Ninth Circuit Affirms Dismissal Of Dodd-Frank Whistleblower Case, Using Securities Fraud Standard

Proskauer - Whistleblowing & Retaliation
Contact

The Ninth Circuit recently affirmed a grant of summary judgment in an employer’s favor, dismissing a SOX and Dodd-Frank whistleblower retaliation case based on the plaintiff’s lack of an objectively reasonable belief of violations of securities law.  Rocheleau v. Microsemi Corporation, Inc., 680 Fed. Appx. 533 (2017).

Background.  Defendant, a publicly traded company, hired Plaintiff as an independent contractor in 2006.  Plaintiff claimed that beginning in 2008, she began voicing concerns internally that Defendant misclassified her and others as independent contractors.  In addition, she began filing complaints with the government, including a complaint with the OFCCP on January 10, 2010, and she claimed she was asked to retroactively change hiring and recruiting data in violation of OFCCP regulations.  Her employment was subsequently terminated on February 17, 2010.  She then filed a lawsuit before the United States District Court for the Central District of California, claiming violations of the SOX and Dodd-Frank’s respective anti-retaliation provisions.  In support, she alleged that Defendant’s actions constituted fraud against its shareholders because they allegedly created an unreported risk factor to Defendant’s business and engaged in payroll tax fraud.  Defendant moved for summary judgment on the grounds that Plaintiff failed to establish a prima facie case under either statute, as Plaintiff could not hold an objectively reasonable belief that Defendant’s alleged actions would cause it and its shareholders to suffer significant losses.  The district court granted Defendant summary judgment and Plaintiff appealed.

Ninth Circuit’s Ruling.  The Ninth Circuit affirmed the district court’s ruling, concluding Plaintiff failed to show that she engaged in protected activity under SOX or Dodd-Frank.  The court began with the premise that “to have an objectively reasonable belief there has been shareholder fraud, the complaining employee’s theory of such fraud must at least approximate the basic elements of a claim of securities fraud.”  According to the court, Plaintiff failed to make this showing, as she only complained that Defendant violated OFCCP rules and regulations and misclassified her and others as independent contractors.  The Ninth Circuit clarified that “OFCCP regulations are not themselves protected under SOX or Dodd-Frank, and no objectively reasonable basis existed to believe that any such violations would cause [Defendant] and its shareholders to suffer significant losses, as required to establish a prima facie case of reasonable belief in shareholder fraud.”  The court also held that “the misclassification of a single employee as an independent contractor falls far short of the materiality standard for shareholder fraud.”  The court also found that Plaintiff had not actually changed OFCCP-related data so there was no shareholder fraud.

Implications.  This is a valuable win for employers faced with SOX and Dodd-Frank whistleblower retaliation claims alleging protected activity based on shareholder fraud because it stresses the need to at least approximate the basic elements of a claim of securities fraud and enables employers to capitalize on a lack of materiality in particular.

[View source.]

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.

© Proskauer - Whistleblowing & Retaliation | Attorney Advertising

Written by:

Proskauer - Whistleblowing & Retaliation
Contact
more
less

Proskauer - Whistleblowing & Retaliation on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.