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SOX and Dodd-Frank Do Not Preempt a Wrongful Discharge Claim in WA

The Washington Supreme Court held in Becker v. Community Health Systems that the whistleblower provisions of the Sarbanes-Oxley Act and Dodd-Frank Act do not preempt a common law claim of wrongful discharge in violation of public policy.

Becker’s Whistleblowing

Becker worked for Rockwood Clinic PS as its CFO. He was required by state and federal law to ensure that Rockwood’s reports did not mislead the public, which also required his personal verification that the reports did not contain any inaccurate material facts or material omissions. Becker’s EBIDTA report projected a $12 million operating loss for Rockwood the upcoming year. When Community Health Systems (CHS) acquired Rockwood, it represented to creditors that the Rockwood acquisition would incur only a $4 million operating loss. To cover the discrepancy, CHS’ financial supervisors allegedly directed Becker to correct his EBIDTA to reflect the targeted $4 million loss. Becker refused, fearing that the projection would mislead creditors and investors in violation of SOX.

Rockwood’s CEO placed Becker on a performance improvement plan and directed him to edit the EBIDTA projected loss to reflect the $4 million valuation.  Becker elevated his concerns to management and warned that he felt compelled to resign if the company refused to address his concerns. The company accepted his resignation and Becker brought a SOX claim.

SOX and Dodd-Drank Do Not Preclude State Remedies

Becker subsequently brought a wrongful discharge claim in state court and CHS moved to dismiss the claim on the basis that SOX provides an alternative means to protect the public policy of honesty in corporate financial reporting. The trial court denied the motion, and on appeal, the Washington Supreme Court held that an alternative remedy preempts a wrongful discharge claim only when the alternative remedy provides an exclusive remedy.  The Becker court then found that SOX and Dodd-Frank do not preclude remedies under state law:

“Congress expressly declared that the remedies available under SOX and Dodd-Frank supplement rather than preclude state or federal remedies. See 18 U.S.C. § 1514A(d); 15 U.S.C. § 78u-6(h)(3). We respect Congress’ choice to avail these administrative remedies in addition to our existing common law, and we decline to contravene that intent by barring Becker from full adjudication of his claim.”

Implications for Whistleblowers

In states holding that SOX and Dodd-Frank are not an exclusive remedy for whistleblowers that have suffered retaliation for disclosing accounting fraud or shareholder fraud, SOX complainants should consider removing their SOX claim to district court and adding a claim of wrongful discharge. While SOX authorizes uncapped compensatory damages, a wrongful discharge claim offers the opportunity to obtain punitive damages.

© 2015 Zuckerman LawNational Law Review, Volume V, Number 268
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About this Author

Jason Zuckerman Whistleblower Attorney Washington DC
Principal

Described by the National Law Journal as a “leading whistleblower attorney,” Jason Zuckerman litigates whistleblower retaliation, whistleblower rewards, wrongful discharge, and other employment-related claims. His practice focuses on representing senior executives and senior professionals in high-stakes whistleblower retaliation cases, including SOX retaliation claims, and representing whistleblowers before the SEC,...

(202) 262-8959
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