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5th Circuit Skirts Extraterritoriality Issue Under (Sarbanes-Oxley Act) SOX

The U.S. Court of Appeals for the Fifth Circuit in Villanueva v. Core Laboratories, NV recently held that an individual employed by a foreign subsidiary of a publicly traded company did not engage in protected activity under the Sarbanes-Oxley Act because his complaints focused on violations of Columbian law, not violations of any of the six provisions of U.S. law enumerated in Section 806.

The complainant, William Villanueva, the CEO of an indirect subsidiary of Core Laboratories, N.V., a Dutch company publicly traded on the NYSE, alleged that Core Laboratories required the subsidiary to use Core Laboratories as the contracting party for inspection services the subsidiary performed for non-Colombian clients. He also alleged that Core Laboratories required that ten percent of contract revenues be paid to Core Laboratories’ sales division in Houston, even though Core Laboratories did not procure the contracts from which it gained that revenue or perform services under those contracts. Villanueva alleged that his company, the subsidiary, wrongfully claimed value-added tax (VAT) exemptions to the revenue, and, as a result, was able to underreport taxable revenue to the Colombian government. Villanueva raised the issue with the subsidiary’s and Core Laboratories’ accounting staffs. Despite receiving two legal opinion letters confirming the validity of the VAT exemptions, Villanueva refused to sign the subsidiary’s tax returns in April 2008. He was terminated later that month.

On appeal to the Fifth Circuit Court of Appeals, the parties asked the Court to determine whether Section 806 of SOX applies extraterritorially.  The Court concluded that it did not need to reach this issue. Instead, the Court found that Villanueva could not show that he reasonably believed that his complaints concerned violations of one of the six provisions of U.S. law set forth in Section 806 of SOX because the complaints only concerned violations of Columbian law. The Court found that Villanueva’s single reference in his OSHA complaint to Core Laboratories officials’ use of mail, email and telephones in the company’s Houston office to perpetrate the alleged tax fraud under Columbian law was insufficient to demonstrate that he reasonably believed that the company violated the U.S. mail and wire-fraud statutes listed in SOX. Indeed, nowhere in his complaints to either company did Villanueva object to violation of the U.S. mail or wire laws to effectuate the alleged fraud.

Although it did not address the extraterritoriality of SOX, Villanueva should be considered a victory for employers, because it narrows the reach of SOX for companies with overseas operations. Jackson Lewis attorneys are available to advise companies on the scope of SOX and Dodd-Frank matters in a multi-national context.

Jackson Lewis P.C. © 2023National Law Review, Volume IV, Number 52
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About this Author

Sarah C. Baskin, Jackson Lewis, employee benefit plans lawyer, lost wages attorney
Of Counsel

Sarah Baskin is Of Counsel in the Hartford, Connecticut, office of Jackson Lewis P.C. She litigates claims alleging discrimination, harassment, retaliation, breach of contract, whistleblower violations, Sarbanes Oxley, False Claims Act, and Dodd-Frank Act claims, denial of benefits and breach of fiduciary duty claims under ERISA, and a variety of other statutory and common law claims.

Ms. Baskin also has experience handling class actions involving pension claims and Microsoft-type misclassification claims seeking...

(860) 522-0404
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