Whistleblower Claims Arbitrable under Sarbanes-Oxley Act, Second Circuit Says

Holding:

Claims under the whistleblower protection provision of the Sarbanes-Oxley Act of 2002 ("SOX") are arbitrable, so ruled the U.S. Circuit Court of Appeals for the Second Circuit in this case of first impression. The Second Circuit thus affirmed the judgment of dismissal by the U.S. District Court for the Eastern District of New York of a suit filed by plaintiff-appellant Linda C. Guyden against her former employer, defendant-appellee Aetna, Inc. In her complaint, Guyden alleged that she was wrongfully terminated because she was about to speak out about what she called the "ineffective" and "demoralized" Internal Audit Department of the company. The Second Circuit rejected Guyden's argument that SOX whistleblower claims are categorically non-arbitrable because mandatory arbitration of such claims conflicts with the policy objectives animating the whistleblower protection provision and SOX generally. According to the Second Circuit, the primary purpose of the statute is to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct. The provision’s focus on the plaintiff’s state of mind rather than on the defendant’s conduct is inconsistent with what Guyden argued is the statutory purpose -- to employ SOX retaliation litigation as a vehicle for publicizing corporate misconduct.

Detailed Summary:

In January 2004, Guyden joined Aetna as its Director of Internal Audit. Soon after starting, Guyden alleged that she discovered that Aetna’s Internal Audit Department was “ineffective, demoralized, and without independence or objectivity.” Opinion, p. 3.

According to Guyden’s complaint, these problems were so serious that she believed that Aetna was in danger of violating the SOX, Pub. L. No. 107-204, 116 Stat. 745 (2002). Id. SOX, and regulations promulgated thereunder, require corporate officers to report on the effectiveness of internal controls over financial reporting, and they prohibit those officers from characterizing the controls as “effective” if “there are one or…

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