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Other Recent Significant SOX Decisions (Part III)

May 16, 2013

We continue with our series of posts on recent SOX decisions.

The Ninth Circuit Holds That SOX Does Not Protect Reports Of Alleged Corporate Fraud To The Media

In Tides v. Boeing Co., 644 F.3d 809, 815 (9th Cir. 2011), the United States Court of Appeals for the Ninth Circuit held that the whistleblower provisions of SOX do not protect employees of publicly traded companies who disclose information to the media. Instead, the Court held, SOX protects employees only if they disclose certain types of information to the three groups identified in the statute: (1) federal regulatory and law enforcement agencies, (2) Congress and (3) employee supervisors.

Tides was brought by two former employees of Boeing Company who worked at Boeing’s information technology SOX audit team. This team was responsible for helping the Company comply with SOX’s requirement to assess annually the effectiveness of Boeing’s internal controls and procedures for financial reporting. Plaintiffs allegedly believed that Boeing managers fostered a hostile work environment, pressuring them to rate the Company’s internal controls as “effective” despite problems with these controls. Plaintiffs allegedly communicated their concerns to a reporter from the Seattle Post-Intelligencer despite knowing about Boeing’s policy restricting the release of Company information to the media. Using this information, the Post-Intelligencer published an article, “Computer Security Faults Put Boeing at Risk,” on July 17, 2007.

Prior to the publication of the article, Boeing began suspecting that several employees were releasing Company information to the media and began monitoring plaintiffs’ work computers and email accounts. After the publication of the article, Boeing’s human resources personnel interviewed each plaintiff separately. They both admitted to providing the Post-Intelligencer reporter Company documents and information about Boeing’s SOX audit practices. At the completion of the internal investigation, plaintiffs were terminated for disclosing Boeing’s information to non-Boeing persons without following appropriate procedures and failing to refer the news media’s inquiries to the Company’s communications department in violation of Company policies.

After their terminations, plaintiffs filed SOX whistleblower complaints that were consolidated in court. Boeing moved for summary judgment dismissing the case, arguing (among other things) that the SOX whistleblower provisions did not protect employees from disclosures to the media. The United States District Court for the Western District of Washington granted Boeing’s motion and dismissed the case with prejudice. Plaintiffs appealed.

The Ninth Circuit affirmed. The court held that the plain language of the statute covers only disclosures made to federal regulatory and law enforcement agencies, Congress and employee supervisors. The protections do not cover disclosures made to the media. The court rejected plaintiffs’ argument that media disclosures should be covered because such reports might ultimately cause information to be communicated to the appropriate governmental authorities. Had Congress wanted to protect reports to the media, the court reasoned, it would have listed the media in the statute or more broadly protected “any disclosure” of specified information, as it did with the Whistleblower Protection Act, 5 U.S.C. § 2302. Although a review of legislative history was not necessary because of the unambiguous language of SOX, the Court also noted that this history supported its conclusions.

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