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Any lawyer who is looked upon within his or her firm or in-house legal department as the resident Sarbanes-Oxley Act expert has likely encountered questions about the applicability of the act to private companies. Considering the general information available in the news media, many clients, and not a few lawyers, may assume that Sarbanes-Oxley applies only to publicly traded companies in all circumstances. And it is correct to understand that the legislative impetus behind the passage of the act was a desire to protect the shareholders of publicly traded companies, and that nearly all of its provisions apply only to such companies. Taking this thought too far, however, risks ignoring the language of � 806(a) of the act, 18 U.S.C. 1514(a), which expressly prohibits retaliation against employees who have engaged in activity protected under the act by “officers, employees, contractors, sub-contractors, or agents” of publicly traded companies covered by the act. Indeed, there are reported decisions supporting the view that private companies can be sued under � 806(a) in some situations, and the issue is far from being definitively resolved. Since the passage of Sarbanes-Oxley in 2002, employees who have believed themselves to be whistleblowers protected by the act have sought to expand the scope of its coverage to provide whistleblower protection to employees of all privately owned companies that have ever been, even arguably, “contractors” or “subcontractors” for, or “agents” of, publicly traded companies. While efforts to achieve such an expansive interpretation of the act have thus far been unsuccessful, most of the reported decisions on this issue are still at the level of the U.S. Department of Labor (DOL)/Occupational Safety and Health Administration (OSHA) administrative law judge (ALJ) determinations, DOL/OSHA Administrative Review Board decisions and a few opinions written by federal district courts. So there is justifiable uncertainty as to how the private company coverage issue will ultimately be resolved, and the attorneys for employees urging such a broad interpretation of � 806 of the act have had some successes at the ALJ level. In an early ALJ case, McIntyre v. Merrill Lynch, No. 2003-SOX-23 (Sept. 4, 2003), the complainant sued not only the well-known publicly traded broker Merrill Lynch & Co., but also a privately owned subsidiary that actually employed the plaintiff. The private subsidiary used the same Merrill Lynch corporate logo, and its history showed that it was created as an operating subsidiary of its parent company Merrill Lynch to provide retail brokerage services previously provided directly by the parent. Based on the language of �806(a), summary judgment was denied to the subsidiary, and the complainant was allowed to present his claim that the subsidiary was an agent of the publicly traded parent for purposes of his � 806 claim. The ALJ reasoned that to do otherwise would potentially allow the parent to violate the act through its private subsidiary in ways that it clearly could not with respect to employees of the publicly traded parent. Similarly, in Morefield v. Exelon Services, No. 2004-SOX-2 (Jan. 28, 2004), the employee of a private subsidiary of a publicly traded corporation was allowed to proceed with his claim. The ALJ, who observed that privately held subsidiaries are often inseparable from their publicly traded parents for purposes of evaluating the integrity of financial information, reasoned that it would not serve the act’s purpose to take “too pinched a view of this remedial statute.” Like results were reached on similar grounds in Gonzalez v. The Colonial Bank, No. 2004-SOX-39 (Aug. 20, 2004), and Platone v. Atlantic Coast Airlines, No. 2003-SOX-27 (April 30, 2004). In Kalkunte v. DVI Financial Services, No. 2004-SOX-56 (July 18, 2005), a financially distressed publicly traded company hired an otherwise unrelated privately held company to manage it through bankruptcy and dissolution. Considering the fact that the chief executive officer of the public company who made the decision to discharge the complainant was also a principal of the private company, and that he had been installed as CEO by the private company and was paid by that company while acting as the public company’s CEO, the ALJ concluded that, in discharging the complainant, the private company was acting as the agent of the public company for purposes of � 806 liability. Certainly ALJs have placed limitations on the scope of private company agency in whistleblower claims under Sarbanes-Oxley. For example, in Powers v. Pinnacle Airlines, No. 2003-AIR-12 (March 5, 2003); Grand v. Dominion East Ohio Gas, No. 2004-SOX-78 (March 10, 2005); and Dawkins v. Shell Chemical L.P., No. 2004-SOX-41 (May 16, 2005), the ALJs required that for the employee of a private subsidiary of a public company to successfully pursue a whistleblower claim under the act, the employee must name the publicly traded company in the complaint, as a party to the case, so that it would have an opportunity to