Take Heart, Companies Can Win Whistleblower Cases: Two Key Victories Last Week In SOX And Dodd-Frank Cases

by Orrick - Securities Litigation and Regulatory Enforcement Group
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https://jdsupra-html-images.s3-us-west-1.amazonaws.com/c4dc43fa-6216-4421-84d5-3f6bc719e56a-iStock_000006167953XSmall-200x150.jpgTwo victories for employers last week in Dodd-Frank and SOX whistleblower cases may provide a basis for at least a sliver of optimism among employers and whistleblower defense lawyers hammered by a recent series of employee-favorable decisions under the two main federal statutes covering whistleblowing activity.

Banko v. Apple

In Banko v. Apple Inc., Case No. 3:13-cv-02977-RS, a Northern District of California judge dismissed a Dodd-Frank retaliation claim where the employee only made a complaint internally to management and never complained to the Securities and Exchange Commission (SEC). The court followed the reasoning of the Fifth Circuit in Asadi v. G.E. Energy (USA), L.L.C. (see Orrick’s prior blog post on Asadi) and rejected a broader interpretation of the Act adopted by four district courts and the SEC that Dodd-Frank covers internal reporting protected by the Sarbanes-Oxley Act (SOX) as well as reports to the SEC.

As in Asadi, the district court found that the statutory text of Dodd-Frank’s anti-retaliation provision is unambiguous, and that a private right of action under Dodd-Frank is only available to individuals who meet the Act’s definition of “whistleblower.” The Act defines whistleblower as an individual who provides information to the SEC.

The court rejected the reasoning of the other district court decisions relying upon the SEC regulation which provides that an individual may be a whistleblower if he or she reports to persons other than the SEC. The court explained that deference to regulations is only warranted if the statute is ambiguous on its face, which here it was not, and also pointed out a lack of authority suggesting that the SEC regulation was issued because of any statutory ambiguity.

The district court also noted that the plaintiff had other options to secure anti-retaliation protection in the absence of a Dodd-Frank remedy, such as filing a Sarbanes-Oxley complaint with the Secretary of Labor within 180 days of the alleged violation.

This decision is an important victory for employers and whistleblower defense attorneys after a string of unfavorable district court decisions allowed Dodd-Frank claims to proceed even though the employee did not report directly to the SEC.

Wallace v. Tesoro

In Wallace v. Tesoro, Case No. 5:11-cv-00099-FB, Orrick scored a rare victory on a motion to dismiss before discovery for its client Tesoro on a SOX claim in the Western District of Texas. Wallace claimed that he was terminated for reporting wire fraud relating to customer discounts, improper accounting of taxes as revenues, antitrust concerns, and retaliation to management. In a 2012 decision the court held that Wallace could not demonstrate protected activity with regard to the accounting, antitrust and retaliation claims, but granted Wallace leave to amend the complaint with respect to his wire fraud claims. On September 27, 2013, the District Court dismissed Wallace’s remaining claim on the ground of failure to exhaust administrative remedies before OSHA. The Court found that none of Wallace’s claims while before the agency “remotely suggested that he reasonably believed that Tesoro’s conduct constituted wire fraud. Wallace only alleged anti-trust violations.” Accordingly, the District Court dismissed the case in its entirety. Orrick’s 12(b)(6) victory in Wallace demonstrates that, even in the current whistleblower-friendly environment, SOX cases can still be won on well-pled dispositive motions.

 

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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