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, Restrictive Covenant & Trade Secret, and Whistleblower…

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, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) 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 the unusual experience of testifying in federal court in connection with investigations. 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 is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner 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.

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.

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