In a case with potentially significant and wide-ranging implications for federal whistleblower retaliation protections, the United States Supreme Court has agreed to review a Second Circuit Court of Appeals ruling regarding the evidentiary burden of corporate whistleblowers under the anti-retaliation provisions of the Sarbanes-Oxley Act of 2002 (SOX), 18 U.S.C. § 1514A. The Court will examine a subtle but critical issue – whether a whistleblower who sues his or her employer for retaliation under SOX bears the burden of proving his or her employer acted with “retaliatory intent,” or whether it is the employer that must show it did not intend to retaliate against the employee.
The Court’s review comes on the heels of the Second Circuit’s 2022 decision in Murray v. UBS Securities, LLC, which held that to prevail on a whistleblower retaliation claim under SOX, an employee must prove by a preponderance of the evidence that the employer took the adverse employment action (e.g., termination of employment) against the whistleblower-employee with retaliatory intent—i.e., an intent to “discriminate against an employee . . . because of” lawful whistleblowing activity. In so ruling, the Second Circuit created a circuit split the Fifth and Ninth Circuits, which previously held that retaliatory intent was not an element of a whistleblower-plaintiff’s claim under SOX. The Supreme Court now will consider the issue and resolve the split of authority amongst the federal circuit courts of appeals.
BACKGROUND
The Sarbanes-Oxley Act protects employees of publicly traded companies who disclose or report certain forms of financial wrongdoing, including but not limited to information they reasonably believe shows a violation of federal securities laws, SEC rules, or other provisions of federal law relating to fraud against the shareholders. Protected whistleblower activity under the law may include reports to federal regulatory and law enforcement agencies, Congress, an employee’s supervisor, and internal corporate investigators. The law also protects employees who participate or testify in SEC regulatory proceedings or other federal proceedings related to fraud against shareholders. Covered employers are prohibited from discharging, disciplining, or otherwise discriminating or retaliating in any manner against an employee who engages in protected whistleblower activity under the statute. Under SOX, an employee may file suit against an employer for taking retaliatory action against the employee in reprisal for exercising his or her rights, and where a violation is established, the employee may obtain a variety of damages and other remedies.
The case now before the Supreme Court involved one such whistleblower, plaintiff Trevor Murray, who sued his former employer, UBS Securities, LLC, an SEC registered broker-dealer, and its parent company, UBS AG (collectively, “UBS”), alleging they wrongfully terminated his employment in retaliation for engaging in protected whistleblowing activities. Plaintiff was employed by UBS as a strategist in the company’s commercial mortgage-backed securities group. Murray performed research and created reports that were distributed to UBS clients and potential clients about commercial mortgage-backed securities products, services, and transactions. In that role, Murray was required by SEC regulations to certify that his reports were produced independently and accurately reflected his own views. Murray claimed that he was targeted, and ultimately terminated from his employment, in retaliation for blowing the whistle to his supervisors about illegal efforts by leaders of UBS’s trading desk to improperly pressure him to skew his research and to publish reports to support their business strategies—which Murray refused to do.
Ultimately, after being terminated, Murray brought suit alleging various claims under federal law, including violation of the anti-retaliation whistleblower protection provision of SOX. Murray prevailed at trial, with the jury finding UBS liable and returning a verdict in excess of $903,000 for back pay and non-economic damages. The district court adopted the jury’s verdict on damages and also entered judgment awarding Murray more than $1.7 million in attorney’s fees and costs.
UBS appealed, and the Second Circuit vacated the $2.67 million award and ordered a new trial. On appeal, the Second Circuit held that the district court had erred by failing to instruct the jury that retaliatory intent was an element of the plaintiff’s SOX whistleblower retaliation claim. In other words, the district court did not instruct the jury that a SOX anti-retaliation claim required a showing of the employer’s retaliatory intent by the plaintiff as part of its case-in-chief, and, therefore, a new trial was required. As noted above, in so doing, the Second Circuit created a split amongst federal appellate courts which previously had held this was not an element of the plaintiff’s claim, but rather lack of retaliatory intent was an affirmative defense to be asserted and proved by the employer.
Murray petitioned the Supreme Court for review, which was granted. The Court will hear the case in its 2023-2024 term, which begins in October.
IMPLICATIONS
As with any Supreme Court case, the Court’s ruling will have significant implications for future whistleblower retaliation claims under SOX and possibly many other anti-retaliation and employee protection statutes—including the twenty-plus other whistleblower-protection statutes that use a similar burden-shifting paradigm.
Further, if the Second Circuit’s decision is affirmed, the bar for plaintiffs to plead, prove, and recover on a whistleblower retaliation claim under SOX will be raised significantly. The onus would be on the plaintiff to produce evidence of the employer’s subjective intent to retaliate in the first instance as part of the plaintiff’s case-in-chief, which, as in most employment discrimination and retaliation cases, is no small burden to clear. The clear difficulty in proving motive could curtail these kind of whistleblower retaliation lawsuits going forward. On the other hand, if the Supreme Court reverses the Second Circuit’s ruling, we may witness an increase in not only the number claims of violations of SOX’s anti-retaliation provision, but also the settlement value of those cases. Either way, the Court’s opinion will have significant implications for employers and employees alike.
We will continue to keep you posted on any new developments.
In the meantime, if you are an employer with questions regarding your obligations to your workforce or need help navigating any personnel issues, or if you are an employee who believes you have been wrongfully discharged or retaliated against for engaging in protected whistleblowing activity or otherwise exercising your rights, the Labor and Employment attorneys at Stark & Stark are ready to help. Contact us by phone at 609-895-7278 or via email at crand@stark-stark.com
