Second Circuit Adopts Broad Definition of “Whistleblower” in Dodd-Frank Retaliation Lawsuit

The Second Circuit Court of Appeals, whose jurisdiction includes New York City, issued a ruling in September 2015 that takes a broad view of whistleblower protections under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). Berman v. Neo@Ogilvy LLC, et al, No. 14-4626, slip op. (2d Cir., Sep. 10, 2015). Dodd-Frank protects individuals who report possible securities law violations from retaliation by their employers, but its definition of a whistleblower is ambiguous. The court resolved the ambiguity in favor of the employee. The ruling conflicts with a ruling from another circuit court, see Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), so the U.S. Supreme Court may have to weigh in at some point in the future.

Dodd-Frank created a “Whistleblower Program,” administered by the Securities and Exchange Commission (SEC), which provides incentives for individuals who report suspected violations of federal securities law. 15 U.S.C. § 78u-6. The law also states that an employer may not retaliate against an employee who makes a report. Id. at § 78u-6(h)(1).

Most statutes that prohibit retaliation in this manner address both internal reporting, such as to a compliance officer or human resources department, and external reporting, such as to a regulatory or law enforcement agency. Dodd-Frank, however, defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the [SEC]…” Id. at § 78u-6(a)(6). Given its plain meaning, the statute leaves people who report internally unprotected. This was the issue presented to the Second Circuit in Berman.

The plaintiff worked as the defendant’s finance director from October 2010 until April 2013. He alleges in his lawsuit that he discovered practices that he believed constituted accounting fraud in violation of Dodd-Frank, the Sarbanes Oxley Act of 2002 (“Sarbanes-Oxley”), and Generally Accepted Accounting Principles (GAAP). He reported his concerns internally and claims that the company terminated him shortly afterwards in April 2013. He later reported his allegations to the audit committee of the defendant’s parent company and the SEC.

In early 2014, the plaintiff filed suit for alleged retaliation in violation of Dodd-Frank. The U.S. District Court dismissed the lawsuit, finding that “the language of the statute unambiguously requires that a person provide information to the [SEC] in order to qualify as a whistleblower under [Dodd-Frank.]” Berman v. Neo@Ogilvy LLC, et al, No. 1:14-cv-00523, op. and order at 1 (S.D.N.Y., Dec. 4, 2014). Since the plaintiff had only reported the matter internally at the time he was terminated, the court held that his termination did not violate Dodd-Frank.

The Second Circuit reversed the lower court and remanded the case, holding that the plaintiff could qualify for protection against retaliation under Dodd-Frank. It noted that the SEC’s Rule 21F-2, promulgated in order to implement the Whistleblower Program, uses the same definition of “whistleblower” as the statute but also provides that an individual may be entitled to protection from retaliation even if they do not qualify for a whistleblower award. 17 C.F.R. § 240.21F-2(b)(1)(iii). The court also noted that the whistleblower definition in the statute included a “last-minute insertion” added shortly before the vote on the bill, which was responsible for the ambiguity. Berman, slip op. at 28. It accepted the SEC’s interpretation of the statute, citing the recent Supreme Court decision involving ambiguous language in the Affordable Care Act, King v. Burwell, 576 U.S. ___ (2015).

If you need to speak to an attorney about a whistleblower matter in New Jersey or New York, contact the Resnick Law Group online, at 973-781-1204, or at (646) 867-7997.

More Blog Posts:

New Federal Regulation Requires Businesses to Disclose CEO-to-Employee Pay Ratios, The New Jersey Employment Law Firm Blog, August 27, 2015
SEC Awards Maximum Damages to Whistleblower Under Dodd-Frank Act, The New Jersey Employment Law Firm Blog, July 23, 2015
Court Rules for Whistleblower Who Made Internal Report of Alleged Financial Violations, The New Jersey Employment Law Firm Blog, March 19, 2015

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