United States: Second Circuit Requires Proof Of Retaliatory Intent In Sarbanes-Oxley Whistleblower Claim

On August 5, 2022, the United States Court of Appeals for the Second Circuit reached a decision in Murray v. UBS Securities, LLC, ¹ overturning a nearly $1 million award to a former UBS strategist who had filed a lawsuit under Sarbanes-Oxley's ("SOX") whistleblower protection provision, 18 U.S.C. § 1514A. The Court held that the jury should have been instructed that such a claim requires a showing of the employer's retaliatory intent.² The Second Circuit's decision in Murray creates a circuit split, as the Fifth and Ninth Circuits have both held that "retaliatory intent" is not a required element for a Section 1514A claim. ³

I. Background

Under the SOX anti-retaliation provision, a publicly traded company may not "discriminate against an employee . . . because of" the employee's lawful involvement in providing information or otherwise assisting a government investigation of securities or fraud violations.⁴ The statute provides a private right of action to any employee who allegedly suffered such retaliation.⁵

In 2011, Trevor Murray was hired as a strategist at UBS, tasked with researching and reporting on the commercial mortgage-backed securities ("CMBS") business. In this role, Murray had a duty under Securities and Exchange Commission ("SEC") regulations to certify the accuracy and independence of his reports. Murray alleged that members of UBS's trading desk inappropriately pressured him to alter his research findings and author reports that aligned with the trading desk's business strategy. Murray reported these actions to his supervisor in December 2011 and again in January 2012. Soon after Murray raised his concerns, his supervisor recommended that he either be terminated or moved to the CMBS desk, as a desk analyst unregulated by the SEC. The CMBS desk declined to take Murray on as a desk analyst, and he was ultimately terminated in February 2012.

In 2014, Murray filed a lawsuit in the Southern District of New York claiming that his termination was retaliation for whistleblowing. UBS contended that Murray was terminated due to a reduction in the workforce brought on by poor financial performance. Ultimately, the case went to trial before a jury. The district court instructed the jury that Murray would need to prove that his protected activity was a "contributing factor" in his termination, explaining that for a protected activity to be a "contributing factor, it must have either alone or in combination with other factors tended to affect in any way UBS's decision to terminate [Murray's] employment."⁶ At the trial's conclusion, the jury found UBS liable and awarded Murray $903,300 in damages.

II. The Second Circuit's Opinion

On appeal, the Second Circuit decided "whether the Sarbanes-Oxley Act's anti-retaliation provision requires a whistleblower-employee to prove retaliatory intent"—" i.e., an intent to 'discriminate against an employee . . . because of' lawful whistleblowing activity."⁷

Circuit Judge Michael Park, writing on behalf of a three-judge panel, looked to both "the plain meaning of the statutory language" and the Court's previous interpretation of the "nearly identical language" in the whistleblower protection provision of the Federal Railroad Safety Act ("FRSA"). ⁸ The Court held that the "unambiguous, ordinary meaning" of Section 1514A required proof of retaliatory intent.⁹ Focusing on the meaning of "discriminate" (which "requires a conscious decision to act based on a protected characteristic or action") and "because of" (which "connot[es] a causal relationship"), the Court found that a discriminatory action because of whistleblowing necessarily required "that the employer's adverse action was motivated by the employee's whistleblowing."¹⁰ Additionally, the Court relied on its prior decisions interpreting nearly identical language in the FRSA to require "some evidence of retaliatory intent".¹¹ The Court vacated the district court's judgment and remanded the case for a new trial on liability.¹²

III. Conclusion

The decision places a greater burden on plaintiffs bringing anti-retaliation claims under the SOX whistleblower statute in the Second Circuit. Because the Court rejected interpretations requiring only a showing that whistleblowing was a "contributing factor" to alleged retaliation, prospective plaintiffs in the Second Circuit now will need to prove that their employers intended to retaliate because of their whistleblowing. This is likely to reduce the number of successful SOX whistleblower actions in the Second Circuit. The decision also creates a circuit split. As the Court recognized in its decision, the Fifth and Ninth Circuits have held that retaliatory intent is not an element of a Section 1514A claim. Going forward, we will look to see if other circuits adopt the Second Circuit's approach and whether the Supreme Court will resolve the split.

Footnotes

1 43 F.4th 254 (2d Cir. 2022).

2 Id. at 256.

3 Id. at 261 n.7 (citing Halliburton, Inc. v. Admin. Rev. Bd., 771 F.3d 254, 263 (5th Cir. 2014) and Coppinger-Martin v. Solis, 627 F.3d 745, 750 (9th Cir. 2010)). The Third, Fourth, and Tenth Circuits have declined to decide the issue. See id. (citing Wiest v. Tyco Electronics Corp., 812 F.3d 319, 330 (3d Cir. 2016); Feldman v. Law Enforcement Assoc's Corp., 752 F.3d 339, 348 (4th Cir. 2014); Lockheed Martin Corp. v. Admin. Rev. Bd., 717 F.3d 1121, 1136 (10th Cir. 2013)).

4 18 U.S.C.A. § 1514A(a).

5 18 U.S.C.A. § 1514A(b–c).

6 Murray, 43 F.4th at 258.

7 Id. at 260.

8 Id. at 258–61.

9 Id. at 259.

10 Id.

11 Id. at 260–61 (citing Tompkins v. Metro-N. Commuter R.R. Co., 983 F.3d 74 (2d Cir. 2020)). The Court noted that the Second, Seventh, and Eighth Circuits have also held that the same language in the FRSA requires a showing of retaliatory intent. Id. at 261 n.7.

12 Id. at 263.

To subscribe to Cahill Publications Click Here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.