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N.D.N.Y. Refuses to Dismiss Dodd-Frank Whistleblower Claim

The Northern District of New York recently denied a Rule 12(b)(6) motion to dismiss a former employee’s Dodd-Frank whistleblower retaliation claim, finding that the plaintiff sufficiently alleged that he had an objectively reasonable belief with respect to alleged securities violations and causation.  McManus v. Tetra Tech Construction, Inc., No. 16-cv-894 (May 11, 2017).

Background.  Plaintiff was the former Director of Business Development of the Company’s wind power division.  He had experience in tracking project costs and approving project contracts.  Additionally, through his participation in the Company’s leadership program, Plaintiff learned about the Company’s accounting process for reporting losses from high-ranking employees and accounting personnel.  Specifically, Plaintiff was concerned that the Company delayed reporting losses to inflate the appearance of profitability and subsequently its stock price.  In July 2014, Plaintiff met with an Executive Vice President (EVP) to discuss his alleged concerns that the Company’s accounting practices did not comply with federal securities law.  Approximately two months later, Plaintiff sent an email to the EVP and the Human Resources Director further detailing his alleged concerns regarding accounting practices.  Within an hour of sending the email, Plaintiff received a call from another official allegedly informing him that that he “had no future” at the Company.  Although Plaintiff received an apology, he was notified that his employment would be terminated at the end of January 2015.  Plaintiff’s termination became finalized approximately two months later.

Rulings.  Plaintiff filed suit in the Northern District of New York under Dodd-Frank, claiming he was retaliated against for protected whistleblowing.  The Company moved to dismiss pursuant to Rule 12(b)(6), arguing that Plaintiff failed to sufficiently plead that his termination was caused by his raising concerns of potential securities law violations, and that he failed to show that his belief of accounting fraud was objectively reasonable. The district court denied the motion.  First, the court stressed that the termination occurred several months after the protected activity and that Plaintiff was told he “had no future” with the Company just an hour after raising concerns.  According to the court, this temporal proximity supported “an inference of causation at the motion-to-dismiss stage[.]”  Second, the court determined that Plaintiff adequately demonstrated that he possessed an objectively reasonable belief that the Company violated securities laws.  The court found that “[a]lthough [Plaintiff] is not an accountant[,]” his concerns were not “unduly speculative” due to his experience and conversations with high-ranking Company officials.  Despite the fact that a jury may ultimately disagree that the Plaintiff’s belief was reasonable, the court could not “choose between competing explanations on a 12(b)(6) motion.”

Implications.  There is still a chance that the defendant may prevail later in this litigation, but this case shows that courts may rely on temporal proximity at the motion to dismiss stage and may defer questions bearing on the objective reasonableness of a plaintiff’s belief to the summary judgment stage.

© 2017 Proskauer Rose LLP.

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About this Author

Steven J Pearlman, Labor Employment Law Firm, Proskauer Law firm
Partner

Steven Pearlman is a partner in the Labor & Employment Law Department and co-head of the firm's Whistleblowing & Retaliation Group, resident in the Chicago office. Steven’s practice focuses on defending complex employment litigation involving claims of discrimination and harassment, wage-and-hour laws and breaches of restrictive covenants (e.g., non-competition agreements). He has successfully tried cases to verdict before judges and juries in Illinois, Florida and California, and defended what is reported to be the largest Illinois-only class action in the history of the U.S....

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Associate

Marissa A. Mastroianni is an associate in the Labor & Employment Law Department.

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