation violation.45

Armed with these statistics, critics have suggested several legislative reforms, such as extending the

statute of limitations—which, as this review has confirmed, is the most common ground for ALJ

dismissal. Further, reform proponents argue that courts should more liberally allow equitable

tolling, which is possible for whistleblower claims, but rarely granted.46

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Economic Downturn’s Potential Impact on Claims

Despite low plaintiff win rates, the number of SOX whistleblower claims filed in recent years has

actually increased.47 The economic downturn of late 2008 and 2009 is likely to fuel a further

increase. As more employees are terminated, the pool of potential SOX plaintiffs grows. Further,

the public’s (perhaps erroneous) perception that the new administration and Congress are more

sympathetic to employees might also encourage potential plaintiffs to file claims.

Particularly in the financial industry, widespread layoffs may lead former employees to claim they

were laid off in retaliation for reporting violations related to the subprime mortgage crisis. As but

one example in one recent case, Fieldstone Investment Corporation’s general counsel accused

senior management of illegal activity, was fired, and filed a SOX whistleblower claim alleging she

was fired for reporting the violations.48 Law firms representing whistleblowers are even advertising

their services to subprime whistleblowers.49

New Legislation’s Potential Impact on Claims

A new whistleblower law, the Consumer Product Safety Improvement Act of 2008, might have an

impact on SOX whistleblower cases as well. The new law, which provides whistleblower protection

to employees in the consumer products industry who suffer retaliatory action for reporting

violations of Consumer Product Safety Commission (CPSC) requirements, means that some public

employers could face both SOX and CPSC claims for the same alleged violation. Moreover, a CPSC

claim, which carries a longer statute of limitations period (180 days) and expressly allows for a jury

trial (unlike SOX),50 could be a more appealing option for a plaintiff than a SOX claim.

The new Stimulus Bill requires companies receiving stimulus funds to post notice of whistleblower

rights and remedies. The whistleblower clause prohibits a non-federal employer receiving stimulus

funds from discriminating against an employee as a reprisal for making a disclosure of what the

employee reasonably believes to be evidence of gross mismanagement, misuse, or waste of stimulus

funds or a violation of law related to a contract involving stimulus funds. This whistleblower clause

must be included in all stimulus-funded contracts and subcontracts. To seek relief under this

provision, an employee must first submit a complaint to the appropriate inspector general before

filing a complaint in federal court.

Potential Application to US Employees Working Abroad

Finally, a recent federal case might open the door to extraterritorial application of SOX

whistleblower provisions. In 2008, a New York federal district court held that SOX whistleblower

provisions applied to a US employee working overseas for a US subsidiary of a foreign-based

corporation.51 Commentators have pointed to this case in predicting that US employees working

abroad can now file SOX whistleblower litigation in the United States.52

Conclusion

The law governing SOX whistleblower retaliation claims is still relatively young and evolving.

Given the recent economic crisis and change in government, the immediate future may hold

10 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

significant changes, particularly the likelihood of an increased number of Section 806 claims.

Thus, now more than ever, it is crucial for companies qualifying as covered employers under SOX

and their counsel to be attentive to the most recent legal trends, and to familiarize themselves with

the best practices for dealing with potential whistleblower claims. By carefully selecting and

implementing the policies and procedures most appropriate given the company’s needs and

resources, a company will be better prepared to deal with and respond to reports of potential

violations, and to reduce the risk of both meritless and meritorious retaliation claims.

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Endnotes

1 Sarbanes-Oxley Act of 2002 § 806, 18 U.S.C. § 1514A.

2 Id. § 1514A(a).

3 Id.

4 29 CFR 1980.101.

5 18 U.S.C. § 1514A(c)(2).

6 29 CFR 1980.104(b)(1).

7 29 CFR 1980.104(c).

8 18 USC § 1514A(b)(2)(D); 29 CFR 1980.103(d).

9 29 CFR 1980.105(a).

10 29 CFR 1980.106-107.

11 29 CFR 1980.110.

12 29 CFR 1980.114(a).

13 Richard E. Moberly, “Unfulfilled Expectations: An Empirical Analysis of Why Sarbanes-Oxley Whistleblowers Rarely Win,” 49

William & Mary L. Rev. 65 (2007).

14 See The Compliance Partners, at http://www.thecompliancepartners.com/klmdifferent.html.

15 Rzaepiennik v. Archstone-Smith, Inc., 2004-SOX 00026 (Feb. 23, 2007).

16 Id. (“While there may be instances in which protracted negotiations culminating in a severance package could give rise to an

adverse action under SOX, based upon a continuing violation analysis, the facts alleged here do not.”); see also Rzaepiennik v.

Archstone-Smith, Inc., No. 07-CV-01243-MJW-MEH, 2008 WL 691717 (D. Colo. March 12, 2008).

17 We reviewed 193 ALJ decisions and 64 federal court decisions reported in 2007 and 2008.

18 See, e.g., Livingston v. Wyeth, Inc., 520 F.3d 344, 351-52 (4th Cir. 2008)

19 See, e.g., Id. at 352 (4th Cir. 2008); Walton v. Nova Information Systems, 2008 WL 1751525, at *8 (E.D. Tenn. April 11, 2008);

Godfrey v. Union Pacific Railroad Co., 2008-SOX-5 (A.L.J. April 30, 2008).

