The Southern District of New York recently dismissed Dodd-Frank whistleblower retaliation claims brought by an employer’s ex-President and an ex-Director pursuant to Rule 12(b)(6) on res judicata grounds, determining that retaliation claims had already been decided in arbitration and that the Dodd-Frank claims filed in federal court for the first time were therefore barred. Wendt v. The BondFactor Co. LLC, No. 16-cv-7751 (S.D.N.Y. Aug. 2, 2017).

Background. Plaintiffs allegedly complained to the Company’s Chief Risk Officer, the Chairman of the Finance Committee and Risk Subcommittee, and a member of the Audit Committee that the CEO had improperly expended investor funds and directed the Company to pay finder’s fees to an unlicensed individual acting as a broker-dealer. A month later, they met with the CEO to discuss his alleged conduct and their employment was subsequently terminated. They proceeded to arbitration, filing a claim of retaliation under the New York Labor Law (NYLL) (among other claims).

Rulings. The arbitrator dismissed the NYLL retaliation claim and Plaintiffs later filed a Dodd-Frank whistleblower retaliation claim in the Southern District of New York. The Company moved to dismiss the Dodd-Frank claim pursuant to Rule 12(b)(6), arguing that it was barred by the doctrine of res judicata. The court noted that Dodd-Frank whistleblower retaliation claims are arbitrable, and then concluded that “[t]he facts in support of the plaintiffs’ Dodd-Frank retaliation claims are related in time, space, and origin to the facts alleged in the Demand and adjudicated during the arbitration.” Thus, according to the court, Plaintiffs could have pursued the Dodd-Frank retaliation claim in arbitration, and the court therefore granted the motion to dismiss.

Implications. This decision is yet another pronouncement that Dodd-Frank whistleblower retaliation claims are subject to arbitration and shows that the adjudication of retaliation claims in arbitration may bar Dodd-Frank claims subsequently filed in federal court.

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