Proskauer Whistleblower Defense

Ill. Federal Court Grants Summary Judgment on Whistleblower Retaliation Claims

By Steven J. Pearlman and Edward Young on Posted in State-Specific Whistleblower Claims

On September 27, 2019, the U.S. District Court for the Northern District of Illinois granted a defendant-employer summary judgment on a whistleblower retaliation claim under the Illinois Whistleblower Act (“IWA”) and on a common law retaliatory discharge claim, holding that Plaintiff failed to establish that he suffered an adverse employment action under the IWA and that the retaliatory discharge claim failed as a matter of law because he could not show that his employment was terminated.  Arias v. Citgo Petroleum Corp., Case No. 17-cv-08897 (Wood, J.)

Background

Plaintiff worked as a Safety Coordinator for Citgo Petroleum Corporation (“Citgo”) at its refinery in Lemont, Illinois.  In 2011, Plaintiff alleged he became aware that Citgo was operating a Fluid Catalytic Cracking (“FCC”) unit with several reactor leaks, which periodically suffered emergency shutdowns due to the leaks.  He allegedly informed a government investigator of his safety concerns and asserted that he reasonably believed Citgo’s alleged failure to properly repair the FCC unit was a violation of certain OSHA standards.  Plaintiff also allegedly was temporarily re-assigned to a night shift position and issued a written warning for certain alleged policy violations following his report to the investigator.  Plaintiff allegedly resigned from his employment to avoid discipline for alleged misconduct at a company event and filed suit, asserting a claim under the IWA and a claim of common law retaliatory discharge.

Ruling

The court granted summary judgment in Citgo’s favor.  First, the court concluded that Plaintiff’s IWA retaliation claim failed as a matter of law because Plaintiff could not establish that he suffered an adverse employment action.  According to the court, Plaintiff failed to proffer admissible evidence to suggest temporary re-assignment to the night shift was punitive in nature, particularly because approximately half of its employees had been assigned to the night shift at that time due to business needs.  The court also ruled that the mere issuance of a warning letter for Plaintiff’s alleged policy violations was not the kind of materially adverse employment actions that a plaintiff is required to show to sustain an IWA retaliation claim.

Second, the Court held that Plaintiff’s common law retaliatory discharge claim failed as a matter of law because it was undisputed that Plaintiff had resigned from his employment with Citgo and the Illinois common law tort of retaliatory discharge requires a plaintiff to show that he or she was actually discharged by the employer.

Implications

This decision is a valuable win for employers faced with IWA and common law whistleblower retaliation claims that are vulnerable to summary judgement on grounds that the employee did not suffer an adverse employment action.

District of Rhode Island Dismisses In-House Attorney’s SOX Whistleblower Claim for Lack of Protected Activity

By Steven J. Pearlman, Pinchos Goldberg and Tony S. Martinez on Posted in SOX Whistleblower Decisions

On July 19, 2019, the U.S. District Court for the District of Rhode Island granted an employer’s motion to dismiss a SOX whistleblower claim, holding that the Plaintiff—an in-house attorney—failed to allege sufficient facts to show he had an objectively reasonable belief that fraud had occurred.  Colesanti v. Dickinson, No. 18-491.

Background

Plaintiff was an in-house patent and trademark attorney, hired to advise the company regarding intellectual property rights.  Between 2013 and 2016, the company allegedly asked Plaintiff four times to review royalty payments to a French physician patent holder pursuant to a patent license and advise when those payments no longer needed to be made.  On April 16, 2014, in response to one of these requests, Plaintiff provided the expiration date of the patent, but did not calculate the date on which the company could cease making royalty payments.  On February 25, 2016, Plaintiff informed the company that the obligation to pay royalties ended when the royalty agreement expired on March 1, 2014.  Upon further review, the company allegedly discovered that this alleged oversight caused it to pay between $800,000 and $1,000,000 in overpayments.  The company ultimately decided to permit the physician to keep the overpayments.

