A former internal auditor of a bank may bring a claim for state law wrongful discharge in violation of public policy despite her maintenance of a retaliation claim under the Sarbanes-Oxley Act (“SOX”), the U.S. District Court for the Western District of Washington has decided. McEuen v. Riverview Bancorp, Inc., No. C12-5997 (WD Wash. Feb. 21, 2013).
In McEuen, a bank’s internal auditor alleged her supervisor was hiding audit-related problems at the bank. The plaintiff asserted that, after reporting her concerns to the bank’s human resources department and its president, the bank fired her. She then brought a SOX retaliation claim with the Occupational Safety and Health Administration and, subsequently, filed a SOX retaliation lawsuit in federal court, adding a state law claim for wrongful termination in violation of public policy.
The bank moved to dismiss the wrongful discharge claim for failure to state a claim. It argued that under Washington law, the plaintiff could not show that SOX did not already protect the public policy connected with her termination.
To prevail on a claim of wrongful discharge in violation of public policy in Washington, a plaintiff must establish: (1) the existence of a clear public policy, (2) that discouraging the conduct would jeopardize the public policy, and (3) that this conduct caused the discharge (the causation element), and — if the first three elements are met — that the defendant is not able to offer an overriding justification for the dismissal.
The bank argued that SOX provided the clear public policy and already adequately protected the conduct (i.e., the plaintiff’s discharge) through its remedial measures. The employee argued that the violation of public policy that was triggered by her action was not just her reporting of fraud, which would otherwise be addressed and protected by SOX, but her refusal “to perform unlawful acts in violation of the Bank’s guidelines and statutory and regulatory requirements and policies.” She therefore concurrently moved for leave to amend her complaint to add the unlawful-acts allegation.
Based on the employee’s argument, the district court granted the motion for leave to amend her complaint and, concurrently, denied the bank’s motion to dismiss. Finding that SOX was an “adequate alternative means” of promoting the public policy of protecting discharged whistleblowers, the court determined that if the plaintiff based her wrongful discharge claim on her act of whistleblowing, the claim was barred for failure to state a claim. But the court agreed that her wrongful discharge claim under state law stated a valid claim where it was premised on her discharge on her refusal to perform an unlawful act, which is a protected public policy under Washington law. The court granted the employee’s request for leave to amend her complaint consistent with her argument that her wrongful discharge claim was premised on her refusal to perform unlawful acts.
Other courts have decided differently from this court’s determination that SOX does not already protect employees discharged for refusing to perform unlawful acts that the employee has reported as fraud. They have permitted SOX plaintiffs to bring state law wrongful discharge claims based on the policies established in SOX. For example, a District Court in the Northern California in Romaneck v. Deutsche Asset Mgmt., 2006 U.S. Dist. LEXIS 59397 (N.D.Cal. 2006), denied summary judgment against a SOX plaintiff’s wrongful termination claim, ruling that the plaintiff need not exhaust his administrative remedies and could proceed with a wrongful discharge claim premised on the public policy announced in SOX. Likewise in De Bay v. Wild Oats Market, Inc., 244 Or. App 443 (2011), the Oregon Court of Appeals revived a plaintiff’s state law wrongful discharge claim premised on the public policy established in SOX, where the plaintiff sued his employer after being fired for reporting managerial wrongdoing.
These cases illustrate that SOX plaintiffs may be able to bring additional state common law claims for wrongful termination in violation of public policy. That tort, which first appeared in California, has gained broad acceptance, in one form or another, in many states.