New Developments in New Developments in Sarbanes-Oxley and Dodd-Frank Sarbanes-Oxley and Dodd-Frank Whistleblower Retaliation Whistleblower Retaliation LitigationLitigation

Jason ZuckermanZuckerman Law(202) 262-8959www.zuckermanlaw.com

SOX 806 – Who is SOX 806 – Who is Covered?Covered? Company that registers a class of securities under Company that registers a class of securities under

Section 12 of the 1934 Securities and Exchange ActSection 12 of the 1934 Securities and Exchange Act Company that is required to file reports with the Company that is required to file reports with the

Securities Exchange Commission under Section 15(d) of Securities Exchange Commission under Section 15(d) of the 1934 Actthe 1934 Act

A subsidiary or affiliate whose financial information is A subsidiary or affiliate whose financial information is included in the consolidated financial statement of one included in the consolidated financial statement of one of theseof these

Any Any “officer, employee, contractor, subcontractor or “officer, employee, contractor, subcontractor or agent of such company or nationally recognized agent of such company or nationally recognized statistical rating organization” statistical rating organization”

Lawson v. FMRLawson v. FMR

Lawson v. FMRLawson v. FMR, No. 12-3 (Mar. 4, 2014), No. 12-3 (Mar. 4, 2014)– SOX protects employees of a public company's SOX protects employees of a public company's

private contractors and subcontractorsprivate contractors and subcontractors– Similar to ARB’s holding in Similar to ARB’s holding in SpinnerSpinner v. David v. David

Landau & Assocs. LLC,Landau & Assocs. LLC, No. 10-111 (ARB May No. 10-111 (ARB May 31, 2012)31, 2012)

– Lawson does not rule out limiting principlesLawson does not rule out limiting principles Gibney v. Evolution Marketing Research LLCGibney v. Evolution Marketing Research LLC, No. 14-1913, , No. 14-1913,

2014 U.S. Dist. LEXIS 79369 (E.D. Pa. June 11, 2014) offers 2014 U.S. Dist. LEXIS 79369 (E.D. Pa. June 11, 2014) offers a limiting principlea limiting principle

SOX ElementsSOX Elements

Protected ConductProtected Conduct Adverse ActionAdverse Action Knowledge Knowledge Causation (contributing factor)Causation (contributing factor)

SOX Lit igationSOX Lit igation

Must file at OSHAMust file at OSHA 180-day statute of limitations180-day statute of limitations OSHA can order preliminary OSHA can order preliminary

reinstatementreinstatement Hearing before ALJHearing before ALJ Appeal to ARBAppeal to ARB Appeal to Circuit Court of AppealsAppeal to Circuit Court of Appeals 180-day “kick out” provision180-day “kick out” provision

SOX Protected ConductSOX Protected Conduct

Sylvester v. Parexel Int’l, LLC, Sylvester v. Parexel Int’l, LLC, ARB 07-123, 2011 ARB 07-123, 2011 WL 2165854 (May 25, 2011) WL 2165854 (May 25, 2011) – Protected conduct not limited to disclosures of Protected conduct not limited to disclosures of

shareholder fraud and C need not prove each shareholder fraud and C need not prove each element of fraud (scienter, materiality, etc.)element of fraud (scienter, materiality, etc.)

– Disclosure about a potential violation protectedDisclosure about a potential violation protected

– Abandons prior ARB’s Abandons prior ARB’s Platone Platone decision requiring that decision requiring that disclosure “definitively and specifically relate” to a disclosure “definitively and specifically relate” to a violation of one of the categories of fraud or SEC rule violation of one of the categories of fraud or SEC rule violationsviolations

– Iqbal/Twombly Iqbal/Twombly pleading standard does not apply to pleading standard does not apply to claims filed at OSHAclaims filed at OSHA

SOX Protected ConductSOX Protected Conduct

Will federal courts adopt Will federal courts adopt SylvesterSylvester??– Wiest v. LynchWiest v. Lynch, 710 F.3d 121 (3rd Cir. 2013), 710 F.3d 121 (3rd Cir. 2013)– Lockheed Martin Corp. v. Administrative Review Lockheed Martin Corp. v. Administrative Review

BdBd., 717 F.3d 1121 (10th Cir. 2013)., 717 F.3d 1121 (10th Cir. 2013)