Plaintiff alleged that he engaged in his first act of protected whistleblowing in February 2016, when he informed his superiors of the overpayment.  After discovering that these overpayments were made, the company hired an accounting firm to conduct an independent internal audit.  With respect to what Plaintiff alleged to be his second act of protected whistleblowing, Plaintiff subsequently emailed several members of the company’s senior management, including the general counsel, indicating that his original analysis of the royalty agreement was accurate and that the company had “misconstrued the termination date of the royalty payments.”  In these emails, Plaintiff also alleged that the company’s contract management system had “become a significant risk to the business” and contributed to the oversight.  For his third act of alleged whistleblowing, Plaintiff alleged that around late November 2016, he discussed the royalty overpayments with the company’s compliance officer, and when the compliance officer indicated that he was not aware of any issues relating to royalty overpayments, Plaintiff sent him a copy of the auditor’s draft report.  Plaintiff’s employment was terminated shortly thereafter.

Plaintiff filed suit alleging his employment was terminated in retaliation for the foregoing alleged whistleblowing in violation of SOX.  In support, he asserted that the company’s “failure to accurately and properly keep track of or pay royalties that were due and owing resulted in a material misrepresentation of such royalties to [the Company’s] shareholders and in any Securities and Exchange Commission filings.”

Ruling

The court dismissed Plaintiff’s complaint pursuant to Rule 12(b)(6).  At the outset, the court noted that the First Circuit has not yet addressed whether fraud allegations in a SOX whistleblower claim are subject to the heightened pleading standard under Federal Rule of Civil Procedure 9(b), but held that because SOX protects an employee’s “reasonable subjective belief of fraud, and does not require proof of actual fraud,” it would not apply the requirements of Rule 9(b).

The court then noted that courts routinely hold that activity is not protected by SOX “where it involves disclosure of conduct that is innocuous or trivial, or where it bears only a tenuous relationship to shareholder interests, even if the plaintiff reasonably believed the activity to be a violation of federal law dealing with fraud.”  The court also noted that claims grounded in securities fraud have been rejected where the alleged fraud “does not rise to the level that would be material to the shareholders.”

The court ultimately held that Plaintiff’s complaint fell short of satisfying the pleading requirements under Twombly and Iqbal because a “plaintiff’s particular educational background and sophistication [is] relevant to the subjective component” and the complaint contained no facts that established or permitted an inference “that a person with [Plaintiff’s] legal training and experience could reasonably believe that the conduct he disclosed to his superiors involved ‘deceit or misrepresentation’ that approximates or implicates fraud or that the conduct is otherwise tethered to wrongdoing connected to ‘the fraud-prevention purposes of SOX.’”

Implications

This decision reaffirms the principle that sophisticated employees like in-house attorneys will be held to a higher standard in alleging that they had an objectively reasonable belief that fraud had occurred in light of their training and experience.

ARB Affirms Dismissal of SOX Whistleblower Claim Against Non-Public Companies

By Steven J. Pearlman and Allison Martin on Posted in Key ARB Decisions, SOX Whistleblower Decisions

The ARB recently affirmed the dismissal of a whistleblower retaliation claim under Section 806 of SOX, holding an employer is not a “contractor” covered by SOX simply because it was a party to a contract with a publicly traded company.  Griffo v. Book Dog Books, LLC, Robert William Holdings, LLC & Robert William Mgmt., LLC, ARB Case No. 2018-0029 (May 2, 2019).

Background

Respondents are private companies in the business of selling and renting text books.  They entered into contracts to sell and rent books through a publicly traded retailer.  They also entered into contracts to maintain accounts and a line of credit with a publicly traded financial institution.  Complainant was the CFO of Respondent Book Dogs Books.  He allegedly complained about financial and inventory inconsistencies at Book Dog Books and, shortly thereafter, his employment was terminated.  He filed a complaint with OSHA claiming his discharge constituted retaliation in violation of SOX’s whistleblower protection provision.  After OSHA dismissed his complaint, an ALJ granted Respondents’ motion for summary judgment, holding they were not covered employers under SOX because they were not publicly traded and Complainant did not provide any services to a public company.  Complainant appealed to the ARB.

