November 27, 2022

Volume XII, Number 331


Pennsylvania District Court Grants Employer Summary Judgment on SOX Claim

On March 29, 2021, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the plaintiff lacked an objectively or subjectively reasonable belief that the company violated any law enumerated in Section 806 of SOX.  Ngai v. Urban Outfitters, Inc., No. 19-cv-1480.


Plaintiff, a Director of Sourcing and Technical Design, was responsible for ensuring that overseas factories properly executed apparel designs while minimizing production expenses.  He was required to ensure that factories were limiting waste and competitively pricing material, labor, and other costs.

Plaintiff claimed that throughout his employment, he reported general allegations of corporate waste and improper conduct by some of the company’s outside vendors and manufacturers.  Specifically, he complained that outside contractors were being wasteful, overcharging, self-dealing, inflating production costs, creating conflicts of interest within the company’s supply chain, and paying kickbacks to executives to secure high volume orders in violation of the company’s policies and Code of Conduct.  Plaintiff initially voiced his concerns directly to his supervisors, and then in April 2018 hired a lawyer, who sent over 20 letters to the company outlining Plaintiff’s concerns.  The company terminated Plaintiff’s employment in September 2018 and Plaintiff subsequently filed suit alleging, among other claims, that his employment was terminated in retaliation for his complaints.


The Court held that Plaintiff failed to establish that he had a subjectively or objectively reasonable belief that the company engaged in conduct covered by SOX.  Plaintiff failed to prove that he had a subjectively reasonable belief of a violation because the record showed that he personally believed he was reporting violations of company policies, as opposed to violations of the federal statutes covered by SOX.  The court said that while there is no need to “ring the bell” on each element of a law covered by SOX when making a complaint, a plaintiff needs to show more than a “veiled reference” to unspecified legal violations, especially where, as here, the plaintiff sent over 20 letters memorializing his allegations.

The court also held that Plaintiff failed to show an objectively reasonable belief that he was reporting violations covered by SOX.  Relying on the Third Circuit’s decision in Wiest v. Lynch (see our post on that case here), the court held that Plaintiff failed to show that his belief that the company was committing one of the enumerated forms of fraud was objectively reasonable in light of the fact that Plaintiff’s primary job was to increase efficiencies and reduce costs.  The court ruled that an objectively reasonable person with Plaintiff’s background and job responsibilities would not believe a failure to root out misconduct by outside vendors constituted bank, wire, or securities fraud, or a violation of SEC rules.


This decision underscores the need for a purported SOX whistleblower to hold a belief of a violation of one of the provisions enumerated in SOX that is both subjectively and objectively reasonable.

© 2022 Proskauer Rose LLP. National Law Review, Volume XI, Number 125

About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

Pinny Goldberg Labor and Employment Lawyer Proskauer Rose Law Firm

Pinny Goldberg is an associate in the Labor & Employment Law Department. Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, wage and hour, wrongful discharge, whistleblowing and retaliation, covenants not to compete, breaches of fiduciary duty, unjust enrichment, and tort and contract claims. 


Rebecca S. Fishbein Labor & Employment Lawyer Proskauer Rose

Rebecca Fishbein is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group.

Rebecca earned her J.D. from Columbia Law School and her B.A. from Wellesley College. During law school, she was a member of the Mediation Clinic and a teaching assistant for the Negotiation Workshop.