Image of Does the Sarbanes-Oxley Act authorize jury trials?

Does the Sarbanes-Oxley Act authorize jury trials?

Jury Trials in Sarbanes-Oxley Whistleblower Cases

The Dodd-Frank Act (“Dodd-Frank”) amendments to Section 806 of SOX clarify the right to try a SOX whistleblower claim before a jury. See 18 U.S.C. 1514A(b)(2)(E) (“A party to an action brought under [Section 806] shall be entitled to trial by jury.”). Some recent verdicts suggest that SOX whistleblowers can obtain large damages, which may prompt more SOX whistleblowers to remove their claims from the DOL to district court.

There is no cap on special damages under SOX. Recently, some SOX whistleblowers have obtained significant jury verdicts:

In August 2015, a New York federal jury awarded $1.6 million in compensatory damages to a whistleblower in a SOX retaliation lawsuit. Progenics Pharmaceuticals, Inc. (“Progenics”), employed Julio Perez as a senior manager of pharmaceutical chemistry. Perez worked with representatives from Progenics and another pharmaceutical company, Wyeth Pharmaceuticals Division (“Wyeth”), to develop Relistor, a drug that treats post-operative bowel dysfunction and opioid-induced constipation.

Perez saw a confidential memo from Wyeth executives to Progenics executives. Contrary to the companies’ public statements, the memo stated that Relistor underperformed during the second phase of clinical trials and did not warrant a third phase of trials. The Wyeth memo specifically stated, “Do not pursue immediate initiation of Phase 3 studies with either available oral tablets or capsule formulations.”

On August 4, 2008, Perez disclosed his belief to Progenics executives that the company was “committing fraud against shareholders since representations made to the public were not consistent with the actual results of the relevant clinical trial, and [Plaintiff] think[s] this is illegal.” See Perez v. Progenics Pharm., Inc., 965 F. Supp. 2d 353, 359 (S.D.N.Y. 2013) (alterations in original). The next day, Progenics’s General Counsel questioned Perez about the confidential Wyeth memo. Progenics then terminated Perez’s employment, claiming he had refused to reveal how he had obtained the Wyeth memo.

Perez brought suit under SOX. Progenics claimed that it terminated Perez’s employment because he refused to explain how he got the memo, which Perez denied. Though the memo’s intended recipients denied giving Perez a copy, Perez argued that the memo was distributed widely within Wyeth and that he had not “misappropriated” it.

OSHA did not substantiate Perez’s complaint, and so Perez removed his SOX claim to federal court in November 2010. The matter was hard fought, but the jury decided in favor of Perez and attributed the full amount of the $1.6 million verdict to compensatory damages. The jury’s willingness to make a large award absent substantial economic loss is significant because the whistleblower provision of SOX places no cap on compensatory damages.

As another example, on March 5, 2014, a California jury awarded $6 million to Catherine Zulfer in her SOX whistleblower retaliation action against Playboy, Inc. (“Playboy”). Zulfer v. Playboy Enters. Inc., JVR No. 1405010041, 2014 WL 1891246 (C.D. Cal. Mar. 5, 2014). Zulfer, a former accounting executive, alleged that Playboy had terminated her in retaliation for raising concerns about executive bonuses to Playboy’s chief financial officer (“CFO”) and chief compliance officer (“CCO”). She contended that she had been instructed by Playboy’s CFO to set aside $1 million for executive bonuses that had not been approved by the board of directors. Zulfer refused to carry out this instruction, warning Playboy’s General Counsel that the bonuses were contrary to Playboy’s internal controls over financial reporting. After Zulfer’s disclosure, the CFO retaliated by ostracizing Zulfer, excluding her from meetings, forcing her to take on additional duties, and eventually terminating her employment. After a short trial, a jury awarded Zulfer $6 million in compensatory damages and also ruled that Zulfer was entitled to punitive damages. Id. Zulfer and Playboy reached a settlement before a determination of punitive damages. The $6 million compensatory damages award is the highest award to date in a SOX anti-retaliation case.

The Ninth Circuit also recently affirmed a SOX jury verdict awarding $2.2 million in damages, plus $2.4 million in attorney’s fees, to two former in-house counsel. Van Asdale v. Int’l Game Tech., 549 F. App’x 611, 614 (9th Cir. Sept. 27, 2013). Shawn and Lena Van Asdale, both former in-house counsel at International Game Technology (“IGT”), alleged that they had been terminated in retaliation for disclosing shareholder fraud related to IGT’s merger with rival game company Anchor Gaming (“Anchor”). Specifically, the Van Asdales alleged that Anchor had withheld important information about its value, causing IGT to commit shareholder fraud by paying above market value to acquire Anchor. Van Asdale v. Int’l Game Tech., 577 F.3d 989, 992 (9th Cir. 2009). When the Van Asdales discovered the issue, they brought their concerns about the potential fraud to their boss, who had served as Anchor’s general counsel prior to the merger. IGT terminated both plaintiffs shortly thereafter.

Additionally, the plaintiff in Rhinehimer obtained a $250,000 jury verdict in the Eastern District of Kentucky. Rhinehimer v. U.S. Bancorp Invs., Inc., No. 2:11-CV-136-WOB, 2013 WL 9235343 (E.D. Ky. Oct. 8, 2013), aff’d, 787 F.3d at 813.

Zulfer, Van Asdale, and Rhinehimer highlight the importance of the removal or “kick out” provision in SOX, which authorizes SOX whistleblowers to remove their claims from the DOL to federal court for de novo review 180 days after filing the complaint with OSHA. Although SOX does not authorize punitive damages, a SOX complainant in federal court can add claims for which punitive damages can be recovered. For example, when Zulfer and the Van Asdales removed their SOX claims to district court, they added a common-law claim of wrongful discharge in violation of public policy.

Experienced Sarbanes-Oxley Whistleblower Lawyers

The 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.

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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:

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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.