Ruling

The ARB affirmed the ALJ’s decision, finding Respondents’ relationships with the two public companies were insufficient to render them covered “contractors” under SOX.  The ARB explained that, following the U.S. Supreme Court’s decision in Lawson v. FMR (2014) (discussed here)—which extended SOX’s whistleblower protection to employees of a publicly traded company’s contractors and subcontractors—courts considering the meaning of “contractor” under SOX have held that an employer is not a covered “contractor” simply because it has entered into a contract with a publicly traded company.  The ARB ruled that “at a minimum, a ‘contractor’ under [SOX’s whistleblower provision] must actually perform a service for a publicly traded company.”  The ARB concluded that since Respondents were only customers of the public companies, and did not provide any services to them, they were not covered by SOX.

Implications

This decision reflects the ARB’s recognition of basic and necessary limitations on the U.S. Supreme Court’s decision in Lawson.

Eastern District of Pennsylvania Grants Summary Judgment on SOX Claim

By Lloyd B. Chinn, Tony S. Martinez and Pinchos Goldberg on Posted in SOX Whistleblower Decisions

On July 18, 2019, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the Plaintiff did not have an objectively reasonable belief that the defendant violated any SEC regulation.  Reilly v. Glaxosmithkline, LLC, No. 17-cv-2045.

Background

Plaintiff worked in the company’s Information Technology Department as a member of the team responsible for the AS/400 computer operating system, which hosts manufacturing and financial applications for portions of the company’s business.  In late 2011, Plaintiff noticed that the company’s computer servers were experiencing performance instability.  Plaintiff attributed the server instability to a co-worker’s decision to implement uncapped processors on the company’s AS/400 system (uncapping processors allows a server to use available computer capacity from another server, which can increase exposure to cyber threats).  From 2012 until 2015, Plaintiff repeatedly voiced concerns to his supervisor that security risks associated with the server’s performance problems could implicate a SOX audit.

Plaintiff ultimately escalated his complaints up the company’s entire chain of command, even lodging a complaint with the CEO.  In his complaints, Plaintiff expressed his belief that, among other things, the company’s 2013 report to the SEC omitted reference to any of the performance and security concerns he raised regarding server performance.  In response, the company launched an internal investigation which found Plaintiff’s complaints unsubstantiated.

In March 2014, the company announced that all but two of the AS/400 service team positions would be outsourced by September 2014.  Although the company invited Plaintiff to apply for one of the two positions, Plaintiff opted not to apply based on language in a memorandum he received during the internal investigation which stated that the company would “get back to [him] following the outcome of the investigation regarding [his] employment status.”  Thereafter, the effective date of termination was repeatedly postponed until Plaintiff received the last notice on April 8, 2015, notifying him that his position was being eliminated.  June 30, 2015, was the last day of Plaintiff’s employment.  Plaintiff filed suit shortly after his termination alleging that he was retaliated against in violation of SOX for reporting his concerns.

Ruling

Defendant moved for summary judgment arguing that: (i) the Plaintiff’s Complaint was untimely because it was not filed within 180 days from the date Plaintiff first received notice of his termination; and (ii) Plaintiff did not have an objectively reasonable belief that the company’s conduct violated the SEC rules covered by SOX.  Although Defendant argued that the statute of limitations began running from March 2014, the date that Plaintiff received his first notice that his position would be eliminated, the Court held that Plaintiff had cast doubt as to whether he received sufficient notice of his termination.  Specifically, the Court reasoned that the language in the memorandum Plaintiff received, in conjunction with the postponement of his termination several times, was sufficient to constitute “mixed official signals” regarding whether his termination would take effect.  Accordingly, because the statute of limitations did not begin to run until Plaintiff received his final, definitive notice on April 8, 2015, the statute of limitations did not bar the SOX claim.

