Southern District of New York Applies Dodd-Frank Section 929A Retroactively

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[authors: William M. Regan, Joseph E. Gallo]

The U.S. District Court for the Southern District of New York recently addressed the question of whether Section 929A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) applied retroactively to whistleblower claims under Section 806 of the Sarbanes-Oxley Act.

Plaintiff, Phillip Leshinsky, was an employee of a subsidiary of a publicly traded company, Telvent GIT, and was terminated in July 2008. Leshinsky alleged that he was terminated for raising objections to a proposal to use fraudulent information in connection with a bid for a contract with the MTA. Leshinsky alleged that his termination was a violation of the whistle-blower protections provided by Section 806 of the Sarbanes-Oxley Act. Leshinsky’s employer argued that the court lacked subject matter jurisdiction over the case because Section 806 applied only to publicly traded companies and not their wholly owned subsidiaries.

The court held that it did have subject matter jurisdiction over the case under Section 806 of the Sarbanes-Oxley Act, as amended by Section 929A of the Dodd-Frank Act. In 2010, the Dodd-Frank Act amended Section 806 to explicitly extend whistle-blower protections to certain subsidiaries of publicly traded companies. The court’s decision turned on the question of whether the Dodd-Frank amendment would apply to Leshinsky’s termination, which occurred two years before the amendment was passed.

The court examined the factors for determining whether a statute has retroactive application in the absence of a clear statement from Congress. Those factors are: (1) statement of legislative intent; (2) whether there was, before the amendment, conflict or ambiguity in either the statutory language or court decisions; and (3) whether the amendment is consistent with a reasonable interpretation of the prior enactment and its legislative history. The court then applied the relevant factors to determine whether Congress “merely made what was intended all along even more unmistakably clear.”

The court determined that the Dodd-Frank Act amendment’s legislative history suggests that it was passed to make clear that subsidiaries and affiliates of publicly traded companies may not retaliate against whistle-blowers. The court also found that the original statute was ambiguous, and that several courts had struggled with its application before the Dodd-Frank Act amendment. Finally, the court held the Dodd-Frank Act amendment was consistent with a reasonable interpretation of the original law. Accordingly, the court determined that the amendment should be applied retroactively to Leshinsky’s termination, and that the court had subject matter jurisdiction over his case.

Leshinsky v. Telvent GIT, S.A., No. 10 Civ. 4511 (S.D.N.Y. July 9, 2012).