S.D. N.Y. Dismisses SOX and Dodd-Frank Whistleblower Claims Asserted Against Private Company
In early June, the U.S. District Court for the Southern District of New York granted an employer’s motion for summary judgment, thereby dismissing whistleblower retaliation claims against it under the Sarbanes-Oxley Act (SOX) and under Dodd-Frank. Importantly, the court explicitly found that the alleged whistleblowing did not involve fraud related to a public company, which is a prerequisite for liability under SOX.
The defendants argued in their summary judgment motion that they are not subject to SOX because they are not publicly traded companies and were not acting on behalf of the airline in whose concourse they ran their software test (which is a public company) by implementing the paywall system on iPads displaying the airline’s logo. The plaintiff argued that a private contractor, like the defendants, does not need to act on behalf of a public company in order to be subject to SOX’s whistleblower provisions. The court disagreed and dismissed the plaintiff’s SOX claim, ruling that a contractual relationship alone is insufficient to impose liability upon a private company under SOX. The plaintiff otherwise failed to provide evidence that could lead a reasonable juror to infer that the defendants performed the paywall software test on behalf of the airline, or that the airline had any specific involvement with the software test. The court further reasoned that imposing liability on the defendants would be contrary to SOX’s purpose because the alleged fraudulent activity did not relate to a public company. The court went on to dismiss the plaintiff’s Dodd-Frank claims, clarifying that Dodd-Frank only protects whistleblowers from retaliation for making external disclosures required by SOX (i.e., reporting to the SEC).