However, the Court sided with Defendants on the question of whether Plaintiff had an objectively reasonable belief that the company violated SOX.  The Court, citing the company’s report to the SEC, held that the company sufficiently disclosed the risks associated with the poor performance its computer systems experienced.  The company’s report expressly noted, among other things, that the failure to “adequately protect critical and sensitive systems and information . . . could materially and adversely affect our financial results.”  Based on this, the Court held that no reasonable person in Plaintiff’s position, with his training and experience, could have believed that Defendant’s conduct violated SOX.

Implications

This decision stresses the need for a purported whistleblower to hold an objectively reasonable belief of a violation of one of the provisions enumerated in SOX and reiterates the ability of employers to escape liability based on the application of the “reasonable relief” standard.

Whistleblower Challenges Delayed Bounty Award

By Lloyd B. Chinn and Pinchos Goldberg on Posted in SEC

In a petition for a writ of mandamus filed on April 29, 2019 with the U.S. Court of Appeals for the D.C. Circuit, an unidentified whistleblower who claims to have tipped the SEC to alleged violations of the Foreign Corrupt Practices Act (“FCPA”) by Teva Pharmaceuticals more than eight years ago asked the court to compel the SEC to preliminarily determine within 60 days if he is eligible for compensation under the SEC’s whistleblower program and issue a final order within six months.  In re: John Doe, No. 19-1095 (D.C. Cir.).

According to the petition, the purported tipster submitted a detailed, 42-page tip regarding Teva’s alleged violations of the FCPA in May 2011 that resulted in the prosecution by the SEC and DOJ of successful enforcement actions regarding that same conduct and the recovery of $519 million from Teva.  The petitioner maintains that he submitted a timely claim for an award in April 2017 and the SEC’s more than two-year delay in issuing a determination is unreasonable, as adjudicating his claim is a “simple task” that requires little more than a conversation between SEC claim reviewers and investigative staff and a review of a “confined record entirely within the agency’s knowledge.”

On July 11, 2019, the SEC filed its opposition to the petition.  In its response, the SEC said that the petitioner “greatly misapprehends the work, effort, and time involved in reviewing whistleblower claims, including his.”  It noted that contrary to the petitioner’s suggestion that he was the only claimant for a whistleblower award relating to the Teva matter, there were actually a total of six claimants whose claims must be assessed to determine their absolute and relative entitlements, if any, to an award.  The agency argued that review of the claims was a complex and time-consuming task that had to be balanced against the SEC’s need to devote resources to its other critical responsibilities.

Although the purported whistleblower in this matter is unhappy about the delay, the SEC’s whistleblower program has been very active and has continued to expand.  As we previously reported, the SEC received a record number of tips in FY 2018 (5,200) and awarded more money to whistleblowers in FY 2018 (more than $168 million) than in all of the program’s prior years combined, though this money was distributed among only 13 individuals and the percentage of awards to tips remains extremely low.

We will be monitoring this case and will report on future developments.

4th Circuit Vacates ARB SOX Whistleblower Decision for Lack of Protected Activity

By Steven J. Pearlman, Holly Ren Morris and Pinchos Goldberg on Posted in SOX Whistleblower Decisions

On June 13, 2019, the Fourth Circuit overturned the ARB’s decision in favor of a complainant, ruling that the plaintiff had not engaged in protected activity under the SOX whistleblower protection provision by complaining of a company’s use of a mandatory arbitration policy that allegedly was overly broad.  Northrop Grumman Systems Corp. v. U.S. Dep’t of Labor, No. 17-cv-1811.  In so ruling, the court recognized important limits on the scope of protected activity under this statute.

