Retaliation And Whistleblower Claims By In-House Counsel

With recent legislative efforts to expand whistleblower rights and protections, many employers have found themselves confronting an increase in the number of whistleblower reports, complaints, and lawsuits. As part of this trend, many employers are also beginning to see, or anticipate, whistleblower activity and retaliation claims among even their own corporate counsel and compliance professionals. These kinds of complaints, reports, and lawsuits brought by in-house attorneys present particular challenges and complications for the company. Can an attorney bring a claim or lawsuit against an employer that is also his or her client? Can the company's attorney collect a bounty award for acting as a whistleblower? Can the attorney-whistleblower disclose the company's confidential and privileged information as part of a claim or lawsuit? How should the company work with an attorney in the workplace who has reported internally or to the government, or who has filed a claim or lawsuit? What can the company do to prevent charges and lawsuits brought by in-house counsel?

These critical questions require careful consideration and a thorough understanding of the state of the law. This white paper provides an explanation of the extent to which in-house attorneys can bring retaliation or whistleblower claims, collect monetary incentives for whistleblowers, and use a company's confidential and privileged information to litigate a legal claim. Further, the paper identifies employer defenses in such litigation and steps an employer presented with a complaint or claim by an in-house attorney can take to protect its confidential information. Finally, we offer practical steps an employer can and should take when responding to and managing an in-house attorney who has made a complaint or filed a lawsuit while still employed, as well as practical recommendations for preventing such claims from arising at all.

Whistleblower Protections and In-House Counsel

Historically, some state courts have expressed skepticism about whether an in-house attorney can sue his or her employer (and client) on the basis of allegations that the employer terminated or otherwise retaliated against the attorney for engaging in statutorily protected activity. Increasingly, however, state and federal courts and federal agencies have allowed such claims and even permitted the disclosure of privileged and confidential information in the course of litigating them. The section below provides an overview of the permissibility of whistleblower claims by in-house attorneys and canvasses the types of information they may use to litigate their claims under various federal whistleblower statutes and in state common law wrongful termination actions.

Sarbanes-Oxley

The Sarbanes-Oxley Act (SOX or Sarbanes-Oxley), enacted in 2002 to introduce sweeping corporate reforms, contains civil and criminal anti-retaliation provisions intended to protect employees who blow the whistle on corporate fraud. Under SOX's civil whistleblower provisions, employees of publicly traded companies (and their privately held subsidiaries) who provide information and/or assist in an investigation into an employer's violation of SOX, Securities and Exchange Commission (SEC) regulations, or securities fraud are protected from employer retaliation.1 Sarbanes-Oxley is enforced by the Occupational Safety and Health Administration (OSHA) of the U.S. Department of Labor (DOL), meaning that employees must first file their claims with that agency. Claims of retaliation under SO X are investigated and adjudicated by OSHA, with ultimate review available in the U.S. Court of Appeals for the Federal Circuit.

Both the DOL's Administrative Review Board (ARB) and the U.S. Court of Appeals for the Ninth Circuit have allowed in-house counsel to pursue SOX retaliation claims. In Van Asdale v. International Game Technology, the Ninth Circuit held that two in-house attorneys could state a claim of retaliatory discharge under SOX.2 The court rejected the defendant company's argument that the state's rules of professional conduct created a per se bar against such suits.3 The Ninth Circuit also rejected the idea that the claim should not go forward because it could not be litigated without disclosure of attorney-client privileged information. To address the issue of attorney-client privileged information, the court recommended equitable measures “to minimize the possibility of harmful disclosure.”4 By way of example, the court indicated that testimony could be limited to the alleged disclosures of shareholder fraud (i.e., the protected activity), without referencing litigation-related discussions that also took place in the same meeting.5

In Jordan v. Spring Nextel Corporation, the ARB similarly allowed an in-house attorney to assert claims of retaliation under SOX, despite the fact that bringing the claim entailed disclosure of privileged and confidential information.6 The ARB reasoned that the mandatory disclosure requirements for counsel set forth in the Code of Federal Regulations title 17, section 205.3, which are described further below, and the whistleblower protections under SO X, should be read together to provide a remedy for attorneys alleging that they have been retaliated against for making a required disclosure.7 The ARB also noted that the SEC regulation regarding attorney disclosure of material violations was modeled on the American Bar Association's (ABA) Model Rules of Professional Conduct, Rule 1.6, which “allows an in house attorney to use privileged information to establish a retaliatory discharge claim against the attorney's employer.”8 Consequently, “if an attorney reports a 'material violation' in-house in accordance with SEC's Part 205 regulations, the report, though privileged, is nevertheless admissible in a SOX Section 806 proceeding as an exception to the attorney-client privilege in order for the attorney to establish whether he or she engaged in SOX-protected activity.”9 The ARB observed, however, that it remained within the ALJ's discretion to issue a protective order to preserve the confidentiality of the privileged communications offered to support the retaliation claim.10

The Dodd-Frank Act

Enacted in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) ushered in expansive new incentives and protections for whistleblowers.11 Under Dodd-Frank's amendments to the Securities Exchange Act (SEA), whistleblowers who voluntarily provide original information to the SE C, which leads to an SEC enforcement action and recovery of more than $1 million, can collect a monetary award ranging between 10 and 30% of the monetary sanctions collected.12 Whistleblowers also enjoy new protections from retaliation under Dodd-Frank. Specifically, a whistleblower possessing areasonable belief that he or she provided information thatrelates to a possible securities law violation and suffers retaliation as a result can bring a claim of retaliation in federal court.13 For retaliation claims, Dodd-Frank provides a generous statute of limitations, ranging between six and 10 years, and remedies that include reinstatement, double back pay plus interest...