Playboy Enterprises has been hit with a six million dollar jury verdict in Zulfer v. Playboy Enterprises, Inc., a landmark SOX whistleblower case. The company is currently suing its former defense counsel, Sheppard Mullin, for his part in the case, claiming Mullin should have urged the company to settle as opposed to trying the case. The jury award is the largest amount ever awarded in a SOX case.
Catherine Zulfer, formerly Playboy’s Controller, testified that her employment was terminated because she refused to accumulate one million dollars in discretionary bonuses for executives before they had been approved by Playboy’s Board. The jury ruled in Zulfer’s favor, saying that Zulfer’s termination for her protected reports under SOX was an unlawful retaliation. In addition, by terminating Zulfer’s employment, Playboy violated public policy under California law. Playboy argued that a whistleblower complaint about anticipated conduct is not protected under SOX.
Playboy’s suit against Mullin claims that the defense counsel was unrealistically optimistic about the likelihood of a successful outcome. If the company had settled out of court, Playboy Enterprises could have saved several million dollars. Instead, the jury awarded six million dollars to Zulfer, which exceeded the five million dollars cap on Playboy’s liability insurance policy.
The jury took less than two hours to rule in favor of Catherine Zulfer. Ultimately, Playboy’s total bill, with punitive damages and attorney fees, came to $7.6 million. According to Playboy, Mullin urged the company to go to trial because he felt confident that based on mock jury trials that were conducted in preparation for the case Playboy had a 75% chance of winning the case.
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