November 19, 2019

November 19, 2019

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November 18, 2019

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Wisconsin Federal Court Follows 5th Circuit Asadi Decision, Dismisses Dodd-Frank Whistleblower Claim

The U.S. District Court for the Eastern District of Wisconsin in Verfuerth v. Orion Energy Systems, Inc., No. 14-cv-352 (E.D. Wis. Nov. 4, 2014) recently ruled that the Dodd-Frank whistleblower protection provision does not protect employees who only report alleged violations of the securities laws internally.  In dismissing a former CEO’s whistleblower retaliation claim, the court followed the Fifth Circuit’s decision in Asadi v. F.E. Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013) and held that the text of the statute requires that a “whistleblower” report an alleged violation to the SEC to be covered by Dodd-Frank’s whistleblower protection provision.

Fifth CircuitBackground

In his complaint, Plaintiff Neal Verfeurth (Plaintiff), the former CEO of Orion Energy Systems, Inc. (Company), alleged that he sent an e-mail to the Company’s board of directors about potential securities law violations.  That same day, the board allegedly terminated Plaintiff’s employment for cause due to misconduct that occurred prior to the email.  After the termination, Plaintiff allegedly sent a copy of his e-mail to an attorney at the SEC, and filed a lawsuit against the Company asserting a Dodd-Frank whistleblower retaliation claim.

Ruling 

The Company moved to dismiss Plaintiff’s complaint pursuant to Rule 12(b)(6) on the grounds that he did not complain to the SEC and thus was not a “whistleblower” under Dodd Frank.  Plaintiff argued that because there is a “conflict between the Act’s definition of whistleblower and the kinds of activity the statute protects,” the statute is “ambiguous.”  However, the court found that there is “no ambiguity in the statute at all” because the definition of “whistleblower” is “perfectly clear.”  The court stressed that “reporting to the SEC is the precondition that triggers the anti-retaliation protections of the statute” and that “the fact that the retaliation protections are broader than the definition of whistleblower does not create any ambiguity.” Id. at 6.  Notably, the court declined to follow other district court decisions holding that the statute does not require whistleblowers to make complaints to the SEC, explaining that those decisions were flawed because they are based upon public policy concerns, and did not strictly interpret the statute.

Implications

This decision is in line with the only circuit court decision to address the question of whether an individual must report directly to the SEC to receive whistleblower protection under Dodd-Frank.  This deepens the divide in district court decisions, a conflict we are continuing to monitor closely.  To illustrate, as we reported, a California district court recently declined to dismiss a whistleblower claim even though the plaintiff failed to report the alleged misconduct to the SEC.  It may be just a matter of time before this issue is considered by additional circuit courts.  Stay tuned …

© 2019 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....

312-962-3545
Lloyd B Chinn, Financial, Whistleblower Attorney, Proskauer Law Firm
Partner

Lloyd B. Chinn is a Partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd's practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

212-969-3341
Noa M Baddish, Labor and Employment Attorney, Proskauer Law Firm
Associate

Noa M. Baddish is an Associate in the Labor & Employment Department, resident in the New York office. She is a member of the Employment Litigation & Arbitration, Class and Collective, Employment Law Counseling & Training, and Whistleblower & Retaliation Groups.

212-969-3630