Katzel v. American International Group, Inc.

Background

Aaron Katzel, a former in-house counsel for American International Group (AIG), led AIG’s Legal Operations Center until AIG terminated him on May 4, 2017. He alleged that the termination was retaliation for reporting violations of federal fraud and securities laws under Section 806 of the Sarbanes-Oxley Act and the Dodd-Frank Act. He also asserted state-law claims for breach of contract and tortious interference with contract, based on his failure to receive stock and other equity awards under AIG’s Long-Term Incentive Plan.

Katzel’s complaints concerned AIG’s review of a proposed business carve-out, the accuracy and preservation of survey materials, the sharing of information with Accenture, and the adequacy of AIG’s internal processes. AIG’s Compliance Department investigated and found no merit in the issues Katzel raised, although it identified a possible failure to follow a service-agreement requirement and a possible issue under AIG’s information-handling standards. Katzel was later terminated after AIG leaders concluded that he was not willing or able to make requested changes to the Legal Operations Center. AIG stated that his earlier complaints played no role in the decision.

AIG also refused to pay certain unvested or unpaid long-term incentive compensation after Katzel declined to sign a release. The opinion states that the applicable plan contracts allowed payment of that compensation in exchange for a release of claims.

Federal Whistleblower Claims

The court applied the summary-judgment standard under Federal Rule of Civil Procedure 56. Summary judgment is appropriate when the evidence shows no genuine dispute over a material fact and the moving party is entitled to judgment as a matter of law.

For Katzel’s Sarbanes-Oxley whistleblower-retaliation claim, the court stated that he had to show that he engaged in protected activity, AIG knew about that activity, he suffered an unfavorable employment action, and the protected activity contributed to that action. Protected activity required him to provide information about conduct that he reasonably believed violated specified federal fraud laws, a Securities and Exchange Commission rule, or federal law concerning fraud against shareholders.

The court held that Katzel did not engage in protected activity. His report concerning federal securities-law violations occurred five years after his termination and therefore could not support a claim that the report caused the termination. As to his other complaints, the court found that Katzel did not have a reasonable subjective or objective belief that AIG had violated an applicable federal law. His 2016 certifications stated that he had no knowledge of violations of law or AIG policy and no knowledge of specified types of fraud. The court concluded that his later statements in discovery could not retroactively establish a different subjective belief.

The court also found that Katzel’s concerns about maximizing shareholder value, conflicts of interest, document preservation, and internal policies were not allegations that AIG had defrauded shareholders or intended to deceive them. The court concluded that those concerns were not sufficiently connected to a violation covered by the Sarbanes-Oxley whistleblower statute.

Independently, the court held that AIG lacked knowledge that Katzel was engaging in protected activity. Katzel’s supervisors testified that they did not understand his complaints to allege fraud or securities-law violations. Because AIG reasonably could rely on Katzel’s certifications and did not understand him to be reporting protected conduct, the court found that he could not establish the knowledge element.

The court likewise granted judgment on Katzel’s Sarbanes-Oxley and Dodd-Frank retaliatory-termination claim. It held that he could not show that AIG terminated him with retaliatory intent because his superiors did not understand his complaints as protected whistleblowing. The court therefore granted AIG summary judgment on the federal claims.

State-Law Claims and Disposition

After granting judgment on the federal claims, the court declined to exercise supplemental jurisdiction over Katzel’s state-law claims. The opinion did not decide the merits of those state-law claims.

The court granted AIG’s motion for summary judgment, directed the Clerk to enter judgment for AIG with costs, terminated the motion, and marked the case closed.