Boeing ex-employees lose whistle-blower case

San Francisco Chronicle

October 31, 2011 02:56 PM

(10-31) 14:56 PDT -- The U.S. Supreme Court rejected an appeal today by two fired Boeing Co. employees who claimed federal law protected them from retaliation for going to the news media with their complaints of alleged company wrongdoing.

The justices, without comment, denied review of a ruling by the federal appeals court in San Francisco that said a law designed to crack down on corporate fraud doesn't protect whistle-blowers who talk to the press.

The 2002 Sarbanes-Oxley Act prohibits publicly traded companies from punishing employees who reveal suspected fraud to a workplace supervisor, a federal agency or a member of Congress - but not to the media, the Ninth U.S. Circuit Court of Appeals said in a ruling May 3.

The employees, Matthew Neumann of Seattle and Nicholas Tides of St. Louis, were auditors assigned in January 2007 to a Boeing unit that conducted annual audits for compliance with Sarbanes-Oxley. The law tightened regulation of publicly held corporations and required increased internal controls.

Both men said Boeing's audit software was vulnerable to tampering, that private contractors had too much authority and that managers had pressured them to give the system high ratings.

They said supervisors paid no attention to their repeated complaints, so they talked to a reporter with the Seattle Post-Intelligencer, which published the story in July 2007. Boeing fired Neumann and Tides several months later (The Post-Intelligencer is owned by Hearst Corp., which also owns The Chronicle.).

Their lawsuit against the company argued that Sarbanes-Oxley's protections for employee revelations of suspected wrongdoing covers leaks to the media, which sometimes are the only way to get the government to take action.

But the appeals court said the law protecting private whistle-blowers is narrower than another statute that shields federal employees from punishment for disclosures to anyone, including the news media.

Sarbanes-Oxley protects only statements to those with "the capacity or authority to act effectively on the information," said Judge Barry Silverman in the 3-0 ruling.

John Tollefson, a lawyer for the former employees, said Monday the case would discourage others from talking to the media and frustrate the intent of Sarbanes-Oxley and other laws to shed light on corporate misdeeds.

But Eric Martin, Boeing's attorney in the case, said the ruling preserves whistle-blowers' ability to speak freely to government officials while allowing corporations to keep financial records confidential. "Congress struck the appropriate balance," he said.

The case is Tides vs. Boeing, 11-309.

E-mail Bob Egelko at begelko@sfchronicle.com.