Clay Marsh | Murray v. UBS Securities, LLC

INTRODUCTION

At the turn of the millennium, corporate scandals at Enron and other corporations like it cost shareholders billions of dollars in lost investments. In their wake, overwhelming majorities in both chambers of Congress passed the Sarbanes-Oxley Act of 2002 (SOX).  The legislation imposed new standards for financial record-keeping and disclosure on publicly traded companies. SOX also provides for a private cause of action for corporate employees who believe they were retaliated against for reporting their firm’s financial wrongdoing to regulators. 18 U.S.C. § 1514A  The legislation was an attempt by Congress to correct for a perceived deficiency in federal law where government employees were protected from whistleblower activity but corporate employees were not. Lawmakers reasoned that in complex securities fraud investigations, employees of such firms “are [often] the only firsthand witnesses to the fraud.” Lawson v. FMR LLC, 571 U.S. 429, 435 (quoting S. Rep. No. 107-146 at 10).

Patterned after a similar federal whistleblower cause of action known commonly as “AIR-21”, § 1514A specifies using a burden-shifting framework for the plaintiff to prevail. The plaintiff must first show their protected activity “was a contributing factor in the unfavorable personnel action alleged.” 49 U.S.C. §42121(b)(2)(B)(iii). If proven, the plaintiff wins unless the employer-defendant can “demonstrate[] by clear and convincing evidence that the employer would have taken the same unfavorable personnel action in the absence of that behavior.” Id. § 42121(b)(2)(B)(iv).

Trevor Murray was a research strategist for UBS Securities before being fired amid conflicts with supervisors over what he perceived as a pressure campaign to make his independent securities reporting more optimistic. After exhausting his administrative remedies with the U.S. Department of Labor, Murray filed suit against UBS in the Southern District of New York. After a two-week trial, the jury found for Mr. Murray on instructions from the court that Mr. Murray could only recover if he proved 1) his activity was protected, 2) his employer knew about the activity, 3) he suffered an adverse action in being fired, and 4) his protected activity contributed to his termination. With respect to the “contributing factor” element, the court explained the protected activity must have, alone or in combination with other factors, led to Murray’s termination.

On appeal, the Second Circuit reversed, finding the district court erred by not instructing the jury that Murray was required to prove UBS acted with “retaliatory intent,” defining such intent as “discriminatory animus” on the part of UBS in terminating Murray. The panel recognized that this conclusion departs from other circuit courts’ reading of SOX. In those circuits, the burden of proving a lack of retaliatory intent is placed on the defendant as part of their affirmative defense against the plaintiff’s claim. Counsel for Murray filed a petition for certiorari with the Supreme Court to resolve the split.

ISSUE PRESENTED

Whether, under the Sarbanes-Oxley Act of 2002, a whistleblower must prove his employer acted with a “retaliatory intent” as part of his case in chief or whether the lack of “retaliatory intent” is part of the affirmative defense on which the employer bears the burden of proof.

THE ARGUMENTS

The Second Circuit found justification for their retaliatory intent requirement in SOX language that directs employers to not “discriminate” against an employee “because of whistleblowing.” 18 U.S.C. § 1514A(a). According to the Second Circuit, the presence of the word “discriminate” requires an employee to prove they were the victim of intentional retaliation.

The petitioner in this case argues the Second Circuit decision departs from at least four other circuits' reading of § 1514A of SOX. The Fifth Circuit rebuffed an employer’s argument that an “employee must prove a ‘wrongfully-motivated causal connection.’” Halliburton, Inc. v. Administrative Review Board, 771 F.3d 254, 263 (5th Cir. 2014). The Fifth, petitioners argue, along with the Ninth, Fourth, and Tenth Circuits, have relied on the Federal Circuit’s reasoning in Marano v. Department of Justice that a whistleblower does not need to demonstrate the existence of a retaliatory motive on the part of the employer to meet their burden of proving the protected activity was a contributing factor in their termination. See 2 F.3d 1137, 1141 (Fed. Cir. 1993). The petitioner argues this reasoning is congruent with the intent of Congress, as § 1514A follows the same framework as several other federal whistleblower statutes designed to remedy judicial precedent that placed what the petitioner claims was a heavy burden on employees to prove their whistleblowing was a significant or motivating factor in their termination, similar to the McDonell Douglas burden-shifting framework for Title VII employment discrimination claims.

The respondents agree with the Second Circuit assessment by claiming the petitioner overstates the split. They aver the Fifth Circuit decision in Halliburton is the only case to take an inconsistent position with the Second Circuit’s textual analysis of SOX. Even there, they claim the Halliburton panel mistakenly relied on the Federal Circuit’s Marano reasoning, as the Marano panel did not analyze the language of the SOX statute, but a different whistleblower statute the respondents find to be materially different from SOX. The respondents also claim that in light of the Second Circuit’s analysis of the SOX language, there’s reason to believe the Fifth Circuit will correct its approach to SOX claims when presented with an opportunity, making a review of the decision premature and unnecessary.

LOOKING FOWARD

Practical considerations could play a role in the Supreme Court’s turn of analyzing the language of SOX. Requiring plaintiffs to prove their employer’s retaliatory intent will place a greater burden on plaintiffs to prevail. This could have a chilling effect on potential whistleblowers’ decisions of whether to report possible wrongdoing. As SOX was passed in part to prevent another “Enron” from happening, raising the bar to prevail on a whistleblower retaliation claim could run afoul of the intent of the legislation. Given that murky financial disclosures have come to light in the wake of the 2008 financial crisis and other scandals, dissuading possible whistleblowers does not seem like prudent jurisprudence given that Congress did not make a retaliatory intent requirement more explicit in the language.