2nd Circuit Says Dodd-Frank Protects Internal Whistleblowers
On Sept. 10, 2015, the 2nd Circuit issued its highly anticipated ruling in Berman v. Neo@Oglivy, finding that Dodd-Frank’s whistleblower protections cover those who only report their complaints internally before the alleged retaliation (without first going to the SEC). The 2nd Circuit ruling creates a conflict, as it is directly at odds with the 5th Circuit’s decision in Asadi v. G.E. Energy (USA) LLC, which we reported on earlier this year. This circuit split makes it more likely that the Supreme Court will address the question of whether pure internal reporting within a company triggers whistleblower protections under Dodd-Frank.
In Berman, the company’s finance director alleged he discovered various practices amounting to accounting fraud and reported them internally, which he claimed resulted in his termination. Notably, he did not report activity to the SEC until after his termination, which meant he could not rely on the SEC report as the basis for his retaliation claim. The district court dismissed the claim, reading Dodd-Frank (like the 5th Circuit did in Asadi) to only protect those who claim retaliation after reporting to the SEC. The 2nd Circuit disagreed, finding the Dodd-Frank whistleblower provision was ambiguous on the issue and giving deference to the SEC’s interpretation that the statute protects internal whistleblowers. The Berman ruling makes Dodd-Frank consistent with Section 806 of the Sarbanes-Oxley Act, which expressly protects internal whistleblowers.
An ultimate Supreme Court resolution of this issue could significantly alter the landscape for securities whistleblowers nationwide. If the high court sides with the Berman decision, whistleblowers beyond the Second Circuit will likely have more incentive to bring claims under Dodd-Frank than under Sarbanes-Oxley’s Section 806. Among other things, Dodd-Frank whistleblowers are eligible for potentially large bounty awards, have a longer timer period to bring a claim, and can sue directly in federal district court rather than having to first exhaust administrative remedies (as required for Sarbanes-Oxley whistleblowers). Further, successful Dodd-Frank whistleblowers may recover larger awards, up to double back-pay plus attorney’s fees. On the other hand, if the high court sides with the Asadi ruling, then internal whistleblowers beyond the 5th Circuit will be constrained to the administrative process and relief available under Sarbanes-Oxley.