IRAC Brief: Sullivan V. Hanisch 1

IRAC Case Study 1

Milka Atchley, Natisha L. Toney Brock, Neha Chawla,

Shanda Green, Naomi Irvan, Umang Shukla

LAW 531

December 23, 2013

Professor Richard Simon

IRAC – Sullivan V. Harnisch 2

IRAC Sullivan v. Harnisch

Government regulations consist of laws that businesses and industries must comply with

in order to avoid non-compliance that can result in legal expense, large monetary fines and a

negative public image that can blemish the most polished company brand. Regulatory

compliance covers a vast array of areas such as safety, product quality, fair hiring and

employment practice and financial auditing and reporting. For publically traded companies in the

United States, The Sarbanes Oxley Act of 2002 (SOX) has regulations that must be followed by

businesses for the purpose of protecting investor from deceptive and misleading financial

reporting (Bainbridge, 2007). This is accomplished through enhanced corporate governance.

Team D has reviewed the case of Sullivan v. Harnisch and has provided the following issue, rule,

analyze and conclusion debrief in regards to SOX regulatory compliance requirements.

Regulatory Compliance

Every business has a standard for compliance which every employee must adhere to.

Business compliance is comprised of a number of stringent rules, guidelines, and regulations.

According to Rouse (2012) many corporations hire “compliance officers” for the sole purpose of

ensuring an organization is functioning within compliance guidelines.

Issue

The issue in Sullivan v. Harnisch is whistleblower retaliation. According to Forbes

(2012), Sullivan alleged that he was actually fired for speaking out against manipulative and

deceptive trading practices, in contravention of company policy that prohibited such retaliation.

The firing took place just a few hours after Mr. Sullivan’s attorney advised Mr. Harnisch of his

objection to the sale of the shares.

IRAC – Sullivan V. Harnisch 3

Rule

Sarbanes-Oxley Act protects employees against retaliation from employers in fraud

cases. In this case Mr. Sullivan was discharged from his position as a compliance officer due to

his objection to Mr. Harnich’s act who is also the CEO of the organization. Sarbanes-Oxley Act

was enacted in 2002, and protects whistleblowers against retaliation from their place of

employment in fraud cases. These guidelines, state that agents or officers of a company may not

“discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an

employee in the terms and conditions of employment because of any lawful act done by the

employee” (U.S House, PDF).

Analysis

Sullivan v. Harnisch is a case between a partner Sullivan and a President of a LLC

Harnisch. The Plaintiff Joseph Sullivan believed he was fired because of an alleged complaint. A

lawyer of Sullivan’s LLC called Peconic’s counsel to object to an agreement that was proposed

which would eliminate the ownership interest of Sullivan. Sullivan disagreed to the agreement

and was fired. Sullivan was an asset to the company who owned 15% of it when he was fired.

Sullivan did not think it would be a good idea to make the sale because it would affect the

clients. Sullivan wanted every firm to understand it is not always best to do what’s best for the

firm but what’s best for the clients. Retaliation is something that is not tolerated in any firm and

Sullivan believed this would be an eye opener for all firms.

Conclusion

The summary judgment was dismissed against Sullivan. The SOX act of 2002 that

protects whistleblowers against retaliation in fraud cases. That statute seems not to apply to

conduct like that alleged in Sullivan’s complaint, Sullivan does not claim to have blown a

IRAC – Sullivan V. Harnisch 4

whistle — i.e., to have told the SEC or anyone else outside Peconic about Harnisch’s alleged

misconduct — but only to have confronted Harnisch himself.

IRAC – Sullivan V. Harnisch 5

References

Bainbridge, R. (2013). The Purpose of Sarbanes Oxley. Retrieved from

http://ezinearticles.com/?The-Purpose-of-Sarbanes-Oxley&id=410262

Cheeseman, H.R. (2013). Business law: Legal environment, online commerce, business ethics,

and international issues (8th ed.). Upper Saddle River, NJ: Prentice Hall.

Forbes. (2012). Retrieved from http://www.forbes.com/sites/billsinger/2012/05/11/new-york-

states-top-court-tells-wall-street-compliance-pros-to-be-afraid-be-very-afraid/

Rouse, M. (2012). Regulatory Compliance. Retrieved from

http://searchcompliance.techtarget.com/definition/regulatory-compliance

U.S House. 107th Congress, 2nd Session. H.R 3763, Sarbanes-Oxley Act of 2002, Washington:

Government Printing Office, 2002. Retrieved from

http://www.sec.gov/about/laws/soa2002.pdf