Second Circuit Affirms the Dismissal of a SOX Claim for Failing to Meet the “Reasonable Belief” Standard

Proskauer - Whistleblowing & Retaliation

On June 1, 2017, the Second Circuit affirmed the dismissal of a Sarbanes-Oxley Act (“SOX”) whistleblower retaliation claim brought by a former Metropolitan Life Insurance Co. (“Company”) employee because the employee lacked a reasonable belief that the Company engaged in any fraudulent conduct.  Kantin v. Metropolitan Life Insurance Co., No. 16-1091-cv (2d Cir. June 1, 2017).  In doing so, the Court of Appeals affirmed its prior ruling in Nielsen v. AECOM Technology Corp.


The Company sells life insurance policies, including a joint life insurance policy for married spouses.  The pricing of a couple’s joint life insurance policy is based on a combination of factors, such as age, sex and health of each partner, and each combination is referred to as a “cell.”  Plaintiff alleged that his employment was terminated because he informed the Company about alleged pricing irregularities of some cells that “raised questions of illegal activity.”  Plaintiff subsequently filed suit under SOX claiming he was terminated in retaliation for his complaints about the purported pricing anomalies as well as for complaints about commission payments he considered “unethical” but not illegal.


The Second Circuit determined that Plaintiff failed to demonstrate that an objectively reasonable person would “believe such pricing abnormalities …violated one of the provisions enumerated in [Section 806]” because there were no allegations of shareholder fraud or intent to deceive clients.  Plaintiff admitted that he knew of no instance when a joint life insurance policy was sold when a more beneficial policy was available.  As a result, Court concluded “[t]he mere existence of an insurance product that would be unsuitable if sold to a particular customer because a different product from the same company would be more appropriate for that customer could not reasonably be believed to constitute fraud, in the absence of any evidence that such a policy was sold to such customer, or intended to be sold to her” (emphasis added).

The Court also held that Plaintiff’s complaint regarding “unethical” commission payments did not constitute protected activity.  Since Plaintiff believed the payments were unethical but not illegal, the Court determined Plaintiff had “failed to demonstrate a subjective belief that the commission payment violated an enumerated provision of [Section 806].”  Accordingly, the Court held that Plaintiff failed to establish that he engaged in protected whistleblowing activity under SOX.


This decision reaffirms the Second Circuit’s application of the “reasonable belief” standard to  analyze whether a plaintiff engaged in protected activity under SOX.  Employers should be cognizant of this standard when attempting to dispose of whistleblower claims during the early stages of litigation.

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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.

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