The Eastern District of Tennessee recently dismissed whistleblower claims, finding that the Plaintiff was not entitled to protection under Sarbanes-Oxley, Dodd-Frank, or the False Claims Act (“FCA”).  Verble v. Morgan Stanley Smith Barney LLC et al., 3:15-cv-00074 (E.D. Tenn. Dec. 8, 2015).  The court’s decision illustrates the sharp divide amongst courts regarding the scope of Dodd-Frank’s whistleblower protection provision.

Background

Plaintiff was a financial advisor at Morgan Stanley’s Knoxville, Tennessee branch. After he was hired in 2006, he became suspicious that the Company and some of its clients were involved in illegal activities.  Plaintiff reported information to the FBI and later became a confidential informant.  After his termination in June 2013, Plaintiff for the first time contacted the SEC about alleged insider trading.  Thereafter, he filed suit, asserting claims under Sarbanes-Oxley, Dodd-Frank and the False Claims Act (“FCA”), alleging that that he was retaliated against for providing information to federal authorities regarding alleged unlawful activities.

Ruling

The court dismissed all of the Plaintiff’s whistleblower claims.  First, it dismissed Plaintiff’s Sarbanes-Oxley claim because he failed to file a complaint with the U.S. Department of Labor within 180 days of his termination.  Second, the court dismissed Plaintiff’s FCA claim, finding that the complaint did not adequately allege facts to support the allegation that he had engaged in protected activity under the FCA.

Finally, the court dismissed Plaintiff’s Dodd-Frank retaliation claim because he did not provide the SEC with information prior to his termination.  Significantly, the court rejected Plaintiff’s argument that whistleblower protection under Dodd-Frank may be invoked by reporting information to any federal agency (in Plaintiff’s case, the FBI).   Further, the court declined to defer to recently promulgated regulations by the SEC stating that Dodd-Frank’s whistleblower provision covers internal complaints, finding  that Dodd-Frank’s definition of “whistleblower” is unambiguous and only covers employees who complain to the SEC.   In so holding, the court declined to follow the Second Circuit’s recent opinion in Berman v. Neo@Ogilvy, ruling that (i) construing Dodd-Frank with its “unambiguous, plain text” would not controvert the statutory scheme and (ii) the lack of legislative history is “telling” because the court should presume that, in defining the term “whistleblower”, Congress meant “what [the statute] says.”

Implications

Courts across the United States have issued contrary opinions about whether an employee must provide information to the SEC to qualify as a “whistleblower” under Dodd-Frank’s anti-retaliation provision.   As we have previously reported, the Second and Fifth Circuits have reached contrary conclusions on this issue, and district courts outside of those circuits are similarly divided.   Because Neo@Ogilvy has declined to appeal the Second Circuit’s opinion to the Supreme Court, it is possible that the Sixth Circuit may seize upon this opportunity to address the issue.

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