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Sarbanes-Oxley Whistleblower Prevails on Appeal

In an unpublished decision in Yang v. Navigators Grp., Inc., the Second Circuit recently clarified a Sarbanes-Oxley whistleblower’s burden at the summary-judgment stage.

Takeaways for Sarbanes-Oxley Whistleblowers

  • A plaintiff’s self-serving testimony alone is sufficient to preclude summary judgment by creating a genuine issue of material fact regarding protected activity.
  • Where a plaintiff and his or her former employer provide contradictory explanations for the plaintiff’s termination, the plaintiff has adequately placed causation into dispute so as to preclude summary judgment.

Background

Jennifer Yang was hired as chief risk officer for Navigators Group, Inc., in June, 2012, after working for more than five years at another large insurance company. At Navigators, Ms. Yang reported directly to the CFO.

The same year that Ms. Yang was hired, she says, she notified her superiors multiple times of misconduct that amounted to “fraud” or “shareholder fraud.” First, Ms. Yang notified the CFO of certain misrepresentations that constituted “fraud” or “shareholder fraud.” Ms. Yang later emailed the CEO because she was “so concerned” about untrue statements that were being made to Navigators’ board of directors and rating agencies, which, she testified, constituted “shareholder fraud.” Finally, Ms. Yang informed Navigators’ general counsel that the company’s SEC filings misrepresented its risk-management programs and risk subcommittees. Navigators claims that none of Ms. Yang’s disclosures mentioned that the conduct was “illegal” or constituted “fraud” or “shareholder fraud.”

Ms. Yang was fired in November, 2012, less than two weeks after her disclosure to the general counsel. Navigators claims that her termination resulted from a “disorganized and incoherent presentation” that she made to the company’s senior executives in late October, 2012, as well as from general performance issues. Ms. Yang testified, however, that such issues were never brought to her attention, and that she was told that she simply failed to mesh with “Navigators’ culture” and to take a “hands on” approach to her duties there.

Ms. Yang filed suit in the U.S. District Court for the Southern District of New York, claiming that Navigators violated section 806 of SOX by discharging her in retaliation for her protected disclosures. Yang v. Navigators Grp., Inc., 155 F. Supp. 3d 327 (S.D.N.Y. 2016), vacated, 2016 WL 7436485. Navigators filed a motion for summary judgment, which the district court granted. Ms. Yang appealed, and the U.S. Court of Appeals for the Second Circuit vacated and remanded the district court’s grant of summary judgment

On appeal, Ms. Yang disputed two conclusions reached by the district court: first, that she did not engage in protected activity; and second, that she failed to demonstrate that her protected activity was a “contributing factor” in Navigators’ decision to fire her.

Sarbanes-Oxley Protected Whistleblowing

The district court found that Ms. Yang had not engaged in protected activity because she provided insufficient evidence, besides her “own deposition testimony and statements made in her own Declaration,” to demonstrate that she reported potential shareholder fraud to her superiors.

The Second Circuit, however, found that the district court’s exclusion of Ms. Yang’s testimonial evidence was inappropriate because that evidence was admissible. Since the district court was reviewing Navigators’ summary-judgment motion, moreover, “the testimony should have been viewed in the light most favorable to Yang.” The Second Circuit concluded that Ms. Yang’s testimony alone was sufficient to create a genuine issue of material fact regarding her protected activity, thereby precluding summary judgment.

Contributing-Factor Causation

The district court also found that Ms. Yang failed to establish that her protected conduct was a “contributing factor” in Navigators’ decision to fire her. The district court conceded that the temporal proximity of less than two weeks between Ms. Yang’s final disclosure and her firing raised an inference of contributing-factor causation. This inference was weakened, however, because of the “purportedly terrible presentation” that Ms. Yang gave during those two weeks. That presentation, the district court found, constituted a “legitimate intervening basis” for Ms. Yang’s termination, meaning that Ms. Yang had to provide evidence “linking her termination to her complaint.” The district court found that none of Ms. Yang’s evidence accomplished this, and so credited Navigators’ claim that it fired her for performance issues.

On appeal, the Second Circuit pointed out that summary judgment is precluded where there are “disputed facts as to the intervening basis.” Ms. Yang and her former supervisors provided conflicting explanations of her October, 2012, presentation and of the other reasons for her termination. While Navigators cited general performance issues, Ms. Yang testified that the reason she was given was her failure to fit into corporate culture and to take a hands-on approach to her job. At the summary-judgment stage, these disputes must be resolved in favor of Ms. Yang. Thus, the Second Circuit concluded, Ms. Yang “adequately placed these issues in dispute,” thereby precluding summary judgment on the issue of contributing-factor causation.

Guide for Sarbanes-Oxley Whistleblowers

The whistleblower protection provision of the Sarbanes-Oxley Act provides robust protection to corporate whistleblowers, and indeed some SOX whistleblowers have achieved substantial recoveries.  For example, a former in-house counsel at a biotechnology company recovered $11 million in a SOX whistleblower retaliation case alleging that the company fired him for disclosing violations of the Foreign Corrupt Practices Act.

On the fifteenth anniversary of SOX, leading whistleblower law firm Zuckerman Law released a free guide to the SOX whistleblower protection law: “Sarbanes-Oxley Whistleblower Protection: Robust Protection for Corporate Whistleblowers.”  The guide summarizes SOX whistleblower protections and offers concrete tips for corporate whistleblowers based on lessons learned during years of litigating SOX whistleblower cases.

