Protecting the Whistleblower under SOX: Van Asdale v. International Game Technology

In Van Asdale v. International Game Technology (IGT), plaintiffs sued defendant for retaliatory discharges under the Whistleblower protection provision in the Sarbanes  Oxley Act (SOX) and Nevada state law.  IGT moved for summary judgment.  The U.S. District Court for the District of Nevada granted IGT’s motion.  In reversing, vacating and remanding the lower court’s decision, the Ninth Circuit Court of Appeals held that (1) professional ethics rules did not preclude plaintiffs’ claims under SOX; (2) the attorney-client privilege did not require dismissal of the case; (3) the plaintiffs’ claim of shareholder fraud was protected; (4) the use of the sham affidavit rule was unjustified; (5) a genuine issue of material fact existed regarding fraud disclosures contributing to the plaintiffs’ terminations.
     
Shawn and Lena Van Asdale began work with IGT in 2001.  That year, defendant began merger talks with Anchor Gaming (Anchor).  Concomitantly, one of Anchor’s competitors, Bally Gaming (Bally), marketed a new slot machine.  Anchor’s IP department alleged Bally’s new machine used technology that infringed on a valuable patent owned by Anchor.  After the merger, Shawn Van Asdale found material evidence supporting Bally’s defense claim that had been left out of Anchor’s due diligence.  This evidence invalidated Anchor’s patent and undermined the ongoing lawsuit between Anchor and Bally.  Plantiffs suspected the merger had purposely been overvalued by Anchor. 

Plaintiffs alleged they brought the matter to the attention of their original superiors at IGT.  They met later with IGT’s General Counsel, formerly of Anchor.  Plaintiffs alleged they suggested the failure to disclose Bally’s defense materials was conduct that related to shareholder fraud.  Within approximately three months of these allegations, IGT fired the Van Asdales.

This court found that the district court could hear testimony regarding plaintiffs meeting with defendant’s senior executives as long as the court avoided hearing testimony relating to attorney-client privilege in the Bally litigation.  It also concluded that Section 1514(A) of SOX expressly authorized any “person” to allege discrimination based on protected conduct and to file a complaint.  This included in-house attorneys, such as the plaintiffs.  

This case was an issue of first impression. The court looked to Section 1514(A) of the SOX whistleblower statute, which requires that the plaintiffs have a reasonable belief that their employer violated a listed law.  The court found the plaintiffs met this minimum threshold requirement. 

Next, it found Shawn Van Asdale’s meetings with IGT supervisors were protected whistleblower activities.  The court also found that the plaintiffs made a prima-facie case of retaliatory termination.  Thus, the court concluded that the defendant did not establish by clear and convincing evidence that plaintiffs would have been fired if they had not been whistleblowers, preventing the defendant from prevailing on summary judgment.  Based on this finding of error in summary judgment, the Court also vacated the dismissal of all of plaintiffs’ state law claims and remanded them for reconsideration.

The primary materials for this post are available on the DU Corporate Governance website.