Fifth Circuit Defines "Whistleblower" Narrowly Under Dodd-Frank

by Orrick - Securities Litigation and Regulatory Enforcement Group
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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 decisions 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 SEC1

The Statute

Dodd-Frank’s whistleblower provision, 15 U.S.C. § 78u-6, defines the term "whistleblower" as "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.”  

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 did not owe 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. The court explained that individuals would be unlikely to file SOX anti-retaliation claims, with their administrative exhaustion requirement, much shorter statute of limitations, and more limited damages, if Dodd-Frank’s anti-retaliation provision also covered 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.

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).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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