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).
The Ninth Circuit recently affirmed a grant of summary judgment in an employer’s favor, dismissing a SOX and Dodd-Frank whistleblower retaliation case based on the plaintiff’s lack of an objectively reasonable belief of violations of securities law. Rocheleau v. Microsemi Corporation, Inc., 680 Fed. Appx. 533 (2017).
Background. Defendant, a publicly traded company, hired Plaintiff as an independent contractor in 2006. Plaintiff claimed that beginning in 2008, she began voicing concerns internally that Defendant misclassified her and others as independent contractors. In addition, she began filing complaints with the government, including a complaint with the OFCCP on January 10, 2010, and she claimed she was asked to retroactively change hiring and recruiting data in violation of OFCCP regulations. Her employment was subsequently terminated on February 17, 2010. She then filed a lawsuit before the United States District Court for the Central District of California, claiming violations of the SOX and Dodd-Frank’s respective anti-retaliation provisions. In support, she alleged that Defendant’s actions constituted fraud against its shareholders because they allegedly created an unreported risk factor to Defendant’s business and engaged in payroll tax fraud. Defendant moved for summary judgment on the grounds that Plaintiff failed to establish a prima facie case under either statute, as Plaintiff could not hold an objectively reasonable belief that Defendant’s alleged actions would cause it and its shareholders to suffer significant losses. The district court granted Defendant summary judgment and Plaintiff appealed.
On July 27, 2017, the SEC announced that it was paying a $1.7 million bounty award to a whistleblower, even though the whistleblower: (1) had some culpability in the fraud; (2) unreasonably delayed reporting the fraud; and (3) failed to comply with a Dodd-Frank rule requiring whistleblowers to submit inside information in writing in certain circumstances. The SEC did not provide the identity of the whistleblower or the company at issue.
On July 25, 2017, the Third Circuit allowed a plaintiff who was an in-house attorney to proceed with a whistleblower retaliation lawsuit under the New Jersey Conscientious Employee Protection Act (CEPA) based on its conclusion that CEPA protects attorneys from being discharged for refusing to violate Rules of Professional Conduct. Trzaska v. L’Oreal USA, Inc., 2017 U.S. App. LEXIS 13381 (3d Cir. July 25, 2017).
Background. Plaintiff was the former head of a regional patent team at the Company. As an attorney, he was bound by the Rules of Professional Conduct of both Pennsylvania (where he was admitted to practice law) and the United States Patent and Trademark Office (USPTO). Plaintiff oversaw the process by which the Company invented and applied for patents on products. He alleged that the Company had an annual minimum quota for patents and that with fewer invention disclosures being submitted to the patent team for vetting, his team could only improve their chances of reaching the quota by filing frivolous patent applications. Plaintiff allegedly complained of this to his superiors, noting that the filing of frivolous or bad-faith patent applications violates the USPTO Rules of Professional Conduct. Plaintiff further alleged that the Company responded by offering him the choice of severance or “go[ing] back to [his] office and get back to work.” His employment was subsequently terminated.
The U.S. District Court for the Northern District of Illinois recently granted a Rule 12(b)(1) and (6) motion to dismiss a former employee’s complaint alleging retaliation under the Illinois Whistleblower Act (“IWA”). Huang v. Fluidmesh Networks, LLC, No. 16-cv-9566 (N.D. Ill. July 18, 2017).
Background. Plaintiff was a Supply Chain and Manufacturing Manager for Defendant. He alleged that Defendant’s Chief Technology Officer (“CTO”) falsely told a third party that a publicly-traded client intended to purchase Defendant. Plaintiff alleged that because he thought this allegedly false information could impact the client’s stock price, he reported it to his direct supervisor, the CTO and the CTO’s supervisor. Plaintiff claims that he told these individuals that the disclosure of the information was “illegal” and that he would report the violation to the appropriate authorities. Plaintiff’s employment was terminated subsequent to his internal reports and he alleged that he received no explanation as to the basis for the termination.
The United States District Court for the Western District of Tennessee recently emphasized the limited scope of what constitutes protected activity under the Dodd-Frank Act’s (the Act) whistleblower protection provision, noting that the Act protects only “certain kinds of whistleblowers who report certain kinds of violations.” Boyle v. Evolve Bank & Trust et al, No. 16-02171, 2017 U.S. Dist. LEXIS 111964 (W.D. Tenn. July 19, 2017). Continue Reading
In a recent decision, the U.S. District Court for the Western District of Wisconsin held that Dodd-Frank whistleblower claims (Section 922 claims) are subject to mandatory arbitration. Wussow v. Bruker Corp., No. 16-CV-444-WMC, 2017 WL 2805016 (W.D. Wis. June 28, 2017).
In Wussow, upon his hire, the plaintiff executed an arbitration agreement in which he “agree[d] that any and all controversies, claims, or disputes with anyone . . . arising out of, relating to, or resulting from [his] employment with the Company or the termination of [his] employment with the Company . . . shall be subject to binding arbitration.” Id. at *2. The plaintiff alleged that he discovered that certain company employees were engaging in improper and possibly fraudulent revenue recognition practices that potentially violated company policy, SEC rules, and federal law. After he reported this conduct, he alleged that the company and the individual supervisory defendants retaliated against him by stripping him of critical job functions and, ultimately, by terminating his employment. Wussow filed claims under the Sarbanes-Oxley Act (“SOX”) and the Dodd-Frank Act, 15 U.S.C. § 78u-6, alleging that the defendants retaliated against him for engaging in the protected whistleblowing activity.