Background

Plaintiff worked in the company’s Information Systems business sector testing software related to emergency safety systems.  She allegedly sent several emails to company executives reporting what she believed were unlawful practices related to the company’s mandatory arbitration policy which she believed was incorporated into a Conflict of Interest form that employees were required to sign.  Plaintiff’s employment was terminated effective May 17, 2011, due to a reduction-in-force.

Following her termination, Plaintiff filed a complaint with OSHA, which dismissed her claim, and she appealed to the OALJ.  An ALJ found in her favor, holding in relevant part that she engaged in protected activity when she complained to company executives that the company’s Conflict of Interest form incorporated a mandatory arbitration policy she believed violated SOX, which prohibits mandatory arbitration policies.  The company appealed to the ARB, which upheld the ALJ’s findings, and then appealed to the Fourth Circuit.

Ruling

The Fourth Circuit vacated the ARB’s order and remanded the case to the ALJ with instructions to dismiss Plaintiff’s complaint and enter judgment in favor of Northrup.  The court concluded that Plaintiff did not engage in protected activity under SOX because her complaints about the company’s arbitration policy bore no relation to any of the six enumerated categories of misconduct entitling employees to whistleblower protection under SOX (i.e., mail fraud, wire fraud, bank fraud, securities fraud, any SEC rule or regulation or any federal law relating to fraud against shareholders).  The Court further concluded that even if Plaintiff’s report had related to one of those types of misconduct, she lacked an objectively reasonable belief that the company’s Conflict of Interest form contained an unlawfully broad arbitration policy because (1) the form contained no reference to the arbitration policy, and (2) the arbitration policy explicitly carved out claims “to which an agreement to arbitration . . . is prohibited by law.”

Implications

This decision clarifies important limits on the scope of protected activity under Section 806 of SOX, confirming SOX does not extend whistleblower protection to complaints about any form of purportedly improper conduct.  It underscores that complaints which are unrelated to one of the six categories of misconduct specified in SOX will not qualify as protected activity under SOX.

SDNY Dismisses SOX and Dodd-Frank Whistleblower Claims Against Private Company

By Steven J. Pearlman, Jacob L. Hirsch and Pinchos Goldberg on Posted in Dodd Frank, SOX Whistleblower Decisions

On June 3, 2019, the U.S. District Court for the Southern District of New York granted a defendant-employer’s motion for summary judgment on SOX and Dodd-Frank whistleblower retaliation claims, finding that the alleged whistleblowing did not involve fraud related to a public company.  Tellez v. OTG Interactive, LLC, No. 15-cv-8984.

Background

Defendants operate restaurants and concession facilities in airports via iPad stations, which allow patrons to order food, access the Internet, and check their flight status.  Plaintiff was hired as President of one of the Defendant entities that develops and provides the software used by the iPad stations.  Shortly after Plaintiff was hired, Defendants decided to begin a “model test” to explore whether Defendants could generate additional revenue by offering video game accessibility on the iPads for a small fee.  The test began in a Delta Airlines concourse on devices displaying the Delta logo.

Approximately one month after the “model test” was implemented, Plaintiff allegedly learned that the paywall software responsible for launching the video games on the iPads created a potential violation of third-party licensing agreements with the game manufacturers.  Plaintiff alleged that he informed Defendants’ General Counsel, Chief Technology Officer, and Chief Executive Officer that the paywall was fraudulent and illegal.  Plaintiff’s employment was terminated shortly thereafter (two months after his hiring).  Plaintiff filed suit claiming he was retaliated against in violation of SOX and Dodd-Frank for reporting this allegedly fraudulent scheme.

Ruling

Defendants moved for summary judgment, arguing they are not covered by SOX because they are not publicly traded companies and were not acting on behalf of Delta (a public company) by implementing the paywall system on iPads displaying the Delta logo.  Plaintiff relied upon Lawson v. FMR LLC (2014) (discussed here), arguing that a private contractor need not act on behalf of a public company for SOX’s protections to apply and that Defendants’ contractual relationship with Delta itself was sufficient to warrant coverage under SOX.

