On January 29, 2021, the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of a SOX whistleblower retaliation claim where the plaintiff failed to establish an employer-employee relationship with the defendant.  Moody v. Am. Nat’l Ins. Co., No. 20-cv-40462.

Background

Plaintiff was the owner and president of Moody Insurance Group (“MIG”).  MIG contracted with American National Insurance Company (“ANICO”) to sell ANICO’s insurance products.  During the term of the contract, Plaintiff complained to the ANICO Board that ANICO was in violation of certain SEC regulations.  He also filed a shareholder derivative suit.  The ANICO Board subsequently terminated ANICO’s contract with MIG.

In June 2019, Plaintiff filed suit in the U.S. District Court for the Southern District of Texas, alleging that ANICO retaliated against him in violation of Section 806 of SOX for his complaints by canceling his company’s contract, among other things.  In June 2020, the district court granted ANICO’s Rule 12(b)(6) motion to dismiss the SOX claim, holding that Plaintiff failed to allege facts showing that he was a covered employee of ANICO under SOX (our post on that decision is here).  The district court agreed with ANICO’s argument that the U.S. Supreme Court’s decision in Lawson v. FMR (2014) (discussed here), only permits the employees of a contractor to bring suit against their actual employer, and not against the public company with which their employer contracts.

Ruling

The Fifth Circuit affirmed the district court’s grant of ANICO’s motion to dismiss, explaining that the Supreme Court made clear in Lawson that SOX only covers “actions an employer takes against its own employees” and, therefore, “the whistleblower entitled to protection must be an employee of the retaliator.”  Because Plaintiff was an employee of MIG (a private company), and not ANICO (a public company), Plaintiff failed to plead sufficient facts to show that he is a covered employee protected by SOX.

Implications

This decision clarifies that even under the Lawson, employees of private companies that contract with public companies can only pursue a SOX claim against their actual employer.

Posted in SOX Whistleblower Decisions
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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a ”Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal. The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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