Gordon & Rees partner John Palmeri and associate Laurie J. Rust of Denver secured dismissal of a Sarbanes-Oxley (SOX) whistleblower retaliation complaint against their client, a Massachusetts attorney, in the U.S. District Court for the District of Colorado.
The attorney was engaged by a pharmaceutical company to investigate an executive’s allegations of insider trading. In the course of the attorney’s investigation, he discovered that the executive had disclosed alleged violations of the U.S. Securities and Exchange Commission’s rules on proxy voting to a group of outside investors attempting a hostile takeover. The attorney reported his findings, as well as his conclusion that the executive’s actions constituted a breach of his fiduciary duties, to the company’s board of directors. The board voted to terminate the executive due to his breach of fiduciary duties.
The executive filed a complaint with the Occupational Safety and Health Administration alleging SOX whistleblower retaliation. The complaint named only the company and the chief executive officer. After 180 days, OSHA issued a right to sue letter. Shortly thereafter, the company filed for bankruptcy.
The executive sued the CEO, the board of directors, and Gordon & Rees’s client, alleging that his employment was terminated in retaliation for complaining about alleged violations of the SEC’s rules on proxy voting. Palmeri and Rust filed a motion to dismiss, arguing that the executive’s failure to exhaust his administrative remedies against their client barred his claim.
While the motion to dismiss was pending, the team defeated the executive’s efforts to transfer the case to the bankruptcy court, to pursue a malpractice claim against the attorney on behalf of the company, and to compel arbitration under a veil piercing theory.
The U.S. District Court dismissed the complaint against Gordon & Rees’s client. On an issue of first impression in the U.S. Court of Appeals for the 10th Circuit, the district judge held that administrative exhaustion is a jurisdictional prerequisite to filing a SOX whistleblower retaliation action in court.
The judge rejected the executive’s argument that the “identity of interest” exception excused his failure to exhaust administrative remedies against our client.