9th Circuit Allows SOX Whistleblower Claim to Go Forward

A Sarbanes-Oxley whistleblower suit brought by two former in-house attorneys may proceed, ruled a unanimous 9th Circuit panel (Van Asdale v. International Game Technology). The case arose from the merger of companies that made gaming equipment and involved the alleged failure to disclose information concerning the viability of certain key patents. Circuit Judge Jay Bybee wrote that the fired lawyers need not prove that the company actually committed fraud to maintain their action. Judge Bybee stressed that "we wish to make absolutely clear that we are not suggesting" that there was actual wrongdoing. The plaintiffs only needed to show that they reasonably believed that there might have been fraud and were fired for suggesting further inquiry.

The panel disagreed with the lower court holding that no reasonable jury could find that one of the dismissed lawyers subjectively believed that shareholder fraud had occurred. The trial judge based this conclusion on her response of "no" to a deposition question concerning whether she had "reached a conclusion one way or another as to fraud." Judge Bybee reasoned that to require "an employee to essentially prove the existence of fraud before suggesting the need for an investigation would hardly be consistent with Congress’s goal of encouraging disclosure."

The court also rejected the employer's state law arguments. Illinois law did not preclude former in-house counsel from bringing this federal action, and the trial judge could effectively manage the litigation to avoid any conflicts with conversations protected by the attorney-client privilege.

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