SOX Squelches Arbitration of Entangled Claim

By Lori Phillips

In Laubenstein v. Conair Corp., No. 5:14-cv-05227 (W.D. Ark. Nov. 19, 2014), Plaintiff claimed retaliation under the Sarbanes-Oxley Act (“SOX”) and a state-law claim for wrongful termination. A recent amendment to SOX preempts the Federal Arbitration Act as to arbitration of SOX claims. (The statute states “No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”) But the employer moved to compel arbitration on the state law claim. Did Congress intended to bar arbitration of a claim that is “entangled with the SOX dispute and that arises from the same nucleus of operative facts?” The court concluded that it did, otherwise whistleblowers with entangled claims would be forced to choose between duplicative and costly litigation in multiple forums or abandoning their claims. Not all district courts will agree with this court’s conclusion, but remember that SOX whistleblowers get special protection from compelled arbitration, and this protection might extend to related claims.