October 23, 2017

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Ninth Circuit Affirms Dismissal Of Dodd-Frank Whistleblower Case, Using Securities Fraud Standard

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 faciecase 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.

Ninth Circuit’s Ruling.  The Ninth Circuit affirmed the district court’s ruling, concluding Plaintiff failed to show that she engaged in protected activity under SOX or Dodd-Frank.  The court began with the premise that “to have an objectively reasonable belief there has been shareholder fraud, the complaining employee’s theory of such fraud must at least approximate the basic elements of a claim of securities fraud.”  According to the court, Plaintiff failed to make this showing, as she only complained that Defendant violated OFCCP rules and regulations and misclassified her and others as independent contractors.  The Ninth Circuit clarified that “OFCCP regulations are not themselves protected under SOX or Dodd-Frank, and no objectively reasonable basis existed to believe that any such violations would cause [Defendant] and its shareholders to suffer significant losses, as required to establish a prima facie case of reasonable belief in shareholder fraud.”  The court also held that “the misclassification of a single employee as an independent contractor falls far short of the materiality standard for shareholder fraud.”  The court also found that Plaintiff had not actually changed OFCCP-related data so there was no shareholder fraud.

Implications.  This is a valuable win for employers faced with SOX and Dodd-Frank whistleblower retaliation claims alleging protected activity based on shareholder fraud because it stresses the need to at least approximate the basic elements of a claim of securities fraud and enables employers to capitalize on a lack of materiality in particular.

© 2017 Proskauer Rose LLP.


About this Author

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

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....

Pietro Deserio, Labor, Employment Attorney, Proskauer Law Firm

Pietro Deserio is an associate in the Labor & Employment Law Department. He is a member of the Non-Compete and Trade Secrets Group and has represented clients in sensitive and significant trade secret and employment matters.