Van Asdale v. International Game Technology

Decision Date13 August 2009
Docket NumberNo. 07-16597.,07-16597.
Citation577 F.3d 989
PartiesShawn VAN ASDALE; Lena Van Asdale, Plaintiffs-Appellants, v. INTERNATIONAL GAME TECHNOLOGY, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Margo Piscevich (argued), Mark J. Lenz, Piscevich & Fenner, Reno, NV, for the plaintiffs-appellants.

Richard G. Campbell Jr. (argued), Lance P. Maiss, Armstrong Teasdale LLP, Reno, NV, Gordon E. Krischer, Nathaniel L. Dilger, Mark W. Robertson, O'Melveny & Myers LLP, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court for the District of Nevada, Robert A. McQuaid, Magistrate Judge, Presiding. D.C. No. CV-04-00703-RAM.

Before: J. CLIFFORD WALLACE, SIDNEY R. THOMAS, and JAY S. BYBEE, Circuit Judges.

BYBEE, Circuit Judge:

This case presents our first opportunity to examine the substantive requirements necessary to establish a claim under the whistleblower-protection provisions of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A. Plaintiffs Shawn and Lena Van Asdale appeal from the district court's summary judgment in favor of their former employer, International Game Technology ("IGT"), on their claim of retaliatory discharge in violation of § 1514A, as well as the district court's dismissal of their factually-related Nevada state-law claims. We conclude that the Van Asdales raised a genuine issue of material fact regarding the cause of their terminations and that summary judgment should not have been granted. We reverse the district court's summary judgment in favor of IGT on the Van Asdales' Sarbanes-Oxley claim and vacate the dismissal of their state-law claims.

I. FACTS AND PROCEEDINGS BELOW

IGT is a publicly-traded, Nevada-based company specializing in computerized gaming machines and similar products. The company hired Shawn and Lena1 in January 2001 to work as in-house intellectual property ("IP") attorneys in Nevada. Both had previously worked for law firms in Chicago. During all periods relevant to this suit, neither plaintiff was admitted to practice law in any state other than Illinois.

Both Shawn and Lena were initially hired for the position of Associate General Counsel. In September 2002, Shawn was promoted to Director of Strategic Development, a position in which he was generally responsible for overseeing IGT's IP litigation. Similarly, Lena was promoted in the Spring of 2003 to Director of IP Procurement, and was responsible for the transactional side of IGT's IP division, which included managing IGT's patents, trademarks, and copyrights. After their promotions, both Shawn and Lena reported directly to IGT's General Counsel. When Shawn and Lena began their employment with IGT, that position was held by Sara Beth Brown; Brown was replaced by David Johnson in November 2003.

In 2001, IGT began merger negotiations with Anchor Gaming ("Anchor"). The gist of this lawsuit is that the Van Asdales contend they were terminated for reporting possible shareholder fraud in connection with that merger. We provide some general facts surrounding the merger as background. We emphasize that our discussion of possible fraud is based on concerns the Van Asdales held and that they allegedly shared with their supervisors; our account should not be taken as proof of any actual fraud. Indeed, the success, or failure, of the Van Asdales' lawsuit does not depend on their ability to show any actual fraud, only that they reasonably believed that fraud had occurred. See Part II.B.1.a infra.

In September 2001, prior to Anchor's merger with IGT, Bally Gaming ("Bally"), one of Anchor's competitors, began advertising a new "Monte Carlo" slot machine featuring a "bonus wheel." Two high-level Anchor employees, Mark Hettinger, the head of Anchor's IP Department, and T.J. Matthews, Anchor's CEO, asserted that the Monte Carlo machine infringed on a particular patent owned by Anchor known as the "wheel" patent. Bally argued, however, that the wheel patent was invalidated by prior art, specifically, Bally's vintage 1970's Monte Carlo machine. By all accounts the wheel patent was a very valuable part of Anchor's holdings.

According to Shawn, as part of his department's due diligence in connection with the proposed IGT-Anchor merger, he investigated this dispute by arranging to purchase a vintage Monte Carlo machine in Chicago and sending it to IGT's outside patent litigation counsel so that counsel could assess the impact of the machine on Anchor's patent. Shawn subsequently met with outside counsel to discuss the possibility that the wheel patent could be redrafted. After IGT's inner circle had discussed the issue, the company decided to go forward with the merger, a decision in which Shawn evidently concurred.

