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S.D.N.Y. Dismisses Dodd-Frank Whistleblower Claim Because Retaliation Claims Were Already Arbitrated

The Southern District of New York recently dismissed Dodd-Frank whistleblower retaliation claims brought by an employer’s ex-President and an ex-Director pursuant to Rule 12(b)(6) on res judicata grounds, determining that retaliation claims had already been decided in arbitration and that the Dodd-Frank claims filed in federal court for the first time were therefore barred. Wendt v. The BondFactor Co. LLC, No. 16-cv-7751 (S.D.N.Y. Aug. 2, 2017).

Background. Plaintiffs allegedly complained to the Company’s Chief Risk Officer, the Chairman of the Finance Committee and Risk Subcommittee, and a member of the Audit Committee that the CEO had improperly expended investor funds and directed the Company to pay finder’s fees to an unlicensed individual acting as a broker-dealer. A month later, they met with the CEO to discuss his alleged conduct and their employment was subsequently terminated. They proceeded to arbitration, filing a claim of retaliation under the New York Labor Law (NYLL) (among other claims).

Rulings. The arbitrator dismissed the NYLL retaliation claim and Plaintiffs later filed a Dodd-Frank whistleblower retaliation claim in the Southern District of New York. The Company moved to dismiss the Dodd-Frank claim pursuant to Rule 12(b)(6), arguing that it was barred by the doctrine of res judicata. The court noted that Dodd-Frank whistleblower retaliation claims are arbitrable, and then concluded that “[t]he facts in support of the plaintiffs’ Dodd-Frank retaliation claims are related in time, space, and origin to the facts alleged in the Demand and adjudicated during the arbitration.” Thus, according to the court, Plaintiffs could have pursued the Dodd-Frank retaliation claim in arbitration, and the court therefore granted the motion to dismiss.

Implications. This decision is yet another pronouncement that Dodd-Frank whistleblower retaliation claims are subject to arbitration and shows that the adjudication of retaliation claims in arbitration may bar Dodd-Frank claims subsequently filed in federal court.

© 2018 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....

Law Clerk

Brett Schwab is a law clerk in the Labor & Employment Law Department.

While attending the University of Pennsylvania Law School, Brett served as the Co-President of the Entertainment & Sports Law Society. Brett was also a Senior Editor for the Journal of Business Law and a Senior Advocate for the Employment Advocacy Project.

Brett’s professional experience includes placements with the Philadelphia 76ers, Wells Fargo Bank, and Comcast-Spectacor. His ideas on NBA Draft Lottery reform have been published on the popular analytics website FiveThirtyEight.