The Ninth Circuit Court of Appeals rendered an opinion clarifying what a plaintiff must show to establish a whistleblower claim under the Sarbanes Oxley Act (SOX). In the opinion (HERE) by Judge Jay S. Bybee the Court found that plaintiffs did not have to “prove the existence of fraud before suggesting the need for an investigation.” They only had to demonstrate they believed fraud had occurred to prompt the employer’s obligation to investigate.
This complicated story involves married intellectual property attorneys Shawn and Lena Van Asdale working for International Game Technology (IGT) as associate general counsel. One or both of them discovered documents which lead them to believe that an investigation into a patent held by Anchor Gaming should be started. Anchor was a former competitor of IGT before the 2 companies merged.
The slot machine patent in question was a major asset of Anchor and if not valid, could have fraudulently overvalued Anchor before the merger.
Shawn expressed concern to his bosses that an older Bally machine may have a valid patent which had not been disclosed before the merger. His belief was that IGT had been intentionally misled about Anchor’s value. The Van Asdales both raised the issue again with IGT’s general counsel (Anchor’s former top lawyer), stating they believed the nondisclosure of the Bally machine was suspicious and there was a potential of fraud.
The Van Asdales were terminated within a short time following those meetings.
The couple sued, asserting a whistleblower claim under the SOX, contending they were terminated for reporting potential shareholder fraud in connection with the IGT / Anchor merger. The Nevada-based federal trial court sided with the employer and granted its summary judgment motion, finding the Van Asdales had not shown they had discussed the suspected fraud specifically enough with IGT before they were terminated.
The Ninth Circuit Court of Appeals disagreed and reversed, vacated and remanded the trial court’s decision. While this decision may clarify what a plaintiff must do to establish a whistleblower claim, it may expand the use of privileged information by in house counsel, which was previously constrained under “attorney/client privilege”.
If you have questions related to an employment lawsuit (filed or not), or an issue related to a whistleblower or Sarbanes Oxley action, contact Richard Oppenheim. There is never a charge for an initial consultation.