In August 2003, well after Anchor and IGT had merged, the U.S. Patent and Trademark Office issued IGT a new patent. In anticipation of pending litigation against Bally, IGT's outside litigation counsel Barry Irwin contacted Hettinger to discuss defenses to patent infringement claims Bally had previously raised. Hettinger responded that Bally had sent written materials outlining such defenses to Joe Walkowski, Anchor's patent prosecution counsel prior to that company's merger with IGT. Irwin contacted Walkowski, who found the written materials, including an "Australian Flyer"—which described an Australian version of the Monte Carlo machine—and emailed them to Irwin and Lena. Shawn reviewed the materials and he and Irwin subsequently agreed that the Australian Flyer had the effect of invalidating the 2003 patent and undermining IGT's claims against Bally. Potentially, if Anchor's wheel patent was invalid, the benefits of the merger may have been overvalued.

Shawn spoke with Brown, IGT's General Counsel at the time. He informed her of his view that litigation against Bally could not go forward. Surprised by this news, Brown called IGT's merger counsel to see if the Australian Flyer had been included in the due diligence files provided to IGT prior to the merger. In a follow-up meeting, Shawn expressed concern that the Australian Flyer had not been disclosed to IGT prior to the merger; Brown told him that the matter warranted investigation and promised to look into it. Around the same time, Shawn also brought the issue to the attention of Rich Pennington, IGT's Vice President of Product Development.

In the meantime, management had changed at IGT after the merger with Anchor. Matthews was named CEO, and he asked Johnson to replace Brown as IGT's General Counsel. Johnson had previously served as General Counsel at Anchor during the months surrounding Anchor's merger with IGT.

Shawn and Lena both met with Johnson on November 24. The parties sharply dispute what occurred during this meeting. Shawn, Lena, and Johnson all agree that Shawn and Lena raised the subject of the Australian Flyer and its impact on the August 2003 patent. According to Johnson, however, the three only discussed the topic to address the possibility that Bally would assert a defense of fraud on the Patent Office in pending litigation against IGT.2

Within a few months of this meeting, both Shawn and Lena were terminated. According to Johnson, he decided sometime around Thanksgiving of that year— just three days after his meeting with Shawn and Lena—that he did not believe Shawn should continue in his current position. Johnson planned to deliver this news to Shawn around that time but he was unable to schedule a meeting—initially because Shawn was on a business trip overseas and later because Shawn contracted cancer. Upon Shawn's return to IGT in January 2004, Johnson told him that he and other IGT executives felt that he should be removed from his position. Although Johnson evidently expressed some hope in January that Shawn could continue at the company in a different capacity, Shawn was formally terminated on February 11.

Johnson testified that at the time he terminated Shawn he had no similar plans to end Lena's employment. However, Johnson claimed that, within weeks of Shawn's termination, he received complaints from the Engineering Department that Lena's demeanor "had become very odd" and "that she had become extremely difficult and extremely unfriendly." A different IGT employee also learned in early 2004 that Lena had twice requested access to allegedly sensitive information related to "Class 2" gaming. Johnson terminated Lena shortly thereafter.

On December 1, 2004, the Van Asdales brought the present action in the United States District Court for the District of Nevada. The complaint sought relief under the whistleblower protection provisions of Sarbanes-Oxley; both plaintiffs also brought state-law claims for tortious discharge and intentional interference with contractual relations. Lena brought a separate state-law claim for retaliation and Shawn brought a separate state-law claim for intentional infliction of emotional distress.

IGT moved for summary judgment on November 22, 2006. On June 13, 2007, the district court issued a published decision granting IGT's motion for summary judgment. Van Asdale v. Int'l Game, Tech., 498 F.Supp.2d 1321 (D.Nev.2007). After the district court denied the Van Asdales' motion for reconsideration, the Van Asdales timely appealed to this court.

II. ANALYSIS

We review the district court's grant of summary judgment de novo. Evanston Ins. Co. v. OEA, Inc., 566 F.3d 915, 918 (9th Cir.2009). In doing so, "[w]e must determine, viewing the evidence in the light most favorable to [the Van Asdales] ... whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law." Olsen v. Idaho State Bd. of Med., 363 F.3d 916, 922 (9th Cir.2004).

A. Attorney-Client Privilege

In addition to defending the district court's summary judgment on the Van Asdales' Sarbanes-Oxley claim, IGT argues that we should affirm the district court's judgment because (1) the Van Asdales are prohibited from...

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