The court disagreed with Plaintiff, however, and dismissed the SOX claim, holding that a contractual relationship alone is insufficient to impose liability upon a private company under SOX.  The court explained that while Delta stood to benefit from its contractual relationship with Defendants, Plaintiff offered no evidence that could lead a reasonable juror to infer that the paywall model test was undertaken on behalf of Delta, or that Delta had any specific involvement with the program.  The court added that imposing liability under these circumstances would be inconsistent with SOX’s purpose, since the alleged fraudulent activity did not relate to a public company.  Finally, the court clarified that Dodd-Frank only protects against retaliation for making disclosures required under SOX, and because Plaintiff made no such disclosures to the SEC, the Dodd-Frank claim should also be dismissed.

Implications

This decision limits the risk that private contractors would be subject to whistleblower liability under SOX merely because they engage in business arrangements with public companies.

SEC Awards Joint Whistleblowers $3 Million Even Though Information Was Not Voluntarily Given

By Steven J. Pearlman, Annabel Pollioni and Pinchos Goldberg on Posted in SEC

On June 3, 2019, the SEC’s Office of the Whistleblower announced a $3 million award to two whistleblowers who provided the SEC with information that led it to investigate and successfully bring an enforcement action for securities fraud that affected retail investors.  Because the whistleblowers submitted their tip to the SEC jointly, they will share the award.

Prior to the initiation of the SEC investigation, the two whistleblowers had “candid discussions” with a different regulatory authority after that agency sent a query letter to their employer.  Notably, the SEC determined that the information provided by the whistleblowers was not “voluntarily” given under Section 21F(b)(1) and Rule 21F-4(a) because they were legally required to respond to the query letter.

Nonetheless, the SEC exercised its discretionary authority under Section 36(a) of the Exchange Act to issue the award because the whistleblowers were unaware of the request from the other regulatory authority and did not learn of the existence of that authority’s investigation until several months after they reported their information to the SEC.  The SEC explained that it was “in the public interest and consistent with the protection of investors” to waive the voluntariness requirement.

Since the inception of the whistleblower program in 2011, the SEC has awarded approximately $384 million to 64 individuals.

Ill. Supreme Court Affirms Dismissal of Ill. Whistleblower Act and Retaliatory Discharge Claims

By Steven J. Pearlman and Caralyn M. Olie on Posted in State-Specific Whistleblower Claims

On May 23, 2019, the Illinois Supreme Court issued a ruling in Roberts v. Board of Trustees of Community College District No. 508, reaffirming the pleading standards for both common law retaliatory discharge and “refusal-to-participate” claims the Illinois Whistleblower Act (“IWA”) (740 ILCS § 174/1).

Background.  In 2015, Plaintiff was employed as Director of Medical Programs at Malcolm X Community College in Chicago (College).  He was responsible for ensuring professors were qualified and certain classes met accreditation standards.  Shortly after Plaintiff voiced his opinion that an instructor at the College was under-qualified to several of his superiors, the College terminated his employment.  Plaintiff filed suit against the College in the Circuit Court of Cook County alleging (in relevant part) that his termination was retaliatory in violation of Illinois public policy and the IWA.  In support of both claims, Plaintiff alleged that the College engaged in fraud, and identified statutes that he claimed to be implicated by his discharge, including statutes regarding funding requirements, describing accrediting agency standards and prohibiting misrepresentations regarding the employability of college graduates.  The Circuit Court dismissed both claims.  On appeal, the First District reversed the dismissal of the retaliatory discharge claim, but upheld the dismissal of the IWA claim.  Both of the parties appealed to the Illinois Supreme Court.

