Ninth Circuit Approves Whistleblower Claim by In-House Counsel

In Van Arsdale v. International Game Technology, the Ninth Circuit reversed the grant of summary judgment against the retaliation claims of a husband and wife who worked together as in-house counsel and who claimed to have been wrongfully terminated for raising internal concerns about potential Sarbanes-Oxley violations.  

In reaching this result, the Court made clear that even a Company's own in-house counsel may bring retaliation claims when their internal counselling activities are not well-received.  The district court had found the lawsuit should be barred as contrary to the attorney-client privilege and the ethical obligations requiring confidentiality.  The Ninth Circuit, however, felt there was nothing fundamentally incoherent in allowing an internal whistleblower suit by legal counsel so long as the district court took steps to shield confidential information from public disclosure.

 To the extent this suit might nonetheless implicate confidentially-related concerns, we agree with the Third Circuit that the appropriate remedy is for the district court to use the many “equitable measures at its disposal” to minimize the possibility of harmful disclosures, not to dismiss the suit altogether. . . . Nothing in this section indicates that in-house attorneys are not also protected from retaliation under this section, even though Congress plainly considered the role attorneys might play in reporting possible securities fraud.

The Ninth Circuit seemed unconcerned that its decision may damage the attorney-client relationship and chill internal legal analysis.  Indeed, the decision may even prompt many companies to rely more heavily on the advice of outside counsel -- where the relationship is strictly legal and not compromised by the panoply of rights accorded to an internal employee.  

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