The goal of the guide is to arm corporate whistleblowers with the knowledge to effectively combat whistleblower retaliation, avoid the pitfalls that can weaken a SOX whistleblower case, and formulate an effective strategy to obtain the maximum recovery.SOX whistleblower protection

The SOX whistleblower guide addresses the following topics:

WHISTLEBLOWERS PROTECTED BY THE SARBANES-OXLEY ACT

  • Who is protected under SOX’s whistleblower-protection provision

ELEMENTS OF A SOX WHISTLEBLOWER RETALIATION CLAIM

  • Can a whistleblower sue an individual under SOX?

PROTECTED WHISTLEBLOWING

  • Is a SOX whistleblower required to prove shareholder fraud?
  • Does SOX protect whistleblowing about potential violations of federal securities laws?
  • Are SOX whistleblowers required to show that their disclosures relate “definitively and specifically” to a federal securities law?
  • Does SOX-protected conduct require a showing of materiality?
  • What are some types of proof to show that a disclosure is objectively reasonable?
  • Are disclosures made in the course of performing one’s job duties protected?
  • Is a whistleblower’s motive for engaging in protected activity relevant in a whistleblower-protection case?
  • Does SOX protect disclosures about fraud on the government or gross mismanagement of a federal contract or grant?
  • Are disclosures about consumer financial fraud protected under SOX?
  • Is there some variation in how courts interpret the scope of SOX protected whistleblowing?

KNOWLEDGE OF PROTECTED CONDUCT

  • Must a whistleblower prove that the individual who made the final decision to take the adverse action has personal knowledge of the whistleblower’s protected activity?

PROHIBITED WHISTLEBLOWER RETALIATION UNDER SOX

  • What acts of retaliation are prohibited by the SOX whistleblower-protection provision?
  • Is constructive discharge a prohibited act of retaliation under SOX?
  • Does SOX prohibit employers from “outing” confidential whistleblowers?
  • Does SOX prohibit post-termination retaliation?
  • Is retaliation that occurred outside of the statute-of-limitations period relevant evidence of retaliation?

PROVING SOX WHISTLEBLOWER RETALIATION (CAUSATION)

  • What is a whistleblower’s burden to prove retaliation under SOX?
  • In a mixed-motive case (where there is evidence of both a lawful and unlawful motive for the adverse action), does the evidence of a legitimate justification for the adverse action negate the whistleblower’s evidence that whistleblowing partially influenced the decision to take the adverse action?
  • Is a SOX whistleblower required to prove that the employer’s justification for the adverse action is false (otherwise known as pretext)?
  • Is a SOX whistleblower required to prove that the employer had a retaliatory motive?
  • Is close temporal proximity sufficient to establish causation?
  • Does subjecting an employee to heightened scrutiny evidence retaliation?

EMPLOYER AFFIRMATIVE DEFENSE

  • What is the employer’s evidentiary burden in a SOX whistleblower-retaliation case?

DAMAGES

  • What damages can a whistleblower recover under SOX?
  • If reinstatement is not feasible, can a judge award front pay in lieu of reinstatement?
  • Does SOX authorize an award of punitive damages?

LITIGATING SOX WHISTLEBLOWER CLAIMS

  • Who administers the whistleblower-protection provision of SOX?
  • What is the statute of limitations for a SOX whistleblower-retaliation case?
  • What level of detail is required in a SOX complaint?
  • Where can a whistleblower file a SOX retaliation complaint?
  • Do mandatory arbitration agreements encompass SOX whistleblower claims?
  • Can OSHA order reinstatement of a SOX whistleblower?
  • Where are SOX whistleblower cases litigated?
  • How can a SOX whistleblower appeal an ALJ’s decision?
  • If a SOX whistleblower prevails before the ALJ, can they appeal part of the ALJ’s decision?
  • Where can a SOX whistleblower appeal an ARB decision?
  • Can a SOX whistleblower bring a retaliation case in federal court?
  • Is there a time limit for filing a SOX complaint in federal court after removing the claim from the Department of Labor?
  • Does the SOX Act authorize jury trials?
  • What is the scope of discovery in a SOX whistleblower case?
  • Do formal rules of evidence apply in SOX whistleblower trials at the Department of Labor?
  • Does Section 806 of SOX preempt other claims or remedies?

Experienced Sarbanes-Oxley Whistleblower Attorneys

best sexual harassment attorneys Washington DC Maryland VirginiaThe whistleblower lawyers at Zuckerman Law have substantial experience litigating Sarbanes Oxley whistleblower retaliation claims and have achieved substantial recoveries for officers, executives, accountants, auditors, and other senior professionals.  To learn more about corporate whistleblower protections, see our Sarbanes-Oxley Whistleblower Protection FAQ.  Click here to read client testimonials about the firm’s work in SOX whistleblower matters and other employment-related litigation.

To schedule a free preliminary consultation, click here or call us at 202-262-8959.

Leading whistleblower law firm Zuckerman Law has written extensively about whistleblower protections and is quoted frequently in the media on this topic. A sample of those blog posts and articles appears below:

SEC whistleblower rules

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Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims. He is rated 10 out of 10 by Avvo, was recognized by Washingtonian magazine as a “Top Whistleblower Lawyer” in 2015 and selected by his peers to be included in The Best Lawyers in America® and in SuperLawyers.