U.S. Supreme Court To Review Scope Of “Whistleblower” Under Dodd-Frank

On June 26, 2017, the U.S. Supreme Court agreed to review whether individuals who do not report alleged securities law violations to the U.S. Securities and Exchange Commission are “whistleblowers” protected by the anti-retaliation provision of the Dodd-Frank Act. Somers v. Digital Realty Trust, Inc., 850 F.3d 1045 (9th Cir. 2017), cert. granted, No. 16-1276 (U.S. June 26, 2017).

As previously reported here and here, the Ninth Circuit in Somers held that Dodd-Frank’s anti-retaliation provision extends to individuals who make internal complaints even if they do not complain to the SEC. The Ninth Circuit joined the Second Circuit that similarly held in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015) that a Dodd-Frank “whistleblower” need not report an alleged unlawful violation to the SEC. This is in direct contrast to the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013) that reached the opposite conclusion. On April 25, 2017, Digital Realty Trust requested the U.S. Supreme Court’s review of the Somers decision, and several organizations and national associations filed amicus curiae briefs urging the Court to grant certiorari. Represented by Proskauer, the Chamber of Commerce of the United States of America submitted its amicus brief in support of review on May 25, 2017.

Having passed on the opportunity to address this issue in Verble v. Morgan Stanley Smith Barney, LLC., No. 16-946 (6th Cir. 2017), the U.S. Supreme Court has now decided to resolve this important question.

N.D. Illinois Dismisses Dodd-Frank Whistleblower Claim For Lack Of Complaint To The SEC

On June 7, 2017, the U.S. District Court for the Northern District of Illinois dismissed a whistleblower retaliation claim under the Dodd-Frank Act because the plaintiff failed to report his complaint of alleged securities violations to the SEC. Martensen v. Chicago Stock Exchange, Case No. 17-cv-1494 (N.D. Ill.) (Shadur, J.)

Plaintiff worked as a supervisor at the Chicago Stock Exchange’s Market Regulation Trading Examinations Unit. He alleged that his employment was terminated in violation of Dodd-Frank’s whistleblower protection provision after he complained to his superiors regarding alleged securities violations.

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Jury Rejects Whistleblower Claim By Former SpaceX Employee

On June 7, 2017, a California jury returned a 9-3 verdict, dismissing whistleblower claims brought by a former Space Exploration Technologies Corporation (“SpaceX”) employee.  Jason Blasdell v. Space Exploration Technologies Corp. et al., Case No. BC 615112 (Cal. Super., LA County).

Jason Blasdell, who was employed as an Avionics Test Technician by SpaceX, a space transport company whose clients include NASA, commenced a lawsuit in April 2016 in the Superior Court of the State of California, alleging that he was improperly fired after informing company officials, including CEO Elon Musk, that his managers pressured technicians to deviate from written test procedures and to sign off on testing that had not been performed on rocket parts as written protocols required.  According to Blasdell, this violated 18 U.S.C. § 38, which prohibits fraud against a customer involving aircraft or space vehicle parts.  Blasdell’s complaint alleged causes of action for wrongful termination in violation of public policy, violation of the California Whistleblower Protection Act, Cal. Labor Code §1102.5, and defamation.

At the close of an eight day trial, the company argued that Blasdell was terminated because he became “unmanageable and disruptive” and “was unable to perform the testing he was hired to perform.” The company also argued that Blasdell’s testimony demonstrated that he never had a reasonable belief that SpaceX was engaging in illegal activity, a requisite element to establishing a whistleblower claim.  The jury ultimately returned a verdict for the company, finding that Blasdell’s termination was not substantially motivated by his reporting of a “reasonably-based suspicion of a violation of a law” or his alleged refusal to illegally falsify test results.

