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Proving Retaliatory Intent in a SOX Whistleblower Retaliation Claim

The Sarbanes-Oxley Act of 2002 (SOX) is designed to prevent fraud in publicly traded companies. The law requires executives to attest to the accuracy of financial reports, holds them liable for inaccurate and misleading reporting, and protects whistleblowers who report fraud and other misconduct from retaliation. Recently, a federal appeals court held in Murray v. UBS Securities that a SOX anti-retaliation claim requires showing the employer’s retaliatory intent.

Synopsis

Plaintiff Trevor Murray claimed that UBS Securities fired him in retaliation for reporting alleged fraud to his supervisor and sued the company under the whistleblower protection provision of SOX. Plaintiff prevailed at trial in district court after the jury found, based on the court’s instructions, that:

  • Plaintiff engaged in activity protected by Sarbanes-Oxley
  • UBS knew that plaintiff engaged in the protected activity
  • Plaintiff suffered an adverse employment action – termination of his employment at UBS
  • Plaintiff’s protected activity was a contributing factor in the termination of his employment

However, the district court judge did not instruct the jury that a SOX anti-retaliation claim requires a showing of the employer’s retaliatory intent. 

Murray first sued UBS in 2012 for violating the Dodd-Frank Act’s anti-retaliation provision, but the district court granted UBS’s motion to compel arbitration. He then sued UBS in 2014, alleging his termination violated SOX.

The district court awarded Murray $653,300 in back pay, $250,000 in non-economic damages, and $1,769,387.52 in attorney’s fees and costs. UBS appealed, arguing that the jury’s instructions

lacked a key element of a SOX anti-retaliation claim: proof of UBS’s retaliatory intent in taking the adverse employment action. 

Background

In 2011, UBS hired Murray as a strategist in its commercial mortgage-backed securities (CMBS) unit, where he was responsible for conducting research and creating reports for distribution to current and potential clients about CMBS products, services, and transactions. Notably, Securities and Exchange Commission (“SEC”) regulations required him to certify his reports were independently produced and accurately reflected his views.

Murray claimed that two UBS trading desk leaders improperly pressured him to skew his research and publish reports to support their business strategies. He complained about this to his direct supervisor in December 2011 and January 2012. His supervisor said, “it is very important that you do not alienate your internal client” (the trading desk).

During his performance review the following month, Murray complained again about being left out of meetings and efforts to skew his research. His supervisor told him that “these were the confines under which. . . [you’re] going to have to operate, and . . . just . . . write what the business line wanted.” 

Murray’s supervisor then emailed his manager recommending that UBS remove Murray “from our headcount” or, in the alternative, move him to the CMBS desk as an analyst, or else “we will make the tough call” (to fire him). The CMBS trading desk declined to take Murray on as a desk analyst, and UBS terminated him in February 2012.

The Second Circuit Ruling

The United States Court of Appeals, Second Circuit, heard oral arguments on April 1, 2022. The Second Circuit ruled in favor of UBS on August 5, 2022, concluding that retaliatory intent is an element of a SOX anti-retaliation claim based on the plain meaning of the statutory language.

Circuit Judge Park wrote:

“The unambiguous, ordinary meaning of [SOX’s] statutory language requires retaliatory intent. [SOX] directs that no covered employer “may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee . . . because of whistleblowing.”

“To ‘discriminate’ means ‘[t]o act based on prejudice,’ which requires a conscious decision to act based on a protected characteristic or action.”

Park reasoned SOX prohibits discriminatory actions caused by or because of whistleblowing. The discriminatory actions alleged in an anti-retaliation claim must be “based on the employer’s conscious disfavor of an employee for whistleblowing.”

In sum, the court ruled that a whistleblower-employee must prove that the employer took the adverse employment action with the intent to discriminate because of lawful whistleblowing activity. The circuit court found that the district court’s failure to instruct the jury on this necessary element was not harmless, vacated the jury’s verdict, and remanded the case to the district court for a new trial. 

The Takeaway

The circuit court ruling establishes that a plaintiff must prove retaliatory intent to prevail in a SOX anti-retaliation claim. However, this begs the question if retaliation can be considered “unintentional.” While it remains to be seen whether the plaintiff will succeed during the retrial, the facts appear to show a connection between the plaintiff’s protected whistleblowing activity and the employer’s adverse action. Given the challenges of proving retaliatory intent in a whistleblower retaliation claim, it is essential to work with an experienced employment law attorney. Contact our office today.