participate in the DOL/OSHA investigation of the claim. Most ALJs also appear to reject the view that any private company can be subject to a whistleblower claim under the act “simply because it is affiliated with a publicly-traded company or engages in financial dealings with such a company,” Roulett v. American Capital Access, No. 2004-SOX-78 (Dec. 22, 2004), or simply because it is a subsidiary of a publicly traded company. Bothwell v. American Income Life, No. 2005-SOX-57 (Sept. 19, 2005). And, ultimately, the majority of courts will probably agree with the modest view expressed by the district court in Brady v. Calyon Securities, 406 F. Supp. 2d 307, 318 (S.D.N.Y. 2005), that coverage under the whistleblower provisions does not extend to “any privately-held employer . . . that has ever had occasion . . . to act as agent of a publicly-traded company, [when] the employees . . . had no relation . . . to the publicly-traded company.” In Bothwell, the complainant was an insurance agent hired by American Income Life (AIL), a private company that was a wholly owned subsidiary of Torchmark Corp., a publicly traded company subject to Securities and Exchange Commission registration and reporting requirements. There was no evidence that Lawrence G. Bothwell ever had any direct contact with Torchmark in his work for AIL, and the ALJ found there to be an insufficient evidentiary basis for Bothwell’s contention that the corporate veil should be pierced on the ground that the requisite separateness between AIL and Torchmark had not been maintained. On these facts, the ALJ concluded that AIL was not a contractor, subcontractor or agent of Torchmark, and granted AIL’s motion for summary judgment, relying in part upon a comment made by Senator Paul Sarbanes, D-Md., a co-sponsor of the act, during the floor debate prior to passage of the act, to the effect that he wished to “make very clear that [the act] applies exclusively to public companies-that is, to companies registered with the Securities and Exchange Commission.” Id. at 6, citing 148 Cong. Rec. S7351 (daily ed. July 25, 2002). The ALJ in Bothwell, however, did not explain (nor did Sarbanes) what he considered to be the meaning of the language contained in � 806(a) expressly stating that a “contractor, subcontractor, or agent” of a publicly traded company can be liable for whistleblower violations. In an even more recent case, another ALJ, in Goodman v. Decisive Analytics Corp., No. 2006-SOX-11 (Jan. 10, 2006), went so far as to assert, based upon the language of the caption of 18 U.S.C. 1514(a) (which reads “Whistleblower Protection for Employees of Publicly Traded Companies”), that employees of private “contractors and “subcontractors” can never be afforded Sarbanes-Oxley whistleblower protection, notwithstanding the references to coverage of such entities in � 806(a). Thus far, the ALJ in Goodman appears to stand alone in this interpretation of the act. In the ALJ opinions that have recognized the possibility of asserting valid Sarbanes-Oxley whistleblower claims against private entities, varying standards of proof have been required. For example, in Klopfenstein v. PCC Flow, No. 2004-SOX-11 (July 6, 2004), the complainant was required to show “sufficient commonality of management and purpose” between the public company and the private subsidiary to pierce the corporate veil and hold the parent company liable for the subsidiary’s actions. In Mann v. United Space Alliance, No. 2004-SOX-15 (Feb. 18, 2005), the ALJ considered “shared management and control and unity of operations” to be the “key factors” to consider in determining whether a private company subsidiary of a publicly traded company can be held liable. At the other end of the spectrum are cases such as Morefield, which reject altogether the concept that an employee of a private subsidiary of a public company must pierce the corporate veil in order to prevail. In Morefield, the ALJ warned that to impose such a requirement would defeat the overall purposes of the act, to ensure the accuracy and integrity of corporate financial information provided to shareholders and the public, by “wall[ing] off from the whistleblower protection . . . vast segments of corporate America that reside under the umbrella of publicly-traded companies.” Id. at 7. Ultimately, the U.S. circuit courts and the U.S. Supreme Court will provide a more definitive interpretation of the references to contractors, subcontractors and agents of publicly traded companies in � 806(a). Meanwhile, however, practitioners advising privately held employers should not be too quick in assuring their clients that no valid whistleblower claim is possible against them under the act. And they should expect lawyers representing employees to continue their efforts to extend coverage under the employee-protection provisions to as many privately held employers as possible. John B. Gamble Jr. is a partner at Atlanta’s Fisher & Phillips, which focuses its practice on the defense of management in employment-related litigation.

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