Tuesday, January 24, 2023

SOX whistleblower asks High Court to clarify burden of proof

By Anne Sherry, J.D.

A former employee of UBS who lost a retaliation suit under Sarbanes-Oxley is appealing to the Supreme Court. The Second Circuit held that retaliatory intent is a required element of a whistleblower claim, particularly given the statute’s admonition that an employer not “discriminate … because of whistleblowing.” But the whistleblower’s cert petition argues that Sarbanes-Oxley shifts the burden to the employer to prove a lack of retaliatory intent as an affirmative defense (Murray v. UBS Securities, LLC, January 13, 2023).

The employee was a commercial mortgage-backed security strategist and executive director at UBS Securities. He claimed that CMBS division personnel pressured him to create reports bolstering the company’s activities, regardless of his independent, research-based opinions to the contrary. Rather than succumb to the pressure, the employee complained to his superiors and continued to turn out honest reports. Nine months later, he was fired. The employee sued for retaliatory termination under both the Dodd-Frank Act and Sarbanes-Oxley Act Section 806(a), with UBS maintaining that it terminated him as part of a reduction in staff during an economic downturn. The district court dismissed the Dodd-Frank whistleblower protection claim, but the SOX claim survived.

The Second Circuit reversed, holding that SOX requires a whistleblower to prove retaliatory intent. Under the statute, no covered employer “may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee … because of whistleblowing.” Discriminatory action “because of” whistleblowing requires retaliatory intent, the court reasoned. The court had previously interpreted nearly identical language in the Federal Railroad Safety Act as requiring evidence of retaliatory intent, another reason to interpret SOX consistently with that holding.

In his petition for certiorari, the whistleblower points to the burdens of proof incorporated by reference in the SOX provision (“An action brought under paragraph (1)(B) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49, United States Code.”). That section in turn requires the whistleblower to make a prima facie showing that the protected conduct “was a contributing factor in the unfavorable personnel action.” According to the petitioner, once the whistleblower meets his burden of showing that the whistleblowing was a “contributing factor,” the burden shifts to the employer to demonstrate that it would have taken the adverse action anyway.

This burden-shifting framework, common to at least ten other whistleblowing statutes, derives from the Whistleblower Protection Act of 1989, whereby Congress replaced a standard that imposed an “excessively heavy burden” on employees. The petition states that the new contributing-factor standard was specifically intended to overrule existing case law and that the bill’s sponsor said the word “contributing” does not require plaintiffs to produce any evidence proving a retaliatory motive.

According to the petitioner, the Second Circuit’s decision created a circuit split by departing from the Fourth, Fifth, Ninth, and Tenth Circuits, none of which require SOX whistleblowers to prove their employer’s improper motive as part of their case in chief. The question presented is important because the SOX whistleblower provisions are critical to the integrity of the national economy; the statute is meant to provide uniform protection to whistleblowers; the appeals court’s position conflicts with the position of the Department of Labor; and the Supreme Court’s resolution of the dispute would benefit the other whistleblower statutes that incorporate the burden-shifting framework.

Finally, the petition urges that this case is the right vehicle for resolving the question presented. Every other issue related to liability has been decided in the petitioner’s favor. The extensive record shows that the petitioner met the standard used in the circuits outside the Second, and the Second Circuit recognized that the jury found the whistleblowing activity was a contributing factor to the petitioner’s termination. The jury also found that UBS had not shown it would have fired the petitioner if not for the whistleblowing activity. If the Second Circuit had not required proof of retaliatory intent, it would have affirmed the jury’s verdict in the petitioner’s favor.

The case is No. 22A-438.