Retaliatory Discharge Claim.  The Court dismissed Plaintiff’s retaliatory discharge claim because Plaintiff did not sufficiently allege that the College’s conduct violated a “clearly mandated public policy.”  The Court considered each of the statutes Plaintiff identified in his complaint, all of which Plaintiff claimed to support the public policy that “students must have the ability to obtain federal funding for postsecondary education.”  The Court determined that Plaintiff had not sufficiently pled that any of the statutes or regulations he cited contained a clear statement of this public policy, and that Plaintiff had not sufficiently pled that the College had violated any of the statutes or regulations.   For example, putting aside Plaintiff’s opinions about the professor’s qualifications, the Court concluded that Plaintiff had not sufficiently pled that the professor’s continued employment resulted in any misrepresentation to students because the complaint “lack[ed] sufficient facts to infer that students who passed [a class taught by an allegedly under-qualified professor] would have failed to meet a … requirement of a certification [toward employment].”

The Court further concluded Plaintiff had insufficiently pled that the College had committed fraud upon its students, and that “[a]lthough fraudulent conduct is actionable, it is a separate cause of action from a retaliatory discharge claim and is only relevant here to the extent that it undermines [plaintiff’s] … asserted public policy that students must have the ability to obtain federal funding for postsecondary education.”

IWA Claim.  The Court dismissed Plaintiff’s IWA claim on the basis that Plaintiff had not sufficiently alleged the conduct in which he “refused to participate” actually violated any of the statutes or regulations identified in his complaint.  The Court reaffirmed the IWA pleading standard, requiring that “a plaintiff must … sufficiently allege not only that he or she refused to participate in the activity but also that the activity violated a statute, rule, or regulation.”   The Court also relied on its analysis of the public policy claim, noting Plaintiff failed to sufficiently plead that the College violated any mandatory accreditation standards or statutes or committed fraud.

Implications.  This decision reaffirms the pleading standards for public policy retaliatory discharge and IWA retaliation claims, underscoring the substantial burdens plaintiffs must satisfy.

House Financial Services Committee Passes Bill to Expand Dodd-Frank Whistleblower Protection to Internal Whistleblowers

By Steven J. Pearlman, Philippe A. Lebel and Pinchos Goldberg on Posted in Dodd Frank, Legislation

On May 8, 2019, the House Committee on Financial Services passed H.R. 2515, the Whistleblower Protection Reform Act of 2019, which would amend Section 922 of Dodd-Frank to extend the statute’s anti-retaliation protections to employees who report alleged misconduct internally.

Digital Realty Trust v. Somers

H.R. 2515 was proposed in direct response to the U.S. Supreme Court’s holding last year in Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).  As detailed in our blog, in Digital Realty, the Court unanimously held that Dodd-Frank’s anti-retaliation provision only applied to individuals who provide information regarding a violation of securities law to the SEC.  The Court declined to defer to the SEC’s prior Rule 21F-2, which had permitted an individual to gain anti-retaliation protection without providing information to the SEC.  As we reported, following the Digital Realty decision, the SEC voted in favor of amending Rule 21F-2 so that it comported with the Court’s holding.

H.R. 2515’s Expanded Protections

The language passed by the Financial Services Committee on May 8th extends Dodd-Frank’s anti-retaliation protections to any individual who provides information regarding any conduct that the individual “reasonably believes constitutes a violation of any law, rule, or regulation” subject to the SEC’s jurisdiction to:  “(a) a person with supervisory authority over the … [individual] at the … [individual’s] employer; and/or (b) any person working for the employer who has the authority to “investigate, discover, or terminate misconduct.”

H.R. 2515 was originally introduced by Representative Al Green, D-Texas, on May 3, 2019.  It now moves on to the full House of Representatives.

Implications for Employers

If enacted, H.R. 2515 would significantly expand the scope of protections under the Dodd-Frank Act, and could lead to an increase in claims.  We will monitor this legislation and keep our readers posted on developments.

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