Second Circuit Affirms the Dismissal of a SOX Claim for Failing to Meet the “Reasonable Belief” Standard

Second Circuit SealOn June 1, 2017, the Second Circuit affirmed the dismissal of a Sarbanes-Oxley Act (“SOX”) whistleblower retaliation claim brought by a former Metropolitan Life Insurance Co. (“Company”) employee because the employee lacked a reasonable belief that the Company engaged in any fraudulent conduct.  Kantin v. Metropolitan Life Insurance Co., No. 16-1091-cv (2d Cir. June 1, 2017).  In doing so, the Court of Appeals affirmed its prior ruling in Nielsen v. AECOM Technology Corp. Continue Reading

ACA Retaliation Claim Survives Despite No Complaint About ACA Provisions

ARBOn April 28, 2017, the United States Department of Labor Administrative Review Board (“ARB”) allowed a whistleblower retaliation claim under the Patient Protection and Affordable Care Act (“ACA”) to proceed even though the purported protected activity alleged in the complaint made no reference to ACA provisions.  The case is Gallas v. The Medical Center of Aurora, DOL Administrative Review Board Nos. 16-012, 15-076, ALJ Nos. 2015-ACA-5, 2015-SOX-13 (ARB Apr. 28, 2017). Continue Reading

The First Hundred Days: Whistleblowing in the New Administration

With the new administration comes a new era for whistleblowing. High-risk whistleblower complaints implicating Dodd-Frank, Sarbanes-Oxley and similar state whistleblower retaliation statutes continue to rise. These complaints often rise to the highest levels of a company’s legal and compliance functions, as they present significant financial and reputational risks. Proskauer’s Lloyd Chinn and Harris Mufson recently conducted a webinar examining the status of whistleblowing in the first hundred days of the Trump Administration including topics such as: scrutiny of confidentiality and waiver provisions under President Trump’s administration – focusing on the SEC and the CFTC (including its new regulations announced on May 22); bounties from the SEC and CFTC; Justice Gorsuch on the Supreme Court; and the legislative status of the Dodd-Frank whistleblower provisions. Please click here to view a recording of the webinar.

CFTC Amends Whistleblower Rules to Strengthen Anti-Retaliation Protections and Encourage Whistleblower Tips

cftcOn May 22, 2017, the U.S. Commodity Futures Trading Commission (“CFTC” or the “Commission”) adopted several additions to its whistleblower rules.  Among other things, the amendments expand the Commission’s power to pursue anti-retaliation claims on behalf of whistleblowers and, like the SEC, now prohibit confidentiality agreements that “impede” a whistleblower’s communications with the CFTC.   The CFTC first proposed some form of these amendments to its Whistleblower Rules last year. Continue Reading

The Northern District of New York Applies the “Reasonable Belief” Standard

NewYork-northernOn May 11, 2017, the Northern District of New York applied the Second Circuit’s standard for evaluating a Dodd-Frank retaliation claim in response to a motion to dismiss under F.R.C.P. Rule 12(b)(6).  The court denied the employer’s motion to dismiss unlawful retaliation claims brought by a former employee under Dodd-Frank, finding that the whistleblower had sufficiently alleged a reasonable belief of plausible securities law violations in his complaint.  McManus v. Tetra Tech Construction, Inc., et al., 2017 U.S. Dist. LEXIS 71838 (N.D.N.Y. May 11, 2017). Continue Reading

California Federal Court Upholds $8 Million Jury Verdict In Former General Counsel’s Whistleblower Lawsuit

NDCalRecently, a California federal court denied the defendant–employer’s motion for a new trial, upholding the jury’s $7.96 million verdict finding that the Company terminated its former general counsel for reporting alleged Foreign Corrupt Practices Act violations.  See Sanford S. Wadler v. Bio-Rad Labs., Inc. et al., 2017 WL 1910057 (N.D. Cal. May 10, 2017). Continue Reading

SEC Issues Another Whistleblower Bounty Award

SEC LogoOn May 2, 2017, the Securities and Exchanges Commission issued a Dodd-Frank whistleblower award of more than $500,000 to an unidentified company employee.  According to the SEC, the individual reported information that prompted an SEC investigation and resulted enforcement action by the agency.  Jane Norberg, Chief of the SEC’s Office of the Whistleblower stated that the employee reported “hard-to-detect violations of the securities law.” Continue Reading

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