– But see Gauthier v. Shaw Group, IncBut see Gauthier v. Shaw Group, Inc., 2012 WL ., 2012 WL 6043012 (W.D.N.C. 2012); 6043012 (W.D.N.C. 2012); Andaya v. Atlas Air, Andaya v. Atlas Air, Inc.Inc., 2012 U.S. Dist. LEXIS 78654, at *10 , 2012 U.S. Dist. LEXIS 78654, at *10 (S.D.N.Y. 2012); (S.D.N.Y. 2012); Nielsen v. AECOM Tech. Nielsen v. AECOM Tech. Corp.Corp., 2012 WL 6200613 (S.D.N.Y. 2012), 2012 WL 6200613 (S.D.N.Y. 2012)

Dodd-Frank Dodd-Frank Amendments to SOXAmendments to SOX Increases the statute of limitations to Increases the statute of limitations to

180 days after employee becomes 180 days after employee becomes aware of the retaliationaware of the retaliation

Exempts § 806 claims from mandatory Exempts § 806 claims from mandatory arbitrationarbitration

Clarifies right to jury trialClarifies right to jury trial Broadens the scope of coverageBroadens the scope of coverage

Dodd-Frank Dodd-Frank Whistleblower ProtectionWhistleblower Protection Dodd-Frank adds three news whistleblower Dodd-Frank adds three news whistleblower

retaliation causes of action, including a retaliation causes of action, including a retaliation provision accompanying the SEC retaliation provision accompanying the SEC whistleblower reward programwhistleblower reward program CFTC reward provision also includes protection CFTC reward provision also includes protection

against retaliationagainst retaliation Section 1057 creates a SOX-type cause of Section 1057 creates a SOX-type cause of

action for disclosures about consumer financial action for disclosures about consumer financial protectionprotection

Dodd-Frank Act Dodd-Frank Act Protected ConductProtected Conduct Providing information to the SEC in accordance Providing information to the SEC in accordance

with § 922;with § 922; Initiating, testifying in, or assisting in any Initiating, testifying in, or assisting in any

investigation or judicial or administrative action of investigation or judicial or administrative action of the SEC based upon or related to such information; the SEC based upon or related to such information; or or

Disclosing information required or protected by Disclosing information required or protected by SOX, the 1934 Act, and any other law, rule, or SOX, the 1934 Act, and any other law, rule, or regulation subject to the jurisdiction of the SEC.regulation subject to the jurisdiction of the SEC.

Dodd-Frank Act Dodd-Frank Act Protected ConductProtected Conduct Does it protect internal disclosures?Does it protect internal disclosures?

– Asadi v. G.E. General (USA), L.L.C., Asadi v. G.E. General (USA), L.L.C., 720 720 F.3d 620F.3d 620 (5(5th th Cir. 2013) Cir. 2013)

– Several district court decisions have Several district court decisions have adopted a contrary positionadopted a contrary position

– SEC amicus brief in SEC amicus brief in Liu v. SiemensLiu v. Siemens

Dodd-Frank ActDodd-Frank ActSEC Whistleblower ProtectionSEC Whistleblower Protection

Private right of actionPrivate right of action– No administrative exhaustion requirementNo administrative exhaustion requirement– Statute of limitations is 6 years after Statute of limitations is 6 years after

retaliation occurred or 3 years after retaliation occurred or 3 years after employee should have known of the employee should have known of the retaliation but no later than 10 years retaliation but no later than 10 years

– Not exempt from mandatory arbitrationNot exempt from mandatory arbitration

Procedural IssuesProcedural Issues

SOX claims are exempt from mandatory SOX claims are exempt from mandatory arbitrationarbitration

Dodd-Frank Act claims subject to mandatory Dodd-Frank Act claims subject to mandatory arbitration. arbitration. Murray v. UBS Securities, LLCMurray v. UBS Securities, LLC, , No. 2:12-cv-05914-KPF (S.D.N.Y. Jan. 27, No. 2:12-cv-05914-KPF (S.D.N.Y. Jan. 27, 2014)2014)

Forum selectionForum selection Impact of Impact of ZulferZulfer verdict verdict Extraterritorial application of SOX and Extraterritorial application of SOX and

Dodd-FrankDodd-Frank

RemediesRemedies

Dodd-Frank authorizes double back Dodd-Frank authorizes double back pay with interest but does not pay with interest but does not authorize compensatory damagesauthorize compensatory damages

““Special damages” in SOX includes Special damages” in SOX includes emotional distress damagesemotional distress damages