The Southern District of New York recently dismissed Dodd-Frank whistleblower retaliation claims brought by an employer’s ex-President and an ex-Director pursuant to Rule 12(b)(6) on res judicata grounds, determining that retaliation claims had already been decided in arbitration and that the Dodd-Frank claims filed in federal court for the first time were therefore barred. Wendt v. The BondFactor Co. LLC, No. 16-cv-7751 (S.D.N.Y. Aug. 2, 2017).

Background. Plaintiffs allegedly complained to the Company’s Chief Risk Officer, the Chairman of the Finance Committee and Risk Subcommittee, and a member of the Audit Committee that the CEO had improperly expended investor funds and directed the Company to pay finder’s fees to an unlicensed individual acting as a broker-dealer. A month later, they met with the CEO to discuss his alleged conduct and their employment was subsequently terminated. They proceeded to arbitration, filing a claim of retaliation under the New York Labor Law (NYLL) (among other claims).

Rulings. The arbitrator dismissed the NYLL retaliation claim and Plaintiffs later filed a Dodd-Frank whistleblower retaliation claim in the Southern District of New York. The Company moved to dismiss the Dodd-Frank claim pursuant to Rule 12(b)(6), arguing that it was barred by the doctrine of res judicata. The court noted that Dodd-Frank whistleblower retaliation claims are arbitrable, and then concluded that “[t]he facts in support of the plaintiffs’ Dodd-Frank retaliation claims are related in time, space, and origin to the facts alleged in the Demand and adjudicated during the arbitration.” Thus, according to the court, Plaintiffs could have pursued the Dodd-Frank retaliation claim in arbitration, and the court therefore granted the motion to dismiss.

Implications. This decision is yet another pronouncement that Dodd-Frank whistleblower retaliation claims are subject to arbitration and shows that the adjudication of retaliation claims in arbitration may bar Dodd-Frank claims subsequently filed in federal court.

 

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Photo of Steven J. Pearlman Steven J. Pearlman

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

Steven’s practice covers the full spectrum of employment law, with a particular…

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

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

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.

Steven was recognized as 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 describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” 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 has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly 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.