20 Livingston, 520 F.3d at 352.

21 Rao v. Daimler Chrysler Corp., 2007 WL 1424220, at *2-3 (E.D. Mich. May 14, 2007).

22 Moberly, supra, n. 13.

23 Klopfenstein v. PCC Flow Tech. Holdings, A.R.B. No. 04-149 (A.R.B. May 31, 2006).

24 Rao, 2007 WL 1424220, at *4.

25 See, e.g., Schmidt v. Levi Strauss & Co., 2008 WL 859705, at *3-10 (N.D. Cal. 2008); Walton v. Nova Information Sys., 514

F.Supp.2d 1031, 1035-36 (E.D. Tenn. 2007).

26 Schmidt, 2008 WL 859705, at *4 (“The first step of the Seventh Amendment analysis is to compare the statutory action to

18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. The next step is to

examine the remedy sought and determine whether it is legal or equitable in nature. Finally, if these two factors weigh in favor

of finding an entitlement to a jury trial, the court considers whether Congress has assigned adjudication of the statutory claim

to a non-Article III adjudicative body that does not use a jury as factfinder.”) (internal citations and quotations omitted).

27 Id. at *4.

28 Id. at 5.

29 Id. at 8.

30 Id. at 9 (internal citations and quotations omitted).

31 Id. at 10.

32 Id. at 5, 10.

33 See Guyden v. Aetna, Inc., 544 F.3d 376, 383-84 (2d Cir. 2008); Green v. Serv. Corp. Int’l., 2008 WL 4056325, at *3-4 (5th Cir.

May 30, 2007); Kimpson v. Fannie Mae Corp., 2007 WL 1020799, at *2-3 (D.D.C. March 31, 2007); Mozingo v. Fin. Group,

Inc., 520 F.Supp.2d 725, 729-30 (D.S.C. 2007) (plaintiff waived right to arbitrate by litigating claim, but stating that claim

12 Whistleblower Litigation: Dealing with SOX Allegations in the Current Economic Climate

would have been arbitrable); Bergman v. Chesapeake Energy Corp., 2008-SOX-9 (A.L.J. Dec. 19, 2007); Sullivan v. Science

Applications Int’l Corp., 2007-SOX-60 (A.L.J. Sept. 21, 2007).

34 Grissom v. The Mills Corp., 2008 WL 5077824 (4th Cir. Dec. 3, 2008).

35 Id. at 318-19, citing Buckhannon Bd. & Care Home, Inc. v. West Virginia Dept. of Health & Human Res., 532 U.S. 598 (2001).

36 Id.

37 We compared our analysis of ALJ decisions reported in 2007 and 2008 (see supra n. 17) to the statistical analysis of 2002-06

decisions by Professor Moberly. See supra n. 13.

38 Moberly, supra, n. 13.

39 Id.

40 Although reported settlements are holding steady (18 percent from 2002 to 2005 and 16 percent since then), many

withdrawals occur prior to or following closed-door settlements. See Moberly, 49 William & Mary L. Rev. 65.

41 See, e.g., Jennifer Levitz, “Whistleblowers are Left Dangling,” The Wall Street Journal (Sept. 4. 2008); Jeremy Grant, “US:

Whistleblowers Remain in the Line of Fire,” Financial Times (Sept. 12, 2007); Moberly, supra, n. 13.

42 Id.

43 Id.

44 Levitz, supra, n. 41.

45 See http://www.oalj.dol.gov/LIBWHIST.HTM.

46 Courts may toll if the employer misled the plaintiff regarding the filing of his complaint, the plaintiff was “extraordinarily

prevented” from filing his claim, or the plaintiff raised the issue in the wrong forum. Avlon v. Am. Express, 2008-SOX-51

(A.L.J. Sept. 8, 2008). But only one DOL case has ever found equitable tolling, and only under extreme circumstances

(e.g., the plaintiff missed the deadline by two days, after trying to file with various other agencies). See Getman v. Southwest

Sec., Inc., 2003-SOX-8 (A.L.J. Feb. 2, 2004).

47 Levitz, supra, n. 41.

48 Laura Smitherman, “Whistleblower was Fired; Ailing Lender’s Lawyer Says She was Let Go After Making Accusations,”

The Baltimore Sun (May 17, 2007).

49 See, e.g., http://www.kmblegal.com/practice.php?page=whistleblower.

50 Public Law 110-352.

51 O’Mahony v. Accenture Ltd., 537 F.Supp.2d 506, 512 (S.D.N.Y. 2008).

52 See, e.g., Melissa Klein Aguilar, “SOX Whistleblower Protections Grow Wider,” Compliance Week (March 4, 2008);

Frances Phillips Taft, “New Litigation Risk: Foreign-Based Employee Permitted to Sue Under Sarbanes-Oxley”

Compliance Week (July 15, 2008).

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