Can SOX Go Overseas? The Debate Continues

The continuing controversy over whether retaliation claims under the Sarbanes-Oxley Act ("SOX") cover activities outside the United States continues to play out in the courts and administrative bodies. The two leading cases in this area are the First Circuit's ruling in Carnero v. Boston Scientific,1 and the U.S. District Court for the Southern District of New York's holding in O'Mahony v. Accenture, Ltd.2 These decisions took somewhat divergent paths, giving employers little clear guidance on whether they might face such claims for their activities or the activities of their subsidiaries and affiliates outside the country.

In that light, the Fifth Circuit's recent decision in Villanueva v. United States Department of Labor,3 is important. In some respects, the decision is helpful to employers, but its reasoning gives cause for concern about how courts will answer this question in the future.

In Villanueva, the plaintiff was a Colombian citizen working in that country for an affiliate of a Dutch company, the stock of which was publicly traded in the United States. The plaintiff alleged that he notified managers at both his Colombian employer and its Dutch parent of his belief that certain practices of the parent corporation enabled it to engage in fraudulent underreporting of its income to Colombian tax authorities. The only connection between his allegations and the United States was the claim that officials of an affiliated company in Houston directed some portions of the activity that led to the underreporting. Plaintiff was later passed over for a pay raise at the Colombian employer and ultimately terminated. He claimed that both actions were in retaliation for his reporting what he claimed was tax fraud.

Following dismissal of the claim both by an administrative law judge and on appeal by the administrative law judge, the plaintiff appealed to the Fifth Circuit. Although the court affirmed the dismissal of the complaint, its reasoning raises concerns. The court held that the issue was not whether SOX could be applied in an extraterritorial manner, but whether the plaintiff had engaged in protected activity at all. It found that the plaintiff's original complaint to the Occupational Safety and Health Administration (OSHA), where SOX claims must be filed first, alleged that he had been subjected to retaliation because of tax fraud in Colombia, at the express direction of executives in Houston who used mail, email and telephones to...