On July 17, 2013, the Fifth Circuit issued the first circuit
court decision interpreting Dodd-Frank’s anti-retaliation provision. In Asadi
v. G.E. Energy (USA), L.L.C., the Fifth Circuit held that,
to be protected under Dodd-Frank’s anti-retaliation provision, an
individual must be a “whistleblower,” which is defined by the statute as an
individual who has made a report to the SEC. Notably, this holding
directly conflicts with the SEC’s regulations interpreting the Act, as well
as five district court decisions1 that had all held that
employees who make internal reports to company management are protected
under Dodd-Frank even if they did not make reports to the SEC. Rejecting
these analyses, the Fifth Circuit based its decision on the plain
wording of the statute, which it found to be unambiguous in protecting only
"whistleblowers" as defined by the Act.
The Statute
Dodd-Frank’s whistleblower provision, 15 U.S.C. § 78u-6,
entitled "Securities whistleblower incentives and protection"
provides that the "[t]he term 'whistleblower' means any individual who
provides, or two or more individuals acting jointly who provide,
information relating to a violation of the securities laws to the Commission,
in a manner established, by rule or regulation, by the
Commission.” (emphasis added).
The anti-retaliation subsection of this provision, § 78u-6(h),
provides that “[n]o employer may…discriminate against, a whistleblower in the terms and
conditions of employment because of any lawful act done by the whistleblower–
(i) in
providing information to the Commission in accordance with this section;
(ii) in initiating,
testifying in, or assisting in any investigation or judicial or
administrative
action
of the Commission based upon or related to such information; or
(iii) in making
disclosures that are required or protected under the Sarbanes-Oxley Act of
2002 (15
U.S.C. § 7201 et seq.),
the Securities Exchange Act of 1934 (15 U.S.C.
§ 78a et seq.),
including section 10A(m) of such Act (15 U.S.C. § 78f(m)),
section
1513(e)
of title 18, United States Code, and any other law, rule, or regulation
subject to
the
jurisdiction of the Commission.
(emphasis added).
The Fifth Circuit’s Analysis
The Fifth Circuit explained that, when faced with questions of
statutory construction, “we must first determine whether the statutory text
is plain and unambiguous” and, “[i]f it is, we must apply the statute
according to its terms.” In addition, “in construing a statute, a court
should give effect, if possible, to every word and every provision Congress
used.”
Looking to Dodd-Frank’s definition of “whistleblower” and the use of that
term in the anti-retaliation provision, the court found that the plain text
of § 78u-6 unambiguously limits protection to individuals who provide
information “to the Commission.” A contrary interpretation would
impermissibly render the words “to the Commission” out of the definition of
“whistleblower” for purposes of the whistleblower protection provision. The
court held that it owed no deference to the SEC’s broader interpretation of
the anti-retaliation provision as covering internal reports to company
management because the statute was clear and unambiguous. Nor did it find
persuasive the district court cases holding that the anti-retaliation
provision covers internal reports of wrongdoing to company management in
light of the clear statutory language.
Finally, the court noted that to construe Dodd-Frank’s anti-retaliation
provision to extend beyond the statutory definition of “whistleblowers”
would render SOX’s whistleblower provision moot for practical purposes.
Individuals would be unlikely to file SOX anti-retaliation claims, with
their administrative exhaustion requirement, much shorter statute of
limitations, and more limited damages, instead of simply filing Dodd-Frank
claims, if Dodd-Frank’s anti-retaliation provision overlapped with SOX
in covering reports to company management. The court opined that this could
not have been the intent of Congress, which amended SOX to broaden its
protections at the same time it passed the new Dodd-Frank provisions.
Notably, the Fifth Circuit decided Asadi
on different grounds than the district court, which held that
Dodd-Frank’s anti-retaliation provision did not apply extraterritorially to
Asadi, who worked in Jordan. The Fifth Circuit did not address that
issue on appeal, resting its decision solely on the definition of
whistleblower under the statute.
Implications for Employers
The Fifth Circuit’s decision is spot on in its analysis, and is
a welcome development for employers and defense side whistleblower
attorneys who have all along argued that Dodd-Frank’s anti-retaliation
provisions were clear in only applying to “whistleblowers” who report
concerns to the SEC. It remains to be seen if Asadi's persuasive analysis of the
definition of a whistleblower under Dodd-Frank’s anti-retaliation
provision will be accepted by other courts of appeals. In the meantime, it
is clear that defendants in Dodd-Frank retaliation cases should continue to
challenge on a motion to dismiss claims by those who have not reported to
the SEC.
Contact
Us
For more information about this alert, please contact any of the
following lawyers or visit us at www.orrick.com/employment.
1Egan
v. TradingScreen, Inc., No. 10 Civ. 8202(LBS), 2011 WL 1672066 (S.D.N.Y. May 4,
2011); Kramer v. Trans-Lux Corp.,
No. 3:11cv1424 (SRU), 2012 WL 4444820 (D. Conn. Sept. 25, 2012); Nollner v. S. Baptist Convention, Inc.,
852 F. Supp. 2d 986, 995 (M.D. Tenn. 2012); Genberg v. Porter, --- F. Supp. 2d ----, 2013 WL
1222056, at *9 (D. Colo. Mar. 25, 2013); Murray
v. UBS Secs., LLC, No. 12 Civ. 5914(JMF), 2013 WL 2190084, at
*3-7 (S.D.N.Y. May 21, 2013).
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