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California Federal Court Adds to Debate over Scope of Dodd-Frank Act Anti-Retaliation Protection

In a decision perhaps overshadowed by the Second Circuit’s subsequent decision in Berman v. Neo@Ogilvy LLC, 14-4626 (2d Cir. Sept. 10, 2015) two days later, a district court in California has added to the growing split among federal courts on the scope of the Dodd-Frank Act’s anti-retaliation provision. In Davies v. Broadcom Corporation, 2015 U.S. Dist. LEXIS 122812 (C.D. Cal. Sept. 8, 2015), the U.S. District Court for the Central District of California dismissed the plaintiff’s DFA whistleblower claim, finding she was not a “whistleblower” under the Act as she had not contacted the Securities and Exchange Commission. Just two days later, the Second Circuit Court of Appeals addressing the same issue in Berman, held contrary to both Davies and the only other Circuit Court decision on this issue, Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013).

In Davies, the plaintiff alleged, inter alia, her termination was in violation of the DFA anti-retaliation provision, 15 U.S.C. § 78u-6(h)(1)(A), for conducting internal investigations as part of her job responsibilities. Her former employer moved to dismiss the DFA claim, arguing the plaintiff did not qualify as a whistleblower because she had not provided any information to the SEC. The plaintiff responded that the SEC’s regulations under the DFA interpret “whistleblower” to include anyone who engages in any of the activities described in the anti-retaliation provision, regardless of whether the person had contacted the SEC. The Fifth Circuit had previously rejected this argument in Asadi.

The court likewise rejected the plaintiff’s argument and the SEC’s regulatory interpretation of the DFA’s anti-retaliation provision. The court held that in order to receive protection under Dodd-Frank’s whistleblower anti-retaliation provision, a plaintiff must have reported a violation to the SEC. It determined the statute unambiguously rendered the SEC’s 2011 regulation an invalid exercise of its authority and was therefore not entitled to deference.

The district court concluded that the SEC’s interpretation of the term – an interpretation followed by a majority of district courts – rendered part of the anti-retaliation provision superfluous. The Davies court reasoned the statute’s definition of “whistleblower” relates to who is protected, while the specific anti-retaliation provisions in 15 U.S.C. § 78u-6(h)(1)(A) relate to what activities are protected. Of the three delineated activities, the court reasoned that the first two offer whistleblowers protection against retaliation for aiding the SEC. The third, addressing activities protected under the Sarbanes-Oxley Act, “ensures that those who report to the SEC are also protected from retaliation for certain internal reporting.” As the court stated:

“[T]he Court trusts that when Congress explicitly defines a term in a statute, it intends that definition to govern the use of the   term. Such an intent is even more apparent in a notably short section of the statute. Here, if Congress wanted Section 78u-6(h)(1)(A) to apply to any person engaged in the listed activity, rather than only to statutorily defined “whistle blowers,” it would have used the term “any person.” Or “employee,” or “individual,” or one of many other alternatives.”

Accordingly, the court determined the plaintiff did not qualify as a whistleblower under the DFA and dismissed her claim under the Act.

Just two days later, the Second Circuit, in Berman, rejected Asadi, finding the DFA anti-retaliation provision ambiguous and concluding the SEC’s regulatory interpretation was an acceptable interpretation to resolve this ambiguity.

Litigation on this issue likely will continue in federal courts, perhaps ultimately landing before the U.S. Supreme Court.

Jackson Lewis P.C. © 2020National Law Review, Volume V, Number 274


About this Author

Joseph C. Toris, Confidentiality, non-competition agreement, restrictive covenants, Jackson LEwis Law Firm
Of Counsel

Joseph C. Toris is Of Counsel in the Morristown, New Jersey, office of Jackson Lewis P.C. He is experienced with complex issues surrounding employee disloyalty, enforceability of confidentiality and non-competition agreements, and other restrictive covenants. Mr. Toris regularly participates in emergent matters seeking to impose or defend against the imposition of restraints in the state courts of New Jersey.

He is also experienced with Sarbanes-Oxley issues including the defense of whistleblower claims under the Act. Mr. Toris also assists clients in the...

Eliza L. Lloyd, Jackson Lewis, Appellate Division Lawyer, Employment Litigation Attorney

Eliza Lloyd is an Associate in the Morristown, New Jersey, office of Jackson Lewis P.C.

While attending law school, Ms. Lloyd was a member of the Seton Hall Law Review and was a Summer Associate at Jackson Lewis. She was the recipient of a Chancellor Scholarship and the ABA/BNA Award for Excellence in Labor/Employment Law.

Prior to joining the firm as an Associate, Ms. Lloyd clerked for the Honorable Jose L. Fuentes, Presiding Judge, New Jersey Superior Court, Appellate Division.