California Jury Awards $6 Million in Sarbanes-Oxley Act Whistleblower Lawsuit

by Snell & Wilmer

A California jury recently awarded Catherine Zulfer, a former accounting executive at Playboy Enterprises, $6 million after finding that Playboy violated the whistle-blower provisions of the Sarbanes-Oxley Act of 2002 (SOX) when it fired her for refusing to improperly set aside company funds for executive bonuses. The case is Zulfer v. Playboy Enterprises, Inc. et al., No. CV 12-08263 (March 5, 2014, C.D. Cal.). The jury’s special verdict can be viewed here. Section 806 of SOX provides that whistleblower protection for employees of publicly traded companies who are discharged, demoted, suspended, threatened, harassed or discriminated against for lawfully providing information regarding conduct the employee reasonably believes is a violation of federal fraud statutes, SEC rules and regulations or any federal laws relating to shareholder fraud. 18 U.S.C. § 1514A(a)(1).

Zulfer alleged that she was fired for repeatedly refusing Playboy’s CFO’s instruction to accrue $1 million in executive bonuses, largely destined for Playboy’s CFO and CEO, without first receiving approval from Playboy’s board of directors. Zulfer alleged that during her 30 years with Playboy, the company’s Board always approved executive bonuses before being accrued or paid. Zulfer reported the CFO’s requests to Playboy’s General Counsel and outside SEC counsel in January 2011. Zulfer alleged that the CFO then began to retaliate against her in various ways, and eventually fired her in December 2011.

Playboy filed a motion to dismiss Zulfer’s first and second causes of action and to strike various allegations. Playboy’s primary argument was that Zulfer’s retaliation claim under Section 806 of SOX should have been dismissed because a plaintiff must have a reasonable belief that a violation of a law identified in Section 806 is occurring or has occurred. Zulfer did not allege that any bonuses actually were accrued or paid out prior to Board approval. Playboy argued that a whistleblower complaint regarding anticipated conduct is not protected under SOX.

The court first noted that the Ninth Circuit Court of Appeals had not addressed the issue, nor had any of its sister district courts within the circuit. The district court then analyzed competing authority from various U.S. district courts outside the Ninth Circuit and an opinion issued by the Fourth Circuit, and concluded that Section 806 exists not only to expose existing fraud, i.e. conduct satisfying the elements of a fraud claim, but also to prevent fraud at its earliest stages. The court also concluded that a plaintiff’s belief that an attempt to violate a law listed in SOX itself constitutes a violation of that law, and is not objectively unreasonable. The court then denied in part and granted in part Playboy’s motions, and the case proceeded to trial. The court’s order can be viewed here.

Zulfer v. Playboy Enterprises is notable because the $6 million award (before punitive damages) it is perhaps one of the largest jury verdicts on record for a whistleblower lawsuit filed under Section 806 of SOX. The jury also decided that Playboy acted with “malice, fraud or oppression”, potentially exposing Playboy to a to-be-determined punitive damages award to Zulfer in addition to the $6 million already awarded. Publically traded company employers, directors, their in-house general counsel and outside securities counsel should take note. The case is also notable because it appears to be the only published authority within the Ninth Circuit on whether attempted wrongful conduct is contemplated by Section 806 of SOX. Finally, if Zulfer is appealed, it should provide the Ninth Circuit an excellent opportunity to weigh in on an unsettled topic among federal courts.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.