The U.S. District Court for the Southern District of New York recently denied a motion to dismiss a plaintiff’s SOX and Dodd-Frank whistleblower claims, ruling that (i) the plaintiff engaged in SOX protected activity even though her purported protected activity was part and parcel of her job duties as Chief Risk Officer, and (ii) she qualified as a Dodd-Frank whistleblower even though she did not lodge a complaint with the SEC.  Yang v. Navigators Group, Inc., Case No. No. 13-cv-2073, 2014 LEXIS 63876 (S.D.N.Y. May 8, 2014).

Background

Plaintiff Jennifer Yang (Plaintiff) was employed from June 25, 2012 through November 2, 2012, as Chief Risk Officer for Defendant Navigators Group, Inc. (Company).  She was responsible for enterprise risk management oversight and tasked with improving the risk management function.  She alleged in her complaint that, in executing these responsibilities, she discovered: (i) the Company’s previous risk assessment results were grossly underestimated; (ii) the Company’s 10-K falsely represented that its reinsurance recoverable credit risk was monitored by a subcommittee; (iii) the Company lacked proper risk control procedures; and (iv) the Company’s SEC filings and presentations to rating agencies inaccurately reflected the its risk management program.  Plaintiff alleged that shortly after she communicated her concerns to Company’s leadership, she suffered a retaliatory termination in violation of the whistleblower protection provisions in SOX and Dodd-Frank.

Ruling

The Company moved to dismiss Plaintiff’s SOX and Dodd-Frank whistleblower claims, asserting her communications to her supervisors were not “protected activity” under SOX, and that she was not a Dodd-Frank whistleblower because she did not report the purported securities law violations to the SEC.  The court disagreed on both counts.

In ruling that Plaintiff engaged in protected activity under SOX, the court determined that “an employee may engage in protected activity even where the employee is discharging her duties.”  It further ruled that Plaintiff had a reasonable belief (at least in the motion to dismiss context).  According to the court, although Plaintiff never explicitly communicated that shareholder fraud was being committed, improper risk management could influence shareholder investment decisions and thus an individual with Plaintiff’s training and experience could reasonably believe that such faulty management constituted fraud on shareholders and/or violated a SEC rule or regulation.

In addition, in ruling that Plaintiff qualified as a whistleblower under Dodd-Frank’s anti-retaliation provision even though she never reported the Company’s purported violations to the SEC, the court expressly strayed from the Fifth Circuit’s decision to the contrary.

Implications

Courts continue to grapple with the contours of the protected activity requirements in Section 806 of SOX and the Dodd-Frank anti-retaliation provisions.  Employers can be expected to continue to battle on this front, but need to be prepared for disparate rulings.  In addition, in considering the above-referenced defense to the SOX claim that the court rejected, see our recent blog post here on recent activity in New Jersey focused on whether an employee can qualify as a whistleblower where his or her alleged protected activity is part and parcel of his or her job.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. He is a Fellow of the College of Labor and Employment Lawyers. Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC, and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.