United States Court Of Appeals Addresses Requirements To Establish Retaliatory Discharge Claim Under Whistle-Blower Provisions Of Sarbanes-Oxley Act

In Van Asdale v. International Game Technology, (— F.3d —-, C.A.9 (Nev.), August 13, 2009), the United States Court of Appeals for the Ninth Circuit addressed whether two former employees stated a claim for retaliatory discharge under the whistle-blower provisions of the Sarbanes-Oxley Act. The Court of Appeals held that the trial court erred in granting summary judgment in favor of the employer where the employees established a prima facie case of retaliatory discharge.


Shawn Van Asdale and Lena Van Asdale began working for International Game Technology ("IGT") in January 2001 as in-house intellectual property attorneys. IGT is a publicly-traded company that specializes in computerized gaming machines. IGT promoted both Shawn and Lena prior to terminating their employment in 2004.

In 2001, IGT began merger operations with Anchor Gaming ("Anchor"). Prior to the merger, a competitor ("Bally") began advertising a slot machine that featured a "bonus wheel." The CEO of Anchor asserted that Bally's machine infringed on a patent owned by Anchor called the "wheel patent." The wheel patent was "a very valuable part of Anchor's holdings." Bally insisted that the wheel patent had been "invalidated by prior art, specifically, Bally's vintage 1970's Monte Carlo machine." Shawn investigated the dispute by purchasing a Bally's vintage machine and having it inspected to determine its impact on the wheel patent. In 2003, after Anchor and IGT merged, the U.S. Patent and Trademark Office issued IGT a new patent for its device.

During the investigation conducted in anticipation of litigation with Bally, Shawn discovered that Anchor's patent prosecution counsel prior to the merger had information about an Australian version of the Monte Carlo machine known as the Australian Flyer. Shawn thought that "the Australian Flyer had the effect of invalidating the 2003 patent" and that the machine undermined IGT's claim against Bally. He also thought that, if Anchor's wheel patent was in fact invalid, the benefits of its merger with IGT may have been overvalued. Shawn told IGT's general counsel at the time, Sara Beth Brown, about the Australian Flyer issue and she told him she would look into the matter. In the meantime, David Johnson replaced Brown as general counsel. Shawn and Lena both met with Johnson to discuss the Australian Flyer issue.

Within a few months of this meeting, IGT terminated both Shawn's and Lena's employment. Johnson decided to terminate Shawn just three days after the meeting but he could not do so until January 2004 because Shawn was absent from work because of a business trip and an illness. Johnson claims that he began receiving reports a few weeks after he terminated Shawn that Lena was acting odd and that she had tried to access sensitive company information. Johnson terminated Lean shortly after he received these complaints.

Shawn and Lean brought a lawsuit in federal district court alleging retaliatory discharge under the Sarbanes-Oxley Act and other state law claims. The trial court granted summary judgment in favor of IGT.


The Court of Appeals held that the trial erred in granting summary judgment in favor of IGT. The Sarbanes-Oxley Act prohibits employers who are publicly-traded companies from discriminating against an employee in the terms and conditions of employment for providing information on conduct "which the employee reasonably believes constitutes a violation" of provisions of Title 18 dealing with mail fraud, wire fraud, bank fraud, securities fraud, any Securities and Exchange Commission rule or regulation, or any Federal law relating to fraud against shareholders. 18 U.S.C. § 1514A(a)(1).

Title 18 U.S.C. § 1514A(b)(2) provides that claims brought under § 1514A "are governed by the procedures applicable to whistle-blower claims brought under 49 U.S.C. § 42121(b)." Pursuant to § 42121(b)(2)(B), a plaintiff is first required to set out a prima facie case of retaliatory discharge. If the plaintiff meets his or her burden, the employer must show by "clear and convincing evidence that it would have taken the same adverse employment action in the absence of plaintiff's protected activity."

In order to establish a prima facie case under § 1514A, an employee must show that (1) he or she engaged in protected activity or conduct; (2) the employer "knew or suspected, actually or constructively, that the employee engaged" in the protected activity;" (3) the employee suffered from an unfavorable personnel action imposed by the employer; and (4) the circumstances surrounding the situation "were sufficient to raise an inference that the protected activity was a contributing factor in the unfavorable action." "[T]o constitute protected activity under Sarbanes-Oxley, an 'employee's communications must 'definitively and specifically' relate to [one] of the listed categories of fraud or security violations'" found in § 1514A(a)(1).

The Court of Appeals held that the Van Asdales engaged in protected activity. Shawn told Brown that Anchor's CEO and the head of Anchor's intellectual properties department knew more about the Australian Flyer than they were saying and that they were also aware of the machine prior to the merger and had not disclosed it. Shawn and Lena did not have to cite to a specific section of the code that they thought was violated in order to trigger the protection of §1514A.

In order to trigger the protections of the Sarbanes-Oxley Act, an employee must have (1) "a subjective belief that the conduct being reported violated a listed law, and (2) this belief must be objectively reasonable." Here, Shawn and Lena believed that securities fraud had occurred and the court found that this suspicion was objectively reasonable because of the information surrounding the Australian Flyer and the nondisclosure of that information prior to the merger.

It is clear that officials at IGT knew that Shawn and Lena engaged in protected activity and that IGT took unfavorable personnel action against both Shawn and Lena. The fact that the termination of employment followed "on the heels" of the Van Asdales' meeting with Johnson satisfies the requirement that they show that their participation in a protected activity was the contributing factor in IGT's decision to terminate them. This conclusion is bolstered by the fact that Johnson decided to terminate Shawn only three days after their meeting.

The Van Asdales made out a prima facie case of retaliatory termination under §1514A. IGT can not prove that it is entitled to summary judgment unless it can show by clear and convincing evidence that it would have terminated the Van Asdales even if they had not engaged in protect activity. Because IGT cannot satisfy this requirement, the Court of Appeals held that the district court erred in granting summary judgment in its favor.


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