The court noted, and the defendants admitted, that the arbitration agreement could not be enforced as to plaintiff’s SOX claim because the Dodd-Frank Act’s amendments to SOX state that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” 18 U.S.C. § 1514A(e)(2). The court pointed out, however, that “[i]ronically enough . . . a similar cause of action for whistleblower retaliation under Dodd-Frank (15 U.S.C. § 78u-6(h)(1)) includes no express anti-arbitration provision.” Wussow, 2017 WL 2805016 at *1 (emphasis in original).
Notwithstanding the absence of any anti-arbitration provision in Dodd-Frank itself, Wussow argued that his Dodd-Frank claim, like his SOX claim, was exempt from his arbitration agreement because it too “arises under” SOX. The court rejected that argument and held that the plaintiff was required to arbitrate his Dodd-Frank retaliation claim.
The Wussow court is not the first court to address this issue. Indeed, the Third Circuit Court of Appeals is among the courts to have held that mandatory arbitration clauses are enforceable with respect to whistleblower retaliation claims arising under the Dodd-Frank Act. See Khazin v. TD Ameritrade Holding Corp., 773 F.3d 488, 495 (3d Cir. 2014).
On July 6, 2017, the U.S. District Court for the Eastern District of Pennsylvania dismissed a whistleblower claim after determining that the plaintiff did not qualify as a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Reyher v. Grant Thornton, LLP, No. 16-1757 (E.D. Pa. July 6, 2017).
The plaintiff, Ann Marie Reyher, is a Certified Public Accountant that was hired as a Managing Director in Grant Thornton’s Philadelphia office. Reyher allegedly discovered accounting irregularities within the statements and filings of certain Grant Thornton clients and complained internally to Grant Thornton administrators that such irregularities “amounted to bank fraud, mail fraud, wire fraud, and/or fraud against shareholders.” Notably, none of the clients implicated in Reyher’s allegations were publicly traded companies. After seven weeks, Reyher was terminated by the organization. Reyher alleged that the termination was retaliation for her internal complaints about the accounting irregularities and her refusal to participate in such activities, in violation of section 922 of Dodd-Frank.
The Eastern District of Pennsylvania dismissed Reyher’s Dodd-Frank whistleblower claim with prejudice, as Reyher did not qualify as a whistleblower. Section 922 of Dodd-Frank lists the different types of whistleblower disclosures that are protected, one being those protected under the Sarbanes-Oxley Act of 2002 (“SOX”). Reyher alleged that her complaints were protected under SOX, specifically 18 U.S.C. § 1514A, titled “Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud.”
However, Reyher’s complaints only involved non-publicly traded entities (partnerships, S corporations, private corporations, individuals, etc.). She failed to allege that there was any connection between Grant Thornton’s work for their publicly traded company clients and her internal complaints. While Reyher argued that § 1514A applied because Grant Thornton was a contractor to other publicly traded companies, the court explained that “a purported whistleblower employed by a private company cannot invoke the protections of § 1514A simply because her employer happens to contract with public companies on matters unrelated to the whistleblowing” and that “the connection between Grant Thornton and its public company clients is little more than a coincidence.”
The remaining state law claims were then dismissed without prejudice.
The decision aligns with a Gibney v. Evolution Marketing Research, LLC, another case in the Eastern District of Pennsylvania that refused to extend the scope of SOX to scenarios where the reported fraud is tangentially related to a publicly traded company. 25 F. Supp. 3d 741 (E.D. Pa. 2014). Also notable is that the court refused address the question of whether an employee who only reports violations internally may qualify as a whisteblower under Dodd-Frank. There is currently a circuit split on this issue and the Third Circuit has not yet addressed this question.
On June 26, 2017, the U.S. Supreme Court agreed to review whether individuals who do not report alleged securities law violations to the U.S. Securities and Exchange Commission are “whistleblowers” protected by the anti-retaliation provision of the Dodd-Frank Act. Somers v. Digital Realty Trust, Inc., 850 F.3d 1045 (9th Cir. 2017), cert. granted, No. 16-1276 (U.S. June 26, 2017).
As previously reported here and here, the Ninth Circuit in Somers held that Dodd-Frank’s anti-retaliation provision extends to individuals who make internal complaints even if they do not complain to the SEC. The Ninth Circuit joined the Second Circuit that similarly held in Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015) that a Dodd-Frank “whistleblower” need not report an alleged unlawful violation to the SEC. This is in direct contrast to the Fifth Circuit’s decision in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013) that reached the opposite conclusion. On April 25, 2017, Digital Realty Trust requested the U.S. Supreme Court’s review of the Somers decision, and several organizations and national associations filed amicus curiae briefs urging the Court to grant certiorari. Represented by Proskauer, the Chamber of Commerce of the United States of America submitted its amicus brief in support of review on May 25, 2017.
Having passed on the opportunity to address this issue in Verble v. Morgan Stanley Smith Barney, LLC., No. 16-946 (6th Cir. 2017), the U.S. Supreme Court has now decided to resolve this important question.
On June 7, 2017, the U.S. District Court for the Northern District of Illinois dismissed a whistleblower retaliation claim under the Dodd-Frank Act because the plaintiff failed to report his complaint of alleged securities violations to the SEC. Martensen v. Chicago Stock Exchange, Case No. 17-cv-1494 (N.D. Ill.) (Shadur, J.)
Plaintiff worked as a supervisor at the Chicago Stock Exchange’s Market Regulation Trading Examinations Unit. He alleged that his employment was terminated in violation of Dodd-Frank’s whistleblower protection provision after he complained to his superiors regarding alleged securities violations.