In a case of first impression within the Ninth Circuit, the U.S. District Court for the Northern District of California ruled that the whistleblower protection provision in Dodd-Frank protects whistleblowers who report alleged violations both internally and to the U.S. Securities and Exchange Commission.  Connolly v. Wolfgang Remkes, 2014 U.S. Dist. LEXIS 153439 (N.D. Cal. Oct. 28, 2014).  More specifically, in this case, the court determined that a former employee qualified as Dodd-Frank whistleblower (at least for purposes of surviving a Rule 12(b)(6) motion to dismiss) even though she only reported suspected securities law violations within the company.

Background.  Plaintiff alleged that she received and reviewed a file from another financial advisor that contained “actual checks” and that “appeared to be a violation of various FINRA rules.”    Plaintiff was asked to verify this with an internal compliance department and did so.  However, upon reporting this confirmation to her supervisor, Plaintiff alleges that she was instructed to assist in a “cover-up.”  She refused to comply and resigned.  Plaintiff then filed suit in March 2014, under the Dodd-Frank whistleblower protection provision.

Ruling.  The Company moved to dismiss per Rule 12(b)(6), on the grounds that Plaintiff did not disclose any potential wrongdoing to the SEC.  In this regard, the Company championed the line of cases following the Fifth Circuit’s landmark decision in Asadi v. G.E. Energy (USA), L.L.C. (Dodd-Frank requires individuals to provide information relating to a violation of the securities to the SEC to qualify for whistleblower protection).  The court, however, disagreed with the Company, finding that Dodd-Frank was “susceptible to more than one interpretation when read together” and it was unclear whether all whistleblowers had to report violations to the SEC to qualify for protection.  Moreover, the Court deferred to the SEC’s interpretation of Dodd-Frank Act and its position that Asadi was wrongly decided. 

Implications.  Connolly continues the split of authority on the scope of Dodd-Frank’s whistleblower-protection provisions, although Asadi remains the only appellate authority on the topic.  Thus, although employers would be well served by continuing to advance an Asadi-based defense to protected activity, in many cases they will be well served by diversifying their defenses.

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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.