Federal Court Decisions Permit Two Dodd-Frank Whistleblower Cases to Proceed



Two federal district courts recently issued decisions adopting a broad interpretation of the anti-retaliation provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and allowed Dodd-Frank whistleblower claims to proceed past motions to dismiss. Significantly, these cases stand for the proposition that to be protected as a whistleblower under the retaliation provision of Dodd-Frank, an individual does not have to meet the definition of a whistleblower for purposes of obtaining a bounty under Dodd-Frank and in particular, does not necessarily have to make a disclosure to the Securities and Exchange Commission (the “SEC”) in the manner required in connection with the bounty provision of the statute. While the issue is far from settled as Dodd-Frank retaliation cases are just beginning to work their way through the federal courts, these decisions could contribute to further increases in the number of Dodd-Frank whistleblower retaliation claims filed against employers.

Kramer v. Trans-Lux Corp., No. 3:11-cv-01424-SRU, 2012 WL 4444820 (D. Conn. Sept. 25, 2012)

In Kramer v. Trans-Lux Corp., the plaintiff commenced an action against his employer in the U.S. District Court for the District of Connecticut, claiming that his employment had been terminated in violation of the Dodd-Frank anti-retaliation provision after he reported to his employer’s board of directors and the SEC that he believed that his supervisors had violated the company’s pension plan. 2012 WL 444820, at *1. The defendant moved to dismiss the Dodd-Frank claim, arguing that the plaintiff had failed to make a disclosure to the SEC in a manner required by the SEC, and therefore, the plaintiff had failed to satisfy the definition of a “whistleblower” under the Dodd-Frank anti-retaliation provision. Id. at *3. More specifically, the defendant argued that the SEC’s regulations require that a “whistleblower” must report issues to the SEC in a specified manner, and the plaintiff had failed to report to the SEC in that manner. Id. at *5. The plaintiff argued in response that the Dodd-Frank anti-retaliation provision covers any individual who makes a disclosure required or protected by the Sarbanes-Oxley Act (“SOX”) or the Securities and Exchange Act of 1934 (the “1934 Act”), even if the individual had not made the disclosure in a manner required under the definition of a “whistleblower.” Id. at *4. The court accepted the plaintiff’s argument, which was consistent with a recently-promulgated SEC rule; explained that the defendant’s proposed interpretation of Dodd-Frank would “dramatically narrow the available protections available to potential whistleblowers;” and held that the Dodd-Frank anti-retaliation provision protects individuals who make disclosures that are required or protected under SOX or the 1934 Act. Id. at *5. The court, therefore, denied the defendant’s motion to dismiss.

Ott v. Fred Alger Mgmt., Inc., 11 Civ. 4418-LAP (S.D.N.Y. Sept. 22, 2012)

In Ott v. Fred Alger Management, Inc., the plaintiff alleged, among other things, that her employer and related individuals and entities had violated the Dodd-Frank anti-retaliation provision by terminating her employment for reporting her employer’s allegedly unlawful trading policy to the SEC. The defendants moved to dismiss the Dodd-Frank whistleblower claim, arguing that the plaintiff’s disclosures to the SEC were not protected because: (1) she first reported these issues to the SEC before Dodd-Frank’s effective date; (2) the plaintiff’s disclosure to the SEC after Dodd-Frank’s effective date did not disclose “new” information; and (3) the SEC previously had stated in a comment that the Dodd-Frank anti-retaliation provision applies only to new information—as opposed to information previously disclosed to the SEC. Id. at 7-8.

The court rejected the defendants’ arguments, pointing out that the SEC’s comments were made in the context of the “bounty” provision of Dodd-Frank, and holding that the anti-retaliation provision of Dodd Frank does not require an individual to provide “original information.” Id. at 8. The court also went on to hold that the plaintiff had alleged sufficient facts, for purposes of the motion to dismiss, to establish that she had a reasonable belief that her firm’s trading policy violated the securities laws. Id. at 10-11.